Metalfrio Solutions S.A. (FRIO3) Earnings Call Transcript & Summary

Good morning, everyone. This is Frederico Moraes, CFO of Metalfrio, and I'm here this morning with Luiz Eduardo Caio, CEO and IRO of Metalfrio. Thank you for your ongoing interest in our company, and for joining us in our first quarter 2022 webcast. We started the year keeping the positive momentum observed in 2021. Despite the adverse supply chain and logistic conditions as commodities inflation and freight availability, we managed to lead revenues and EBITDA to historical highs. By now, you will have looked through our press release, and hopefully have the presentation in front of you. If not, you will find both documents on the Investor Relations section of our website. We will briefly run through our highlights of first quarter '22, providing further details on our operating regions and segments. Following that, we would like to highlight some key initiatives that will continue to help drive the business forward. And then we will discuss cash flow and capital structure. We should then conclude with our outlook for 2022 together with a summary of our strategic priorities. We need to caution you that we may refer to forward-looking statements. And in that regard, kindly observe the disclaimers about forward-looking statements on Slide 2. Now let us start with a look at the highlights of first quarter '22 on Slide 3. Top line continued the positive momentum with a 7% increase in first quarter '22 to BRL 503 million. That increase in revenues was underpinned by the successful customer base diversification, consistent commercial policy and resumption of placement programs by our global key accounts. Sales of service also increased in first quarter '22, reaching BRL 71 million, a growth of 18% when compared with first quarter '21. Services revenues represented 14% of total sales in the first quarter '22. EBITDA at BRL 61 million in first quarter '22 was 48% higher than the same indicator of first quarter '21. EBITDA margin for first quarter '22 was 12.2%, and EBITDA for the last 12 months reached BRL 250 million. During the first quarter '22, we experienced a net loss of BRL 3 million against a net profit of BRL 4 million in the first quarter '21 as a result of higher financial expense offsetting operational improvement. Now let us provide some context for the shape of recovery of the market along the pandemic in the Slide 4. This quarter is the seventh consecutive quarter of growth for the company after therefore observed in the second quarter of 2020 when the pandemic began. Of course, this is a result of the partial market recovery, but it is also -- it is a consequence of our strategy. First, adjusting our sales mix, including new customers, products and distribution channels, enlarging our customer portfolio. Second, focusing on further enhancement of our service offering, which has proven to be resilient as fleet management contracts generate stable inflows. And third, continuing to develop our successful full-service rental business, which continued to gain traction in Brazil. Despite the recovery in sales, we are still experiencing the diversity of the global supply chain disruption with demand and supply is still in the process of rebalancing across several categories, leading price of commodities historical highs, material shortage, such as electronic components and lower availability of freight. The adversity in the global supply chain was intensified by the conflict between Russia and Ukraine, which increased inflation in many countries, especially due to the increase in energy price. Higher inflation also forced many economies to increase their central bank interest rate, which in Brazil increased on average by 10% when compared for the same period of 2021. Slide 5 shows the evolution of sales in the different regions from the [ last ] pre-pandemic period, which was the first quarter of 2020. In global terms, this growth was 30% as a result of market conditions, and the strategies adopted by the company. South America increased by BRL 6 million in first quarter '21, and another BRL 28 million in the first quarter '22, supported by sales to new customers developed along the pandemic and also with an increased contribution from the service segment. Sales in Central and North America decreased by BRL 21 million in the first quarter '21 due to the extended lockdowns in Mexico and U.S. as well as supply chain disruptions. In the first quarter '22, sales in this region increased by BRL 33 million, more than reversing the decrease of the first quarter '21, and returning to levels above the pandemic period. After experiencing a strong increase of BRL 99 million in the first quarter '21, EMEA region decreased by BRL 26 million. The decrease in the first quarter '22 is mainly due to a strong Brazilian real currency, which converted sales in predominantly euro and dollar currency by stronger Brazilian reals. As a result of different performance in the first quarter '22, Americas gained important contribution during this period, and together represented more than half of the revenues. Now let's take a closer look at our regions, starting with South America on Slide 6. Our South America operation has been experiencing positive sales momentum since the third quarter '20, and sales in the first quarter '22 were 17% higher versus first quarter '21. Since the pandemic start, this region focused on diversifying the customer base, and made further market share gains in the middle market commercial refrigeration channel. After a year in which key accounts hold on their investments, this region has experiencing a greater demand from these big brewers and beverage companies. Actually, since fourth quarter '21, in which they are resuming their placement programs as the immediate consumption point of sales as restaurants and bars are returning to pre-pandemic levels. Our service offering, which includes field maintenance, logistics, warehouser, refurbishment and rental continues to gain traction, and leverage the scope among the customers. Revenues in this segment increased by 25% in the first quarter '22. Now let's turn to Central and North America on Slide 7. Sales in first quarter '22 increased by 73% when compared to first quarter '21, a particularly weak comparison base as the region was still suffering a severe impact of COVID-19, and supply chain constraints in that period. When compared with sales of first quarter '20, the sales in first quarter '22 were 17% higher. Sales in first quarter '22 continue to be benefited by the increase of exports to U.S. and development in middle market and distribution channel in Mexico. And let's conclude the regions review by looking at EMEA on Slide 8. Our main facility in EMEA region is located in Turkey. And as most of sales are exports, and also due to a volatile domestic currency, we established more than 90% of the sales in hard currency, euro and dollar. This strategy leveraged the sales in previous quarters, but in the first quarter '22, specifically the appreciation of Brazilian reals against dollar in Europe resulted in a decrease in sales when converted to Brazilian reals. We also experienced a geographic change in the demand inside the EMEA region as sales in Europe and Africa increased, and partially offset the decrease in Turkey and Middle East. In this region, we also experiencing the first impacts of the conflict -- wars in Ukraine, despite the impact is still limited, we keep vigilant and monitoring further development in this region. Slide 9 shows the evolution of the company's strategic option to reinforce the segment of the structured solutions for Services contracts. Net revenues in Services increased by 19% in first quarter '22 due to our diverse portfolio and ability to generate growth. Gross profit here has been more resilient as it is less impacted by the global supply chain headwinds at gross profit, and improved by 2%. In the Products segment, revenues increased by 6% in first quarter '22 as customers resumed placement programs in some regions, and as we continue to tap on mid-market accounts across our broad geographies. The gross profit here was impacted by the commodity super cycle. However, a review of our commercial policy, together with efficiency gains in manufacturing enabled the company to present a gross profit margin of 18%. Now on the Slide 10, we will present a summary of our strategic strength position for the near future. We are well positioned to take advantage of the volumes that will be resulting due to the weak demand that occurred in the pandemic years. Remote location of our operations allows us to exploit these opportunities like no other competitor. Investments made in the plant in Turkey to keep to record levels of productivity. The focus on the growth of the Services segment, not only brings profitable revenues but bring us closer to our customers in a unique way. The expanded offer of service through the subsidiary 3L involving rental, warehousing and logistics enables us to open new frontiers of sustainable growth. Of this globally positions, Metalfrio as a unique provider of innovative, fully integrated and technology-based solutions that often surprise our new and existing customers and bring the closures to them. Turning to the last slide, we present the company's financial situation. Despite the good operational performance, the company has an excessive concentration of debt maturities in the short term. There are ongoing negotiations that aim at a viable and satisfactory solution for the stakeholders involved in the process, and their results will be made public as they materialize. Please feel free to contact us through our Investor Relations for further clarification and questions. Thank you for following our progress.