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 2023 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, everybody. Before I pass the word to Raffaella and Matteo, I would like to spend with you a couple of minutes to comment our results. First of all, of course, it's a pleasure to comment this kind of results. I have no doubt they are really outstanding, outperforming. But my intention is here to draw your attention about how they've been built on a couple of points. Considering the mix distribution and shipping, as you probably can notice, the distribution part is almost the double of last year's 6 months result. And this is built on a few reasons: first of all, the mix of products that our company is dealing with is year-by-year improving in term of value added, of course, with the boost also of the new acquisition in France. This is going to, of course, have a positive impact on our margin. Second, there is a point, which is this year, finally, we -- it seems that the bananas business has found a kind of balance between supply and demand as a consequence of the margin are more satisfactory for the industry and for us as well. That's another point. I think the -- as far as concerned, the shipping, we have a sensitive situation for the time being with a bit of slowing down from the dry cargo. But the overall results are, I would say, [indiscernible] are almost perfect. And now I would like to honor to pass the word to Raffaella. Thank you.

Thank you, Paolo. Thank you, everybody, for joining us today. I endorse Paolo's perfect synthesis. And I will try to add something. But first, let me say that we are very proud, and I want to express personally my gratitude to all the -- to all our people who made this possible. All financial KPIs have seen a significant improvement, combined with an excellent cash generation. But particularly, we are pleased with the strong performance of distribution. Distribution results are due to several concomitant factors, not only 1. The work done in the last year on high-value product mix, significant volume growth in some specific campaigns, better banana business due to a lower volume pressure from origin, and a stable dollar exchange rate and, of course, the M&A effect. But please, would you note that even like-for-like, the results are very excellent. On the 2 new French companies, we can say that they are integrating perfectly. And on their specific results, there have been no extraordinary events. They are only confirming the business plan on which they are committed with us. About shipping, is still performing well, maintains a very good profitability despite the gradual normalization, especially on dry cargo, that we expect more market in the second half. Obviously, with this result, we have revised upward the guidance, taken into account, however, some factor that could worsen in the second half compared to the first one. I mentioned just a few as lack of significant campaigns in terms of volume in the last quarter, further fall in consumption due to inflation, as already mentioned, [indiscernible] second half of shipping compared to last year. Now I will turn the call to Matteo to talk more in detail the financial results.

Thank you, Raffaella. Thank you, Paolo. And good morning, everybody. I will go more in detail looking at the PowerPoint presentation we uploaded on our website yesterday night. In terms of corporate events, actually, the group is continuing to execute the strategy, responding flexibly to the macroeconomic challenges and uncertainties and exploiting possible opportunity, thanks to the business model. And as a reminder, is multisource and extensive for the range, pushing on EBIT volume -- added value products, diversified geographical scope and diversified channel mix, really well balanced between retailers and wholesale channels. It's almost 50-50 as a whole. And obviously, the strategy continues to be vertically integrating the banana and pineapple logistics that allows us to gather very good quality fruit and to have an efficient logistics and obviously, a profitable business on banana and pineapple [indiscernible]. In terms of our Capexo, we are in line with planned investment. Actually, the first half have been slightly lower than our expectation and possibly the second half of the year, we'll see a higher amount of CapEx. But as a whole, we maintain our view on our guidance between EUR 14 million and EUR 16 million for this year 2023. And as always, all the CapEx are related to the business. So we are actively enlarging our -- and upgrading our distribution footprint, and we are continuing to execute the ESG strategic plan. The main investments we are performing now are the renovation of the Rungis warehouse in France, the retooling of the Alverca site in Portugal and a new enlargement of the Verona facility that will allow that to be more efficient and to grow on added value products. So all the investments we're performing are related to the -- to add capacity to our added value gamma in terms of product mix. Operating cash conversion is really good due to the profitability that is really, really high and a record. And we are continuing to effective work on the capital -- working capital management. And that allows us to maintain a balanced working capital situation facing a relevant growth in terms of sales. As a reminder, but you probably all know that at the beginning of the year, we performed the 2 acquisitions Blampin Groupe and Capexo. So we will go deep in details later on. But actually, the 2 new groups, companies that we bought at the beginning of the year are performing really well, both in terms of figures, sales and profitability. And we are really satisfactory by the way the people are starting to work together commercially speaking. As a reminder, the total outlay paid for the 2 acquisitions is not paid, but considering the net financial position and invested capital is EUR 91.2 million that is including as well all the earn-outs that we will have hopefully to pay based on the future results over the next 3, 4 years and is considering as well the [ unpent ] correlated to the last 13% of the [ unpent ] that we are committed to buy in 5 years. Interest rate situation, actually, as you all know, all the world faced a strong increase in EURIBOR or LIBOR, depending on the country. But this is just partially affecting the group average cost of debt, thanks to the fact that our debt structure is really well structured for the situation because the gross debt -- considering the gross debt, 80%, it has a 2.5-plus year duration and over 60% is resulting in fixed rate. And the last, let's say, relevant financing pool was signed in July 2022. So actually, we were lucky and able to catch the very last moment to obtain a decent swap between variable and fixed rate. So actually, sure we see in our P&L an increase in terms of cost of debt. But we were able to contain the impact of that. And actually, we are trying to be efficient using our liquidity within the group. So moving the week liquidity within the group, avoiding to use financing line on short term. So we actually -- we're not actually using just a little few millions euros in terms of short-term financial line. So just to give you a picture on that, that is actually something relevant for the economy at the moment. We paid the dividend in May, EUR 6 million or EUR 0.35 per share. And given the results of the 2023 first half, we decided to review and upward the guidance for the full year, and we will see in details later on. Business-wise, the market context is pretty hot in terms that there's a -- here and there a slowdown in consumption, downturn of economic condition as we know, inflationary pressure is continuing and fresh produce [indiscernible], both because the demand is not really booming because of the inflection situation, inflection rate situation. And it's all the climatic events are touching the capability to source the product from the production. In this context, actually, we are really satisfactory because even to the -- thanks to the structure of the group in terms of sourcing, multi-sourcing, multi-geography, both domestic, European, overseas and the diversity we have in our supplier portfolio, we were able to manage the situation to improve both volumes and selling prices. Obviously, the growth on sales is mainly driven by the selling prices, but we have a couple of points up in volume as a whole. And this is probably the best news we can give you business-wise. The Distribution segment like-for-like see a 10% growth versus H1 2022. All the rest of the growth is related to the new acquisition Blampin and Capexo, but like-for-like indicator, it's really relevant for us. And the reason why we have this performance related to the fact that we have a very good mix between the historical, let's say, commodity product line that for example, for banana are giving us good satisfaction, both in terms of sales and margin. And we are continuing to grow in added value products. In terms of adjusted EBITDA, we are touching really record points, the profitability of the old group is really consistent with our strategy and obviously, Blampin and Capexo added something relevant to the group profitability because as you remember, the 2 companies are well above the average profitability of the rest of the group, and this is always part of our growth strategy in the M&A. Actually, we have a good news as well in the -- on the operations because the energy costs, as you remember, last year were booming beginning from May, June and then July, August and September. Actually, still the cost of energy is higher related to the 3 complex situations, but it's slowing down, and we are able to manage it and to contain the cost and to benefit our P&L. Shipping business unit. Actually, it has slightly lower volumes which reflects the production trend. And that's even why, on the other hand, on the banana supply demand we are well balanced. And so the result is finally coming after few years of pressure. And it is resulting in slightly lower revenues, but the context we are seeing for the fruit freight rate stability in this very week, so we are seeing the booking and the loading factor really, really good. So on the, let's say, front haul activity, everything is continuing really good, and we didn't see even in the first half a major changing. Obviously, the profitability is slowing down a bit because of a weaker euro versus USD situation. And the fact that the backhaul cargo, so the dry cargo is slowing down in terms of market. But as a whole, still we see a very good situation and profitability outcome from the shipping business unit. Going on the main figures -- of the consolidated main figures, so we have net sales touching EUR 763.4 million or plus 32.5% versus last year overall, including the 2 acquisitions. Shipping almost unchanged, I would say. Adjusted EBITDA comes in at almost EUR 60 million up EUR 19 million or 47% compared with last year, with the margin on sales of 7.8%. And this is thanks to mainly the distribution effect because Shipping is all in all, stable. All the results was down excluding depreciation and amortization to the earnings before interest and taxes that moves upward to EUR 42.8 million or 64% to -- almost 65% versus last year. And the adjusted net profit spikes of 57%, up EUR 12 million to EUR 33.4 million versus EUR 21.3 million last year. The reported is slightly lower because we have some adjustment that we will see later on. Total equity is touching EUR 230 million as a direct consequence of the net profit minus the dividend paid. Net financial position, excluding IFRS 16 is EUR 87.5 million net debt, including upfront cash-out for the acquisition of EUR 65.7 million, noninterest bearing debt for a total of EUR 25.5 million, as I said before, related to earnout and put & call liability for the 13.3% of Blampin. And then obviously, as we said, a strong operating cash flow generation in H1. The net financial position, including IFRS 16, so the reported one is EUR 136 million, including almost EUR 50 million IFRS 16 liability, of which EUR 2.7 million related to the second-year charter agreement of the fifth reefer vessels. I anticipate on that point that by the end of the year, the value of the IFRS 16 will increase up to probably EUR 60 million because we will have to recharter back the fifth ship for 2 more years. And so we will have to reload, let's say, the effect on the IFRS 16. So then we will explain it better on the guidance. I think that -- now the last figures we would comment is the effect a bit of detail on the adjusted net profit variance. So we start from an adjusted net profit H1 2022 at EUR 21.3 million, going to EUR 33.4 million of H1 2023. The main effect is the adjusted EBITDA that is accounting for [ EUR 90 million ]. We have EUR 2.1 million higher D&A and provision. This is mainly the effect of the new acquisition consolidation. Financial share of profit is impacting with minus 2.3%. This is totally related to the interest rate bearing on the new debt and the increase in the overall cost of debt, as we commented before. And obviously, a tax effect that is not really high because we were able to be really efficient on the tough tax impact of EUR 2.2 million that is related to the fact that the Distribution is performing way better than last year and the 2 new acquisitions are obviously performing very, very well. The adjustment of H1 2023 is net-net of EUR 1 million. That is basically related to provision for employees profit sharing in Mexico and France for EUR 400,000. The accrual for top management incentive of EUR 280,000 related to the LTI matures between '20 and 2022. But accounting-wise, is split on the vesting period. So including this year, we have an accrual on that. And that there's almost EUR 500,000 net of impact of the final settlement agreement with the Customs Agency for a litigation that we're lacking for 20 years, and we were able to close by the end of the first half. I think that's all for the figures. Last few words on the financial guidance of 2023. So we feel confident in upgrading our guidance on sales. The first one was between EUR 1.440 billion and EUR 1.510 billion and we passed through a bracket between EUR 1.470 billion and EUR 1.520 billion. So we slightly increased the guidance on sales. We added EUR 10 million on the EBITDA. So the new guidance is between EUR 92 million and EUR 97 million compared with the last one that was between EUR 82 million and EUR 87 million. Adjusted net profit between EUR 44 million and EUR 48 million; the last one was EUR 38 and EUR 42 million. Net financial position, including IFRS 16, is between EUR 138 million to EUR 132 million compared with the last version that was EUR 148 million and EUR 140 million. CapEx, we confirm the guidance between EUR 14 million and EUR 16 million. The adjusted EBITDA excluding IFRS 16 has the same effect compared with the one including the IFRS 16. On the net financial position, there's -- we have an effect related to the IFRS 16 effect because we -- as I said before, on the net financial position, excluding the accounting effect we upgraded the guidance starting from EUR 87 million to EUR 82 million and now going to EUR 80 million to EUR 75 million. But when we go to the reported one, we must include as well the effect of the renewal of the charter of the fifth ship, that we are going to be performing by the end of the year. I think that's all for the figure, and I will leave the rest of the time for the Q&A session.

[Operator Instructions] The first question is from Andrea Bonfa from Banca Akros.

First of all, congratulations for the results, they're, let's say, outstanding. I was reading your press release in -- Mr. Orsero mentioned this several strategic organic growth projects. If you can elaborate on those, that would be [indiscernible]. And the second one is details on the financial charges. So how much should we expect by year-end? And if you can, let's say, breakdown between core interest charges and accounting items. This is the second question, okay. I'll come back to the queue.

Okay. I will try to go on both points, starting from the strategic project that we are talking about in the press release. This is really connected with the investment that I was explaining before within our facilities. Actually, the idea, apart from continuing our accounting on M&A to look for opportunities, we really think that the correct strategy for us is to continue to push and to leverage our distribution capacity in order to add added value products. But sometimes to do that, really, let's say, correct way, strategic wise, you must dedicate spaces, you must dedicate people, and you must dedicate effort on the specific new product line because most of the time those product lines are a specialized one. So you must really invest focus and hire people to follow that. So I cannot disclose which are the projects, but we have a couple that we're working on. And actually, by the end of this year or beginning of next year, we will be able to do something more. But it's really part of our strategy to continue to invest in -- to create, let's say, business line within our portfolio mix that are able to create growth and value. This is basically our aim. We did that with the First Capital. We are doing that with the smoothies. We are doing that with the exotic fruits and we were trying to push on other products like this. Just to be clear, the EBITDA result that we are seeing since 2, 3 years because the performance are really good since many years. It's really related to the fact that our average price and value mix is higher compared with 2 years ago. And this is what we want to do in the future apart from M&A and other strategic plan. But internally, we want to go there. Going to the financial charges. Actually, when you see the synthetic reporting that we include in the financial charges, a few things. So if you see the figure of the first half, you had EUR 5.6 million, but EUR 3 million is real financial charges, the interest one that we pay. Then we have EUR 1.2 million related to the IFRS 16 and put & call that is IFRS 16 -- IFRS consideration with the interest rate. And we had a EUR 700,000 related to exchange rate effect. So what we see is that we think we're going to arrive by the end of the year around EUR 8 million, EUR 8 million-something of total, let's say, flat, but [indiscernible] will be more or less related to financial expenses.

Okay. And if I may, since you mentioned M&A and the acquisition, how is the state of the art on that front? What you are looking at, in which, let's say, product category, which markets? If you can elaborate on that.

It's something that we -- actually, we always count in the distribution, and we are counting in Europe, not outside Europe. Actually, we are even looking at potentially something that is adding value to our -- the whole distribution, but it's not the time to talk about that. The only information I can give to you is that we continue to maintain a focus on the M&A, but really selective one. And what we want to do through M&A is to add value to the [ Orsero ] that we have, trying to maintain a profile that is really linked to what we're able to do. So it's not really different from what we were doing before. Actually, we were thinking about a different year in 2023, a good one, but not that good. So as you can imagine by our guidance. So now given the fact that we have a decent liquidity within our portfolio, we are potentially able to perform deals, but we will do that just if we find the right conditions, the right thing for the right company. So always really selective on the target even because as you perfectly know, the cost of debt is something that is not negligible at the time at the moment.

Okay. And if I may, the very last one. Can you remind us what's the seasonality of the French acquisition? Because if I'm correct, the last quarter of the year should be an important one.

Actually, Capexo, yes...

Not for Blampin.

Do you want to go?

No, no. Not for Blampin. There is no seasonality. we don't see...

Okay. so, yes, we don't see major seasonality. The only one in Capexo that obviously has potentially a strong campaign in December because of the [indiscernible] and that's it.

The next question is from Gianluca Mozzali from CFO SIM.

I have a couple of questions. The first is about the Distribution business unit. And I would like to know if the EBITDA margin in excess of 5% reported in H1 '23, is that something sustainable in the future? And I mean also a little bit possible to improve it? Or is something that we could expect stable and -- on the back of the higher value of the product mix? And the second question is about the Shipping business unit. And if you can elaborate on the second part of the year. And if you expect, I think -- I mean, a decrease in freight rates and so increase in turnover and-- in the second part of the year as expected by the consensus or the situation is more favorable compared to the expectation of a couple of months ago?

Gianluca, starting from the Distribution business unit. I make a joke. This question arrived when we were around the 3%, then 3.5%, then 4%, then 4.5% at this time, the question you're able to maintain it, to stabilize it. Our goal is to increase the profitability of Distribution each quarter, each half and each year. But it's something that moves slow because you must evaluate our business at least on 1- or 2-year time because it's based on campaign. So it's not always related to the cutting period. Sometimes we have something that goes faster, was lower and is the nature that is ruling here is not really the closing date. But in general terms, what is happening. Our portfolio, as I said many times, is continuing to increase in terms of value. Our average prices continue to increase in terms of value. And this is the key of having with the same investment, the same space, the same facilities, the same organization, a better profitability in terms of euro per kilo. But the other thing that is actually helping the company, the group -- the business to be more profitable is finally the banana business because we have more than EUR 200 million banana sales in our books. But historically speaking, we're not performing any profit or really poor one. So finally, beginning from the, let's say, last quarter of 2022, and the situation is continuing on, finally, the banana business has found the balance between supply and demand. And this allows all the -- not only Orsero but all the business to maintain, let's say, a decent profitability that was not there before. So if we maintain our strategy on the added value products, and we continue to maintain -- to consider a stability in the banana business, the profitability can only get better results. Our view on that, on bananas is that the market is supposed to remain balanced for the next year. It's pretty difficult to analyze the worldwide banana supply, but the key is the fact that after COVID, after what happened over the past 3, 4 years, actually, the production in some countries in Central America, specifically Ecuador is slowing down. And once the market -- the final market feel less pressure on the volume, at the end of the day, the prices will increase and increase. So this is basically our view. So difficult in this business to say, 5%, 4.5% or what it's going to be. But for sure, our strategy and the figures are testifying these -- not really as, is the fact that our strategy is delivering a part of growth in the profitability of the business unit. On the second question, Shipping business unit. We expect in the second half a decrease in the profitability that is related to something that is already existing, that is the [indiscernible] cargo, that is slowing down. The front hauls, the food business, the main business that we run is going to be stable. The loading factor is supposed to be really good and freight rates will be stable based on contracts and based on the [indiscernible] situation. The dry cargo is something different -- is considered on a spot basis every week. And beginning from, let's say, March, April started to pull down compared with last year and the first quarter. And so obviously, it has a lower impact compared with the food business. But obviously, it will be changing in the second half because the situation is cooling down and normalizing. So this is what we expected. We expect the stability on the front haul, that is the main part of our business and a reduction of profitability on the backhaul that is a residual business for Orsero. That used to be really hard, driven by the container lines or the supply crack and all the things that we -- that you read on the newspaper for 2 years.

[Operator Instructions] The next question is from Gabriele Berti from Intesa Sanpaolo.

Congratulations for the results. I would like to come back to the questions made by Gianluca. So my first one is on Banana once again, because the implied EBITDA margin at the upper end of your guidance is 6.4% versus the 7.8% in the first half. So I would like to understand if the decrease is entirely due to the shipping business or if you incorporate in the guidance, any deterioration in the trading condition for bananas? Or did you assume a stable level -- so what is the difference? So the second one is on capital allocation. In light of the strong cash generation you made and the resulting reduction in your financial position, I would like to understand what are your priorities there? Are you only looking at new M&A? Or are you also considering to implement, for example, buyback plan or increasing the payout ratio? And very last question, once again, on shipping. You gave your outlook on the second half of the year. I would like also to have some color on what are your expectations regarding rate for referring 2024? So what are you looking now on the spot rate versus your freight rates -- where the market is going and your opinion for 2024?

Thank you, Gabriele, for joining and thanks for your questions. I will try to be as precise as I can. On the -- let's say, the first question is related more on the fact that you feel that our guidance for the second half is probably prudent. Somehow I can confirm it that it's a mixture of the factors because banana business was really, really good in the first half. So we can even expect to maintain the same performance in the second one, but it's a bit bullish. So we decided to maintain a prudent -- even if we have a good view on the banana business surprises always here and there. And we supply banana in many countries with enormous volumes. So a little change in the supply-demand even for 3, 4 weeks could affect the average price. But -- so we consider a bit of prudence there, but it's necessary. Then for sure, there's the shipping flection on the [indiscernible] cargo that we largely talked about before. And the third point is that for sure, the autumn market, always after summer in a situation -- macroeconomic situation like this, September started with -- in a good way. But normally, October, November and fruit business is always slowing down because people are coming back from the holidays in the county where we play, most of the people take holiday during summer. So they are coming back from the holidays, they're saving money. We don't have in our public gamma, let's say, really seasonal products, strong product line in autumn. So some years, we faced a couple of months of slowing down, and then we put our [indiscernible] fishes on the seasonal campaign. That is always -- seasonal campaign, you can have a very good one or a very cool one depending on the mood of the people. So let's say, as a whole, we have some business in consideration to slow down our second half and we have some, let's say, contingencies or prudencies that we consider in our guidance. Then if we will see that the third quarter will be as good as the first 2, then we will have the chance to review again our guidance. It will be the case, but we always try to maintain it. It's a reasonable approach when we talk about future results and market communication. Going to the second question, M&A buyback or dividend. We always see that [ 3 ] of those over the past 3 years, 4 years or so. And we want to maintain, in philosophy, let's say, the same approach because -- we know that to grow, we must continue to invest organically. We must continue to sell M&A because the mix of the 2 is the winning point. Being financially healthy is key to invest because otherwise, it's always a problem to gather money to find the deal and to have the trust of the sellers because we always try to commit them with earnouts with the future [indiscernible]. So if you are not healthy, you're not trustful. So at the end of the day, if we find a good M&A deal over the next month, we will probably continue to put money on this activity because the aim is to grow. But if we don't have such a good opportunity, for sure, we will be more active on remuneration for the shareholder because it's even correct as an approach. So none of the 3 is excluding the other 2, it's really depending on the situation. If we don't find any M&A deals, for sure, we will give back something more to the shareholder because the liquidity of the group and the financial situation is really, really tough. Third question, shipping 2024. This is the question like the EBITDA margin of distribution is coming every year at this stage. We -- I can only confirm what we are saying since a few months. So we know that for many reasons, let's say, the shipping worldwide, the shipping activity started to normalize in Q1 2023. And our view is really related with what is happening at the moment. We are in a trade where we compete in the front haul with the fluid transportation with many giants, many operators, little and big ones. We were able to maintain the freight rate of 2022, that actually was a very good result for us. But the first time, if you are out of the market, is that your loading factors start to go down and because obviously, if my transportation cost doesn't allow the grower or the importer to less profits in the market and they result in losses. At the end of the day, they start to move a portion of the volume to other lines. And actually, it's really visible. So what is happening at the moment is that have no complaints about -- by the clients, and we continue to be fully loaded. We have a loading factor around [ 95%, 94%, 96% ] depending on the week. So on the front haul, so far so good, and we don't see any crack for next year. We will see with the new negotiation by the end of the year, but we maintain a positive view. Obviously, the reality, we will see the reality within the guidance 2024 because in that moment, we have the concrete result of the negotiation of the contract with all the clients. For sure, what we are doing is to -- and I think I commented before, we are trying to increase our capital use because when the market is booming, it's better to leverage the market. When the market is booming down, it's better to leverage your own fruit. So we are doing some industrial moves to decrease, let's say, the risk of a cooling down of the freight rate. But as a whole, on the freight rate, we maintain a positive view for sure, on the backhaul, we are seeing a normalization and still the rates that we are able to get paid by the client on a spot basis are way higher compared to the one we had before the pandemic and supply chain crisis. But for sure, are not at the same level compared with last year in the first 2, 3 months of this year. So this is the maximum color I can give you on 2024.

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

Okay. Thank you, everybody, and see you in a while for the next quarter results. Thanks, everybody. Bye.

Thank you to everybody. Have a good day.

Thank you. Bye.

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