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

Ladies and gentlemen, and welcome to IMC's conference call to discuss the results for the fourth quarter 2023. This conference call is being recorded and the presentation is available on the company website. [Operator Instructions] Before proceeding, please bear in mind that forecasts of future events are subject to risks and uncertain that may cause these expectations not to materialize or to be different from expected. These forward-looking statements speak only as of the date they are set forth and the company undertakes no obligation to update them. Present at this conference, we have Mr. Alexandre Santoro, CEO, and Mr. Rafael Bossolani, CFO and IRO of IMC. I would now like to turn the floor over to Mr. Santoro, who will begin the presentation. You may proceed, sir.

Thank you, Samantha. Good morning to all of you. I hope that you and your families are well. Thank you for connecting today to the IMC call to release results for the fourth quarter '23 and full year. Let's go to Slide #2. When we arrived here almost 3 years ago, thing we set forth was a dream, a big dream of which would be the best food service platform in Brazil. And very clearly, we've set for the pillars of this transformation journey that we needed to undertake an IMC, something that went beyond the recovery of the business after COVID to begin this presentation. Today, we're going to share with you, which has been the evolution in this direction. We are still paving the road with a very clear strategy that depends on the balance between discipline on day-to-day focus and the construction of our future. We can now go on to Slide #3 where we're going to speak about this evolution in greater detail. I'm satisfied and promising today that we are a new company. And very quickly, we're going to go through the main pillars. We begin with the team and governance. We're very proud of the team. We have set up a strong team aligned with our causes and with corporate areas much closer to the field team day after day. Our office in Sao Paulo is nothing more than a support center for the restaurants. And those who are here have a very clear mission that of supporting our team and our business as a whole. I would also like to underscore the work of our Board that offers support for the transformations we have undertaken here. I tend to say that we have the management and the Board for the IMC that we want to build and not something based on results and profits. Another point that I underscore is governance. We are part of the B3 market, and this is a priority for the company. The next pillar is operational efficiency, the profitability of our business. We have been able to evolve in all the operations, driven by the strength of our brands. These are relevant brands. Some of them are global brands. These are desired, beloved brands that day after day come closer to the customers with innovations to allow for an ever better experience. And this has brought about important results store by store, and we have our central kitchen, our intelligence, price management and evolution in profitability. Now digital transformation is, of course, an important pillar so that we can become ever more efficient and be more available for consumers in all possible channels and to have the capacity to better know them and interact with them using these tools. Perhaps this pillar was one of the largest challenges that we faced because of the gap that we had in our company. And among the competitors 3 years ago, we still have a gap, but we have been able to evolve and close the gap. We have a proprietary app for Pizza Hut that will be systemized for other brands. The self-service terminals have had a significant evolution helping KFC and Pizza Hut sales to reach 40% of our total sales. We have the case of Frango Assado and the express checkout that will speed up the process of paying, especially during peak moments. And of course, we also are undertaking the expansion of the company based on the brands with the greatest growth, for example, KFC. And we have seen this process evolving through a finding and we will begin to see the results as of this year. And finally, of course, our financial discipline. We have been able to make strides in this agenda with a great pill of discipline, which is reflected in the financial situation of the company. In 2023, we had a milestone. We carried out some of these investments. They helped us deleverage the company and simplify our portfolio. We were able to capture BRL 460 million in new resources with a longer maturity. And with this new resource, we are working with the debentures that had been negotiated and no longer reflected our reality when it came to what we were building. We're now going to speak specifically of the year 2023. After this overview of previous years, now although we continue to see a rather challenging macroeconomic scenario, we did have evolution in all of our operations. And this reflects the continued evolution of the company and the consistency of our strategy going forward. Same-store sales with a growth of 5.1% in the consolidated version and 5.6% in Brazil. Net revenue for the company with a growth of 6.2%. If we exclude the impact of gas station, the net revenue of our restaurant business had a growth of 10% last year. Adjusted EBITDA move forward 8% during 2023. Now to be able to carry out the right comparison that reflects the operational and recurrent reality of the company, it is important to exclude extraordinary items such as the credit that we had in the United States in 2022. In terms of recurrent results, we see that our EBITDA increased 25.2 million (sic) 25.2%, reaching BRL 247 million. We continue to make strides in terms of nettedness that ended the year 2x net debt EBITDA for the last 12 months and a special thanks to our franchisees and the entire IMC team in Brazil, in the United States. They are the ones that make this business operate day after day. We'll now go on to Slide #5, where you see the numbers for the IMC system. For the first time, we go beyond 600 units and in the year at 601 units, an increase of 48 stores vis-a-vis 2022, with a disimbursement of Colombia, we concluded this last year. We will take away 22 stores from this part. Now going to more depth into the results, especially in terms of sales. We now go on to Slide #6 to speak about same-store sales. We end the year with a growth of 5% on a base that has grown 23% last year. It was a year that despite the challenging macroeconomic scenario, did not allow us to be satisfied with our performance because of the enormous potential for organic growth that still exists within our brands and we're going to speak about this in greater detail in the presentation when we show you the sales results per brand. It was also a year where we prioritized the evolution of profitability. We were more selective vis-a-vis some promotions, especially along those that accrue something to our delivery system. The present day take rate rates do not make feasible several initiatives, and they limit our capacity to offer incentives to the end consumer. Now to speak about brands, and it's always good to mention that we have 4 broad systems. We have more business than that, but we underscore these 4 main businesses. And here, we break down all of our businesses. And I'm going to focus more on these 4 businesses, Pizza Hut, KFC, Frango Assado and Margaritaville, each with profit between BRL 650 million and BRL 800 million per year, all of which still have a normal growth potential and value generation that can be captured in the coming years. Let's begin with Pizza Hut, the favorite pizza in Brazil. This is an incredibly strong brand, a brand leader above -- much above our direct competitor. We had 28 openings last year, reaching a total of 275 stores in the system with BRL 617 million in profit. This includes franchise stores and owned stores. Same-store sales was 5% more above the market rate, but still below what we had planned. As I mentioned before, the very high take rates for delivery operations, one of the reasons that has led us to create our own app that has been successful in sales is because it is fundamental in our delivery strategy. This app is among the 10 favorite apps in Brazil offering a very good purchase experience with different channels. On the other hand, we still have several opportunities for improvement especially through innovation in new occasions and by strengthening our top products. Last year, we added the thin-pastry pizza, an alternative to the traditional base of the pizza. We also launch new pizza options that have been very well accepted. And with individual solutions, we will have more novelties going forward, especially now in the second quarter. And finally, we work in 15 locations. And very soon, we will have a partnership with them. Now let's go on to Slide #9, where we're going to speak about the brand that most growth here in Brazil and worldwide. KFC is one of the largest brands globally. Every 3.5 hours, there is a store opening somewhere in the planet during 2023. And we're very excited by that in Brazil, we had 39 openings during 2023, which means one new store every 10 days, reaching a total of 192 stores at the end of the year in Brazil. Total sales reached BRL 730 million, but we had sales performance that was somewhat below the potential of this business throughout 2023, partially because very similar to Pizza Hut. We had a moment of profitability impacting sales performance but this was offset with an enhancement in profitability. We reviewed some promotions, especially in the delivery channel revising some initiatives like free freight. This led to a positive impact on margin, but we had a flat same-store sales and plus 4 for the entire year. Another challenge that we are addressing with KFC is that we are very concentrated in shopping malls and we know they still have not resumed the flow of consumers as they had before the pandemic. One of the main initiatives for the year 2024 was opening new format, especially freestanding stores with a drive-through that will not only contribute to sales, but will contribute to strengthening the brand in Brazil. And very soon, we will have additional novelties. For example, on the request of our customers, we are relaunching the delicious desserts at KFC, the Sundays and much more, an enormous opportunity in the food court. We continue to expand our digital channels in KFC. Here, you see the self-service terminals that besides enhancing the customer's experience, enhance the average ticket. 2023 was a significant year for growth for KFC as a whole. But 2024 will be fundamental for the organic growth in same-store sales, besides a very balanced expansion between our own stores and franchises. We now go on to speak about Frango Assado that is the best stop on highways. We had a strong growth of the business with same-store sales growing a significant 12%. We carried out a refurbishing of the main stores and we developed new formats, for example, Frango Assado Express. We're quite enthusiastic with the performance and we see an evolution of sales because of a greater traffic in our restaurants. Besides a new visual identity, we have made strides in digital initiatives with loyalty programs. We have 250,000 registered customers so far. What is more important, we're revising the experience of the customers aligned with the expansion that we plan to begin in 2024. It's important to highlight the strategic role of our Central Kitchen. On the [indiscernible] and other products are produced centrally. Now this business continues on with its evolution and beginning in 2024, we will focus on the enhancement of the stores to resume the expansion of project. We will be creative and disciplined in our quest for initiatives to better use our capital. Now to conclude the business units. Let us go to Slide 13 to speak about our operation in the United States, where we have the license of an iconic brand in the format of casual dining, quite different from the format in Brazil. We had a strong fourth quarter with the growth of sales -- same-store sales of 7%, and we grew 3% once again on a dollar base. Now we have new ideas for the year because we have felt pressure in our cost structure, especially when it comes to labor cost, salaries, the cost of medical assistant. We are not able to transfer this price increase because of a more sluggish demand. The new restaurants have been growing in terms of performance, especially those of New York, Atlanta, Miami and Boston. Because of the location, we can decrease the business seasonality. But these are stores that are not operating at full steam and 2024 will be key to move forward in terms of the performance of these stores. We now go on to our digital sales. I have already referred to this somewhat. We reach almost BRL 500 million for Pizza Hut and KFC, a growth of 42%, impacted by the initiatives we have mentioned here. Digital transformation is, of course, a reality, but we still need to evolve and enhance the share of digital means as part of our total sales. This is one of the priorities for the year. Now to conclude this first part, we get to the next slide on Slide 15 with a net revenue of BRL 2.351 billion, a growth of 6% year-on-year. It's important to highlight the impact of the gas stations. If we exclude the gas station impact, the growth is 10% in the restaurant business at gas stations. Although the gas stations were operating at lower prices, something we cannot control. We are able to control what happens in our brand. We will now go on to Slide #16. Speaking about adjusted EBITDA, we reached an EBITDA of BRL 73 million in the fourth quarter, a reduction of 29% vis-a-vis the fourth quarter '22 and a growth of 8% for the year. As explained before, if we exclude the effect of nonrecurrent results, the EBITDA in the fourth quarter grew 31% and 25% during the entire year with EBITDA margin reaching 10.2%. To conclude here, on Slide 17, the results per region. As I tend to say Brazil is one of our focuses. And we have focused heavily on the operation to ensure the profitability of each store to reduce losses and to focus on the increase of our sales in the same stores in a profitable manner. This work is beginning to show results with EBITDA, Brazil growing substantially throughout the year vis-a-vis 2022 an important performance. We have confidence in our decisions and the work we have carried out, but we're still not satisfied and we are aware that we have achieved enhancements in our operational results. I will give the floor to Rafael Bossolani, my partner and CFO. So he can speak about the performance of IMC.

Thank you, Santoro. Good day to all of you for those who are attending our fourth quarter '23 conference call. I would like to continue on with the presentation, taking advantage of this moment to underscore some important results. You can see them on Slide #18. As Santoro has just mentioned, and I would like to reinforce this, the operational progress of the company is aligned with a rapid advancement in our transformation process and this has translated into concrete results that we have attained in these almost 3 years and it reflects the continuous progress of the company towards our financial and strategic goals. The pillar of financial discipline, of course, has been fundamental for the success and sustainability of the company. We had a significant progression since we began this journey in 2021. And it puts the company into a sound and advantageous financial position. The operational cash flow for the fourth quarter '22 was BRL 54 million, an increase of 16% compared to the same period the previous year. And this result arises not only from an improvement in the operational results in all of our units, but also because of our management of the working company -- of the company. In 1 year, we reached BRL 233 million, a growth of 36% vis-a-vis the 12 months of 2022. It's important to underscore that the focus is to enhance our operational cash flow. It's one of our priorities and we are pursuing this with a great deal of diligence. As part of our growth strategy, we have maintained a responsible expansion pace focused on making the existing operations more profitable. But we are seeking opportunities for growth to enhance our relevance in the sector. The pace of investment in the construction of new stores is and will be directly connected to the operational and financial performance of the company. In this line item, we maintain the discipline of our investment in the expansion of our own stores this year, we accelerated vis-a-vis the year 2022. We have opened 40 stores of this type in the last 12 months, reflecting the opening schedule of different stores among the quarters, the variation that always happens. During the year, we made investments of BRL 133 million, BRL 87 million destined to store expansion and the additional BRL 46 million for strategic projects and refurbishing and maintenance of our units. We go on to Slide #19, where once again, I highlight the intense work and the enhancement of the company's capital structure. In the last 2 months, we have reduced our gross debt by almost 20% and we end the fourth quarter with a net debt of BRL 295 million. It grew BRL 42 million vis-a-vis December of last year because we had a cash entry from the sale of an asset that year. As you can see in the graphs, we have a leverage that is quite positive. That stands at 2x net debt EBITDA for the last 12 months aligned with the levels that we deem to be coherent for the company and below the rate set forth by the covenants that would be 3x that indicator. I would also like to mention that in 2023, simply to remind you, we concluded all of the stages of our debenture refinancing program. We captured BRL 260 million. We reduced the average cost of the debt by 126 bps and have lengthened the debt for 24 months, a very important move for the company. So we have a comfortable debt structure and adequate liquidity structure that will make our business plan feasible and make it sustainable going forward. These results reflect a highly disciplined management of our working capital and the focus that we have on maintaining the appropriate liquidity levels in our businesses. Simply to conclude and before returning the floor to Santoro, we continue to focus on maximizing cash generation. It's one of our priorities along with an increase of profitability in our operations guaranteeing an efficient cost management and creating an operational leverage that is important in all of our operations, so that we can give trust to the company results. Thank you very much, and I will return the floor to Mr. Santoro.

Thank you, Rafael. Simply to conclude. As you saw during the presentation, we have made several strides when it comes to the fundamental pillars of our business. The increase of transactions in our stores in a profitable fashion and the consistent and excellent experience for the customers are key pieces of this strategy. We have several opportunities for growth. We're going to do this with discipline. When it comes to resources and our financial availability, we're aware of the opportunities that lie before us but we're quite proud of what we have done so far. I say that the consistency of our strategy, the strength of our brands and the quality of our franchisee team will bring us ever closer to our big dream, which is to be the best food platform in Brazil. With this, I would like to end the presentation and return the floor to Samantha so that we can begin the question-and-answer session. Thank you very much.

[Operator Instructions] I have a first question in the Q&A here with Julio from -- the question is -- how did the amount of the sale of Margaritaville contribute and how do other stores compared to the Same-store?

Julio, an excellent question. Very generally, I spoke about the new stores we have inaugurated in the last 2 years that are still not at the top of their maturity curve. This year, the stores that we opened recently will offset the disinvestment of Margaritaville. So we hope to have a very similar base in terms of results in the United States after the sale of the store of Margaritaville. Thank you for the question.

[Operator Instructions] Another question from [indiscernible]. The question is if we could comment on the disinvestments that we still have to do.

Well, very clearly, we have ended the most important cycle of disinvestment in the company. At the same time, of course, we're always analyzing alternatives and opportunities. This is part of our day-to-day work. But at this point, we have nothing additional to say about disinvestments. There's nothing under discussion.

[Operator Instructions].

Good morning. This is Rafael for Julio [indiscernible]. I'm sorry team, we did not answer your question, which was the EBITDA generated by this unit. That was an operation that was sold in Pigeon Forge in Tennessee. It was operation that was no longer growing. And in the last few years, it remained very stable in terms of profitability. It represented 6% to 7% of our profit and between 10% to 11% of EBITDA, these for the American operation, 6% to 7% of the profit and between 10% and 11% of the EBITDA of the United States.

[Operator Instructions] We have an additional Anonymous question. I would like to know about the other brands, brands that are part of IMC like Vienna. If they have ended the quarter positively.

Yes, Mr. Anonymous, these are the operations that are profitable for the company. We're speaking of Vienna, Batata Inglesa and the operations in airports, which include catering and the stores that we have in the airports, their profitable operations and the company focus is not to expand these operations, but instead to focus on an enhancement of profitability. Therefore, as part of our transformation agenda, we have ended up by closing down the stores that were draining cash. There were very few units, of course, perhaps 5 or 7 units that were closed down in the last few years. But there are businesses that are well balanced and profitable for the company.

[Operator Instructions] Very well, we have another question from an individual person who has asked me to speak more broadly about financial expenses as the debts with CDI are dropping.

Thank you, Patrick, for the question. Our expectation when it comes to financial expenses, is that they will drop for 2 reasons. First, we're going to reduce it because the debt has been reduced. The gross debt was reduced by more than BRL 130 million. And the spread of the debt has also had a reduction of 25 basis points. And with the CDI dropping, as that indicator is called down, it will generate positive impacts for the company. Now throughout the year 2023, more specifically, as part of the financial expenses, we did have nonrecurrent costs due to the renegotiations carried out with the debentures. We have prepayment and this represented some extraordinary expenses enabling us to lengthen the debt and much more. So the trend is for financial expenses to continue to have a reduction.

The question-and-answer session has ended here. We will now return the floor to the company's CEO, Mr. Alexandre Santoro for the closing remarks.

Well, thank you, Samantha, and our thanks to all of those who attended the call. Thank you for the questions. Once again, I would like to thank all of you for your attendance and as is traditional, download a specific coupon for KFC. As you can see on Slide #22, that already guarantees lunch for you, good restaurant, have honors. So have a good day and have a very good week.

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