Camil Alimentos S.A. (CAML3) Earnings Call Transcript & Summary

Okay. In the second half of March, that's when there was a peak. And I think this just caught us off guard because our inventory levels were not very high because we were just getting into the harvest of rice and so we were trying to replenish just very little. So when the peak started, the market was at a shortage. But at the end of March and throughout April, there was a peak of demand. Demand was very strong, a little bit above 2 digits in all categories. Then we felt that sugar in April, May and June started gradually to go back to regular levels, so demand was more normalized. Beans, it suffered a little because of the increase in prices. And when prices go up, consumption is affected. But now we are back to normal levels. In terms of rice, we are slightly above historical levels. Therefore, we are experiencing a higher demand. When compared to April, it's not so strong, but it's still higher than regular volumes. And the same thing goes for fish. There is a very high demand for fish, even stronger when you look at the demand for rice in comparison. Now throughout July and August, we believe that things will be more stabilized. But as I said before, it will still remain above historical levels. In terms of the mix, up to now, we haven't noticed any major changes in the mix. So sales of premium brands versus low-pricing brands have remained the same. With customers that I talk to, they tell me that there has been a migration to lower-pricing brands in some other categories but not as strong or maybe not as visible as could be expected, especially in terms of the basic staples. So this is something we'll be monitoring very closely. And so far, there hasn't been any relevant changes or anything that catches our attention.

Our next question is from Ian Luketic from JPMorgan.

So sorry for having another question. But in terms of margins and basically talking about the inventory levels as okay. Volumes are normalizing throughout the second quarter and maybe, who knows, prices as well. So with this backdrop, could you probably assume that in the third quarter for Brazil, it will be better in terms of margins? Or there will still be more positive things in the second half of the year in regards to margins for Brazil?

I think that the margin in the first quarter was good, but we believe that it will be very similar in the second quarter as well. We've been now analyzing maybe what will happen in the third or fourth quarter, and I don't want to be repetitive because I already talked about a few points. But there are 2 things that are important that help the profitability of the company. Number one is scale. We expect to have volumes above our historical levels, which helps in dilution. And secondly, our pricing is higher, and sometimes this makes it more difficult in terms of our smaller competitors because they would need more working capital. Therefore, I believe that the second quarter will be similar to the first. And then we have to wait until our next call to talk about the third quarter. But in regards -- well, as we have higher prices, I think the expectation is good. Just to shed some light and to give some more color. When we look at the segment, I think the main highlight in this first quarter in the rice segment is our capacity to reorganize our margins or to -- we saw a strong movement in terms of costs of raw material, and this, coupled with a very strong demand in the domestic market and strong demand in the international markets, therefore, this demand, this new dynamics helped us to change the level of pricing for rice. And at the same time, we were able to transfer prices unlike what had happened in the previous year. So in the first quarter, if this trend remains throughout the second quarter, the margin for grains should be higher than our historical levels. In the second half, as you said, we have to be cautious to see what will happen after the pandemic when the crisis come, whether there will be any migration. But historically, the second half in the grain segment has lower profitability because of seasonality. But now, on the other hand, in the first 4 to 5 months of the year for the sugar segment, that's where margins are tighter. Therefore, the margin -- the consolidated margin in sugar due to seasonality in the period plus harvesting, our margins are more compressed. And throughout the year, that margin goes back to normal. So on the one hand, you will have a reduction in the grains margin. But on the other hand, the sugar margins go up, and then you balance your business. And in the second half, we also have the fishing business that is traditionally leveraged. So with a stronger volume in the second half, you tend to have a more robust result and better profitability in the fish segment. So these are all factors that influence and that may tighten up our result or impact our result. On the international side, Uruguay, as Luciano said, had a very good sales volume now throughout this first half because of the stronger demand abroad because of the pandemic. Therefore, we will have higher sale volume, higher volume and with a reduction in the transfer inventory. And in the other 2 consumer segments, this segment of sales increase will follow what we had in Brazil. Therefore, it's difficult to affirm whether in the second half we will have the same demand. But this movement of having a better revenue base will help with diversification. And therefore, we believe that we will have a very sound result in the international segment throughout the second half of the year as well. And this also has the positive effect of the consolidation of the figures that take into account the depreciation of our currency. This helps not only with consolidation but the price level of our raw materials.

Our next question is from Guilherme Palhares from Bank of America.

About your capital structure, we notice a certain change, both in terms of the currency mix and foreign mix. And so I just wonder what the company thinks about this structure. And also my second question is about the average tenure of the debt, I mean, short term and liquidity. I just want to get a better understanding because given the amortizations that we see looking forward, what is your idea about the expansion of the debt and EBITDA?

Okay. Thank you. Thank you for your question. In terms of the capital structure, in terms of the strategy, the company hasn't changed the way it sees its funding needs. We will refinance in local currencies. In Brazil, we funded in BRL; in Uruguay, in dollars; in Chile, in pesos; and in Peru in soles. Therefore, when you look at the capital structure, and then you look at the currency mix and the stake of international currencies, I think we see 2 reasons here. I mean, first, you have the exchange rate. The depreciation of BRL was quite deep. And then when we consolidate our debt from our international operations, if you look at BRL, it's higher. The second point and even due to the crisis in view of the acquisitions in Chile of the Pet Food business, our international debt level this year is higher when compared to the year before. In Uruguay, we withdrew a bit over $50 million, because we needed more working capital to go through the year, and we do that every year. We do our funding through March, April and May, and then we will reorganize the debt. As a precaution, we bought more than what was necessary, and we did the same thing in Chile, just to meet our working capital requirements. In March and April, we got all the fund that we needed in order to avoid operating risks. And in Chile, we funded all the necessary -- got all the necessary resources to pay for the Pet Food assets, which involve about USD 40 million. Therefore, the mix change has to do with the foreign exchange variations and some one-off situations. And so we got funded in countries, either to fund our working capital requirements or for acquisition. But in terms of the structure, we still believe that each country has to get funded in the local currency, and so we enter -- therefore that we have to maintain the operation in the local currency. In terms of the duration of the debt, the average duration, throughout the quarter, we had to make adjustments to the situation. In early March, we were just beginning a market transaction to get funding, not only to meet our amortization needs in Brazil, but we also had to get additional funding at competitive terms. But when we were hit by the pandemic and the market situation changed or ceased to exist, we had to reassess the conditions and see what was available. We had BRL 400 million of amortization in the pipeline. It was in the schedule for June and December. And then we ended up getting an additional BRL 600 million in a transaction involving a term of 1 year. Therefore, we know that we pushed the problem that we had in 2020, we pushed forward to 2021, and now we have to deal with that situation. In Brazil throughout 2021, we have approximately slightly below BRL 1 million in amortization, 5 -- I mean, BRL billion. BRL 600 million we funded this year and BRL 350 million to BRL 400 million that -- it was already in the pipeline. It was already scheduled. I think that banking credit is available. It's not with the terms we wanted. And in terms of pricing, it's more expensive. Maybe you could issue debentures. Maybe it's a bit more difficult because of all the things that already happened. Therefore, there is no -- not yet a firm or a sound demand to access these markets. But we've been constantly talking to the banks, individuals in this scenario of very low interest rates. There -- the demand is now for you to borrow at 5- to 7-year term doing IPCA+ to meet our requirements for next year. So we're already working with an expectation to solve that issue in the next 3 to 4 months. But we are quite aware that both in terms of pricing, in terms of payments, we will not be able to go back to previous levels that we had last year.

It's very clear. The acquisition of Iansa was done in local currency. The BRL depreciation should not impact that acquisition, right? And also about Iansa in Chile, I would just like to know how is that transaction evolving.

Yes. The debt was in local currency. We got funding in Chilean pesos, 5-year term with 2 years of grace period, with quarterly payments after the second year. So therefore, nothing changes in terms of that transaction because it was done in local currency. In consolidated terms, it seems like the -- in BRLs, the number is higher. But we are still waiting to see all of the requirements of the contract met to begin the operation.

Now we have a question coming from the webcast. Marcel de Moraes from Santander is asking about exports from Brazil of rice because -- and what is your exchange rate expectation? And what about pricing in the domestic market vis-à-vis the international market?

Exports in the first quarter were much higher than our historical levels. Today -- I mean, usually, Brazil exports and imports 1 million tonnes. And exports expectations for this year is quite above 1.5 million. Maybe it will be 1.6 million. The Brazilian price of rice with the current exchange rate, I think is the third or fourth cheapest rice in the world. Therefore, this pace of exports will tend to continue with this level of foreign exchange. And exports made local prices to go up. It's not yet in equal footing with the international market. And with this export volume above historical levels, this will lead us to increase our imports in the third quarter. But if exchange rate remains as it is, it means that rice prices will tend to go up. This difference between import prices and prices in the local market is around 8% to 10%. That's the difference. So assuming that we will have a raw material supply a little bit tighter because of exports that happened in the first quarter, this, I mean, depending on the exchange rate, put an additional pressure on the cost of raw material.

[Operator Instructions] As there are no further questions, I would like to inform you that Camil's Q&A session is now concluded. Thank you very much for participating, and have a very good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]