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 First Half 2022 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 I pass the word to Ms. Orsero, I just want to stress one point. Yesterday, we had the Board Meeting to present the number for the first 6 months and I would like really to stress the point that the Board is particularly happy on how -- very simply how this company has managed, not only from operational standpoint of view, given the outstanding results, but also from a strategic side where the efforts of the company -- the ongoing efforts of the company to grow and to expand our presence in distribution sector is clear, is a long-term view which is very in line with our approach. Now, having said so, I pass the word with Mrs. Orsero. Thank you.

Good morning, everyone. Thank you, Paolo. Great satisfaction for the results. All the economic metrics are very good despite a very complex and macroeconomic context. We closed the half year with an adjusted EBITDA half over 51%, thanks to the resilience of Distribution and excellent performance of the Shipping. The Distribution segments grew by 9.2% with a significant price increase and slightly decrease in volume. That's even more important we have succeeded in maintaining a good margin level, 3.4%, despite the overall higher supply chain cost, and especially a huge increase in energy costs. This shifting segments confirmed the market trend. We've increased the both volume and freight rates and the with an adjusted EBITDA margin of 37.6%. The adjusted net profit also improved compared to last year, reaching EUR 19.8 million. And finally we have a solid cash generation that strengthened our financial structure also in view of the new French acquisition. Acquisition that we are confident to finalize by the end of the year, and that allowed us to reach even in France a leading position and to further consolidate the Distribution segment for the coming year. In the next few months we will face a lot of unknowns. For sure, we will face a further increase in energy costs. But despite everything, we are confident that both our business units could continue to guarantee a positive result trend. Now I pass the word to Matteo that will go more in detail.

Thank you, Raffaella. Good morning to everybody. I will just recap briefly, directly our main figures, and then I will leave the rest of the time for the Q&A session. As Raffaella said, the group is actually continuing to leverage on its business model. There are, just as a reminder, multiple sourcing, wide product range, diversified geographical scope, coupled, and this is really important, with our integration for the bananas and pineapple logistics activity through the Rosse Cala activity. And this is a really helpful hand for us, we believe that to, let's say, to face the ongoing challenging macroeconomic environment. As Raffaella said, and as everybody can read within newspapers, the most significant challenge right now is consisting in facing the increasing of energy costs. Just to give you main figures. In H1 2022 versus H1 2021, Distribution BU absorbed an increase of EUR 3 million related to utilities expenses on its logistic platforms. This is basically the cost -- the increase of the cost of our operation, and then we were able to recover as well all the other cost structure along the value chain. The CapEx of the year are in line compared with the one we plan. As you will see in the guidance, we just increased for EUR 1 million, our planned capital expenditure. Just because actually everything is costing more and more, so we have to reflect it slightly in our guidance. But basically, we did not plan any other investments compared with what we guided. Excellent operating cash conversion despite correct working capital absorption, let's say, because our revenues grew strongly. As a reminder, as from 1st of January 2022, we implemented the extension up to the year 2029 of the life in use of the 4 reefer ships owned by Cosiarma company, fully owned by Orsero. And this change implies a reduction of yearly depreciation to the tune of EUR 3.6 million compared with full year 2021. Dividend was paid EUR 0.3 per share in May 11 to the Orsero shareholder for a total outlay of EUR 5.2 million. Raffaella already reminded the 2 announced strategic agreements in France to acquire 80% of Blampin Groupe and 100% of Capexo. We are actually working on the antitrust procedure and working on the sales purchase agreement drafting in order to complete and conclude by the end of the year or anyway as soon as possible, the 2 bills. Going to the main figures. We have net sales H1 up to EUR 576.2 million or plus 12.3% compared with last year with Distribution business unit sales up by 9.2% on soaring selling prices, slightly declining volume. Actually, we are really satisfied by these figures, because it means basically that as a whole, our mix of products is perfectly responding to the inflation situation. Our Shipping business unit sales are up by 39.4% due basically to higher freight rates and higher bunker price. Adjusted EBITDA reached EUR 40.3 million, plus 51.4% or plus EUR 13.7 million compared with last year, with a percentage margin of 7%. For us it's an absolute record. Both the business units are showing a very solid performance. Actually, it's clear that the Shipping is brilliant this year given to the good operational performance of the company and for sure the very good market momentum. But it's really important to highlight the fact that the Distribution that was the most challenging one, because we have faced with a headwind in distribution in the Shipping is on the contrary. We were able actually to maintain our volume, all in all, just slightly lower, to push the prices high in order to absorb the inflation. And we were able to absorb, let's say, almost all the energy cost increase. And this is something really, really important to highlight. As a consequence of the adjusted EBITDA growth, the adjusted EBIT leads by EUR 13.4 million to EUR 26 million or plus 106.3%. Adjusted net profit is up to EUR 21.3 million, up by EUR 12.7 million compared with last year. The total equity amounts to EUR 194.7 million, thanks basically to the net profit and to the positive mark-to-market reserve effect based on the oil derivates and interest rates and currencies hedging we made for the 2022. Net financial position, excluding IFRS 16, is EUR 36.8 million, a very good improvement compared with December 2021, especially if we consider the fact that our revenues grew -- Distribution revenue grew by almost 10%. Net financial position, including IFRS 16, stands at EUR 80.4 million, including EUR 43.6 million IFRS 16 liability, of which, as a reminder, about EUR 8 million related to the 2-year charter of the fifth reefer vessels we charted last year. And as you will see in detail, we had to renew the concession on one of our biggest warehouses in Europe, the Barcelona one. That was like renewed a few months ago, and it accounts for almost EUR 7 million IFRS 16 effect that we did not forecast at the beginning of last year. Anyway, this is something really strategic and we had to make it. If we go a little bit more in details in terms of sales and EBITDA variance. Regarding the sales, the Distribution is up by EUR 44.4 million, as we said plus 9.2%. And the sales are up in all countries on the back of a higher selling price across the board, the only exception is France. We knew it we lost one banana tender that accounts for a lot of volumes, but we, as a guidance -- as a guideline for us we will participate to banana tenders just when and with the price that is supposed to be profitable for us, the condition at the time when we participate to the banana tender. And then the overall European avocado market is not comparable with the one we had in 2021, and this is obviously affected France, because France is the country where people -- where we have the highest consumption of avocados in our countries, in our markets in Europe. Shipping improved by EUR 19.6 million. And let's say, as a consequence of enduring favorable conditions, we have better freight rates on the CAM Line. It's also connected to higher bunker cost on BAF, the Bunker Adjustment Factors. Improved volume and rates of dry container transportation is the backhaul activity we run as an optimization of our activity. And a weaker exchange rate, Euro-USD, that obviously has a very good impact on Shipping, but very bad one on the importation of bananas and pineapples. Anyway, on Shipping is a good news. Service & Holding are substantially unchanged. Going to the profitability, actually, the Distribution activity is slightly lower, EUR 0.6 million compared with last year, with the last year results. Italy, Iberian region and Mexico are improving. Greece is all in all unchanged, and France has underperformed the extremely positive achievement of H1 2021, as most of you probably remember was a really exceptional year connected to the avocado performance. In terms of products, the good performance of -- we have to analyze very good performance of platano canario, the banana we trade and sell in Spain, pineapples, table grapes and vegetables, specifically tomatoes and salad. These very good products in terms of performance are balanced by a lower margin of avocados we sell in Europe. Banana, the dollar banana, so the banana we import from Central America, were actually -- is a product where we experienced the, let's say, the biggest problem in terms of profitability because we have a portion of our sales for dollar banana with fixed price based on tenders. Actually, the change in exchange rate and the higher freight rates that we paid to import is actually lacking some profitability on the banana sales, and this will be one of the challenges for us next year. Shipping, as we said, improved by EUR 14.4 million given to an outstanding return of transportation service in a very good market framework. An increase of EUR 2.7 million is related to the recognition under IFRS 16 of the charter contract for the fifth ship. Obviously, we have the impact on the net financial position, but as well we counted on the EBITDA following the IFRS 16 brief. Anyway, if we want to just as a note, to consider the adjusted EBITDA for the group, excluding IFRS 16, is EUR 32.2 million compared with EUR 22.8 million of last year or 5.8% on sales versus 4.4% last year that was already a very good result. Last few words regarding the consolidated net profit. Actually all, let's say, most of the -- the biggest part of the growth of the consolidated net profit for H1 2022 is related to the better adjusted EBITDA. Thanks to all the detail we just highlight a few minutes ago. D&A and provision, financial share of, the tax effect, all in all count slightly 0. So basically, it's a very clean adjusted and profit variance. We just had EUR 1.5 million adjustment to go from the adjustment net profit to the reported net profit. And actually, this is given to some COVID expenses, not so much, but still we have some. Some provision for employees' profit sharing in Mexico. The accrued EUR 400,000 more or less for top management LTI incentives related to 2021, some litigation, and we had some contingent losses and severance agreements for EUR 600,000. So at the end of the day, adjusted net profit passed from EUR 8.6 million 2021 to EUR 21.3 million in 2022. And the reported one is up from EUR 8.2 million in 2021 to EUR 19.8 million 2022. Last few words on the net equity variance. Obviously, the net equity variance is driven mainly by the net profit, the reported net profit variance of EUR 19.8 million. Then we paid the dividend of EUR 5.2 million that is decreasing the reserves. We made a buyback program for likely EUR 1 million -- slightly under EUR 1 million. We had the positive effect of the mark-to-market on the hedging reserves that accounts for EUR 4.4 million and other effects for EUR 0.8 million. So we passed from EUR 175.9 million to EUR 194.7 million. We want to highlight again the very good cash flow generation and operative cash flow for EUR 33 million, then absorption of net working capital for EUR 10 million, operating CapEx for EUR 7 million, a little M&A effect for EUR 1.2 million, the dividend paid for EUR 5.2 million and the buyback for EUR 0.9 million. So our net financial position, excluding IFRS 16, goes from EUR 45.3 million to EUR 36.8 million. Then we have to take into account the IFRS 16 liability that accounts for EUR 43.6 million. So the report is net financial position H1 2022 stands at EUR 80.4 million. I think the last relevant figure is the figures -- our review of the guidance. As you probably saw or read, we decided to give, let's say, a good signal, I guess, for our expectation for of the end of the year. But we decided to maintain a prudent approach because, as Raffaella just said, it's very difficult to understand and to imagine what will be the dynamic of the market, both in terms of cost increase and relative consumption effect, specifically in October, November, and December. So we decided to increase our guidance by EUR 30 million on the sales, just to take into account what we already did in the first half. The adjusted EBITDA that was the previous guidance was at EUR 68 million on its peak increased by EUR 2 million, so up to EUR 70 million. Net profit up to EUR 34 million compared with the EUR 32 million we had in the previous guidance. We increased by EUR 1 million the CapEx expectation for what we say everything is costing more and more every day, so we have to take it into account. Then we decided to maintain the net financial position, including the IFRS 16 guidance unchanged because, as we said before, we had some other, let's say, contract to close during the year that we did not expect to have this effect on the IFRS 16. So we think that the better cash generation will rebalance this difference, but we cannot forecast a better net financial position within the guidance. As a general reminder, all this guidance review is made without considering the effect of the potential closing of the 2 M&A deals in France by the end of the year. So we have no effect on the net financial position, no effect of pro forma nor in sales and EBITDA or net profit. That's all. And I leave the rest of the time for the Q&A session.

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

The first one is on the recently performed acquisitions. Could you please quantify the potential synergies you expect from the integration of Blampin and Capexo? And where are they coming from? Then on the Shipping market, there is a divergence between dry and reefer rates, I'm referring to the overall market. What's, in your view, the rationale behind these trends? And do you expect any reversal in the reefer rates in the coming months? You are used to negotiate freight rates in November-December for the following year. However, in light of the current scenario, for several cost components companies are trying to fix their expenses well in advance this year. Are you experiencing the same trend? And if this is the case, which is the potential upside in comparison to 2002 applied rates? And if not, already under negotiation, what's your expectation for 2023? Do you see upsides on the reefer rates and which is the potential downside on dry rates?

Raffaella, may I go?

Yes.

Okay. Thank you. I go ahead. Dario, good morning. Thank you for your question. So regarding the Blampin and Capexo synergy -- synergies actually at the moment, what we can say is that the 2 acquisitions were made not really looking for synergies, but looking for reinforcement of our distribution, both in terms of mix of products, Capexo, and sales channels or distribution channels in case of Blampin. Obviously, we are already studying, and we had some ideas to extract commercial synergies because cost synergies are going to be some we will have, obviously, but they're going to be a really low impact. I think something between EUR 0.5 million and EUR 700,000, because as you probably understood, Blampin is doing a job that we are not doing in France. So it's a different market, it's a different distribution channels. So we will maintain intact their structure. Same will be for Capexo. But probably with Capexo we'll be able to extract some cost synergy, but lower. Commercial side, the commercial side is more interesting. We will have to cross products and clients, obviously in France. And we will try to cross Capexo products as well in Spain and in Italy, because we think the premium product of Capexo is something that we will be able to trade as well in our 2 main countries. Anyway, it's really difficult to give you a precise indication about that. We are starting now, let's say, to study a bit in detail some strategic product, starting from Capexo that we could implement over the next year. But the main reason why we made the 2 deals was not to extract like EUR 5 million EBITDA synergies, commercial side or cost side. But it was because we wanted to reinforce and to build up again a stronger structure in Europe and specifically in France, where in terms of distribution channels and mix of products, we have the weaker organization. Shipping market, it's a bit difficult because what you are saying is the fact that you have some index -- worldwide index, where we start to see that, beginning from this summer, that the dry -- that is basically most of the activity worldwide of the shipping lines. The dry index for the freight rate is starting to fall down a bit. But you have to understand that this index went from $1,000 per box to $14,000 per box. So even if it now stand at 9 or 10 or 8, still it's like 8x what it was before the pandemic or before like 2020 or 2021. In our niche, in our route that I, as a reminder, is always the same since 30 years, is always 3-ports or 2 or 3 ports in Europe and 2 or 3 ports in Central America, and it's just made for bananas and pineapples on the fronthaul. Actually, we did not experience nor in our reefer rates nor on dry rates, those increase that some other routes and some other markets or that the index are expressing. So if we have to tell you now, what is happening now in our niche, we made another general rate increase on dry cargo activity last week. But if you compare what it used to be before the pandemic and what is now, its double. The index was 13x, 14x what it was before and now it's 8x to 9x what it was before. So it's really difficult for me to give you a comparison. And actually, it's not our business, so I'm not the right person to explain it to you. Anyway, what we are seeing is that reefer rates, the market is still the same compared with a few months ago. During the summer, normally, you have some spot decrease, but it's normal. It's happening every year because the volume is going down. So if someone has some empty spaces, we do the same. We offer spot rate for 1 or 2 weeks at a lower level. But since a couple of weeks, again, there is no space. It's impossible to find one container for now to book for the Christmas season. So the situation is more or less unchanged. And on the dry activity, we have every day more request, and the prices are, let's say, unchanged or higher compared with a few weeks ago. What is happening next year? We actually don't know. Our view is that for next year, the situation could be more or less unchanged. Our vision is the stability of the situation even because last year what happened -- I'm sorry, 2022 what happened, it's not really the peak of the freight rates was not driven by the rates, but was driven by the bunker price. So if the bunker price goes down a bit, maintaining the same freight rates, we will have, obviously, let's say, less revenues or slightly less revenues, but still profitability will be more or less maintained. So the scenario we see for next year at the moment is not like another revamping of freight rates. We don't think the market will grow again. We don't think as well that the market will fall down. So we expect such a stability, but we will understand it in details over the next 2 months. Actually, compared with 3 years ago, even last year, we started to negotiate with our clients, the freight rates before. So normally, we were discussing freight rate after the second half of November until, let's say, Christmas or the first day of the year later. Last year, we closed more or less on the negotiation by the end of November. This year, we're starting to charter. Now is too so. Our view, we will try to, let's say, maintain the situation of this year. There is a correct one and grant us a very good profitability and a very good situation. As soon as we will have some better and more detailed views, probably with the release of the third quarter results, we will be more precise about the situation of the market.

The next question is from Andrea Bonfa with Banca Akros.

Matteo, I think most of my questions have been already answered. So I would like to elaborate you if it's possible on the guidance. It seems that you applied, let's say, the usual 60 to 40 weight for shipping in elaborating your guidance. But looking at last year performance, it was completely the reverse. So if you can remind us why the distribution of this kind of weight in the first half confer to the second one? And if on doing so, maybe there are some element of prudence in your guidance because it seems to me that after the EUR 21.6 million EBITDA on the first quarter before IFRS 16 -- I mean, to have a second half that's lower than the first, it's difficult to understand with the current freight rates. If you can help us to understand that?

Okay. Regarding the guidance, we applied the 60-40 because it's the reality. Normally, we have let's say, 8 to 10 weeks during the summer. So let's say, July and August, basically, where the volume falls down from an average of 10,000 pallets per week to 8,500, 8,800, 8,200 pallets per week. So the loading factor is structurally going down, and we are seeing that actually the profitability of this moment was -- and we already saw that, so it's already a reality, it's correctly and normally lower than the profitability we had from, let's say, the middle of January until the middle of June. So structurally speaking, then the loading factor recovers the volume beginning of September. And then it goes more or less on the same level of the first half until the end of the year, till the Christmas arrival. Then it rolls down again for 2, 3 weeks after Christmas. So what happened last year happened that we -- by the middle of the year -- first of all, in the first quarter of last year, if you remember and you look at our presentation, we had some cost and profitability effect that we recover then during the year. And the most important thing is that the dry cargo profitability started to grow before the end of last year, because the freight rate for the fruits are negotiated on a yearly basis. The dry cargo is a market that we have every week. So beginning of the -- beginning by the middle of June of last year, we started to make general rate increase, and this gave us a big support in order to make a 50-50 on profitability, coupled with the cost effect we said on the first quarter from first half and second half. So we were slightly 50-50. This year, the situation is not the same because this year we have the dry cargo activity. The big, let's say, increase is already obtained by the beginning of this year. So we don't see during those next 3, 4 months, other massive increase that can support a 50-50 EBITDA performance. And then you have to remember that in the first quarter and in the second quarter, we had the peak of the cost of the bunker. And this is on the third parties a good effect compared with -- compared with what we are seeing now in terms of bunker cost. The oil price had passed the $130 per barrel, but stayed around $115. And now it's around $90-$95. So this is a difference. We don't expect dry cargo to grow again in terms of rates. So we decided, as an assumption obviously, to maintain, let's say, the 60-40 approach even because you always have to remember that the ships are on the ocean, so we can have climate condition, difficult situation for congestion, strikes. And this year, every time you have a problem, it accounts for $500,000 of profitability on the Shipping activity. So I think we currently decided to maintain, let's say, a correct approach, it's not even prudent. It's not aggressive, but I think it's correct. On the Distribution side, we must take in consideration the fact that the next month could reveal for us some but surprises. Then we are working to face them. We are working to avoid the impact on the profitability. But we have some projection of the energy costs for Italy and Spain that are really scaring. So we have a worst-case scenario. We have a base scenario. We have a good scenario. But when we make a guidance in a turbulent -- in so turbulent context as this year, we have to take in consideration not to be aggressive. So on Distribution, we were, I think, prudent. We were consistent with the actual scenario. And with Shipping, we took the approach -- we took in consideration the approach that I explained to you. Then we will have a chance with the release of the third quarter results, if the situation will be better than what we are observing now to increase again and to give a better view to the market regarding our closing. Even if I'm pretty sure that by the beginning of November or end of November the market will be more interested in what is happening next year instead of increasing of other couple of millions or not the guidance for this year. But anyway, we will have more elements.

The next question is from Fabrizio Tito with CFO Sim.

I just wanted to ask if you could be watching any new M&A around or it is time to digest the French one for now? Or you could watch at some verticals in products, for instance?

Actually, for the moment, before digesting, we have to eat it, because we have to complete the 2 deals, then we will digest and we will see. Actually, I think we made not, let's say, a transformative deal. But anyway, the group could reach, considering the revenues and the profitability of the 2 targets, could reach a very, let's say, decent size. So we will see our, let's say, attitude, but for now, we will work on what we -- we have to work to complete the acquisition, and then we will work on Capexo and Blampin before looking at other target. Talking about -- I'm sorry, relevant ones, because then JVs or little M&A activity, we can make it, but it's not something that will change the face of our group.

[Operator Instructions] Ms. Orsero there are no more questions registered at this time.

Okay. Well, thank you all for coming. And we will be back in November with third quarter result. Thank you.

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