Good morning, everyone, and welcome to Alsea's second quarter earnings video conference. Today, we will have presentations from our Chief Executive Officer, Armando Torrado, our Chief Financial Officer, Rafael Contreras, and who will give you an overview of Alsea's second quarter results. Before starting our presentations, I would like to hand over now to our chairman, Alberto Torrado, for some initial remarks. Please, Alberto.
Thank you, Salvador. Good morning, everyone, and thank you for joining us. I would like to briefly comment about our recent changes in management that I'm sure you are all well aware of. Starting on July 11, the board of directors has decided to appoint Armando Torrado as CEO of Alsea. Armando is an expert regarding every aspect of the business since our origins. He has more than 30 years of experience with this company since operating the first Domino's Pizza stores back in 1991. He was responsible for Domino's corporate stores for more than 10 years, and later served as CEO of the brand for five years. Complementing his operational experience by later being appointed as the first director in charge of the whole casual dining segment of Alsea.
As a founding partner of Alsea, he played a very important role in the last acquisitions made and the incorporation of new brands to our portfolio. Likewise, he was in charge of the real estate development department and assumed the role of Expansion Director for Mexico and Latin America. Subsequently, Armando took the position of director of Alsea South America to later occupy the most recent assignment as CEO of Alsea International. Adding three years of experience in positions that have allowed our company to position itself in international markets. The vote of confidence from the board today is furthered and channeled by asking Armando to occupy a position of influence and a top leadership with our organization. From now on, Armando will be in charge of giving continuity to our plans and long-term strategy, but also boosting our results in the short term.
He perfectly knows the inside of Alsea. He knows his management team in every geography and in every brand. Even more important, our people know and trust him very much. Now, I will pass over Armando for his first quarterly presentation as a CEO. Thank you very much.
Good morning, everyone. Thanks once again for joining Alsea second quarter 2022 earnings and video conference. I am excited to discuss with you this quarter's strong results, our regional and brand performance, and developments on our strategy going forward, and then Rafael will take you through the company's financials. First, I would like to thank the board of directors for the confidence they placed in me in this appointment as new CEO. In this role, I'm building on my 30 years of experience of working in senior positions at Alsea. I will be totally focused on generating value for all of our stakeholders, from shareholders to bond investors, but as well to our collaborators, to our communities, and of course, to our clients, customers, always staying focused on our operations and customer needs. Now looking to.
At our results, we are pleased to report a sixth straight quarter of continued sales growth. Once again, a positive EBITDA across all regions. Our strategy of investing in our key brands and strengthening of our digital channels are proving to customers top-quality service, and our stores have once again paid off. In the second quarter, net sales increased 35.8% to MXN 16.9 billion year-over-year. EBITDA was MXN 3.6 billion, post IFRS 16 for the quarter. That's up 27.4%. This leaves our EBITDA margins of 21.4% for the second quarter. Meanwhile, same-store sales posted an increase of 38.7% compared to the second quarter of 2021. Our key brands continued to gain market share thanks to their superior product offering and customer experience.
Operating cash generation in the quarter was a healthy position of MXN 5 billion, enabling us to continue deleveraging. Compared to the second quarter of last year, we have 132 more restaurants operating across all regions. Our main focus is to increase the number of our key brand restaurants in our most profitable markets. We ended the quarter with more than 4,300 stores and more than 33,000 collaborators. As I mentioned before, sales increased 36% year-over-year, and we continue to see a better performance compared to pre-pandemic levels, which are now 6.2% growth versus 2Q of 2019. That is excluding FX effects. That also sales increased 45% versus 2Q of 2021.
Our business model and the actions that we've been taking over the past couple of years have proven to be effective. Now we find ourselves in a privileged position to take advantage of our new market opportunities. Delivery continues to have a strong performance, accounting for 18.5% of our sales with 11.6 million orders. That's for the second quarter. The digital channel is a fundamental pillar for our long-term growth strategy. I'm pleased to announce that WOW+ reached 1 million active users milestone in this quarter. Globally, we now have more than 6 million active users between all our digital platforms. EBITDA on a pre-IFRS basis grew 44.7% for the quarter and an impressive 83.4% for the first half of 2022.
That is compared to the period of 2021. Our costs increased 100 basis points as a percentage of sales year over year, reflecting the impact of our cost control strategies amid the inflationary pressures across several of our regions. That cost represents 32% of our sales. We are implementing very carefully a designing pricing strategy and overstocking strategy to mitigate the effects of inflation without affecting the demand. Looking at our geographies, Mexico sales increased by 29% year- over- year, and an adjusted EBITDA increased by MXN 449 million to MXN 0.5 billion . Sales in Europe grew by 27% with adjusted EBITDA of MXN 131 million , that is higher MXN 1.5 billion .
South America posted some very strong 83% increase in sales, while adjusted EBITDA grew MXN 335 million - MXN 679 million. The contraction in adjusted EBITDA margins in all regions is impacted by the non-recurring benefit that we had from the previous years. That is related to government support programs and agreements with labor unions, as well as some discounts, negotiated rents with our tenants. It is worth to mention that on a pre-IFRS basis, the adjusted EBITDA margins of Alsea Europe reported a 30 basis points expansion instead of a 100 basis points contraction reported with the IFRS 16. Same as a higher expansion of 370 basis points represented in South America operation versus the 160 basis points expansion reported from IFRS 16.
Regarding our core brands, same-store sales for Starbucks, Domino's, and Burger King grow in our key markets year-over-year. Starbucks in Chile, Spain, France, and Mexico also had outstanding results with respective increases in same-store sales of 75%, 52%, 42%, and 35% respectively. Domino's Pizza, both in Mexico and Spain, had a 15% comparable store sales growth versus second quarter of 2021. Burger King had increases in Chile, Spain, and Mexico over 40%, 23%, and 90% respectively. As you know, the Mexico turnaround strategy is underway, and we are happy with the same-store results posted by the brand during the quarter, with a 34% increase compared to the second quarter of 2021.
Vips Spain has been overperforming with a 42% growth in same-store sales and 9% above 2Q 2019 figures. As a result of our continued work on ESG towards achieving our 2030 goals announced last March, I'd like to share that even though some geographies are just beginning to scope and define their baseline to set their own action plans toward our goals. Other countries are improving their KPIs and setting the internal benchmark and best practices. In June, we received a certification of the first green store in Latin America for our Starbucks unit located in Paseo Los Dominicos in Santiago de Chile. This store was designed to use 50% less water and produce 20% less carbon emissions.
Regarding our actions to minimize food waste and contribute to ending hunger, as of today, Mexico, we have donated more than 34 tons of food that have benefit for more than 125,000 people in food poverty. In addition to those 374,000 meals, we served through the Va por Mi Cuenta movement. During the first semester, the 12 corporate openings of Domino's Pizza, Ginos, and Vips brands in Spain have been part of the Aperturas con Causa program that we have actively donated to different NGOs 100% of the sales achieved on the opening day of these stores, generating a very positive impact on around 14,000 beneficiaries. I also would like to highlight that to this date, we're managing to achieve a reduction of a 12% electricity usage in Mexico.
In our European operation, we certify 90% of the suppliers, which HACCP, and 74% of the suppliers are GFSI certified. Today, 21% of our top level positions are led by women. We still have a long way to go, but we are committed to being an example of sustainability in this industry. In terms of key management changes, I would like to thank outgoing Alsea Europe CEO, Miguel Ibarrola, who is retiring from more than 20 years of service at Alsea and Grupo Zena. We wish him the best in his new endeavors. From now on, José Luis Portela, who serve as a Starbucks Mexico CEO, will replace Miguel, and Francisco Toso, former Alsea Colombia country manager, will now serve as CEO of Starbucks Mexico.
I would like now to hand the call over Rafael to give you a more detailed overview of our financial results. Rafael, please, thank you and go ahead.
Verify that, just as we did in previous quarters, in order to present a comparable analysis versus the financials of the previous year, all the explanations and notes reported in our earnings release include effects related to hyperinflation in Argentina, as well as IFRS 16. These two factors are also included in the financial statements issued to the corresponding authorities. The impact of IFRS 16 in our financial results for the quarter were as follows. MXN 1.4 billion increase in EBITDA and an additional MXN 10 million in net income. Our pre-IFRS EBITDA was up an impressive 44.7% when compared to the second quarter of 2021. Excluding FX effects, consolidated EBITDA increased 53% versus second quarter 2021.
All three regions, as Armando mentioned, posted solid results and growth trends, surpassing second quarter 2019 EBITDA figures by 14% and 45% in Mexico and South America, respectively, and presenting a 6% growth in our European operation, excluding FX impact. We were able to counter inflationary pressures through our stocking strategy in key products such as mozzarella cheese, where we have already been able to cover until the end of the first quarter next year. Commercial strategies reducing aggressive promotions and benefiting from the preference of our customers for our brands. Leveraging through digital strategy and product innovation, as well as efficiencies implemented during the quarter related to labor, as we were able to improve the average profitability per collaborator.
It's worth noting that even with a 100 basis points pressure on cost, we were able to report a 90 basis points expansion on the consolidated pre-IFRS EBITDA margin. Additionally, the results of the quarter considered the provision in Alsea Mexico regarding the profit-sharing scheme for the year 2022 for approximately MXN 70 million. In 2021, this effect for the full year was provisioned on the fourth last month of the year. As Armando mentioned before, the contraction in the post-IFRS 16 EBITDA margin is mainly related to non-recurring benefits in the previous year related to the government support programs and agreements with labor unions, as well as discounts negotiated with tenants. Net income for the second quarter increased by MXN 180 million to MXN 237 million.
This increase was mainly due to an MXN 821 million growth in operating income resulting from the recovery in sales, commercial strategies, product innovation, developments in digital application, as well as improved cost and expense control efficiencies. We have been able to keep the recovery trend since the first quarter of 2021, achieving an earnings per share above MXN 2. Regarding our debt profile, as of June 30th, 2022, our gross debt, including leases under IFRS 16, decreased by MXN 4.5 billion, closing at MXN 51.4 billion. This reduction in debt corresponds mainly to the revaluation of the euro exchange rate against the Mexican peso and the debt amortization of MXN 1.1 billion during the first six months of the year.
We feel comfortable with the current maturity curve and the current debt ratios that we are achieving. The debt structure at the end of the quarter was 96% long-term, with 64% in Mexican pesos, 36% in euros, and less than 1% in Chilean pesos. We expect to deleverage going forward and meet all of our debt covenants, thanks to our healthy and ongoing cash generation. Regarding our waivers and covenants, we were comfortably compliant during the quarter. On the gross debt to EBITDA ratio, we ended the quarter with 3.4 x, and EBITDA to interest paid in 3.7 x. The minimum liquidity covenant is set at MXN 2.2 billion, with us posting MXN 5 billion for the quarter.
In line with our CapEx plan, without sacrificing needed investment, led to MXN 1.6 billion being spent during the first six months of 2022, of which 43% was allocated to maintenance as we needed to catch up following the pandemic. 45% went to store openings and remodelings, and 12% for other projects. Out of the 61 stores openings that we achieved in the first six months of the year, 57% are Starbucks and 18% Domino's Pizza units. During the quarter, we carry out stock buyback of 7.5 million Alsea shares for MXN 313 million. Given our liquidity, the current share price, and recent low trading volume, we consider that it's an attractive opportunity.
At the moment, we have close to 10 million repurchased shares, and depending on the market environment, we will decide whether to cancel the shares or provide liquidity to the market at the right time. Regarding the current legal dispute with the Mexican Tax Administration Service, SAT, related to our purchase of the Vips restaurant division from Walmart in Mexico. On July 1st, 2022, the Federal Tribunal of Administrative Justice lifted the temporary freezing on some of our bank accounts at a holding level. Our operations were not affected by this temporary freeze. We will keep you updated on this matter via relevant event press release, but remain confident that we will prevail in our case based on advice from our legal and tax teams.
Given that the positive results reported in the first six months of the year position us above our initial forecast, we are confident that we will be able to maintain our guidance published to our investor day back in March. However, it is important to note that this guidance was based on an euro-peso exchange rate of MXN 23.5 versus the current MXN 20.8 . We may have an external variation due to this FX effect versus our guidance. We also have to take into account that the second half of the year has a growing comparative base, both on top line and EBITDA, added to the expected cost and energy pressures. Nevertheless, we will keep working on what's on our hands to mitigate this effect in order to meet our guidance.
Thank you for your interest in Alsea, and we'll now hand the call back to the operator to open the Q&A session.
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. Alan Alanis from Santander. Please go ahead.
Thank you so much for taking my question, and congratulations, very impressive results. Armando, best of wishes for the and a lot of success on the new role. I'm sure the company's in good hands with you. My question has to do with. I mean, it's very impressive what you have the same store sales above 2019 levels in all of your formats and geographies, except Vips in Mexico. I wanna understand better how much of that is traffic and how much of that is ticket, and what trends are you seeing post the quarter. In other words, are we in levels of traffic already that are comparable to 2019, or are we still below those levels across your different geographies. That would be my question. Thank you so much.
Rafa, you wanna take the question?
Yeah. In terms of same-store sales growth, we are versus 2019, around 8% lower in terms of orders. In terms of increasing ticket, around 60% came in with the increase in price, and the other part came from a mix in terms of products and also innovation and innovation mix of products. Mix also in terms of the percentage of participation of each of our brands in each geography. But only 60%. Between 50%-60% came in terms of price increase.
That's very clear. Are you still seeing a trend, a positive trend in traffic or is it more stable right now?
No, I will say that it's a more positive trend in terms of traffic. We have some brands that are above 2019, like Domino's, Starbucks, Burger King in Mexico. Some of our casual dining brands also achieve higher traffic than 2019.
Okay.
In some parts also in South America, Colombia, it's higher than 2019. Some brands like Burger King in Chile and some brands also in Europe are, in terms of orders, higher than 2019.
Got it. Okay. Very, very clear. Last question, I mean, Armando, it's your first conference call, do you wanna talk a little bit about what are your strategic priorities as the new CEO of the company? Just briefly.
Yeah. Well, yeah.
Thank you so much.
It's my first conference call probably in the screen, but I've been in this company for the last 30 years with good knowledge. I mean, traveling around the world, all geographies, and I live in Mexico too, so it's very hard for me not to be involved in the operations day by day since 30 years ago in this company. First of all, it will be the team. You know, I think we have a strong team. The leadership team is doing very well. I mean, we are very optimistic about what we can achieve as a team. The second thing, of course, will be the growth. I mean, growth, we have a lot of opportunity in every market, in every geography with all the brands.
We just, I mean, I was in France, and it's amazing how the results we're doing in the openings. Spain, as you know, suffering a complicated economy there. Expansion, it's also been driven very well. We need to push the accelerator to growth and within the good geographies and with the good brands. Of course, it's gonna be a complicated second semester, but I think with the inflation, we have that under control, you can see in our food costs. I think right now, I can tell you a really short-term projection for these six months. I probably can give you a little bit more guidance in October or in the conference call about what can be the strategy for the long term.
I know we need to focus in this, in these terms right now for the second semester. At year-end, I mean, we are already closing July and the result looks as strong as the last quarter. Then there's some commodities also going a little bit down in price, you know. I'm confident that we will achieve a good results again in the next two quarters to close a strong year of 2022, you know. Thanks for the wishes, Alan.
No, you're very welcome. That makes a lot of sense. Focusing on the team and the growth, I think that's the right thing to do.
I mean, in orders, of course, as you said, and it's all the I've been seeing and reading the reports of other companies, and we are all competing in tickets, in traffic.
Yeah.
For the stores. That's how we go. That's the big goals that we need to get back. Traffic will go with we get back. I mean, I'm confident of that, you know?
Yeah. Well, congratulations again for the results.
Thank you.
best wishes. Thank you so much for taking my question. Thanks. Gracias.
Thank you very much for your question. Our next question is from Miss Vanessa Quiroga from Credit Suisse. Please go ahead.
Hi. Thank you for taking the question, and Armando, welcome in your new position. Congrats. Let me start with the first question. I want to ask the team about the competitive landscape in Mexico, especially in the pizza segment, where we've seen more appetite from competitor brands to grow in Mexico. Just some color on what you're seeing on the ground. The other one is about maybe more in-depth details regarding raw materials. When do you think this decline that you just mentioned, Armando, in some commodities could start helping in the results of Alsea?
I'm thinking maybe for the second half, we'll still see some headwinds in terms of the commodities prices, especially with the cheese. I'm not sure what's gonna happen with the coffee. If you can provide some insight on the second half regarding cost inflation, that would be very helpful.
First of all, thank you very much. Thank you, Vanessa. I mean, inflation is, like I said, is tough, but there we have four or five items that are really complicated for us in these terms, you know? One is cheese, of course. I think we mitigate that impact. We have a big inventory of cheese still in Mexico that we bought over a year. We have inventory to February or March of last year. So we have a great relation with the supplier. I think that's the more impact one, and we have been taking care of. The good news is the flour. We use a lot of flour for pizza, and the flour is, i t's a little bit not going up again. I mean, there's good news on that.
T here's, of course, meat and poultry. That's also. I mean, it's a very uncertain times to see what can be done, right? Our supply chain director, Miguel Cavazza, is doing a tremendous job in purchasing and procurement. I'm very confident that we will go ahead with those headwinds. Like Rafael said, there is a new plates that we are doing for food. There is a new innovation that we can do. We did a great job in Argentina with a new product that we launched in the Burger King business, and it did super well, you know? I think we have a lot.
We can move in a lot of circumstances, insights, strategies to mitigate that well. On the other hand, the pizza business, yes, it's a competitive advantage. I mean, a competitive market, but at the end of the day, as you saw, our digital channels are very strong right now. We are right now moving to a new platform in digital. That is the one that the U.S. works with. We are in the process. We're gonna learn. We're gonna do pilot test in September or October with a new technology for online ordering, that it will be just as great as like aggregators, you know? So that is a good advantage. In Domino's, we've been performing well in the last 36 months, you know?
That's one of the brands that we are up in orders from 2019, from 2021. That is a unit that we are doing well in in the three geographies, not only in Mexico. Spain is doing well, and Colombia is doing well. I'm very confident in the pizza sector.
I will say that also the strategy that we have to be wherever the client look for us, no, just in Domino's, even though we have the Olo app, we have 10% of sales with aggregators. No? That strategy also is pretty good, that we start before the COVID, no?
That's great. Just talking about aggregators, we saw that in a country, I think Argentina, Mercado Libre will start delivering food. Is that something that you could consider maybe in the future, use some of these other additional platforms? Function as your delivery platform as well?
As you know, we took that 36 months ago, or more than that, we took that decision of not giving any exclusivity to aggregators. I think that was a very good decision made by the company that time. Now, we work with all the formal aggregators, I will say. We have a great platform that they can integrate to our.
POS.
Technology system, POS, right away. In 30 days, we can really do a complete integration completely to the POS, yeah they are in. I already have talks with them. I know PedidosYa is super big in Uruguay and Argentina. Let's see. I mean, we will talk with any aggregators. We don't have any exclusivities with no ones. The ones that we had, the one or two, it's already in the way of expiring, that one. Yeah. We will work with the good ones that can drive us sales and of course, best service to our consumers. Yeah.
Great. Thank you, Armando.
Thank you.
Rafael as well .
Yes.
Thank you very much for your question. Our next question is from Mr. Sergio Matsumoto from Citigroup. Please go ahead.
Yes. Hi, good morning, everyone, Armando. Welcome. Looking forward to working with you. I have a question on Europe, since you were leading that division for some time. What would you say is a few of the aspects that's most misunderstood by the market participants when it comes to that segment? Is it the, you know, perhaps dependency on the tourism or the growth potential, perhaps some of the store development plan when it comes to Starbucks? You know, it seems very exciting, but if you could shed some light as to where the growth could come from Europe, that would be very interesting for us. Thank you.
Yeah. Thank you, Sergio. It wasn't very clear, your question, but are you asking about growing in Europe, right? Correct?
Yes.
I just was in Europe last week, I mean, we have just an amazing concept there called Vips, as you know, with 150 stores. It's performing way above expectations. Every opening has been quite successful, performing probably 30% above our plans for that one. There is a big line of opportunity in Spain for Vips and Vips Smart. Also, in Starbucks, it's performing very well. That's our sector, like Rafael said, and you saw in the report, with better traffic performing over 2019, 2020 and 2021. There is the market holding capacity there. It's also very strong in Spain.
Those two brands and Domino's, there is a market that is a little bit more mature, what I would say, but we're coming up with new models for Domino's so we can give the chance to really go ahead with that brand and open another 150 stores in the next, I don't know, 24 months. I mean, that's gonna be. That can be done, no? Regarding just France and Benelux, what I said about we are achieving a goal of 20-25 stores, more or less opening in France. All the stores that we've been opening the whole semester are completing with good expectations. The consumer is back.
You know, France also is lacking or with problems of tourism still from Asia. We are still having a good numbers. In all geographies, I would say Starbucks, whatever is complicated is the business, the business traffic of downtowns in cities, no? We are leveraging that with very good results in neighborhoods and in commercial areas. That is not really something that we're suffering, but we divide the view of when we see the sales in five different sectors, and that is the only one that is causing a little bit of a problem to growth. All the other five ones, airports, other channels, neighborhoods, commercial malls, shopping centers, we are above our orders from last year.
I think in Europe, we have a great opportunity still and as in other brands as in other geographies, I would say that in all geographies and you will see in the 61 stores that we opened in the semester. I mean, that is very diluted in all the markets with strategic brands for sure. That is for now, right now, it's Starbucks and Domino's for growing.
Excellent. If I may, a question for Rafael. Rafael, could you please quantify the support that we used to have from the governments and the unions and the landlords, just to kind of see what the impact was for 2Q and what to expect as a headwind, if you will, like a margin headwind until the 12 months lapse of this support. Thanks.
Yeah. Last year benefits that we had in the second quarter 2021 in terms of rents were close to MXN 200 million benefits in terms of rents. In terms of government support, in Europe, we have around MXN 200 million, so close to EUR 4.7 million. In LatAm, because we have some government support in Argentina, was close to MXN 60 million.
Okay. Thanks. Would you say that's kind of uniform from quarter to quarter?
Come?
Yeah. That's probably gonna pretty much dilute already. Yeah, we're probably for the second half of the year, we're no longer gonna see these kind of impacts because 2021 second half was already off regarding this.
Already off this support. Okay.
Exactly. Yeah.
Yeah. Thanks so much.
Thank you very much for your question. Our next question is from Mr. Antonio Hernandez from Barclays. Please go ahead.
Hi, good morning. Thanks for taking my question. Congrats on your results. You've already mentioned that July performance is trending quite well, similar to the previous quarter, but just wanted to get a little bit more granular, if possible, on the different formats and geographies. Is there any outperforming, underperforming geography where you're seeing maybe a difference in the trend within the last weeks or the end of the second quarter versus the beginning of the second quarter? Any geography or format trending differently? Thanks.
I will say that we have a pretty good trend in all of our geographies and almost in all of our brands. The only brand that is not overperforming or has a trend or a growing trend is Vips Mexico. Vips Mexico has almost the same amount of sales in the last maybe six weeks, so we don't see this improvement in terms of growth of in terms of sales. We think that for the second half, people is gonna be back to offices more than in the second quarter, and maybe we're gonna see a better trend.
Some things that also happens is that when inflation is pretty high, the trade down that we see in our clients look for a cheaper alternative, no? We think we're gonna capture that kind of clients also in Vips for the second half of the year. All the other geographies and brands is still with the same trend in terms of growing, in terms of sales.
Okay. Perfect. Thanks a lot, and welcome again, Armando.
Gracias, Antonio.
Thank you very much for your question. Our next question is from Miss Paulina Moreira from Compass Group. Please go ahead.
Hi, and congrats on the results. I have a few questions. First one is related with the benefits that you mentioned. If I remember correctly, the last conference call, you said that there were no more like benefits and that the reports were clean. We also see more benefits this quarter, and that's it, or what's happening with them?
What we were mentioning about the benefits is the comparative base since in 2021 second quarter we still had some benefits.
Okay. Clear. Another question is on margins. For the second half of the year, are you expecting like important margin pressures? If so, in which of the regions, it would be more like important, this pressure?
I will say Europe will be the one who has more pressure in terms of margins because Europe has a higher inflation than the one that we are seeing in Mexico. Also the energy cost is gonna be also higher than the one that we are seeing here in Mexico. Europe will be the one who has a higher pressure in terms of margins. I will say that Mexico is gonna be with the same pressure that we have this first semester.
LatAm has a pretty good performance in terms of margin because of all of the things that we did over there in terms of expenses and in terms of innovation and also in terms of taking out some of these commercial, p romotions, no, that we had there.
Okay. My last question is regarding online sales. I saw that you did pretty good in that segment, but how much is from WOW+ delivery and how much is from the aggregators? Is WOW+ delivery increasing its participation?
Well, the participation in terms of home delivery mostly came with aggregators, no? I will say that maybe higher than 90% come with aggregators and the other parties with Wow + in terms of home delivery.
Exactly. It's still below 10%, probably the share that we have through WOW+, but it's increasing little by little.
Okay. Thank you for answering my questions.
Thank you, Paulina.
Thank you very much for your question. Our next question is from Mr. Ulises Argote from J.P. Morgan. Please go ahead.
Hi, guys. Thanks for the space for questions and welcome once again, Armando. I apologize once again. I don't know what happens with my camera, and I cannot get it to work here in the office. I had one question here on the updates with the agreements with the banks. Also, if I'm not mistaken, from last year's announcement you communicated that the agreements were in place until end of June of this year. I just wanted to get any updated thoughts there or if we should consider like any changes there on the governance, et cetera.
Also kind of related to that topic, know any changes in the expectations for dividends, how should we think of this, and how should we think ahead, like dividends versus buybacks on your guys' kind of cash back to shareholders? No, thank you.
Yeah. In terms of bank agreements, at the end of last year, after we issued the U.S. bond, we have an amendment and extension with banks an agreement with new covenants that it's for a long-term period. Now we have the bank credits with a five year term. So the new covenants are until that period. And after we issue the Eurobond, we prepaid more of that bank credits, no? So right now the covenant that we have is on a long-term period, and we are very comfortable that we are achieving that covenants, no?
There are in gross debt to EBITDA, liquidity and some restrictions in terms of CapEx, but this restriction in terms of CapEx allow us to growth between 170-200 new units in the next years.
If I may add, regarding the interest coverage ratio right now, it has a minimum of 3 x. Gross leverage ratio until September 30, 2022, it is to be below 5.3 x. Then after that, until September 2023, 4.9 x. Then until September 2024, 4 x, and October 2024 onwards, it goes back to initial 3.5x gross leverage ratio.
The minimum liquidity has to be MXN 2.2 billion. Right now we have MXN 5 billion in cash, so we're well above.
Yeah. In terms of dividend, we will see if we achieve the gross debt to EBITDA lower than 3.5x. If we achieve that, we will see if we pay some dividends in 2023 or 2024. If you remember, we paid around MXN 0.80 per share in the last year that we paid dividends. It will be, if we achieve this ratio of gross debt to EBITDA, pay some dividends next year or in 2024.
Okay. That's super clear. Thank you so much for the call, guys.
Thanks, Ulises.
Thank you very much for your question. Our next question is from Mr. Rodrigo Alcántara from UBS. Please go ahead.
Rodrigo.
Hi. Thanks. Thank you. Just have two questions here, Armando and perhaps Rafa. I mean, you have a very impressive first half of 2022. I guess, you know, the share price clearly reflects concerns about, you know, your performance in a potential recessionary scenario, right? Just curious about perhaps one part of the question to Armando. I mean, how do you foresee the performance of your brands? Let's focus on Mexico, the performance of your brands, you know, in a potential recessionary scenario. I mean, how do you see perhaps Domino's Pizza versus Little Caesars or the resiliency of a Starbucks?
You know, to Rafa, I mean, if you have, you know, somehow, you know, consider a recessionary scenario in your projections, I mean, how resilient would you think, you know, Alsea's business model could be, you know, in this environment? My second question would be related to the SAT, right? I mean, we do understand, I mean, and do agree you have a very solid case there, right? But some of the questions that we have received from investors here is that if it would be better perhaps to, let's say, perhaps reach a midpoint agreement with authorities and, you know, let's move on to the next page.
I mean, just curious to hear your thoughts about this as well, Armando. You know, perhaps too, you know, some thoughts about this would be helpful. Thank you very much, Armando.
Well, probably I will take the first one, and then I will let Rafael take the second one, right? Gracias, Rodrigo. First off, I mean, recession. At the end, I think we are one of the few companies that have a great portfolio in our hands. I mean, we are in the fast food with Burger King and with Domino's. Every time there is complications in the economy, I think those brands deliver well. I mean, as Rafa said, people are looking for value, and we have a brands, those two brands that are very good value. What about Vips? I mean, Vips is as affordable as no other brand that can give you that value.
We have a big presence of 230-240 restaurants, another one in Mexico with El Portón. At the end, I think that is a great advantage to have those brands. Then Starbucks, I mean, it's just being positioned as a third place. We are right now having great performance in the five occasions of consuming very early morning, and that is coming back well. That with the pandemic went away, now it's going well. We have the afternoon, and then, yeah, it's a great evening at night. At the end, I mean, we always can focus on different kind of products. We have a different strategy of giving new things to the consumer. I mean, I feel confident.
The casual dining division also that is more anchored in shopping centers. Shopping centers are, in Mexico at least, with positive traffic everywhere, no? We didn't have the cinemas going on, the movies right now, they are back. As soon as they launch, a good thing, people are launching again back to the shopping centers. That was a little bit more of a sector that wasn't growing as fast. Now it's positive in all segments and in all brands in Mexico, we are positive. I mean, yes, I'm worried, but I think I'm more occupied over how we're gonna make a strategy, a good other things to cause any recession or bigger inflation that at the end is affecting.
What affects our food costs, no? I will let Rafael Contreras to give you a little bit of the SAT.
In terms of the claim that we have with the SAT, we try to have an agreement with them, knowing that Alsea has not. We don't have to pay anything, no? Because we were the ones who buy that. Walmex already paid. The SAT wants to. To gain two times for the same transaction. We tried to have an agreement with them, we couldn't. We think that we have to go with a legal p rocess. No? What the lawyers told that we have a pretty high opportunity to gain this legal procedure. No? It will take two or three years, but we think we will be positive that we will s ucceed in this process, yeah.
Oh, yeah, Rodrigo, I will say that any window that a government gives you to sit down at the table and do a good arrangement, we will do it. I mean, I'm exactly as you said. I mean, here is the doors are open, I will touch the windows that I can, and if we can arrange that, I will do that. No?
Okay. No, that's great to hear, and very happy you're with the management itself. Congrats.
Thank you very much.
Thanks. Yeah.
Thank you very much for your questions. Our next question is from Mr. Andrés Ortiz from BTG Pactual. Please go ahead.
Hello, good morning, Armando. Rafael, Salvador. Congratulations for being here. We're happy to have you here. My question is looking into 2023. I think investors' concerns are not focused in this year. We believe that you will reach your guidance. I don't think that is in doubt given your strong results. How are your initial thoughts, how are you tackling 2023? How you expect cost centers to perform or how you expect to offset the inflationary pressures that we have in Europe that will have a great effect mostly in the winter and early next year? That would be my first question. Thank you.
I can take it. I mean, at the end, I agree with you. We are now thinking in 2020, 2023. At the end, we have to be very, we have very good discipline still. Discipline in costs, in wages, in all the P&L of the company. At the end, we are not over, first a pandemic, then this thing of inflation. Next, I don't know what's gonna be in the, in next year. We are doing a very good discipline in all the costs of the company, no? Our G&A is better than ever. You can see it in the numbers. We're gonna still do that. Now we're gonna just close the window to less hiring in the G&A costs.
In all the performance, I mean, energy, it affects us, Andrés. There's a big thing in energy that we don't control. We are talking with third parties to have a new negotiation with in Spain, especially, that we used to have a big one, a big support, a deal with. We had a private deal with distributors of energy. Now, that is off. We're trying to do another one, also in Mexico. At the end, I mean, just costs and expenses, we need to have a big discipline there. There is a big momentum, and there is innovation that is coming. I think, people are not gonna, they're gonna go still to our restaurant. We have a good footprint, a good presence.
We are still. They are asking for more stores to open, and any. When we open a store, it's performing well. At the end, the same stores that we have, the same store sales are also performing well. I think we need to adapt to the market as to any time that circumstances move and change. We are already, like I said to my team, we already know the gimnasia that we need to do in order to gain this, no? After all these three tough years that we had, there is not any circumstance that we cannot surpass with our good energy of this company and the great people that we have. I'm very positive of the future that we're gonna have.
Thank you. Very clear. My next question is, given your delivery process is extremely strong, when would you expect to reach investment grade? When you do it, what would you do with your debt in that case? Thank you.
I don't know if we are gonna achieve in a couple of years an investment grade, but for sure we're gonna have a better rating than the one that we have right now, no? One of the main things that the rating agency had was the leverage of the company at that time. Now we proved that we can deleverage pretty fast. Now we are looking to be lower than 3x gross debt to EBITDA in 2024. I don't know how it's gonna be also the bond market, no, in a couple of years.
Our view is to if the market is open and with a good rates to have a new bond with a better cost and maybe with a better tenor also, no? That's our view for in two years because it's a five-year non-call two. For sure, we're gonna have in a couple of years a better rate than the one that we had last year.
Perfect. Thank you very much, and congratulations on the results.
Gracias.
Thank you.
Thank you very much for your question. Our next question is from Miss Melissa Byun from Bank of America. Please go ahead.
Hi, Melissa . [inaudible] Hi, Melissa, we can hear you again. I don't know if you're having issues with your mic.
Our next question is from Mr. Bernardo González Aedo from SURA Investment Management. Please go ahead.
Hello, good morning. Thank you very much for the time to talk about the company's results. I know you have been talking about the inflation costs and how you're managing this. Just to know if you can give us guidance in terms of EBITDA margin for year-end. The other question is related to digital revenues. If you have any target with respect to the contribution to total sales for probably this year or next year. Thank you so much.
As we mentioned, our target for the full year, pre-IFRS 16, is to be close or a little bit higher than 13% EBITDA margin for Alsea, no? Post IFRS 16 will be close to 24%. We are confident that we're gonna achieve that for the full year.
Okay. Thank you.
Yes.
Regarding the second one. Could you repeat it? Sorry, Bernardo.
Yeah. Regarding digital revenues, if you have any target with respect to the total contribution to total revenues?
I guess that's a tough one because during the pandemic it was a huge frog leap, what we saw in terms of the development. We're right now at the levels that we expected to be back pre-pandemic. We expected to be close to 20% in 2025. Right now we're exactly there.
Okay.
We think as traffic is coming back, probably this is gonna stay between 18%-20%, in those ranges. However, I would say it is pretty much we're meeting targets.
Okay. Regarding that, do you have also any expectation with respect to the mix between aggregators and your own app?
I mean, it is tough since, I mean, as you know, aggregators are in pretty much every geography where we operate. They're spending a lot of money positioning themselves in this pretty much war amongst themselves. On our end, we have to have the alternative of having our own digital programs, our own delivery alternatives. However, right now what we're picturing is if we're able to get it above 10%, it's already winning. We will have to keep on developing, as what Alberto was mentioning, before in the last quarters and Armando mentioned just recently, we're gonna be moving ahead on our improving the quality of our digital platforms. We're gonna be implementing Domino's Pizza Olo platform in Mexico.
It's pretty much the same as the international, so the one that they have in the U.S. which is, it has a bit more sophistication on the product itself. We're gonna be introducing Starbucks Rewards in Europe as well during this year. We have still some work to do in order for us to improve the percentage of sales that we're achieving on our own platforms.
Perfect. Thank you so much.
Thank you.
Thank you very much for your question. Our next question is from Mr. João Andrade from Bradesco BBI. Please go ahead.
Hi, Armando. Sorry for the camera. I think it's not working here. Congrats for the results and for the promotion. I have a quick question. I'd like to get your thoughts on how you're thinking about brand portfolio in the mid-long term, if there's any space for rationalization or even expansions if that's the case. I guess that's pretty much it.
I think also, we had a I was in the Alsea Day that we did the last in November, no, in December of last year. We also said that we know our complex portfolio that we have and how in the future we want to well, as you said, I think that's a word, where rationalize, size or really get a smaller portfolio, no? At the end, that is a little bit. That will perform better. I mean, we're. As you know, Starbucks and Domino's are taking a little bit more participation in the pie. Anyway, when we see some opportunities of turning down some, like, these concepts in some geography, I mean, that will be the case if we see.
Right now, we don't have any short-term decisions to take about any brand that we have. They are all performing positive, they're all performing well, and so we're keeping up with the portfolio that we have. Yeah, at the end, I think in the long term, as what you said, it's we are agree, and we really gave you that guidance that we. In the future, it's a rationalization of that of our portfolios.
Perfect. Thank you very much.
Thank you very much for your question. Our next question is from Mr. Thiago Bortoluci from Goldman Sachs. Please go ahead.
Yes. Hi, good morning, Armando. Rafa, Salvador. Good morning, everyone. Thanks for taking the questions, and thanks for the presentation.
Thank you.
Armando, first of all, congrats on the very strong first quarter results under your new administration. Good luck On the new role. I would just like to explore a little bit more the status of the burger business in Mexico, right? We know one of our largest competitors, McDonald's, is like being a bit more aggressive and focusing to the region going forward. I'd just like to hear more from you how sustainable you think current trends might be in a more competitive scenario, and which are your key competitive advantage to fight increasing competition going forward? That's the question, guys. Thank you very much.
Okay. I was just two weeks ago with the RBI team, the international. Actually, all you Paisanos were here, all the Brazilian team were here, and just looking about what it will do. As you know, Mexico, the burger sector is complicated, but still Burger King just. It was 28.6% in same store sales versus 2019. I mean, the brand is performing a lot better than we expect starting April, March. These guys have a good strategy in their portfolio. They have a new app that is working also in Brazil very well of couponing, no? That is turning a lot of tickets, a lot of transactions.
We're moving to premium sectors with some nice new burgers that we're putting in chicken that is also working well. As you know, our competitor there, they are very aggressive in the digital menus ordering menu in the restaurants, that's leveraged at 20% higher ticket average. We are doing that already. We have six stores already ongoing. All our Argentine and Chilean and Spain are very well on track to put digital menus ordering digital menus in the stores. I think that's another good opportunity.
I think in the product, we just have a great advantage because when you taste our product at home, the delivery for burgers, it's one of the top killer categories. Pizza and burgers are one in two or two in one, it depends on the market. I think we have a great competitive advantage. Our product tastes a lot better than our competitor in the house, no? In the house by delivery. I think that we are remodeling a lot of stores of Burger King, both with support of RBI, this digital menu and digital transformation also with the support of RBI. I think we are closer with them and very optimistic of the future, no?
Everyone is, I think, the big chains are growing in Mexico, but the smaller ones are not. You know, the mom and pop that used to open here, the copycat of a company that you know with success, you know, they are not growing anymore. They are just there. Here, they're performing also with some competitors that we saw are doing well also. I'm confident in the burger sector, not only in Mexico but in Mexico and LATAM, that we have most of our revenues come from Argentina and Chile. That's where we have the bigger stake of our business in the Burger King sector.
Yeah, Armando. Gracias.
Thank you very much for your question. Our next question is from Mr. Jorge Izquierdo from BTG Pactual. Please go ahead.
Hi. Good morning.
Good morning.
Congrats, Armando and to the team for the solid results. My question is regarding casual dining brands. Have you seen any structural changes in consumer behavior that could affect traffic dynamics going forward? That would be my question. Thank you very much.
What do you mean structural? A little bit more specific.
Maybe different traffic trends in some casual dining brands pre-pandemic and now. Any comment would be helpful.
I will tell you in trends, for example, in P.F. Chang's, we went all the way to 35% of our sales were delivered in that brand when the pandemic come. That is coming down because the restaurants are more open, no? This. The traffic, like I said, especially in that division that I know very well, I run it for five years, I mean, we are up also in traffic, we are also in tickets, and our good strategy of delivery, it's working, adapting the packaging to the consumer, you know, a great value for the consumer. Once again, when all the in Chile, for example, in other markets, we had complication with hours, time, hours of operation of some shopping center that affect us.
We just see how the trends go up, no? We are preparing for the World Cup of Qatar. That is gonna be in Q4. For that sector, especially in our Chili's, in our TGI Fridays, in our Foster's Hollywood, that will be great. I mean, the trends are up too, no? We are not seeing complications in the volume in that sector. In any of the categories, especially Italianni's, we're doing just great there in Mexico. That's ahead of other brands in orders and in results. No?
That's a brand that we were suffering two years ago, and it's run by a great leader there, their team, and we're doing very well there.
I may add, I guess there was no major or structural change in consumption in casual dining. I guess during the pandemic, of course, we saw an increase in delivery trends. Now we have to focus a lot more because they're sharing some brands, the ones that travel better, according to their products, are doing better in the delivery front or take out as well. However, where we operate, in the countries where we operate, it's a cultural thing. You know? People like to go out to sit on a table to enjoy beer, watching a soccer match in a Chili's, like Armando mentioned. There was no major change on how consumers behave towards casual dining.
Perfect, guys. Great color. Thank you, and congrats again.
Thank you, Jorge.
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That was the last question. I will now hand over to Mr. Armando Torrado for final comments. Please go ahead.
I just wanna thank you all for the call, for being here with us today. I mean, I hope we will see each other later on in the near term, that I think Salvador already has some appointments there and things that we will share. Thank you very much for the call, your interest in Alsea. I don't know if. Thank you, and that's my last comment that I will say, no?
Great.