International Meal Company Alimentacao SA

BOVESPA:MEAL3

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to IMC's conference call to discuss the first quarter of 2021 results. The presentation is available for download at the company's website, www.internationalmealcompany.com/ir. We would like to inform you that this event is being recorded. [Operator Instructions]

Forward-looking statements are subject to known and unknown risks and uncertainties that could cause the company's actual results to differ from those in the forward-looking statements. Such statements speak only as of the date they are made, and the company is under no obligation to update them in light of future developments.

In this conference, we have Mr. Alex Santoro, CEO of IMC; and Ms. Maristela Nascimento, Financial and Investor Relations Officer.

I will now turn the conference over to Mr. Santoro. Please, Mr. Santoro, you may proceed.

[Alexandre de Jesus Santoro, executive]

Good morning, everyone. I hope you and your families are doing well. Thank you for connecting in the IMC results call for the first quarter of 2021.

Today, we will share a summary of what the first quarter was like and give an idea of how we are evolving in the second quarter.

The year started with high expectations of the recovery of sales and results. However, the arrival of the second wave of this pandemic led us through a quarter of significant chance. We faced a scenario in which many of our restaurants have their counters closed and various operational restrictions. Once again, we have to be agile to migrate almost all of our sales efforts to digital platforms and channels and control our cost, expense and cash.

The impact of the performance of the company's results caused by the restrictions were especially mitigated by the acceleration of vaccination in the United States. At the beginning of May, we already have the same-store sales above 2019 in dollars. In addition, in Brazil, we have noticed that as restrictions have eased, sales recovery happened more heavily than in 2020. The environment remains of attention, and we are monitoring this evolution daily.

Going now to our presentation. We will start with a summary of the number of restaurants in our system. As you can see on Slide #2, we ended the first quarter with 499 restaurants, 4 more than in the fourth quarter of 2020.

Going ahead to Slide #3, where we have the financial highlights, our net revenue reached BRL 321.9 million, 12% lower than in the same period in 2020, reflecting the restrictions arising from the second wave of the COVID-19 pandemic. The consolidated same-store sales decreased by 9.3% compared to 2020 in reais and using the same currency, the same-store sales fell by 17%.

Adjusted EBITDA was positive by BRL 9.9 million with a margin of 2.1%, with inflationary pressure on food cost, especially on proteins. The net loss in the period was BRL 55.4 million. Cash consumption in the quarter was BRL 12 million, and our net debt reached BRL 196 million, representing a 39% reduction compared to the same period in 2020, mainly due to the follow-on carryout in July 2020 that added more than BRL 370 million to the company's cash.

So on Slide #4, we present the same-store sales performance over the past few months in our main operations. In Brazil, we observed that the months of April and May have been recovering quicker than in 2020. And as you can see on this slide, Frango Assado and Margaritaville operations started in May with sales above 2019. We're still far from the ideal situation, but it is a positive sign. The moment still requires caution, but we begin to see signs of improvement.

Moving now to Slide #6. We see that continue to focus on actions to maximize our sales in delivery, which have grown approximately 3x since December '19. Delivery has proved to be an essential sales channel, especially for the Pizza Hut and KFC operation. Even during periods of reopening of the counters, we maintained high levels of sales in these channels. In addition, we continue to analyze opportunities to gain efficiency, renegotiate contracts and review pricing strategy.

Now moving ahead to Slide #7. We present the adjusted EBITDA bridge, which was approximately BRL 10 million in the period versus BRL 24 million in the first quarter of '20. The highlight here is Frango Assado, which delivered an EBITDA of BRL 8 million, and our operations in Caribbean with BRL 7 million and our Margaritaville business in the United States that delivered BRL 10 million in EBITDA.

On Slide #8, we show our business performance in Brazil, which fell by 20.3% in terms of revenue, mainly due to the restrictions in the region caused by the second wave of COVID-19. Adjusted EBITDA was negative by BRL 7.2 million due to the drop in sales and the inflationary pressure on food cost.

On Slide #9, we have the results of our Frango Assado operation, with a 2.9% reduction of sales and an adjusted operating result of BRL 8.3 million. The reduction in highway traffic has still been affecting our restaurant operation, but has been mitigated by the increase in revenue at our service stations, which is part of our strategy to focus on fewer sales for trucks during this moment of lower traffic in our highways.

Slide #10, we discuss the airport's performance here. The revenue fell by 60.1% due to the drop in the number of flights, added with restrictions on food supply passengers during flights. Even so, the adjusted operating result was positive by BRL 2.8 million as a response to our cost and expense reduction initiative.

On Slide #11, we can see here the revenue for Pizza Hut, KFC and others businesses, which dropped by 23.9%, reflecting the operational restrictions in malls at the end of the first quarter of this year. The adjusted operating result was negative by BRL 0.7 million versus BRL 14.3 million in the first quarter of 2020, when our contractual negotiations and the recovery of receivables from franchises also contributed by BRL 8.2 million.

Moving on to Slide 12. We discuss the U.S. operation, which are shown in local currency. Total sales exceeded the amounts reported for the same period in 2020 by 1.7% and that contributed to our adjusted EBITDA, which was positive by $1.8 million. Also, in the first quarter of this year, we received the second tranche of the PPP for the American government, which stands approximately $700,000 of payroll and rent expense.

On the next slide, Slide #13, we will analyze the Caribbean operation. For a better comparison, we presented figures in constant currency in reais. The revenue in the period fell by 43.3%, while EBITDA was BRL 5.6 million. The actions we took to reduce the headcount and renegotiate leases mitigated decreasing people flow at the airports.

And finally, on Slide #14, we comment on the company's cash flow. In the first quarter of '21, despite the challenging operating scenario, cash consumption after maintenance CapEx and fixed and lease payments was approximately BRL 12 million, 69.3% lower than the same period in 2020, mainly due to the PPP government funding to finance payroll and rent expenses over the next months. We made investments of BRL 19.4 million in net cash valuation, mainly in new Pizza Hut and KFC stores.

And now, just to go to the final part, my final consideration that basically, after a challenging first quarter, the month of April and the beginning of May points to a trend of recovering sales. The U.S. has shown that the recovery is directly related to the number of people that were vaccinated. It encouraged us to believe that if the vaccination process continues to evolve, we may have a stronger second half here in Brazil but we will continue to be cautious in our cash flow [ mix ].

And to conclude, I want to share with you what I define as the 3 main pillars of our company, and they are: Number one, people; number two, customer; number three, focus. And giving you a little bit more -- a little bit more details about all these 3 pillars.

So the first one, people. We have tremendous, talented and specialty team in our operations doing a tremendous job to ensure that our customers continue to have access to our brand, even in this moment of so many restrictions. And I'm also happy and excited about our ability to attract talented people to be part of our project. Good, motivated and [ aligned ] people are the basis for everything.

Pillar number two, customer. We still have a lot to do to improve our customers' experience, from improving our operational excellence to provide even more convenience for our consumers and technology is key in this process.

And number three, focus. We have a company that operate several brands in many different geographies. It is essential to have clarity and focus on where to allocate our financial and intellectual capital.

So to conclude, after 45 days as CEO of IMC, I can say that I feel more excited than ever about the growth potential and also feel honored with the opportunity to lead the company at this moment.

I'm going to finish the presentation here, so we can start the Q&A. Thank you.

[Operator]

[Operator Instructions] Since there seem to be no questions, I would like to turn the floor over to Mr. Santoro for his final remarks.

[Alexandre de Jesus Santoro, executive]

Thank you. And again, thank you all for connecting today for our conference call. Please stay safe, and we'll talk soon. Thank you. Bye.

[Operator]

This concludes IMC's conference call. You may now disconnect and have a nice day.