Zamp S.A. (ZMMPY) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for waiting. Welcome to the Second Quarter 2024 Earnings Conference Call from Zamp. We would like to highlight that those who need simultaneous translation, this feature is available on the platform. To access it, please click on the interpretation button through the globe icon at the bottom of the screen and select your preferred language either Portuguese or English. For those listening to the videoconference in English, there is an option to mute the original Portuguese audio by clicking on mute original auto. Please note that this conference is being recorded, and will be made available by the company's Investors Relation website, www.ri.zamp.com.br, where the full earnings release material is also available. [Operator Instructions] We would like to remind you that the information contained in this presentation and any statements that may be made during the conference call regarding the company's business outlook, projections, financial and operational constitutes the beliefs and assumptions of the company's management, as well as information currently available. Forward-looking statements are not guarantee of performance. They involve risks, uncertainties and assumptions, and they relate to future events, and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operational factors may affect Zamp's future performance and lead to results that differ materially from those expressed in such forward-looking statements. Today, we are joined by the company's executives. Mr. Paulo Camargo, CEO; Mr. Gabriel Guimaraes, CFO, and the Investor Relations team. I would like now to turn the call to Mr. Paulo, who will begin the presentation. Please go ahead, Paulo.

Good morning, everyone. It's a pleasure to have you with us for the presentation of Zamp's results for the second quarter of 2024. I am generally excited about what we're going to share today, especially about the bright future we are shaping together here in our organization. In my first 40 days at the company, I had the privilege of witnessing the excellence of our culture and the unwavering dedication of our team, the energy and commitment of our more than 16,000 employees are the beating heart of the company. This collective passion, combined with the strength of our brands and our relentless desire to grow is building a solid foundation to even greater success. Joining Zamp at a time of robust operational result is inspiring. The adjustments implemented have resulted in numbers that are not only aligned with our goals, but also open doors to a promising and expensive future. Today, I am eager to detail the results and provide and update on the strategic initiatives that are positioning Zamp as an increasingly prominent player in the market. The strength and engagement of our employees are crucial to this journey. And we acknowledge the fundamental impact each one has had in our success in this quarter. Thank you, and let's start our presentation. Moving to the 2nd Slide, I want to share some highlights from this quarter. Our net operating revenue reached a quarterly record of BRL 1.1 billion, representing a growth of 19% compared to the same period last year. In this second quarter, we achieved significant figures of same-store sales of 16.2% for Burger King, a 7.2% for Popeyes. Our gross margin consolidated was 65% in the second quarter, representing an improvement of 12 basis points compared to the same period last year. This progress reinforces the consistency of a balance between commercial strategies and alternative negotiations well succeeded implemented over the past years. During the period, the company's digital sales grew 30%, 30% versus the same quarter last year, reaching 51.2% of our company sales. Currently, 51% of sales are already identified. In the quarter, adjusted EBITDA was BRL 149 million, a growth of 21% when compared to the same period last year. For adjusted EBTDA ex-IFRS 16, an impressive growth of 43%, reaching BRL 90.5 million. The difference reflects this operational leverage achieved by the company. So this quarter was also well marked by a positive free cash flow, again, reinforcing our ability to generate operational cash. Moving to Slide 3, represents the evolution of our portfolio of restaurants. In the last quarter, we opened 3 new franchises; 2 Burger King, BK; and 1 Popeyes. We also completed the closure of 3 operations, BK 2 franchises and 1 company-owned. It aligns with our journey of optimizing portfolio. Then we ended the quarter with 1,028 restaurants, 766 company-owned, and 262 franchised. Moving to Slide 4. As we announced in the last quarter, we will continue to prioritize a modernization process. This is very important, a modernization process and remodeling restaurants, focusing on customer experience. This initiative, which we will also prioritize over the coming years, it is an important pillar to the company's strategy, making our restaurants more efficient, more attractive and also being 100% digital. I emphasize this because we continue to see positive results from the recent imaging of our restaurant portfolio, both in terms of sales and also cost efficiency, especially personnel, occupancy and encourages us to continue this long-term plan of modernizing our base of restaurants. With that, I would like to turn the floor over to our CFO, Gabriel Guimaraes, so he can cover the financial aspects of financial performance of our company, Zamp.

Thank you very much, Paulo. Good morning, everyone. Moving to Slide 5, represents the evolution of the company's net operating revenue and same-store sales for both brands. As mentioned, in this quarter, net operating revenue was BRL 1.1 billion, a growth of 19% compared to the second quarter 2023 with same-store sales of 16.2% for the Burger King brand, and 7.2% for the brand Popeyes, with consolidated growth of nearly 16%, 2/3s from the traffic growth and 1/3 from ticket growth. The 12 month accumulated 10% increase revenue of BRL 4.2 billion. Moving to Slide 6. Represent the net sales revenue for Burger King brand exceeding BRL 1 billion in the quarter, 19% growth compared to the same period last year. During the quarter, we were able to balance the strong sales initiative to [ '25, ] the launch of King Costela and the success of Garfield and Sonic, when the gross margin maximizing our operating results. We also see freestanding contributing materially to the consolidated same-store sales, reinforce our belief in this format of store that we want to explore further in the future. Slide 7, we can see these campaigns contributing to the operational results, but also to the brand equity reinforces essential attributory identity in this company's current moment. In Slide 8, we see that the Popeyes brand achieved a revenue of BRL 67 billion in the second quarter 2024, a growth of 13% compared to the same period last year. Same-store sales grew 7.2% Popeyes. We pursue construction of a brand, the best product in the category and operational consistencies. We matured the process that had a significant impact in the agility, speed and the quality of operation, very important so that we can continue looking for opportunities in this chicken market. We have been building awareness this quarter through experimentation. This set of initiatives made Popeyes grow 2x the GDP of same-store sales of 2024. Moving to Slide 9. We could observe the continuous evolution of our digital channels represented by delivery, self-service kiosks and through apps. In the second quarter, sales made through the channels totaled BRL 559 million, a growth of 30% compared to the second quarter 2023, represented approximately 51% of the company's total sales, a growth of about 5% compared to the same quarter last year. The main driver for digital growth come from kiosks. They bring incremental revenue, also efficiency and lighter, more leaner. Slide 10 represents our digital ecosystem. We ended the second quarter 2024, 51% of the system defined this evolution and enrichment of our database. We connect more precisely in personalization and revenue management. As in the previous slide, our reps represents 4.4% of revenue and is a good way to explore more data, acquisition, experience, convenience. Our self-service kiosks represents 30% of Zamp's revenue, a growth of approximately 6 percentage point compared to the same quarter last year. Our focus remains expanding this channel to both of our restaurants, including fully digital formats. Delivery remain an important driver for revenue in the company, representing approximately 60% of our sales. Finally, represents our data from a loyalty program, BK Clube. At the end of the quarter, we reached 18 million registered users. We believe that our program is an important lever to explore engagement, frequency and expansion. We remain confident that this opportunity will continue to be captured in the first years of the Clube BK. Moving to Slide 11. We see CG&A (sic) [ SG&A ]. On the left side of the slide, we observed that the cost of goods sold decreased 12 basis points, 35% of revenue in the second quarter. This marginal reduction compared to the second quarter last year is due to successful negotiations in the supply chain and a more favorable commodity cycle. We also see sales in restaurants, including the effects -- excluding the effects of our assets represents 52.8% of Zamp's net revenue, reduction of 75 basis points. This was due to 185 basis points in occupancy cost through operational leverage and initiatives of open market and energy distributed generation. On the right side, we saw general and administrative expenses decreasing 64 basis points compared to the same quarter last year. This is due to the efforts of the company to simplify the corporate structure during the second half of 2023. Moving to Slide 12. Our EBITDA, excluding IFRS 16 was BRL 90 million with a margin of 8.2%. This is a growth of 43% compared to the same period last year and a margin of 140 basis points. The result was a fruit of good strategy performance with some initiatives in cost and expense with a significant operational leverage. On the right side, we can see a loss of BRL 28 million, a reduction of 57% compared to the same period of 2023. Moving to the next slide. We can observe that the operating cash flow reported in the second quarter was BRL 82 million compared to BRL 55 million in the second quarter '23, reflecting a strong advanced operational result that fully subsidize the investment plan for the quarter, reinforcing the company's cash generation capacity. In Slide 14, our CapEx was BRL 71 million, a reduction of BRL 20 million compared to the same period last year. This reduction is due to a slower pace of store openings, especially in the Popeyes brand. The next slide, we have -- our -- we had BRL 1.6 billion, which has totaled BRL 854 million 2x greater. We can also see the aging of our debts. The company concluded this quarter an anticipated payments of debentures in the same time this year. It will be leveraging the final stage. In this way, we close the results. We go to Paulo to divide with you our priorities for the second semester 2024.

Thank you, Gabriel. Good results. It's a great way to start. In Slide 16, I would like to share with you some of the priorities of the company, and we're going to see this in 4 pillars. The first of all will be the continuous focus in sales and traffic through a commercial robust, commercial strategy as we have done in the first quarter this year, that counts with products and solid platforms, investments in media, campaigns -- iconic campaigns, and also licenses and innovation that bring greater frequency and sales generating greater profitability to our business. The second pillar is the experience to the perfectioning, the experience of our customers in all the interactions with our brands. Our digital channels with over 54% of our transactions already identified and our program of loyalty provide us important leverage of frequency and sales, incremental sales, and we will continue to invest in this channel in this way. Besides, we also will continue to give priority to our process of modernization and remodeling of restaurants with a focus on the fiscal experience of the customer. The third pillar, it goes through efficiency, something that the company always has worked on, it's part of our culture, it's part of our DNA, and we'll continue to work on relentlessly. The measures already taken place in the last year that consisted of since the simplification of our corporate structures up to the profitability focus in strategic lines with the company have brought -- already bring good fruits in 2024 through the operational leverage. And we can see this, this has translated to an expressive increase of EBITDA as already reported, that is -- this is a leverage that is very important of our DNA, and we will continue to pursue it consistently. Fourth and last is the growth pillar. We continue to be confident that see opportunities of growth, organic growth to our brands to be explored in Brazil, especially in stores that are freestanding that have proved to be an efficient vector of capital, attracting capital. As is already public, we have explored growth ways inorganically with the objective of pursuing our vision and being an operator of brands that is strong and synergy with focus of adding value in the long-term. We delivered in the first semester of the year, well positioned, and we continue to be confident to give continuation to capture several, several opportunities to explore in a strategic way, the market of QSR in Brazil. Thank you so much to everyone. And now we will start the Q&A session.

[Operator Instructions] We will now go to the first question, which is Tiago from Citi.

First of all, I would like to wish you great success in this new challenge. You can count on us for whatever you need. I have some points that I would like to ask you, I'd like to talk to you about directly with Paulo, I'd like to listen. As you have -- since you have taken over, you have invested -- how have you invested most of your time? This is important for us to understand from you. And the second point would be, in the last quarter, we had this very interesting discussions about initiatives, some other campaigns, and this ended up having a positive impact on same-store sales. This quarter, again, we have seen a very strong same-store sales, especially Popeyes, but especially Burger King. So I'd like to resume this discussion, listen how we value for money, especially in traffic in the same-store sales and listen to this dynamic and how this has impacted the margin? And listen to you, what do you have to say about this?

We thank you, Tiago. First, welcome. Welcome is always brings good energy, and answering your question in a pragmatic way. The first weeks have been -- has been, I'll do this in a summarized way. The first week says that we, like in any organization where you meet the team, where you know, where is -- where you can have some coffee, you get the badge. I'm joking, but this is exactly how this -- my first week was of onboarding in the second week, I dedicated most of the time to training -- operational training in our Burger King brand, and this has to be the way it has to be. Regardless of the previous experience with the different brands that I have worked with, the most known and the most recent McDonald's. But with all my years of -- with so many brands, such as Taco Bell, different countries in our continent. But now I needed to know the essence of our brands. So now we're talking about Burger King and Popeyes. The first week was Burger King, since knowing all the store formats, know how do you produce the famous and delicious whopper, and understand what are the opportunities of growth in different formats, different towers, different states and working weekends, all night long and getting to know the team. So it was a nice time to understand the essential differences of our operations and others that I have worked for. And the following week I did the same, but for Popeyes, which is a smaller brand in another stage that still needs to be revised in our product portfolio. We're seeing other ways of creating more awareness for the brand. But I would like to -- but I really wanted to understand our production process, our ambitions. We take notes of opportunities that things that we can improve along the time in the brand, in the Burger King and on all simple buys. The third week I focused on traveling a lot to know different -- all the different Brazils we have and understand that what we are opening in Sao Paulo could be the same or different in the Northeast, in the South of the country. And I've been through 20 -- 25, 30 stores. It has been many -- very intense, very dynamic, and it has given me a great flavor of the differences, regional differences that we have. And it's very interesting. This is a talk that we should have in the future with -- in greater detail. But now our focus is to comprehend these differences, and they have different opportunities in different states and regions of the country. The last week, it was a week of meetings with the Board, with committees. We got calls. We had talks with many people, and these were the first 4 or 5 weeks of work. And I'm very excited, I'll live maybe my greatest executive mature moment and knowledge of what happened or what will happen. So, excited to be part of this moment in Zamp. So this is the first part of the question. The second part of the question, I will ask help from Gabriel, who is right next to us to talk about what you call a value for money platform. But before that, this is a combination, it's an equation that is very holistic when we talk about of margin volumes, prices, drive-thru channels. And I am very impressed here is that we are reinforcing, but we have a team that is very mature and very aware of what's their work, when we talk about revenue management and pricing. So I'm very comfortable the way that we've been conducting the meetings have been good, and you will see that they will continue to be. But Gabriel, help me with more details that I'm sure that you have.

Of course, thank you. Thank you, Paulo. Thank you for the question. What is the most positive part of this quarter, we've seen a growth of over 16% of same-store sales. Burger King that took the brand in almost 19% growth. So when you include the freestandings from last year, and there's an material impact in the operational leverage and what we hope with the cash conversion with the incremental revenue. But 2/3 of this comes from traffic is the most positive news because it's impossible to add this to this effect only in one specific lever when we are able to have a performance that is balanced as it has been in this quarter, generally is a consequence of portfolio architecture, well distributed with levers that have great initiatives in all the fronts. So obviously, 2/25, which is a great commercial leverage to bring traffic works, overall because we found a way to balance this with the gross margin of the company, which is important to give us a room to breathe. But there were many other initiatives from an operational view with the improvement of KPIs, NPS and the availability of people in the restaurants. How much portfolio as we discussed before and the campaigns that were succeeded of Costela [indiscernible] and ribs, right and inside the portfolio. And there was a component, we decided that we have focused a great amount of work and we shared with the market as the free stands become the best factor of attracting capital for Burger King. We have focused so much on the speed of service, the operational quality of this channel. And in the quarter, in this one and the previous one, the freestanding have had a performance that have been very positive, which we still -- we have a lot of work to do, but we have been able to mature the management of this channel in the way that it operates. And then this in the stores, in the legacy, in the legacy of the stores that come with an average sales materially bigger than the others. This has shown us that there's a way that is very positive for what we can explore in terms of penetration of this format of restaurants in Brazil. So all the initiatives working in harmony and contributing to 2/3s come from traffic and 1/3 coming from ticket. And ticket is not necessarily exclusively priced. It could have been in practice a combination of growth in items on the tray, once you have the leverage by '25. But also a dessert that has worked very well, such as [indiscernible] and also a base price, which has been sufficiently to mitigate an eventual growth of direct cost, which although it's more favorable, there is a growth year-to-year that we have been able to go through this, to put this price for the consumer in a creative way. So you are excited with the result, the combined results in the first quarter and what's to come and looking towards the end of the year.

And our next question comes from Thiago Bortoluci from Goldman Sachs.

[Technical Difficulty] the management team, and in this phase of the company, we also have 2 questions. The first is a follow-up in the last slide from Paulo when you talked about the impact as a priority for you and the company. Moving ahead, I would ask to know a little bit more in 3 of these points, the organic growth along the last year, the company revised the strategy in the pace of opening depending a little bit more on franchisees and in a rhythm, in a pace, in a slower pace, are you ready to share the guidance, a plan of expectations of growth? And this is the first question. And then M&A, we know that there is an incorporation of Starbucks to come. But you do continue mentioning the intention house of practice. So in this strategy, can you say what are the segments that make sense for you to operate in that, and so that we can have a guide of where the M&A from Zamp is going? And the strategic part, the last question. How do you understand the positioning of pricing of BK? Do you think it's appropriate? Do you think you should make some adjustments? And how should we imagine the evolution of price? So this is the strategic. And if I could also ask the quarter question, maybe this is for you, Gabriel, it's a little bit about a follow-up. You still have some pressure on some cost, like beef, for example, helps a lot. But here is to help us [ reconciliate ] the ticket with the profitability. When you mentioned that 1/3 of same-store sales come from price, we are talking about that we have same-store ticket has growth over the EPCA. So at the same time, your margin has expanded 10 basis. I would like to understand where this pricing is stronger in the inflation general way has not reflected in a more clear way.

Thank you, Thiago. We only have Thiago in questions. Let's go. Let me see if I got everything. Let's start by priorities. We -- first, investing even more in the experience of the customer. This is no doubt that there are opportunities of improvement. So I'm speaking about the fiscal environment, the restaurant environment with the necessity of modernization of our portfolio of restaurants, we have projects that are wonderful that we have already implemented, some in Brazil with excellent results. So we know that this will be part of the improvement of the customer experience, the modernization of our stores. So this is not only through the physical environment, but also the training of employees by quality of service and cleanliness, which is what moves the choice of the customer. And we know the power that our brands have of our products, how unique they are. So we we're going to leverage this even further. The other side is the digital experience that we have a great journey in this aspect. But as always, we have opportunity of improvement of our loyalty programs, the need to treat each client as it's one. So we're going to improve even more. So experience [ physical ] and also digital. When we talk about prioritization of sales and traffic, so it's a commercial strategy, [indiscernible] marketing to increase frequency. And there Thiago, this question of volume when we talked about traffic and in the average ticket to generate sales. It is even more complex, because obviously, because of strategic reasons, we cannot open all of them. But we're looking at this consistently, it's Gabriel approach. So they see the items, they have a positive contribution. But it's not the best gross margin. Anyway, it is part of to help us pay the fixed expenses. When you increase the channel, I'll give an example drive-thru, it's a channel that demands mark packaging, demands more wrapping. So we have a smaller margin. So it has a smaller price. So inbounds are important. And what is cool is that, we have to see how it goes, looking at the market, looking at what's doing with the competition, looking at what's doing with our negotiations? How is our performance in each channel, in each segment, and taking decisions that are dynamic. And the guidance for [indiscernible], he just arrived here as CMO from Marketing -- Vice President for Marketing. For him it used to be plan a, plan b, plan c, so we are in this moment of creating new platforms of value and testing down in Brazil to understand what we will do in the following quarter, in the following year. So we are start testing each restaurant for an eventual change of economy of what's happening in competition. So this is the normal dynamics. And this is the -- we have over 1,000 units in Brazil to make this. This is the advantage of making this test and with my experience, and we continue to give these opportunities of improvement. And lastly, if I have to transform these for opportunities in three is growth. So we will start taking the best out of the brands and those that exist and those that is already public. We are also in negotiation, could be Starbucks, which we already mentioned or maybe the large to do all of this to make those all of this happens, leverage its efficiencies to bring -- is to create synergies among our corporate -- our existing corporate structure of success, enjoying the opportunities, seizing the opportunities in the Brazilian territory. There are a lot of people anxious with these brands in their cities, in their neighborhoods. And this is something that will do grow. I don't know, and the last one having to do with pricing, which in a way I have already answered. So maybe you also asked to [indiscernible] the quarter. Gabriel, can you help me out?

Of course, Paulo. Thiago, how are you? So there's just one nuance in your comment, when you say 1/3 comes from pricing. And in fact in the answer that I gave, the same-store check is a composition of mix of prices. So in fact, there is no path of price over inflation. What we have here is a mix of check that recompose a number that is above the inflation of which I would tell you is something about 1/3 or 1/2 come from pricing. So we have had favorably a cycle of commodities with good negotiations that have given us a cost impact way below the EPCA. And this obviously puts us in a -- puts less pressure in the necessity to send the -- to pass the price over in the short-term. But commodities are cycles. We are in Brazil. And obviously, we are always trying to find solutions that maximize the traffic and maximize the last line. So this is a continuous work from the team. So you also talked about to extend a little bit, you also -- Paulo didn't mention the point about eventual other M&As. So we are very focused on the core. And I think this quarter and the previous quarter are evident about that. This moment even give us the tranquility to look at other things that are public in some of them in a greater stage. As you saw the news yesterday of others seem a little bit behind, but there are 2 ways, very material movements for the company that we are surely going to need some time to be able to accommodate our efforts, the execution, because there are opportunities that have a capacity to be very scalable in Brazil with challenges that are a little bit different, but that will say good, great part of our time, I would say, in the short mid-term. In the long-term, again, we don't have the ambition to have many brands. What we want is to have some brands iconic, very strong with the capacity to have -- to scale very much in a country like Brazil. They have products in categories and also have a synergy with the platform that we are building here. So not only in overhead that are -- things are also more basic. But also in the whole supply chain with the economies of scale, media and negotiation with strategic partners, everything that an M&A can bring in, for that we need to have a segment that is complementing to what we have in the legacy. So this is something that -- the way that we are pursuing. And to talk about organic growth, which was another part of your question. We are obviously -- that the company doesn't give guidance, but we are among '23 and '24 in years of transition, talking about capacity that we see of growth of these brands in Brazil versus our execution that also has the interference of other reasons, due as capital structure, cost of capital and et cetera. And now with movements that will favor the expansions, but we are preparing. So 2024 still as a transition year for Popeyes, especially where we have shared with you is a more shy year, where there's a lot of things to do in-house, building brand equity awareness, consideration. In Burger King, we should go to 35 to 45 openings. And then in the following years, we should be able to expand a little this ambition, preparing the team for a new cycle of organic growth.

I'd like to say that the Q&A session is now over, and I'll hand the floor to Mr. Paulo, so that we can have the final considerations.

Thank you so much for the opportunity to end the conference. And obviously, I'd like to thank the interest of all of you, the presence of all of you. And thank you also, the Board from Zamp for the opportunity, should lead this new phase of the company. And finally, to wish all of you and your families a great Friday, a great weekend, and we will be soon again together. Thank you so much.

The videoconference of the second quarter of Zamp 2024 is now over. The department of Investors Relation is available to answer any questions. And we wish you -- thank you for all the participants, and have a great day.