Eletromidia SA
BOVESPA:ELMD3
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Good morning, ladies and gentlemen, and welcome to the Eletromidia earnings conference call to discuss the second quarter of 2023. Would like to share some instructions with you before we get started. Should you need simultaneous interpretation, please click on the globe icon at the bottom of the screen and choose Portuguese or English.
The video and the presentation of the video conference will be made available on the company's IR website, ri.eletromidia.com.br and on the CVM after the end of the trading session [Operator Instructions]
We'd like to inform you that forward-looking statements are subject to risks and uncertainties, which may cause these expectations not to come to pass or to be materially different from our expectations. These forward-looking statements are based on the beliefs and assumptions of the company on the date they are made and do not need to be updated.
With us today, we have Alexandre Guerrero, our CEO; and Ricardo Winandy, our CFO and IRO. I now would like to turn the floor over to Mr. Guerrero, who will start the presentation. Mr. Alexandre, please, you may begin, sir.
Good morning, everyone, and welcome to our earnings call. We're going to be discussing our second quarter 2023.
A lot was done in this period. We had new projects and we have accelerated our strategy to continue to grow through the core expansion. Technology has driven our conversations internally and externally, be it in developing our ads platform in developing solutions to the problems of the cities and in building bridges to tap into markets that are not yet explored, or through AI as a new tool for conversations in our Buildings vertical.
We have had a good increase in revenue in our results compared to the second quarter of 2022, and that's well in line with the seasonality expected in our segment. Our revenue was BRL 112 million. And we have started now reaping the fruit from the strategies that we have employed focusing on better sales quality and more accurate and assertive sales. Ricardo Winandy will flesh out with more details -- will flesh that out with more details.
We had BRL 408 million in revenue in the first half of the year, a 19% increase year-on-year. And our EBITDA was BRL 100 million. That is a significant increase of 88% year-on-year. This is a very strong quarter and a second quarter that is in line with the first quarter, and the first half of the year is well in line with our expectations.
A campaign that really had a lot of impact in this quarter, and most of you have seen it probably is the Guarded Bus Stop, or Abrigo Amigo, the friendly shelter, as we like to call it. This is a project that was awarded the Golden and Silver Lions in the Cannes Festival, and it's very important to our industry that is being seen in the whole globe.
With the ALMAP BBDO, we have created a technology to address one of the main social challenges in some of the cities of the country. Being unaccompanied at a bus stop in the middle of the night is difficult for anyone, but it's particularly difficult for a woman. Using our digital shelters equipped with microphones and cameras and with access to the Internet, a sensor will recognize when there's only a woman alone at the shelter. And you can have a call with a professional who will be keeping that women company until the bus has arrived, increasing security levels and making the person who is waiting for the bus alone more comfortable, especially if you're in a deserted place. We're working to expand this initiative, counting on the sponsorship by major brands so that we can have security and company provided at different bus stops in different cities of the country.
[Technical Difficulty]
Major events will always transform how cities work, and as for companies like ours who joined this conversation [indiscernible] we've got big news to share with you. As of this year, we will be partnering up with Formula 1 in the season 2023. Already, we're starting [indiscernible] Grand Prix Sao Paulo. Sao Paulo Grand Prix is
[Technical Difficulty]
to bring in innovation and creativity and to transform the cities.
Now speaking of technology, we can see the data continues to transform our industry too. And that allows us to provide more interesting opportunities to the brands and to the agencies in the advertising market. Our data lake allows us to generate metrics with over 600 interest filters. So each campaign can be much more accurate. And in the second quarter, we launched a feature of the creative sense, we can now upload media. So the agents and agencies and advertisers can be much more independent, they can create their own campaigns and they can send the creative content and adapt the communications as quickly as they need to. So you can replace artistic pieces any time in the day directly on the platform.
Still talking about technology, we have launched, using AI, a platform to automate communication in elevators. And with that, everything becomes simpler. The layout is ready, and it's very, very easy to use. Try and imagine how much easier it will become for those who are in charge of communication and buildings. And in less than 2 months, we have had over 16,000 communications created through this platform. So that shows how much potential this innovative solution has and how efficient it can be.
And lastly, during this period, we also had significant progress in our platform for SMEs. We have developed the platform with new features, and what got us more excited is that we have now reached BRL 1 million sold for small and medium businesses. This is really a major achievement. This SMB market was untapped before by the out-of-home market -- by the out-of-home segment. And this validates the demand for our product and shows that our platform can be used and it shows that we are on the right path. This is a total addressable market of BRL 25 million in Brazil.
And the Brazilian [indiscernible] agreement with Globo. Globo had 10.7% of our share. Now holds 19.2% of our capital. We are absolutely positive that this new partner is certainly going to contribute a lot to the discussions on our Board and our Strategic Business Committee.
I'll now turn the floor over to Ricardo, and he will flesh out with figures the results that we had in the second quarter 2022. Ricardo, over to you.
Thank you, Guerrero. Hello, everyone. Good morning. Thank you for joining our conference. The results we had in the second quarter continue to show that we had very good results compared to 2022. We had an increase in all of our indicators in spite of the very challenging macroeconomic scenario.
We had BRL 212 million in gross revenue in the second quarter, and we totaled BRL 408 million in revenue in the period, a 19% growth year-on-year with a highlight to the Streets and Buildings verticals. We have now contracts with better margins, and we have employed better cost control. So we now have BRL 50 million in EBITDA totaling the year with BRL 101 million with a margin of 27% and a result, 88% higher than 2022.
With that, we had a net profit of BRL 37.4 million in the quarter, but in the half of the year, in the first half, almost 36x more than what we had in the first -- in last year in 2021 in the first half and with the 10% year-to-date figure. That is 5.2x grower -- greater year-on-year, at [ a level of BRL 59 million ] before interest rates are paid -- before interest is paid.
Now speaking about our advertising assets in general, we had 64,200 panels. 46,000 of which are digital. That is an increase of 500 new assets year-on-year, especially digital ones. And in the streets, we had almost 700 new digital panels in comparison to 2022, and that allowed for a national network close to 1,200 digital totems. That is a 15.5% increase in the last quarter alone. That is an effort that had already started in the last quarter last year, installing new assets, especially in Porto Alegre and Campinas, the new concessions, then also the clocks in Recife as of this year and the new shelters and street clocks with the new concession we got in Salvador starting this quarter.
This also shows the rollout of our new partnerships with the bicycle sharing initiatives, especially in Brasilia, and the newest installations we had in the city of Curitiba. Considering our growth in the streets and the improvement of our entry in the main locations, we had reduced static assets in regions that lower demand. commercially speaking, especially in street shelters in Sao Paulo aiming to reduce costs in the maintenance of our shelter for bus and also improving our margins.
We had an increase -- or pardon me, a reduction of 167 assets, right, 700 -- within an increase of 700 digital ones, 2.3x the number we had in 2022. In buildings, we had 30,900 screens with a 9% increase in the installations of buildings in elevators, especially residential buildings. This is still a greenfield and a broad one, in spite of the accelerated rhythm of installations we have had since 2021.
In shopping malls, we had an organic growth of 10 major formats, nationally speaking, and we had 3,300 new digital assets installed in the past 12 months. And lastly, transports. We had the reduction of some assets because we have finalized 2 new contracts -- 2 gold contracts from 2022. We're now focusing on projects with better margins and considering our product mix based on the cities, considering also new concessions in street furniture.
When you look at our sales performance, we had BRL 408 million in revenue in the first half, 19% higher year-on-year, totaling BRL 940 million revenue in the past 12 months. We're at BRL 112 million in the quarter. And when you compare it to 2022 with the consolidated acquisitions and with the more normalized audience, we see a 32% increase in the Streets vertical, also 32% increase in Buildings and 27% in shopping malls, with a reduction in the Transport vertical mainly due to the discontinued contracts, as I have just mentioned.
Excluding the effect of these discontinued contracts, we had an increase or a growth of 18.7% in the second quarter. We had, in the whole first half, BRL 408 million in gross revenue, 19% higher than in 2022, especially due to the performance we had in Buildings and street furniture verticals.
The Streets vertical now accounts for 46% of our total revenue in comparison to about 25% last year. This performance is a result of the consolidation of the investments we have had in this period, including the new concessions digitization of the asset base with the acquisitions we had, and also the fact that we're becoming more important, more relevant with a national digital network. That's absolutely unprecedented for advertising in the segment.
And in Buildings, we had the second largest vertical in the first half of the year, 32% higher year-on-year. And we have BRL 79 million in revenue in the period, 19% of our total revenue. Excluding the discontinued contracts that account for the Transport revenue, we see a 42% increase in the first half, or 23%, including the pro forma figures, including -- or considering the pro forma figures, including acquisitions.
The out-of-home segment has clear seasonality, and the second half of the year has better results than the first half of the year, especially the last quarter of the year having the best results. The first half of the year generally accounts for about 40% of the total revenue of the year.
We see an increase in the last 12 months of 39% compared to the previous period. That's comparable to the whole year January to December 2022, that was BRL 874 million. We see an improvement of 4 percentage points in the quarter for our EBITDA and EBITDA margin and 9 percentage points in the first half, getting to BRL 101 million in EBITDA in the first half with a margin of 27% compared to BRL 54 million and 18% margin in the previous year. There is an 88% improvement in the general results for the period. That is accounted for by the improvement in our margins and better cost control, also with the expansion of operations and our continuous investment in technology, which is key for the company.
With that, we have reached BRL 299 million in our EBITDA in the last 12 months. We have a 34% margin. That is more than twice as much compared to the previous year. With this result, we see 34% -- pardon me, BRL 34 million in adjusted profit, 5x as much as we had in 2022. And our net earnings in the half is BRL 37 million with a net margin of 10%, BRL 36 million higher than in the previous year in spite of the financial expenses and the increase in interest rates in Brazil.
In the past 12 months, we reached BRL 141 million in our profit with a net margin of 16%, comparable to BRL 36 million in the same period last year. It's almost a 4x increase.
When we analyze our cash generation in this quarter, we see a conversion that is close to 90%, 9-0 for our EBITDA, for our operating generations in cash operations before the payment of interest with BRL 41.1 million or BRL 39.9 million net comparable to BRL 6.8 million in the previous year or 5.9x the number of 2022.
We had investments at BRL 48 million in the quarter, BRL 34.2 million for devices and equipment for the new installations. And we have also had about BRL 8 million related mainly to payments deferred from acquisitions. In 2022, last year, the impact on investments had to do with the upfront payment of the Otima acquisition that was main use we had for our IPO proceeds.
We had, in the quarter, also the loan had a value of BRL 118 million with [ a line for 131 ] to be paid in 3 years. So we have cash at BRL 308 million, net debt of BRL 243 million representing 1.8x the EBITDA over the past 12 months.
So again, this is a quarter with very solid results, in line with the first quarter we had in 2023 with historic growth, and we continue to expand our margins and our operating cash. And now I'd like to turn the floor back over to Guerrero for his final remarks.
Thank you, Ricardo. So first and foremost, I'd like to once again [Technical Difficulty] and reach more people, giving the advertising market unprecedented solutions in out-of-home. We're now connecting better with our audience and giving our business more opportunities. Another important point is our commitment concerning ESG, especially the friendly shelter Abrigo Amigo initiative. This is a clear example of how we can be a responsible company, aware of the climate needs, and we can contribute positively to the city that we are considered in by the climate social needs -- pardon me.
It's rewarding to be part of this project, and I'd like to wholeheartedly thank our whole Eletromidia team, our shareholders, our Board. I'd like to thank you for supporting us in building a better company by the day, focusing on the short term without losing sight of the medium to long term.
We'll now start the Q&A session. And Ricardo and myself will be available to answer whatever questions you may have.
[Operator Instructions] Our first question comes from Bernardo Guttman from XP Investments.
First and foremost, I think -- I mean I'd like to congratulate you for the Abrigo Amigo, the friendly shelter project. It's a very special project and has a very good impact on the city. I've got 2 questions. The first has to do with growth levers that you may have, especially from the capital allocation perspective. After the M&As, the more organic track would seem more logical. So what makes more sense to you, an organic or an inorganic approach to growth? And when you think about inorganic growth, there are many other options when you think about new bids and also the acceleration of the street furniture and the digitalization of some other assets. So how do you see this mix?
And my second question, if I may, has to do with Globo joining your capital structure. The operation has already closed. And I'd like to understand what opportunities you've already mapped out to explore together with Globo. If you can tell us a little bit more about the road map about this project and what we can expect in terms of opportunities and when they can come.
Bernardo, thank you for your question. So about our growth thesis, your first question. When we look at our core expansion, every avenue is still on the table, and they're all quite latent, in our opinion. There are still some options for M&As and we're going to be watching them closely.
And we see that there are new opportunities in organic growth as well and that has to do with our thesis in street furniture. Of course, we want to extract more value of the assets we already have and are less digitized. This is basically what we've been doing since we acquired Otima. New operations are already created in a digital fashion, but we see that not only the payback curve, but also the response of the advertising market when we increase the digital media in the street, that response is really, really quick.
And the Streets vertical is our key vertical. And we have grown and established a very important presence in 10 out of the 11 capitals we're in. And of course, with concessions there are new opportunities. We will try and focus on the medium to long term, that means 6 months to 2 years, and some bids, some concessions, concession bids are already public. And we'll map and try and understand whether that would contribute to all of the aspects that we understand are helping us write the future of our company, considering our geographical presence, our margins, our inventory digitization and the presence in our verticals. We'll look at that and we'll join. So these avenues are very broad. Still, there's a lot of ground to cover in them. And we have been growing with these avenues in the past 10 years. We'll continue to monitor all of these opportunities up close.
Now as for your second
[Technical Difficulty]
that's what we call our SMB platform with billing procurement being very different to Eletromidia ads because we're talking about -- we're talking to a different addressable market, right? I'm talking to a different audience. So that has a lot of our efforts when it comes to technology. A lot of our efforts in technology are focusing on this platform. Our usability tests have worked. The mall platform is ready. We already have 2 major networks being developed. We have a road map for the implementation, and I can't give guidance. We don't give guidance. But by the end of the year, we expect to grow very much in this implementation. And in 2024, we're going to capture value from a key shopping malls. This BRL 1 million figure doesn't cover the mall aspect yet, and we're thus very focused on buildings.
And we're now unlocking new friends, right? This is a -- this is a ship that is sailing and you fix the hole as you need to, as you sail. So this is a virgin market, a naive market for the out-of-home industry, according to references, a BRL 25 billion market, and we believe there is a very strong opportunity for the 5-year
[Technical Difficulty]
Congratulations on your great results. Can you please comment on [indiscernible]
[indiscernible] second half concentrates such as the Formula 1, which is something that we have just announced, the town. We're going to have the first edition in Sao Paulo. We had Rock in Rio every 2 years in Rio until now, Black Friday, Christmas and other initiatives. So all of that really leads us to believe that it's going to be a very good second half of the year.
So we have a very positive expectation for the second half. And we know that a macroeconomic scenario with the interest rates going down, with lower capital costs, so all of that has an impact to make the business environment more favorable. So we are very optimistic. There are signs for a very good second half of the year. We're seeing nothing that should look negative in comparison to our plan. We are excited about the new locations we're operating in, as I talked about during the call, and we're going to be gaining more momentum in the second quarter too. You normally have a cycle of 60 to 90 days between planning and installing and implementing everything. And we are really on track to be able to have a fantastic second half in line with what we had already planned.
Next question comes from Eduardo Rubi from UBS.
Can you give us some more details about the CapEx expenditure, where the expenses have been like concerning maintenance and the cost control that you have mentioned?
Thank you for your question, Eduardo. In the second half, out of the BRL 48 million total investments, BRL 34 million were for new devices to be bought. Out of these BRL 34 million, a substantial part of that has to do with new inventory. It's about 10%. About BRL 4 million was for maintenance and the rest of it for the expansion of the network. And mainly focusing on the rollout of the new concessions. So we have the new clocks in Recife and new clocks and shelters in Salvador and also the continuation of the installments that we have in Porto Alegre and Campinas that consumed part of this CapEx, alongside the continuous expansion that we have had in the Buildings vertical.
Our next question comes from [ Lucas Brendi ] from the Bank of America.
I've got 2 questions actually. The first is, can you give us some color around the adoption of new products? You've been launching new things, especially when it comes to technology. Even when you think about Eletromidia ads, how much of the sales are going through the platform already? And what have you seen in the past months when it comes to this growth?
And as for the new products that you're going into, can you update us on how the rollout stands and what your expectations are for the coming quarters? So all of that would be very good for us to work with our forecast, please.
Thank you for your question. We have about 20% of all of our sales going through the Eletromidia Ads platform. The usability of the platform should reach 100% within the year, which doesn't mean the sales are going to be made through the platform. This is an evangelizing process, right, not only internally, but also externally. We see there is recurrence. The companies and agencies that have used the Ads platform, they really have adopted the tool as a standard tool. They see it as a good way to plan, a good way to find their audience in a much more structured fashion than they used to do before.
An important detail is I presented to you here the increase in creative items being sent, right, the increase in creatives. And this is something that we're building in the market and that's also going to contribute to the use of the platform. The model, and there are many accretive items that we have for campaigns every day, it goes through the OPEC and the OPEC polishes it. And now we're adopting an automated way to do it so that the agencies and the clients can upload it automatically and OPEC will just validate it. So that allows us for growth and scale and then you can have real-time changes made by the agency. We don't have this middleman, the OPEC, actually during the process orchestrating it.
When we look at it internally, which is how our team has been using the ads for the platform, we are about 50% already. Our team is more familiar, better acquainted with the platform, and that will also allow us to [ remay ] the market better. So this is an important year for us to roll out the platform and really believe it's going to be very strong by the end of the year, again, not only internally, but also externally. Ricardo?
As for the rollout of the concessions, so this year, we start installing the Recife clocks, the street clocks, 108 clocks, 316 panels, most of which are digital, and we're going to do most of that in the year of 2023, about 90% still this year. In June, we started installations for the Salvador concession with 300 shelters and 200 clocks. So we have 44 shelters already installed, as we showed you in the presentation, and 60 panels in the clocks. And in 24 months, we hope to achieve the full number of clocks and panels and the shelter for 5 years, of course, for the main locations -- where we're starting with the main locations, I mean.
We're also present in 4 new cities with Tembici this year. We started installations in Curitiba, as we mentioned during the call. And in the next 12 months, we are to conclude the 200 panels that are expected for the project. And we announced our works in Salvador yesterday. We aim to complete installation in the coming 6 months too.
As there are no further questions, we'll now turn the floor back over to Alexandre Guerrero for his final remarks.
I'm glad to share our achievements and initiatives with you. But I'd like to thank our Eletromidia team again for the devotion, and we have worked together to write the present of the company, but also the development -- we're also writing the initiatives that will allow us to get to our future. The out-of-home industry continues to be very efficient and continues to grow in every indicator. The second quarter is in line with our expectations with a high volume of opportunities in businesses. And our whole IR channels -- or all of our IR channels are available to answer any questions you may still have after our call.
Thank you very much. Have a great day. It's a pleasure to be here with you once again.
Thank you. Have a great day.
This is the end of the Eletromidia earnings video conference. Should you have any inquiries, please send your question to the IR team at ri@eletromidia.com.br. Thank you very much for joining the video conference. Have a great day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]