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

Welcome everyone, and thank you for waiting. Welcome to the video conference of the fourth quarter results for Zamp. [Operator Instructions]. We inform that this video conference is being recorded and will be available in the Investor Relations site of the company at www.ri.zamp.com.br, where all the material will be available for you to download. [Operator Instructions] We highlight that the information in this presentation and eventual declarations that could be made during the video conference related to the business prospections, projections and targets, operational and financial for Zamp are part of the beliefs and premises of the company's Board as well as information available currently. Future considerations are not guarantees of performance. They involve risks, uncertainties and premises, and they refer to future events and therefore, depend on circumstances that may or may not happen. Investors should understand that economic conditions, market and other operational factors could affect the performance of Zamp and conduct results that differ materially from those expressed in future considerations. Today, we have the presence of Gabriel Guimaraes, CEO and CFO of the company and the Investor Relations team. I would now like to give the floor to Gabriel. Gabriel you may proceed.

Good morning and thank you, and welcome to the fourth quarter results of 2024 for Zamp, I am Gabriel. I am here with the team today in order to represent the company as CEO. Besides the sessions that I have with you about the results and performance of the company, we will also share a little bit of the highlights of the quarter and the Q&A session. Going through the highlights of the quarter. So the closing was very strong in the commercial side. We have a growth of 21% of total revenue, basically they are pushed by Burger King and Popeyes that were 9.4% same-store sales, and 16% that led Zamp to reach a level -- a higher level of revenue of BRL 1.3 billion. And then we had BRL 4.6 billion, which represents a growth of 19% compared to 2023. In this year 2024, Burger King and Popeyes, they had same-store sales consolidated very close of 13%, Burger King with 13.1%, Popeyes with 12.8%, both staying basically equivalent to 3x the inflation in the same period. Within [indiscernible] perspective shows that we are evolving on both fronts. Burger King is speeding up the process of growth, especially in year [ 2023 ] that was not so strong with great progress and Popeyes with the maturity of its operational and market equity and knowledge, which shows us that we are in a good way for this brand. We also in this quarter, we took an important step of 2 acquisitions of operations of Subway and Starbucks as you were able to see in the news and they represent an important milestone in our history. Since the beginning, it's part of the mission [indiscernible] is to become a platform that could have multiple brands, iconic brands, with a strong features and with a different -- competitive differential. And now we can have 4 of the main brands of QSR in the world, which represents a versatility that is very great. Great synergies, clear synergies among them in the ecosystem -- inside the Zamp's ecosystem. We brought over 1,600 new operations for the system through its franchise systems and owned operation. This is an important step for what we want to build in the future. Still, if we take on these operations in the last quarter, around October, and since then, we have had a great performance, especially in the same-store sales of basically 10 percentage points for Subway which closed the quarter with 10.4% same-store, and in Starbucks, although it was a quarter of minus 4.5% from October to December and the continuity 2025. We have already reverted the performance into 20 percentage points of same-store sales, which shows that fundamentally we had, in fact, operational support in order to develop these brands in a positive way. In digital sales, which is essentially represented by totems and by the apps and the delivery, we continue to evolve. Today, these channels represent over 50% of the sales in the company, which has been a growth compared to 2023 of over 30% and 54% of Burger King sales, they are identified. That shows that our program of loyalty and CRM that brings a better experience in searches with the consumer, it's an important milestone, the more data of the recurring sales. We have the better -- we have this better experience to the users. It's a great partnership with QSR in Brazil and a better one too. In the operational result, in EBITDA without with the IFRS, we had a fall of 34% this fall happened primarily with a one-off effect that we had in the last quarter 2023. [indiscernible] tax incentive, but you still would have a 9% fall related pushed mainly by the growth of COGS. We had 110 basis points and a better structure of the cycle of the company, when there is a difference of the speed we are changing the infrastructure for the future. And with what these 2 brands make in generating results in the short term, but with a promising future looking ahead. Still, if we exclude the effects of this last quarter 2023, in the EBITDA and removing the IFRS16 adjusted in EBITDA, we had a growth of 15% compared to last year. In expansion, we focused on Burger King, given the Popeyes, we had communicated that it was time after 5 years of operation to make an assessment again of the foundation of operational consistency and product features in this way, we wouldn't have a growth that is very dosed, but we would focus on the operational turnaround so that we could reduce all the pillars that are the strategic value of this company, and this was done. So we had 29 Burger King in the quarter, 2 Popeyes franchised. And then we had 114 operations of Starbucks and 1,531 franchises of Subway. In the year 2024, we had 40 operations, 37 Burger King and 3 Popeyes. These were the highlights of the fourth quarter and the closing, and in the following slides, I will share with you a little bit about the performance of the company, portfolio and also financial results. In the third slide, you can see very well what was it related to the maturity of these acquisitions by the Zamp ecosystem. We closed 2023 with the number of units of 1,039 and then, we have today a volume of stores that is 2.6x bigger than we had in the previous exercise with 2,708 with over 1,500 stores from Subway of franchised. But this makes Zamp become a company that has a system of gross revenue of BRL 4.7 billion in 2023 to over BRL 8.2 billion, which is a growth of 74%, which leads to a net revenue of BRL 4.6 billion, still with this quarter result of the acquisition of these 2 brands, with BRL 3.8 billion compared in 2023. In automations, the company has gained scale and -- for what we want to build in the future already with clear synergies among these operations, even with a format that we were able to get these acquisitions, the synergy we're not exactly the most important leverage in creating value, but we will be ready to capture them. Some of them have already been done. I can share with you the details along the presentation. They will be really important to create value in this combined business. Moving on to the fourth slide. We will see a little bit of the portfolio of the company. Among format geographical distribution and openings. As I said, 37 Burger Kings the year, 14 closings as part of the optimization of the portfolio that was existing. We closed [indiscernible] case, and then we brought 1,531 Subways and 114 operational Subway that led the company to 2,708 unit systems almost 1,700 more than in 2023, essentially concentrated basically half of them of this portfolio in the Southeast region of Brazil, and 90% in the format of malls and in line -- these in lines are represented by Subway and the malls essentially represented by Burger King and Popeyes. Moving on to the next slide. We show you here essentially the format -- the different format and the proposals of the different brands have helped us face opportunities in different channels. Looking ahead, essentially, we are talking about a growth that is really strong for free standing for Burger King in format has been very positive, the returns, the performance, the experience of patina format, as you see on the right on the slide. We see here today basically on the performance history of the company, a result that is very positive for the start Starbucks in the airport generally, this market is infinite, but there's a lot of opportunity to be done as a primary store as secondary stores in other units in Brazil. But here, we have a conviction that besides the airports, there is office models that works really well in several regions around the world, but also malls depending on the way that we can find for these brands. For Popeyes, we essentially see a format basically to what we built in Burger King because we have a strong market equity to become a destination. And then we will see other formats, but the focus being food courts in malls, and in Subway, which is a very different dynamic of capital allocation because of CapEx and necessity of an average ticket a little bit lower in order to have good results. Here, we have the capacity to reach many more places around Brazil, the whole country, and we have a clear opportunity of growth in the pipeline as well as in the primary regions, Southeast, South as well as in the Northeast and other geographical locations in Brazil. This will be our focus looking ahead. Moving on to the next slide. we will cover the net operational revenue for Zamp. And we see, as I mentioned before, it was a growth of 21%, the biggest part brought by the organic baseline Burger King and Popeyes, but also with the contribution from the new brands, near BRL 74 million for Starbucks, BRL 12 million for Subway in the quarter which closed at 12% growth of consolidated revenue. So that gives the top line of 18%. In the following slide, I will give a little bit more detail among the different business units, starting with Burger King. After a year that was very challenging. The same-store sales of 2023, there was a great focus on optimization of the gross margin. Same-store sales wasn't so balanced but we were able to adjust some important leverage that helped us grow basically 3x the inflation in the same period. And this progress was incurred essentially by 3 factors that are the most important for consumer decision, QSR, which we had a good offer of value through the King platform and also the digital coupons and the indulgence we were able to build behind the CRM that helped us to have a better interaction and a better discount depending on each user. Another dimension, a great focus on the quality of the product, which is our main feature, some innovation and campaigns that we had along the quarter [indiscernible] and last but not least, a third element that is important for QSR, which is the experience in our restaurants and the evolution here came essentially by the performance of the freestanding that pushed all the -- pushed everything higher. So on average, if we stand have same-store sales materially superior than the baseline and the digital channel growth that made this contract to the customer better, delivering, getting higher and the tokens even more present in our operations, in some stores, 100% digital and here, we see usually by the navigation, we see an average ticket that is better and also the app that has always gained more penetration within the composition of digital sales of the stores. In the following slide, when we look at Popeyes, as I said before, this was a year that we proposed to be -- have put better focus on the baseline operation since we started operating this brand in 2008. We have seen sustained growth, but the business has changed a lot as the malls and the deliveries that we had built in the future and the execution renew that you would need to get things right in operational terms. Building the brand. All of this was done. It was done in a very positive manner. The brand is well known -- it's becoming well known in Brazil with a feature for trial that comes growing a lot in the main locations and this has a great conversion to consumption. So it's very positive when people know the brand and as they use the restaurants as well. And this way, we were able to get a growth and increasing growth of same-store sales in a way that we closed the quarter with 16% same-store sales, which represent that looking ahead, there is a lot to be done, but this brand has a promising future. We're going to have to build the category together with the brand, but it's an important work being done by the team. And we are very confident of what can come looking ahead, 2025, probably it will be a year of this transition, a great focus on operation while we hold back a little bit of the growth so that we can prepare and with the conviction and starting 2026 we start speeding up the growth vertically. Slide on Slide 9, we can see a little bit of the performance of Starbucks. Essentially, Starbucks had basically 190 operations in the Brazil during this process in the last 12 to 18 months. We had the closing of a great part of these operations for several reasons, in a way that we took on 114 operations. These operations had sales of almost BRL 330 million growth in the year with a composition that is different. Airports, as I mentioned before, had sales of basically 2x higher than the rest of the portfolio. The mall stores, they had a component of BRL 3 million, but this is -- but in 2023 -- sorry, in 2024, what was basically same-store sales of last 20%. So composing this number, we will be close to [ 100 ] over [ BRL 4 million ] a year. And this baseline is this baseline adjusted with the same-store sales would reach close to BRL 400 million same-store sales if it wasn't so much impacted by base items like the availability of the team, availability of products on the shelves and a common process in context with the branch-based in the last years. Anyway, very positive that we see that in such a short time in basically 3 months since Zamp took on the operation that basically, it was after October 10, we were able from October to December had a swing in the same-store sales of 20 percentage points and this route is growing in very positive in 2025. And this we're talking about essentially a focus on the basics connecting the team, having the products available in the restaurants, in the portfolio -- beverage portfolio and food and also reconnecting with the consumer so that at the end of the day they know the Starbucks is back and the Starbucks experience little by little the consumers, we understand that it's also back so that we can find the leverages, the strategic leverage that will make this portfolio evolve along the time. In the following slide, I am sharing with you a little bit of the performance of the Subway. Our business model in Subway as I mentioned before, is a little different. In Brazil, we have a system of basically 1,000 franchisees. This 1,000 franchisees have a little bit more 1,531 units. They have an average sale of close to BRL 110 million above. And in the business model, we collect royalties over this revenue in the system that is around representing around BRL 1.7 billion. Sales is the biggest QSR number of outlets in Brazil. One of the biggest brands of QSR in the world and Brazil is the fourth biggest Subway market of the whole network around the world. So this journey has been very similar since October up to now, within the quarter with the same-store sales of 10%, we have had a progress of 10 percentage points since we took on. And this difference basically doubled looking at the beginning of 2025. So we held some campaigns, very cool with delivery, Black Friday, and we are making the brand that has a challenge of operational consistency in our product and experience in digitalization. But as I mentioned before, we understand that Brazil has over 2,000 Subway stores. We learned a lot with the restaurants that closed down in the last years in a way that we have a great trust that in the future, we will be able to open and make this market bigger in Brazil with a lot of opportunity with own stores as well as with franchisees franchises. So talking about digital sales, we had an important evolution, 31%. So digital sales composed by the delivery totem and apps in the year, they had a growth of 36%, which represents over half of the sales of the company as a whole. Essentially here, we're talking about the Burger King and Popeyes. But in Burger King, we have 19 million Brazilians registered in our loyalty program, which is an important milestone for us since the beginning when we started building this program that in Brazil, the biggest global references at this level of penetration in a way that basically, 3 years later, we're able to reach this level, but still with a lot to be done in relation to experience and as well as the frequency and the engagement with the brand. Our digital ecosystem, we talk about CRM, totem, delivery, app, the Club BK Club. Our CRM, we have 54% of sales [indiscernible] BK which made us -- which enabled us to see the growth in traffic and also the gross margin with a direct relation with the discounts and promotions for our clients, including naturally and a better NPS in these transactions. And the BK Club has an important role in engagement and compiling this data, we closed, as I mentioned earlier, with 20 million Brazilians registering our program, which is an increase of 16% compared to 2023. And naturally, in this group of clients, we were able to see and growing, expansion bigger than the average an NPS that is more favorable. We think that this is an important way to speed up the frequency, especially of heavy users, because naturally, this program is done for this group. So in the totem, the self-service totem we are increasing and in the hybrid stores and in the 100% digital stores, they represent 31% of the revenue in the company and with an economic item that is more favorable as a higher average ticket. And the expenses with people is less. So we have an important leverage. And then the app which we understand it's very important for the future, parallel to what happened in other segments. It represents in this quarter an increment of 5% of digital sales of the brand. And then Delivery, which gains to have enough space had a growth of 24% in the quarter, representing 60% of the revenue of the company. Our work here has been in using the amount of stores in order to increase the radius of coverage speeding up the service so that we can have a faster experience for home delivery. In the Slide 13, we go over the CMV and the expenses with sales in the restaurants and the general administrative and expenses, it has been worsened [ 200 ] basis points compared to last year. And this difference came through a tax credit that was not recurrent, and so we had in a consolidated way of worse of 100 basis points in the quarter, which was due to basically a change in the protein availability in the second quarter, the commodity curve of protein was doing well in the first semester. And as you could see, along in the second semester it beat a historic record. So, in this period, we made some adjustments to accommodate this new scenario, but this work needs to be continuous in order for us to have distinctive leverages in order to balance this impact. In the middle of the slide, we see that the expenses with the restaurants, there was a reduction of over 70 basis points excluding the IFRS effect, and this reduction is due to the leverage -- operational leverage, strong sales growth, expenses with a little bit more fixed. We were able to have a great generation of leverage mainly in occupation and new [indiscernible]. And general expenses and admin, we had an important growth in great part due to a one office component connected to M&A and other things that happened in the quarter that I will go over. And as an increase of the structure, as I mentioned before, in order to support the next cycle of our business with different brands and for the future of the company. This impact of one-off came mainly in line of expenses with acquisitions, incorporations through equity. And we had a great impact. In other expenses mainly we did the provisions with the stores that we intend on closing as part of [indiscernible] portfolio and some items of the assets such as technology and other miscellaneous items that we have with the restaurants. At last, when we see these expenses that usually is connected to operational, there was a growth due to the structure, as I mentioned, and also a benefit in terms of the great acquisition that we saw of the value of the assets of Starbucks plus the size of the -- the value of the contract, we had an advantage of acquisition and we'll see this benefiting in terms of BRL 21 million general expenses. So recomposing this number, it would be BRL 21 million bigger, which reflects the preparation of the company for this new cycle with the new brands. So in the following slide, we received the adjusted EBITDA with the effect of IFRS had a fall of 34% compared to last year or [ 9% ] in the same quarter excluding the recurring effects. So in one year our performance excluding these effects, were equivalent to 15% greater. It was a combination of this revenue with operational leverage on expenses with a direct cost of G&A also is the bigger of expenses. And then in the bottom part of the slide, we see that the net profit had a big impact because of the assets that, these the write-off in these assets that I just mentioned in expenses and also operational results in exercise. And also in the next slide, we see the cash -- operational cash flow, which is -- which is adjusted, we reviewed since 2023. And since then, we had seen a difference of BRL 12 million in our own operations dynamic of over BRL 41 million of working capital due to the growth of taxes to be recovered, inventory and acquisitions and accounts receivable -- receivables also growing due to the acquisitions with no impact in the financial cycle of the company and other variations in IFRS adjustments that added up of BRL 36 million effect, which made the operational cash flow reduced 24.5% closing 2024. In Slide 16, this is the CapEx of the quarter compared to the annual one. So 2024 was 9% smaller to 2023. This investment in the quarter end in the year was essentially due to the opening of new restaurants. Technology process that has contributed so much to our growth, efficiency, maintenance, remodeling and other small investments that we have for the company. And then we move on to the debt slide, when -- as you can see, the capital structure of the company, we had the closing, we have a net EBITDA ratio and leverage reasonably controlled. But with a constant capital high in Brazil today. So this has a relevant impact in the result of the company. But in the short term, we see a debt structure that is well stretched which gives us comfort to move on of the leveraging and a strong growth for the future always seeing the needs ahead. In order to finish the presentation today, I would like to share with you our priorities for 2025. Important essential dimension. Firstly, so gross margin sales as a retailer, this year is not easy in the perspective of costs, mainly for coffee and meat, they are way above average. Other things are helping, but these are concerning points. And this is the benefit of a diverse portfolio of brands. But in the maturity with different complexity, we have clear opportunities in all the brands in order to have better penetration and frequencies. Subway and Starbucks is a transition year, but an important one for us to conquer our customers and bring them back to the restaurants so that they reconnect with the brands in BLK with building the brand and the operational maturity within -- and with Burger King, we see here those data that will help us exploit even more this relationship and the different channels to help us grow in the freestanding and delivery and also the digital sales. In the second dimension is to have a portfolio that provides us a more better physical experience connected to the digital journey, increasing the relationship of our clients and the brands. And in this period the objective is to improve the customer journey, speed of service, quality and assertiveness of products, [ friendliness ] of our stores and people and remodel of -- some of them having this remodeling planned digital stores, new formats as we have had with [indiscernible] for Burger King, we are testing new ideas for the other brands that we have acquired. Third pillar. It refers to we finished the integration of Burger King -- I'm sorry, of Subway and Starbucks. People have done a great operational work with sales. So to establish the business in the recent months, and we will continue this mission, but we will still have important aspects of integration the assets of TSAs and the synergies and improve the [ organizational ] design of this organization to make it functional and to be in this format so that we can gain speed and flexibility in the execution on all of our front. So each brand has a President, and we use the corporate Board in order to bring those benefits of scaling. And as I mentioned before, to finish, we see that Brazil has a lot of opportunities of growth. We will continue looking for these opportunities, trying to bring these brands to even more Brazilian. So it's a very strong pillar of growth. I'd like to thank the whole team from Zamp for the relentless work and also to start building a company that we dream of. We will now open for the Q&A. Thank you.

[Operator Instructions]. Our first question comes from Thiago Bortoluci, Goldman Sachs.

Great presentation. The main one that I would like to exploit a little bit more your comment about same-store and the gross margin. So in the press release that you mentioned a scenario a little bit more difficult in the protein signed, and you made some comments about the continuous efforts and price. In this way, if you could break down a little bit in the quarter how was the composition of same-store and BK and ticket and traffic. This would be information that will help us understand better where we are and where we're going. And also in a general context, I would like to listen from you how much pressure you have from [ beef ] or potato, which seems to be less pressure, but it still has a positive inflation in the year. If you still have to cover and how you are feeling the market elasticity and in price to protect the margin or to defend your traffic. So the first question is on the same-store and the margin. And the second, which is quicker, you highlighted onetime the write-off as impairment, could you say if it was concentrated in a specific brand, if it has to do with the acquisitions or if it's in the portfolio?

Thank you for your questions. Let me break down the first one in 2 dimensions. Same-store sales in the quarter, they were mainly aligned with traffic with 9.5 points, 90% of this effect came from traffic and we had an effect of 100 bps, the same-store sales coming from ticket, which is not necessarily a reflection of how much price we are having in the quarter, naturally depends on the line of items on the tray and the cross sales, we could have a greater effect of price and then a higher ticket, average ticket, which I don't know what was in the period, but mainly for Burger King. As you have followed the commodities of protein was almost in July last year near 240, 250. It was almost 220 in June and July as this number went to almost 400. In the end of the year in a way that our contracts, they have quarterly protocols and -- and the reflection of these adjustments happen, even though we have time to move around, not always is what is enough to recalibrate the portfolio, the menu in order to accommodate all the impact. I'm talking about 30% of protein cost. So along the quarter, we have made some changes. So '25, we have recalibrated some items in the portfolio, but naturally not enough in order to accommodate all of this impact, as I mentioned, which was 100 days year-to-year, which is shy compared to the impact of the meat and then we had a lot of use of data. We have 56% of revenues in BK identified. So this relationship program gives an assertiveness much greater in terms of discount and promotion versus compare what we had in the past, which were very massive campaigns for a retailer. But we still have a lot of work to do. I think 2025, we will try to find this a breakeven point, and we started in 2023 with the same-store sales mainly for Burger King was very timid, 1%. In 2024, we had a better blend of almost 14% in this 3 years equivalent to a baseline which is great. And we also had our gross margin improvement. We came back a little bit, 2024, but in 2005 [indiscernible] the scenario is a little bit volatile in terms of global consumption import, exports because beef is local consumption of the market. But as we are compiling against the 13% same-store sales mainly in BK, there is an exercise for us to try to accommodate this evolution of costs that honestly, Potato, as you mentioned, came from a dynamic of 2, 3 years. It's not a year that concerned us very much, but a greater point of concern is the volatility of the beef, but we have leverages to refine in this first quarter this year was already in this dynamic, we were able to make same-store sales reasonable with some doing brand rework being done along the quarter. So in a general way, I believe that we can find a good balance with the leverage that we have, accommodating part of the cost and trying to find an equation that maximize the nominal operational efficiency, so maybe some investments in carbs and maybe we protect more of the margin if we understand that this equation is more beneficial, but it will be a work that will be continuous for the team along the whole year given this scenario that is a little bit more volatile. And then for the other brands, more favorable. On the -- Poultry has a better component for Subway, coffee is a little bit more challenging for Starbucks, but some things are being done that have a better margin than the rest of the portfolio when you talk about COGS. But this is the greatest benefit of diversification of what we're building in Zamp with this platform of several front end business. The scenario is a little bit more difficult one -- on one way. There are remaining -- many initiatives in the others so that we can find a balance and progress. For your second question, we have today a write-off of provisions. It's not write off yet, but it's a provision to write off of nearly 3% of the company assets, mainly we're talking about 20 to 25 operations from Burger King, of this legacy, these are brands that are part of the optimization and profitability baseline plan of stores that had some changes due to the pandemic, but also the change of the humor -- consumer behavior and the top line are these expenses didn't make sense. These stores could be below the water line and then in the future, not being able to remove them from this, it's worth spending our making an effort and spending [indiscernible] new assets, so it had an impact that was important. And the [indiscernible] mainly be in the reconciliation of the closing of accountable -- accounting items, which is also a provision in the first report that we had that we identified by mainly in terms of technology, some equipment and some maintenance coming in the restaurants. I think I covered both of your questions?

So pretty clear.

[Operator Instructions]. So the Q&A session is closed, and I will give the word to Gabriel Guimaraes for the final remarks.

I would like to thank the participation of everyone in the call for the moment and dedicate a little bit of our -- to dedicate your time to us to pay attention to what we're doing. I imagine that Pedro is also listening to us and wish him in the near future. So we're really happy to have him with us now and certainly, we will help build a winning history here at Zamp. Have a great Friday for everyone.

This video conference for the fourth quarter Zamp results is now closed. The Investor Relations team is available to answer any other questions. Thank you very much to all the participants, and have a great afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]