Arcos Dorados Holdings Inc.

Good morning and welcome to the Arcos Dorados first quarter 2019 earnings call. A slide presentation will accompany today's webcast, which will be available in the investor section of the company's website, www.arcosdorados.com backslash IR. And as a reminder, all participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. And today's conference call is being recorded. At this time, I would like to turn the conference call over to Patricio Esnalala, Director of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining our earnings call. With me on today's call are Sergio Alonso, Chief Executive Officer, Marcelo Raba, Chief Operating Officer, and Mariano Tannenbaum, Chief Financial Officer. Please turn to slide two. Before we proceed, I would like to make the following safe harbor statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statement section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with generally accepted accounting principles, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial results as compared with GAAP results, which can be found in the press release and audited financial statements filed today with the SEC on Form 6-K. Our discussion today excludes the results of the Venezuelan operation, both at the consolidated level as well as for the Caribbean division, due to the differences in the exchange rate and inflation in the country. For your reference, we include a full income statement excluding Venezuela with our earnings release. I would now like to turn the call over to our CEO, Sergio Alonso.

Thank you, Iñaki. Good day, everyone. and thank you for joining us today. Please turn to slide three. Last year, we expanded our margin at a faster pace than we projected, delivering 90 basis points of margin expansion. Having built in significant operating leverage in our business, we turned our attention to top-line growth, particularly in our largest market, Brazil. However, we have not lost sight of our commitment to deliver an additional 10 to 110 basis points of EBITDA margins within the next 18 to 24 months. As you may recall, we committed to 100 to 200 basis points expansion at last year's investor day for the period. During the remainder of the year, we expect to expand our margin further as we accelerate sales growth. At the end of the fourth quarter, we began executing strong marketing and promotional campaigns, which continued during the first quarter. We indicated this would result in stronger comp sales beginning the year. consolidated comparable sales group 10% on top of 9.8% in the prior year's first quarter. Excluding Venezuela and Argentina, both hyperinflationary economies, comp sales would have been 1.6 times blended inflation, a healthy growth rate. Our adjusted EBITDA in constant currency terms increased 6.5% in the first quarter. This growth was consistent throughout the quarter and in many of the markets of each division. Furthermore, we are maintaining this momentum in the current quarter and expect it to continue for the rest of 2019. Of particular note, in Brazil, Comp sales increased 6.8% well above inflation. In SLAD, outside of Argentina, we're seeing significant improvements in each market. These are countries with stable and growing economies, and they're acting as a counterweight to our business in Argentina, which continues to face strong macroeconomic headwinds. In Chile, for example, we have a very strong leadership position. Year after year, our results in these countries have been improving, and we've been gaining share for some time now. We expect the counterbalancing benefit to continue this year. In NOLA, we remain focused on increasing sales and guest counts. We deliver our eighth consecutive quarter of sales growth in Mexico, despite the Easter holidays being outside the first quarter, unlike last year. Sustainable growth across the company is being driven by accelerators that includes delivery, mobile, and EOTF, which comprise our omnichannel approach in our market. McDelivery is now available through 45% of our restaurants and drives up approximately 70% of incremental sales. Our mobile channel, combined with digital menu boards, self-ordered kiosks, and enhanced repayment technology for drive-thrus represent a powerful technology ecosystem. These channels significantly enhanced the guest experience and strengthened brand loyalty in addition to generating sales lists. The complete digital experience is embodied in our EOTF restaurants, not just the menu boards and customers ordering via kiosks, but digital table entertainment and our playlands as well. The McDonald's app plays an integral role in communicating with our customers in the way they want to engage with us. With over 24 million downloads today, our app is by far the most downloaded in the entire food and beverage segment in the region. I noted Chile and the growth were tapping there. Starting this year, we began extending EOTF to the country. This most recent rollout reflects our agility as a business and the flexible approach we take to capital allocation. In other words, we direct our investments toward those markets within our vast geographic footprint that have the most growth potential. Marcelo will update you on our EOTF landscape today, but I would like to emphasize here that they generate safe lift beyond the first year of operation, in addition to strengthening our competitive position. Another important source of growth is our research centers. We are the leading dessert brand in the region, with the most sales of ice cream in the broader food segment. Along with macafes, our dessert centers are also powerful brand extensions. Arcos Bananos is proud to operate under the McDonald's brand, which continues to strengthen in the region. Based on our ongoing research, we remain the number one QSR brand in the vast majority of our territories. In April, Folio de São Paulo, one of Brazil's leading newspapers, named McDonald's the top preferred restaurant brand in the state of São Paulo. This state is by far the most populous and represents approximately one-third of of Brazil's total GDP. This was the second year in a row that our brand was ranked at the top, and also the gap between us and the nearest competitor widened versus last year. Keep also in mind that we have multiple standalone brands, not just the Big Mac. For example, this includes McFlurry, and the signature collection among many other leading product brands that are important brand extension platforms. Marcelo will also discuss how we are extending our signature collection brand. Translating our brand is also being the most sustainable restaurant company in Latin America. Equally important, we are the most socially beneficial as the largest formal employer of youth in the region, among other important contributions to society. This is a key brand differentiator across our markets, and we believe that this kind of commitment will only become more important among future generations as they choose the brands that matter to them. In addition to featuring sustainable beef in our menus, as well as other important food certifications, we maintain multiple sustainability programs in the areas of water and energy savings in our restaurants. We're also piloting innovative projects with regard to paper, plastic, and waste. And most recently on the social front, The Global Council of Corporate Universities, the most prestigious entity in this field, recognized Arconforados for having one of the best corporate universities. Each year, we host over 1,000 managers and provide online courses to over 50,000 employees. Also, for the second year in a row, we earned the number two spot as the best employer in Mexico, as ranked by top companies. Returning to our first quarter performance, it is sustainable, with growing markets in each of our divisions, counterbalancing countries that are currently facing headwinds. In Brazil, first quarter momentum continues with the strong marketing calendar we have in place. And we will also have each year comps, as you know, given the trucker strike in the second quarter of last year. In SLAD, Argentina's macro environment continues to be very difficult. While our numbers are better than reports from the Association of Medium-Sized Retailers, It is a challenging environment nonetheless. But we continue to do very well in the rest of the division. And we also expect to maintain our strong sales momentum in NOLA, particularly in Mexico. In Panama and Costa Rica, we're seeing improved sales with implementation of a new affordability platform that is resonating strongly in these countries among others. Marcelo will also expand on this platform. So with that, Marcelo, the call is yours.

Thank you, Sergio. Please turn to slide four. With digital tools and delivery now playing an increasingly important role in our business, our omnichannel approach to serving guests is contributing significantly more to growth. A technology-enabled approach is no longer just about supporting our business. It is consistently driving incremental sales, as well providing seamless, customized experiences for our guests. Our mobile app, innovative payment system for drive-thrus in Brazil, as well as digital menus and kiosks, are among the modern service features that create memorable experiences with our brand. Our EOTF restaurant environments are driving sustainable growth. For EOTF restaurants in operation over 12 months, average sales lift continues to be in the mid-single digits. Contributing to this lift are self-order kiosks, which now represent around one-third of in-store transactions. The higher level of average check generated by these kiosks is also consistent with increases across the McDonald's system. As an investment, EOTF is delivering above our initial expectation. That's why we are rolling out this format in Chile this year. Chile is the fourth market in which we have introduced EOTF, and as Sergio noted, we see strong growth opportunities in this country. At the end of the first quarter, we had 349 EOTF restaurants in operation, and we remain on track to reach our target of 650 by the end of this year. Delivery is another additive sales channel. Our dominant footprint, reach and scale, provide us with a substantial competitive advantage in this space. Because of these distinct advantages, delivery has been a highly successful initiative since we launched this service. McDelivery is now available in 11 markets, with almost 1,000 restaurants serving as a platform. To give you an idea of the size of this business, on a run-rate basis as of March, delivery had reached the sales level of our business in Panama. We believe there is a lot more room to grow through this channel, and we are working with various partners such as Uber Eats, Rappi, iFood, and Glovo to raise awareness of this service. Our reach includes the McDonald's app, which, as Sergio said, is not only the most downloaded app in the food and beverage space, but it is now on some 7% of internet-connected smartphones in Latin America. The drive-through experience is also an important differentiator for McDonald's in the region. The partnership with Semparar, which we announced during our previous earnings call, has been extended to all of our freestanding units in the state of Sao Paulo, or approximately half of our freestanding restaurants in Brazil. This hands-free payment technology via customers' card toll passes is a convenience that is increasing average check by more than 20%. Along with our EOTF restaurants, Cultura de Servicio continues to enhance the guest experience, improving both customer and employee satisfaction levels. Customer satisfaction scores have been improving across all categories. from speed of service to friendliness to accuracy of orders. In March, the percentage of customers who said they were very satisfied with their experience reached its highest level, which was 70% on a consolidated basis. Employee satisfaction plays a crucial role in customer satisfaction, of course. In Brazil, for example, Cultura has reduced turnover and absenteeism by nearly half over the last three years, which contributes to efficiency gains. In addition to the overall guest experience, our menu plays a key role in what keeps bringing customers back to our restaurants. We recently extended our signature collection to our dessert menu, with the initial launch in Argentina last month. In addition to the revenue potential, we believe this will help us to extend our lead as the top dessert brand in the region. Also during the first quarter, we added core items to our affordability platform in most of our markets to make this menu more relevant to our customers. This initiative is related to our efforts to drive top-line growth, which Sergio discussed earlier. Evolving the menu and aligning our interests with those of our customers is fundamental to our relationship with them. And so, we believe it is the right thing to do for McDonald's to lead the way among QSR restaurants in Latin America to promote healthier eating habits. As a result of our efforts, we are gaining recognition and endorsement from key medical and health organizations throughout the region. As an example, at the end of last year, the Inter-American Society of Cardiologists endorsed our adoption of a new nutrition policy for our children's menu, the Happy Meal. We look forward to updating you on these initiatives as we continue to make progress. Please turn to slide 5 to review our progress on restaurants and brand extension openings. Total restaurant openings during the last 12 months were 69, of which 25 were freestanding units. In Brazil, we opened 44 restaurants, while in Zlat and Nolat, we opened 8 and 16, respectively. We also opened 384 dessert centers across the region. Now, I'll turn the call over to Mariano. to discuss the details of our quarterly financial and operating results. Thanks, Marcelo. Please turn to slide six.

We had a strong start to the year, which gives us confidence in our ability to balance growth and profitability. As a result of our successful marketing strategy, in this quarter we achieved comparable sales growth of 10% in line with our blended inflation and also on top of a very strong first quarter 2018. It is also important to highlight that if we exclude Argentina, which as you know, continues to face significant macro headwinds and high inflation rates, comparable sales would have reached 1.6 times our blended inflation. This was mainly driven by solid performance in Brazil, Chile, Peru, Panama and Mexico. While last reported revenues continued to be impacted by the sharp depreciation of our key currencies, we expect this trend to ease in the coming quarters, as the significant depreciation of the Argentine peso and the Brazilian real took place in the second quarter of last year. Additionally, Analyst consensus estimates for the current macro effects projections for these countries supports our expectation. We also anticipate easier comps in Brazil, where a tracker strike in 2018 significantly impacted Q2 consumption across the board in that market. Now, let's move to our cost structure and profitability on slide seven. Our marketing strategy which boosted traffic and sales in our main markets, affected our product mix during the quarter. However, we were able to mitigate the impact in gross margin with efficiencies in payroll and other fixed costs. Thus, we saw no impact in our adjusted EBITDA margin, which remained stable at 8.5%. Adjusted EBITDA in dollar terms decreased 9.2% as already mentioned, impacted by the depreciation of our main currencies and increased 6.5% in constant currency. Expanding on our cost structure, in addition to changes in mix, we faced some cost inflation pressures primarily coming from NEET in Argentina. Other expenses, as a percentage of revenues, increased as we expanded delivery and was also impacted by rising utility costs primarily in Brazil and Argentina. We achieved savings in payroll costs in all our divisions. Increasing productivity continues to underscore our efforts in driving down payroll as a share of revenues. All of this is done while increasing customer satisfaction. Finally, Our G&A expenses decreased by $6.2 million in absolute terms and remained stable as a percentage of revenues. Moving to the bottom line on slide eight, we generated $14.5 million of net income during the quarter compared to $13.6 million in the same period last year. Net interest expense was $2.2 million lower year over year and we reported better non-cash foreign currency exchange results and income tax expenses versus last year. Please, turn to slide 9 and 10 for more details on our divisional results. In Brazil, as we anticipated, we are now starting to see the full impact of our shift towards driving strong top-line growth. In this quarter, we achieved comparable sales growth of 6.8% well above inflation and approximately double our segment as measured by the Food Service Institute of Brazil. In addition to the strong marketing campaigns we have been executing since the end of 2018, traffic growth was also driven by the rollout of EOTF, the expansion of our dessert centers and the continued growth of our delivery channel. Moving to SLAD, comparable sales increased 23.6% below the division's splendid inflation. Traffic was impacted by the weak consumer environment in Argentina. By contrast, we are very encouraged by the results we are seeing in Chile, Ecuador, and Peru, all posting comparable sales growth well above inflation. Particularly in Chile, in this quarter, we posted a record high in traffic and we expect this trend to continue as we roll out our EOTF initiative in this country. These markets are gaining more share within the division with 50% of the revenues now being generated outside Argentina. In NOLA, we continue to report solid results with comparable sales growth of 3.9% well above blended inflation and mainly driven by average check growth. Both Panama and Costa Rica contributed to traffic growth. Momentum continues in Mexico, where we delivered our eighth consecutive quarter of strong comparable sales growth, despite the impact of the Easter holiday shift from March last year to April this year. Top-line growth in the Caribbean was affected by tough comparisons against last year. In the first month of last year, we experienced a boost in sales due to the blackout that affected a significant number of households following Hurricane Maria, resulting in increased eating out. As electricity was restored, eating habits went back to normal. Finally, In terms of profitability, we achieved adjusted EBITDA margin expansion in Brazil and the Caribbean, which was offset by the performance of our SLAT and NOLA divisions. Please turn to slide 11. On the back of better results and lower working capital needs, we continued to improve our operating cash flow. Due to this strong cash flow generation, we have been able to accelerate our CAPEX program while keeping a strong balance sheet. Along these lines, we ended this quarter with a net leverage ratio of 1.5 times adjusted EBITDA. This was well below our target range of 2 to 2.5 times. As a reminder, our leverage ratios are calculated using consolidated as reported results. Finally, we remain totally committed to growing our top line that will drive additional margin expansion in the coming years. Our geographic diversification along with our flexible capital allocation strategy are key differentiators. These allow us to mitigate difficult macro headwinds in some of our markets by focusing on those with higher growth potential. That concludes the review of our financial and operating results. Sergio has some additional remarks before the Q&A portion of this call. Sergio, back to you.

Thanks, Mariano. As you have heard, we remain on track to deliver the EBITDA Margin Expansion Committee at our investor day. We're widening the gap in terms of market share across the region with sustainable top-line growth. We have the largest and most comprehensive omni-channel guest experience and the leading brand in the QSR segment. Additionally, we have an agile capital allocation strategy that allows us to focus our investments on areas with the highest growth potential. Taking all together, we have strengthened our competitive position within our region. Equally important to gaining and retaining customer loyalty is our unmatched commitment with the QSR sector to the communities we serve. We're extremely proud of our ability to use our scale for good and believe this philosophy not only resonates with our current customers, but would also resonate with future generations to come. So thank you very much, and operators, please open the call to questions.

Ladies and gentlemen, at this time, we'll begin the question and answer session. If you are using a speakerphone, we do ask that you please pick up your handsets before pressing the keys to ask a question. You may press star and then 1. To withdraw yourself from the question queue, you may press star and two. We also do ask that you please limit yourselves to one question and a follow-up. Please note that you may rejoin the question queue. And again, that is by pressing star and one. Our first question today comes from Robert Ford from Bank of America Merrill Lynch. Please go ahead with your question.

Thank you. Good morning, everybody, and congratulations on the improvements. Of the 349 experience of the future remodelings or reimagings. How many of those were in Brazil? Also in Brazil, there was some even down margin expansion despite delivery and heavier promotional activity. Can you expand on where you're finding those opportunities to improve efficiency or lower food and paper costs? I'm particularly curious about the efficiencies that you're generating from the EOTF concept.

Good morning both.

Out of the 349 restaurants we already have running with EOTF, 274 are in Brazil. We are in a pretty good shape in the market. We've been rolling out for the last year and a half and the results that we are seeing in terms of sales lift are pretty solid. and are improving, and something important is that in those restaurants with more than 12 months of operation, we continue to see meat in the dishes, which is very encouraging, and bring forth the idea that this is the right strategy for us to be as aspirational as possible in Brazil and in the whole region. Maybe Mariano can add something around the margin part of the question. Yes, good morning, Bob. How are you?

Regarding margins, what you first mentioned about despite delivery, please always keep in mind that delivery is a credit in our EBITDA margin for us even though we have a cost and we always mention that in terms of revenues, the line of other expenses increases. Actually, as I mentioned, delivery is a credit for us because we have a whole fixed cost structure that actually doesn't change with delivery, and at the end of the day, it's a very profitable segment for us. Going to the general margin question, actually, we increased sales, and as I mentioned before, with some pressure in the gross margin, but we were very efficient in keeping our food and paper costs under control and growing in line or even below inflation. Also, we have some leverage as well in the payroll line. Actually, that's where we are seeing this margin expansion and that also allowed us to grow sales in the way we had during the first quarter. with some pressure in the mix, but with benefits and leverages on the other lines that I just mentioned.

Fair enough. Thank you.

You're welcome. Our next question comes from Richard Cathcart from Berdesco. Please go ahead with your question.

Hi, good morning everyone. Just a couple of questions from me. Firstly, I just wanted to ask about your expectations for COGS going forward, particularly around the food prices as a result of price increases that we're seeing from African swine fever. Just what your expectations are around that for the second quarter and perhaps more significantly into the second half of the year. Thanks.

Okay, I'm going to give you, Richard, good morning. I'm going to give you a flavor on the first part of the question regarding what do we expect in terms of sales for Q2 and going forward, and then I'm going to tell you the outcomes of that, and also with the strong period as well. Let me give you some more color in going back a little bit when we released our third quarter 2018 results. we mentioned at that time that we were clearly below our expectations in terms of comp sales evolution, primarily in Brazil, obviously, 41%. We said back then that we were obviously expecting an economic scenario that didn't happen, particularly right after the strike and right after the World Cup, and that obviously made us getting results that were clearly below So we changed yours and we changed the approach to our marketing actions towards the end of last year and entering this year. And we also anticipated that the full impact of this change would be in place at the beginning of 2018, which is exactly what happened. And then what's going to happen in Q2? Well, we see this momentum continuing, in fact, accelerating a little bit. uh additionally to the the easier comps that we know we're going to have this quarter because of the uh trucker strike that we have here so so far we're very pleased with the with the results we're getting and important thing that i believe is also appropriate to mention is that it took us probably um a few weeks more than expected but the changes we did but the reality is we always look for long-term sustainable decisions In other words, we didn't want to just simply chase margin expansion or chase volume increase. We wanted to do it in a sustainable way because we still get to get our results, and we need to generate the money we need to support growth. In summary, we're very pleased. The momentum continues into June, and we expect this to continue towards the end of the year. Marcelo?

Yes, going to the stream fever and how we are seeing this situation, well, in fact, we are not seeing any impacts so far. Obviously, we are keeping a close eye on this issue, but it's important to mention that the bulk protein is an extremely low portion of our spend, around 2% of our food and paper cost. This is not a big issue in terms of the participation of this protein in our mix of products. In most of our markets, both prices are determined locally in local currencies based on local supply and demand dynamics. This is not an issue. However, should international supply tighten due to limited availability in Asia, We could be facing costs increased pressure with this pertain in markets where there are sanitary agreements in place because in many of our markets the local production can be exported to Asia. I think that this is not a big issue for us. We are keeping a close eye on this subject but so far no impact to mention. I will let Mariano to talk a little bit about the COGS part of the question.

Yes. Hi, Richard. How are you? In terms of COGS, as I mentioned in the previous question, regarding the food cost, we have been able so far, with some exceptions, to keep our food and paper costs under control, growing in line or below inflation. Another important thing to mention is Our hedging strategy is that we hedge 50% of our food and paper imported costs every year. So far in 2019, we're almost done with the hedging program because we hedged two or three quarters in advance. We only have a small portion of the fourth quarter still to hedge. As I usually mention, this is not a speculative strategy. We just want to have visibility and predictability in our cost structure, but the good news so far is that the hedging we have in place for this year are at this point all below the spots that we are seeing in the main market. have hedges in place for Brazil, Colombia, Uruguay, Chile, Argentina, and Mexico. And these hedges are almost done for 2019 in a successful way. That will give the company predictability in the costs that we will face at least in 2019. Mm-hmm.

Okay, thanks very much for the color there. If I may, just one very quick follow-up. You talked about the pork prices there. So I kind of take from your comments that you haven't seen any increase in pressure on beef protein yet, just as a consequence of kind of tighter supply dynamics feeding through from other proteins into beef, et cetera.

Yeah, that's right. Obviously, we have pricing protocols in place with our suppliers, and depending on the market and the supplier, those protocols are updated quarterly, semi-annually, or annually. But for this year, based on the current information, we do not foresee any pressure coming from from the retains basket that we are buying. So again, we are monitoring the situation, but as of today, we are comfortable with the position we have with our suppliers in our main markets.

Thank you very much. You're welcome.

And our next question comes from Marcel Morris from Santander. Please go ahead with your question.

Hi, good morning, everyone. Congratulations on the results. I'm going to stick to the same subject, the swine fever and, you know, potential impact on COGS going forward. And moreover, I think when it comes to Argentina, because the government implemented a kind of price controls or agreement with key food suppliers, does it have any kind of impact in the Argentinian operations? Is it good for you, the fact that The government is trying to set up fixed prices for, I don't know, hamburgers or meat in general. So what do you think about this price control in Argentina? And when it comes to the swine fever, I'm sorry, I couldn't hear all of your last answer, but do you think it would be... If you could detail a little bit more the way you have been setting up contracts with suppliers. I heard about the hedging strategy, but I don't know if you also have, let's say, a three-month contract with meatpacking companies or something like that. If you could detail it a bit more, it would be very helpful. Thank you very much.

Sure. I'll start with the strong people. I mean, there's not much we can say additional to what Marcelo said. I mean, we have obviously plans at the beginning. Every time we plan for the following year, we sit down with our main suppliers. The big suppliers are obviously the most relevant in terms of spend with them. And obviously, we project volumes, and we negotiate the conditions for the next cycle. Everything that happened so far, we do not foresee major issues in this matter. That is to say, apart from the thing that, as Marcelo said, pork is a protein that is not relevant for us within our product range. It's different from what it is in the U.S. and some other markets that are heavy consumers of pork meat. It's not our case. As you see, we're following up the situation as closely as we can. We have our supply chain team monitoring the situation, but as of today, we don't have any particular risk factor that is concerning us. That's from the swine issue. Then from Argentina, actually, the government did not force any price controls. What they did is they did an agreement with a number of products from several suppliers, but those products are at a supermarket level, not for restaurants or any of our categories. This is not new either. It's something that they're just taking back an idea that was actually launched by the previous government, and it's a way to provide some predictability into what's going to happen with pricing from some essential products, milk, some cuts of beef. You know, beef is very popular here in Argentina, so the price generators and bread, very basic things that are not impacting our product or pricing policy at all.

Okay. Thank you. Thank you very much.

You're welcome, sir.

Once again, if you would like to ask a question, please press star and then 1. Our next question comes from Robert Schweik from RMB Capital. Please go ahead with your question.

Good morning. How important do you imagine that delivery will be in your system, particularly in Brazil?

Good morning, Bob.

I'll let Marcelo pick up the question. Yeah, good morning, Bob. As you may recall, we introduced delivery in Brazil last year. We began to run out the service mainly in the second quarter of 2018. The company as a whole, we are in the 1,000 restaurants range of restaurants which are offering this service delivery. In the case of Brazil, we are around 450 restaurants, so it's a little bit lower than the half of the restaurants we have in the country. Still, the proportion of sales of delivery from the total sales is low. It's in the low single digits as a proportion of sales, but obviously we are working with several partners in different markets. In the case of Brazil, We are working with the three main players in the market, iFood, UberEats, and Rappi. We are very confident that this could be a venue of building healthy sales going forward. As Mariano mentioned, it is an accretive segment for our business. We have some plans, some aggressive plans to grow the segment in the near future. This will come both from adding additional restaurants with the service and at the same time low income sales in the segment at a higher pace than the rest of the segment. We are very confident and we are very encouraged by the results we are getting. We will see in the coming quarters how fast we can grow this business. and take advantage of our footprint because at the end of the day we are present in most of the cities which are key for this service in Brazil and we have that footprint as a competitive advantage. We have a lot of freestanding units, insole units which are key and very important for this kind of service.

mainly the the situation around delivery in brazil and in general in the 11 countries we are already operating the segment i also have some side benefits i would say in terms of the volume um across the day you know about the delivery tends to be higher volume towards later late afternoon and night uh why our biggest volumes times in the day are particularly towards lunch so it also helps mostly to better balance the production capacity we have in our restaurant. Also, it's something that is just happening in the market and we have to be there. As Marcelo said, it's mostly incremental. Either you play or you're out of the game and we have to be in the game and take our share.

Thank you. My follow-up question is on a different subject. That's the macro picture in Brazil, the political situation. Currency still is not going in the right direction. It's reasonably stable but still at a less favorable rate than for your first quarter. I'm wondering how confident you are in the current administration moving forward and improving the economic environment in Brazil?

Well, let me take the brief first part, and then, Mariano, you can talk about the effects and implications and the results. But we're, just like anybody else in the country, we're obviously looking with optimism at what's going to happen, basically, with the reforms that have been going through in the economy, and particularly the pension reform that should be released right after June or beginning of July. We believe, just like most people in Brazil, that that could be a landmark and that will create another momentum, positive momentum with the economy. In the meantime, I have to say that we're pleased with the results that we're having so far in the market. We're clearly outbearing the market and most of our competitors and also the association that we follow. I would say that within those factors that are under our control, we're doing great, very well. I would say considering the current situation, and we're hoping, of course, that the second half of the year should be more clear and better in terms of the ambience and the optimism that there is in society in general.

Yes, regarding the effects, good morning, Bob. Regarding the effects, of course, when you convert or translate our EBITDA results in Brazil into U.S. dollars, it has some pressure on our numbers. Just to give you the average BRLUSD effects rate for the Q1 2018 was 320, and during this was of this year, of course, 380. I think our results for the first few are more remarkable considering that. Looking forward, now the spot is around four. As I mentioned in Bob's question at the beginning, we have hedges in place. regarding the full year in Brazil at rates that are below the current spot. Also, remember that half of our debt is converted into BRL. That also reduces pressure on our leverage ratios because when the Brazilian real depreciates, then the whole amount of debt that we have in place goes down. But on the results, yes, we are looking at the real. If you look at all analyst estimates, everybody is forecasting a real or almost all analysts are estimating a real below four. Today it's at four. So we are looking at this number very carefully, but there's not much that we can do with the effects besides all the policies and the risk management that I already explained. We are looking at this number carefully. We think and we expect that the real will not go far beyond the figure it is now, that is around four, and that's it. I think that's in line with almost all analysts' expectations for this.

Would you convert your debt into dollars if you felt that the Brazilian currency were to stabilize?

No, no. The swaps that we have in place are already there for the long term. There are swaps that convert the US dollar debt into real, but we are not speculating with that. What we want to do is to match the cash outflows with the cash inflows. As the majority of our cash is generated in Brazilian real, we want and we prefer to have part of our liability expressed in the same currency. So that's a strategy that we have and it's not going to change according to the movements in the ESX rate.

Once again, if you would like to ask a question, please press star and then 1 to remove yourself from the question queue. You may press star and 2. And ladies and gentlemen, at this point, and showing no additional questions, we'll conclude today's question and answer session. I'd like to turn the conference call back over to Sergio Alonso for closing remarks.

Thank you. Before we finish, I'd like to point out that we launched today a new corporate website, one that we believe is more user-friendly and better conveys the essence of our brand and our strong company culture. So, With that, thank you again for participating in today's earnings call. We're pleased with the momentum we've built going into 2019, and we certainly look forward to updating you on our progress when we hold our second quarter earnings call. So in the meantime, please contact our investor relations team if you have an additional question, and enjoy the rest of the day.

Ladies and gentlemen, that does conclude today's presentation. We do thank you for joining. You may now disconnect your lines.