Amrest Holdings SE

WSE:EAT

Earnings Call Transcript

[Operator]

Good afternoon, everyone, and thank you all for attending the AmRest Full Year '24 Results Call. My name is Brika, and I will be coordinating your call today [Operator Instructions]

I will now hand over to your host, Lukasz Wachelko from WOOD & Company. Please go ahead when you're ready.

[Lukasz Wachelko, analyst]

Good afternoon, ladies and gentlemen. My name is Lukasz Wachelko. I'm representing WOOD & Company. And I have again a pleasure of moderating the call with AmRest after the very strong fourth quarter '24 results. The company is being represented by CEO, Mr. Luis Comas; by CFO, Mr. Eduardo Zamarripa; and IR Strategic Planning Director, Santiago Camarero Aguilera. Guys, I don't wanted steal too much of your time. The mic is yours.

[Luis Comas, executive]

Thank you very much, Lukasz. Good afternoon, and thank you all of you for joining us today in this call. It's a pleasure to be with you today and to have the opportunity together with our CFO, Eduardo Zamarripa, to present the results of the work we have done at AmRest over the last 12 months as well as to share our expectation, challenges and opportunities that we see for 2025, because if there is one thing we are convinced of is that we are laying the foundation for a great history of value generation that already this year has materialized with the first dividend payment in our history, maintaining the organic growth rate for our restaurants portfolio and reducing the group's leverage.

But let us start with the materials that we would like to share with you today. If we move to the presentation. As you know well, AmRest is Europe's leading restaurant operator with a portfolio of almost 2,100 restaurants in 22 countries across Europe, Middle East and China. We keep a balanced portfolio of franchise and proprietary brands that covers a wide spectrum of occasions of use. Nonetheless, almost half of our restaurants are orientated towards the QSR segment, which shows the highest level of stability in the face of economic cycles and a unique capacity for internationalization.

As a result, more than 30 million customers visit our restaurants every month, where they find a distinctive service provided by over 45,000 passionate employees, our AmRestes.

If we move to Slide 3, let me remark the most relevant milestones for 2024 that I would like to try to summarize in 6 points. First, we achieved all-time revenues record that reached almost EUR 2.6 billion with a remarkable growth of more than 5% versus 2023. We have also set a record in EBITDA generation that reached more than EUR 430 million, and this is an increase of almost 14% compared to 2023.

The operating profit also show a significant increase of more than 14% year-on-year, amounting EUR 118 million despite the booking of a substantial impairment back in June. As I mentioned earlier, for the first time in the group's history, we have distributed a dividend of EUR 0.07 per share, a sign of the group's progress in the strategy of combining value generation in a growth company. In terms of new openings, during the 2024 financial year, we have opened 109 units, and we have also renovated 251 restaurants with the aim of offering the best possible experience to our customers.

And finally, I would like to point out that we are continuing with the strategy of streamlining our portfolio of restaurants with a closure or transfer of nonstrategic or unprofitable units. In this sense, at the end of October, we completed the transfer of the Pizza Hut business in France, which represents a reduction of 121 restaurants, of which 120 of them were sub-franchised.

Moving to Slide 4. I would like to recapitulate on how we saw '24 just 1 year ago when we shared with you all our expectations for business evolution for this financial year. And finally, what the real evolution has been. We anticipated sales growth of high mid-single digits in the context of weak consumption in several of the markets where we operate. In the end, we have seen precisely that the economic growth of the countries where AmRest operates has shown significant divergences.

In the Central and Eastern European markets, economic growth was robust, fueled by stronger consumption and increased purchasing power and lower interest rates. But in contrast, in Western Europe, growth has been much more modest with some countries such as Germany facing negative growth rates or almost stagnation as in the case of France.

In this environment, AmRest has set new historical records for revenues, EUR 2,556 million by increasing sales by 5.1% compared to 2023. Likewise, you can see how our focus on profitable sales has resulted in a higher-than-expected increase in profitability with our EBITDA margin growing by almost 14%, while the level of investments and restaurant openings were in line with our expectations.

Finally, the positive progress in cash flow and EBITDA generation has allowed us to reduce leverage while introducing a dividend payment. In summary, I believe that once again this year we humbly bring you the fulfillment of the commitment made. However, allow me to elaborate more on these ideas in the following slides.

In Slide 5, we can see how the strong increases in revenue generation continue and how they affect the average sales per equity restaurant. In this sense, I would like to draw your attention to the yellow line from the right-hand graph, where you can see the significant increase in the portfolio of equity restaurants that AmRest manages.

I will address this issue later on, but I think that it is important to distinguish between equity, franchise and sub-franchise restaurants. A large part of the adjustments we have made to our portfolio over the recent years have been in the sub-franchise restaurant segment, where the amount of fees we collected did not cover the management cost of those businesses. However, we maintained a solid growth in the number of restaurants that we operate directly. In any case, coming back to this slide message. As we have pointed out in previous occasions, this positive evolution of sales per restaurant, in our opinion, is a good indicator of the health of our portfolio.

Going into Slide 6, please. A few more comments on sales and business dynamics. We have emphasized on several occasions that our commitment to technological innovation as a key factor for adapting efficiently new consumer needs and as a lever for maintaining competitiveness in a constantly changing environment. This is particularly relevant in a world dominated by omnichannel retailing, where data appears everywhere. Thanks to this positioning, we have been prepared to guarantee price competitiveness and continue to strengthen the market position of our different brands.

With regard to consumer trends, as we can see in the slide, the evolution of sales originated through digital channels continues to advance incessantly, and during the year, they surpassed those originated through other channels. In terms of the channels used for consumption, there has been a stability in the distribution of consumption preferences over the last few quarters. In this sense, dine-in is the preferred option and accounts for practically half of the group sales. With respect to the delivery channel, it accounted for 18% of the sales generated during 2024. And practically, it was the same proportion as in '22 and '23.

If we move to Slide 7, please. As I mentioned, we have generated an EBITDA of more than EUR 430 million, setting also a record in this regard and posting a growth of almost 14% versus a year ago. This result implies that the EBITDA margin rose 1.2 percentage points to almost 17%. The expansion of margins results from the work carried out by optimizing processes, adopting technology-driven efficiencies and also rethinking work and training models. Each of these efforts significantly impacts margin and enhances the customer experience. Nonetheless, for me, these figures represent a historical record that corroborates the result of the strategic approach that we have adopted of positioning towards sustainable and profitable growth.

Moving to Slide 8, please. Here, we bring the operating profit that reached EUR 118 million after increasing by more than 14%. This represents an EBIT margin of 4.6%. This progress has been achieved despite having booked value corrections of EUR 52 million during the year. Out of this EUR 52 million, EUR 41 million corresponded to the value correction on the goodwill associated with Sushi Shop, which was recorded at the end of the first half of the year.

With this, the value of the goodwill of this investment stands at EUR 70 million at the end of the year, and it has not been necessary to make any further corrections during the second semester as the profitability targets set for the group have been met. In this regard, we also thought that it would be useful to show you the operating profit, excluding the impairment booked on Sushi Shop, to show the evolution of the EBIT coming purely from the evolution of operations. In this sense, the year-on-year increase reaches 20% and the margin sits above 6%.

If we go now to Slide 9, please. Here, we can see the bridge on how it has evolved the number of restaurants in our portfolio during the year. In 2024, the 121 Pizza Hut restaurants that AmRest managed in France were transferred, 120 of them under our sub-franchise model. However, AmRest has continued to focus on organic growth with the opening of 109 units, which, together with the closure of 52, has led to the end of the 2024 financial year with a portfolio of 2,099 restaurants.

In the Slide 10, we would like to provide you with more insights of the latest strategic portfolio adjustments that we have performed during the latest quarters and their financial impact. Redefining the perimeter and portfolio of managed restaurants with the closure on -- or sale or nonstrategic businesses has been a key pillar of value generation for the company.

I can imagine that many of you are wondering if we are considering transfer or disposing of any other business units. To address this, I can say that we evaluate each business unit based on its strategic fit and long-term value generation potential. Therefore, we should view both the exit and entry of new businesses an integral part to the efficiency allocation of our capital.

And with this, let me share with you how we do see 2025. If we move to Slide 11, please. I will convey this perspective using some of our most relevant management KPIs to illustrate our expectation. First, we expect a mid-single-digit growth in terms of sales base on the assumption of a still challenging economic and political environment ahead for many European countries. In terms of profitability, we expect an EBITDA margin similar to this year level. Efficiency gains and revenue management should offset cost of sales and cost of labor pressures across different geographies.

Our level of investment and new store openings should also be similar to this year figures. And this corroborates our commitment to expanding AmRest footprint combined with an efficient usage of our -- the resources that we are generating.

And finally, we aim to maintain leverage at the lower end of our management targets that I remind you that has been set between 2 and 2.5x net financial debt versus EBITDA, which the group's management believe to be a prudent level to be able to face new investments focused on accelerating growth, both organic and nonorganic.

And thank you very much. And with this, Eduardo, I will appreciate if you can help us to cover the main financial highlights, please.

[Eduardo Zamarripa, executive]

Thank you, Luis, for sharing your insights with us. Good afternoon, everyone. It is always my pleasure to present to you the financial results achieved by AmRest team during 2024.

Firstly, let me remark that AmRest commercial dynamics continue to show a good progress in both quality and quantity perspectives across most of our markets. This improvement is leading to higher operating profitability, to a better financial risk profile and in value generation for our shareholders that this year, for first time, has resulted in a dividend payment.

Luis has already covered the main highlights of our full year figures. So I will skip Slide 13 and move directly to Slide 14 to discuss the main financial highlights for the fourth quarter. During the fourth quarter, revenues stood at EUR 665 million, an increase of 5.8% compared to the same period of 2023. This sales figure also marks a quarterly record for AmRest and shows an acceleration in the pace of growth compared to previous quarters, driven by a significant increase of almost 5% in the number of transactions and same-store sales index in almost 101.

As usual, we bring you also our latest trading figures that point to a gaining momentum with same-store sales reading of 101.6. In terms of profitability, the EBITDA reached EUR 111 million after increasing by 15.5% compared to the same period of 2023. And finally, the CapEx on the quarter reached EUR 73 million.

If we move to Slide 15, please. Here, you can find quarterly sales and same-store index evolution. Let me share a few thoughts on the commercial dynamics. Although price increases have moderated markedly, they continue to put pressure on consumer budgets, leading them to be cautious with a discretionary spending decision. This context has led to consumers being much more sensitive to the perception of the price and value and has also resulted in a highly competitive environment in most of the regions.

Despite this, AmRest is adapting well to this environment, and the positive commercial momentum continues with a good performance in all our CEE markets in addition to Spain and Western Europe.

In Slide 16, you can find our quarterly EBITDA evolution. As I stated before, the EBITDA reached EUR 111 million after increasing by almost 16%, which represents an expansion of 1.4 percentage points in terms of EBITDA margin, which stood at 16.7%. In this regard, it's important to emphasize the important progress made in the EBITDA generated in Western Europe markets.

Now moving to Slide 17, please. We can see the operating profit evolution that stood at EUR 34 million, which represents a margin of 5.2%. As before, we thought it would be useful to show you the evolution of the operating profit, excluding the effect of the value adjustments that we booked for the goodwill of Sushi Shop. However, as we can see in the graph on the right, this does not affect the operating profit, which recorded in the fourth quarter.

If we go now to Slide 18, well, in this slide, you can find a lot of information, but let me focus on some key figures. The first point that I would like to remark is the profit generated by the group. The net profit for full year reached EUR 13.5 million compared to almost EUR 51 million generated in 2023. Despite improving the operating results, the fall in net income was due to 4 main factors. First, the booking of higher impairments in the goodwill associated with Sushi Shop; second, the case of discontinued operations in 2023; third, the increase in the financial cost due to higher interest rates; and fourth, the higher effective tax rate.

During the fourth quarter, the profit for the period amounted EUR 10.5 million compared to the losses recorded in the same period of 2023. The second point that I would like to raise is the operating cash flow generation that reached EUR 408 million. This is an increase of EUR 13 million versus last year.

In this regard, in Slide 19, you can find the organic changes in the restaurant portfolio. Following the seasonality shown in the previous years, we accelerated the number of openings during the fourth quarter with 47 new units, bringing the total number of openings for the year to 109.

On the other hand, the portfolio optimization led us to close 12 restaurants in the quarter with a total of 52 during the whole year, of which 37 of them were equity stores and the rest 15 were mainly store from sub-franchisees. In other words, the impact in terms of revenue generation for these stores is very small.

On Slide 20, you can find the cash and debt evolution. The group's net financial debt amounted to EUR 468 million at year-end. But what is more important, the group's leverage continues to decrease to 1.82x compared to 1.84x at the end of 2023. This level is at the lower end of our internal target. On the other hand, the group's liquidity was EUR 153 million at the end of the year. The group considers that this amount of liquidity together with additional liquidity lines and credit facilities of more than EUR 200 million constitutes an efficient level in accordance to our needs.

In the Slide 21, you can find the terms of the financial debt structure and maturity profile. Only to highlight that 94% of our debt is long term. Therefore, we only have to attend to maturities for 6% of our debt during the current year.

Next, we will focus on the results by different segments. In Slide 22, you can find the breakdown of revenue, EBITDA and the number of restaurants we have added in each segment. Segments comprising business in 22 countries and in which we have observed significant divergences in the commercial dynamics and results of the 3 geographical areas that we use to analytically group our business.

As usual, let's start with CEE, our most relevant region in terms of business generation. In Slide 23, we provide the main metrics, and you can find its evolution in Slide 24. So let's go to that slide, please.

In 2024, annual sales in this segment amounted to EUR 1.4 billion, representing 58% of the group sales and a year-on-year growth of 10.6%. The EBITDA generated reached EUR 305 million. This is EUR 38 million more than in 2023, representing an EBITDA margin of 20.6%. These figures represent a new record in sales in EBITDA in nominal terms. The good evolution registered in Poland, the group's main market, has been remarkable, where sales grew by more than 15% and EBITDA by 25.5%.

In the fourth quarter, revenues amounted to EUR 390 million, almost 12% higher than the same quarter of 2023. EBITDA was EUR 78 million, representing an EBITDA margin of more than 20%. The restaurant portfolio reached 1,228 units after increasing by 51 restaurants with the opening of 65 new restaurants and the closure of 14 during the year. In Slide 25, we have the main metrics in breakdown for Western Europe, and in Slide 26, the evolution of the metrics.

If we go to Slide 26, please. Revenues in this segment amounted to almost EUR 900 million for full year 2024. This implies a small drop of 0.5%. However, the EBITDA generated amounted EUR 135.4 million after increasing by almost 14%. That represents an EBITDA margin expansion of 1.9 percentage points that stands at 15.1%.

During the whole year, there were significant performance difference among countries. While annual sales in Spain, AmRest's second biggest market, grew by almost 8%, sales in Germany and France decreased by more than 5% on both cases. Nonetheless, the positive generation of EBITDA in the French market is remarkable with an EBITDA margin of more than 8% after increasing by 4.5 percentage points, corroborating the success of value strategies implemented in the market.

Fourth quarter sales stood at EUR 231 million. This is a decrease of 1.6% with respect to the same period of 2023. EBITDA reached EUR 37.8 million after increasing almost 30%. This is an EBITDA margin of 16.4%, 3.9 percentage points higher than the previous year. The total number of restaurants in the region stood at 784 units. From an organic perspective, there were 36 new units openings and 29 closures in addition to the transfer of the 121 Pizza Hut restaurants in France, of which 120 were through franchisees.

And finally, in Slide 27 and 28, we have the main metrics in our business on China. If we go to Slide 28, please. Revenues generated during the year stood at $92.4 million. This is 7.6% lower than in 2023. The depreciation of the yuan against the euro impacted this performance. In local currency, annual sales decreased by 6%. On the other hand, the EBITDA generated was EUR 18.7 million, represents a margin of 20.2%, almost repeating the level of 2023.

Focus on the fourth quarter, sales reached EUR 23.3 million, showing a modest but progressing growth of 3% compared to the same period of 2023. The EBITDA amounted to EUR 4.2 million with a margin expansion of 1.4 percentage points that stands at 17.9%. AmRest closed 2024 with 87 restaurants in the region after opening of 8 new units and a closure of 9.

That is all from my side at this moment. Back to you, Luis.

[Luis Comas, executive]

Many thanks, Eduardo. Thank you very much. I think that with this, we are open to any questions that you may have. Thank you.

[Operator]

[Operator Instructions]

[Lukasz Wachelko, analyst]

Maybe in the meantime, waiting for the questions to be registered, I will take the position of moderator and start with questions from my list.

First of all, you've paid out first ever dividends. Can you share with us any ideas for the dividend policy going forward?

[Eduardo Zamarripa, executive]

Yes, as you said, this is an important milestone for AmRest as this is the first dividend that we pay. Luis was mentioning during his section and we saw in the highlights the goals that we have for the year. We achieved better results than the ones that we share with the market. So that's why the Board of Directors took the decision to pay a dividend for first time in 2024. Going forward, the idea is that as we share the guidance today, the Board will analyze how the results are going and make the proper decision at the proper time regarding dividends.

[Lukasz Wachelko, analyst]

And another one from my end. You have done a lot of adjustment of portfolio in the last couple of quarters, but the numbers of closures were easing towards the end of 2024. What kind of number should we expect going forward? How many restaurants are still under question marks from your perspective? Can you share these numbers with us?

[Luis Comas, executive]

Lukasz, the number here is a dynamic figure. There is not a fixed amount. As you can imagine, with some markets that the performance is still a little bit unstable, it's hard to define a single number. However, this is a year-on-year exercise that we conduct. Obviously, portfolio units country by country happens. And in most of the cases -- in some cases are due to financial reasons, some cases by force majeure where we are not -- we have no options.

But generally speaking, as a group thing, we attack all the closures plan individually by region, by brand, by even city. So it's not a matter of a strategic approach. We aim to decrease them, to reduce the losses that these stores may be generating and cut down the targets on the losses that they represent. So it's mostly case-by-case, quarter-over-quarter revision, not a full plan that I can share.

[Lukasz Wachelko, analyst]

Okay. Thank you. Operator, are there any questions from the room?

[Operator]

We have some text questions. We have the first...

[Santiago Aguilera, executive]

Sorry. Yes, we have received some questions from the analysts here, [indiscernible]. He is asking about the reasons of the strong EBITDA margin improvement that we have especially in Western Europe.

So I think that here what is important to see is that most of the markets are showing progress. If you see the situation in Western Europe and the total EBITDA that we have generated, we are coming back to the EUR 35 million level per quarter, that is a similar figure to previous quarter. And this progress, it has been really coming from all the countries. You have a little bit coming from Germany, from France. Spain has been progressing with another EUR 1 million. And the rest of the countries where we operate are also contributing to this. So all the countries have really come in and contribute to this margin expansion.

We have also questions with respect on how AmRest plans to keep the EBITDA margin similar to the levels that we have in 2025 (sic) [ 2024 ] in light of the further increases that we have in the food cost and also in the minimum wages across several countries, especially in CEE.

[Luis Comas, executive]

Margins management is part of the AmRest profitability strategy, and we are planning to keep them through efficiencies, mostly. What we are talking here is -- as you may remember from previous calls, we have been investing in digitalization quite a lot that help us to increase our ticket average, and therefore, to minimize the wages or cost of sales increases through a better ticket average income.

The organization is also facing internally adjustments the way we operate that has been happening for the last 2 or 3 years, where we are implementing better tools on scheduling, ordering and forecasting sales projections. And those are turning to be a much more efficient platform for the management of our own resources. This has translated into better margins at the very end.

Also, more and more effective value campaigns on the marketing side is also helping us to drive extra traffic that we were not facing in some of those territories. So as a continuous management policy, I think the efficiency of organization and the efficiency of the operation are the 2 key aspects of how we are increasing our margin efficiency.

[Lukasz Wachelko, analyst]

So we have some questions as well. I think that this is addressed also to you. The question is, do you see any changes in Starbucks' strategy, operational improvements after the change of the CEO?

[Luis Comas, executive]

Yes, that's a great question. That's been asked for many people. And I'm happy to say that I know firsthand the strategy that Brian Niccol is addressing for the Starbucks' role. As you may see that Starbucks game change plan is mostly focused on the U.S. market. This is where their hospitality increase and the improvement on the speed of service and reduction of products, all these actions that have been shared with the market are mostly addressed. However, international markets are also receiving some of those potential improvements. We may say that the way Starbucks is operating in international markets differs quite a lot to what they are facing in the U.S.

In our case, we have been in the higher level of standards and hospitality levels. So we are adopting some of those measures where it makes some sense. In some places, we're also considering menu rationalization. We are improving our hospitality steps, so there are more comfort. The place is more live than ever. And so this is it. But not as much as you can read from the news what is going on in the States. This is a basic difference from here.

[Santiago Aguilera, executive]

[ Mathias Filler ] from [indiscernible] is also asking, can you comment on existing future expected competition from Popeyes in CEE? And beyond -- KFC unique chicken position coming under threat?

[Luis Comas, executive]

Well, Popeyes is another competitor on the landscape of the chicken world. It's not only Popeyes. There are some other brands coming to Europe. But definitely, Popeyes is starting heavily their development, both in Western Europe and some places in Central Europe.

The good thing about having more competitors on the chicken territory is that people have more options to compare and delight the KFC products. That's why we are becoming stronger and stronger. And our like-for-like growth in Central Europe, especially in Spain is growing that way, is showing a proven results versus competition.

Despite the number of stores being opened by competitors, we kept growing and we kept increasing our like-for-like sales. So I think this is good sign. We are strong. We have a very strong mature customer base, loyal customers, and also new customers are attracted by us. And KFC is not standing still. KFC is still developing different categories of products, different categories of services and different models of store layouts.

So this is even a further impulse for the brand to become more effective, more energetic and attack different segments that were not touched before. So happy to have people in the room, but we are still standing above all of them.

[Santiago Aguilera, executive]

[ Mathias ] is also asking about the fact that the Russian sanctions potentially could be removed. If AmRest is considering buyback options of the former Russian franchise.

[Luis Comas, executive]

So we don't use to share opinions on hypothetical scenarios. We are mostly addressing them case-by-case. Whenever a new situation happens, we will consider how to address those things. At the moment, no.

[Eduardo Zamarripa, executive]

And also the business was sold, as you know, and there is no option that we could exercise in order to do that. It was a definite exit for the Russian market.

[Luis Comas, executive]

Absolutely.

[Santiago Aguilera, executive]

I don't think that we have any more writing questions. I don't know if anyone else may have a question to ask.

[Lukasz Wachelko, analyst]

Maybe one question from my end. You said that year-to-date, your like-for-likes have improved from 0.8% in the fourth quarter to 1.6% for the last couple of weeks. Can you share the breakdown? Was it more on the Western Europe or Central Europe? Or was it a broad move, all the markets together?

[Luis Comas, executive]

Well, I can say that Central Europe, Western Europe did perform very well, had a strong behavior and kept the good path. No matter what, we all know that some territories, specifically France and Germany, economies are under target, they are under recessions. And therefore, consumer confidence and consumer retailing climate is cooling down, still behaving as they did in the last part of the year. So probably those are the 2 lagging markets. But the rest is still growing in the right direction.

[Operator]

[Operator Instructions] We currently have no questions registered. So I would like to hand it back to Lukasz for some closing comments.

[Eduardo Zamarripa, executive]

Well, if there are no further questions, thank you very much for joining the call. It's really a pleasure to have you here, present good results. We are happy for what was achieved in this year, and we look forward for the challenges in 2025. And as always, we expect you to see in our restaurants to have the pleasure to serve you. Thank you very much.

[Luis Comas, executive]

Thank you, Eduardo. I'm joining your words. We delivered what we promised. That was a good thing. And we are also looking forward to keep improving our key targets. Definitely, for us, this trend shows that the model is robust. We keep growing and growing our margin production. We keep growing and growing our cash flow generation. And with a better and more improved efficiencies on our CapEx line, we will be aiming even to consider further options in the future. This is just the start and the beginning of a very, very profitable growth in a sustainable way moving forward.

So thank you, Eduardo. Thank all of you for attending this call. It was a pleasure to share with you our 2024 year results. Thank you very much.

[Operator]

Thank you for attending today's call with AmRest. I can confirm that, that concludes today's call. Please enjoy the rest of your day. You may now disconnect, and thank you again for your participation.