Amrest Holdings SE

WSE:EAT

Earnings Call Transcript

[Operator]

Hello, and welcome to the AmRest Q3 2024 Results Conference Call. My name is Harry, and I'll be your operator today. [Operator Instructions]

I would now like to hand the conference over to Jarek Tomczynski with WOOD & Company. Thank you. Please proceed.

[Jarek Tomczynski, analyst]

Hello, everyone. On behalf of AmRest, we would like to welcome you to the conference call with the management to present and discuss the results of the third quarter. The company will be represented by Eduardo Zamarripa, the Chief Financial Officer; and Santiago Camarero Aguilera, IR and Strategic Planning Director.

Let me please hand over to the management.

[Eduardo Zamarripa, executive]

Good morning, and thank you for joining us today in this third quarter 2024 AmRest results presentation. It is always my pleasure to share with you an update on AmRest results and situation at the end of the quarter.

So let's start with today's presentation. If we go to Slide 2, please. As we usually do, let me remind that AmRest is Europe leading restaurant operator with a portfolio of almost 2,200 restaurants in 22 countries across Europe, Middle East and China. We keep a balanced portfolio of franchisee and proprietary brands that cover a wide range of consumption occasions.

As a result, more than 30 million customers visit our restaurants every month, where they find a distinctive service provided by over 44,000 passionate AmRestees.

Let me also point out that from October 31, this map has suffered a relevant change as AmRest and Pizza Hut Europe Limited have agreed the early termination of the master franchise agreement for France. Therefore, starting from November 1, AmRest does not operate any Pizza Hut restaurant in the French market anymore. AmRest was managing 120 sub-franchisees Pizza Hut restaurants and one equity at the end of the quarter.

If we move now to Slide 3. We can see that AmRest sales during the third quarter of 2024 reached almost EUR 660 million, 4.2% higher than those achieved during 2023. This revenue figure, which represents another all-time high for a quarter, supports the group's growth strategy and is particularly relevant in a context where several countries are experiencing an important moderation in household consumption.

In terms of profitability, the EBITDA generated during the third quarter of the year amounted more than EUR 125 million, representing a margin of 19%, and an increase of 13% compared to the same period of 2023.

In terms of operating profit, the generation reached at EUR 60 million. This is 14% higher than a year ago. This profitability increase has been translated into a higher cash flow generation that resulted into cash accumulation and a further deleverage of the group.

At the end of the third quarter, the leverage ratio stood at 1.8x. This is at the low end of the target range that we have shared on several occasions with all of you. Finally, during this period, we opened 21 new restaurants.

Now, moving to Slide 4. Let's review the commercial position of our brands where the common them is the clear focus on value across geographies.

Let me start with a quick service and coffee brands in this Slide 4. In KFC, we have continued with our aim of delighting our customers offering them totally new products in these occasions from California inspired flavors through refreshing bubble tea drinks.

In addition, a promotional mega box where a set of 5 items is offered for PLN 20 has been an important push to our restaurant sales. Similar offers have been launched in other markets.

For Burger King, the new mobile app is getting enhanced with additional solutions and an increased number of users. At the same time, the marketing focus has been on value and premium offers with King deals.

In Starbucks, our focus is on coffee expertise, especially in iced coffee. Global trends, but especially Generation Z consumers consider well-being a top priority, thus preferring lighter, low-calorie beverages. In this regard, iced coffee is offering a balance of taste and indulgence.

Now, moving to the fast casual and dining brands in Slide 5, please. At Pizza Hut, we relaunched the takeaway channel in CE markets under the Take it Easy umbrella based on 3 main pillars: easy online and offline experience, easy for your pocket and new communications with the main message, Every day, Easy, Takeaway.

At Blue Frog, we are increasing the occasion of use of our restaurants with our freshly launched New Brunch Menu, featuring a delightful fusion of flavors that will surely set the tone for a delightful day ahead.

At La Tagliatella, we are modernizing the brand with the active participation of customers and employees. This participation has been decisive in building the change new identity. The project is culminating with an unveiling of the first refurbished restaurant with a new image in the Madrid area.

Finally, at Sushi Shop, we just launched a new website and app e-commerce delivery, and click and collect with a new and enhanced user experience and interaction features.

So far, we have seen an increase in conversion rates and higher average guest checks from all channels. This enhanced system ability and the new features will deliver new and fresh products from Sushi Shop to current and potential customers.

If now we move to Slide 6, please. As I mentioned, AmRest generated revenues of almost EUR 660 million during the quarter, with a growth of over 4% compared to the same period in 2023. This revenue figure, which represents another all-time high, supports the group's growth strategy and is particularly relevant in a context where several countries are experiencing an important moderation in household consumption.

As on previous occasions, on the right-hand chart, you have the evolution of the 12 months trailing average revenue per store that continues with steady growth for the last 3 years, providing a good indication of both the health of our business and the level of utilization of economies of scale through sales leverage.

Moving to Slide 3, we can see the evolution of consumption patterns. The trend of moderation in the growth of delivery sales continued, with which now accounts for 17% of the group total sales.

On the other hand, dine-in sales continue to show the highest levels of activity and now account for 47% of the total sales. This is highest percentage recorded since COVID period.

In addition, the digital innovation continues to be at the center of our priorities. The result is that more than half of our sales are placed through the digital channels, digital menu boards, kiosks, enhancement of mobile applications that now join by friendly robots in some of our Pizza Hut restaurants that serve and help to tidy up tables in our restaurants.

Now moving to Slide 8. The number of restaurants managed by AmRest reached 2,185 units at the end of the third quarter after the opening of 21 new restaurants and the closing of 13.

As I mentioned before, we have been working on further portfolio adjustment in France. As a result, we have agreed an early termination of the master franchisee agreement for Pizza Hut France. Therefore, starting on November 1, AmRest does not operate any Pizza Hut restaurant in the French market anymore.

Just to remind you that AmRest was managing 120 sub-franchisees restaurants and 1 equity restaurant at the end of September for Pizza Hut France. The EBITDA accumulated for this business during the first 3 quarters of the year was almost EUR 2 million negative on pre-IFRS basis.

We have also shared with you the figures of the latest portfolio adjustments executed, both in terms of restaurant count and EBITDA contribution.

If we go to Slide 9, the EBITDA generated during the third quarter of the year amounted more than EUR 125 million. This is an increase of 13% compared to the same period in 2023 and represents a margin of 19% that expanded by 1.5 percentage points.

The EBITDA achieved includes refunds collected during the month of August in the amount of almost EUR 9 million. In terms of operating profit, EBIT, the generation reached more than EUR 60 million. This represents an increase of 14% and a margin of 9.1%, 0.7 percentage points higher than in 2023.

For another quarter, the main factors behind these margin expansions are lower cost pressures and the positive effect of generated by the increase in average sales per restaurants as the continuous progress in efficiency.

With this, Santi, if you can cover the main financial highlights, please.

[Santiago Aguilera, executive]

Many thanks, Eduardo, and good afternoon, everyone. As always, it's my pleasure to have the opportunity to present our quarterly financial results to you all and a few ideas before starting. The results that we are presenting today are once again in line with the expectations that we shared at the beginning of the year that have the objective of making AmRest a bigger and above all, a better company.

We landed this vision in terms of certain KPIs, targeting mid- to high single-digit growth in sales and double-digit growth in EBITDA generation, besides a severe discipline in terms of leverage control and further steps for improving the quality of our restaurant portfolio.

Growing decisively with the opening of new units, keeping the existing restaurants in the optimal conditions, and making progress in optimization of resources and capital allocation, which in this quarter have resulted in the early termination of our MFA agreement for Piza Hut in France.

We are fully aware of the challenges of generating business across 22 different economies, which is why we have managed to turn AmRest into an integrated group, an accumulation of businesses and brands in different geographies. We are now a highly integrated group with a clear vocation for generating a profitable growth.

So with this, if we can go to the Slide 11, please. Here, we can see the main financial data for the third quarter of the year. AmRest sales during the third quarter of 2024 reached almost EUR 660 million, 4% higher than those achieved during 2023.

In aggregated terms, transactions increased by 2%, while the increase in the average ticket accounts for the difference. This revenue figure represents another all-time high for a quarter. However, with significant differences in the evolutions of sales generated among countries.

While revenues generated in the Central and Eastern Europe region grew at double-digit rates, the Western Europe and China regions showed contraction. On an aggregated basis, the comparable store sales index closed the quarter at 99.2%. The most up-to-date redeem year-to-date is 100.4 at the beginning of November.

In terms of profitability, as Eduardo explained before, the EBITDA generation reached almost EUR 125 million with a growth of 13%. Finally, the CapEx was in line with previous year reading at EUR 44 million.

Moving now to Slide 12, please. We have already stressed that we continue to set new all-time highs in quarterly sales. Despite this, the same-store sales has been reduced to 99.2%. However, I would like to share with you a reflection about this indicator and how to reconciliate with previous figures. Although it will be a little bit of use, the same-store sales is an important indicator for measuring the momentum of consumption in the geographical area analyzed, but it does not reflect the great effort made in terms of growth.

During the first 9 months of the year, we have refurbished a total of 194 restaurants. When the refurbishment period is longer than 4 weeks, these stores would usually have strong sales after reopening are excluded from the comparison group. The same obviously also happened with the new openings.

Moving now to Slide 13, please. Again, in this slide, we have the quarter EBITDA evolution only to our point that this quarter, we have reached also an all-time high in terms of nominal EBITDA generation. I think that all these points have already been well covered. So let me jump to Slide 14, where we are plotting the quarterly operating profit evolution.

For a better understanding of the EBIT evolution, we have drawn up the results generated in our ordinary operating business, excluding extraordinary impacts. This is the adjusted operating profit that excludes the extraordinary Sushi Shop goodwill impairments booked. In this regard, excluding impairment, year-to-date, the accumulative operating profit reached EUR 125 million with a growth of more than 20% year-on-year and a margin of 6.6%. This is 0.8 percentage points higher than a year ago.

Moving to Slide 15, please. In this slide, we can see how this profitability -- this profitable growth has been translated into a strong operating cash flow generation that reached over EUR 122 million during this quarter. This is an increase of more than 30% versus last year.

If we go to the Slide 16, please. I would like to point a couple of things in this slide. First, we opened 21 new restaurants during the quarter, and we closed 13 units. And second, we have a net increase of 75 equity restaurants during the last 12 months. And in terms of franchisees, the number has been reduced by 5. This is due to the decrease in the portfolio of Pizza Hut France that as we mentioned before, it has already been transferred.

Moving now to Slide 17, please. Here, we have the cash and debt evolution. The group's net debt amounted EUR 465 million at the end of the quarter. This is EUR 11 million less than in the previous quarter. This net debt decrease is due to the growth in accumulated liquidity, which amounted almost EUR 158 million after accumulating more than EUR 21 million during the quarter. This is the result of the strong generation of operating cash flow that I mentioned before, and this is despite an investment cash flow of more than EUR 51 million, that is 18% higher than from the previous quarter.

Let me also point that in addition to the EUR 158 million of liquidity that we consider is a prudent but efficient level according with our needs, we have available unused credit lines for another EUR 213 million.

In the Slide 18, you can find our financial debt structure and maturity profile. Basically no changes with respect to the previous quarter. More than 90% of the current financial debt is long-term debt.

So moving to the Slide 19, please. In this slide, we can find the breakdown of revenue, EBITDA and the number of restaurants that we have in each segment. These segments comprise businesses across 22 countries that, as we have said, are showing very different dynamics during the last months.

In the Slide 20, let's start, as usual, with Central and Eastern Europe. Our more relevant region from business perspective that currently represents 59% of the group's revenues. Revenues generated during the quarter in the region reached EUR 391 million. This is an increase of 10.4% over the previous year. For another quarter, we marked the excellent performance of the Polish market with revenues increasing by more than 15%, partly due to the micro tailwinds where rising wages and improved consumer confidence have boost household spending, but also to the excellent commercial management of our team.

EBITDA generated in the region during the quarter was more than EUR 94 million, representing a margin of 24%. This figure includes EUR 9 million in refunds. Finally, AmRest closed the quarter with a portfolio of 1,202 restaurants in the region after the opening of 16 units and the closure of 3. This brings to 33 new restaurants opened and it closed for the year.

Let's continue now with the Slide 21, Western Europe, please. Quarterly sales in the region totaled 22 -- sorry, EUR 225 million, a decrease of 2.4% compared to 2023. Once again, there are marked differences among countries. While sales in Spain grew at a rate of 5.6%, the figures for Germany showed a decline of 10% and for France, almost 6%.

Just to mention that Spain is the second biggest market for AmRest after Poland, and the Spanish economy is enjoying about average growth due to the good performance of the tourist sector and to the increase in foreign investment, among other factors that once more are generating a nice tailwind for our business in the country.

In terms of profitability, at aggregated level for the region, the EBITDA reached EUR 33 million, representing a margin of almost 15% and a decrease of 3% compared to the previous year. The number of restaurants in the region reached 896 units at the end of the third quarter when 3 units were opened while 9 were closed. This implies 21 new openings for the year and the closure of 23.

And finally, if we move to Slide 22, we have the performance of China. At macro level, the country continues to face major challenges such as the real estate crisis and the falling consumption. The government has approved significant aid packages aimed at supporting the economy. But so far, these measures have not had an impact on consumer confidence. For now, consumers continue to prioritize savings over spending, which is resulting in a decline in discretionary consumption. In this context, AmRest sales in the region fell by 13% to EUR 22 million during the quarter.

Despite the revenue decline, in terms of profitability, the EBITDA generated amounted EUR 4.4 million, representing a healthy margin of almost 20%. The number of restaurants in the region reached 87 units after the opening of 2 and the closure of 1. The cumulative annual numbers of openings stands at 7 and the closures to 8.

And this is all from my side. Back to you, Eduardo.

[Eduardo Zamarripa, executive]

Thank you, Santi. Let's open the session for questions, please.

[Operator]

[Operator Instructions] Our first question has been submitted by Piotr Chodyra with at Trigon, who asks, what are the reasons for weak performance in Germany, both in terms of revenue and EBITDA margin? Is it only consumer sentiment in the country affecting Starbucks?

[Eduardo Zamarripa, executive]

Thanks, Piotr, for the question. In the countries of Western Europe, we are facing quite big challenges, being one of the most important ones, as you pointed out Germany. Particularly Starbucks is having a challenging time on that as well as KFC.

But the important thinking here is what we are doing in terms to revert dispositions. As we're saying, particularly in Starbucks, we are enhancing the service that we have. We have a new POS in place since last year in Germany, which is helping us to drive the perception of the consumer. We have increased the offering of prepared food in Starbucks. So it's increasing the experience that our consumers had.

And of course, some seasonal products that are having an impact on that in order to reduce the impact that we are having in terms of consumption. As you have seen, Germany in terms of trends in general economically is facing a challenging time. The savings that the population is having are relevant and the stuff that they have in terms of consumer is also that. And also I would say, it's a mix of what is happening in the economy and the initiatives that we have in order to decrease the impact that we have on that market.

[Operator]

That's great. We currently have no further questions in the line. [Operator Instructions]

[Jarek Tomczynski, analyst]

We touched on Germany. If you look at Poland and Germany, the 2 were on the opposite end of the performance spectrum. In Poland, was that only related to macro trends? Or were there any sort of company-specific aspects that drove Polish business strength in the quarter?

[Eduardo Zamarripa, executive]

Perfect. Thank you for the question. And as you point out, exactly, those are like the 2 poles of difference that we have at this moment. As I was mentioning in the previous question, Germany is suffering in terms of economy. It's a different situation the one that we have in Poland. And as we pointed out, one of the things that we are seeing across Europe is that same-store sales are suffering. But we have a very different approach in terms of what has happened.

The one that is suffering more is Germany, and we have been able with the approach that we have had in Poland to keep a healthy growth in terms of same-store sales in the Polish market. Being KFC, the stronger brand that we have over there and the consumption in that brand continues strong, but it's not different for Starbucks, Pizza Hut is also having a very good result over there. So the entire portfolio in Poland is having positive results.

And as one of the topics that we were mentioning, at this moment, we have to be very sensitive in terms of the traffic that we have in the different countries. So that's why for us, it's very relevant to have value offers, which also is important in order to attend the consumers that are more sensitive to pricing, but also we have premium products or offering that also is relevant. So we try to combine the entire offering for our consumers so that we can increase the value that we give to them.

[Santiago Aguilera, executive]

Yes. If I may add also over here, you were asking about the brands. And of course, the brands, it plays a very important role here. In the case of Germany, 84% of the business that we have is biased towards Starbucks. So Starbucks is a coffee chain, as you know.

In the case of Poland, what we have is a distribution that is very biased towards QSR. So the QSR is a segment that is very resilient to the economic cycles that behaves pretty well under different economic conditions. This is not the case for the coffee. The coffee is much more sensitive to the macroeconomic situation, and this is part of the reflection that we have in the case of Germany.

So it is a very fair question. What is important also -- and let me to emphasize this point, as we were mentioning before, we are an integrated group, 22 different countries implies that we have markets that are going to be in good conditions, markets that are not going to be so well placed. But overall, more than 60% of the business right now of the group is balanced towards QSR. So Poland is like more representative of the overall dynamics that we have across the group.

[Jarek Tomczynski, analyst]

But maybe one more thing, just to follow-up on Germany. So is there anything that you see you could do, any actions that you could improve the situation there in the meantime? Of course, the macro is not helping. There are more macro sensitive part like coffee, obviously not feeling great in that environment. But are there any sort of -- I'm not saying quick fix, but any thoughts on how to improve that?

[Eduardo Zamarripa, executive]

The focus that we have, as you mentioned, the macroeconomic is the same for everybody, but where the difference is standing in the approach that the different companies have. So for us, particularly in Germany, the offering that we are giving in terms of the consumer, as we were saying, is part in terms of the mix that we offer and the experience that we offer, saying having a different price points for the different kind of consumers that we have and increasing the number of visits, the number of consumption occasions for our consumers.

Coffee is a matter of experience. It's a matter of getting together. It's a matter of having a nice and good moment. And what we are doing is how we can provide the better experience for our consumers. So, one is in terms of since they are going in the app that they can skip the line if they are heavy users so that they find their experience in case that our locations continue giving the value for them. That's why we are also an important topic for us is we're investing in renovations, so that all the places in which you are there, you feel comfortable and you have the nice ambience.

But I would say the most important focus is on service to the consumer and commercial activities focused to them in terms of offering of products, even drinks and food that we offer in that market.

[Operator]

And we have had a follow-up question submitted by Piotr Chodyra of Trigon, who asks as follows: could you further explain refunds collected in the quarter in the amount of EUR 11.3 million?

[Eduardo Zamarripa, executive]

Thanks for the question. And on this topic, this is mainly related to taxes paid in excess in previous periods. So that's what we are showing in this quarter, that recovery of those taxes.

[Operator]

And next question is submitted by Jelena Rozenfeld with Trigon asking, what were the main drivers behind a 40% year-on-year growth in Poland EBITDA and 450 bps margin expansion?

[Eduardo Zamarripa, executive]

I would say that there are 2 topics, the top line in Poland continues being healthy in terms of sales and transactions. So that's one, and that's across all the brands. So that helps to increase the sales and increase the profitability of the market. And the other effect is this one-time effect of a recovery of funds.

[Santiago Aguilera, executive]

So if I can expand a little bit over here. So there is a combination really of factors here behind. So we mentioned before about the increase that we have in terms of real wages in the economy and how the consumption is performing better in other countries. So we have a macro tailwind that is helping.

When we translate into Europe's, we have also currency appreciation in the country. So it's another factor that is helping us. We have the refunds that Eduardo mentioned before, the third factor. And the fourth one also is that we are heavily investing in the country in terms of growth. So the combination of all these factors is translating in this successful achievement of results.

[Operator]

And the next question is submitted by Adrian Gorniak with IPOPEMA who asks, could you give us some color on 4Q '24E performance and your expectations on 2025E regarding sales cost pressure, including food cost and the profitability? Do you consider any M&As in 2025E? What may be the pace, restaurant rollout in 2025E?

[Santiago Aguilera, executive]

Thank you for the question. No, I'm afraid that in this case, Adrian, there is only partial information that we can provide at this stage. As usual, our plan is that once that we have the full year result presentation, we will have the contribution of our CEO of Luis Comas, but happily, he will share with you all what is our guidance for 2025 and what are the targets and KPIs that we set for this year.

So you are going to allow me to respect this. We are in the process right now precisely of finalizing our budgeting for 2025. So precisely, we are working right now in providing the more accurate answer to all these questions.

With respect to the M&A is something that we mentioned on previous occasions. Everything has different cycles. For us, the first one, it was to strengthen the balance sheet and to improve the financial profile of the company. This is something that it has been accomplished. So we are vigilant. We are studying possible corporate transactions and M&A deals. So everything that you see announced in the market, we have previously analyzed. We have several contacts screening the market and looking for possibilities.

To be honest, one of the points that usually highlight with many investors is that under my experience, to have 3 years, 4 years in where it doesn't make sense to have a deal. And suddenly, you have a year in where it makes sense to have a couple of deals. So we are working towards finding new brands, new concepts that could complement the existing portfolio that we have. And on due time, if we find something that is relevant, of course, we will share with all of you.

[Operator]

The next question submitted by Gamze Alpar with Impera Capital is as follows. In terms of your restructuring closures, exits, is it fair to say that is now almost done? How much more growth can be achieved in terms of store openings in CEE? When will CEE reach a mature stage?

[Eduardo Zamarripa, executive]

In terms of the growth that can be achieved in CEE, it's part of the analysis that, of course, every day, the development of every year, the development team works. And we still consider that the greenfield or white space available for growing the different formats and the stores that we have continues being positive in this market. We take in place how the cities are growing.

And of course, one of the topics that we need to consider is the white space plus the different formats that we can experience depending on the area that we are attacking or we are trying to cover. But according to our numbers, in conclusion is still we feel positive of the white space that we have in the different countries of CEE markets.

[Operator]

[Operator Instructions] And the next question is a follow-up from Piotr Chodyra of Trigon, who asks, what tailwinds do you see for EBITDA margin in 2025? Food costs seem to be picking up. Labor costs will also increase, especially in Poland.

[Santiago Aguilera, executive]

So 2020 -- sorry, the fourth quarter of the year, as you know well, we have a very strong seasonality during the quarters of the year. So usually, the end of the year is always a strong quarter in terms of sales, and that provides beneficial results in terms of sales leverage. So this is what I can disclose at this stage with respect to the fourth Q.

So in terms of the main dynamics, it's true that from a global perspective, there is a pressure from the cost of labor perspective, but this is not something attributable to one specific quarter. So the salaries increase is something that is done on an annual basis. So we should not expect to see any abnormal situation from that perspective.

In terms of cost of sales, I think that part of the success that we are showing in terms of the margin expansion is to show that we are capturing the benefit of the most moderation cost of food and cost of sales across the globe. What is true is that the trend is starting to stabilize from that perspective.

But we are working precisely on the fourth Q of the year. So as I was explaining before, our aim and our expectation is to comply with the expectations that we shared with you at the beginning of the year. There is nothing really that lead us to change those expectations. So thank you.

[Operator]

Thank you. And we have no further questions in the queue at this time. So I'd now like to hand back to management for any closing remarks.

[Eduardo Zamarripa, executive]

Thank you very much for attending this quarterly earnings call and for the questions that you are making. For all AmRestees, service is our recipe for winning. So that's why we hope to see you very soon in one of our restaurants. Thank you very much.

[Santiago Aguilera, executive]

Thank you.

[Operator]

This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.