Earnings Call: Q1 2022

Jul 8, 2021

Good morning, ladies and gentlemen. Welcome to the conference call for the results of Camille's Q1 2021 for investors and analysts. With us here today are Mr. Luciano Quartiero, Director, President, Flavio Vargas, CFO and the IRO team of the company. In case any of you need any assistance during this call, on 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 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. Our first question comes from Guilherme Paliaris from Bank of America. [SPEAKER CARLOS ALBERTO PEREZ DE SOLAY:] Good morning, Flavio, and thank you for taking my question. So my first question is about your working capital position. And we saw that there is a period where there is a greater demand for working capital, but despite all that, you were able to generate working capital in the quarter. Can you tell me about your strategy about the company's inventories? And how do you see the movement of rice prices in particular? My second question is about this volume, especially regarding the beans market because We saw the company in the past 3 years with certain behavior. So I would like to know whether this is a level that we should expect going forward and whether that is sustainable. Could you please clarify your first question because it wasn't very clear to me? Good morning. Certainly, it's about your inventory policies. Even though we see raw material prices increasing quite a lot year on year, your working capital requirement was very low when compared to the Q1 of 2020. So I want to know just what changed in terms of the company's strategy regarding inventories. Okay. I think the first topic about our inventory policy is very much aligned with our supply strategy as most companies in the market expected and I'm referring to grains and rights that there will be a drop in prices. And at first that drop in prices was slower and in the at the end of the Q1, it was a bit higher. So the company decided to operate with very low inventory levels unlike what we usually do. And so this policy proved to be assertive. We saw our Q1 scenario being very challenging. But just to conclude with the inventories in the other categories things were in line. I mean rice was a bit different from usual. But as I was saying, This was a very challenging quarter for grains and every time we see drop in prices, the retailers postpone their purchases and they were replenishing inventory until they see that there is no more room for further price increases. So in fact, retailers reduce their purchases. But I would like just to say that I'm very pleased with our performance because in such a challenging quarter with grains where at the beginning of the quarter rice 5 BRLs for a bag and at the end of the quarter was around 73, 74. So with that dynamics of lower purchases, I mean we had despite all that we were able to grow 3% when compared to the base which was on the onset of the pandemic, which was quite a strong quarter, I think our result was very good. So now going back to our working capital policy, I think this was the major effect, but that was not all because that also was impacted by better management that resulted in a more positive outcome. Now in terms of the beans volume, to answer your second question, For a few quarters, the company has already doing something different with beans. And within our geographic coverage, the market where we already operate with rice usually have lower sales of beans when we look at the consumption of each region. So the company is focusing on that area. Therefore, this new level of beans is something that has been consolidated in the past quarters. And so this is what we see going forward in terms of a new level for beans. Now speaking about the other categories, the volume performance in Brazil in this Q1 was exceptional in our opinion. Perfect. And just as an additional follow-up to that answer, Apparently, if we look at Sugar, we see that the company decided to go in a different direction when compared to the direction of the general market. So can you Please elaborate about this strategy and how is that evolving because I think that this had a slight impact on margin, but by the same token, that's about you to increase volumes. Could you let me know what was the rationale behind that strategy of sugar prices. Well, Regarding sugar, I think my first statement may sound counterintuitive, but I think my first statement is to say that we did not let go of margins in that tremendous volumes. And you see that we posted 8% growth year on year. Also considering that everything was based on the Q1 of last year on the onset of the pandemic. But let me elaborate a bit more. The first thing I would like to say is that the company did not let go of the margins in detrimental more volumes and all of that was due to our different sales strategy that we've been pursuing. And then this is somehow also reflected in all of the 3 categories in Brazil of grains, fish and sugar. Sugar is the only segment that it's not performing according to expected in terms of margin. So We are performing well in grains, fish. We are also posting good performances abroad in sugar, maybe due to some macro effects and the way that we position our supply, the impact at the end was not so positive. We do not break down the results per segment. What I'm saying that This was the segment that puts our EBITDA margins down in Brazil. But this is something that has been solved from July onwards. So at the end of June early July, the way we are now operating just shows that the results of the sugar business has already resumed to its historical levels. And I think this has helped our overall result. So I think with that, I finish answering your question on sugar. Our next question from Gustavo Troiano from Itau BBA. Good morning, Luciano. Good morning, Flavio. I have two questions about Rice Brazil. The First is about your inventory at the retail level. In the Q4, we started seeing inventories resuming to normal levels. And I think now the inventory levels are more normal. I just want to understand whether this process started and ended in your Q1 or it was carried over to the beginning of Q1? And the second question refers to your rice sales mix. I mean, sales from Camu and from lower pricing brands. I just would like you to comment about the dynamics of these 2 categories, which one grew the most and how are you seeing this dynamic in these 1st 2 months of the next quarter. [SPEAKER CAROLINA DYBECK HAPPE:] Well, in terms of the retail inventory, as I was Tang, as we expected prices to go down, we started and concluded to reduction of inventories that was built throughout the end of last year due to significant price increase and then it remained low because people expected rice prices to go down and because of that retailers were operating at low inventories according to our assessment and that remains throughout that quarter. And now we see some changes especially now at the end of June and early July. And in our view, now rice prices is now at at now at normal levels. It started at 85 and last week and this week, the market is operating at around 70, 72. And now we expect to see some increases in the short run again. So the rice price expectation and the average that I said that we had last year and the expectation of the company for this year is that it will remain around BRL70. And now going back to the retail subject. We work with low inventory levels and our current feeling is that retailers will starts to resume their inventories back to normal levels. And that concludes the answer about retail. Now sales mix in the 3 categories have been quite challenging. We are operating I mean sales, I mean just to summarize, I would say that we are very much focus and considering the macro scenario and depending on the space of the main brands, we see some growing trend of lower pricing brands. This is a macro scenario. Now in the Q1, we were able to increase the Camille brands and now we have a different strategy for sales and we are already reaping the benefits of our strategy. And Now to answer your specific question whether the growth came from lower pricing brands or Camille, well, proportionally it was higher with lower pricing rents. And I think that this is what we anticipate for the rest of the year. But once again, I reinstate that I'm very pleased with the results we posted in this Q1. That was very clear. Thank you very much Luciano. Our next question comes from Lucas Ferreira from JPMorgan. Good morning. I have two questions about your outlook for the remaining of the year. First of all, Brazil with the reopening of stores and the economy, and if for some reason you already see some impact of the opening of the economy of the country, and whether you see some other further moves, especially in Uruguay and Peru. How do you see the performance of these two countries? Thank you very much. Our expectation for the remaining of the year is that we will continue pursuing the same pace of the Q1. I mean, when the economy it reopens again. I mean, this is something that is being discussed in the past 2, 3 quarters. And we continue to believe that I don't think with the reopening we will increase or decrease our volumes. We had an initial peak of demand at the beginning of the pandemic when people started to stock out and then consumption just remains the same. So I don't see any further positive or negative impact when the economy goes back to normal both in Brazil and also abroad. Now thinking about Uruguay, when we didn't have such a good volume performance. I mean, in fact, it was not a bad performance. It was already expected, but our sales last year were very good. Our transfer inventory. I mean we just had the lowest inventory ever in the entire history of the company. I mean the new crop season was received at the end of February March. And until we process everything and had products to sell, there was a mismatch. So we already expected a lower Q3 due to lower inventories. In the Q2, we already see our a rebound in sales. So when we look at year on year comparison, we expect a slight reduction in volume because as of the lower crop season. But this is far from being that 30% that we had in the Q1. So in the next three quarters in Uruguay, we will see a rebound in volume. So at the end of the year, volumes will be slightly lower considering the rights we have to sell until the end of the year. Now as for Peru, Peru was heavily impacted in this Q1. We feel that the political stability generated a lot of impact in both formal and informal economies in the country. And this is something that was heavily observed throughout the year. But now when you look at the month of June, we see that the volumes are back to normal. Therefore, we believe that Peru will resume to its historical levels without that heavy impact in that Q1. And Chile is according to our expectations year on year, but profitability is quite good. So this is our view about the international segment. I don't want to be repetitive. So we do not expect any major changes once the pandemic is over. Thank you. Now I'll turn the floor back to the management. We received a question from Alejandra. Thank you, Alejandra. And it's about Chile. Alexandre? Thank you. This is Flavio. As we already reported in other occasions. Between the approval we had of the transaction from the authorities in Chile, the company in Chile had a quality issue that led them to recall all their products. They had to stop their plants and reorganize their production schedule. They also had to revisit their entire quality procedure. So at first, this had a very significant impact on that deal. And that led us to postpone the closing of the deal. Since then, we've been closely monitoring how things are developing and our local team in Chile from Janssen, they are still making all the necessary adjustments to the business. The plant is back on track. They resumed operations. They already made agreements with the consumer organizations in Chile, they resumed sales and they are recovering. Therefore, we believe that maybe in the next 5, 6 or 7 months we will be able to learn more about the evolution of the business so that we can sit down with the seller and try to set up other terms and conditions that would be suitable for the closing of the deal. So to make a long story short, I mean, we are monitoring the situation very closely and we are just waiting for the outcome so that we decide what we will do at the end, whether we will proceed with the deal or not and how things will evolve. I would like just to add another comment because there is a recurring question during our calls and that is about the company's further opportunities and whether we are envisioning some further acquisition. Of course, we cannot give you any elaborate details, but I would say that the company is more optimistic. We are noticing an increased number of opportunities, a significant increase and this reflects the fact that many companies struggled in the past year and a half Therefore, we are very optimistic in terms of the second half of the year. I'll now turn the floor back to the management for their final comments. We just received another question from Jose through the webcast about pricing outlook for the main products of the company and what is the company's view for the next coming months. Well, I would say in general, I already talked about rice. The company believes that the average annual price will be around BRL80. That means that in view of the scenario at the end of the Q1 and the average price in June, we still expect a slight improvement. There are still some challenges in terms of the rice inventories from one crop season to another and this may put some issued throughout the second half of the year, but we still maintain our expectation of around BRL 30, which is very similar to that of last year, but with lower volatility. If just if you recall last year we had 35 and this year I mean, we it came to 105 at one point and then the price came back. And I think that we believe that prices will go back to being between 80 85. We also expect prices to be maintained. Prices from the first half will be maintained throughout second half. And in terms of sugar, we expect that current levels will be maintained. I mean, they are significantly higher than prices of 2 years ago, 35% to 40% higher when compared to the previous half year. And this is the new pricing and we believe that this will be maintained going forward. In terms of fish, there was an increase in the Q1 and this reflected an increase of costs both in terms of raw material and packaging. We are receiving further demands for increases from our packaging suppliers. And due to difficulties in obtaining raw materials, we should expect further increases and therefore fish prices are expected to be higher. So we think that all in all, it will be higher when compared to last year. And that means that the company is now in a at a different level. As there are no further questions, I turn the floor back to the company for their final remarks. First of all, I would like to thank you very much for joining us today. And I must say that for the company, this Q1 of 2021 posted very good results and we are very pleased with the outcome in Brazil. We had growth in all the categories where we operate. There was a very good sequential growth visavis the last half year of last year, the year started harder than we imagined. Rice had lower prices when compared to prices at the end of last year. It's a decreasing curve that makes difficult not only in terms of volume, but also profitability. In the sugar segment, our volume performance was good, but our profitability was pressured. And there was also growth in the fish segment and our profitability level was quite positive. In the international segment, our performance was very much in line with what we had anticipated before, even though volumes at first may seem like a track chain factor. It's not different than what the company expected. Uruguay had a very sound performance in a given year, but at the year end inventory was low. And this is an indication that in the Q1 things would be lower. And in Chile, if you look at the adjusted base, the performance was very consistent to its historical numbers and Peru. In fact, There, we had an operating challenge due to the pandemic and the impact of the pandemic and the economy of that country and due to the dynamics of the local market, we had to work much harder to make a turnaround and to put the business back into its historical levels. So at the end of this Q1, our operating performance was good. If you look at the adjusted that figures due to non recurring factors it's very much in keeping with the numbers posted last year and in terms of cash our cash generation was positive. Also due to the successful strategy of our procurement team and we saw the effects of that both in the results of the company because the company was very resilient and also if we look at the it was very resilient and also if we look at the cash effect. Now going forward looking at the end of the year, we are always a bit skeptical because we are working diligently to adjust all of our structures being cost structure, procurement structure, logistic and distribution. We are working hard in terms of our go to market strategy. We are reinforcing the partnerships of the company and we have leading brands. So we have to harness on our brand. So we believe that in the next quarters we will be able to reap the benefits of our strategies. Thank you so very much and I wish you all a very good day. Camille's conference call is now concluded. Thank you very much for participating and have a very good day.