Valid Solucoes SA

BOVESPA:VLID3

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, ladies and gentlemen. At this time, we'd like to welcome everyone to Valid's Fourth Quarter and Full Year of 2017 Earnings Conference Call. Today with us, we have Mr. Carlos Affonso d’Albuquerque, CEO; and Mrs. Rita Carvalho, Chief Financial and Investor Relations Officer.

We would like to inform you that this event is being recorded. [Operator Instructions] We have a simultaneous webcast that may be accessed through Valid’s IR website at www.valid.com.br/en/ir and the MZiQ platform. The slide presentation may be downloaded from this website. Please feel free to flip through the slides during the conference call. There will be a replay facility for this call on the website.

Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities and Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Valid's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Valid, and could cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the conference over to Carlos Affonso d’Albuquerque, CEO for Valid. Mr. d’Albuquerque, you may begin your conference.

[Carlos d’Albuquerque, executive]

Okay. Hello, everyone, and thank you for being here once again with us for Valid's results presentation. As we all know, 2017 was another challenging year for us at Valid. Several changes in our markets gave us the opportunity to look inside ourselves and analyze what else needed to be done to prepare the company for the coming years.

So looking back, we can conclude that we have done our homework. We managed to improve efficiency through a deep restructuring process. It's the method over the year. At the same time, we are seeing an inflection point in the markets, which we look at our company's newly improved efficiency, making us feel very confident that the worse is behind us. It's also important to note that although the company's consolidated net revenue fell by 8.7%, there was no drop in revenue in our Brazilian operations. The drop comes from operations outside the country, and half of this is due to the significant change in exchange rates between periods. And at the same time, we have used the last 2 years to evolve with new business models, such as IoT, track and trace, block and chain and even more service for the identification of people and objects. These are opportunities that are starting to emerge and that we believe will soon yield the expected transaction.

The payment business unit was the one-off that suffered most in 2017. However, the biggest change we made were precisely in this area. When we look at business units in the U.S., there is no doubt that we are seeing a recovery, both on the market and in terms of efficiency. It is important to note that the seasonality in Q4 and Q1 in U.S. is very significant in this business. We are expecting an improvement in results in 2018, with the new management team that started in this unit in July of [ last, ] last year, and we saw a goal of achieving adverse sales mix, along with a better cost structure. And in Brazil, the reduction of structure was intensive, and we have no doubt that we will see better results already in the first quarter of this year.

One thing we need to make clear is that we are working very hard on the growth of the company's EBIT, both with increasing efficiency and with a careful study of capital allocation. Specifically, with respect to capital allocation, it's important to note that we are not considering large investments outside the country. But in Brazil, we are studying a few investment opportunities, one that will not affect our goal of reducing our net debt-to-EBITDA ratio by the end of 2018. Our intent -- we intend here to be very brief to use more time that we have to -- for questions. So now I'd like to hand this over to Rita.

[Rita Carvalho, executive]

Thank you, Affonso. Hello, everyone. Thank you for joining us in another conference call. I have some comments related to 2017 results and what we expect for 2018, but I will be very, very brief in my comments.

The first one is related to CapEx, which in 2017 was close to BRL 50 million. What we expect for 2018 is something slightly higher than last year. Aligned to what Affonso just mentioned, the main focus will be to renew and maintenance of the existing contracts in the ID systems division, projects related to track and trace, the implementation of the infrastructure required to produce the embedded SIM in China and also the certifications required, and the development of new services and platforms, and of course, the maintenance of the company's traditional business.

The second point I would like to comment is with regard to operational cash flow generation, which after our first semester, where we consumed BRL 45 million in cash. In the second half of the year, the company generated BRL 126 million in cash, returning to a level of cash generation -- of operational cash generation more normalized for our business. With that, the expectation for 2018 is that the operational cash flow generation will return to normal level, as we have seen during the second half of last year.

The third comments related -- it's related to leverage, where we reduced the company's net debt by almost BRL 60 million when we compare to the third quarter of 2017, ending the year with a net debt-to-EBITDA of 1.9x. And according to Affonso's comments, our expectations for 2018 is that with better results, and also with the company's operational cash flow generation normalized, we will see the net debt-to-EBITDA returning to 1.5x. And finally, during 2017, we paid BRL 14 million in dividends related to 2017 results, and we are proposing the payment of another BRL 10.6 million, which will be submitted to the Annual Shareholder's Meeting. It's scheduled already for April 26. According to our expectations for the year and taking to consideration the company's investment needs, we are keeping the commitment to distribute 50% of our net income.

Thank you, once again, and now we are ready to take your questions.

[Operator]

[Operator Instructions] The first question -- pardon me, that person withdrew their question. Showing no questions, this concludes the question-and-answer session. I'll turn it back over to the company for final considerations. Please go ahead.

[Carlos d’Albuquerque, executive]

So once again, I'd like to thank you for all of the support during 2017. Once again, the worst is behind us now, and we are very confident about 2018. It's not easy. It's not done, but we are confident that it will be a very good year for Valid. So again, thank you very much.

[Operator]

Thank you. This concludes today's Valid's earnings conference call. You may disconnect your lines at this time.