Kepler Weber SA

BOVESPA:KEPL3

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to the Kepler Weber conference call to discuss the results of the second quarter of 2021. With us today are Mr. Piero Abbondi, CEO; and Mr. Paulo Polezi, CFO and Investor Relations Director. This event is being recorded and participants will only hear the company's presentation. [Operator Instructions]

This event is also being broadcast simultaneously via webcast and can be accessed at www.kepler.com.br/ri, where the presentation is available for download. This slide presentation will be controlled by you. The recording of this event will be available on the company's website shortly after the ending of this conference call.

Before proceeding, we'd like to remind you that forward-looking statements made during this call are based on Kepler Weber business assumptions, operational and financial projections and targets regarding the future of the business. Forward-looking statements should not be taken as guarantee of performance. These considerations involve market conditions, and the Brazilian economy, industry international markets, and therefore, are subject to change because they relate to future events and depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future of Kepler Weber and may cause results that materially differ from those expressed in such forward-looking statements.

Now I would like to pass the floor to Mr. Piero Abbondi, who will conduct the first part of the presentation.

[Piero Abbondi, executive]

Let's go to Slide 3. Good morning, everybody. It's a pleasure to be with you for the teleconference of Kepler Weber results. We start with the highlights of the quarter being the first the net revenue that increased 158% in comparison of the second quarter of '20. This is our best second historical quarter in net revenues. The continuity of the favorable environment of the Brazilian business -- agri business, together with the commercial performance of our business was crucial to this result. Likewise, in the external market, we saw a great demand from countries that we are operating, especially Latin America. Paulo will detail the performance of every segment.

Another highlight of the second quarter are -- was the adjusted EBITDA, reaching BRL 24.0 million and an increase of BRL 16.6 million. This performance was not greater because of the strong increase in raw materials in the second semester of '20 that impact the profitability of the quarter. In the second quarter of 2020, our EBITDA was boosted by the exclusion of ICMS from the PIS and COFINS tax bases and extemporaneous event.

When this effect was normalized, the EBITDA showed an increase of 224.3% in relation to the second quarter of 2020. Likewise, the EBITDA margin adjusted increased 2 percentage points, reaching 9.9%.

The net profit -- the adjusted net profit increased 582%, reaching BRL 13.5 million. I also highlight the conclusion of the subscription of the bonus of 2014 in last July, adding BRL 141 million of our cash that now totalizes BRL 423.2 billion.

Paulo will talk about the segments of our business.

[Paulo Polezi, executive]

Thank you, Piero. Good morning. In Slide 4, we show the evolution of our business areas. In storage, we celebrate a new leap in billings that increased 200% in the quarter comparing to the same period of 2020 and 154% in relation to the first semester of '20. The storage segment is still responsible for the growth of the company with mid-sized and large-sized projects being delivered in the terms. The macro economic condition is favorable, the agricultural commodity is in high and the increase of the purchase power of our clients explain this performance. At the end of the quarter, we closed sales that will contribute to the second semester of '21.

Our Exports also had a great performance, increasing 107% in relation to the second quarter of '20 and 79% in relation to the first semester of last year. We will take the opportunities as of the second semester '20 due to the increase of Brazil's competitiveness with the devaluation of real. When we look to this exchange variation, we have an increment of 61.2% with new orders in the first semester, especially from Paraguay, Peru and Argentina.

In Bulk, our business directed to ports and terminals had a reduction of 36% in relation to the second quarter of '20 and a reduction of 30% in relation to the semester. The purchase decisions in this area of this business are discontinued and the period for installation of the projects are longer. We had also the sales to a launch player in the ethanol and corn industry and the sales to a large company in the port segment. And this will be delivered diluted along 2022.

And finally, parts and services, we had an increase of 97% in relation to the first quarter '20 and 77% as of the first semester of 2020. We are expanding through the creation of 5 DCs strategically distribute in Brazil. This is also a result of the constant increase in sales of items -- security items to comply with the regulation.

In Slide 5, we have some projects delivered in this quarter. The Rio Pardo in Rio Grande do Sul delivered in April '21 is a great mark because it's the first and key work with integrated management of all tasks. Campo Grande, Mato Grosso do Sul, delivered in May, we highlight the agility of all the deliveries of our plants together with the project implementation management that along the installation of equipment on time. Nova Ubiratã in Mato Grosso do Sul delivered in June, to store soybean and corn, even with tight terms and all the difficulty in the supply chain was possible to be delivered on time. The Salto project in Argentina to storage is an old client that doubled its capacity of 18,000 tons to 36,000 tons. We have the production of the new plant that allowed us to install on time.

In Slide 7, we show the EBITDA evolution with 2 views. The first view, EBITDA conventional generating BRL 21 million in the quarter a reduction of 9% in relation to the result of BRL 23 million. The EBITDA margin closed the quarter with 8.8% due to the strong increase of costs of raw material, especially steel. The cost increase were faster than our speed to adjust the prices with the clients, partially affecting the profitability of deliveries in this quarter.

As Piero mentioned, the second quarter of last year, we had an EBITDA margin of 24.9% due to the nonrecurrent event of tax credits resulting from the exclusion of ICMS from the PIS and COFINS tax base in the value of BRL 21 million that boosted the EBITDA at that time. With the adjusted EBITDA, when we just consider the nonrecurrent events and the tax events of last year, this amount goes to BRL 24 million with an increase of 224% in relation to the adjusted EBITDA of the 2Q '20. EBITDA margin adjusted was 9.9%, a 2 percentage point increase.

In Slide 8, we show the evolution in CapEx investments. Investments reached BRL 6.6 million, 230% increase in relation to the second Q of '20. The resources application was BRL 5.7 million to modernization and expansion of capacity, BRL 0.5 million in the development of new products and BRL 4 million in the -- to comply with the regulatory measures for technology. We have invested BRL 14.2 million in modernization and capacity, BRL 1.2 million in new products BRL 1.8 million to comply with the regulation and BRL 1.4 million in information technology.

The cash position was robust, closing June with a gross balance of [ BRL 395.5 million ] and net cash of [ BRL 387.5 million ]. This quarter, there was BRL 141 million entering referring to the subscription bonus of 2014 and payment of BRL 24 million of dividends that with the increase in sales and a favorable position generate a gross balance of BRL 395 million in cash.

Slide 10 shows the liquidity of this action. Kepler 3 that went from 153% in the financial volume in relation to June '20, trading in average BRL 12.4 million a day.

Slide 11 shows the conditions of the program to build and expand storage. The PCA plan, this was disclosed by the Ministry of Agriculture. This offered amount went from BRL 2.2 billion in 2020 to BRL 4.1 billion in 2021, a 84.5% increase. This amount is enough to increase up to 5 million tons of the installed capacity and approximately 500 plants, storage plants, a 12 years term with 3 years of bonus with an interest rate of 5.5%.

With the recent accomplishment in Slide 12, we have 4 important contracts in the storage segment. The sales to a large Brazilian cooperative and to a coffee Brazilian cooperative of large port in the total amount of BRL 118 million. In the Bulk segment, the sales to a major player in the ethanol and corn industry and a large company in the port segment with an amount of BRL 74.3 million.

As another recent accomplishment in June 23, BRL 21 million were approved from JCP and the payment was on July 8.

In Slide 14, we show the increase in social capital that of BRL 423 million, resulting from the bonus description of 2014, generating more than BRL 4 million in new ordinary shares. Together with cash generation of BRL 25 million, the availability were positively impacted with the addition of BRL 141 million bonus, closing the -- closing with the gross balance of BRL 395 million. To adequate the capital structure of the company, the administration Board and Fiscal Committee approved the proposal to reduce the social capital in the amount of BRL 278 million, subject to the approval of the General Assembly in August 5.

Now I give the floor back to Piero.

[Piero Abbondi, executive]

Thank you, Paulo. Slide 16. Before going to the question-and-answer session, I'd like to reinforce the recent achievements and talk about the perspectives for the rest of the year of 2021. In relation to recent achievements, in -- first, I'd like to highlight the solid results that exceeded our expectations even in a scenario of inflationary pressure. We also want to highlight our orders portfolio that is spending in the third quarter, and more recently was expanded with the new relevant sales that together sum up more than BRL 190 million.

Finally, the proposal of capital reduction forward to the general assembly is a way to retribute the trust of our shareholders and investors. As for the perspective of 2021, as we showed the announcement of Plano Safra 2021-2022, will bring the highest nominal value allocated to PCA, consolidates our good perspectives for the future. BRL 4.1 billion allocated to the expansion of warehouses corresponding to 500 units with 5 million tons of grains. We continue focusing on innovation. We launched [indiscernible] system, an innovative drying system, and we created an area of new business to accelerate our digital journey. We will continue to focusing to deliver a robust increase in revenues with a healthy margin expectations. However, subject to some volatility due to the inflationary pressure of metal inputs.

The entry of new orders will allow this stability and better predictability of Kepler's operation with good perspectives for 2022. COVID-19 is still the focus of attention in the company with structured actions to preserve the health and well-being of our collaborators, our greatest asset.

Now Slide 17, in this context that Kepler has shown -- is showing record in results, it's with a great pleasure that I invite you for a special event, our Kepler Day 2021 on August 27. On this day, we will share with you how we see the evolution of the sector and the company. We will talk about strategy, innovation, deliveries and future. We count on your participation of all analysts, investors and other stakeholders, so we have a very fruitful morning.

With this, I close the presentation of the results of the second quarter of 2021. Please, operator, we can continue with the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Catherine Kiselar from Banco do Brasil.

[Catherine Kiselar, analyst]

My first question is what is the position of the company for 2021 and your expectations for the future?

[Piero Abbondi, executive]

Thank you, Catherine, for your question. It is really important. As for the Plano Safra, we are very positive. Last year, we allocated BRL 2.2 billion, and this year, BRL 4.1 billion, 85% increase divided between the 2 lines for storage plant up to 6,000 tons. The interest rate was above 6% and above this capacity 7% with a 2-year term, which is reasonable for our type of business. We are very positive, a significant increase in resources showing the concern with post-harvest storage in Brazil, which is one of the priorities of the ministry of agriculture.

Now concerning the impact on our business, we believe that this will be very positive with this 85% increase in resources, and keeping our market share, we will have a greater market and corresponding revenues. However, we are talking about the storage segment for the domestic market. We are not talking about export but a solid bulk and terminals and the RS segment, which is of parts and services that has a different dynamic from the storage segment. But anyway, we are positive, and we believe that we will see the same increase in our revenues.

[Catherine Kiselar, analyst]

Another question about costs. Recently, it was disclosed a survey showing that companies of capital goods are suffering this impact. What is the Kepler estimate for this market?

[Paulo Polezi, executive]

Catherine, this is Paulo. Thank you for your question. Well, Catherine, we continue monitoring very closely the supply chain. We noticed a general improve in supply, but it's not totally stable when our other case requires a close attention. But anyway, we see a great improvement in the last 3 months. But even facing all these problems that made the chain unstable, it's important to highlight that Kepler did not delay any delivery.

And when we noticed, the first sign is at the end of 2020, the company took some actions. And one of them was to create an internal task force embracing all operational areas to be more agile in our services and assertive in our actions. So the clients will not be harmed by the problems in the supply chain. But we follow this same concept, we are still vigilant and keeping our process under control. If for any reason, the instability comes back, we are prepared.

[Piero Abbondi, executive]

I'd like to add, and it is important. We have a very robust market, a very good market, but also we have important challenges. The pandemic and this problem in the supply chain, both in prices and supplies were important, but shows that we are prepared to overcome the challenges. And as Paulo mentioned, no clients have any problem. The Kepler capital team is very good, and we were able to achieve the results. So I'd like to highlight the robustness of the company's team. I think this was a stress test to the organization.

[Catherine Kiselar, analyst]

But I have another question. What are the perspectives in relation to the normality of the suppliers? Can you elaborate on this, please?

[Piero Abbondi, executive]

Well, Catherine, I will answer this. We have an internal area working with the market in supply intelligence, trying to forecast. The main driver to follow this area is production and steel consumption especially in China, it's a relevant driver. But in general, the demand continues broadly high. And this give us some warning points, especially with the recent events. First, we saw the removal of the tax refund for some materials to foster the local economy in China. This was important. And we also saw a reduction in their production due to environmental issues and scarcity of electric power. The inventory of iron ore was reduced. And so due to all these factors, our view is that we will have a reduction in the volatility of prices, but we cannot say that we won't have any other increases in the second semester. If so, they will tend to be lower than in the first semester, which is somehow positive to our business.

[Operator]

[Operator Instructions] Our next question comes from Catherine Kiselar from Banco do Brasil.

[Catherine Kiselar, analyst]

We have some additional questions. Can you talk about some acquisitions like the Seletron and also the plans of the companies, please?

[Piero Abbondi, executive]

Thank you, Catherine, for question because it directs to our efforts to continue to build a premium company. Kepler has a robust brand. It's innovative company, and we are building the future with these 2 initiatives. And then Paulo will talk about future opportunities.

As our digital platform, think we exceeded the more than 100 clients that had the onboard electronics. We are waiting for another series of projects that will be connected. These clients will be monitored, the operation, the dryers, the cleaning machines and storage, and our efforts now are to follow these clients and to deliver this management to them and convert them into recurring revenues. Clients paying per month for the support that we will provide to the operation and inventory management.

When we talk about grains, grains are living beings, they have their dynamics. So it's important to have this management when they are in the silo that can be 1 year to keep the quality and sales conditions of this product. Now we are also restructuring our operational center that will follow these clients and will give feedback with suggestions on control and operation of the client. So the challenge is not just the platform but having recurrent services. We are advancing in this digital journey.

Concerning Seletron, it was an acquisition of brand and technology of optical selection machines. We are emphasizing the digital selection machine as advanced technology. We are working on 3 formats to bring these machines to Brazil with competitive costs. We are closing strategic partnerships. We structure the representatives and sales force that represent our current sales force. We are providing technical assistance in the installed plants of our Seletron. And this puts us closer to the client, and we also segmented the market for the service. We have the sales force working with these clients Minas Gerais, São Paulo Beans, Paraná beans, coffee and grains. And these are some events.

And [ Sierra ], we have coffee and cashew nuts. So this will open doors not only for now, but for the future, with possible monitoring and selection with different parameters, not only concerning format and color, but in the future, we can have new formats for selection that will add values to our post-harvest plans.

Now I will give the floor to Paulo to talk about inorganic growth opportunities.

[Paulo Polezi, executive]

Catherine, in this inorganic growth area, well, how does we work? We pursue potential transactions, especially related to digitalization as the sync platform that we have already, we want to expand it. We cannot foresee if the opportunities we are pursuing will materialize. But we have good opportunities. We also have the potential to have M&A operations in new territories. If a concrete opportunity comes up, we will analyze it carefully. We are very disciplined, and we have the commitment with the return. So we want something that will bring growth and return. Without that, we would rather look for other alternatives to grow, okay?

Just one more point we are planning the Kepler Day on August to explore the digital issues. It is related to our power, but we have several other growth measures that we need to monitor. And on Kepler Day, we will share more about this digital opportunities.

Thank you, Peiro, for your, spoiler okay? We can share this on our Kepler Day.

[Operator]

[Operator Instructions] Since we have no more questions. We will now take the questions via the Internet and webcast. Thank you. The first question is from [ Erico Sallute]. The question is, how do you intend to improve the repass of prices and inputs in future contracts?

Piero, please?

[Piero Abbondi, executive]

Since we saw this price movement, especially in steel. In the second semester of 2020, we could quickly adjust our prices. This is an obligation as a market leader with 40% of share. We have to take the lead, and we increased the prices and every steel increase in price we have been very successful in the implementation of this price increase for 2 reasons. First, because the market is robust. So it's easier to repass the prices because the market is stronger.

And also because these are significant increase in if any competitor does not repass the price will feel the results with very hard returns. So what we saw was increasing prices in the entire segment, and we believe that our price that is today is well aligned with the inputs, and we are quite comfortable.

I will give the floor now to Paulo because there is another interesting question, which is the sales price dynamics risk revenue and causes of raw material. It's a question from another participant. So Paulo will answer it.

[Operator]

One more question here. The person is called John, in relation to margins. When will the invoice, the sales will be with the increase that is comparable to the increase in raw material? Due to the cycle between the order and the invoicing is long, how can we see the price adjustments in next year?

[Paulo Polezi, executive]

So as Piero was explaining the company has already positioned itself in relation to price due to the current context with historical margins in the same standard of the company, same level. And these increases in price will depend on internal terms. The delivery terms are expanded, but we work -- so we start to see an improvement of the margin in the third quarter and in the fourth quarter. Now as the question said, if you have this adjustment this year or next year, it will depend if the delivers will keep the same terms. We see a recovery in the third quarter, in the fourth quarter, and we will capture this recovery this year.

Piero, would you like to add?

[Piero Abbondi, executive]

Well, just adding that we are always monitoring this. And when we mentioned the trend in raw material, if we see a certain instability in steel prices, I believe we will accelerate this recovery because do we have healthy margins and the sales in this first semester had healthy margins. And the second semester will be very good. We are very optimistic and keeping the exchange rate and the global demand of steel, as you mentioned, Paulo, we see -- that will be back to normality quickly.

[Operator]

Well, now the next question from [ Sean Paul Soto ]. Concerning the reduction of social capital, the resources distribute to the shareholders would come from the company's cash?

[Piero Abbondi, executive]

Yes, [ Sean Paul ]. As we presented, the company was working with a robust cash position, and we had the bonus of the distribution. We have the bonds since 2014 with these new shares, they input capital to the company, BRL 141 million. And in the equation of the capital structure and the scenario for cash planning, investments of -- future investments, so this allowed us to do this distribution. So we will use the cash resources of the company.

With this distribution, the company will have a more adequate cash position. And we will look for a healthy leverage in the mid- and long term for -- have this capital structure. But also, we have the important event of returning of the investments of the shareholders. And today, we have BRL 10 per share. We use the cash resources and as necessary, we will rebuild this availability with a funding line if necessary.

[Operator]

One question coming from [ Luis ]. What is the financial complexity of having a hedge on the steel price?

[Piero Abbondi, executive]

Well, it's an interesting question because this is our main focus, especially in [indiscernible] is still is the most important item in terms of cost, and we follow it daily. But first, objective answer relating to hedge. There is no financial mechanisms to have a hedge in steel. We have interacted ways. We thought of many, many ways, but there's still the global price in Brazil and the exchange rate. The exchange rate would be a way of doing this hedge. But it depends on the price. But we are looking for the operational hedge.

First, we have contracts with the suppliers that guarantees stable conditions in price over time, but it depends on the period and on the market. But we are being successful. And second, we will work with the inventories. We had a 2-month inventory. And with this turbulence, we reduced to slightly more than 1 month and now we are rebuilding because we have order portfolio that is very robust. So there are 2 ways of having this coverage, but more difficult in this time when you have this steel scarcity. The market had a difficulty to supply it. But in normal conditions, what we usually do is to close an order for future delivery.

What we do is we received the first payment from the client that guarantees up to the time we buy this steel. So with this order entry, we guarantee that we have the steel in-house for future delivery. We are working with this, and probably with the normality in supply that we are foreseeing, we will be able to have this more natural hedge as to say. It's a complex answer, but we need to follow closer the exchange rate in steel market, okay.

[Operator]

One more question coming [ Mr. Isaile Roberto ] asking, why the cutoff date was canceled?

[Piero Abbondi, executive]

The date of capital reduction proposal was on the following day of the assembly, BRL 278.5 million capital reduction. The date was August 16, and we received suggestion from the B3 and following the legal term, 60 days, the company should wait to define the cutoff date. So we are following the B3 orientation. And after this period, we will update and inform the new cutoff date, okay?

[Operator]

We are closing now the Q&A session. We go back to Mr. Piero Abbondi, CEO, for his final considerations.

[Piero Abbondi, executive]

Thank you. Well, with this, we close our earnings call of the second quarter. We are very happy with the results. The challenges were big. But we believe we will have a good second semester. I'd like to thank again to the Kepler teams that in all areas worked hard to overcome all the challenges. I'd like to thank you for the interest in our company, and invite you, again, for the Kepler Day on August 27, where we have more time to explore these issues on our digital journey that is very promising. Thank you very much, and have a nice day.

[Operator]

With this, we conclude Kepler Weber conference call. Thank you for your participation, and have a nice day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]