Alsea S.A.B. de C.V

Good morning everyone and welcome to Alsea's second quarter 2023 earnings video conference. Today, our chief financial officer, Armando Torrado, and our chief executive officer, Rafael Contreras, will be presenting the quarter results. Now, I would like to hand it over to Armando for his initial remarks. Please, Armando, go ahead.

Thank you, Nico. Good morning everyone and thank you for joining our second quarter 2023 earnings video conference. S.A.B. de C.V We are pleased to announce a 12% year-over-year increase in total sales, amounting to 18.9 billion pesos post-IFRS 16, and a 19.9 increase excluding the impact of a stronger peso. Despite a sequential increase in the comparable base, same-store sales showed an impressive growth of 18.6 year-over-year. EBITDA pre-IFRS increased by 15%, amounting to 2.5 billion pesos for the quarter, with a margin of 13.7%. Post-IFRS EBITDA increased by 6% to 3.6 billion pesos for the quarter, with a margin of 20.3%. This quarter results and reflects a strong demand for our brands and accompanies high profitability, driven by positive consumer behavior and supported by our strong business model. We serve over 12.3 million orders by home delivery this quarter, reaching 3.2 billion pesos, representing a 12.8 increase compared to the second quarter of 2022. Home delivery sales accounted now for 17.1% of our total sales. Regarding our brands, Starbucks reported an impressive year-over-year same-store sales growth in Mexico of 25.2%, while in Europe, 15.3%, and in South America, 42.8%. Screwing Argentina, The percentage was 11.8%. Regarding Domino's Pizza, sales were up in Spain and Mexico, 7.8% and 5.2% respectively. We are pleased to announce that we were well recognized in our two biggest markets, Mexico and Spain, with a Gold Franny Award, the most prestigious honor bestowed on Domino's franchisee owner. The award is based on several key factors, including operational audit scores, community involvement, store safety, and security. Dominos International, as you know, entered into an agreement with Uber. It's incumbent to enhance our delivery service, especially in Mexico and Spain, while gaining deeper insights into our customers. In Mexico, our successful commercial strategy to increase participation of the carryout segment resulted in a remarkable 19% sales increase compared to the year before in this prestigious channel. Regarding Burger King, we reported another positive increase in Mexico and Spain of 9.5% and 3.1% respectively. During this period in Mexico, it is important to say that our digital kiosk implementation has been very successful, with a 17% increase in average ticket. We will be implementing this channel of digital kiosk in all our brands, in all our stores in the next quarters. Regarding VIPs, Mexico continues with strong second quarter same-store sales, up to 7.5% year-over-year. orders were up 8.1%. Bips remain to be focused on improving in store overall experience. Also in Spain, we reported a strong second quarter sales increase of 12.8% versus last year. In Mexico, we continue with our revalidation efforts to the brand with an additional of 10 remodel restaurants year to date with a target up to 40% by the year end which resulted in sale improvements around 15%. The brand recently launched its communication platform Igual Que En Casa with the aim to prove guests with a unique experience in a home environment, offering familiar clothes, warm and personalized attention, taking care of every detail, creating great moments in each visit. Likewise, the brand resumes presence on television and television, which has brought an increase in sales in the week 29. Our global casual dining segment also had a solid quarter with the same store sales of 10.2% and orders growing 5.6% versus the second quarter of 2022. Continuing with our expansion strategy, I am delighted to announce a significant milestone, the opening of the first Starbucks store in Paraguay, making the brand's debut in the country. As we move forward, we will carefully evaluate each new potential location to ensure the profitability of our establishment. In line with our digital transformation strategy, our digital sales, which include e-commerce, aggregators, and loyalty, grew 21.4% versus last year. reaching 4.7 billion pesos at the end of that second quarter 2023. This represents a 28% share of the total sales. Domino's achieved with a remarkable 40.2% penetration of digital sales, and Starbucks, which sets a remarkable growth of 48.1 compared to the last year. Starbucks Rewards Program starts for everyone, we did a soft launching in Spain and Portugal in this quarter. More than 170,000 new members joined the program since we launched it. Spain, France, and Portugal have a tender of 12%, 11%, and 10% respectively. In Mexico, the Starbucks Ruas tender was a 28%. We expect to grow the tender in Europe in the coming quarters. Regarding ESG, finally, I would like to give you a quick overview of what has been going on in the company. In Europe, we highlighted Domino's pitch effort in Spain to transition from regular delivery fleet to electric vehicles, having already modified 13% of our fleet, with a goal of reaching 30% by 2026. Additionally, the installation of solar panels in three out of our four factories that we have in Spain and also in other four freestanding stores resulting in a 20.27 reduction of CO2 emissions for the factories. In Mexico, Alsea and its brands, through the Vapor Mi Cuenta movement, led the Fundación Alsea, delivered five vehicles, two with a capacity of five tons and three with 1.5 tons, benefit five food banks of BAMX network, increasing the association capacity to combat hunger among vulnerable populations. In Mexico also, We have 1,188 units powered by a clean and renewable energy, consuming 81 GWH, which represents 69 of our consummation in the country, thereby reducing the impact of scope two emissions. Also during this quarter, we certified 23 Starbucks green stores, bringing the global total to 42, embracing the Starbucks greener store framework. The equipment in these greener stores increased efficiency, leading to a reduction in water consumption by 15%, energy consumption by 28%, and carbon emission by 4% compared to normal regular stores. So I would like to thank all our team for a strong number in the first quarter. I'm pleased to report that we are running ahead of our guidance so far. We will see how the rest of the years unfold. But based on the current information, I am upbeat about the outlook going forward. The consumption in Mexico is strong. The summer season in Europe is looking promising. Cost pressures have been eased in most of our regions. Operating leverage is being benefited on us and our team has been executing exceptionally well our commercial strategies. Now I will pass the voice to Rafael so he can give you a more detailed overview of our brands, regions, results, and balance sheet items. Thank you very much.

Thank you, Armando. Good morning, everyone. We were pleased with the performance per IFRS 16 numbers also. Quarterly sales increased 10.9% on a per IFRS 16 basis year over year. Costs were up 45 basis points versus last year, and adjusted EBITDA was up 15% to 2.5 billion pesos. Looking to regions in Mexico, sales were up 17.6% to 9.8 billion pesos and adjusted EBITDA was up 23.1% to 2.3 billion pesos. This improvement was driven by digital innovations, new menu offering, and the continuous improvement in the retention of key talent, decreasing 2.9 percentage points in the turnover rate of the country compared to the same period of the last year. Also, sales growth helped us to improve our operating leverage, and the cost was benefited from the appreciation from the Mexican peso, resulting in a cost reduction of 100 basis points. In Europe, sales were up 4.4% to 6.6 billion pesos, and adjusted EBITDA was down 5.1% prior to 2016 to 866 million pesos. However, when excluding the effect of foreign exchange fluctuations, sales grew up by 15.7%. The increase in sales was driven by the normalization of consumption in the region, Digital Strategies Implemented and the Product Innovation. The contraction in the EBITDA was mainly due to the impact of the raw material and energy costs year over year, as well as the rise in minimum wage, partially offset by responsibility, price increases, cost control, and value strategies. South America posted a strong 49% increase in same-store sales for the quarter. with adjusted Pre-IFRS 16 EBITDA increasing 13.2% to 526 million pesos. The results in this region are mainly relating to the inflationary impact in Argentina as well as responsible pricing strategies and product innovation. Our net income Pre-IFRS 16 for the second quarter increased 89.7% to 475 million pesos year over year. This result comes from a very strong EBITDA generation and a benefit of the exchange rate variation. In the second quarter of the year, we achieved a pre-IFRS 16 earnings per share of 2.74 pesos and including IFRS 16 earnings per share rose to 2 pesos and 37 cents. In terms of our investments, the total capex for the second quarter amounted at 1.7 billion pesos. We allocated 39% of this amount to maintenance, 45% to store openings and remodeling, and 16% for the strategic projects. In the quarter, we paid 44 million pesos of net amortizations. Our pre-FRS gross debt increased 3.1 billion pesos year over year, closing at 25.5 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 the debt amortizations during the period. Our pre-IFRS 16 gross debt to EBITDA ratio at the end of the quarter was 2.7 times versus a covenant of 4.9 times and EBITDA to interest rate at 3.2 times. net debt to EBITDA 2.2 times with a cash position of 4.3 billion pesos. The debt structure at the end of the quarter was 63% on fixed rate and 37 variable. Also, 87% long-term with 64% in Mexican pesos and 36% in euros. And we reached a return on equity of 25%. We can go to a Q&A, please.