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Edited Transcript of ALSEA*.MX earnings conference call or presentation 28-Feb-20 3:00pm GMT

Q4 2019 Alsea SAB de CV Earnings Call

Mar 23, 2020 (Thomson StreetEvents) -- Edited Transcript of Alsea SAB de CV earnings conference call or presentation Friday, February 28, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alberto Torrado Martínez

Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO

* Rafael Contreras Grosskelwing

Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance

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Conference Call Participants

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* Álvaro García

Banco BTG Pactual S.A., Research Division - Research Analyst

* Antonio Gonzalez Anaya

Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research

* Antonio Hernández Vélez Leija

Barclays Bank PLC, Research Division - Research Analyst

* Nicole M. Zaragoza

GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst

* Rodrigo Alcantara

UBS Investment Bank, Research Division - Associate Analyst

* Sergio Takeshi Matsumoto

Citigroup Inc, Research Division - Research Analyst

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Presentation

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Operator [1]

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Welcome to Alsea's earnings conference call. With us are Alberto Torrado, Executive President of Alsea; Rafael Contreras, Chief Financial Officer; and Salvador Villaseñor of Investor Relations.

Our speakers will present the results for the fourth quarter and full year 2019. (Operator Instructions) As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in Alsea's most recent annual report. At this time, I will now turn the conference over to Mr. Alberto Torrado. Please go ahead.

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [2]

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Thank you all, and good morning, and welcome to Alsea's conference call. We will be presenting the most significant events from the fourth quarter and full year 2019 as well as our strategic outlook.

Over the last quarter and throughout 2019, we have implemented many of our key strategies initiatives and are pleased with our progress. These developments included: making our key brands more appealing; full integration of our European business; exiting unprofitable units and brands; putting ESG and sustainability at the forefront of our purpose; making changes in management and implementing new technology; and reducing our financial [leverage].

Over the fourth quarter, sales grew by 24.7%, same-store sales by 3.9%, and EBITDA by 27.6% with a margin of 15.7%. For the full year, sales grew by 26.8%, same-store sales, 5.1%, and EBITDA by 20.1% with a margin of 13.3%.

Our net debt fell from MXN 23.6 billion at the year-end of 2018 to MXN 22.8 billion at the year-end of 2019. We achieved this despite the significant challenges posted in many of our geographies in which we operate. We were able to offset a challenging macroeconomic environment on the revenue side by focusing on improvement the product and customer experience, and on the cost side, by finding more efficient ways to deliver products and services.

Total unit growth was negative 3%, excluding acquisitions. And was impacted by a continued rationalization of our footprint as underperforming stores were closed, aside from the 234 sub-franchised units of Burger King that we returned to the parent company since we decided to return the master franchisee rights in Mexico.

For the full year, excluding some positive one-offs mainly from asset sales, our EBITDA margin reached 12.9%, in line with our guidance for the year that was close to 13%. As we have mentioned in our previous calls, Alsea's putting ESG and sustainability at the center of its corporate purpose.

On the environment, for example, we launched a no more plastic campaign in Burger King, asking customers to request a straw or cup only if necessary. Also by using clean energy in 54% of our units, we have been able to reduce approximately 51,000 tons of CO2, equivalent to planting 850,000 trees in 1 year.

Similar initiatives will be launched in the coming quarters. On social impact, we have observed an increase in the number of donations to our program, va por mi cuenta. Through which we provide our daily nutritious meals to approximately 5,000 children in our 13 diners.

While we are focusing on the (inaudible) impact on all our menus, we are delighted to be included also in the Dow Jones sustainability index, and more recently, in the FTSE4Good BIVA index for ESG-oriented companies in Mexico. Also, Alsea is a company that generates more than 42,000 jobs in Mexico, of which approximately 48% are women. In brands like Vips, Starbucks and El Portón, women are majority and we recognize the important contribution of our feminine talent. Therefore, we want to be proactive in generating actions that have a positive impact on the solution of the problems of violence that afflicts our country, particularly women.

That is why Alsea has decided to donate the equivalent of 1 day's salary of our entire female work in Mexico to channel these resources, through Fundación Alsea, to associations dedicated to support woman victims of violence. Additionally, during the second week of March, we will organize the allocation for the improvement of our diversity and inclusion initiative. So the commitment to respect begins with our words and [intensifies] that our positive influence becomes part of the change regarding these important topics now in Mexico.

The opportunity and the threat provided by new disruptive technology in the restaurant service industry has become a key corporate priority and an opportunity for Alsea. As we have previously mentioned, our goal is to create a digital store front, putting the entire experience and capabilities of Alsea into a digital ecosystem. To that end, we added digital self-services kiosks in some of our Burger King stores in Europe and plan to expand this test in large units with high-traffic to optimize install capacity. We have made progress on our loyalty program, Wow Rewards, reaching close to 400,000 active members. For 2020, we aim to make further progress in incorporating different payment methods from apps and Wow loyalty program, extracting value and broadening the reach of our loyalty program and acquiring customer feedback via many channels like e-mail, SMS and others.

With respect to aggregators, our goal is to make Alsea brands available to every customers everywhere and in any given time. To that end, in January, we have begun a pilot program with 100 stores of Domino's Pizza that participate through one of the main food aggregators marketplace.

Delivery orders for our other key brands have increased significantly since we've partnered with the main aggregators on each geography. As we move towards a multi-aggregator associations, we expect delivery orders to grow more rapidly.

Reason why we already are piloting testing our own delivery platform in some of our brand in Mexico.

As for the regions where we operate, Mexico. In Mexico, total units reached 2,272, and we opened 115 new units and closed or disincorporated 310 units, mainly Burger King sub-franchises, as I mentioned before, as part of our continued restructuring year towards improving profitability.

Our sales grew by 4.6% and same-store sales by 2.3% in the fourth quarter of the year, driven by strong performance at Burger King, same-store sales up, 10.5%. And at Starbucks, same-store sales up 6.8%.

Starbucks Mexico was held by various new initiatives such as Bake-in Store, that boosted our store traffic and ticket average, helping increase the ticket size and reversing the decrease in the food category of serving 2018 due to stock-outs related to the moving process to our new operations center.

Domino's Pizza Mexico continued to face the challenge of aggregators and in response, since January 2020, as I mentioned, we partnered with some of them to test the brand performance in the business model at 100 Domino's Pizza units and evaluate whether to move forward with additional units or not in the future.

Our Mexico EBITDA margin reached 25.7% in the fourth quarter versus 23% a year ago, 2.7 points more, in spite of the minimum wage increase, far above inflation impacting our labor cost structure.

Going into 2020, we expect strong recovery in Mexico's consumption as public spending increases, investment picks up, and the strengthening of the United States/Mexico/Canada agreement phase. And interest rate continued to fall, all of which will help the consumer and/or Alsea Mexico. We also continue innovating to grow our share of wallet and stomach. For example, breakfast is a channel in which Mexico lags significantly behind our counterparts. Breakfast in Mexico represent 2% of total ticket, while for our service, it was around 5%. We see a good opportunity to grow in these areas.

For 2020, we expect improved operations at COA to keep reducing inventories and achieve the 20 basis point efficiency originally expected. From the better operational performance in this facility, offsetting some of the negative impacts of increasing minimum wage on our Mexico operations margin.

In Europe, our sales grew by 111.5% and same-store sales by 1.7%, in the fourth quarter year-on-year. While the EBITDA margin reached 22.3% versus 20.5% a year ago. We were able to deliver EUR 9 million of synergies over 2019 from recent acquisitions. Half of the total EUR 18 million of synergies expected, and [well before forecast]. We continue to make progress with Starbucks, posting costs across the region and implementing strategies such as Bake-in Store, unit rationalization, change of supplies and offering new combo package on our menu, which increased our yearly traffic.

Additionally, we are focusing on improving productivity by better allocating employees to appropriate schedules instead of the whole working day. Domino's in Spain continues to gain market share in the region versus its main competitors, Telepizza and Papa John's. Burger King performed well too as we changed our strategy from engaging in price war to product quality and customer service.

As far for Vips, the first half of the year was good and the second half less so. We hope to improve Vips (inaudible) in 2020 by innovating and improving our customer service. In 2020, we also plan to outsource much of our logistical operations to third parties by the end of the first quarter, which should further contribute to margin improvement, grow organically between 5% to 6% in number of stores across the region and pass as much possible any increase in food supplier cost to customers. Also, as we announced, Miguel Ibarrola, as the new Head of the European business. Miguel has a wealth of experience in the industry, having worked at companies such as Arthur Andersen, Grupo Nidal, Campofrio, Berlys y Cortefiel as well as being Head of Grupo Zena from 2003 to 2014. Miguel officially joined Alsea in July of 2019, and he's responsible for operations in Iberia, France and Benelux. Rafael Herrero who previously had this responsibility for Iberia, has left the company, and we are pleased to have Miguel on board and look forward to continued success in Europe on the [east direction].

In South America, sales and margins was negatively impacted by the social unrest in Chile, which led to key units being closed for a number of days over the quarter. That situation in Argentine economy and the increase in consumer status in Colombia. However, Colombia was the best-performing country in the region, driven by the strong performance of Domino's Pizza and Archie's. Total sales for the quarter decreased by 14.7% in peso terms and EBITDA decreased by 14.7%, and EBITDA margin contract by the 10 basis points, reaching 13.8% versus 13.9% of the fourth quarter of 2018. Same-store sales were up 11.6% and unit grew 2%. We continue to rationalize our operations in the region and implement cost efficiencies, especially in G&A.

Same-store sales in Chile was clearly affected by the social conflict that started Friday, October 18. We had an impact of MXN 126 million of sales, with 10% negative same-store sales in the fourth quarter, coming from a mid- to high single digit positive trend in the previous quarters. And a MXN 53 million impact on EBITDA due to the social unrest in the country. Despite this, Alsea kept to this expansions plan and during the fourth quarter, we opened 7 additional units, 3 Starbucks and 4 Burger Kings.

On February 14 this year, we issued a press release regarding our tax claims received by Mexico's tax administration service, or SAT, relating to the purchase of Vips restaurants from Wal-Mart de Mexico by Alsea in 2014. The SAT has since issue a settlement notice for Alsea to make tax payments of MXN 3.9 million related to operating income from the acquisition.

Alsea's evaluating its legal alternatives to challenge this ruling through administrative or judicial means. The company and external lawyers believe that Alsea has sufficient grounds to sustain that the settlement notice given by the SAT is inadmissible and that Alsea has complied with its tax obligations. Therefore, we do not consider it's necessary to create any provision in this regard. As mentioned on our previous earnings call, we endeavored to make Alsea a best-in-class investor-friendly company, and welcome any suggestions for improvements.

Now Rafael will give you a more detailed overview of our financial information.

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Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [3]

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Thank you, (inaudible). Thank you, Alberto. Good morning, everyone, and thank you for joining. To begin, I want to clarify that as in the previous quarter and in order to present a comparable analysis versus the financials of the previous year, all the explanation and notes reported in our earnings release exclude the effects from the reinstatement related to the hyperinflation in Argentina as well as IFRS 16. These 2 factors were included in the financial statements issued to the corresponding authorities.

The impact of IFRS 16 on our financial results for the quarter are as follows: first, a positive impact of MXN 67 million on net income, which represents 13.2% of the total income; EBITDA had a positive effect of MXN 969 million, increasing the EBITDA margin by 600 basis points to 21.7%.

For the full year, a positive impact of MXN 162 million on the net income equal to 15% of the total income. EBITDA had a positive effect of MXN 4.9 billion, pushing the EBITDA margin up 840 basis points to 21.7%. The balance sheet reports a nonenforceable property right for MXN 20.3 billion and a nonenforceable lease liability of MXN 22.5 billion.

Revenue for the quarter grew 24.7% compared to the previous quarter, mainly due to the incorporation of our European operations. Based in Europe rule, 111.5% of the 446 corporate units, were incorporated into the portfolio coming from Grupo Vips and Starbucks in France and Benelux.

In addition, we achieved 22 net corporate openings in the last 12 months. And the digital kiosks implemented in some Burger King units, the Bake-in Stores in Starbucks, and the focus in service for our clients further boosted same-store sales growth to 1.7% in the quarter.

Without the impact of FX Europe and South America, our sales in the quarter would have increased 32.2% versus the 24.7%. For the full year, net sales increased 26.8%, reaching MXN 57.4 billion. The increase in net sales was partially offset by 910 basis points due to the devaluations of currencies, mainly the Argentinian pesos and payroll against the Mexican pesos. Excluding this impact, sales would have increased 35.9%.

Same-store sales for the quarter in Mexico grew 2.3%. Our branch in Europe grew 1.7% and the operation in South America increased by 11.6%.

For the whole year, same-store sales in Mexico grew 3.5%; in Europe, 2%; and South America 14.6%. EBITDA during the quarter grew 27.6% and ended at MXN 2.4 billion when compared to the previous quarter with a margin increase of 30 basis points to 15.7%.

The EBITDA improvement was mainly due to better cost control in most of our brands in Europe and Mexico as well as by the improvement in performance of our operations center, the COA, resulting in 220 basis point reduction in the cost of sales.

Furthermore, a unit of Vips in Mexico City was sold for MXN 80 million, and the rights of the "We proudly serve - Starbucks" points of sales sold for MXN 123 million. The EBITDA for the year grew 20.1% to reach MXN 7.6 billion compared to 2018 while the margin fell 80 basis points to 13.3%. The reduction in the EBITDA margin represented several acquisitions in 2019 being included into the new business mix and the fact that all the synergies that we gained were mitigated by delay of expenses and the write-off of LAVACA.

Excluding the FX impact, EBITDA would have increased 23.5% versus the reported 20.1%.

Moving into the net income. Fourth quarter '19 net income increased by MXN 123 million, ending at MXN 436 million compared to same time last year. This increase was mainly due to improvement of MXN 110 million in operating income and the reduction in the standard rate of 100 basis points from 38% in fourth quarter '18 to 37% in this quarter.

Net income for 2019 decreased MXN 111 million compared to 2018 ending at MXN 1.2 billion. This decrease is explained by MXN 428 million increase in the all-in cost of financing, the reduction in operating income of 120 basis points, and the social political economic situation affecting the profitability of Argentina and Chile.

Total debt at the end of the year decreased MXN 228 million, closing at MXN 25.4 billion. This decrease comes from the prepayment of credit through the resources obtained by the sale of assets, exceeding the goal established in our deleveraged plan for the end of the year. Net debt decreased MXN 866 million to MXN 22.8 billion.

The debt structure at the end of the year was 99% long term, with 61% in Mexican pesos, 38% in euros and 1% in Chilean pesos. By the end of 2019, our sales leverage was as follows: total debt-to-EBITDA, 3.3x; net debt-to-EBITDA decreased to 2.9x; and EBITDA to interest paid at 3.6x.

We therefore were able to succeed on our commitment to our shareholders to reduce net debt-to-EBITDA below 3x, thanks to the strong organic cash flow of the company. The result of investment capital taking into account the acquisition in 2019 was 7.9%, and the return on equity at 8.5%.

Now we would like to open the call to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Mr. Sergio Matsumoto from Citigroup.

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Sergio Takeshi Matsumoto, Citigroup Inc, Research Division - Research Analyst [2]

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Alberto, earlier in your prepared remarks, you mentioned that you were doing initiatives to make your key brands more attractive and to improve the product and customer experience. Could you give us a few examples of what you're doing these days that will be interesting for us on the market area?

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [3]

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Yes, of course. Thank you, Sergio. Well, without a doubt, the most significant of those is the Bake-in Store that we have done in Starbucks. As you probably know, we have installed a new ovens in most of our restaurants. In Mexico, I believe, almost 70% of them has already have ovens, and we are offering a fresh-baked croissant and other pastries at the store level. We are also doing fresh sandwiches with those croissant in our stores, and that has increased -- you have seen the results of Starbucks, that has increased, although not only traffic, but also, as I mentioned, ticket average. And that's very significant because not only the investment, but the quality of the product that we offered.

We are also working very hard in our production facility at the COA to get more innovation in our system for the Vips business in Mexico and also for some of our brands like Italianni's.

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Sergio Takeshi Matsumoto, Citigroup Inc, Research Division - Research Analyst [4]

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That's terrific. On these initiatives to improve customer experience, how has the manager-owner of variable compensation play into this?

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [5]

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Yes. As we announced last year, one of the key initiatives that we launched last year was that Gerentes Dueño initiative that you just mentioned. And I'm not yet satisfied with the results of last year because in some brands, we were very successful in terms of the percent of managers and bonus. Brands like Burger King, brands like Starbucks, brands like Vips were successful. For me, successful is higher than 50% of the managers. But other brands that didn't perform as well like Domino's and Italianni's, really the incentive was not there for our managers.

So what we are doing, Sergio, is we are evaluating the results, and we're going to do some adjustments in the plan. The plan has worked very well in terms of giving the manager ownership of the restaurant and giving him more tools to do his job without having to distract him from administrative tasks or administrative things that they have to do. So we will have adequate system this quarter to make sure that at least my expectation is that we should have at least 2/3 of our managers earning bonus because this really make a difference.

Just to give you an example, some of our managers will make 12 months of salary with this bonus. Last week, we were talking with our HR department about the results. So I'm very positive that this will be a game-changer in our business in 2020.

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Operator [6]

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Our next question is from Mr. Antonio Hernández from Barclays.

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Antonio Hernández Vélez Leija, Barclays Bank PLC, Research Division - Research Analyst [7]

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Yes, can you hear me? Can you hear me right now?

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [8]

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Yes, I can hear you well.

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Antonio Hernández Vélez Leija, Barclays Bank PLC, Research Division - Research Analyst [9]

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Okay. Perfect. And first of all, congratulations on your results. Actually, 2 questions. You mentioned earlier your -- the tailwind that you're going to receive from the COA operations this year. Could you just confirm that number?

And second question would be regarding operations in Europe. My guess is that with coronavirus spreading throughout different countries in Europe, there might be some impact. Are you seeing already some of that this year? Or what are your expectations on that?

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [10]

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Yes, thank you for the question. Well, first of all, let me tell you that I am very satisfied with the results of the COA. As you know, and as I mentioned on our last conference call, we changed the management. Miguel Cavazza, our new head of supply chain in Mexico, has done with his team a very good job. We closed the year with the lowest inventory in his -- I believe in the last 5 to 10 years at Alsea in terms of date, and you can see that in our balance sheet. He also was working very efficiently not only in the production side of the business but also on the distribution and the cost of that. And that is reflected in our good results, as I mentioned, of the last quarter. And we still are expecting for another 20 basis points to be achieved in 2020.

So it's very positive. As I have mentioned before, we have a very bad 2018 due to the COA, but we are having a good 2019, especially in the second quarter -- semester of the year. So glad about that. I'm happy about that.

In terms of the coronavirus, actually, last -- yesterday, we got our strategic planning here in Mexico. And Miguel Ibarrola, our head of Europe, was here in Mexico. And yesterday afternoon, we were talking with the Board about our -- the coronavirus situation in Spain. And there is also some protocols that our franchise source are suggesting us to do. As you know, Starbucks has a big presence in China. And Kevin also was here, the CEO of Starbucks, a week ago for our convention in Acapulco Starbucks. And we were talking about that issue, too.

So what I can tell you -- and I'm aware about what has just happened in Mexico with 2 new cases in Mexico. So we are doing, we are following the protocols of our franchise stores. And we are -- without alarming anything, we're going to get prepared for anything that we should do regarding that, following the rules or the policies our franchisors suggesting us to do. Up to now, there is no emergency, not in any of our geographies. And the country authorities or sanitary authorities have not forced us to do anything. So as we read in the morning, we are not panicking, but we are being cautious of what we have to do if something else comes along.

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Antonio Hernández Vélez Leija, Barclays Bank PLC, Research Division - Research Analyst [11]

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Okay. And so far, in Spain, have you seen any impact within the last month or a couple of weeks? I don't know if you have any numbers.

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [12]

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No. And because I knew this was going to be raised today, I, this morning, called our team in Spain to see if they have any news about it. And there's nothing to report today, not in terms of the government or any authority telling us to do anything different from what we are doing. Business as usual.

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Operator [13]

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Our next question is from Mr. Antonio Gonzalez from Crédit Suisse.

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Antonio Gonzalez Anaya, Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research [14]

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I just have 2 quick ones. The first one is on your outlook for margins in Mexico, right? I believe the last commentary that you shared with the market indicated an expected pressure in margins of around 50 bps for Mexico for full year '20. And I just want to reconfirm, I mean, when I look at the fourth quarter results, obviously, the margin trend is better. But there are some positive one-offs, right? I mean the Starbucks, Nestlé payments and the Vips one-off and so on. So given the additional minimum wage hike in 2020, and I presume these one-offs will no longer help, what's your latest expectation for EBITDA margin in Mexico in 2020? That's number one.

And then number two, I wanted to see if you can give us more color, Alberto, on the Domino's Pizza evolution, both in Colombia and in Mexico? You mentioned the 12% penetration of aggregators in Colombia. But I wanted to ask, how much of that is cannibalization? And perhaps if you can share the overall same-store sales figure for Domino's Colombia. And then what's the early indication that you're getting in Mexico City and Guadalajara as you pilot phase in?

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [15]

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All right. In terms of the projections that we have in Mexico, we still have around 40 to 50 basis points lower than this year because of the increase of the minimum salary. One thing that is helping us in terms of cost is that the FX in Mexico is around 19 -- right now, MXN 19, MXN 20. But that is helping us in terms of costs, at least in the first and maybe second quarter of the year. So in our projections, we're confident that it's going to be around 40 to 50 basis points lower. We are working a lot in terms of -- to try to mitigate this impact with G&A, lower cost that we are working on here in Mexico. But I think it's going to be maybe incremental in the third or fourth quarter of the year, trying to mitigate this impact in terms of the increasing minimum salary.

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Antonio Gonzalez Anaya, Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research [16]

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That's already after considering the COA benefits, right, so far?

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [17]

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Exactly, exactly. Because the total impact can be around 80 basis points. Also let me tell you other comments in what Rafael just mentioned -- Rafael just mentioned. One thing we suggest, last year, we were -- we sold of our assets that I mentioned. We sold about less than 400 million. But remember that we have still in Mexico another 400 million to 500 million that we expect in real estate to be sold this year.

Also, don't forget that we, as I mentioned, closed a lot of stores that were not performing last year. And we intend to keep doing so every time we see restaurants that are not performing well or that after the plan of rescue, let me mention it that way, they have not been sold. So you will see that.

But I am very positive that based upon a benchmark that we did in our operations of Europe and Mexico, the opportunity of being more efficient in G&A is huge. And we are working on that. As Rafael mentioned, probably you would only see the results by the end of the year because obviously, we do some adjustments in our G&A. The cost of liquidations and other expenses will be there. But we'll let you know as we advance in this project.

Regarding Colombia, the numbers in Colombia are very good. We have about between 8% to 10% extra sales from aggregators without affecting the normal sales of the restaurants, not in carryout or delivery. So as far as what we have seen in Colombia, which the test is almost a year now. It seems like this 80% is really incremental sales. I don't have yet, and as soon as I do, I would share it with you guys, the numbers in the test that we are doing in Mexico. But I will let you know as soon as we have those numbers.

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Antonio Gonzalez Anaya, Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research [18]

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All right. That's very helpful.

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [19]

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And if I may comment about Domino's. We have said that it was not a good year for Domino's. I don't know if you know, but we made some changes in the management. We changed the head of Domino's Pizza early in this year. And Eduardo Gándara, who has been in the company for as much time as I, starting with Domino's 29 years ago. He's heading Domino's Pizza. And my opinion in terms of what we have to do in Domino's in 2020 to regain our leadership in the market and keep growing again in orders, it is really to focus on the basic and use technology as one of our enablers to that. The toughest thing that we are facing in Mexico today is the price point. We have a price point which is very competitive in a market with an informal economy that is so big.

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Operator [20]

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Our next question is from Mr. Rodrigo Alcantara from UBS.

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Rodrigo Alcantara, UBS Investment Bank, Research Division - Associate Analyst [21]

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Just on these G&A efforts, I remembered you mentioned about this centralization of corporate offices in South America. I believe it was in Colombia. So I was wondering if you can comment about the development from this.

And also a follow-up on the coronavirus issue. So you mentioned that you have not seen an impact at the store level. But I was wondering if there is an exposure in terms of supply chain, any imports from China or any disruption that you may face as a result of this. That would be my 2 questions.

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [22]

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Yes. First, Latin America and G&A. The effort that we mentioned about G&A includes Latin America. So the benchmark that we did within Europe and Mexico, Latin America will be there. As I announced, we are trying to make our geography Latin America more independent from Mexico. And therefore, we are a creating a cluster to do all the G&A there instead of having 3 different G&A in the 3 countries where we operate.

So as we speak, that's happening. Actually, I'm flying to Chile and Buenos Aires in April, and that this is part of what we are going to do in the first semester of the year. So you will see that happening, and I'm sure in our next conference call, I can give you more updates about that as well as the one in Mexico.

Regarding coronavirus, importations. We do not import anything from China to date. We do import things from the United States that are manufactured in China. Mainly, we import merchandising for Starbucks brand. So I don't see any impact in that sense.

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Operator [23]

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Our next question is from Ms. Nicole Zaragoza from GBM.

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Nicole M. Zaragoza, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [24]

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I have 2 questions. My first question is regarding an overall 2020 guidance. If you could give us some color in same-store sales and consolidated EBITDA margins.

My second question is looking at your balance sheet, we noticed that there is some impairment of almost MXN 5 billion in the value of brands. Could you give us a little more color in this bracket?

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [25]

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Can you repeat the second question, please?

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Nicole M. Zaragoza, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [26]

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Yes. If we look at your balance sheet, there is an impairment of almost MXN 5 billion in the value of brands. In the first semester of 2019, the value of brands were almost MXN 17 billion. Today, it's MXN 12 billion. And we were wondering what was the impact here. Is it the [disintegration] of LAVACA? Or is there something more there?

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [27]

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Yes. In terms of the impairment, it was not only the LAVACA. LAVACA was one of them. The other ones were some of the brands that we sold like P.F. in Argentina, Burger King in Colombia. Those also has an impairment. And we decided also to put an impairment of around MXN 35 million from El Portón, the brand of El Portón in Mexico.

In terms of guidance of 2020 same-store sales, in terms of sales, we think that we can achieve in Mexico around 3.5% to 4% in terms of same-store sales. In Europe, between 1.5% to 2% in Europe. And in Lat Am, it depends on Argentina, but we think we can achieve around mid-teens.

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Nicole M. Zaragoza, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [28]

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And regarding consolidated EBITDA margin, you've already mentioned that you are expecting a dilution of almost 50 basis in Mexico's margins. But considering all the synergies, that could be achieved this year?

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [29]

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Yes. One of the main things that we can -- we think we can achieve is the increase in the EBITDA margin of Europe because of the synergies that we are going to have and less layoffs that we are going to have this year. So at the end of the year, we had an EBITDA margin in Europe close to 10% or a little bit higher than 10%. And we think we can achieve around 2 to 2.5 points increase in margin in Europe.

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Operator [30]

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Our next question is from Mr. Álvaro García from BTG Pactual.

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Álvaro García, Banco BTG Pactual S.A., Research Division - Research Analyst [31]

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I have 2 questions that I think are more for Rafa. On margins in Mexico in the fourth quarter specifically, I'm having sort of a tough time seeing where they went directionally adjusting for all the one-offs in the quarter. So you had the benefits from COA. You had the 2 one-offs, Starbucks and Vips. Then you had the negative impact of El Portón, which you just quantified. You also have sort of the shift in mix because of sort of higher -- more profitable brand, which have grown faster than Domino's. I was wondering if you could just give us a little bit more color on what margins did adjusting for all of these things in the fourth quarter specifically is my first question.

And my second question is on -- we saw a much higher depreciation and amortization rate in Europe. I was wondering if there were some one-offs there or why there was such a big jump in D&A in Europe in the quarter.

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Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [32]

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Well, the D&A in Europe, it's also that we are going to sell Cañas y Tapas. And we decided to put a faster depreciation in terms of the Cañas y Tapas brand in Europe that we think we're going to end selling this brand in the second -- at least in the second quarter of the year, maybe in the first quarter of this year. So the impact was what has accelerated the depreciation of that brand, in terms of depreciation.

And in terms of the other income that we have, as you know, in the fourth quarter, we sell the Vips in -- the Vips to Arango. That is what's almost MXN 80 million. And also the Food Service, what we call the Food Service [that we sold to] Starbucks around MXN 123 million. That was a positive thing that we have in other incomes. And negative things that we have is just in Mexico, is that we have some layoffs also in Mexico that was around MXN 18 million; and the El Portón, (foreign language) El Portón, that is an impairment for El Portón, that was around MXN 35 million.

And also in Europe, we had some expenses that we have in terms of layoffs that was around MXN 150 million, the write-off of LAVACA that was around MXN 30 million and other expenses that we have in terms of the acquisition. We have a transition service agreement with Starbucks that -- and it's going to end maybe the first quarter of this year, maybe of April because we have this transition service because of the acquisition of Starbucks in France and Benelux. And that is a cost that we have for the full year like MXN 50 billion.

So in terms of EBITDA margin, without the -- all the assets that we sold, the margin is around 18 -- is 12.9%. That is in line with our guidance that was 13% even though that we have some layoffs or onetime layoff that we have in the quarter and in the year.

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Álvaro García, Banco BTG Pactual S.A., Research Division - Research Analyst [33]

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That's very clear. That's very helpful. And just one quick follow-up on the D&A in Europe. That's something we should probably continue to -- sort of this new level continue to model for until you sell Cañas y Tapas (inaudible)

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Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [34]

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In terms of depreciation, we already put all the ancillary depreciation of that brand. So you're not going to see in the first quarter the same impact. We already put everything in the fourth quarter.

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Operator [35]

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(Operator Instructions) That was the last question. I will now hand over to Mr. Torrado and Mr. Contreras for final comments.

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Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [36]

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Well, first of all, thank you all for being here as always. I know it's been a busy week in the markets, but I thank you for being able to be in our conference call. I am quite happy with the results of last year. I think it was a tough initial of the year, as you know, a lot of changes last year, very tough economies in some of our markets. So I'm happy with that. And hopefully, we will talk again in our next conference call. And we're working to make sure that the company keeps performing as you guys expected. So thank you and have a good weekend.

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Operator [37]

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All conference hosts have hung up. This conference is over. Thank you.