© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. My name is [indiscernible], and I will be your conference operator for today. I would like to welcome you to the fourth quarter 2022 Industrias Bachoco Earnings Conference Call.
[Operator Instructions] I will now turn the call over to Maria Jaquez of Investor Relations for Industrias Bachoco Please, go ahead.
Thank you. Good morning, and welcome to Bachoco's Fourth Quarter 2022 Conference Call. We released our financials yesterday as our market closed. If you need a copy of the release, please visit our website or request from our Investor Relations department.
This morning's call contains certain information that could be considered forward-looking statements regarding anticipated future events and performance. These statements reflect management's current beliefs based on information currently available and are not guarantees of future performance and are based on our estimates and assumptions that are subject to risks and uncertainties including the describe in our annual report or 20-F, which could make our current results differ materially from the forward-looking statements discussed in this call.
Except as required by applicable law, industrial undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Lastly, unless otherwise indicated, the amounts mentioned in this conference will be figures of 2022, which compared to figures for the same period in Mexican pesos. As a reference, the exchange rate as of December 31, 2022, was MXN 19.51 per U.S. dollar.
Here with me are our CEO, Mr. Rodolfo Ramos; and our CFO, Mr. Daniel Salazar.. Now I will give the call to Mr. Ramos.
Thank you, Maria, and good morning, everyone. 2022 was the year with the many macroeconomic challenges. Even when GDP is expected to show growth versus 2021 for both Mexico and United States. High inflation rates kept putting to test our operational capabilities. 2022, according to the [indiscernible] data, inflation rate in Mexico was 17.82%, the United States [indiscernible] an inflation rate of 6.5% of that geography, both within the high range over the last 5 years for their respective regions.
On the other hand, for most part of 2022, prices for grain and soybean meal showed increases between 15% and 20% range versus 2021. The exchange rate of the Mexican peso versus the U.S. dollar was fairly stable during 2022, showing an appreciation of 5% for the year-end and 1% for the average of 2022. Under these conditions, our focus during 2022 was towards improvement on our sales mix, operational efficiencies and growth.
Regarding our Mexican operation, 2022 followed his typical seasonality, a very strong first half followed by a challenging second one, in this case, particularly driven by a high loan material costs. As mentioned before, it was key to follow very close to our markets and consumers needs to achieve an optimal sales mix, which ultimately allow us to transfer to our prices, some of those increases observed on the cost side that we were not able to offset by operational efficiencies.
In this same geography, in 2022, we integrated [indiscernible] to the Bachoco family. This allow us to increase our presence on the value-added segment, while diversifying our product portfolio at the same time. Even when we continue with the integration process and capturing identified synergies, we are confident that we are on the right path.
Regarding to our U.S. operation, 2022 was a year of getting the right people for our operations and keeping them on board. Consequently, that allow us to increase the productivity in our facilities and getting into the right markets, leading us to capitalize the benefits of high poultry prices observed during the majority of 2022. All of the above allow us to reach an increase of 21% in total sales versus 2021, which, at the same time, offset the increase of 20% in our cost of sales.
As a result, in 2022, we reached an EBITDA of $9,916.1 million, 35.3% higher than the results achieved in 2021 with a margin of [indiscernible] versus 9%, respectively. Like we mentioned on yesterday released our working capital increased mainly as a results of the impact of high raw material costs due to rates the value of our inventory. However, our balance sheet remains strong and maintain a net cash position that will enable us to continue supporting our growth plans.
With that, I would like to ask our CFO, Mr. Daniel Salazar to discuss our financial results for the quarter and year-end. Thank you.
Thank you, Rodolfo, and good morning, everyone. As a result of the conditions as also mentioned before, our company's fourth quarter 2022 net sales increased 11.2% in the quarter as compared with 2021. This increase is mainly a result of more volumes sold on other segments and higher prices on our main business lines. This led us to an increase in sales of 21% for 2022 as compared with 2021. Sales of our U.S. operation represented a 25.5% of total sales, a slight increase from the 24.9% is represented in 2021.
The cost of sales in the fourth quarter was MXN 21,089.3 million and MXN 2,078 million for the year-end This represents an increase of 13% for the quarter and 20% for the year. This increase is mainly attributed to higher raw material costs when compared to the same period of 2021. Gross profit for the quarter was MXN 2,544.5 million with a gross margin of 10.8%. For the full year, we reached a gross profit of MXN 16,852.7 million with margin of 17%. This amounted to 26.3% higher than the gross profit reached in 2021. Total SG&A &A for the fourth quarter of 2022 was MXN 2,243.8 million and MXN 8,480.4 million for the year, representing a 9.5% and 8.6% of total sales, respectively. This amounts represent an increase of 12.1% for the quarter and 18.9% for the year versus the respective period 2021. Even when increases on SG&A [indiscernible] related to a high inflation rate of [indiscernible] both Mexico and the U.S., we think we still have room to improve in this segment. As a result, our operating income for the fourth quarter of 2022 totaled MXN 306.6 million with an operating margin of 1.3%. The operating income for the year was MXn 8,411 million with an operating margin of 8.5%. The EBITDA margin for the fourth quarter was 2.9% and 10% for 2022 versus 4% and 9% on equivalent period of 2021.
For fourth quarter of 2022, we reported a financial expense of MXN 359.3 million compared to the net financial income of MXN 167.6 million reported in the fourth quarter of '21. The net financial expenses for the full year were MXN 320.7 million that compares with a financial income of MXN 849.9 million for the same period 2021. What drove the 2022 results for both the quarter and the year-end was the negative result of exchange currency valuation as Mexican peso appreciated versus the U.S. dollar.
Our total taxes for the quarter were positive at MXN 110.7 million, mainly as a result of lower income before taxes in the period versus equivalent of 2021. For full year of 2022, our total taxes were MXN 2,007.2 million, 11.1% higher than the MXN 1,806 million reported in 2021. All the above led us [indiscernible] controlling interest income of MXN 79.6 million for the quarter with a margin of 0.3%. This income 37.6% lower than the MXN 648 million in the same quarter of 2021.
For the full year of 2022, net controlling interest income MXN 6.152 million with a net margin of 6.2%, which is 21.5% above the MXN 4,061.7 million reported in the 2021. Pointing to our balance sheet, we have a healthy financial structure with an increase in total assets of 9.5% when compared to the year-end of 2021. Our net cash was MXN 16,867.4 million at the end of the year, which is 15.6% lower when compared with 2021 year-end. Our CapEx was MXN 4,656.2 million [indiscernible] MXN 56.7 million above the previous year and this was to support our organic growth and maintain our facilities in high level of productivity. Also, we included clear property, plant and equipment for [indiscernible] acquisition.
This concludes our financial remarks. With that, I will turn the call back to Rodolfo for final comments.
Thank you, Daniel. Looking into the 2023. Starting 2023 in Mexico, we are saving a rather rebalance between supply and demand, which is translating into the better prices when compared to the last part of 2022. On the other hand, commodity project prices in the United States are showing important decreases when compared to the beginning of 2022 before and due to our commodity market exposure, we expect some pressure in our margins for that business unit.
According to the [indiscernible] January reported inflation rate in Mexico remains high about 7% range. As mentioned at the beginning of this call, capturing efficiencies through all our processes was remain crucial to be competitive under a challenging macro conditions and economic conditions. Despite economic uncertainty, we continue committed with our growth plans. At the end of 2022, we shared with you our plans to acquire [indiscernible], a very integrated pork producer and exporter with operation in Sonora, Mexico. In that regard, we are following the [indiscernible] approval process with [indiscernible]. We look forward to concluding the transaction and the start with integration process.
With that, we will now take your questions.
[Operator Instructions] The first question comes from the line of Luis Willard from GBM.
So this one is about working capital dynamics. On a yearly basis, we saw a large cash outflow of investment in inventories. And if we look into the details of your release, it's mainly due to a buildup in finished goods. So the first question is, should we read this as a move to try and balance supply and demand or what behind that was the large increase on a yearly basis on inventories? And the same happens with suppliers, suppliers on a yearly basis anyone versus there's a large outflow there. So if you can comment a bit more on those dynamics, that would be helpful?
Well, the increase in inventories, what do you forgot the value of the of the raw materials and our final products, but also a little oversupplier that causes some increase in our inventories. And in the case of supplier is the same question. Remember that in the last part of December, our -- we used to stop payments to our suppliers in the last 2 weeks. But in this particular year-end, we increased our liability for that reason.
All right. So we should see -- I mean, perhaps picking of a more normalized environment in 2023, probably we should see the reverse going on?
Yes. It depends, of course, in the level of the prices of the inflation that will be reflected in our inventories. But we are managing our inventories in trying to reduce this level. So you are right, we could expect a reversal situation by this year.
The next question comes from the line of Juan Ponce from Bradesco BBI.
It has to do with labor cost pressure and you kind of talked about it in the commentary that it had an impact in the fourth quarter. But my question is more on 2023. How do you see the impact of these minimum wage hikes, 20% this year, the doubling of vacation base the gradual increase of employer pension contribution? And there's a lot of headwinds on this front. And just wanted to get your sense on how you are seeing this dynamic play out this year in 2023? And if you still see room to offset this potential pressure with either price increases or more efficiency?
Well, the impact of the increases in the minimum wage here in Mexico for Bachoco. At least this year in 2022 was I think a half of them or the total impact around half of the total impact because also the minimum salary here in Bachoco is 2.5x the minimum wage. So the impact is not a 100% of the impact.
And in terms of the pressure, I think with the balance in supply and demand, we were going to be able to translate those increases to the market. In terms of the cost of the raw material, I think we are seeing the peak of those raw materials. Nobody knows that to happen because it depends on the weather market and the situation the new crop in the state. And in a few weeks, we are going to start with the weather market in the state. So the volatility in the raw material prices is so high.
But up to now, we were able to translate those cost increase in the commodities to our sales price. And I think 2023 is going to be normalized year in terms of the results.
Okay. And if I may ask a second question on CapEx, particularly, what are your expectations? If you can comment a little bit on CapEx this year and a specific focus on productivity projects?
Well, I tend to say that we will maintain our current level of investment talking about the current maintaining and growth -- organic growth activities. But remember that we are facing the transaction of the [indiscernible] acquisition that would represent probably an increase, a significant increase in our regular CapEx activities.
But behind that, I would say that we will maintain the same level around $150 million per year.
The next question comes from the line of Fernando Berera from Compass Group.
I have a question related to volumes. There is a contraction versus first quarter '21. Is it due to pricing? Or what is the key factor here?
Well, the main factor for this quarter was we will release our event in the north part of the country than reduce our supply of [indiscernible]. So we used a little bit our place. And that's the reason for the reduction in this particular quarter. But on the other hand, we reduced that amount acquiring aging out of the country. So the balance was a little bit negative, but that was the main reason of this reduction. But in the year-end, we were positive. We had expansion in volume in the all the lines.
[Operator Instructions] That was the last question. This concludes the question-and-answer session for today. I will now turn the call over to Mr. Rodolfo Ramos CEO of Industrias Bachoco, for final comments. Please, go ahead.
Thank you, everyone, for joining us this morning. If you have any further questions, please contact our Investor Relations area, who will be glad to assist you. Thank you very much.
Industrias Bachoco, we'd like to thank you for participating in today's conference call. You may now please disconnect.