Metalfrio Solutions SA

BOVESPA:FRIO3

Earnings Call Transcript

[Petros Diamantides, executive]

Good morning, everyone. This is Petros Diamantides, and I'm here this morning with Frederico Moraes, Chief Financial Officer of Metalfrio Solutions. Thank you for your ongoing interest in our company and for joining us in our fourth quarter and full year 2021 webcast. We concluded the year keeping the positive momentum observed in the first 9 months, following the rollout of vaccination programs and lower lockdown measures in some geographies. Despite the adverse supply chain and logistics conditions with commodities inflation and freight availability, we managed to lead revenues and EBITDA to historical highs.

By now, you will have looked through our press release and hopefully have the presentation in front of you. If not, you will find both documents on the Investor Relations area in our website. We'll briefly run through our highlights of the fourth quarter '21 and the full year, providing further details on our operating regions and segments. Following that, we would like to highlight some key initiatives that will continue to help drive the business forward and then we shall discuss cash flow and capital structure. We shall then conclude with our outlook for 2022 together with a summary of our strategic priorities.

We need to caution you that we may refer to forward-looking statements and in that regard, kindly observe the disclaimers about forward-looking statements on Slide #2. Now let us start with a look at the highlights of the fourth quarter and full year '21 on Slide #3. Top line continued the positive momentum with a 45% increase in the quarter and 42% for the year. Such increase in revenue was underpinned by the successful customer-based diversification, consistent commercial policy and resumption of placement programs by our global accounts.

Sales and services also increased during the fourth quarter of '21, reaching BRL 76 million, a growth of 36% when compared with the fourth quarter of 2020. For the full year, sales and services increased by 16% to BRL 279 million, representing 14% of total revenues. EBITDA at BRL 90 million in the fourth quarter and BRL 230 million in 2021 were 185% and 76% higher than the respective comparatives of last year. During the fourth quarter, we experienced a net loss of BRL 43 million, taking our bottom line result to negative BRL 56 million for the full year compared with a net loss of BRL 140 million for the same period in 2020.

The reduction in the net loss was a combination of higher operational profit and lower financial expenses. Let us provide some context for the shape of the recovery of the market along the pandemic. After the 22% increase in our revenue in the second quarter of 2020 when the economy was highly impacted by the lockdown measures, which in turn affected demand from our core accounts, we delivered our sixth quarter of sequential sales increase.

Of course, this is a result of the partial recovery of the market, but it is also a consequence of our strategy in first, adjusting our sales mix, including new customers, product and distribution channels, enlarging our customer portfolio then focusing on further enhancement of our service offering which has proved to be resilient as fleet management contracts generate stable inflows and then continuing to develop our successful full-service rental business, which continued to gain traction in Brazil.

Despite the recovery in sales, we are still experiencing the adversity of the global supply chain disruption with demand and supply still in the process of rebalancing across several categories. Leading prices of commodities at historical highs. Material shortages such as electronic components and lower availability of freight.

On Slide 5, you can find the breakdown by region and how sales increased by more than BRL 600 million in 2021 versus a year ago. South America increased by BRL 241 million, supported by sales to new customers developed along the pandemic and also with an increased contribution from the service segment. Sales in Central and North America increased by BRL 52 million. Our Mexican operation also developed a broader customer base to mitigate lower purchases from domestic accounts. This operation is still below pre-pandemic levels also affected by supply chain disruptions, which for this facility also included the force majeure declared by the chemical suppliers affected by the Texas Weather Events that led to a production stoppage earlier in the year.

Europe, Middle East and Africa experienced the highest growth in sales during the period, increasing by more than BRL 300 million. We remain well positioned and captured a sizable share of the Turkish market recovery as we promptly adjusted from our export-oriented focus to the domestic market, ramping up production and supply chain to meet delivery lead times.

Revenues increased in all geographies across EMEA along 2021. As a result of the consistent growth in all our geographies, the contribution of each region remained broadly flat when compared to the previous year. Now on Slide 6, let's take a closer look at our regions, starting with South America. Our South American operation has been experiencing positive sales momentum since the third quarter of 2020 and sales in the fourth quarter of '21 were 25% higher versus the fourth quarter of 2020.

For the full year, sales were 43% higher than the previous year. Since the pandemic started, this region focused in diversifying the customer base and made further market share gains in the middle market commercial refrigeration channel and non-key accounts, representing for the first time most of full year product revenues. Sales to key accounts remained broadly flat for the year as the lower activity in this segment experienced in the first part of the year was compensated in the fourth quarter by sales to a major brewery resuming its placement program.

Important to mention that in the Service segment, despite not having our refurbishment in Brazil operating in full capacity yet, we grew by 16% and 15% for the quarter and the 9 months, respectively, highlighting the quality and resilience of the inflows, our ability to conclude new contracts and the continuing contribution from our full-service rental.

Now let's turn to Central and North America on Slide #7. The fourth quarter '21 sales were up by 68% as sales to Coca-Cola Bottlers in North America resumed their investment program in the latter part of the year. Revenues of full '21 were up by 33% as a result of the rebound of key accounts and robust shipments to the Mexican distributor business. Let's look at Europe, Middle East and Africa now on Slide #8. Here, sales increased by 63% in the fourth quarter of '21 versus the corresponding period last year. Such increase was underpinned by sales in hard currencies and a significant increase in sales of high value-add products to key account as placement programs by key accounts began to resume.

For the full year, revenues increased by 42% to more than BRL 1 billion with significant contribution of sales in hard currency and the positive impact of high value-add products in the fourth quarter mitigating the adverse effect of the third quarter '21 product mix, which had higher participation of horizontal standard products. Important to note that for the full year, revenues increased consistently across the geographies served. The ability to execute in more than 90 countries with distinct product requirements is a testament to the ability to understand and capture demand trends, whilst managing production complexity competitively in our Turkish facility, which is probably one of the most efficient in the industry.

Now on Slide #9, we have the split between products and services. Over the last few years, you have seen the transformation of Metalfrio into a disruptive fully-integrated technology-based cold solutions provider with the accelerated expansion of our service operations. We're delighted at how this proposition is proving popular with our customers giving Metalfrio a significant competitive advantage in the sector.

In addition, this helped the quality of our earnings through diversification and visibility of forward earnings. This market acceptance is a result of Metalfrio's investment in its digital transformation, supporting a more complete and integrated package of services. Net revenues in services increased by 16% in 2021 due to a diverse portfolio and ability to generate growth. Our gross profit here has been more resilient as it is less impacted by the global supply chain headwinds and gross profit improved by 5%.

In the Products segment, revenues increased by 47% in 2021 as customers resumed placement programs in some regions and as we continue to tap on mid-market accounts across our broad geographies. The gross profit here was impacted by the commodity super cycle as the speed of the increase of raw material prices outpaced its reflection on our commercial policy.

Such inflation of material cost was partially mitigated by manufacturing efficiency decreasing conversion costs. The gross profit of products decreased from 17.6% in 2020 to 16.4% this year. Now let's turn to our outlook for the business. 2020 was undoubtedly a tough year for society and the global economy. But it was a challenge that Metalfrio and its people met resolutely. 2021 continue to see the lasting impact of COVID-19 on the economy with volatile demand and commodity cost escalation.

For us at Metalfrio, the strategic path we continued to pursue last year has left us in good position. The investments we made in our Turkish plant have made it a truly market-leading and competitive facility, well positioned to make the most of many growth opportunities that our strong market presence continues to generate. Services continued their strong contribution within the group, reinforced by the impressive development of 3L, the full service rental business and assets365, which strengthens our leadership in IoT in the long term.

All of which, of course, has positioned Metalfrio globally as the unrivaled, fully-integrated technology-led cold solutions provider. This unique ability to provide smart solution, utilizing IoT to help provide remote management solutions to meet future demands such as new points of sale in nontraditional channels will be important drivers of growth. Utilizing a comprehensive global reach and wide product and service portfolio, we are also increasingly providing solutions beyond coolers and freezers catering for product service needs encompassing coffee machines, draft beer and post-mix machines and of course, many more types of equipment.

Our growing ecosystem in providing multiple avenues for growth in combining our extensive geographic reach and our multichannel approach as well as our deep relationships with global consumer brands and local leaders, our integrated solutions offering are truly differentiating us in the marketplace and ensure that we are best placed to meet the evolving challenges of our customers.

All of this, of course, is underpinned by strong industry fundamentals. As Metalfrio continues to move closer towards the end consumer, and therefore, more aligned with a positive long-term customers' growth trends, the quality of its growing earnings stream is expected to continue to increase. As always, we would like to remind you of our key strategic priorities. It is important to understand that these priorities are the essential building blocks for our path towards continued value creation.

Over the past years, we have significantly strengthened and expanded our customer relationships, primarily through our innovative approach to cooler solutions and our truly multichannel presence. We have also established an unrivaled geographical footprint, working across over 100 countries with key manufacturing and service hubs in most continents, keeping us firmly in front of our peers. But perhaps the most exciting strategic development has been the ongoing growth and success of our services business.

Brazil has proven the strong appetite for this approach through LifeCycle, our after sales proposition and has provided the blueprint for how this is rolled out across our geographies. The addition of full-service rental options through the development of 3L enables us to access a different type of customer and different channels and our leadership in connectivity is reinforced by the contribution of assets365, which provides fully-integrated, tech-led approach to meeting the future needs of our clients.

To support a greater company focused on the customers' experience Metalfrio is designing its strategy through 2 main pillars: technology and governance in order to provide efficiency and high level of management. Success here will, of course, drive the top line, which together with the benefits of operating leverage, improved product mix as well as more value-added products and the delivery of further operational efficiencies will improve our profit margins and return on capital.

At the same time, we shall continue to focus on further strengthening our capital structure together with initiatives to improve our liquidity. This will be driven by a focus on working capital and cost optimization. Also shall continue to be robust in capital allocation, ensuring that growth and maintenance CapEx plans are applied against the strictest of risk-and-returns criteria. In pursuing all these objectives, we believe we shall strengthen our position as the world's leading technology-based cold solutions provider to global consumer brands creating superior level of economic profit over the medium and long term, benefiting all our stakeholders. Please feel free to contact us through our Investor Relations desk for further clarification and questions. Thank you so much for following our progress.