Alsea S.A.B. de C.V

Good morning, everyone, and welcome to Alsea's second quarter earnings video conference. Today, we will have presentations from our chief executive officer, Armando Torrado, our chief financial officer, Rafael Contreras, and who will give you an overview of Alsea's second quarter results. Before starting our presentations, I would like to hand over now to our chairman, Alberto Torrado, for some initial remarks. Please, Alberto.

Thank you, Salvador. And good morning, everyone. And thank you for joining us. I would like to briefly comment about our recent changes in management that I'm sure you are all well aware of. Starting on July 11, the Board of Directors has decided to appoint Armando Torrado as CEO of Alsea. Armando is an expert regarding every aspect of the business since our origins. He has more than 30 years of experience with this company since operating the first Domino's pizza stores back in 1991. He was responsible for Domino's corporate stores for more than 10 years and later served as CEO of the brand for five years, complementing his operational experience by later being appointed as the first director in charge of the whole casual dining segment of Alsea. As a founding partner of Alsea, he played a very important role in the last acquisitions made and the incorporation of new brands to our portfolio. Likewise, he was in charge of the real estate development department and assumed the role of expansion director for Mexico and Latin America. Subsequently, Armando took the position of director of Alsea South America to later occupy the post-recision assignment as CEO of Alsea International, adding three years of experience in positions that have allowed our company to position itself in international markets. The vote of confidence from the board Today is further than chance by asking Armando to occupy a position of influence at a top leadership with our organization. From now on, Armando will be in charge of giving continuity to our plans and long-term strategy, but also boosting our results in the short term. He perfectly knows the inside of Alsea. He knows his management team in every geography and in every brand. And even more important, our people know and trust him very much. Now, I will pass over Armando for his first Quasterly presentation as a CEO. Thank you very much.

Good morning, everyone. Thanks once again, one more time, to joining Alsea Second Quarter 2022 Earnings and Video Conference. I am excited to discuss you with this quarter's strong results, our regional and brand performance and developments on our strategy going forward. And then Rafael will take you through the company's financials. First, I would like to thank the board of directors from the confidence they placed me in this appointment as new CEO. In this role, I'm building on my 30 years of experience of working in senior's position at Alsea. I will be totally focused on generating value for all of our stakeholders, from our shareholders to bond investors, but as well to our collaborators, to our communities, and of course, to our clients' customers, always staying focused on our operations and customer needs. And now looking at our results, we are pleased to report a six straight quarters of continuous sales growth. And once again, a positive EBITDA across all regions. Our strategic of investing in our key brands and strengthening in our digital channels are proving customers top quality service. And our store has once again paid off. In the second quarter, net sales increased 35.8% to 16.9 billion pesos year over year. EBITDA was 3.6 billion pesos post IFRS 16 for the quarter. That's up 27.4%. This leads to EBITDA margins of 21.4% for the second quarter. Meanwhile, same-store sales posted at an increase of 38.7% compared to the second quarter of 2021. Our key brands continue to gain market share thanks to their superior product offering and customer experience. Operating cash generation in the quarry was a healthy position of 5 billion pesos, enabling us to continue the leveraging. Compared to the second quarter of last year, we have 132 more restaurants operating across all regions. Our main focus is to increase the number of our key brand restaurants in our most profitable markets. We ended the quarter with more than 4,300 stores and more than 33,000 collaborators. As I mentioned before, sales increased 36% over a year, and we continue to see a better performance compared to pre-pandemic levels, which had a 6.2% growth versus 2Q of 2019. That is excluding FXFX. That also sales increased 45% versus 2Q of 21%. Also, our business model and actions that we've been taking over the past couple of years have proven to be effective. And now, we find ourselves in a privileged position to take advantage of our new market opportunities. Delivery continues to have a strong performance, accounting for 18.5% of our sales, with 11.6 million orders. That's for the second quarter. The digital channel is a fundamental pillar for our long-term growth strategy, and I'm pleased to announce that WoW Plus reached a million active users milestone in this quarter. Globally, we now have more than 6 million active users between all our digital platforms. EBITDA on a pre-IFRS basis grew a 44.7% for the quarter and an impressive 83.4% for the first half of 2022. That is compared to the period of 2021. Our costs increase 100 basis points as a percentage of sales year over year, reflecting the impact of our cost control strategies, I mean the inflationary pressures across several of our regions. That cost represents 32.1% of our sales. We are implementing very carefully a designing pricing strategy and overstocking strategy to mitigate the effects of the inflation without affecting the demand. Looking at our geographies, Mexico sales increased by 29% year over year. And an adjusted EBITDA increased by 449 million pesos to 0.5 billion pesos. Sales in Europe grew by 27% with adjusted EBITDA of 131 million pesos that is higher, 1.5 billion pesos. and South America poses a very strong 83% increase in sales, while adjusted EBITDA growth 335 million pesos to 679 million pesos. The contraction on an adjusted EBITDA margins in all regions are impact by the no recurring benefits that we had from the previous years. That is related to government supports program and then agreements with labor unions. as well as some discounts negotiated rents with our tenants. It is worth to mention that on a pre-IFRS basis, the adjusted EBITDA margins of Alsea Europe reported a 30 basis expansion instead of 100 basis contractions report with the IFRS 16. same as the higher expansion of 370 basis points representing the South America operation versus the 160 basis expansion report from IFRS 16. Regarding our core brands, same store sales for Starbucks, Domino's and Burger King grow in our key markets year over year. Starbucks in Chile, Spain, France and Mexico also had an outstanding results with respect increase in same sub sales of 75%, 52%, 42% and 35% respectively. Domino's Pizza both in Mexico and Spain had a 15% comparable store sales growth versus two quarter of 2021. and Burger King had increased in Chile, Spain and Mexico over 40%, 23% and 90% respectively. As you know, the this Mexico turnaround strategy is underway and we are happy with the same stock results posted by the brand during the quarter. We done a 34% increase compared to the second quarter of 2021. Also, VIPS Spain has been overperforming with a 42% growth in same-store sale and 9% above 2Q19 figures. As a result of our continued work on ISG towards achieving our 2030 goals announced last March, I'd like to share that even though some geographies are just beginning to scope and define their baseline to set their own action plans toward our goals, other countries are improving their KPIs and setting that internal benchmark and best practices. In June, we received a certification on the first green store in Latin America for our Starbucks unit located in Paseo Los Dominicos in Santiago de Chile. This store was designed to use 50% less water and produce 20% less carbon emissions. Regarding our actions to minimize food waste and contribute to ending hunger, as of today, Mexico, We have donated more than 34 tons of food that have benefited from more than 125,000 people in food poverty. In addition to those 374,000 meals, we served through the Va Por Mi Cuenta movement. During the first semester, the 12 corporate openings of Domino's Pizza, Gino's, and Big Brands in Spain have been part of the openings with costs. that we have actively donated to different NGOs. 100% of the sales achieved on the opening day of these stores, generating a very positive impact on around 14,000 beneficiaries. I also would like to highlight that to this date, we're managing to achieve a reduction of a 12% electricity usage in Mexico. And in our European operation, we certify 90% of our suppliers, which ACCP and 74% of the suppliers are GFSI certified. Today, 21% of our top-level positions are led by women. We still have a long way to go, but we are committed to being an example of sustainability in this industry. In terms of key management changes, I would like to thank outgoing Alsea's Europe CEO, Miguel Ibarrola, who is retiring from more than 20 years of service at Alsea and Grupo Sena. We wish him the best in his newest endeavors. From now on, Jose Luis Portela, who served as a Starbucks Mexico CEO, will replace Miguel, and Francisco Toso, former ALSAC Colombia Country Manager, will now serve as CEO of Starbucks Mexico. I would like now to hand a call over Rafael to give you a more detailed overview of our financial results. Rafael, please thank you and go ahead.

that just as we did in previous quarters, in order to present a comparable analysis versus the financials of the previous year, all the explanations and notes reported in our earnings release include effects related to hyperinflation in Argentina, as well as IFRS 16. These two factors are also included in the financial statements issued to the corresponding authorities. The impact of IFRS 16 in our financial results for the quarter were as follows. 1.4 billion pesos increase in EBITDA and an additional 10 million in net income. Our pre-IFRS EBITDA was up an impressive 44.7% when compared to the second quarter of 2021. Excluding FX effects, consolidated EBITDA increased 53% versus second quarter 21. All three regions, as Armando mentioned, posted solid results and growth trends, surpassing second quarter 29 EBITDA figures by 14 and 45% in Mexico and South America, respectively, and presenting a 6% growth in our European operation, excluding FX impact. We were able to counter inflationary pressures through our stocking strategy in key products such as mozzarella cheese, where we have already been able to cover until the end of the first quarter next year and commercial strategies, reducing aggressive promotions and benefiting from the preference of our customers for our brands. And leveraging through digital strategy and product innovation, as well as efficiencies implemented during the quarter related to labor, as we were able to improve the average profitability per collaborator. It's worth noting that even with the 100 basis pressure on costs, we were able to report a 90 basis point expansion on the consolidated pre-IFRS EBITDA margin. Additionally, the results of the quarter considered the provision in Alsea, Mexico, regarding the profit sharing scheme for the year 2022 for approximately 70 million pesos. In 2021, this effect for the full year was provisioned on the fourth last month of the year. As Armando mentioned, before the contraction, As Armando mentioned before, the contraction in the post-IFRS 16 EBITDA margin is mainly related to non-recurring benefits in the previous year related to the government support programs and agreements with labor unions, as well as discounts negotiated with tenants. Net income for the second quarter increased by 180 million pesos to 237 million pesos. This increase was mainly due to an 821 million pesos growth in operating income, resulting from the recovery in sales, commercial strategies, product innovation, developments in digital application, as well as improved cost and expense control efficiencies. We have been able to keep the recovery trend since the first quarter of 2021, achieving an earning per share above two pesos. Regarding our debt profile, as of June 30, 2022, our gross debt, including leases under IFRS 16, decreased by 4.5 billion pesos, closing at 51.4 billion pesos. This reduction in debt corresponds mainly to the revaluation of the euro exchange rate against the Mexican peso, and the debt amortization of 1.1 billion pesos during the first six months of the year. We feel comfortable with the current maturity curve and the current debt ratios that we are achieving. The debt structure at the end of the quarter was 96% long term with 64% in Mexican pesos, 36% in euros and less than 1% in Chilean pesos. We expect to deliver going forward and meet all of our debt covenants thanks to our healthy and ongoing cash generation. Regarding our waivers and covenants, we were comfortably complained during the quarter. On the gross debt to EBITDA ratio, we ended the quarter with 3.4 times and EBITDA to interest paid in 3.7 times. the minimum liquidity covenant is set at 2.2 billion pesos with us posting 5 billion pesos for the quarter. In line with our CAPEX plan, without sacrificing needed investment, led to 1.6 billion pesos being spent during the first six months of 2022, of which 43% was allocated to maintenance as we needed to catch up following the pandemic. 45% went to store openings and remodelings and 12% for other projects. Out of the 61 stores openings that we achieved in the first six months of the year, 57% are Starbucks and 18% Domino's Pizza units. During the quarter, we carry out a stock buyback of 7.5 million Alsea shares for 313 million pesos. Given our liquidity, the current share price and recent low trading volume, we consider that it's an attractive opportunity. At the moment, we have close to 10 million repurchased shares, and depending on the market environment, we will decide whether to cancel the shares or provide liquidity to the market at the right time. Regarding the current legal dispute with the Mexican Tax Administration Service, SAT, related to our purchase of the Bips restaurant division from Walmart de Mexico on July 1st, On July 1st, 2022, the Federal Court of Administrative Justice lifted the temporary freezing on some of our bank accounts at a holding level. Our operations were not affected by this temporary freeze. We will keep you updated on this matter via relevant event press release, but remain confident that we will prevail in our case based on advice from our legal and tax teams. Given that the positive results reported in the first six months of the year position us position us above our initial forecast we are confident that we will be able to maintain our guidance published to our investor day back in March however it is important to note that this guidance was based on an euro peso exchange rate of 23.5 pesos versus the current 20.8 pesos. So we may have an external variation due to this FX effect versus our guidance. We also have to take into account that the second half of the year has a growing comparative base, both on top line and EBITDA, added to the expected cost and energy pressures. Nevertheless, we will keep working on what's on our hands to mitigate this effect in order to meet our guidance. So thank you for your interest in Alsea and we'll now hand the call back to the operator to open the Q&A session.

We will now start the Q&A session. If you have a question, please press the question button in the browser. Please make sure you are not in full screen mode to see the button. The first question is from Mr. Alan Alanis from Santander. Please go ahead.

Thank you so much for taking my question and congratulations. Very impressive results. Armando, best of wishes and a lot of success on the new role. I'm sure the company is in good hands with you. My question has to do with, I mean, it's very impressive what you have the same store sales. above 2019 levels in all of your formats and geographies except VIPs in Mexico but I want to understand better how much of that is traffic and how much of that is ticket and what trends are you seeing post the quarter in other words are we in levels of traffic already that are comparable to 2019 or are we still below those levels across your different geographies that would be my question thank you so much

Rafael, you want to take the question? In terms of same-store sale growth, we are versus 2019 around 8% lower in terms of orders. And in terms of increasing ticket, around 60% came in a with the increase in price and the other part came from a mixed in terms of products and also innovation and innovation mix of products mix also in terms of the That's very clear. Are you still seeing a trend, a positive trend in traffic or is it more stable right now? I will say that it's a more positive trend in terms of traffic. We have some brands that are above 2019, like Domino's, Starbucks, Burger King in Mexico. Some of our casual dining brands also achieve higher traffic than 2019. In some parts also in South America, Colombia is higher than 2019. Some brands like Burger King in Chile and some brands also in Europe are in terms of orders higher than 2019. Got it.

Okay, very, very clear. And the last question, I mean, Armando, is your first conference call. Do you want to talk a little bit about what are your strategic priorities as the new CEO of the company? Just briefly. Thank you so much.

It's my first conference call probably in the screen, but I've been back my last 30 years in this company with a good knowledge. I mean, traveling around S.A.B. de C.V doing very well. I mean, we are we are very head up optimistic about what can we achieve as a team. The second thing, of course, will be the growth. I mean, growth. We have a lot of opportunity in every market, in every geography, with all the brands. We just mean I was in France and it's amazing how the results we're doing in the openings. Spain, you know, suffering a complicated economy, their expansion. It's also been driven very well. So we need to to to push that S.A.B. de C.V S.A.B. de C.V So I think I have a short right now. I can tell you a really short term projection for these six months. I probably can give you a little bit more guidance in October or in the conference call about what can be the strategy for the long term. But I mean, we need to focus in this in these terms right now for for the second semester. But at the year, I mean, we are already close in July and that the result looks as strong as the last quarter. So and then there's some commodities also going a little bit down in price. So I'm confident that we want to achieve good results again in the next two quarters to close a strong year of 2022. And thanks for the wishes, Alan.

No, you're very welcome. That makes a lot of sense. Focusing on the team and the growth, I think that's very important. That's the right thing to do.

I mean, in order, of course, as you said, and it's all that I've been seeing and reading the reports of other companies, and we are all complicating in tickets, in traffic for the stores. But that's the big goals that we need to get back. And traffic, we get back. I mean, I'm confident of that.

Yeah. Well, congratulations again for the results and best wishes. Thank you so much for taking my question. Thanks. Gracias.

Thank you very much for your question. Our next question is from Ms. Vanessa Quiroga from Credit Suisse. Please go ahead.

Hi, thank you for taking the question and Armando, welcome in your new position. Congrats. So let me start with the first question. I want to ask the team about the competitive landscape in Mexico, especially in the pizza segment where we've seen more appetite from a competitor brands to in Mexico, so just some color on what you are seeing on the ground. And the other one is about maybe more in-depth details regarding raw materials. When do you think this decline that you just mentioned, Armando, in some commodities could help, could start helping in the results of ALSEA? I'm thinking maybe for the second half we'll still see S.A.B. de C.V

First of all, thank you very much. Thank you, Vanessa. I mean, inflation, like I said, is tough, but we have four or five items that are really complicated for us in STEM. So now one is cheese, of course. I think we mitigate that impact. We have a big inventory of cheese still in Mexico that we bought over a year. We have inventory to... February of March of last year. And so we have a great relation with a supplier. So I think that's that's the more impact one that we have been taking care of. The good news is a flower. We use a lot of flower for pizza and the flowers. It's a little bit is not going up again. I mean, there's good news on that. So that and there's, of course, meat and poetry. That's that's also. But but I can I mean, it's a very S.A.B. de C.V go ahead with those headwinds. And like Rafael said, there is new plates that we are doing for food. There is new innovation that we can do. We did a great job in Argentina with a new product that we launched in the Burger King business and it did super well. So I think we can move in a lot of circumstances, insights, strategies to mitigate that role. On the other hand, the pizza business, yes, it's a competitive advantage. S.A.B. de C.V with a new technology for online ordering that it will be just as great as aggregators. So that is a good advantage. And Indominus, we've been performing well the last 36 months. That's one of the brands that we are up in orders from 19, from 21. So that is the unit that we are doing well in the three geographies, not only in Mexico. Spain is doing well and Colombia is doing well. So I'm very confident in the pizza sector.

And I will say that also the strategy that we have to be wherever the client look for us, just in Domino's, even though we have the Ollo app, we have 10% of sales with aggregators. So that strategy also is pretty good that we start before the COVID.

That's great, that's great. Just talking about aggregators, we saw that in a country, I think Argentina, Mercado Libre will start delivering food. Is that something that you could consider maybe in the future, use some of these other additional platforms function as your delivery platform as well?

As you know, we took that 36 months ago or more than that. We took the decision of not giving any exclusivity to aggregators. And I think that was a very good decision by the company that time. Now, we work with all the formal aggregators. I would say we have a great platform that they can integrate to our platform. S.A.B. de C.V But let's see. I mean, we will talk with any aggregators. We don't have any exclusivities with the world ones. And the ones that we had, there's one or two. It's already in the way of expiring, that one. Yeah, so we will work with all the good ones that can drive us sales and, of course, best service to our consumers. So, yeah.

Great. Thank you, Armando, Rafa, and Charles.

Thank you very much for your question. Our next question is from Mr. Sergio Matsumoto from Citigroup. Please go ahead.

Good morning, everyone. Armando, welcome. Looking forward to working with you. I have a question on Europe, since you were leading that division for some time What would you say is a few of the aspects that's most misunderstood by the market participants when it comes to that segment? Is it perhaps dependency on the tourists or the growth potential, perhaps some of the store development plan when it comes to Starbucks? It seems very exciting, but if you could shed some light S.A.B. de C.V S.A.B. de C.V

I just was in Europe last week, and I mean, we have just an amazing concept there called Vips, as you know, with 150 stores. It's performing very above expectations. Every opening has been quite successful, performing probably 30% above our plans for that one. So there's a big line of opportunity in Spain for Vips and Vips Smart. also in Starbucks. It's performing very well. That's that's our sector, like Rafael said, and you saw in the report with better traffic performing over 2019, 2020 and 2021. So there is the market holding capacity there. It's also very strong in Spain. So those two brands and Dominos, there is a I mean, a market that is a S.A.B. de C.V achieving a goal of 20 stores to 25 stores, more or less opening in France. All the stores that we've been opening the whole semester are completing with good expectations. So the consumer is back. You know, France also is lacking with problems of tourism still from Asia. But but we are still having S.A.B. de C.V. S.A.B. de C.V. S.A.B. de C.V our orders from last year. So I think in Europe we have a great opportunity still. And as in other brands, as in other geographies, I will say that in all geographies, and you will see in the 61 stores that we open in the semester, I mean, that is very diluted in all the markets with strategic brands for sure that is for now, right now, it's Starbucks and Domino's for growing.

Excellent. Thanks. If I may, a question for Rafa. Rafa, could you please quantify the support that you see from, that we used to have from the governments and the unions and the landlords just to kind of see what the impact was for 2Q and what to expect as a headwind, if you will, like a margin headwind for until the 12-month lap of this support. Thanks.

Yeah. Last year, benefits that we had in the second quarter, 2021, in terms of rents, were close to 200 million pesos. benefits in terms of rent and in terms of government support. In Europe, we have around 200 million pesos, so close to 4.7 million euros. And in Lata, because we have some government support in Argentina, was close to 60 million pesos.

And would you say that's kind of uniform from quarter to quarter?

Yeah, that's probably going to pretty much dilute already. For the second half of the year, we're no longer going to see these kind of impacts because 2021 second half was already off.

Exactly. Thanks so much.

Thank you very much for your question. Our next question is from Mr. Antonio Hernandez from Barclays. Please go ahead.

Hi, good morning. Thanks for taking my question. Congrats on your results. You've already mentioned that July performance is trending quite well, similar to the previous quarter, but you just wanted to get a little bit more granularity if possible on the different formats and geographies. Is there any outperforming, underperforming geography where you're seeing maybe a difference in the trend within the last weeks or the end of the second quarter versus the beginning of the second quarter? Any geography or format trending differently? Thanks S.A.B.

I will say that we have a pretty good trend in all of our geographies and almost in all of our brands. The only brand that is not overperforming or has a trend or a growing trend is VIPS Mexico. Bips Mexico has almost the same amount of sales in the last six weeks. So we don't see this improvement in terms of sales. We think that for the second half, We think that people is going to be back to offices more than in the second quarter. And maybe we're going to see a better trade. Some things that also happens is that when inflation is pretty high, the trade down that we see in our clients look for a cheaper alternative. And we think we're going to capture that kind of clients also in Vips for the second half of the year. But all the other geographies and brands are still with the same trend in terms of growing, in terms of sales.

Okay, perfect. Thanks a lot and welcome again, Armando. Thank you, Antonio.

Thank you very much for your question. Our next question is from Ms. Paulina Moreira from Compass Group. Please go ahead.

Hi, and congrats on the results. I have a few questions. First one is related with the benefits that you mentioned. If I remember correctly, the last conference call, you said that there were no more benefits and that the reports were clean. So we also see more benefits this quarter and that's it? Or... What's happening with that?

What we're mentioning about the benefits is the comparative base. Since in 2021 second quarter, we still had some benefits.

Okay, okay. Clear. And another question is on margins. For the second half of the year, are you expecting important margin pressures? And if so, in which of the regions? S.A.B. de C.V S.A.B. de C.V

Europe will be the one who has a higher pressure in terms of margins. I will say that Mexico is going to be with the same pressure that we have this first semester. And then LATAM has a pretty good performance in terms of margin. because of all of the things that we did over there in terms of expenses and in terms of innovation and also in terms of taking out some of these commercial promotions that we had there.

Okay. And my last question is regarding online sales. I saw that you did pretty good in that segment, but how much is from WOW Delivery and how much is from the aggregators? Is WOW Delivery increasing its participation?

Well, the participation in terms of home delivery mostly came with aggregators. I will say that maybe higher than 90% come with aggregators and the other parties with WOW Plus in terms of home delivery.

Exactly. It's still below 10% probably the share that we have through WOW, but it's increasing little by little.

Okay. Thank you for answering my questions.

Thank you, Bobby.

Thank you very much for your question. Our next question is from Mr. Ulises Argote from JP Morgan. Please go ahead.

Hi guys, thanks for the space for questions and welcome once again, Armando. I apologize once again, I don't know what happens with my camera and I cannot get it to work here in the office. I had one question here on the updates with the agreements with the banks. If I'm not mistaken, from last year's announcement you communicated that the agreements were in place until end of June of this year. So I just wanted to get any updated thoughts there or if we should consider any changes there on the covenants, etc. And also kind of related to that topic, any changes in the expectations for dividends? How should we think of this and how should we think ahead, like dividends versus buybacks on your guys' kind of cash back to shareholders? Thank you.

Yeah, in terms of the banks agreements at the end of last year, after we issued the the the U.S. bond, we have an amendment and extend with banks an agreement with new covenants. that it's for a long-term period. We have the bank credits with a five-year term. So the new covenants are until that period. And after we issue the Eurobond, we prepaid more of that bank credits. So right now, the covenant that we have is on a long-term period. and we are very comfortable that we are achieving that covenants. There are in gross debt liquidity and some restrictions in terms of capex but this restriction in terms of capex allow us to growth between 170 to 200 new units in the next years.

If I may, regarding the interest coverage ratio right now, it's to have a minimum of three times gross leverage ratio until September 30, 2022. It's to be below 5.3 times. Then after that, until September 23, 4.9 times. then until September 24, four times and October 24 onwards goes back to initial 3.5 times gross leverage ratio. And the minimum liquidity has to be 2.2 billion. Right now we have 5 billion in cash, so we're well above.

Yeah, and in terms of dividend, we will see if we achieve the gross debt to EBITDA lower than 3.5 times. If we achieve that, we will see if we paid some dividends in 2023 or 2024. If you remember, we paid around 80 cents per share in the last year that we paid dividends. So it will be, if we achieve this ratio of gross debt to EBITDA, pay some dividends next year or in 2024.

Okay, that's super clear. Thank you so much for the call, guys. Thanks, Rodriguez.

Thank you very much for your question. Our next question is from Mr. Rodrigo Alcantara from UPS. Please go ahead.

Are you listening? Yes.

Alante, Rodrigo.

Hi. Thanks. Thank you. I have two questions here, Armando and perhaps Rafa. So, I mean, you have a very impressive first half of 2022. I guess the share price clearly reflects concerns about your performance in a potential you know, recessionary scenario, right? So just curious about perhaps, you know, one part of the question to Armando. I mean, how do you foresee the performance of your brands? Let's focus on Mexico, the performance of your brands, you know, in a potential recessionary scenario. I mean, how do you see perhaps Domino's Pizza versus Little Caesars or the resiliency of Starbucks? And, you know, to Rafa, I mean, If you have, you know, somehow, you know, consider a recessionary scenario in your projections, I mean, how resilient would you think, you know, a sales business model could be, you know, in this environment? And my second question would be related to the S.A.T. Right. I mean, we don't understand. I mean, I do agree. You have a very solid case there. Right. But some of the questions that we have received from from investors here is that if it would be better perhaps to, let's say, perhaps reach a midpoint agreement with authorities and let's move on to the next page. I mean, just curious about your thoughts about this as well, Armando, perhaps some thoughts about this would be helpful. Thank you very much, Armando.

Bruno, probably we'll take the first one and then I will lead Rafael to take the second one, right? And gracias, Rodrigo. First, I mean, recession. At the end, I think we are one of the few companies that have a great portfolio in our hands. I mean, we're in the fast food with Burger King and with Domino's. And every time there is complications in the economy, I think those brands deliver well. I mean, as I said, As Rafa said, people are looking for value and we have a brand, those two brands that are very good value. And what about Beats? I mean, Beats is as affordable as no other brand that can be that give you that value. We have a big presence of 230, 240 restaurants and another one in Mexico with El Corton. So at the end, I think that is a great advantage to have those brands. And then the Starbucks, I mean, It's just been positioned as a third place. We are right now having great performance in the five occasions of consuming very early morning. That is coming back well. That with the pandemic went along. Now it's going well. Then we have the afternoon. And then it's a great evening at night. So at the end, I mean, we always can focus on different kind of products. We have a different kind of strategy of giving new things to the consumer. And S.A.B. de C.V S.A.B. de C.V I would like Rafa to give you a little bit of the S.A.B.

Yeah. In terms of the claim that we have with the S.A.B., we try to have an agreement with them. knowing that Alsea has not we don't have to pay anything because we were the ones who buy that Walmex already paid the stat wants to to gain two times for the same transaction so we tried to have an agreement with them we couldn't so we think that we have to go with with the a legal process. The lawyers told that we have a pretty high opportunity to gain this legal procedure. So it will take two or three years, but we think we will be positive that we will succeed in this process.

Oye, Rodrigo, and I will say that any window, any window that the government gives you to sit down at the table and do a good arrangement, we will do it. I mean, I'm exactly as you said. I mean, here's the doors are open. I will touch the windows that I can. And if we can arrange that, I will do that.

Okay, that's great to hear and I'm very happy you're with the management. Congrats. Thank you very much.

Thank you very much for your questions. Our next question is from Mr. Andres Ortiz from BTG Paxual. Please Go ahead.

Hello, good morning, Armando, Rafael Salador. Congratulations for being here. We're very happy to have you here. My question is looking into 2023. I think investors' concerns are not focused in this year. We believe that you will reach your guidance. I don't think that is a doubt, given your strong results. But how are you... Your initial thoughts, how are you tackling 2023? How do you expect your sensors to perform or how do you expect to offset the inflationary pressures that we have in Europe that will have a great effect mostly in the winter and early next year? That will be my first question. Thank you.

I can take it. I mean, at the end, I agree with you. We are now thinking in 2030, 2033. And at the end, we have to be very... We have very good discipline still, discipline in costs, in wages, in all the P&L of the company. At the end, we are not over. First the pandemic, then this thing of inflation. Next, I don't know what's going to be in the next year. We are doing very good disciplines in all the costs. S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V People are not gonna, they're gonna go steal to our restaurant. We have a good footprint, a good presence. We are still, they are asking for more stores to open and anywhere we open a store, it's performing well. So at the end, and then send the stores that we have, the same store sales are also performing well. So I think we need to adapt to the market anytime the circumstances move and change. And we are, we already, like I said to my team, We already know the hypnosis that we need to do in order to gain this. After all these three tough years that we had, there is not any circumstance that we cannot surpass with our good energy of this company and the great people that we have. So I am very positive of the future that we're going to have.

Thank you. Very clear. And my next question is, Given your deliberative process that is extremely strong, when would you expect to reach investment grade? And when you do it, what will you do with your debt? Thank you.

I don't know if we are going to achieve in a couple of years an investment rate, but for sure we're going to have a better rate than the one that we have right now. One of the main things that the rating agency has was the leverage of the company at that time. We proved that we can leverage pretty fast. We are looking to be lower than three times gross debt to EBITDA in 2024. So I don't know how it's going to be also the bond market in a couple of years. But our view is to if the market is open and with good rates to have a new bond with a better cost and maybe with a better tenant also. That's our view for in two years because it's a five year non-call too. But for sure, we're going to have in a couple of years a better rate than the one that we had last year.

Perfect. Thank you very much and congratulations on the results. Gracias.

Thank you.

Thank you very much for your question. Our next question is from Ms. Melissa Villon from Bank of America. Please go ahead.

Hi Melissa. Hi Melissa, we can hear you. I don't know if you're having issues with your mic.

Our next question is from Mr. Bernardo Gonzalez Aedo from Sura Investment Management. Please go ahead.

Hello, good morning. Thank you very much for the time to talk about the company's results. I know you have been talking about the inflation costs S.A.B. de C.V S.A.B. de C.V

As we mentioned, our target for the full year, pre-IFRS 16 is to be close or a little bit higher than 13% EBITDA margin for ALCEA. Post-IFRS 16 will be close to 24%. And we are confident that we are going to achieve that for the year.

Okay, thank you.

regarding digital revenues if you have any target with respect to the total contribution to total revenues I guess that's a tough one because during the pandemic it was a huge frog leap what we saw in terms of the development so we were probably we're right now at the levels that we expected to be back pre-pandemic we expected to be close to 20% in 2025. So right now we're exactly there. We think as traffic is coming back, probably this is going to stay between 18 to 20% in those ranges. However, I would say it is pretty much we're meeting targets.

Okay. And regarding that, do you have also any expectation with respect to the mix between aggregates and your own app?

I mean, it is tough since, as you know, aggregators are in pretty much every geography where we operate. They're spending a lot of money positioning themselves in this pretty much war amongst themselves. On our end, we have to have the alternative of having our own digital programs, our own delivery alternatives. However, right now what we're picturing is if we're able to get it above 10%, it's already winning. We will have to keep on developing as what Alberto was mentioning before in the last quarters and Armando mentioned recently. We're going to be moving ahead on improving the quality of our digital platforms. We're going to be implementing Domino's Pizza Olo platform in Mexico. So it's pretty much the same as international. So the one that they have in the US, which is it has a bit more sophistication on the product itself. We're going to be introducing Starbucks rewards in Europe as well during this year. So we have we have still some work to do in order for us to improve the percentage of sales that we're achieving on our own platforms.

Perfect. Thank you so much.

Thank you.

Thank you very much for your question. Our next question is from Mr. Joao Andrade from Bradesco BBI. Please go ahead.

Hi, Armando. Sorry for the camera. I think it's not working here. Congrats for the results and for the promotion. I have a quick question. I'd like to get your thoughts on how you think about brand portfolio in the mid-long term, if there's any space for rationalization or even expansion, if that's the case. I guess that's pretty much it.

I think also I was in that conference I'll say a day that we did the last in November and December last year. And we also said that we know our complex portfolio that we have and how in the in the future we want to reach it. As you said, I think that's where we're rationalized size or really get a smaller portfolio. At the end, that is a little bit that will that will that will perform better. I mean, we are, as you know, Starbucks and Domino's are taking a little bit more participation in the pie. And anyway, when we see some opportunities of turning down some concepts in zone geography. I mean, that will be the case if we see. But right now, we don't have any short-term decisions to take about any brand that we have. They are all performing positive. They're all performing well. And we're keeping up with the portfolio that we have. But yeah, at the end, I think in the long term, as what you said, we are agree and we really gave you that guidelines that we in the future, it's a rationalization of our portfolio.

Perfect. Thank you very much.

Thank you very much for your question. Our next question is from Mr. Thiago Bortolucci from Goldman Sachs. Please go ahead.

Yes, hi, good morning, Armando Rafa Salvador. Good morning, everyone. Thanks for taking the questions and thanks for the presentation. Armando, first of all, congrats on the results, on the very strong first quarter results under your new administration. Good luck on the new role. I would just like to explore a little bit more the status of the burger business in Mexico, right? We know one of our largest competitors, McDonald's is like being a bit more aggressive and focused into the region going forward. So just like to hear more from you, how sustainable you think current trends might be in a more competitive scenario and which are your key competitive advantage to fight increasing competition going forward? That's the question guys. Thank you very much.

Okay, I was just two weeks ago with the RBI team, the international. Actually, all your paisanos were here. All the Brazilian team were here and just looking about what it will do. As you know, in Mexico, the burger sector, it's complicated, but still Burger King, it was 28.6% in same store sales versus 1919. So, I mean, the brand is performing a lot better than we expect starting April, March. These guys have a good strategy in their portfolio. They have a new app that is working also in Brazil very well of couponing. That is turning a lot of tickets, a lot of transactions. And then we're moving to premium sectors with some nice new burgers that we're putting in chicken. That is also working well. We are going to, as you know, our competitors, they are very aggressive in the digital menus, ordering menu in the S.A.B. de C.V S.A.B. de C.V I think we are remodeling a lot of stores of Burger King, both with support of RBI, this digital menu and digital transformation also with the support of RBI. So I think we're closer with them and very optimistic of the future. Everyone is, I think the big chains are growing in Mexico, but the smaller are not. You know, the pop-on mom that used to open here, the copycat of a company that you know with S.S. You know, they are not growing anymore. They are just there and here. They're performing also with some competitors that we saw are doing well as also. So I'm confident in the Burger Crew Center, not only in Mexico, in Mexico and LATAM, that we have most of our revenues here. come from Argentina and Chile. That's where we have the bigger stake of our business in the Burger King sector.

Thank you very much for your question. Our next question is from Mr. Jorge Izquierdo from BTJ Paxual. Please go ahead.

Hi, good morning. Congrats, Armando, and to the team for the solid results. My question is regarding casual dining brands. Have you seen any structural changes in consumer behavior that could affect traffic dynamics going forward? That would be my question. Thank you very much.

What do you mean, structural? A little bit more specific.

Maybe different traffic trends in some casual dining brands pre-pandemic and now. Any comment would be helpful.

I will tell you in trends, for example, we have in P.F. Chang's that we went all the way through 35% of our sales were delivering that brand when the pandemic come. That is coming down because the restaurants are more open. But the traffic, like I said, especially in that division that I know very well, I run it for five years. S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V We are not seeing complications in the volume in that sector. In any of the categories, especially Italian, we're doing just great there in Mexico. That's ahead of other brands in orders and in results. That's a brand that we were suffering two years ago, and it's run by a great leader there, their team, and we're doing very well there.

And if I may add, I guess there was no major or structural change in consumption in casual dining. I guess during the pandemic, of course, we saw an increase in delivery trends. Now we have to focus a lot more because they're sharing some brands, the ones that travel better according to their products. are doing better in the delivery front or takeout as well. However, where we operate, in the countries where we operate, it's a cultural thing. People like to go out to sit on the table, to enjoy beer, watching a soccer match and a chili, like Armando mentioned. So there was no major change on how consumers behave towards casual dining.

Perfect, guys. Great color. Thank you and congrats again. Thank you, Jorge.

Thank you very much for your question. As a reminder, if you have a question, please press the question button in the browser. Please make sure you are not in full screen mode to see the button. That was the last question. I will now hand over to Mr. Armando Torrado for final comments. Please go ahead.

And I just want to thank you all for the call, for being here with us. today and I mean I hope we will see each other later on in the near term that I think Salvador already has some appointments there and things that we will share but thank you very much for the call you're interesting and I don't know thank you and that's my last comment that I will see