Brazil Journal by Pedro Arbex - 14/11/2023
Ambipar reported a third quarter with a record EBITDA and growth in net profit – but with revenue still under pressure from a more challenging circular economy scenario and unfavorable exchange rates.
Gross revenue, at R$1.3 billion, fell 1.8% sequentially but rose 19.6% year on year. EBITDA came in at R$376 million, a growth of 1.7% compared to the second quarter of this year and 38% year on year; and net profit rose 45.6% and 4.8%, respectively, to R$34.8 million.
CFO Thiago Costa told Brazil Journal that revenue fell mainly due to a currency effect, which generated a negative impact of 8% on the revenue of the waste management business, ‘Environment Latam’. In local currency, the vertical would have grown by 5%.
Additionally, there was a drop in volume in the circular economy, the business in which Ambipar buys and sells products such as plastics, paper, and cardboard, intended for the recycling industry.
This vertical accounts for 25% of Environment’s revenue, which, in turn, represents about half of the company’s total revenue.
“This is basically a commodity market, so there is great volatility in raw material prices,” said the CFO. “Since the second quarter, prices have been a challenge, but we are taking advantage of it to buy better. So, there is a drop in the top line, but profitability is better because we have managed the cost of buying and selling well.”
The CFO also recalled that in the second quarter, the company had a very large revenue with the Carbon vertical, generating carbon credits, which made the comparison base stronger. In the period, the company closed a contract “well above average” for a reforestation project with AstraZeneca.
Thiago said the company has been focusing on increasing business profitability since mid-last year – which is reflected in the increase in EBITDA.
This has been done through expense cuts, but also through contract renegotiations. According to the CFO, Ambipar has spent the last few quarters negotiating adjustments, mainly in ‘waste management’ contracts (which account for 65% of Environment’s top line).
“We have been doing this to improve margins,” he said. “Some clients who did not accept this rebalancing, we canceled the contracts, which also impacted revenue a little.”
The EBITDA margin for the quarter was 31.7% – 4 basis points above the same quarter last year and 1.1 bps above the sequential comparison.
Another highlight of the quarter was the reduction of gross debt. Thiago said that Ambipar was able to reduce gross debt by around R$400 million due to the prepayment of debts due soon. Gross debt is now R$7 billion.
Even so, the company’s leverage increased in the quarter, as the company reduced cash by R$600 million due to debt service. Leverage closed the quarter at 2.99x, an increase of 0.09x points compared to the previous quarter.
Ambipar has already reported, however, the pro forma leverage of the business — giving an indication to the market of how leverage will be with the entry of R$709 million from last month’s follow-on. This number is already at 2.5x.
“Even in a scenario of high interest rates, we have been able to service the debt and pay the principal. This is our guide in the short term: reduce leverage and capture non-obvious synergies from the acquisitions we made,” said the CFO.
