Hello everyone, and welcome to the AmRest second quarter H1 2023 results. My name is Nadia, and I'll be coordinating the call today. If you would like to ask a question, please press star followed by one on your telephone keypad. If you have joined online, please use the Q&A chat box provided. I will now hand over to your host, Łukasz Wachełko from WOOD & Company to begin. Łukasz, please go ahead.
Good morning, good afternoon, ladies and gentlemen. My name is Łukasz Wachełko. I'm presenting WOOD & Company, and again, I have the pleasure of moderating the call with AmRest after they [presented] the results. The company is being represented by CFO Eduardo Zamarripa and IR Santiago Camarero. Let me start with congratulations on the results, because I believe, especially on the cost side, they were really great. But not to take much of your time, guys, mine is yours.
Thank you, Łukasz. Good afternoon, and thank you for joining us in AmRest's second quarter of 2023 results presentations. As usual, let's just start with an update regarding our presence and brands in slide number two. AmRest continues to be the Europe leader restaurant operator, with a portfolio of 2,123 restaurants distributed across 21 different countries in Europe, Middle East, and China. During the quarter, we disposed all of our remaining business in Russia, changing our footprint and a total number of restaurants.
We keep a nice balance of franchise and proprietary brands, which nonetheless has a big bias in terms of capacity towards the QSR and coffee segments. Every month, we serve to 30 million guests that find our restaurants a distinctive service provider by over 44,000 passionate AmRest teams.
Now, on slide three, I would like to share with you that in 2023 is a very special years for us, the thirtieth anniversary of the creation of AmRest, a group that constitutes a large family that has been growing throughout Europe and China. The dedication to service, the quest for excellence, and the hard work of this great family of professionals has allowed AmRest to become a leading company that now, more than ever, has the desire and ambition to continue to grow in a sustainable and inclusive way, generating greater value for our society.
Many thanks and congratulations to all of those who make up AmRest family and to the thousands of partners and suppliers who have been supporting us over the years. Going to slide four, let me summarize the most relevant events for this second quarter of the year. I know this is not new.
Our revenues once more reach a new record-breaking level for a second quarter with EUR 607 million. Our commercial dynamics continues to show a strong and balanced growth between transactions and average guest check. That resulted in almost 17% increase versus second quarter of 2022 in a like-for-like basis. In terms of profitability, the EBITDA generated in the quarter increased by more than 25% to EUR 101 million. Net income reached EUR 23.8 million, of which the profit attributable to the equity of the holders of the parent company amounted almost EUR 22 million.
Additionally, leverage ratio drifting slightly downwards to 1.9x at the low end of the group's target range. Finally, highlights that on the fifteenth of May, AmRest disposed all its remaining business in Russia for a final price of EUR 100 million.
In slide five, you can find the latest strategic portfolio changes that lead us to close the first half of the year with 2,123 restaurants, after the disposal of the 213 restaurants that still we had in Russia, and the organic portfolio changes derived from the optimization exercise of our portfolio that led us to the closure of 23 restaurants during the quarter, of which 10 were closures from franchisees in France.
In slide six, we are illustrating AmRest's revenues and main profitability measure trends for the first semester of the last year. In this sense, first half year, 2023, revenues reach EUR 1,170 million, excluding Russia, registering a 19% growth.
This figure also constitutes the best half year on record with an organic growth that overcompensated the effect of the exclusion of the Russian portfolio for the whole 2023. EBITDA generation also showed an excellent performance with a growth of 15% in the semester, reaching EUR 172 million, putting in value our progress in efficiency, together with the first half in a very long time, for a slight reduction in the huge cost pressure suffered.
In terms of operating profit, we generated EUR 51 million, up 23.1% versus second quarter 2022, resulting in an EBIT margin of 4.4%.... In slide seven, the hospitality industry and AmRest as part of it, has faced enormous challenges over the past three years.
We have been able to turn most of these challenges into opportunities, and that finally are allowing us to strengthen and improve the growth business model, which is increasingly sustainable, inclusive, and providing greater value to society. That's why it's also the time for sure, for some time, you're sharing our commercial approach with our different brands. On KFC, the California summer campaign, supported by TV, radio, and digital media, has increased transaction and even improved further consumer satisfaction.
In Starbucks, we are increasing the volume sale in beverage and food, with the biggest contribution categories being espresso-based drinks and Frappuccinos. In BK, plant-based salads and burgers, chicken burgers, and wraps offers surrounding the quality menus that we offer in our restaurants. In Sushi Shop, we have introduced new hot dishes that are providing nice complementary fit to our existing menu offer.
In Pizza Hut, a new range of summer product offers are translating into regained transactions and footfalls. In Blue Frog, the value proposition and quality of our offers are letting recover the growth trend that we have previously to the COVID period. And finally, Tagliatella, our teams are doing an amazing job on improvements on our digital platforms and creating of new moments of consumption through the adoptions of new sales channels.
Now, turning to slide nine, all this work is resulting in incremental sales, whereas you can see we are comping a recovery of the dining activity that currently represents 44% of our sales, with a growing digital penetration. As you can see in the right chart of the slide, during this year, more than 50% of our transactions are generated through digital channels.
In slide 10, as previous quarter, we are illustrating the evolution of the 12-month trailing average revenue per store, where we continue to report a consistent advance that support improvement in the quality of our sales. As we have discussed in several occasions, we are becoming more efficient, reducing the resources that we need to generate sales. And this is a link with slide 11. The elevated cost pressure continues, so does our work to become more efficient.
The successful implementation of value-added initiatives is enabling to limit the impact of cost on customers, and to continue to maintain an attractive price value proposition, showing that it is possible to grow in transactions and to recover margin. Of course, the fruit of these actions is visible once the huge cost pressure suffered in the last period gets stabilized, and it has started to happen on this quarter.
Nonetheless, we are not, and we will not, slow down on our commitment and work on long-term initiatives to improve the profitability and efficiency of our business from several angles. With this, we will pass to cover the main financial highlights and trends that Santi will help us to go through. Santi, when you're ready, the microphone is yours.
Thank you very much, Eduardo, and good afternoon to everyone. It's always a pleasure to have the opportunity to share with you all our results, achievements, and expectations. On this important date for us, I would like to start by joining Eduardo in congratulating the entire AmRest family for the excellent work being done, and the passion and commitment behind it.
All of this is what has led us to be able to present today a new advance in the quality of our results, the consequence of a business model that is constantly developing and which is resulting another quarter in the strengthening of the company's financial profile. All this with the clear objective of continuing to grow in a sustainable, profitable, and inclusive manner. In short, generating greater value for our shareholders and for the society.
Going into slide 13, you can find the main financial highlights for the first half of the year. Group revenue increased by almost 19% and reached EUR 1.170 billion, with the same store sales level of 14% versus last year. EBITDA generation reached EUR 172 million, with an increase of more than 15% versus last year. Operating income stood at EUR 51 million, up by 23% and representing a margin of 4.4%. Finally, CapEx accelerated to more than EUR 60 million, dedicated to the opening of new restaurants.
We opened 23 new equity restaurants during this period but also let me remind that we are dedicating a great allocation of resources to modernize a significant number of restaurants and to invest in our technological transformations.
All these figures reinforce our expectations of delivering the guidelines for this year that we share with the market. In slide 14, you can find the main financial highlights for the second quarter of the year. The second quarter revenues reached almost EUR 607 million, setting a new all-time high for this period of the year. The organic revenue growth, it was almost 17%, overcompensating for the effect of the deconsolidation of the Russian results.
Our sales growth reflect a nice balance between a further improvement in the number of transactions, which increased by 4%, and enough to prevent new management, including price increases. In terms of the same-store sales index, we were at 112 for the quarter, while the latest reading for the year to date is 113.
In terms of profitability, the EBITDA climbed to EUR 101 million, with a growth of 25%. On the other side, the operating income reached almost EUR 37 million, up 27%. Once again, organic growth overcompensated, both in absolute and in relative terms, the effect of the change in the perimeter of the deconsolidation of the Russian business. Finally, the CapEx stood at EUR 34 million versus EUR 25 million last year. Diving into our sales evolution, in slide 15, you can appreciate that the strong commercial momentum continues.
Our attractive value proposition and service quality has also been reinforced by the resilience shown by the European economies, where the strong labor market is sustaining consumption. In addition, during this year, we are gradually recovering the contribution from our business from China.
In slide 16, you can find the quarterly evolution of our EBITDA and operating profit. Second quarter EBITDA surpassed the EUR 100 million mark, growing by more than 25% year-on-year, and recovering the margin level of almost 17%. As noted, profitability increased thanks to cost control, efficiency gains, and the generation of more value-added operations. In addition to the less headwind from macroeconomic factors, as lower energy prices and the normalization in the functioning of supply chains are moderating the still high levels of inflation.
This is providing some relief from the extraordinary cost pressure experienced in recent quarters. In terms of the operating income, as we mentioned, we reached almost EUR 37 million, with a growth of 27%, which translate into a net margin of 6.1%. In slide 17, we illustrate the cash flow generation.
An almost 10% increase in the generation of operative cash flow that amounted to EUR 169 million during the first half of the year, that together with the EUR 61.6 million inflow from the sale of the remaining part of our Russian business, has enabled us to meet comfortably with our investment commitments, service the financial payments, reduce the gross financial debt, and also to increase the cash buffer, as we are going to see on the next slides.
But first, let's focus on the organic evolution of the portfolio, where 12 new restaurants were opened and 23 were closed during the second quarter of the year. In total, 29 units were opened and 34 were closed during the first half of the year.
In summary, we continue with the portfolio optimization strategy that is helping us to further progress towards a more efficient allocation of capital. Remark that this quarter, most of the closures come from franchisees from specific markets. In summary, we continue with our plans of opening more restaurants as we did in 2022, which totaling 110 units. So it is expected that the second half of the year, we will concentrate most of the planned openings and the necessary investment as it has happened on previous years.
From slide 19, let me remark that the level of net financial debt stands at EUR 381 million, having been reduced by almost EUR 45 million during the year. Likewise, the cash and cash equivalent position increased by EUR 25 million during the first half of the year to reach almost EUR 255 million.
This situation allow us to comfortably comply with our financial covenants, that at the end of the first half, the group show a leverage of 1.9x , financial leverage, and the direct interest coverage was 6.5x . In slide 20, you can find our financial debt structure and the maturity profile.
It has not been any material changes during the last quarter, besides the two new bilateral unsecured loans amounted to EUR 56.5 million, that we already covered on the previous quarter. Now, as usual, we will review the results by different segments that you can find in slide 21, with a breakdown of revenues, EBITDA, and number of restaurants that we have in each region.
Starting by Central and Eastern Europe in slide 22, revenues generated during the second quarter reached EUR 335 million, with an increase of 20% year-on-year. All countries in the region saw excellent commercial dynamics, although Hungary's evolution stands out with a sales increase of more than 40%. The relative importance of the Czech Republic continued to grow, consolidating its position as the group's second-largest revenue generator country after Poland during this quarter.
EBITDA generated during the quarter was almost EUR 69 million. This is EUR 14 million higher than in the same period of 2022, and the EBITDA margin was 20.5%. Highlight that most of the countries achieved margins above 20%.
In the specific case of Poland, the EBITDA margin stood at 19%, which nevertheless recorded a notable growth of 1.7 percentage points in comparison with 2022. At the end of the quarter, the restaurant portfolio in the region amounted 1,128 units after the opening of three units during the quarter and the closure of six. The number of openings in the first half amounts 11 units, and the number of closures, 10.
For Western Europe, in slide 23, revenues in the region amounted to EUR 225 million in the quarter, with a 10% increase year-on-year. By country, it's worth highlighting the excellent performance of Germany, where the gradual return to on-premise consumption continues to boost activity levels. The EBITDA generated in the region reached EUR 32 million, with a year-on-year growth of 15%.
Finally, the total number of restaurants at the end of the half year stood at 910, after the opening of six and the closure of 16 during the second quarter of the year. This brought the number of openings in the region during the first half year to 11, and the closures to 21, of which 15 were concentrated in France. And finally, China, in slide 24. After the end of the restrictions resulting from the COVID crisis, a strong economic recovery was expected in China. But so far, the level of intensity has not been as expected.
However, the reopening of the economy and increased mobility has allowed AmRest to regain the growth path of its operation in the country. Revenues generated during the second quarter almost doubled versus a year ago, reaching EUR 27 million.
In terms of EBITDA, EUR 5.5 million were generated during the second quarter, that represent a margin of almost 21%. The number of restaurants in the region reached 87 after the opening of three units in the second quarter, and seven for the first half of the year. There were not closures during this period in the country. This is all from my side. Eduardo, I don't know if you want to conclude with some remarks?
Thank you, Santi. We just said strong quarterly results. This is the result of commitment to service of all the AmRest teams and all initiatives implemented that we have previously discussed. This week, we're having celebration in the context of the thirtieth anniversary of AmRest. Congratulations to all the AmRest teams, and I also want to take the opportunity to thank all our clients and consumers that every day chooses to visit our restaurants. Now, we are ready to take some of the questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you have joined online, please use the Q&A chat box provided. If you choose to withdraw your question, please press star followed by two.
When preparing to ask your question, please ensure your phone is unmuted locally. We'll pause for just a moment. We have a question on the chat box from Łukasz Wachełko of Trigon: Given the high input cost base and the seasonal nature of the business, is it reasonable to assume that the company should be able to improve the EBITDA margin in third quarter by at least a similar level as in second quarter ex-Russia, i.e., by one percentage point? Thank you.
Thank you very much for the question. I mean, it is difficult, you know, to make an assessment on what is going to be the quantity, you know? But what we can tell you is that what we are seeing is that the improvement trend continues, that the cost pressure is diminishing, and this has a lag effect, you know, in our portfolio. To see the effect of this cost pressure, it may lag, several months. One of the things that we were doing in terms of our purchase agreement, it was to reduce the extension of term, the maturity of term. In the past, we used to have more long-term contracts.
Right now, we have shorter term contracts, but even so, to filter all this reduction in terms of cost pressure, it takes a time, you know? So still, we are living in a very uncertain environment with this regard, but what is true is that the momentum and the trend is positive, and this is what we are seeing right now.
Great, thank you. As another reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. If you have joined online, please use the Q&A chat box provided. We'll pause for just a moment. We have a question from J.P. Rolandes of IT Funds. J.P., please, your line is open.
Yes, hello. Congratulations for this excellent results once again. I have two questions. One is regarding the refinancing of your 2024 maturities. It's a good time to refinance them. It's in the summer that you repair your roof, so you are enjoying your summertime and probably your bankers would be very keen to make you attractive offers. However, it's a tricky time on interest rate markets, so I would like to know whether you are starting to think about it or what are the plans there?
And two, you said that you are ready for after for an expansion, and so what would be the next expansion phase for AmRest? Again, congratulations for excellent results, which deserve the much higher valuation on your share price.
Thank you. Thank you, J.P., and thank you for all the support of our shareholders, you know? I'm going to address the first question that you were making in terms of the refinancing, and you made an important point, you know. The big part of the debt is due at the end of 2024, so right now we are working precisely in the refinancing on that amount. Now, it's quite important as I'm connecting this to the second part of the question that you are making. Now, we're committing. We are committed to growth, you know?
We have expansion plans in, of course, in our considerations, and this is the allocation that we could be having for the refinancing and additional funding that we may be asking for the banks, no? I just say it's an interesting timing. Santi was mentioning some minutes ago, there are still some uncertainty, but the first biggest step that we are putting at this moment is the strong results that we are delivering. Given those results, we want to give the confidence, of course, to the bank, that the company is having and passing through very good times.
So this is right now the focus that we have for the second half of 2023, to work hard on those discussions with the banks in order to get the refinancing on time. The other topic that you were bringing, J.P., in terms of the expansion phase, we continue committed to our brands, no? We still see opportunity to grow in all of them. There's still wide space in the different countries, but one of the things that we have been saying for quite some time: we want to be very efficient on the openings.
Right now, we have more strict processes in terms of where to open, where to open the stores, because we want to be sure that the ones that we are open are the ones that can give the best return in terms of our numbers. And we talk about the geography, which makes more sense, the brands that make more sense. So we are working towards that, but we still see, and I think it's the most important part, growth opportunities for the entire portfolio of AmRest.
And if I may add now one point, Eduardo, I know that I always try to stress, no? So to measure the growth in terms of number of restaurants, of course, is a very important KPI, but we are seeing that we are delivering constant quarter-on-quarter growth.
And this is also coming because what we are doing is to embrace new technology, new distribution channels, to look for new momentum with the system portfolio of restaurants that we have, you know? So to have this efficient use, you know, of the capabilities that we have, it will continue to be also a very important focus of search for growth for AmRest.
Good. Thanks very much, and congratulations again.
Thank you.
Thank you. And again, if you would like to ask a question, please press star followed by one on your telephone keypad. If you have joined online, please use the Q&A chat box provided. We have another question via the chat: Could you give us some color on the results in Spain, especially regarding the profitability of the business? Thank you.
Now, thank you. Thank you very much for the question, no. The profitability in the different markets is something very biased also to the type of offer that we have in the countries, no? So 80% of the business of AmRest right now is QSR and is the coffee segment. So in the case of Spain, we have very important contribution coming, for example, from casual dining, no? So the performance of this type of segments is not as good as is happening in other segments. And this is what is affecting, not the growth trend that we are showing among the different countries. Thank you very much.
Thank you, and as a final reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. If you have joined online, please use the Q&A chat box provided. We'll pause for just a moment.
Okay, so using my privilege of a moderator, maybe I will chip in and have a couple of questions from my end, if that's okay?
Of course, okay.
Well, first of all, can you dive a bit deeper into the cost end of your business? Because I must say that profitability, which was the major surprise. So which costs have eased that much, and where are you seeing more room to cut, so we could understand it better?
We have, Lucas, and you raised a very interesting point, no? One of the first topics that we see is that sales were strong. And of course, when we have the proper level of sales, as we are having right now, the flow-through that we have to profitability increases. So that's why the... That's the first topic, no? To have the proper level of sales that can translate into profit.
The second is, we see mainly two topics. In terms of the cost of food, we are seeing some easing in terms of inflation and pricing, which is supporting the margins. And the other topic that we have, at least for some time, is that the energy prices also are helping us in order to increase the margins.
Okay, and going market by market, I must say that I cannot complain about the results of the Polish business, but yet it's good behind the other markets. So why Poland is underperforming the other parts of the business?
With Poland, remember that Poland presented very strong results in the second quarter of last year. Anyway, the trend that we are seeing in Poland is quite positive. Foreign market having a 19% margin is one of the most relevant market. I wouldn't... I would see more than is one of our top developed countries, not really considering it an underperforming, no. I see the other way, the other way around.
Okay, but can we expect that the dynamics of EBITDA in Poland to catch up with other markets, or given that its size and high base, it will be trailing?
We are working towards all the markets in order to increase the profitability, and of course, Poland is no exception. As you say, it's our most important market, and we focus a lot into that. Now, and also it depends a lot on the mix that we have on the ground. But fortunately, all the brands that we are having right now in Poland are presenting very good results. KFC, Pizza Hut, BK, and Starbucks are having very good results on the market.
Now, but initiatives in order to increase the profitability are in place, and what is very important is that the momentum on sales remains. That's something that we focus on. One of the priorities is, of course, the transactions. Keep the transactions up in the proper pricing is also a driver of profitability of the markets. But of course, all of them has its particular characteristics.
Okay, thank you. And the final one, one of mine at this stage, I want to ask about rollout, because you're guiding that the gross rollouts will be higher than 109 restaurants as at last year. However, on the net level, you are still shrinking, even excluding the disposal of Russian business. So when can we expect the quarter when the new openings will be higher than the closing down?
I mean, as we said, no, we maintain our guidance and expectations to be opening more stores than we did on last year. And about the closures, here, what we have is some specific situation, no? As we were highlighting, most of the closures that we have during this period, it has been concentrated in one brand and in one country, and they were coming from franchisees. So, this, well, is something that is specific, but what is important is to understand several things over here, no?
So to have a natural rotation of portfolio is something healthy, and I think that we are making the delivery of how the profitability and how our sales continue to be growing, despite the fact that, we have been closing down portfolios. So once more, no?
So what we want to have is profitable growth, to be focused on performing the stores, and this is a natural process, no? That will continue. So, our commitment with the guidance continues to be on table, and we should expect further acceleration in the new openings during the second half of the year. third quarter and mainly fourth quarter are going to be strong in openings, no?
And that's like the cycle that we have had the latest years. We are working a lot in order to have a more stable growth across the quarter, but it's something that takes quite some time to adjust, no? There are still some delays that we are having in terms of receiving equipment.
There are still some logistics issues in the chain to open the restaurants, but we are on the good pace to get into the numbers that we shared at the beginning of the year as guidance. So let's expect third quarter increase and even a higher number in the fourth quarter.
Okay, great. Thank you. That's it from my end at this stage. I leave the floor to others.
Thank you, Łukasz.
Thank you. We have no further questions. I'll hand back to the management team for any closing comments.
Thank you. Thank you very much for everybody, for joining this conference call. We are very happy with the results, and we are committed to delivering on the numbers, and hope to see you soon in our restaurants in the near future. Thank you very much.
Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.