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

Good morning, and welcome to the webcast referring to the results of the first quarter of '23 -- 2023 for Metalfrio Solutions S.A. The highlights for this quarter are the following: We are presenting a net revenue of BRL 470.9 million in the period, which accounts for 6.3% less than the first period of last year -- the same period of last year, but still pointing to the annual revenue level of BRL 2 billion reached by the company in the last 2 years that we are doing our utmost to maintain. The average price in the period grew 27% from BRL 2,300 to BRL 2,900. As a result of the strategy to focus on segments, we achieved better prices and margins to compensate for the lower unit volumes of around 30% quarter-on-quarter. Our service division, which combined LifeCycle, Begur and 3L, continues to perform very well with a net revenue of BRL 83 million, posting a growth of 17% in comparison to the same period of last year, which already represents almost 30% of the business, other companies, South America, and almost 18% of the whole company on a global basis. The gross profit is reported at the level of BRL 77 million with a gross margin of 16.4%, which compares with BRL 95.7 million and 19% in the same quarter of last year due to higher expense -- operating expenses in Turkey, related fundamentally to the relationship of an inflation of around 70% in the country that affects all the local costs, all the costs in Turkish lira, whereas the prices -- the sales prices of the company, which are given in U.S. dollars and euro. Those currencies have appreciated only 20%, 22%. So that gap has substantially affected the margin of the Turkish operation, which is very relevant for the whole company, as you well know. However, South America alone contributed with almost BRL 40 million to this gross margin, reaching a record percentage margin of 21.4% in the period. The reported EBITDA for the quarter is BRL 35 million, which is -- accounts for a 7.5% margin, coming largely from South America with BRL 32 million out of the BRL 35 million coming from South America with a margin of 17.5%. All-in net loss is reported at the level of BRL [ 27.6 ] million, which compares with BRL 2.8 million in the same period last year due to lower margins and obviously, the adverse currency effects and also the increase in interest rates in all geographies. Now some more specific comments on the specific geographies, starting with the markets served by our Turkish company. In terms of the projection of soft demand is expected to linger through the end of the year in most of the geographies, with exception of North America, where things are doing better as early [indiscernible] strategy to do a prioritized segments with better prices and margins and the results of which can be seen in the average price growth of 31% in the period. And the volumes conquered in the alternative regions from the Turkish operation since the local market is [indiscernible] in the period. The Mexican operation still suffers from supply chain and equipment productivity problem, which prevented from taking advantage of the good sales model. As anticipated, bulk situations will be corrected by the year-end. Even so, the company delivered its fourth consecutive quarter of positive EBITDA, which greatly encourages the organization to continue its efforts to gain efficiency in our Mexican operation. South America heavily influenced by Brazil, obviously, it's facing a somewhat depressed market, especially those dependent on credit and therefore, sensitive to interest rates, such as the non-branded the non-key account products that customers buy on installments in the retail chains for their own use. The solid presence and image -- brand image of Metalfrio in the key account segment has allowed us to gain market share there, which mitigated the impact of decline in other segments. Given these market conditions, the company performed well operationally, continuing the focus on cash generation, which led the Latin America operation, again, much influenced by Brazil to generate an operating cash flow of BRL 34 million in the quarter, which is a very expressive number. The negotiations with the Brazilian financial institutions to address the short-term liquidity of the company are progressing well, and we expect to be in the position to inform its results shortly. The company received today, I mean, on the 21st of June, a letter from 1 of those institutions named W&T, informing that as the holders of approximately 80% of the financial debt [indiscernible], they are proposing the conversion of 100% of the recurring credit that shall be converted immediately into equity from a new issue to be done by the company. These are very good news, and our Board of Directors is coordinating the action for the proper negotiations of that matter. Thank you very much for the interest in Metalfrio Solution, and have a good day.