Positivo Tecnologia SA

BOVESPA:POSI3

Earnings Call Transcript 2020-Q3

[Helium Rotenberg, executive]

Good morning, everyone. We are bringing very encouraging results, and we are very happy with the moment we are going through our company. In addition to a pungent computer market, and I'm going to talk a bit more about that, we are going through a strategic definition process in the company. It's been 8 weeks that we have been working with McKinsey to make strategic definitions for the next 5 years. We are very happy with the results and very confident about the journey that we started 3 years ago, and that we are going to enhance for the next 5 years and that are already starting to give the first result. So I would like to tell you a bit what the third quarter was like and what is going on in the market. Let's go on to the next slide. So a good performance in sales with 22.2% plus in computers, very much concentrated on day operations. That's important to say. Corporate sales and most specifically, government sales in which we are stronger, we are going to see a recovery in the fourth quarter and not the third quarter. That is because the pandemic kind of pushed it forward. On the other hand, the pandemic make the retail market just boost, home office made computers become no more 1 computer per family and going back to being personal computers through PCs, as they have been inventioned in the past. So each family member try to have 1 computer. The youngsters took important classes, parents are working at home. So the number of computer per home increased. In the beginning of the pandemic major corporations, bought the computers at retail as well. No one was ready. China was closed, people have to live in country. Taiwan was closed. Korea closed. Producer centers all over the world closed, so there was no raw material. And retail is where everybody sought for supply. And in the third quarter, we see this huge boost for tablets. We were weak in tablets. The market grew a lot. We grew a lot. Again, people would look inside the home. We had a fantastic number. One of our largest online retailers had a 2-day promotion. You know who they are, and they sold 46,000 interments of ours in 2 days. That is something that was unprecedented. And computers, if we had more notebooks in the market, we would have sold them. Just remember in the beginning of the pandemic, everybody retracted. So did we -- we didn't know what was going to happen. We were cash skimming when everybody had the first reaction. So we postponed, postponed, postponed things, and then whatever we had in the third quarter, we sold at the right exchange rate. So margins that were very much compressed because the dollar rate was up in the third quarter went back to normal -- with normal market prices being practiced. And obviously, because there was a gap of products in a way, it enabled us to have sales at correct prices. Therefore, we record gross revenue, BRL 600 million. Net income grew a lot with normalized margins and other businesses already yielding results. EBITDA went up in a very healthy manner. We got to BRL 50 million net income, BRL 69 million adjusted EBITDA. Some news that happened in the quarter that is worth mentioning. Well, first, the electronic ballots that was a few weeks ago. So supply will start as of next year. I believe the Supreme Electro Court is going to keep the agreement as is. So the project is going very well, quite consistently. And deliveries are going to start most probably the second quarter next year, maybe third quarter, but most probably second quarter. We are launching the cell phone mobile that is our premium product with a positive brand, the same retailer that had those 2-day promotions sold 6,000 units of our mobile in 2 days. So the computer category was not assessed in the Top of Mind our Folha de São Paulo newspaper. This time, we've ranked the third, very close to the runner up, showing that we have a strong brand. Although positive brand is stronger, not -- you know in the whole social pyramid is more towards AB, but we still ranked third, which made us very encouraged with the strength of our brand. And for the first time, we have the Great Place to Work seal, which is very important to attract talent. So these are the most important news of the quarter, our highlights. I talked about the McKinsey consulting that is helping us balance our strategy. It's a lot of work, but gives us confidence for the future as is really boosted the computer rental market is picking up in the third quarter as well, giving us good margins. So we have intelligent paths of growing up computers, growing up smartphones, growing up with new launches. So most of the categories did very well. And all that converts to the active results of this quarter.

Moving on. Just to tell you, since the beginning, we paid very close attention to our people. In addition to being part of the ventilators project we have special care with our people. We're continuing home office. I am still working from home, almost the whole of our admin personnel are working from home with a few exceptions. Curitiba is still a problem. But the plans because of all the measures we adopted enabled us to continue working on stock, which was very good and the seal, Great Place Work that I already mentioned.

Next, again, Top of Mind, I already mentioned, we ranked third with a 10% Top of Mind that makes us very happy. And the launches, as I mentioned, I already advanced the news in the presentation. I talked about Q20, 128 gigawatts, 3 cameras, it was sold at BRL 899.99, that is the right price. And with the increase in exchange rates, lots of people left the 1,000 range and this is really big move in the market. [indiscernible] intelligent has light bulbs as I mentioned. People are more at home, they are paying attention to their homes. And they want to go into those remote control, the ones that you use from your smartphone. So our product very well sold. So this is a category that we believe should be called information, and that will bring us lots of good news in the future.

Moving on, let's talk a bit about our sector as a whole. So the PC market is really picking up, a computer no longer being one by home, but a true personal computer. We don't know if this is a trend to stay. This is something that time will tell. But everybody should -- finalizes for a market that is not going to be the same. We don't know exactly what it's going to be like. But anyway, 1.6 million units in the third quarter '20, plus 10% compared to the third quarter '19. And you see clearly with the progress in retail, public institutions going down, corporate going down, but we believe that for the fourth quarter, the 2 categories are going to show very good results. Our share is slightly lower, again, because we are very much present in government sector, we expected more deliveries that are happening in the fourth quarter. And we continue very strong at the cheaper computer range where we have a very, very, very strong brand. And we continue to lead the share of voice that we measure constantly as has been very strong in recent months. So we are doing very well with a significant share in all segments, both with the positive and the value brands. And the smart phone market, we grew a lot. We are going up with this new category. Even at entry-level categories. More people cannot afford a plus BRL 1,000 cellphone, and they will buy entry level. They'll buy ours. Future phones are very well sold in face-to-face brick-and-mortar stores. Some people are going backwards in socioeconomic class more to the lower end in Brazil, we call them D&E, but they are picking up. As for market share, of course, altogether, we are losing because of our corporate and government clients. But we are doing very well in retail with a very solid position, again, both in the entry and almost mid level, which is BRL 899.99. Well, this is what I had to tell you with regard to the market. And now I'm going to turn over to our next speaker, whatever questions you have, let's have at the end of the conference call. So now with you, I'll turn to Caio Moraes, our new CFO, that will give us the financial highlights.

[Caio Moraes, executive]

Thank you, Hélio. Well, Hélio talked a lot about a lot of things. So let's go to the next slide. Let's talk about the growth of our gross revenue. Here, we clearly see an increase compared to the previous quarter, Notebook with an increase, although there was a drop in cells and servers. As for the mix of our sales channels, retail really were picking up in this quarter as for government distributions, and corporate, a bit of a drop, that is they are recovering at a bit slower pace. And we should see good performance as of the fourth quarter. If we go to the next slide, talking about operational spending, you see sales expenses totaling BRL 81 million, 15.5% of the net revenue and only 4.2 percentage points. Again, retail, in a way, generates more marketing expenses and freight costs because of the pandemic are more expensive. But still, we had an increase in sales expenses, but a decrease in G&A. As you can see, we had BRL 22 million, again, 4.2% of net revenue, so it is almost a 1 percentage point drop. This is a result of strong control of our fixed costs that are being converted as a part of our actions in the pandemic. Financial results, we went from minus BRL 10 million to a positive BRL 7.5 million, and that's a combination of a decrease in our financial expenses basically because of the drop of Selic, the interest rate in Brazil and also, again, of BRL 22 million in the exchange variation. Again, because of our hedging, the inputs bought by the company vis-à-vis a strong increase of the dollar rate in the period.

Next slide. Here, we talk a bit about our net income and an adjusted EBITDA. As Helio also mentioned in the highlights, we had very strong net income of BRL 50 million in the quarter with net revenues percentage of 9.6%. Adjusted EBITA considering the hedging of our raw material of BRL 69 million with percentage of net revenue of 13.2%, a 5% increase compared to the previous year. Now talking purely about financials that is cash position and our indebtedness. Here we have very positive highlights. A very substantial cash generation, which led us to a comfortable position of BRL 546 million, which translated in a lower net debt, and also a lower indebtedness ratio going to 1.3x compared to last year at 1.8x. Other highlight is our liability management that we started in the company that is basically elongating our debt profile without increasing funding costs. So we are even decreasing funding cost, but using more elongated accountability management, it is improving our debt. So you see in the third quarter short-term is no longer 84.5%, but rather 75.8%. We still have a long way to go, but this is ongoing work that is giving us very good results. Okay. Now we are going to open for your questions.

[Unknown Executive]

Who is going to control the questions?

[Helium Rotenberg, executive]

I will. The first is from Marco Nardini from X Day. And Eric one from [indiscernible] with a question. They are talking -- asking us to comment on margin trends for the next quarters.

[Unknown Executive]

Helio, would you like to answer. Could you repeat the question? I'm sorry.

[Unknown Analyst]

Well, what is the trend of your margins for the next quarters, more specifically in the fourth quarter.

[Helium Rotenberg, executive]

Well, the margins that we had in computers are going to be kept as long as we have the strong demand for computers. This is an advantage for suppliers because we have always the law of supply and demand. So we think that in the short term, they are to be maintained, that is for a few more quarters. And of course, there is a mix that is going to be variable. You'll have the government sector picking up in the fourth quarter. A few other things, but that's as things are. And then we have the balance for next year. So we believe margins are to be kept at those levels, maybe slightly lower, but for the following quarters.

[Unknown Executive]

A second question also from Eric from [indiscernible]. Could you talk about the volumes expected from the agreement with the electoral quarter for '21 and '22?

[Helium Rotenberg, executive]

We believe we are going to be able to meet the full agreement. And the whole agreement of the mix that's still not that firm, but probably 60% to be delivered by 2021 and 40% by 2022.

[Unknown Executive]

Okay. One more question Helio, from Freddie from Bradesco BBI. Could you talk a bit more about your performance on notebooks? Do you think the movement is more to increase the number of computers per members of the family? Or is it more a matter of renewal.

[Helium Rotenberg, executive]

Well, it's a mix. The survey showed that lots of people try to pick up their computers that were no longer being used. And they were not able to use them. So it's not the computers that were being used, they were renewed as well. But the biggest boom was just more computers per household because of home schooling, because of home office, everybody at home, everybody working at the same time.

[Frederico Mendes, analyst]

Okay. Great. As for smartphones, that had a huge recovery compared to the second quarter. Do you believe that this is a segment that is going to grow in the future?

[Helium Rotenberg, executive]

We are growing. The segment, not as much. Society is more or less already furnished with smartphones. It's about 50 million units a year in Brazil. So it's more of a renewal segment than new smartphones. Renewal happens when there is a problem or when they somehow get too old. But at the entry level, BRL 699, BRL 599, that is where we have a very robust portfolio. We do see an increase in the actual number.

[Unknown Executive]

Okay. We have no more questions. Let's see if we have any more questions, let's collect the questions before we can talk to you.

So we are closing I would like to thank you all for attending this call. This is a quite important time for our company. We believe we are on the right path for recovering growth, recovering margin. Of course, the Computer segment helped us for the recovery, but other segments are also picking up, which is we are important to us. So thank you very much. And remember that we are always here to answer your questions even after we close this conference call. Thank you very much. This is just what I wanted to say, if you have any questions we are here for you, and we wish you a very good day.