Kepler Weber SA

BOVESPA:KEPL3

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Hello, Ladies and gentlemen, good morning. Welcome to Kepler Weber's Third Quarter '23 Results Video Conference. Joining us today are Piero Abbondi, CEO; Paulo Polezi, CFO and Investor Relations Director; and Bernardo Nogueira, Commercial Director who will participate exclusively in the Q&A. Please note that the presentation is being recorded and translated simultaneously. [Operator Instructions].

We clarify that any statements that may be made during this conference call regarding Kepler Weber's business prospects, operating and financial targets are forward-looking statements by the company's management, which may or may not occur. Investors should understand that political, macroeconomic and other operational factors may affect the company's future and lead to results that differ materially from those expressed in such forward-looking statements. To open the third quarter 2023 results video conference, I'd like to give the floor to Piero Abbondi.

[Piero Abbondi, executive]

Good morning, everyone. It is a pleasure to be with you for Kepler's results video conference. The third quarter of 2023 was marked by an improvement in the dynamics of first harvest business, mainly due to the assumption of projects in the farm segment, shortly after the announcement in July of the largest PCA in history. At the same time, sales to Kepler's corporate customers, especially cooperatives remained strong. I would also like to point out that this upturn in turnover with a growth of 44% compared to Q2 2023 led us to the second best third quarter record in the company's history, second early through third quarter 2022.

As for EBITDA, Kepler delivered the second best performance for a third quarter approaching a margin of 21.8%. I attribute this result to our commitment to operational efficiency and careful cost management.

As I said at the beginning, the boost in sales following of the 2023-2024 crop plan has also made it possible to build a healthy order book, which will enable good levels of turnover in the coming months. I'll now hand over to Paulo to explain the performance of the business segments in the third quarter.

[Paulo Polezi, executive]

Thank you, Piero, and good morning, everyone. Starting on Slide 4, I present the evolution of the 5 segments in which we operate. In farms, we reached BRL 145.6 million, best quarter this year despite the 41.5% reduction in the quarter and 33.3% in the accumulated total for 2023. We did, however, see an important upturn compared to Q2 2023, growing 76. 3% wasn't higher only because of lower prices in the market, which is based on the fall of the price of our main raw material, which is galvanized steel.

In Agribusiness, the revenues were BRL 154.2 million in the quarter, an increase of 3.6% regarding Q3 '22. As in farms, we achieved the highest quarterly turnover in the year, up 81% regarding Q2 '23. Good level of turnover is explained above all by the growing demand for storage felt by cooperative cereal growers and agri industries, which is leading them to accelerate new investments. International business also recorded the best performance of the year, driven by the favorable seasonality despite the 33.5% reduction in the quarter and 37% in the year-to-date. The reduction in the pace of sales was mainly due to the slowdown in activity in Latin America causing some retractions in sales in important regions for Kepler such as Paraguay and Uruguay.

In ports and terminals, we had revenues of BRL 3.2 million in the quarter, down 77% and BRL 63.9 million in the year-to-date, up 221%. And what I see in the quarter was impacted by the uneven pace of major projects in this segment, generating volatility in invoicing. In year-to-date and for the coming quarters, we enjoy a [indiscernible] value of orders built since 2022. Lastly, in replacement and services, we saw an increase of 24% in the quarter and 25.6% in the year-to-date as a result of a wider range of operations with a greater outreach of customers, growing coverage and now reinforced by the 3 new DCs in [indiscernible], generating greater volume of business.

It is important to note that since March 2023, Process revenue has been consolidated, adding BRL 9.2 million in the quarter and BRL 23.4 million in the year-to-date.

On Slide 5 and 6, we look at some of the project delivered during the quarter, showing the scale of [indiscernible] work, the project in Balsas, Maranhao state. It is a large-scale unit for 1 million bags milestone in the region because it has filled the logistical gap that [indiscernible] faced during the harvest season with difficulties in freight, pre carries roads and extensive rainfall guarantee safety [indiscernible] project in the state of Parana was an expansion of the client volume making it possible to receive dry and store 30,000 tons of corn in a new area of operation. The project with the KW MAX trial with a high level of automation and the results of the 2023 corn crop exceeded expectations.

In the Campo Novo Parecis project [indiscernible], a traditional customer has once again bought the Kepler unit. Since he already owns another firm, the investment will avoid transportation cost between 1 unit and another.

On Slide 6, we see the construction side in Lambayeque, Peru. This is another kind that made recurring purchases and an expansion of reception and storage that will give the client better purchasing power with local producers. Finally, the La Paloma project in Paraguay that met the need for storage due to an expansion of the client's production area. Kepler is benchmark in Paraguay, with a constant presence and strong after sales activities, generating repeated business for local customers.

On Slide 7, 1 of the most important slides in our presentation represent the increase in the pace of new orders. There were 18 different supplies and tracked in the quarter, which together add up to approximately BRL 270 million in new sales. For the sake of comparison, if we revisit our third quarter 2022 presentation at the time with this under relevant order closed in the amount of BRL 93 million, a significant difference that we have now.

On the table, we can see that the agribusiness segments, together with ports and terminals are so-called [ CNP ] clients or corporate clients demand a greater number of projects given the increase in crop volumes and the need for greater speed and harvesting.

On Slide 8, we show the [indiscernible] evolution of third quarter 2023. We generated BRL 88.3 million with a margin of 21.8%. As Piero said, we're delivering the second best performance for the third quarter of all times despite the reduction of [ 43.3% ] reduction regarding EBITDA of BRL 155.8 million in Q3 2022, a moment in which we had market that was growing strongly in a challenging business environment like the 1 we live in, maintaining careful cost management to deliver a solid EBITDA margin is essential for the sustainable growth.

On Slide 9, we show the evolution of OpEx. In Q3 2023, investments amounted to BRL 14.4 million, an increase of 20%. And the full year, we invested BRL 53 million, an increase of 70% compared in 2022. I would like to highlight the entry in operation of AGVs [indiscernible] in the sorting and shipping process, which are autonomous machines that carry out test without the need for human drivers. The factors we are advancing in towards greater productivity investing in collaborative robotics and the welding processes through technologies that allow robots to work together with human operators in a collaborative way.

On Slide 10, I highlight the cash availability, which remained robust, ending September with a growth balance of BRL 320 million and net cash of BRL 113 million. I always like to point out that our business model makes it possible to quickly convert revenue into free cash flow. This allows the company to continue investing. And at the same time, to compensate our shareholders. This quarter, we paid out BRL 55 million between dividends and interest on capital, keeping our financial liquidity preserved.

On Slide 18, I highlight the liquidity performance of our share capital tree, average monthly financial volume closed [indiscernible] BRL 15.2 million a day, an increase of 9% compared to December 2022.

On Slide 12, we show ROIC for third quarter '23, which reached 50.6%, a set reduction of [indiscernible] percentage points compared to Q3 '22. Unlike '22 this year, we had a significant increase in CapEx, mainly due to the new powder coating line together with a lower market price environment, leading to a decrease in our ROIC, but stabilizing at high levels and above the average for capital goods segment.

As mentioned earlier, on Slide 13, we have the payment of BRL 34.5 million in dividends and BRL 20.4 million in interest on capital, paid on September 8 as a way to demonstrating our commitment to increasing shareholders' returns.

After more than a year of working involving the main areas of the company and external consultants on Slide 14, I'm pleased to share with you the definition of the 6 priority SDGs linked to the company's strategy. Zero hunger and sustainable agriculture, health and wellbeing, clean and affordable energy, decent work and economic growth, action against global climate change and peace, justice and effective institutions. These SDGs are part of the 2030 agenda, a plan to eradicate poverty, protect the planet and ensure that people achieve prosperity. Thus, prioritizing the SDGs aligns Kepler with a global agenda facilitates an environment of innovation increases transparency and improves the communication of the impacts generated by our activities. That concludes my part, and I turn over to Piero.

[Piero Abbondi, executive]

Thank you very much, Paulo. Before the Q&A session, I want to highlight the recent achievements and then comment on the outlook for the rest of 2023. Regarding recent achievements. Firstly, we would like to point out that we had a solid quarter in terms of turnover and profitability. The second best third quarter in the company's history as a result of the efforts made over the last few years, diversified segments and territories. Another payment of dividends and interest on capital, showing our commitment to delivering returns to our shareholders that are consistent with the generation of value from our business.

Inauguration or opening of the new [indiscernible] coating line with an investment of BRL 33 million, the first in Brazil to work in this concept, which excels in the exceptional quality of the finishing of the product while at the same time, increases our care for operators and the environment. As outlook for 2023, we have continued strong pace of grain production together with the lack of storage in Brazil, increases the pressure on production change and generate negative premiums on the price of agricultural commodities.

Growing demand for projects for corporate clients, mainly operatives and ports and terminals that will enable our operations to continue at a good level of activity. Well-structured, strategic and operational direction to build businesses with profitability at healthy levels, while carefully managing expenses and costs, leaving the company prepared to continue growing in a sustainable manner. [indiscernible] the main messages from the results of the third quarter of 2023. Please, operator, we can proceed with the Q&A session.

[Operator]

[Operator Instructions]. The first question is from Andre Mazini from Citibank. Andre your microphone is open.

[André Mazini, analyst]

[indiscernible]. But 2 questions. First on CDs or DCs and new geographies you talked about. Also the question is whether these distribution standards have increased market share that you have in [indiscernible] these new geographies where you're placing them. And the presentation even show the project of [indiscernible] it looks like it. And if you could explain how the DC could increase share and reach for a greater trust of [indiscernible] that we will have both sales better services that the [indiscernible] having been placed on or better brand recognition and the region, of course, Kepler started in the South than Midwest, which is very large, continental size country. This promotes the brand. This is more effect as if it's like a [indiscernible] region that has good services for sales or brand recognition -- what are the facts? If you could comment on that?

My second question is on competition. We see that the U.S. government is divesting in Silos market globally. Does it make sense to an organic growth? Or do you prefer to continue on organic growth.

[Bernardo Nogueira, executive]

Andre, [indiscernible] I'm going to take the first 1 on the DC and then I'll turn it over to Piero to talk about the second question. Well, this year pointed out quite well identified, part of the answer, the DC has 2 strategic reasons. One is selling parts and the second is regional presence. So with our flag in [indiscernible]. And this gives the customers that are deciding to buy a unit. They see that they have technical service, training for people that are going to operate the unit and they have planned items manufactured and so directly to Kepler customers. This is a perceived value that is quite important. Data that proves this that we have this year [indiscernible] 3,256 customers served, a growth of 9% vis-a-vis last year. This geographical expansion gives us a relationship with a greater number of customers. with that more sales. I turn over to Piero to follow with the second answer.

[Piero Abbondi, executive]

Thank you, Andre, for your question. Speaking or talking about competition. Well, first, I'd like to say that Kepler has competitive advantages that are quite great. I'm not going to mention my share, top of mind of the brand, complete portfolio coverage. And we are always working to maintain and expand our competitive margin or advantage in Brazil. Our goal is to continue in the next decade, continue being leaders in Brazil and Latin America. As to your point on U.S. competitors, yes, we always follow the moves of the competition, because we may have growth opportunities through acquisitions. We are following the moves and that was on the press that was a sign of strategic revision on their part, but we understand that it's much more to maintain the focus on the other operations that they are selling. It's more an internal thing.

We believe that it is important for us to evaluate those alternatives and see if they make sense to us. If they do make sense, we'll certainly make a move. But this is very preliminary. So what we have in terms of information is that their operations are being evaluated strategically globally.

[André Mazini, analyst]

Thank you, Piero. If could ask a brief third question. You have the [indiscernible] the company 6 months well, with the funding from BNDES. Speaking of this funding [indiscernible] interest dropping. So real estate funds are being invested a lot. Do you see new [indiscernible] coming up helping the part of credit for [indiscernible] and even those fundings for bricks that buy the Silos themselves, I don't know if they already exist. [indiscernible] separate or set out paper from brick. So do you have any [indiscernible]?

[Paulo Polezi, executive]

Thank you for your question. [indiscernible] you're bringing up. I will answer in 2 parts. The first is the market we follow, and we agree with you. The [indiscernible] industry has grown a lot. It's been an instrument that is very much used and we have observed that the farmers themselves with large companies today have been seeking their own instruments. [indiscernible] goes into a priority list of groups, investors, they are an instrument that this is happening, just as several other funding mechanisms, [indiscernible] or the crop plant. Well, but this is added to the instruments we have in capital markets. [indiscernible] is here to stay. There are a lot of easy access tools, and it's going to grow, and we're following it closely. This is the first part. It's doing very well.

Second, looking into Kepler. Those following this video conference results, we have our own [indiscernible] today that is closed. It's share agreement. So we have [indiscernible], so we have quota holders with BRL 300 million fund. We tried to replicate as much as possible the [indiscernible] of course, the interest rate as a spread above the CDI. We cannot compete. It's very competitive funds the equipment and the construction work. And to conclude Andre, now that the time today is [indiscernible] interest rate meeting. So since interest rates are dropping, drop the interest search for our brand. We have about BRL 100 million in our pipeline. So very confident with this slowing down of interest rates. So Kepler will be able to finance to our customers. Thank you for your question, Andre.

[Piero Abbondi, executive]

Perhaps Paulo, I would like to add, because Andre talked about the 2 [indiscernible] paper and brick [indiscernible] follow on to quite well on paper. That we were innovators and we were the first to be present to launch our own fund. We see the market having several fronts, and we believe it's a good leverage for our segment and complement to see it[indiscernible] . So speaking on rental fund or break this question always comes up in our calls, and we are following that up. We have some studies and projects underway. We have already seen some small initiatives actually with our own products with small rents and sort of condominium, we believe very much in that. We are also working towards being innovators and being in the forefront. It's relatively simple. It seems, but it has a complexity factor because it depends on equipment maintenance. It's not commodity equipment have to be a specific place. It has to have certain liquidity on the part of those that rent because there is [indiscernible] fault and the rent must have the second, third or fourth client.

So we're very careful regarding that, but I believe that shortly, we'll be able to bring good news on this opportunity that we believe is very important for us to further leverage our sales and move into -- and actually giving our customers opportunity to invest in a different way and having their storage plant.

[Operator]

Next question is from Lucas Laghi from XP.

[Lucas Laghi, analyst]

Congratulations on your results. Points I'd like to explore with you the first regarding profitability in the [indiscernible] we saw the strong revenue growth. When we look at the third quarter, reflecting this expected stronger seasonality of the second half of the year. Based on the first semester that was relatively weak because of elections margins affected. Regarding profitability. We've seen that despite these gains, especially in terms of SG&A, we saw an EBITDA margin that was stable compared to the second quarter. We see the effects of the [indiscernible] creditors. I'd like to understand the main reasons for this smaller gross margin, which at the end is what justifies a stable margin in terms of EBITDA.

Thinking about some possible reason thinking about the [indiscernible] products, perhaps unit prices lower transit from the second quarter or cost reduction, thinking about accounting of the quarter that showed this gross margin sequentially smaller offset by cost reduction in the third quarter. Actually, I'd like to ask the question because of how we should think about the fourth quarter, another revenue growth for fourth quarter?

And the second question, what we've seen last week the approval of placebos, and I'd like to understand from you, if you can help us to quantify how this relevant this program can be to encourage demand by Silos, thinking about the forthcoming years in this context of less high interest rates. These are the 2 questions I have.

[Piero Abbondi, executive]

Lucas, thank you for being with us and honoring our calls and asking questions always. Well, attentive. Speaking of profitability, first part of your question, actually, we had this quarter some revenue recognition that were extemporaneous, some financial fees, tax well paid off. Well, this is what we do every 3 years, and we end up capturing some benefits. They were great, approximately BRL 12 million in the quarter, and they helped boost even further the margin even without those benefits, we estimate about 1.5% to 2% of EBITDA margin. That would be a margin very much in line with this year's reality, quite healthy margin for the company.

Moving into the second part of your question regarding profitability. Well, first point this year, we've explored materials [indiscernible] have this well, we have the impact on the revenue, the change in the mix. We've been talking about the CNPJ or agri industries, vis-a-vis the individual tax ID, the CPF. So the increase in the share of those corporate customers in our mix. So we end up having a difference in the margin. So prices do not change. We are at a very pricing stable environment. It still gives us stability. So there's a scale effect, but that's an effect purely of the mix. So there is no difference in our operations.

We work -- well, second quarter is quite similar. As we have order portfolio that is more robust. It helps us to work on profitability. It's a bit of that. So there's no change that deserves any greater attention. The market has been improving, prices provide stabilities, raw materials provide stability. So at the end what we have is the mix. Thank you for your question.

[Paulo Polezi, executive]

I'll take the opportunity and add to the question on the bill that we have underway. We are quite favorable regarding movements that improve competitiveness in Brazilian industry that help close this gap in terms of storage. We believe it's a good initiative. We support it. We are following it up not only ourselves and we have our association [indiscernible] also following it so that it can be technically made well as a proposal.

What is important to remember is that it's still a bill [indiscernible] been approved a commission. That is a grocer. So I think it -- there are still 2 commissions, it has to go through to go to be voted [indiscernible] sessions or conversation. We don't believe this should happen in the next months. Of course, it is an initiative that shows that the government and the legislative are concerned about this important pain of Brazilian agriculture, which is deficit that we have [indiscernible] all newspaper, was coverage of state Sao Paulo on Sunday. And we, as a society, we as a company and in the industry should help bridge this gap and ensure that we don't need any money on the table because with this deficit, we see there are losses to all in the chain.

[Operator]

Next question is from [indiscernible] from Kepler Weber.

[Operator Instructions]

The next question is [indiscernible].

[Unknown Analyst]

Could we infer that great point of revenue orders because of the release of [indiscernible] will still happen in the fourth quarter 2023 and first quarter 2024. Therefore, the outlook would be a strong result in the forthcoming quarters.

[Piero Abbondi, executive]

[indiscernible] John, thank you for your question. Well, I'll talk a bit about the [indiscernible] as a whole, not focusing so much on 1 quarter or and another. Plano Safra has a record BRL 6.6 billion, 30% over last year. When we follow here the amounts that are being released. So we have a number around BRL 1.2 billion already released. It's important information, reminding you that these funds will half goes to infrastructure at the plants and half to storage. So this is a relevant amount and a year of great need to expand storage as we have seen trying to infer how much will go into each quarter. That's more complex calculation.

Well, the order entry has increased a lot since the turn in the second semester. We had an important effect of PCA or the [indiscernible] or the crop plan. Well, what's important to say is that many times it's not matched. Well, producers of [indiscernible] have a credit in their bank, and it takes months to be released. So farmers get the funds, and this helps the order entry indeed. So it is really fostering or bringing greater opportunities of boosting the market is -- the news of this Plano Safra and releases happen over the year, but not necessarily by the always matching. This is very positive. It helps in the order and to say how much for each quarter, well, we'll be able to tell you that later. But thank you for the question.

[Operator]

Next question is from [indiscernible] Research.

[Unknown Analyst]

Congratulations on the excellent results. On my side questions. First is referring segment of ports and terminals. We see investments that are relevant in the logistics sector, [indiscernible] increase for outflow of grains up to 100 million tons in addition to certain government projectors of doubling the railways by 2025. Could you comment a bit more how you see this segment in the mid long term for the company.

[Piero Abbondi, executive]

Thank you for your question. Well, ports and terminals is the essence of our bases, we see the demand of food growing the world. Brazil is [indiscernible] or leading player to provide that. So we have to increase the railway system, and we have a growth of over 200% in the segment. And we keep on very confident that this is a trend. We have a very robust order portfolio businesses closed in 2023 that will be invoiced over 2024. We start the year with an important proud for the segment. So we're answering your question very directly, yes, we are indeed very optimistic. Actually, this is very good for the logistic grade in Brazil, and we are very well positioned in this segment.

Just to add, we are hard -- we are may -- so we are integral part of logistics. So we actually provide transfer terminals from roads to rivers to sea. So the South grid with concession [indiscernible] 2.5 years. Led to investments of [indiscernible] and 2 terminals. [indiscernible] where we participate in the supply of equipment to those 2 terminals. It shows clearly the investment in this segment.

And then speaking of [indiscernible] actually have the outflows through the Amazon Rivers on the area of [indiscernible] state and to continue state north of [indiscernible] through the railway, the 2 areas that we see major investments in those areas. So we're very much involved in those segments, not only in the short term, but also in the long term because, certainly, the growth of Brazilian agriculture that will take place in this handle for the outflow, we need to use the north grid and we have to have infrastructure built for that.

[Operator]

[Operator Instructions]

The next question is from Daniel Hansen for Sweden Family Office.

[Unknown Analyst]

Congratulations on your results. Can you talk about the working capital dynamics in a drop in inventory did not follow the drop in sales. Does it reflect a strategic price strategy, turnover or working capital or another [indiscernible].

[Piero Abbondi, executive]

Thank you for your question. Speaking of working capital, it's 1 of the competitive differentials that we have at Kepler at the year. Also we work in detail all of the accounts payable, inventory, advanced payments every day, speaking on working capital from a year to date, it's improved, something that BRL 10 million improvement, and we did have a reduction of BRL 72 million in the account of inventory. It's smaller than the drop in sales basically because of price. We work quite well, the management of the order portfolio. We work having matched deliveries having the raw materials in-house when we close the order in the contract. So we're always paying attention to customers so that the project be delivered at the time with quality. So it's important to have a good management to a customer that we had this drop that is basically adjustment of steel price that has been corrected.

So at the moment, to follow the growth in the portfolio that we see for the forthcoming quarters, we have a time of replenishing this inventory and to meet the demands of the next portfolio. For the next quarters, for a good reason, the trend is that we see a growth in this area. So to actually have the delivery for the growing order portfolio. Thank you for the working capital question.

[Operator]

[Operator Instructions]. The next question is [indiscernible] Research.

[Unknown Analyst]

This referring capital allocation. Capital generates cash robustly year after year. I'd like to hear a bit how your minds are regarding investment of capital [indiscernible] looking at forthcoming years?

[Paulo Polezi, executive]

[indiscernible] allocation, this is [indiscernible] in our business. So we will have a cash generation is robust. So it's a business that has since the ability of converting EBITDA to free cash that is high, almost 1:1. So this gives us conditions to several moments without stressing future capital of the company. So this is very important. These are examples for us to work on. So we have, for example, [indiscernible] investing more on modernizing [indiscernible] we do that with low need for leverage.

So working capital, as mentioned previously, we have to invest in working capital to meet a robust demand that is arriving. So we have this differential. We're going to have such a movement for better purchases better [indiscernible], this cash availability gives us a competitive advantage is quite big. So when we look at other movements we had early this year, we had inorganic moves acquisition of Procera, we made the acquisition. We didn't need to leverage Kepler because of that.

So in our mind, further ahead is to continue that to keep on looking at opportunities, getting the best of this robust cash position and capital allocation. Obviously, if there are special projects, are there opportunities that come up, launch a product, investing more on innovation. All of this is on our radar, and the capital structure allows us to make those moves. So just to conclude here, we've just gone through a period that was a long period of high interest rates. And Kepler goes through these periods relatively smoothly, again, because of our financial and robust financial conditions. And now with drop in interest rates, perhaps it's time for us to keep on leveraging more opportunities.

We are quite confident in our minds and use capital to support business growth.

[Piero Abbondi, executive]

I'd just like to add and show -- well, the past can explain the future. So over the past year, we have been distributing a good volume of dividend we're sharing with shareholders the value generation with the company, but we made a significant investment, both in our plant. As Paulo mentioned, the [indiscernible] and the series of investments in the plants, not only capacity but also improvements in productivity gains. But also, we made acquisition of [indiscernible]. It's not a super significant volume to us, but it's been a volume of BRL 50 million. And this has also shows a competitive edge of Kepler. We are prepared. We mentioned previously at a previous question, we talked about M&A. We have prepared to -- if there is an opportunity to have the levers to take part of a possible M&A. So this shows how careful the company as along with the Board and managing the cash year-after-year. And this will allow us in the next years to Kepler exercise [indiscernible] 1 of its competitive margins.

[Operator]

[Operator Instructions] Next question is from [indiscernible].

[Unknown Analyst]

We understand the results of the third quarter 2022 were exceptional with the [indiscernible] PCA in the release this year and greater distribution relationship, we believe that there could be a maintenance of the level of margin even if the level of invoicing dropped a bit to which factors do you attribute the reduction in margins? How do you see these margins evolving for 2024?

[Paulo Polezi, executive]

Thank you for your question. Quite important, we talked a bit about margin in the beginning with Lucas question. I think it's worth talking a bit more and I'll comment [indiscernible] will help me in the answer. I'd like to start my side. Well, Alessandro is saying that margin is something we always work on its priority. We always work to have the best margin possible considering the landscape. Today, we're working with stability of profitability that is quite attractive for a company of capital goods level around 20%, delivering almost 22%. This is a bit our focus. On my side, I will cover the part of expenses. I'll leave Piero and Bernardo to talk a bit more about the strategy for expenses we have this view on details, [indiscernible] what is done when the portfolio growth. We work on this future vision of profitability to work those levers better.

So when we have certain retraction, we are also able because it's a business that we have this benefit of looking the portfolio ahead on strategy of availability or not, yes, so we are able to make certain moves to control expenses, and planning that are more assertive so that we can have stability and margin growth as well. So to show you that margin is a priority to the company, we're doing our best and I turn over to Piero and Bernando to complement it.

[Bernardo Nogueira, executive]

In addition to the discipline that we have with our [indiscernible] the orders every Friday and determines value best businesses to be carried out. There's an important part. It's important to talk about dynamics and market demand. We've noticed in 2023, our storage business moved from very necessary to the chain to critical. So high numbers and negative [indiscernible] should be repeated in '24 [indiscernible] perceive that and they invest in storage. This year, we've had [indiscernible] 14 countries. This also shows a demand that is not specific throughout Brazil and the whole chain with a focus that is huge in agribusiness. -- agri industry. So it's important to talk about industrialization, our Brazilian agriculture started in the past years, and it's speeding up quite a lot.

To give you an example of the production of ethanol moved from 2.6 billion liters to 6 billion liters in the past 3 years [indiscernible] have restored every liter of ethanol produced, we need storage for that. These are things that were not present 3 years ago. So there's a very robust demand, and we conciliate this with a discipline that is quite big, and we can keep those margins. And I turn it over to Piero to complement.

[Piero Abbondi, executive]

Thank you, Bernardo. Margin prices are the main assets of the organization as people with the plant and technology, the best management to price the margins, the priorities. So Bernardo and Paulo have talked about what we do internally. What I can add is that we have been maintaining margins, trying to maintain our margins equal or higher. Obviously, with this the change in the steel price 2 years ago, there was a steep growth and then a drop. It is more difficult to manage because well, a stability of costs, but we have been trying to do that. Obviously, every segment and the main margin difference that we see in our results because of the mix because every segment has its own dynamic. We have market segments [indiscernible] to a brand and allow a margin that is a bit higher with price premiums that are bigger. So others are more technical, and then we have all this more -- well, deeper analysis of steel price, previous year's cost and there's a whole dynamic. The demand has put more pressure on our prices. But overall, we have been keeping forever segment, reasonably stable margins. And reminding you again where we have our competitive edge.

Kepler is a market leader with a major market share. So we try to exercise this influence to the market with this coverage and this presence and footprint that we have. So we, of course, have depend on competitors, and we depend on the market and for Kepler, it's important to have financial results that are healthy to continue serving this sector that has this huge deficit and we need to deliver large volume of our models to be able to meet this market demand.

[Operator]

[Operator Instructions] The next question is from [indiscernible]

[Unknown Analyst]

Congratulations on your results. How does the company evaluate the impact positively or negatively of the excess rainfall in the South of country and the impact of future moves for the company.

[Paulo Polezi, executive]

[indiscernible], thank you for your question. We follow closely this climate and weather event, this excess rainfall in the South, it was expected within [indiscernible] phenomenon. It will [indiscernible] South, where we had Ladin, we had drought in the South Paraguay, Uruguay, [indiscernible] and Parana state. And this year, the rainfall has normalized as an excess. Now we're going to have a good crop. The expectation is that in South of Brazil will recover the crops in the region. So the dynamics of Kepler has changed a lot compared to 10 years ago, along with Brazilian agriculture. It was very much concentrated in the southern region. This growth [indiscernible] we have 250 municipalities great footprint and we are operating throughout Brazil. So these [indiscernible] shocks have a smaller impact as we increase our diversification and resilience.

[Operator]

[Operator Instructions] Next question is from [indiscernible]

[Renata Fonseca Cabral Sturani, analyst]

[indiscernible] think about continuing with the current dividend policy?

[Paulo Polezi, executive]

[indiscernible], thank you for your question. Well, Renata, we have a policy that is established Well, we don't have it, but the best way of explaining the way we work with dividends is going back to what I would say regarding cash generation, how we work with capital allocation. We always work with free cash, making all the investments and all our obligations the access, if there is no better opportunity, we'll distribute dividends as we've done to this year to payment ordinary [indiscernible] quarter and advance payment in September. So as we continue with [indiscernible] generation that is robust or visibility that this should change. The answer is yes. We'll continue with this profile, paying investments as we have an opportunity that is better for the company, we may make an adjustment.

But always, dividends are a consequence of a company that is great, that is generating cash with healthy profitability. We also have the dividend that is present in our business model.

[Operator]

The next question is from [indiscernible]

[Unknown Analyst]

[indiscernible] both administrative expenses and sales expenses had share [indiscernible] that was highlighted in the release. What is the expectation of the [indiscernible] share from now onwards? Is it something that is going to be incorporated? Or can it be diluted?

[Paulo Polezi, executive]

[indiscernible] thank you for your question. I'll answer it in 2 parts. [indiscernible] is a business that grows in a fast way and also has very attractive profitability, on average, higher to Kepler itself. Investment that we believe very much in digitization, connectivity of customers. So it opens up many opportunities for business at Kepler. So when it's consolidated to us, it helps for us to have greater profitability. It adds to invoicing and costs and expenses, first part.

And the second part is, since it's a business that's growing a lot and fast, we will have times to expand hire teams, et cetera. We're going to manage that over time. But when you look and [indiscernible] company. It is a business that indeed has greater profitability, a combination of revenue and expense that is as good as Keplers. Now we have been working on that. Currently, it's helping and we believe that it will continue helping.

Okay. Thank you very much. We are very happy with the acquisition since we acquired the [indiscernible]. There are many synergies taking place, and we're working in Synchrony. And in our view, it was quite a site to have [indiscernible] and it will certainly help with the profitability of Kepler. Thank you very much for your question.

[Operator]

The Q&A session is closed. We turn over to Mr. Piero Abbondi to make his closing remarks.

[Piero Abbondi, executive]

Well, very good. We've reached the end of our video conference. Very happy to see the excellent questions. I thank you all for your participation and interest and for the excellent questions.

To wrap up, I'd like to look with you the outlook expanded. If we look last year, exactly at the same period, we had the landscape that was much more challenging. We had questions regarding interest rates, it was higher, farmers were more discouraged, their profitability. They had a crop -- that was -- well, there was the war, the Ukraine war, the impact of it and the impact on fertilizers and the landscape was much more challenging, especially fourth quarter 2022, first quarter 2023. And we see the company is very well positioned, robustly, sustainable with footprint in different segments and responded quite well and allows us to deliver such results. So this is the [indiscernible].

Now if we look today comparatively to our position last year. At the same time, the landscape is much more positive. We see -- in terms of our sales, we see a recovery. We have an outlook of much better portfolio, the macroeconomic scenario is much clear, interest rates are dropping. There is more clarity. The profitability of farmers goes to a historical level and the deficit of storage is a pressure. -- is huge on farmers. Even if we have interest rates in Brazil for long term, investments that are quite high. The gains that farmers will have by investing in Silo plant that will certainly pay off the interest rates. It's not a matter of an absolute analysis, but relative analysis matter.

So we believe very much that this deficit will put great pressure on producers so that they can make storage investments. So what we see is scenario that is much clearer, better than last year. And what does it mean to Kepler. It means that we are very optimistic regarding the forthcoming quarters, last quarter and the first of 2024. Then Kepler is prepared for the scenario. We're going to have better results, and we are prepared for a possible market growth, changes in the mix of segments, we've been investing in capacity. We have robust cash generation, which is very important for the company. We have been making major investments not only, as I said, in capacity, but improvement in operations and improvement in business productivity and the commercial area, we've been making important moves of market coverage and operations we talked about, our DCs. So we can talk about -- we talked about new products, processes that in addition to all the new digital territory [indiscernible] we have a differential and competitive differential in our core business, so in customer service. So we have several fronts. I'd like to say that we're working to maintain and improve our competitive edge in the forthcoming years. We have all the conditions of doing that and delivering increasingly better and more robust results.

So somehow, we are optimistic. We're moving on to fourth quarter, we're already thinking about 2024. We're working on our budget to prepare for this new year that we believe will be better than 2023.

Thank you all very much for your interest in our company and say, well, I see you in 3 months' time at our next video conference of our results. Thank you very much. Have a good day.

[Operator]

The Kepler Weber video conference is closed. If you have any questions, you please submit your questions to the Investor Relations group through the e-mail [e-mail]. We thank you pall for your participation and wish you a very good day.

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