Kepler Weber S A : 4Q22 | Transcription

RESULTS CONFERENCE CALL 4T22

Operador

Good morning, everyone. It's a pleasure to be with you once again in this earnings call to discuss Kepler's results. Here with us are Piero Abbondi CEO; Paulo Polezi, CFO and Investor Relations Head, and Bernardo Nogueira, Sales Director, who will take part in the Q&A session.

We would like to inform you that this presentation is being recorded and it's been simultaneously translated. You can use the interpretation button. For those who are listening to the presentation in English, you can silence the original audio.

During the Company's presentation, all participants will be in listen-only mode, and then we will start the Q&A session. To ask a question, press on Q&A and type in your name and the name of your company. A request to activate your mic will appear on screen, and you can activate your mic to ask questions.

We would like to inform you that any forward-looking statements that may be made during this conference call related to the business prospects of Kepler Weber, operational, financial targets are estimates of the Company's management that may or may not occur. Investors should understand that political, macroeconomic and other operating factors may affect the future of the Company and may lead to results that differ materially from those expressed in such forward-looking statements.

To open the earnings conference call of 2022, I would like to hand the floor to Piero Abbondi.

Piero Abbondi:

Good morning, everyone. It's a pleasure to be with you once again in this earnings call to discuss Kepler's results. We will start with the highlights for the quarter and for the year, where net revenue grew 20.4% compared to the 4Q21 and 48% when compared to the full year of 2021.

This is a result of excellence in project management and the organization's commitment to seeking for advances in operational and commercial efficiency that together allowed us to capture market opportunities and take advantage of the excellent moment of the agribusiness.

We closed the year of 2022 with excellent results. We had record sales with robust numbers in all 5 operating segments. It was a year of consistent performance and with operating margins at exuberant margins. Paulo will provide detail about the performance of each segment later on.

The second highlight was the adjusted EBITDA, which grew 32.2%, reaching R$156 million in the 4Q22, paying another exemplary quarter in terms of cash generation. Adjusted EBITDA margin reached 31% in line with the 3Q22 and higher than the 4Q21.

Adjusted EBITDA for 2022 was R$568 million, a historic record with growth of 135% when compared to the year 2021, reflecting our progress in increasing the level of productivity and expanding margins in the business segment.

I cannot fail to mention that the stabilization of the cost of our main raw material, steel, also made an important contribution to our results. Likewise, adjusted net income grew by 27%, reaching R$107 million in the quarter. Year-to-date, net profit increased 141%, reaching R$386 million and 21% in terms of net margin.

I now turn the floor over to Paulo so that he can present the performance of the business segment in the 4Q.

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Paulo Polezi:

Thank you, Piero. Good morning, everyone. Going to slide 4, I present the evolution of the 5 operating segments, starting at post-harvest. We maintained the performance level of the 4Q21, growing 4.4% and 32.1% year-to-date of 2022. This performance is the result of the robust portfolio built throughout the year through assertive market access movement combined with the success in capturing new businesses with rural producers.

International businesses also had excellent performance, growing 12.7% in the quarter and 34.8% for the full year. In addition to the robust backlog from 2021 to 2022, some sales in new regions contributed to the positive results, such as sales to the Southeast Asia and Indonesia.

In ports and terminals, we sold R$30 million in the quarter and R$49.6 million for the year with a growth of 183%. The highest volume of revenue in the segment was concentrated in the 4Q22, in view of the large projects that we are delivering in the Porto of Santos, São Paulo State and other large terminals also delivered in the period.

In agroindustry, revenue was R$26.5 million in the quarter and R$178.5 million in the year due to the delivery of 6 works to expand the drying flow with respective peripherals for loading and unloading equipment, all with Kepler's assembly, which will be used in the next soybean crop in Mato Grosso, Rondônia and Roraima.

Finally, in replacement and services represented an increase of 25.5% in the quarter and 24.7% on and accumulated results of efforts to capture opportunities for renovations and modernization in existing plants.

It's important to remember that we opened 2 new distribution centers in 2022 in Balsas, Maranhão in Paragominas, Pará, adding greater proximity to customers.

On slides 5 and 6, we show relevant projects delivered in the quarter, showing the breadth of Kepler's operations in Brazil and abroad.

Maripá project in Paraná is a work for a group of 11 producers as of 2019 formed an agricultural condominium and entrusted the project to Kepler due to the brand's tradition and the superior quality of the equipment.

And the project of Dourados, Mato Grosso do Sul is a large-scale work in the agroindustry segment, which receives large volumes of grains and therefore, needs a high receiving capacity. It had a challenge of being carried out for the most part during the pandemic period with a record execution time of 12 months.

In Comodoro, Mato Grosso, the client needed additional storage capacity expansion, and have chosen Kepler due to the excellent experience obtained in the previous work years before.

On slide 6, we have the work in Villa Nueva, Colombia, where the client is modernizing its entire dry line replacing its old dryers with more modern and efficient dryers, in which Kepler team's experience in rice fields contributed to the final choice.

Finally, we called Campo 9 project in Paraguay, which is a work needed to increase the storage capacity in a best region for its members, where the customized service, technical knowledge and the years of relationship were the differentials for choosing Kepler.

On slide 7, as a way of demonstrating the renewable orders in the portfolio, we present different suppliers higher in the quarter, which together adapt to approximately R$127 million in new sales.

On the table, it's possible to observe that in addition to the traditional post-harvest customers for orders, R$59.5 million originating from industrial customers in the agricultural chain, this demonstrates Kepler's ability to pursue new projects in all segments in which it operates while at the same time, indicating a positive trend in agroindustry and ports and terminals, customer segments.

On slide 6, we show the evolution of adjusted EBITDA for the 4Q22 with a generation of R$156 million, 31.2% margin, an increase of 32% when compared to the EBITDA of R$118.5 million in the 4Q21 when we had a margin of 28.4%.

For the full year of 2022, we ended with expressive generation of R$568 million and a margin of 31.3%, mark of an extraordinary performance.

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The reasons that explain yet another robust EBITDA are similar to those that guided the performance throughout the year: increase in the level of productive activity, expansion of margins in the business segment, efficient operational management and balanced management of prices at the end.

On slide 9, we show the allocation of CAPEX, where in the 4Q22, investments reached their highest quarterly value R$24.9 million, most of which 78% was allocated to the modernization and expansion of the production capacity of our operations in Panambi and Campo Grande. It's important to highlight that R$19.4 million correspond to significant advances in the installations of the powder painting project in Panambi, with R$10 million being invested in the period, together with the acquisition of new machines for the modernization and expansion of new manufacturing capacity in the total amount of R$8.2 million.

On slide 10, we show our cash availability that maintain a robust level. And in December, with the gross balance of the R$337.9 million. It's important to highlight that despite having accelerated investments in CAPEX and expanding the distribution of dividends and interest on equity in 2022, net cash jumped from R$74 million to R$171 million in December 2022.

And on slide 11, we highlighted the evolution of the liquidity of our shares, whose average monthly financial volume was R$14 million in December, having reached in 2022, R$16.7 million per day, the best historical average of trading the shares.

On slide 12, we show the ROIC of the 4Q22, which increased by 24.4 p.p. compared to the 4Q21, reaching the level of 103.8%. I always remind you that the high ROIC is one of the differentials of our business model, which allows us to add manufacturing capacity without large investments.

On slide 13, we show the payment of R$70 million in dividends paid on December, increasing the annual payout to 47% from 30% in 2021. Below are 3 important highlights of the quarter.

On slide 14, as communicated to the market on December 26, we celebrated the entry of the BNDES as the senior shareholder in our FIDC Fiagro, which together with the contributions of BTG Pactual and Kepler Weber allowed for an expansion of the original R$120 million to R$300 million.

I take this opportunity to invite customers who are attending our call to get in touch with our team and find out about the advantages of our exclusive line of project financing.

Finally, on slide 15, I highlight the renewal for 2023 of our shares in the following B3 indices, IAGRO, IGPTW, IBRA, INDX, ITAG and SMLL.

With this, I finish my part, and we turn to Piero.

Piero Abbondi:

Thank you, Paulo. Before addressing the achievement and perspectives on slide 16, I would like to share with you a great achievement in the store sector, which was the publication of the standard ABNT NBR 17066, which establishes for the first time in Brazil, the basic requirements for sizing vertical metal silos with corrugated sheets. I would like to remind everyone that Kepler performs all these projects with the best technical references of international standards. As a result, the big beneficiary is the storage customer, who will have products that are safer and more economically viable for the business.

Before the Q&A session, I would like to highlight recent achievements, and then I will make some comments on the perspectives for the coming quarters. In relation to the accomplishments, we had the best year in the Company's history, with expressive revenues and profitability, confirming our ability to capture good businesses in light of the excellent agribusiness environment.

I am very proud of Kepler's team that in the factories, in the field works, in the DCs and offices spared no effort to continue delivering the best projects to our customers. Congratulations to the team.

Paulo has already presented the ratios of our exclusive funds, but I need to reinforce that expanding storage capacity is urgent, considering that Brazil, it is on its way to another record crop. And this agricultural events in the country also increases storage deficit, our Fiagro are rising good time at a time when our customers need more storage space.

As prospects for 2023, I would like to mention the following. We will continue focusing on businesses that are profitable at healthy levels and that prepares us for possible uncertainties in the future.

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Next third project, record of 320 million tons of grain production in the 2022, 2023 crop, which brings good prospects for projects in all our segments.

And finally, in the following weeks, we are to complete with due diligence for the acquisition of Procer, and another leap in the Company's governance with the migration to the Novo Mercado subject to approval at the next regular shareholders' meeting.

With that, I conclude the presentation of the results for the 4Q22. Before moving on to the Q&A session, I would like to share with you some more information about the Company's management.

As you all know, yesterday, we had Board of Directors meeting, and the Board approved the meeting for March 21 that, in addition to the regular agenda, will elect the members of the administration for the following years.

We had the support of a specialized consulting firm that work with the main shareholders for any evaluation, checking the necessary competencies and recommendation of the names. And we also have a successive plan, and my name was recommended as one of the director members. And I am going to continue as the CEO of the Company for the next 12 months.

Bernardo, our current sales director that you all know and who has been with us since 2021 was my recommendation and by the Board to start his journey of succession. I wish all the luck to Bernardo in this journey. And I reinforce that it's a process that we started in 2019, where we reviewed the business model, the management model, we designed the structure of the organization. We formed our Executive Committee with 7 members, 6 reporting directly to me. And in this process, we had internal movements that also had Paulo joining the Company, and Bernardo in 2022.

I would like to remind you that this is a professional process, sustainable, that would ensure the system mobility of the management of the Company. And then, we are going to continue together on the way to our 100th anniversary.

Please, operator, we can proceed to the question-and-answer session.

Lucas Laghi, XP:

Good morning. Congratulations on the results. I would like to have more details in relation to the profitability dinamics, thinking about the difference of the unit cost and the unit revenue considering this context of drop in the price of commodities, more specifically, that we saw along 2022. How can we look at this difference between those unit costs for the year of 2023? Can we think about lower price for the unit prices, considering that there's a stabilization process, and margins converting to something similar to what we saw in 2022? Or is it possible to expect those margins to maintain at a strong pace, such as we saw with the margin EBITDA about 30%, 31% that we saw in the 4Q? This is my first question.

And if I could also ask about the major effect that you have just published. But if you could, I was wondering if you could provide some additional detail about the members to be elected, so if you could give the next steps in relation to this composition of the Board after the change you mentioned. So these are the points. Congratulations again.

Piero Abbondi:

Thank you very much for the question. I am going to start answering your last question. The proposal was moved yesterday, and it will become public tomorrow morning. There will be a material fact published to the market. So we will publish all the curriculum on the recommended candidate.

And to start, the first question, I am going to pass the floor to Paulo so that he can discuss the margins and prices.

Paulo Polezi:

Hi, Lucas, thank you so much for attending our call. The first part of the question is more related to the dynamics of cost and prices. We always like to go back to the concept of the Company. We are a company of projects, right,

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Lucas. We acquired our raw material at the zero moment, and we deliver the work in the future for 6 months later. So there is the dynamics, the strategy that I could say that has a margin hedge.

We always try to work defining prices according to price of the raw materials, still being the most important one. So nothing changes for this year, and this dynamic that we have seen in the past 2 years was a very expansionist dynamic. So we had a growing demand. We were ranked over by the prices of the commodities that went up, as you mentioned in your question, and we control this quite well. And at the same time, we were able to address this and pass through during this process of 4 and 6 months.

In 2023, the dynamics is very similar, but there are 2 different points: the steel cost is slightly below what we saw in 2022, and also the delivery dates, which are shorter now. So one must offset the other one.

So we are likely to have a more normal year with less stress with supply chain, more stable, and that would allow us to continue working with good margins for 2023.

Piero Abbondi:

We can see the interest and also our clients, so we imagine that the market will be robust, keeping healthy margins.

Paulo Polezi:

Lucas, I do not know if we answered all your questions because your question was a bit long.

Lucas Laghi:

It was very clear. The answers are very satisfactory. Thank you very much for the clarifications, and have a good day, everyone.

André Mazini, Citi:

Good morning. Thank you very much for the event. I would like to congratulate for the position that is going to be taken in dimension of all the challenges for the future. And also, I would like to talk about Bernardo's position. We have been very impressed by what he has been doing in the function of sales director, and we would like to understand the plans for the person who's going to replace him. And it sees that in terms of PCA, the disbursements took a bit longer, in the PCA and also in the beginning of the year. And it seems that in the beginning of the year, we see some interest from the BNDES and other players so that the base of reimbursement can be normalized after some delays that we saw at the end of the year.

And I would also like you to talk a little bit about backlog. I know you cannot break down all the details, but I will let know if it's moving up or down, and what's the trend for 2023?

Piero Abbondi:

André, thank you very much for the question. So in terms of the succession plan, I am going to start answering, and then Bernardo will add to what I said. We are beginning this succession plan, in fact, after the election of the Board members. So that will be after March 23. After the Board meeting, we will start our plan.

Of course, we are thinking about the succession in the sales area. Remember when Bernardo joined here, we had seen a restructuring in the commercial area, and that's why Bernardo came on board, and we are working on that.

We still do not have any definition on how the sales area will be. Of course, we like to look at the internal personnel, people who are already familiar with the business and are more prepared to assume the function. And this is something that will help happen in the next 3 months.

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