Orsero S.p.A. (ORS) Earnings Call Transcript
November 13, 2020
Earnings Call Speaker Segments
Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Orsero 9 Months 2020 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Paolo Prudenziati, President of Orsero. Please go ahead, sir.
Hi. Good morning to everybody. Just a couple of words before I pass the word to Raffaella. It seems to be that our business cycle so far in the first 9 months of this year looks a bit, I would say, vaccinated. In reality, the resilience that it's been showing so far, in my view, is a bit more than that. In the past few years, Raffaella and Matteo, we were saying -- we were looking basically for 2 things: first, to extract volatility in the shipping; and second, to go in distribution. At the end of the day, I think the numbers so far this year are supporting what Raffaella and Matteo are doing and showing the strategy is right. Now I pass the word to Raffaella that is on the line to give you a speech.
Good morning, everybody. Thanks, Paolo. Result for the first 9 months is showing a considerable improvement compared to the same period of 2019 and slightly better than forecast, thanks to an exceptional third quarter. Increased turnover in both business unit, distribution and shipping, up by 5.4%. The growing distribution is even more significant, considering that the wholesale channel has seen a drop in demand due to the lockdowns imposed by the authorities. Adjusted EBITDA margin stands at 5% on sales, which is a very good performance. On the distribution side, we have seen outstanding margin performance in Italy, good improvement in Spain and strong recovery in France, where all the action we have undertaken are starting to bring the results. Shipping business unit confirmed the trend of the first 2 quarters with satisfactory load factor, despite the summer quarter, is not the best one. Overall, we face a substantially unchanged volumes, while we face a positive price effect. Some products, such as kiwi and citrus, have over-performed last year results, while some products like pines and fresh cut, whose consumption is more linked to out-of-home, have had significant headwind. Bananas at the import stage are still in trouble due to global oversupply. The net financial position improved, also thanks to a positive cash flow generation. And the net profit improved to EUR 11.9 million versus EUR 900,000 in the same -- sorry, in the same period of 2019. On the evolution of the COVID situation, we are facing some case, less than 20 all over the world, but we don't have any cluster inside the company. Of course, safety of employee and operation continuity remain our priority. Nonrecurring costs-related safety protocols are about EUR 800,000 in 9 months. We are confident that these results can show the value of our business model. And despite the continuing certitude due to the pandemic, we are confident that we will reach the high end of the target we had set for 2020. And now I will turn the call to Matteo.
Thank you, Raffaella. Good morning, everybody. I will go directly to drill down a bit the numbers, starting from Page 11 of the document uploaded on our website yesterday evening. As Rafaella just said, we had a very good sales -- net sales increase. It's plus EUR 40.5 million in absolute terms, reaching EUR 788.7 million as a consolidated number, is plus 5.4% including the M&A effect or a plus 4.2% like-for-like. This is, for us, a very good result, specifically the like-for-like ones, because it's really over-performing the market. On the other hand, all the M&A we performed last year that are giving to us the residual part of the growth is well performing and growing. Import & Distribution had an excellent sales momentum across all European markets, specifically Italy, Spain and even France, but even Portugal is a very good number in this case. We were facing just one, let's say, important decline in sales about the Mexican avocado exportation; and in terms of products, the pineapple consumption that is really dropping down due to the COVID effect. In terms of Shipping, the improvement compared to last year is decreasing a bit, and this is perfectly understandable, because in the third quarter, the loading factor is normally lower than in the first 2 quarters and in the last quarter of the year. Actually, anyway, it's a really good number, both in terms of the revenue growth and in terms of loading factor. In terms of adjusted EBITDA, the main effect in terms of absolute value is the Import & Distribution effect, where we have almost EUR 8 million increase compared with last year. We are really satisfied about this performance, because it goes with -- it's 2 years we are growing like-for-like in terms of revenues. And at the end of the day, margin is coming. So the strategy seems to be correct, even margin-wise, not only market share-wise. This value is built up by some plus and some minus, as Mrs. Orsero said, because we were -- we had -- we experienced some very good campaigns, specifically for kiwi and citrus. Pear and apples as well were really positive. But on the other hand, we faced some big troubles with green bananas and pines specifically and avocado from Mexico to United States exportation as well. So the increase is made by more or less EUR 0.9 million due to M&A effect, EUR 1.5 million due to the, let's say, asset deals performed last year because of the warehouses, both on the Italian market. All the rest is totally built up by profitability increase. In terms of Shipping, we had EUR 4 million increase compared with last year, due to basically better freight rates. We had a stable volume and a very good loading factor, around 93%. It's a really good result. Probably by the end of the year, we will see this number slightly increasing, but just slightly. Anyway, everything is up 90%, 92%. It's really, really positive for the business unit result. This loading factor is -- we were able to achieve this loading factor due to, let's say, a good commercial activity, obviously, but even due to the efficiency provided by the fifth ship that we inserted in the system in 2019 instead of the 4 ship system that we used to perform before. This is really linked to the fact that for the client as well, the service is better and we are always able to remain within the scheduled time, so we don't have to cut charging port or discharging port. This efficiency gives us a better loading factor and higher volume transfer, and obviously, a better profitability of the business unit. So at the end of the day, the EBITDA reached in the third quarter year-to-date EUR 39.2 million. Going to Page 12. Actually, we see a bridge about the consolidated net profit that, in adjusted terms, from EUR 3.6 million touches EUR 13.3 million. Main effects are the adjusted EBITDA effect, EUR 11 million; more D&A and provisions, basically D&A due to the investment plan performed over the past 2 years; a better financial share of profit; an effect -- a negative effect due to the taxation, obviously, because we have better profit. And then we have going through, let's say, the nonrecurring adjustment, we have net EUR 1.4 million that basically is related to the COVID expenses, as Mr. Orsero already said; some employee litigation costs; some positive effect related to the IFRS 3 step acquisition accounting principle related to the Moncada acquisition; and then a one-off insurance fee for a litigation buyout insurance paid to cover a longtime custom duty litigation. We already spoke about it with many of you. It's a risk that is well explained on our listing documentation on our prospectus on the website. It's the last big risk that comes from the past from the importation -- banana importation activity. And with this coverage, paying one-off cost of EUR 700,000, we cover EUR 8.1 million total risk. So we decided to be prudent to close this particular litigation buyout insurance to close, let's say, the main remaining risk we have in our company. At the end of the day, if we see the reported numbers, we passed by EUR 0.9 million in 2019 to EUR 11.9 million in 2020. Obviously, we have to remember that last year, the result was heavily impacted by some extraordinary costs, plus the cost related to the listing process to MTA, Star. If we go to Page 13, we'll just spent some words about the net equity variance, the net financial position and the working capital. The total shareholders' equity is EUR 160.6 million, and it goes mainly with the profit of the period that contributes for almost EUR 12 million. We have some equity effects that account for a negative impact of a total of EUR 2.2 million. The main items is a negative impact of EUR 0.7 million due to share buyback, positive EUR 1 million due to the own share transaction for the Moncada M&A deal, a negative impact by the mark-to-market change of hedging instruments related mainly to the oil hedging. And the main effect is always the one that we are rolling since the first quarter of this year due to the ForEx impact of minus EUR 1.8 million due to net equity of the non-euro subsidiaries mainly due to Mexico, so pesos Mexicano with euros. Net financial position, excluding IFRS 16 effect, is about EUR 85 million or EUR 114 million, almost EUR 115 million with IFRS 16. We had a positive cash generation, about EUR 29 million. But then some of this cash is in the end of our clients, because the commercial working capital absorbed EUR 16.5 million. This is totally fluid because of the -- there's no issue about this working capital. We have -- specifically, I want to highlight that specifically this year, we put a lot of attention on the credit collection. And actually, I must say that this year is probably the best year over the past 2, 3 years in terms of credit collection. So we have no losses or not relevant losses in credit, specifically within this context. It used to be really complex, specifically in the beginning because of the economic crisis. This absorption is due to, let's say, mainly the impact of the increase in our sales. And we are starting for 2021 some working capital action to contract, let's say, the aspect of the absorption of this net working capital to make the net financial position benefit by this action. And we will keep you posted on that. We completed our -- almost completed our CapEx plan for the year. I remember we invested the big part of the CapEx of this year in January, almost EUR 18 million for the purchase of 4 instrumental properties in Italy. And then we had EUR 4.3 million due to the finishment and refurbishment/enlargement of Verona warehouse. The activity is done. And the, let's say, the warehouse in Verona now is really a massive one, really efficient. And part of the result of the Italian distribution this year is thanks to what we were able to do during the COVID, closing the Milan site and concentrating all the activity in the Verona warehouse. EUR 2.7 million is due to the maintaining of the vessels. Specifically, we have the ballast water treatment equipment. There is a compulsory investment by regulation that comes one-off this year. And then EUR 1.7 million is related to the drydocking of 1 of the 2 vessels that we drydock this year. The other one is already drydocked, but you will see the investment in the fourth Q of 2020. The last is mainly due to the new ERP system. We are planning to go live with the new Microsoft Dynamics ERP system in 2021 June. I must say that the last keywords I would like to spend is about Page 15 and Page 16. Basically, we see a very positive trend. We're always talking about trend, because our business lead us to talk about trend, not about single years. We see a good trend in sales. As Paolo was saying at the beginning of the conference call, the strategy we implemented beginning from 2017 with the first listing process to AIM is really clear. And it's based on the efficiency of our shipping activity and to stabilize the profitability of the segment that, let's say, structurally is more volatile than the distribution; and to increase our market share in distribution, focusing on our core markets. So numbers in terms of sales shows the fact that we are executing the strategy we declared 3 years ago. And in terms of EBITDA, with some troubles in the meantime specifically related to France last year, but the trend is really positive, and we think we built up 3 strong legs in Europe to grow: Italy, Spain and France. And in France, for sure, there's still room to grow in terms of revenues, and obviously, margins will come. We have to highlight that in distribution and in general in our business, 3.5% consolidated EBITDA margin is really a top performance. So we think we have to continue to work to increase our EBITDA margin, but we are in the good -- in the correct route to achieve nice results. As Raffaella said, we confirm the guidance on the, let's say, top tier of the guidance and would, let's say, with this number explanation, I guess, I gave all the main infos. And I will leave the rest of the time of the conversation for the Q&A session.
[Operator Instructions] The first question is from Andrea Bonfa with Banca Akros.
And Matteo, if I may, the number of the third quarter for somebody which has been following you for quite a while are really, really strong. So I do apologize, I was looking at your presentation, but I was also doing [indiscernible]. So if you can -- I mean I realize that there are some products, which didn't perform well. So you had some headwinds in your sales and profitability. Despite that, you managed to [indiscernible] of the EBITDA in the third quarter. So if you can recap to me what are the drivers of this outstanding performance. Is that essentially extraordinary circumstances of the crisis, where you're coming from? And the second question is that -- sorry, if I -- I have another question. Is your -- also if you deliver on the top part of the guidance, they imply that Q4 numbers would entail a decline in the EBITDA in the last quarter, which seems pretty hard with the numbers we delivered so far this year. Just if you can comment also on that. And if I may, the third question is that [indiscernible] number are according to your, let's say, information policy, information [indiscernible] about the corona views. And how much of this performance can we keep also for next year and increase the number for next year?
I -- the first 2 questions, I guess, are really [indiscernible], because if I correctly understood -- because the line, it's a bit troubled. But I think I correctly understood, you're asking to explain why the third quarter was so good to compare with the general expectation and why we're making [indiscernible], let's say, number. We see our guidance on the top tier and not over, because otherwise it seems that the EBITDA last quarter will decline. So if you can confirm that I correctly understood.
Absolutely.
Okay. So actually, as you always say, in our business, I'm talking about distribution, import and distribution of fruit and vegetables, is a business that is based on agricultural campaign. So it's not possible to forecast perfectly, specifically when we're talking about quarters, okay, how much fruit from a single campaign will come until September one year or it goes until October or middle of November the year later. Because it depends on the weather, it depends on the cycle of the production of the plantations. And we are trading over 300 references or family products all over Europe. So in the -- in the -- we are seeing that, as we always said, distribution in the first quarter of this year, and normally, it's like this, it's a bit weak in terms of the type of products. Normally, the central 2 quarters are the richest of the year. Sometimes, specifically between the third and the fourth quarter, we have some campaigns that can last a bit more, starting a bit later and so closing a bit later. For example, it was the case last year with kiwi and citrus. Or like this year, they start before and they close by the end of September or, let's say, mainly closed by the end of September. So apart of the very good results of the first 9 months of 2020, that, all-in-all, we expected slightly lower on the 9 months is the effect of some campaign a bit anticipated in the first 9 months and specifically in the third quarter. This is not a EUR 5 million effect, and it's really difficult to tell you which is the number. But for sure, I will say, a couple of billion or something like that of the result is related to some very good campaigns that were a bit anticipated compared with last year, okay? So when we go to your second question, probably the fourth quarter won't be that good as the central 2 were, first of -- one, for seasonality reason, normal seasonality reason. The third quarter normally, October and November, are months, let's say, weak months. And then December, due to the Christmas activity, is really starting months. But all-in-all, it's not comparable with the second and the third quarter. So this is the first reason. Second, because some volumes that we already traded and the people already consumed in the third quarter won't be consumed, because there won't be the volumes in the fourth quarter. So that's why we're confirming the high end of the guidance, because we are really positive in touching the EUR 39.5 million. But we are not increasing our, let's say, guidance because of this effect I already explained to you, and on the other hand, the fact that we have to see how the pandemic second wave goes on the consumption. Because as you probably know, because it's written in all the newspaper, the reaction of the people of the first wave is not the same reaction that people is having in the second wave. So we want not to be too aggressive and to be slightly prudent not to give the wrong expectation to us, first of all, and to the market in second terms. Going to your last question related to the potential COVID effect to -- in our numbers. I would say that the plus and the minus, in terms of product results, are pretty compensating. So we have probably some good effects related to COVID for the demand of some products. But on the other hand, we have some really bad impact , for example, to COVID specifically, as we said for pines, for avocado and fresh cut. So I think, all-in-all, the volumes are flat compared with last year. So it tells you that we did not have plus 20% volumes like some other food industry had experienced this year, because our goods are perishable. You cannot store it. You cannot keep it in your house for more than 4 days. Maximum 1 week, if we're talking about pears and apples. On the other hand, we do see a positive effect in terms of price. This is an inflection mood, let's say, that we saw more or less in all the European market. This could be an effect due to -- partially due to COVID, not just due to COVID, because it's related as well to the, let's say, offer demand impact. On the other -- so for the future, first of all, we do not know 2021 which will be the COVID situation. I think nobody knows. They're talking about to have a cure for little dosage by the beginning of the year, but it's really difficult to forecast the impact of that. But on the other hand, if we will see probably a decreasing in the price effect, if it would be the case, then we will probably aim to increase our volume. So to be [indiscernible], I guess, Andrea, that the result of this year is due to the strategy the group implemented over the past year. Then obviously, we are a lucky business in the pandemic situation, not because we benefit in absolute terms by the pandemic situation, but because we don't have a drop that other industries had. So we think that the result of this year, what we forecast by the end of the year is really solid.
[Operator Instructions] The next question is from Gabriele Berti with Intesa Sanpaolo.
Congrats for a good quarter. Could you please provide an update on your M&A activity?
Yes. Raffaella, I will go ahead with M&A, okay? Okay. I will give the answer. Thank you for the comment about the results. Okay. As we said, we are not closing or performing any deal this year. We just did the Moncada one. Because we wanted to consolidate the acquisition we made last year, and we don't want to expose this year anymore. Financially speaking, we want, first of all, to close the year. But we are scouting some potential targets. We are working a lot on that. We have some ideas. But in general terms, the -- and obviously, once the potential ideas will be more concrete, then we will communicate to the market all the possible details. But in general terms, what we're searching for now that we are -- we reached a different size for the business, we started to be a sizable business in the south of Europe. We are, for sure, the first player. Now our goal is not to grow with, let's say, mass import and distribution of fruits and vegetables. Mass is not a negative term, obviously. But we have to decide where we want to go, because we have limited financial resources as everyone has. We are focusing more on some niches, but we're not talking about niches of EUR 5 million revenues. We're talking about companies between, let's say, EUR 20 million and EUR 40 million revenues, something like that. So niches, but considerable companies that are experts in niches, that have real potential to grow in terms of revenue, so let's say, double-digit growth. And on the other hand, that have a price per kilo. So let's say, an intrinsic value of the traded products that is higher than our average price point, because with this comes profitability, obviously. With this comes complexity as well, because nothing is free in this world. So if we compare, let's say, what we're -- we have to look at some companies that have a deep experience in the line of niches, because the know-how is likely different from what we already do. We are always looking about European market at the moment. So to be general, we are looking about positive trends where we can add something in terms of distribution network to companies that have important competencies and know-how on specific niche of products, but need our help in the future for an industrial project to grow. For that reason, we are scouting at the moment companies where we won't buy probably if we, let's say, finalize the deal, 100% of the company. We will move just with majorities as a rule for our M&A activity. But we would like to have and we will ask to have the partner with us for a decent number of years. This will -- this is the best formula for us to approach this new M&A phase, and this is what we're doing at the moment. So 2021 will be a year where we, if we are capable to perform some deal, we will show to the market.
[Operator Instructions] There are no more questions registered at this time.
Okay. So thank you to -- so if there's no more question, I would say thanks to everybody. And we are continuing to work harder to perform well, and we will -- we have the next touch base with the final year results. All the best.
Bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
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