Kepler Weber S.A. (KEPL3.SA) Q2 FY2025 Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the earnings video conference of Kepler Weber to discuss the results of the second quarter of 2025. Present with us today are Bernardo Nogueira, CEO; and Renato Arroyo, Financial and Investor Relations Director. We would like to inform you that the presentation is being recorded and translated simultaneously. [Operator Instructions] We would like to clarify that any forward-looking statements that may be made during this video conference regarding the business perspectives of Kepler Weber, its operating and financial targets constitute projections by the company's management, and these may or may not occur. Investors should understand that political and macroeconomic factors as well as other operating factors could affect the future performance of the company and could lead to results that differ materially from the expectations expressed in such forward-looking statements. We will now show you a video about the new product launch KeplerFlix, a digital platform aimed at Kepler customers. We will then hand over to Bernardo Nogueira to begin the presentation of the results for the second quarter of 2025. [Presentation]

I hand over to Bernardo Nogueira to begin the presentation of the results for the second quarter of 2025.

Good morning, everyone. It's a pleasure to be here with you today. It's good to have this time to share a bit about our second quarter and the perspectives we have for our business. I would like to make a brief opening before we go into the results, saying that the snapshot of the second quarter is a bit tough. These are results which are according to our estimates, but a bit tough. So, the result is the profitability of all the agricultural chain, which stands at the lowest levels in the last 20 years. So, with this opening, I would like to show a film and there are many positive factors in spite of the downturn. And I'm going to mention one point, which is related to the demand. We closed the first half of the year with closed portfolio orders 40% higher than the same period of last year, showing that we have a very positive prospect for the next half of the year. And we can see that we are going to start in 2026 with a portfolio better than what we had in the previous period. Another point that we'd like to focus on is the resumption of Argentina. Argentina moved from 0 in 2023, and now it accounts for 30% of our international sales. So, it's a very robust growth, and we see that there is an avenue for growth in our addressable market, which is very significant. And the second point that I would like to mention, which makes -- becomes very evident in our results, especially in the portfolio that we are building is the diversification of our business, bringing resilience. So, we see replacements and services growing this year, and this is going to last for 2025. And, last but not least, is the high control we have of our costs. And we have a record volume and G&A, which is below inflation. That means that the company saw this moment so difficult of the chain, and it's going through this period as best as it can. I'm going to go into the results. And then, in the Q&A, we can provide more details for you. So, net revenue of the second quarter stood at BRL 311 million; EBITDA, BRL 38 million; and net income, BRL 40 million. For the first half of the year, we stand at BRL 668 million, much in line of what we saw last year. And we saw a drop that we saw of [indiscernible] million in EBITDA, and we have BRL 90 million as a result and BRL 40 million in the net income that was caused by the pressures from the market. When we look at the business lines, we can see some variations, which are typical along the half of period. So, we can see that Ports & Terminals recovers. It's important to mention 2 points. The first is the total volume of business, which is very healthy. The drop of revenue at 5%. And this is in relation to prices and volume, but we are higher than we were last year. And in terms of businesses, we are going to see that there are -- and services is growing and international businesses after a growth of 70% from '23 to '24, we're also going to report growth. International businesses stood at 7% in 2023, doubled its share in our portfolio in 2025, reaching 14% to 15% of the share of our portfolio. We like to mention the diversity at the regional level. We have important projects in the Cerrado in Brazil, and also in international businesses. Some countries which are far are present. Paraguay fights with Argentina as the most important country for us. And when we look at the business as a whole, this is a summary of the relevant sales in the period. It's important to mention that international businesses is moving strong. As I mentioned, when Argentina came into our portfolio, made our addressable market to expand. Two years ago, our market was closed and it's open and Kepler is very competitive. So, we have hundreds of clients present. So, it's another avenue for growth for our business. I turn the call to Renato so that he can discuss EBITDA.

Good morning, everyone. Good morning, analysts, employees. It's a pleasure to be here with you once again for another quarter. And before delving into the EBITDA of the company related to the second quarter and also the first half of 2025, it's important to mention some points. Our structural costs, as mentioned by Bernardo in the beginning of his presentation, G&A, SG&A as a whole, are all very much in line with what we reported last year. And it's also minimizing the inflation. We have been making efforts of our company, Kepler and Procer. Our structural costs, engineering as a whole and manufacturing are very much in line with inflation, and in some cases, lower than last year. Our IPV is accompanying the increase in the volume that we've had. We would like to mention a backlog much larger than that of last year and the volume that was delivered in the first half was higher than last year and this CPV of the company accompanied the increase of the volume that was invoiced and delivered. Gross income drops. When we look at the EBITDA, we see the EBITDA of BRL 63.3 million to BRL 38 million. So, it was a drop of 19.3% to 12.2%. And we see the concentration of all this in the drop of the group's income. Now, going back to the detailed information that I provided. The drop is driven by the prices. The prices have been tighter than what we saw in the previous year, and this was driven by the macroeconomic situation that we face nowadays and the situation of price of commodities. So, there were interest rates of about 10%, moving to 15%. The commodity prices are about $10 per unit, soybeans, for example, the environment is a little less favorable. And the liquidity of the sector has also dropped in the past years. So, when we look at the effective situation in the last 6 months, we see that there was a drop of 41% reaching BRL 91 million. And it's evident that this is also reflected in the gross income. It's important to mention that all the items that can be controlled are well controlled. We are looking for other options, and we are looking at replacement and services, and we are also concentrating in international markets, and these are important avenues we are after. Now talking about CapEx now. It's just natural that every moment of challenges, people tend to de-accelerate a little in terms of investment. Kepler has been making important investments in the second 2 quarters. And it's important to describe the investments that we have been making. We have been modernizing our plants. We have been making a lot of investments in new products. Last year, 11% of the products that we sold were products that were launched in the past 5 years. So, we want to follow this pathway. 22% of the investments that were made by the company were in investments of products. And we see digitalization and innovations that are made by investments and it's -- the CapEx that the company has been employing, it's very well qualified. We are likely to have a drop of investments in CapEx in the third quarter. We executed the most essential CapEx in the past quarters, but we are still investing in essential products and other investments, which are basic to the company. And now let's discuss ROIC. And this is something we are very proud of. We deliver an ROIC of 24.5%. And few companies nowadays operating in the sector or operating in Brazil as a whole, deliver ROIC above the capital cost. So, our ROIC is very positive, even considering the challenging scenario. When we look -- when we make the comparisons, we see that the average of those items are above. So, the ROIC is delivered at 24%, which is much beyond what the market usually delivers. Now talking about cash generation, gross cash. We closed the second quarter with BRL 358 million in cash. And it's important to look deeper into this, to talk about the performance of the second quarter. So, BRL 357 million was the beginning, and we paid BRL 70 million of dividends, and we make capital investments of BRL 18 million. So, the company generated, in fact, cash in the second quarter. Cash that came from client advances, and this is just natural considering that our backlog is larger, and we had a positive adjusted result. It's very important to mention this. Yesterday, we announced the shareholders and the market in general, a new payment of BRL 25 million in dividends to be paid in September, showing the confidence that we have in the recovery and the improvement that we are likely to materialize in the second half of the year. Talking about the internationalization of the company, looking for international investors. We have been in London recently, visiting $7.6 trillion of capital under management -- assets under management. So, we want to follow this pathway of developing the company internationally. Bernardo was in New York in the first road show abroad, and we are looking for new international routes in order to bring new investors to the company. So, this is a briefing of the PCA. PCA is in line in terms of amounts of last year, BRL 8.2 million. And something important to mention is the increase of limits, and that increase is cooperative. The rate has another differential but the differential of the rate in the country is higher. But this can be a good pathway for improvement provided that this amount can reach the edge. Good morning, everyone. I'll turn the call back to Bernardo before we start the Q&A session.

Thank you, Renato. The next 2 slides brings an update of last quarter. We focus a lot on going, again, into our investment thesis. I'm going to provide more details about some points than others. And the first one, when we talk about investment thesis, we talk about the leading role that Brazil has taken, and this will continue even in a more challenging year. We have a record harvest of more than 343 million tons, a record high, and we are living this pressure of storage. So, its -- storage is a priority in the production chain. And as a consequence, we see this portfolio, which is higher than last year by 40%. And we see that what has been invoiced in terms of volume was higher when compared to the last 10 years. So, this is a solid thesis, and we use this as our foundation. Another point that we mentioned in the last call was the business with [ BH ], which is one of the largest partnerships that we've made with a cereal producer, and we continue with this strong pipeline with new businesses. And this also covers biofuels. And talking about strategy, you were -- those who were with us in Kepler Day, you can remember that the second pillar of our strategy is to expand our addressable market. And this is very clear when we refer to Argentina. So, it moved from 0 to -- 0, and now it accounts for 30% of our international business and with very good prospects. Argentina is like an addition of a Mato Grosso, which is the largest state that we have now. And this is an addition to our portfolio. We have already been there 5 times, and we have a very important presence. We've been there for 8, 7 years. And the leaders of agribusinesses are Kepler clients, and we are resuming this relationship in a very consistent manner. As for strategy, we mentioned about data monetization during our Kepler Day, and it's important to see the materialization of our strategy. So, it started back then with the acquisition of Procer. We acquired Procer. Procer is an Apple watch of silos. So, we acquired Procer, which is a leader in this universe that was back in April 2023. We made an integration activity with Kepler. And now we are in a position as we did in the first quarter to execute an agreement with XP to provide tools for hedging. And -- so, we have the opportunity to be this platform. And we also have businesses and discussions with 7 other companies in the chain from logistic operators, ratings, insurance companies. So, this universe is moving ahead. And for sure, we are going to bring some good news along the year. In relation to efficient management. As mentioned in the beginning, we have been talking that we have been having a tougher second quarter. The margins have been dropping along the chain. And that started with the crop of 2024 and '25, and we were prepared for this drop, and we made adjustments to our organization, our structure so that we could face those tougher times. And we managed to reduce the G&A by 5% along the year. And something that we understand we must have is to operate in a business that meets the expectation of a client. So, NPS is a way we use to measure the engagement, and it went from 36 in 2018 to 72 in 2024. This is an indicator that we use to measure our performance constantly, and this is something that the company is very proud of. Now moving on to the next slide. We also brought a slide in the previous call. And it's very interesting because it puts all the items into perspective. What we see in orange is the soy being price according to Bushel. We see a very large variation. We can see there the return of soybean prices at pre-pandemic levels. SELIC also plays an influence in our business. So, we see 10 years ago when SELIC rate was higher, standing at 14. And below, we see the magnitude of the crop that moved to 340 million tons and the deficit, people say, "oh this is something that has always existed." This is not true. The storage deficit was close to 0 in 2016. And of course, this -- the situation in '93 happened as a result of a crop failure, but the crop in Brazil was higher than the capacity of implementing a new structure for storage. And these are the foundations of our business. And today, it stands at 59% of the capacity in Brazil. So, this is something very favorable to us. And when we combine all the factors, this is what we noticed. When we put all this into perspective, we see that the last time that the soybeans and interest rates were at the level they were, EBITDA of Kepler, which you see in gray, was negative. And when we were here, I remember quite clearly in 2022 when the EBITDA was at 30%, people say when soybeans will go back to those levels because we understand that agriculture goes around in cycles, and they ask it where we're going to be when it goes back to that level. And we can see that we're not going back to negative EBITDA. We do not see this happening. We see that the EBITDA in the 12 months and the toughest was the second quarter. And we can see that June is already recovering. The third and the fourth quarters will move at higher levels. And we can see that there has been a maintenance, as we can see at the top, close to 15% or above -- 15% of the EBITDA, even in a very challenging environment for the agribusiness as a whole. So, the message of this slide is so positive because, first, we're not going to go back to the levels that we saw in 2016 or 2017 as a result of a combination of factors. First is the demand for storage because it's still going to be there in the next 20 or 30 years. and also, the strategy that we adopted to diversify, to reposition services and also to work in ports and also the lean manufacturing that we have adopted in 2016, and now it's the culture of the company. So, we look at costs we are also seeking for efficiency at all times. So, the 3 factors in combination puts in a level of profitability, which is very different from what we saw in the previous crisis. And even with the second quarter as tough as we saw, we managed to generate cash, and we are also announcing the payment of dividends. And this is something that makes us very proud. We can now start the Q&A session.

[Operator Instructions] Our first question comes from Mr. Kiefer Kennedy with Citibank.

I'm going to start asking a bit the contracted portfolio mentioned by Bernardo. And you mentioned that there is a good perspective for the third quarter. And I understand there are some exogenous in relation to the execution of the projects, as you mentioned in the release. I would like to understand deeper what's inside the portfolio, what would be the timing, and the risks involved? And on Slide 7 of the presentation, you made some comments about BRL 254 million in projects divided into the business units. So, the 14% are the BRL 254 million or not, how would those information merge or converse and the timing as well? Because since we are talking about different business units, I understand the execution timing is different, Ports & Terminals and everything. I would like you to provide more color on those information? And I have a second question in relation to Argentina. Can you provide more details about the execution of the activities in that country? You mentioned that 30% of international sales are already made to Argentina. I would like to understand the composition, the share of other countries in terms of international revenues. And how are you looking at Argentina? I saw in the newspaper that there was an expedition that you made -- the company made to Argentina. So, we would like to have more information.

Kiefer, thank you very much for the question. The timing is the fourth quarter and 2026. We have been building the portfolio for 2026 already. And you asked about risks. Those are portfolios without much risks with agreement already executed. So, 0.1% might have something to be decided then. But these are materialized businesses. So, it provides the clarity of where the company is heading. And this is going to be distributed. It's something that's specific now, and then it's going to be distributed along the months to come. But we are going to see the impact in the fourth quarter of this year and in the beginning of 2026. I was going to mention this in my final remarks, but I'm going to say now. In the -- we are likely to discuss what we -- how we're going to see 2026. And you ask us some more information about the portfolio. We see that the businesses have been evolving very much in farms and also replacement and services. Most of the portfolio will be composed of those and some part related to Ports & Terminals. We saw a drop in income in this quarter, but we are going to recover along the year. And the variation is going to be lower than what we reported. In relation to Argentina, it fascinating what is happening there. It's really impressive. I made it a point to go there with my team there in July, and we were there. We visited many clients. We were there for 1,600 kilometers or some more. And Argentina as a market is the third largest producer of soybeans, a major exporter. It's a very competitive country, fertile soil, production cost a bit low than cost of Brazil. So, you are at about -- there a 100% away from the port. So, the production in Argentina is very near the export structure. So, it's a very competitive country. And what we've see according to the recent measures, there was a stabilization of inflation, an opening to the international market, purchase of equipment from the international market. And as of the second quarter of 2024 and '25, it's a totally open market, and this is very favorable to our business. When you go to Argentina, you noticed that there was structures that were deteriorating. And we see that there are many old structures. Most of the structures were made 20 years ago. So, we see in this a major opportunity. And when we look at Kepler, we understand that Kepler has been in Argentina for 87 years. I visited the larger producer of wheat, of rice, of soybeans. And we go to Argentina, you have a feeling that you went to Paraná. And we see there, great advantages. We are very far from the border. And since the market was closed for many years, the option that the players had when they do invest, there was not a lot of investment in the last 20 years. And then, looking at that, we see that we are very competitive. And we know that when the market is closed, we does not generate a lot of opportunities. And now we see that we have been very welcomed by those major players. We have representatives there, commercial representatives there as typical. And specifically, in Argentina, we have been making headway with some analysis so that we can have a differentiated presence there, and some Kepler employees are there in order to meet the market. So, we understand that Argentina had some volatility in the past 8 years. So, we do not see in the short or medium term, any plant or something like this in Argentina. But rather, we are going to form a commercial structure such as we have in Parana, in Mato Grosso so that we can meet the needs of those clients. You asked about other countries, right? In a summarized way, our international business, 78% is in Latin America, and we have a leadership in the market in our neighboring countries, Paraguay and Uruguay. But the major part of our business is in Latin America, and we may meet the needs of Pakistan, Ukraine, some countries which are not in our region.

Bernardo, that was very clear. If I could ask another question in relation to the material fact related to Procer that you posted. You said it was BRL 5.7 million. Let me go back. The control of the company was purchased in March 2023. If I'm not mistaken, you had purchase of -- an option of purchase. I would like to know if the acquisition that you made is part of that process, this purchase time. Is it something according to the agreement? I would like to know if the stake that you adopted was according to this valuation. Can we understand that if it was related to 5% or 6%? Just for us to understand how the remaining shares of Procer stood and how much are we going to get? Are we going to get to 100%? And congratulations again on the business.

In order to answer in relation to Procer, when we announced the purchase of the company in 2023 -- March of 2023, we mentioned that there will be some stages of acquisitions so that we would have the total equity of the company. In 2023, we purchased 50% plus 1 of common shares. And we mentioned that in 2028, we would buy partial stakes until we get to 2028 at 100%. This present purchase is part of this process, yes. So, we are going to be close to 55% of the control with common shares. There was an anticipation of some few months from what we planned back there. And the valuation was a bit higher because the company grew a bit during this period. We mentioned that this was something related to EBITDA. And the valuation of the company also was higher. And we can see very clearly in the balance data, the quarterly report as well. In Item 25.2, you can read the sales options, and you can see what happened in relation to the liabilities that we have. We are going to consolidate Procer at full, but we have an option of purchase that will have our liabilities adjusted.

Our next question comes from Fernanda Urbano with XP.

I have 2 questions on my side. First, I would like to talk about the competitive scenario. I would like to understand how you see other players, especially in terms of pricing. We are in a very delicate moment for the clients, especially in the sectors which are exposed to interest rates. So, I would like to know if you are looking -- if you see that the other players are more aggressive in terms of pricing or if the environment is rational? And how has this been aligning with the market share with -- of you? And do you see any player that is gaining market share? Or on the opposite, do you see any consolidation moves in the market? This would be the first question in terms of competitive and pricing. And the second question is related to Safra plan that was announced last month, considering all the diversification movement and the projects that are financed by PCA are not so representative when compared to the previous moves. So -- but I would like to understand how the negotiations have been and what's your expectation in order to have the funds for the new plan?

Fernanda, thank you for the question. The competitive scenario, you used the word rational, right? We are within rationalization. Yes, there is this. So, the client, using their resources -- so this client is demanding more efficiency. So, they do more research. The go shopping more. So, we see this playing a role in the pricing. We understand that the worst has already gone. So -- and we see some stability in prices. When we look at the market share, when we look at different players, we understand that Kepler has a strategy of maintaining the leadership. We are the market leaders in 2023, we gained market share in '25. So, we are working hard in order to maintain our leadership in the market. So, in general terms, this is the share now. So, it's very interesting that there may be variations among the players. And to talk about Safra plan, I'm going to turn to Renato.

Thank you, Bernardo. Fernanda, thank you very much for the question. I quickly mentioned the PCA in the presentation. But in fact, PCA accounts for 12% to 13% of our income. 30% of our resources are funded, 40% come from PCA. This is something based on last year. So, the people became more sophisticated. So, they issued debentures. But specifically, about PCA, BRL 8.2 billion have been approved. So, there is a possibility to increase the limit up to BRL 200 million if you reach this 12,000 tons. And even though the interest rates stand at 8.5% to 10%, it is different when you see the differential interest rate of the market. So less -- last year, the interest rates were at 7.8%, but the differential rate was at 10% or 11%. But the point is important to make this resource to reach the edge. So, if this amount of money reaches the edge in full; for sure, this is going to help our business. So, we work with the scenario that we had last year in terms of numbers. But if it comes to the edge, we see that this is an upside potential, especially for farms and agro industries.

Yes, my question has been answered.

Our next question comes from Werner Roger of Trigono Capital. Our next question comes from [indiscernible] with Faros Investimentos.

This sector experiences an inflection in the agribusiness or there are mixed signals, and why? Even with a strong drop in the steel price, KV margins had a drop, why?

Rodrigo and Gabriel, thank you very much for the question. We see an inflection in the second quarter. Yes, you're right. And we noticed from the portfolio and the mix of this portfolio, we can see that there are healthier margins of the second quarter. So, I would say there is an inflection point. We like to use the word gradual, since there is no new facts -- there is no external new facts that would accelerate this recovery. But we can say that there is a gradual improvement. In relation to steel, yes, steel [ softer ] dropped, especially in the past 3 or 4 years, just like other commodities such as soybeans. And why don't we see any improvement in the margin when the steel price drops? Because there is a customized way. When prices drop -- follow this. We are not exposed the [ ice ] in a speculative way. We do not have a speculative position to steel. So, in the portfolio, we already have the steel already contracted because we work in a more conservative way.

Our next question comes from Mr. Rafael Araujo with Evolve Capital.

In relation to the prices of Kepler Weber products, what would be the main points for a recovery? A better profitability could increase the prices. And how has the volatility of the prices has behaved in the past?

Rafael, thank you. Without a doubt, we usually say that there are 3 factors at play. First is the profitability of the agribusiness. Prices of corn and soybeans would provide energy to other factors such as storage and tractors, and it's much more successful when the prices are better. In our estimate, when we say -- we mentioned gradual improvement, we are not talking about an improvement in the price of soybeans, but we see a stability situation as we saw in the 12 months. So, more competitive interest rates would help long-term investments, which is our case, and we do not see any changes in the future. And also, is the record crop, the record harvest that is about to be completed in 2025. This is very favorable, and this is what has been playing a very positive role in our portfolio. There is a new [Technical Difficulty] going to start to be planted in October with very good prospects and analysts and meteorologists, specialists affirm that we are going to have another growth.

So let me just add and make an [ invitation ]. The 3 main factors, interest rates, commodity prices and the crops. Crops have been mentioned that for next year, we have positive results. So, we are going to have 2 consecutive years of record harvest, reaching 40% or 41%. And this has been favoring our portfolio. But talking about the formation of the portfolio of next year, we have already mentioned that 50% or 56% of the second quarter comes from June. So that shows that we are going to have an acceleration in terms of volume considering seasonality of the business. 40% is concentrated in the first half and 60% in the second half of the year. So, since we do not need to make any investments in structure or SG&A, we start to have a dilution in costs. So, it's important to mention that in terms of profitability, we are likely to have a gradual improvement as we have been mentioned, but the volume would play a role in the dilution of costs. So, we do not see any prospects of soybean prices changing abruptly. But what we can see is higher volume and volume which is higher than what we saw in the first quarter.

[Operator Instructions] We complete -- close the Q&A session. We will turn the floor back to Bernardo for his final remarks.

It's a pleasure to be -- it was a pleasure to be with you. And as final remarks, we try to bring the information and the answers and the materials, and we see an improvement ahead of us, and this is going to perpetuate in the second half of the year. So, as I said, our profitability is likely to have a gradual improvement, and we are very happy to see this [Technical Difficulty] not only as perspectives. And for the call of the third quarter, we are going to have more material to discuss 2026. So, this positive view is going to continue into 2026. I would like to say that Kepler completed 100 years in the second quarter. So, it's a very clear leadership in the business we're operating, which is the agri businesses. And we got the result of GPTW research of [indiscernible]. Once again, we are among one of the best companies to work in the agri businesses, and we are improving in all engagement indicators. So, this is the good result of the engagement of Kepler's team. And I would like to thank the 2,875 clients served at this period. And I would like to thank our 13,000 new shareholders, standing now at 87,000 shareholders nowadays. So, it's an honor to have your trust, and we are working hard to deliver a third quarter with positive results.

The result of video conference of Kepler Weber has been completed. If you have any questions, send your questions to the Investor Relations team by [email protected]. We would like to thank you for your participation and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]