Camil Alimentos SA
BOVESPA:CAML3
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Camil Alimentos SA
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Good morning. Welcome to Camil's video conference to discuss the results of the second quarter of 2022. Present here today are Mr. Luciano Quartiero, Director, President; Flavio Vargas, CFO and IR Officer; and the company's Investor Relations team.
[Operator Instructions] We would like to emphasize that any forward-looking statement that might be made during this conference call related to Camil's business outlook, projections and financial and operating goals are based on beliefs and assumptions of the company's management, as well as information currently available.
These may involve risks, uncertainties and assumptions as they refer to future events and therefore depend on circumstances that may or may not occur. Investors must understand that such general economic industry conditions and other operating factors may lead to results that differ substantially from those expressed in such forward-looking statements.
We will now start the presentation with Mr. Quartiero, followed by Flavio's presentation, and at the end, we will open for a 20-minute Q&A. Thank you.
Hello. Good morning, everyone. And welcome to our comments on the results of the second quarter and half of 2022.
We once again delivered a second quarter that reinforced our agile execution and the integration of new businesses. Both the new categories and the international acquisitions made in the last fiscal year reflect our positioning as a Brazilian multinational company with one of the most complete product platforms and leading brands in the LatAm food market.
It is worth noting that this data does not include our most recent acquisition, as shown on Slide 3, which consists of the announcement of Camil's entry into the biscuits and cookies category in Brazil. We acquired Mabel and together with the licensing of the Toddy brand for cookies in the country.
The Mabel brand is a sales leader in cookies in the country and the second top of mind brand in Cash & Carry, an important sales channel for us. We also signed a licensing agreement for the Toddy brand for the production of cookies, the second most sold brand of chocolate cookies in Brazil with over 98% brand recall among consumers.
This new acquisition reinforces the positioning that we have been emphasizing to the market of adding well-known brands to our portfolio and in categories with high growth potential and increased added value.
Furthermore, we can reinforce our competitive advantage with -- which offers cross-selling growth potential, as well as the expansion of Camil's presence in the Midwest, Northeast and Southeast of Brazil. This really reinforces our competitive portfolio in the LatAm area. We have already proven that we can identify and integrate acquisitions in the company that yield gains in terms of supply, commercial and G&A synergies.
Cookies, in particular, enters Camil increasing our exposure to the wheat chain, after the successful integration and monetization of the newly acquired pasta operation in Brazil. It is also worth mentioning that the transaction is not yet concluded. We are operating independently until the closing date, which we hope will occur in early November.
With Mabel's acquisition, we point out that we totaled BRL 1.3 billion in acquisition since the IPO. With the last 5 accounting for BRL 1 billion of this total amount in the period of 2021 and '22, adding 4 new categories to our portfolio, pasta, coffee, healthy products in Uruguay and after its due completion, cookies as well.
We have also added a country to our list of operations with the entry into Ecuador. We are very happy with all of the transactions so far, and we are committed to integrate these acquisitions in an agile and profitable way, further exploiting our competitive advantage of cross-selling, gains in economies of scale and leading brands in the food market.
Moving now on to the financial highlights. Camil posted quarterly and half year results that demonstrate our growth momentum with gains of scale in addition to the agile execution of the business transformation for rapid growth and the integration of synergies with the acquisitions made.
Our gross revenue in the quarter was BRL 3 billion in the quarter, up by 22% and close to BRL 6 billion in the first quarter, up 14% year-on-year. Our EBITDA was BRL 209 million in the second quarter of 2022, growing 9%.
For the half year period, EBITDA was BRL 453 million, up 21% year-on-year. The EBITDA margin for the quarter was 7.7%, and for year-to-date was 8.9%. Although it has been a challenging year for the food industry due to the impact from adverse political and economic scenarios in the Latin American countries.
The result of the period reflects a business model that works with resilience. Even in face of high levels of raw material prices and higher expenses for these industries, our execution is focused on the integration of a portfolio with higher added value and price pass-through. This allow us to minimize the effect of these challenging scenarios.
This is achieved by having products that are in the regular basket of our consumers by having one of the most complete product platforms and also by offering leading brands in the Latin American food market that cater to all consumer niches.
Turning now to the operating results. The highlight here is the 14% growth in total sales volume in the quarter, driven by the company's international volume. This result was mainly due to the year-on-year growth in Uruguay in addition to the entry of the new categories in Brazil.
If we look at the analysis by category, starting the analysis with rice, the volume showed a reduction compared to the previous year, mainly impacted by a slowdown in the retail market in August at the end of our quarter.
The price levels of rice in the market have remained high. And today, they trade above the average of the quarter, which is around BRL 77 according to [Indiscernible] . In beans, We continue to deliver good results.
We posted growth in volumes and recover the category's profitability, which was under pressure in Camil's last fiscal year. We continue to see a positive trend, sustaining the result of last year's volumes, which reached a growth milestone of more than 20% in the year.
In sugar, the scenario was a little bit more challenging in terms of volumes. But we are gradually returning to the usual sales volume base for that category after the stockout experience in Q4 of last year. We also highlight that sugar prices remain high, increasing further when compared to the previous year.
It is also worth mentioning that the retail downturn in rice last August also impacted the category in the period. Now in fish, we are gradually recovering the volumes in this category, which was impacted last year in the first quarter of 2022, impacted by reduced availability of sardines with continued difficulty in sourcing local and imported raw materials.
Now we are already seeing the company's historical profitability levels, as well as volumes slowly returning to normal levels. In the International segment, volume grew 49% driven by increased sales in Uruguay with greater availability of rice for exports in the year.
In Peru and Chile, the volume of packaged rice sales and profitability continue to be pressured by the political and economic scenario of the countries in the region, as well as by rising inflation in the LatAm region.
With regards to new international operations in Ecuador, we reported our third quarter consolidation of operations to the group, focusing on efficiency actions and commercial structure.
We started to see excellent results in profitability and sales this year as a result of our initiatives in the country. In Uruguay, we worked on the integration of Silcom's internal market, a company with a portfolio of several healthy products focused on sales to the local market. Both initiatives will allow the company to evaluate and apply efficiency and commercial actions to maximize the profitability of the operations.
And finally, on Slide 12, we present the performance of the new categories in Brazil. In Pasta, we recall the acquisition of Santa Amália, the fourth largest company in the Pasta segment in the country, with leadership in the state of Minas Gerais. Santa Amália holds more than 40% of the Pasta market share in Minas Gerais, a region with great growth potential in terms of geographical complementarity with the other Camil categories, especially [Indiscernible].
We posted a quarter, we continued optimal and profitable results in the Pasta category in a scenario of prices and execution of supplies and sales that allows the category to continue operating with margins higher than historical ones.
In addition to Pasta, the quarter includes the second result from the launch of Camil's Coffee business. We entered the category at the end of March of 2022 with an operation that continues steadily ramping up sales, reaching a volume of 3,400 tons in the quarter, an increase of 49% in relation to the previous quarter, accumulating 5,400 tons in its first 5 months of operation.
We remind you that our operation today in Varginha, Minas Gerais, one of the main coffee producing regions is in the phase of capacity expansion from 36,000 to 60,000 tons per year, ensuring product availability and sales execution.
We are investing in advertising and publicity, and we are currently expanding our reach, mainly in Sao Paulo and into some new regions. The scale we have presented to you and the agile integration of the acquisitions were part of the great achievements of the period.
After the latest transactions, the company enters into a new phase of growth and of capturing gains and synergies with categories that leverage higher added value and boost one of our competitive advantages. We seek to increase operating and admin efficiencies in order to consolidate the robustness acquired without losing the simplicity inherent to our history, which lead us to always do more with less.
With a robust platform of strong brands, leadership positioning and market know-how we start a new cycle, reinforcing our responsibility and agility. We are increasingly confident that the company is on the right path to anticipate trends and strengthen our position as a consolidator in the Latin American food sector.
And now to elaborate further on our financial performance in the quarter and half year, I turn the floor over to Flavio. Please, Flavio, you may proceed.
Thank you, Luciano. Starting the analysis of the financial performance, we reached a milestone of over BRL 3.1 billion in gross revenue for the quarter with net revenue of BRL 2.7 billion.
Revenue grew more than 20%, driven by the entry of the company's new Pasta and Coffee businesses in Brazil, also boosted by international volume growth and the higher market prices in the period. COGS also grew due to prices and entry into new categories. As a result, our gross profit reached BRL 571 million, 32% higher than the previous year, with a margin of 21% in the quarter.
SG&A totaled BRL 420 million, a 46% increase representing 15% of net revenue. The nominal increase in the quarter was due to the growth in SG&A Brazil with higher selling expenses due to the entry of the new acquisitions made by the company, increased freight and advertising costs.
General and admin expenses also showed growth in Brazil due to expenses with the entry of the new businesses. It is worth noting that excluding the new businesses, the increase in G&A in Brazil was below inflation in the period.
The increase in the quarter was also driven by SG&A International as a result of higher selling expenses in Uruguay and the start-up of our operations in Ecuador. Taking all of these factors into account, EBITDA for the quarter reached BRL 209 million, up 9% with a margin of 7.7%.
Net income was BRL 94 million, a 12% reduction due to higher financial expenses, mainly attributed to higher interest on financing stemming from the increase in interest rates in the period. It is worth mentioning that year-to-date, in addition to the gains of scale and revenue growth coming from new acquisitions, our EBITDA amounted to BRL 888 million, up 17% with a margin of 8.9%.
Our year-to-date results in the half year or in the last 12 months, maintaining the margin close to 9%, reinforces the company's defensive model in the year-to-date, even in face of adverse scenarios at the LatAm level, as already mentioned by Luciano.
The company's total debt reached BRL 3.8 billion due to new funding to cope with the recently announced acquisitions. Net debt over EBITDA for the last 12 months was 2.6x at the end of the period.
CapEx for the period was BRL 42 million, with maintenance investments and some expansion projects. It's worth noting the postponement of part of the scheduled expansion projects of the company due to the new level of interest rates in the market.
We point out that we canceled 10 million treasury shares in the period following the start of our new buyback program in effect, our seventh buyback program since the IPO. We have 360 million shares in total and are currently repurchasing up to 10 million shares within 18 months.
And to conclude, in ESG, we aligned our actions to the strategic pillars disclosed to the market on the last Camil day regarding purpose and people, quality and sales and efficiency and growth.
To that end, our sustainability report available to you at the CVM and on our IR website provides an update of our actions that are consistent with Camil's business planning for the coming years and in line with our focus on taking actions that are positive for our surroundings.
The highlights of the quarter are the continuity of 0 accident projects in occupational safety, renewable energy and circular economy with energy generation from rice husk, our main waste from the grain operation. In addition, we emphasize social capacity building projects such as Doce Futuro União 2.0 with a new course available that will take place this year in person and aims at promoting female entrepreneurship. And the Itaqui school project, which provides training for skilled labor around our Itaqui plant in Rio Grande do Sul, aligning Camil's need for skilled labor with community capacity building.
In Governance, we would like to point out that we published the report on the Brazilian Code of Corporate Governance, which was already recognized market highlight within the company's ESG actions.
And we showed an even greater evolution in the number of compliant practices suggested by the CBGC when compared to the previous year, going from 81% to 85% of compliant practices.
In closing, as already highlighted by Luciano we are focused on leveraging the synergies of the new acquisitions and waiting for the completion of the cookies deal, which will bring additional challenges, while at the same time, it will consolidate our position as a LatAm food company with recognized brands and higher value-added categories. We remain at your disposal for the Q&A in case you have any questions. Thank you.
[Operator Instructions] Our first question comes from Mr. Guilherme Palhares.
I have a very quick question. We talked a lot about the market move on the part of wholesalers and retailers. But what about new businesses?
We saw -- there was a very important evolution in your coffee business. My question to you, therefore, has to do with the execution of the new businesses. What can you tell us in terms of the evolution within your existing coffee customers.
Have you seen any important gains of share within existing customers and can you share your views about distribution in terms of where you are expanding your coffee capacity in terms of sales. And on the Pasta side, whether you could share something about your revenue synergies.
I mean, Santa Amália, because you wanted to enter Minas Gerais with the rest of your portfolio. So what is your view about taking Santa Amália into other states. So if you could elaborate on these points, it will be great.
Guilherme, thank you for your questions. I think the first topic -- related to your first question on Coffee, I would like to say 2 things. Number 1, I am constantly unsatisfied because I always think that we can do more and better.
Currently, today, with the União brand, we only have 2 SKUs, one is the pouch packaging of 500 grams traditional and extra strong, so we have a limited product offering. And the company intends to launch new products in the next 6 months.
We are now starting a partnership to also offer vacuum packaged coffee, and this is important if we want to go into new regions. Just to give you an idea, the Sao Paulo and Rio market, 30% is vacuum and the remaining is other packages. And when we go to the South and Northeast, almost 90% of the market is vacuum packed coffee.
So having vacuum coffee is very important if we want to be more relevant in these new geographies. Therefore, we are starting with this partnership and our expansion to increase our vacuum production will be ready in February, and then we will be able to capture all of the synergies.
But first of all, we have to launch new SKUs in order to expedite our growth. It's also important to mention a little bit about the penetration issue that you mentioned here in Greater Sao Paulo, where Camil has excellent distribution, in the 6-month period, in coffee market and is considered to be a market when -- where consumers are very loyal, Camil is reaching 4% of market share.
So this is a major achievement in a very short period of time. And this really illustrates the potential of the sale of the União brand in Coffee together with our other categories, and this is a very good example of Camil's potential, and how much that can mean for the rest of the country.
Our share expectation for Brazil in the Coffee segment, and that -- it will be around 1% and this also within that 6-month period. And once again, we only have 2 SKUs. So our product offering in this segment is very limited, therefore, the company is performing very well.
In terms of margins, there was a slight price reduction in the quarter. Margins are operating at a level above Camil's historical level. We felt higher competition in the second quarter. So let's see how things will evolve, looking forward with this new expansion, but the company remains very optimistic.
Now speaking about Pasta, in this first quarter, the company operated -- I mean, let me go back a bit. We expect Pasta to perform at margins above Camil's historical level. In this first half year, the margin was significantly better when compared to that level that we expect to operate and this was very much related to an excellent procurement and supply job that we did in this first half year in terms of supply of flour.
But now when we look at the synergies, we expect it to capture BRL 25 million in terms of synergies in the first half. We are outperforming because we captured BRL 12 million approximately in terms of G&A and BRL 8 million in sales, meaning that in the first half, we already captured BRL 20 million and the initial figure was BRL 25 million for the entire year. Therefore, we are better than expected. Sales growth, here, we had an idle production capacity, which was very small. Therefore, the company brought Pasta from Santa Amália to [Indiscernible].
Now the focus is to improve our share in Rio. And also, we want to reinstate our position in Minas, where we are very strong. I mean, the potential is limited due to our industrial capacity.
We are working on the expansion project that is a 2-phase project. The first phase should be concluded in the mid of March and the second phase should be ready in the second half of next year. And after that completion, we will increase our capacity and therefore, we'll be able to increase in good sales.
In terms of taking grains to the state of Minas Gerais, which is also a place of great synergies, we already started that process. I think I mentioned that in some previous quarters that grain competitiveness depends on the fact that we have a rice processing plant in the state of Minas, and we are working in that regard.
And we expect to see that ready in the next probably 8 months, but as soon as that is ready, we will certainly be able of accelerating distribution within the state of Minas. And I think with that, I already answered all of your questions.
I just have a follow-up question because you just released an additional SG&A costs related to both acquisitions that contributed to approximately BRL 40 million in the quarter.
Is this the actual size in terms of SG&A? Do you see any other gap in terms of your team or something that should be done? Or do you think this is enough to sustain the future growth of the company? Or you believe that this is the final structure with no major investments on that side.
Well, our current structure is in place. It's ready. I would just like to remind you that Mabel will be incorporated maybe in November, and I can talk about that further on.
So there will be an increment coming from Mabel. But yes, the company is prepared to support all of these new categories.
Our next question comes from Gustavo Troyano.
I have 2 questions. One about Coffee and the other 1 about biscuits and cookies. The first related to Coffee and looking at the sales in the quarter, I understand that you produce about 1,000 tons a month versus the capacity of 3,000 tons a month.
So I believe that, that utilization has increased throughout the quarter. And in the next quarter, maybe this number will increase a bit. But I would just like to hear from you about your capacity level. And when do you intend to reach the top? And when do you think your expansion towards 5 tons a month will be in place?
The second question about cookies. And I don't know how much you will be able to disclose about this topic. But whatever you could disclose is fine. During the acquisition, you announced -- I mean, the news mentioned more compressed profitability in terms of the acquired company. But what are the expectations you already have in the pipeline? And what you think you can do to improve the scenario of the acquired company? Do you have anything related to the wheat category that could be also disclosed.
Well, thank you for your questions, Gustavo. Well, in terms of our exposure or the acquisition, first of all, we are utilizing the capacity close to 50%.
Well, the expansion in its first phase will be concluded in November. And the second phase of the expansion will be concluded by the end of February. So in March, we will start with our capacity slightly above that 5,000 tons a month.
So on the industrial side, we are somehow very comfortable. I don't think there will be any setbacks. In terms of cookies and biscuits, in fact, what we can say is not much. But the fact is that we have to make a turnaround in the operation. The Mabel brand has suffered a lot in the past few years.
So we do have a major recovery job to do, but it's a strong brand with a good market recall. We already have a plan in place that has been that is very detailed and that includes initiatives on the procurement side, supply side, so with time and with our learnings from the past segment, we already have some initiatives in the industry. And Camil will have to go through its learning curve.
Like on the industry side, we will have to do some downsize in terms of the products produced and also look at distribution and sales. So the plan is well designed, and we are very much focused to deploy that as soon as possible. And we also intend to turn the system in 60 days, as we did with Pasta. And so it will take some time for us to implement our RP and operate of this end of the year will be very intense with a lot of work ahead of us.
But a good part or maybe between 35% to 40% of the turnaround process will come from sales. And by the end of November, we have the world [Indiscernible] and this is a point of attention to us because that may bring about some delays. But the plan is very well orchestrated, very detailed, therefore, I believe that we'll have good deliveries in the next coming quarters.
If you allow me a last question, maybe now focusing on the strategy and having a more holistic view. At the last of the year -- at the end of your remark, you said that you want to reinforce your position as a LatAm consolidator.
And I think that this plan also contemplates organic and inorganic growth, as you've been mentioning. But looking ahead 2 years from now, do you believe that the bulk of this growth in terms of market consolidation will come from the ramp-up of the new business is already acquired and that will include Mabel?
Or you think that if you compare to potential and maybe next M&A, this would be less relevant. Is it more M&A or more ramp-up looking ahead, I mean, 2 years from now?
Gustavo, that's a great question. But what I can tell you about it in terms of the -- our expectations is that both fronts have great possibilities. Now looking at the ballpark figures, the grain segment is very spread around. So if we're able to make consolidation, they can also bring about organic growth, boosted by cross-selling of all the other categories, then Camil have a concrete possibility of double the size of that category.
Now when we go to Sugar, the Sugar segment, the potential of the União brand and all of the other new categories and cafe serves as a very good example. We may even find other possibilities in the biscuits segment. We see a great possibility to grow.
Fish is a more consolidated market. So organic growth is not -- is not so relevant. And we don't see great possibilities of new acquisitions. But in new categories, we see great possibilities of posting inorganic growth, taking advantage of our distribution, as I mentioned, in the case of grains, and Camil can further consolidate these segments, and therefore be more relevant in these segments.
We remain interested in post not only organic growth, but also inorganic growth in the categories where we are currently in. So Pasta, Coffee, Biscuits. Well, we are just keeping our first steps, but probably there will be further opportunities still in this segment. Therefore, our strategy and growth will come from both.
And a point of attention is that the opportunity for organic growth in the current categories where we are it's very large. I cannot just quantify or tell you which one will be larger. But I think I mean the company has never seen such a good opportunity to grow organically. And in terms of inorganic growth, we will continue to exploit these opportunities. And we've been working relentlessly in the last 12 months, and we gave many important steps towards Camil's transformation. I remain very excited with all of the opportunities that are laid ahead. And I'm sure we will have many good moments ahead of us.
Our next question comes from Pedro Fonseca.
Flavio, Luciano and Camil's IR team. I have 2 questions. The first is on volumes. Well, you noticed that volumes were more challenging in the quarter. August had a slowdown on the retail side.
So what do you expect for the third quarter? And what do you see in terms of the consumer scenario? Do you see any impact coming from the government aid? And my second question is about the Fish category. Can you tell us a little bit about the supply chain on the Fish segment? And what is it necessary for that category to recover further?
Thank you, Pedro. In fact, volumes, especially in August, it was very challenging. We saw stocks -- inventory is coming down, and that process continued on in September and a little bit also towards October. So the process was longer than usual.
We also understand that this is very close to an end. And that was across the board with expectation of lower inflation and some food SKUs being more affected than others. And this generated lower inventories due to 2 reasons, not only because people wanted to wait until prices were better. But also, this was due to cost of working capital and the size of the inventory. We haven't noticed any sellout drop on the consumer side.
I mean, just as a various minor and small drop. So this didn't impact volumes too much. That was the conclusion was that there was a reduction in inventories, and that's what -- that is what happened. When we look at the government aid, financial aid, this usually strengthens consumption. This could probably have a positive impact in the next quarter, at least in the next one. This could probably improve that process as a whole. In terms of Fish, the company didn't grow. In fact, volumes were down due to sardine supply, which was very low in the last 60 days, there was a major recovery in terms of supply and this recovery allowed us to increase production.
This brings about a very, very good outlook because we are working with a full capacity, getting ready for rent. That's why I see the next coming months with good eyes. And raw material supply was so good that we see a slight trend in the reduction of raw material costs.
Just to give you an idea of how important and relevant this upturn or this increase in supply was, an important point about the market has to do with the recovery of profitability. This was a fact that hurt the company last year. But now we are back to historical levels. This is a very good aspect when it comes to the Fish category.
[Operator Instructions] Our next question is from [Indiscernible] in writing. What will be the company's strategy vis-a-vis your debt position in terms of all of the acquisitions, also considering higher interest rates. Do you have any EBITDA target or ROE in the short term? And what will be these percentages.
Flavio Vargas, could you answer that question?
Yes, certainly. [Indiscernible] Thank you for your question. I think in terms of our debt position, the company has a debt ceiling of 3.5x net debt over EBITDA ratio. And that's in the agreement. So 2.6x still gives us some leverage comfort to pursue our strategic objectives.
In this -- at this current level, we believe that this is still a very comfortable level, business speaking. Just to highlight what happened this quarter. This reflects all of the debt we take through acquisitions, but this does not reflect 100% of the EBITDA from the operations we acquired. That's why the numbers are a bit higher this month. But -- so to make a long story short, when it comes to our debt position, we understand that we are at the right level, I think there's higher financial cost has allowed us to be more rigorous in terms of capital allocation and investments.
We are more cautious in terms of the use of our working capital. We are being more efficient in terms of the use of cash. But -- on the business point of view, the company has an enormous capacity for deleveraging. About a year ago, our net debt over EBITDA ratio was 1 point lower and we were up 1 point because of the new acquisitions.
And the company remains looking at all of the opportunities and the debt position still at adequate levels. I think that what the company looks at in terms of future expectations, our focus is more towards EBITDA.
Historically, the company has always operated around 10 percentage points of EBITDA margin. And in the last 24 months, we were slightly below that. I believe that the company's goal is to recover the profitability level at which we always operate it.
And with the entry of new businesses, and that has a distinguished growth potential. This will certainly help the company to recover its profitability because with all of the new businesses that we have now, these businesses tend to post higher profitability when compared to the historical levels of the company.
Our next question comes from [Indiscernible]. Congratulations on your results. In relation to distribution and logistics, do you anticipate increasing capillarity and therefore, increases in commercialization?
Mauro, thank you for your question. This is the company's constant focus. I mean how can we efficiently and with efficient costs how we can increase our distribution. With the entry of the new categories, we have been exploiting the cross-selling topic, more intensively.
And also working with all of the categories together, we can also increase our logistic efficiency. Therefore, once we increase capillarity, I mean this is a constant topic in the company. We are -- we talk about that all the time, and that's part of our plan. I think a good point that I would like to highlight is that the company I mean even though I've been repetitive, we try to promote the expansion in a very profitable way and the impact in volumes we had this quarter is related to that our search for new levels of profitability. So thank you very much for your question.
[Operator Instructions] The Q&A session is now concluded. We would like to thank you very much for joining us, and have a very good day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]