Camil Alimentos SA
BOVESPA:CAML3
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Camil Alimentos SA
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Good morning, ladies and gentlemen. Welcome to the conference call for investors and analysts to discuss the results of the third quarter of 2021 of Camil Alimentos. With us today are Mr. Luciano Quartiero, Director, President; Flavio Vargas, CFO and IRO of the company; and the Investor Relations team of Camil.
[Operator Instructions]
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 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 investors and analysts.
[Operator Instructions]
Our first question comes from Gustavo Troyano from Itau BBA.
In fact, I have 3 questions too about your new pasta segment and another question on sugar. The first one about pasta, I would like you to start by elaborating a bit more on what happened in terms of the integration and the profitability level of this segment. And how does that Santa Amalia margin compares to the company's margin in the quarter or any other information that you could share with us, that would be appreciated.
The second question about pasta as well but also focus on the strategy for 2022 is how do you expect to work in a landscape of a lot of cost pressure? Should we think in terms of defending your profitability or in terms of volume for 2022? I just want to understand how do you intend to position yourself regarding the cost inflation in 2022?
And the third and last question about sugar. Especially if we look at the higher price of the commodity, I would like to understand the profitability dynamics, but mainly regarding how the competition is performing in terms of price transfers and how this is occurring in terms of your main scope.
Well, Gustavo, thank you very much for your questions. First of all, I would like to apologize for the delay. We had some technical difficulties. And because of that, we had to delay the beginning of this call by almost 7 minutes. So for that, I apologize.
Now speaking about pasta, today, profitability, as you well know, we disclose information about Brazil and our international operations. So the information that I can give you now is that Santa Amalia's profitability is below the profitability of Camil's other category. So this is already an indicator for you. And I would also like to make 2 additional comments about the stability. I mean, the company, as you said it yourself, we have the incorporation of Santa Amalia in the turn of the year in December, and this shows how Camil was well prepared to promote the integration of the acquired companies. So just as a reminder, we concluded the acquisition by the conclusion of the transaction in the end of October and early November 30 and 31st of October and first of November. In 60 days, we were able to deploy our system and also, we incorporated Santa Amalia.
And today, with the end of the incorporation. And with all of our systems in place, our ERP system in place, this allows us to start capturing synergies in all different fronts. Be it commercial, administrative, we have been working in the internal systems to find out what we can do to gain further efficiency. So the process starts now with our system fully operational.
But this is just a demonstration of how prepared we were because to implement a system in only 60 days, this is, in our view, something extraordinary.
Now speaking about profitability, again, now with the beginning of all of the synergies in place, synergies and cost as well in sales because now we are using our own system, now is the time that we will start exploiting this potential based on the strength of the company. We will increase and improve profitability throughout the first quarter. And I think the synergies will begin to be more apparent in the next coming months.
Now in regards to your second point, cost inflation and whether we will focus on profitability or volume increase, I think we have here a unique situation. Today, while the first topic, price transfers. We are seeing something to that end in the beginning of February and also some other price transfers in this first half of the year that will reflect the cost position, and this will be very similar in regards to our peers in the segment.
Now in terms of profitability and volume, I think Camil right now doesn't have -- doesn't need to do any kind of choices like that. Because of all of the synergies that we are about to capture, we will increase profitability. And these are significant synergies. We will be able to increase our volume, but that is limited because we will exploit Santa Amalia's performance based on our own capillarity in other geographies.
So price increases and cost increases may affect profitability, but marginally. Therefore, we find ourselves in a very unique situation, and we will be able to work on both fronts. Increased profitability and volume.
At Santa Amalia, we are already looking at all of the possible industrial investments to increase efficiency based on what we already have in place today. And we are also looking at increasing capacity because we expect to increase sales in the next 2 years. Therefore, we are very optimistic in terms of the pasta segment.
Now regarding the sugar segment. In fact, there has been a spike in prices. In the third quarter, there was an impact in our sales volume due to problems in sugar supply coming from our main supplier, and this harmed our performance in terms of volumes.
Now speaking about the beginning of the fourth quarter, and that relates to your specific question, we are noticing an increasing competition that started back in December and continues now in January. Our main competitors are focusing more in the domestic market, and I don't know whether this is due to difficulties in exports and freight abroad, but we are noticing a more intense competition in December and January. So I think now I answered all of your questions.
Yes. Perfect, Luciano. Thank you very much.
I think the only topic, I think, in terms of pasta, we only had one month with this segment. So our performance in terms of volumes in November was quite satisfactory. Therefore, we believe that we started on the right foot in volumes for the pasta segment.
Our next question comes from Guilherme Palhares from Bank of America.
In fact, I have 3 questions, very quick ones. The first is that I want to understand a bit about the impact and whether there will be any impact because of the climate in Rio Grande do Sul and Uruguay in terms of rice origination.
And also looking at fish origination, you put on your release, you mentioned the issue of the sardines. So if you could probably give me a bit more light and what we could expect in terms of volume going forward? And what is the impact or what is the solution given the fact that there is lower origination in the domestic market or whether we could do something in the domestic market itself. But just to understand it better, now we have the consolidation of your assets, what was the one-off result related to expenses linked to the M&A within the SG&A of the company?
Well, thank you, Guilherme. So I think in terms of the climate effect, there has been a severe drought in the south of the country. And now we see some impact because of lack of water. And this impact is mostly concentrated in the west border according to our evaluations. And according to our last appraisal from the supply team is that once the current situation remains, meaning if the drought does not get more intense in the state of Rio Grandee do Sul, maybe the production could be even 3% lower.
This is not a very significant impact, but it will depend on how the climate will perform until the beginning of the harvest season. And we're still a few weeks away from the harvest season. So there may be some rain coming this week. And if the rain doesn't come, maybe the scenario will be a bit different. But I don't think it will be too much far from that 3%, which is our current estimate.
In Uruguay, we believe that there will be a slight increase in rice supply, but this is still to be seen because we have to see what will happen with the climate in the next coming weeks.
Now speaking about price expectation, I know that this is not part of your question, but just as a reminder. Throughout the year of 2020, the rise average price was around BRL 80. The company believes that, that average price would be repeated throughout 2021, but with lower volatility -- but prices as of November, we're at a lower level than the one expected by the company. So today, we expect to see the average price of rice for this crop season of 2021 that is about to end in February, should be around BRL 72 to BRL 73 and the company thought that it would be around BRL 80.
I think in our last call, I talked about our prediction for next year, very conservative forecast was around BRL 75. That price could be higher considering the export potential if the exchange rate remains as it is now and whether there is a reduction in the values of international freight and which is what the market expects that it will occur.
Now speaking about fish. In fact, this year, the impact was higher than last year in terms of sardine supply. The company throughout the year, worked in different fronts. And even the expert [ Pharma Rocco ] was impacted again due to the pandemic. But at the end of 2020 in early 2021, we are now also looking at other suppliers and the company is now working in a new front in another line -- in another country that could be a prospective supplier. It's probably something out of the box, but we are looking at that very carefully, but maybe this may help us minimize the impact.
Now speaking about the domestic sardine production, the company is putting a lot of efforts to look at the possible impacts in Brazil. And together with the other players in the sector, both our suppliers and the competitors as well, we are looking at this topic very carefully. And we have a theory about longer cycles of high and low supply cycles of 5 years. So if next year, we are able to increment the volume of fish in Brazil, this would just demonstrate that the theory is right because this will be our fifth year. So I'm not saying is that fish next year will be better, but the expectation in the whole industry is that next year will be better than last year. So because of the restrictions we had throughout the second half of last year, there's already had an impact in our third quarter, as you could tell by the numbers. And this will certainly affect the fourth quarter.
The fourth quarter is usually a quarter with higher sales volume because of lent. And in fact, the restrictions will be such that we will -- we may not be able to meet the demand. So when we compare quarter-on-quarter, the impact then will be higher.
Now talking about the effects on our SG&A and G&A, we had an increment of almost BRL 40 million year-to-date and one-off effects that relate to M&As, the Santa Cruz plant that the company had, and we terminated the operations plus the end of the rental agreement of the Santa Cruz and our old rice plant in São Paulo.
There was an impact of approximately BRL 20 million.
Now new acquisitions without considering any synergies because now they just entered in our calculation in the third quarter. Santa Amalia, BRL 1.5 million and the other one BRL 3 million. So the effect of the M&A of these acquisitions represented approximately BRL 13 million. And once again, with no capture of any synergies. So the impact incorporates part of the one-off part of the acquisitions, but we hope to improve this number in addition to the one-off, but whatever came in, we were able to capture synergies and this will bring about significant reductions.
I don't know whether it was clear. I just have a follow-up question. I just want to get a better understanding of the fish segment. I mean, do you think -- I mean -- is there any demand exchange going towards tuna and whether you could bring more volume domestically speaking.
And secondly, looking at SG&A, that BRL 13 million, does that include consulting costs and any other costs?
Out of the BRL 20 million that I said, that includes all the acquisition costs. The BRL 13 million includes the G&A -- the SG&A of the acquired companies without the synergies.
I think in terms of your other question, well, certainly, the company will not only our company, but all of the other players in the industry are looking for other alternatives to mitigate the drop in the sardine business. We are all focused on increasing and boost sales of tuna, certainly.
We are also looking at other alternatives like other fish species like Kavala and Kivalina. So there are other varieties of sardines rather than the traditional sardine. We are then looking into other fronts. So this is what we are doing to mitigate the drop in the sardine fishing.
Our next question is from Lucas Ferreira from JPMorgan.
I have 2 questions. My first question is whether you could comment on what point of the profitability cycle we are in the rice business? I know that the prices are below the expected numbers, and I know that margins are also below what should be expected. And whether you think that in 2022, you expect that this margin will go back to historical levels and whether that is what you expect?
And my second question is about the integration of the coffee business. If we look at the current margins, do you think that the coffee business should also be another factor that could put the margin down? Or that's not the case because I know that coffee prices are up now. How do you think that the industry will perform in 2022, whether you expect to see a better margin when compared to that of last year? And if you think that the integration of the business will take your average margin down?
Well, Lucas, thank you for your questions. In terms of rice profitability, it is lower than our historical levels. And I think that every time there is a drop in the market, clients delay their purchases in search for better prices, and this affects profitability. I mean, we don't have a lot of inventory. And even though we keep -- I mean, lower inventories, we have minimum inventory. We have a flow. So there is a loss in inventory value, but clients are reducing their volumes because they are waiting for better prices. And that was the dynamic throughout the third and fourth quarter as well.
Right now, what we see is something that always happens in the fourth quarter is when we expect prices to go down because of the new crop season. So on average, that starts in the middle of February.
This has always been a period where it's more difficult to maintain margins in the fourth quarter. And with this environment of price drops like we had last year, last year, we experienced a more intense drop. And I think this made it more difficult. And I'm talking about last year and this year. So for next year, we expect to see lower price volatility. And so with lower volatility, this will allow us to see other peers in the industry, operating in normal margins, even considering difficulties in this market. But our profitability levels in the grains category should resume and should go back to normal levels earlier in the season. So this is what we expect to see today.
Now regarding coffee, just -- well, just to conclude the rice comment. When we look at prices, we look at the average of BRL 72, BRL 73 per year. Today, the market is already operating around BRL 60 and BRL 65. So we believe that all of the price drops that had occurred now thinking in terms of last December, all of the price drops already occurred. Looking into the next crop season, we don't see any further price reductions. And this really reinforces our expectation that we will be able to start recovering our historical margin levels.
Now in regards to coffee, I think it's worth mentioning that the acquisition occurred in the middle of December. But in by mid-February, we will be ready to operate in our system. So now in January, we are still operating as a subsidiary. We are trying now to increase sales volumes of both acquired brands Bom Dia coffee and Seleto.So we hope to see a better volume when compared to the historical levels of the company for January and February.
In February, we will be ready to fully operate based on our own system. And so we expect to see sales of União Coffee and the Seleto brand will start in March. Both União and Seleto. We certainly, on the União side, have better profitability when compared to what we have now because the brands are Tier 2 and Tier 3, so they have lower profitability. And we believe that with the entry of União, that profitability will increase. We believe that coffee will experience a better margin when compared to that of the other segments. As we also expect to capture this growth throughout the following crop year. I mean, the plant we acquired has the capacity of 3,000 tons a month, and the company is already looking at hiring the expansion of that capacity to reach 5,000 tons. And I think that with that, I answer your question about the margin after the integration. I don't know whether that was clear enough or if you still have any other questions.
Our next question comes from [indiscernible] from [ Condor Insider ].
On our side, we would like to understand the company's mindset in terms of acquisitions. You just had some recent acquisitions so I just want to know whether you still have some other companies in your pipeline? And if yes, what other segments you want to get into more intensively, being coffee, pasta or grains? And what level of debt would be more ideal? I mean, considering possible new acquisitions?
Well thank you for your question, [ Guilherme ]. I think M&A, I would like to remind you that we had one in Ecuador. We had coffee. We had Santa Amalia. And the last one was [indiscernible] in Uruguay, which is now being appreciated by the Uruguay and CADE, and we expect that to be concluded in the next 2 months.
Today, the company still has appetite for further acquisitions. We understand that for years, the net debt over EBITDA ratio of the company is 3.5x net debt over EBITDA ratio. This is a level that we've been pursuing for the last 20 years, and this number is still very much ingrained in our minds.
So the company looks for other alternatives like last year, we went for a private equity fund. And so if that goes after -- if that level increases, we may have a tag along. But through the holding that controls Camil, we hold -- we have a 62% stake and the family is prepared to eventually to have -- to do a follow-on and to have -- to be below 50%. Well, 50 plus 1 is not a limiting factor for the family.
So we are thinking about the leverage capacity of the company with the EBITDA we have. Our current leverage without considering the acquired EBIT, the company today would be able to do another BRL 1 billion in acquisitions. Therefore, the company has the financial capacity. I don't know whether you heard during the call about our capacity to integrate our operations.
Well, certainly, pasta and coffee will not be concluded right now. We will do that throughout the year to be able to capture the growth, but the company is capable of making further acquisitions.
So in terms of other sectors, they have to be in line with what the company has been doing. Camil is looking to get into new countries in South America. We look for new segments in countries where we already operate. And in Brazil, in the segment where we already are, we are also looking at other areas. And in terms of wheat, we are already in pasta, but there are other lines related to wheat that may interest us like flour and biscuits. These are 2 other areas in the wheat sphere, in the wheat universe that may make sense to us.
In terms of coffee, we still have great potential. But if other opportunities come along, the company will look into these new opportunities. I mean, Camil, with all of our categories, we want to rank among the first ones. So pasta, we ranked 4. Coffee, I cannot tell you about the ranking because we are only starting now. But we still have a long way to go, but our objective is to be among the first ones in the sectors that we just entered right now. We are also looking at new opportunities as well.
If you have any other questions, please feel free to ask.
You also talked about that, but more about coffee. After you acquired the operation, how long do you think you will take to get all of the synergies in place?
I think the largest synergy from coffee will come from increased sales. In the last call, when we talked about Coffee Bom Dia. Camil evaluated the sector in depth most part of the players don't have a lot of public information disclosed.
So in terms of size and repeating the numbers, we have [indiscernible] and our estimate is that they will -- they make 23 tons a month and then JBS, I think they produce about 13 tons, and then [ Militar ] comes with 9. And then 2 or 3 other players that we do not know much about them, and I'm not going to risk telling you about their volumes. But when one is [indiscernible].
So considering the third player that produces 9,000, our current plant, producing 3,000 tons, we are already hiring an expansion to increase that capacity to 5,000. Cafe Bom Dia sales range between 300 to 500 tons. Therefore, we still have a long growth path ahead of us.
So I -- to be honest, I must say that I'm very optimistic. And this optimism reflects the fact that we want to expand that capacity. We don't usually give a lot of estimate about that future curve in terms of results. But we are very optimistic that we will be able to reach 4,000 to 5,000 tons in maybe in the midrange.
[Operator Instructions]
Now I would like to give the floor to Mr. Luciano for his final remarks. Thank you.
I would like to reinstate that Camil finds itself in a new cycle. We have a great potential to exploit the pasta category and the coffee category because there are many synergies with our current operations. Therefore, the company remains very optimistic. This will be a very transforming year for the company as well as the acquisition in Ecuador.
In Ecuador, we see great potential for the company. And we will certainly have a very challenging year because of the entire economic landscape that you are quite aware, but the company is well prepared to face this scenario and also to maximize all of our current operations.
I would like to end on that note. Thank you so much for joining us, and I wish you all a very good year.
Camil's conference call is now concluded. Thank you very much for joining us, and I wish you a very good day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]