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Edited Transcript of ALSEA.MX earnings conference call or presentation 30-Oct-20 3:00pm GMT

·39 min read

Q3 2020 Alsea SAB de CV Earnings Call Oct 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Alsea SAB de CV earnings conference call or presentation Friday, October 30, 2020 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * 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 ================================================================================ Conference Call Participants ================================================================================ * Alan Alanis Santander Investment Securities Inc., Research Division - Head of Mexico Strategy and Sector Head for Food & Beverage * Álvaro García Banco BTG Pactual S.A., Research Division - Research Analyst * Andrés Ortiz Crédit Suisse AG, Research Division - Research Analyst * Rodrigo Alcantara UBS Investment Bank, Research Division - Associate Analyst * Rodrigo Echagaray Scotiabank Global Banking and Markets, Research Division - Analyst * Vanessa Quiroga Crédit Suisse AG, Research Division - Head of Mexico Equity Research & Co-Head of the Housing & Infrastructure in LatAm excluding Brazil ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome to Alsea's earnings conference call. With us are Alberto Torrado, the Executive President of Alsea; Rafael Contreras, Chief Financial Officer; and Salvador Villaseñor of Investor Relations. Our speakers will present the results for the third quarter of 2020. At the end of the presentation, we will have a Q&A session. 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. -------------------------------------------------------------------------------- Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [2] -------------------------------------------------------------------------------- Thank you very much and good morning to everybody and welcome to Alsea's Third Quarter Earnings Conference Call. We will be discussing the most significant events from the third quarter as well as our outlook for the rest of the year and beyond. The third quarter marked a turning point after the major challenges faced due to the COVID-19 pandemic and lockdowns in the second quarter. We posted positive more than MXN 400 million EBITDA at the consolidated level as well as in our 2 main geographies, thanks largely to the gradual reopening of most of our units, the strength and position of our brand portfolio and like -- laser-like focus on cost control. We are very pleased with these results, which is way better than what we had initially projected, and we are grateful to all of those who work in the company, our customers, suppliers and brand owners who together make this possible. While we recognize major challenges ahead, especially a part of the Europe and we introduce some [selection] containment measures to combat the second wave of the COVID-19, I do believe that the company is well placed for the future. Unlike many of our competitors, we have the scale, brands, technology, customer loyalty and management know-how to grow market share profitable in a sector that is going through major change and likely downsizing. In the 6 months since the COVID-19 outbreak became global, we have accelerated the implementation of digital and delivery products and platforms, reduced costs on permanent basis, reached agreement with our creditors, granting of waivers in our debt agreements until mid-2021 while always maintaining our commitment to ESG and sustainability. Back to the third quarter. Overall, our sales grew by 91% versus second quarter as most units reopened and construction recovered. At a country level, Europe saw the largest quarter-over-quarter improvement of 146%, and we went from total lockdown in many regions to reopening as a result of containment measures being lifted. Mexico saw a 64% gain and South America 63%. About 90% of our units were opened by the end of the quarter. However, still many were following social distancing rules and more limited opening times, depends on the geography and the region where they operate. Delivery plays an important role in this recovery. Across our 3 regions during the quarter, delivery represented about 30% of total sales compared to 13% a year ago. Our goal for delivery for 2022 is to stabilize around 23% of sales, contemplating a more normalized dine-in sales level. We continue to push our own delivery solutions and those of third parties across all our regions and brands. And we will be -- we will open and proactive to spur all solutions or initiatives that add value to our business. We continue to push multi-brand and multi-unit delivery, achieving cost savings and thereby benefiting from scale, which our competitions, of course, lack. A few weeks ago, we started a pilot test to run out -- our own delivery and loyalty app. This test will help us to make adjustments before launching it to the public, which we project to be happening during the first quarter of 2021. We have also been successful in expanding the reach of our loyalty program. Wow Rewards now have more than 3 million registered members, of which 650,000 have used Wow Rewards in the past year and now represent close to 6% of Alsea Mexico total sales. We are focused on improving our customer experience by implementing the capability of partially paying with Wow Rewards points in the Domino's Pizza App, which resulted in 700% increase in points redemption in this brand. To help manage these and other initiatives, we recently incorporated Dario Okrent as our new Chief Digital Officer. He has been close to 4 months with us and has a lot of experience in such matters. And we are delighted to have him on board. On the cost side, we continue to find efficiencies, which helped the company report positive EBITDA margins. In spite of a lower revenue base than a year ago, we were able to deploy staff more efficiently by having the right number of staff in each store depending on the demand, benefited from government support programs regarding labor expenses in Europe and South America and also the agreement with our unions in Mexico. We have not seen any major pressure on our input cost side, and we were able to close agreements on rents for the third quarter and close some unprofitable stores in line with our focus on profitability strategy. Our marketing spending, too, was cut back sharply and much more efficiently target than in the past. In Europe, we were able to finalize the integration of our back office process -- processes into a single ERP, materializing synergies and improving efficiency. Overall, our operating expenses were reduced by 21% year-over-year mainly due to our saving efforts and successful negotiations regarding labor, rents, G&A, royalties and advertising. Rafael will address in more detail our balance sheet, but it remains resilient. Cash and cash equivalents are now MXN 1.6 billion, and our net equity at the end of September amounted MXN 9.6 billion, more than complying with our new agreement with our creditors. We expect to continue deleveraging the company going forward as recovery continues. We understand negative impact that the COVID crisis has had on many families involved in vulnerable situation in the geographies where we operate. For this reason, as of September 30, Alsea has undertaken a number of initiatives which have had positive impact in our communities. These initiatives include an alliance with the Instituto Mexicano del Seguro Social foundation, which we have provided more than 1,664 food rations for health workers at various hospitals through the country and creating an emergency fund for collaborator severely affected by COVID-19 in Mexico, Chile, Colombia, Uruguay and Argentina. This amounts to MXN 5 million, of which 21 -- 25% has already been deployed to help 114 collaborators of Alsea. In addition, we have donated 300 tons of food supplies equivalent to MXN 18 million through various food banks, among them, Alimentos para Todos, benefiting more than 300,000 people at the end of this quarter. At the beginning of August, we restarted operation in our 13 community diners that provide free nourishment to children and persons in need in Mexico City, the State of Mexico, Nuevo Leon, Coahuila, Oaxaca and San Luis Potosi in which we developed a takeout model to provide food to more than 5,000 children that receive this food every day. And now Rafael will give you a more detailed overview of our financial results. Thank you. Please, Rafael. -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [3] -------------------------------------------------------------------------------- Thanks, Alberto. Good morning, everyone. Thanks 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 explanations and notes reported in our earnings release exclude the effects from the statement related to a high -- hyperinflation inflation in Argentina as well as IFRS 16. These 2 factors were included in the financial statements issued to corresponding authorities. The impact of IFRS 16 on our financial results for the quarter are as follows: MXN 1.6 billion EBITDA increase and a positive impact of MXN 443 million on net income, which represent 75% of our total loss in the quarter. This benefit in EBITDA and net income were related to the agreements on lower rents and store closures. We saw notable differences in revenue growth. In Mexico, by the end of September, we reached a 78% sales level versus September last year. It is worth noting that if we will take out Mexico City in this calculation, the rest of the Mexican territory is already at 85% level of sales. So if the restrictions at the quarantine placed on Mexico City changed from orange light to yellow light, we may be able to reach the mid-80 sales level in the fourth quarter. Domino's Mexico clearly was the leader in sales, up 4.4% year-over-year, and pizza remains one of the top alternatives in food delivery. Our sales operations in Europe were positively impact as we saw more traffic in our restaurants. Our QSR brands in this region ended the quarter with a sales level of around 80% versus last year. Starbucks is now above 50%, and our casual dining brands reported a recovery through the quarter, reaching approximately 70% versus last September sales. In South America, Colombia was the top-performing country in sales level versus last year, reaching a low 90s reach of sales mainly driven by the positive performance of Domino's Pizza in the country, which had a higher-than-30 growth in sales versus the third quarter of 2019. At quarter-end, we were operating with 90% of our total units under the strict sanitary and hygiene measures. Many of our opened units continued to operate below capacity given social distancing and government guidance on opening hours, among other factors. In Mexico, 93% of our units are open; in Chile, 66%; 71% in Argentina; and 95% in Colombia. Finally, as of September, we were operating with 92% of our total units in Europe. We are focused on recovering as much sales traffic as we can, so given the changes in consumption habits, this has resulted in a stronger focus on home delivery and takeout. We saw a 42% increase in sales from delivery versus the third quarter last year driven by the stay-at-home trend and our effort to accelerate the implementation of delivery products and platforms. We have seen positive results on the delivery performance of some brands. In particular, for example, Starbucks in Mexico has now a 7% share of sales through delivery when pre-COVID figures were below 2%. On our Casual Dining portfolio, some brands have adapted better than others with their share of sales ranging between 15% to 40%, being P.F. Chang's the brand that has outperformed for this channel. It's also worth mentioning that the brands that generate 91% of the company's consolidated sales reported positive adjusted EBITDA in September. Lately, we have been following the situation regarding the second wave of the COVID virus with the latest announcement in France and some other countries in Europe that are starting to put in place new contingency plans to avoid the virus spreading. What we have heard so far is that the measures are not going to be a drastic as the ones implemented for the second quarter of the year. We were expecting the positive trend that we have been observing during the third quarter to remain. However, given the new circumstances, we now expect for the fourth quarter to perform similar to what we reported in September, which will mean that sales level should remain at 75% to 80% of what we reported last year. As Alberto mentioned, given the negative impact on our EBITDA of temporary closures and contingency restrictions as well as the MXN 27 million one-off related to the store closures, we have seen our net debt-to-EBITDA rise to 7.6x at the end of the third quarter. As mentioned before, agreements with our leading banks regarding waivers to our current covenants have permitted appropriate financial stability through 2020 and 2021. The debt structure at the end of the quarter was 83% long term, with 5 -- 55% in Mexican pesos, 44% in euros and less than 1% in Chilean pesos. In the face of the current global health and economic crisis, we have been focusing on strengthening our balance sheet in favor of cash flow and profitability over growth. Compared to the negative cash flow that we reported in the second quarter of the year, which reached more than MXN 2.4 billion, during the third quarter, we closed with a slightly negative cash flow of approximately MXN 120 million. In line with our goal, we have been successful in controlling inventories in the current factories in all of our geographies where we're operating and extending length of payments through agreements with our suppliers. All these measures helped us reach at the end of the third quarter a solid MXN 4.6 billion in cash, well above the agreed MXN 2 billion minimum liquidity level according to the waiver. We continue to be conservative with our planned CapEx for 2020 as we have postponed about 80% of our planned new opening for the year while continuing to invest in necessary technology and other strategic initiatives. Now we would like to open the call to Q&A. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question is from Vanessa Quiroga from Crédit Suisse. -------------------------------------------------------------------------------- Vanessa Quiroga, Crédit Suisse AG, Research Division - Head of Mexico Equity Research & Co-Head of the Housing & Infrastructure in LatAm excluding Brazil [2] -------------------------------------------------------------------------------- It is regarding precisely the rising concerns regarding the impact of the second wave restrictions both in Europe and in Mexico. Could you summarize for us your learnings from the first wave, let's say, or the current one that you think will show Alsea being more resilient in the fourth quarter and potentially perform similarly than in the third quarter? -------------------------------------------------------------------------------- Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [3] -------------------------------------------------------------------------------- Yes, of course. It was -- well, first of all, let me tell you that obviously, in the -- to this week, we have been following the news very closely and talking to our leaders in each market, understanding precisely what those decisions that the governments are taking from the Netherlands, France, Spain and even in different states in Mexico that, as you know -- or most of you know are taking the decisions of change of colors on the light of cautious of the pandemic. I do believe, and based upon what I have discussed with my team members around, that the worst is already gone. And I really believe that because, as you know, in restaurants, when the highest of the crisis after the total shutdown, were able to open through curbside, delivery and pickup. I have to tell you that we keep open the restaurants. Most of our confinements are, like in France, at night from 12 to 6:00 in the morning or at Spain, 11 to 6:00 where we really don't have a big business. And we are one of the few restaurants that are open, even though we believe that we will have some troubles in the shopping malls mainly. And in the dine-in, really we were already having restrictions of the amount of people that can go in the restaurant. So I think we're going to be affected, but I don't believe that we're going to be affected like in second quarter. We still are positive that we can reach 75% of sales to 80% of sales, even with these restrictions, for the months of the third quarter. That's exactly what we are facing in October, which, to be honest with you, has been a challenged month. And so we believe that November and December are going to be, even with the restriction, a little better than October. Still, things can get worse. I hope that, that doesn't happen, but that's the feeling, and that's our approach. We are better prepared today. We have all the connections with the aggregators. Our team is better prepared, packaging, offers and everything. So I think we can have, even with that, sales at the level of 75% to 80%. -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- Our next question is from Rodrigo Echagaray from Scotiabank. -------------------------------------------------------------------------------- Rodrigo Echagaray, Scotiabank Global Banking and Markets, Research Division - Analyst [5] -------------------------------------------------------------------------------- I guess 2 questions on my end. The first question is with regards to the equity covenant. With Q3 losses at nearly MXN 1 billion and the equity line at MXN 9.6 billion, it seems that another tough quarter like Q3 would perhaps take you close to the covenant. So any thoughts on how you're thinking about that would be appreciated. And the second question is with regards to cash and cash flows. Great to see your cash increase. However, there are still MXN 5 billion in debt amortizations for next year. So if you can perhaps talk a little bit about cash flows for the coming quarters. How are you thinking about that and CapEx would be appreciated. -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [6] -------------------------------------------------------------------------------- In terms of the net worth, one thing that I can tell you is that at the end of September, we lost around MXN 150 million in terms of net income. So if the fourth quarter with sales of between 75% to 80%, we can achieve that, and we can be with a net -- negative net profit between MXN 100 million to MXN 150 million. So at the end of the year, we think that we can be with a MXN 9 billion net worth. And if we see something that gets, say, worse than this, we have a pretty good relation with banks. So we will start talking with banks maybe to have another waiver or something like that. -------------------------------------------------------------------------------- Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [7] -------------------------------------------------------------------------------- I would like to add to that. I am quite positive when I -- when we review the results of September. And that's why if you've seen the whole information, we were open in September because September -- look, even with sales not reaching what we expected, to be honest with you, we were able to have most of the units -- the business units with positive EBITDA. And based upon the numbers that we have seen in October as of today, we're going to be looking at similar situation. And obviously, I do expect November and December to be obviously better than September and October even with the confinement. So I really believe that we have to be cautious, as Rafael said. We will talk with the banks because it's our obligation to do that. But I don't think that we will have any problems in that side. -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [8] -------------------------------------------------------------------------------- And in terms of cash, in terms of cash, banks gave us a waiver until June 2021. And we know that we are going to start this fourth quarter talking with banks with a refinance or restructure of all of our debts. -------------------------------------------------------------------------------- Rodrigo Echagaray, Scotiabank Global Banking and Markets, Research Division - Analyst [9] -------------------------------------------------------------------------------- Got it. So you are optimistic that you can push back some of that debt amortizations for next year? -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [10] -------------------------------------------------------------------------------- Exactly. Exactly. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Our next question is from Alan Alanis from Santander. -------------------------------------------------------------------------------- Alan Alanis, Santander Investment Securities Inc., Research Division - Head of Mexico Strategy and Sector Head for Food & Beverage [12] -------------------------------------------------------------------------------- I hope you and and your families and everyone around you is well. I have a couple of questions, one of them strategic and the other is financial. The strategic question has to do with how, Alberto, you're thinking regarding the current portfolio has evolved more in the mid term to long term and which of the brands you think will become even more important and which one less important. And that will be the first question. And the second question has to do with working capital. And I see that you had a very strong operating cash flow in the third quarter compared to the second quarter. And I realize that basically, all of your working capital accounts serve as a source of cash, including one that is called other assets and liabilities. So the question there is, how sustainable and what do you expect in terms of working capital going forward? And what specifically are those other short-term assets and liabilities? -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [13] -------------------------------------------------------------------------------- Do you want to... -------------------------------------------------------------------------------- Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [14] -------------------------------------------------------------------------------- I think your question is very interesting in terms of the portfolio. First of all, I have to tell you that it's amazing how some of these brands have performed even with the crisis. When you see the result that Domino's is doing in Spain, Colombia, Mexico, where we are hitting sales higher than last year even with confinement -- and don't get me wrong, in our market, delivery really represents about 50% to 60% of sales of these brands normally. Right now, even with some restrictions in dine-in, we are doing sales over 100% of what we did last year. So that's very good news because we do believe that Domino's Pizza with this confinement and when we can open the small seating areas that we have in Mexico and in Spain, this brand can do very, very well in 2022. So Domino's by far is the brand that is performing well, and we plan, as soon as we can have a CapEx, to invest that this brand will develop a lot of that investment. The second one is Starbucks. Of course, as you know, Starbucks is our stronger brand and the biggest brand in our portfolio not only in terms of units but also in terms of sales and EBITDA generation, the best returns. And also, Starbucks is doing very well in Mexico. We are seeing levels of 90% of sales already in Starbucks compared to 2019 even with more than 50 stores closed that are in airports, that are in offices and other venues that depend a lot in the offices sector. But even with that, we are reaching sales of 90%. The same is happening with Starbucks in other geographies. So Starbucks is performing very well even with the confinement, and you will see in future, because you asked me about the future also, that Starbucks will invest. If you see what's the performance of Starbucks globally and if you follow the Starbucks company, which I'm sure you do, you can see that, that company is doing already 100% in sales in China, as I talked to Mr. Culver, which is the President of International, in the recent weeks. So Starbucks is doing good. We just had a conversation with Jose Cil, which is the President of Restaurant Brands International, head -- owner of Burger King, 2 days ago in our Board meeting, and we are doing also very well with Burger King. So it seemed like that -- fast casual -- I mean, like -- the quick service restaurant brands are doing, in this situation, a lot better than the other ones. I have -- I think it's a lot to -- this has to do a lot with price. This has to do a lot with the drive-through, deliveries, et cetera, that they have. I think the brands that are having more challenge, obviously, are the brands of casual because of the dine-in restrictions and the limitation on hours. But mostly, the ones that have outside seating are doing great, although there's more restriction. But a lot of these in Mexico is in shopping malls. Shopping malls have softened a little bit. So if I see the future of Alsea 2021-2022, I'll tell you that we might not invest in casual as more as we were. Fortunately, casual is not so big for us. In Spain, it is; casual, it does very well. And Mexicano, which is Portón and the other brands that we were investing, we're going to stop that right now. We have to focus on the big brands, and we're going to focus on the brand that are generating positive EBITDA and cash flow for us. I don't know if I answered your questions. -------------------------------------------------------------------------------- Alan Alanis, Santander Investment Securities Inc., Research Division - Head of Mexico Strategy and Sector Head for Food & Beverage [15] -------------------------------------------------------------------------------- No. You did. That's very clear, Alberto. And best of luck. And congrats, I mean, I think it makes a lot of sense. -------------------------------------------------------------------------------- Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [16] -------------------------------------------------------------------------------- Also, let me say something else. We have had very close conversation with the franchisors of these 3 brands, and they obviously are concerned about the future of their growth and new openings. And we are getting concessions from them to see if by 2022 things get better and we have enough money, with their help we can continue opening restaurants in the future. We have closed, as you read in our statement, close to 89 stores today. We will be closing close to 120 stores this year. So we will have a lot of inventory of equipment to open with a lot less investment in stores. And I do believe that there are going to be so many real estate opportunities that when the times come, we should take advantage of that. -------------------------------------------------------------------------------- Alan Alanis, Santander Investment Securities Inc., Research Division - Head of Mexico Strategy and Sector Head for Food & Beverage [17] -------------------------------------------------------------------------------- That's also very, very useful. And great to hear that the partnership with those 3 core brands is getting stronger. -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [18] -------------------------------------------------------------------------------- And in terms of the working capital, as you know, we have some agreements with our suppliers, and they give us more days in terms of payments. Some of them ends in this fourth quarter. So in terms of cash flow in the fourth quarter, I think it's going to be negative in about MXN 300 million. So we think we're going to end the quarter with a positive cash of around MXN 4.1 billion, MXN 4.2 billion at the end of the year. In terms of the short term, we have some with the insurers, that we have payments in advance with the insurance company. We have some mark-to-market costs -- capital costs because of the FX policy that we have here. So we have some cash restricted with this capital cost that we have, but it's around MXN 500 million. It depends on the effect of the FX, that if we can have some of that money in our cash position or if I have -- I have to put more restricted cash in that amount, working -- in terms of working capital, we think we're going to be maybe with that MXN 300 million free cash flow negative in the fourth quarter. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Our question next question is from Rodrigo Alcantara from UBS. -------------------------------------------------------------------------------- Rodrigo Alcantara, UBS Investment Bank, Research Division - Associate Analyst [20] -------------------------------------------------------------------------------- The first one would be -- Alberto, correct me if I'm wrong here. I guess that you've finalized the implement -- the rollout of synergies in Europe last quarter, right? So in theory, we are already seeing this EUR 18 million of synergies that you expected to generate. If that's the case, what else can you continue to do in Europe in order to improve profitability once the pandemic is overcome? That would be my question related to Europe. And the second one would be perhaps for Rafa. If you can give us an update about the status regarding the put option with Zena. If you can remind us when are you going to -- when will you need to pay this. Or will you renegotiate an extension of this put option? And also, regarding this MXN 100 million to MXN 150 million loss that you're projecting for next quarter in terms of net income, just curious if you're here considering the asset -- the tax asset that you currently have on your balance sheet, that how much you can use from this line to partially offset potential net losses in the first quarter. That would be my questions. -------------------------------------------------------------------------------- Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [21] -------------------------------------------------------------------------------- Yes. Thank you. Yes, you're right, we have captured all the synergies in Europe of EUR 18 million that we will talk. Actually, they were a little bit more than that. So that is that. We have analyzed our G&A in Europe. Today, we still have some of our team members in the ERTE, which is that support that the government in Spain give us, and also in France. So we cannot do and we are not doing yet any adjustments in G&A, but we will. We are already planning as soon as (inaudible) to do some adjustments in the G&A structure in Spain and France. To be honest, we don't expect a lot of money from that. But we are working on that, and we'll let you know as soon as we finalize that. I do believe that is going to go all the way to early next year. So if that happens, we would have to do that in the first quarter of next year because the ERTE help us more than any adjustments we can do on G&A. -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [22] -------------------------------------------------------------------------------- Okay. In terms of the Alia option that we have, that is the 21% of -- participate in Spain, and it's fixed amount of EUR 110 million, the option ends in the first quarter of 2022. And we have the option every quarter to buy this participation on that. Right now, we are not going to be able to make this option or provide the 21%. So right now, we're going to see until 2022, but what happens, we'll finance the forward credit with our banks, and then we're going to decide what to do for this option that ends in 2022. Right now, we are not doing anything with our -- with Alia. And in terms of the net profit in the fourth quarter, that can be a loss of 1 -- between MXN 100 million to MXN 150 million every month. Yes, we are using deferred taxes every month. You can see that we have positive taxes every quarter because we can use the deferred taxes that we have, right? We are using them now. And it's different in every geography because, for example, in Europe, you can -- you have a physical consolidation that help us more than in Mexico because here in Mexico, it's -- we don't have that physical consolidation. So in Europe, we have a deferred tax between 20% and; in Mexico, it's around 7% because we have some positive brands that have to pay taxes, and we can use the deferred taxes on the ones that are losing money. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- Our next question is from Álvaro García from BTG Pactual. -------------------------------------------------------------------------------- Álvaro García, Banco BTG Pactual S.A., Research Division - Research Analyst [24] -------------------------------------------------------------------------------- I have a couple of questions. I'll ask them one at a time. My first question is on financing alternatives. So I was wondering if you could potentially address what the status of that potential sale is. Potentially maybe remarks on Argentina as well. And maybe just as a third part of this first question, what your plan is, what alternatives you're looking at in terms of addressing those maturities next year and the year after with banks. Maybe if you can give us some color on if you're thinking about a bigger bond. Or what sort of alternatives you can share with us today? -------------------------------------------------------------------------------- Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [25] -------------------------------------------------------------------------------- Yes. Well, I'm glad you asked that question. In the past, even before the crisis, remember we were talking about selling some assets that we had, some business units and some real estate assets. As of today, we have close to MXN 2 billion in assets in real estate. That will include Tlahuac, and that obviously includes the offices where we are here in Mexico. We have a plan to sell about MXN 1 billion in assets, which include Tlahuac and some of the real estate locations that we acquired with the Vips brand. And we've been informing of those sales in the past reports. We already did a sale this year, and I do believe we're going to have probably a couple of those before the end of the year. So we will divest from those assets because those are not essential or strategic assets, but we will stay in those locations with our restaurants. Particularly with Tlahuac, today we are using Tlahuac, and we're saving a lot of money in other warehouses that we have because we are using Tlahuac to warehouse cheese which we have a good inventory of cheese to support our operations of Domino's that are doing so well. And we were able to buy cheese at a very good price, taking the momentum of the lowest price of the cheese this year. We are also using Tlahuac to -- we stopped renting in more than 5 or 6 other warehouses that we were renting around Mexico City for equipment of all our brands. So all the equipment now is warehoused in Tlahuac. But even with that, Tlahuac will be sold, and we might rent a part of that property because it's big. We already have several offers, and we will discuss which of those offers we will take. We know those sales will impact us in the rent because obviously, today, we are not paying rents of those assets. But we are in the business of the restaurants, not in real estate, so we will divest on those assets. The offices, which are worth close to $50 million, is the next that we will again analyze if we decided to sell them, if we need to do that. Also, we are having other brands -- analyzing what other brands we should sell. I have been telling you guys about closing the Cañas y Tapas, what we did with wagamama, the CPK. And we have tried to sell P.F. Chang's in Chile and Colombia. But the rest, we are not. Regarding Argentina, Argentina, to be honest, is not in a position to be sold today. We have done a lot of good adjustments in Chang's in Argentina. We have put everything, all the G&A, all administration, from Chile. We have called the region connoisseur. So all the G&A in Argentina is canceled, and all the people have -- or most of the people have left, and all the administration is done today by Chile. So we have a very lean structure in Argentina. We are working with our franchise source, Burger King and Starbucks, to see how they can support us to maintain that business without losing money because today -- we were losing money -- we didn't lose money, that's important. We had positive EBITDA, correct me Rafael, but we had positive EBITDA in Argentina in September, and we -- I do believe that we can maintain that business without losing any money in the future, especially if we get the support from the franchisors. -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [26] -------------------------------------------------------------------------------- And in terms of refinancing, we need the numbers from this third quarter to start talking with banks so they can see the trend that we have right now because every month, we have better sales and positive EBITDA. So we're going to start talking with banks to refinance the debt that we have. And another thing, yes, we would like to go through the bond market with a high-yield or in Europe or in Mexico with the bond when the market opens for us with a better rating with our rating agencies. So we're going to start both things in this fourth quarter. -------------------------------------------------------------------------------- Álvaro García, Banco BTG Pactual S.A., Research Division - Research Analyst [27] -------------------------------------------------------------------------------- Great. That's very helpful. And just one last follow-up, sorry for taking so many questions. But if you could just be a little bit more specific on trends into October sort of across your key markets across each country, that would be very helpful as well. -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [28] -------------------------------------------------------------------------------- Yes. In terms of sales, in total sales, we're close to 78% in terms of sales. And you can see in Mexico, Mexico with 70 -- or close to 79%; then Argentina, close to 55%; Chile, close to 95% because last year, we had this social problem in Argentina that we have a -- are pretty low in terms of sales; and then Colombia, it's higher than 1% -- 105% versus prior; and Europe, 74%. That total of Alsea was that 28%. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Our next question is from Andrés Ortiz from Credit Suisse. -------------------------------------------------------------------------------- Andrés Ortiz, Crédit Suisse AG, Research Division - Research Analyst [30] -------------------------------------------------------------------------------- My question is related to capital allocation. You already comment that you are planning to focus your CapEx-related projects in the next couple of years in the 3 main brands. But I would like to ask, what has happened with the project to update your big stores? I believe it was not yet complete. Could you give us an update on that and if that will be put on hold for the time being? -------------------------------------------------------------------------------- Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [31] -------------------------------------------------------------------------------- Yes. It was -- and let me get also later a little bit in the CapEx. What we are doing based upon our limitations on CapEx in 2020, we're focusing on investing in the technology and the digital transformation to support the sales today. So every investment that we're doing in CapEx with our -- the limitation we have today is to support sales. So one is digital, and this has to do with Wow, aggregators, deliveries for Alsea, POS, things like that. Also, we've been able to get an agreement with our franchisors, especially with Domino's, where they are going to finance some of these investments of Domino's branch in Spain, change the POS. And we are going to work to the platform -- we are going to transition to go to the platform or go look in all our geographies. That is important. The second one where we are putting money is in maintenance. We want to make sure that we support -- that the general managers of our restaurants have the restaurants in good shape to take care of the customer. So we will invest what we have in CapEx this year to maintenance of the restaurants. We will not do any new investments in remodeling or any new stores. We are focused in the business that we have today. We are closing what is not producing money. And we are only going to use the money to support the care of the restaurants that we have today. We have not worked yet, and I don't want my team to be distracted of what we are going to do from today to the end of the year for our plan of 2021. So we have decided that we will postpone our budget work until November. Normally, we'll work in October in our budget. We will start doing budget for November, and we will see how we will allocate based upon the best returns on investment that we will get in this year. But I can probably tell you that if we beat -- I'm pretty sure that we will not invest a lot of money in remodeling Vips because we have better options of return of the investment with the brands that I mentioned. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- Our next question is from Rodrigo Echagaray from Scotiabank. -------------------------------------------------------------------------------- Rodrigo Echagaray, Scotiabank Global Banking and Markets, Research Division - Analyst [33] -------------------------------------------------------------------------------- Rafa, just a follow-up to clarify. You talked about net income of negative MXN 150 million for Q2, and then I think you said that's monthly. Would that be quarterly or monthly? -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [34] -------------------------------------------------------------------------------- All right, the MXN 150 million is the amount in -- just in September. And then if we have the same amount in terms of sales between MXN 75 million to MXN 80 million, we are projecting that we are going to have between MXN 100 million to MXN 150 million negative net income per month. -------------------------------------------------------------------------------- Rodrigo Echagaray, Scotiabank Global Banking and Markets, Research Division - Analyst [35] -------------------------------------------------------------------------------- So that's per month. So like MXN 150 million for -- per quarter? -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [36] -------------------------------------------------------------------------------- Exactly. That's why I mentioned that we're going to be with a net worth of MXN 9 billion, MXN 9.1 billion. -------------------------------------------------------------------------------- Rodrigo Echagaray, Scotiabank Global Banking and Markets, Research Division - Analyst [37] -------------------------------------------------------------------------------- Right. -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [38] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Rodrigo Echagaray, Scotiabank Global Banking and Markets, Research Division - Analyst [39] -------------------------------------------------------------------------------- Very clear now. -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [40] -------------------------------------------------------------------------------- At the end of this year, yes. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- (Operator Instructions) Our next question is from Álvaro García from BTG Pactual. -------------------------------------------------------------------------------- Álvaro García, Banco BTG Pactual S.A., Research Division - Research Analyst [42] -------------------------------------------------------------------------------- Just another quick clarification, Rafa, on what you mentioned on the working capital front. On Alan's question, you mentioned that you'd expect roughly a MXN 300 million free cash flow burn, and I'm not sure if that's specific to working capital. Or is that your estimate for the fourth quarter for like cash flow as a whole? -------------------------------------------------------------------------------- Rafael Contreras Grosskelwing, Alsea, S.A.B. de C.V. - CFO and Director of Administration & Finance [43] -------------------------------------------------------------------------------- For the whole, yes. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- That was the last question. I will now hand over to Mr. Torrado and Mr. Contreras for final comments. -------------------------------------------------------------------------------- Alberto Torrado Martínez, Alsea, S.A.B. de C.V. - Founder, Executive Chairman, Executive President & CEO [45] -------------------------------------------------------------------------------- Thank you. Well, first of all, like always, thank you all for your support and for always being close to Alsea. I know we're still facing a lot of challenges in Alsea. I am very comfortable that the team is doing a great job to navigate through this crisis. We know there's still a very tough road from today to the end of the year, and we have been prepared for that. We also believe that this is going to last probably the first or second quarter of next year, and we are taking the provisions starting now. And you'll -- we will make sure that we are not only taking the decision, but we're also doing the best we can to take care of the customers and being focused on the experience of our consumers so if they are ready to go out, they go to Alsea. So thank you. We'll talk again early next year. And we probably will have our communication with the market before the end of the year. We will not have an Alsea Day in November like we usually have. But we are probably planning to have a conversation with you in December to give you guidance of how we see the close of the year. But we'll keep you informed. Thank you very much. -------------------------------------------------------------------------------- Operator [46] -------------------------------------------------------------------------------- All conference hosts have hung up. This conference is over. Thank you.