Kepler Weber S.A. (KEPL3.SA) Q3 FY2025 Earnings Call Transcript & Summary

I would now like to turn the floor over to Mr. Bernardo Nogueira, who will begin the results presentation for the third quarter '25.

Good morning, everybody. I'm going to share with you everything that is happening at Kepler Weber. Let's go straight to our results. We begin with net revenues of BRL 423 million. Now this is the third best result for the third quarter we have had in our history. So this represents several achievements if we consider the macroeconomic environment in EBITDA, BRL 73.6 million with a 17.4% EBITDA margin. And the same holds true with net income with BRL 51.6 million, an evolution of 12.2% in net margin, and we expect further improvements for the fourth quarter. Very well, let's go on to our other business areas. I think the main message here is that we have prepared for these more difficult moments and the results are here. You'll see the diversification of our business. Ports and terminals, we have large projects that come in and out of the chain, representing 97.4%. We will see movements in ports and terminals and replacement and services with a 10.8% growth. And this is how we will end the year with a 2-digit growth for the farms and agribusiness segments. Well, these are segments quite connected to the situation of agribusiness in Brazil. We will probably continue to face a challenging scenario with farmers, of course, and in agribusiness, 30% reduction. We have 2 messages here. The sales happened somewhat later this year. So we had a rather interesting portfolio for the industry. We expect an increase of 26% and a return with greater strength for 2026. And in the fourth quarter, we will continue to see a retraction similar with what you see there. And we share with you some of the projects and works we have in Goiás and in Peru and Uruguay. Now very well to go into the more relevant projects for the period. Here, we have BRL 257 million. We have 43 strategic work throughout Brazil, and we divide this into the different segments. Today, we are having very good results, as you can see very well. I will give the floor to Renato to continue on with our financial elements.

Good morning, everybody. Good morning to our shareholders and associates. It's a pleasure to be with you again to speak about our figures for the third quarter '25 and the 9 months of 2025. In the quarter here, we are working with adversities in the market, a difficult macroeconomic situation. Now to speak about the main variations when we compare the third quarter with the third quarter of '24, we had BRL 92 million. Last year, we had a decrease in the gross profit of the company, once again, due to the market situation and a drop in the price of commodities, somewhat lower than what we had before extremely steep interest rates and of course, give credit because of the default situation we have in the market. As Bernardo mentioned, we have worked on diversifying the company in international business. We are growing considerably in replacement and services. We have also grown without impacting our margins. But in the local market, we have had an impact of the macroeconomic issues that I have mentioned and a drop in gross profit because of a drop in prices. Our SG&A is under control. If we look at this line item, it's something that has always been very carefully controlled. Now we have some increases because of investments we made in Procer. We have also made investments for sales and the fairs in which we participate. And of course, this means a higher SG&A as a whole. And in operational business, we had a positive impact of BRL 9.7 million because of a tax credit of Complementary Law 160 that now happened in the third quarter. And this is, of course, a very positive impact that we have had. Secondly, this is also due to the credit that we take. We take credit and other more aggressive companies also tend to do this in their work. The drops are similar when we look at 2025, a significant drop in gross profit, once again, due to prices, SG&A quite under control. What I said about the second quarter still prevail here. And you have other operations representing 11.9%. Now let's go on to speak about CapEx. In the last quarter, we had mentioned that we would have an increase in CapEx vis-a-vis the second quarter, we went up to BRL 25 million, but we are undergoing an important path when it comes to CapEx in the company. Even in challenging moments in the company, the company continues to maintain the capacity to make the necessary investments for its growth. And we are focusing on a very careful management in the company. We made refurbishments in some of our facilities. We have modernized, streamlined our plant facilities, and we have invested considerably in information technology, of course, with a focus on AI. And at the end of the year, we will have significant migrations. Additionally, we are developing important products. We have 15% of sales during the year for the products that we have developed in the last 5 years. This is a very important metric for us. We have the capacity and the conditions to do what the company needs so that we don't have to stop in more difficult moments. Regarding our return on invested capital, we had a drop vis-a-vis the second quarter of '25. Now our ROIC is much above the local peers. And well, the peers have similar reductions as ours. It is our understanding that this figure should become stabilized at 20%, 25%. At least this is our understanding. We were having great drops in terms of operational profit vis-a-vis last year, but we presently see a situation of stabilization, and we believe that we will stabilize between 20% and 25%, a level much above what the market is delivering at present when you think of the local market once again. Now to speak about our cash, I would like to mention that we paid out BRL 25 million in dividends. We invested considerably in working capital because we went from revenues of BRL 330 million to BRL 425 million, and we had a CapEx of BRL 14.3 million. All of this was funded by our adjusted results. We generated cash despite paying out capital, despite investing in working capital and creating the necessary CapEx for the company. very well. Here, we have additional information, and we are now open for the questions in the Q&A session. Now we repeat this very often in our calls. It gives you that context. First of all, thesis, strategy and management. Now our investment thesis, of course, well, we had a record harvest in '25 of 354 million tons. The farmers are already cultivating the harvest for 2026. We consist strongly on the thesis of the protagonism, the importance of Brazil. And what we see as a growing factor is the industrialization of agribusiness in Brazil. We had significant business this year. And in the third quarter, the business refers to ethanol and biogas. And this, of course, requires storage for a period of 12 months, highly favorable for our segment, of course. We, as I mentioned, have a highly diversified portfolio in different segments, one offsetting the other at the different moments of economy. And the highlight goes to the international business because of the growth of Argentina with a 30% increase in our sales this year for the end of the year, this figure will increase, and it's a very positive moment for investment in Argentina. We have a competitive edge when it comes to the resumption of investments in our neighboring country, Argentina. Another point that I would like to mention in the strategy is the connection with post-harvest stage. We have the process and the silos that allow for full connectivity, and we want to generate value for the entire chain, the bank, the insurance companies, logistics and what happens in post harvest. And this has been making significant strides during the quarter. If we look at efficient management, which is our third pillar in our strategy, Renato mentioned that we are seeking and gaining efficiency in different parts of the company. I will refer to this in more detail in the closing. We're not allowing this crisis to go unused. We're attempting to become more efficient in our process and elsewhere in the organization. And finally, in efficient management, what is important is the relationship with clients. Kepler maintains a close relationship, and this is part of our strategy, of course. Let's go on to the last slide before the Q&A. I'm going to explain this to you for those who are following up on us for the first time. It refers on the main factors that have an impact on our business in orange, the soy price, bushels per dollar. We had an exceptional moment in agriculture between '21 and '24. Well, we see that in 2015, we were doing well. It dropped. It got to 2%. In 2019, it increased and then it increased again to the highest levels in the last 20 years. And finally, below the production and of course, our storage thesis. In 2016, we were able to store 93% of our production and Brazil is able to store only 60% of its production. So you can see the great disparity that we have here. Now when we look at our results in the third quarter and the results for the year of 2025, when compared to 2024, the results are lower, but we begin to see stability. But it's important to compare oranges with oranges with the same previous cycle. In 2015, 2016, when the interest rates were stable and the commodity had a higher price, and we see that we are working at a superior level. The company has reached a completely different level. And we continue to seek efficiency perpetually so that this will deliver results to us. And we know that there is a storage deficit. And of course, this is important. We know that this is a cyclical business. The climate is cyclical, but the storage business in Brazil will doubtlessly maintain itself for the next 20 years, at least in Brazil. Let's go on to the question-and-answer session.

[Operator Instructions] We have a question from Mrs. Fernanda Urbano from XP.

We have 2 questions at our end. First of all, I would like to explore your portfolio for orders. You said that your portfolio for orders was at a higher level vis-a-vis last year, but now we see a retraction, although there has been a sequential improvement. . What does this prompt you year after year? Is it due to the scenario of scarcity, or is there another factor that has impacted your order portfolio? And what can we think when it comes to the fourth quarter? This is the first point. At the end of the presentation, you had an interesting slide referring to the Selic price, the price of grains and of course, the situation of storage. This, of course, has an impact on your margin. It all depends on the market appetite for better volumes, better pricing and of course, what will happen with your SG&A. So these are 2 questions for the time being.

Fernanda, thank you and excellent questions regarding our order portfolio. We have good news. We ended September somewhat below the figures of 2024, but September was the month with the highest sales since then. And we do have very good news to calm everybody down. This is an excellent indicator of what will happen going forward. We follow up on this very closely. To speak about our order portfolio for the first quarter, we hope to end the year with a portfolio that is higher than at the end of 2024. We're going to enter 2026 with a higher volume of businesses when compared to 2025. Well, regarding profitability, we have a great deal of information. And what we believe is that we will maintain the scenario of 2025. We expect there will be an improvement in the price of commodities. There won't be a sudden reduction in interest rates. We believe the interest rates will continue high throughout 2026. So in the year 2027, we expect stability versus what we see in 2025. Simply to complement here. Compared to the previous year, well, we might have a higher volume of sales for the first quarter and who knows the second quarter. This is the expectation. Now when it comes to sales in 2026, we don't see anything different. When compared to 2025 commodities at a similar level. Now if we look at the interest rate, we believe that they will only have a reduction at the very end of the year. And what we do see is that this year, we were much more efficient than we were in the year 2024. These adverse moments are important for us to verify internal procedures that were not very efficient and to work differently. So nowadays, the company does have much greater efficiency than in the past. And perhaps this will bring a gradual improvement in the coming year when it comes to our results.

Our next question...

Congratulations on your results. I have 2 here. First, international business that I would like to divide in 2 points. You mentioned something interesting in the release that 100% of the sales had embedded technology. I would like to understand somewhat more about this topic, if possible. How much of this adds in terms of product profitability, if you could characterize this further. And when it comes to international sales, despite the very strong sales, I believe the fourth quarter will also remain strong, but there will be a loss of 20% at the end. You have spoken about a more difficult competitive environment and selective commercial operations. If you could give us a clear view on this. Now the Procer and embedded technology is something very positive, but you do have a drop despite the strong sales. The second question, I will wait a bit until I get my answers.

Okay. Well, thank you for the question. I will, first of all, answer about Procer and Renato will refer to the profitability. Our strategy since the acquisition of Procer. Well, 100% of our units is no longer in default. Now unless the client has the platform for IoT, they end up embarking in Procer. Now in the last 2 years, we have increased the number of connected units. And in international sales, it was 100% of the units connected with Procer. We have 2 values here. Well, it is important to have connectivity and connection with the units, and we expect to have recurring revenues in the long term once all of the units are connected, whether they are in Brazil or in the neighboring countries like Paraguay or Uruguay. There's a great deal of enthusiasm every time we have this embedded technology.

If you could speak about profitability.

Thank you for the question. Now regarding international business, now when you look at the totality of our receivables, they're done in an anticipated way, which reflects a very low risk of credit. Now the shipments are sent out with anticipated payment. Now in terms of cash flow, this represents a good sale because it has no carryover of receivables for a period of 8 to 10 months. Now regarding the drop in margin, well, we undergo the same situation as local players. What we see now and that is important is that we're expanding our share in international business. Now you work with a client, you become a preferred supplier. And of course, this will lead to recurring sales. And this also generates the replacement and services in the future. Now all of this arises from the competitive scenario, something the players are also seeking and this is a very good way of generating cash flow as you do not have receivables.

That was very clear. And is this for all of the countries where you operate? Are there specificities?

Well, there is a certain fragmentation of margin among the countries. Of course, a recurrent sale allows you to have somewhat higher margins and new entrants as well. But it depends very much on the country as well.

My second question refers to the PCA. Now the program for construction and expansion of warehouses. The program approved represents BRL 8 billion for 2025 and 2026. I think you've used up to 50% to 60% of the resources for different reasons, of course. If -- well, some people have problems in their investment decrease. So what is happening with this? What is it that you see in terms of the use of this very important resource perhaps it will be a lead indicator of the intention of the farmers, the intention to invest once again. And in the second point, also referring to this program, the PCA. In the release, you mentioned that 15% of the Kepler sales are funded through the use of these resources through a simple calculation, I'm under the impression that the share of this... Well, it seems that a Kepler client uses the PCA much less than the clients of the competitors. I'm trying to calculate which would be the value for you vis-a-vis the total value. If you could give us more color in terms of the relevance of PCA for the company and how important this is for competitors that disparity of share that we see. These are my 2 points.

Last year, we released approximately 10% of the amount available. There was an increase in pace in September. August was quite slow. September increased the pace, but it's still way below the expectations of the sector. There's several protocols, a great number of intentions, but there is a great deal of red tape to release this. The scenario is very similar with the former PCA that we had for this. Now we're speaking about farms, and that is why this fragmentation and diversification of business is important for us when you go to ports and terminals and international sales, you don't have the PCA involved here. And of course, these companies fund themselves in different ways. So how have we structured ourselves? We have used our balance to fund some of the sales to farms or replacement and services. We look in the long term, we make an analysis of our cash flow to do this because the competition is working with installments that have a different scale. I'll give the floor to Bernardo to speak about the competition questions.

When it comes to the PCA, we don't think it has a lower share release compared to our competitors. Quite the contrary. We do have an excellent share, and we have -- well, they have been releasing the funds with discipline for several construction for equipment, storage units. And of course, this could change the calculation you made. But we have been very active in seeking out and helping the consultancy. Our financial team, of course, is aiding the clients to find the best resources possible to use in their own units.

Our next question comes from [indiscernible] an individual investor.

Which is the company's strategy to improve margins in the coming quarters, especially in the farm area and international businesses?

Well, thank you, Ronaldo, for the question. It's partially what I already mentioned. We have the external part of the company. We have the positive points that Kepler has the differentials of the company, the awards, the trophies that we have just won that will give our clients greater security when making their investments, but in-house and because of internal issues, we truly have improved our factory efficiency. Our costs have been reduced by 30% and our costs with outsourcing have also improved significantly. It's a significant cost reduction. Additionally to that, we see that our SG&A is behaving very well. And as you increase your revenue, you increase your operating leverage. So yes, we have carried out several actions. Since the company began this year, we have had evolution and our situation of efficiency is much better than it was at the end of last year or at the beginning of this year. This generates operational improvements. And of course, we have acted upon the credit issue and the price of commodities as a whole. We're focusing on credit, attempting to improve margins in other areas as well.

Ronaldo, thank you. I think Renato has explained the short-term actions very well in the midterm, what we can do and what lies within our control for the company's profitability are three broad points to develop points that set themselves out to save energy, research and development, of course. So research and development is one of our important focuses. Now our improvement in distribution centers where you are in Paraná or in Minas, we do have distribution centers that help us capture premiums or new sales to new units. So this is the double strategy. We want to sell parts, recurrent services, but we want new units to also have access to these distribution centers. And we have more than 260 works underway, work that will deliver in an organized way with security in the right time line. This means that the client will come back and buy again from us. They have an excellent experience, excellent deliveries. This will, of course, extend the business. 60% of our invoicing in the third quarter are for clients that have already bought from Kepler Weber in the past.

Our next question comes from Mr. [indiscernible].

Congratulations for the results, Bernardo, Renato and the Kepler team. I have 2 questions. First of all, the tax issue, taxes on fiscal incentive. Well, there's a deficit in storage, but what are you going to do with the harvest supports are not ready to receive the trains, the trucks. And this, of course, could delay shipments?

Thank you for the question regarding the tax recovery. We had that recovery of BRL 9 million above based on BRL 3 million of taxes, I believe. We're going to assess throughout the fourth quarter, and there was an explanatory note #27, the details of what has been done. We have gone through courts, perhaps some of this will be acknowledged in the fourth quarter. But so far, we cannot monetize this, so we have allowed these points to remain in the explanatory note. There will be an assessment in the fourth quarter regarding the amount. So we do hope that something will take place during the fourth quarter.

Thank you for the question. When it refers to ports specifically, we have increase in demand. Well, of course, to grow production, you have to have the necessary outflow, and we have several projects in Santos and in the North Arch. This project has been highly valued by the ports themselves. And of course, this is an interesting point that will bring about growth in the fourth quarter as well. And our mission is to grow within this segment. It's important to mention another point referring to ports, similarly to Procer that has a strategic edge of offering connectivity. In ports, besides the diversification this brings to our company, the port projects are more dynamic, the Formula 1 for post harvest are these projects that include greater speed, larger scales using our engineering. And then this can be trickled down to other business line.

We have several other countries here, if you could speak about agri business and diesel and grains during the year and the production throughout the year, if you could speak about your vision in terms of this type of demand.

Well, thank you, [ Berner ] once again. Agri business, as I mentioned before, we have biofuel, and the areas that, of course, demand storage. First of all, because of the growth of this segment, we have dozens of projects underway throughout Brazil. Most of them are Kepler Weber. We closed important businesses in the first half. And now in the third quarter and second half of the year, we will have important news in terms of corn, ethanol and diesel. And the dynamic changes completely. It's one thing. Well, to have a protection production that has to be stored for 12 months. I cannot use the same unit for 2 harvests. Well, the corn has to be stored in 12 months. For ethanol, for example, then will have to be stored for the next harvest. So that dynamic highly benefits our business. There is no doubt about this.

Our next question comes from [ Henato Luiz ], individual investor.

Which is the policy of payout of dividend?

Henato, thank you for the questions. Well, let's begin with the second part of the question. We understand that shares are falling depreciated. The perceived value is much higher than what you see on the screens. And this is perhaps due to the link that Kepler has with the agri business sector and with the commodity sector in Brazil. Now, we have strength even in adverse moments like this one, and we have to show shareholders as a whole that Kepler is a safe haven to be. And of course, that we're also exposed to agri business. The sector that we're working in, given the need for storage is a highly resilient and strong sector even in difficult times. We have mentioned that we have had positive data, even with this momentary situation of the market. And Kepler has not suffered in terms of its financial situation because they have sufficient cash and other problems in the sector faced different problems from ours. Now to speak about dividend, we spoke about 2025. We have already paid out BRL 95 million for the year 2025. If you look at a 12-month period, it's between 75% and 80%. And if you look at the dividend yield, it's around 9% for the last 12 months. So the company is an excellent payer of dividend. We so far do not have a policy set forth for 2026, but we tend to maintain this recent history of payout between 60% and 80% of payout in the last year.

We close the Q&A session, and here, we would like to return the floor to Mr. Nogueira for the closing remarks.

Thank you very much. Thank you as well for the questions. [ Henato ] that last question, I would love to speak about this more. I fully agree with you and to complement the answer given by Renato. There's a great deal of problems with cycle, and what we're showing in 2025 is that despite this adverse moment for the business, we're the highest payer of dividends. We have created a company that includes resiliency through diversification. We are completely different company nowadays. And I agree with you. I have made a pledge with the Board. I don't sell the shares. I receive them from Kepler and I will never sell them because I truly believe in Kepler. Now, for the closing, we have prepared for this adverse scenario through intense diversification. And we're making use of the prices in all areas of the organization. We are more efficient. We have reduced 24% of freight through trucks. We try to ship our loads in a more efficient way. We had a reduction of 24% in 1 year. We increased the productivity of internal logistics within our plants by 7%. And of course, the man hours work, we have reduced outsourcing by BRL 6 million vis-a-vis last year. These are simply some examples of how the company is being well managed and with controlled costs throughout the organization. This is not work only of myself and Renato that are motivating this. All of the company leaders are committed in doing their very best within this scenario. We spoke about the portfolio, and it's important to reinforce this point. We are working and have an expectation that we're going to end the year with a portfolio that is higher than what we had in 2025. It's important to underscore this. To close, I'd like to speak about shareholders, clients and our team. The message here first is to the shareholders even in these difficult scenarios, Renato mentioned that the share has not been properly valued in the last 12 months, we had a growth -- 11,000 new shareholders and this means that Kepler is being acknowledged, and we're working to continue to be the best payer of dividends in agribusiness and among the best in the category that we work in. If we look at our clients, and I'm sure some of you are here, we still have a strong commitment of working very closely with you developing products that will add value to what you do. We're in the area of 70% -- even in more difficult years, where there is a retraction, we were able to increase the number of clients, which means that we're not following the average. We're above average in product development, access to the market and making things happen. And finally, and not less important, thank you to all of the Kepler team. We received the prize of Great Place to Work. We're among the best companies to work in, in Rio Grande do Sul.

The video conference, the release of results for the third quarter 2025 has come to an end. Please send your questions to our IR team. We would like to thank all of you for your attendance, and we wish you an excellent day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]