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Edited Transcript of MEAL3.SA earnings conference call or presentation 2-Jun-20 2:00pm GMT

Q1 2020 International Meal Company Alimentacao SA Earnings Call

SAO PAULO Jun 25, 2020 (Thomson StreetEvents) -- Edited Transcript of International Meal Company Alimentacao SA earnings conference call or presentation Tuesday, June 2, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Luis Felipe Silva Bresaola

International Meal Company Alimentação S.A. - IR Officer & Member of Board of Executive Officers

* Newton Maia Salomao Alves

International Meal Company Alimentação S.A. - CEO and Member of Board of Executive Officers

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for standing by, and welcome to IMC's conference call to discuss the first quarter of 2020 results. This presentation is available for download at the company's website, www.internationalmealcompany.com/ir. (Operator Instructions)

Forward-looking statements are subject to known and unknown risks and uncertainties that 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 today, we will have Mr. Newton Maia Alves, CEO of IMC; Ms. Maristela Nascimento, Financial Officer; and Mr. Luis Bresaola, Investor Relations Officer.

I would now like to turn the conference over to Mr. Maia. Please, Mr. Maia, you may proceed.

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Newton Maia Salomao Alves, International Meal Company Alimentação S.A. - CEO and Member of Board of Executive Officers [2]

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Good morning, everyone, and welcome to IMC's conference call for first quarter 2020 results in which we'll provide information related to the company's performance in the period in addition to commenting on the challenging period we are going through with the COVID-19.

On the first slide, I highlight that we ended the first quarter of 2020 with 404 restaurants, 250 of which are owned.

On Page 3, I would like to comment on the results of the first quarter and net debt for a better comparison, my comments will be based on the figures without the IFRS 16. It should be noted that the performance of this quarter already reflects COVID-19 in our operations as of March. Our consolidated revenue grew 1.2% basically due to the addition of Pizza Hut and KFC operations. Adjusted EBITDA was negative by BRL 6.5 million with a negative margin of 1.8%. The net loss of the period was BRL 50 million.

IMC consolidated pro forma same-store sales, including the Pizza Hut and KFC operations, decreased 9% reflecting the impact of COVID-19 on our operations. The consumption of cash from operations in the period was of almost BRL 48 million, and our net debt reached approximately BRL 324 million with a net debt-to-adjusted EBITDA ratio of 2.7x in the last 12 months.

The first quarter of 2020 was going to be the quarter that IMC would consolidate the result of Pizza Hut and KFC, the Central Kitchen is running, and the talks to expand Frango Assado well under way in our U.S. operation with a robust store opening pipeline. However, in mid-March with the COVID-19 pandemic, our focus shifted from consolidating the operations to IMC strengthening. Since our sales have been strongly affected by the measures taken by governments in each of the region where we operate to combat the spread of the virus.

Slide 4 exemplifies my comment a little. We closed the first 2 months of the year with same-store sales pro forma consolidated growth of 9.5% with the scenario changing dramatically in March. Since then, we continue to focus on the main points of impact of the pandemic.

On Slide 5, we highlight a little more the points that we worked on over the past months. In security, we focused on the need to preserve the lives of our employees and customers. On delivery, we reinforced operation, which grew 2.8x since the beginning of March pre-pandemic. In reducing expenses, we closed the definitely unprofitable stores, renegotiated premium terms for the main contracts, suspended investments, and unfortunately, we had some make progress in reducing our staff.

In terms of liquidity, we renegotiated the terms of our debentures and obtained financing from the American government for our U.S. operation. In expansion, we continue with our postponed guidance. In support of the community, which is very important in a moment like this, we donated over 9,000 meals from the Olive Garden to charities, and we offered over 60,000 KFC sandwiches to health care professionals. All of this with the contribution of our suppliers. And finally, the impact of the exchange rates on our operations with the devaluation of the real versus dollar, our operation now has an interesting benefit from currency conversion.

On Slide 6, we highlight our delivery operation over the past few weeks. The focus on the channel made sales grow 2.8x and helped to maintain the level of revenue in Brazil close to 30% of what it was in the first week of March.

On the next slide, we comment a little bit more about the expenses reduction and cash preservation events, which unfortunately included the team reduction. We have advanced in the mapping of expenses and investments, and the initiative to focus on zero-based budget will be an important benefit for IMC in the future. In addition, with the simplification process, we closed inefficient stores that represented approximately 11% of IMC's base of operations.

On the next slide, we detail the renegotiation of our debt to preserve cash. With our bondholders, the main point was to capitalize semiannual interest until the end of 2021 in exchange for an increase in rates. We renegotiated also our finance in the U.S. and Caribbean with a grace period that will be added to the end of the contract. And finally, we assessed U.S. government's Paycheck Protection Program with approximately $11 million in funding.

On Slide 9, we highlight an important point in IMC, which is the exchange rate. The devaluation of the real in the last few weeks brings an important monetary benefit to the company given that our operations in the U.S. and Panama are based in dollars. To illustrate a little bit more, using the adjusted 2019 numbers, each 5% variation in the dollar impacts the number by approximately 3%. At currency levels today, our adjusted EBITDA for 2019 will be over 20% higher.

On the next slide, we talk a little bit more about the current situation of the operations and the perspectives based on the information released by government officials, companies in the media. In Brazil, in our highway business, we have all of our stores open but at reduced hours and without the buffet. The expectation is to start normalizing the operation as soon as the traffic of customers show that it makes sense. At the airports, we continue with the catering operating, and we only have 2 stores opened. We should already see increase in the movement of airports in June according to Gol, LATAM and Azul.

In shopping malls, we have 227 stores opened, 59 owned and 90% with delivery operations. In the U.S., an operation that we believe to be the most advanced in terms of standardization, we reopened some stores in early May, reaching 16 out of a total of 22, and the performance of revenue is a drop of 54% for the week of May 17 until 23 versus last year even with the restrictions on capacity and reduced hours. And in the Caribbean, we continue with the stores closed at the airports and caterings in Colombia also closed. In Panama, Copa Airlines expects to return with 10% of its flights in June. And in Colombia, the government is expected to release airports also in June.

Finally, on Slide 11, we show our store base on May 25. At that date, we had 57% of the stores in the system opened, 49% of our owned stores with the delivery operation representing 80% of the open stores, 66% (sic) [60%] is owned.

Now on Slide 12, we have the adjusted EBITDA bridge, which was negative by approximately BRL 7 million in the quarter, reflecting the impacts of the COVID-19 pandemic in March. Brazilian operations, including G&A and others, totaled a negative adjusted EBITDA of BRL 2 million. In the U.S., EBITDA in the period was negative by BRL 11 million. While in the Caribbean, EBITDA was positive by BRL 6 million, benefiting from the high margins of the business that mitigated the effect of the traffic drop in March.

Now I'd like to give the floor to our Investor Relations Officer, Luis Felipe Bresaola, to explore the results in more detail, and I'll return later for our final remarks.

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Luis Felipe Silva Bresaola, International Meal Company Alimentação S.A. - IR Officer & Member of Board of Executive Officers [3]

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Thank you, Newton, and good morning, everyone. On Slide 13, we show the business performance in Brazil, with the revenues increasing by 8% due to the addition of the Pizza Hut and KFC businesses, and the negative EBITDA of $1.7 million, reflecting the impact of the COVID-19 pandemic in March.

Moving now to the highway business over the next slide. Operating revenue decreased by over 4.5% with the drop in adjusted operating result of 55.7% to $7.9 million and a margin of 6.5%. The reduction of traffic over the highways during the month of March is one of the main factors for the weaker operational performance.

On the next slide, we comment on airport performance. Revenue decreased by 13.3%, while operating result was $2.3 million versus $7.7 million last year. The 9.4% reduction in the number of flights in the quarter as well as the 10.9% less passenger traffic in the period were the main factors behind the performance compared to first quarter last year.

Over the shopping mall business, revenue grew 60.3% due to addition of Pizza Hut and KFC businesses, and the adjusted operating result was $3.4 million, impacted by approximately $8.1 million from the reversal of provisions and negotiations with the Yum! Brands. The closing of malls throughout March was the main factor behind the negative same-store sales in this segment. The segment's pro forma performance was negative by 10.5%, with Pizza Hut and KFC brands falling 9.7%.

Moving on to Slide 17, we talk about operation in the U.S., which we presented in local currency. The impact of COVID-19 pandemic caused our revenue to drop by almost 25% and EBITDA to be negative by $2.4 million.

Over the next slide, we will look at Caribbean operations. And for a better comparison, we present the numbers in reais and in constant currency. Revenue in the period decreased by 18.6%, while EBITDA decreased by 50%, reaching BRL 5.6 million positive. It should be noted that the high margin over the business mitigated the impact of the pandemic in March.

Now on Slide 19, we comment over the company's cash flow. In the first quarter '20, due to the challenging operating scenario, cash consumption after maintenance CapEx was approximately BRL 44 million. In the variation of net cash, we invested BRL 42.1 million due to the opening of Pizza Hut and KFC in addition to the completion of the Central Kitchen, a disbursement that was partially offset by the sale of treasury shares.

With this, now I close my comments, and I give the floor to the operator to start the Q&A session. Thank you.

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Operator [4]

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(Operator Instructions) There appears to be no questions on the line. So I'm going to turn the call back over to Mr. Newton Maia for any remarks.

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Newton Maia Salomao Alves, International Meal Company Alimentação S.A. - CEO and Member of Board of Executive Officers [5]

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Thank you, everyone, for joining us in this conference call. We are confident we are taking all the possible measures to minimize the impact of the COVID-19 and also that we're going to get out of this stronger than before and more efficient. And I hope you all stay safe, and have a nice day.

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Operator [6]

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