Orsero S.p.A. (ORS) Earnings Call Transcript & Summary

Good morning. This is the conference operator. Welcome and thank you for joining the Orsero First Quarter 2025 Results Web 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. Just one thing before I pass the word to Raffaella and Matteo. As you know, in the last few years, we've been looking at as a sector and as a company at a slow volume erosion of the category. I want to draw your attention that this quarter, for the first time, we have been looking at the opposite side. I think this is quite encouraging for the company and for the sector. Please, Raffaella, go ahead.

Thank you, Paolo, and thank you, everybody, for joining us today. We are very pleased to deliver a very strong first quarter, but let's move straight to the highlights. Revenue increased by 12.6% (sic) [ 12.3% ] to EUR 379.6 million and adjusted EBITDA at EUR 21.5 million, improving 28% versus the first quarter of last year with a very consistent margin of 5.7%. These results have been completely driven by Distribution, which increased both sales volume and average selling prices. And it is more remarkable that this result, as Paolo said, was achieved during the first quarter, which is usually a less performing one. To go more in detail -- into details on Distribution results, net sales of Distribution grew by 12.6% compared to last year, while adjusted EBITDA grew by 35% from EUR 11.7 million last year to EUR 15.7 million in this first quarter. All countries performed well as did the production -- the product mix, but it must be mentioned on 3 special points. The Iberian Peninsula made a significant contribution this year, thanks to an overperformance season of platano canario. Mexico's avocado saw an exceptional first quarter and the banana segment did an important contribution with better results than the forecast for 2 reasons: lack of production; and a more comfortable euro-dollar exchange rate than at the end of the 2024. Just a comment on the Shipping segment. The overall outcome is fully in line with expectation. We face a stable trend in reefer load and an improved performance on dry cargo. Adjusted net profit stands at EUR 8.1 million, increase of EUR 3.2 million versus the same quarter last year. And this is a direct result of the improved operating margin. In the end, we have a net financial position of EUR 115.1 million, which Matteo will explain in more detail. I conclude with a note on CapEx. They are perfectly in line with expectation. We are finalizing investment for the new warehouse in Verona, and we are continuing with some other operational investments in France, Spain and Portugal. Looking ahead, to date, we continue to see strong demand well-balanced by product supply that combined with the solid basis provided by the results of this first quarter make us, say, that we can confirm the given guidance for 2025. And now I hand you over to Matteo.

Good morning, everybody. Thank you, Raffaella and Paolo. Raffaella and Paolo gave the, let's say, all the relevant information about the first quarter. So I will go a bit deeper into details using the presentation that we provided yesterday afternoon. So in Q1, the CapEx are perfectly in line with the expectation and we're still investing massively in our Distribution footprint. Main investments are Verona warehouse. Actually, the investment is almost completed. It's a queue of financial costs related to investment that we started in 2024 and are almost completed in the first quarter of 2025. So we will have the new facility with the berry operations ready for this season and this is a very good news for us. We're continuing to enhance and refurbish our warehouses in France, specifically with investment in Rungis, Paris, Spain and Portugal. But let's say that the main investment that we planned over the past year, including the one related to the ESG plan, strategic plan are almost completed. So we're entering into a phases of a more rolling investment. As I would like to highlight that this year is going to be always related to investment, the second year of the dry docking for the ships, for the vessels. First 2 vessels were dry docked last year and the last 2 one will be dry docked over the summer. So you are not noticing any investment in the first quarter related to the vessels, but we will have those investments in the second quarter and third quarter. Interest rate situation, actually, the Euribor is declining, as everybody know, but the hedging strategy put in place by the Group in the past allow a substantial stability in the cost of debt. So we have still a good duration on our financing and 85%, 86% of our gross debt is resulting in fixed rates. On May 14, so yesterday, the dividend of EUR 0.5 per share was paid to Orsero shareholders with a total outlay of about EUR 8.4 million. As you can see from our press release, we confirm the goals for 2025 based on the actual situation and the performance that we're seeing on sales in April and beginning of May. In terms of business, the market context in the first quarter 2025 was actually under pressure. And there's a lack of confidence, I think, worldwide, but for sure in Europe, on the consumer spending attitude because of the complexity and uncertainties regarding the geopolitical environment, the Ukraine-Russia situation that is not reaching an agreement and the U.S., let's say, new era in terms of tariffs and international commerce that is threatening the confidence and maybe the economy worldwide. So this is something that day by day is affecting the mood of the consumer on the basic, let's say, staple consumer goods. But despite this challenging, the Group, and we truly think, thanks to the business model, the markets that we are in the coverage of the sales channels and the product mix, we're able to increase both net sales and profitability. And as Paolo and Raffaella said, we were able to increase as well the volumes. And this is something really the combination of the 3 elements is very, very healthy for us and for the business. The first period of the year, the first quarter is normally -- used to be normally driven by banana and pineapple sales and then some winter campaign like citrus. But more and more, the first quarter is becoming as well a quarter where the avocados are strong, where the exotic fruit are strong, where the berries are strong. So we are putting in place a strategy where we're trying to, let's say, rebalance as well the profitability over the quarters. And obviously, this quarter was really good, thanks to 2, 3 products. But we are starting to see that each quarter at the end of the day, thanks to the product mix and for the strategy put in place and for the client base is very consistent in terms of our vision and expectation. So Distribution is the killer, let's say, of this quarter with sales growth of 12.6%, mainly driven by price effect, but with a volume effect that is notable. Price effect is not really driven by an inflection on the category because we all know about the fact that inflection is not growing anymore, but it's more driven by the value of the mix that we're putting in place with our portfolio. So exotic fruit, kiwi fruit, table grapes, platano canario, but pineapples as well, we had a very good performance. Adjusted EBITDA comes in with 4.4% versus 3.7% of last year. And this is really the output of the product mix again. It's annoying. We're always telling this, but this is a true core organic strategy of our Group and we started that strategy 5, 6 years ago and it's paying off now. Banana business is always something that we know we can handle, but sometimes can be good and sometimes can be difficult. And end of last year, if you remember, we were talking about a difficult scenario and context overall in Europe, mainly driven by the price pressure that the big retailers are putting on the category, that is basically the most sold category in terms of volume into the retailers in the fruit and vegetables segment. And so all the retailers are battling the convenience of the store through bananas. So basically, this is always our challenge. So the strategy here is to be less exposed to the retailers' tenders when it's possible and to be more open on the opportunity on the spot market and on the wholesale market. And that's why as well over the past year we invested a lot in the wholesale market because we truly think that this is a very healthy balance for the margins of the Group. Retailers are super clients and partners, but sometimes their strategy in the short to medium run is not the good one as well for us. So we have to be free to decide sometimes. Shipping business unit, there is a satisfying overall result. We -- we're seeing last year -- end of last year a scenario of substantial stability on the Shipping business unit. We have a slightly increase in sales and profitability and it's mainly driven to the dry cargo, the backhaul cargo, but it's not really notable. The Distribution business unit is the core reason of the results. But anyway, it's very relevant to tell you our vision, the Shipping will stabilize last year and this year is stable or something better is coming. And we are -- just for your memory, we are in years where the dry docking is affecting both the investment level of the Group and the P&L of the Group because we have some running costs related to the dry docking, and we have some investment related to dry docking. So considering all that, the stabilization of the Shipping business unit is at a level that we're satisfied. So it's good news. I will drill down a bit more the consolidated net profit now. So compared with last year, we had an adjusted net profit 2024 Q1 of EUR 4.9 million. And this year, we have EUR 8.1 million. So we have a massive increase. It's mainly driven to adjusted EBITDA, EUR 4.7 million, D&A and provision and financial share of profit variance is not relevant. We have a tax effect, minus EUR 1.2 million that is related to the fact that, obviously, if we -- if the result of the Shipping business stays stable and the Distribution increase the profitability, we suffer, let's say, a major tax rate effect because, obviously, on the Shipping business, we are in the tonnage tax atmosphere and in Distribution, we don't have this kind of facility. So we don't have main adjustment on the result. So the net profit reported is EUR 7.5 million. The main effect related to the EUR 0.7 million adjustment is the top managers accruals for full year MBOs and then the share of profit of the employees in France and Mexico. As we said, Mexico had a very good performance. So we have to accrue a major -- a massive, let's say, share of profit related to the load there. Consolidated net equity and net financial position. So net equity is moving up to EUR 260.7 million in Q1 2025. The main variance related to the reported net profit, so EUR 7.5 million. Then we have a negative effect on the hedging reserve because if you remember last year -- end of last year, end of December, thanks to the fact that we hedged the U.S. dollar for the banana tenders and we started to buy dollars in August, September, we had a very good positive effect on the hedging reserve by something like EUR 3 million. And this year, end of March is the opposite because after 2.5 months of very bad for us, for importers exchange rate with the U.S. dollar, then all of a sudden, the situation changed. And so at the end of the March, we had the opposite effect. So this counts in both in the net financial position as a negative effect and on the net equity. Looking at the net financial position evolution, we started end of 2024 with EUR 55 million, almost excluding IFRS 16. We have almost EUR 12 million cash flow and EUR 11 million working capital absorption. This is totally normal for the quarter because we have a lot of advanced payment to the growers all over the world. We have to settle down all the campaign for spring and summer. And the growth that we experienced on the sales is driving this effect. But we have no strange or weird evolution in no countries regarding the working capital. So it's perfectly in line with what we expected. Operating CapEx comes in with EUR 3 million. And then as we said before, EUR 2.6 billion of mark-to-market on the hedging instruments. So net financial position grew by EUR 5 million, more or less, of which EUR 2.7 million is only the effect of the mark-to-market and then the CapEx. So we are seeing now over the next 2 quarters, we're going to cash in all the working capital that we absorbed to grow in the first quarter. So we are really keen on cashing in all our working capital. And then to reach the reported net financial position, we have to add to this EUR 60 million other EUR 55.3 million counting a total reported net financial position of EUR 115 million. Regarding the guidance, we -- as we said, at this very moment of the year, we are confident in confirming the objective that we -- the goals that we settled with the budget and the guidance. But obviously, as it is for our policy of communication with the market, we will review each quarter the situation, and we will update you on our view on the future results. Thank you for your attention. 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 of Banca Akros.

Matteo, my first question is, of course, the fact that you confirm the guidance despite this very outstanding result. And you taught us that we need to look at your business at least on a 6-month basis, if not over 12-month horizon. So if you can elaborate what are your only elements, let's say, of concern, if you allow me this expression that prevents you right now to increase your guidance?

Andrea, actually, it's the first quarter. So we know that the year is long and the main summer campaign are coming now starting from May, ending with September, October. And last year, we had a very strong result in the core part of the year. So it's -- we are positive on the guidance, but we just released the guidance 2 months ago. It's the starting of the year. As I said, we have many elements in front of us. Take into account, for example, the euro-dollar situation. Actually, we took the opportunity now to hedge our euro-dollar in a better position compared to the end of last year. But still, it's something -- we passed from $1.03 to $1.14, okay, in maybe 10 days. So as it happened in that way, it can happen in the other way. So it's not a context worldwide, geopolitical, macroeconomics and whatever that allow us to take risks on our forecast. We are a company that likes to be prudent and like to maintain a very significant update with the market, but we would like to wait until, let's say, the end of June results in order to make a better evaluation and have a better vision, more consistent, and we will be very happy to upgrade our guidance if we're going to be confident about that. So that's the only reason. We don't have, let's say, main concern about the performance of the Group. But we -- I think we have a fair attitude to be prudent given the worldwide context.

The next question is from Gabriele Berti of Intesa Sanpaolo.

I would like to understand if the better-than-expected environment in the banana business was confirmed in the first part of the second quarter. Then I would like to ask you if you can elaborate a little bit more on the underlying drivers of the strong performance in the Iberian Peninsula and Mexico and if you expect this momentum to continue in the coming quarters? And lastly, if you have any update on your M&A scouting process that you want to share with us?

Okay. Gabriele, so banana business, first of all, as I said, the euro-dollar effect got really better, let's say, starting from the mid-March. So I think that the good momentum of banana is going to be even better in April and May so far. So for what is related to the -- an external factor like the euro-dollar exchange, obviously, we are not stuck in our position with the situation. So when there's an opportunity, we use the hedging instrument in order to cover our budget. So we basically decide to lose some, let's say, upside opportunity in order not to have a risk of enormous downside profitability risks on the euro-U.S. exchange rate because it's not our business. But basically, the better performance is not only related to the exchange rate, but it's even related to production situation. So there's -- as Raffaella said, there's a lack of production. This is something that is starting to be, let's say, consistent over the past 2.5 years. So it's something that is becoming a bit more structural comparing to the past situation. And even the distributors, ripeners and the operator, let's say, the industrial operator on the market are less. The problem that we have related to the banana business is the fact that the market, the sales market of banana is concentrated even in the South of Europe. In the North of Europe, it's almost 100%. But in the South of Europe, it's concentrated 60%, 70% on retailers and tenders. So the dimension of the spot market is getting lower every year. So let's say, the challenge that we have, that we, as a company, but all the big players in Europe and all over the world is to be able to dialogue with retailers in order to make them understand that this product -- we must give to this product a different value. So the problem is not really now the oversupply that used the first big problem in the past year, but the rigidity and the attitude of some retailers Europe-wide that force us to have pressure on the selling price. So given the fact that the production cannot absorb any loss anymore because it's -- after COVID, it's in big trouble, let's say, economically speaking. We're talking about Ecuador, we're talking about Costa Rica, Colombia, we're talking about Guatemala. We're talking about countries that are leaving out of agriculture exportation. And now so the challenge that we have is to push on the retailers because the spot market that was really strong in the first Q, it's giving you the value of the product immediately. You don't have to negotiate anything. There's no tender. Each morning, each week, you define the price and the market will tell you if the price is correct or not. So why we -- the performance was better compared to the expectation? Surely, a portion of this is the exchange rate. Second is a short supply in the region. And third, the fact that we are still active in each country on the spot market, even if it's not big as it used to be, still is something that can balance our performance when there's the opportunity. I hope I answered to your question. On the Iberia and Mexico, situations are different. Last year, Iberia Peninsula in the first quarter was really bad. It was really bad because Iberia Peninsula is specifically Hermanos Fernandez, the Spanish company, is exposed to platano canario that is not like banana. It's an added value product and to bananas as well and pineapple in the first quarter. Last year, platano canario, that is one of the biggest volume item of the portfolio of Fernandez was affected by a very high production situation in the region in Canary Island. So the prices went down. And to maintain the market share, we had to, let's say, to liquidate a very good price anyway to the growers. So sometimes the market drives you in the short-term to take some decisions that affect your profitability, but looking at the long-term is the right thing to do. So this is what happened last year. So this is -- this year is a more regular year with some ups because now there's a shortage of production of platano. So basically, what we -- the comparison is with a very bad quarter of Iberic Peninsula and a very good quarter this year. That's the difference. Mexico is only related to the fact that over the past years, Mexico's avocados were -- our Mexico avocados were shipped to United States. So we don't ship anymore to Europe and we don't ship anymore to Far East. We work on a client base. And when the market gives you the opportunity, now the company has different clients, the quality is okay. So we are able to get good prices. In the United States, there's a situation of very high prices at consumption with avocado and there's a very big consumption and it's growing every year. So basically, if you look at the Mexican performance, we're getting better year-on-year over the past 3 years. This quarter was a very perfect situation, let's say, with the correct volume in production and a strong demand on the U.S. market. So in this case, we are connected to the domestic Mexican production era. So now it's ended. The performance that you do from, let's say, November to March is the performance that you do because then from March to June, you won't have any more fruit. So the company has its cost, some commercial activity, but then we're going to see how it will be the next campaign, so starting from July and ending again in next March. So I think Mexico cannot repeat the performance of the first quarter, but even last year, every year cannot repeat the performance of the first quarter. So I think it's consistent with the fact that we have a good year in Mexico, thanks to the fact that the first quarter was a good one. I hope I explained myself. On this point, M&A, we're working on that. We have some opportunities and some dossier. We're working hard, but it's not, let's say, still the moment to disclose further details with you because we don't have the -- nothing, let's say, really on the table to be able to disclose to the market. But it's -- we are very -- it's very intensive activities. We are very active and working on it.

[Operator Instructions] There are no more questions registered at this time. I'll turn the call back to you.

Okay. So thank you very much to everybody for the attention and we will keep you posted on the relevant evolution about our Group. And anyway, we're going to have another appointment with the end of June results. All the best.

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