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 [ Full Year ] 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.

Good morning to everybody. Before I pass the word to Raffaella, I just want to stress one item, which is not strictly linked to the economics. And it's the point which I'm not sure the market has been perceiving important and they are concerning the 2 acquisitions in France. They are not strictly important only because of economics, but also we believe it's very important from a strategic standpoint of view. Finally, Orsero after the [indiscernible] acquisition has a very well-balanced distribution network geographically, because the importance of the 3 major countries are comparable: France, Spain and Italy now, product range because we have a company which [indiscernible] is not even reaching probably 20% of our revenues, and we have a very range -- very great range of products among the 3 countries. And last but not least, distribution mix because right now, France, Italy and Spain have a distribution mix between chains and traditional market, which is almost 50-50 percent. So now we are really ready to go for a long-term challenge, vis-a-vis, the consumption of the mature markets like Europe. Now having said so, I'll pass the word to Raffaella. Thanks, everybody.

Thank you, Paolo. Welcome, everybody. Thank you for joining us today. We did very well in 2022, even above our guidance range to the market. And I have to say we are very pleased with that. Group revenue increased by 11.8% to EUR 1.2 million, which is a quite nice milestone. Adjusted EBITDA of EUR 76.1 million, up 43.7%. Obviously, this is the year of the shipping, but the distribution played its part, also thanks to an exceptional fourth quarter. Distribution revenues are up by 9.1%, and the adjusted EBITDA stands at 3.2%. Price increases in response to inflation were the primary reason for this growth. But I would like to point out, [indiscernible] is again the evidence of distribution and resilience even in unpredictable context. The adjusted EBITDA at 3.2%. It is a more than satisfactory level, considering that we have had a huge increase in operating costs. Moving on to the shipping. This is really worth an exceptional year. Revenue increase of 37.2%. But above all, the adjusted EBITDA equal to about EUR 48.3 million. These results, thanks to a significant cash generation have further improved our net financial position, which on 31 December '22 is equal to EUR 67.4 million. Considering these results and the commitment related to French acquisition, following a disciplined approach to capital, we have proposed a cash dividend of EUR 0.35 per share. Before leaving the word to Matteo, I would like to add something about 2023. For the current year, as you can see from the new guidance that we have provided, we believe our business model can continue to drive growth and profitability. In terms of distribution, French acquisition will certainly contribute. But we are also confident about further organic growth and we are convinced, we still have an untapped potential. In these first weeks -- in these first few weeks, we saw somewhere the volume like declining, but really, this is not a drop in sale. It was rather a lack of [ brand. ] On the other hand, average unit selling price are still rising as well as an annual contract for banana being closed at higher price than last year. Shipping will certainly not be able to replicate [ 2002, ] but we are still optimistic to get an excellent result. And finally, we will commit this year on [indiscernible] and CapEx for integration, and we will continue to identify medium-term acquisition. Now I will turn the call to Matteo to talk about the financial results.

Thank you, Raffaella. Thank you, Paolo, and good morning to everybody. I will take just a few minutes to recap what we've been through in 2022. I will drill down a bit the main figures, and then I will leave the rest of the time to the Q&A session. So as Paolo and Raffaella just said, we [ live ] in 2022, a really challenging environment. The group is continuing to execute its strategy and leverage on its business model that just as Paolo remember, is multi-sourced with an extensive product range. Now really well balanced and diversified on the geographical scope and is vertically integrated in banana and pineapple logistics activity, as Raffaella outlined commenting the super performance of the shipping business unit. Actually, we -- given that business model, we were able to absorb the main drawbacks that was doubling up of the energy cost on the distribution business unit platforms that after the peak in Q3, came in at more or less EUR 14.5 million for full year 2022 for the whole business unit compared with EUR 7 million in full year 2021. This is equal to plus -- then doubling up the cost of energy. And actually, why we mention the cost of energy every time because in our business, actually, the cost of energy is the cost of our distribution, and it's the most difficult one to pass through the selling prices. So actually, we had to absorb a portion of this cost, specifically in the Q3 peak. But all in all, we were able to pass through the most and the biggest part of this energy peak. We are continuing -- we continued in 2022 with our CapEx plan. This CapEx plan is aiming at maintaining and somehow extend the group distribution footprint that is actually our core. And the main topics for this year for 2022 was the renovation of the [indiscernible] warehousing trucks, still ongoing, the enlargement and refitting of the [ Alberca ] site in Portugal and we are working hard on the ERP project in Italy, France and Spain. Since a couple of years, we are experiencing a very good operating cash conversion while the working capital absorption for the end of the year 2022 is negligible, thanks to the work we did on our net working capital as a whole. We paid in May 2022, a dividend of EUR 0.30 per share. And as Raffaella said, the proposal to the shareholder meeting for 2023 will be EUR 0.35, always around the tenth of May. End of July, we defined 2 strategic agreements in France, as you know, 80% for Blampin Groupe and 100% for Capexo. I won't go in details because we made many different press release with all the details about this acquisition. But we are already working there in order to extract from those 2 deals, the best synergies that we can, both on cost side and commercial side. It will be a long-term project that the first movement we're seeing between the people -- the commercial people, from our companies and Blampin and Capexo are really good. So the integration of the people is running well, and this is the base for the real synergies in the future. A bit of market context of 2022. The household consumption of fresh fruit and vegetables have been characterized by significant selling price increase and decline in volumes. In this framework, Orsero was able to overperform the market on both, volumes and pricing. What is really satisfactory for us is really to see the result of the strategy we decided last year in -- end of 2021 between November and December. That now is applied by everybody in the market, but we were, for sure, the first one to push the clients to have higher prices, because we were sure that the inflection was something that we could not have beaten but just followed without speculation but without destroying our margin and the margin of our clients. Distribution business unit. I will go a bit in the figures in details for distribution business unit and shipping. So actually, on the sales growth, on distribution, we had a pretty good result in almost all countries. Main reason of the growth is the selling price increase. With the exception of France where we had in 2022, a slightly declining revenues. In -- on revenues, on the shipping, we improved by EUR 38.6 million as a consequence of the enduring favorable condition, increased freight rates on the freight line -- the front haul line, thanks both to [ bus close ] effect and higher bunker costs. Better revenues from dry container transportation, the backhaul activity, and a weaker euro versus USD exchange rate. Actually, this gives us a very positive currency translation on the shipping. It's not working the same way, it's working in the opposite way in the distribution. Going to the profitability, the adjusted EBITDA is up by EUR 23.1 million or plus 43.7% versus last year and the margin is 6.4% versus 4.9% 2021. In terms of products, the main highlights. We had very good momentum of platano canario and pineapples. So platano canario, the banana that are mainly consumed in the Spanish market. And for pineapples was a very good year in terms of profitability, even though the volumes were declining. Avocado at the end of the year -- if you remember at the beginning of 2022, we had some issues with avocado profitability, specifically in France. But at the end of the year, [indiscernible] the same performance with 2021. So at the end of the day, we are pretty satisfied by the avocados profitability for 2022. A very good news was the improvement of the banana profitability in Q4 after being under big pressure over the previous 9 months 2022. On the other hand, kiwi fruit faced some headwinds with lower volumes sold and higher prices, not offsetting the cost increase, which comes with some quality issue from the counter-season campaign. So it's something that we will work with our partner for the new campaign. Operation. We already spent a few words on the energy cost. So I won't repeat it, but this is really the main things that affected our profitability in 2022. For the shipping activity, all that the result is driven by the higher -- slightly higher loading factor and mainly to the higher freight rates related to the bunker adjustment factor effect and to the backhaul increase in the spot market. Going to the net profit, we saw a very relevant increase, mainly driven by the increased profitability. So if we compare the adjusted net profit 2021, that was standing around EUR 19 million. We had plus EUR 23 million, thanks to the adjusted EBITDA effect. We had D&A and provision increased by EUR 3 million, EUR 1.5 million given to a higher impact of the exchange rate effect mainly for the Mexican currencies. Just EUR 0.8 million additional tax. This gives you a snapshot of how efficient is our tax system, thanks to the shipping activity. So we passed from EUR 19 million to almost EUR 37 million adjusted net profit 2022. For 2022, we have some adjustments going from the adjusted net profit to the net profit. Actually, the main 2 items regarding those adjustments account for EUR 4.5 million are that we are considering in 2022, all the expenses related to the 2 M&A deals performed in January 2023 that comes for EUR 1.2 million as a whole. And then there's all the effect of the top management incentive for EUR 2.3 million. This is related to the accounting system of the IFRS that is splitting on the old vesting period of the 3 years plan plus MBOs, the 3-year LTI plan that is ending in 2022. So this year, there's an accounting peak of these accounting principles. You will see all the details in our full year report. Other items are rather negligible, and it's a big mix of many different contingent losses. But all in all, the 2 main items are the 2 that I commented. Going to the net equity [ barriers, ] our shareholder equity stands out at EUR 201 million as a result of the net profit of the period, the reported EUR 32.5 million. The dividend paid to serve shareholder of EUR 5.2 million on the 2021 result. Treasury share buyback for a total of EUR [ 2.3 ] million, a negative -- slightly negative impact on the mark-to-market change of hedging instruments for EUR 0.3 million and others for roughly EUR 1 million. Net financial position, excluding the IFRS 16, improved to EUR 25.8 million, this is really a good result or EUR 67.4 million, including the IFRS 16 liability. Positive cash flow generation were slightly lower than EUR 45 million. EUR 1.5 million in net working capital change, EUR 40 million on operating CapEx, EUR 2.2 million on M&A regarding a price adjustment on the Agricola Azzurra deal, the EUR 5.2 million of the dividend paid and EUR 2.2 million on buyback. So the evolution -- the variance of the net financial position is pretty clear. Last few words about the Agricola Azzurra deal because we always talk about the French acquisition 2023, but actually it's really important to outline that the deal we perform on the domestic Italian [indiscernible] in -- during summer 2021 is giving really relevant results. Even though we are not consolidating the figures because it's a 50-50 JV, this company is actually touching already very good results. Agricola Azzurra is performing almost EUR 50 million revenues when we started in -- end of 2021, we were almost around EUR 30 million revenues as a whole. And the adjusted EBITDA that [indiscernible] reported one because it's not -- we have no main adjustment is around EUR 4 million. So it's a very good profitability. The project is going fast, it's running fast and is growing fast, both in revenues and profitability. This is really important to top line because it's less impactful because we don't consolidate the figures, but still it's a very good deal so far, we were able to perform in 2021. That's all for me. I will leave the rest of the time for the Q&A.

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

The first one is on the guidance. Your 2023 guidance is nearing a reduction in margins. If I'm not mistaken, taking the midpoint of the range, we are about at 5.7%, 5.8% in terms of adjusted EBITDA. So my question is considering that, if I'm not mistaken, the overall contribution is accretive to your current or let me say, 2022 EBITDA margin. You are due to take advantage of lower energy costs at least year-to-date, [ the market is standing at. ] The prices are higher in the distribution and the profitability is higher too. Banana is taking advantage of considerable increase in prices. So what's implied in your guidance for 2023, which drives down the margin? The second question is an overview on the sector situation. I mean you are referring to M&A options for the future. So my question is in order to compete on a global landscape, do you think it is better to look at the potential integration with another player? Bear in mind that probably not only operations from Sofar are providing investors with a good return or at least [ less possible for or it is why we carry on bolt-on ] acquisitions we are doing?

Dario, thanks for your question. I will start from the margin one. Actually, 2023 is considering basically the fact that 2 things, first of all, 2022 for us was such a surprise at the end of the year, not really for the distribution because we were pretty much confident to recover the poor Q3 result, but we had a very good surprise on the shipping activity, but this is the peak. We cannot refer to it as something that will stay. So for sure in 2022 -- in 2023 guidance, we consider still a very strong performance of the shipping activity. But we are seeing that the situation is starting to ease and we consider within our figures, a slight reduction on the profitability, specifically not really on the, let's say, frontal line but most on the backhaul line. The backhaul line is something that is really referred to the market condition, the spot market. It's not really referred to the quality of the service. So it's something that we take as it is in 2022 as a positive cash flow, positive cash generation, a very good result, a peak in our figures. But it's not something we can count on for the future, it's not serious. So this is the main reason. Then when you talk about the energy cost, you are right. But we only have to have the feet on the ground because energy cost -- if the energy cost will decrease at some point, the price will follow. So there is a world where we will maintain the prices as they are now, with the cost bases going back lowering significantly, it's a world that does not exist. The 2 things are linked. We will -- we pass through the cost when the costs are rising. But when the costs are easing, we have to decrease the price because otherwise, we are speculating on our clients and the game will last for just a few weeks. It's a really competitive landscape. So I think the guidance for 2023 is a challenging one. We are confident to be able to achieve it, but we cannot dream to maintain the profitability of 2022 in percentage because of what I commented. Then there is another technical reason that actually give it the fact that pricing are always going down -- going up, I'm sorry, and the costs are going up as well. What we are able to do in distribution is to maintain the profitability as a figure, not as a percentage. Otherwise, it's too nice. We will do our best. We have to increase the percentage of our profitability due to the product mix, but with the same product year-on-year, increased price and increased cost is resulting in a really similar absolute number but not in the equal percentage figure. If you understand what I mean. If I continue with the M&A option -- Dario, tell me if everything is clear or not, regarding the first question.

Yes, yes. Yes, yes.

Okay. On the M&A option for the future, this is something that is really with the strategy that the Board of Directors will be to us for the next 3 years. You all know that there is a renewal in 1.5 months. This is really important for us because what is really relevant is that the company now, as Paolo said, is ready for many different strategies. What we always see is that going bigger -- to go bigger is not the solution. We have many examples all over the world in our business. We're talking about our business. They're getting bigger and bigger. It's not resulting in a better profitability and in a [ standing ] financial situation. So what we want to do is continue to grow, but to be really selective in the partnership that we built. And the really important thing is that we -- now we perfectly know which is the strategy in the medium term that we want to follow. So we can -- we will scout M&A deals of medium size. We are cautious about the fact that the leverage -- the cost of debt is really high. So we have to be really careful in our moves for let's say [indiscernible] deals, it's a bit more difficult because it comes with finding the right partner and the right balance with the shareholders and so on. So it's not something that we can discuss let's say, here, and it's something really complicated because the risk is to create something big but weaker. We want to create something a bit bigger but really stronger. This is the strategy that we are following since many years.

The next question is from Andrea Bonfa of Banca Akros.

Congratulations for the results. My question is related to the sustainability of banana's price, first of all. And [ the fact that we already anticipated in the previous question. ] The implies say, guidance with the inside from 2022 result looks more, let's say, looks somewhat conservative. Do you want to share with us your expectation for profitability of shipping this year, which will make a renewal part explain the composition of your guidance? So is it too early for that? These are for the time being my first two question.

Andrea, banana price is -- actually it's pretty, let's say, public the fact that all our competitors are more satisfacted with the banana situation at the moment. This comes with a shortage in production and probably with less operators competing on the terminal markets for Europe. So all in all, the situation is better, it's driven by cost increases, it's driven as well by the sustainability of the value chain on human rights and so on. So the big retailers are starting to take care about that with more passion. So for 2023, the environment seems to be better. The sustainability of the environment in the future will be a responsibility of all the value chain because at the end of the day, if the production will again increase massively and will overpass the demand. We will feel pressure in other times. We are quite positive, but after many years of pressure, we have like -- we are having 6, 7 months of, let's say, decent situation. So it's too early to define or to say the situation is solved. For 2023, we're positive. The contract we tried with the retailers are, let's say, profitable, not only our contracts, even I think the contract of the competition otherwise, because it's all linked. The free market situation is good at the moment. We are able to give you this view for the rest of the -- for the year, for 2023, and then it will be -- it will take more time to see if the situation is really a long-term solution or it's just a spot situation. Obviously, we are a fan of the first one. So we will work and our -- let's say, our movement on the market is always not to put pressure on prices, but we cannot control the competition. So -- and we compete. So if the situation will remain like this, we will try to maintain our position or to grow somewhere where it is reasonable to grow with bananas. Otherwise, we will continue with our strategy in stopping banana growth and continuing to grow with other products as we did until 6 months ago. So 2023, you will see a higher banana, let's say, sales compared with last year in some markets, because we found the right contracts and the right condition, but we are in a wait-and-see position. We are positive, but we cannot be sure in the long run. It depends to -- it's depending to many factors. On your comment on the guidance, 2023, as I say, to Dario, I'm not -- I don't share your view. If not at all a conservative one, just because you are comparing the 2023 guidance with the 2022 peak of shipping. Because otherwise, maintaining with the situation we have in Europe on the volume side, maintaining the price increasing, maintaining the operational efficiencies and maintaining the shipping situation as it is, is a very difficult thing to do. So as I said, we are confident that we will be able to achieve the range we gave to the market, but we don't consider at all this guidance as a prudent one. As we always do, is a realistic goal for us. And it's really current with the budget we have for the year. So we don't -- we always work like that. Regarding the shipping profitability, we don't disclose it at the time of the year, you will have to wait until the release of the first quarter. It's not going to be a huge time to wait. But as I said, we forecast in our guidance 2023 already, let's say, a leasing of the shipping profitability, mainly due to the backhaul situation. Probably, you won't see that in the first quarter, but you will see on the rest of the year.

Great. That's clear. And if I may, in some of your press interview, you mentioned that your shipping might increase cap component to 70%. Is this [indiscernible]? How does that impact your business? So what does it mean? If you can elaborate.

It means that we are -- the strategy on shipping, we are not dropping on the goal of the last 2 years of shipping. So we -- our strategy to build up a more -- a stronger shipping activity, every day, every year, more linked to the distribution is always on. So we always work on the loading factor, and we always work on lowering our position to the external market, because it's something that give us profitability and leverage but it's the most volatile part of our business. So next, we are planning a strategic rescheduling of the ship. It's too early to disclose that we are planning a way in order to increase the captive use of our ships, decreasing exposure to the external clients. And this is done just to follow our strategy that is to extract volatility from our business. Obviously, in 2021 and 2022 and even 2023, that mainly 2022 was an exceptional year. So everything is covered by the very big results that we achieved. But we are working every day in ensuring to our shareholders and to our company, a business that is always less volatile and more predictable in the future. And that's the reason why we want to -- let's say, to increase the captive usage of our ships.

[Operator Instructions] The next question is from David Coppini of First Capital.

Congratulations for the results, especially for the management of working capital. I think you made something really, really huge on this side. I have 2 questions. The first one is on the other operating expenses, where there are EUR 2 million. So if I'm not mistaken, what can we find here? The second one is on the energy side because if I'm looking at the data from the [indiscernible], the average [indiscernible] Italy in 2022 was around EUR 300 per megawatt hour. And now in the first 3 months of 2023, it's around EUR 160. So down almost 50%, but still up 20% versus 2021. And I was wondering if this trend stays equal to around EUR 160, EUR 150 per megawatt hour for 2023, if we can assume that the cost of energy for the full year will be between 2021 and 2022 level. And the last question is on the dividend. As the dividend is EUR 0.35, I think the payout is around 20% versus payout that before was around 30%. So I was wondering what were the -- I mean, your conclusions to choose a lower payout for this year.

Okay. David, actually, I did not really get your first question. I understand you want more details on other operating expenses, but I don't understand on which figures are you referring on which table?

Yes. So if you -- I'm on Page 12 on your press release and under -- yes, where there is the income statement. On the gross profit, there are general and administrative expenses for EUR 75.8 million and under the result of operating income and expenses for EUR 3 million. And since it's very different from the number in 2021, I would like to watch in the trend here.

Actually, I don't have this detail in mind. If you read the full year report, you will find all the details. And if you want more details, we can organize the conference call to give you details. I -- actually, I don't have the answer to this details question. On the energy cost, actually, it's very difficult to forecast the 2023, very difficult because otherwise, we do another job. Our assumption in the budget was to be more or less in line with 2022 average. With what we did so far is to cover a portion of the third quarter consumption. That is the highest one because it's the [ toughest ] one. So we are trying to stabilize a bit, the most intensive quarter of 2023. But actually, to -- I can tell you what we are assuming in our guidance and what is current with our price forecast for 2023. That is to be more or less in line with 2022, because 2022 was really low at the beginning of the year, then it was peaking in the Q3 a lot, then it was easing in the beginning of the Q4, then peaking again and easing again. So a prudent approach in January was to maintain more or less the same level of 2022. As I said before, if the energy cost will be down significantly, I think even the price effect won't be the same that we forecast in our guidance. So it's all in, okay? On the dividend, there's a very easy answer to your question is the EUR 90 million investment we made in France at the beginning of January. So obviously, we have to pay the dividend policy with the investment strategy. Otherwise, we will find ourselves with higher net financial position. Now to finance -- on the debt side, the company is really -- is not really cheap. So we think like we have to be flexible on our payout strategy because if we decided not to make any M&A deal, we can be, let's say, more generous to propose a different payout to the shareholder meeting, but having invested as a whole of the 2 deals almost EUR 90 million, we have to pay the dividend policy with this tax.

[Operator Instructions] Gentlemen, there are no more questions registered at this time. I'll turn the call back to you for any closing remarks.

Thank you to everybody for spending this hour with us. And we hope we made a clear picture of 2022, and we gave some answer on the -- on your questions, I'm sorry for the detailed question of David Coppini but actually if you drilled down, you will find everything in our full year report. And I don't know if Raffaella want to say something which maybe I interrupted there.

Okay. Thank you, everybody.

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