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 Quarter 2023 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. Of course, we are satisfied about the excellent results of the company in this first quarter. But what I would like to address you is a couple of items between the lines of our results, which is the organic growth, our like-for-like business in terms of revenues, which is about 8.6% and also the EBITDA adjusted as a like-for-like business, which is above 25% versus last year. I think this is a significant number, both of them, which is giving us picture how solid and resilient is our business in despite of the various circumstances. Let's not forget that we are in Europe, in a mature market where the consumption is not increasing, is slightly decreasing and we are gaining market revenues year-by-year since many years. On the top of this, the other point, which I would like to address your attention is the shipment results in despite of the wittering rumors or bad luck that everybody was talking about, our shipping business is resilient, is just above the results of last year. Of course, it's a quarter. So we -- it's a little bit influenced by the seasonal impact of the dry cargo consequences. But despite of this, we don't see any reason why we should not have, for the balance of the year, still a good business on the shipping side. Now having said so, I pass the word to Matteo, which is giving you more broad picture of the company.

Thank you, Paolo. Good morning, everybody. I will go through the Q1 2023 results presentation. First of all, just to introduce, actually, the group is continuing to execute its strategy, responding with flexibility to challenges and uncertainties of the macroeconomic background, and we are trying to explore possible opportunities, thanks to the business model that I just -- as a reminder, it's multisource, extensive product range, diversified geographical scope, and it's vertically integrated in banana and pineapple logistics through our shipping business. As you remember, at the beginning of this year, we completed 2 major M&A deals for our group. One is the 80% share of Blampin Groupe. That is group active on the wholesale market. It's a leader on the wholesale market in France with 12 market stands selling directly through it to more than 2,000 clients. And the full majority, 100% of Capexo, a very great company specialized in the importation and distribution of super exotic products. With those 2 deals, the group now is really well and more balanced in the French market -- on the French market between wholesalers and retailers. So now we are almost 50:50 on the 2 channels. That is more or less the situation we have in Italy and Spain. There are the 3, let's say, main reason where we explore our business. So this is really important because having a good balance on the product range and a good balance on the channel mix give us the possibility to be resilient and stable both and to gain market share on revenues and obviously on the margin that is our main key points. In terms of cash conversion, despite an excellent growth in terms of revenues even in a like-for-like perimeter. We are able to control our working capital that has just a little absorption. But still, the cash conversion is very good. The EBITDA cash conversion is very good. We have a CapEx plan that is in line with our guidance -- with our guidance at the moment. We don't see any major changes. Actually, all the investments are focused on the super core business. So we aim to maintain at the top level and to expand somewhere, for example, in Italy and France and Portugal, our distribution footprint. But our goal is just to use the cash and the capital in order to be more efficient and more effective on the market through our logistics platform. We don't waste EUR 1 of our cash for investment that are out of our business. Just as I remember -- as a reminder, on May 10, we paid -- the company paid a dividend of EUR 0.35 per share. for a total outlay of about EUR 6 million for a total outlay of EUR 6 million. A bit of market context. 2022 -- end of 2022 and first month of 2023, we're seeing, let's say, mainly in Italy, but even in the other European countries, lagging of consumption due to a mix of effect, but mainly due probably to the increase on the selling prices. So volumes as a market context are still declining compared with same quarter of last year, but the trend started by the end of 2022. But we are able to keep volume, let's say, stable or slightly increasing at the European level, and prices help us to maintain a solid trend of growth on the revenues. Like-for-like perimeter, so excluding the consolidation of Blampin Groupe and Capexo is up 8.2% on distribution business units, so the very core business versus Q1 2022, which was 7.7% up versus Q1 2021. So it's a solid trend, and it's something that we are building up through channel mix, product mix and gaining market share year-on-year. We have, like always, some products that are doing better and are -- they are doing -- they are facing difficulties, but all in all, it's a good price mix and price effect on the profit range. The adjusted EBITDA margin always refer to the distribution business unit comes in at 4.8% versus 3.3% of last year. As a reminder, last year, in the first quarter, we faced a very difficult situation on the avocado campaign, specifically from Mexico. For Europe, the situation this year changed due to normal rolling market condition and weather conditions. A very good momentum on bananas, and I actually it's a relief compared with the -- with last year due to a significant increase on the sales price, both on the long-term contract with retailers and in the, let's say, wholesale market -- an open market. Very good results and returns on exact fruit, as we were saying, mainly avocados, but all the exotic [indiscernible] is performing well. This is a very interesting trend because we are gaining, for example, in Italy, plus 30% on exotic fruit in terms of volume. Italian consumption is growing a lot and is touching a very relevant point in terms of consumption kilo per capita per year. But still, we are growing double-digit more than the market. So it's a very good sign that our distribution footprint, our efficiencies in the operation and our commercial capability is able let's say, to double up the market growth when we push on a certain project or certain items. There is a good sign as well on the operations side, giving -- even by the decrease on energy cost by EUR 0.5 million. Actually, the energy cost is lower compared to last year, but always, as a reminder, the big challenge is going to be this summer because -- or the big difference because last summer was the real super peak of the energy cost and of the energy consumption due to the climate condition that was really, really a high temperature all over Europe. So we will see the second quarter and the third quarter, we will have the real touch base on the energy cost. Shipping business unit, the Reefer transportation report solid results driven by a slightly decline in carried volumes due to lower fruit available in production that actually is 1 of the reasons why the price on bananas on the distribution side are okay and stable freight rates compared with last year. Dry cargo transportation, the way back from EU to Central South America achieved good returns in line with crew for 2022 trend. So actually, still really solid and high-level freight rates. We will see on the next quarter how will be the trend, probably declining a bit, but always a solid trend. So adjusted EBITDA margin still is very good compared with the Q1 2022. Going to the main figures and then leaving to you the rest of the time for the Q&A session. Net sales at the group level spent at EUR 347.3 million is a plus 31.6%, including as well the effect of the new acquisition Capexa and Blampin. Adjusted EBITDA stands at EUR 26.2 million or plus 48% compared with last year. And the net profit stands at -- the adjusted net profit stands at EUR 13.4 million or plus almost 50% compared with last year. Obviously, we have an increase on the net financial position due to the fact that we performed the 2 M&A deals that counts all in all, almost EUR 92 million based on EUR 65 billion already paid for the 2 M&A deals. And the rest, the balance to EUR 92 million is nonbearing interest related to earn-out already considered within the net financial position and effect of the put and call option liability for the 13.3% residual shares, there is still in the hand of the Blampin family, our -- the other shareholder of Blampin Groupe. So net financial position is increasing. It comes with an increase in financial expenses in -- due to interest rates and the higher, let's say, amount of debt that we raised in order to finance this acquisition, but still is totally under control and totally in line with our plan. If we go a bit in detail on the main issue, building up the net profit, we can reach net profit of Q1 2022. That was standing around EUR 8.9 million. The main change is the profitability -- additional profitability, EUR 8.6 million, of which almost EUR 4 million related to the new acquisition and EUR 4.6 million the increase of the like-for-like perimeter. EUR 1 million of higher D&A and provisions due to -- mainly due to the new acquisition within the perimeter. Financial expenses and share of profit -- the mix is decreasing by EUR 1.7 million. It comes mainly due to higher financial expenses and some exchange rates, euro against the Mexican pesos that are affecting negatively the profit and loss account. And taxation is higher by EUR 1.5 million because obviously, there's a higher profit. And the 2 new acquisitions in France are a company that actually had no previous losses to use to cover profit. So at the end of the day, they have a higher impact on the taxation. But still is in line with the higher profit at the group level. So we passed from EUR 9 million in Q1 2022, and we touched 13.4 million in Q1 2023 that actually is a very brilliant result for us. We're really satisfied about that. Last detail, I will like to give you, actually, we are well in line with the guidance we gave on the full year 2023. Obviously, a quarter is a very good sign, but still it's not the full year. So we are touching base every day with our control mechanism, but we are really confident on the fact that the year will be a good 1 and in line with our guidance. So I think no more details from this slide. I would like to leave the rest of the time for you to raise questions or curiosity if you have some.

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

The first one is on the shipping division, if you could, please, better detail the trends you have seen so far year-to-date. And with a focus on the drive rates and in light of this dynamic, you were factoring in your guidance as you are down in the shipping yet [indiscernible] for the rest of the year. [indiscernible] Audio Gap

I will try to answer to your question. So actually more detail about the shipping. As you know, the front haul, so the fruit activity is on, let's say, 95% of the loading factor is based on contracts standing for the whole year. So the contract considered already bunker adjustment factor in order to rebalance increase or decrease on the oil price. So actually, we released the guidance every year based on a solid base that are the contract that we signed with all our clients. And I remind to you that 50%, 52% of the capacity of the ships are captive use. So at the end of the day, on the front haul, we -- that is the core business the vast majority of the revenues and the vast majority of the profitability, it's really -- the forecast that we make is always in line with the contract that we signed. So then we can have some views about the oil price. And so the little, little effect that it could have on the freight rates. But basically, there are no major changes. So if we release the guidance, it means that we trust the fact that our shipping activity on the front haul will be solid and will perform more or less the range of profit that we forecast. So for the rest of the year, we don't see major changes. And we are seeing even April end and beginning of May that still is running, let's say, in line with our forecast and with our views. Going on the dry activity. Dry activity is something that is, let's say, part of the -- it's not part of the core business in the sense that it's not through it -- but obviously, it's something that we do since 30 years. So we have our clients, we have our market share, but it's more related to a spot market. So we have -- all the clients know that our line is going back from Europe to Central America on a weekly basis is really regular and [indiscernible] pass. But obviously, we are more linked with the general atmosphere on the dry cargo, let's say, environment. So the trend that we see is that last year, 2022, we saw beginning of the year, the rates were still not really high, and they were -- they started to grow during the year, picking the freight rates on the last quarter. So in our guidance, we -- what we forecast was to have more or less the same average level of freight compared with 2022 on dry cargo, but with a different time lapse because obviously, last year, it started slow and it was speaking at the end of the year. And this year, our view is that it's starting high on the Q of last quarter of 2022 and then is rebalancing a bit on the residual quarters. But anyway -- and that's why we gave a guidance that was slightly lower compared with the last year in terms of overall profitability. So this is the trend, and this is the information that we have on the drive. To tell you the truth, the dry activity is still very good in terms of volumes and revenues at the moment, just slightly lower in terms of freight compared with 1.5 months, 2 months ago. So it's an open market, it's a niche because it's a defined route, we are not playing all over the world. So we're really concentrated in 1 route. So we will see quarter-by-quarter. But anyway, it's going to be -- It's not going to be bad or very bad. So it's -- anyway, it's going to be a resilient and good year in the shifting. That's our view and it's based on the factual information that we have. And so with this, I hope I answered to the first and the second questions. Regarding Capexo and Blampin, when it comes to new acquisition with solid and historical businesses where we want, we wanted strongly the previous shareholder to be let's say, to help us to drive the future of the 2 companies together with our management in France. Obviously, when we talk about synergies, we have to be slow. So what we did, the integration of Blampin and Capexo in terms of human feeling between us and the 2 company is very good. We had no surprises, both from the people, on the figures, on the organization of the company. We are starting the integration and already we have a good result on that. On the, let's say, financial accounting reporting side because this is something that is helping us then to touch the business in a good way with more information and convincing the 2 companies to develop a strategic commercial project with the Orsero organization. We are already organizing periodic meeting with all the French companies and with the top management, including me and Orsero and Alessandro Canale in order to start to understand where we will be able to work on the commercial synergies. But let's say, so far so good, but it's just 4 months time. So we started from the harder integration that is reporting, accounting, bank reporting, product reporting, margin reporting, price reporting, volume reporting. We are exchanging on a constant basis about strategies, clients and sourcing. We have some ideas about strategic projects, but still we will need all this year in order to figure out which will be the right way to develop in order not to destroy value or not to destroy relationships when you buy such a good company, you don't have to restructure those companies. You have to involve those company within your network. So it's something to handle smoothly and we are acting with this approach. Anyway, so far, so good in terms of results because the 2 companies reached almost EUR 64 million combined. The revenues with EUR 4.1 million EBITDA, that is 3.6% EBITDA margin. So it's perfectly in line or slightly above compared with what we forecast by the end of last year.

The next question is from Andrea Bonfa of Banca Akros.

My first question is related to what you mentioned from [indiscernible] from, let's say, Q2. You are increasing the amount of active volumes for sporting your ship. So you can elaborate on that and highlight maybe the advantages of a, let's say, change your business now that [indiscernible]. And the second one is, again, on the acquisition in the sense that it's really -- I think that is now in several years that you are expanding the organic growth. And this year, since you are accelerating on that. And my view is that with 2024, you will rework of the integration with the French company. So is it possible that also 2024 will be a year of the fixed assets and the interest peak to 5% organic growth that we've been able to deliver so far.

Okay. First question is this year. Second one is a bit of philosophy, but I will try to answer to you. Okay. Shipping activity is not really the new particle. It is not really changing our business model. We will always run with 5 ships. Our core markets of delivery will always be Portugal, Spain and Italy and then transshipping to France. So no major changing we will always load our fruit in Santo Domingo, Costa Rica and Colombia. The only difference is that given the fact that we always try to be balanced both on the channel sales mix, but even on the sourcing mix because it's important with the same way. Given the fact that in Colombia, we have, at the moment, one main supplier that is a very good partner for us. But we would like to, let's say, to rebalance the risk with another partner, this other partner is growing the fruit in an area in Colombia that is really far from where -- the port to where our ships goes every week. So we decided to study the possibility to add an additional port in Colombia in order to be able to load our fruit, the fruit that we buy to be distributed in Europe avoiding the fact that we make a program with the supplier, with the producer, or the grower that we want strategically on the sourcing. But we cannot make efficiencies on the logistics because obviously, if I distribute and import always the same amount of fruit and bananas. And now I can load, let's say, almost everything that I buy and then distribute. But tomorrow, I cannot load a relevant portion of this because actually, I will try to source from another area. The decision was why not to study to add an additional port in order be able to load everything that we buy, and then we sell and distribute and it comes with controlling the quality, controlling the logistics, controlling all the value chain from the -- from -- let's say, from the plantation to our warehouses in Europe and then to use -- to have a higher, higher captive use of our ships that from 50%, 52% will be able to arrive between 65% and 70%. This will allow us anyway to -- if we see that the market condition of the shipping, we have clients -- third-party clients that will be keen to pay a higher -- a very good freight rate to us. We will always be able to decide to decrease the captive use by 5%, 6%, 7%. And to assess other clients that are paying very good rates and to use container liners to shift the residual part of our business. So actually, it's something that is not changing our business model but is giving even more flexibility and efficiency to our business model on the shipping. Going to the second question. It's very difficult to answer to your question because it's -- for sure, let's say, this year will be a year where we will study. We will do the things that are compulsory to do. So everything to control, everything to study the company, everything to have the right reporting. It's something that we are implementing in 2023. We are finding very good [indiscernible] with the 2 companies. So probably we were able to speed up some conversations. We're already having some relevant conversations, and we had those conversations during the due diligence that was not only an accounting due diligence, but was a strategic 1 before buying the 2 companies. We will try to find the balance in order to be able to integrate commercially the 2 companies, but the integration won't mean that we will force the 2 companies to use our suppliers or to distribute our product. It's going to be a mix suppliers of those 2 companies to be used in other markets or in other companies like in Italy or in Spain, crossing the client between the companies in France because, obviously, Blampin has no GMS client, has no retailers clients. So it comes only with supplier efficiencies. Capexo an asset transcend through Tika, the other 3 companies are really exposed as well on the retailers' channel. So there, we can play with products and with client mix. For the organic growth, we think that it's going to be -- it's difficult now Andrea to tell you there is to be 4, 5, 6, 3, 2, we don't know. What we are pretty confident to be able to do is to beat the market condition because it's something that we are doing every year. We have a lot of nice projects going ahead organically on new product mix, on new varieties, on new products that actually were doing at the moment as a distributor, but not really with an integrated philosophy that is day by day, always more important. But focusing on France, I think that we are a unique player in France at the moment. We don't want to push sales growth touching the margins. We always want to push and to have growth where the margin can benefit from this growth. So we're not really keen on growing 5% or 6% in terms of revenues. We are keen in order to maintain or to beat again the profitability of the product mix and the 3 companies. I'm pretty confident that if it's not 2024 anyway in the medium term, we will be able to develop strategic projects in France, with the 4 companies and to achieve a higher profitability. That already is really good. What I want to highlight is that the trends, profitability with the 4 companies that the group owns at the moment is already really, really good.