Orsero S.p.A. (ORS) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Orsero 9 Months 2021 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Paolo Prudenziati, Chairman of Orsero. Please go ahead, sir.

Hi, Good morning to everybody. Before Matteo will tell you about the results of the company, I just would like to draw your attention on a couple of points. But first of all, of course, we are -- here we are with another consistent quarter of the year. This is a third quarter which is perfectly in line with the guidance we revised during the year for year 2021. So we are particularly happy about this. But I think from my point of view, I would like really to address a second item which deserve a credit to our top management of the decision we took at the beginning of the year to generate the kind of aseptic box for our banana business staying in a kind of standstill position, and particularly with the season not to attend to a couple of unacceptable price contracts on the tender of the banana business. So that was a kind of strategic decision in a way with some risk -- calculated risk that some of the sales would be -- will be lost. At the end of the 9 months, we see on the other hand that the Group has maintained the same kind of revenue. So that decision did not materialize in any group sales shrink. And on the top, we have been increasing our overall margin. So I think that was as an example of how important it is to take specific good decision from a management standpoint of view. Specifically, when you look at our competition results, a global company -- I don't mention the names, you know what I meant -- that they are showing really softening results on the banana business in a global business. That having said so, I pass the word to Matteo.

Hi, everybody. Thank you, Paolo, and Good morning, everybody. So let's get through what happened during this quarter and which is the situation year-to-date. I will make a resume on the corporate side. Obviously, COVID-19 is still on. So all things in here are still in place, adapting to the crisis evolution that is obviously slightly different from country to country, specifically when we're talking about our sourcing country in the south part of the world. Economic and financial response, supply chains is constantly monitored in order to manage the inflationary pressure and operational constraints due to the international maritime transport issues. As you probably know, the world is starting since 3, 4 months to suffer a container shortage and as a result, a surge in freight rates. This is something really new for the, let's say, a word that we were used to know because during the last, let's say, 10 years, the trend on the container side, both on volume and prices, were slightly down or sometimes really down. So it's a new condition and everybody is trying to adapt to the situation. Obviously, on this side, the Group has a really, really strong lag because we have our service, our 4 ships -- our 5 ships, actually, including the fifth ship we chartered. And for, let's say, the business that is more linked to the transportation issues, there is the banana and pineapple business because it's 12 months activity with, let's say, fixed prices or more or less prices that are stable over the year. This is really impactful. And there, we have a competitive advantage. Going to the working capital management. We are still focusing on it in order to optimize our net working capital, working a lot on credit collection and actually results are very good. CapEx are in line with our plan. So actually, we see -- we don't see any major diversity and, let's say, not alignment to our guidance on that side. So actually, we made minor recurring investment on distribution platform in Europe and some expansion CapEx that were already planned, specifically in Spain and in Sicily. M&A side, as you all know, we executed in October the acquisition of 50% of Agricola Azzurra. The cash consideration is EUR 7.3 million. Net financial position wise, you will see some EUR 10 million because of the IFRS 16 effect. It's an acquisition that is really strategic for us as we say in our official communication. We're starting to work together with our partner. And so far, so good; the first campaign on the domestic production seems to be really positive. The response of the market is really okay. So we just started, but we have a positive look on the acquisition we made. On the other side, we signed specifically one relevant contract for the next 2 years, is the fifth shift for the shipping activity. We decided strategically not to go year-on-year as we did over the past 3 years with the fifth ship, but to charter the fifth ship for 2 years. So we will be covered on 2022 and 2023 with the fifth ship. This is strategically really important because we see a long wave of shortage of achievement in the shipping activity and the result of it is a surging prices for the specialized refer ships as well. So we decided to stay long on our charter. On the other hand, going over one year of contract, we have to consider it as an IFRS 16 effect. So this is really important, both strategic-wise and accounting-wise because we will have to take in account roughly EUR 9 million on IFRS 16 effect. And obviously, we will have to consider that roughly 4.5 million EBITDA is going to be surging because it's not anymore an operating cost, but the -- I would say IFRS 16 depreciation. So then [ Eduardo ] will give you more, let's say, details about this issue. But anyway, I want to focus your attention on the strategic side because we will have -- we ensure that the fifth ships for the next 2 years. Going to business, the market context. In market context, fruit and vegetable consumption are still overall flat, but with mixed results among different products. The third quarter shows some sign of recovery after several months of lagging volumes, so compared to booming sales achieved last year. So actually, it's a strange counter figure to compare with. But actually, the comparison starting the end of the third quarter and what we're seeing in the fourth quarter that the situation is rebalancing and we're starting to compare situation that are slightly more similar. Actually, we will have to see now if our distribution country will stay out of lockdown and restriction as we all hope and think at the moment. Probably we will have something better in terms of the market condition compared with last year where you remember that beginning, let's say, mid of November, all the Europe started to have a different kind of restriction, but sometimes heavy restriction. Import and distribution business unit, as we say, the good sales in absolute value just slightly below 9 months of last year, but really positive if we compare it with, let's say, a regular year, 2019, is plus 5.2%. We remark the excellent growth that we experienced in France. Greece and Mexico recovered really well. Good sales in Spain, but lower sales in Italy and Portugal where, as Paolo Prudenziati said at the beginning, we decided not to participate to some, let's say, tenders -- relevant tenders on banana with some big retailers or discounters. So it's an effect we lost actually. The really important thing we have to highlight that we lost slightly EUR 25 million revenues compared with last year's in banana, and we almost recovered all these revenues, thanks to other products. And this is, let's say, something really, really, really important. It was our guidance and our forecast, but then being able to perform it is not like when you project it on the Excel spreadsheet. Volumes are all-in-all declining while the price/mix effect is positive. Good sales in kiwi, avocados, stone fruit, table grape, as we said, offset by declining basic products, banana, as we said, but even apple/pear and citrus that last year were really booming due to the pandemic situation. Fresh-cut that is a really important strategic issue for us is gaining a really good momentum and is leaping the pre-COVID levels and over pacing the market trend. We lost less than the market lost last year and were getting more than the market is regaining this year. Margin are really, really good. So it's something that really gives us a good feeling for the future. Adjusted EBITDA margin of 4% is unchanged versus last year, even if some fruit campaign were closed earlier than usual in the third quarter of 2021. Probably you remember it, we -- last year, we highlighted that the third quarter was really, really, really positive, but in terms of consumption in general, but specifically because of the fact that some important campaign closed earlier. So probably, we had some results of the fourth quarter anticipated in the third quarter. So this year, the situation is pretty normal. So we can expect a good performance in the fourth quarter. Shipping business unit that our CAM line is keeping a really high level of operational and economic performance with historically high loading factor. Actually, during the summer, as you know, the banana business is declining. So normally, July, August and September are 3 months with, let's say, slightly lower loading factor or sometimes lower loading factor compared to the other 3 quarters. But since a couple of years, thanks to some, let's say, strategic contracts and some operational activities, we are really able to maintain a very good loading factor. That's why normally, the third quarter is never the best one. But since a couple of years, we were able to, let's say, make something really good in the third quarter as well. We have to highlight that we have an over performance compared with what we forecast of revenues from the dry containers carried on the back haul. This is an effect given to the fact that, as you know, on the front haul, all the fruit we carry is made by contract year-on-year or sometimes with a 2-year contract with some clients. On the back haul, it's just an optimization. So we stay on the market. So we go with spot cargo. Obviously, if the market goes up, we follow the market. So talking about dry containers to market were really -- was really half since, let's say, May, June, and we follow the market. So the results were better. So as you -- then the result of all of it is an adjusted EBITDA margin that is going up to 23.6% compared with almost 19% of last year. This is, let's say, the overall situation. Then going to the, let's say, main figures as we say, net sales of 9 months are EUR 789 million, let's say, equal to last year and plus 5.4% compared to 2019. Adjusted EBITDA amounts to almost EUR 42 million, up to 6.6% or EUR 2.6 million compared with last year. If we make a comparison without IFRS 16 effect that actually it's an accounting effect, purely accounting effect, we have to highlight that the performance is better because it's plus 8.7% and EUR 2.9 million. So we have a 36.1% (sic) [ EUR 36.1 million ] adjusted EBITDA 2021. The margin stands at 5.3%, and the adjusted EBIT improved by EUR 1 million to EUR 21.2 million as a consequence mainly of the better operating performances. Adjusted net profit, it's up by EUR 2 million to EUR 15.3 million and the total equity as a result of the adjusted net profit mainly is EUR 173.7 million. Very good news on the net financial position, but excluding IFRS 16, is EUR 47.6 million net debt or EUR 75 million, including IFRS 16 liability with a EUR 28.2 million of improvement versus last year, due mainly to the positive operating cash flow generation and working capital management actions. As you see, the net financial position and adjusted EBITDA, excluding IFRS 16, that is straight and most important KPI that we look at, is almost one. So we have a very, very positive situation in terms of leverage of the group. If we go by business unit, as we said before, on the sales-wise, we are slightly down in distribution, but let's say, almost equal. And in the shipping, we're improving by 2.6% or EUR 1.9 million. So the mix is, let's say, slightly better sales that we're talking about 100 of euros. On the adjusted EBITDA, we are slightly lower year-to-date on the import and distribution, and we were doing so much better on shipping. We have to highlight that, as you know, there's a cross between the 2 business units because the imported distribution business unit is using the shipping activity. So there's -- let's say, on banana and pines, there's a clause for the shipping usage that is in line with all the other content and it uses bunker adjustment formula. Over the last 3, 4 months actually, as you know, the oil price boomed. So the bunker price grew a lot. So what happened at the end of the day, that some result of the shipping or a little decreasing of the imported distribution profitability is linked to the fact that the import of distribution paid a higher price to transfer bananas from Central America to Europe. So we really have to look, at the end of the day, our results as a whole because half of our shipping activity is serving the important distribution. So at the end of the day, what we really look is that our business model is really all together. So we're really happy about the overall performance. Last few words about the net profit. As you see the net profit is really, really good. It's improving a lot and we have, as a result of a better adjusted EBITDA, higher D&A and provision as we know because of the tough investment. Lower financial share of profit, but actually here, we're just talking about the exchange rate effect with the Mexican peso last year was really exceptional. So the counter figure is negative because of it. And then we are really optimizing our tax rate, and this is mainly due to the fact that we have a different mix compared with last year of results between import and distribution business unit that is actually paying the regular tax rate and the shipping activity that, as you know, is paying a lower tax rate due to the, let's say, the tax framework we're adopting. Actually, on this side, we decided beginning from this quarter to apply to the shipping activity and other tax framework, there is a tonnage tax I won't go in details because it's really difficult to explain, it's really technical. But at the end of the day, it will benefit our net profit now on changing our tax rate framework. So the better tax rate, it's the combined action of 2 things. One, it's a different mix of results. And the other one is the different tax framework where we are adopting on the shipping activity. Last few words, as you can see on Chart 8 of our presentation, is just -- I want to highlight the net working capital evolution. But if you compare September 2021 with September 2020, we -- you can see at more or less the same level of sales -- okay, slightly lower in distribution, but let's say, more or less the same level of sales. There is lot of all the action put in place on the working capital management. Obviously, we do confirm our guidance for next year. We're really -- for this year, I'm sorry. We are really positive in achieving the high end of the profitability wise of our guidance. So I think that it's all and I will leave the rest of the time for the Q&A session. Thank you very much.

[Operator Instructions] The first question is from Dario Michi with Exane BNP Paribas.

The first one is on the guidance. You have confirmed your guidance for the full year, but trying to do some math, this means that you expect in the fourth quarter this year the same EBITDA you recorded last year. But during your speech, you stated that in the import and distribution, there is a normal comparison base versus last year. You have higher prices. You do not have the shift in products campaign. So this drives me to assume that in the import and distribution you expect something higher than last year. In the shipping, in your speech, you stated that in the way back -- in the back haul, sorry, you are getting more money. You expect freight rates to increase and to remain higher in 2022 and 2023. That's the reason why you locked your shipping contract for the fifth vessel. So also in the shipping activity, what we can assume is to have something similar to what we have recorded last year, assuming a slight increase in services where the -- where am I mistaken? The second question is on the shipping, you -- in the latest conference call, you stated that you were going to renegotiate the contracts for next year in October, November. Do you have some update on this? And what do you expect to achieve on this side? Last question is on the M&A. In the press release, you mentioned twice the importance of the M&A on top of what you have already done with Azzurra. Are you working on other deals at the moment.

So Dario, thank you for your question. So what can we say about the guidance? You got me. I mean, we decided not to review the guidance, but all the analysts are able to do their math. So I think we reviewed the guidance a couple of times this year. We -- I think we already stated our, let's say, positive look about the end of the year. So if we will do something better compared with what we forecast, it will be a good for a surprise for us, for the market, for everybody. But we decided just to stay like this. We're focusing actually on the next year budget and business plan. So let's say, your -- I have no -- let's say, I have nothing to say about your comments, but we decided to stay like this. It's not going to change the word, what is going to happen in the next 2 months. So okay, maybe something better, we will see. Let's focus on 2022. That is the most important thing, let's say. On the shipping activity, new contracts, okay, you try to take one month out of what is the reality. Normally, the contracts are made between the second half of November and December. It's true that this year due to the fact that actually the market is really boiling. Some of our clients are already asking to us to book the spaces and to, let's say, to confirm a certain freight rate. We did not close all the contracts. We closed 3, 4 contracts out of 10 clients. But, let's say, the situation is positive. We are in a good position even without net speculation or without, let's say, taking an advantage in the bad way with our historical clients, but just following, let's say, the market trend, I think we have a positive outlook for next year. It's difficult now to say because loading factor is the first KPI that it comes with the price of the freight rate. Actually, first of all, we have to reconfirm the loading factor of this year, but actually it's more or less the maximum we can do. So we have to, first, let's say, goal is this. And then second goal is to have higher freight rates. For sure, the freight rate will be higher. How higher or how much higher at this moment is difficult to say specifically for the mix. But let's say that we see the plus on the shipping for next year. We will -- you will have to wait. We will disclose and we'll be really precise about these issues in January when we will release the new guidance. But anyway, we are positive. M&A, we made a lot of contract work scouting this year about M&A. And it's really, as we already commented before, it's really difficult to find the right deal because the M&A market, as everybody knows, is booming. The key finds are going around offerings over 10x EBITDA for any kind of business more or less, sometimes reality sometimes it's just a chat, but let's say, everybody, it's -- let's say, it's a sell -- it's a good position because it's a sell-side market at the moment. So we are really scouting a lot. We're scouting, as we always did mainly 2 things. Specialties, we were not able to finalize a very good deal we had on the table, but let's see if it happens next year. Then we are focusing on strengthening countries where we're not that strong or where the position of our company is already weak, so to reinforce our distribution situation. And these are the 2 things that we are looking at. Then what we're doing, this is something new, we are scouting, let's say, new markets. And so when we're talking about new markets, we're talking about north of Europe, let's say, Continental Europe and north of Europe. And actually, there we have to go with an acquisition that has a higher, let's say, size. So that's why we highlighted even how healthy we are in terms of leverage and the financial position and cash position because if we have to make an acquisition there, then it's going to be something, let's say, more important than what we did over the past year. It's going to be something like similar to what we did with Fernandez in 2017. So actually, we are really working on it, but we want to pay a decent price, let's say, that we know we are not going to be able to pay all the time, 4x or 5x EBITDA. Obviously, the situation of our share price is not the best one for making important M&A deal because if you have to share some shares or exchange some shares, our value is still really under our expectations. So we have to take in consideration that we're talking just about cash more or less. So we are working a lot on it. So we're looking at different things. We have a dedicated team and different contracts with external adviser. We have the balance sheet to perform even a big acquisition. So let's say, let us work. And hopefully, we will give you some important news in the next month.

If I may, just a follow-up. Which is the size you have in mind when you state that the deal might be something important?

Let's say, between over EUR 150 million revenues -- let's say, EUR 200 million -- to enter in a market like north of European market, Germany is the main market, for example, the size of the companies are pretty important. It's like it's a main market. It's the most important European market. If you look at there or if you look at U.S., for example, you won't go with EUR 30 million, EUR 40 million revenue companies because you don't do nothing there. So the size -- our -- the size we have in our head is, let's say, EUR 150 million to EUR 200 million. Then you never find the perfect things you're looking for by book. So then you adapt to the situation. So either you find something slightly lower in terms of size, but you see a big potential of growth or maybe you find something even bigger. So you have to -- then to make your accounts if you can do that in one shot or in a couple of years, share by share. So -- but the size, let's say, EUR 150 million to EUR 200 million.

The next question is from Andrea Bonfa with Banca Akros.

Matteo, most of my answer -- most of my questions have already been answered. So -- but if you can comment also on the guidance of the net debt, which is also quite prudent with EUR 75 million is already in the 9 months. Is that something seasonally different this year compared with last year or the fourth quarter remains still a cash-generating quarter? Just a comment on that point.

Andrea, actually you are right. We decided to stay, let's say, low profile on the net financial position for 2 reasons. One, let's say, the main reason is that we have to take in consideration that we said at constant perimeter. So we have to take in account that we have Agricola Azzurra to sum up. That IFRS 16, while given the fact, Andrea, we gave the guidance with IFRS 16 as a main guidance, we don't have to take into consideration just EUR 7 million that is the cash. But even the goodwill we have to put on the deal that is considered by our auditors, other EUR 3 million. So actually, we have to take in consideration EUR 10 million. So we probably do at a constant perimeter with our forecast is to do something better, okay? But we did not want to release a new guidance on the market without considering even Agricola Azzurra. Then we have another point that is what we commented at the beginning, that is the consideration of the IFRS 16 impact on the fifth ships. Actually we are, let's say, talking with the auditors. If this new, let's say, investment IFRS 16 wise, we have -- we can take it in consideration beginning from 1st of January 2022 or if we have to consider the effect already on the closing date of 2021. So that's why at the end of the day, we decided not to review, let's say, the net financial position guidance. We will probably confirm the net financial position, both with and without IFRS 16, within our budget. So end of January, more or less when we release the guidance. But to split the word in 2 parts. So to split the word in IFRS 15 net financial position, let's talk about it in January. If we exclude IFRS financial position, I think we will -- we could be in the position to maintain our guidance even including the Azzurra cash consideration. So I tried to give you the better answer I can give you at the moment.

[Operator Instructions] The next question is from Luca Arena with CFO Sim.

I have just a question left which is regarding the tax rate. It is something that we can modelize also for the next years, the decline in the tax burden.

So Luca, okay, big answer is yes. Big answer is yes because, let's say, next year, we will have to deal with, let's say, the challenge on the distribution will be to translate the 100% of the inflationary pressure we have from different sites in-land transportation, sea transportation, maritime transportation, energy cost that is booming. So we have a lot of, let's say, costs that are rising, and we have to translate this cost to the market. So I think that at a constant perimeter -- in a constant perimeter, I think a good goal for next year will be that we will see with the guidance not to change completely the face of the result of the year then we will see. But shipping will be like this or we hope something slightly better. So actually, you can forecast something like this for next year as well.

[Operator Instructions] Mr. Paolo Prudenziati, there are no more questions registered at this time.

Okay. Thank you to everybody and see you at the end of the year. Thank you very much.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.