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

Good afternoon, ladies and gentlemen, and thank you for standing by. At this time, we would like to welcome you to the IMC Conference Call to discuss the results for the First Quarter 2022. The presentation is available for download at the company's website, www.internationalmealcompany.com/ir. [Operator Instructions] We would like to remind you to bear in mind that forward-looking statements are subject to known and unknown risks and could cause the company's actual results to differ from those in the forward-looking statements. Such statements speak only as of the date they are made and the company is under no obligation to update them. At this conference, we have Mr. Alex Santoro, the CEO of IMC; and Mr. Rafael Bossolani, the company's CFO and IRO. I will now turn the floor over to Mr. Alexandre Santoro. You may proceed, Mr. Santoro.

Well, thank you very much, Sandira. A good day to all of you. I hope that you and your families are well and thank you for connecting to the IMC call for the results of the first quarter 2022. Well, despite a long series of adversities at the beginning of the year, our team out did itself and we were able to resume our profitability and transformation at IMC, delivering results that are substantially better than in the first quarter 2021. Many thanks to our entire team at IMC, franchisees, partners and suppliers that were fundamental to achieve the results we will present today. This is the fourth consecutive quarter in which we hit a revenue record when compared with the performance of the previous year. Now, given the seasonality that continues to exist in our business, we have positively ended the most difficult cycle of results, the fourth quarter and the first quarter. We now go on to Slide #2, where we will begin the presentation with a summary of our quarterly performance and the transformation results of IMC up to here. After a year of great learning in which we rebuilt our team, we had some significant strides in our operations. We were guided by our transformation agenda with very clear priorities and ambitious goals for our businesses, seeking to streamline the company, raise the experience of our consumers and leverage profitability. The results of the first quarter already reflect a positive trajectory with a recovery in all of the segments of Brazil and a consistent evolution in results of international operations. We ended the quarter with an adjusted EBITDA of BRL 39 million, an expansion that is fourfold the result of the same period last year. We grew net revenue by 51% and ended the quarter with a network of 561 stores. Digital sales continued that growth trajectory even with the resumption of flow in our brick-and-mortar stores and we have 1 million clients registered in our CRM. In terms of operational efficiency, we have worked so as to extract synergies and enhance profitability in all of our operations. We saw the profitability of our stores, increasing vis-a-vis the first quarter '21. But the inflation scenario will mean that we have to be cautious. Our 4-wall margin expanded 2.7 percentage points vis-a-vis the same period last year and the Central Kitchen had a quarter with a production 32% above 2021. We continue to move forward in our financial agenda. We have prioritized the management of our liquidity, the control of investments and optimizing costs. We ended this quarter with a leverage of 2.5x below the fourth quarter '21, that was 2.9x and below the 3x that is set forth by our debt covenants. We expanded our consolidated EBITDA margin 489 basis points and had a positive cash generation of BRL 23 million. We closed the quarter with BRL 480 million and a net debt of BRL 299 million. Now additionally to our results in common agreement with KFC, we have suspended the KFC arbitration, seeking a definite resolution for this conflict. We're aware of the challenge and we know the new path that we have to follow in the future. We're confident that we will get there with a strength of our brands, with our team that is focused and thinks and acts as if they were owners. We're aware that we're merely beginning here. We now go on to Slide #3 and we'll begin with some numbers in more detail. A summary of the number of stores, as I mentioned, we reached 561 stores, 62 stores more than in the same period last year. This growth was fully aligned with our priorities. Margarita Phils and U.S.A., KFC, Frango Assado and Pizza Hut. We had an increase of 49% to 55% in the share of owned stores. We now go on to Slide #4, where we have the first summary of same-store sales for IMC. When compared to 2019, despite a positive general performance. We did have impacts on our operations given the new COVID wave that we have in January of this year. This impacted in all of the regions and businesses that we work in. We had a strong resumption of sales in April, reaching 21% above the performance of 2019 in the IMC consolidated figures. Now a bit more detail and information on the 4 largest brands that we operate with. And we go on to Slide #5, where you can see this information broken down by operation. We begin with KFC. We had an impact in this quarter on our performance due to problems in the supply chain for poultry in the stores. This impacted the strong resumption we have had since the second semester of last year. The situation was normalized in April when we resumed sales above the levels of 2019. In Pizza Hut, quarter-after-quarter, we see an enhancement of the sales performance and the results are going beyond the levels of 2019 for the first time in April now. We have an important sales plan underway for the coming months that will count upon some changes in the menu, so that we can service different consumption moments during the day and the week. Now these 2 businesses, KFC and Pizza Hut depend more on the traffic of people in shopping malls, and this traffic still is below the pre-pandemic levels. In Frango Assado where we had a significant resumption, we had an impact in January due to the new wave of COVID. And historically, this is the best month of the year. But in April, Frango Assado had a significant improvement in performance, thanks to the 2 holidays. Sales in restaurants closed April 15% above 2019. And when we consider the gas station and restaurants, this figure leads to a very strong 44% above 2019. In the United States, we continue with a growth trajectory reaching 21% above 2019 in dollars for the month of April. We now have the high season there and we will have 3 new stores inaugurated between June and July in Miami, Boston and Atlanta. We now move towards the next Slide #6, and we can see the global revenues of everything we have mentioned and how this is consolidated. We see that this is the best sales result we ever had in the first quarter, of course, driven, as we mentioned, by the recovery in all of the segments in Brazil and by the consistent evolution of international operations with revenues 51% above the first quarter '21. In Brazil, the catering business is still below the pre-pandemic period because of the restriction of food on board. But yesterday, we received the good news that this restriction will be lifted by Anvisa in the Caribbean, once again, a very consistent performance with the resumption of flows in airports and at a faster pace there. They have allowed the sale of food on board from concessionaires and this has had a positive impact on sales recovery in that region. To mention twp very important points that refer to our digital transformation, one of our pillars. Part of the growth strategy in sales -- in digital sales means an enhancement of profitability for the business and we will continue to use our own channels for this. Pizza Hut, for example, grew 30% in sales through its own channels, offering exclusive promotions to its customers with a positive impact on the profitability of the entire system. And following the same momentum, this month, we began to operate the KFC delivery system. The platform will explore social networks with great penetration in Brazil like Facebook, Instagram and WhatsApp, offering products at very competitive prices for the customers. In Slide #8. In April, we had Fabio Estevez joining our team as leader of the technology area of IMC. The mission is to speed up the creation of our digital ecosystem. This mission is just beginning. It begins with a new digital area with technology services with a focus on our consumer stores, franchisees and associates. We understand that we have a gap that we have to close vis-a-vis our competitors. But our ambition goes beyond that. We're going to bring technology to the core of the business to enhance our internal processes and mainly to enhance the experience of our consumer. This new area of technology will be the engine of our digital transformation. With this, I would like to stop and give the floor to Rafael Bossolani, my partner and CFO, who will give you greater details on the financial performance of IMC, especially the EBITDA. Thank you, Santoro. A good afternoon to all of you who are assisting this conference for the first quarter 2022. We begin on Slide #9, where you can observe that we quadrupled the consolidated EBITDA of the quarter. We ended the quarter with adjusted EBITDA of BRL 38.8 million, an expansion of 291% vis-a-vis the same period last year, representing an enhancement of more than BRL 29 million in this indicator year-on-year. Our consolidated EBITDA margin had an expansion of 406 bps, reaching 8% during this period. Now this result was influenced by a greater billing of the group and adjustment in cost and a very rigid cost control and a consequent operational leveraging in the entire business. We go on to Slide #10, where we can see an operational improvement with an increase in profitability in all of our operations. EBITDA in Brazil was positive by BRL 4.8 million, reverting a loss of BRL 7.2 million observed in the first quarter of 2021. It is important to observe that the operations margin expanded 520 bps in the quarter, all of this driven by the positive contribution of all of the brands and segments we have in the region. I would also like to underscore that SG&A was aligned with the first quarter of '21 in nominal terms. If we consider the optimization and the hiring of various services, discretionary expenses and some reversions relating to extraordinary events amounting to about BRL 5 million. If we look at the United States and the Caribbean, we delivered consistent results. EBITDA was BRL 16.8 million and BRL 17.3 million, respectively, in the operations with a combined expansion of almost BRL 17 million vis-a-vis the first quarter of '21 influenced mainly by the increase in sales in the region and an efficient management of the brands and operations. We're going to focus on enhancing the profitability of operations in Brazil and guarantee an efficient management of costs and expenses, seeking this operational leverage, so that this can give thrust to our results. We now go on to Slide #11. We continue on with our stringent financial discipline, as mentioned by Mr. Santoro. We ended the quarter with 23.3% in terms of cash generation. Free cash BRL 6.3 million compared to a consumption of BRL 12 million during the same period in '21. These results reflect a very disciplined management in terms of capital allocation and the focus on maintaining the adequate level of liquidity for our business. During the quarter, we made investments of BRL 18 million in CapEx, BRL 13.8 million to expansion and BRL 3 million for maintenance and refurbishment of our stores. The company ended the first quarter of '22 with a net debt of BRL 490 million, a leverage ratio that stands at 2.4x EBITDA, net debt for the last 12 months, reducing the indicator by 0.5x when compared to the last quarter of '21 and well below the 3x ratio set forth by the covenants for this period. Now to conclude, and before I return the floor to Mr. Santoro, we can move on to Slide #12, where we see that we ended the semester with a consolidated cash of more than BRL 20 million. This is a reduction of BRL 50 million vis-a-vis the first quarter and basically because of the exchange variation that we have observed in our investments in the United States and the Caribbean. Our cash position is connected to the debt that we have in that same currency. And before we conclude, I would like to reiterate the confidence that we have in our strategy. We believe that we are on the right path and in the right direction. And, of course, we are aware of the challenge that lies before us. Thank you very much and I would like to return the floor to Alexandre Santoro. Thank you, Rafael. Very well, we now come to the last slide where I would like to reinforce our priorities, which are the foundation of transformation for IMC. We begin with the advance of profitability in all of our operations. As we saw during this presentation, we made several strides in terms of profitability. But we're not satisfied. We're far from being satisfied. We know where we want to get to in terms of profitability. We have several challenges ahead of us because of the high inflation scenario and we're always negotiating in the change of supply in our products and price strategies. We will continue to move forward, capturing opportunities to centralize processes and production through shared services, the Central Kitchen in the quest for greater synergy among our operations. We have a great deal of room to evolve in terms of sales of same stores and in the entire system. This means enhancing our margin given the operational leverage of this business. The evolution of profitability of the operations in Brazil is our main challenge. The second point I would like to highlight is our plan to simplify the business. We have several operational models presently and different ways of acting in terms of our geography. We're going to continue to analyze the strategic alternatives for the future. We are seeking simplification, optimization, synergies to generate value. As I said in the last call, I see the company substantially larger in the coming years, but much less complex and with less diversification in terms of business models. Now the third point that I would like to highlight is our capital structure. Presently, we have a controlled net debt, 2.4x EBITDA, but it does have a very high cost, especially because of the new reality of interest rates in Brazil and worldwide. The topics are interconnected in the final analysis. We have to improve profitability, simplify our business with possible disinvestment. So that through this, we can improve our capital structure. This will give us greater flexibility in our expansion plan. We are very clear about which points we're going to prioritize and how to grow them in which region, a mix of owned stores, franchise stores and much more. Frango assados is an example. We'll begin to have a relevant role in our expansion strategy as we have proven the levels of investment return and the potential of growth of this brand in Brazil. We have an enormous potential for growth and we will execute this plan with a great deal of discipline, especially regarding returns and our financial availability, so that all of this can happen. We know that our team and our culture is the foundation for everything we want to build here in IMC. We began 2022 with a new management system, clear goals that have been cascaded down to the entire team with compensation linked to the company results, but also aligned to the long-term transformation and cultural change is something that takes time. But our team has vast experience and how to put this in practice. Now, to end, we're quite enthusiastic with the results of the quarter. However, we are aware of the size of the challenge that lies before us. We dream big here. We know how to celebrate our victories. But at the same time, we have our feet firmly on the ground. The game is just beginning. With this, I would like to end the presentation and return the floor to the operator, so that we can begin the question-and-answer session. Thank you very much for your attention.

[Operator Instructions] As we have no questions, I would like to return the floor to Mr. Santoro for the closing remarks.

Thank you, Sandira. Once again, I would like to thank all of you for your presence. And today is Friday. We're on the last slide. Many people are planning to go on the highway for the weekend. And I would like to leave a suggestion, the excellent chicken at Frango Assado. Good afternoon to all of you and we are here at your entire disposal.

The IMC conference call ends here. We would like to thank all of you for your participation. Have a good day.