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

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to IMC's Conference Call to discuss the First Quarter of 2023 Results. The presentation is available for download at the company's website. [Operator Instructions] Forward-looking statements are subject to known and unknown risks and uncertainties that could cause the company's actual results to differ from those in the forward-looking statements. Such statements speak 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. Alex Santoro, CEO of IMC; and Mr. Rafael Bossolani, CFO and IRO of IMC. I will now turn over the conference to Mr. Santoro. Please, you may proceed.

Thank you very much, and good morning, everyone. I hope you and your families are doing well. I also thank you for connecting to IMC's call today that refer to the results of the first quarter of 2023. Very shortly ago, we were here talking about 2022, the best year in our history. And today, we are happy to share with you that we have had the best first quarter of our history. Furthermore, this is the eighth consecutive quarter of improvement of our results. As you can see in our presentation in Slide #2. These results reflect the continued progression of the company and the consistency of our strategy. We will continue collecting the fruits of this today and in the future. Today, we have a company that is better financially structured with less debt, demonstrating how right the decisions made were, since I started working here. In the last 2 years, we were able to balance our short [ term goals, ] the profitability of the business, decreasing expenses, without taking care of the long-term. We have reinforced our team invested in technology, increased the number of restaurants. The results have improved, and all of this happened while we reduced our debt and improved our capital structure. This is actually what we told you 2 years ago and started working here. This is what we said, we would do. We have a dream. We want to be the best service platform in the food sector in Brazil. This is a vision that motivates us and also that guides our daily actions. Today, we already are a platform that is primarily included by 4 large systems. Pizza Hut, KFC, Frango Assado and Margarita in the U.S. Each one of these systems have an annual invoicing greater than BRL 400 million. And all of them have a huge potential to grow and to provide value generation in the next few years. According to our view, we are a company where the sum of the parts is worth more than the total. We continue developing a solid culture our team, thinks and acts as owners of the business. And this is why our motto is, "A good restaurant has an owner". We're now moving on to Slide #3, where we have a brief summary of the main indicators of this quarter. Starting with same-store sales, we reaped results that were 11% better than in the first quarter of '22. In all of the operations and mediums, highlights to Frango Assado and KFC, which recorded SSS in the order of 26%, and 26% better. The net revenue increased 16%, reaching BRL 530 million. Our EBITDA reached BRL 48 million, which is a 2-fold result of what we had in the first Q of 2012. This is a record for the first quarter. Finally, our net debt. We closed it as 1.8x against the 3x, which was anticipated by the company. We balanced our capital structure, but Rafael will talk about this later on. And to conclude this first part, our thanks goes to our team and our franchise, which make our business happen on the day-to-day. And now in Slide #4 here, we can see a summary with the total number of stores in IMC, we closed the period with 561 units. And the ones that have left our base are not taken into consideration, and this is due to the Panama accident, last year. We remain disciplined with our investments, aiming at the best return of invested capital without losing focus of sustainable growth in the long run. And now moving on to Slide #5, we're going to talk a little bit about our main brands for expansion. Let's start with Pizza Hut. Pizza Hut in Brazil invoices more than BRL 600 million. It's a very strong brand, which still has a lot of opportunity for improvements both in terms of revenue and profitability. Also with different formats of store. We have tried to expand our offer of products, working with innovation. We have just launched the new New York style pizza, and thin crust large slices. And ever since, we've seen that as planned, it will increment our sales and we'll continue further attracting consumers for this amazing brand. We also started a partnership with the RTM network, the largest convenience store network in Brazil, so that we can offer the most loved pizza in the country within Posto Ipiranga store. We have also developed our own digital channels with a new app, which will be launched at the end of the month, providing a better experience to our consumers and also an improved profitability for the whole system, thus reducing the take rate. Now let's talk about KFC, an absolute leader in this segment. It is a system today that has a revenue of BRL 3 million per restaurant, per year. We will give an important step and renew our partnership with KFC Global, and we have reached 160 stores in Brazil. KFC had a strong SSS increase of 22% in this first quarter, demonstrating how strong this amazing brand is. We have a series of initiatives in terms of innovation and price management, always trying to increase our transactions, but not at any cost, so that we can have a better gross margin in our operations. We're also launching new digital channels that's selling by WhatsApp, which is already a reality. In the next slide, we'll have a summary of Frango Assado in the United States. So starting with Frango Assado, we had a very strong beginning with record results in January, we had an increase of 23% in our SSS. We have also improved our digital initiatives with the launching of the Fidelity program where we have over 100,000 clients. We are totally redesigning client experience aligned with a detailed and ambitious expansion plan, which we're planning to start in 2023. Important to highlight the strategic role of the centralized production in Frango Assado business, the role of our Central Kitchen, where Unificacao Cozinha among other products that are produced in a Central Kitchen. To conclude this part of the brand and now talking about the U.S., which is our largest system today. We had SSS increase of 7% in the first quarter, and it's important to highlight that because the footprint of the business in the U.S., it's very seasonal, since the climate and weather has a strong impact on consumption. Because of the U.S. winter, the first quarter is always the weakest one. But even so, we had an important increase in sales and results. And now from May to August, we will have a good performance in each and every one of our restaurants because the demand will be higher. I have just arrived from the U.S. after meeting our local team. We have everything ready for us to have an excellent performance in the U.S. summer. In the picture here in this slide, you can see our restaurants in New York, where we have a pool in the heart of Manhattan, which is a unique experience. Now in Slide #7, we can see that the total amount of digital sales have increased, and we have had BRL 95 million only for KFC and Pizza Hut. We continue improving with increasing sales with approximately 30% of our overall revenue, even with the flow resuming in our stores. We will soon launch the Pizza Hut app, a totally new one, which will have a simpler and more effective interface for our clients. KFC has already started the rollout process in the terminals, and we expect to have 60% of our stores with these terminals. In Frango Assado, we also have an app. We have launched a loyalty program Fran-GO, and we have approximately 100,000 clients already part of this system. And the digital transformation is only beginning. We see a lot of opportunity for us to continue improving and increasing the participation of digital media. This is and will continue to be one of the priorities here. And now moving on to Same Store Sales in Slide #8, we can see the consolidated results for IMC. And it's important to highlight that we have had a growth of 11% in the first quarter, even though we had already grown 42%. So this is an important advancement and then in Slide #9, according to the different operations, we can see that all of the operations have had an important progress in the first quarter. Frango Assado and KFC with 23% and 22%, respectively, Pizza Hut 11% and in the U.S., 7%. When all of this is combined, including the number of stores, it takes us to Slide #10. We've achieved our best sales results for the first quarter in the company. All of the segments have grown. And the global revenue is BRL 530 million, a growth of 17%. And now moving on to Slide 11, we can see that as an evolution of this operational efficiency and leverage, we had an EBITDA of BRL 48 million, twice as much of what we had achieved in the first quarter of last year. I think better price control and operational leverage has taken us to an increase in the margin of 98%. And this is the most challenging quarter for us. And in Slide 2 (sic) [ Slide 12 ] we can see the adjusted EBITDA by region. I have said that Brazil is our greatest challenge in terms of operational efficiency. We have focused on the operations aiming at increasing productivity of the stores with the best teams in the field, reducing operational losses with the implementation of a control and operational center, which helps us monitor and leverage the performance. This is something that have got results and the Brazil EBITDA has multiplied 4x demonstrating the strategic processes we have here. Now it ends the first part and turn over to Rafael Bossolani, my partner and CFO, to give more details.

Thank you, Santoro. Good morning, everyone. Participating in our first Q conference for '23. I wanted to on with our presentation and comment on some important aspects of IMC's development that maybe seen in Slide 13. As already mentioned by Santoro, we have increased rapidly and consistently in our transformation agenda. And this has been translated into concrete results obtained in the last couple of years. It reflects the evolution of the company towards our strategic and financial objectives. So in our front of financial discipline, we have significantly evolved and it places IMC at a very good financial condition, when compared to when it started in '21. In this first quarter, our operational cash generation has struggled. We went from BRL 14 million in the first quarter of '22 to BRL 61 million now in the first quarter. This evolution has happened because of the improvements in all of our business units, but also an important improvement in our working capital and cash generation within our growth strategy at the same time better expansion is very responsible and focusing on the stability of our operations, we continue trying to identify opportunities for growth in new markets and new regions. And therefore, the service will be directly related to the operational performance of the company. We are disciplined with our own stores. In this quarter, we have accelerated in a planned manner. It also reflects the different schedules for the different time points. We performed investments in the order of BRL 38 million, of which BRL 27 million were dedicated to expansion, and BRL 11 million for maintenance, remodeling and other technology projects that we have already mentioned. And so, we closed our quarter with a net debt of BRL 300 million and financial leverage of 1.8x; 0.6x the EBITDA in the -- of the same quarter in '22, very much below of what was established from the financial covenants, which was 3 [Technical Difficulty] these results, reflect a very disciplined management and the focus on adequate liquidity for our businesses. Having said that, I wanted to reinforce [Technical Difficulty] capital structure of the company. We have already mentioned it in our last call and today, any reinforcements maintaining April in this more challenging market. We [Technical Difficulty] of BRL 200 million for prepayment of an existing debt and that reduced our credit base with -- in addition to increasing our payments cycle [ we are ] trying to expand the time for payment of our debt. And according to our view, this result reflects the evolution that we've had in IMC's results. So we see an opportunity here for a debt cost, which is much lower than our current cost. To conclude this slide, it's also important to reinforce that our financial condition is very solid in the company, which enables us to make our business plan feasible as already commented here in the presentation. And moving on to Slide 14. Before I turn over to Santoro, again we can say that we concluded the quarter with the BRL 205 million, when compared to BRL 411 million in the beginning of the year. So our cash in the beginning of the year and operational cash for the period, we're up by mostly to reduce our debt. And to pay our interest rates, we also had prepayment and structuring related to the funding of the [ metros ] in the beginning of the year and also in terms of capital, I've already mentioned in this slide. We will continue focusing on maximizing our cash generation. This is one of the priorities of the company along with an increase in the profitability of the operations, guaranteeing an efficient management in terms of cost, which leads to a leverage in different regions so that we can have better results for IMC. I also wanted to reinforce our confidence in our choices and the results that we've achieved so far without losing track of the challenges we face ahead. We want to continue moving in what we need to be the right track. And now I turn back to Santoro.

Thank you, Rafa. We have our last slide to conclude our presentation. I would like to highlight the main pillars of our transformation agenda. And you can see that they remain unchanged. We have paid our weight with a very clear strategy that includes a balance between discipline and focus on the [ IMC ]. And for this journey to be effective. It is very important to have our priorities very clear, and we have been able to do that with a lot of discipline in the last couple of years. As we said throughout the presentation, we've advanced in terms of profitability, but we still have a lot of opportunities ahead of us, the increase of transactions in our stores in a profitable manner and the consistent delivery of a good experience to our clients, are key for our strategy. We will also continue analyzing strategic alternatives for the future, always pursuing simplification, raising awareness and synergism to generate value. We have a company, which is substantially larger, but it's less complex in terms of business model. In financial terms, Rafael has summarized it well. Today, our net debt has been controlled, EBITDA and net debt, but the cost is still high, especially because of Brazil's interest rate. These things are interconnected. We need to improve the business performance, improve our debt profile so that we are even more flexible to carry out an expansion plan and capture all of our opportunities. We have a lot of opportunities to grow. And this is going to be our plan, based on discipline in our financial availability. To wrap up, I would like to reinforce our long-term view in the decisions that we make. We have strong brands. We have a huge potential to grow and to have a return. And we are far from having reached maturity. And that's why I believe that our greatest challenge remains disciplined rebalancing our short-term objectives, without giving up the decisions that will make our future. We will continue investing in technology, investing in our brands. At the same time, we will manage our cash with a lot of discipline. We understand that we have been able to do this and we will continue with the same strategy. In terms of our challenges. We are very down to earth, and we understand that the consistency of our strategy, the strength of our brand and the quality of our team will take us ever closing -- closer to our strategy. With this, I conclude our presentation, and I turn over to the audience, so we can start the Q&A session. Thank you very much.

That will end the Q&A session. I would like to turn over to Mr. Santoro are for his final considerations.

Once again, I thank you all for your presence. Since it's lunch time, always be -- they suggested [Technical Difficulty] BRL 39.90, this is a [Technical Difficulty] and I mean, return to innovation. We hope that it will inspire you to try it out at Pizza Hut. Once again, thank you very much for having participated in our conference.

IMC's teleconference is now over. We thank you all for your participation and wish you a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]