Valid Solucoes SA

BOVESPA:VLID3

Earnings Call Transcript 2019-Q4

[Operator]

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to Valid's Fourth Quarter 2019 Earnings Conference Call. Today, 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 simultaneous webcast that are being accessed through Valid's IR website at www.valid.com/en/ir. 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 Securities 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 the company of Valid. You may begin your conference.

[Carlos d’Albuquerque, executive]

Thank you very much. So hello, everyone, and thank you all again for participating in Valid earnings conference call. So at the end of 2019, Valid revenue was BRL 2 billion and EBITDA totaled BRL 309 million with a margin of around 15%. After a challenging first half with results decreasing 20% compared to the first half of 2018, the second half of 2019 accounted for 58% of EBITDA, up 6.6% over the second half of 2018. So this growth reflects the stability of the company's traditional business and the development of new platforms to offer Valid's core service digitally.

Today, I would also like to talk about the work we have done in the past few years. We are currently one of the most important technology players, providing, securing the identification of people, objects and transactions, including the issue of driver license, civil identity, digital certificates and virtual and banking cards. With operations in various economic factors as such, we constantly invest to make sure we can be a strategic and reliable partner for our clients. And currently, identification in payment transactions have increasingly converged to create a better digital experience for the user, while mitigating great privacy and security risks. So this movement boosts the company's core competencies, aligning the traditional business with the new platforms, thus allowing us to became -- become an increasingly secured platform for identification and payment transactions.

As a result of this strategy, in December last year, we announced the acquisition of BluPay, a fintech specialized in blockchain-based financial transactions, which allow us to process transactions within an instant payment ecosystem that is being regulated by the Central Bank of Brazil, which is expected to be launched in November this year.

Within Central Bank of Brazil's agenda for instant payments, this acquisition comes to complement our portfolio. We are currently -- we hold a strong position as an important player in the issue of physical and digital invoices for our clients.

In January 15, we also announced that we are making progress in the digital transformation of identification documents with the development of the new digital identification card in São Paulo state.

The solution is initially for the exclusive use of the Civil Police of the state of São Paulo, but will soon be made available for the entire population. This is another solution that reinforces our leadership in secure identification market in Brazil.

These 2 initiatives complement our portfolio of digital solutions, including digital identification in certificates, mobile banking and dematerialization. It's also worth noting that we have created a single smart cities management offering.

We will have 3 main benefits from the intensive use of technology and business intelligence. Improved -- first, improved population satisfaction with banks service that can be measured by the NPS, lower public spending by fighting for an abuse and higher tax collection by minimizing tax evasion.

These benefits will be achieved by systematizing the city's entire physical structure, identifying each citizen in a secured manner and integrating public system that [ integrate ] the relationship of citizen and assets with the government. Successful case includes series that decreased by 30% the consumption of free medication distributed by the Farmácia Popular program, reducing fraud and abuse. And [ series ] that increased by 40% the collection of urban real estate tax at the IPTU in Brazil. It's important to call attention that this is a case that they are in place right now.

I would also like to update you on the agribusiness operation, Agrotopus, in the [indiscernible]. In 2019, the Agrotopus worked to develop direct trade platform, a secure platform, commercialized the agricultural production, and we are going to sell our first lots in the 2020 coffee harvest. I would like -- I would also like to announce that we are entering the soybean markets with the 2 important agreements in this segment. Soybean is an extremely important crop and represents the country's biggest exports. Agrotopus will participate in digital transformation of the largest seed companies in Mato Grosso state, tracking and selling millions of soybean bags through its platform.

About [indiscernible], we operate in [indiscernible] in Pernambuco state throughout 2019 processing something around 10 million electronic sales monthly for our 15 different packers. In May 2020, we will begin operating [ one ] state where we already have 23 clients and an estimated production of 12.5 million electronics sales per month. Our plan is to have clients operating in another 2 Brazilian states into 2020. Regarding the physical model, we are present in 10 Brazilian states with an estimated production of 12 million physical sales per month. We will begin operating in Mato Grosso state in May 2020 with an estimated production of 1.5 million sales per month.

In state of São Paulo, we should begin operating in July this year. Given the relevance of this state, our studies show that our total monthly production should double in size to more than 40 million physical sales. So with these new ongoing initiatives, and after a very positive second half of 2019, we -- in which we gained business stability, we are confident that we will produce good results again into 2020.

In these first months of the year, we need to disclose this to you guys, we are feeling impact caused by the coronavirus, mainly affecting our Mobile division. There's a large part of our operation is builded in Asia, where there has been a temporary stoppage in the period. We continue to focus on efficiency and sales in the traditional business and increasingly developing new growth initiatives. So I would like to thank you once again for your support, and I turn the floor over to Rita.

[Rita Carvalho, executive]

Thank you, Affonso. Hello, everyone. Thank you for participating in our earnings conference call.

Some comments about the results delivered. And for the benefit of comparison, I'm considering the numbers, excluding the effects of the IFRS 16.

In this quarter, we had an adjusted net income of BRL 36 million versus BRL 43.1 million obtained in the same period of last year, reaching BRL 91 million in the accumulated of the year, versus BRL 100.1 million in 2018. The net income in the fourth Q 2019 was impacted by the recognition of impairment at Valid USA in the means of payment business, mainly regarding the gift cards and prepaid cards operations. As a result, net income for the period was BRL 3.1 million, totaling BRL 58.1 million in the year. The impairment was mainly due to the review of the business plans of those business, and it's important to emphasize that it has no cash effect, not even impacted the calculation for the distribution of dividends that were executed in the form of interest on equity. Regarding CapEx, we spent this quarter, BRL 19.7 million against 27 -- BRL 29.7 million against BRL 27.1 million in the same period of last year. Total CapEx for 2019 was almost BRL 115 million, in line with our initial expectation.

For 2020, we are budgeting for CapEx, the total amount of BRL 118.7 million, where approximately 50% of this will be spent to cover projects related to new business initiatives and the rest will be used to manage our traditional business. The cash generation in the fourth quarter of 2019 was BRL 94.4 million versus BRL 54.8 million in the same period of last year, totaling BRL 249.3 million from -- related to operating cash generation in 2019, which represents an increase of 24% in relation to the BRL 200 million generated in the same period -- in 2018.

In 2019, we paid BRL 42.3 million in interest on equity versus BRL 31.1 million in 2018. We paid BRL 337.1 million in amortization of our debt, plus the interest, and we raised BRL 275.5 million to refinance the debt outside of Brazil. So we ended the year with -- of 2019 with BRL 318.5 million in cash versus BRL 311.6 million in 2018. The company gross debt closed at BRL 838.1 million, representing a net debt-to-EBITDA of 1.8x versus 1.6x reported in 2018 and representing a drop in relation of the 2x represented in the end of Q3.

And with respect to 2019 profits, the distribution will be BRL 49.2 million, which represents a payout of 57% in relation to the adjusted net income, where 50% we already paid in January this year, and the remaining balance will be paid in April this year. So thank you very much. And now we are open to receive your questions.

[Operator]

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to the company for any closing remarks.

[Carlos d’Albuquerque, executive]

So once again, I would like to thank Valid's team for their commitment and determination and also the support of all other stakeholders. And we are here, if you have any further questions, please contact us. Have a nice day. Thank you.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.