Randoncorp S.A. (RAPT4) Earnings Call Transcript & Summary

[Interpreted] Good afternoon to you all. Thank you for your participation in our conference call to talk about the new format of publishing numbers now with the business verticals. So as always, we like to remember, this is a call to talk about these changes. It's a call we did especially so that everybody will participate and ask questions. So we count on your participation. It's important to remember how you can participate. We have the same ways that we usually do in our results call. You can participate through voice, just write the name, the company and language in the chat button, a Q&A chat, and we will call you to participate to ask your question through voice. And you will see the mic that you can unmute to ask. If you can do it in writing, you can do this. We will read your question and read it during the call. If there are too many questions and we cannot answer all during the event, we can answer them later, we will get in contact through the phone to answer your question. So now going forward with our presentation, I'm going to pass the floor to Esteban to talk about the changes. After that -- after this presentation, we go through the Q&A session. For those that want to put your name on the list, you can ask in a question, you can do it during Esteban's presentation. Afterwards, the session will start. Esteban, the floor is yours.

[Interpreted] Thank you, Davi. Thank you all. Thank you for following us in this video conference. That's very important for us to explain this change. I separated this introduction moment in 2 moments. First, the rationale of the change, why we changed, and then comment what is being changed. In the first part, why we changed highlight a quote going back to my academic life "Companies are live organisms and they need to adapt to follow the evolution of business." And this is the essence of why we're changing the way we show our results per division or for a vertical like we are going to call. The truth in the last 5 years, we've tripled our revenue. Today, we are over 50 CNPJ consolidated on the Randon Companies, over 15,000 employees. And many of the thoughts that I have with the investors, people ask what keeps us awake at night? I think one of the major challenge is the challenge of growth. I think that growing on its own is a challenge, growing with sustainability, with quality, with focus. And at the same time, a diversification that brings resilience to our revenue and to our margin, I think it's a higher challenge or a bigger challenge. This is why we felt the need to adapt the way that we manage the business and as a consequence, the way that we report this to the market, always with the concept that the company should publish the results aligned with the way that they manage their own business. And like everything at Randon, we did this in a planned way, it's not overnight. The story of this change in the report starts 2 years ago, at least, when we started to analyze internally the results in a different way, to see if it made sense to propose the change. For those who remember, last year, we also made a change in our Executive Committee, bringing Superintendent Directors to the Executive Committee. In November, this was done. In December, we announced the separation of the President CEO position. Daniel would be the President, Sergio would be CEO in January '22. And this has to do with the way that we manage our business, always seeking a greater focus, greater granularity for each one of the verticals. Yesterday, we continued with this movement, publishing the results of the market with this new way of presenting results. We wanted to do this beforehand, so over 20 days to publish the results from the first quarter of '22. So everybody would get to know the new format when we publish the results. So it wouldn't be a surprise on May when we publish. We will not only show the video, also a Q&A and the spreadsheets with the results from 2020, '21 with the new format. So if you compare them in our RI side or accessing the communication from yesterday, we have a direct link for these documents. Now to reinforce one again, the objective is to have more transparency, is to reflect the results per vertical the same way that the management of the business is looking into our management. It's a greater focus in each vertical because they have different dynamics, different premises and implications. And on our end, what we seek with this that the market should have a greater clarity and understanding of our business. Going now to the changes effectively. Now on the screen, you can see how is the scenario until '21, the results presented. We have basically 3 main changes. First one is the number of divisions or verticals. Up to now, we presented 3 divisions, second is the name of the divisions, we're going to call verticals, and third, the way that we consolidate the revenues into our company. So looking at the first point, you see how it was reported up to the results of December '21, adding these 3 divisions, Montadora, that has the implement machine -- companies behind, RTS, Auttom and the [ Hold ]. This configuration at the time made sense. What you will see anticipating RTS, Auttom and the [ Holding ] and the holding leave this vertical of the Montadora with the objective to make it more lean. The second is Autopeças, Auto Parts. We have Fras-le, CTR, Jost, Master tech -- Master and Castertech. We are leaving only commercial auto parts. The other -- CTR, Fras-le has their own publishing and CTR in another division. And digital financial services are composed by Randon Banking, Consortium and Insurance, Randon Ventures. This is where we suffered -- suffered less changes, but here, we see in the next slide that we also had a small change. Going now to the current scenario. The results will be reported in '22 -- this format with the first quarter of '22. I have the pleasure to present to you the 5 new verticals. As I mentioned, Montadora vertical is we transferred the holding RTS and Auttom to a fifth vertical called Advanced Technology and Headquarter. Objective here is to leave the results from Montadora leaner, more purer, if you put it that way. Second vertical Autopeças of Commercial Vehicles, all commercial vehicles where we have Master, Jost and Castertech. Here, we're going to segregate the results from Fras-le. That compose the third vertical that we now call Movement Control [indiscernible] for light and commercial vehicles. Basically, we're talking about Fras-le business, including Nakata, Jurid, Controil, all the abroad units of Fras-le. And we include here the companies in India Fras-le [ Escape ]. Fourth vertical and this is [indiscernible] had less changes in their own results. Basically here, we transferred Conexo for the fifth vertical called Advanced Technology and Headquarters. And this last vertical is dedicated to compose and present the results, not only of the technology companies, but also the corporate center itself. Here the idea is to show this in a separate pure way. Another change that it's in the communication, the format that we present our results -- our consolidated results up to 2021 [indiscernible] gave our consolidated results. This is only possible because inside each division, we considered not just the revenue of the companies in the same division, but the revenue of the companies between divisions. An example that is mentioned, the sale of Master to Suspensys is eliminated -- was eliminated inside the division Autopeças and the sale of Suspensys to implement those was also eliminated in the division Autopeças. From now on, we start to eliminate only the revenue of companies that compose the same division, the same vertical. And we continue to recognize the revenue of the companies of different verticals. An example, going back to the example, the revenue between Master and Suspensys is eliminated, like it was eliminated before. Now the revenue between Suspensys and Implement continues to be recognized in the vertical Autopeças. With this, we have an increase of Autopeças' revenue with the same margin or the same EBITDA. Its margin percentage will show like reduction. Once again, our understanding, this is the more transparent way to show results for the market. So we can get to the consolidated result. We have a 6th column, which is the column to eliminate sales or operations in between verticals, intercompany. And with this, we get to the consolidated result and we should mention -- we mentioned many of these have changed, but one thing that doesn't change is the consolidated result. This is the same. What we're changing here is simply the way that we present the results per division or per vertical, like we call them now. With this, I finish my introduction, and I am available for any questions you might have.

[Interpreted] Thank you, Esteban. Reinforcing guys, those that want to participate in our Q&A, we have 2 ways through voice. [Operator Instructions]. There is a issue, those that would rather send it through WhatsApp, the number is on the screen. The slide will be up for you, so you can have the instructions. And now I'm going directly to the first question here that comes from [ Guilherme Florancie ] from [indiscernible]. He wrote the question in the Q&A button. He is referring to the following question, I would like to know how will be the management of each vertical? Each vertical will have a Superintendent Director? This is the first question, Esteban.

[Interpreted] Thank you, Davi and Guilherme for the question. Please, [ Carol ], if you can go back to the slide that we showed the vertical. Great. Well, Guilherme, here, we will have -- we already have a Superintendent Director for the vertical Montadora, which is Sandro Trentin. We already have the Superintendent Director of the vertical Autopeças, which is Ricardo Escoboza. The Director -- Superintendent Director for Movement Control is Anderson Pontalti. And in Financial Services -- Digital and Financial Services [indiscernible] Daniel Ely is the CTO. He answers not only for people [indiscernible], in digital transformation, he's also responsible for this business vertical. The vertical Advanced Technology, currently, it's shared in terms of report. So some topics of the holding, they are directed to the CFO, Paulo Prignolato. They are shared also with Anderson Pontalti, [indiscernible]. While RTS technology companies of RTS, they have to direct report Sergio Carvalho, our CEO. And with this, we seek not only to optimize costs, but also a synergy between the operations. When we have [indiscernible] aspect, like the holding, such as the entire business innovation that permeates the business as a whole, we find more synergy with the shared management the way we're proposing here.

[Interpreted] Perfect. Let's go to the next question, a voice -- question by voice from [ Ana Cabral from Fitch ]. [Operator Instructions].

[Interpreted] My question is regarding vertical of the Advanced Technology and Headquarter. We are going to have -- I saw we have 3 lines here of revenue. We have a grouping of companies here. Have you thought or in the future, you're going to separate and I want -- or if you're going to wait for it to have a more relevant volume to have to do this or you're not considering this at the moment?

Nice, [indiscernible]. Thank you for following. Thank you for your question. This is a point that we debated a lot internally before we proposed the fifth vertical if it made sense to separate the technology companies. And at this moment, we understood that more adequate is to lead them in a group because they don't represent a volume, a percentage of revenue that is meaningful. Currently, once they gain more relevance without a doubt, we should open a new vertical to put them in a group and to separate what is the holding and what is the company's -- what revenue comes from the technology companies. Let's call this fifth vertical in groups, everything that didn't fit in the other 4 verticals, but as the technology company is gaining more relevance, without a doubt, they will deserve their own vertical. And due to alignment also dynamics -- business dynamics, we understand that this will be a natural movement in the future. The issue is how long, and we don't have that answer yet.

[Operator Instructions]. We have a question. While other people are formulating questions, we have 2 questions from Victor from Bradesco BBI.

[Interpreted] And the first one is how the model of these verticals impact the performance metrics of high management? And the second question is if there is any change in the dividend policy in the verticals?

[Interpreted] Thank you, Victor, for the question. I'm going to start with the last one, which is more direct. There are no changes in the dividend policy. It continues to be exactly the same. And regarding the metrics, the indicators, the key indicators for long-term remuneration, [indiscernible]. When we look at the consolidated, which is the EBITDA growth, the operating cash flow and the leverage ROIC and leverage, this continues the same. The short-term indicators that are defined every year, and we don't have a fixed indicator, they vary according to the guidance of the strategy of the company. They are more focused in each one of the verticals, looking especially to the Superintendent Directors and the team that is linked to him reporting to him. With this, this goes together with what we are talking about having more focus to accelerate the growth of each one of the verticals.

[Interpreted] Thank you, Esteban. We have another question from André Mazini from Citi.

[Interpreted] A question that brings the new structure facilitates capitalization specific businesses. Can we say this is one of the rationale of the reorganization?

[Interpreted] Thank you, André, for your question. I agree. It's an affirmation that I agree with. Yes. Once we start to see in a better way, the specificity of each business, the risk and opportunity in each vertical, I think that this facilitates capitalization and the return account we do the math for risk also it makes it easier. This is true to us. But this is not one of the main rationale to open these 5 verticals. It starts more -- have a greater control of our company, simplifying the structure that was complex and having more transparency with the market and also when we are going to explain our business, but I agree with you. I think that leaving each one of the verticals separate, you can show the details of each one reminding you that going from division to vertical, we did this because division is not an adequate term to reflect the reality of business, not only in Randon but the business in the world. We don't talk about separate business on the other hand. We comment a lot of synergy. To seek synergy is one of the strategic pillars because we recognize one of the major strengths is the group strength that allows us to leverage this synergy.

[Interpreted] Thank you. We have a question from JPMorgan from Guilherme.

[Interpreted] This is related. If there is a CapEx involved with the creation of these verticals, processes or something similar? And if we should wait any change in the level of growth of G&A from here on?

[Interpreted] Thank you for following and for the question. If [ Carol ] can share the slide, I'm going to show a new structure, and I can mention it. I will anticipate that we didn't have CapEx to bring this new structure, what we had, and I can say this with the experience and going through the process, many hours from the RI, accounting teams, marketing control. So to propose the change, to do the necessary simulation and to promote all the adequation of historic data to put this to the market and anticipating -- I understand that for the analysts, the buy side and sell side, is there's initial no rework. We understand this. This is why I wanted to give you time, but we understand that it's necessary on the middle term, we will all win with greater granularity. Looking forward, we won't have a G&A increase. I ask Carol to show the slide because that box, when we look at the Headquarters, that vertical of the Headquarters and where we include the holding, I mentioned this vertical. It services all the other 4 verticals. The idea is to look at it. We're looking at it in separate because we should look at it as a service provider for management, for back office, for management or administration. Here we have, RI is in here control, [indiscernible] cost, corporate procurement, integrated logistics. This is where we can see one of the greatest leverage for synergy that we have as a group, looking at the 5 verticals. What we seek is optimization of SG&A.

[Interpreted] Thank you, Esteban. We have another question from Guilherme [indiscernible], asking for us to explain the patrimonial equivalence in Advanced Technology and Headquarters.

[Interpreted] Nice, Guilherme. That's a good question, and it's important to pay attention to this point of view. We must remember that the holding at the end of the day, it's a company that adds to shared services and shared structure that we call corporate center. It adds to the participation in other companies in this, the results from '21 where it's not perceived granularly because it entered into the vertical Montadora. Now since it's reported in the specific vertical, it records the patrimony equivalents, its participations in each one of the companies in the other verticals. This is what we're going to start to see in this line of patrimony equivalents.

[Interpreted] Thank you, Esteban. We have another question from [ Philippe Pierre ] from [indiscernible] Capital. He is asking about the balance patrimonial balance sheet. Are we going to have any change?

[Interpreted] Thank you, Philippe. Well, regarding the patrimonial balance sheet, no. We're going to report the balance -- patrimonial balance sheet of the controller and consolidated. We don't detail the vertical, and it's going to stay during this report period.

[Interpreted] Thank you, Esteban. [Operator Instructions]. We have a question that comes from [indiscernible] asking us to report as much as possible, CapEx [indiscernible] and cash flow per vertical. It's the question more a suggestion for us.

[Interpreted] Thank you, [indiscernible], for following us and for the questions. Currently, we don't -- we're not going to open some information like cash flow per vertical and immobilize also. I understand that it's important for [ ROIC ] calculation, but this is not in a radar currently, but we're going to look into the feedback and see the possibility to do this evolution in the future. Also part of the change that we're doing now is the result from several provocations that we received from the market, Davi [indiscernible]. Also when we meet up with the investors, we received a lot of feedback, which represent the company in a different way. A lot of times we get that question, what is Autopeças [indiscernible]. So we can do the first step for us. It's an important victory and we were not going to stop here. We understand that part of the RI activity is to communicate the company to the market, but it's also to communicate the market to the company to bring the market inside the company. I see another question from [indiscernible] about the report of the Fras-le vertical. It's identical to the open -- the company with open capital. There is a difference from past reports from us in the vertical. If there is any difference -- no, there's no difference. It's identical to what's reported by Fras-le.

[Interpreted] Guys, we don't have any more questions. [Operator Instructions]. We didn't receive any more questions. [Operator Instructions] I will pass the floor to Esteban once again for his final considerations.

[Interpreted] Thank you, Davi. Thank you for the team that helped us to organize this call and everybody that followed us. It's very important to communicate this to the market, clarify any doubts. I hope it was [indiscernible] once again. The reason for this change is due to our growth, our operations, our businesses, the complexity to manage the growth on the line the way that we manage the company, with the way that we report to the market, to give more transparency when we show the results to the market. And there is a side effect that is more visibility to the technology operations in a specific vertical. Once again, thank you for your participation. Me and the team are available for any questions you might have. And I invite you we follow our results, May 12, and the video conference on the 13th. Thank you so much, and have a great afternoon. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]