Industrias Bachoco, S.A.B. de C.V.
Q4 2021 Earnings Call Transcript

Published: 4 Feb 2022

[Operator:]

Good morning. My name is Sylvia and I will be your Operator for today's call. At this time, I would like to welcome everyone to the Fourth Quarter 2021 Industrias Bachocord Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. Thank you for your attention. I will now turn the call over to Andrea Guerrero. Andrea, you may begin.

[Andrea Guerrero:]

Thank you, Sylvia. Good morning and welcome to Bachoco's fourth quarter 2021 conference call. We released our financial yesterday after the market close. If you need a copy of the release, please visit our website or request it 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. The 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 those described 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, Industrias Bachocord 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 2020 with comparative figures for the same period of 2020 in Mexican peso. As a reference, the exchange rates as of December 31st, 2021, was 20.51 pesos per U.S. dollar. Here with me, are our CEO, Mr. Rodolfo Ramos, our CFO, Mr. Daniel Salazar, and our Investor Relations, Now, I will give the call to Mr. Ramos.

[Rodolfo Ramos:]

Thank you, , and good morning, everyone. In 2021, against it to economic growth, they're willing to admit globally in vehicle according to balance sheet GPO, Mexican economy is expected to grow around 5% versus 2020 when it, it flows that construction any against previous years, inflation of the other hand, accordingly to the initiatives 2.36th per change, the highest value of the last five weeks, regarding our industry -- on our company, we observed balanced supply and demand condition both in and United States, which allows for most of the markets in which we compete to reach in 2021 our pre -pandemic levels. Having a widespread footprint with participation in all the main channels in Mexico allow us to capitalize those conditions while improving our sales reaching double-digit sales growth for the full year. In terms of costs, high raw material prices in U.S. dollars represented one of the main challenges to overcome this. And 2021 had a negative impact across our business lines. On the average for the year, we observed grain around 42% higher than 2020 levels, while soybean meal increased around 28% versus the average of 2020 as well. On the other hand, particularly in the United States, labor shortages ultimately the result of these operations during the year. Regarding our other segments, balance sheet maintained its volume levels fairly flat year-over-year, with some pressure in margin as a result of the behavior the Commodity prices already mentioned. Fatta, on the other hand, we presented most of the increase in volume for that segment. In this regard, we keep working on the integration of this operation mainly, that was being self-sufficient in terms of life science supply. Especially in these challenging time, we remain focused on being very efficient with our SG&A base was 8.9%, which is lower than the 9.3% reported the last year. As a result of full names and conditions, we reached an EBITDA of $7,359.9 million compared to the $6,036.7 million for the same period of 2020, with margins of 9% and 8.8% respectively. We continue with a very solid financial structure. In 2021, we generated a net cash of $80,783.1 million and fully a capex deployment of 3500 years. Amount 27.2% higher than 2020 in these regards, we keep our commitment with our investors rolling, realizing value to decline. As a result, we announcing January of 2022 the execution of , , multi-protein company based on with a business model, but promises some interesting synergies not only with our core business, but also with . These integration into the line with our diversification and strategy. At this point, I will turn the call over to Daniel for a discussion of the financial results.

[Daniel Salazar:]

Thank you, Rodolfo and good morning, everyone. As a result of the conditions Rodolfo just mentioned, our company's fourth quarter '21 net sales were higher 15.9% for the quarter and 18.8% for the full year versus the respective periods of 2020. For 2021, sales for our U.S. operations represented 24.8% of total sales, which is lower than the 28.3% reported in 2020. This was mainly our results of work in Mexico. Cost of sales for the third quarter was Mex$18,488.2 million and Mex$68,147.9 million for the full year. This represent an increase of 27.8% for the quarter and 18.1% for the year. This increase was due to higher cost of raw materials both in dollar and Mexican peso terms. Gross profit for the quarter was Mex$2,763.3 million with a gross margin of 13% for 2021. We reached a gross profit of Mex$13,005.51.2 million with margin of 16.6%. This amount is 22.3% higher than the gross profit rate in 2020. Total in SG&A for the fourth quarter of 2021 was Mex$2,145.5 million or 10.1% of total sales compared with a Mex$1,666.9 million and 9.1% for the total sales of the fourth quarter of '20. For the year, SG&A total it Mex$7,202.9 million or 8.9% of total sales compared to the $6420.4 million 9.3% of total sales was 2020. On the other hand, we have other expenses of Mex$108.3 million for the fourth quarter of '21 compared to other expenses of 51.3 million of the same period of 2020. For the fourth year, we reported other expenses of 352.6 million versus $362.5 million reported in the 2020. Operating income for the fourth quarter of '21, totaling 509.5 million and operating margin of 2.4%, which is lower than the 2,147.9 million, and 11.7% margin reached in the fourth quarter of 2020, which is a very atypical year. This operating income for the full year of '21 was $5,895.7 million with an operating margin of 7.2%, higher than the amount of $4,301.5 million reached in 2020 with margin of 6.3%. The EBITDA margin for the quarter was 4.1%, which is lower than 13.4%. EBITDA margin of the fourth quarter of 2020. For the full year of '21, the EBITDA margin was 9% higher than the 8.8% reached in the same period of 2020. In the fourth quarter of 2021, we have net financial income of one quarter and $49.6 million, which compares to the net financial expenses of Mex$1154.6 million for the same period of 2020. Those figures compare to a net financial income of Mex$831.9million and Mex$882.2 million for the 2021 and 2020 respectively. For full-year of 2021, we'd have income taxes of Mex$1782.2 million, higher than the Mex$1211.6 million in 2020. These awards are result of prior operating income 2021. All the above, led us to a net income of Mex$613.2 million for the quarter with margin of 2.9% for the full year of 2021. Net income totaled Mex $4,945.3 million with a thin margin of 6.1%. This amount is 24.5% higher than the previous rate in 2020. Net earnings per share were 1.08 basis for the quarter while the -- for full-year '21 we reached a net income per share of 8.45 basis compared to a net income per share of -- for Mex$1.66 and Mex$6.67 -- 66 for the same period of 2020 respectively. Going into our balance sheet, total assets increased at 12.8% when compared to the year end of 2020. Our net cash position was $18,783.1 million at the end of the quarter. , our net cash level of $16,530.3 million for the beginning of the year. Our capex worth $3,500 million, which is $27.2 higher than the amount invested in 2020. Capital expenditure in 2021 was oriented to project that will enable us to support our organic grow and maintain our opportunities in a high level of productivity. Well, thank you. And I will turn the call back to Rodolfo Ramos for final comment.

[Rodolfo Ramos:]

Thank you, Daniel. In terms of pricing, we are entering the first quarter of '22 in good shape for both Mexico and the United States. We considered that as long as there is a balance between supply and demand, we think those conditions go with -- however, we foresee a difficult the first quarter of '21 as raw material prices remain high, which will pressure our cost of sales and tighten our margins. Regarding I labor in the United States, we are starting to see improvement and we're confident that the efforts made our team in order to keep will offset somehow the managing challenge in cost. Having decent landscape ahead, we keep working and being very close to our customer to fulfill their volume needs as efficient as possible while adding tricks to our business portfolio. With that, we now take your questions.

[Operator:]

. We'll pause for just a moment to compile the Q&A roster. And our first question comes from Fernando Olvera from Bank of America.

[Fernando Olvera:]

Hi. Good morning, everyone. And thanks for taking my questions. I have three, if I may. The third one is regarding the U.S. Can you comment what explains the decline in volume in the U.S., and how do you expect them to behave in 2022? And the other two questions are related to RYC Alimentos. Can you share what has been the growth of the business in the last five years, and if you have any initial thoughts about the potential growth of the business in the next five years, and the other one regarding the stores that the business has, initially what are your -- what are you planning to do with this force? Are you going to sell them or you will explore to grow this division? Thank you.

[Rodolfo Ramos:]

Daniel.

[Daniel Salazar:]

Okay. Probably answering the first question in terms of our volume in the U.S., we are focused -- had a contraction for . One important one, is the lack of labor that limited our production capacity, but also some changes in our mix that end up in a reduction, probably middle single-digit for the year. But we are now in a very better shape, and we are recording our capacity. So we are whirlwind and recording that volume. And our expectation for the next year is to out the middle single-digit.

[Fernando Olvera:]

The second question about the briefly mentors growth. Historically this business has grown in around 5% in agility basis in a component growth rate. And our expectation is to at least maintain this level of growth. And with synergies that we have identified, we expect to increase this growth rate, but it's too soon to have a number in men because we are now in the integration process but at least we can say that we will maintain this growth rate. And I do not know if you want to share a little bit about the stores and repaying business line that Alimentos are.

[Rodolfo Ramos:]

Yeah. Alimentos. expand the operation around 5%. But above equation has brought 2023 big projects of expansion overall. Wild how operation is underway. So we are going to see workforce, sales of PCM production in 2023, so the EPC next week Make a lot of sales in terms value-added products where we the risk problem . Particularly a very good combination with capex. So we are very pleased with these executions in terms of development of the other platform and with synergies with that. So 2022, will be around 5%. We expect to grow more in that current number. I think that is an inch for 2023.

[Fernando Olvera:]

Great. Thank you so much. You are welcome Daniel.

[Daniel Salazar:]

Thank you, Fernando.

[Operator:]

Our next question comes from Emiliano Hernández from GBM.

[Emiliano Hernández:]

Hi, Rodolfo and Daniel. Thanks for the space for questions. I have two, if I may. The first one is related to chicken prices in Mexico. Obviously, the comparison base next year is going to be very tough. You mentioned a good start of the year. Do you think with your pricing power ability, you will be able to maintain or even be above such levels? And then just a quick one, could you give us more color on the 29% increase in SG&A? What are the main pressures you're seeing there? And should we continue to see them in the coming quarters? Thank you.

[Rodolfo Ramos:]

Thank you. Do you want to

[Daniel Salazar:]

Well, talking about the chicken base in Mexico, as you mentioned, we actually started in a very good shape in the first quarter, even that we haven't attained a vertical level of price, these are very tough for incoming months due to the rally that we have seen in the commodity prices for the raw material. It's very significant challenge for the months to come. It's difficult to predict that we will maintain our performance. But as far as we can say, we have maintained a very of good balance between supply and demand. So at this moment, we feel very comfortable in what we are doing into the company. At least the first quarter will be probably above our expectations, but the second quarter, given that -- we have a high season ability for the second quarter. There are some challenges in the raw materials arena. In terms of our SG&A, 1/2 of the increase in the fourth quarter that we see is the recognition of the profit -- the PTU that is the profit that we share with our employees according to the new rules of the Mexican law and half of the increase is coming from the increasing sales that we have in the fourth quarter. In terms of all point in maintenance for our distribution network. In order to manage the increasing volume. Basically down the tool -- the more significant items in SG&A increased.

[Emiliano Hernández:]

Okay. Very clear, Daniel. Thank you very much. Have a good day.

[Daniel Salazar:]

Thank you, Emiliano.

[Operator:]

Our next question comes from Juan Fante, from Bradesco.

[Juan Fante:]

All are all for Daniel. Thank you for taking my question. My question's on how you guys are seeing the first few weeks of 2022 in terms of supply chain issues. Do you see any moderation on the labor shortages, now that Omicron is somewhat winding down, particularly in the U.S. but also in Mexico? If you can talk a little bit about that, that'll be great. Thank you so much.

[Rodolfo Ramos:]

Here in Mexico, our is under control and we have no problems of shortages of labor here in Mexico. The problem has been in the space. And right now, we're in a very good position. We increased our wages. We are very competitive in the marketplace, and we have been able to staff our lines. I think right now, we're almost 90% and we are -- everyday, we are reducing that gap. So I feel comfortable with the level of a -- levels that we have right now and that allow us to run our philosophies at full capacity at this moment.

[Juan Fante:]

Okay. Thank you very much.

[Rodolfo Ramos:]

Thank you, Fante.

[Operator:]

Our next question comes from Ulises Argote from JPMorgan.

[Ulises Argote:]

final things for the space for questions, I had a couple, maybe more on the on the M&A angle, the first one related there to RYC Alimentos, can you give us any sense of what margins look like for this business and maybe if you have some changes to your long-term margin outlook, the that you've always talked about? Does this shift in any way with the business falling here? And then the second one maybe more on the potential of further M&A, but obviously you've heard that the JV there on SASA and now the acquisition of over the last couple of years. So should we expect anything more in the M&A front in the short-term or are you focusing more on integrating and extracting the synergies from these two projects first and then moving to maybe other M&A or what's more or less the mindset that ever runs? Thank you.

[Rodolfo Ramos:]

In terms of RYC Alimentos, we see a lot of synergies. Once the synergies are in place, we're going to have the same margins or better margins, but we need to capture those synergies. And I think we're going to have those synergies in place in the next quarter. The second quarter, we're going to capitalize those synergies. And for the next question, I will now ask Daniel to help me with that.

[Daniel Salazar:]

Sure. Well, adding to the first question is Call of margin of recall Alimentos East around or have been Iran 5% to 6%. And with all the seniors, roller per customer have mentioned, we expect at least to increase one or 2% points in long term. Right now, this industry not only rig, the industry has facing a very tough situation due to the prices of the midst. But anyway, we are very comfortable in that we can succeed in all the synergies that role cup mentioned and now talking about the other M&A opportunities, we are all -- besides the integration of RYC Alimentos, we are also looking for other opportunities outside Mexico, and I would say that the integration of RYC Alimentos will be probably -- will take less time than expected because we realized, I would say, a very good and talented management into the company. So this will allow us to complete the integration sooner than later in order to be more focused and try to complete additional M&A opportunities in the short-term.

[Ulises Argote:]

Okay. That is very clear. Thank you so much, guys.

[Operator:]

Our next question comes from Fernando Mark (ph) Compass Group.

[Fernando Mark:]

Thank you for taking my question. Just to talk a little bit about these price increases. Do you have any plans on hedging for 2022 and what are these plans, or do you have a specific plan to neutralize these price increases in raw materials? Thank you.

[Rodolfo Ramos:]

The Intensive pricing hedge. We have gone through some of our customers for a long period time. Maybe with some of them holding you, totals get half a year results. When we do that, enrollment in , corn, soybean and foreign exchange. So it's a client of cost plus agreement just of them. All the way, we just have a very strict policy and we don't have more than two or three months of our consignments for the raw material in stock. Except for some areas where we have domestic costs like in Norway and in the central and north east of the country and those areas we can buy more than two or three months. And sometimes, if the prices -- if the price allow us to buy the whole stock we just go to 12 months in advance, but it's no more than 20% of our requirements. But in terms of the risk, I can say that we have a hedge of maybe 15% of our requirements for those customers and the risk is we have no more than two or three months on the inventory. What we have seen in the past. Take maybe to use in six months, transfer the cost increase to the price of the finished goods. So we cannot stick, we date through, hop on more than that time and now we're at inventory. And thus though we're all BC than we had been handled all the time, and we are very strict and we could stick with that time.