Good morning, ladies and gentlemen. Welcome to the question and answer session for investors and analysts related to Camil's results in the first quarter of 2020. With us here today are Mr. Luciano Quartiero, 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 zero 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&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 differ substantially from what was expected. We will now initiate the Q&A session for the investors and analysts, and in case you have questions, please press star one.
Please hold while we collect your questions. Our first question is from Guilherme Pigliari from Bank of America.
Good morning. Thank you very much for taking my question. In fact, I have two questions. I may have some follow-ons. Looking at your result, 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&A of the company. The company was also very successful with your marketing action.
I just want to understand how we should project that looking forward as the company has to invest in the brand to keep your position in the market looking forward. What are your 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 final position right now, but we are getting prepared to face different scenarios.
Today, in terms of sales volume, just to answer your second question, 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 issue with the restaurants. Speaking about SG&A, the company put a lot of effort on reducing costs, and this has been a continuous effort because the company is constantly looking to reduce costs and increase efficiencies. When you talked about marketing, in fact, the company reduced our marketing investment substantially in the first half of the year. Quarter-over-quarter, we will just look at the situation, and as things go back to normal, we expect to resume our marketing investments.
This will certainly take place in a very gradual 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. Given the inventories that the company built up in this first quarter and looking at prices as they are, maybe I think we could maintain that level of net margin, right?
I think it's a bit more complicated to tell you about the margins because the company has built up its stock throughout the harvesting season, and this position will be diluted gradually throughout the year. We expect to maintain the profitability level in the next quarter. In the second half of the year, I will go back to what I said earlier on, we have to have a better evaluation of what the landscape will be in terms of purchasing power and employment level.
Perfect. Thank you very much.
I would like to remind you that for questions, just press star one. Please hold while we collect more questions. Our next question is from Lucas Ferreira from JPMorgan .
Hi, Flavio. 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, I just want to understand how do you see that trend looking forward and even towards the second half.
Now, looking at the short run and then once again talking about M&A, I think that with the acquisition of Iansa in Chile and in the pet food segment, I just want to understand whether we could assume that you are interested in focusing more strongly in that segment, especially also in Brazil. Because we know that the margins in that segment are higher, so in the mid and long range, whether you are also thinking about 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 two years. In the past two years, we're below the historical levels of the company.
It's a pretty harsh comparison because we had a good quarter, but even then, this first quarter was above historical levels. Sales volume throughout the second quarter in Uruguay, in Uruguay, we have an operation where the purchase orders are higher, and therefore, we have good expectations for the second quarter. Third and fourth quarters are usually good. We believe that in Uruguay, we will have good volumes, and therefore, by year-end, our inventory levels will be low because we sold all the rice earlier on in the season. We will sell it throughout the year. In the last two years, we carried over inventory from one year to the next above historical levels. This year, we believe that we will 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. In Peru, what is happening with the pandemic period in Peru is that the sales of packaged rice increased in the period in a very relevant way. Our sales percentage changed significantly when you look at what we sell in bulk and what we sell packaged. 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&A and the fact that we entered in the pet food business in Chile and the possible analysis 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. In Chile, when the opportunity came up, even though it was part of the focus of the company, there were lots of synergies. In Brazil, if the opportunity arises, we will look at the synergies, 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.
Once again, for questions, just press star one. Please hold while we collect more questions. As a reminder, just press star one for more questions. Our next question is from Gustavo Troiano from Itaú BBA.
Hello, Luciano and Flavio. My question is about the Brazil business.
Could you elaborate a bit about your volume performance 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 Camil brand increased substantially, but I just want to 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. You were talking about the sales mix throughout the last few months and something related to Uruguay. Was that your question?
Yeah.
About the mixes, right? The other part relates to how volumes evolved throughout the first quarter in Brazil when the peak occurred 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, I think this just caught us off guard because our inventory levels were not very high, because we were just getting into the harvest of rice. We were trying to replenish just very little. When the peak started, the market was at a shortage. At the end of March and throughout April, there was a peak of demand. Demand was very strong, a little bit above 2 digits in all categories. We felt that sugar in April, May, and June started gradually to go back to regular levels, demand was more normalized. Beans, it suffered a little because of the increase in prices, when prices go up, consumption is affected. Now we are back to normal levels.
In terms of rice, we are slightly above historical levels, therefore, we are experiencing a higher demand. When compared to April, it's 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, in comparison. Throughout July and August, we believe that things will be more stabilized. 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. 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 a migration to lower pricing brands in some other categories, but not as strong or maybe not as visible as could be expected, especially in terms of the basic staples. This is something we'll be monitoring very closely, and so far, there hasn't been any relevant changes or anything that catches our attention.
That's very clear. Thank you very much.
Our next question is from Lucas Ferreira from JP Morgan.
Sorry for having another question. In terms of margins and basically talking about the inventory levels is okay, volumes are normalizing throughout the second quarter, and maybe, who knows, prices as well.
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 will happen in the third or fourth quarter, and I don't want to be repetitive because I already talked about a few points. There are two things that are important that help the profitability of the company. Number one is scale. We expect to have volumes above our historical levels, which helps in dilution.
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. I believe that the second quarter will be similar to the first. We have to wait until our next call to talk about the third quarter. Well, as we have higher prices, I think the expectation 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 reorganize our margins. We saw a strong movement in terms of costs of raw material. This coupled with a very strong demand in the domestic market and strong demand in the international markets.
This demand, this new dynamics, helped us to change the level of pricing for rice. At the same time, we were able to transfer prices, unlike what had happened in the previous year. In the first quarter, if this trend 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 prices come, or whether there will be any migration. Historically, the second half in the grains segment has lower profitability because of seasonality. Now, on the other hand. In the first four to five months of the year for the sugar segment, that's where margins are tighter. The consolidated margin in sugar, due to seasonality in the period post-harvesting, our margins are more compressed.
Throughout the year, that margin goes back to normal. On the one hand, you will have reduction in the grains margin, but on the other hand, the sugar margins go up, and then you balance your business. In the second half, we also have the fishing business that is traditionally leveraged. With a stronger volume in the second half, you tend to have a more robust result and better profitability in the fish segment. These are all factors that influence and that may tighten up our result or affect our result. On the international side, Uruguay, as Luciano said, had a very good sales volume throughout this first half because of the stronger demand abroad because of the pandemic. Therefore, we will have higher sold volume, higher volume, and with a reduction in the transfer inventory.
In the other two consumer segments, this segment of sales increase will follow what we had in Brazil. Therefore, it's difficult to affirm whether in the second half we will have the same demand. This movement of having a better revenue base will help with diversification, and therefore, we believe that we will have a very sound result in the international segment throughout the second half of the year as well. This also has the positive effect of the consolidation of the figures that take into account the depreciation of our currency. This helps not only with consolidation but the price level of our raw materials.
Great. Thank you, Luciano and Flavio.
Our next question is from Guilherme Pigliari from Bank of America.
Thank you for taking my question. About your capital structure, we notice a certain change both in terms of the currency mix and foreign mix. I just wonder what the company thinks about this structure. Also my second question is about the average tenure of the debt. I mean, short-term and liquidity, I just want to get a better understanding because given the amortizations that we see looking forward, what is your idea about the expansion of the debt and 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 sees its funding needs. We will refinance in local currencies in Brazil. We funded in BRL, in Uruguay in USD, in Chile in CLP, and in Peru in PEN.
Therefore, when you look at the capital structure then you look at the currency mix and the stake of international currencies, I think we see two reasons here. First, you have the exchange rate. The depreciation of BRL was quite deep. Then when we consolidate our debt from our international operations, if you look at BRL, it's higher. The second point, even due to the crisis and 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 million because we needed more working capital to go through the year, we do that every year. We do our funding through March, April, and May, then we will reorganize the debt.
As a precaution, we borrowed more than what was necessary, and we did the same thing in Chile just to meet our working capital requirements. In March and April, we got all the funding we needed in order to avoid operating risks. In Chile, we got all the necessary resources to pay for the pet food assets, which involve about $40 million. Therefore, the mix change has to do with the foreign exchange variations and some one-off situations. We got funded in countries either to fund our working capital requirements or for acquisition. In terms of the structure, we still believe that each country has to get funded in the local currency. We understand 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 to get additional funding at competitive terms. 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 BRL 400 million of amortization in the pipeline. It was in the schedule for June and December, and then we ended up getting an additional BRL 600 million in a transaction involving a term of one year. We know that we pushed the problem that we had in 2020, we pushed forward to 2021, and now we have to deal with that situation.
In Brazil, throughout 2021, we have approximately slightly below BRL 1 billion in amortization. I mean, BRL 1 billion. BRL 600 we funded this year and BRL 350-400 that it was already in the pipeline. It was already scheduled. I think that banking credit is available. It's not with the terms we wanted. 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. There is not yet a firm or a sound demand to access these markets. We've been constantly talking to the banks. Individuals in this scenario of very low interest rates, the demand is now for you to borrow at five to seven-year term doing IPCA plus.
To meet our requirements for next year, so we are already working with an expectation to solve that issue in the next three to four months. 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 year.
Thank you. It's very clear. The acquisition of Iansa was done in local currency. The BRL depreciation should not impact that acquisition, right? Also about Iansa in Chile, would just like to know how is that transaction evolving.
Yeah, the debt was in local currency. We got funding in Chilean pesos, five-year term with two years of grace period, with quarterly payments after the second year. Therefore, nothing changes in terms of that transaction because it was done in local currency.
In consolidated terms, it seems like in BRL, the number is higher. We are still waiting to see all of the requirements of the contract met to begin the operation.
Perfect. Thank you.
We have a question coming from the webcast. Marcel Moraes from Santander is asking about exports from Brazil of rice. What is your exchange rate expectation, and what about pricing in the domestic market vis-à-vis the international market?
Exports in the first quarter were much higher than our historical levels. Today, usually Brazil exports and imports 1 million tons, and exports expectations for this year is quite above 1.5 million. Maybe it will be 1.6 million. The Brazilian price of rice with the current exchange rate, I think, is the third or fourth cheapest rice in the world. This pace of exports will 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. With this export volume above historical levels, this will lead us to increase our imports in the third quarter. If exchange rate remains 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%-10%. That's the difference. Assuming that we will have a raw material supply a little bit tighter because of exports that happened in the first quarter, this, depending on the exchange rate, put an additional pressure on the cost of raw material.
Thank you. As there are no further questions, I would like to inform you that Camil's Q&A session is now concluded. Thank you very much for participating, and have a very good day.