International Meal Company Alimentação S.A. (MEAL3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for standing by. At this time, we would like to welcome you for the IMC conference call to release the results for the fourth quarter 2021. The presentation is available for download at the company's website, www.internationalmealcompany.com/ir. [Operator Instructions] As a reminder, the forward-looking statements are subject to known and unknown risks and can lead the expectations to be different from what has been expected. Such statements speak only as of the date they are made, and the company is under no obligation to update them in light of future developments. In this conference, we have Mr. Alexandre Santoro, the CEO of the company; and Rafael Bossolani, the CFO and IRO. We would now like to turn the floor over to the company.

Thank you, Maria, and a good morning to all of you. I hope you and your families are well, and thank you for connecting here today to the IMC call to release results for 2021. As you all remember, the year began with a long stream of challenges resulting from the restrictions imposed due to the advance of the second wave of COVID, and several uncertainties impacted the sector and especially our business. The second semester has a completely different story. We had, in truth, an improvement of the outside scenario, thanks to the advance of vaccination, but our own teams in stores, our own stores and franchisees stood out in execution and played a fundamental role in the turnaround that happened. So my thanks to the IMC team, the franchisees, partners and suppliers. You were fundamental for the results that we obtained. To begin, we go on to Slide #2, where I will speak a bit about that evolution that we had throughout the year. Exactly 1 year ago, I joined the IMC team, and I remember well, how to forget, that we had a scenario that was substantially different from the one we have today. As a reminder, we are in the midst of a second lockdown with restrictions to the circulation of people. Offices closed down. Stores closed down, reduced teams on the field. They destructured corporate team with the results way below those of 2020 and a concern regarding the company debt. A year has gone by, and so much has changed in the world and especially here. To begin with, we created our transformation agenda, which is and will be our guide for the coming years and helps us in prioritizing our actions, investments and alignment of the team. Today, I will bring to you a quick update on some of these pillars. To begin, nothing better than to speak about our main transformation pillar, people. Our people and our culture are the base for everything that we are building here. We are setting up a strong team, experienced and aligned in the long term. Besides having the right people in the right positions, it is fundamental to build a culture geared to sustainable results where everybody thinks and acts like an owner. We're happy for having been able to attract several talents for our team and along with the ones that we already had give us the correct foundation to carry out the necessary transformations. The second point I would like to highlight is a focus on results. We had an important recovery in our sales but not only due to the outside scenario. We had significant evolution in market intelligence and coordinated marketing actions, accelerating our recovery in the top line. Besides discipline in our field execution, we were able to convert a large part of these gains in revenues. And given the leverage, the operational leverage and discipline of our expenses, we were 20% below in sales vis-a-vis the pre-pandemic levels. We ended the year with 16% above. The EBITDA closes the year 5x above that of 2020, attaining the mark of BRL 196 million. To conclude the last 2 points that walk hand in hand was our resumption of the expansion which was executed, thanks to our financial discipline. We went back to expanding the company, adding 70 new stores to our system. While at the same time, our net debt fell under control, allowing us very good clearance in terms of the covenants in the fourth quarter. With this expansion, we had an improvement in our debt classification, enabling us to negotiate part of the debt at a lower cost. To summarize, we have taken the first steps in the right direction, but we're very grounded when it comes to the challenges we had ahead of us. A mentality with football that I like so much, the game has just begun. Let us look at some numbers. Here on Slide #3, we have a summary of the main IMC indicators for the fourth quarter of the year. We begin with the same-store sales that reached 58% above those of 2020 in practically all of our operations and regions operating above the pre-pandemic levels. There is a highlight for the fourth quarter that ended 16% above that of 2019. The total system sales, which includes the sales of franchisees, went beyond BRL 2.5 million in 2021, a growth of 51% vis-a-vis 2020. It is worth underscoring here that each of our main businesses, Pizza Hut, KFC, Frango Assado and the U.S.A., already have revenues that are higher than BRL 0.5 billion per year in each of their respective systems. And our net revenues reached BRL 545 million in the fourth quarter and BRL 1.85 billion in the year, 60% above the amount of 2020 and 16% above those of 2019. Regarding EBITDA, we reverted a negative margin of 1.2% in the fourth quarter '20 to a positive margin of 5.6% in the fourth quarter '21, totaling BRL 31 million in the quarter and BRL 196 million for the year. With this, I would like to give the floor to Rafael Bossolani, my partner and CFO, who will give you more details on the IMC performance. Rafa, you have the floor.

Thank you, Santoro. A good morning to all of you, and thank you for participating in our fourth quarter and full year 2021 conference call. I would like to continue on with the presentation, beginning with Slide #4, where we can observe the evolution in the number of stores of the company. IMC ended 2021 with 565 stores between owned stores and franchisees located in Brazil as well as abroad. Now I believe it is very important to observe that we accelerated the store openings in the fourth quarter. And during the year, we had a growth of 70 new stores in the system in a very challenging year for our business. And this growth had a focus on the brands, on the stores, a focus on the company, Margaritaville, Pizza Hut, KFC and Frango Assado that opened its first store after 8 years without any new inauguration. Another point that is important to mention was an increase in our own store mix that went from 50% to 54%, aligned with our strategy of increasing the density that we have and seeking synergies in locations where we already have a foothold and a balance in our stores as a whole as part of our system. For 2022, our expectation is to maintain an expansion pace quite similar to those of 2021 without ever losing sight of the financial discipline and that balance between growth and return. We go on to Slide #5, where we have a summary of the same-store sales throughout the last quarters. What is important to mention here is that this is always compared with the year 2019. IMC as a group has been presenting same-store sales above the pre-pandemic level since the second quarter of last year. In the fourth quarter, the growth was 60% vis-a-vis the fourth quarter of 2019 and more than 50% vis-a-vis the fourth quarter of last year. Now from all of the brands of the company, we see a trend of evolution for the medium term, including the first months of 2022 January and February. We have a preview of what we can expect. Despite the problems we had due to external factors, our Margaritaville operation in the U.S.A. grew 12% in dollars in the fourth quarter, and there's a trend for recovery for Pizza Hut. This becomes very clear month after month, although we have not attained the sales levels of the year 2019. When it comes to KFC, we had a strong recovery throughout 2021. But in the last months of the year, in December and beginning of the year now in January, we had a one-off impact because of the lack of availability of supply of our main raw material. In this brand specifically, we're working with alternative supply sources. We're falling under control and returning to normalcy at the end of the first quarter. We believe that we should return to the growth pace that we had in the past, beginning in the second quarter of this year. In the Frango Assado operations, we have returned to the pre-pandemic levels in the restaurants, and we're quite above in terms of the gas stations because of the price changes we observed and the price rises that were put in place in the last months. We now go on to Slide #6. You can observe that with the expansion of the network of stores and same-store sales, there has been a positive impact on the company's revenues. We had a company with the highest billing for IMC. This is a reason of pride. Our global revenue was 60% for the quarter and for the year. And compared to 2020, we grew 32% in the quarter and also compared to the year 2019. All of this because of the recovery of the entire segment in Brazil and the consistent evolution of our international operations. In Brazil, the growth was 38% for the year, 34% for the quarter. All operations had a strong recovery with a return of the operation of stores, shopping malls, airports and highways where we are present. I would like to highlight the excellent performance of international operations that doubled their size vis-a-vis the previous year, U.S.A. given thrust because of the quick recovery after COVID, a seasonality that was expected because of the American summer and the recovery of in-house tourism. And in the Caribbean, we had a strong performance of operations in the Panama airport because of the recovery of the flow of passengers. We now go on to Slide #7, and we can see that our delivery performance continues to grow throughout the system. It adds the performance of owned stores and franchisees, and we have a return of consumers in the shopping malls, which points to an enormous potential of the delivery channel in the company. We grew the sales of the delivery channel, 18% vis-a-vis the same period last year, and delivery in Pizza Hut and KFC continues to be quite relevant, 25% to 30% of the total invoicing of these brands. We go on to the next slide, #8. You can see some of our priority initiatives when it comes to digital transformation. All of these are underway and will be implemented during this year. First of all, we're focused on offering new sales channels to consumers aligned with our omnichannel strategy. We are launching sales by WhatsApp, by social networks, expanding our number of digital kiosks as well. With this, it will be possible not only to reduce friction in customer experience, increase our operational efficiency, margin and promotional offerings of our products. Another very important point that I would like to highlight in our digital strategy is an acceleration of sales in our own channels. We had already operated a proprietary app of Pizza Hut since June of last year. Now this app continues to gain relevance in the company. We increased sales by 45% in this channel in the fourth quarter, and we will now expand this proprietary platform to KFC in the month of April. This will be launched in the coming months. Therefore, a third and very significant investment for that company is linked to the CRM that is developing a better relationship with our customers as a whole. The first brand that will have a loyalty platform will be Frango Assado. They will be offering exclusive promotions and numbers for those who are regular customers. This will expand lifetime value and offer a better experience with Frango Assado. We're going to use all of the learning from this platform to also expand to other brands that are the focus of our group. We continue on to Slide #9, the adjusted EBITDA. In the quarter, we had an EBITDA of BRL 30.5 million, reverting the negative result of BRL 4 million that we had in the last quarter of 2020. This represents an improvement of almost BRL 35 million, and we reached a margin of 5.6% for the quarter, an expansion of 680 basis points vis-a-vis last year. During the year, the company reached BRL 196 million in EBITDA, a result that is sixfold greater than that observed in 2020 with a margin of 10.6%. Now these results were influenced by a higher billing in the group as a whole and an improvement in the operational margins of our brands and segments. We go on to Slide #10. And despite the significant growth in the EBITDA for Brazil, we go from minus BRL 6 million to BRL 12 million for the year. In the fourth quarter, the results are still below the results of the previous year. It's important to underscore here that the operating results of units in Brazil was in line with the fourth quarter '20. However, there was an acceleration in SG&A, and this acceleration relates to the resumption of the operation, a strengthening of some strategic areas that will offer support to our growth and transformation plan in marketing, development, supply and technology and some nonrecurring revenues in the fourth quarter 2020 that did not take place in 2021. In the Caribbean and the U.S.A., we have consistent results. Once again, the EBITDA was BRL 4 million in the United States and BRL 9 million in the Caribbean and an expansion of BRL 52 million in the quarter vis-a-vis the previous year, influenced by the resumption of the sales growth and then operating leverage in both operations. Therefore, when we stratify the results, we focus on the profitability of our operations here in Brazil, guaranteeing a highly efficient management of costs, expenses, always seeking that operating leverage in all regions of the company to improve the margins of the business. We now go on to Slide #11. And we have made strides in terms of financial discipline. As you can see, we ended the year with operating cash flow of BRL 129 million versus a cash burn of BRL 55 million last year. The cash generated in the fourth quarter was of BRL 28 million compared to a cash burn of BRL 12 million the previous year, and these results have enabled us to speed up our investments, our CapEx to expand our businesses during the last quarter, as can be seen very clearly in the chart, but always maintaining discipline in terms of capital allocation and the appropriate liquidity levels for the company. We ended the quarter and the year with a cash position of more than BRL 466 million, a leverage of 2.9x net debt EBITDA, quite below the covenant, which is 5x. Now to conclude my presentation and before I return the floor to Mr. Santoro, I would like to mention that in the month of March 2022, we issued commercial notes representing BRL 75 million, the cost of CDI, plus 2.3% to, anticipate some payments, allowing the company to reduce the cost of our present debt, which continues to be one of the foci in the financial control of the company. With this, I would like to return the floor to Alexandre Santoro.

We now get to the last slide, where I would like to reinforce our priorities going forward. As I mentioned at the beginning, the main priority are our people and our culture. As an example of some of the activities that we have adopted when setting up our team, we began 2022 with a management system with very clear goals that were cascaded down to the team with compensation linked to the company results and also aligned with the long-term transformation that we are undergoing. Of course, a change of culture is a process that takes time, but we have clarity and experience in terms of what we have to do. And we want to share our values and our dream. Secondly, what is important is the advance of our digital transformation. Rafael spoke a bit about this. 2022 will be a year of important achievements. We have our pipeline besides the launch of our proprietary platforms, the implementation of digital kiosks, sales by WhatsApp and social media, loyalty programs, and we're getting organized to evolve our integrated CRM. We have just hired a new CTO, Head of Technology, that will have the important mission of leading this process in-house. The third point that I would like to highlight refers to our brands. They are strong. They are admired, and they still have an enormous potential that can be explored. The pandemic has helped us in the way that brands communicate with their consumers. For me, one of the several lessons learned this period is the importance of being ever more connected and available for our customers. After 2 years of isolation, we all miss that interaction with our friends and families, and very few things offer a greater possibility of exchange than a mealtime. We will continue to invest strongly on the development of these company brands, innovations and experiences that strengthen the heart of the Brazilians. We're also focused on the profitability of our business with a special attention to the short-term challenges that we have in Brazil due to inflation. Very clearly, the inflation scenario is a reason of concern, and we're adopting some measures. Among these measures, I highlight 3 points. Suppliers. We're seeking alternatives to work with our main products, decreasing our dependency on our suppliers for the long term. Now competition is doing very well. Another important point is the review of our mix so that we can offer quality products with the right value perception and cost for the customers, and perhaps we will have to transfer these new prices. We're also going to make strides in terms of capturing opportunities and processes and production, KFC and Central Kitchen, of course, seeking synergy among the operations. Evolution of the profitability of operations in Brazil continues to be the main challenge, and this is where we are focused. When it comes to expansion, we're very clear about which are the brands that are a priority and where and how we should grow in each of them, whether it is a region, a store format, a mix franchise stores or own stores. Well, the potential is enormous, but we will execute this plan always with a great deal of discipline and ensure that we have good results and a good financial availability. When it comes to the other businesses and geographies of our portfolio, we will continue to analyze strategic alternatives for the future, while we're seeking optimization, synergies and generating value for our shareholders. I see the company substantially larger in the coming years but less complex and with a greater diversification of business models. To conclude, as I mentioned at the beginning, we're very enthusiastic with the results of the last quarters. And we're fully aware of the size of the challenge that we have ahead of us. Once again, the game has just begun. I am more enthusiastic than ever with the people, with the results of the year, once again, enthusiastic with our team, enthusiastic with the new culture we're implementing and with the strength and potential of our brands. With this, I would like to end the presentation and return the floor to Maria, the operator, to begin the Q&A session. Thank you very much to all of you.

[Operator Instructions] Our first question is from the webcast. Carlos from Condor Insider.

With the end of the pandemic in 2022, are you planning to increase your investors and expansion as many of the competitors are still fragile because of the last 2 years? Or will you preserve your cash because of the interest rates? There is a second question. How do you believe movement will be in 2020? Will it be similar to the levels in 2019?

Well, thank you, Carlos, for the question. This is Rafael. As we have already mentioned during the presentation, our investments and expansion throughout the year 2022 will, of course, continue along the same lines that we observed in 2021. Our expectation is that, yes, we will continue to inaugurate new stores, always maintaining that strategy of a balance between growth and return, a very clear and broad vision of financial discipline. But yes, we will continue expanding based on the same levels that we had in 2021. We mentioned during the presentation that at the beginning of the year and how it compares to the year 2019. In IMC as a whole, we are surpassing same-store sales. Since the second quarter, we ended the year quite strongly. And at the beginning of the year, despite all of the adversities of COVID and other issues, challenges of supply in January and February, we continue to present a growth of same-store sales that is 7%, above 2019. And the expectation, of course, is to continue on at a significant expansion level in the coming quarters.

Our next question comes from [ Rita Godoy ].

Do we have plans of inaugurating more restaurants in São Paulo? I particularly love this, but I don't know which is the profitability of the business.

Well, thank you for the question. As I mentioned, and thank you for the feedback, we also love the food that is very good, and the prices are wonderful, the Olive Garden. As we mentioned in the presentation, we're going to expand 4 brands, Pizza, KFC, Frango Assado and the U.S.A. In the short term, there is no plan to inaugurate more Olive Garden restaurants in São Paulo, but thank you for the question.

Our next question from the webcast comes from Pedro from CTM Investments.

I would like you to remark upon the cost of operating those of raw material and how this is being addressed. And which is the main concern of the company at this moment?

This is Santoro. Thank you for the question, Pedro. I mentioned in the presentation, Pedro, that we have perceived increase in several of the raw materials that we use in our restaurants and our business. We are especially focusing upon poultry because of the international prices of corn. And this, of course, will have an impact on the final price of poultry. And we're working with a combination of 3 things: negotiations with suppliers, market intelligence and how we work with the offerings that we present to consumers so that we can continue to present products of quality with a value perception, innovating new products. There are some products where the food cost tends to be lower. And in some cases, as I mentioned, we will have to transfer these prices to the consumer, and this has already happened.

We have another question here from the webcast from [ Mariani Moraes ], Investment Management.

Could you remark in greater detail on the possibility of new credit issuance and which is the present day cost of your debt?

Good morning, [ Mariani ]. This is Rafael speaking. What we are doing up to present is to reassess the ideal capital structure of the company, trying to understand which is the level of leverage we should have vis-a-vis equity. And because of this, we are redefining our strategies for a possible new issuance or payment of our debt. it is very important to recall that the debt does have a long amortization schedule. And that in our vision, the present day cost of the debt does not reflect neither the operating performance or the financial situation of the company. It is our understanding that the present day debt is much higher than it should be, considering the situation and the plans the company has. So we do have a strategy and the ambition to continue to reduce in so far as possible the cost of our debt. Up to present, there will be no new issuance that has been scheduled.

Our next question comes from [ Marcelo Sampaio ].

Which is your partnership with Raízen? And what do you foresee in the short term?

Thank you for the question, Marcelo. Yes, we work very closely with Raízen. They are our partners, and they work with us in this expansion process for Frango Assado. For the highways and for priority stores, we have been conversing with them, and we have worked proactively seeking new sites. And in the near future, we hope to be able to close some deals in a partnership with Raízen. Thank you very much for the question.

Our next question comes from [ Marco Antonio ].

Regarding the airport sector in Brazil, the catering services, is your expectation one of the growth in sales?

Thank you for the question, [ Marco ]. Now I believe that this is our business that has had the slowest recovery perhaps. As you will know, the meal on the airlines is no longer allowed. And an important part of this business is to sell sandwiches or meals in the airplane, but this has still not been allowed. We do offer food for the pilots and the crew, nevertheless. But we believe in the lifting of the COVID restrictions. And at some point in time, there will be an immediate resumption, and we will have more sales. Thank you very much.

Our next question is also from the webcast from [ Rafael Segarra ] who speaks about investments. Are you accelerating investments in new Pizza Hut and KFC stores which has been the profitability of these new stores?

Thank you, [ Rafael ], for the questions. Well, the behavior is very aligned with what we had planned. All new stores have a period of maturity during the first months, and there's nothing different from what we had forecast. And in the second quarter, the outlook is to have these stores inaugurated in the last quarter of '21 with a very good performance. They're just at the beginning so far.

[Operator Instructions] As we have no further questions, I would like to return the floor to Mr. Santoro for the final remarks. You may proceed, sir.

Thank you, Maria. Once again, I would like to thank all of you for your presence. Well, as usual, it is lunch time, and I'm going to leave you with the fantastic KFC sandwich. Do request it for lunch. Thank you very much, and have a very good day.

The IMC conference call ends here. We would like to thank all of you for your participation. Have a wonderful day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]