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 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 just spend a couple of words. In a way it's almost difficult to comment a unique year like this that every number looks perfect okay. But I want to stress a particular thanks to Raffaella and Matteo for not only about the results, obviously, but also how they smartly utilizing this profitability to execute successfully the company's strategy. Now we have a company finally distribution driven, very much diversified and geographically not only but also in terms of products among our major 3 markets, France, Italy and Spain. And that give us a very nice view about the future. Now I want to pass the word to Raffaella. Thank you.

Thank you, Paolo, and good morning, everyone. I endorse all Paolo's words. First of all, I want to express my gratitude to all the Orsero people for the excellent work they have done. Without doubt, in 2023 we achieved record-breaking results. Our turnover has exceeded EUR 1.5 billion, with an impressive three-digit EBITDA margin of EUR 107 million. Certainly some positive extraordinary condition played a role, but it should also be noted the overall context was not so favorable. We have had to face a significant drop in consumption due to the inflationary pressure and an important lack of opportunity on sourcing side due to adverse climate change, especially in the last quarter. As Paolo said, distribution becoming more and more consistent was the driver of these results. It had a good performance throughout the year and in all countries. The banana business, unlike in the past, has had a very positive context. It made an exceptional contribution to the result. An important contribution was also made by the 2 new French acquisitions. Thanks to their excellent performances that were even better than expectation. But I think it is also very important to highlight how even on a like-for-like-perimeter, the distribution has improved its performance both in terms of revenues and margin. Also, the shipping had for sure made a significant contribution to the outcome. However, in the second half, it gradually normalized predicting the trend of 2024. Beside all this, we are very pleased to have achieved all the ESG guidance objective set for the 2023. Before concluding a few words about the first two months of this year. Overall, the distribution saw 4.6% increase in turnover with a slight increasing volume. And the shipping so far is perfectly in line with our normalized forecast for the year. And finally, our new berry project is started. It is a joint venture with two young partners who bring to the project a lot of knowhow, since they own a family business in the berries sector. Our aim is to introduce ourselves to the market with a supply chain project, where we provide third-party producer with the right varieties and we are committed to marketing the crop. The project will have a particular focus on Italian production, but also many other origins covering 52 weeks per year. With that, I would like to turn the call over to Matteo.

Thank you, Raffaella. Thank you Paolo for the nice words. I will go through the main figures of the -- of the full year 2023 and then I will leave the rest of the time for the Q&A session that it's more interesting for everybody. Starting from the guidance actually as you remember, we upgraded the guidance two times during 2023. This was made always to keep the market in touch with our feeling on the ongoing result and performance of the group. As Raffaella said, we were positively surprised by the performance achieved by Capexo and Blampin, and that was not really forecastable for us. Because it was a new -- a new adventure with -- with the two companies. And on the other hand, the result of banana was really exceeding our expectations. So those were the two main pillar of our performance compared with the first guidance we released beginning of 2023. At the end of the year, we're really satisfied because we were able to be -- we are able to declare a high-end result there with the guidance, so net sales EUR 1.541 billion almost, adjusted EBITDA slightly over EUR 107 million, adjusted net profit EUR 54 million, and net financial position, just slightly over the guidance by EUR 0.8 million, but this is related to the fact that we have to adjust the put and call value consideration for Blampin. Given the extraordinary result that Blampin achieved in 2023, so it is not a cache effect. It's an accounting effect related to the put and call option Blampin, so if we exclude this accounting effect to our perfectly in line I hand in the guidance. Capexo were perfectly in line with our expectations. This is another very good news because we now -- the group is getting wider and bigger so being able to control the investment -- perfectly controlled investment for the next 12 months. It's really key for us because for us capital management is really, really important in order to get the right return to our shoulders. If we look at the figures excluding IFRS 16, always talking about the guidance, we are even there perfectly in line with the forecast that we made last review. Main corporate activity in 2023 as Raffaella said and Paolo said as well, the group is keep focusing on the strategy of implementing high added value products and leveraging its business model that is more deserved and is based on an extensive product range diversifies geographical scope. And this is the reason why we decided to invest in the berries activity because it's the perfect example for that, it's a high value product, but the trend of consumption is really positive. And yes, we have all the infrastructure to do a very good job for our client. As we say that the Capexo were totally in line with -- with our expectation and the main investment were related to the upgrade of the Rungis warehouse, the main warehouse we have in France, the retooling and the enlargement of the Alverca site in Portugal, those two let's say, main investments are completed. The acquisition of a building next to the Verona warehouse, this will be one of the big investment of 2024 and is related to the berry activity, because there we will have a portion of the new warehouse of the enlargement dedicated to berries. We are investing in a very advanced sorting machine so we will -- we will give to the berry project a dedicated area in our warehouse. The operating cash conversion was excellent due to the high profitability and the effective working capital management. As you perfectly know, on the 10th of January of 2023, we completed the acquisition of the 80% of Blampin Groupe and 100% of Capexo sold for a total outlay of about EUR 90 million. As you know, the two acquisitions have earn-out schemes and Blampin Groupe has a put and call scheme as well. For Capexo, the first year of earn-out is achieved, so we already paid it. So this is a very good news because it means that the company is performing well. Interest rate situation is another, let's say, environmental complexity that we're facing. We had a strong increase in the Euribor. But fortunately, just partially affecting the group average cost of debt tax, thanks to debt structure and the hedging strategy that we perform swapping variable with fixed rates. In terms of gross debt, 90% have a duration of 2.7 year and almost 60% resulting in fixed rates. Another really important thing is that during 2023, we returned to shareholders EUR 10 million through a cash dividend of EUR 6 million paid in May 2023 or EUR 0.35 per share. And we purchased own shares for EUR 4 million with an average price of EUR 14.4 per share. Let's go on the main figures -- consolidated figures. So net sales increased by EUR 345 million or 28.8%, adjusted EBITDA increased by EUR 31.1 million or 40.8%. And the adjusted EBITDA margin that was really excellent in terms of percentage on sales in full year 2022, it was 6.4%, achieved a record of 7%. This is probably one of the best performance among the sector all over the world or probably the best one. Adjusted EBIT stands at EUR 72.8 million or plus EUR 27.1 million or plus 60% -- 59.3%. And the adjusted net profit stays at EUR 54 million, plus EUR 17 million or 46% compared to last year. Net invested capital is EUR 366 million related -- the main change is the effect of the 2 acquisition in France. And the total equity stands at EUR 238.5 million. Net financial position is really well balanced. If we look at the net financial position on EBITDA without considering IFRS 16 that is actually the one that cap really counts in terms of substantiality, we are under 1x. So we're at 0.74. So this is a really healthy and flexible situation. And even if we look at with the IFRS 16, we're just slightly above 1, so 1.19. The company is in very good financial health and is very positive for us because this situation gives us the opportunity to look forward for new opportunities, acquisition and organic investment. And obviously, dividend payment, there is the other pillar of our, let's say, financial strategy. If we look at our sales, obviously, the main effect related to the growth is the distribution and the 2 French acquisitions. But like-for-like perimeter grew by 8.5%, and this is very important for us. Shipping sales decreased by almost EUR 10 million. And this is related mainly to the backhaul activity because the front-haul activity. So the fruit volume shift from Central America to Europe were more or less in line in terms of volumes and freight rates. But surely, the backhaul activity, there is, let's say, an optimization activity for us was the one that had the highest performance during the ordinary year 2022. So it started to normalize, let's say, during the second quarter 2023. Looking at the adjusted EBITDA currently with the sales situation, distribution grew by almost EUR 39 million compared to last year. And this is really important to highlight that out of the total change of EUR 31 million, including as well the shipping activity 10.3% is totally like-for-like change and is totally related to distribution. So this is a really important thing for us because the final result full year 2023 now shows a distribution that is really strong in terms of sales, really well diversified in the different geographies, really well diversified in terms of product mix, and it counts 2x the profitability of the shipping in our guidance in 2024. So it's a very good situation and is perfectly aligned with our strategy that we performed over the past years. Going to the consolidated net profit, commenting the adjusted net profit full year 2022, we were at EUR 37 million. So bridging the EUR 54 million full year 2023 the main effect is obviously the adjusted EBITDA that accounts for EUR 31.1 million. Then we have an effect related to D&A and Provision decreasing -- increased by EUR 4 million. And obviously, financials, so mainly interest rates that grew by EUR 5 million compared to last year. And then we paid EUR 5 million of taxes more compared to last year. So all in all, the total exchange is really relevant. The EBITDA increase is very important, but it's partially compensated by other costs on our P&L. Full year 2023 reported is almost EUR 6 million under the adjusted. I think this is well justified by some adjustments that we always disclose. First adjustment is the profit sharing for the workers in Mexico and France. This is by law. Then we have the accrual for top management incentive that counts for EUR 2.5 million, and this is related to the last portion of the LTI 2020, 2022, that split it on the best period accounting-wise. So still, we have a portion related to that. And then there's the MBO and the LTI 2023 of the new plan related to the full year results. Then we have the settlement with the custom agency in Italy for a net impact of almost EUR 0.5 million. And then we had -- we bought the new building in Verona to enlarge our facilities there, but we have to destroy what is feels now and to reveal everything in the new portion. So accounting-wise, we have to, let's say, make an accrual related to the value that we are destroying total, let's say, accounting effects, no cash. And then we had other costs among the group by EUR 1.5 million. Last comment regarding net equity and net financial position. So net equity grew by EUR 48.1 million related to the net profit. Then we have to take in consideration EUR 10 million dividend and buyback together. Then we had change in minority for EUR 0.4 million, hedging reserve negative for EUR 1 million and others for EUR 0.5 million. So at the end of the day, main two effects are the net profit and the dividend and buyback effect. On the net financial position variance, the main effect is related to the M&A. As we said, the total, let's say, account for M&A was EUR 90 million at the moment of the -- of striking the deals and signing the contract. But accounting-wise, due to the main [ revaluation ] of the put & call option for Blampin now accounts for EUR 94.3 million. Cash flow was EUR 82 million, operating cash flow. We had net working capital for EUR 6 million, operating CapEx for EUR 13.2 million, buyback and dividend for a total consideration of EUR 10 million. So the net financial position, excluding IFRS 16 grew from EUR 26 million to EUR 67 million, considering all those effects, and we have to sum up the IFRS 16 liability that accounts for almost EUR 61 million. This includes the new charter of the fifth ship for the shipping operation for '24 and '25. Those are the, let's say, the main figures and most relevant issue that we faced during 2023. And now I will leave the rest of the time for the Q&A session. Thank you.

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

I got three questions, if I remember well, one is detail if it's possible to have the absolute EBITDA contribution of the French acquisition. The second one, Matteo if it's for you possible to elaborate on the berry project and when that will say, impact sales? And the third one is related to your firepower for acquisition. If I remember correctly, you had some EUR 90 million net cash in your balance sheet, you will add another EUR 30 million a year, more or less as a free cash flow with [ '24 ]. So potentially, you got EUR 120 million of cash. I mean, how much can you spend in M&A without growing net debt, if I may ask you this question.

Andrea, so we -- actually, we normally do not disclose the company by company, the EBITDA for a business reason because the two companies start to work together with the network of the group. So we have some transfer -- relevant transferring from one company to the other. But to, let's say we can make an exception for this time because I understand it's relevant. When we bought Capexo and Blampin, we're talking about without the IFRS 16 effect because otherwise, is becoming even more complicated. But we had, let's say, a target for Capexo achieving, let's say, EUR 5.5 million. This was the target for the earnout. And Blampin to achieve around EUR 9 million, okay? Those were the two targets that we had. And Capexo grew -- had a performance of between 10% and 15%, exceeding the -- what we thought. And Blampin had a performance exceeding 20%, 25%, what we thought. That is the information that I can give you, I think its precise enough for you to understand how good was our, let's say, first touch with the 2 acquisitions. And actually, it's not only a matter of performance on a single year because as you perfectly know, every business can have a very good year and a normal one and then a bad one. So this is not really -- it was -- we're really happy about that, and we are convinced that the two companies can perform better than what we thought on an average scale, let's say. But the most important thing for us is that we are starting to build an imaging strategic products, thanks to the relation that we are building with the teams in Blampin and Capexo. So for us, it's not only the performance, but we really see that we made the right move in order to be even more effective in France, but in Europe, for sure, thanks to the know-how and the strategic synergies on the commercial side that we can have with the two companies. Going to the berries, actually, we already started. The goal with the berries is to create a unit around EUR 20 million in Italy, just in we're talking about Italy for the moment. First year, the target is to get to EUR 10 million in sales. We won't look during the first month, we will look more at the value of the -- of building a good supplier base. So we won't look to extraordinary margin in the first 6 months, one year of the project because we are really convinced that if we are able to build the right supplier base with a newer house, with the new machinery and with our distribution capacity, it will be a very, very good and profitable project. Berries is probably the best trend at the moment, not only in Italy but even in France and in Spain, even in Portugal, even in Greece, so it's a very good category. The idea behind the project as Raffaella perfectly said was not to be a pure distributor on that one, but to -- in a certain way to invest in, let's say, wider connection with the production. So it means that now we will have -- we will handle varieties. We will participate to breeding projects and programs. We will have commitment with the supplier in order to commercialize all the crop of a certain area that we define with our partners. So the idea is to create a real [ flare ] of project 12 months a year with domestic production and then importation to give the best quality and service during the year to our customer. We are really excited as you can say about -- as you can feel about this project. And it will give us, in the long run, in our opinion important satisfactions. Going to the firepower for acquisitions, I'm not sure that I perfectly got your question. But what I can tell you is that I agree with you that we could invest EUR 100 million in -- in M&A. So this is, let's say, a round amount. The issue regarding this investment is that, for sure, we have to invest a portion of our cash reserves because we cannot leverage the company for 10 additional million because it will mean to pay at least EUR 7 million or EUR 6 million per year of interest rates, and we don't want to kill our P&L in this very phase of our history with interest rates. So we will have to mix the two things. But the technical things is less relevant than the target. It's really important for us to find the perfect target because if we want to strike a deal of this dimension, we cannot miss it. So we're going to be really, really selective. We are working on few different things. But before doing something like that, we are not in a hurry for M&A. We're keen on M&A. We want to do that, but when we find the right target, the right people and the right business to pair with our platform, with our Orsero platform.

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

Three questions from my side. I noted a softer profitability for the distribution unit in the last quarter of the year. Is it related to first signs of normalization of the Banana trading? Is it correct? Then I would also like to understand how cautious are the assumption on bananas that you made building your guidance for 2024. And lastly, what we should expect in terms of prices? I mean, after a positive price effect in '22 and '23, we have to expect a reversal trend on this side or it is reasonable to expect a stable prices over 2024?

Gabriele, so related to last quarter, yes. Actually, last quarter, it started to be affected -- let's say, started to be -- to see a normalization on the banana activity, and we did not have a super Christmas campaign. The habits of the people are changing. Obviously, we're looking at the panorama that we see all over Europe in terms of consumption, what it used to be normal until 2, 3 years ago or, let's say, before the tandem changed a lot. This is true. During the week, people are going to buy food many times during the week on different days, even the supermarket have difficulties in understanding the flows in and out in their stores. So this is changing, but it's changing as well the habits of the people in where and when to consume. So even the Christmas campaign now is not strong as it used to be 5, 6 years ago. So it's normalizing a bit. So -- but overall, nothing particularly bad happened in the fourth quarter. It was just a drop in the, let's say, in the quality unluckily and in the prices and profitability of the banana business and Platano Canario, that is the banana business in Spain. But this is -- these are actually normal phases, and that's why going to your second question, we normalized the Banana's expectation for 2024 because we were starting to see end of the year a normalization trend. So we decided to be conservative and still we think that the assumption that we made was the right one, even if now Platano in Spain and Banana quality are getting slightly better week-on-week. But still we are -- we think that what we forecast is okay for the moment. In terms of overall prices, it's an interesting question. There is not one rule. Still, we see a price effect on our overall portfolio, positive price effects. Surely, bananas, not really the open market, but the tenders with retailers reduce the average price for everybody. So Banana accounts in terms of revenues for 22%, 23% of our sales. So for sure, it has an impact on the overall mix. But then if you look at the single product, berries, exotic, salads, tomatoes, Kiwis, still we have many relevant categories that shows price increases. So even on that one, we think that the forecast that we made is correct. So we do not expect a price effect of 6%, 7% like it used to be on the last 2, 3 years, and it was even more, sometimes. So this is not our expectation, but we do not expect an adverse trend on pricing. We expect as a whole portfolio, a slight increase in the pricing mix. Last comment about this one that is important for you to focus on is that the price of the fruit and vegetables are not mainly related -- are related to the inflation that's for sure, as it used to be. But the main effect is always demand supply balance. So if you have, for example, at the moment, the price of mango is to double compared to last year. We're talking about crazy things because there's no mango in Peru. So this is stronger than an inflation, any Ukraine conflict, anything. This is the strongest thing. So the climate change, the uncertainties on the origin, the uncertainties on the production. In this phase, then everything can normalize in the future. But in this phase, it's still creating a pressure on price. And when the pressure on prices comes from a reality in production, everybody must reflect this pressure to the selling prices. So still, we see during this year something like that coming. Obviously, we don't have the crystal ball, so we will keep you posted on the evolution of the year.

[Operator Instructions] There are no more questions registered at this time. I turn the conference back to you for any closing remarks.

I just want to thank all of you to be listening to our call, and we will keep in touch and we will talk about the next quarter results. Thanks a lot, everybody.

Thank you.

Thank you. Bye-bye.

Ladies and gentlemen, the conference is now over and you may disconnect your telephones.