Earnings Call: Q1 2021

Jul 8, 2020

Good morning, ladies and gentlemen. Welcome to the question and answer session for investors and analysts related to Camille's results in the first quarter of 2020. With us here today are Mr. Luciano Cuatera, director president Flavio Vargas, CFO and IRO, and the company's investor relations team. In case any of you need any 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 the future events that are subject to risks and uncertainties, and therefore may lead to expectations that may or may not occur or that differs substantially from that was from what was expected. We will now initiate the Q And A session for the investors and analysts. And in case you have questions, please press star 1. Please hold while we collect your questions Our first question is from Guilherme Paljari from Bank of America. Good morning, and thank you very much for taking my question. In fact, I have two questions and then I may have some follow ons. Looking at your result, you know, we saw that the company was successful in terms of transferring prices. Now, looking forward to the second half of the year, And by considering the macroeconomic scenario, what do you think you could transfer in terms of volume and also your capacity to observe prices of products that have been mature year on year. Another important aspect is that I would like to understand a bit more about the SG and A of the company. The company was also very successful. And with your marketing action. So I just want to understand how we should project that looking forward as the company has to invest in the branch to keep your position in the market you know, looking forward. So what are your, you know, ideas about marketing? Thank you. In fact, the company was very successful in terms of price transferring in the first half of the year. And this is something that should continue on throughout the second half of the year. Our grain prices are higher this time, and we believe that this high level should remain towards the second half. I think that the major challenge we have in the second half will be to understand what will be the impact of prices on the purchasing power of the population. The company has talked a lot about that. We do not have any fine position right now, but we are getting prepared to face different scenarios. Therefore, today, in terms of sales volume, just to answer your second question, And, as I said in the previous call, we hope that it will resume the old levels. We just had an additional demand on the onset of the pandemic. And in the last few months, it has gone back to regular levels, but I believe that we will be above historical levels. Even with the the issue with their restaurants. Now, speaking about SG And A, the company put a lot of effort on reducing causes, and this has been a continuous effort because the company is constantly looking to reduce if costs and increase efficiencies when you talked about marketing. In fact, the company reduced our marketing investments substantially in the first half of the year, So quarter on quarter, we will just look at the situation. And as things go back to normal, we expect to resume our marketing investments, but this will certainly take place in a very gradual fah fashion in terms of other purchases. I think we are on a different level, but again, the company is constantly seeking for further reductions. Perfect. Thank you. I just have a follow-up on that margin issue. Giving the inventories that the company build up in this first quarter and looking at prices as they are So maybe I think we could maintain that level of net margin, right? I think it will it's a bit more complicated to tell you about the margins because the company has built up its stock, you know, throughout the harvesting season. And and this position will be diluted gradually throughout the year. We we expect to maintain the profitability level, you know, in the next quarter. And in the second half of the year, I will go back to what I said earlier on. We have to to have a better evaluation of what the lens capabilities will be in terms of purchasing power and employment level. Perfect. Thank you very much. I would like to remind you that more questions. Our next question is from Ian Luketiki from JP Morgan. Hi. Have you? I think my first question is a bit in keeping with the previous question. I think one of the main highlights of the quarter was the international segment. There was a strong growth, and I just want to understand how do you see that trend looking forward and even towards the second half. And now looking at the short run-in then once again, talking about M And A, I think that we the acquisition of Jensai in Chile and in the food segment, I just want to understand whether we could assume that you are interested in you know, focusing more strongly in that segment, especially also in Brazil. And because we know that the margins in that segment are higher. So in the in the mid and long range, whether you are also thinking about this introducing this business to Brazil. Okay. In the international segment, and you're right, we had increased volumes, as you said, in Uruguay, We had a very strong pace of sales in this past quarter, better than what we experienced in the past 2 years. In the past 2 years, were below the historical levels of the company. Therefore, it's it's a pretty harsh comparison because we had a a good quarter, but even then this 1st quarter was above historical levels. And therefore, sales volume throughout the second quarter in Uruguay. Uruguay, we have an operation where the purchase orders are higher. And therefore, we have good expectations for the 2nd quarter. Then 3rd and 4th quarters are usually good. Therefore, we believe that in Uruguay, we will have good volumes. And therefore, you know, by, by year end or inventory levels will be low because we sold all the rice earlier on in the season. I mean, and and then we will sell it throughout the year in the last 2 years. We carried over inventory from 1 year to the next above historical level. So this year, there we we believe that we'll we'll go back to historical levels. We expect to see this very good pace of sales looking forward. In Chile, we also experienced significant growth. Volumes and prices, so the operation in Chile remains very sound. And in Peru, what is happening with the pandemic period in Peru is that the sales of package rise increased in the period in a very relevant way, our sales percentage change significantly when you look at what we sell in bulk and what we sell, you know, package. And this is something that the company has always been prepared for. Therefore, we expect this to continue on, but it's quite interesting to see how things are evolving in Peru. Now, in regards to M And A and the fact that we entered in the pet food business in Chile, and the possible analysis or of doing the same thing in Brazil or not, this will certainly depend very much on the opportunities or what could come up. In Brazil, we focus on the categories that you are all familiar with and this focus remained the same. And in Chile, when the opportunity came up, even though it was, I mean, in a was part of the focus of the company. There were lots of sur synergies in Brazil. If the opportunity arises, we will look at the synergies and and we will study the possibility. I think it's not really the strategy of the company, but again, the company is always open to look at other opportunities outside of our core business. Yeah. Thank you very much. You answered my question. Please hold while we collect more questions. As a reminder, just press star 1 for more Our next question from Gustavo Troyano from Itau BBA. Hello, Luciano and Flavio. My question is about the Brazil business. Could you elaborate a bit about your volume form is throughout the quarter and what you expect to see in June. There was a peak, which in fact, it occurred, and I also want to understand how your sales evolved in terms of mix. Both low pricing brand and the Camille brand increased substantially, but I just wanna know whether you saw any changes in consumer behavior. I didn't get the beginning of your question very well, but let me try to answer were talking about the sales mix throughout the last few months. And something related to Uruguay, was that your question? Yeah. That about the mixes, right? And the other part relates to how volumes evolved throughout the first quarter in Brazil, when the pick occur and whether in fact it occurred and what do you expect to see now in June? Okay. In the second half of March, that's when there was a peak, and I think this this just caught us off guard because our inventory levels were not very high because we were just getting into the the harvest of rice. And so we were trying to to to to replenish just very little. So when the peak started, the market was at a shortage. But at the end of March and throughout April, the there was a peak of demand. The demand was very strong. A little bit above 2 digits in all categories. Then we feel that sugar in April, May, June, started gradually to go back to regular levels. So demand was more normalized. Beans it's separate a little because of the increase in prices. And when prices go up, consumption is affected, but now we are back to normal levels in terms of rice. We are slightly above historical levels. Therefore, we we are experiencing a higher demand. I mean, when compared to April is not so strong, but it's still higher than regular volumes. And the same thing goes, for fish. There is a very high demand for fish, even stronger when you look at the demand for rice, you know, in comparison. Now, through July August, we believe that things will be more stabilized. But as I said before, it will still remain above historical levels. In terms of the mix, up to now, we haven't noticed any major changes in the mix. So sales of premium brands versus low pricing brands have remained the same. With customers that I talk to, they tell me that there has been, migration to lower pricing brands and some other categories, but not as strong or maybe not as visible as could be expected, especially in terms of, you know, the basic staples. So this is something we'll be monitoring very closely. And so far, there hasn't been any relevant changes or anything that caught catches our attention. That's very clear. Thank you very much. Our next question is from Ian Luketiki from JP Morgan. So sorry for having another question. But in terms of margins and basically talking about the inventory levels, it's okay. Volumes are normalizing throughout the second quarter, and maybe who knows prices as well. So with this backdrop, could you probably assume that in the third quarter for Brazil, it will be better in terms of margins, or there will still be more positive things in the second half of the year in regards to margins for Brazil. I think that the margin in the first quarter was good. But we believe that it will be very similar in the second quarter as well. We've been now analyzing maybe what would happen the third or 4th quarter, and I don't wanna be repetitive because I already talked about a few points. But there are two things that are important that help the ability of the company. Number 1 is Kale, our w we back to have volumes above our historical levels, which helps in dilution. And secondly, our pricing is higher. And sometimes this makes it more difficult in terms of our smaller competitors because they would need more working capital. Therefore, I believe that the second quarter will be similar to to the first. And then we have wait until our next call to talk about the third quarter. But in re in regards well, as we have higher prices, I think the expectation is is good just to shed some light and to give some more color when we look at the segment, I think the main highlight in this first quarter in the rice segment is our capacity to to reorganize our margins or to to We saw a strong movement in terms of causes of raw material, and this coupled with a very strong demand in the domestic market and strong demand the man in the international markets. Therefore, this demand, this new dynamics helped us to change the level of pricing for rice. And at the same time, we were able to transfer prices unlike what had happened in the previous year. So in the first quarter, if the strain remains throughout the second quarter, the margin for grains should be higher than our historical levels. In the second half, as you said, we have to be cautious to see what will happen after the pandemic when the crisis come, whether there will be any migration, but historically, the second half In the grain segment, it has lower profitability because of seasonality. But now on the other hand, In the 1st 4 to 5 months of the year for the sugar segment, that's where margins are tighter. Therefore, the margin, the consolidated margin in sugar Due to seasonality in the period plus harvesting, our margins are more compressed And throughout the year, that margin goes back to normal. So on the one hand, you will have you know, reduction in the grains margin, but on the other hand, the the sugar margins go up and then you balance your business. And in the second half, we also have the fishing business that is you know, traditionally leverage. So with a stronger volume in the second half, you tend to have a more robust result and better profitability in the fish segment. So these are all factors that influence in the may tighten up our result or affect our result. On the international side, Uruguay, as Luciano said, had a very good sales volume notes throughout this first half because of a stronger demand abroad because of the pandemic Therefore, we will have higher sold volume, higher volume, and with a reduction in the transfer inventory. And in the other 2 consumer segments, this segment of sales increase will follow what we had in Brazil. Therefore, it's difficult to to affirm whether in the second half will have the same demand. But this movement of having a better revenue base will help with diversification. Therefore, we believe that we will have a very sound result in the international segment throughout the second of the year of the consolidation of the figures that take into account the depreciation of our currency. This helps not only with consolidation, but the the price level of our raw materials. Great. Thank you, Luciano and Flavio. Our next question is from Guilherme Paladis from Bank of America. Thank you for taking my question. About your capital structure, we noticed as certain change both in the in terms of the currency mix and foreign mix. And so I just wonder what the company, thinks about this structure. And also my second question is about the average tenure of the debt. I mean, short term and liquidity, I just wanna get a better understanding because giving the amortizations that we see looking forward, what what is your idea about, you know, the expansion of the debt in EBITDA? Okay. Thank you. Thank you for your question. In terms of the capital structure, In terms of the strategy, the company hasn't changed the way it's sees its funding needs. We will refinance in local currencies. In Brazil, we We funded in BRLs, in Uruguay, in dollars, in Chile, in pesos, and in Peru, in Solis. Therefore, when you look at the capital structure and then you look at the currency mix and the stake of international currencies. I think we see 2 reasons here. I mean, First, you have the exchange rate. The depreciation of VRL was quite deep. And then when we consolidate our debt, you know, from our international operations, if you look at BRL, it's higher. The second point and even due to the crisis in in view of the acquisitions in Chile of the pet food business, our international debt level This year is higher when compared to the year before. In Uruguay, we withdrew a bit over $50,000,000 because we needed more working capital to go through the year. And we do that every year, we do our funding through March, April, in May, and then we will reorganize the debt. As a precaution, we brought more than what was necessary, and, we did the same thing in Chile. Just to meet our working capital requirements in March April. We got all the fended we needed in order to avoid operating risks And in Chile, we funded all the necessary we've got all the necessary resources to pay for the pet food assets which involve about 40,000,000 US dollars. Therefore, the mix change has to do with the foreign exchange variations and some one off situations. And so we got funded in countries either to to fund our working capital requirements or for acquisition. But in terms of the structure, we still believe that each country has to get funded And so we underfore that we have to maintain the operation in the local currency. In terms of the duration of the debt, the average duration throughout the quarter, we had to make adjustments to the situation. In early March, we were just beginning a market transaction. To get funding not only to meet our amortization needs in Brazil, but we also had a good additional funding. At competitive, terms, but when we were hit by the pandemic, and the market situation changed or ceased to exist, we had to reassess the conditions and see what was available. We had 400,000,000 BRLs of amortization in the pipeline. It was, you know, in the schedule. For June December, and then we ended up getting an additional 600,000,000 barrels you know, transaction involving a term of 1 year. Therefore, we know that we push the problem that we had in 2020. We push forward to 2021, and now we have to deal with that situation. In Brazil, throughout 2021, we have, approximately slightly below a 1,000,000 BRLs in amortization. 55 I mean, building. 600 we funded this year and in a, 350 to 400 that it was already. You know, in the pipeline. It was already scheduled. I think that banking credit is available. It's not with the terms we wanted. And in terms of pricing, it's more expensive. Maybe you could issue debentures. Maybe it's a bit more difficult because of all of the things that already happened. Therefore, there is no not yet a firm or a sound demand to access these mark. But we've been constantly talking to the banks. Individuals in this scenario of very low interest rates, they're the the demand is now for you to to borrow at 5 to 7 year term doing IPC apps APC I plus. To meet our requirements for next year. So we already we are already working with an expectation to solve that We are quite aware that both in terms of pricing and terms of payment we will not be able to go back to previous levels that we had last last year. Thank you. It's very clear. The acquisition of Jensa was that in local currency, the BRL depreciation should not impact that acquisition, right? And also about Jensah in Chile. We'd just like to know how is that transaction evolving. Yeah. The debt was in local currency. We got funded funding in Chilean PES's 5 year term with 2 years of grace period with quarterly payments after the 2nd year. So, therefore, nothing changes in terms of that transaction because it was done in local currency in consolidated terms. It seems like there the in BRLs, the the number is higher. But we are still waiting to see all of the requirements of the contract met to begin the operation. Perfect. Thank you. Now, we have a question coming from the webcast. Marcell Marais from Santander. Is asking about exports from Brazil of rice. With this, when what is your exchange rate expectation and what about pricing in the domestic market vis a vis the international market? Exports in the first quarter were much higher than our historical levels. Today. I mean, usually Brazil exports and imports 1,000,000 tons. And exports expectations for this year is quite above 1,500,000. Maybe it will be 1,600,000. The Brazilian price of rice with the current exchange rate, I think, is the 3rd or 4th cheapest rice in the world. They're for this pace of exports, we'll tend to continue with this level of foreign exchange and exports made local prices to go up. It's not yet in equal footing with the international market. And with this export volume, above historical levels, this will lead us to to increase our imports in the 3rd quarter. But if exchange rate remains as as it is, it means that rice prices will tend to go up. This difference between import prices and prices in the local market is around 8 to 10%. That's the difference. So assuming that we will have a raw material supply a little bit tighter because of exports that happen in the first quarter this, I mean, depending on the exchange rate, put it in additional pressure on the cost of raw material. As there are no further questions, I would like to inform you that Kamiel's Q and A session is now concluded. Thank you very much for participating, and have a very good day.