Randon SA Implementos e Participacoes

BOVESPA:RAPT4

Earnings Call Transcript

[Operator]

Good morning. Thank you for waiting. Welcome to Randon Implementos e Participações Q4 earnings call. Mr. Daniel Raul Randon, CEO; Paulo Prignolato, CFO; Hemerson Fernando De Souza; M&A and IR Relations; Esteban Angeletti, Finance and Investors Relations Director and the IR team are here with us today. This event is being recorded. [Operator Instructions]. This event is also being broadcast via webcast at ri.randon.com.br. The presentation is also available there. Participants may view the slides in any order. The replay will be available shortly after the meeting. Those following the presentation via the webcast may post their questions on the website. They will be answered by the IR team after the conference.

Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of Randon management and on information currently available to the company. They involve risks and uncertainties as they relate to future events, and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that conditions related to macroeconomic conditions, industry and other factors may cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the conference over to Mr. Daniel Raul Randon, the company's CEO. You may begin your presentation, sir.

[Daniel Randon, executive]

Hello. Good morning. Thank you for being with us for another earnings call of the company. Our CFO, Paulo Prignolato; our Finance and IR Director, Esteban Angeletti; and the IR Director of Fras-le, Mr. Hemerson Fernando De Souza; and the Randon's IR team.

Let me start by talking about the pandemic. As it worsens throughout the country, we are paying closer attention to health and safety protocols in all the areas we operate, especially in Rio Grande do Sul. It's under its highest alert. The health of people remains our top priority.

Before we talk about Q4, let me describe the landmarks or the highlights of 2020, a year that will live forever in our minds. We had to adapt our personal and professional lives, and we had to transform very swiftly. We lived 3 years in one, a very promising year at the start. But with the pandemic, everything changed. In the second half of the year, we witnessed recovery in many industries, but ended up in inflation and shortage of raw materials, scenarios we had seen before in several years, but for the first time in 1 single year.

With the pandemic still present in everyone's lives, it's very important to say that everything -- ever since the beginning of the pandemic early last year, we adapted to protect our employees, their relatives and the entire community and to ensure business continuity.

We were careful enough to look at our customers to support them to face the challenges of that year. And also, our truckers, our partners, truck drivers that remained strong, helping the country to move ahead despite the difficulties. Our people were key to conclude this year closer together as a team and better prepared as an organization.

More than ever, took good care of the 12,000 employees that are part of the company today. Undoubtedly, they are the driving force behind the company. As far as business is concerned, 2020 was one of our best years, supported by years of expansion and investments in innovation that remained our focus. We closed the deal with Nakata and other important acquisitions. They have positively contributed to our results. We established Randon Ventures, our investment unit in start-ups; Conexo, an initiative of open innovation of Randon; and RTS Industry, a unit to support and develop industry or industrial automation. In other words, a very important year for the company.

We aim at being leaders in the market. 2020 yielded opportunities to change our culture and to implement a digital transformation and promote actions to involving ESG. We have revisited environmental initiatives, looking for new technologies to reduce environmental impact. We have strengthened social initiatives, many of them led by the Elisabetha Randon Institute and we have improved our corporate governance.

Despite the complex scenario of this year, new challenges, new possibilities and new learning lessons, have made us even more resilient and confident. We envision a positive outlook for 2021, with recovery in several industries and the start of vaccinations in the world. We are aware that the pandemic is still raging. Therefore, we remain cautious and responsible, like always. However, we are prepared to promote the company's growth, aiming at sustainable future to our business, always aligned with our purpose to connect people and wealth generating prosperity.

Let me start now talking about the Q4 results. Let me talk about the highlights, the overall business outlook and the performance of our top figures. I'll be talking about capital markets and the performance of our several industries in which we operate, and then I'll go back to the ESG and innovation.

Slide 4, now please, let me talk about the highlights of Q4 2020. This has been a very surprising period. No doubt. A positive combination of factors helped us deliver good results. The market that had been recovering gradually as of Q3 showed strong demand, especially in semitrailers and trucks. Volumes were higher than those of the same period of 2019. The main drivers were agribusiness, sale of goods, industrialized goods, e-commerce and the replenishment of our customers' inventories. Exports have improved, too. They had gone through very challenging times, especially the pandemic-related events, closing borders and the slowing down of logistics. By opening up the economy and the good outlook for 2021, because of the vaccines, customers began to purchase again.

The positive demand in the domestic market and also abroad generated good volumes. That helped us absorb fixed costs. CPV was impacted positively. And as a consequence, margins. Of course, we have reaped the harvest of investments in automation, technology and innovation that provided productivity and efficiency gains, generating good results overall.

Yet another positive point is that this was the first complete quarter with Nakata automotive of revenue. It has been having excellent performance.

And finally, we were awarded some lawsuits that contributed substantially in Q4 results, and I'll be discussing that in detail further on. I'll turn it over now to Paulo.

[Paulo Prignolato, executive]

Thank you, Daniel. On to Slide 5 now. Let me talk about our diversified business model. On the top left, you can see net income by industry: 54.9%, auto parts; 42% by our manufacturing division; and 3.1% by services. The auto parts has been the main driver of revenue and it became even more important after the acquisition of Nakata Automotiva, BRL 182 million was its contribution. Revenue by product, semi-trailers stand out, 36.9% of the consolidated net income, indicating that the segment is going through some good terms, followed by friction of Fras-le, 17%, and several products at 15.4%. As to exports by region, the better business conditions in neighboring countries, Mercosur and Chile have become our most important markets abroad at 38.9% of sales in Q4. Number two, you have the group of countries made up of U.S., Mexico and Canada, accounting for 32.4%.

The last chart, you can see revenue by industry, despite the fact that the largest market is OEMs at 56.8% of sales. There is important diversification of products in the group. With the acquisition of Nakata, replenish or spare parts have become even more relevant at 4.1% when compared to the previous quarter.

On to Slide 6. This is the market overview. In the first block, you see production numbers of semitrailers, trucks and buses in Brazil. When you compare on a quarterly basis, important growth can be seen in the production of semitrailers and trucks, given the demand of the market and also the need to replenish inventories in manufacturers and dealers. Buses have not recovered yet. We know that mass transit has been one of the most impacted areas during the pandemic, both intermunicipal buses and also urban buses.

Yearly, you can see a 5.6% increase in the semitrailer production, reaching 69,885 units, the second best year in this industry. This surprising result for such a challenging year as 2020, that is proof of Brazilian agribusiness strength that has ensured the demand of dump and bulk semitrailers.

On to trucks now. Numbers were down 19.9% because OEMs chose to shut down for longer periods of time. They reduced the inventory, and they are slowly recovering their production levels. When you compare semitrailers, when you compare that to production, you show -- we can see a balanced industry. Supply and demand are equivalent throughout the year.

On to trucks now. Sales remained flat in Q4 when compared to the 26% growth in production in the same period. That shows a stronger movement to replenish inventories on the part of OEMs. It should remain in months to come.

On the economic front, low interest rates, financing conditions are attractive. It has helped customers purchase goods. Inflation at 4.52% in 2020, the highest record since 2016, and above the target defined by monetary authorities. In recent months, this has been a very -- an important matter of concern for the company with the shortage of raw materials and productive inputs. We've been working diligently to face these difficulties, and we have been able to mitigate these impacts.

As to the crop year, despite the delayed planting season, the expectation is that we'll have another bumper crop. This is going to be a positive year for semitrailers for this industry.

And finally, exchange rate expectations. It remains above BRL 5, and it's positive for an exporting company such as Fras-le.

On to Slide 7. These are the highlights of our revenues. The 3 industries have shown positive indicators when compared with the previous quarter. Net income was BRL 1.8 billion, 40.7% above that of Q4 '19. This important growth is due to a few reasons: stronger demand, across the board, exports going up, the complete quarter of Nakata Automotiva revenues and more working days since we did not shut out for the holidays in late 2020. BRL 5.4 billion for the year of accrued net income, 6.5% above that of 2019.

Exports now on the next slide. As you can see on the chart, both when you compare the year and the quarter, exports are coming down. In Q4, company exported $38.7 million, a 25% decrease when you compare with the previous quarter; $127.3 million for the year, a 28.7% decrease when compared to 2019. Despite that decrease, we have identified improvements in the recent months.

The manufacturing entity had a surprising fourth quarter, the best of the year. Despite the difficulty with logistics, closed borders, among other problems, you can see a new uptake of businesses. Orders and customers are coming back. Some regions still have some difficulties, such as Africa, that are impacted by the effects of the pandemics and Argentina that is going through some political and economic challenges. Back in October, they stopped importing because of financial difficulties. Things are getting back to normal back in November and December, but still early to determine whether this is a positive trend to stay.

Abroad, we envision a positive portfolio in recent months, but the pandemic can change that overnight. Let me talk about the consolidated EBITDA on Slide 9. You can see that this indicator is improving both on the quarter and in the year. This is due to operational factors and nonrecurring events. When we talk about operations, I'd like to highlight the CPV reduction, both with the increase of volumes sold, absorbing fixed costs, improvements in plants, improving automation, reorganizing production lines, optimizing the layout and reducing productive bottlenecks. As to non-operational's, we would like to highlight the success we had in the tax lawsuits, providing a positive impact of BRL 406.6 million in Q4 2020. I'll be explaining that in further detail shortly.

Our consolidated EBITDA in Q4 was BRL 668.5 million. Margins were at 37%. When we adjust for the nonrecurring events, EBITDA is BRL 278.9 million and the margin is at 15.5%. Consolidated EBITDA reached BRL 1.2 billion, margins at 22.1%. When we adjust for the nonrecurring events, margin is 14.2%, with the adjusted consolidated EBITDA at BRL 774.2 million.

For more information, on Page 10 of our quarterly release, you can find the entire information of EBITDA as well as the impact of nonrecurring events throughout the 4 quarters of the year.

On to Slide 10 now. Let me now talk about the results. This was yet a positive quarter due to the combination of factors we have already described. In the year, we had profit of BRL 664.7 million, despite some of that amount was due to the positive results of lawsuits. Even when we exclude them, the company would remain profitable, both in the quarter and in the year.

Let me point out that positive results are the result of a more comprehensive strategy of Randon to diversify its businesses with exposure to several industries and products, countries and markets on top of investments in innovation and improvements in all processes. It's even more important to be able to say that these results are being reached sustainably. In other words, we generate positive impacts to stakeholders and we are leaving an important legacy behind. We are connecting people and wealth, generating prosperity.

And in order to achieve our purpose, we must manage our cash wisely. I'll be talking about that on Slide 11. As you can see, we have managed to reduce our leverage in the past 5 years, from 2.95x in late 2016 to 0.72x in late 2020. Our net debt, not including the Banco Randon, is at BRL 859.1 million at year's end, improving when compared to late 2019, and it's related to the increase of NCG and by including Nakata to our numbers. When we consider Nakata's operation only, its acquisition and the debt, that number would be above BRL 500 million in 2020.

As to NCG, as you can see, the increase of tax to be recovered because of those lawsuits, I referred to, this amount will not be booked immediately. They'll be booked as tax credit. Our debt is mostly in domestic currency, 86.6%. Only 13.4% is in foreign currency. Its average cost is 3.44% and 3.74% a year, respectively.

On to Slide 12 now. We are going to break down the company investments in Q4 and also the historical data of organic investments. We have invested BRL 174.3 million in the quarter, BRL 92.2 million in fixed. We have brought in capital, 66.5% (sic) [ BRL 66.5 million ], and nonorganic investments at BRL 15.6 million. We have acquired Fundituba at BRL 3.5 million. We have brought in capital of Randon Ventures and Fras-le North America. They amount to BRL 66.5 million. We expanded the Araraquara plant, BRL 9.7 million. And we acquired robots for industrial automation, accounting for -- or amounting to BRL 14.1 million. Investments were prioritized throughout the years, always trying to look for the best opportunities to optimize our businesses.

On to Slide 13. We have some information now about the capital markets. The average daily liquidity of 2020 was BRL 44.1 million, an 87% growth when compared to 2019, at BRL 23.6 million. RAPT4 prices was BRL 16.08 in 2020. The company's market cap is BRL 4.8 billion. Our shareholder base was made up of 39,155 shareholders, 37.7% of the controller group, 23.8% of foreigners, 20.9% of institutional investors and 11.8% of individuals. Back in December, the Board of Directors approved the JCP payment that took place in January, 0.13027 per share were paid out, tax -- net of tax, not including -- there's no difference between common and preferred stocks. I'll turn over to Esteban now.

[Esteban Angeletti, executive]

Thank you, Paulo. Good morning, everyone. Thank you for attending this earnings call. Let me now talk about the performance by division. Let me start with the manufacturing division. BRL 759.6 million of net revenue in Q4. EBITDA was BRL 351.4 million. Margin at 46.3%. When we adjust nonrecurring events in the period, that division would be an adjusted EBITDA of BRL 75 million and a margin at 9.9%. The growth of semitrailers sold in the domestic market was 34% when we compare to the quarter, we delivered 7,688 units. Abroad, we sold 843 units, both from Brazilian plants and those that are abroad. This volume represents an increase of 28.9% when compared to Q4 2019. When I include domestic and foreign markets, that was the best quarter at 8,531 units. On top of that, new orders kept coming in throughout the quarter. And our portfolio is mostly for the first half of 2021. Market share was between 33% and 36% throughout the year. Variations are due to several factors, seasonality and the dynamics of registering these vehicles in every region. The increase in our production capacity places us in a good position to maintain our market leadership, reaching market share above 35% in the year -- in the coming year.

Finally, sales for the spare parts also increased by 30%, reaching BRL 70 million in Q4 2020. In railcars, demand remains low. However, some negotiations are currently underway, and the outlook is positive.

On to auto parts on Slide 15. Let me show you some data about this division. The business environment has been -- or was positive in Q4. Revenue for the division reached BRL 992 million, a 51% increase when compared to the same quarter of last year -- of 2019, rather. The drivers are strong demand in truck production on the part of OEMs, a complete quarter with the Nakata figures contributing with BRL 182 million in net revenues. Exchange rate, 31% above when compared to the same period last year, which helped us in our exports. Good performance of spare parts in the light line of trucks and new customers and new markets. All product lines of these divisions showed increase in volumes when compared to Q4 2019.

This division also expanded its EBITDA. In Q4 2020, it reached BRL 314.4 million and EBITDA margin of 33.4%. When we exclude nonrecurring events, EBITDA would amount to BRL 200.6 million, that would be a margin of 20.2%, one of the best margins in recent quarters.

Finally, let me talk about the services division on Slide 16. This division accounted for about 3% of the consolidated net revenue of the company. Randon consortium also sold more quotas and also revenues in the quarter. For the year, despite all adversities, this unit has managed to reach the goals for the year. Banco Randon also improved, expanding its revenue, 57.8%, when compared to 2019, mainly due to 2 reasons: more sales of Randon and the expansion of the bank's portfolio, such as revolving credit. The average -- or the monthly average of the year was 16% in 2020 when compared to 2019. Randon Ventures is also more present in the innovation ecosystem. It has introduced several projects and partnerships in recent months. Most of the work done in 2020 is now being announced in 2021, such as investments in Delta and Abbiamo start-ups. The investments in Delta announced in -- on February 13 aims at expanding solutions in logistics and transportation, expanding its customer base, focusing on technology and synergies in financial services. Investments amounted to BRL 13 million. Abbiamo is an investment of BRL 2.5 million. This company develops digital solutions to qualify delivery, including purchase, the delivery and the distribution, everything conducted more swiftly and efficiently.

I'll turn back to Paulo now.

[Paulo Prignolato, executive]

Thank you, Esteban. Let me now talk about the ESG. Let me start with the environment. We kept on moving forward to reduce residue and water consumption and the better use of materials. We have been trying to implement technology, including RPAs, robot administrative processes. We had the internal week of accident prevention. We talked about diversity and safety culture. We conducted a very important project called Florestar, a partnership between CTR and the Elisabetha Randon Institute, that involves 40 children and teenagers in the Florestar program. These young people were involved in planting tree, and they have received training programs to understand how important it is to protect our forests. It's important to bring that kind of knowledge to children.

As far as governance is concerned, I would like to point out that we were awarded the Outstanding Company of Year 2020. We were one of the most -- one of the company with the highest ethical standards in the country. We announced our policy with stakeholders at Randon Day. Randon Day, despite being online, allowed our shareholders to get to know the company behind the numbers. We showed our operation, innovation, sustainability strategies. Several executives of the company attended that meeting. This event was recorded, and it's available at our IR website and YouTube, both in English and Portuguese. You can use the QR code on this slide.

Let me now talk about innovation. We are operating in several fronts. On Slide 18, you can see Conexo's CTR and RTS industry, companies focused on technology and innovation. Conexo founded in October 2020 is up and running. One of the highlights is the Start, a program promoting intra entrepreneurship, promoting collaboration and co-creation. In Q4, we had 50 participants and 10 projects that were delivered. These solutions include AI, software and agile methods, CTR, Randon's Tech Center, that's the company that has one of the best facilities to test in the auto industry globally, including labs and dynamic assays. CTR has a partnership with other Randon companies to develop disruptive projects in 3 areas: electrification, intelligent materials and electronics. RTS industry announced back in November 2020, but started operations in February of this year. Its core business is industrial technology, especially that is related to the implementation of robot cells. It started out by expanding its scope. On February 11, Randon announced the acquisition of Auttom Automation Robotic Ltda., a BRL 14 million investment. Its goal is to expand the connections of RTS industry with a state-of-the-art technology in automation.

This concludes my presentation. Let me now talk about the success of the sales tax on Slide 19. In Q2 of 2020, the company had already booked the successes or the favorable decision of the lawsuit, and we also announced that for some of our companies. In late October, that decision was confirmed for 4 companies; Randon, Master, Jost and Fras-le. The gross amount was BRL 860.8 million. Since part of it had already been booked back in December, we accounted for the remaining of that amount, BRL 778.3 million, impacting the EBITDA and the financial results, including the monetary adjustments, not including legal fees and donations and provisions that were booked. In excess, the net impact in our EBITDA was BRL 406.6 million. This amount cannot be booked immediately. It's going to be offset in tax credits -- federal tax credits in the coming years, just like we announced that in our material fact back in -- on February 16, another company were awarded the same result, Castertech. These amounts will be announced shortly.

Randon and Fremax subsidiary of Fras-le, lawsuits are currently underway, despite the company had decided to book these amounts in this current quarter, we analyze the situation carefully with the support of lawyers and consulting companies. There are still some risks, especially the decision that is still pending in Supreme court as to the methodology of calculation, if that is changed, that can change substantially these amounts.

Let me get back to Daniel now for the company guidance.

[Daniel Randon, executive]

On February 11, we have announced through material fact, our guidance for 2021. Our revenues, we expect growth at 25%. To reach that number, we considered these drivers: the expectation of a bumper crop, growth of truck production and railcars, GDP growth after 1 year of retraction, favorable exchange rates to exports, price transfer and 12 months of Nakata revenue. In 2020, we had only 4 months of that revenue. When we look at revenue, abroad, growth is at 17%. 2020 was a very complex and challenging year, abroad. But we can see gradual recoveries in several regions. Imports projection has been expanded, especially because of the Nakata operations. They purchase relevant volumes of products aboard, and they are resold back in Brazil. Organic investments, most of those, BRL 250 million, will be focused on maintaining our assets, most of them industrial and some directed to automation projects. Manufacturers can affect our projections. There will be major challenges in the year, but we are confident in the company's retention in our capacity to reach our targets.

Before I close, I would like to invite you to participate in our institutional investors survey, especially when it comes to investors relations. This is a very important poll because this is a means to assess our practice and what we do. Please take the survey. Thank you once again for attending the earnings call. I'll turn over back to the operator so that we can start the Q&A session.

[Operator]

[Operator Instructions] Marcelo Motta from JPMorgan, asks the first question.

[Marcelo Motta, analyst]

I have 2 questions. Can you talk about the cost price? Commodities are going up. There are positive impacts, of course, but it may impact the price of steel. And the second question is about competition. Some competitors are planning to boost their production. Are there any risks of a price war that may impact your margins?

[Unknown Executive]

Motta, thank you for attending the call. Thank you for the question. As to the pressure of costs, we understand it's a matter of concern for investors and for ourselves. We see that happening in terms of raw material. We have seen that for steel. And this is one of our top concerns, and we have been able to manage that. And there are 3 initiatives. The first one is negotiations with suppliers, long-term partners. This can help us in having better negotiations.

And when we work with processes, when we automate and include more robots to try to mitigate part of that inflation pressure. And that initiative that we started out back in 2016, the purchasing department to replace some raw materials. Of course, it's been going on for quite some time. We've shown the benefits, and we are going to keep on working in these 3 fronts, to use the price transfer as the last resort.

If there is room to increase prices, of course, we're going to do that to maintain our margins. As to the competition, we have seen recent news of competitors not only increasing their capacity, but also increasing their capital. This is positive. When you have a professional capital markets, this is positive. However, we haven't seen any price pressure, a competitor trying to resort to discounts to gain market share. That pressure coming from costs would not allow for a price war. Strong demand wouldn't justify that price war. Based on the information we have now, this is what we see for the year. We don't expect any price wars in the near future.

[Operator]

Mr. [ Anderson Menezes ] has the next question.

[Unknown Analyst]

Congratulations on the results. I would like to better understand your expectations as to the foreign markets, exports. Despite the second wave and borders being closed down, what's your take on the near future? And the second question is about the margins. What should we expect something similar to the first half of 2020? Or is it going to be more similar to 2017, 2018 numbers?

[Unknown Executive]

Thank you for attending the call, Anderson. As to foreign markets, when you look at semitrailers, we are more focused on Latin America and Africa. These 2 markets are still suffering, not only from the pandemic, but economic and politically-related problems. The outlook is somewhat better now than for last year. They had some restrictions as to importing products, and we don't see that as much this year. But we're still going through the second wave. We'll have to keep on monitoring on a daily basis. The outlook seems to be somewhat more positive.

As to spare parts and Fras-le, the outlook is positive, especially for brakes in the American market. The demand is positive for the year. The expectation is -- I think there is a market consensus that it's going to be very difficult to maintain the margins we had in Q3 and Q4, not only because of the cost pressures, but we had some favorable factors, especially when compared to 2019. We did not shut down for the holidays, like we usually do in late 2020. We believe these margins will go back to our -- to historical averages.

[Operator]

Catherine Kiselar from Banco do Brasil asks the next question.

[Catherine Kiselar, analyst]

Congratulations on your results. My question is about the market share. Despite this competitive environment, you were able to gain market share. What's the expectation? And what's the rationale behind it? And I'll have a second question shortly.

[Unknown Executive]

Thank you, Catherine. Thank you for attending the call. As to market share, we have been at the 35% average. Our goal is to be close to 40% at all times. We did not only have capacity restrictions this year. Sales and registration of vehicles did not match this year, especially in Q4. We sold 1,000 units above those that were registered, so this will be a positive impact in Q1 of 2021. So our goal is to reach that 40% mark this year. On top of the dump semitrailers and bulk semitrailers, we are market leaders. We want to be leaders in other truck markets. These -- or these products is very linked to consumer goods that expanded somewhat because of e-commerce, and we introduced a new product last year. Lighter trucks more efficient, more durable. This was a very positive introduction, and we expect that this growth will remain for the year as well. And what's your next question?

[Catherine Kiselar, analyst]

My question is about railcars. We have seen some orders. What's your take? What's the rationale of this more positive outlook for this segment?

[Unknown Executive]

Great question. We've seen good news. When we talk about concession renewals, we see negotiations going on early this year. This may impact the second half when we recognize that revenue. The semitrailer market -- or the railcars may remain according to historical, between 2,500 to 3,000 units. And we may absorb part of that market. Our goal is to maintain the market share we had at 30%. We haven't had any effective orders to share with you, but you will be informed. The market will be informed throughout the year.

[Catherine Kiselar, analyst]

When you see that positive outlook, are you considering expanding your capacity?

[Unknown Executive]

No. We expect this demand for 2021. We invested in our Araraquara unit last year. In late last year, we decided to create a railcar line, and it's operational now -- it will be operational in Q1 and will be able to meet the demand of the market for implements or agricultural equipment and also railcars. Thank you for your question.

[Operator]

[Operator Instructions] Since there are no questions, this concludes Randon earnings call. Thank you much for attending. Have a good day, and thank you for using Chorus Call.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]