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 Group Full Year 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 to everybody. Before I pass the word to Raffaella, I just want to -- like to say 1 thing. Looking at our numbers for 2024, I've been thinking that during the last 6, 7 years, we have been facing multiple even dramatic scenarios and crisis of any kind. However, our results have always been consistent with lately with an outstanding peak in 2023. I think all above has been driven by best positioning of our business model, many times described by Raffaella and Matteo. The only thing I would like to say that I really hope that the market 1 day, will appreciate this. Now I pass the word to Raffaella.

Thank you, Paolo. Welcome, everybody, and thank you for joining us today. 2024 has ended very well. We have reached all our financial and ESG targets. Group revenue increased for the full year by 2% to EUR 1,571 million, adjusted EBITDA to EUR 83.7 million, net profit to EUR 31.5 million and a net financial position of EUR 111.2 million, even better than expected. The distribution has been the driver of this result with an impressive fourth quarter, while shipping has undergone normalization as expected. We think that once more our top-performing product, exotic, kiwi fruit, table grapes, avocado, berries, boosted our revenue and supported our margins, providing that focusing on higher-margin products with strong growth potential was and still is the right move. Shipping achieved a satisfactory result despite the expected normalization, thanks to the strong refer loading factor. And despite the extra cost of chartering and additional vessels due to the detention of 2 vessels dry dock. Regarding CapEx, I would like to mention the further expansion of the Verona warehouse, dedicated to provide an even more specialized handling of berry and exotic fruit. Finally, about on this result, we proposed a cash dividend of EUR 0.50 per share. Looking ahead at 2025, distribution started well in the first 2 months, revenue and volume growing compared to last year, while the shipping is perfectly in line with 2024. But we must be careful this year may not be an easy one. We know we will see some headwinds. The banana business is in a very intense competition. There might be lack of sourcing for some products as well as the dollar exchange rate movement. We are focused to face these challenges while continuing to work on organic growth project. At the same time, we are still searching for M&A opportunities that are suitable for us. I mean it's not so easy because we are very selective. We are looking for companies that specialize in a high-margin product and operate in a geographic region where we are not currently present. With that, I hand you over to Matteo to give you more in deeper analysis. Thank you.

Thank you, Raffaella. Good morning, everybody. Raffaella covered all the main elements of the full year results. I will try to go a bit more in detail. So starting from some corporate highlights in 2024, our CapEx increased including the dry docking and engine upgrades of 2 vessels out of the 4 that we own. Then we had the down payment that we decided during the year for the purchase of a plot of land intending for a warehouse in Dos Hermanas, Seville in Spain for the further expansion of our distribution in the Iberic peninsula. As Raffaella mentioned, the other major investment was the construction of the new Verona warehouse enlargement and lingonberries and exotic products. Then normally, we have many maintenance all over our distribution network in Europe, but those were the main investment that we perform. We intimated the ESG strategic plan. We have last Q in 2025 but our 5-year plan in terms of investment scope is almost finished with all the expected results achieved. Interest rate situation, we have a decreasing Euribor situation but this is just partially improving the group average cost of debt that, by the way, was good and it still is very competitive because our debt structure and the hedging strategy that we perform, swapping variable fixed rate is actually giving us a rigid structure of the debt because we are -- 85% more or less of our debt is resulting in fixed rate. So the Euribor is going down, but our debt structure is not that flexible and exposed to variable interest rates. During 2024, we remunerate -- we returned to our shareholder EUR 11.2 million through a cash dividend of EUR 10.2 million and a buyback of EUR 1 million. In terms of business and market context, the year was characterized by volatility and a decrease in household purchasing power. This is all over Europe and it affected as well as the fruit and vegetable market, too. Thanks to our business model and thanks to the fact that we are exposed to many, many different products with a very solid mix to many different channels of distribution in different markets, we were able to outperform the market and to grow all in all, 2% on the distribution business unit -- I'm sorry, 3% on the distribution business unit, with a remarkable plus 11% in Q4 2024 compared with Q4 2023. Adjusted EBITDA margin comes in at 4.6% compared with 5.1% of last year. We totally expected on distribution, this kind of movement, as we said many times, because of the lower marginality of the banana product. But to give you a very good news the margin of the banana products was compensated and overcompensated by the higher margin of the new category we are developing and pushing on as Raffaella said. So kiwi fruit, exotic berries, table grapes and obviously, our historical core products like pineapples, citrus and the other, let's say, commodity lines. Shipping business unit. It was a satisfying result. We have to keep in mind that 2024 and 2025 are 2 years in which we have to dry dock our fleet. So we have more or less EUR 2 million of additional running costs compared to a regular year, that those on the -- direct on the -- straight on the P&L results. And we have more or less EUR 4 million to EUR 5 million additional investment given to the extraordinary maintenance. So considering those 2 elements and considering that 2025 will be, let's say, the last year of this cycle of dry docking. We can consider the Shipping business unit with a satisfying result, reaching an adjusted EBITDA of EUR 22.2 million representing 19% of revenues compared to 31% of 2023 that, as we all know, was a real extraordinary performance. Going to the main P&L figures, we reached EUR 1.5713 billion net sales. This result is perfectly in line with our expectation. Adjusted EBITDA reached almost EUR 84 million. That was the high end of our guidance or 5.3% of revenues. Adjusted EBIT reached EUR 48.7 million and adjusted net profit, EUR 31.5 million. That is as well on the high end of the guidance. Net invested capital is more or less equal to 2023. Total equity reached EUR 256.4 million, moving mainly thanks to the net result of the period. The net financial position decreased from EUR 128 million to EUR 111 million. Thanks to the very good cash generation, we will go in deeper analysis during the Q&A session, I'm sure. Net financial position without IFRS 16, that is actually the bearing interest net financial position, stands at EUR 54.8 million or 0.83 compared with our EBITDA, always excluding IFRS 16. So it's a very solid result. Net sales and adjusted EBITDA bridge, actually the net sales variance we grew for 2% on a consolidated basis that comes in with EUR 30.5 million increase, thanks to EUR 43.1 million increase on distribution or plus 3% and a decrease in shipping activity by almost EUR 17 million or 12.6%. And this decrease on sales goes direct to the margin of the shipping activity. In terms of EBITDA, distribution decreased by EUR 4.6 million, and that was the impact of the banana business. Shipping activity decreased by EUR 19.4 million. And this is the combined effect of the decrease in sales plus the additional running costs that I described before, because of the dry docking here. Holding and service is up by EUR 0.5 million, but is negligible. So at the end of the day, our adjusted EBITDA reached EUR 83.7 million starting from the exceptional results of 2023 of EUR 107.1 million for the reason we just explained. Consolidated net profit. Actually, we have a net profit full year 2023 adjusted at EUR 54 million, that reached EUR 31.5 million in 2024. So the main effect is the decrease in adjusted EBITDA by EUR 23.4 million, additional D&A and provision of EUR 0.7 million. This is the effect of our investment. We had a better financial and share of profit by almost EUR 2 million and a slightly impact on the taxation. The reason why compared with the lower results, we are paying more or less the same taxes is because the shipping activities is connected to a special tax regime. And this tax regime is called Tonnage Tax regime. So basically, what happens is that you pay a flat fee based on the volume that you ship, that you load, that you transport, not on the results. So basically, this is the reason why we lost a big profitability on shipping, and this in terms of tax effect basically is 0 on the consolidated perimeter. Going to the last bridges, just to bridge the net financial position, we have a net financial position without considering IFRS 16 of EUR 67.1 million full year 2023. We had an operating cash flow of EUR 37.5 million, a leader absorption on net working capital effect by EUR 1.6 million, EUR 26.7 million of CapEx. We paid EUR 10.2 million cash dividend, EUR 1 million buyback, other effect by EUR 1 million, and so we reached EUR 54.8 million net financial position. This is all in terms of drill-down details. I will leave the rest of the time for the Q&A session. Thank you.

[Operator Instructions] The first question comes from Gabriele Berti of Intesa Sanpaolo.

First of all, thank you for the presentation and congratulations for the results. A few questions on my side. The first 1 is on cash generation. Given that the '24 net financial position was better than expected, the 2025 guidance on cash generation seems a bit cautious. Is there a reason for that? Or is it just that when you set up the guidance, you're still not expecting the acceleration in cash generation that you saw in 4Q? Then the second question is on Trump tariffs. If I'm not mistaken, you distribute Mexican avocados in the U.S. Is there any impact on that side? Then a question on ForEx. When you set up the guidance, you stated that banana's gross margin should be impacted by stronger USD. Does it change anything in the outlook given that USD has depreciated a little in the last few weeks? I start with those 3, and maybe I have others.

Thank you, Gabriele, for your questions. I think all of the 3 are interesting. First one, cash generation 2025. Normally, when we give a guidance, we try to be conservative realistic but conservative because we want to work in that way. On the financial position 2024, as you may remember, our first guidance was a bit more aggressive, and so we had to, let's say, review the guidance mainly due to the acquisition of the plot of land in Spain that was not, let's say, within our initial budget. And on the other hand, because it came in a new, let's say, a regulation for the payment of the fresh produce or perishable goods suppliers in Europe. And actually, all the different governments are applying this regulation with different lenses and different timing. So we experienced at the beginning of 2024, a relevant working capital absorption in Italy, for example, because we have to fulfill, let's say, with the new regulation and that, let's say, the new -- the development of the new product lines requires at the beginning, especially for certain region or certain supplier and anticipation on the receiving of the supply of the goods in order to secure the right volume, the right quality in the right region. So all these effects came in with a distortion in terms of net working capital evolution compared with our expectation. So we decided to be more conservative than reviewing our guidance for 2024. And actually, we applied the same methodology for 2025. So surely, we are -- we did not take an aggressive position on a net financial position in our guidance for 2025. Analyzing a bit the result of 2024 that actually was over the market expectation, the guidance expectation but is well over our expectation. We have to consider, for sure, in effect driven by the aging reserves that, as you know, the fair market value, the mark-to-market values of the hedging reserve goes into the net financial position by the end of the year. So what happened, given the fact that the company is exposed with a certain level of risk to the U.S. dollar and given the risk and the uncertainties on the election in November 2024, we started to buy dollars in, let's say, August, beginning of September 2024. So we arrived to the end of the year with, let's say, an amount of dollar already bought for our business in 2025 that normally we do not have because we start to buy dollars once we see how the evolution of the tenders with the retailers in Europe goes. So this year, we made, let's say, a prudential move in advance. So the result is that we arrive to the cut-off date end of 2024 with a stock of hedging on dollar that created a very positive effect of EUR 2.5 million-almost. So this effect was not expected. And actually, we cannot expect this effect to be realized as well in 2025. On the other hand, as I explained many times, given our volumes and our cash flows in and out every month, at the end of the year, we are cashing in and cashing out almost EUR 100 million per month, more than EUR 100 million per month as a group. So at the end of the day, it happens sometimes with the cutoff date that you are lucky or less lucky, depending on the calendar depending on some even technical issue regarding the banking system. So I think in that closing, other EUR 2 million, EUR 3 million are probably related to, let's say, a fortunate cutoff date. So more or less, I consider that something around EUR 5 million that we see in decreasing net financial position are related to items that we cannot really control. The rest of the result is purely the cash generation of the company. So I give you this nuance to you so you can make your consideration of our guidance 2025. So hopefully, I cover the first point. Second point, avocados, U.S. Trump, let's say, tariffs. Who knows if we will have any impact or not because who knows, which will be the reality on this kind of attitude of the international e-commerce by the U.S. administration. But what I can tell you is that, yes, you are right, we distribute let's say, 90% of our Mexican avocado to United States. So in theory, we could have an effect but I give you a couple of insights about that. 85% of Mexico of avocados consumed in the United States are Mexicans. California accounts for 5% of the total year consumption and cannot count for more because all the Californian avocados are consumed within the country, and there's no more production. The other origin suitable for United States are Peru and Colombia. But all in all, all the rest of the countries and origin now counts for more -- less than 10% of the total consumption. For different, let's say, market and market reason calibers and quality reason is not given that it will be easy to switch a part of the Mexican avocado supply with other origin supply. So we feel that given the massive influence of the avocado in the day-by-day consumption in the United States and the massive influence that the Mexican origin have on the total supply for United States, a 25% rate tariff on the avocado importation won't affect that much our operation. And I give you 1 more element compared to last year, our company, so no tariff vis-a-vis a moment where still we have no tariff in place, the avocado price from Mexico to United States is the double. So an increase by 100% of price between last year and this year. So at the end of the day, the fluctuation of the price on the fruit and vegetables from the orchard to the market, it's so high and so extreme related to market demand over or short supply that at the end of the day, our consideration is that the 25% tariff is not any way enough to, let's say, disrupt the actual system. And obviously, hopefully, we see a scenario where the tariffs will be 0 or at least lower compare for the -- with what we are reading now on the newspaper. I'm going to the last point related to ForEx. You're right, for us, the euro-dollar exchange rate is impactful, especially when we think about our, let's say, banana contract based on fixed euro price with retailers, with some retailers in Europe, given the fact that we buy banana in dollar fixed price with a yearly contract for the, let's say, 85% to 90% of our needs to secure our volumes. So when we build up the forecast the budget, and then we release the guidance, we did the job exactly in the moment where the euro-dollar went to 1.03, 1.02, 1.04. So this scenario was mid-quality euro to dollar. And so actually, our consideration in the guidance consider obviously, this kind of movement and situation. The situation stayed more or less the same until, let's say, end of February and over the last days, we see a different movement. And I don't know, who knows, which will be the scenario because it's very volatile. But surely, this situation give us more confidence on the margin for the banana business. We took the opportunity anyway to buy more dollars over the last 2, 3 weeks in order to secure our budget and to overperform, if it's possible, our budget. So yes, the situation for the moment is, for sure, better compared with the situation of December and January on the ForEx for the impact that the ForEx can have on our results. I hope I covered all your points. Thank you.

Our next question is from Andrea Bonfa of Banca Akros.

I hope you can hear me. Most of my questions have already been answered. So my -- the only 1 left is that, from the comment of Ms. Orsero at the beginning of the call, my issue is that your U.S. acquisition targets are not so close as they might have seen, let's say, in our previous calls or in our previous discussion, I would like to, if possible, for you to elaborate on that. I mean, how advance our negotiation to -- with your target, if any?

Andrea, actually, we never -- I must correct you, we never say that our, let's say, new acquisition target were close to be closed, sorry for the joke. Actually, we just said that we were scouting out of our core markets. And within our scope, North America was 1 of the ones that we were pushing on. Actually, we have some options, some possibility, but the actual situation and our attitude to pay the right try for the acquisition is always, let's say, a limit or at least, let's say, give us a more prudent view because obviously, making M&A in a new market, it's something that comes in with a higher risk profile. So we must be totally sure that we found the good ones. The -- let's say, the global scenario is very volatile. So we are making consideration even regarding the issues but we are concrete, and we are working on different dossier. It's our, let's say, day-by-day strategic attitude to work on our future. We know that our growth will pass through organic projects, and we always give less importance because the result of the organic project comes in with a different rhythm but be sure that exotic berries all the things that we are building up organically are really relevant and analyzing the figures of the company, you see those results and those results are really relevant. So we know that organic projects are the base for us to be able to grow non-organically but we perfectly know that M&A for us is a key growth stream. So we cannot disclose at this moment any further information, but be sure that we are working on some, let's say, relevant and concrete options. And hopefully, over the year, we will be able to disclose the market some good news.

[Operator Instructions] The next question comes from Gianluca Mozzali of CFO SIM.

I hope you can hear me. So I have a question about price mix and mainly prices about high value-added products. So can you give us, I mean, a flavor about the trend in these first weeks of 2025 and how you are seeing the market? So if you can slightly increase price also in 2025, as you made in 2024 and how the consumption are going in these first months of 2025?

Okay. As Raffaella said, actually, we are facing, let's say, we're leading a good start of the year, both in terms of volume and margin and revenues, hopefully, on margin as well. Price effect is still positive as I said many, many times, our goal is not to increase our average price by an inflection, let's say, effect because this is something that may exist today but may not exist tomorrow. Obviously, if we have it and still some inflection is present and relevant on the category, but it's not our goal. Our goal is to increase the average price, thanks to the mix because this is going to come in to stay. So it's a totally different perspective. So in 1 case, you do not control your future. In the other case, you are building not saying controlling because it's different, it's difficult, but at least you are building up your future. So yes, still, we are seeing an increase in terms of pricing. What we really measure and this is what we really like is the fact that the increase is coming, thanks to the product mix. We are not really keen on the inflection. On the other hand, this year, we try to, let's say, to optimize our ripening system. So we took in some countries, some additional banana contract because we knew it was the right movement to do for the year and for the specific situation. So the fact that we -- last year, we decreased massively in banana volumes. This year, we will probably regain some volumes on banana compared to last year. So if with this situation, still we see a good price effect, it means that the product mix is very healthy.

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

Thank you, everybody. And let's talk again at the end of this quarter, hopefully, with good news. Bye.

Thank you.

Thank you to everybody.

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