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

Good morning, and welcome to ROMI's Earnings Call where the Results of the Fourth Quarter of 2024 will be discussed. Before proceeding, I'd like to clarify that this earnings call is exclusively for investors and investment professionals. Any forward-looking statements that may be made during the conference call regarding the company's business prospects, projections and operational and financial goals are mere forecasts based on management's expectations regarding the company's future. These expectations are highly dependent on market conditions, the country's overall economic performance, the industry and international markets and are, therefore, subject to change. It is worth remembering that this conference call is being recorded and held in Portuguese with simultaneous translation into English, together with the slides available in the results center of our Investor Relations website at www.romi.com/investors. [Operator Instructions] With us today, Mr. Luiz Cassiano Rosolen, Chief Executive Officer; and Mr. Fabio Taiar, Chief Financial and Investor Relations Officer. First, our executives will present the results of the fourth quarter of 2024, and then they will be available to answer your questions. Now I give the floor to Mr. Luiz Cassiano.

Thank you, Giovanna. Good morning, ladies and gentlemen. I thank everyone for attending ROMI's fourth quarter 2024 earnings call. We are ending the year in a very positive way with emphasis on the increase in the order intake for ROMI and BW Machines. As a result, we started 2025 with a very solid portfolio. In the ROMI Machines unit, in addition to the growth in order intake this quarter and the robust backlog for 2025, 37.9% higher than in December 2023, we recorded an increase in revenue and a significant evolution in margin. At BW, our unit in Germany, the highlight was the closing of new projects, which completed the portfolio for 2025, and we already have projects closed for 2026. Regarding the Rough and Machined Cast Iron Parts unit, we still face challenges with sales volume, especially due to demand in the agricultural and renewable energy sectors. However, we are optimistic that the reduction in inventories of our agricultural customers should result in a gradual increase in deliveries throughout 2025. In addition, we have started the development of parts for new customers in the energy sector, which also brings us good prospects. I also highlight the robust cash generation in the quarter, the consolidation of the machine leasing business and the advance of products, our FinTech that supports this operation. We enter 2025 confident that our competitive differentials will allow us to continue evolving and adding value to all stakeholders. We continue to invest in innovation and new technologies, keeping the focus on our commitment to customer success. I thank the entire ROMI team for their dedicated and customer success-oriented work as well as our stakeholders. I now give the floor to Fabio, who will detail the results for the year and the fourth quarter of 2024. Thank you.

Thank you, Cassiano. First of all, good morning, everyone. Starting for the highlights of our quarter, we had a fourth quarter of 2024 that is quite robust when it comes not only in terms of operating results, but also for new businesses that were generated. Starting with EBITDA, we had a BRL 79.1 million, which is a margin for the fourth quarter that is very positive, 17.3%. We also had an order entry of BRL 346.7 million as a highlight, which is a significant growth compared to the fourth quarter of 2023, nearly 27% over the fourth quarter of 2023, mainly growth on ROMI Machines and BW machines, bringing a high volume of orders. Getting into our business units, when we talk about specifically the ROMI Machines, we have nearly 38% growth in volume of new business generated in the fourth quarter compared to 2023's fourth quarter. We had a growth here in both sales and also was very positively impacted by the result of the rental business. In terms of operating revenue, the unit reached BRL 260 million for this last quarter with a growth of nearly 20% compared to the fourth quarter 2023 which made us reach a result that is quite important when it comes to ROMI Machines. BW Machines, the big highlight is still the volume of new businesses, many important projects being concluded in this fourth quarter of 2024. We were able to conclude BRL 120 million in new business for 2025 and 2026, which represent an increase of nearly 29% compared to the volume of the fourth quarter of 2023. When it comes to machine rental, it's still quite consolidated. Again, in 2024, there was a significant growth year-over-year with 41% growth. I t is a business that has shown quite an acceptance and competitiveness in the market that is very important. And we're always looking at machine rental together with products, our FinTech that supports the sale of this machine back from rental to have a retrofit in that way, it's able to be carried out through products. For consolidated, we should also highlight the order backlog, while we have 32% year-over-year, that is BRL 651 million. So we get into 2025 with a robust order backlog for both ROMI Machines and BW. For cash generation standpoint, we had a strong also quarter, BRL 51 million generated. That is very important because there was a significant reduction of the net debt, which was around under BRL 3 million and a good outlook also for the year of 2025. Other highlights where we have here the distribution of interest on capital. We have been stating on a quarterly basis. For the fourth quarter, it was not different. It was BRL 20.5 million, and it will be now carried out at 2025. And finally, actions and measures related to governance and also social and environmental for the Black People Conscious Week, we foster an event to fight racism. Going a bit more into the macroeconomical aspect, the conjunctural indicators, we see that they were favorable for the industry, both for what we see here, gross fixed capital formation, where we see a growth of over 10%. And we should highlight here the production of the goods for capital goods. And we can see this year and also a bit less related to it, which is the construction side. And the GDP, industrial GDP shows a growth of 1.3% for the quarter, which we can also see for the next slide, which we will be referring to when we talked about the installed capacity utilization. For 2024, we see every month at the best level since 2017. And this is something that we have been saying and with our own sales team and being very close to our customer. That is the feeling we get on a daily basis from our customer with a volume of activity that is very significant, although we did have 2 months a slight reduction. But in any case, the business environment and now for the beginning of 2025 is quite favorable. And finally, the Industrial Entrepreneur Confidence Index, what has been at more of an optimistic level and less optimistic level, which would be under 50 points. It has been since the second semester of 2022, oscillating from 48 to 53 points. So we can see that, and there is much industrial activity, but there is a lack of a clear outlook so that industrial entrepreneurs can feel more comfortable and more confident to actually carry out more well-planned investments. When it comes to the different segments that demand our machines, for ROMI Machines, we still have -- and this is our characteristic to have a great reach for machines and equipment where we have a plurality that is very important of machine equipment in all the different type of industrial sectors. For job shops, we also have quite a rich and diverse in terms of different sectors that the job shops attend to. The automotive for 2024 is still a tougher year, losing a bit of the market share. But on the other hand, packaging, especially for blowers, it was very good in 2024 and all the other segments are nearly constant when we compare 2024 and 2023. For BW Machines, it is a type of machine where we consider larger projects of specific segments for smaller or less options of segments. And in 2024, we can see the main ones still the same as we had in 2023. There was a highlight for machines and equipment. We did have delivery for a major customer in the construction segment, and that represented more in 2023 compared to 2024. But in any case, the main message here is that BW has been able to find options even being in an environment of global economy that is not at a peak, still looking for alternatives, finding them both in Asia, in Europe and also in the U.S., allowing us to constantly in the last quarters having a significant volume of new business. And for Rough and Machined Cast Iron Parts, starting here with the energy, as Cassiano said, it still very -- has been very retracted in 2024. We have evolved with a new local manufacturer still at the initial stages, but a good outlook. But when it comes to revenue, 2024 was still much less for the wind power segment. For agricultural machine, we also see that where we did really well for the first quarter of 2023, and then it started to lose its speed in 2024, still at a lower level, but potentially with a better balance of the inventory now, we have quite an outlook to have a bounce back of this segment for this year. For commercial automotive, when we talk about absolute numbers, it's stable. Mostly, we're talking about the same. And for the civil construction, we should highlight where we see an important increase where there is a big volume of new projects in this segment -- so we also see a good outlook for the current year. When it comes to distribution of revenue, ROMI Machines is the one that grew the most we'll see later on, which is the largest growth of revenue when comparing '24 and '23, and it comes both from selling machines in the domestic market, but also important growth in the machine rental business since the foreign market in 2024 is nearly at the same level of what we had in 2023, still lacking a strong comeback. So ROMI Machines grew here 3% in terms of representation. BW in reais is nearly over 2023. So it did get some participation. And for cast iron parts for the agricultural and energy segment, we had less revenue in 2024. So it represented less for the total revenues. In terms of geographic distribution, Brazil lost some of the participation there, especially because we had cast iron reduction, and that's mostly in the domestic market. ROMI Machines grew in the domestic, but BW had a good performance in 2024, and that is all in the foreign market. So Brazil lost a bit of the representation. Here and Asia should be highlighted, which is 100% represented by BW's projects. And we still have excellent projects in Asia for 2025 with BW and Asia representing 10% of the total of 2024. In terms of order entry, we see that there's great generation of new business with ROMI Machines highlighting what we have BRL 180 million of new orders for the fourth quarter. That is a growth of nearly 38% year-over-year. And again, both for machine sales and also machines rental, which shows a consistent growth every quarter. BW also, we have mentioned that we have a consistent volume of order intake and to have a backlog more for the long run, and it brought for the fourth quarter BRL 120 million. That is nearly 30% year-over-year. And that is both European customers, Asian customers where we have a diversity of locations. And Rough and Machined Cast Iron Parts, we are still facing a challenging environment. We have pretty much the same level of orders compared to 2023. In order backlog, although we had a revenue that was quite important for the fourth quarter, we also were able to generate a volume of new business that was significant that allowed us to end December at a robust order backlog into the future. So for ROMI Machines, we see great growth year-over-year, where there's over 32% BW, we have a growth also that is quite high. So this is for 2025 and a part of 2026. And for Rough and Machined Cast Iron Parts, although it did grow, it is an order backlog that's still a bit over what we had in December 2023. And in the consolidation, it represented back or order backlog of BRL 61,000, which is a bit over. And here, we see that these are the figures for the closing of December. And in terms of results and margin, for 2024, we had a gross margin that shows also an evolution year-over-year, a bit more volume also. In terms of growth of revenue, we were able making the gross profit increased BRL 30 million and that also allowed us to have a better reduction of operating expenses. And that means that when it comes to EBIT, we see a growth of 50% compared to EBIT and the margin also of 11.4% to 13.7%. The same way EBITDA shows quite an expansion where we reached BRL 79 million, which also represents an increase of 14.9% to 17.3%. And if we look at the track record, it is for the fourth quarter, an EBITDA margin that is quite robust. And this is also can be seen here in net income, where we go from BRL 36 million to BRL 49 million, representing a margin increase of nearly 1.5% to reaching 10.8%. In terms of the business units, ROMI Machines, we had an increase in the revenue, both for sales and also for rental. We had a reduction of the gross margin. It is quite competitive now and to reach a certain volume, we had to make some additional commercial efforts, but part of that was also compensated by the rental, machines rental. So 2024, we were able then to keep, although at a very competitive -- high competitive market, we are still at a healthy gross margin and allowing us to reach 22%, which is a great level within this volume of activity. BW in reais a bit over. In euros, it's nearly stable. The foreign exchange variation shows a bit of a growth there. And for the margin, there was a reduction. And basically, this is because of the mix of products where the products for 2024 has a margin that is a bit less than 2023. And that way, since there wasn't much volume growth, we had an impact here in the EBITDA margin. And for Rough and Machined Cast Iron, as we already mentioned, last year was already a year of very low volume. If we look into 2021 and 2022, where we had a volume much higher of what we had in the last 2 years, both for the Agricultural segment and for the Energy segment, and that's what we had for the last 2 years. And there was still that retraction starting in the second semester for the agricultural sector and with a very low volume for the use of capacity. It is quite of a challenging environment to be able to evolve margins. But still, with all reduction, we were able -- there was a bit of worsening of the margin, but we were still able to get some operating efficiency to be able to offset partially this additional reduction of volume. And we know this impact in the EBITDA margin so very hard year for Rough and Machined Cast Irons. In terms of cash generation, as we already mentioned, we had an excellent quarter where the net debt got to a level that is very healthy, a cash that is very robust of nearly BRL 362 million. That means quite enough to be able to meet the financial demands. And we also had new capture for the fourth quarter so that we could equalize according to the timeline, the debt. So the debt for 2026 has already been elongated to 2027. That way, we have a financial position that is very solid for the company. And finally, the year of 2024 showed an evolution for the quarter, especially for the fourth quarter itself. But when it comes to Rough and Machined Cast Iron was harder so in terms of performance is under Bovespa, but we end the year with a backlog much over what we had in 2023. Obviously, all will depend on the business environment that we will see throughout 2025, but with a good outlook based on the evolution that is very important of what we had at the end of 2024. So with that, we conclude the presentation. Thank you, everyone, for your participation. Now we are available for the Q&A session.

[Operator Instructions] The first question [ Pedro ].

Does management believe that the machine rental business will be the main revenue generated during the future?

Thank you, Pedro, for your question. We really believe in machine rental as a very important product to our clients, one that our clients can have flexibility, can always have a machine that is state-of-the-art because we only rent a new machine. So when it's only for one to 2 years, and they can always renew, and they will always get a new machine one year or 2 years later. And there's also flexibility if it needs to be bigger or smaller. So it's a product that does bring this flexibility, and there is a cost which is very much competitive and interesting. So there are many factors that generate to our clients a very important and interesting product. But if that will be the main revenue generator into the future, that depends on our customers, either buy or rental. We were ready to give them support to whatever we believe is the best for their success for their business. So we'll have to wait and see how the customers will react to the new product we have. 2024 was a record for machine rental. So we see that there has been positive reaction, but we will need to wait and see if it will be the main revenue generator into the future. That's in the hands of the customers.

Second question comes from [ Jose Otara ].

In the case of the reported increase in business in terms of number of leased machines, what would be the annual variation considering the net revenue?

Well, in terms of machine, we see the growth of 41%. In terms of revenue, that is approximately 30%. What happens? You grow with the number of orders and these machines are being produced and delivered and you have the volume also increasing. So we had in the year, an increase of 41% amount and 30% in net operating revenue.

The next question is from [ Antonio Rizo ].

If possible, elaborate on what can be expected regarding the margins of the orders in the backlog of ROMI Machines and operations in Germany.

The order backlog for ROMI Machines are aligned with 2024. So we don't expect much oscillation in terms of margin. For the Germany operation, we are very optimistic. The incoming orders for 2024 was very important, very good. For the first time, we are starting BW in Germany with a solid full backlog order, a good one for 2026 already. So we are in an environment with good projects where we had a change of structure, change our focus on customers and trying to be more customized as much as possible, much engineering in the projects -- many of the turnkey projects, which also is important for our margin. So for 2025, we have a solid order backlog, great projects in the subsidiary of Germany. So they are for China and much for Europe and the U.S. So we are optimistic in terms of revenue improvement of the margin consequently for BW.

And the next question also from Antonio.

Focusing on the issue of margin, it depends on volume and partly on the relationship between cost and revenue.

That's right. I think I already answered that with our previous answer.

The next comes from [ Mauricio ].

Congratulations for the results. Can you detail a bit more the outlook of the Rough and Machined Parts for the wind energy segment? Do you see that possibility for 2025?

I'll talk about the wind energy and also for agricultural. It was very important, which was 20% of the revenue and wind energy became half of the revenue of our Rough and Machined Cast Iron Parts. In 2022, we had over BRL 500 million, BRL 507 million as revenue and for the last year, just BRL 170 million. So we're talking about 2 segments that were very important that dropped quickly. The wind energy segment did quite vanish since 2022 and the agriculture dropped a bit in 2023. And from 2023 to '24, it dropped 48%. So quite a steep drop as well. But when it comes to the wind energy, specifically, we started a project that was very important with a new manufacturer of wind turbines in Brazil. We're very optimistic, very competitive manufacturer, and we believe that, yes, for 2026, we should have some projects. We still do not have the order intake, but we should see some for 2026 for 2027, and we will be back having orders for this segment, maybe by 2025 for those projects that they will deliver in 2026. For the agricultural, taking into consider that we didn't lose any part number that we are really close to our customers, and we did not lose any share and that the production of agricultural machines in 2024 dropped 20% and our drop was 48% in the agricultural industry. We believe that inventory of parts of our clients is quite low, and we have been talking to them about that, and we know that. So there is an expectation that if production for 2025, although it might remain the same level of 2024, it won't drop more, and we then see that there will be a cutback because of inventory and at some point, in 2025, we'll see a growth again in this segment. These are 2 -- were the 2 most important with very steep drop in the last 2 years Mauricio. That is the dynamics of the Rough and Machined Cast Iron Parts unit. We work strongly. We have new part numbers that will come in, in 2025, especially in 2026. It takes some time, but that's the dynamics of the market.

The next question [indiscernible]. Congratulating us for results. We'd like to thank you. The next question comes from [ Rafael Amilde ].

Is there an outlook into serving new markets based on innovative solutions?

We have been adjusting with the markets that we already have abroad and introducing increasingly more direct sales and getting closer to our customers. So we have been structuring our sales team and reducing sales through dealers and implementing direct sales. It takes time. We know it does. It is a mid-, long-term work, but we know that with our solutions and our product, we can also have it more relevant other than what we have in Brazil. This is a strategy, and we have been working on alterations to meet the demand of the market.

Okay. Next question comes from [ Marco Carigari ].

What explains the worst performance in the fourth quarter 2024 in the casting -- the rough machine casting iron parts? And what can we expect from 2025?

I believe I've already mentioned this result of what to expect for 2025 for Rough and Machined Cast Iron Parts. For the fourth quarter of 2024, we had a production that is 20% less than what we had in the third quarter of 2024. This is when we come to a halt where we need to have that where we stop for 30 days. We go to a full halt. And the fixed cost is one that does not reduce. So this did hurt the margin. So what we expect for 2025 is a bounce back from the agricultural industry in 2025 with other part numbers and perhaps a good surprise with wind energy demanding some parts for 2025.

Next question also comes from Marco Carigari.

What to expect from the concentration of BW deliveries throughout 2025?

Marco, it will be different. 2025, we have deliverables that will be better diluted throughout the year. There is a certain concentration on the second semester, but they are much better in terms of their distribution throughout 2025. That's why we see optimism when it comes to the performance of BW for 2025. And this makes us have an environment of productivity that is much better. And we know that in Germany, productivity is very important because cost of labor and the total cost of the product is relevant, highly relevant. And we have much expectation for 2025, both in revenue and productivity of our plant throughout the year. So that for us brings advantages for projection, planning efficiency of the plant. Thank you for your question.

Next question comes from [ Francisco Moro ]. With this result, can we expect dividends or JCP's potential bonus for the 2024 fiscal year?

Well, the dividend is always something that the Board is the one to choose, and then it's sovereign to shareholders in the general assembly. Our policy is to pay out dividends throughout the semesters because we get fiscal benefit with the JCP. So we pay throughout the quarters, the legislation still works that way, and that is very important. Obviously, this interest over own capital, the JCP is 33%, and this is our target for this year was more for 2024, but this is something that the shareholders shall choose at their assembly.

The next question comes from [ Allisandro ].

Congratulations on excellent results. I'm an individual investor, and I think ROMI is a great company for investors who like the industrial sector and want some level of exposure to it. Regarding the net debt and the new reality of higher interest rates, how is the company addressing the issue? Another more general question. Can Industrial Machines and BW capture future synergies and innovations in the face of the AI revolution?

I will talk a bit about the debt and Fabio, maybe if you want to add to that, please go ahead but our debt is very healthy. Although we have a net debt, we have many lines incentivating innovation, exporting with great interest. So the cost of our debt has dropped especially now in 2024, even with the interest rates, and Fabio can get into the details, but it's something we have managed greatly with a very robust rate and something that is very good for our shareholders because it's very competitive, very good. And when it comes to the Industrial Machines and BW Machines, yes, we do use artificial intelligence. We've been using for some time now. And we've been working on improving their experience with the use of artificial intelligence. We already have the machines connected where data is being collected in a very well-structured manner. And we have seen excellent results, both for the engineering projects where we have the full R&D with 120 engineers in Brazil and 30 at BW, where they collect data and work on the engineering, R&D and using the tools of artificial intelligence. We are working strongly in that area, and there's always a novelty being released to our customers, and we have many more to be released throughout 2025. So for us, it is a great opportunity. We are aware of that. We have changed our strategy of hiring of the profile of engineering so that we can harness that which artificial intelligence furnishes to us. We know that is very relevant. ROMI has always been very well-organized structure for data capturing, which is very interesting, not only capturing data through connectivity, which is something that we already do of 100% of the machines that has been work we've been doing since 2020 furnishing data through this, but our CRM, our job shop software, our credit analysis, all of that. This is data that I think is important in our database and are really well-structured training to our customers. This is all data that we have, and we are using AI tools to be able to really make a difference with our clients. But thank you for the questions.

Please give us more detail on what to expect of the future of Villa Romi Residence.

Well, now with Villa Romi Residence, we just have accounts receivable in the midterm, the project is nearly over. There is not much cost to incur. So we will not recognize anything relevant as what we had in 2023, which was the major acceleration of the site. So Villa Romi Residence for '25, '26 accounts receivable, cash generation and not much revenue recognition. I think I've answered it all. Is that right, Fabio?

That's right.

Okay. [Operator Instructions] We have one more question from [ Victor ].

Can you comment on the quarterly retraction in terms of order intake and backlog and why that was the case?

Well, Victor, we had an improvement. There is the seasonality. So usually, we compare the order backlog with the fourth quarter of 2023. So this for machines -- and we see 37.9% growth in coming order in our order backlog, also closing 32% over the same amount 2023 and for BW as well. There was an increase in the order intake and also for the order backlog that closed stronger than what we had last year, where it did grow compared to December 2024, 34.4%. If we look into the third quarter, fourth quarter, there's the seasonality because the second quarter, for instance, you have the expos and also a major event that is traditional for ROMI campaign events. So there's the seasonality. So usually, we look into each quarter, and we realized there was improvement in order intake for ROMI Machine and BW and also the order backlog that we closed for these 2 units and also for Rough and Machined Cast Iron Parts.

The next question from Jose Otara.

I think that the topic about capture of synergies in BW and ROMI Machines is still not fully clear.

Well, ROMI is already the -- we know that it's the second supplier of BW. So there's quite a synergy. So all the Rough and Machined Cast Iron Parts of BW, we send them, we send frame of the machine. So this is a synergy that is very interesting. We also have developed R&D where we share. So we have people in our team from ROMI that is in Germany and a program that is a 2-year program in engineering. And we also have for the Brazil team, people that are dedicated with R&D and assisting BW in engineering. For sales, synergy is not as much, but we have already sold ROMI machines for BW clients, traditional ones at different parts of the world. But when it comes to sales, synergy is less. That is one point. And for R&D, I think it's important because, obviously, we have contents and applications that we have for both machines, both for ROMI's and BW machine. I believe I was able to explain a bit more how the synergies work.

Now from [ Carlos Gujero ].

How do you see ROMI's growth in the Asian market? Is there a future outlook in terms of growing more in this market? What is the globalization plan for ROMI?

Specifically for the Asian market, the growth is BW. So when we look at the consolidation, we see Asia and it was relevant for BW in 2024 because there were many projects that went into this market. ROMI doesn't have much presence in the Asian market. Our focus for the globalization plan is -- are the subsidiaries in Europe, U.S., Mexico, and Latin America. That's where we're better known, where we have been in operation for over 20 years and where we have been working strongly to be more relevant.

The next question comes from [ Luizando Raga ].

One last question. Although we still don't know much about the consequence of the trade war and the imposition of tariffs between countries, given ROMI's exporting nature, is it possible to foresee any direct effect or consequence on the company?

Well, yes, everything can impact and the major concern is that we will have higher tariffs abroad and even inside Brazil, and this can make us have a reduction of the GDP in the country. And with that, we have a negative impact because ROMI sells capital good. So we sell productivity and growth to our clients. So if they are no longer looking into productivity and they don't want to allocate capital with that focus and are not looking into growth, the demand for machines will not be as good. So perhaps -- that is the macro problem we can have if there's a tariff imposition and trade war. We will have to -- obviously, there's a concern. We know we have exports to the U.S., BW exports to the U.S., to Germany, and we have an operation that is significant abroad. And obviously, we do have such concern. I believe we're done with the questions.

As there are no more questions, I'd like to give the floor to Mr. Luiz Cassiano for his final considerations remembering that ROMI's Investor Relations department is available to answer other questions. Please, Mr. Luiz Cassiano.

Thank you, Giovanna. Thank you, everyone, who attended ROMI's earnings call for the fourth quarter 2024. And we are here available if you have further questions, and we'll see you next earnings call in April for the first quarter of 2025. Thank you everyone.

ROMI's earnings call has come to an end. We thank everyone for your participation. Have a good day.