Unicasa Indústria de Móveis S.A. (UCAS3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for waiting. Welcome to Unicasa Indústria de Móveis S.A. conference call to discuss the results of the fourth quarter of 2020. Today, with us, we have Mr. Gustavo Dall’Onder, CEO, CFO and Investor Relations Officer. We inform you that this event is being recorded. [Operator Instructions] This event is being broadcast simultaneously on the Internet via webcast, and you may access it at unicasamoveis.com.br/investor relations, where you will find the presentation for download as well. The slide selection will be managed by you. We wish to remind you that webcast participants may send their questions via our website, and they will be answered during the Q&A session. Before proceeding, let me mention that forward-looking statements that might be made during this conference in relation to Unicasa's business perspectives, operating and financial targets are beliefs and assumptions of the company's management as well as information currently available to the company. Forward-looking statements are not guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events, and therefore, they depend on circumstances that may or may not occur. Investors and analysts should understand that general economic conditions, industry conditions and other operating factors may affect the future results of Unicasa and may lead to results that differ materially from those expressed in such forward-looking statements. Now we would like to turn the floor over to Mr. Gustavo Dall’Onder to start the presentation. Mr. Dall’Onder, you may proceed.

Good morning. And dear shareholders, in this fourth quarter of 2020, the company posted 18.8% revenue growth, the highest in comparative quarter since it went public. Beside that, 4Q '20 net revenue was the highest in one single quarter since 2016 when we had more than twice the number of stores. In Dell Anno, Favorita, New and Casa Brasileira revenue went up in same-store sales. In the export segment, the expanded presence in the United States and the higher sales to Latin America were the main drivers for the channel's performance. Gross margin reached 43.2% due to the better sales mix. The increased participation in the Export Market contributed to this improvement besides the better performance indicators in our stores and brands in general. Our operating expenses went up approximately 10%, partly driven by our investment in the U.S. operation, which is maturing; and the higher consumer expenses. Among the stores that we closed in the quarter, one had customers' orders pending. This was a 10-year-old operation with no guarantee, and due to the low chance of successfully collecting the dues from the operator, we provisioned all impacts of servicing the remaining clients. Thus, our operating income reached BRL 10.2 million, up 53% from 4Q '19. Net income was BRL 9.5 million, up 45%. 23.6% EBITDA margin and 18% net margin only reached similar levels prior to the first quarter of 2012, when the company was not yet listed on the stock exchange. On December 16, the company paid dividends referring to the fiscal year of '19 of approximately BRL 16.5 million. At the next shareholders' meeting scheduled for April 27, we will be proposing payment of BRL 14 million in dividend referring to the fiscal year of 2020, 100% payout of adjusted net income. In early January, the company raised a BRL 17 million loan for the acquisition of machinery needed to modernize our production facility to keep up with the changes in the consumption profile of our products. Since 3Q '20, the furniture sector is being affected by the imbalance in the supply chain, delays in deliveries, shortage of products and increasing raw material prices. Due to the appreciation of the U.S. dollar, decline in interest rate and contingency measures to contain the economic impact of the pandemic on the Brazilian economy, our suppliers are having to meet the growing demand from export, civil construction and furniture sectors. And we understand this is being overcome with no major impact because we have an inventory policy that allows us to counterbalance this and minimize the impact of the lack of some products. I would like to mention, according to the material fact that we published on February 22, that the manufacturing capacity of the company was reestablished to pre-pandemic levels. We thank our store owners, employees and everybody involved in our chain for the achievement this result. Now on Slide #5, the highlights of the period. We closed the quarter with 18.8% increase in net revenue, 53.5% in the operating income. EBITDA margin was 23.6%; net margin, 18%; ROIC, 11.1%. On Slide 7, we highlight the most relevant movement of revenue in this quarter. Growth of 17.9% in sales channel, reduction of 0.7% due to the reduction of the distribution channel and -- network and reduction of 0.6% due to the termination of our own stores operation. On the next slide, we will see the consolidated effects on each one of the sales channels. Starting with the Dell Anno and Favorita exclusive resellers. We see a drop in revenue of 2.5%; reduction in modules sold, 10.4%. On Slide 9, we see that the New and Casa Brasileira brands had an increase in revenue of 39.1% and 44.9% in modules sold. On Slide 10, we see the multi-brand resellers performance with an 18.5% increase in revenues and 18.8% in modules. The corporate segment can be seen on Slide 11, had a decrease of 21.1% in revenue and 22.5% in modules sold. On Slide 12, you can see that the export segment performance posted revenues up by 87.4% and 53.6% reduction in modules sold. Unicasa's consolidated revenue, on Slide 13, went up by 16.6%, module solds going up 16.4%. On Slide 14, we see the average Dell Anno and Favorita store productivity, which was BRL 104,800 a month, 11.9% higher year-on-year. The average New and Casa Brasileira store productivity in the quarter was BRL 57,500 per month, 29.7% higher year-on-year. On Slide 15, we have the chart with the evolution of our multi-brand and exclusive POS. We ended the quarter with 198 exclusive stores, a net reduction of own operation quarter-on-quarter. And on Slide 16, we see the chart with the evolution of our exclusive POS separated by brand. And we closed the quarter with 78 Dell Anno and Favorita operation and the operations of New and Casa Brasileira, plus 15 exclusive stores abroad. On Slide 18, we can see Unicasa's results summary. We can see a 1.5 percentage point increase in gross margin, 3.7% increase in EBITDA margin and 3.2 percentage points in net margin. On Slide 19, we see the evolution of our SG&A with an increase of 9.8% in the quarter. Consumer expenses were BRL 1.9 million higher, mainly driven by 2 factors: total provisioning for all the remaining clients from one store closure, increase of BRL 1.2 million; and the reversal of the 4Q '19 provision due to the expiration of the 5-year term for the consumer to claim [ his purchase ], which impacted the comparable period by BRL 0.7 million. Expenses with U.S. operations refer to personnel, occupancy, travel, insurance, advertising and other expenses related to the office opened in the U.S. to support the company's expansion in that market. Due to the delinquency reduction, our allowance for loan losses was down by BRL 0.6 million. Travel, advertising and other expenses went down by BRL 0.7 million due mainly to measures put in place by the company to reduce expenses because of the epidemic. On Slide 20, we see that net income in the quarter was BRL 9.5 million. On Slide 21, EBITDA was BRL 12.5 million, generating a 23.6% margin. Now I would like to give the floor back to the operator to start the Q&A session.

[Operator Instructions] [ Matia Gagerez ], investor -- individual investor.

Congratulations for the results. Could you talk about the domestic market and the foreign market separately? How do you see the beginning of this year? And could you talk a little bit more about your U.S. operation and whether the exchange rate is having a big impact or not?

Thank you for the question. I would try to clarify your doubt. During the year as a whole, we had a lot of transfer, so to say, of demand during the year. A lot of demand that didn't happen at the beginning of the pandemic started around the end of the year. So you can see an impact on the domestic market a lot because of that. As we said in previous conferences, the domestic market was an interesting bet because of the pandemic, and we believe that it has a lot to do with the fact that people are at home and they cannot travel. And this helped generate an organic demand in the domestic market. On the export market, it is inorganic, in fact because we are building the channel, and we have a significant difference between the penetration of stores depending on the region, and this has a lot of impact on the growth of this specific channel. And the fact that the dollar is more appreciated, it does help on one hand. But if we look at the situation as a whole, this is not so relevant when you have exports representing just a small part of our revenue. Because if you take sawdust for instance -- most of it has to do with the price of steel, which is quoted in dollars and you talk about the sheet of material has some equity ]. You can see that other suppliers also had an increase in revenues because of exports. So we compete with the export of these materials, and this has an impact as well. The fact that the U.S. dollar appreciated, it helps the specific margins of our exports. But on the other hand, it hinders the margin of the company as a whole.

Could you talk about the machinery that you are acquiring? And the idea is to replace some lines and start some different lines -- some new lines. Could you explain a little bit about the new machinery and the products?

Well, I would say that, [ Matia ], it's a little bit of each. The furniture consumption market changed relevantly in the last 10 years and also the market where we are positioned. We are positioning ourselves more and more to cater to a high-end audience. And so you need more addition in the product and more customization. And this is because -- this is the reason why we have to make investment. We already have machinery that can perform these new functionalities. So it's not really machinery for a new product, but it is, in fact, for the increase in capacity of one certain production line that we already have.

Your next question, Mauricio Matthias of [ Veracruz Investments ].

What is the capacity percentage that you are using at this moment in time approximately? How much are you using of your capacity? This is one question. And the second question, could you give us an idea of inflation? Let's say, if everything remains constant, how much -- my average product went up in price. Let's say I sell exactly the same amount that I showed in 2020. I will probably have some increase because of inflation. Is this correct?

Thank you, [ Mauricio]. Well, the first question has to do with the use of the installed capacity. This is a very complex question. As I was answering [ Matia's ] question, part of our manufacturing facilities, a part that from the accounting point represents little but it is important in utilization, they are much more focused on a product line that -- it's more a product for inventory and not so much customization of product, which is what we do a lot today. So this is not a simple math. We do not have a third shift in Unicasa today. So I think maybe this will help you to work figures out and see how much we can expand with the current machinery. But it is not economically feasible to activate a third shift. It is much more interesting to invest in new machinery. So I cannot tell you, well, X percent of the installed capacity is being used. Now regarding your second question about inflation. Last year, we had a very big increase in costs, and we were able to negotiate and offset part of that because of the inventory that we hold and transfer as little as possible to the end product. And I would say that in broad -- in ballpark figures, the price today is 10% to 12% higher than prices were 1 year ago. I cannot tell you that if we sell the same volume as last year, this is going to be that. Because what happens is that we do not know yet how our pricing policy will be for the future. So this is not clear yet. We do not know what the behavior will be at the supply chain, and we receive pressure because of increases in the supply chain.

Do you believe that most of the increase has already come and leaving a load of inventory and having new inventory? Or do you still have pressure? It seems to us that we are going back to the high inflation times because it changes every single week.

Well, let's go by part. The supply chain is long and the impact that you have on pulp for instance, not necessarily has a straight line of influence on our products. And we do not have a straight line either regarding retail, for instance. So you have to take into account a few factors. The demand for furniture in Brazil had a whiplash effect. I would say starting in April and ending in June, there was a very big drop. But in the next quarter, there were months with twice the demand if you compare to the previous year's figures. And in the fourth quarter, there was a period that was more accelerated, and then this acceleration was decreasing. And now at the beginning of the year, we already see a demand for furniture, especially in the lower part of the range, very much linked to the public policies put in place with aid, et cetera. And all this has an impact on suppliers' prices. You have the dollar. You have the fact -- well, much of that is our commodity. So there is an impact because of that as well. And what will happen from now on will depend on the domestic market, mainly on the lower part of the range and how this is going to behave and -- regarding wood produced in Brazil and its consumers. Regarding our inflation, we work with a policy aiming at the highest possible predictability so that we can have the same level of predictability offered to the end customers. But we can have very big [ oscillations , and we cannot just transfer everything to the store owners. This is not our policy to transfer all this to the store owners.

What about your current mix? If you look at the fourth quarter, for instance, as you mentioned, the change in the mix. So could you describe your mix?

Taking into account the range and -- while 0% depends on the coronavoucher or the government aid, a person that depends on the emergency aid cannot possibly afford our furniture because it got -- let's say, the product cost is BRL 8,000 to BRL 10,000, so this is not affordable for a person who need the government aid.

So the end of the aid program has nothing to do with you. Because -- let's say your competitor, which is the lower part of the range, their demand is falling, and the general demand for wood tends to drop a little.

Well, in theory, this helps me have a better negotiation with my suppliers. You can say, well, there is an indirect impact because somebody who sold something that costs BRL 400 when the person received, let's say, the emergency aid is no longer affordable for this person. But a reduction in demand for popular or lower range, it would even benefit us.

Now I will read the question from the webcast from [ Carlos Xavier ]. Congratulations for the excellent results obtained in the fourth quarter and the year of 2020. I would like you to talk about the behavior of consolidated revenue so far in the first quarter of 2021 given the continuity of the restriction measures because of the pandemic. And I would like to know if you continue to have any difficulties regarding prices and logistics of products coming from your suppliers.

[ Carlos ], thank you for the question. And the second question has already been answered in the previous question. And regarding the first, we do not talk about results and perspectives that are not yet part of the result that we have published. So we cannot tell you anything about the first quarter of 2021 yet.

[Operator Instructions] As there are no more questions, I would like to give the floor back to Mr. Gustavo Dall’Onder for his closing remarks.

Thank you very much for your presence, and I wish you all a very good day. Thank you.

Unicasa's conference call has come to an end. Thank you very much for participating, and we wish you all a very good day. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]