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Amrest Holdings SE
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Ladies and gentlemen, good day, and welcome to AmRest's First Quarter 2018 Financial Results Conference Call and Webcast. I'll now hand over to your speaker, Mr. Michal Serwatka. Sir, you may begin.
Thank you, Marina, and good afternoon, everyone. Welcome to our investors teleconference summarizing the results of the AmRest Group for the first quarter of 2018.
Today, we will have 2 speakers from our side. It's going to be Henry McGovern, Founder of AmRest; and Mark Chandler, our Chief Financial Officer, who will give you some detailed summary of our financials. Additionally, from AmRest's side, we have, as usual, Aleksandra Tajak, our Global Controller; and Peter Kainder; Dorota Surowiec; and myself representing Investor Relations team.
We are going to begin with the presentation. And as usual, later on, we will host some time for questions from the audience. So now I'm going to pass it over to Henry McGovern. Please begin.
Hello, everybody. Thank you for taking the time to join us. It was a very good first quarter for us. As you've seen, we grew top line by 31% and EBITDA above our target that we've shared with you many times of 20% growth or more, hitting 24%, really delivering on the vision we have for growth and becoming Europe's #1 restaurant company. Mark is going to take you through a lot of the detail on numbers, so I don't want to jump too much into the numbers. But I do want to point out a few things that I think are critical for understanding the progress that we're making as a business. First of all, our core business is so strong, you see that in a lot of established markets, Spain, Russia, Czech Republic. You've probably noticed that our core margins have improved this quarter. Very importantly, I think one of the biggest risks that had been on the business last year was the challenge of turning around the German market. We took substantial progress there in making Starbucks start to turn around margins, but also same-store sales getting to understand the consumer there. We've now gotten development started in the pipeline. We're very happy with the team we've brought on there. So we're really seeing broad performance in the M&A that we've taken on. Also, I think it's worth noting that M&A contributed positive EBITDA to the first quarter, showing us that the quality of what we're bringing in is also improving.
So as you all know, we've done a lot of deals last year. We did more than 10 deals last year in terms of acquisitions, and there's always some integration risk and operational risk associated with that. But I can tell you that we're very happy with the progress we're making. The quality of the team that we brought on in France and Germany, has really taken a big step forward in the last 6 months. So whether we're talking about development or operations or the back-office functions, we're quite happy with the direction that we've been headed there. Digital is another area that we laid out about 18 months ago as a critical direction for the company. Digital has been disrupting the restaurant industry, I think, faster than certainly I expected, but I think that's true for most people in the industry. The emergence of aggregators, the speed at which social media platforms are influencing the business. So our move into the space and adding a dedicated executive function around this, our acquisition of 51% of Pizzaportal has really paid off for us. We -- I can tell you that we're exceeding our own expectations and that of our partner, Delivery Hero, and the performance of our aggregator and just the overall progress we're making in digital is very good. And we do believe this will be a significant contributor to the value of AmRest going forward.
On development. We ended last year with over 200 builds. And we promise, for 2018, we would deliver 300 builds. That continues. We delivered 21 in the first quarter, which may not sound like a lot when we're talking about building 300, but we are up to over 40 now year-to-date, and we are on track with our development schedule. So I'm happy to confirm that we are on pace to deliver the 300-plus openings for this year. That is far more -- I think it's a multitude of what any other restaurant company in Europe is delivering this year in terms of own builds. And that's because we've really built an infrastructure to be able to handle it. And as I said, we feel like we've made progress in our new markets of France and Germany with bringing on the right people to drive the pipeline for development.
In terms of underlying margins and growth, you see some of our core businesses, Czech, Spain, very nice margins, 20%-plus. Nice growth in some big markets like Russia, where there was a bit of risk. I was just in Russia last week and very happy with the underlying performance there and getting to review our plans for the new business that we bought of Pizza Hut there. It's a challenging market, but it's definitely a growth market with a ton of whitespace. So happy with the healthiness of our core business across multiple markets.
So that leads me to where we are just as a whole business. We feel comfortable that this challenge we gave ourselves of doubling the business in 3 years is on track and which is a bit faster than the guidance, of course, we've given of looking for at least 20%. But I do feel that we're on track, and the latest M&A seemed to show that this accelerated growth is benefiting us. So our long-term vision of being #1 restaurant company in Europe is on track, and we feel very good about it.
So with that, let me turn it over to Mark, who will take you through the more detailed results for the quarter.
Thanks, Henry. Before I walk you through our first quarter results, I think it's really important to note that this is the first quarter that we changed our functional reporting currency to euros. So all the historical data has been converted from zloty to euros. And also, all our future recording, both internally and externally, going forward will be in euros. Also, since M&A transactions really have made it difficult to compare our actuals to last year, we'll continue to break down as much as we can the reporting in the core business and new business segments for more transparency.
Now referring to Slide 5 of the Q1 presentation. As Henry mentioned, we opened 42 restaurants to date. That's about twice of what we did in the same period last year, and we also expect to open, as he said, more than 300 restaurants.
On Slide 7, you can see that the total store count now stands at 1,662 units.
In terms of revenue, the first quarter net sales grew 31% to EUR 347 million with that growth really being generated by several factors: one, a positive like-for-like in all of our markets; next, the addition of 224 newbuilds since -- during the past 12 months; and also the impact of M&A. We acquired, after the first quarter of last year, 51% stake in Pizzaportal. And also, we added the Pizza Hut and KFC businesses in Germany and France and also 22 KFC restaurants in Russia. If you exclude the M&A activity, the core business grew 14.4% in the quarter and also indicates strong growth in our base business in also the month of April and May. So it has continued the growth, and so we're very -- as Henry mentioned earlier, the core business is still a very strong component of the business.
Now turning to profitability, which is summarized on Slide 19. Total EBITDA for the quarter was EUR 33.7 million with both the total company and the core business profitability increasing by more than 24% versus last year.
Regarding segment profitability. We achieved strong growth in Western Europe, Russia and CE regions, while China was flat. I will touch on each of these segments in a few moments.
While EBIT M&A grew in value in line with our core business, M&A did impact our overall EBITDA margins as total margins declined by 0.5 point to 9.7%. If 2017 acquisitions are excluded, the core business margins rose by nearly 1 point to 11.1%.
One of the major contributors to the improvement in core business margin is the improved performance of Starbucks Germany. Driven by the solid like-for-like growth and also full realization of our margin-improvement programs, we significantly improved the profitability of Starbucks, and we expect this to continue going forward.
As for net profit, net profit attributable to AmRest shareholders rose 7.6% to EUR 5.1 million, and net profit growth was somewhat limited by the impact of new M&A and also higher financing costs. Despite lower rates for our recent refinancing, financing costs were impacted this quarter by the strengthening of the euro, which caused an unfavorable FX translation effect on our euro borrowings by our Polish subsidiary. If you exclude 2017 acquisitions, net profit was at EUR 6 million, which was more than 26% better than last year, which further underlines the strength of our growth -- our core business profitability.
I'd like to next touch briefly on segment profitability, which is highlighted in Slide 18. Starting with the CE region. The first quarter EBITDA increased by 17% with overall margins dropping by 0.4 percentage points to 12.8%. Given that we had no acquisitions in CE this past year, the growth in EBITDA is truly due to continued strength in our core business, especially with regards to KFC. Results for the quarter benefit also from positive like-for-like sales and also lower cost of sales, partially offset by higher labor costs. The best performer in the region was Czech, which rose in value by 37% and achieved the highest margin of 19.6% in the region, which was 1.1 margin points above last year.
Hungary and Poland also posted strong increase in EBITDA. The margins declined in both markets as higher cost of labor and G&A expenses more than offset lower food cost. We also impacted -- the labor costs also impacted Romania, which is in part of the Other CE.
Moving on to Western Europe. EBITDA rose 79% versus last year with margins up 1.3 percentage points with all markets improving in profitability. Spain had another excellent quarter with EBITDA rising 17% and margins up nearly 1 point to 20.9%, mainly from leveraging G&A.
As I mentioned earlier, Germany significantly improved overall profitability. The loss for the market was reduced from EUR 3.1 million to EUR 1.1 million for the quarter, almost entirely due to the continued improvement of our Starbucks business. The Starbucks April results were also favorable to prior year, and we expect full year results for Germany to be significantly better than last year. It's also important to note that other Western Europe, which is comprised mostly of France, was profitable in Q1, having reported a loss last quarter, for last year. We also were very pleased with our new KFC business in France and have plans to continue to expand further in the market.
Russia profitability was up sharply with EBITDA growing by 78% and margins rising 3.5 points to 11.2%. We have improved the many cost categories, especially cost of labor, where we gained 3 points in margin. Plus, we successfully integrated the highly profitable 22 KFC units acquired late last year. We reported flat EBITDA results for our China market despite higher rent and cost of sales, which puts pressure on our margins. We are planning on margins returning to prior year levels as we have been able to reduce labor costs and also leverage G&A.
Our final segment is unallocated, which is comprised of SCM, Pizzaportal and also global G&A, which includes due diligence, integration support costs. We reported an EBITDA loss of EUR 4 million in the quarter versus a prior year loss of nearly EUR 1 million. Despite the growth in SCM earnings, the higher loss was generated due to global costs associated with our rapid expansion of our business. This also included our Pizzaportal business, which posted a loss of EUR 1.6 million.
Year-to-year comparison was also affected by a reversal of an accrual last year that generated a onetime income of EUR 800,000.
Now with regards to key balance sheet items, which is on Slide 9. Net debt is approximately EUR 354 million with leverage of 2.25x. As indicated on our last call, we are planning a higher percentage of builds from franchisees this year, which will also help us reduce our CapEx spend. Total CapEx, excluding M&A, for 2018 is expected to be in the range of EUR 240 million, with more than the 300 new openings planned for 2018.
Regarding first quarter cash flow. Net cash provided from operating activities nearly tripled to EUR 23 million. The cash flow has been favorably impacted by our business growth as well as change in our business model to include more franchising.
Looking ahead, it is anticipated that our core businesses will continue to meet our growth targets, and our organic pipeline is very strong. April and May results were in line with our expectations, including the continued progress in Germany. And we anticipate that we'll have improved returns on our M&A transactions as we complete full integration of these new businesses.
With this, I'd like to now open up the session for Q&A.
[Operator Instructions] Our first question comes from Jakub Krawczyk, Raiffeisen Centrobank.
I just have a question about this Other CE segment. You specifically mentioned Romanian labor costs. Is that the main reason for this sharp decline in the EBITDA margin? Or like maybe could you quantify in terms of percentages how much would Romania be here maybe?
Romania labor costs went up 18%, which impacted, I think, also our competitors in the marketplace. So it had quite a large impact on that. We also had a short-term and supply-side cost of sales item. Milk prices went up in the region, but we expect that to come down. So Romania is still with over 20% margins. So still very profitable business for us there. And it's become a bigger part of the Other CE as the other part is really the Balkans. So -- but overall, the business is still strong. Like-for-like sales are positive. So it's really in the country, they just increased overall wages by a very large amount. So it did impact our results at this point.
Please also remember that under Other CE we present Austrian markets, which is only 1 restaurant of KFC. It's still in a start-up phase, which also impacts our results in the short term.
Okay. So Austria is in Other CE, not in other Western European?
Yes.
Okay. And can I just ask a different question? Can you just tell me or tell us about the chicken shortage issue in the U.K.? Is that isolated to that particular market? Or what is there to be learned? And what can you do to make sure that something like this doesn't happen to your markets?
Yes, thank you. The stake in the U.K., first of all, is definitely limited to the U.K. So let me start with that. There's no contagion risk. There was a bit of risk to us in Germany because we shared a supplier and there was some contagion risk on the financial side, but that was covered by Yum!. Yum! came in and made sure it was financed in DHL also to ensure that there was no financial insecurity at the supplier. As you know, probably, AmRest has taken a lot of investment onto the supply chain side over the years. We're one of the few businesses in Europe that is fully integrated as we are. So we spend an inordinate amount of time, first, on food safety because that's usually where the biggest risk [indiscernible], but also on distribution and supply. Years ago, I'm going back 15 years ago, we started to diversify our primary suppliers so that we wouldn't have single-supplier risk. As you know, we source fresh chicken across Central Europe. So in Poland, we have 6 different chicken suppliers. We work very closely with them. We also have multiple distribution companies so that we don't have single-supplier risk. And it's an area where we have a lot of depth. I think we have north of 75 people in our supply chain. Management structure just presents Europe. So I don't want to speak badly about what happened in the U.K. But honestly, it seems some very basic, good business practice, maintenance decisions were ignored. They went with single supplier. They went with single warehouse, and it just had too much risk in the structure. If it went perfectly, it might have been a bit cheaper, but that risk would be on something that we've taken in Central Europe. So we do not feel any exposure to that, and we also believe we're structured quite well to avoid it.
Our next question comes from Thomas [indiscernible], Lumiere Capital.
Yes. I was wondering what the latest is on a possible stock listing in Spain. And what would be the reasons to do that?
So we haven't announced anything. So obviously, I can't go into that. We're looking at that always as to where is the right place for AmRest and what's the right listing structure to allow for more liquidity and more reach for the business. I can let Peter jump in here as well, if he'd like, but we're not prepared to have made the decision on this. We made a decision, I think that we announced to look at potential other markets, but we have not made a decision on that front yet.
Mr. Thomas, was your question answered?
Yes, thank you.
[Operator Instructions] Our next question comes from [indiscernible], Erste Asset Management.
Yes. Can you just remind me this 2x3 Vision, when this should be completed? Is it from 2017 till 2020 or from 2018 till '21?
The 3 years were 2017, '18 and '19. And honestly, I'll speak a little bit out of turn, which Mark probably will hit me for. But honestly, we're seeing enough momentum in the business that we feel that carry forward another year at the moment. But the original plan where we came out and said we wanted to double the business in the 3 years was '17, '18 and '19.
And this was more from the financial perspective? Or more from the, let's say, number of restaurants operated?
That was from the sales line, but obviously, as we [indiscernible] that sale and we integrate businesses, we would expect that to flow through the business, but that goal was specifically a failed target.
Okay. Let's say, the little bit margin erosion on the EBITDA level. I know that you've been talking about turning around the Western operations. But do you think like -- let's say, the current EBITDA margin is something that this should be under the normal level because maybe the -- let's say, above-average EBITDA margin in the CE region might come under pressure in future, especially due to the growing wages. So do you still believe that you could be improving the EBITDA margin in the medium term? Or do you think the current level is a more realistic assumption for your business?
Our target is still 15% EBITDA margin across the business, and we think that that's achievable. You really have to step back and put this in perspective of what we bought. We bought some very troubled businesses, I would say, that required significant amounts of turnaround. And the question for, I think, any investor into AmRest is, "What is the capability of AmRest to do that and what is the risk associated with the new market moves we've made?" And if we break that down, our history of being able to improve acquisitions, I think, is well documented. We've made over 20 acquisitions in our history, and for the most part, we were quite successful at improving penetration and margins. That's why the progress in Germany Starbucks is so important. We bought a business, as we reported in the first quarter, that was losing money when we took it over. And we made a big deal of being able to improve margins as we went forward. Now we have same-store sales growing. It's still not anywhere close to the margin levels we would like, but that's going to take getting a lot more penetration in Germany than we have. Unfortunately, that business was built across 52 different cities in Germany with only 140 stores. So very little penetration, a lot of inefficiencies in supply chain and training and people. There were difficult relations with the labor unions that we worked hard to improve. The Pizza Hut business in -- that we bought was also under-leveraged, underpenetrated, poor operations that we would consider significant upgrades needed in food quality. And they are just a number of examples. In Germany, right now, we have 3 different distribution companies because KFC was on one, Pizza Hut was on another and Starbucks was on another, but we bought those deals with contracts in place. And we can't fully leverage our purchasing power and distribution scale until 2020, when we're able to consolidate that. And that's just an example of why we always say it takes 3 to 5 years to turn around an acquisition. So we're putting ourselves in a place where we're a multibrand operator with scale across Europe. We feel that we've learned a lot in Poland and Czech from the benefits that can be gained by being a multibrand operator that is the leader in the market and how that flows through in real estate relationships with supply chain relationships with our suppliers and people development, et cetera. So we're really, honestly, at the early stages of being that multibrand player across Europe. And we bought businesses with very low margins that we recognize are dilutive to our earnings, and that's not a nice thing to say, but it's the huge upside we have. I think that's why Mark and I both put an emphasis on that our underlying core margins are very stable. They are in place. You see a bit of variation. Russia, up. Romania, down. But in general, if you look at our core markets, you'll see very stable. And it's not just the Central European items. Spain, 21% margins. We've had very solid margins there for a number of years. The smaller markets, Hungary, Czech Republic, where we've gotten further and further penetration, you see the benefit of our scale. And margins have actually been rising over the last 3 or 4 years to the levels we have. So some of our Central European markets have risen from 15% up to 20%, but our long-term goal and expectation -- it's not just a goal, our expectation is that we will drive margins up to 15% as we get to the scale that we want across these Western markets.
Yes. Let me add. I think, also, we did also hire -- organization, I guess, ahead of the curve in terms of growth. So we both also see, I think, leverage in the G&A. So G&A should also improve over time. Also, we've had quite a few integration costs in these numbers. And also, Pizzaportal is one that we really believe in very much so. And I think we're going to see improved profitability. Right now, where we had anticipated losses, Henry mentioned it is doing better than we anticipated. So those are all things that I think we're going to see improving. And also, with the franchise model out there and the royalty stream, that should also help us in terms of continuing to grow our margins. So yes, we have some labor issues or pressures, like you would say, but we're looking at ways to offset it and delivery has also been a great channel for us as another growth channel, too. So we're still forecasting that we're going to -- our margins won't go down, and we're looking to see how we can continue to improve them.
But you haven't been giving any guidance for this year in terms of top line and EBITDA margins, have you?
We have not, no. Because we have -- with the acquisitions [indiscernible] we have not, but I think that's why we're focused very much on the core business because we want to understand that the core business overall we're still, in terms of that, the numbers are -- we're still growing in margin on the core. So we still feel very good about that, especially with Starbucks Germany being part of that core. And the KFC brands are doing very well in all our markets.
Okay. And my last question. Let's say the leadership of McDonald's in terms of pricing, is it still something that you follow, that you're waiting what McDonald's is doing in terms of pricing and that's what you implement on the KFC level? And if you could also provide us a bit of like-for-likes. I mean, volume versus the pricing.
Who is McDonald's? I'm sorry. Who are they?
Yes. It's one small American company.
Oh, that one with the yellow M. Yes. We try not to follow them in much. I'm not sure where you got the impression that we follow them on pricing. But no, we don't. It's obviously -- there is a market out there, and we have to be sensitive to it. AmRest is always very slow to take pricing. And we took a little bit with a shift in VAT expected. We took a small price increase of 1%, 1.2% in December for KFC Poland. But in general, we've been slow to take pricing. So most of what you see in the increase in sales is not coming from pricing. We're actually seeing quite a bit on the delivery side, which has a higher average guest check. So delivery continues to grow at double-digit rates. This is the fourth year in a row of double-digit growth on the delivery front. So that's driving a bit of the sales growth because of the higher average guest check.
Okay. And the traffic in the restaurants, do you have any numbers on the traffic? Or that's in tickets sold to restaurants?
It's positive and healthy. We don't give out specifics on that by brand or country, but it's -- I think we reported last quarter that we're very happy that it was broad-based performance across almost all markets and brands. 2017 were positives in terms of traffic and extremely healthy underlying performance of most brands and countries.
Our next question comes from [indiscernible], Wood & Co.
Again, EBITDA more than 20% up. I actually have 2 questions. First of all, on Germany. Shall we expect this year to bring breakeven? And in 3 years from now, where do you believe you may be at the profitability on that market?
Germany, actually, we are looking to make money this year, for sure. I think the first quarter was -- traditionally been the -- always the weakest quarter. The year before we bought it, there was substantial losses. So this is -- we had such a large first quarter, I think, loss that was hard to overcome for us. All the programs we've put in place got us to where we're at today. I've seen April results are very good, ahead of last year. So we are, for sure, expecting to be positive this year. And so I think we're -- and so -- I hope that we'll be reporting the next couple of quarters some very good numbers on Germany, still. So the trend is still there. It's also not just the margin. It's also on sales. Sales have been very good as well. So -- and we also had, as we had promised, to close some of the -- some lossmaking stores. That was already in the plan. And so we did a few more this -- the beginning of this quarter. So that will also help us as we go forward. We have very -- a much more healthier portfolio of restaurants.
Okay. And would be the assumption of double-digit EBITDA margin in the next few years reasonable? Or it's still too ambitious?
I remember when Henry, I think gave -- I think, a year ago said, it takes some time. I think we're probably a little bit ahead of what we thought. I think, getting to the 8 -- 6% to 8% was the target. I think we always will seek the double digits. I think we'll never give up on it, but I think it's too early to tell where we're going to be, if it's double-digit or not, but that certainly would be our goal.
Okay. And the other question of mine is IFRS 16 coming soon. So have you took an attempt to calculate the numbers to see what would be the -- in your reality of financial world, the results of yours?
We actually started on this, like, 3 years ago, and so we've been working through. We have definitely determined on -- because it's important for us in many aspects, but it's also on the balance sheet and also on the income statement. So -- but also, you can imagine with all the number of leases that we have, it's a bit of big exercise, but [ Ola ] and her team have been working on it and we've definitely, have zeroed in on the numbers, what it's going to be and communicated that also to also our banks as well since our financing is dependent on EBITDA and net debt.
Okay. So I understand that from the sake of covenants on debt, there should no impact and the banks should be aware that all the numbers may just change, but it doesn't mean that reality has changed?
We already anticipated that when we did the refinancing. So it was already in the documentation of that. So it does not impact us in terms of our financing and the debt covenants.
Our next question comes from Irina Hunter, LGM.
Henry and Mark. Can you hear me? It was breaking out a little bit.
Yes.
Can you maybe provide some color on the CapEx number that Mark mentioned? EUR 240 million, how much of it is newbuild? How much is maintenance?
In terms of the -- so of the EUR 240 million, the breakdown is about EUR 180 million is newbuilds, roughly. And then the rest is renovations. And also, we have other projects on top of it because we have -- we're spending money in digital. We have some investments in new channels. So that is the -- so that number has gotten a little bit bigger than on -- over time, but so it's still primarily, though -- on the 300-plus builds because we have more than 300 in the plan. That's probably the breakdown. It is -- it's -- we're continuing to try to drive down cost, but we have also -- that number also includes some franchisees in there. So...
All right. Okay. No, I appreciate that. Now it looks like with your plans, if everything continues according to plan, in terms of how much EBITDA you're going to generate and considering that this quarter was a good quarter and that would continue at the same pace, how comfortable are you that by the end of the year you're not going to -- or I was going to say, you're not going to blow the covenant? But are you going to be coming dangerously close to the covenant?
Well, we look very closely at the covenant and Henry and I go through this almost on a monthly basis. But we've got a very detailed plan, a 3-year plan. And we also have a cushion for headroom. So we will always ensure that our plans never exceed a number, and we've agreed with the board, a number that's certainly below the 3.5x in terms of leverage. So we feel good about that. We review that on a systematic basis. So yes, we have no concerns about the covenant portion of it.
It's 3.5, Henry. It's not 3, right?.
3.5 is leverage. So we're 2.25. So we're -- we still have a lot of headroom.
Yes, that's fine. Okay. And then just in terms of labor, how -- on new restaurant opening. Is it becoming more difficult to find locations? I mean, I appreciate the comments that you've done twice as many this year as you did last year, but it still seems like you are quite a bit away or behind your plan in terms of opening 300 new sites. From at least where we sit, it's very difficult to see how you would meet that target. So maybe if you can give us a flavor of how much is in the pipeline of sites identified but not opened? Because it certainly seems like a long order -- tall order, I should say.
Well, having seen development pipelines for all of these years, and unfortunately, they do end up back-end loaded. It's just part of the reality of the way the build cycle is because of winters and you can't start drive-throughs and shopping malls, typically. That's the reality. So I wouldn't have started with my statement if we weren't quite confident in delivering the 300. We certainly wouldn't want to misguide you to that. So we reiterated it because we understand it may look like a tall order, but we feel quite comfortable with it. Actually, just before coming in here, I had a meeting with the [indiscernible] who leads our development team. And he feels quite comfortable. We have a weekly update with all of the metrics that you just discussed. And we feel comfortable with the pipeline. And typically, you know our pipeline, you know out about 18 months. So at the moment, we feel that things are coming in online.
We've been saving some leases for 2019 already as well. So -- and so the leases and the CapEx to be improved certainly are there. And I think probably the same question could have been asked last year when we had half of it, but then we had 200-plus builds and we did exceed the number that we had told. So yes, I think internally, we just have a little bit more aggressive target than 300, but we still feel very comfortable that 300 is very doable.
Our next question comes from [indiscernible], Bloomberg.
I have 2 questions. One is concerning the labor costs, which increases a little bit more than the revenues. Do you think that there is a kind of chance to slow down a little bit with the -- of such cost increase, especially as the Sunday trade ban in Poland gives you a chance to kind of look twice on the cost side and maybe to close some restaurants over the Sunday period? And the additional question was partly answered because I also ask about the old CapEx, EUR 220 million -- sorry, EUR 240 million this year, as Mr. Mark Chandler said that there will about EUR 60 million on new projects, including digital. Could you specify how much...
For renovation, plus renovation.
Okay. So -- because you put so much efforts and kind of hope for the digital growth and in your channels. What can be perspective for this, particularly in CapEx? I mean, it's like a low double-digit or might be like 30, 40 -- I don't know. If you can specify what this kind of a plan is. Are there early substantial plans to spend -- invest in digital? Or rather, just the start of the road?
I think it's the start of the road because we do see some opportunities to further our digital footprint with each of the brands and also with the -- I guess, the success that we've had in our partnership with Delivery Hero, exceeding both of our expectations. We're certainly going to look to expand that, and it's hard for us to give you any specific numbers in terms of digital CapEx at the moment as we're reviewing a number of opportunities. But it is an area that's changing very quickly, it's a dynamic market, as you know. We have the benefit of our big brands. And we already have a digital investment strategy with our brands. So this is over and above that. But leveraging the brand strength we have, I think, is turning out to be a very good strategy. How that's going to play out is honestly probably too early for us to get into at the moment as that space is moving quickly. But we're evaluating. So sorry, we can't give you any direct guidance on that, but it is an area you can expect investment to be placed.
And the question concerning the labor costs and the dynamics for the future...
It's been slower this year already. We feel like it's manageable. It certainly came through in the last couple of years, but Poland has slowed down a bit on that front. Romania was a huge jump that Mark talked about. We're not seeing much on the Western European side, so it seems to be under control at the moment.
Do you expect even better performance next month, thanks to or maybe due to the Sunday trade ban or it's not any kind of substantial for you at this moment?
I mean, it's overall a negative for us. It hasn't been quite as bad as we anticipated. We've had more business move to either day on either side of it, but it is a negative to us. It probably affects us a couple of percent on the sales line.
Delivery's health is [indiscernible], quite a bit of that.
We get quite bit of pickup on delivery on Sundays right now. And I think that's the benefit of us being diversified. So it's helped a lot.
Our next question comes from Jakub Krawczyk, Raiffeisen Centrobank.
Sorry for the return. But I just wanted to ask about France. Can you give some color maybe what the steps are in France, maybe what's unique about this market for you? Kind of, what team is running the business? And do you intend to spend lots -- is a lot required in marketing, for example? Or is it more a Yum! spending that is done for the region? Or is it -- I can imagine that with this relatively small and probably not a very profitable business, you have a large task in front of you.
Well, you have to break it down right now. The KFC business that we bought is doing very well. Yum! controls all of the marketing there. We're starting to influence that. We're building our first next design restaurant in Paris this year. We've gotten involved in the marketing co-op, and we'll start to push further and further our involvement into that market. On the Pizza Hut side, it is completely our responsibility. We have first -- the first year, have been trying to get the franchise community to understand our vision to clean up the franchise community, a lot of bad debt and issues like that. Getting the right digital platform takes some time. Actually, I'm pretty surprised that we've been able to do that in the first year. But we have. We need to figure out our relationships with aggregators, our own platform. So it's our responsibility. I would say we're not even halfway there in terms of what needs to be done in terms of rolling out a digital platform of apps, web ordering, et cetera. So it's very mixed for us in France, what we're going to control. We'd hope to develop further our relationship with Yum! on the KFC side. That's a very strong business, much higher average unit volumes and nice digital base of digital ordering in France. So quite a bit of opportunity for us to leverage what we've learned in Central Europe, where we're sort of the leader for KFC on that.
Is there any proposed staff or structures that you're holding on to in terms of management? Or...
Most of the people have been changed out at this point.
We've changed over almost everything. We carried over on the finance side. Somebody who was helping that, is now the controller in France. But other than that, we've -- maybe with the exception of a couple of people, we've rebuilt the team. And we brought in some senior leadership that we had -- we knew in the area. So -- and that's why, I think, Pizza Hut's going -- but also French -- KFC, as Henry mentioned, has actually been a profitable business even in the first quarter for us. So we have -- we're making money and good money in KFC in France.
Could you give us like a ballpark? Is it low-single digits EBITDA margins? Or what are we talking about?
EBITDA margins are in the kind of high -- mid- to high single digits right now for KFC. Again, that's just the first quarter. And I expect that we -- there's no reason why -- we're still working on supply chain systems and such. So I think it's very difficult to think that this is indicative of where we're going to be. But I think that maybe shows the upside we think we still have for the business. So we just started putting our systems in -- into the operating systems into the business. So I believe it should be fitting into where we think KFC has been really a double-digit business for us in almost all our markets.
And I would expect -- also very importantly, in France, I would expect ROIC to be quite high because the average unit volumes are significantly higher than we see in our other markets.
[Operator Instructions] As we have no further questions at this time, dear speakers, back to you for the conclusion.
Thank you all very much. Have a great day. Thank you. Bye-bye.
Thank you.