Alsea S.A.B. de C.V

Good morning, everyone, and welcome to OSEA's first quarter 2024 earnings video conference. My name is Gerardo Lozoya, head of investor relations and corporate affairs. And today, our chief executive officer, Armando Torral, and our chief financial officer, Federico Rodriguez, will be presenting the results. Before we continue, a friendly reminder that some of our comments today will contain forward-looking statements based on our current view. of our business and that future results may differ materially from these statements. Today's call should be considered in conjunction with disclaimers contained in our earnings release and in our most recent Bolsa Mexicana valores report. The company does not have the obligation to update or revise any such forward-looking statements. It is important to note that earnings numbers referred to are based on pre-IFRS 16 standards unless specified otherwise. I would now like to hand it over to Armando for his initial remarks. Please go ahead, Armando.

Thank you, Gerardo. Good morning, everyone, and thank you for joining our first quarter 2024 earnings video conference. I'm pleased to share with you our financial results, regional highlights, and brand accomplishments for the quarter. Additionally, I will talk about the progress we have made on our digital strategy and ESG initiatives. I would first like to take an opportunity to thank our team members and our other stakeholders for their continuity, dedication, or . Before joining to the numbers, let me share with you our top priorities for this year. Regarding organic growth, we remain very commitment to grow organically both by generating more traffic sales per store and open new stores, where we see attractive returns on capital. As we highlighted in our recent Alsade, we saw plenty of white space ahead to continue to grow our main brands in our key markets. At the same time, we are constantly innovating to make our existing stores still more productive And so you can see from our results today, it has been very successful. Regarding operation efficiency, while S.A.B.' 's growth gets most of our attention, our management team spends a lot of time finding new ways to be more efficient and improving our operational margins without affecting the customer experience. This is a product of rigorous attention to detail Deep knowledge of the company and its process and openness to share the best practice across the organization. Digitalization of our company. ASEA started the digitalization journey a long way back. We were convinced about three things. Our customers will want to order their food digitally. Second, data generates by the company could help improve frequency and sales. And three, the internal process could be simplified and requires less manual work. I am immensely proud of how we can achieve this progress. Some 30.3% of our sales right from this quarter are digital, broadly defined, but we will still see huge opportunity ahead to improve this number. Regarding our RESTL Highlights 2024 results, as you will have seen, the year has started off well. In the first quarter, we posted a 2.7% year-over-year increase in total sales, reaching 18 billion pesos, or a 12.2% increase when excluding for exchange effects. same-store sales grew by a robust 10.1% year-over-year. EBITDA grew by 12.4%, reaching 2.6 billion pesos for the quarter, with a 14.3% margin for the quarter. These results demonstrate robust demands for our brand, even as the strength of the Mexican peso continues to affect our currency translations. We serve over 28.1 digital orders in the quarter, coming to 5.5 billion pesos, which accounts for 30.3% of our total sales. Let me go deeply into a quick overview of our brands. Regarding Starbucks... We reported a strong year-over-year same-store sales growth of 8.6%. The Starbucks same-store sales for Mexico were up 10.6%, driven by promotions like Frappy Birthday. For Europe, they declined 5.7%, mainly affected by the boycott to American brands in France and Benelux. And in South America, the increase was 19.5% driven by inflationary pressures in Argentina, with a better performance in terms of traffic than the rest of the staples market. Regarding Domino's Pizza, we posted a robust 12.5% store sales growth in Mexico, largely driven by initiatives such as Domizmania, some other carryout initiatives that we've been doing, and another successful S.A.B. de C.V In Mexico, the successful roll-up of digital chaos continued to lead to double-digit growth in the average ticket. Regarding the full-service restaurant segment, we had a trended positive same-store sales of 8%, and orders' ticket frequency growth or traffic grew by 3.6%. The strong results were driven by successful innovations with the launch of nine new burgers in Foster Hollywood, a sandwich platform in Vips, Mexico, and a new breakfast menu in Spain. Additionally, we opened a new Cheesecake Factory restaurant in the city of Querétaro, Mexico, with great success. Regarding our expansion strategy, during the first quarter, We target the most profitable opportunities available to us. We opened 27 corporate units and 9 franchisees, so we did a total of 36 openings in the quarter. Most of these new locations were Starbucks and Domino's outlets, strategically positioned in high-traffic areas and regions, particularly in Mexico and Spain. While we often see a slower start to expansion in the first quarter due to seasonal variation, We expect to increase the pace of openings through the year, alignment with our strategic growth goals and guidance. Another important pillar of our strategy is the remodeling of our units. And once we do work traffic, and once we do the work, the traffic increased by 6% on average, we pay backs aligned to the minimum returns set to the openings of the stores. During the first quarter, we have remodeled 13 units globally. Regarding our loyalty programs, we supported by our digital transformation strategy and at the end of the quarter, our loyalty sales grew 21.7%, reaching 3.7 billion pesos and representing 20.3 million orders and 20.6% of our total sales. By the end of the first quarter, we had more than 7.8 million active users in the different loyal programs. Programs such as Starbucks Rewards and Club Buy play a crucial role in driving sales and growth. At the end of the first quarter, just a few months following its launch in Spain, Club Buy already had 1.5 million users. Regarding ESG, In the first quarter, Alsea advanced in its ESG initiatives. Some of the highlights include all the new opens of Starbucks in Iberia and Mexico we'll consider as green stores in 2024. Also, we have certified 44 Starbucks stores as greener stores, reaching 129 in Latin America. In Mexico and in Europe, We use 70% and 50% respectively of clean energy to cover our electricity needs. Fundación Alsea has donated over 25 million pesos to one institution committed to food, education, and employability in Mexico. These contributions have benefited more than 8,000 people thereby demonstrating a significant commitment to the well-being and development of our communities. Also, Fundación Alsea together with World Vision Mexico launched the third edition of the Alsea Award in March with the aim of promoting the dissemination and creation of innovative initiative-rich research projects in the field of food and nutrition. It contributes to the development of public policies. I will now pass you to Federico so he can give you a more detailed review of our financial information. Please, Federico. Thank you, Armando. Good morning, everyone.

We are pleased with ASEA's first quarter performance as quarterly sales increased 2.7%, driven by positive consumption trends in most of the regions, brand preference, and effective commercial strategies. Excluding foreign exchange FX, sales increased 12.2% for the quarter. In Mexico, sales were up 13.1% to 10.1 billion pesos for the quarter. Sales in Europe decreased by 2.4% to 5.4 billion pesos, but in Euro terms, sales increased by 6%. Finally, in South America, we post an 18.4% decrease in sales for the quarter to 2.5 billion pesos, mainly driven by the devaluation in Argentina and a lower consumer trends in the region. In Mexico, adjusted EBITDA increased 23.3% to 2.4 billion pesos for the quarter. This improvement was driven by positive consumption trends, better portfolio mix, and lower raw material prices. Also, the 10.1% growth in same-store sales boosted operating leverage, and the appreciation of the Mexican peso helped cut dollar-denominated costs. In Europe, adjusted EBITDA increased by 1.8% to 739 million pesos for the quarter, and 10.9% in euros, driven by growth in same-store sales, as well as a reduction in energy prices, food costs, and other inputs. In South America, adjusted EBITDA decreased by 18% to 413 million pesos, driven by the devaluation of the Argentinian pesos in more than 400% year-over-year, as well as by pressures on the operational leverage stemming from the decrease in regional consumption. In the net income for the first quarter, we had a decrease of 22% to 440 million pesos year-over-year. This was mainly driven by the purchase of U.S. dollars in Argentina and the lower appreciation of the Mexican peso in comparison to the same period of the last year. For the first quarters, the earnings per share were 3.08 pesos, post IFRS earnings per shares rose to 3.36 pesos, an increase of 58% year over year. Regarding the CAPEX, In terms of the investments, our first quarter capex amounted to 940 million pesos. We allocated 23% of this amount to maintenance activities, 62% to store openings and remodelings, and 15% to other strategic projects like digitalization or change of the digital platforms. We have made prudent and responsible investments throughout the year, focusing on profitability. For the debt, our pre-IFRS gross debt increased 1.7 billion pesos year over year, closing at 28.1 billion pesos at the end of the quarter. This increase resulted from a bank loan to finance the exercise of the option to buy out the minority shareholders in Europe. Finally, the financial ratios. Looking at the total debt to EBITDA ratio, we closed the quarter at 2.5 times and the net debt to EBITDA ratio at 2 times. The debt structure at the end of the quarter was 88% long-term, with 67% in Mexican pesos and 33% in euros. We expect to continue with the strong balance sheet going forward and meet all our debt covenants thanks to the healthy ongoing cash generation. At the end of the quarter, we posted a cash position of 5.4 billion pesos. Before going to the Q&A, Gerardo will remind us of the 24 guidance. Please go ahead, Gerardo.

Thank you, Fede. I would like to briefly review the guidance we provided in March at the Alcea Day. We anticipate opening between 250 and 300 stores this year, primarily corporate, with the minority being franchises. We expect capex at 6 billion pesos, with the majority directed towards store openings, maintenance, remodeling, and digitalization. We project growth in same-store sales to be around 7% to 9%, and in revenues above 10%. We forecast EBITDA pre-IFRS, to increase by more than 11%, with a margin of 14.2% or higher. This will lead to a gross debt to EBITDA ratio of about 2.5 times and return on equity of 28 to 29%. These quarter's results have set the foundation for meeting our full year guidance. Operator, we're ready to take questions. Please go ahead.

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. Ben Theroux from Barclays. Please go ahead.

Good morning, everyone, and thanks for taking my question. Just two quick ones. So, number one, very detailed on the presentation on some of the impacts in the different regions, but wanted to follow up as to some of the strategies you've been working on to mitigate some of the negative impact from the boycott over in Europe against the brands. Have you done anything on the marketing side? Have you been trying to kind of overcome some of these headwinds? And how do you feel this is going to play out over the next one to two quarters, particularly with the Olympics coming up? That would be my first question, and I have a quick follow-up on Mexico.

Thank you, Ben. Ben, yes, since we saw this decrease in sales starting the middle of October, more or less, S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V and another on Holland. We don't have only other brands, just Starbucks the one. But yes, we are creating with Starbucks rewards some plans. We are seeing that the younger crowd is the one that is making that switching of a local stores or switching to other brands and not the occidental U.S. brands. So we are working with a plan, yeah, consistently plan with Starbucks rewards. This also is created only in the mornings, not in the evenings. So at the end, we have it very well clear where is it, and we are creating some commercial programs for a region per store in order to mitigate that. I think we have to see in the next two weeks this align, and we expect to be in May really same store sales increase. S.A.B. de C.V

S.A.B. de C.V Just thinking about this, we're at the end of April. Last year, this whole thing was in April. Have you any preliminary data as to the performance on a year-over-year basis for April? So just that we can kind of potentially quantify what the shift impact was from 2Q into 1Q and what obviously would then be negative in 2Q.

Well, I'm not going to give any kind of figures for the April month, but I can tell you that the calendar effect that we had in March from ESER was around one percentile point in the same source sales mix. But obviously, as Armando just said, we maintain the guidance because we have that into our projections for this year. Okay.

Yeah, that's all I needed. Thank you very much.

Perfect. Thank you.

Thank you very much for your question. Our next question is from Mr. Hector Maya from Scotiabank. Please go ahead.

Hi, Armando, Federico, Gerardo. Thank you for taking my questions. We have been seeing the favorable results that you are getting from portfolio innovation, menu, architecture. S.A.B. S.A.B. de C.V

S.A.B. de C.V S.A.B. de C.V from Mexico exported to Europe or South America. We did it the other way right now, exactly in the Burger King. Some ideas that we did in Argentina that really worked very fine. And I think right now with the digital platform that we have, We are capable and we are making some strategies only in those 32% of our customers that order by digital. We tender with a very personalized S.A.B. de C.V S.A.B. de C.V S.A.B. de C.V

I will take the second question, Hector. Thank you very much. Regarding the input cost, we are starting to see a decrease in all the raw materials where we suffered in 22 and 23. And even when this is a slightly, well, this is around one percentile point of decrease, we expect this trend to continue during the year. And additionally, talking about Europe, not only about the food cost, we have started to see the same historical prices from energy that we had pre-COVID. So good news, not only in Europe, but for the whole portfolio of ALSEA. Thank you very much.

Perfect. Thank you. Thank you very much.

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

Hi, guys. Hi, Armando. Two questions here, if I may. The first one would be for Armando. I mean, just to make sure on the competitive dynamics in Spain, right, you mentioned that part of the deceleration that we saw there was this switch, right, from QSR to cash flow dining. Just wanted to make sure that that was actually indeed the case, right, that perhaps not some increasing competition, let's say, from the pizza or, I don't know, McDonald's, right, that could have contributed to the deceleration in QSR in Spain. And the other one would be very quickly, very technical, but a question that we received from clients yesterday. On the mismatch that we saw between the pre-IR416 and post-IR416 EBITDA margin, on one we saw expansion, on the pre-IR416 we saw expansion, came in line with our forecast. But on the post, we see a contraction. Just curious if you can comment about that. It's very technical, but would help us to understand much better here what happened. Thank you very much.

Gracias, Rodrigo. I think we have a very, very impressive sales momentum in Spain. I mean, when you saw that, when we see the numbers, all our casual days in the division, you remember two years ago, we were struggling a little bit with Forster, Hollywood. We did an impressive 10.2% in traffic. Bips is performing also great with another 6.5%. Geno's 21%. So I'm always counting just traffic. So, I mean, all our units, exception of our Burger King, because some differences become price and delivery, but all our units are doing great in Iberia. I would say it's just Iberia, but Iberia, including Portugal, the results were great in the whole atmosphere. I mean, yes, we grew a little bit less in the Starbucks segment, But all of the rest, I think very confident. The thing is when we close by and put together the Benelux business, that is a little bit affecting of Europe. But if we exclude just the Benelux business of Starbucks, the rest of Europe really performed very well. Very well. I think I'm very pleased with that. And like Federico said, The context there in costs, it's another story. In energy, it's another story than two years ago. So I'm very pleased with the numbers. Unfortunately, the exchange rate does not help us, you know. We had a 19-point-something budget. It's coming at 18.4 euro per peso. So that is an affection. But I think in local currency, Europe is doing a good job here.

And to complement Armando's answer, Rodrigo, even with the competitors, we are gaining market share not only in the casual lighting segment, where we are the leaders with the different brands that we compete, but in the pizza segment, we are gaining market share in the last year in comparison with the two players that we had in there. And additionally, regarding the second question, a technical question like you said, both relevant. The difference between the EBITDA margin pre-IFRS and post-IFRS is driven mainly by the devaluation of the Argentinian pesos affecting the leases. that that is around a 60 to 70 percent of the deviation of the margin and additionally is the appreciation of the Mexican pesos in comparison with the rest of the currencies and it's a 100 percent at least effect the mix of the variable and fixed leases is pretty much the same so it's only an S.X. impact

Awesome. Thank you very much, Fede. Just a very important highlight there. So you said you gain market share in QSR in Spain. Is that correct? It's just pizza?

In pizza and in cash online.

Awesome. Okay. Thank you very much, Fede Armando. Okay. Gracias. Gracias, Rodrigo.

Thank you very much for your question. Our next question is from Ms. Renata Cabral. from Citi. Please go ahead. Hi, Armando, Federico, and Gerardo.

Thanks so much for taking my question. I have two here. The first one is about Starbucks, if you can comment a little bit about the profitability, especially if you can give a comparison. between Mexico and in Europe, as right now, at least in the first quarter, the brand is facing some boycotts there. How has this impacted and how we can think about that? And the second question is about the loyalty problem. You made some commentaries and also the release, and I understand that this is, at least right now, must focus on the Starbucks just to understand if this has been rolling out also for Domino's. And also you can comment something about the Domino's Mania that we know that had a good performance in the first quarter of the year. And what is the strategy for the rest of the year? It is a punctual program or it should be rolled out throughout the 2024. Thank you.

S.A.B. de C.V S.A.B. S.A.B. de C.V S.A.B. de C.V Having said that, we are not quieting the pace to open new stores because the profitability of the stores and the wide space in France is huge. So we are having a slump in the way. Hopefully for the second quarter, by the end of the second quarter, we are going to have better figures, better trains in terms of traffic for France. Additionally, we are not only taking actions in the top line for France and for Netherlands, we are doing the job in the productivity, in the stores, to preserve all the expenses, to have an easier way.

Hola, Renata. Gracias. Thank you. Let me tell you a little bit about what we do within DAMP. in the whole digital platform regarding. As you know, and we mentioned here in March when we see you, when we saw you guys, we are in the implementation of SDS Steel. And this is going to be all the way longer to the whole year and to the year end. We are starting with LATAM, Chile, Argentina, Uruguay, Paraguay already have that. Of course, in France and Benelux, we already have the SDS, the POS installed, and we are advanced. regarding Starbucks rewards, tax for everyone, and we are right now utilizing CRM for really personalizing the consumer. Regarding Latin America, we don't have the Starbucks program, for example, in Colombia, that we have 70-plus stores. That's an achievement that's going to be starting in March, in the third quarter. So I think that's going to give us another robust and all the, I think by the end of that third quarter, starting the fourth quarter, we will have to have that rollout completely for that SDS platform ready. So we can, I mean, Devin says that we are working right now with Starbucks in Mexico. It's working. We are personally customers, but the platform is not as robust as it can be. We are working right now with MOP, Morber Oriente and in two countries, but we start a long, long way to go with that channel that can give us a lot of sales. But also the delivery, you know, nine point something percent of our sales in Starbucks are delivering. So that's a great channel that we didn't have three years ago. It's increasing for us. A category is not increasing. I will tell you, a category is not increasing in all the regions, but we are. When we see the numbers with our aggregators, we are facing a good increase. So that's for Starbucks. And regarding Domino's, our friends from Domino's were here two weeks ago. I'm also pleased to say that we were named Franchisee of the Year S.A.B. de C.V S.A.B. de C.V 10 orders that you buy, they give you products free, but you don't have an accountability of the points and you don't redeem and you don't accumulate and you don't redeem. We don't have accountability here. I think by the end of third quarter, let's say September, we can plan to launch that in Mexico. I think Domino's Pizza is going to report in the next weeks or something. But I think that game of a loyalty program in Domino's is working very well, and we are very bullish just to jump in that program that is going to give us headwinds regarding fidelity for our customers that nobody else have in this category, that kind of rewards program, no?

I would say, Renata, just to complement what Armando was saying, in Domino's Pizza, we have implemented Domino's Cloud in Mexico and Colombia, and we're planning to do the rollout in Mexico for EPS. So we are, again, kind of moving in the right direction, and we will have a much more robust app in Domino's in our markets.

That's great. So very complete answers. Thanks so much.

Thank you very much for your question. Our next question is from Mr. Felipe Casimiro from Bradesco. Please go ahead.

Good morning, Armando, Fede, Gerardo. Thanks for taking my questions. I have just a couple of questions. So first, I wanted to follow up on the negative impact of the FX losses. Federico mentioned there was a purchase of USD in Argentina. I imagine there's something related to that. I'm just wondering, going forward the next quarters, are there any more major movements in this sense of the purchase of U.S. dollars? And the second one, if I may, Gerardo reinforced the guidance in the presentation, Armando as well, But I just wanted to double check with you because the situation in Argentina is ongoing and it's impacting numbers. So I just wanted to assess what could be the risks in the Argentine operations that would make you change your guidance in terms of what it takes.

I can take both the questions. The FX loss, to be pretty clear, I'm going to explain it. The FX losses we suffered from Argentina became from the conversion in the cash position from the official rate, which was around 850 Argentinian pesos per dollar, to the contado per liquidación rate, which is more than 50%, 56% of difference in the rate. and this supposed 170 million pesos in the consolidated figures you received yesterday. so having said this this is a one of impact obviously we will have a cash position during the next quarters but it is not going to be relevant you have to think that this cash position became from the last two years so it is not going to be relevant additionally the risk from Argentina I would say we have it considered in the budget and obviously in the guidance that we deliver to you in the ASEA day. So we maintain the guidance and we do not expect to have any more risk from Argentina. Do you want to compliment?

No, I think, Felipe, I think in Argentina, and you are closer than me from that country, things are looking, when I did the budget in November, we did a very dramatic budget that is included in the forecast. But as soon as we are seeing the numbers right now, S.A.B. de C.V

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

Yes. Hi, good morning, everyone. Armando Federico, thanks for the question. Congrats on the results. I would just like to explore a little bit more the SG&A dynamics, particularly in Mexico, right? When I tried to infer here the SG&A ratio that you printed in the region, I say slight improvement year over year, like 10 basis points improvement. And this is in a context when we're seeing a significant increase in the minimum wage, right? So my question is, with all the efficiencies operating leverage that you expect going forward, couldn't we see even room for slightly better profitability and lower expenses going forward once you digest this new payroll structure? Thank you very much.

As we said, Tiago, well, hello, Tiago. As we said in the outside, obviously, it's not a good news to have increases in the minimum wage, but we think we have some kind of levers to increase the productivity into the stores. I want only to remark, because some of the notes that I see, that is not a good news. We have around 60% of our employees linked to the minimum wage, and obviously we are accomplishing with the law. That's the first part. And the second part, we are trying to improve the productivity into our stores. We think we have room to do it, but this would have, in case we have this at a perpetuity rate, this would impact the final customer. It is not happening right now. We are preserving the same kind of service, and we have excellent reviews from the customers, but we are not seeing an impact on the P&L, as we said on the OCD.

I would say, Tiago, to complement on that one, we mentioned in the previous quarter that we were making some progress let's say, rollouts in Burger King in Mexico, a flexible hour week for employees. That worked well. That is now amplified to other regions. So let's say the experiment that we're doing is a little bit bigger today. And we're also looking for doing this at Domino's Pizza as well, and the same for Starbucks. So we're adding a little bit more of analysis behind it. So we're prepared for that. And as you know, we already have some labor markets or intensive labor markets that we operate today, such as Spain or Chile. So we're used to it. And we should adapt relatively easy in Mexico, hopefully.

That's clear. Thank you very much. And if I may, a quick follow-up also in Mexico. the elections are just kicking in and obviously we are seeing more incentives being deployed in the economy, right? To this point, are you seeing sequentially better demand and even semester sales moving? I know the comps, but should we expect sequentially better momentum for traffic demand and consumption into the second quarter?

They were yesterday in Banco Mundial, two weeks, I mean, a week ago, they put a little bit upscale of 1.4 to 2.6, about a grow in Mexico, no? We didn't see anything, any movements yet, you know. Right now, we are comparing with Semana Santa a year before. So, of course, this is not a very well comparison. But now, we are going to go there. There's S.A.B. de C.V And I think the economy, yeah, we see some resources and better resources. There's 50 days for the elections, and any six years here, you know, there's more resources and money in the pockets of the consumers. But we need to be honest with you that we are seeing some other changes or minimal changes. We are not.

Yeah, it's favorable for the country, and we think it's favorable for us, yeah. Perfect.

Thank you very much. Sure. Thank you.

Thank you very much for your question. Our next question is from Luis Willard from GBM. Please go ahead.

Hi, guys. Good morning. Thanks for taking my question and congratulations on another strong quarter. I wanted to go back to Renato's question about loyalty and pick your brains about. I mean, you're already doing around a third of sales on e-commerce or digital sales. Let's call it digital sales. And also a significant portion of it, especially in Starbucks, is related or is attached to the loyalty program. So the question in particular is, as you roll out loyalty in Domino's and you continue to evolve loyalty in Starbucks where do you see it moving forward in terms not only in penetration but in terms of monetization in terms of all the added value that you can extract from having successful loyalty programs basically the question is where do you see it now and where do you see it going five years forward thank you

Gracias. Yeah, I mean, you are very right. This is the key of the game, how we monetize that consumer in all the ecosystem of Alsea, no? And Club Buy, that is very, Club Buy has a, Club Buy with Fosterianos, Clubips and Genos has a big, big platform in Europe, better than the one that we have in Mexico. What are we doing in the Domino's and what are we doing? I mean, Domino's, has more than 30% of digital sales. I mean, remember that we do their aggregators. Also, we do our app that is very strong. So, I mean, Starbucks as Domino's are strong as digital sales. And our Burger King with a digital kiosk are also going to be part. So, yes, you are right. One third of our sales are there. And I think by the end of the year, probably can be a 50% of our sales can go by digital. And like I said, that is also the cost of labor, like we said, that gave us a lot free expenditure for that. Right now, what we need to do is, and I will like to show you the next quarter is how we are processing that. S.A.B. de C.V S.A.B. de C.V is just an amazing success that we have. So we are partner also with Starbucks and another third parties to understand better how can we monetize those consumers in order to purchase with more frequency, better ticket. And also they have to have more incentives. You know, if you are a gold member in Starbucks, you can have those Stanley Cups before other ones. And that makes you be part of our loyalty program. So we are doing a big segmentation in order to gain more momentum for them and being more loyalty to our brands.

Yeah, that's very interesting, Armando. Thank you and looking forward for next quarter to see that. Bye-bye.

Thank you very much for your question. Our next question is from Mr. Fernando Herrera from Compass Group. Please go ahead.

Hi, guys. Sorry the last time I couldn't unlock my microphone. Here are just a couple of questions. First one is a quick follow up on energy prices in Europe. As you mentioned, you're seeing levels, pre-pandemic levels in terms of energy prices. So just wondering if you have some plans to hedge at these prices. That will be the first one.

Okay, usually we have not had any kind of commodities, only the effects for the US dollars raw materials. we are waiting for the for the best moment because we do not want to close a financial hedge we want to have a fixed contract with some of the generation generators but they are not willing to close a two-year contract they want something like 10 years and I think it's too risky for the company and honestly with all the injection of renewable sources in Europe that it has been implementing Since three years ago, we think the prices are going to improve in the next six to 12 months.

Okay, thanks. And the second one is related to the huge cash outflow we're seeing related to the minority, to the non-controlling stake. I suppose that this is related to the Europe acquisition of the rest of the part of the business. So, I mean, I have in my mind that this operation will take place by the end of this year and a small part in the first part of 2025, right? So, yeah. Okay.

Gracias, Fernando. The acquisition, as we mentioned in the previous video conference call, we bought the three minorities, Bain, Pro Capital, and the Arango family, well, Analia Capital, partially with a bank loan and cash. We have closed the deal. In fact, I'll say at least as of today, have the 100% of the European entity. The acquisition was, as we said, 238 million euros, and we have paid around 150 million euros, and we will pay the remaining part, the 90 million euros, in the last quarter and in the first quarter of 2025.

Okay, super, super clear. And here, I'm just wondering, I mean, you have the optionality to pay with a stake of S.A., right? So, I mean, you have plans to do that or will be more driven with cash and more debt?

No, as I said, we're paying with cash, and we do not see pay with shares as an option. We think it is not a good option for the shareholders, and we will do with the mix I just commented. Perfect. Thanks. Gracias, Fernando.

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

Hi. Good morning, everyone. Thank you for the space for questions. My first question is on mozzarella in Mexico. Could you please share an update on where you are in terms of mozzarella needs for the future? And my second question is related to your guidance. Could you please remind us your implied effects assumption for the Mexican peso? Thank you very much and congrats on the results.

Thank you. I think in cheese, no, Federico, we have good news because the cheese right now with an exchange rate of 17 pesos, there's great news. And then cheese prices are in the lowest ever. We have a stock all the way to October, November. And actually last month ago where Bender was here, we're going to see another opportunity to get there. So I think that is one of the most S.A.B. de C.V

to you guys we did it with different effects obviously the appreciation of the peso at the end of the day is good for the company but this is not having a crucial effect for the guidance we gave to you one month ago so we will maintain the guidance and honestly the only way to change it is if the peso goes to 13 pesos per dollar but we do not see that happening

And I would say, Jorge, just to give you a little bit more details on the exchange rates, the ones that we were looking at the guidance were, let's say, roughly 17.8 Mexican pesos to U.S. dollars, and in euros, roughly 19.5 euros per dollar, per peso, sorry. Great.

Thank you very much.

Thank you very much for your questions. That was the last question. I will now hand over to Mr. Armando Torrado for final comments.

Once again, I would like to thank you. Thank you very much for joining our quarterly video conference. As always, if you have any further questions, please contact us, our investor relations team. I wish you have a great day, and thanks for connecting today. Thank you.

Isaiah would like to thank you for participating in today's video conference. You may now disconnect.