Industrias Bachoco, S.A.B. de C.V. (IBA) Q4 2020 Earnings Call Transcript

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Industrias Bachoco, S.A.B. de C.V. (IBA)
Q4 2020 Earnings Call
Feb 4, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Karen. I will be your conference operator for today. At this time, I would like to welcome everyone to the Fourth Quarter 2020 Industrias Bachoco Earnings Conference Call. [Operator Instructions] Thank you for your attention.

I would now turn the call over to Andrea Guerrero. Andrea, you may begin.

Andrea Guerrero -- Investor Relations

Good morning, and welcome to Bachoco's fourth quarter 2020 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. 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 statement discussed in this call. Except as required for applicable law, Industrias Bachoco undertakes no obligation to publicly update or revise any forward-looking statement, 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 2019 in Mexican pesos. As a reference, the exchange rate as of December 31, 2020 was 19.95 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.

Rodolfo Ramos Arvizu -- Chief Executive Officer

Thank you, Andrea, and good morning, everyone. 2020 has been a challenging year in every shape and form. And for that, I would like to express my sincere gratitude to all team members of Bachoco industry. Not only because of their commitment in producing and delivering high-quality products, but also by doing it safely in accordance with the protocols established by the respective authorities.

It is because of their great performance that we were able to bring proteins product to the table of our consumers every day when they need it. The most under conditions that require from us to quickly adapt to the new reality, while making adjustment in our facilities in order to avoid significant disruption due to the health risk, and I think we have been doing it right.

As a result of this volatile environment, carefully reading the changes in demand was key. With better understanding of our customers' needs allowed us to enter the fourth quarter of '20 with a better balance between supply and demand, which ended up in a strong sales for that period.

The condition mentioned above allowed us to reach a net sales of MXN18,328.6 million for the fourth quarter of '20, which is 21.1% higher when compared to the same period of 2019. From that increase, 16.6% was due to the higher net sales in poultry and 4.5% due to higher sales in others. For the full year of 2020, our sales totaled MXN68,791.3 million, which is 11.6% higher than the total sales reported in the same period of 2019. This result integrated the sales of our recent business arrangement with SASA for the second half of 2020.

Regarding our cost of sales, during the fourth quarter of '20, we started to observe some of the negative impacts of the increase of the raw materials prices in dollars and in peso terms. However, efficiencies in our productive process allowed us to partially offset those effect. At the end, our cost of sales was higher 9.9% for the quarter and 11.9% for the full year.

Especially in this challenging time, we remained focused on being very efficient in our SG&A deployment. For the fourth quarter of '20, we reported an expense of 8.8% of our sales. This rate is lower when compared to the 10.4% reported in the fourth quarter of '19. For the full year of 2020, our SG&A rate was 9.3% versus the 9.9% of the same period of 2019.

With that, we reached an EBITDA of MXN2,451.3 million for the fourth quarter of 2020, higher than the MXN511.1 million of the -- fourth quarter of 2019, with an EBITDA margin of 13.4% and 3.4%, respectively. And for the full year of 2020, we reported an EBITDA of MXN5,646.4 million and MXN5,263 million for the same period of 2019, with very [Technical Issues] margins year-over-year, 8.2% and 8.5%, respectively.

Despite the challenges and uncertainties that 2020 brought, Bachoco kept its commitment with the -- with its stakeholders as we continued investing both in Mexico and in United States. We reported a capex of MXN2,305.9 million for 2020, which is 11.4% higher than the capex of 2019. Again, none of these could be -- have been possible without the commitment of our team.

With that, I will turn the call over to Daniel for a discussion of the financial results. Thank you.

Daniel Salazar Ferrer -- Chief Financial Officer

Thank you, Rodolfo, and good morning, everyone. As a result of the conditions that Rodolfo mentioned before, our Company's fourth quarter 2020 net sales were higher 21.1% for the quarter and 11.6% for the full year versus the respective periods of 2019. For 2020 sales of our U.S. operations represented 28.3% of total sales, which is higher than the 27.5% reported in the 2019. It was mainly a result of the depreciation of the Mexican peso year-over-year.

Cost of sales in the quarter was MXN14,472.3 million and MXN57,711.7 million in the full year of 2020. This represents an increase of 9.9% and 11.9%, respectively. Increases for the quarter were mainly driven by higher raw material costs in US dollar terms, with the negative effect of the depreciation of the Mexican peso year-over-year. For the full year, the main negative impact was related to FX. As a reference, the Mexican peso depreciation was around 7% for the quarter and 11% for the full year when compared to the same periods of 2019.

Gross profit for the quarter was MXN3,856.3 million with a gross margin of 21%, an increase of 96.3% over the gross profit reported in the fourth quarter of 2020. For 2020, we reached a gross profit of MXN11,079.6 million with a margin of 16.1%. This amount is 9.7% higher than the gross profit reached in 2019.

Total SG&A for the fourth quarter of 2020 was MXN1,617.8 million, or 8.8% of total sales, compared to the MXN1,701.7 million and 10.4% of total sales for the fourth quarter of '19. For the year, SG&A totaled MXN6,376.3 million, or 9.3% of total sales, compared to MXN6,116.6 million and 9.9% of total sales of 2019.

On the other hand, we had other expenses of MXN128 million for fourth quarter of last year compared to other expenses of MXN74.4 million of the same period of 2019. For the full year, we reported other expenses of MXN439.2 million versus MXN4.7 million reported in 2019. In this line, we recorded COVID-related expenses not applicable to SG&A in addition to the sale of unused assets, as well as [Technical Issues] by-product.

Operating income for the fourth quarter of 2020 totaled MXN2,110.5 million and operating margin of 11.6% [Phonetic], which is higher than the MXN188 million and the 1.2% margin reached in the fourth quarter of '19. The operating income for the full year of 2020 was MXN4,264.1 million with an operating margin of 6.2%, higher than the amount of MXN3,976.5 million reached in 2019 with slightly lower than the margin 6.4% for last year.

EBITDA margin for the quarter was 13.4%, which is higher than the 3.4% EBITDA margin for the fourth quarter of '19. For the full year of 2020, EBITDA margin was 8.2%, lower than the 8.5% reached in the same period of 2019.

In the fourth quarter of 2020, we had net financial expenses of MXN1,168.2 million, which is higher than the MXN192 million for the same period of 2019. Those figures compared to the net financial income of MXN868.6 million and MXN381.3 million for the 2020 and 2019, respectively. The decrease in the quarter was a result of depreciation of the Mexican peso for this year and when compared to the previous quarter.

For 2020, we have -- income taxes were MXN1,430.3 million, higher than the MXN1,125 million in 2019. This was a result of higher operating income reached in 2020.

All the above, led us to a net income of MXN720.3 million for the quarter with a margin of 3.9%. For the full year 2020, net income totaled MXN3,702.4 million with the net margin of 5.4%. Net earnings per share were MXN1.22 for the quarter. And for the full year of 2020, we reached a net income per share of MXN6.12 compared to a net income per share of MXN0.24 pesos and MXN5.33 [Phonetic] for the same periods of 2019, respectively.

Going into our balance sheet, total assets increased 4.1% when compared to the year end of 2019. Our net cash position was MXN16,529.9 million at the end of the quarter, higher than our net cash level of MXN14,254.3 million at the beginning of the year.

Our capex was MXN2,305.9 million, which is 11.4% higher than the amount in the -- in 2019. Capital expenditures in 2020 was oriented [Phonetic] to projects that will enable us to support our organic growth and maintain our facilities at high level of productivity.

With that, I will turn the call back to Rodolfo for final comments. Thank you.

Rodolfo Ramos Arvizu -- Chief Executive Officer

Thank you very much, Daniel. Now we are entering the first quarter of '21 in a good shape in terms of supply and demand, particularly in Mexico. At the same time, in the U.S., we are starting to observe some recovery in commodity prices as well. On the other hand, corn and soybean meal prices in dollar terms, we continue to put pressure in our cost of sales. Having this landscape ahead, we are diligently working to improving our sales mix and being very efficient in our productive processes, both in Mexico and in United States.

Again, having a good reading of our customers' needs and being close to them will be key to keep delivering good results. At the end of 2020, we announced an agreement to invest in RYC Alimentos, which is a meat processor and distributor of mainly of pork, beef and chicken with national coverage that participate in all the distribution channels with fresh and value-added products. This process is currently under the review with the Mexican antitrust authorities. So far, we are focused in fulfilling the authorities' requirements in order to have its approval soon.

Lastly, we will reinforce our commitment with our customers and with the safety of our teams as they are the ones that drives the direction of our business.

With that, we will now take your questions.

Questions and Answers:

Operator

[Operator Instructions] All right. And we do have our first question from Miguel Tortolero.

Miguel Tortolero -- GBM Grupo Bursatil Mexicano -- Analyst

Hi. Good morning, Rodolfo, Daniel and team. Congratulations on the results. I have two questions. The first one is on 2021. I mean, we saw 2020 with mix signals, a weak start of the year and then an outstanding recovery in the second half, which as you mentioned, has to do with more rational supply. So entering 2021, on one side, you have the strong chicken prices that apparently have continued during January. And on the other, you have the strong increase in grain, in grain prices that you just mentioned. So how are you foreseeing 2021? First, in terms of prices -- chicken prices and the supply demand dynamics in Mexico? And secondly -- and probably will be too early to say, but also profitability? And then I'll wait to ask the second question.

Rodolfo Ramos Arvizu -- Chief Executive Officer

Well, the first one, you are right. 2020 was a very difficult year with a swing -- the second quarter, which normally is the best one, this -- the 2020 was the worst. And third normally is a bad quarter, this year it was a good one. We started this year with a very good balance between supply and demand. So I can say the prices have been firm in that regards.

About the cost of the raw materials, you're right, we have a very important increase in corn and soybeans -- soybean meal. And it's going to put some pressure in our cost. But what happened in the fourth quarter, and we keep that trend in the first quarter of this year, we offset part of that increase with productivity. For instance, our total cost of our feed increased in the fourth quarter around 10% and our total cost of live production was around 6% -- 6.5%. So, we could offset part of that increase with productivity. And we are going to keep that way in the -- for the first quarter of 2021. We are expecting a better than the last year's second quarter, because normally the second quarter is a good one. But who knows, it's going to depend of -- again of the demand, the size of the demand. We are expecting for the second quarter to have a more normal situation and expect, let's say, a normal second quarter. I don't know if I answered your question, Miguel?

Miguel Tortolero -- GBM Grupo Bursatil Mexicano -- Analyst

Yes. That is clear, Rodolfo. The second one is on your pork business. In here, I would like to better understand your expectations of this business line and how capital intensive should be going forward? I mean, with the SASA deal and now the pending RYC deal, pork has clearly become a priority for capital allocation at least in Mexico. So I would like to better understand here, what's the potential you see in this market? And how would you say that Bachoco pictures itself within this market in, let's say, 10 years?

Rodolfo Ramos Arvizu -- Chief Executive Officer

Well, as you know, SASA was one of the first companies to export to Asia many, many years ago. So, because of the lack of supply, they were -- the growth of this company was a little behind of the market -- the total market. So right now we have a very important opportunity to expand that capacity, because the plant have -- right now have some idle capacity. And we are going to invest in production, in live production, to full -- to run at full capacity. And the main market, it's the export market, mainly Japan, United States, some countries of Asia, China, obviously. And in the domestic market, our strategy is to develop value-added products. We have a lot of opportunities, a lot of synergies that capitalize with distribution centers, with the supply chain of Bachoco. So we are very pleased with this -- with the weight on this business is taking.

Miguel Tortolero -- GBM Grupo Bursatil Mexicano -- Analyst

Thank you, Rodolfo, and congrats again for the results.

Rodolfo Ramos Arvizu -- Chief Executive Officer

Thank you very much, Miguel.

Operator

And we do have our next question from Hector Maya.

Hector Maya Lopez -- Santander -- Analyst

Yes. Hello, can you hear me?

Rodolfo Ramos Arvizu -- Chief Executive Officer

Yes.

Hector Maya Lopez -- Santander -- Analyst

Hi. Thank you very much for taking my questions. So the first one is, if you could give us some color on how the channel mix has changed versus the third quarter? And what is it that you are seeing in the traditional channel versus a modern channeling in this first month of 2021?

And the second question is, the share is below six times EBITDA for 2021, it's been close to five times. So your cash position is close to MXN800 million, which is 40% of your market cap. And so have you been considering going private? I mean, take some leverage to take advantage of its cheap valuation? And if not, why not?

Rodolfo Ramos Arvizu -- Chief Executive Officer

I'm going to -- Daniel, can you help me with that question?

Daniel Salazar Ferrer -- Chief Financial Officer

Yes, Rodolfo. Well, of course, at this level, it's an opportunity to look at, but we don't have any decision on that regard. Of course, we have a priority to invest our money in our growth strategy, not only in organic growth, but also in inorganic growth. So, for that reason, we are very actively looking for opportunities not only in Mexico, but also outside Mexico.

Rodolfo Ramos Arvizu -- Chief Executive Officer

And regards -- the first question is, you are talking about chicken, the mix of chicken and the traditional and modern channel in chicken, am I right, Hector?

Hector Maya Lopez -- Santander -- Analyst

Yes. Of course, yes.

Rodolfo Ramos Arvizu -- Chief Executive Officer

Well, in the second -- the second quarter was very tough for the traditional market. And we saw an increase in the retail market because of the panic purchasing that occurred in that quarter. And with the shutdown of the foodservice restaurants, the dining -- mainly the dining restaurants and tourist destination, the hotels, we saw dramatically reduction in the consumption of -- in that particular channel. But in the fourth quarter, we saw a more balanced demand in all the channels. The live market outperforms. The public markets was very good. It's amazing, but all the groceries [Phonetic], the quick service restaurants like KFC and other customers, they recovered, and even they grew against the same period of the last year. So the recovery on that channel was very good, institutional channel and the traditional channels. So right now I can say that the demand of those channels are in balance.

Hector Maya Lopez -- Santander -- Analyst

Excellent. Thank you very much, Rodolfo and Daniel. Thank you.

Rodolfo Ramos Arvizu -- Chief Executive Officer

You're welcome, Hector.

Operator

And we do have our next question from Ulises Argote.

Ulises Argote -- JPMorgan -- Analyst

Hi, Rodolfo, Daniel, thanks for the space for questions, and congrats again on the results. A couple of questions here on my side. But first, I don't know if I missed this, but did you comment on Miguel's question regarding the expectations for margin into this year that you already have some -- maybe some visibility or some sensitivities there that you could share with us?

And then the second question that I had was related to the industry dynamics in Mexico. Obviously, we've seen the stronger prices, as you have mentioned. But, what kind of has been the recent evolution that you have seen in terms of your own market share? I know you commented on your opening remarks that you're still seeing kind of another good supply and demand equation. But are you seeing any other players being a bit more aggressive in terms of price or in terms of putting more supply into the market? Thank you.

Daniel Salazar Ferrer -- Chief Financial Officer

Okay. The first question, Ulises, I could say that [Indecipherable] at the beginning of the year how well we can perform during the year. Even that we have a very strong beginning, remember that we're facing a very volatile market in terms of raw materials, as well as a very uncertain -- a lot of uncertainties in the economy -- in the Mexican economy for the rest of the year. So it's very difficult to predict. But at least we think we would like to have the same level for the profitability than the previous year at least. And I will leave the second question to Rodolfo.

Rodolfo Ramos Arvizu -- Chief Executive Officer

Thank you, Daniel. The second one, well, the market share this year, as you can see in our release, we grew in terms of volume in 1.9% in our chicken operation, which is -- at least 1.5% of that amount is in the Mexico operation. But I think with that expansion of our production in Mexico, I'm sure that we are going to increase our market share, just marginally. It's a very, very small. Because I think the industry is going to grow around 1%, no more than 1.5%. So I can say that we maintain or increase slightly our market share.

Ulises Argote -- JPMorgan -- Analyst

Okay. That is perfect. Thank you very much, guys. And another one, if I may, maybe this one for Daniel as well. Can you remind us how much of your cash you currently hold in dollars? And how we should think about this going forward, kind of, on the FX impacts related to this?

Daniel Salazar Ferrer -- Chief Financial Officer

Well, we are now around 60% of our cash position in US dollar term. And our work is for just to maintain that level for balance of the year, at least as we face this uncertainly in economic -- market and in the Mexican economy as well.

Ulises Argote -- JPMorgan -- Analyst

Perfect. Thank you. Thank you very much guys for the color and congrats again on the results.

Rodolfo Ramos Arvizu -- Chief Executive Officer

Thank you very much, Ulises.

Daniel Salazar Ferrer -- Chief Financial Officer

Thank you, Ulises.

Operator

[Operator Instructions] We have our next question from [Indecipherable].

Unidentified Participant

Hi. Thank you for asking -- answering my questions. The quick question is -- this is a follow-up to the second question somebody asked about the valuation of the Company is being cheap relative to how well your capitalized. And I understand that majority of the capital you're inclined to invest in subsequent businesses. I was wondering the results of the subsequent business investment, is it going to substantially improve relative to the stock repurchase programs that you haven't announced anything like in last 10 years? How do you think about the capital allocation of repurchase in the stock versus increasing the businesses over time? Thank you.

Rodolfo Ramos Arvizu -- Chief Executive Officer

Daniel?

Daniel Salazar Ferrer -- Chief Financial Officer

Well, as I mentioned before our priority is to use that cash for our growth strategy. So we don't have any interest right now to have a different capital allocation. Of course, it's something that we are evaluating. It depends on how the market is performing. But right now, our priority is to continue growing organically and inorganically.

Unidentified Participant

Okay. Thank you.

Daniel Salazar Ferrer -- Chief Financial Officer

You're welcome.

Rodolfo Ramos Arvizu -- Chief Executive Officer

Thank you.

Operator

And we do have our next question from Pablo Abraham.

Pablo Abraham Peregrina -- BBVA Mexico -- Analyst

Hello! thank you for your time and congrats for the good results. This is more like a long-term question. How do you see the corporate structure [Phonetic] once the latest acquisition is approved? Because right now all those is more than 11% of total sales. And when you include rate element of that, this will probably reach like 15%. Are you seeing, like, I don't know, Mexican poultry, U.S. poultry, others, and I don't know, Mexican beef, Mexican pork? What are your thoughts regarding the -- your corporate structure in the medium and long-term? And also are you planning to give more disclosure of the latest acquisitions this year or what could we expect regarding this topic? Thanks.

Rodolfo Ramos Arvizu -- Chief Executive Officer

Well, can you help me with that, Daniel?

Daniel Salazar Ferrer -- Chief Financial Officer

Yes, sure. Over the long-term, we would like to have at least 20% of other poultry [Phonetic]. Also, this is only for our Mexican operation, because outside Mexico, there is a lot of opportunity as we have -- we search in poultry. So it depends on how fast with poultry consolidation in other countries could be, so the mix could change in the future, but at least we would like to have 20% of -- or above in other poultry.

Pablo Abraham Peregrina -- BBVA Mexico -- Analyst

Okay.

Daniel Salazar Ferrer -- Chief Financial Officer

On talking about our last acquisition, we cannot share any additional information, because we are under the review of antitrust authorities. What I could say is that we are very actively looking for the closing of this transaction. So we hope that in the next quarter, probably we could have some news on that regard and we could share additional information of course.

Pablo Abraham Peregrina -- BBVA Mexico -- Analyst

Okay. Thanks.

Daniel Salazar Ferrer -- Chief Financial Officer

You're welcome, Pablo.

Rodolfo Ramos Arvizu -- Chief Executive Officer

Thank you.

Operator

And there are no further questions at this time.

Rodolfo Ramos Arvizu -- Chief Executive Officer

Well, thank you everyone for joining us this morning. If you have any further questions, please contact our Investor Relation area, who will be glad to assist you. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 32 minutes

Call participants:

Andrea Guerrero -- Investor Relations

Rodolfo Ramos Arvizu -- Chief Executive Officer

Daniel Salazar Ferrer -- Chief Financial Officer

Miguel Tortolero -- GBM Grupo Bursatil Mexicano -- Analyst

Hector Maya Lopez -- Santander -- Analyst

Ulises Argote -- JPMorgan -- Analyst

Unidentified Participant

Pablo Abraham Peregrina -- BBVA Mexico -- Analyst

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