Camil Alimentos SA

BOVESPA:CAML3

Earnings Call Transcript 2021-Q1

[Luciano Quartiero, executive]

Welcome to the management's comments on the results of the first quarter 2020 of Camil Alimentos. Before going over the results for the period, I would like to talk about the current global crisis caused by COVID-19. In 60 years of history, we never faced such unprecedented times in our business and we had to act swiftly and responsibly. As a food company, we have a unique responsibility to serve our customers, ensuring that all regions and communities we serve in South America receive all the food they need, never losing sight of the safety of our employees and customers, which has always been our priority. In the early days of the pandemic, we set up a crisis committee to draw up and monitor critical actions to preserve the safety of our employees and ensure the continuity of our businesses.

We intensified our internal communications with information on COVID-19 and disease prevention. High-risk employees were put on a temporary leave of absence. We reinforced personal hygiene routines and the use of sanitary barriers in the operating units. For guaranteed production and meet the demand marked by high sales volume and higher raw material costs, we focus on managing inputs and finished products inventory levels, in addition to making adjustments to the production schedule, logistics and transportation of employees to ensure safe distancing and prevent crowding in our plants.

Together with the operational initiatives to guarantee supply, we strengthened our short-term financial liquidity and funding of approximately BRL 1.2 billion in the quarter. In addition to the initiatives related to the pandemic and the safety of our employees, customers, businesses and liquidity, we are also active on another important commitment of the company given this scenario, our social commitment to the local communities. Our long history of growth has been based on the core values imprinted in our DNA like trust, proximity and accountability. As one of the largest food companies in South America, we reaffirm our commitment to society by helping mitigate the impacts of COVID-19 in the communities where we operate and that involves purchase of equipment and supplies to the health care sector in the municipalities we serve and have production facilities and we distributed more than 200 tonnes of products to the most vulnerable population.

Moving to the results and highlights of the quarter. In the last few years, Camil has focused on measures to reduce costs and expenses. And as a consequence, the company is even better positioned to compete in this new environment. The company's actions to enhance efficiency in the landscape of growing demand and increased sales volume and the sharp increase in raw material prices allowed for the dilution of costs and expenses and the return to our historical profitability levels. In the international market, we remain in a favorable position posting positive results. We noticed an improvement in exports from Uruguay year-on-year, sales growth rebound in Peru and a continuous positive volume and profitability performance in Chile. Moving to the main indicators of the period. The quarter posted 21% annual growth of consolidated volume in all categories and countries we operate. Net revenue of BRL 1.7 billion in the quarter, up 40% vis-à-vis the same period of the previous year. Gross profit of BRL 414 million, up 44% with a margin of 23.9% in the quarter, up 0.7 percentage points year-on-year.

We would also like to point out the gradual improvement in our capacity to transfer increases in raw material prices to market prices in the dilution of costs. EBITA was BRL 197 million, up 137% year-on-year with a margin of 11.4% in the quarter, growing 4.7 percentage points. The highlight is the improved profitability with a gradual improvement of the gross margin and dilution of costs and SG&A expenses. And net income of BRL 109.5 million, up 119.8% vis-à-vis the same period of the year before, with a margin of 6.3%, growing 2.3 percentage points. It is worth highlighting that profitability improved in the period, together with a better contribution margin and dilution of costs and expenses.

Starting the analysis of the quarter and the year with our operating results, we point out that the volume growth posted in all categories reflect the sharp increase in demand during the pandemic of COVID-19, especially in the early days of the pandemic in March 2020 when sales reached an all-time high, becoming more stable by the end of the quarter.

In the rice category, volume was 208,000 tonnes, up 11% in the quarter with increased sales of the Camil brand and low-pricing brands, coupled with the impact from a spike in demand in this pandemic landscape. The average market price of raw material was BRL 55 per bag in the quarter, growing 32%. Gross price in the quarter was BRL 2.86 per kilogram, up 19% and net price of BRL 2.56 per kilogram, up 23%. We noticed a gradual improvement in the price transfer dynamics when compared to previous quarters. In the beans category, volume was 24,000 tonnes, up 1% in the quarter with increased sales of the Camil brand and low-pricing brands, combined with the impact from the spike in demand in this pandemic landscape.

Volumes were adversely impacted by the high volatility of prices in the category in the period. The average market price of raw material was BRL 265 per bag in the quarter, up 4%. Gross price was BRL 6.09 per kilogram, up 20% and net price of BRL 5.73 per kilogram, growing 25%.

In the sugar category, volume totaled 146,000 tonnes, growing 6% in the quarter, with the sales increase of União brand and the lower-pricing brands. The average market price of raw material was BRL 77 per bag in the quarter, up 12%. Gross price was BRL 2.34 per kilogram, up 19% and net price of BRL 2.05 per kilogram, growing 22%.

In the fish category, volume totaled 7,500 tonnes, growing 7% in the quarter, mostly due to higher sales of the Coqueiro and Pescador brands. Gross profit was BRL 20.72 per kilogram, up 1%, and net price of BRL 16.06 per kilogram, growing 10% in the quarter. It's worth highlighting the improvement in local tuna and sardine fishing.

In the international segment, sales volume totaled 177,000 tonnes in the quarter, up 60% with sales increase in all countries attributed to a sharp increase in demand amid the COVID-19 pandemic in addition to the following effects: In Uruguay, volume was 126,000 tonnes, up 82% in the quarter due to increased exports in the period. In Chile, the volume was 24,000 tonnes, up 16% in the quarter. We continue to post volume growth and positive profitability in that country. And in Peru, the volume was 26,000 tonnes, up 28% in the quarter, with volume recovery boosted by an increase in the number of points of sale when compared to the year before.

Camil continues to believe in the food market in South America, as it combines resilience, growth opportunity and tends to be a relevant industry in this pandemic environment. Looking forward, sustainable growth continues to be our biggest priority, our strong brands, a distinguished platform and leadership position. We have here multiple growth opportunities in the segments we serve, developing new markets and entering into new categories.

We initiated a new cycle, reinforcing our responsibility and agility in the pandemic scenario. We are even more confident that the company is on the right track to anticipate trends and strengthen our position as a consolidator of the food industry in South America. Now I'll give the floor to Flavio to elaborate on the financial performance of the quarter and year. Flavio, you may proceed, please.

[Flavio Vargas, executive]

Thank you, Luciano. Welcome to the comments on the results of the first quarter 2020. I will start the analysis of the financial performance talking about the gross revenue that reached BRL 2 billion in the quarter, up 35%, mainly driven by the combined effects of higher volume, prices and exchange rate in the period. Net revenue was BRL 1.7 billion in the quarter, up 40%, driven by higher sales of grains, sugar and fish in Brazil, the foreign exchange effect and sales growth in Uruguay, Chile and Peru. Cost of sales and services in the quarter totaled BRL 1.3 billion, growing 38%, mainly due to an increase in the cost of goods sold in Brazil of 28%, driven by the growth of sales volume and higher raw material acquisition costs. This result was also impacted by a 22% increase in COGS in the international segment, driven by higher sales volume and the foreign exchange effect in the period.

Taking all these factors into account, gross profit was BRL 414 million, up 44% year-on-year with a margin of 23.9% in the quarter, growing 0.7 percentage points. Please note the annual and sequential recovery of the gross margin with a gradual improvement in our capacity to transfer prices in Brazil. SG&A in the quarter was BRL 260 million, up 9% with the equivalent to 15% of the net revenue in the period. This represents a reduction of 4.2 percentage points in revenue year-on-year. Nominal growth was impacted by a 27% increase in international SG&A due to the foreign exchange impact in the period and increased sales expenses in the countries.

Those result was partially compensated by a 2% reduction in SG&A in Brazil, lower sales expenses stemming from a reduction in promotional and advertising activities and a decrease in commuter transport in the period. On the other hand, general and administrative expenses in Brazil were up 0.9% due to increased expenses related to stock option provisions and depreciation. It's worth mentioning that this G&A growth in Brazil was partially offset by expense reductions with storage, traveling and severance pay.

Furthermore, there was a reduction of 4.2 percentage points in the SG&A percentage of net revenue, reflecting a dilution of costs and expenses in the period and lower sales expenses in Brazil stemming from the company's initiatives to reduce costs and expenses implemented in the past year. Other operating revenues totaled BRL 2.6 million in the quarter due to nonrecurring revenues from claims. Taking that into consideration, the EBITDA was BRL 197 million, up 137% year-on-year with a margin of 11.4% in the quarter, up 4.7 percentage points.

Regarding the financial result, we had expenses of BRL 17 million in the quarter, 55% higher due to higher financial expenses attributed to foreign exchange variation. Income tax and social contribution amounted to BRL 29 million in quarter, 21.2% of the result before taxes, mainly attributed to the effects of the exclusion of subsidies on investments related to ICMS credits.

Taking all that into account, net income was BRL 109 million, up 120% with a margin of 6.3% in the quarter, accounting for an increase of 2.3 percentage points vis-à-vis the net margin of Q1 '19. Earnings per share was $0.30, up 140% in the quarter. It is worth highlighting the improved profitability of the company and the reduction in the total number of shares to 370 million common shares when compared to 410 million in the year before due to the cancellation of the total balance of treasury stocks after the conclusion of the third buyback program in November 2019. The company's total debt position reached BRL 3 billion, up 50% as a result of the new funding in Brazil and international, totaling approximately BRL 1.2 billion to pay for short-term maturities and finance the acquisition of pet food from Empresas Iansa in Chile. It is worth highlighting that the foreign exchange depreciation in the international segment also led to higher indebtedness in the period. Net debt amounted to BRL 1.2 billion and net debt over EBITDA in the last 12 months was 2.2x, flat year-on-year. CapEx stood at BRL 19 million in the quarter, down 36% due to the conclusion of the sugar packaging internationalization process and the consequence launch of our Super Barra sugar plant in Barra Bonita, São Paulo.

In regards to working capital, it increased year-on-year, mainly attributed to higher inventory levels with increased raw material acquisition costs, but also necessary to guarantee imports during the pandemic, mainly for grains in Brazil and abroad. The result was also driven by an increase in advanced payments to suppliers, the expansion of the assistance programs in Brazil and Uruguay and higher costs of raw material acquisition in addition to the impact of foreign exchange depreciation in the international market.

Accounts receivable also grew in the period with increased sales in Brazil and abroad and the suppliers line increased in contrast with accounts receivable with higher raw material acquisition cost. Before concluding, I would like to stress a point made by Luciano regarding the adjustments and initiatives by the company to deal with the COVID-19 pandemic. Since the onset of the pandemic, we've been adopting proactive measures to ensure the continuity of our business during this period. And although the operations of the company have not been financially affected in any relevant way, we cannot estimate or predict the occurrence of future events related to the pandemic. Therefore, we've protected our people, operations and the liquidity of the company and continue to closely monitor future financial impacts and evaluate possible actions looking forward.

Luciano, our IR team and I will be available to answer your questions on the results of the quarter on July 8 at 11:00 am Brazil Time. The link for the webcast and connection information is available on the investor relations website.

Also, it's worth mentioning that in compliance with the guidelines from the Ministry of Health, the company suspended all participation in corporate meetings and events and canceled all international and domestic traveling. At corporate headquarters, we are all working from home via telephone, video conferencing or apps. Our IR team is available by phone, e-mail or online through our website, so to schedule a video or phone calls you can get in touch with them. Thank you all very much.