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 9 Months 2022 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Paolo Prudenziati, President of Orsero. Please go ahead, sir.

Hi. Good morning to everybody. I just would like to say a few words before I pass the word to Matteo, which he will give you a full picture of the company. First of all, we are, of course, Raffaella, Matteo and I particularly happy about in a rational way about the positive outcome of the first 9 months of this year. As you know, we have been through in the last 2, 3 years through a lot of factors, potentially very negative, the pandemic situation, the war. We're just missing probably wave of grasshoppers, then we've facing everything so far. And despite of this, our results from the first 9 months of this year has been really positive in a way we could say also outstanding from a certain point of view, and we're confirming the guidance we have been giving and revising for the end of the year. We are happy not only because of the result, but also because our 2 business units have been built for different reasons, confirming be solid and profitable. Distribution, first is confirming its resilience. We are just missing from the table comparing last year, EUR 2 million, EUR 3 million, but we have to say that most of our selling price has been largely absorbing the inflation rate, the impact of inflation on the super chain on the overheads. And last but not least, on the energy cost. In the third quarter of this year, we have been observing incredible increase in energy costs. And of course, at the end of the year, if we're just missing $3 million, considering that one segment of our business is fixed price in euros and in the beginning of the year, the euro was around EUR 1.17 against the dollar, and we're facing now a parity situation, not only, but also as we know, the shipping rates have been increasing, and the energy cost has been exploding. And at the end, we could have a difference, that is really marginal. Of course, the business is not yet [indiscernible], but Matteo and Raffaella are working on this. And that strategy and the distribution is really -- we are really happy how it's behaving at this stage. Shipping then is the cherry of the P&L this year as we cannot hide this, of course. But the combining of the 2 business units are giving us not only the rationale, but also the fuel to giving us the opportunity to continue the strategy for the growth of the company and the 2 acquisitions that we've been communicating during the year in France that hopefully we bring that home within the end of the year are in this direction to increase and strengthen the distribution core business of the company. Now having said so, I will pass the word to Matteo.

Thank you, Paolo. Good morning to everybody. Thanks for the introduction. I will go shortly through the presentation and the main figures. As Paolo just said, we just confirmed the guidance. So for us, let's say, all the effort now is put in the next year performance. So we are already working on it. But we're going to go through the main figures, and then I will leave the rest of the time for the Q&A session. As Paolo said, actually, we're living in an ongoing challenging environment. The group has continued to execute its strategy, leveraging on its business model that, as you perfectly know is based on a multisource extensive product range and diversified geographical scope and with the vertical integration in banana and pineapple logistics activity. Actually, as everybody knows, one of the main drawbacks during this quarter was the energy cost that incurred within our logistics platforms of the distribution business unit. And actually, the impact on the whole year year-to-date is equal to a plus 123%, but it mainly affected Italy and Spain, the 2 countries where we suffered the biggest impact. And actually, most of this impact, most of this difference was concentrated in the third quarter. So it was really a perfect storm. Going to the -- our CapEx are in line with the planned investments. We did something less in France than what we expected and something more in Italy. But all-in-all, we are in line with our expectations. We are continuing to observe an excellent operating cash conversion despite obviously working capital absorption related to the seasonality of the business and mainly to the higher sales compared with last year, driven by the higher selling price. Going to, let's say, the main things that occurred year-to-date. I just remember that we -- as from January 1, 2022, we decided to extend to the year 2029, the life in use of the 4 reefer ships owned by us, owned by Cosiarma company, fully owned by Orsero. We paid a dividend in May for about EUR 5.2 million or equal to EUR 0.3 per share. And at the end of July, we announced 2 strategic agreements in France to acquire the 80% of the shares of Blampin Group, a company with a turnover of around EUR 200 million and EBITDA margin around 5.5%. And the full ownership of Capexo with a turnover around EUR 65 million and adjusted EBITDA margin of 9%. We are working to fulfill all the authorization processes regarding the 2 acquisitions. We already signed the sales and purchase agreement of Capexo, and we are in the process to sign as well the shareholder agreement and the sales and purchase agreement of Blampin. So let's say that substantially, we are well on track to define the 2 deals by the end of this year. Obviously, we have to wait until the antitrust authorization and the [ Golden Power Molfetta ] is arriving to us. We just received the antitrust for Capexo, but still waiting for the 2 Golden Power Molfetta and for the antitrust for Blampin. Going to the business, the market context. We're seeing a situation, we're really prudent about that because nobody knows which will be the real scenario in terms of macroeconomic situation over the next quarters. But so far, so good for our, let's say, category, fruits and vegetables. We are seeing slightly declining in volumes. But all-in-all, let's say, a flattish situation. And the selling prices are increasing massively and totally in line with the inflection we're observing month-on-month. In this context, we think we are over-performing the market because probably as a sector, the volumes are a bit lower than what we are observing within our figures. And even with prices, given to the wide range of products we're able to distribute, we're doing I think, a very good job on that. Distribution business unit, strong sales driven by the selling price. The adjusted EBITDA is slightly lower compared to last year that actually was really, really good one because the third quarter of last year was a tremendous one. Why? Basically, because we are suffering -- we had a problem related to -- not we, but the sector in Europe and specifically in France, had suffered some, let's say, poor margin with avocado campaign by the end of last year until, let's say, April. And this is a counter-figure with last year that is really difficult to rebalance because the campaign is gone and the result is there. And then we are suffering for sure during the year, and this is something that everybody is suffering. The fixed-price banana contract, actually, we had a really difficult situation with the ForEx situation. So the euro versus USD, last year, when we participated to the tenders, everybody was looking for $1 between $1.10 and $1.15, $1.13, were under par now is slightly getting better since a couple of weeks, but this is really impactful on the profitability of the fixed contract on banana prices. Then obviously, the freight cost was really high for everybody. There we had the chance to be well covered, thanks to our shipping integration. And then obviously, as we said at the beginning of the conference, we suffer because of the energy cost. And the combination of those 3 things actually was supposed to impact even more our profitability in the distribution. But actually, we're really satisfied because at the end of the day, with all these factors coming together, potentially affecting our profitability in the business unit, actually, the result is still a very good one. Shipping, as already said, I don't have many more words because it's clear how the shipping is supporting us both strategically because without shipping, banana business this year and probably next year is going to be really, really tough. And actually, this comes with a very high profitability that allows us to envisage the 2 acquisition in France with a really safe and calm approach because we are supported by a very solid and healthy financial situation. Going to the very main figures. Regarding net sales, all-in-all, sales touches EUR 894.3 million, with a 13.3% increase compared with last year. And it's all a constant perimeter, obviously and we have nothing regarding the pro forma of the new acquisition already considered within our figures. Adjusted EBITDA is EUR 58.4 million or plus 40%, 39.7% compared with last year, with an adjusted EBITDA margin of 6.5%. Adjusted net profit stands over EUR 31 million or the reported one stands around EUR 30 million is plus 92%, 93% compared with last year. If we go to the adjusted EBITDA excluding IFRS 16, actually, the difference still is massive because we have a plus 33%. But obviously, as you may remember, there we have the contribution of the ship contract that is made for 5 years. And so it's contributing on the EBITDA considering the IFRS 16 more compared with last year when we did not have the 2-year contract for the shipment. So the IFRS 16 was not applied on our figures. Net invested capital is slightly growing. With the acquisition, the total equity is over EUR 200 million, EUR 202 million, thanks mainly to the net result, and then we will see in detail later on mark-to-market effect and other little things. Net financial position, considering IFRS 16 is EUR 76 million, but without considering so the real one, the financial one without the IFRS 16 is around EUR 32 million. So on sales, EBITDA, net profit and net financial position, we are really in line with the guidance we gave at the beginning of the year and then we reviewed after the half year results. Going a bit in details on the business unit. Regarding the sales, we have the distribution with a plus 10.4% increase or EUR 77 million in absolute terms. In Shipping, we have plus 41%. All these services and intercompany eliminations are not really relevant. So let's say that both, as we said, in distribution and in shipping the performance is really, really satisfactory in terms of sales. Obviously, shipping is driven by a favorable market context, thanks to both the refeer freight and the dry cargo freight. In the distribution, we are seeing a very healthy dynamics with the prices following the inflection rate we see on our economy more or less. Going to the adjusted EBITDA variance. As we said, we have some EUR 3 million plus in distribution, EUR 20 million more in shipping and, let's say, more or less the same result. We're spending a bit more on marketing activities this year compared with the last one. So we have EUR 400,000 less EBITDA on the holding and services, but it's not really impactful. As we said, we mainly focus on the problem, let's say, on distribution. So we have some very good news. So platano canario in Spain and pineapples. You remember that over the past 2 years, pineapple was a difficult one because of COVID because it was an out-of-home consumption and we are seeing that pineapples are coming back as a very good product for us, both in terms of sales and profitability. Avocado are improving. This is a good news, but still under last year performance as we had, let's say, the problem we had by the beginning of this year that is not possible, let's say, to reabsorb. And Banana, as we said, it's under pressure because of the higher supply chain costs, euro-USD exchange rate, specifically in the fixed price contract. A very good news regarding this point is that if we compare the average selling price at this very moment, so by, say, mid of October, mid of November 2022, we are seeing that the market is really growing up in terms of value. So we're seeing around EUR 0.15, EUR 0.17 per kilo with higher prices compared with the one we had last year. This will have, let's say, probably a good impact on the last quarter of this year, but this is not the really core point. The core point is that we are -- we will be able as a sector to rebuild a dignity for the banana prices, at least defining a profitable base for the fixed contract with the retailers. This will benefit strategically all the operators as well and will be really a relief for the 2 business because banana is clearly the first preference. So let's say, this year was difficult with bananas, it's getting better, and we see some light at the end of the tunnel for next year. Still, we have to participate to all the tenders, and we have to see how it will be the situation, but we have some good signals. In terms of, then we say the energy cost, but I don't want to repeat further 10 times the same concept, but we had historical peak of Q2 and Q3 and actually it was not possible to absorb all of it within our selling pricing policies. Going to the consolidated net profit. Actually, we're passing from EUR 15.3 million of 2021 results. And actually, the adjusted net profit is EUR 31.4 million. The main differences are obviously the adjusted EBITDA for EUR 16.6 million, a minor portion of D&A and provision for EUR 1.3 million. Share of profit and financial, all-in-all, flattish, and we have a positive effect on the tax because this year, most of the part of the profit is given by the shipping activity where we have the tonnage tax effect from the tax regime. So actually, we benefit from it. We do have some adjustment to highlight net profit for the -- to bridge the net profit reported in 9 months 2022. And actually, it's always a mix of different things, but the main one is the accrued management LTI incentives related to 2021, not for this year. This year, we will see it by the end of the year, but it's a portion of the accounting IFRS 16 asked us to do, I'm sorry, the IFRS principle asked us to do. So we have to, let's say, to split year-on-year, the incentive -- the long-term incentives of the manager on the whole period of the plan. So it's 3 years. So the first year, we had, let's say, a lower impact in accounting compared with the reality of the LTI impact. The second year, it was more or less balanced. And this year, there is the last one of this plan, it will account for more than what it will be the reality of 2022. It's an accounting principle, we have to follow it, but most of the adjustment is coming to that. And then EUR 900,000 more or less is contingent losses and severance agreement. We had some contract in Italy to define with the comparatives in our warehouses. So we had to define some lump-sum to change the comparative or to change the, let's say, the contract with them. And then we had a couple of severance agreements with specifically one with a top manager in Portugal that we decided to review the governance of Portugal to boost it again for our next step of growth, and we have to define an agreement with Mr. Joao Mendes. All-in-all, anyway, the net profit stands in the reporting around EUR 30 million, and it's really a remarkable result for us. Last few words regarding the net equity variance. As we said, the net equity touches EUR 202 million, starting from EUR 176 million of full year 2021. The difference is obviously to the net profit for slightly less than EUR 30 million, EUR 5.2 million of dividends, EUR 2.2 million buyback, EUR 2.4 million hedging reserve with a positive effect and other little effect of EUR 1.4 million, mainly related to the exchange rate with the Mexican currency. Net financial position, as we said, we had a very good cash conversion. But obviously, we have some net working capital change related to the higher sales we experienced. Operating CapEx, EUR 9.6 million, in line. We have a forecast between 11% and 12% for the whole year. So we are well in line with our goals. And then the main effects are dividends paid and the buy back. And then the IFRS 16 effect that account for EUR 43.7 million. We always remember it's mainly related to the concession on the public soil for the terminal markets and some warehouses we have mainly in Spain, specifically in Barcelona, we have 2 big ones. And then we have all the concessional licensing for all the terminal markets in Europe and the contract for the fifth ship that is accounting relevant. I think for the figures, as we said, we confirm the guidance. So we don't think it's necessary to review it. We're more focused on next year buildup to deliver, let's say, another very good performance for our company. So guidance confirmed. Thank you to everybody. It's all for the summary of the figures. Now I will let you the rest of the time for the Q&A session.

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

The first one is on the [indiscernible] guidance. You confirmed the guidance, but trying to look at what was the performance last year and what you have achieved in the first 9 months, it seems that you are factoring-in in the guidance a decrease in Q4 year-on-year. So my question is what are you factoring-in in this potential decrease? And last year it was around EUR 11.1 million. So in the upper end of the guidance, the Q4 implied adjusted EBITDA is EUR 11.6 million. So just factoring the impact of the ratio of the fixed vessels, this is affecting a decrease year-on-year, but you stated that probably the energy cost peak in Q3. So now the situation is getting better in the distribution, largely experienced positive trends, while the shipping rates have already been negated. So I'm wondering what is going on the guidance, just to understand it is the matter of prudence. Then the second question is on the perspective for 2023. In the distribution, the prices ought to remain quite high. You have an increase in the trend for banana and avocado as well as pineapple as you stated before. While in the shipping, you are renegotiating at the moment the freight rate. So if you could please help understand the potential guidance for 2023 as of today, clearly not trying to predict what has happened, but just understand from a [indiscernible] standpoint, the main moving part in 2022, also factored-in in the consolidation of the [Technical Difficulty]. And last question is on the shipping activity, trying to do [Technical Difficulty] just merely what you have experienced in the first 9 months, the shipping division ought to achieve an EBITDA adjusted by year-end of roughly EUR 50 million. What is the level you expect for 2023, if you are factoring the ability in the level of margins for 2023 or you are expecting something that's new to the direct cargo impact.

Actually, you asked me a lot of things I cannot answer to you. So it's going to be not really satisfying. Jokes part, for the full year guidance, it's really simple. I mean, obviously, we are confident to get the, let's say, the top range of the guidance. We don't think it's really worth to review again it for a couple of millions. It's not really, I think, touching the reality of the performance of this year. If we think where we started last year and let's say, the performance that the group achieved over the last 3 years, actually, the trend and the reliability of our estimation compared with then the final result, if you look at, at the end of the year and you look at as a whole, you can see that basically, we are prudent, but not that much. I mean we are not used to deliver the results that are really higher than the guidance. Actually, probably, we will do something more in the last quarter. We're not seeing at this very moment some critical points, but the situation is really driven by uncertainty because if you look at what happened, now everybody since yesterday is a bit more energized because the inflection data for the US economy are getting better. But one week ago, it was not the same mood. We had a couple of weeks in October when the volumes were declining. So we were saying to each other, is it the first move of our recession or not, is it just because we have the election in Italy and the people are really scared. So it's really difficult to understand in our business that is made by sales on different products every day on different countries. What is the meaning of what is happening in a certain period like now. So we don't think it's necessary, clever, or gives any added value to us or to the market to review again the guidance in November. Obviously, if we think to make EUR 10 million net result more compared with what we forecast, yes, it's reasonable. But it's some millions, let's see how it will go at the end of the year, and then we will comment on, let's say, year-to-date situation. So we have no particular fears regarding the last quarter. As I stated, we have some good signals on bananas, but still a lot of uncertainties and really difficult to make forecast at this moment. We prefer to stay safe on our previous one. Then if it's going to be slightly better, we're going to be happy everybody here. For 2023, 2023 for everybody in every sector all over the world is a big question mark because of the demand. So as you perfectly know, we have on the table different scenarios, we have a deep recession one. In this one, obviously, the demand will go down more or less we will see. It will be the case actually, and personally, I don't think it will be the case specifically for our category. Then we have a very soft landing one that is actually what we hope it will be. So the demand will still be relevant. The inflection will start to go down and hopefully, some good news from the conflict between Russia and Ukraine because actually in Europe, what we are really suffering in this moment is the impact of the energy cost. I explained to all 2 weeks ago, 1 week ago, the level of the [ fruit ] was really low compared with the one we had over the summer, but then 2 days ago, it doubled up again. So the situation is so volatile, so difficult to forecast that actually it gives to all of us some uncertainties. But good news is that the campaign of avocado last year is not related to the energy of the beginning of this year. It's not related to the energy cost. It's related to a production issue in Mexico. So it will be different, maybe better, hopefully better next year. As we already talked about bananas, we are seeing some better signals. And actually, another good point about distribution for next year is that this year and last year and 2020, so the last 3 years for many different reasons were years with a very important selection at every level of the value chain; so production, logistics, distribution, ripening. So only, let's say, the braves or only the best companies were able to survive to succeed. And so the market is a bit more clean even in terms of volumes coming to our market. So this is all-in-all, a good news for us because we are obviously one of the leaders in Europe. So for sure, for us, the fact that the competition will be more clean and more healthy with only the best company competing with less volume coming to our market, it's a very good news. So we always want to look the future with a positive attitude. So with distribution and there with the fact that we always had the issue regarding trends, because we wanted to reinforce our business model there. And actually, with the 2 new acquisitions, we will have 3 super core markets, really solid, very well diversified in terms of product range, in terms of distribution channel. So I think we have all the elements to have next year and in the long run, a very solid performance in the distribution activity. So we will see, as always, we will release our guidance at the beginning of next year, end of January or very beginning of February, we will see. But anyway, we are working on this kind of basis to build it up, with a positive attitude. Regarding the shipping, shipping is really difficult to look at because we look at the worldwide index. It does use something, but we are in a niche. So what we think that for sure, all over the world, the big flame is normalizing, but feel the level of the freight rates and the profitability for the sector is still much higher than what it was before, let's say, 2020, 2019. We think that the market, for sure, some capacity will come to the market. We can read it everywhere in all the papers, so all the big liners are declaring that actually new equipment, new vessels, new technology are coming to the market. This is for sure, but I'm pretty convinced that at the end of the day, now the market is really well balanced because it's in the end, we're not one of those, but it's in the end of a few guys controlling more or less the main route. So we don't think, let's say, another massive decrease in the freight rates, we see a plateau for the next year. For all-in-all, the industry, it's already declined a lot over the next 3, 4 months. For our very niche, it's really early to say because we are starting now to negotiate. It's going to be finishing by the end of December, beginning of January with the last contract. But volume-wise, we have a lot of requests because the services premium and delivered the goods in a very on-time and professional way over the last 2 years. So let's say, our partner clients are really happy with our service. The goal for next year for us is going to be to maintain more or less the situation of this year in terms of freight rates. Obviously, the rates will be a little lower because the bunker price is going to be probably lower than this year that was crazy peaking during the spring. But as a freight rate, we are looking at stability more or less on the reefer activity. Then we will see. But anyway, we don't see neither a scenario where it's possible to increase the freight rate even if I just want to remember to you that we never touched the peak that you are seeing in the worldwide index, but never, never, never. So we were at maximum the half of what we were looking at the -- what we're seeing at the worldwide index. So it's not really comparable. But we don't see the possibility to increase a lot the freight rates neither we see the risk that the freight rates are collapsing. So if I have to give you a big message, we see a plateau for next year on the dry activity, on the retro-activity. On the dry activity that for us, it's always a residual part on the backhaul, still in our niche, we're increasing the rate. So it's a different wave compared with the global indexes. There we are saying it's more difficult to forecast for the first part of the year for sure, it's going to be a plateau or something growing a bit, then probably is going to be normalizing during next year. So we will see within the guidance, it is really difficult because it's based on contracts, but I think we are not seeing the risk of a collapsing situation. We are more focused on maintaining more or less the scenario of this year. We are keen on the volumes because it's always the very first point for us. It's a loading factor. So we're trying to enlarge more the client base, but actually, this is what I can tell you now, then you will have to wait for the guidance.

The next question is from Andrea Bonfa of Banca Akros.

My question is related to actually the closure of the M&A campaign in France. If there is any risk that this might close actually in 2023. If that is the case, how many miles you can lose. So because ideally, it would be very nice to have everything from January 1. So just enough that you already commented, but just our opinion on that, what are the chances to close it by the year-end.

Andre, actually we are on the same way. We are ready, as I said, with Capexo, so we're just waiting the Golden Power authorization. And actually, for Capexo, I don't see main risk, but neither for Blampin because we did everything on time. I cannot give you information about the antitrust authority and the Ministry of Treasury of France because -- they take their time. We're trying to push. We hired a very good French lawyer [indiscernible]. We are -- so far, I see no major risk. I think we did everything on time to get all the authorization by the end of this year. Anyway, even if we will have some delay scenario that now I don't see, it will be some weeks. Anyway, we are at a scenario where we've not fully consolidated companies for January 1, 2023. To me, it is near to zero now because even if we buy January 20, we will consolidate all the company and then the result of 2023 is all for the buyers. So I don't see risks on that. And lastly, it's difficult to push the institution, as you perfectly know so. We did everything on time. Now we're just waiting for the last authorization.

Okay. But is it in France, like in Italy, is there any procedure of [indiscernible] or is not the case?

[indiscernible] with distribution is always the oracle because, yes, it is, but then they will never write you an email saying that the filing is complete. So it will never start the [indiscernible] timing, the way they play all over the world.

Okay. And if I may touch on, it seems that your associate contribution is getting material. Is that related to Azzurra performance?

Yes. Azzurra contribution -- Azzurra is running very, very well. Azzurra compared with last year is increasing around EUR 20 million revenues with EUR 2 million more EBITDA. It's really working in a very profitable and growing way. It's running the path that we forecast. Now we will invest a bit with Azzurra because we want to take position on some categories. We will need a little warehouse in Sicily. There's a lot of things to do with Azzurra, but it's a very good one.

The next question is from Gabriele Berti of Intesa Sanpaolo.

First question is on cost of debt. I would like to ask you what is your exposure to the risk of rising interest rates? And secondly, regarding coming back to shipping, could you please quantify more or less the contribution to EBITDA arising from the dry cargo transportation in the first 9 months of the year?

I will start on the second one. We do not disclose this detail because otherwise, we have to go into all the contract detail with every single client. So no, we do not disclose it. In terms of cost of debt, at the moment, 72% of our debt is with fixed interest rates. Obviously, it will change because once we will, let's say, use our committed credit lines to buy Capexo and Blampin, those commitments are not fixed. So for Azzurra, we will be a bit more exposed to variable interest rates. We fixed a little part of the new financing, but not that much because we cannot fix what we did not use already. So actually, we will be a bit more exposed. Anyway, we're going to be, I think, anyway well balanced for sure. We will pay something more in terms of interest rates. It's impossible the opposite because everything is growing up rapidly and sharply. But anyway, the impact on our P&L is not supposed to be massive even because what we're going to do is that we will start to use less the short-term credit lines and we will use our cash flow within the group. We will make it close from one company to another in order to make our financial operations more efficient. So we're not totally exposed at the moment. We are really well positioned. Once we will use the other 2 facilities is going to be -- we are going to rebalance more around 50-50 or 40-60 the fixed price and the variable interest rate, but I think we have the weapon to balance it as a whole for the cost of debt.

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

Okay. So thank you to everybody for attending the conference call and we will keep you posted regarding the acquisition processes. Hopefully hoping to close everything by the end of this year. And then for sure, next moment of communication will be after the acquisition, the guidance for 2023 and then the full year result 2022. Thanks to everybody. Have a nice day.

Bye.

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