M&A Announcement

Aug 17, 2021

Good morning, ladies and gentlemen. Welcome to Camilo Limento's Conference Call. With us today are Mr. Luciano Quachiero, Director, President Lao Biovarda, CFO and IRO and also the company's Investor Relations team. In the Investor Relations website of the company, comments from the management and the Q and A session may contain Forward looking statements related to future events that are subject to risks and uncertainties and therefore may lead to expectations that may or may not occur or that differ substantially from what was expected. Mr. Luciano and Flavio, you can proceed, please. Good morning, everyone. Here is Luciano Quartiero. I would like to welcome you all. Yesterday, We were able to conclude another step in our strategy because since the IPO and even before the IPO, our strategy Has been to pursue organic growth in the category and the countries where we operate, but our growth Also contemplates inorganic growth involving operations and assets in other countries in South America and also It's pursuant to the company's desire to get into new categories. Recently, we announced the acquisition in Ecuador a few weeks ago. And yesterday, we signed our first step into the wheat category. This operation through the acquisition of Santa Amalio is very synergic to our current operations, and this is something that the company has talked about for several years. With this acquisition, we meet 3 objectives: Number 1, our entry in the wheat category, entering into the pasta category, acquiring a leading brand. Santa Maria is the number one leader in the state of Minas Gerais with over 41% of market share. Also, they our leader in the Area 2 at Nielsen and a 4th Brazilian player in the pasta segment. The second objective of this acquisition is The enhancement or we want to improve our distribution in the state of Minas Gerais. Santa Maria in Minas Gerais Covers over 12,000 POSs directly, and this will be very important to our operations because it increases our distribution of grains and sugar in the state. And then the third objective is that With this acquisition, we also add people with great expertise in the sector. Every time Camus ventures into a new segment, It's very crucial that we maintain the individuals that are experts in that field because they can help the company to proceed and progress in that direction. So the three objectives were met with the acquisition of Santa Amalia. We are very anxious and also very pleased with this new step. I say that we are anxious because this We will also involve a step with CADE, and we don't anticipate any issues here, even though we are still In the beginning of the operation, and we are about to capture all of the synergies gained with the transaction, the value of the acquisition amounts to BRL 4 Adjusted EBITDA of €39,000,000 And in a very conservative way, the company estimates synergies of €20,000,000 The company, in terms of synergies, we are very conservative. In this case, it's no different. I think that after the We spent a few years where all the opportunities that we exploited were, in fact, Going through our pricing standards. And this year, we Anticipate a more positive scenario, so this is the second opportunity this year that fits within our standards. Therefore, the company is very pleased with this new step I'm very anxious to start the operation and begin to exploit all of the synergies of the company. And having said that, I'll now open the floor for questions. We will now initiate the Q and A session Our first question from Guilherme Paliaris from Bank of America. You were talking just now about synergies of about 20,000,000 bureaus. Could you please tell us about the leverages in terms of synergies and how much of that is revenue? How much that is Cost. And the second point is whether you could comment on the commercial integration Given your presence in Minas Gerais and your presence also in Sao Paulo, I just want to get a better understanding about your strategy in commercial and logistic terms, Considering the 2 companies, because we do understand that there is a large rice market, so How will the company be able to get into this new market? What is the CapEx involved? And we also I also want to understand whether using your operation as it is today in terms of your capacity, whether you can also serve the Sao Paulo market with that brand, that new brand. Well, thank you for your question. This is Flavio. I think that whenever we look at the synergies, I think that the obvious thing whenever you make an acquisition As that you look at expenses and SG and A because that's where we believe That we would have better opportunities or better yet, that's where you have things within your reach because in terms of execution, it's easier. And we also believe that there might be synergies in sales and maybe some synergies and logistics. But usually, to capture The synergies requires you to be more cautious because you do not want to compromise the recently acquired assets. Right now, I mean, we look at things in a more operational terms right now in G and A, because probably there will also we will also have gains with Supply or procurement procurement of wheat because we are not I mean, this is not exactly our core business, I mean wheat, but we can add scale with that acquisition. And there might be new developments going forward. When we look ahead, We believe that we will have to make some investments on the industrial side, Be it to adjust the production lines in case of a future expansion and we also Believe that there might be some low marginal investments. And with the Small investments, we can adapt to production and at the same time reduce our costs. Now I will turn the floor over to Luciano because The point you mentioned related to the commercial aspect, logistics and distribution of the transaction is very critical to our business. And this is one of the areas where we have to be very cautious when integrating both companies. Well, I would just like to stress one of Flavio's messages. I mean, We are conservative. So within that $20,000,000 of synergy gains, we do not anticipate Exploiting the potential of Santa Maria's growth in Sao Paulo. So in fact, the company is very comfortable with that. Flavio talked about CapEx investment, and the company is analyzing that to improve efficiency and also Idle capacity or the production capacity, all of that because we want to better serve the Sao Paulo market. The challenge of the commercial logistics department, I think these are the most important challenges. So because the company has to learn how to operate in that category, but the commercial side is more sensitive. Santa Maria has a very strong team. They serve the entire state of Inogenes. They also have a very extensive coverage in Rio de Janeiro And at a last degree in Espiritu Santo. So Camille has a High concentration of sales in Belo Horizonte, but not so much so outside the capital of the state. Therefore, we are not anticipating any overlapping of the commercial teams. In Sao Paulo, Santa Maria does not sell as much because Camilo is very strong in terms of distribution. Therefore, we see This as complementary, one company complements the other. The same thing happens with logistics. Our geographic coverage is very large, especially in the Greater Sao Paulo area, and this will be It's with Santa Maria's brands and vice versa. All of that logistics coverage that Santa Maria has in Minas Gerais will also be Leverage with our own brands, therefore, we are very excited. Thank you, Luciano. I just want some further clarification because when you talked about The potential of the Minas Gerais market, is it fair to think that very soon the company will Also add your other lines of businesses within the state so that you can leverage a sales position. And the second question is that when you refer to €20,000,000 you're only referring to G and A synergies, but nothing in terms of revenue, right? I'm just looking on the cost and expense side. Yes, Guilherme. Only to add another comment, you're exactly right. In regards to distribution, we understand that this capacity that Santa Malia has because they are very strong in the Minas Gerais market and this can be Very good opportunity for us, allowing us to increase our penetration in that state. Therefore, today, when we look at the Camus business in Minas Gerais, we see a higher concentration of our products in Belo Horizonte, the capital of the state. But when you look on the client side, we are more present in larger clients because with that, we have higher penetration. But Santa Amalia, I think the strength of that company is their distribution, The distribution matrix because they have commercial wraps and a very good logistics. And with their logistics, They can make they have a very strong logistics activity in the state. Therefore, we will try to use all of that distributional capacity to leverage the current Camille's products. The idea is to come in with rice, beans, sugar and Also, we should review our FISH model because that is also important to us. And we Believe that by using that distribution strength that Santa Maria has, we will be able to increase the penetration of our own products in that state. And when we run our own estimates of gains, Strategically speaking, we see these new leverages. There is also the possibility of Bringing the Santa Amalia brand to Sao Paulo and also into other states where we Also have relevance. This is a possibility. It may be probably a little bit more difficult when it comes to boiling rice and beans in that Santa Amalia region. But we can also put that in our strategic agenda. However, when we try to justify the acquisition in terms of synergies, These leverages, which are a bit more difficult to capture, we try not To put it into the price because it will be an investment with returns. Thank you. That's very clear. Our next question comes from Lucas Ferreira from JPMorgan. Hello. Good morning. Could you share with us How much you're growing? How much what is the growth of Santa Maria's revenue in the last few years? That Revenue that was posted, how much the company was growing prior to the pandemic And after that period and whether you see any other strategic opportunity along the same lines so that you could grow in the past segment, maybe in other states or You want to grow the Santa Maria brand in other regions, Not only in Sao Paulo, whether you want to take it to other areas. Do you want to Spain, Santa Maria or you want to create M and A opportunities in other regions so that you would grow within that pasta segment? Well, Santa Maria's growth in terms of volume in the last few years was small, About between 1% 2%, the company has always been very concentrated In Minas, Rio de Janeiro and Spiritus Cento, with that market leadership, as I mentioned earlier on in the call, So I think that the main reason behind that low growth is that they are now growing into new areas. And so this is one of the things that we want to exploit, Now taking advantage of our distribution network outside those regions. Now speaking about next steps, I think this is the company's first step towards the wheat segment. Certainly, the company is willing to take Company is always open, looking at new possibilities. And we have a good appetite. So we are looking at other opportunities To make acquisitions in that wheat segment, within that same category, we still have flowers, pasta and cookies. And so the company is also interested in looking at these other categories. Thank you, Luciano. Next question from Carlo Zejeda from counterinsider. Good morning and thank you for taking my question. I look at the financial figures from Alicorte, And I was concerned because they showed a company that they acquired back in 2013, Santa Maria, that Hack problems back then. And by looking at the figures from last year's Q2 and even Excluding non recurring effects of the pandemic, the EBITDA shows that they are running at a negative EBITDA In the Q2, Alicorte is a company with expertise in the pasta segment in Latin America. So what went wrong in the case of Alicorp? What is the financial situation of the company? Because they have a negative EBITDA And there is a debt that got worse. So What is the financial situation? Do you think that you can make a turnaround? And how long do you think it will take for you to turn the asset around and make it profitable. Well, thank you for your question. Ali Corp, Certainly, it's a very relevant player in the pasta industry, and they know how to operate that industry quite well. What we analyzed and what is your interest is that we are only analyzing the Brazilian operation. And as I said in the beginning of this call last year, Their adjusted EBITDA was BRL39 1,000,000. They had an event with NICMS Lawsuit that had a nonrecurring effect of approximately BRL 20,000,000. So the accounting EBITDA in Brazil was BRL 19,000,000, but there's nonrecurring But there's not a recurring effect of approximately EUR 20,000,000 which gives EUR 29,000,000 of adjusted EBITDA that I mentioned earlier on. Alicorp made that acquisition back in 2013, 2014. They worked hard To restructure the company, Alicorp operated with over 30 categories, and they were Restructuring the operation in the past few years to allow them to come to the point where they are today. The pasta accounts for about 80% to 85% of their sales today, and my personal opinion is that they did some beautiful work in the past 10 years. I believe that CALIO can add something else Differently than what Alicorp did and in our case, it's our better distribution network. Alicorp Corp. Was mostly concentrated like Santa Maria, Minas, Rio and Spirito Santos. They did some excellent work. They are leaders. They carry a leading brand in the 2 I mean, at Nielsen, they have a very good pricing position. And I believe Camilo, once we add distribution from other states and we can also add additional knowledge that we have, We will be able to enhance the performance of the company. Therefore, as you said it yourself, it's a very challenging thing, especially for us because we are entering into a new segment and pasta has its own peculiarities. Therefore, I said at the beginning that the people that are there are very important to us because they can help us expedite our learning curve. I hope, therefore, that I answered your question. But if you still have anything else you want to ask, please feel free. Yes, I do have another question that has to do with possible tax credits due to accumulated losses. Do you anticipate any possible tax benefit going forward? In Brazil, usually, when there is a takeover, I mean, the company that was acquired loses the benefits that have been accrued. So In the time being, we will be operating independently. Santa Maria will be a subsidiary. But once we incorporate Santa Maria, all of these tax credits will be lost. So just to answer your question, these credits will not be considered in our evaluation. Thank you. Our next question from Leandro Fontanelli from Bradesco BBI. Mr. Fontanelli, you may proceed. Good morning, everyone. Congratulations for the acquisition. I have 2 very quick questions about that BRL 20,000,000 in synergies. How long do you think it will take for you to capture all of that amount? And my second question, I mean, you talked about areas of opportunities in distribution of Camilo in Sao Paulo. Well, we are very familiar with Camille's approach in rice, beans and sugar. But now my question is, what will be your approach regarding pasta. I mean, whether your focus will be in recovering Margins and G and A and volume would come with time. So my second question is just to understand the company's approach in that particular past segment. Thank you. Thank you for the questions. In terms of synergies, Well, I may be repetitive, but the company has always been very conservative in terms of synergies. So these that we identified and quantified, We will be able to capture them in up to 12 months, and we are very comfortable with that period of time. Now in terms of our approach, Flavio just talked about the need for us to make some investments to improve efficiency. The company has appetite. We are getting into the pasta segment because we want to play an important role in this industry. So what will limit our growth capacity right now is the idle capacity that is currently in place and the time that it will take for us to expand. So we are coming with That eagerness to grow, and this is the beauty of operating in more than one category. We already have relevance with our clients. We have commercial strength that can be further exploited, and all of that will be used to house further growth to Santa Amalia. Thank you very much. We received a few questions Through the webcast, I'll start with the first question from Nicolas Correa about What do we expect to see in terms of the EBITDA margin, whether it will be at 1 point closer to our own EBITDA margin? We do expect some improvement, but the company does not give any EBITDA margin guidance. So I'm sorry, I cannot answer your question. Well, it's just obvious. We have BRL 40,000,000, which was last year's EBITDA, and we have the expectation to generate BRL 70,000,000. So if you do the math, it will be closer to 12. I mean, for the acquired business, not Camilo as a whole. Moving to the next question, Alexandre Martin is talking about the difficulty to transfer the cost of wheat to the end user. So he wants to understand The behavior of Santa Maria's margins in the last quarters and what are the measures that you anticipate to Recompose Your Margins. Well, We operate in sectors where transfer happens quickly. In terms of grains, rice and beans, we have Price transfers almost every month. Now when we move to sugar, it happens mostly on a quarterly Fortnite basis. And so the company operates in 3 segments in Brazil that have a different pace in terms of price transfer. When it comes to wheat, the transfer capacity is lower. And I believe that Santa Maria, as other companies in the industry struggled throughout the first half of this year And at the end of the second quarter and in early July, they were able to increase that Pricing, a pass through or transfer. We will go through our learning curve. This is what I can tell you at the moment in terms of how prices will behave. We received several questions from Investors and individual investors, I will try to put them all into a single question In terms of this entry into new segments of in the food sector, Whether that is part of the of Camilo's strategy to diversify its revenues and grow? And the other question is about how much of Santa Maria's volume or revenue come from other products sold by Santa Maria. In terms of new segments, Camilo's strategy It's not deviating from the commodity risk because Camilo has always dealt well with that. Our Rice margins have always been very stable. The volatility in our results is very small. Historically, our margin It's between 10/11. 2 years ago, it was maybe between 7/8, but in fact, There is a very low volatility. Our desire to venture into new segments comes From the fact that we want to gain relevance and scale with our customers throughout the chain because the larger the scale, the larger the cost reduction Press its desire to enter into the coffee category, and the company is now working towards that end. Now in terms of the percentage of revenue of coming from items produced by 3rd parties at Santa It's currently at around 13%. There is another question, Guilherme Pallaris from Merrill Lynch. Would like to understand our view Concerning the recent price increase when compared to March inflation and what Are the other competitors doing or visavis what the other competitors are doing? And one of that is also related to price transfers because there was an increase in the cost of wheat. So their questions relate to how come how other players are having a difficult time answering these costs. And I said, as I said, there was A cost increase, as we mentioned before. And I think the entire industry is struggling with that. Companies have different positions in terms of how they buy their raw materials. And this may increase or decrease the level of difficulties. But what We see when we look at the performance of the 1st 7 months of the year is that, in fact, The cost increase has been transferred or passed through, and it will be normalized in the second half. There was a process of margin recovery that has started throughout the Q2, but I cannot yet tell you whether it has been 100% concluded, but it is at a lower pace Now when compared to before, I think that this is very Typical because every industry has its own profile. Because of the speed of that price transfer, When you have an increase in raw material cost, as a result, this puts pressure on the company's margin. But on the other hand, you also The opposite effect, when there is a reduction in raw material prices, be it because there was The price of wheat was lower or because of a lower exchange rate. And so when these moments occur, The transfer to consumers does not happen at the same speed as in the case of rice because there are moments when the industry operates at a higher margin. So I think we have to look at the moment, but when we look in the long run, you have to look at the average of the Thank you. If there are no further questions, I would like to inform you that the Q and A