Grupo Multi S.A. (MLAS3) Earnings Call Transcript & Summary

Good morning, and thank you for holding. Welcome to Grupo Multilaser's conference call today discussing the earnings of the second quarter of 2025. [Operator Instructions] We inform that this conference is being recorded and will be available on the company's IR website where you will find the complete set of materials for our earnings release. You can also download the presentation on the chat icon also available in English. [Operator Instructions] Note that the information in this presentation and statements that may be made during this conference call relating to Grupo Multilaser's business prospects, projections and operational and financial targets are based on the company's management's beliefs and assumptions as well as on currently available information. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and hence, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the future performance of Grupo Multilaser and lead to results that differ materially from those expressed in such forward-looking statements. For the full disclaimer, please refer to the second to last slide of this presentation. Here with us today, we have the company's executives, Andre Poroger, CEO; Richard Ku, CFO and Investor Relations Officer. I would like to turn the floor to Andre, who will begin the presentation.

Hello. Good morning, everyone. It's a pleasure to be here with you. Thank you all for your attendance. So let's begin the earnings presentation for the second quarter of '25. First, I'd like to bring some highlights. I'll summarize some of the quarter highlights. We had an increase in revenue of 21.7% compared to the first quarter of 2025. We've also been able to recover gross margin significantly with 1.2 percentage points compared to the first quarter. We also had an increase in EBITDA of BRL 25 million. That's a significant increase in EBITDA. It could have been better. It's important to note that it could have been close to BRL 26 million. We had an adjustment of structure. So we had some additional costs and expenses in the second quarter. Otherwise, this number could have been BRL 6 million better, getting to close to 4% of EBITDA. And net income has made good progress, a lot due to FX variation, especially in the first quarter, where we had 6-point something and 5.7%. So we had some advance also helped by the FX recovery. And a very important indicator that we've been monitoring very closely is operating cash. Operational cash flow had a cash generation of BRL 64.9 million in this quarter with a reduction of net debt as well of BRL 52 million from BRL 216 million to BRL 164 million. So we consider that there has been great progress compared to the first quarter and the indicators show that. And that makes us confident that continuing with the work that we've been doing, with the measures that we have been adopting and we also know we are aware that this is not the ideal number. It's still not good. It's the beginning of an important recovery path. That gives us confidence and makes us very excited to see this progress in the second quarter. Here, just briefly talking about the initiatives over the last conference call, we talked a little bit about our focus for the quarter. And one of the things I mentioned was operational efficiency. So it's important to note that we had been able to readjust the structure to the size of the company, and we understand that this has already been concluded in the first days of the quarter. And as I said, there has been a one-off increase of expenses in the quarter due to this adjustment. But this change will allow us to get significant expense reduction in the future. We estimate between BRL 40 million and BRL 50 million here. So that has been -- the first phase has been concluded successfully. The second point is the working capital optimization. Indicators have also been showing important improvement here in inventory days and inventory reduction. There's a strong work we've been doing to optimize purchases to better plan with our main partners, working with products with a lower inventory. Each inventory day for us represent about BRL 3 million of capital. So we're very focused on this reduction of optimizing inventories, and this will bring a lot of gains to the company. And the third point, we have just concluded our new distribution center in the Manaus industrial hub. I don't know if everyone is aware, but this is a place with more than 16,000 square meters. It's ready. It's operating now. And this is basically going to be our new television set factory. So this new center allows us to double the current TV set production that we've been doing with both the multi-brand Toshiba and Hisense. So this will allow us to double the production. And as you can see in the picture, there's also an expansion. You can see that we are capable of expanding this center in the same plot of land, which is very good. So as we get new projects to manufacture in Manaus as we are always studying or the expansion and optimization of the lines, we can do that. Because of its layout, it allows us to have a more efficient production line for TV sets. We're very excited with this new project that's already been delivered in June. The TV factory will start operating as a logistics warehouse and the TV plant will migrate next year due to seasonality. I'll turn over to Richard, and he'll talk a little bit about the financial highlights.

Good morning. Thank you, Andre. Thank you, everyone. So let's talk a little bit more on the detail of the financial results. Starting with net revenue. As Andre pointed, our revenue in the second quarter had significant progress compared to the previous quarter of 21.7%. This is driven, as you see, mainly by 2 important segments, Corporate, our Specialized Retail segment. And when we compare with last year, there was a 5% growth, also driven by these 2 segments. It's important to note comparing to last year, we're still struggling with the product discontinuation that we concluded only at the end of last year. So in a base of continued products, this 5% would have been 8% of growth in the continued products. When we look at gross profit, there's good progress and our gross margin would be 24.9%, 1.2 percentage points better than the first quarter of '25, almost 3 points -- 2.9 percentage points better than last year. Again, when we look at the detail driven compared to the market, this is also driven by our Corporate and Specialized Retail segments. And we're thinking of maintaining margin in the Retail Tech segment. When we compare it with last year, the significant progress of 3 percentage points, it's also a reflection of these segments. We've been working very strongly on efficiency -- operational efficiency, both in our commercial chain and the operations chain, our plants, bringing this improvement in the first half of '25 compared to last year. On the next slide, we'll talk about EBITDA. Our EBITDA closed the quarter with 3.3% margin. As Andre said, in this quarter, we had the one-off effect of the readjustment costs that we concluded in this quarter. This effect of this one-off cost was BRL 6.6 million. Excluding this effect, our EBITDA -- the running rate EBITDA would be BRL 37.4 million with a margin of 4%. That's a little bit of what we look at going forward. In the comparison with the first quarter of this year, there was good progress with all of the efficiency that we proposed to implement. And when compared to last year, it's important to note that when we look at last year's EBITDA, this BRL 29.8 million, we had here the extemporaneous credit of BRL 30.2 million. So as a production provision that goes -- that we had in June of last year, these are IMBS credits of years before 2024. So when we look at the 2024 results in the comparison year-on-year in EBITDA, it would be a comparison of BRL 30.8 million with this BRL 30.2 million last year when we exclude that effect. Our EBITDA of 3.3% in the second quarter of '25 comes from 2 points here. First, the advance in the gross margin that increased 1.2 percentage points and also our expense efficiency. We reduced our expenses and that reduced 1.8%. So these 3.3 percentage points when we compare it to the first quarter of this year with the progression of our gross margin and the reduction of expenses. Compared to last year, our progression of EBITDA margin comes from the 2.9 percentage points of progress in gross margin as well as in our expense -- reduction of expenses. When we exclude this effect of the extemporaneous credit reversion from last year, the expenses go down this year 0.7 percentage points. So this indicates that our results in the beginning of this journey -- when we look at our net income, BRL 19.8 million net income compared to BRL 64 million in the first quarter and loss of BRL 52 million last year. This net income of this second quarter has the effect of our EBITDA of BRL 30.8 million. And there's also expenses and there's also an important point of FX variation this second quarter of BRL 73.5 million. So we also have to look at this result with a positive FX variation reflects on our cost of derivatives. So our NDFs in this quarter were negative with expenses of BRL 47 million. So the effect -- we had the favorable effect of FX variation. It's true, but we also were hedged on the NDF and swaps, and that had a cost to this change and the positive effect of exchange rates, but there's a negative effect of 47%. Our net effect of FX variation in derivatives is 26.5%. We still have a net income, excluding this effect, it's still negative, but a lot less negative than it was last year. So this is also important for the turn of our results. And we closed the half year with income of BRL 84 million compared to the loss of BRL 121 million last year. Going on to next slide, talking about our inventories. Our inventory, as Andre mentioned, is our turnover. We ended the first quarter at BRL 218 million. Now we are at BRL 201 million. There's an indicator of turnover, and we're improving the absolute indicator as well. So BRL 86 million of our inventory in the second quarter compared to the first quarter. So it's important to note here, there is a topic in our sales performance as well. We sold more, but we also had adjustments and calibration in the coverage of our purchases, our inventory coverage, making smaller purchases being more assertive in our purchasing process. To give you an idea, in the first quarter of '25, we've purchased approximately BRL 780 million. For the second quarter, we bought BRL 600 million. So we reduced our purchases more than BRL 170 million -- BRL 180 million. So this adjustment that we made in the purchases was important to get our inventory to have this reduction. Of course, the sales helped. Our sales performance in the second quarter were better than the first, but we also reduced our purchases, and that allowed us to improve -- reduce our absolute inventory and improve our performance in terms of inventory as well. On the next slide, cash flow. As Andre mentioned at the highlights, we've been able to generate almost BRL 65 million in operating cash flow generation, that's very important. This performance of operating cash comes from our positive EBITDA, our management of working capital and inventory. We've also been able to consume tax credits in this quarter. So these are 3 major components that allowed us to have this operational cash flow. At the same time that we generated this cash flow, we were able to reduce our indebtedness by BRL 25 million. So we paid off part of our principal that we had from the past, and we ended with a gross cash at BRL 26 million in the quarter. So those are important points to highlight in our performance and the good management of our cash, reducing indebtedness. On the next slide, we see our amortization schedule. We have here BRL 498 million of cash that's more than sufficient to cover our obligations in the short term, BRL 440 million in 12 months, and we've been able to reduce our indebtedness, as Andre mentioned. We're seeking -- when we look at the cash here, we understand looking forward that we continue to work and seek alternatives in the profile of our debt, a total debt of BRL 656 million. And the idea is to reduce the debt, as we mentioned, in the first quarter and specific funding that we can get to improve our capital, but we're very comfortable with our cash position. I'll turn back to Andre for the next slides.

Here, we had a change, as you've noticed in the company's operational segment, Multilaser. This change comes in line with how we manage the business in the company's day-to-day activities. We understand that this was going to simplify and improve the understanding of the company. So basically, we're talking about 3 operational segments. The first is Corporate, basically, our corporate pillar is comprised of a few businesses. That's an important part of production of telecom devices for operators and Internet providers. We also have an important side of the providing products to the government and private companies. We have Wellness, that is our brand and some brands in the market for fitness equipment for gyms. There's a division that's Brasil componentes, that we have [ national ] memory and chargers to provide to local industries here in Brazil. We also have the industrial pool dedicated to electric motorcycles and bicycles. As you know, today, we're producing -- a lot of the plant is being optimized to make Royal Enfield brand motorcycles. It's a very important brand in this segment, one of the largest companies in the global market, in addition to the manufacturing partnerships that we have today with Oppo and smartphones and Hisense in the part of television sets. So all of these businesses are part of our Corporate segment. The other segment that we have here are all of our businesses that we called Tech Retail, our thousands of technology products and more -- distributed more than 40,000 points of sales in Brazil. And in this segment, we have the television products, audio, notebooks, drones, computer accessories, home appliances, self-care. So there's thousands of products dedicated to this type of retail. It sells via the large retailers where we distribute to more than 44,000 points of sales as well as our direct-to-consumer sales, our direct channels and the marketplace platforms. So this is our Tech Retail segment. And Specialized Retail, that we include our toy lines, baby products, the specialized segments or stores that specialize in toys and baby products. This is also our Blue brand that's very important for the hygiene meds for pets that we have the plants in Extrema, distributing to pet stores across the country and our Health Care line that is distributed to pharmacy chains. All of them here, all of these segments have their dedicated teams for products, market and commercial teams, sales teams that act in a very specialized way as well as the direct sales channels. Now talking a little bit about each one of the segments and the new format to help you understand. The corporate segment that includes those products that I just mentioned already corresponds to about 50% of Multi's revenue. So today, maybe some of you had that impression that Multi is retail consumption. Yes, we are, but we also have important businesses in the corporate line -- Corporate segment that has been growing that allows us to have higher stability in terms of profitability, contract management. They are long-term contracts, and we have fixed fees. Even though they're lower, they're fixed. So here, we have a recovery of gross margin, that is very important, driven this quarter by sales to government. We had a resumption of sales to government in this first half year. We had the beginning of production of motorcycles for Royal Enfield. And revenue here has a significant growth, 75% -- 55% increase in revenue, also driven by these 2 businesses as well as the local production partnerships that have been growing and contributing to revenue and the reduction of expenses. On Tech Retail, we see that it has a share of 37.8% of the company's revenue with all of those thousands of products that I mentioned for retail and direct sales. And here, we have a lot of priority, as I mentioned in the last call, to optimize turnover. So we had a gross margin very good in one side that seems to be good news since inventory turnover was the priority. So there was a maintenance of margin. We didn't need to sacrifice margin, and that was good. There is slight decrease in revenue here, mostly due to the adjustment of retailers themselves, but the increase in interest rates, they are working, all of the Retail, the entire market is seeking to reduce inventory days. So there was this adjustment of purchases from the retailers that impacted this quarter a little bit with a slight drop. But the good news is that the most important indicator for us here is the sales from retail and sales to consumers. So this indicator increased. So replenishment of retailers should be readjusted in coming quarters. And this channel has a very important seasonality in the second half of the year. There's important dates there for sales and technology and home products. So we understand that this channel may have an improvement in the third quarter, both in the optimization of portfolio to gain depth, but also the progress of the online digital markets that also contribute to more margin. On Specialized Retail, the specialized channels, Health Care, Toys, Baby and Pet. Today, it corresponds to 11.7% of the share of the company's revenue. We had good news here as well in terms of margin. There's a gain of 3.3 percentage points. This is strongly driven by the good performance of the Health Care and Toy lines that have been contributing to this increase in revenue. So this is a line that's been contributing to the company's results as well. Now another new announcement, a lot of news this call, but this is very great that we brought back. As you know, we had changed our group's name to Grupo Multi. And we understood that over these 2 years since the change, we understood that the Multilaser name stayed with us. It's always mentioned in meetings and by the partners, consumers, with everyone who follows us closely. So what we decided was basically to reintegrate the name that carries a legacy and a very important strength of many years in the market. So it now represents our corporate side. All of the businesses, the Corporate segment, Tech Retail, Specialized Retail, is basically like an umbrella of brands. The product brand -- technology product brand is our multi-brand that was the nickname for Multilaser remains. It's a shorter name. It's already present in the market. So basically, that brand remains as Multi, but now as part of Grupo Multilaser and no longer Grupo Multi. So that's a change that we announced yesterday to everyone. And I'd like to share with you 2 important initiatives. There's a series of initiatives, of course, but these would be the 2 main ones for this quarter that's already -- we're starting to work on, but part of it would be operational efficiency. It's important to say that although our expenses are under control, we had gains in terms of expense reduction, but we are here looking -- it didn't grow in line with last year. There was a growth of 1 percentage point compared to the same period of last year. But compared to net revenue, there was a drop. And noting that these expenses suffer the impact of inflation and price adjustments, I consider that we are being quite successful in fostering this growth and reduction compared to net revenue, but we still have a very important project to revisit all of the cost centers and bring significant reductions to expenses, just as we had at the beginning with the company's structure and the adjustment of the structure. So that would be our focus here. And the second focus, as we mentioned, Richard said it as well, would be the optimization of working capital. We've been reducing inventories -- reducing inventory days. We have work to do as well in accounts receivables, and there's a possible structuring of the receivables investment fund that may help us. And also this optimization of purchases and more -- plus planning and the reduction of some locks of purchases and the reduction of inventory turnover tends to release capital. That's very important. Every inventory day is approximately BRL 3 million in cash. So that's an important factor in terms of the optimization of working capital. And that said, I thank you for your presence. And now we'll open for questions, right?

[Operator Instructions] Our first question, Maria Clara, sell-side analysts at Itaú.

I have two questions. First, I'd like to ask you to bring us more details on how you see the profitability evolution. You start to show signs of improvements in the expenses side. And my question is more to understand where you still see opportunities to maintain this trend going forward? And the second point is about the perspectives for -- the outlook for the second half. Internally, we hear a lot about a risk of a slowdown of consumption, especially in the coming months. I'd like to understand how Grupo Multilaser has been seeing this trend internally. So if you can give us an overview of the growth perspectives for the second half would be interesting.

Hello, Maria Clara, this is Richard. Thank you for your question. Let's break it down in 2 parts. I'll answer the first part about the evolution of profitability, and then I'll turn to Andre for the second. We look at our year, the second half in a positive way. We see that -- we conclude our second quarter with good margin evolution, getting close to 24.9%. For the second half, we still see opportunities of an evolution in gross margin. We continue seeing an evolution compared to the second quarter. We should continue to see that with a good management of expenses, with the lines on the gross margin, we see our EBITDA margin also progressing. As I mentioned, the EBITDA margin of the second quarter when we exclude expenses or the readjustment, it would be at around 4%. The reduction we had in this readjustment of the structure bring close to BRL 9 million to BRL 10 million in revenue in the quarter, and that flows to our EBITDA. So we see our EBITDA margin for the second half also above the 4% getting close to the level of -- close to 5% EBITDA margin over the second half of the year. Of course, there's still a lot to do. There are things we need to do to materialize that, but we are at a good pace. And our results here, month 7, we're on the right path in this profitability progression. I'll turn to Andre to talk about the perspectives of the second half.

Thank you, Maria Clara, for the question. You read it well. I mean, we have a challenging scenario for Retail with interest and the slowdown. But still, I could say we are excited. We understand that we have some segments that have been growing significantly, the Corporate segment that is suffering less with this specific side of Retail, the segment, as you saw, showing significant growth, and this tends to hold for the second half. And the second point is in terms of Retail, there is that aspect, but it's important to note that our group works with products that have a good cost benefit ratio. And at this time that we see retailer charging interest of 9%, 10%, more than doubling the cost of product in the payments and installments. When they divide BRL 1,000 in installments, it becomes more than BRL 2,000 in the installment payments. So that increases a lot of the cost to consumer. But the consumer seeks today products where they can pay for the installments, that they can afford installments. And the Grupo Multilaser products, do they have a better cost-to-benefit ratio? And it depends on the market, but we usually have a good fit with these movements of the market. So that gives us confidence. And of course, the Online segment as well. The online direct-to-consumer sales has been growing a lot and the company and platforms growing at averages that exceed traditional retail, and we're looking at this very closely. We have a very strong presence here, and we will also make the most of this, always, of course, in an organized way with the policies in place to minimize any conflict of channels. But I would say that even in this scenario, these indicators make us more comfortable and confident in the second half of the year.

Our next question is by Marcelo Afonso, buy-side analyst of Clube Belvedere in writing. He says, I would like to know what are the perspectives for the next 12 months in terms of the evolution of taxes to recover? What has the company been doing to reduce this amount? More specifically, how should the financial credits evolution goals of Bill 13,969 and ICMS to recover for coming quarters?

Marcelo, thank you for your question. I think that's an important point here with the resumption of the company in margin, generating positive EBITDA, we should start to see consumption of these credits between BRL 50 million, BRL 60 million a year. So we start the second quarter with a timid consumption of our tax credits. And starting now for the second half with the resumption of the company's performance, there will be a consumption of BRL 50 million to BRL 70 million. That's an important indicator for us, both in terms of cash and the reduction of these credits.