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 9-Month 2024 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 passing the word to my colleagues, just to say one thing. The good results we had after 9 months are confirming the good performance of the distribution itself not only, but also the fact that the good mix we have improved and developed in the last few years is paying the bill. And the fact that we are more and more concentrated on high-value products is giving us good margin as a total result. Now I pass the word to Raffaella to not to lose any time.

Thank you, Paolo. Welcome, everybody, and thank you for joining us today. Just a very brief comment before leaving the word to Matteo as usual. We are pleased with these 9 months results and particularly with the distribution performance in third quarter, which was exceptional with an EBITDA margin of 6.3% Consolidated revenue for the first 9 months are generally consistent with the same period of last year, which we consider a very positive outcome in a market where consumption is still weak. Our profitability for the 9 months was strong with an EBITDA margin of 5.8%, which was not so evident given the normalization of banana prices and freight rates compared to last year. The solidity in this result is completely built on distribution. Thanks, as Paolo said, to ongoing improvement in the product mix and thanks to our presence across all distribution channels. This is precisely why we are aiming to keep investing in distribution. And this is why we have done the recent investment in Spain as well as the further expansion in our Verona warehouse. About shipping, there is not much to say. As expected, it is a normalized year, and we have returned to the pre-COVID market conditions. Unfortunately, the third quarter profitability was also affected by the additional cost of chartering an extra ship, and this was done to ensure efficient service during the dry docking of 2 of our vessels. In conclusion, we feel we are perfectly on track to meet our goals for 2024, including our ESG targets, while we had to slightly update CapEx and net financial position target in line with the Spanish investment and a higher working capital needs. Now I leave the word to Matteo.

Thank you, Raffaella. Thank you, Paolo. And good morning, everybody. Thanks for joining the 9-month conference call. I will go briefly through the main figures of our 9 months end, and then, I will leave the rest of the time for the Q&A session. So net sales, all in all, are in line with last year. They are slightly lower, minus 0.7%, mainly due or totally due to the shipping freight rates normalization. So if we take into consideration only the distribution, we are over last year by 0.3%. This is, as Raffaella said, a fantastic result in our opinion because we took some important strategic decision last year, deciding not to distribute any more third-party bananas in Italy, in the Italian market. And this is counting -- just this decision is counting for more than EUR 20 million revenues lost this year, but this is something that was needed in our opinion in order to protect the value and our market position. The other important thing to say about sales is that we suffered during the year a relevant decrease in citrus consumption all over our market. This is something related to the market condition. But we were able to recover a big important commodity line like citrus with a better product mix, mainly related to exotic gamma. This is something really relevant because it's exactly what we wanted to achieve with our strategy in order to be able to rebalance commodity lines with added value products, and this is what's happening. So we are not seeing a massive increase in our sales, but the fact that we lost some commodity lines' value and we recover with added value product, it's something that we are really proud about. Going to the margin, the adjusted EBITDA comes in at EUR 66.9 million, down by EUR 22 million or minus 25% versus last year with a margin of 5.8%. Actually, as Raffaella said, during 2024, we are pairing the result with 2023 results, and it's actually misleading because in our business, reaching 5.8% EBITDA margin with a third quarter with 6.3%, it's something outstanding, not really common among the business worldwide. Results are in line with our expectation, and we are pretty keen on reaching our, let's say, high end in the guidance for the year. Adjusted EBIT moved downwards with the same path related to the EBITDA and as well the adjusted net profit that still stands for the 9 months at EUR 26.3 million reported and EUR 27.6 million adjusted. Total equity touched almost EUR 250 million, almost EUR 251 million, mainly thanks to the P&L results. Net financial position, excluding IFRS 16, is at EUR 66.3 million. We still have a robust cash buffer of almost EUR 87 million, gross financial debt of EUR 153 million, including EUR 18 million of deferred consideration for the French acquisition. Net financial position, reported, stands in total at EUR 123 million, including almost EUR 57 million of IFRS 16 liability, of which fifth vessel lease accounts for EUR 7.3 million. I think this is more or less the most important things regarding the main figures of the 9 months 2024. Last 2 points that I want to highlight are related to the CapEx. This year, we are experiencing a high level of CapEx, but we have to highlight that the main part of those CapEx are referred to growth investments. So the maintenance of our footprint Europe-wide and in Mexico as well is still under control, perfectly under control and in line with our projection and in line with the value that we consider correct in order to protect the efficiency of our operation, but on the other side, to guarantee to the company and to the shareholders the right cash flow from the operations. We decided to make 2 main investments this year. One is related to the upgrade of the Italian facility in Verona, is our main hub all over Europe. And we increased the surface to develop more exotic product that for us is really relevant, as you can imagine, and to develop strongly the berries activity that, in our opinion, is one of the top items to develop in our markets over the next years. Then we have just started a new venture in Spain, in the south of Spain, near Seville, where we want to expand. We bought a land where we will be able to build more or less 20,000 square meter of facility. We will do it with phasing in a phasing activity. And this will lead to the new growth plan for the Iberic Peninsula. On the other hand, this year, we have the dry docking activity to make on our property vessels that accounts for EUR 5.6 million. So to re-sum, the CapEx are high, but we are investing in the future, and we are investing in distribution where we -- that is our core business and when we see -- where we see our growth. The last point is regarding the working capital. Actually, we are experiencing a higher -- slightly higher absorption from the working capital. And this is mainly due to 2 things. There's an upgrade on the reglementation in Europe regarding the payment terms for the supplier. So obviously, we have to comply with the new terms. This is something that we already touched as a point at the beginning of the year. We work on that, and we were able to recover compared to the first quarter on this point, but still it's going to be structural to have a slightly higher absorption by working capital. On the other hand, the fact that we are developing a better product mix with some importation lines, specifically berries and avocados, mango and exotic gamma requires some anticipation -- campaign anticipation to the supplier or short payment term to the most strategic supplier worldwide. So we are more than happy to invest something more in terms of working capital in order to develop a 6% EBITDA margin for our distribution. So for the rest of the time, I will leave Q&A session.

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

Congratulations for the great results. I have 4 questions, if I may. The first one, I would appreciate if you could give us more color regarding the new investment cycle in Spain. I mean the amount you plan to invest, the returns you expect and the rationale behind the investment. Then, second question, I was wondering if the costs related to the dry docking were fully expensed in Q3 or will there -- also will there be an impact in Q4 as well? Then, the last one, if you can give us the usual update on the visibility you have on shipping for 2025?

Yes, I will try to answer to your question. So starting from the investment in Spain. Actually, as I said, now in Spain, we -- when we talk about Spain now, we talk about Iberic Peninsula. So we talk about Spain and Portugal that it's our together that we see as a unique market. For the moment, this is our third market after France, Italy that each year are like toppers, first or second. But Spain, together with Portugal accounts for over EUR 400 million. So it's really relevant for us. And actually, we have no more space to grow or at least we have a limited space to grow within our footprint. So we have to decide where to increase our surface in order to develop new product lines and new volumes. And we decided to do that in the south of Spain because south of Spain is incredibly strategic in terms of port facilities. We are close to Algeciras. It's incredibly convenient for African importation that is going to be over the next years one of the key importation area for Europe. And we already have a very good team in the south of Spain, thanks to Fernández, and it's really synergic for the Portuguese operations. So why we decided to invest in Spain is because we need space to grow, and we decided to do that in Seville because it's the right place with the right people. So for us, it's really clear. The idea now is to use the new facility as a buffer for all the market. So the plan that we have over the next 5 years is to increase by EUR 100 million revenues, the Iberic Peninsula results -- revenues, working on added value product lines. This is -- we are not doing this new investment to ripen bananas, but we're doing this new investment to develop exotic cherries, berries. So all the products that we would like to add as well in Spain for our gamma. In terms of phasing, we see a first phase that is going to be the investment of next year, probably, the big one. Still it's difficult to give you the right amount because we are building the -- finishing, let's say, the project, but it's going to be something around EUR 10 million to EUR 12 million. And then, with this amount of money, we will be able to have around 10,000 meters -- new meter square additional ready to work. And then there will be probably another phase, but it's going to be more in the future, around 2030, because actually, we have another facility in the south of Spain that is leased. We made some investment there, ripening rooms, packing machinery and so on. So first of all, we want to use all the investment we made in the other facilities. And once the investment will be amortized, then we will be able to move to the new own facility the rest of the business. So this is more or less the plan. Regarding the dry docking, it is very easy. Economically speaking, the dry docking is considered 100% in the Q3 result. So there's not going to be impact in the Q4. Regarding shipping, as usually, we say during this time of the year, still it's not the perfect moment to give some guidance. But what we are feeling from the market is that the reefer activity will be stable or slightly better than this year, but let's say, for the moment, to be prudent, at least stable. So the very good news is that the normalization of 2024 was slightly higher compared with what we forecast last year. So -- but on the other hand, we don't see another level of normalization in 2025. So I think the market is going to be stable or slightly better than this year. We are always -- we will work on the loading factor because when the market at the end of the day is stable and it's not possible to increase, let's say, the freight rate with a relevant value, the goal for us is always to keep all the clients on board and to give the best service and trying to have more volumes from our core clients or to have some client base. So this is the situation for the, let's say, reefer activity. For the dry cargo, the back haul is always more volatile, but -- now the market recovered since a couple of months compared to the first part of the year. So we are positive on that. But let's say, it's difficult to forecast the spot market on the dry cargo. But we see -- as well there, we don't see any massive pressure to lose again any value. So not exciting news, but good news in our opinion. We can count on a stabilized situation.

The next question is from Andrea Bonfa, Banca Akros.

Matteo, I definitely congratulate you, your team for the distribution results in the third quarter, they are outstanding. And again, if you can explain to us how you managed to achieve these results because in this result, if I'm correct, there is still a lower mix on the banana side and some, let's say, campaigns, like citrus, that you mentioned, that didn't work, let's say, according to average. So it means that the underlying business is kind of booming. So if you can just elaborate on that would definitely help. And finally, if I may, on top of Spain, what's the situation for the other market in terms of production capacity or if you see also growing demand in Italy and France that you need to also further expand your warehousing space? We already know about Verona. If you can quickly touch also in Italy -- on Italy and France.

Andrea, thank you very much for your appreciation regarding me and my team, but actually, it's something that is coming from the past. It's we work with Raffaella, Alessandro Canalella and a lot of people among our market building up value-added product lines. And with Raffaella, we were able to perform, I think, by fact, very good M&A deals. So why the distribution now is so strong? Basically because the weight of the commodity lines on our mix is lower and much lower compared to 5, 6, 7 years ago. This was the plan. It's not something that we could do -- we could have done in 2 years, but we work on that with a, let's say, clear strategy. And now this is really part of the culture of all our people because we're talking about a company that involves in the operation, directly more than 2,000 people and indirectly over 3,000 people all over the world. And sometimes you need time to develop a corporate culture with the real strategy that the leaders want insight for the future. So there's not a single thing that we were able to do in order to achieve those results. It's a very long and sometimes difficult job to convince people, to find opportunity, to show figures, to make them understand that each time we are able to substitute a kilo of a commodity line with an added value product, our -- the effort will be the same, the investment will be the same, but the results will be higher. 7 years ago, we had bananas accounting for 50% of our revenues, now bananas are under 20%. So what happened during the summer? But it was the same thing last year that through the M&A that we were able to perform in Italy, in Spain, in France, we added channels, distribution channels and product mix. And so kiwis, berries, exotic, grapes, those are the products that we used to substitute or when it's possible, just increase the revenues that -- the mix and the revenues that we used to do during the year and especially during the summer. So it's something structural. It's not the same thing every year because sometimes the campaign of kiwi is better and sometimes it's not so good. But all in all, now we have a product mix that allows us to forecast a strong performance during the summer. And as well, we are working to build up product lines that gives us value as well in the first quarter that normally is the weaker in terms of product mix and so profitability because product mix is equal to profitability. There's no other rules. So this is the situation. We are really happy because we see that we can count on a very good distribution mix. Going to the other markets, as I said, now for the next years, we are okay with strategic investment because in Italy, we enlarged by 7,000 square meter, the Verona facilities. Still, we have space in Rome. So we feel like we -- Italy has its plan and investments made in order to be able to grow with the right products. France, still, we have spare space in Paris, so we can grow there. It's going to be okay for France to grow. And Spain, we already talked about the plan that we have for Spain and Portugal. Greece is smaller. If we will be able to enlarge the facility there, it's going to be done, but it's not going to be a massive investment. So then if it's -- if we have the opportunity, you will know, but it's not going to change the CapEx figures of the company. Mexico is okay. So the rest of the money will be used to pay dividends, and hopefully, to strike some other good M&A deals.

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

Thanks, everybody, for your attention, and let's talk again by the year ending with the final results. Thanks a lot.

Thank you.

Thank you, everybody.

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