Logista: Measured
“Within El Mosca, I would like to mention that, we are working on completing the optimization between El Mosca’s road transportation business and Logista Freight, where Logista Freight is taking over the fleet planification and route assignment, implementing further cross-selling actions with pharma business and allocating free capacity of El Mosca to freight to optimize the use of the vehicles. I would also like to mention Carbo. As we said on our first quarter results, frozen transportation has suffered certain slowdown during the period. And here, we are also implementing measures to improve profitability and operations within the company.” - Pedro Agustín Losada Hernández, Logista CFO, H1’25 remarks
Logista’s H1’25 results affirmed that the core business of tobacco distribution remains robust while, expectedly, the group’s other initiatives, primarily transport and other forms of distribution, have remained more choppy. When measured, the slowdown of the latter does not point to grave concern, so what is surprising is that the pressures felt have led outsiders to entirely question the group’s M&A efforts to further diversify, including challenging the efforts during the group’s H1’25 call. Logista’s CFO, Pedro Agustín Losada Hernández, provided a lengthy response:
To make a long round on your question, just to give more details on El Mosca, we said several times that, we were seeing some challenges on our sector. And we were needed to react more quicker than we did in the past. After we got the 100% of the control, we are really acting faster to adequate the reality of this demand in the market to the cost structure and profitability of the company. And with that full control, we impose management, our internal controls and systems and staffs and do several things with operations and putting more financial discipline. Again, to your question, how much time do we need? Definitely, we need for the rest of the year to put this more order in the place that we want in terms of that profitability, that more shifting to international and with a higher tariff type of clients, even make an analysis on whether it makes sense to be in certain areas or sector divisions or group age or parcels or other ones. So that will need a bit more time, but we have a plan.
And we are positive that we could revert this situation sooner rather than later. With respect to Carbo, Carbo is basically a lack of a reduced reduction on demand. And in particularly in the frozen food sector, which is pretty much the focus on Carbo. That was acquired a couple of years ago or even more and is jointly operating with Parcel. And in particular, in the restaurants in Gourmet and high-quality restaurants; that part of this niche has been suffered a bit more over the last year.
And what we are doing is implementing a plan also with Parcel to increase that profitability with integration in the distribution network of Carbo with Parcel and obtaining the synergies that we were expecting. But probably making more efforts to accelerate those synergies and working on increasing flexibility on distribution cost by subcontracting certain routes, extra commercial efforts and cross-selling with partial clients and doing that consistent with our strategic approach. And hopefully, again, we can revert soon the situation of Carbo.
As I highlighted half a year ago, the pressures affecting non-TRP distribution have gradually developed. But these developments are wholly natural, and rather than clamoring about the choppiness, it is more productive to look into the future to recognize the potential benefits Logista can capitalize upon. I concluded:
Naturally, transportation, and even pharmaceutical distribution and specialty parcel services, are lower-margin than the tobacco business. That, in and of itself, is less of a concern, as recognition of synergies and no shortage of bolt-on targets provide a clear path for these businesses to grow at a rate above the group’s average. However, it is also clear that aside from specific activities, such as moving pharmaceuticals and foods, this also introduces a degree of cyclicality. Cycliality is also, in and of itself, less of a concern. However, as is often the case, the greatest M&A opportunities should be toward the bottom of cycles. This would also conceivably be when these new businesses produce the least in profits, limiting capital and flexibility. Fortunately, the group will likely remain nimble, courtesy of tobacco and related products, which are still driving the bulk (>70%) of profits.
Further into the H1’25 Q&A, management highlighted that it had dropped out of negotiations for several acquisitions. However, they also affirmed their interest in hunting for targets. With pressures set to persist throughout Europe, it stands to reason that the number of potential targets has increased, and more importantly, the prices at which they could be acquired are becoming more attractive.
While transportation has slowed, Logista’s Pharmaceutical Distribution has continued to develop impressively. Through increasing service offerings across existing clients and widening scope, Q2’25 revenues increased by more than 13%, marking a greater than 17% increase for H1’25. Similarly, economic sales grew in Q2’25 and H1’25 by roughly 10% and 13%, respectively. While this still represents a small portion of the overall business, the relatively nascent segment appears well-positioned to continue to extend its reach.
Old faithful
While transport received the lion’s share of focus during Logista’s H1’25 call, its legacy Tobacco and Related Products distribution business has once again proven its worthiness. However, as highlighted during Q1’25, results remain mixed across geographies. All three subsegments experienced excise tax increases during H1’25, including Spain, which saw a sizable step up and newly-placed taxes on NGP products. France, already experiencing elevated declines in legacy volumes, saw the highest tax increase on an absolute basis, resulting in a loss of economic sales even beyond that of Q1’25.
To compensate for the tax hikes, major manufacturers increased pricing across the board. Notably, this resulted in a significant profit on inventory recognition for Logista. In fact, in the aggregate, even though the group does not expect to recognize meaningful POIs through the remainder of 2025, the profits on inventories in H1’25, €46m, eclipsed the entirety of the POIs recognized throughout FY’24. While France continues to face extreme pressures, Iberia and Italy are showing the contrary. Despite retail prices increasing meaningfully, total legacy volumes in Spain increased by roughly 0.3% in H1’25. Italy’s total volumes decreased by -2.3% for the period, experiencing a small benefit from newly-formed tobacco distribution agreements in the Netherlands being tucked into the geography, but lapping the HNB flavor ban that went into effect in spring of last year. Italy’s H1’25 net revenues increased by 4.4%, while economic sales increased by 12.1%. Notably, during Q2’25, associated adj. EBIT margin was the highest in the last four years, at 33.3%, reaching the same level achieved in Q2’21.
Measured
While we can hee and haw about challenges in transportation, it should be noted that recent pressures represent a slowdown rather than a notable decline in operations. Cycles, by nature, go up and down and include swings from side to side. In all, operations at Logista remain sturdy, and present concerns continue to be met by the measured thoughtfulness of management.
My revised forward illustration reflects a curbing of transport growth, a minor pharmaceutical distribution boost, and a more dreary trajectory for France. A more meaningful increase in both Italy’s economic sales and margin evolution has been made. Relative to last quarter’s illustration, forward results are minusculely lower, primarily a reflection of lower net financing benefit from the group’s reciprocal credit agreement with Imperial Brands. Having already kept the payout flat year-over-year, the change in yield merely reflects a slightly higher share price. Little is demanded to achieve flat EPS for the year.
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Ownership Disclaimer
I own no direct position in Logista (Compañía de Distribución Integral Logista Holdings, S.A). I own an indirect stake in Logista via positions in Imperial Brands. I own positions in other tobacco companies such as Altria, Philip Morris International, British American Tobacco, and Scandinavian Tobacco Group. I also own positions in Haypp Group, a major online retailer of reduced-risk nicotine products.
Disclaimer
This publication’s content is for entertainment and educational purposes only. I am not a licensed investment professional. Nothing produced under the Invariant brand should be thought of as investment advice. Do your own research. All content is subject to interpretation.