Valid Solucoes SA

BOVESPA:VLID3

Earnings Call Transcript 2021-Q1

[Lucas Carneiro, executive]

Good morning, everyone, and welcome to the video conference of Valid's Q1 2021 results. I'm Lucas Carneiro, M&A and Investor Relations Supervisor at Valid. I'd be your moderator throughout this event. Before we start the presentation, I would like to make some important announcements. This event is being broadcast live with simultaneous translation into English, and the presentation will be available on Valid's Investor Relations website and also here on the webcast platform. At the end of the presentations, we will begin the Q&A session. [Operator Instructions]

We also clarify that any statements that may be made during this video conference concerning the company's business prospects, projections and operating and financial targets are based on the beliefs and assumptions of our management as well as on information that is currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions in the industry as well as other operating factors can also affect the company's future and lead to results to differ materially from those expressed in such forward-looking statements.

Now I'd like to introduce the participants of today's video conference, Ivan Murias, our CEO; Joel Renno Junior, our CFO and Investor Relations Officer; and Renato Tyszler, Valid's future CFO and Investor Relations Officer.

Now I'll turn over to Ivan. [Operator Instructions] Good morning, Ivan, and please proceed.

[Ivan Luiz dos Santos, executive]

Good morning. Thank you, Lucas. Good morning to everyone. Thank you for your participation and thank you on your -- for your interest on Valid's assets. I hope that you're fine and healthy.

I would like to start by sharing the slides. Next slide please. Yet another one. Okay. Thank you. I think that among all the messages of the first quarter, I like to highlight the 6 main one. The first one is that even during the worst moment of the COVID-19 pandemic in the first quarter of 2021, Valid achieved growing results in revenues and EBITDA. Most of this growth was associated with our international businesses that had very strong growth, especially those associated with the Telco Global segment that had a strong growth in volume and improvement in its mix.

The Government Solutions business, that is strongly represented by the issuance of documents, is still highly impacted by the social distancing measures. However, after 1 year of living with the pandemic, there is a potential backlog of about 2 quarters of documents to be issued. In addition to that, the company has gradually learned how to work in a pandemic scenario. I would like to highlight that the worst month in the first quarter accounted for volume in document issue higher than the worst quarter of 2020, which was the second quarter of 2020.

So the Digital Solutions that represented by bank cards and smartcards also experiences some big growth in revenues and EBITDA, leveraged by the growth of traditional banks and fintechs and digital banks. The Digital Solutions had an increase in representativeness and increase in South American revenues, highlighting the company's focus on transforming its core business. And finally, the success in the capital structure and its evolution as well as renegotiation of short-term debts will allow the extension from 11 to 12 months in our average maturity, but also feeling more confident and comfortable with our cash.

Now I'd like to turn over to Joel who is going to go into the details of each one of the segments.

[Joel Renno Junior, executive]

Good morning, everyone, and thank you for being here with us today. Next slide please. I'd just like to remind you that we presented the slides on our Capital Markets Day for the first time. And this is how we are going to communicate our results and our operating and financial performance to the market as of now. This is the best perspective, so that people can follow-up in detail all our sources of revenue. So this is the new format. We've already used that in the Capital Markets Day conducted last month in April. From now on, we will use this standard to present our financial results.

As Ivan mentioned, this was a quarter that despite all challenges showed a growth in net revenue of 6.0 -- 5.6% vis-a-vis the same period of 2020 and the EBITDA margin grew by 1.4% from BRL 60.2 million to BRL 61 million. If you see the revenue, you will see a short reduction in revenue in the South America region, especially Brazil because of the pandemic. At the same time, we also see an expansion of growth in the international revenue. So when we look at net revenue, we had a reduction in the issuance of documents year-over-year. But as we are going to mention later, this was made up or compensated by the strength or the increase in the smartcards for banks.

Another positive highlight related to revenue has to do with our telecom business, which we call Telco Global. We had a growth in revenue of almost 70% year-over-year with an EBITDA margin that expanded by 9 percentage points. Once again, this reinforced the facts that Valid, and I think that people still make this ultimate correlation, but Valid is not a company that just has contracts with the governments, it also has other strong businesses. And with that, our business can expand and grow in a solid manner.

Here we talk specifically about the international business. The international businesses also includes the Telco Global business. If you add up those 2 blocks in revenue, international BRL 124 million in the U.S. market, BRL 135 million for Telco. This is the same total we had in the previous page for the net revenue for international businesses.

Again I would like to highlight that we were very strong in the telecom market. Valid is positioned as a major player in the card provider business. We have as client one of the largest telecom companies in the world. We also had an expansion in revenue of almost 45% year-over-year in dollars and margins were benefited by several operating efficiencies we implemented.

We've been implementing those improvements over the months, such as improvements in logistics. Because of the pandemic, as you well know, we had impacts in the supply and chain. Fortunately, we are able to cope with the situation by finding new logistics routes and receive those telecom cards on time. With that, we are able to meet the demands of our customers. Especially in the U.S., because of the massive migration of customers to 5G technology, which is a major revolution, there's going to be a major change in the market and we are well prepared to keep serving our customers in the Telco business.

I'd also like to make another comment related to the U.S. market. Our performance in the bank card business or cards for the financial segment was impacted in this quarter negatively. This negative impact is going to be offset in the next quarters because there was a shift in the confirmed orders from some customers. We believe that they will keep ordering with us. We have a good position, the market is heated and we expect that in the next quarters of 2021, we can offset the shortfall in revenue related to the bank card segment in the U.S.

Now going back to the Brazilian market and Government Solutions -- VGS, Valid Government Solutions. As Ivan mentioned, we had the impact of the several social distancing measures implemented in the country and lockdown because of the pandemic. However, we have a significant backlog in the issuance of ID cards. They were not issued, but they will be issued eventually. We expect that this backlog will become business in the upcoming months and we expect a significant improvement in April.

This trend will be confirmed in May as well. We see that the economy is recovering, business are resuming, and this is why we are convinced that these reduction in revenue and EBITDA in the first quarter of the year vis-a-vis the first quarter of 2020 is an effect that will be reversed in the upcoming quarters. And that comment is specific for the Government Solutions. So we don't expect to reach BRL 73 million in the quarter. That's usually not the amount we expect to find.

VBS, Valid Business Solutions. So specifically, for Brazil industry or business solutions, we have some highlights in this quarter for VBS. Again we have heated demand for smartcards. We see this major movement of fintechs and traditional banks; they are trying to reinvent themselves. All these players understood that they can reach a huge portion of the population that is underbanked or de-banked and they can do that by issuing debit cards and credit cards. The company has pieces of equipment that are state of the art equipment and its plant located in Sorocaba, and we are really taking this opportunity.

One of the major highlights of the first quarter of 2021 is that our revenue expanded in more than 80% year-over-year for Business Solutions. Most of that was driven by the fact that we have higher penetration in banks, fintechs and other digital platforms. They count on our services to deliver high-quality customized products to their clients. In terms of EBITDA margin, with the increase of the revenue, we've also seen a significant growth in EBITDA, both in absolute numbers as well as in EBITDA margins. And we doubled our EBITDA in percentage points and the absolute numbers was BRL 11.7 million year-over-year. So this is due to the growth in revenue and also by diluting fixed costs in our operation. I also mentioned that we also have an improvement in efficiency in our team.

Next slide please. VDS Brazil. VDS, our Valid Digital Solutions. It's important to highlight that today, Digital Solutions that are developed by Valid account for almost 20% of the total revenue of the company in South America. The EBITDA margin is already positive. If we look at this business individually, separately from our other business, this would have been a very successful start-up. The net revenue was BRL 42.7 million in the first quarter of 2021, a 50% increase year-over-year. That's a very significant growth.

In the past, we had a negative EBITDA margin and now we have positive EBITDA worth almost BRL 3 million. So we would have been not only a major start-up, if considered separately from the other businesses, but also a start-up with significant revenue scale that would be generating cash measured by EBITDA. In the tech world, as you well know, sometimes this is a major challenge to companies.

I've mentioned some of the highlights for the first quarter, such as the positive EBITDA, the representativeness of the digital revenue regarding the total revenue we obtained in South America. Another important point we would like to highlight is the fact that we have solutions to smart cities. Today, we have presence in 9 states, over 30 cities, and we see a major pretention for expansion of our businesses, and we are working on that.

Next slide please. As I mentioned before, our EBITDA had a milder expansion vis-a-vis 2020, which is very positive considering that in the first quarter of this year, we also suffered with lockdown, with distance -- with social distancing measures, and several businesses and government agencies were closed.

In the first quarter, we had provisions for the factory consolidation that is undergoing. As announced before, we are rationalizing our basis of factory assets. We are selling our plant in Sao Bernardo do Campo and migrating its operations fully to the Sorocaba plant. The same will be done with our plant located in Rio de Janeiro. We are already making this transfer from Sao Bernardo do Campo to Sorocaba and the transfer from the plant in [ Cazo ] Rio will be done at the end of the year.

So we move from an adjusted EBITDA lower than the EBITDA without this provision. The behavior between EBITDA and net income is very similar year-over-year. Notice that in financial expenses and revenue in 2020, the amount was higher. But in 2021, these amounts are much lower. This has to do with the work we've been doing with the banks with which the company has taken loans.

This is about cash flow. Again we see heated demand in smartcards and SIM cards. In the Telco business, we, of course, require a higher level of stocks. And you can see that in the media, the global supply chain of SIM cards for the Telco business was disrupted by the COVID-19 pandemic. As I mentioned before, we are looking for new solutions and new suppliers. We are also looking for new logistics routes. Because of that, we need to be prepared to meet the demands of the market and to hire some of the services in anticipated manner. And because of that, the stock has increased in the short term and the stock -- and inventory turnover is reduced. We don't believe that this is going to take place in other quarters of the year. And probably, this inventory is going to be taken to our customers and then we will be able to have a much more interesting cash working flow -- working cash than we have today.

Another point is that, as you can see in this green bar, we were very successful in increase of capital, almost BRL 100 million to the cash of the company. And in addition to that, we also completed important negotiations with some partner banks, such as this loan BRL 111.2 million positive. So our initial cash was BRL 543.7 million. And now we have a final cash of BRL 611.8 million, a very significant improvement.

Next slide please. Here we go deeper into our capital structure. As I've mentioned, the increase in capital was completed in the beginning of this year. BRL 99 million in cash was brought to the company. This was a vote of confidence that the banks had in us. This capital increase was done through the launch -- through the issues of shares with subscription bonuses that are being negotiated in DB3 environment.

Go fairly on 11, any investor can purchase that. And they give investors the right to convert a bonus into a new company share in 2 different window times, in March and in September of 2022. The strike price of this bonus is BRL 10.96. So today, the share is already being negotiated above BRL 10. And assuming that this windows next year will be above BRL 10.96, if you hold a subscription bonus of Valid, you can automatically convert that into a company share at BRL 10.96. If this comes true next year, automatically, we will bring, in addition to the BRL 99 million in capital, we will bring another BRL 120 million to the cash of the company based on the assumption that shares will be above BRL 10.96 and all holders of this bonus will decide to make this trade.

We keep on discussing with the banks the reprofiling of the company debt. We have already completed that renegotiation with the Safra Bank were BRL 30 million and also with BTG Pactual, we've renegotiated the company debt in a total of BRL 50 million and a new line of credit with Caixa Economica Federal at very competitive prices totaling BRL 70 million. We are exploring with Caixa Economica Federal what else we can do together and other business partnerships we could have. So there's a very interesting strategic fit between their businesses and our own.

Right now based on the material fact published last week, we had our eighth debenture issue that can reach up to BRL 700 million. Creditor banks, Itau BBA, Bradesco and Santander have given us on firm guarantee BRL 440 million. So this is already in the cash. There's also a part that is on a best efforts basis that accounted BRL 256 million, and this is how we get to the BRL 700 million. And very soon, we will communicate everyone to the market, of course, the closing of this offer. Consequently, we will be able to provide the total amount that the company found what it's comfortable with getting from the other banks, especially on the best efforts basis.

Just one second. Let's stay in this slide. There are some points that I've missed here, but they are very relevant. Using this snapshot of March 31, the end of the first quarter of 2021, you see that our figures start showing improvement in terms of net debt EBITDA over financial expenses. And as soon as we complete our operation of issuance of debentures and we add up that to the fact that we also need to generate operating cash and other initiatives on the way, we expect to end the year at a very comfortable situation in terms of capital structure.

Next slide please. Ivan, I turn over to you.

[Ivan Luiz dos Santos, executive]

Thank you, Joel. I think that here we have the main messages of the first quarter. Although we're experiencing the worst time of the pandemic, in this quarter we had a 5.6% growth in revenue and a 1.4% growth in EBITDA. Our international business had a 12% growth in revenues and 104% growth in EBITDA in Brazilian reals. The market always asks this question because of our geographical coverage and because of this overstretch of the management team. But I think it's important to highlight that for a small cap, the amount of revenue we have hedged in dollars is significant. So that has benefited the company in the first quarter. We were able -- with the volume increase in Telco and because of the exchange rate appreciation, we were able to reach this growth in EBITDA in the international business.

I think it was very clear in VGS that we have a potential of about 10 million documents still to be issued in this backlog. We believe that as more people get vaccinated, most of this volume will be recovered in the second quarter, especially in the second half of this year. The worst month in the first quarter in terms of issuance of documents when we issued just 1.1 million documents was better than the worst quarter of 2020 when we issued 900,000 documents between April and June of 2020.

In terms of VBS because of the dynamics of the traditional banks, for some of the office -- the branches were closed, this had -- but also this growth has to do with digital banks and fintechs, and we had a significant growth in revenues for VBS. This also was added up to the efficiency in EBITDA of 93% growth in the first quarter.

VDS focuses on making the transformation of our core business. We are committed to this transformation and highly motivated to deliver that quarter after quarter. As mentioned in the previous slide, our capital structure allows us to aim for the future after a leverage that is closer to 1.7x and 2.3x the EBITDA when this values will be more normalized.

So now I'll turn over to Lucas who is going to coordinate the Q&A session. Thank you, everyone.

[Lucas Carneiro, executive]

Thank you, Ivan. [Operator Instructions] The first question comes from Enrico Trotta with Itau BBA and also [ Marcus Rodrigo Cachero ] has a similar question. So I'll send both of them together. Their question is, regarding this backlog in documents to be issued and our expectations for April, as you mentioned in the presentation, but they are more concerned with the second quarter as a whole and our expectations for the second half of the year. Thank you, Enrico and Marcus, for your question.

[Ivan Luiz dos Santos, executive]

Thank you, Enrico and Marcus, for your participation and your questions. As you can see, based on the figures in the presentation, if we look the volume using a base of 100 million in the first quarter, although it was very critical time in the pandemic, it accounts for about 70 million out of 100 million in this calculation. And in April and May, we've seen an evolution in the same 100 million scale, an increase to 80 million.

Talking to governmental agencies in the federal level and state level and the expectations of reopening their offices, we expect that at the end of the second quarter we'd be closer to something ranging between 9 million and 100 million in this 100 million basis pre-pandemic. And probably with this backlog of 10 million documents not issued. And also the driver's license that have been -- that were expired in this period. And this drives people to go that issue their driver's license. Probably we can go higher than the pre-pandemic levels in the second half of the year when we expect to be more profitable in Government Solutions in Brazil.

[Lucas Carneiro, executive]

Next question, again from Marcus. What is the management's compensation plan? And what about the alignment between the management team and the shareholders? Could you recap what we approved during our assembly meeting?

[Ivan Luiz dos Santos, executive]

Thank you, Marcus. There are some aspects to your question. In our latest ordinary meeting, we approved the plan of stock options. In 2 years, we didn't have that plan of stock options. And this plan has helped us building this new management team, attracting those officers. And at the same time, it is also expensive to the senior management. So now we are involving the senior management team explaining this plan. And with that, we're going to have more ownership of the company in building this future.

In terms of short-term goals, the ICP that is a compound of the compensation plan, this is based on the net income. It's my case, 100% of my target is based on the net income of the company whose focus is not only on EBITDA as it was in the past, but everything that happens between EBITDA and net profit patch, net income, debt service and other initiatives led by the management team that would not be fully captured in EBITDA. I'm driven by that target 100%. And as we go down to the other levels of the executive management team, 100% of the executive leadership team is based on net income. Of course, this changes individually according to the individual goals.

[Lucas Carneiro, executive]

Next question from [ Gilliami Nunez ]. He has 2 questions actually. He asks about the second quarter of 2021. We've talked about VGS and documents issued. And so he's asking about the expectations for the second quarter. And as consumers return to stores, but now that we have this possibility of making instant payment using picks, what are your expectations in terms of issuance of cards?

[Ivan Luiz dos Santos, executive]

Gilliami, thank you for your participation and your question. Overall, we've noticed a sequence as we had in the first quarter. In the VGS business, we've explained our expectations related to that. In terms of our international businesses, we see that it's going to be an evolution of the volumes of Telco business and also improvement in margin because the increase of EBITDA is focused on a better mix of different geographies. And usually, those geographies have a good mix in terms of margins to the company. In VBS, they are driven by cards and fintechs. In that case, we still have good momentum and this is also true for Digital Solutions. Overall, we see the same trends and we expect the same trends to be repeated in the second quarter and an increase in the issuance of documents. What was the second question again?

[Lucas Carneiro, executive]

It's about PIX, the instant payment system in Brazil.

[Ivan Luiz dos Santos, executive]

This is something that has to do with guessing, I guess. Futurology is involved here. The company has invested in its expansion of the factory structure to meet the demands of the banking system. Traditional banks are closing some of their branches. But since there is a change once people are transferred to a different branch, that requires another card to be issued. So this is a higher demand from traditional banks, which may sound counterintuitive.

In terms of the digital banks like new bank, [ 66XB ], those new digital banks, they're also opening digital accounts that -- and we -- they end up issuing a physical card because that strengthened their relationship between banks and their customers. That increases volume. And then we have [ Wrap ] iFood and meal vouchers. We also expect the volumes of these cards to increase.

And finally, although PIX is a revolutionary payment system in the industry, we also have major players like Visa, Mastercards and banks that usually provide physical cards to their clients, their customers. I think it's something that probably will require more time for us to understand how this will evolve in retrospect. But we've been doing a good job so that this relationship is always -- always becomes more tangible through a physical asset, through a physical card. It is a promising market, especially in the upcoming years and quarters.

In answering your question, I also like to add that a plastic card is still the tool where you can increase the loyalty of your customers. That will be true for people who have bank accounts, those who are underbanked and have just got a new bank account and that's true for traditional banks or digital banks. So what we see today is that PIX or cards in general are complementary payment means.

Industry is heated, as it was mentioned here. There was a myth that PIX would be the demise of the debit card. Because right now PIX function very similar. But that's not what we've seen in practice. And again, there are other leverages, there are other players in this financial market. And because of that, we are convinced that this heated demand we see today is likely to remain in the short term, in the medium term.

[Lucas Carneiro, executive]

Thank you Joel and thank you Ivan. Next question from Gabriele [ Covelo ], a shareholder in the company. He has 2 questions. First, he talks about the scarcity of SIM cards and semiconductors. And how does that affect the company? And what kind of actions will the company take facing this problem in the industry? The second question is, given the write-offs? And is there any mismatch between the accounting flow and profits? Any other mismatches expected for the next quarter?

[Joel Renno Junior, executive]

I can start by answering the second question. Should I?

[Lucas Carneiro, executive]

Yes.

[Joel Renno Junior, executive]

Okay. Thank you for your question. This quarter, differently from the last quarters, the only provision we made was an on-off position. It was because of the demobilization of the Sorocaba plant were BRL 3 million. If you look at the last quarters of the company, even in the last years of our operation, this amount is much lower than any other provision the company has made related to any type of initiative as we mentioned in our release and in our call with investors at the end of 2020, and we also reinforced the message on our Capital Markets Day. So we don't expect any other relevant provision related to our lines of revenue as it was the case in the past.

The same is true for investments and acquisitions in terms of some shares abroad. We don't have any skeletons in the closet. But what could happen is something like what happened in this quarter, we had a provision of BRL 3 million because of our regular business. We are rationalizing our base of factory assets, concentrating our factory efforts in Sorocaba. Now we are selling the San Bernardo do Campo plant. And as I mentioned, the same will be done later this year with the Cazo plant in Rio.

In Sorocaba, we are negotiating a leaseback sale. So the company does not have to have fixed assets in its balance sheet. So it could be much lighter. Our expectation with the sales leaseback, not only we will be able to bring more cash to the circulating asset of the company, but also we want to have the tax benefit, so that these expenses can be deductible in the analysis of the accounting profit.

[Ivan Luiz dos Santos, executive]

Gabriele, answering the first part of your question. Indeed, the scarcity of SIM cards is a topic that the management team is paying a lot of attention to. Recently, we acquired a company called Fundamenture. It has global presence, especially with good presence in the Southeast Asia. So you have relevant contracts in the high end and low end parts of the industry. Valid is concerned with developing different supply options, especially with Chinese SIM cards that can help us when we -- in scarcity times, as you mentioned. We've been doing a great job with that. When you see a global company dominated by typically French players, [indiscernible] G&D, and the fourth largest is the Chinese company called Watchdata, Valid comes after those companies ranking fifth as the fifth largest player in SIM cards. And we, of course, are very concerned with supply and scarcity of it.

On the other hand, through scarcity, we can also have an impact in the average prices. Both of the products that are sold to us as well as those we sell to our customers. This is a short-term solution that is okay, that we have done with that. But as for the second half of the year, we need to confirm these trends and we also confirm the availability of SIM cards in the supply chain.

[Lucas Carneiro, executive]

Next question from [ Diego Liza ] with Amazonia Capital. Regarding the last month, do you see any new project that the company believes that requires more investment?

[Ivan Luiz dos Santos, executive]

Thank you for your question, Diego. As we mentioned in the last Capital Markets Day, in the past 6 months, we went deeper into the analysis and design of the strategy of the company. This was developed together with the PAM, and we created 4 verticals: ID, pay, link, so connectable objects, and smart cities, those are the 4 verticals -- vertical accesses. Since the company had already made a lot of acquisitions at this point and also went into different markets, most of the management effort is focused on validating those verticals, who are the owners of them, so who should be the technology teams that will serve these vertical access, and also to connect those new companies that were purchased to the regular operations of the company. So I don't expect acceleration through acquisition or M&A in the short term, although this is not a final decision. But right now we are more focused on the internal reorganization of these platforms that have been acquired.

On the Capital Markets Day, we also indicated that among those 4 vertical access, there are 2 of them, ID through our in-depth knowledge as documentations for decades as well as smart cities, that, again, is also based on our strength for many years, especially with governmental relations. Those are probably the vertical access that will give more traction in the short term. And this is like a maker by rationale. We need to analyze their traction, the kind of business they are related to, and how can we advance and add up margins from these chains and this access?

[Lucas Carneiro, executive]

Thank you, Ivan. Thank next question is from Fabio Zobi. Thank you. How does Valid foresee the growth for the next quarters, specifically for the payment business?

[Ivan Luiz dos Santos, executive]

Thank you, Fabio, for your participation and your question. My answer is not different from what I've mentioned before. The company has invested in its factory structure to increase our ability to serve our customers. On the demanding side, we see that the traditional markets and fintechs and digital platforms is a heated up market. So in terms of means of payment, we see a trend that is likely to end until the end of the year, a trend of growth of heated demand.

[Lucas Carneiro, executive]

Next question -- 2 questions actually about that. One from Artur, who's an investor; and another one from Rafael [ Aziz ] with Citibank. So how will these amounts that are taken from the issuance of debentures will be used? And also asked about the indicators of net debt and EBITDA that we mentioned in the range of 1.7x to 2.3x. Is this a reduction in the net debt? So these are the debt related questions we got.

[Joel Renno Junior, executive]

I'm sorry. Your sound was chopping. We could not hear you very well. Could you please repeat the question?

[Lucas Carneiro, executive]

Okay. I can hear you now. So we have 2 questions about debt. One from Artur, who is an investor, and another one from Rafael Aziz with Citibank. So they basically ask how would these amounts going to be taken from the issuance of debentures, how they're going to be used? And how can we reach these net debt over EBITDA, the amounts we mentioned during the presentation?

[Joel Renno Junior, executive]

We plan to use those resources to reinforce our cash, of course. We want to improve the profile of our indebtedness even more. And of course, we need to be ready to be able to make more investments in new lines of business or maybe a business partnership or strategic alliance we believe will make sense to the company in a short period of time. So this is how we plan to use these resources that will be captured now with the issuance of debentures. So we want to improve the debt profile. We want to expand the maturity of this debt and also bringing financial benefits to the company. Of course, this will be in reinforcement in capital. And more specifically, we want to be prepared to be able to use this money in new business opportunities that may come true in the short term. So that's the first question.

Your second question related to the reduction of our leverage index measured by net debt over EBITDA. This has to do with our renegotiation of the debt, this maturity date in 2021. We are trying to expand that. We are making negotiations with the banks and with the market, and added that to the increase in operating cash generation as we had in the past. We expect this movement to be very interesting. And finally, there are extraordinary events who should not rule out, such as what I mentioned before. We have already increased our capital. Now we are in a process of divestment of our factory plans to focus our production activities in Sao Paulo. And with Ben, we also made a global review of our assets portfolio.

Brazil is our priority. It's a huge market and Valid has unique strength to be able to play this game and win it in Brazil. We also expect with that at some point, in the short term, in the future, to announce some potential divestments of some assets that are no longer relevant to the company.

[Lucas Carneiro, executive]

Thank you, Joel. We received another question from Artur and Marcos Rodrigo Carneiro, who are investors. They ask about capital. Is there anything else that explains stocks in addition to ships to SIM cards? This backlog can be related to that? And what about accounts receivable? So it's questions about working capital, essentially.

[Joel Renno Junior, executive]

So again, your audio is chopping, I missed the first part.

[Lucas Carneiro, executive]

They asked about increasing in the accounts receivable in the quarter. Could you give more details about that?

[Joel Renno Junior, executive]

Okay. Regarding working capital, this is a reflection of the dynamics we mentioned before related to cards to the telecom business. Indeed, we need to get ready, amidst the craziness of the pandemic, to be able to have in inventory the raw materials necessary to meet the demands of our customers. So that has to do with working capital. We've been very disciplined related to working capital as a whole. I mentioned that quite a few times now. We have been very successful in increasing our average payment terms and also been able to reduce the time it takes for us to receive payments. But once again, not all of us, but the industry as a whole was disrupted by this global supply chain disruption caused by the pandemic. And this is why we had to make a higher effort that took our cash in raw materials to meet the demand of this industry.

What was again the second part? The first part was about working capital. Yes, accounts receivable, that was another question. This is basically has to do in our identification division. We are waiting, of course, for the reopening of public offices and public services. They're not -- they were closed during the pandemic. And as they reopen and as we have some -- some of the lockdown measures are lifted gradually, which has already taken place, then we'll be able to see the accounts receivable levels being reduced because those government agencies will open again their offices and we are again going to receive that cash.

[Ivan Luiz dos Santos, executive]

I'd just like to add something related to the working capital. This has to do with the question asked by Gabriele, his question on scarcity. We ended the fourth quarter very lean in terms of working capital. But now the possibility of scarcity of SIM cards and bank cards, and we have spared no efforts in increasing our inventories to meet this growing demand. I think it's more and more competitive dynamics and more a competition strategy than mismanagement or any management issues of working capital.

[Lucas Carneiro, executive]

Thank you, Ivan and Joel. I'm going to read our last question. And if you have any additional questions, you can also send that to our Investor Relations team. Now the [indiscernible] investor asks about our VDS. How do you see the possibilities in VDS, saying that we can scale in MITRA too? Ivan, can you please help him with this question?

[Ivan Luiz dos Santos, executive]

[ Leonardo ], thank you for your question and your participation. As we mentioned in the Capital Markets Day and I go back to our 4 pillars: Valid ID, Valid Pay, Valid Link and Valid Smart Cities. Each one of this business already benefit from the core businesses operated by the company for quite some time. And most of this management challenge has been to create the digital version of these businesses. As we highlighted in the presentation, MITRA is one of the smart cities initiatives that benefits from our knowledge and administrative matters and also the good relations we have for quite some time.

Here's one example. We have a company called Easy Company. Out of the 5 things that are required for anyone to open a business in Brazil, 3 of these actions take place at the municipal level. We have a product that expedites opening new companies across the country. So usually, this journey of opening a business is full of friction. And because of our products, it's much easier.

As we mentioned in the Capital Markets Day too, we have solutions for smart cities such as tracing of covered area to calculate property tax, for example. There was an acquisition made last year that is part of this vertical and that has also expedited the growth of this vertical axis. Now we can also help municipalities to manage their open spots of parking and how they manage that. So these revenues are close to 20% in terms of representativeness. And because of that, we not only have digital initiatives, but we have a company that indeed has a significant part of its revenue in South America from digital sources. And this is why we plan to keep focusing on this business.

[Lucas Carneiro, executive]

Thank you, Ivan. This was our last question. With that, we end our Q&A session. I appreciate the interest of all participants and we remain at your disposal and end our results video conference here. Thank you very much.

[Ivan Luiz dos Santos, executive]

I'd also like to thank everyone and also like to thank Joel. We disclosed the material fact recently. And this was -- it's moving to a personal new challenge. He spent a short time with us, but very challenging and did it very well. And because of this material fact disclosed last week, we welcome Renato Tyszler, who will become our CFO as of next week. He is very experienced and we are very glad to have Renato with our team. Thank you very much for your participation and your interest. Our Investor Relations there and the whole company is at your disposal for future questions. Thank you very much and have a nice day.

[Joel Renno Junior, executive]

Thank you.

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