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spk00: Good morning. My name is Hilda, and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2022 Industrias Bachoco 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 Maria Jaque. Maria, you may begin.
spk02: Thank you. Good morning and welcome to the second quarter 2022 conference call. We released our financials yesterday after the market closed. 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. These statements reflect management current beliefs based on information currently available and are not guarantees of the future performance and are based on our estimates and assumptions that are subject to risk and uncertainty, including those described in our annual report or 20S, which could make our current results differ materially from the forward-looking statement discussed in this call. Except as required by applicable law, Industrials by Choco 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 amount mentioned in this conference will be figures of 2022 with comparative figures for the same period of 2021 in Mexican pesos. As a reference, the exchange rate as of June 30, 2022, was 20.14 pesos per US 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.
spk06: Thank you, Maria. And good morning, everyone. This second quarter, behaving according to the usual seasonal patterns of the poultry industry, has been typically the strongest of the year. In Mexico, even as we continue with high inflation rates according to Banxico, The economy is expected to show some growth by the end of the year, around 1.77%. During the quarter, the Mexican peso appreciated slightly on the average when compared with the equivalent period of 2021. In the U.S., according to the Bureau of Economic Analysis, macroeconomic trends are similar, as inflation rates remain high, as well as the economic Economic growth is expected to be moderated compared to the past years. Regarding raw materials, we kept observing negative impacts on corn and soybean meal prices. Particularly, corn has shown an increase around 24% in terms of cost for the quarter. In terms of poultry markets, for the quarter, we observed good levels of demand both in Mexico and in the United States. which had allowed pricing to offset the negative impacts of cost. We didn't see neither other supply conditions nor high inventory levels in the industry in general. Regarding our other segments, while the existing challenges of our pork business remain, we are being able to perform well with the integration of rigged alimentos. even when we think there are a lot of opportunities to capture in this front. We are confident that the talent team that is leading this endeavor is heading us to the right direction. The condition mentioned before and keeping our SG&A under 10% of our total sales had allowed us to reach an EBITDA of 4,212.5 million with a margin of 15.9 for the quarter. If you look at the first half of 2022, we've reached a net sales of 50,799.1 million pesos, which is 26% higher than the first six months of 2021, achieving an EBITDA margin of 15.2% higher compared to the EBITDA margin for the same period of 2021. The company remain in a healthy financial condition as we reach an head cash level of $17,904.5 million, which allow us to continue supporting our growth. Now, Daniel will join us for a discussion for the financial results.
spk03: Thank you, Rodolfo, and good morning, everyone. As a result of the conditions mentioned before, our company's second quarter of 2022 Net sales totaled $26,432.1 million, $5,571.1 million, or 26.7% higher than the $20,860.9 million reported in the second quarter of 2021. This increase was attributable to higher volume sold in our other segments as part of the consolidation of Frick Alimentos and higher prices across Our main business lines were offsetting the negative impact of higher raw materials costs. Total cost of sales for the quarter was 20,518.5 million pesos, representing an increase of 21.4% when compared to the 16,901.1 million of the same period of 2021. In terms of our first half of the year, cost of sales increased 24.1%. versus the same period of 2021. In both cases, around 90% of the increase was due to a higher unit cost. Gross profit for the quarter was 5,913.6 million with a gross margin of 22.4% higher than when compared to the 3,959.8 million and 19% reported in the same period of 2021. For the first half of the year, we reached a gross profit of 11,041.1 million with a margin of 21.7%. This amount is higher than the gross profit of 8,177.9 million and 20.3% margin reached in the first half of 2021. Total SG&A for the second quarter was 2,123.3 million, representing 8% for a our total sales, which compares to the 1,729.2 million and 8.3% total sales achieved in the second quarter of 21. For the first half of the year, we reported a SG&A of 4,122.4 million, or 8.1% of total sales, while in the same semester of 2021, We reported at 3,366.5 million and 8.4% of total sales. Operating income for the second quarter of 2022 totaled 3,831 million and operating margin of 14.5% higher than 2,088.8 million and 10% margin reached in the second quarter of 2021. Operating margin in the first half of 2022 was 13.7% compared to 11.6% reached in the same period of 2021. Our EBITDA margin was 15.9% for the quarter, an increase when compared with the 11.7% in the second quarter of 2021, while the first half of the year of 2022 and 2021 EBITDA margins were 15.7% 2% and 13.3% respectively. For the quarter, we had a net financial income of $157.9 million and a net financial expense of $77.9 for the first half of the year. Compared to the net financial expenses of $97 million, a net financial income of $222.64 million for the same period of 2021. Our total tax taxes were 1,054.1 million for the quarter, compared to the 548.7 million recognized in the same quarter of 2021. For the first half of 2022, our total taxes were 1,832.6 million, higher than the income taxes of 1,352.6 million for the same period of 2021. All the above led us to a positive net income of $2,934.7 million for the quarter, resulting in an 11.1% net margin, compared to the $1,443.2 million and 6.9% margins reported in the second quarter of 2021. For the first half of 2022, the net income totaled $5,062.7 million, with a net margin of 10%, which is higher than the 3,517.8 million of net income of 8.7% margin of the first quarter of 21. Going into our balance sheet, we kept a healthy financial structure with a net cash level of 17,904.6 million when compared with a net cash of 16,530.3 million we had at the end of the year of 2021. This has allowed us to keep with our capex allocation plans. For the first half of 2022, we reported a capital expenditure of $1,908.8 million, an increase of 46% when compared to the same period of 2021. That's all, and thank you, everyone. I will now turn the call back to Rodolfo for final comments.
spk06: Thanks, Daniela. Now we are entering the third quarter, which historically is the weakest of the year. According to this seasonality, we started to observe pressure in prices on the traditional markets in Mexico and also a slowdown on the commodity prices in the United States. Besides the effect of the ongoing conflict between Ukraine and Russia, we expect the main raw materials to be heavy with volatility, depending on the evolution of the crops in United States and in Mexico. In this regard, we will maintain our policy to hedge corn and soybean meal no more than three months in advance, as we consider it has been an efficient strategy for our businesses. We will continue with our topics deployment above maintenance level towards organic growth and productivity. We will also be very focused on the integration of RIC Alimentos in order to capture the identified synergies. We are certain that our financial discipline will allow us not only to grow organically, but to keep looking for new opportunities in terms of M&A. With that, we will now take your questions.
spk00: Thank you. We will now begin the question and answer session. If you have a question, please press 01 using your touchstone phone. If you wish to be removed from the queue, please press 02. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press 01 on your touchstone phone. We're standing by for your questions.
spk01: We have a question from Louis Willard from GBM.
spk00: Please go ahead.
spk04: Hello, Daniel. Good morning. Thanks for taking my question and congratulations on the results. So I was wondering if you could talk about the situation of RIC. I know the environment is challenging right now, but it seems to be a very relevant bet from your side. And if you can share with us, you know, taking long term, how much else can RIC and the pork business aid to your sales and maybe that growth in the future. Thank you.
spk06: Right now, the total sales is around 3,000 million pesos, which is 3% of our total sales. And we expect, right now, we're expecting the short term, the growth of this company has been, we are expecting to have 5% to 6% per year. But in the medium term, we are expecting to add a couple of more points to this figure. So we are expecting to have an expansion of this company around 8% year over year, which is a little bit above the level of the growth of the whole company of Ochoco, which is around three and a half, four percent per year in terms of volume. This integration has allowed us to expand our further process businesses and we start with some stores. This company has some stores in the Puebla area and we are looking at business as an expansion of the future expansion of the company because at this moment we are not participating in this segment of the market. The other good thing of this company into their ADN they have a very good department of innovation and develop new products. So I think it is a very good opportunity to increase our presence in the value added segment of the industry. And the third business that they have is the trade. They have been very successful in just marketing some commodities here in Mexico with a margin. It's a different business model, but it's an opportunity to expand these capabilities too. And the last but not the least is the integration with SASA. Right now we have the pork production that can add a lot of synergies in that regards.
spk04: Thank you, Roberto. So in a nutshell, it's okay to assume that, you know, top line growth, at least volume growth coming from this acquisition should help the consolidated volumes, like around 1%, something like that in the next, let's say three or four years.
spk06: Yeah. Yeah. Right now it's 3%. I think in the future it can be a little bit more because we are going to consolidate our value-added segment. In the future, maybe, that's not for sure, but we are not going to track Frick as a plant or as an independent company. We are going to integrate that sales to our value-added business.
spk04: Super clear. Thank you. Good day.
spk00: Thank you.
spk01: Once again, for any questions, please press 01 on your touchtone phone.
spk00: At this moment, we show no further questions in queue. Oh, my apologies. We have a question from Fernando Olvera from Bank of America. Please go ahead.
spk05: Hi, good morning. Thanks for taking my question. I have one. Basically, can you give us an update of how we're doing the process of the voluntary offering from the controlling shareholders and if there is any change in our overrated data that you can share? That's the third one.
spk03: Hello, Fernando. Well, right now we have no further information, no additional information besides what it was already published. What we already know is that the offeror has asked for the authorization for the Mexican authorities for the initiation of the offer, but we don't have any other information yet.
spk05: Okay, great. Thank you, Daniel, very helpful. And my second question is regarding the poultry business in Mexico. I mean, thinking about volumes, I mean, in which channels did you see the main weakness of this quarter, and how do you expect volumes to behave in the second half of the year? Thank you.
spk06: Well, as I mentioned, the second half of the year normally is the weakest half. In terms of volumes, we are seeing a very good balance between offer and demand. In the month of June, we had, and the industry had some problems with the supply of hatching eggs. So that is going to keep some pressure in the volumes for the second half of the year. So we are expecting a normalized third quarter, which is normally the prices are lower than the second quarter, and with a recovery in the last part of the year. So we are seeing a normalized second half of the year in the poultry segment.
spk05: Okay, great. Thank you, Rodolfo. And regarding the second quarter, I mean, can you comment what was the performance by Channel?
spk06: Well, yeah, the traditional market was very good, but I can tell you in line with the seasonality of the second quarter, which traditionally is a good one. The retail channel was in line too, but with less, the margin in that channel was a little bit lower than the other one. And as you know, we are participating in the control of the inflation program here in Mexico. And we are... making an effort in that regard in the retail channel.
spk05: Okay, great. Thank you so much.
spk00: Thank you. Once again, for any questions, please press 01 on your touchtone phone. We have a question from Hector Arelis from Rainbow Fund. Please go ahead.
spk07: Hi, good morning. Thank you so much for taking my question. Just to expand a little bit on the last comment you guys made, how much pressure has there been from the Mexican government to help mitigate some of the impacts from this higher inflationary environment, specifically on the chicken side? If you can comment a little bit more on that, I would greatly appreciate it. Thank you.
spk06: Yeah, we have been participating in the meetings with the federal government. And we are participating in two sides, the egg industry and in the chicken and the poultry industry. And this is just for the whole chicken and in the retail segment. And they understood very clearly that the than the impact of inflation. And inflation is caused mainly by the raw material prices. And in that regard, they've announced some programs in order to increase the domestic production of grains, some subsidies to the gasolines and things like that. make us a little bit more efficient in terms of the cost of production. But we are reflecting, or we reflected the increases in the cost of the raw materials. For this third quarter, we are seeing a little bit of reduction in the, at least in the Chicago Borough Trade, cost of the corn. Right now, the poacher is below the $6 mark. when in the second quarter we had prices very close to the $8 mark. So right now I think the pressure and the cost is going to be a little bit less, and we can just keep the prices on those channels and the retail and in those products for the third quarter of the year with no impact.
spk07: Okay, thank you very much for the clarification.
spk00: Thank you. Once again, for any questions, please press 01. At this moment, I don't see further questions. I would like to hand the call back to Mr. Rodolfo Ramos for final remarks.
spk06: Well, Okay, thank you very much for all of you 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. Have a nice day.
spk00: Thank you. This concludes today's conference call. You may now disconnect.
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