Alsea S.A.B. de C.V

Good morning, everyone, and welcome to Alcea's first quarter 2023 Fairlinks video conference. My name is Nicolás Espinoza from Alcea's IR team. Today, our chief executive officer, Armando Torrado, and our chief financial officer, Rafael Contreras, will be presenting the quarter results. Now, I would like to hand it over to Armando for his initial remarks. Please go ahead. Good morning everyone and thank you for joining our first quarter 2023 AirLinks video conference.

I'm excited to share with you our consolidated results, regional and brand performance. I will also distribute some strategic developments and guidance from our recent Alsea Day. In the first quarter, we posted strong sales across all companies' brands. We are pleased to report a year-over-year increase in total sales pre-IFRS 16 of 16% to 17.6 billion pesos. Same store sales for the quarter were up an impressive 23.5% year-over-year, driving significantly by 12% in same store orders. EBITDA pre-IFRS 16 was 2.3 billion pesos for the quarter, up 23.6 compared to the same period of last year with a margin of 13.1%. This quarter results demonstrating a strong demand of our brands and the company high profitability, especially in the face of inflation, increasing minimum salary and elevated energy costs in Europe. an affordable exchange rate that represents 10% less in sales growth. We served over 11.5 million orders in the delivery channel this quarter. Delivery made up 17% of total sales, the same share as of the fourth quarter of 2022. A steady growth of delivery is in line with our overall sales and emphasis the performance on this trend. In the quarter, we opened 20 new corporate restaurants and eight sub-franchises across all regions. Of those, 50% were Starbucks and 29% went Domino's Pizza. At the end of the quarter, Alsea has over 4,400 stores and over 1,000 sub-franchises stores and more than 75,000 team members. In line with our expansion strategy, last April, we signed an agreement to operate and develop the Starbucks brand in Paraguay, introducing the country's first Starbucks location. This expansion is fully aligned with Alsea's Starbucks Road strategy. Currently, we operate over 1,600 Starbucks locations across Mexico, Europe, and South America. The total capex for the first quarter was 16 million pesos, of which 48% was allocated to maintenance, 29% to store openings and remodels, and 23% for IT and other strategic projects. In line with the company's deliverance strategy, I'm pleased to share that we are now below pre-pandemic leverage levels. I'd like to highlight a few of the important moments along this journey. As you can see in the graph, At the end of 2018, we accrued a group of EAPs in Spain and our PFRS leverage net debt EBITDA was 3.7 times, which then went up slightly with acquisition of Starbucks in France and Benelux to have the leverage at 3.9 times. Then during the pandemic with the restaurant closures, and increased cost of global level, our leverage radio increased significantly. As we recover, we've been able to increase sales while maintaining an increased share of delivery and reducing costs and debt. Our pre IFRS 16 leverage radio is 2.4 times net debit and EBITDA, and we will continue to emphasis our leverage strategy. In line with our digital transformation strategy, our customers with accounts in our loyalty programs have a higher average ticket, visit us more frequently, and provide us with a value data to learn how to improve our service and the consumption habits. Our digital sales that include e-commerce, aggregators, and loyalty, represents during the quarter a 30% of share of the total sales. Standing out Domino's Pizza with 46.6 penetration of digital sales. These 5 billion pesos on digital sales at the end of the first quarter of 23 represents a 23% growth over last year. Lead by Global Starbucks rewards growth of 44.5%. versus same period of 2022. We reached 10.4 million of digital customers with activity within 365 days, with a growth of 6% versus last year. In terms of activity, digital customers were actively with 180 days, we reached 6.6 million with an increase about 3% versus last year. Finally, I would like to give you a quick overview of our main ESG achievements for the quarter. In order to identify our global sustainability strategy priorities, we update our met materiality assessment and exercise S.A.B. de C.V in a consultation process with senior management and key stakeholder groups across eight countries in all regions that we operate, including Mexico, South America, and Europe. Our ESG-related actions and plans will focus on addressing the material issues identified in this study. Talent attraction and retention, number one. Two, food quality and safety. Three, health and safety of the customers and employees. Four, equity, diversity and inclusion. And five, energy and emissions and achieving our 2030 targets. We will be delivering yearly progress updates for the priority indicators we track as part of our ESG strategy. The principal findings of the materiality assessment will be incorporated into our 2022 annual report, which will be available in early May on the company's website. Regarding our global sustainability strategy, which consists of three pillars, balance, growth and development, During the first quarter of 2023, under the Balance Pillar in Mexico, we recovered over 191,000 liters of used vegetable oil for biodiesel productions. Additionally, we installed solar panels at two of our facilities in Spain. These panels are expected to generate enough clean energy to meet about 30% of the facility's energy needs. Under the growth pillar, our brand and distribution centers are regularly assessed for quality and safe standards. As of the development pillar, in Mexico, the Va Por Mi Cuenta movements provide over 235,000 meals to over 4,000 children through six society organizations. In collaboration with the Mexican Food Bank Network, Seven tons of food were donated in the first quarter, benefiting over 32,000 individuals. In Spain, we reaffirm our commitment to the United Nations Global Compact by signing the country-level charter and entering into an agreement with an NGO down in Spain to support the integration of people with disabilities into our workforce. Now I will pass it to Rafael so we can give you a more detailed overview of our brands, regions, results, and balance sheet items. Please, Rafael.

Regarding our brands, the Starbucks reported an impressive year-over-year same-store sales growth of 36% in the first quarter, with a growth in orders of 20%. In Mexico, Starbucks same-store sales were up over 30% year-over-year, while in Europe they increased by 27%, and in South America up over 26%, excluding Argentina. Domino's Pizza same-store sales were up in Spain, Mexico, and Colombia by 6.4%, 2.7%, and 1.3%, respectively. This growth came despite a difficult comparison basis versus the first quarter of 2022. Burger King reported another positive quarter, posting increase in Chile, Mexico and Spain of 12.3, 8.6 and 8.3 respectively. After officially recovering to pre-pandemic labels late last year, Vips Mexico continued with a strong first quarter same-store sales, up 13.5 year-over-year, with orders up 10%. The brand continues to be focused on improving its in-store experience and products. In Spain, Vips also reported a strong first quarter same-store sales increase of 21% versus the same period last year. The casual dining segment also had an impressive quarter, with same-store sales up 16% and orders growing by 12% versus the first quarter of 2022. Looking by region, we were pleased with Mexico's performance as quarterly sales increased 22% year-over-year, Costs were in line with last year, and adjusted EBITDA pre-IFRS 16 was up 19.7% to 2 billion pesos. In the quarter, we closed our J.B. agreement with Europastri, who will be providing bread and pastry products to Alsea stores in Mexico. This transaction added 60 million pesos in EBITDA to Mexico P&L. In Europe, sales were up 7.6 to 5.6 billion pesos and adjusted EBITDA was down 9.2 pre-IFRS 16 to 726 million pesos. However, when excluding the effects of foreign exchange fluctuations, sales grew by 24% and adjusted EBITDA was up 4%, underlying its significant impact on overall results. Despite the ongoing challenges of rising inflation and energy costs, demand was resilient. We remain hopeful about sales heading into the summer months. S.A.B. posted a strong 58% increase in same-store sales for the quarter, with adjusted pre-IFRS 16 EBITDA increasing 32.8% to 504 million pesos. S.A.B.' 's positive results were driven by strong demand, reduced cost, and successful product innovation and digital strategies. Moving on to a detailed overview of our results and balance sheet. Despite Alsace-European costs rise resulting from not being able to mitigate inflation in important products, the increasing cost of energy in Europe and wage increase across different regions, we were able to offset part of the impact with some strategic initiatives which helped us to mitigate the impact in the consolidated cost as a percentage of sales, only increasing 1.3 percentage points year over year, reaching 33.1%. During the quarter, we reached different agreements with our suppliers. One, a benefit in the price of cheese through a decreasing cost of 9% versus that same period of last year. overstocking our needs until December 2023 in Colombia and September 2023 in Mexico. A benefit in the cost of some core products that we fixed price for the year, like wheat flour, pork ribs, oil, among others. In our distribution center in Mexico, we have been innovating in order to improve some processes within our supply chain. As an example, we reduce the sugar used in the manufacturing process of different products and we centralize in our industrial kitchen to produce some dishes to guarantee the quality and consistency in our stores. Despite cost increases, our pre-IFRS 16 EBITDA was 2.3 billion pesos for the quarter, up 23.6% compared to the same period of last year, with a margin of 13.1%. Post-IFRS 16 EBITDA was 3.7 billion pesos for the quarter, up 6.6% with a margin of 20.9%. Operating cash generation was healthy at 4.5 billion pesos for the quarter, which allow us to continue to both deliver the leverage and invest in our organic growth in Europe. Energy costs in the first quarter of 2023 will be elevated, but still elevated up 110 year over year. which impacted the region EBITDA compared to a year ago. However, energy prices continue to decline on a sequential basis from the third quarter 2022 peak. As you can see on the graph, in the third quarter of 2022, energy costs as a percentage of sales were at a historic high of 6.8%, with electricity at 308 euros per megawatt hour. Since then, energy share of sales fell to 4.3% in the fourth quarter of 2022, and to 3.2% in the first quarter of 2023. This quarter, we paid an average of 97 euros per megawatt hour. After a warm winter and with increasing renewable energy projections in Spain and France, Alsea will be able to find new reasonably priced options in the second half of 2023. We continue to work with our team of energy experts in Europe to analyze the possibility of securing long term contracts. Our net income for IFRS 16 for the first quarter increased 41.1% to 564 million pesos. This result comes despite an increase in cost of products, energy costs, financing costs and higher tax rates. In the first quarter of the year, we achieved a pre-IFRS 16 earnings per share of 2 pesos and 48 cents, including IFRS 16 earnings per share rose to 2 pesos and 13 cents. In January 2023, the general shareholders meeting approved the cancellation of 18.5 million ordinary shares that had been repurchased in market transaction during the last year. representing 2.2% of the outstanding total shares. And last week, the General Shareholders Meeting approved another cancellation of 4.9 million ordinary shares representing 0.6% of the outstanding total shares. In the quarter, we paid 86 million pesos of amortizations. Our prior FRS gross debt decreased 3.3 billion pesos year over year. closing at 26.3 billion pesos at the end of the quarter. This reduction in debt corresponds mainly to the devaluation of the euro against the Mexican peso and debt amortizations during the period. Our pre-IFRS 16 gross debt to EBITDA ratio at the end of the quarter was 2.9 times and post-IFRS 16, 3.3 times, 0.6 times less than last year. Regarding our bank covenants, looking to our prior for S16 gross debt to EBITDA ratio, we ended the quarter at 2.9 times and EBITDA to interest paid at 3.4 times. The debt structure at the end of the year was 96% long-term with 65% in Mexican pesos and 35% in euros. Our target is to still deliver the company in the coming years. I would like to quickly go over the guidance that we gave in March at Al Sayadei. We expect to open between 250 and 280 stores of which most are corporate stores with about 70 to 92 franchises. Regarding capex, we are expecting 5.5 billion pesos in the year. Same store sales should come in around 14 to 17% and revenue above 13%. we are guiding EBITDA per IFRS 16 to grow over 15% with a margin of over 13% across debt to EBITDA ratio of about 2.8 times and return on equity of 18 to 19%. Post IFRS 16 EBITDA should grow over 10% with a margin of over 20% across debt to EBITDA ratio about 3.3 times and return on equity of 21 to 23%. This quarter results put us on track to achieve our full year guidance. I will now pass it back to the operator for the Q&A session. Thank you.