Alsea S.A.B. de C.V

Good morning, everyone, and welcome to Alsea's fourth quarter and full year 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 in our earnings release and our most recent Bolsa Mexicana Evarist report. The company is not obligated to update or revise any such forward-looking statements. Please note that unless specified otherwise, the earnings numbers referred to are based on our pre-IFRS 16 standards. I will now hand it over to Armando for his initial remarks. Please go ahead, Armando.

Thank you. Thank you. Good morning, everyone. Thank you, Gerardo. And welcome, welcome to the... Alsea's fourth quarter and full year 2024 earnings video conference. I would first like to thank our team members for their continued dedications to Alsea, the hard work and commitment that had been key to our solid performance this quarter and through the year. Today, I will provide an overview of the quarterly and full year performance, covering our financial results, regional highlights, and key brand developments. And I will also highlight our progress on digital transformation, ESG initiatives, and expansion strategy. To begin with, here are the key highlights for Q24. In the fourth quarter, we reported an 11.1 year-over-year increase in total sales, reaching 21.7 billion pesos, or a 12% increase when excluding foreign exchange effects. Same-store sales grew 7.2%. EBITDA increased by 13% in the fourth quarter, reaching a 3.6 billion pesos, with a margin of 16.4%. It is relevant to notice the strength of our branch in different regions, which is in conjunction with the optimization of the portfolio with a sale of 54 units of Burger King in Spain, a strategic pricing and cost control measures that were effectively on offset that minimum wages increases. We improve in both margin and financial strengths. We serve almost 34 million digital orders in the quarter, amounting to 7.3 billion pesos, which accounted for 33.5 of our total sales. For the full year, digital sales also reached 33.5% of our total sales, slightly up from 33.4 in 2023, evidencing the success of our digital strategy and growing consumer performance. Regarding our brand performance in the four quarters, Alsea, Starbucks Alsea same-store sales increased by 5.2%. For Starbucks Mexico, same-store sales increased by 3.3%, mainly supported on the counter and delivery channels with strong contributors from the morning day part. For Starbucks Europe, same-store sales declined 7.4% as we continue working toward recovering pre-COVID traffic. Performance was also impacted by reduced consumer traffic in key tourist area, particularly in Valencia, which was affected by the recently flooding. And finally, in South America, same store sales increased by 30.5%. Regarding Domino's Pizza Alsea, we posted a 4.8% increase in same-store sales. In Mexico, Domino's same-store sales increased by 5.1%, driven by effective commercial and operations strategies. In Spain, same-store sales increased 3.5%, reflecting successful commercial strategy, such as Cosantissima, which has been well received by our customers. And in Colombia, Dominos performed well, achieving a 10.5% growth in same-store sales, driven by higher transactions volume. Passing to Burger King Alsea, same-store sales, excluding Argentina, decreased by 1.1%. In Mexico, Burger King reported a same-store sales contraction of 1.1%. However, the continued rollout of digital kiosks and other digital strategies is expected to support future growth. In Chile, same-store sales were flat. Regarding the full-service restaurant segment, we delivered a 3.9 growth in same-store sales. VIPS Mexico, who recently turned 60 years anniversary, we had a strong 3.8% year-over-year growth in same-store sales, fueled by strong operational performance and expansion on delivery channel and successful seasons promotions. In Mexico, Italia Italianis was the best performer with a high single-digit growth in same-store sales, while the rest of the portfolio was in mid-single-digit range. In Spain, Vips and Genios reported a solid same-store sales of 3.8% and 3.3% respectively, disputing the impact of the floating in Valencia. Our global expansion strategies focus on capitalizing on the most profitable opportunities across our key markets. During the fourth quarter, we opened 107 new stores, including 74 corporate units and 33 franchisees, especially targeting high-traffic areas. Alongside our expansion in high potential regions, we are also remodeling existing locations to enhance customer experience and drive growth. Despite macroeconomic challenges, we successfully opened 275 stores in 2024, 205 corporate units and 70 franchise stores. Looking ahead to 2025, we remain focused on identifying high potential areas to expand our footprint. Regarding our loyalty programs, our digital transformation continues to full growth. By the end of the quarter, loyalty sales grow by 33.1%, reaching 5.1 billion pesos, accounting for 25.1 million orders, and contributing to 26% of total sales. Additionally, by the end of the fourth quarter, Club Buy in Spain has surpassed 2.8 million members, while Starbucks reached over 2.3 million active users across all ALSEA regions. ESG and people, we continue to advance in our ESG initiatives this year, demonstrating our commitment to sustainability and social responsibility. As we reflect on our 2024 achievements, I want to highlight the collaborative efforts across company to shape our sustainability strategy. This work has been essential in establishing short, medium, and long-term goals focused on reducing emissions, enhancing packaging circularity, ensuring responsible sourcing, and certifying suppliers on their sustainability criteria. Our commitment to the community and later development has been strengthened through these initiatives, ensuring that sustainability remains a core component of our operation and strategy. By integrating sustainability into everything we do, we are not only shaping a better future, but also building a strong foundation for long-term success. Additionally, Fundacion Algeas has a record investment in more than 90 million pesos, and serving more than 1.5 million meals in Mexico through 34 soup kitchens. And we continue to ensuring food security for vulnerable communities and support human development through education and employability initiatives. Now, I would like to hand it over to Federico Rodriguez. Please, Federico.

Thank you, Armando. Good morning, everyone. The sales increased by 11.1% in the fourth quarter and 6.3% for the full year, driven by solid consumption, preference for the company's brands, and effective commercial strategies in Mexico and Spain. Excluding the FX, sales increased 12% for the quarter and 10.9% for the full year. For the fourth quarter, sales in Mexico were up 8.5% to 11.6 billion pesos. In Europe, sales increased by 14.5% to 6.5 billion pesos, while in Euro terms, sales increased by 0.8%. Finally, South America sales increased by 14.1% to 3.5 billion pesos. For comparable purposes and attending the accounting rules, the operation of the 54 units of Burger King in Spain, as well as the sale of these assets, has been included as a discontinued operation below EBITDA line. The EBITDA increased by 13% in the fourth quarter and 8.5% for the full year, driven by solid consumption and the preference for the company's brands. Excluding FX, EBITDA increased 11.5% for the quarter and 11% for the full year. In Mexico, the adjusted EBITDA increased by a strong 14.7% to 2.8 billion pesos for the quarter. This growth was driven by lower material costs, increased sales, successful commercial and promotional campaigns, and effective expense and labor management. Additionally, the 3.8% growth in same-store sales continue to improve operating leverage. For the full year 2024, adjusted EBITDA increased 18.5% to 10.5 billion pesos, with a margin expansion of 180 basis points. In Europe, the adjusted EBITDA decreased by 2.1% to 1 billion pesos for a quarter and by 9.7% in euros, driven by a drop in same-store sales. This decline was primarily due to macroeconomic pressures and the previously mentioned brand boycott. For the full year adjusted EBITDA decreased 4.4% to 3.3 billion pesos with a margin contraction of 150 basis points. In S.A.B. adjusted EBITDA declined by 17% to 488 million pesos driven by a reduction in the operating leverage and an increase in the cost of food and other inputs. For the full year, adjusted EBITDA decreased 21.5% to 1.8 billion pesos with a margin contraction of 370 basis points. Net income for the before quarter decreased 45.3% year-over-year to 575 million pesos. This was mainly due to a negative non-cash effect from currency exchange translation, which increased the cost of our U.S. and Euro-denominated debt in Mexican pesos terms by the end of the quarter. For the full year 2024, EPS was 1.68 pesos. Post IFRS 16, EPS was 0.94 pesos. Going to the CAPEX, for the full year we amounted 6.5 billion pesos, slightly exceeding initial guidance. This was mainly due to the start of constructions of the new distribution center in Guadalajara. This investment will strengthen our logistical capabilities and support future regional growth. We allocated 27% to maintenance capex, 58% to store openings and remodelings, and 16% to other strategic projects. Throughout the year, we prioritized prudent and responsible investment with a clear focus on profitability. Our pre-IFRS 16 gross debt increased by 6.9 billion pesos year over year, reaching 33 billion pesos by the end of 2024. This rise was due to the debt incurred to finance the minority shareholder acquisition in Europe, as well as due to the impact of a weaker Mexican pesos on the foreign currency debt at quarter end. At the end of 24, 89% of the debt was long term, with 65% denominated in Mexican pesos and 35% in euros. We remain committed to maintain a strong balance sheet and are confident in comfortably meeting all debt covenants and obligations thanks to our healthy capital structure. At the end of the year, we posted a cash position of 6.5 billion pesos. Turning to financial ratios, the total debt to pre-IFRS 16 EBITDA ratio closed the year at 2.8 times, while the net debt to EBITDA ratio stood at 2.3 times. Before going to the Q&A session, I want to add some details to our other current liabilities line and cash flow. The other current liability lines includes a pending 40 million payment to minority shareholders of the European entity, UADGAR, in 2024. This obligation was already paid a couple of days ago. Therefore, you won't see this effect going forward. Additionally, more than 60% of this account, the other current liability, is explained, as we have still in previous communications, of derivative instruments for hedging. recurring and valuable compensation of the management and the store managers, etc., operating and supply provisions such as water, electricity, internet, etc., legal and labor reserves, among others. I also want to highlight the company's strong cash flow generation. Several times we have explained the seasonality component of the business, the Christmas season being the relevant driver to generate a positive working capital in the last quarter, while we usually see the opposite during the first half of each year. Despite some one-off impacts like the payment to abroad suppliers in Argentina and the change in payment conditions to perishable product suppliers in Europe in the first half of 2024, we delivered solid cash flow conversion before dividend payments. Before discussing the 2025 guidance, I want to highlight that excluding FX will successfully achieve our revenue and EBITDA growth guidance with a 10.9% and 11% growth in 2024, respectively. Our 2025 guidance reflects the commitment to sustainable growth, operational efficiencies, and disciplined capital allocation. We expect a mid-single-digit same-store sales growth, a top-line growth in the low teens. Between 180 and 220 new store openings, around 60 to 70 percent of them will be corporate ones. Capits of around 6 billion pesos. Regarding the EBITDA ratios, IFRS 16 expectations, an EBITDA growth of approximately mid-single-digit. a total debt to EBITDA ratio between 2.6 to 2.8 times, and post IFRS 16 expectations, EBITDA growth of roughly mid single digit, a total debt to EBITDA ratio between 3 and 3.2 times. The assumptions considered in the guidance are a 2.2 GDP average growth in all the regions including Mexico, Argentina, the 12 countries where we participate, and an exchange rate of 20.8 pesos per dollar and 22.8 pesos per euro. Despite external challenges, we remain confident in the ability of Alsea to execute the strategy, capitalize the high potential opportunities and sustain strong results. I will now pass you over to the operator for the Q&A session. Thank you very much.