Romi S.A. (ROMI3) Earnings Call Transcript & Summary

Good morning, and welcome to this call. We will be discussing the earnings call for the results of the second quarter of 2024. Before proceeding, I would like to clarify that this conference call is exclusively for investors and investment professionals. Any statements that may be made during this conference call regarding the company's business prospects, projections and operational and financial goals constitute mere predictions based on management's expectations regarding the company's future. These expectations are highly dependent on market conditions, the general economic performance of country, the sector and international markets and are therefore subject to change. It is worth noting that this earnings call is being recorded and held in Portuguese, simultaneous translation into English, with slides available on the results center of our Investor Relations website at www.romi.com/investors. [Operator Instructions] With us today, we have Mr. Luiz Cassiano Rosolen, Chief Executive Officer; and Fabio Taiar, Chief Financial Officer and Investor Relations Officer. The executives will first present the results of the second quarter of 2025 -- '24, excuse me, right after they will be available to answer your questions. Now I'll hand the floor over to Mr. Luiz Cassiano.

Good morning, ladies and gentlemen. Thank you for participating in the earnings call for the second quarter 2024 with ROMI. Despite the initial challenges of the year in the second quarter, we achieved a significant recovery, especially in terms of incoming quarters. We ended the quarter with an order backlog, very solid, 11.4% higher than in March. Our machine rental solution continued to stand out and based on our customer needs in a differentiated way and achieving our best quarter to date with 98 new machines hired. Another positive highlight was B+W's order backlog, which ended the quarter with EUR 55.5 million worth of machines. This puts us at almost full capacity for 2025. Our challenge now is to carry out the 2024 projects concentrated in the last month of the year. In the Rough and Machined Cast Parts units, we face significant challenges due to the reduction in demand for casting in some segments. However, restructuring initiatives and improving operational efficiency are already resulting in better margins compared to the first quarter. The essential pillars of ROMI's strategy remains solid. We continue to invest significantly in innovation and human development. We are confident that our competitive advantages will provide our customers with all the necessary conditions for a successful future. I will now hand the floor over to Fabio, who will detail the results of the quarter. Good morning, Fabio.

Good morning, Cassiano. Good morning, everyone. Thank you for taking part in the this release call. And starting to focus on the major highlights of the quarter, our EBITDA in the second quarter reached BRL 33 million with 11.3% of margin and order entry. As already mentioned, that is quite robust for this second quarter, nearly 14% over the volume that we had for the second quarter of 2023. And getting into the business units still with order entry for ROMI Machines, which is the unit that represents more than 50% of the consolidated revenues, we have reached in 2024 nearly 19% of higher orders compared to 2023. In May this year, we had the Feimec Trade Expo that we took part in as one of the main exhibitors and the result was very positive, slightly over our main expectation and we believe it will get back to half the levels of revenue as we had before in terms of revenue and also in terms of order backlog. So we are back to the revenues at 8.5% over the second semester of 2023 as the EBITDA margin, nearly 20% is already very close to a normal level as we had in 2023, showing that our prospect for this unit shows a projection of results that is closed to a very positive result. And here, talking about B+W Machines, we have an order backlog of over BRL 330 million compared to June 2023. It represents a significant increase of over 60%. And this order backlog includes order to be delivered now for the second quarter of 2024, as Cassiano mentioned, which is very concentrated on the last quarter of the year, but also the majority is for the orders for 2025. So the visibility of B+W has been quite extended. And to focus in terms of consolidation, the order backlog reached nearly BRL 663 million and this is a backlog with nearly 11.5% over what we had in March this year and an increase that is quite important compared to June last year. That means a 24% increase, showing this positive perspective for the next quarters. We should also highlight here that we have stated here the payment of interest on capital that we had in June this year of BRL 21.4 million which is BRL 0.23 per share, which is being paid today. And as I just mentioned, ROMI attended the Feimec, the major fair in Latin America in our sector. Very positive in terms of business generated. And we also took part abroad in trade expo to consolidate the brand and consolidate ourselves internationally as we had in the United Kingdom in the second quarter at MACH. Now in terms of current indicators, the second quarter we see slightly positive. However, what we see when we look at even the next slide already, it's an environment that I would say is getting back to normal, where we are not in an environment that is extremely positive. However, we are not going through a recession period. So we see that in terms of the use of installed capacity, we have 2024 at a good pace and this is very clear when we visit clients and we talk to our commercial team, where we see this very clearly, the activity of clients is still at a very accelerated pace. What we also have noticed is that there is still a bit more to go when it comes to the industrial entrepreneurs confidence, when it comes to the future and the decision-making that can be more robust for investment. So today, when we talk about installed capacity utilization is good, but the outlook still has a limit which does not unlock a greater volume of investments. And a bit on the base of clients we have, here for ROMI Machines, it is just natural to have this [ insulation ] when we talk about machine equipment, job shops. We're talking about here the main different industries that consume our machine and equipment and it has been this way. We should highlight here specifically Aeronautics, where it is a segment that is getting back up since last year. This year also was very strong and with an outlook for the next few years that is very favorable. And it's a segment where we have solutions for and also a track record on it. B+W, as we know, is more concentrated on certain segments. So we still have engines and systems and also Energy segment being the main ones that is for the revenues of 2023 and also the first quarter of 2024. And Rough and Machined Cast Iron Parts, we have here the good news that is a comeback for Automotive and also in the Construction segment. And on the other hand, we still see the Agricultural segment that has not been increasing. We see that since the second quarter of 2023 and that is still true for now, very slow when it comes to activity. And the Wind Power segment, which still had some revenue for the first quarter of 2023, but since then we see that the Wind Power segment is very low and precisely when it comes to this segment of wind. When it comes to share of revenue for each business unit, as we had mentioned, we know that ROMI Machines is our main business. For the first quarter of 2023, it was 65% of consolidated revenue and it increased greater share. And this is basically because of the reduction of the cast iron parts. We can see in absolute numbers there is a slight reduction and Cast Iron Parts had a significant reduction I would say. In B+W, on the other hand, there is a greater share, although as it has already been mentioned, most of the revenues of B+W in 2024 is concentrated on the first quarter of the year, especially on the last one. When it comes to geographic distribution, Brazil took part in 76% of consolidation for the first quarter of 2023 and there is a reduction of 4% for 2024 because of the Agriculture and Wind Power that reduced their business. And Europe has been quite stable and there is a gain in share for the U.S. due to a delivery of B+W of a big one for 2024 for a client in the U.S. When we get back to order entry and backlog, right here we can see more stratified and clear the performance of each unit. We mentioned already ROMI Machines, in the second quarter of 2024 where we have 18.6% over the second quarter of 2023. So we see here that the Aeronautics, as we already mentioned and others have had a relatively stable performance. We also bring here an increment when it comes to the new solutions of business as the machine rental and also the fintech encourages the retrofitting machines for rental. And all of this has allowed us with the scenario that we have said which has been very normal in terms of activities, we are able to still show increase. And for the second quarter, it allowed us to get back to a level of backlog of 2023 and the revenues of the second quarter as it had already been mentioned at a level that is more normal. We have also the accrued for the semester higher than 2023. B+W, it is normal to have certain concentrations of order in certain quarters as we always highlight there is a high added value here. So it's better for us to look into the accrued period. So when we look into the semester, there is an increase that is quite substantial of orders for the first quarter of 2023 compared to the past one. And it has an increase in the backlog for the end of June, as we already mentioned, with 60% over compared to the same backlog we had on the same date, July 2023. And for Rough and Machined Cast Iron Parts, we see here a reduction that for Automotive and for Construction, there has been a result here that we can see that this gradual comeback has increased Rough and Machined Cast Iron Parts get more volume of production and improve operational efficiency. And if we check the result of the second quarter, although volume has not increased significantly, the gross margin had a relevant increase. So when we talk about 14% over the second semester of 2023, this allowed us to have a more robust backlog if we compare to March and also last year's period. It shows that we are well prepared to carry on well for the next semesters. When it comes to here gross profit and gross margin, we see here the second quarter for 2024, we have 28.6%, a bit lower than 2023. And machines have reduced 0.5% of margin. Rental has allowed us to keep the margins at a high level for this business unit. And B+W, we had already expected a weaker second quarter. So we have here the results showing that and it's the same for the also Rough and Machined Cast Iron Parts when we think about the second volume of 2023 to 2024, the drop is significantly because of the Agricultural sector. With this drop in the gross margin, the operating profit, we see here a reduction. And since there is a characteristic that are more fixed, it ends up impacting the other operating margin. So we see a bit from 8.7% to 6% and the same as we see here this oscillation in the [ EBIT ] from 13.4% to 11.3%. When we talk about operating profit, we see here the factors where we had the amount that we declared where it shows a low that is a bit less compared to 2023. And the financial result was over the second semester of 2023 in terms of financial revenue and also when it comes to a depreciation of the currency. So this made the profit be a bit less when we talk about net income and you see a constant year for this base of comparison. And here talking about performance by business unit, we see ROMI Machines slightly under if we compare to the second quarter of 2023 due to the first quarter where there was a slow -- low actually sales where we see that the revenue has already increased already going over 8.4% compared to the previous year. And we have a quite robust backlog now, giving a good perspective in terms of the next quarters to come at this less volume here where we had a bit less where there is a reduction in gross margin, a bit here where we see the result from additional commercial efforts and this made us have a bit less of EBITDA margin, although we're talking about the historical margin that is still very high. For B+W, for the quarter, we had in reais turnover over what we had. So in euros, this is -- we have a lower variation of 2.1% over and we can see that we also have an expansion of gross margin and also an improvement in EBITDA margin. But we should highlight here that most of B+W's revenue will come in the second quarter where we then have a good outlook once we get to the end of 2024 for B+W. And for Rough and Machined Cast Iron Parts that we already had said Wind Power and Agricultural segment had a reduction in business. So this brings a drop in production and that has an impact in revenue. So we have also the margins dropping. But we should mention here that if we look into the quarter, the result of this unit for 2024 compared to the first quarter of 2024, we already see a gradual improvement of volume, but mainly getting back to improvement in the margins as we have been mentioning for this unit and all the others that we have been working with to improve operational efficiency and margins. So here, we start to see the real impact in the first semester of this year. When it comes to financial position, we're very solid. We have -- we do ended here with BRL 302 million in cash and we still have the debt to be paid. Still in 2024, it's BRL 107 million. That is very high liquidity. When we talk about what we have used in terms of B+W, that is still here, assembling the machine so that we can deliver within the due date as had agreed to have a consolidation in the last semester. But we are still very positive when it comes to the performance and the capacity of the company to generate cash for the next period. And the performance of shares, we're a bit under Ibovespa for the 2-year period. Obviously, we are a company with a more cyclical profile. But the main focus here as it was in the first quarter, a recovery of volume margin and the continuity of this recovery for the next semesters to come. Well, then I complete my presentation for 2024 and we are fully available for any questions that you might have. Thank you very much again.

[Operator Instructions] The first question comes from [ Christian Matthias ]. Can you please give more details on the drop of EBITDA margin in the ROMI Machine unit for this quarter considering the mix effect and also what was explained in the teleconference and in terms of Rough and Machined Cast Iron Parts, in terms of incoming orders and the recovery of net income for this business?

Well, for ROMI Machines, we are making an additional [ commercial ] effort. We have a discount that is more aggressive. We had that in the trade expos. And we have those discounts, we have also the dynamics of the foreign exchange that has an impact on the final product pricing. We became more aggressive and we were able to get more incoming orders and this has a deterioration a bit on the margin. But we see that we have been compensating this with increments where machine rental is able to make this effect less strong. When it comes to Rough and Machined Cast Iron Parts Unit, we have a low perspective in terms of order entry in some segments. But Automotive and Construction has shown a solid comeback for the second quarter. And this shows us that we can have an outlook into a better use of our capacity and this brings a good gain of margin because Rough and Machined Cast Iron Parts is capital-intensive and we believe that this recovery of the profitability of Rough and Machined Cast Iron Parts Unit will be slow, but will continue for the next quarters. And we have also a good outlook when it comes to the next years starting in 2025 with new businesses and new part numbers where we believe we will be using the capacity of the Rough and Machined Cast Iron Parts Unit better because of the SOPs and the new part numbers that we have been negotiating and now there's this whole process of development.

The next question also comes from Christian. On this quarter, the order entry of ROMI Machines was benefited from Feimec, which is a biannual event. Considering that this will not repeat in the following quarters, what is the outlook in terms of incoming orders for ROMI Machines since we will not have the effect of Feimec Trade Expo?

Well, the trade expo is always important to us is in the quarter and it also has [ Feimef ] Trade Expo. So next year, we will have a Feimef and this year we had Feimec. So we usually have this quarter as a good one for order entry and these are the 2 ones that we take into consideration. And the third quarter is a very important one where we have regional expos. We will have a [ Joint Vila ] in [ Sertaozinho ]. These are regional expos that do help the third quarter and the first quarter usually is the slowest. So first quarter slower, second stronger and third also good in order entry and fourth, a bit less. In incomes of revenue, the second, third and fourth in terms of revenue is very similar. That's pretty much has been the dynamics. And since we know that has been the case for ROMI Machines.

The next question comes from [ Lisandro Braga ]. Congratulations for the results. When it comes to payout, do you believe it's possible to keep the levels that are current for dividends with a profit reached up to now for the first semester of 2024?

This is a decision always from our Board of Directors in terms of our level of payout. Obviously, with the [ JCP ], is an important fiscal benefit and gives a good return for shareholders. And we do this process in a quarterly fashion. So the expect of us is once we have profit to be able to pay JCP fully and that's what we did for the first and now the second quarter of 2024.

Okay, Lisandro. Thank you. The next question from [ Tiago Almeida ]. Was there increase of order entry from industries and plants in the state of Rio Grande do Sul? What is the impact for floods -- of the floods in Rio Grande do Sul?

Well, we didn't have a significant impact. In some clients, we had impact in their plants where some machines were covered with water and ROMI made a very special program for the state of Rio Grande do Sul. So we're not charging for servicing and we are changing the necessary part at cost level so they can be back up and running. So we have a special team to be able to accelerate this process. And because we have direct [indiscernible], we are very close to our clients. We are working very fast to have them back on. And many of our clients are already up and running, working and that is the most important for us. But the affected area for the most part were not industrial areas. So there weren't many clients that were affected.

The next comes from [ Rafael Almeida ]. The foreign exchange depreciation that we saw in the last few months, was there any specific strategy to increase [indiscernible] in the foreign market, taking advantage of such scenario?

Well, because of our international prices in euro and in dollar that we have in the foreign market, our prices are just typical that we would have. So we don't have any price change because of the foreign exchange oscillation. Obviously, if we have a decrease in the foreign exchange, we have a better margin in Brazil as well. We have a competitive edge with the prices in reais when we talk about our competitors from abroad. So the dynamics is always to have a dollar or a real that is less value. This brings greater competitiveness to us. And we also like to have a growing GDP, low interest rates because that brings greater investments. That is the dynamics we work with.

The next question comes from [ Marco Karigari ]. Could you elaborate more on these partnerships in the casting area and give your greater optimism for the next year? Could you tell us what sectors that would be?

Marco, we have been able to get some parts for exports and we have been able especially to get new part numbers for clients that are current ones to strengthen our partnerships with these clients in the Agricultural and mainly in Construction segment within our strategy, which is to supply the cast and machine so we can deliver that with added value, the Rough and Machined Cast Iron Parts. And we are very optimistic for the next few years.

The next question comes from [ Corrado Carvallo ]. An individual shareholder. Congratulations on the results. Could you detail the 2% sales share for Asia? What products and equipment?

The revenues for Asia usually come from B+W. B+W went through some retrofitting for Asia and also has in its backlog many machines to be delivered in Asia for the next quarters, especially for the fourth one and the beginning of 2025. So Asia revenues basically comes from B+W where we have a subsidiary in Shanghai working with direct sales to clients and there are many projects that have been already signed and are ongoing. That's where the revenue comes from.

So the next question comes from Christian. Do you understand that the order entry for ROMI Machines reported in this quarter is representative of the rest of the year in relation to 2023? Or can we expect less significant growth?

It is very hard, Christian, to understand the dynamics for ROMI Machines where we're talking about a backlog of 90 to 120 days. So it's a shorter period. So we're talking about in concentration for the third quarter of 2024 when it comes to delivery and some for the fourth quarter. So our dynamic is to keep working strongly in July, August, September to have a backlog for the fourth quarter that can be more robust. That's how we work within our dynamics. And still for the year, we need to work hard to bring for this third quarter an incoming order good so that we also can have a good fourth quarter. That's how the dynamics work for us.

[Operator Instructions] As there are no further questions, I'd like to hand the floor over to Mr. Luiz Cassiano for his final remarks noting that ROMI's Investor Relations department is available to answer any other question. Please, Mr. Luiz Cassiano.

Well, thank you, everyone, for taking part in the release call of the second quarter of ROMI. So we will be here for the third quarter, if you have any extra questions. But we'll be here in October. This will be October 22 our next one -- actually on October 23 will be the call. Thank you and have a great day, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]