Earnings Call: Q2 2022

Oct 8, 2021

Good morning, ladies and gentlemen. Welcome to the conference call for investors and analysts to discuss the results of the Q2 of 2021 of Camilo de Naples. With us today are Mr. Luciano Quartiero, Director, President of Fabio Vargas, CFO and IRO and also the company's Investor Relations team. In case Any of you need assistance during this call, please press star 0 to reach the operator. This audio is being presented simultaneously in the Investor Relations website of the company. Comments from the management about the quarter and the Q and A session may contain forward looking statements related to future events that are subject to risks and uncertainties, and they therefore may lead to expectations that may or may not occur or that differ substantially from what was expected. We will now initiate the Q and A session for investors and analysts. Of our business. Our first question comes from Mr. Gustavo Togerno from ICAO BBA. You may proceed, sir. Good morning, Luciano and Flavio. My first question is about sugar. This quarter, we saw an increase in prices, which superseded the price of commodity. And as a consequence, we saw a reduction in volumes when compared to the Q3 of 2021. I would just like to understand and if there has been any changes in the strategic positioning from the Q3 up to now, especially in terms of trying to resume your profitability? And what is the behavior of the competitors in terms of price transfers in this quarter? And also, I would like to know whether they followed Camille's price increases. And my second question is about in the category, because you certainly delivered your 2nd historical all time higher volume. And what were the reasons behind that increase or whether this is the new level of the company or whether this is related to some one off events that occurred this quarter. In terms of sugar category, the company did not change its strategy. The lower volume we had in the second quarter was very much related to the lower supply in this period. The sugar Industry went through a significant spike in prices, but Camille was able to transferred these prices. And we understand that our competitors did the same thing. They followed on the same steps. And so in summary, there was no change in our strategy. The company is focused in our execution. And this execution already involved the bean category, as you mentioned. So We believe that we will have better sugar volumes as we recently had. And we are getting into a period where profitability will be there when compared to the Q1, which was quite hard for us. Now as for the beans category, I mentioned before that we were pursuing a different execution. So we believe that we will be able to maintain the execution as is. And this is not only impacting the way we operate at the end, but how we are pursuing our purchases. And in addition, we are reaching the benefits of some of the large investments we did in our TIFI plant that was concluded about 8 months ago and also the plant in Sao Paulo, which has to do with that moving from Ola to Ogas, where we introduced a whole new line of equipment. So that is a combination of better sales. Also, we are improving the raw material management and also benefits from these 2 new plants. Perfect. That's very clear. If you allow me to ask the and maybe a bit more structural. And this is related to the consolidated profitability of the company. Even though we saw a sequential recovery of the EBITDA margin in the quarter, The margin levels of the company is still slightly below about 10% below the recurring margins of the company. And even though that affects the EBITDA of the company is above the history level, especially due to the price of commodities, Do you see this margin between 8% to 10% as the new normal for the company, especially thinking in terms of possibilities per ton, which is quite high right now. Should we think about a percentage? Margin should be around 10% to be more sustainable going forward. Of this question. I mean, I will answer as much as I can because We do not give any guidance, as you know. But what I can say to answer your question involves 2 things. One, the percentage target of the company did not change. So this is point number 1 because you talked about the historic 10% of the company. So there hasn't been any changes in that concern. The second point is that we are working with a new price level in all of our categories. I don't want to be repetitive in terms of our track record. I mean, the rice embargo it was €100,000,000 and now we are operating around €80,000,000 €85,000,000 for VIN. We've been operating at 150, but it reached 200 to 130 now with sugar. But historically, We've seen an important pricing move and the market takes some time into until it behind its structural position. What I'm saying is that many of our competitors work with nominal metrics based on tons depending on the category. And it takes some time until all the metrics are adjusted. And I believe that combined with a very challenging environment when whereby the economy has to face so many different things as we see every day. This is what is preventing us from operating at our historical margin levels. And still, I mean, I think I talked more than I should, but I don't think this is Janine, that I believe the company should continue to pursue. Thank you. Thank you very much. And answer session. And questions. We received some questions to the webcast, and then we will start posting them now. The first question from Henao. We had a question about what is your maximum level of net debt over EBITDA that the company would be comfortable with operating and what is our debt level after the acquisition. And thank you very much for your question. Today, in our contracts. Our ceiling is 3.5 times net debt over EBITDA ratio. And we are trying to catches a bit until in some of the new contracts, we are going to a 4x leverage of net debt over EBITDA ratio. And certainly, we try to speak to 3.5 net debt over EBITDA ratio. So when you look at the level today, 1.6 times, It becomes very clear that considering our business model, we still have the large financial capacity to fund other acquisitions thus leveraging the company, if that's what we intend to do. So from the recently concluded transactions In Ecuador, we had some funding to finance the acquisition. We engaged in a bridge loan, and this loan involves a long term debt with IFC, C, the International Finance Corporation, they are linked to the World Bank. So that was a very good deal in terms of both maturity and cost. And here in the local market, we are also looking at other alternatives to restructure our cash due to the acquisition of Santa Amal. And we are looking at ways of not only having at leverage level that is low and sustainable for the company, but also we are looking at ways to elongate the maturities. So our view is to, 1st of all, restructure our cash to fund acquisitions to new funding sources. And in addition to that, we want to improve the leverage profile or the maturity profile filed so that we can have an additional rest to pursue other objectives. I would just like to add to what Fabio said. He said that our current ratio is 1.6x. This is the number for this last quarter. So considering all the acquisitions and conclusion of the deal and the payments will happen throughout the Q2, the Q3. So the leverage of the company should be of around 1x to 1.3x. That means that we still have a good room here still left for other acquisitions or for new acquisitions? The second question from webcast is from Carlos Rejeda. Can you please elaborate more about your recent acquisition on the coffee category? Now about coffee, behind the deal involving the acquisition of the Quereto brand from JBS, with a very strong brand that was probably being neglected, I would say. So the objective of the company is to recover the space that the brand had in the past. I think you might recall that this recall of the Selective brand is very strong. And now right now, the company is also I mean, what is important that with the acquisition, We didn't acquire any plans. So we have a deal with the company that accepted just to have a deal with service rendering and now we are considering acquiring a plant. Even though the condition of the brand is was something recent, our Andre in the market will be very subtle due to the relevance of the brand and because of the fact but we are also outsourcing the production. So in the next few months, the company will be prepared to then go to market. There's another question from Mauro Sanchez. About Kari's approval of the Silecto brand acquisition. Do you anticipate any synergies or profiting from the other assets of the company, other brands of the company? And also, could you talk a little bit more about the rationale of Chalal, behind the acquisitions of Santa Maria and SABETO brand. I think that the company, Even before our IPO in 2017, we already expressed our desire to get into in a segment of brands and coffee as well. Well, pasta and coffee, pasta is part of the wheat segment. And we are also interested in looking at other categories within the wheat segment. And we believe that wheat and coffee are very much in tune with our operations. And this is something that we noticed when we entered into the fish and sugar markets in Brazil. Therefore, we believe that we already Know that with these 2 new segments, we can capture many synergies within our own distribution structure. The company is very excited because, again, this has been an old dream that came through right now. That means that we still have a lot of work ahead of us. The conclusion and the completion of the transaction. I think Santa Amalia Transaction will be completed at the end of October. Therefore, considering the acquisitions, I think that we will have like a month of Santa Amaya. Maybe at the beginning, this will just with respect to our entry into the coffee segment, and we will have about 2 months of our Ecuador transaction. So in the next quarter. I think we will be able to show you what these new categories will represent. But in the next Coming quarters, this will become even more evident. Now going back to the beginning, the synergies of these 2 new categories with our operations are quite relevant. There are many synergies. And with that, we believe that we'll be able to reduce our costs, both in terms of sales, also distribution. We will be able to dilute our admin costs. Therefore, in summary, the company is very excited. Still talking about acquisitions, Alejandra and Eberpin are asking about what was the amount involved in these two or latest transactions. Santa Amaya, We paid BRL410,000,000 for the company with no debt. We will fund that first with our own cash, and then we refinanced. And in Ecuador, we paid USD 36,500,000, I mean, with debt and working capital running. Coffee, we will not disclose. So I owe you that one. There is another question from the website. I mean, speaking about market share and volumes this quarter and what is expected then for the second half of the year. The company is very much focused on executing our 3 categories. I'm not going to referred to specific market shares for these three areas, but the company has been prepared in the past 3 months to execute in the next 2 coming quarters. Last year, throughout the second half of the year. We were hit high in terms of volumes. Therefore, we had a tax different model. That's what we did. And We anticipate a much better performance now when compared to that of last year. And in the last 2, 3 years, in the 3rd or even Q4, These were difficult quarters. So I believe that this time, we will do better. We will have a better performance, and that's what we prepared ourselves to see going forward. And the last question from the webcast is about the buyback of shares. And what does that program entitled? And how do you see this generating value to shareholders. Our last buyback program that was approved last April involved 4,000,000 shares. And we've been executing that since last quarter. And the objective of the program, to be more specific, was to neutralize the issuance potential that the company could have due to the issuance of shares to the executives could benefit from our stock options plan. So that was the purpose of that program. And certainly, in regards to the financial aspect. It neutralizes not only that, but it benefits all of the other shareholders that benefit from that risk of upside to the officers of the company. And that buyback part has been a recurring topic among members of the Board of the company. This is a 5th seismic plan that we execute. We had other plans before, other programs before to neutralize the dilution of the options planned to the opportunities of the company. And we also, like 2 years ago, we had another major buyback plan when Somebody left the company, and we decided that at that time, the buyback program would represent a good capital allocation. So just to make a long story short. In fact, we always try to analyze and discuss in the company what are the possible alternatives to manage our capital bid through dividends. Payout or interest on equity and buyback It's also another alternative that is often discussed between shareholders and Board members. We see another question from Mauro Franco. He says that Uniao has been acknowledged as a brand of high recognition. Do you put any focus on the branding of Uniao vis a vis the other products in your portfolio? I think I mean this with the biggest cheese leg once the Union brand was recognized, and that was something that we had been working on for some time. We were very pleased with that acknowledgment. The company is also looking at our other brands. And So far, we haven't made any decision whether we will do the same thing for other brands. But what I think is important to highlight is that This acknowledgment process really demonstrates the strength of UNION brand, a brand that is over 100 years old. And this shows the strength of the company's brand. And if we can do something similar to our other brands, this will be great. I mean, Camille is a very strong brand with brands, potato, with fish. We have many brands that are top of mind and have referenced in their categories. And the company has been able to profit from the strength of the brand. And this is part of of the market capital company. So achieving that acknowledgment was something that really pleased the company as a whole. It really did. I would like to remind you, Kevin, in case you have any and answer session. Thank you. As there are no further questions, I would like to inform you that Camilo's Q and A session is now concluded. Thank you very much for participating. And now I'll turn the floor to Mr. Of you for his final remarks. You may proceed, sir. Well, thank you all for joining us today. It's always a pleasure to talk to you about such sound results from the company. And I would like to reinstate that today, the company is going through a very unique moment. And we often call it a transformation moment. We are very excited with the challenges ahead brought about by the integration of all of new businesses. We are stretching our arms around Latin America. Since September, we took over the operation in Ecuador. And in a very short period of time, we can already view some other concrete opportunities that will add more value and increase our relationship with producers. There is this whole part of going to market, other portfolios. So we are very excited with all of the investments that we can due to grow our operation and lower profit. We have planned this integration of Serta Amaya, and this should be completed very soon. CADE already gave us some positive signs. We are just waiting for the legal deadlines to finalize the transaction. But this is part of our own desire to get into the wheat segment and to own a company that is has such large representation in the state of Midas Gerais. We think this will be an asset that will help us understand a different distribution dynamics with the new product and also the capacity that we will have to use with distribution to help leverage our own products, the rice, beans and fish. And we are also very excited with our entry into the coffee segment. This is a segment that is growing as extremely valued. And we are confident that bring some coffee from you and the fact that we will be able to use the entire distribution platform can be very transformational for the company. So our focus now is in the execution of all of these plans. We are just concluding the acquisition, and we want to integrate the company so that we will be able to launch of these new businesses in a very sustainable way. And we also have great financial capacity and good aside to look at other opportunities along the road. And we will certainly have a great execution capacity. So we come to the end of another quarter posting very sound results. By the same token, I would like to highlight of a very unique moment at the company because we were able to finalize and to that in practice many good opportunities. So thank you very much, and I wish you all a very good day. Thank you. Camille's conference call is now concluded. Thank you very much for joining us, and have a very good day.