Alsea S.A.B. de C.V

Good morning, everyone, and welcome to Alsea's second quarter 2024 earnings video conference. My name is Gerardo Lozoya, head of investor relations and corporate affairs. And today, our chief executive officer, Armando Torrado, 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 de Valores report. The company does not have any obligations to update or revise any such forward-looking statements. Please note that unless specified otherwise, the earnings numbers referred to are based on the pre-IFRS 16 standards. I would now like to hand it over to Armando for his initial remarks. Please go ahead, Armando.

Good morning, everyone. and thank you for joining our second quarter 2024 earnings video conference. I am pleased to share with you our financial results, regional highlights, and other notable milestones from the quarter. I will also develop in progress what we have made and our digital ESG strategies. Before I begin, I would like to thank our team members for their hard work and our stakeholders for the continued support to Alsea. In the second quarter, sales increased by 2.3% year-over-year, reaching 19 billion pesos, or a 9.6% increase when excluding foreign exchange effects. same-store sales grew by a solid 9% year-over-year. Despite a challenge in macroeconomics environments and strength of the Mexican peso impacting currency transactions across regions, EBITDA grew a 7.6%, reaching 2.7 billion pesos for the quarter, with a 14.5 margin. This increase is due to the benefits of operating in leverage, lower cost of food, and other raw materials. In the quarter, we served over 32.9 million digital orders, totaling a 6.4 billion pesos, which contributed for 33.9% to our total sales. Regarding our brands, Starbucks Alsea same-store sales increased by a 7.2%. across our regions, Starbucks Mexico, same-store sales grew up 8.7%, driving by over-the-counter promotions, improving store service, innovative food options, and attractive merchandise. For Europe, same-store sales declined 9.9%, mainly affected by more challenging consumption environment, and a boycott of American brands in France and the Netherlands. Finally, in South America, same-store sales grew 27.4%, but declined by 5%, excluding Argentina. Regarding Domino's Pizza Alsea, we posted at 1.8% increase in same-store sales. In Mexico, Domino's same-store sales increased by 4.7%, largely driven by successful commercial strategies such as Domino's Mania. Additionally, popular over-the-counter promotions like My Domino's and Pan Pizza offerings at 119 and 149 pesos provided very highly effective results. In Spain, same-store sales decreased by 2%, affected by ongoing challenges in the delivery channel. And finally, in Colombia, same-store sales were up 2.6%. Regarding our Burger King business, Alsace same-store sales, excluding Argentina, increased by 2.5%. In Mexico, Burger King reported same-store sales grew by 1.7%. In our full-service restaurant segment, we trended positive same-store sales up 5.5%. Pips Mexico posted a very robust 8.4% year-over-year increase in same-store sales, driven by compelling value promotions, service improvements, and innovations regarding product offerings. Chilis and Italianis in Mexico reported a double-digit growth in same-store sales, helped by increased traffic after introducing new food and beverage offerings. In Spain, Ginos also reported a high single digital growth in same-store sales. Let me turn now with Alsea Global. As a brand operator, we focus on providing a top-notch experience for all of our customers. For example, Starbucks Alsea leveraged its geographic reach by sharing best practice between stores while also tailoring food offerings to local preference. We seek to provide a welcoming third place environment where customers feel at home among friendly staff. During the second quarter, we opened 48 corporate units and 17 franchises, or that is a total of 65 stores. which focuses on the most profitable opportunities across all the regions. During the first half of the year, the rate at which new stores were opened was similar to last year and expected to increase in the upcoming months. A core element of our expansion strategy is remaining unique to align with customer trends. For example, remodeling VIP stores in Mexico has lead a 15% sales increase and help attract new customers. Globally, we remodeled 25 units during the second quarter. Regarding loyalty programs, our digital transformation strategy continues to drive growth. By the end of the quarter, loyalty sales increased by 37.6%, reaching 4.4 billion pesos, which accounted for 23.9 million orders and contributed for 33.2 total of our sales. By the year end of the second quarter, Club Bi, launching in Spain during the fourth quarter, reached more than 2 million members, while Stalvos Rewards reached also more than 2 million active users at calls, all ALSEA regions. Now, I would like to take a moment to discuss our team and the progress we are making in our key initiatives. At the end of the second quarter, we had more than 76,000 team members, 49% of whom are women. We have seen our global turnover rate to improve to 60%, a 1% point decrease from the first quarter. During the quarter, we completed the engagement survey with participation from 96% of our total team members across all countries where we operate, achieving an engagement index of 4.2 points and a net promoter score of 56%. Our ESG strategy is progressing well. 25% of our leadership roles are now filled by a woman. 95 of our employees earn living wage or above, and we support more than 2,000 employees from the priority group, including the elderly, people with disabilities, refugees, migrants, and vulnerable youth. In June, as a part of our efforts to reduce CO2 emissions, We acquired international renewable energy certificates for 508 stores in Argentina and Chile, including Burger King, Starbucks, Chili's, and P.F. Chang's, equivalent to cutting over 19,000 tons of CO2. In Spain, we installed 354 solar panels in Q2, reducing CO2 emissions by 209 tons and cutting energy consumption by 20 to 25% in stores, factories, and the support center. In Mexico, Fundación Alsea donated 12 million pesos and two mobile kitchens to Red de Banco de Alimentos de Mexico to the Comer en Familia program. And finally, during the quarter, we certificate 10 Starbucks stores as greener stores, reaching 141 in Latin America. Now, I would like to hand it over to Federico Rodriguez. Thank you.

Thank you, Armando. Good morning, everyone. Moving on to Alsea's second quarter 24 performance, despite the challenging microeconomic environment, quarterly sales increased by 2.3%, driven by effective commercial strategies. Excluding FXFX, sales would have increased by 9.6% for the quarter. In Mexico, sales were up 8.8% to 10.7 billion pesos. Sales in Europe decreased by 2.7% to 5.5 billion pesos, but in European terms, sales increased by 0.8%. Finally, South America's sales declined by 9% for the quarter to 2.8 billion pesos, mainly due to the devaluation of the Argentinian peso and reduced consumer demand in the region. In Mexico, adjusted EBITDA grew by 12.1% to 2.6 billion pesos for the quarter. This improvement was driven by increased sales, successful commercial strategy, a better portfolio mix, and the benefits of our cost reduction strategy. Also, the 7.3% growth in same-store sales continued to enhance operating leverage. For Europe, the adjusted EBITDA decreased by 14.9% to 737 million pesos for the quarter and by 12.2% in euros due to a decline in same-store sales arising from macroeconomic pressures and the boycott of American brands. In South America, adjusted EBITDA decreased by 21.3% to 414 million pesos driven by the devaluation of the Argentinian peso and a reduction in operating leverage. The net income for the second quarter decreased year-over-year by 66.9% to 157 million pesos. This was mainly due to a non-cash negative effect from currency exchange translation leading to an increase in our U.S. dollar's debt in Mexican pesos terms by the end of the quarter. For the second quarter, the earnings per share were 3.06 pesos. Post IFRS 16's EPS rose to 3.63 pesos, an increase of 53% year over year. The capex for the second quarter amounted to 2.4 billion pesos. Can we go to the next slide, please? The capex for the second quarter amounted to 2.4 billion pesos. We allocated 25% to maintenance, 56% to store openings and remodelings, and the remaining 19% to other strategic projects. Throughout the quarter, we prioritized prudent and responsible investments focusing on profitability. Our pre-IFRS 16 gross debt increased by 4.6 billion pesos year over year, reaching 29.7 billion pesos by the end of the quarter. This rise was primarily due to the impact of a weaker Mexican pesos on our foreign currency debt at quarter end. And finally, moving on to financial ratios, total debt to EBITDA ratio closed the quarter at 2.6 times, while our net debt to EBITDA ratio stood at 2.3 times. At the end of the quarter, 88% of the debt was long term, with 65% denominated in Mexican pesos and 35% in euros. We are committed to maintain a healthy balance sheet going forward and are confident in meeting all our debt obligations thanks to the healthy cash generation. At the end of the quarter, we posted a cash position of 4 billion pesos. Now, finally, I will pass you over to the operator for the Q&A session. Thank you very much.