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Edited Transcript of EATP.WA earnings conference call or presentation 8-Nov-19 12:30pm GMT

Q3 2019 Amrest Holdings SE Earnings Call

Nov 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Amrest Holdings SE earnings conference call or presentation Friday, November 8, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eduardo Zamarripa

AmRest Holdings SE - CFO

* Mark R. Chandler

AmRest Holdings SE - CEO & Member of Management Board

* Peter Kaineder

AmRest Holdings SE - Chief Strategy Officer

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Conference Call Participants

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* Emmanuel de Figueiredo

LBV Asset Management LLP - CIO

* Irina Hunter

LGM Investments Limited - Senior Portfolio Manager

* João Filipe Pinto

JB Capital Markets, Sociedad de Valores, S.A., Research Division - Associate of Equities Research Portugal

* Krzysztof Kawa

IPOPEMA Securities S.A., Research Division - Analyst

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Presentation

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Operator [1]

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Dear, ladies and gentlemen, welcome to the Investor Teleconference summarizing the financial results for the first quarter of 2019 of AmRest. At our customers' request, this conference will be recorded. (Operator Instructions)

May I now hand you over to Krzysztof Kawa, who will lead you through this conference. Please go ahead, sir.

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Krzysztof Kawa, IPOPEMA Securities S.A., Research Division - Analyst [2]

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Hello, everyone. My name is Krzysztof Kawa, and I'm representing IPOPEMA Securities, and I've got the pleasure of moderating this call with AmRest management. The company is represented by Mark Chandler, the CEO; Eduardo Zamarripa, Chief Financial Officer; and Peter Kaineder, Chief Strategy Officer. We also have with us Aleksandra Tajak, Global Controller; and the IR team, represented by Dorota Surowiec and Robert Patrzykat.

So gentlemen, the floor is yours.

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Mark R. Chandler, AmRest Holdings SE - CEO & Member of Management Board [3]

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Krzysztof, thank you very much. Good afternoon, everyone, and thank you for joining the call today. I'm extremely happy with the team's performance and the results for the third quarter as we grew our top line by 28.7% year-over-year and also further improved our EBITDA margins, it's a comparable one, non-IFRS 16, to 12.5%, which is up 10.9 -- versus a 10.9% we had in Q2, and also versus the 9.5% we had in the first quarter. The initiatives we launched and changes we made earlier this year are starting to bear fruit across the different parts of the organization. We are making substantial progress across all of our 4 strategic pillars that we presented to you all in Capital Markets Day in Warsaw last month, and the impact will be increasingly visible on our financial performance going forward.

I'm very glad that many of you were able to meet our senior management team in Warsaw recently and also had the opportunity to see firsthand the view of the capabilities of the team. We intend to have another Capital Markets Day in Madrid, shortly after the release of full year results.

In terms of profitability, which Eduardo will go through in more detail later on, we continued on our strong growth trend as comparable EBITDA rose in the quarter by 27.6%, puts us at 26.6% above last year through 9 months. We posted growth and profitability across all of our segments, led by China, which more than doubled its EBITDA in the quarter versus last year. Let me reiterate that we are well on track to meet our internal targets on both growth and margin this year, and that we are optimistic on the outlook for 2020. We posted 12.5% EBITDA margin in Q3, an 11-point -- 11% for the first 9 months of the year, and we are still on target to achieve the full year margin that we had achieved last year, 11.2%.

On growth, we are expanding our business in the solid middle single-digit same-store sales growth. Overall, we're substantially above levels we have experienced last year. We had a very strong performance from our franchise brands, which represent the largest part of our portfolio, led by both KFC and Burger King. The core business is strong across the franchise brands, as also in our casual dining segment. As we anticipated to you on our previous quarterly calls, the casual dining growth in Europe has slowed down. We had a slightly negative same-store sales dynamics in the third quarter as we're not able to fully escape market trends, though we are continuous to outperform (inaudible). We're exploring different areas to stimulate growth in this segment, including initiatives around delivery, which has a very different dynamic than casual dining, versus QSR.

Given that our delivery [service] is only at 3%, we still see room to improve in this area. It's also important to note that many of our peers reacted to the softness in casual dining with intense promotions, where the strength of our brand allows us to keep market share stable without buying traffic versus margin-dilutive activities.

As I mentioned earlier, China has had an excellent year in both sales and profitability. Same-store sales was at 6% in the third quarter, and our margins grew by 5.7 margin points in Q3 and have grown in the first 9 months by 2.6 margin points to 13.4%. As those of you have seen in the past, the margins were below 10%, and as gradually year-by-year has now exceeded 10%.

(technical difficulty)

this year compared to 5% in Starbucks China and also 2% in Yum! China.

Looking ahead, we have a very strong pipeline and celebrated, this past month, our first franchise opening, so we continued growth opportunities for Blue Frog brand in China.

Now moving on to Sushi Shop. We've made very good progress in the integration process so far. Many of you had a firsthand view of the product in our Capital Markets Day, and also had the pleasure to meet Christopher Jones, who is heading up Sushi Shop. [After starting early] in the year with volatile market dynamics in France, I'm pleased to report a further pickup of same-store sales dynamics in October, as we posted positive like-for-likes, mainly driven by the rollout of smaller corner stores, which show about 10% same-store sales growth this year. But as you know, integration costs have been weighing on this year's results, but I do look forward to improved margins next year as Sushi Shop is beginning to realize fully the benefits of joining AmRest.

Regarding our openings. We communicated previously our ambition to open about 300 stores this year. We will fall short of the target through a couple of decisions that we made as a team to ensure continued new growth -- new store opening success. Our rollout of shadow kitchens has taken us a bit longer than we anticipated, and we're calibrating the [model of] kitchens and virtual brands. We want to ensure that we will be -- have it right before we roll it out. We are launching our first shadow kitchen at the end of this month in [Bratslav] and we'll be able to provide the results during the next call.

We also have added 2 senior franchise team members to the team. You met both of them actually in Warsaw, and we expect to increase our franchising pipeline after we determine the optimal franchising plan for each of the brands. Peter will elaborate more in a few minutes.

In terms of our growth going ahead. We continue to see good store rollouts for new -- for openings, also growth in same-store sales and also, looking to improve our margins. In addition, I believe the organization will be well equipped for M&A. We have talked briefly about being more strategic in that process, and we certainly are still looking for opportunities, and I'm not afraid to find the rightful opportunity and go ahead with it.

Before I pass it over to Eduardo, I'd also like to talk about our global investment. It's something we're very pleased with. It's also, for us, strategic, and financially it's been a good investment. But also the Pizzaportal deal, Peter will talk about in a few minutes, has proven to be very successful for us.

So with that, Eduardo?

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Eduardo Zamarripa, AmRest Holdings SE - CFO [4]

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Thank you, Mark, and good afternoon, everybody. Now I will move to the financial highlights of the quarter. It's worth mentioning that the comments that I provide during the call exclude the IFRS 16 accounting standard. You can review IFRS 16 numbers in the slides included as an appendix in our investor presentation.

That being said, let's start on Slide #4 of the presentation: 47 restaurants opening in third quarter. The pipeline is very strong for the fourth quarter. We will be opening around 130 stores. The total store count at the end of quarter 3 is 2,211 units. Average net sales for the third quarter show a strong growth of 28.7% to EUR 505 million. This solid growth is mainly driven by a strong sales trend in comparable restaurants as well as M&A activity in the second half of 2018. Excluding our M&A activity, our core business grew 16.9%.

In terms of profitability, EBITDA for third quarter was EUR 63.4 million, which is 27.6% higher than last year, and margin stood at 12.5%. Excluding M&A activity, the EBITDA for third quarter 2019 was EUR 58.6 million, with a margin of 12.9%. In 2018, the EBITDA margin was 12.7%. As we have mentioned previously, M&A did impact our overall margins, and we are working on the potential synergies. Net profit attributable to AmRest shareholders amounted to EUR 23.1 million, with a margin of 4.6%.

Moving to Slide 5. Year-to-date revenues reached EUR 1,432.5 million and were 29.8% higher compared to the previous year. Excluding our M&A activity, our core business grew 16.1%. During the year, the store openings reached 131 stores. The consolidated EBITDA amounted to EUR 157.9 million, representing a 27.6% increase over the prior year. The margin stood at 11%. Excluding M&A activity, EBITDA reached EUR 144.3 million, with a margin of 11.3%, which represents a flat margin versus last year. The core business profitability remains strong. Overall, we are facing, in all regions, higher labor costs, having the highest pressures from recent M&A and Spain. But we were able to offset part of that with several initiatives across the company. We maintained the focus on cost and expenses, following up through our margin committees across all countries.

Now let's move to segment information on Slide 6 for Central and Eastern Europe. Quarterly sales increased by 17.1% sales trend in all Central Eastern markets. During the quarter, we opened 26 stores, mainly KFC, Starbucks and Pizza Hut. The third quarter margin improved 0.1 percentage points to 16.7% or EUR 36.4 million, despite EUR 1.9 million positive impact from VAT refund in Poland last year. Total CEE generated 57.5% of total non-IFRS EBITDA in the quarter. We're experiencing some pressure in margin, mainly from cost levers in Czech and Hungary, that we have been able to offset with cost of goods sold initiatives.

Let's continue with Western Europe. It's the region with the highest sales increase for the quarter, 42.6% and the EBITDA growth, 44.8%. For the first 9 months, the EBITDA grew 45.2%. The biggest improvement is coming from France, due to inclusion of the Sushi Shop business and its positive contribution from acquisitions and ongoing initiatives to fully integrate the acquired business. We continue with the integration of the company, and we're very excited about the opportunities and potential of the brand going forward. Also, we incorporated KFC in France in fourth quarter 2018.

Moving to Spain. For the third quarter, sales increased 11.3%. We continue having pressures in margins, mainly due to increases in labor costs and negative impact due to change in the mix. The sales growth is mainly coming from KFC. Germany posted positive margin for the quarter and continued showing improvements in the Starbucks business. We continue working in the initiatives to improve the performance of KFC and Pizza Hut, including shared services and supply opportunities.

For Russia, sales for the third quarter increased 28.8%, with a mid-single-digit same-store sales. The EBITDA reached 12.7% margin. In the quarter, 6 new openings. In that market, higher labor costs are impacting as well as energy and rents. Financial regions is -- final region is China, which continues outperforming. In third quarter, sales increased 21.6%. The margin for the quarter reached 13.7%. Five new stores were opening during the quarter, and same-store sales are driving the growth, definitely a market with great potential.

Now with regards to the balance sheet. Net debt at the end of September 2019, excluding the impact of IFRS 16, equal to EUR 598 million, which resulted in a comparable level leverage at 2.9x. The cash provided from operating activities generated in the first 9 months of the year amounted to EUR 231.7 million, with IFRS and the net cash used in investment activities amounted to EUR 157.3 million. Total CapEx, excluding M&A for 2019, is expecting to be in the range of EUR 220 million. For the first 9 months of 2019, the CapEx amounted to EUR 134 million.

Now I'll turn the call for Peter for his remarks.

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Peter Kaineder, AmRest Holdings SE - Chief Strategy Officer [5]

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Okay. Thanks, Eduardo. Good afternoon, everyone. As Mark said before, there are a lot of good things going on in AmRest, and one of those is digitalization. It's a crucial area, and I think an important element of that is the rollout of kiosks across our network, especially in Eastern Europe. For those of you who were not familiar with the term kiosk, kiosks are these self-ordering devices for customers installed inside of stores, which I'm sure you have seen across different QSR brands and formats. And what we experienced is that those kiosks, they're beating humans when it comes to suggestive selling. So the average ticket for kiosk is about 10% to 20% higher. The increased penetration as we roll out more of those, therefore, drives same-store sales and margin and helps us to optimize on labor efficiency, contributing to offset pressure we see in regions.

To give you an update where we stand there, we have rolled out about 300 kiosks in 2018, all of them in KFC and all of them in Poland. In addition, in each of the past 3 quarters in 2019, we have added about another 180 in Poland, Czech and Hungary. And during the last 3 months of this year, we see that number of rollouts rise to over 400 new kiosks, and we have only just started now, actually this week, with BK. In KFC, when counting all means of digital ordering, which includes kiosks but also skip-the-line delivery via app, web or aggregators, digital now accounts for 27% of sales. That compares to less than 5% only beginning of last year here, and we believe we can grow that part of our business significantly higher.

Another piece of good news for our business in our largest market, Poland, is the addition of AmRest Brands to Glovo as of beginning of this week. As you know, Glovo, only recently entered Poland in some of this year and is laser-focused on becoming the leading player. And looking at the track record they've got in the markets they entered, we are confident that they will achieve that goal in the not-too-distant future. Glovo also announced this week that Poland will become their technology hub and part of that, to build a 300-man-strong engineering team. The efforts to gain market share, combined with our close and special relationship, will benefit AmRest and improve our ability to increase incremental growth via delivery in our core markets.

There is significant room to improve by adding a bigger number of transactions to the stores already engaged in delivery but also by offering delivery in units, which are not offering it right now. Please bear in mind that as of now, we only offer delivery in 259 KFCs, BKs and Pizza Hut stores in Poland, which is less than 60% of stores we operate, and we don't offer delivery at all in Starbucks currently. As discussed before, it's very important to understand that this is incremental business. It's customers we would not reach without offering delivery, and ticket sizes are generally bigger in Poland. Delivery accounts for 8% of transactions, but those translate to 14% of sales. So there's plenty of room for growth in that part of the business as we roll out delivery in a bigger share of our stores, too.

Staying with delivery, another piece of good news ahead of us, Mark just mentioned it before, will be the opening of the first shadow kitchen, end of November in [Bratslav]. We will start operating the kitchen with our virtual brands to test those and calibrate the setup and the model of kitchens for future openings. And as Mark also said, we are slightly behind our initial plan in terms of the timing of rollout of shadow kitchen. And the reason is that we prefer to optimize in the stage of planning rather than once they're built and mistakes are more costly to correct. The right mix of equity versus franchise of virtual brands as well as the technical design and location have significant implications on margins and return on investment, and we are spending a lot of time to optimize the setup and process. We initially planned for 6 openings, but we'll rather have rolled out this one in Bratslav in 2019.

So it's the [increment] of about 20 store openings, which we had in the plans, but will not be part of this year's openings. But as you would expect, the per unit sales is quite a bit smaller than for the brick-and-mortar stores. So in terms of top line, it will not be felt much.

Another important point on openings this year. As you can see, openings will again be rather back-end loaded in 2019, similar to last year. And I'd just like to explain quickly why that is. About half of the openings are in KFC and BK this year, and about 60% of those are in heavy assets, which means in drive-throughs. For heavy asset, the permitting process with authorities generally takes significantly longer and is much harder to pinpoint in terms of timing than with light assets and, therefore, openings move towards end of the year again. And it could mean that not many, but a few of them, will slip into beginning of next year. As the asset mix going forward is planned to move towards lighter assets, and our ability to predict timing of permits and, therefore, openings will certainly increase. And the third reason, in terms of openings and the slight shortfall we're going to face this year, it's that we have purposely held back on franchise openings, in anticipation of the 2 heads of franchising joining us end of this year, setting up the framework and the strategy for the franchise rollout.

Before opening for Q&A, an update on our investment in Glovo. I'm very happy (inaudible) funding at a pre-market valuation of more than EUR 1 billion. To remind you, we invested last year about EUR 200 million of valuation, and the latest update we got on this round looks very promising. As you know, the purchase price of Pizzaportal was set at EUR 35 million, including a full payout of the earn-out, with an optionality to be paid in shares and/or cash depending on the outcome of this capital increase at Glovo. And finally, I would also like to say that we are very happy about learning this morning about MSCI's decision to include us in the MSCI Emerging Market Index yesterday night, which is, I think, also great news, and I'd like to share with you at this point.

And with that, I'd like to hand over to the operator for Q&A. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

We've received a first question, if you could briefly introduce yourself.

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João Filipe Pinto, JB Capital Markets, Sociedad de Valores, S.A., Research Division - Associate of Equities Research Portugal [2]

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João Pinto from JB Capital Markets. I have some. First one on expansion, if I understood correctly, you might not reach 300 openings this year. How many openings can we expect? Secondly, following this, are you slowing down the pace of openings in order to reach stable margins for the full year? And if not, could you give us some color on what will drive margins next quarter to compare some of the slight decline on margins? Lastly, on shadow kitchens, sorry if I missed it, but what are the main challenges exactly? Are these more related with financing, locations or with operational parts of the format?

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Mark R. Chandler, AmRest Holdings SE - CEO & Member of Management Board [3]

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This is Mark. In terms of the openings, the number this year is going to be around 260, so we will miss the 300 target. It's not because of margins that we've done it. As we kind of mentioned early in the call, it was actually on our part. We slowed down because -- the first is shadow kitchen project, it is on difficulty finding sites. And so it wasn't about the absolute -- the cost of the site. It was actually more of a mechanical one of finding something that had enough electricity to fuel 5 to 6 kitchens. So it took us a little longer from that, and we have a pipeline now. We're building up for that.

We're also been working on our virtual brands. The virtual brands is an area that we've spent a lot of time on, and we perfected the projects -- the products. So that is really why we wanted to wait to make sure before we open up a lot of shadow kitchens and experiencing the start-up issues, that we wanted to make sure that we were perfecting the model.

So we have a pipeline we've built up for next year. We'll certainly expand further the shadow kitchen part. But it wasn't one reason why we had assumed in the back-end of the year that we would have, as Peter said, equivalent about 20 openings for that. The franchising part was also one that we brought in. I think for those at the Capital Markets Day, you've met 2 people, Thomas and [Akhmed]. And they're very senior people who are been -- who are going to help us drive the growth. We want to make sure that we're also -- we have appropriately the -- which brands we want to push first in terms of franchising. So it is -- it has nothing to do with trying to get a target in terms of margins. It was more us making sure that we are going to maximize the opportunities we have.

In terms of margin, how we're going to make the margin, in that -- it has been actually an improvement in results from a lot of our brands that we bought. We've been going through the integration process, not only the Sushi Shop but also some of the ones we bought in France and Germany. So we're seeing better results in those areas.

We've also had a good performance from our KFC business, which just continues to be the major brand that we have. And also, we'll be seeing the -- we will now have Pizzaportal, that we've been consolidating, in the back end of the year, as we've been operating at a loss. Pizzaportal, that will be -- with the sale to Glovo, that will no longer be in the balance of the year. So all those areas are where we believe -- and we had planned it that way. Actually, our margins will be -- to finally stabilize margins this year so we can have a good platform to move forward because of the last couple of years, the acquisitions have eroded our margins. So our target is still to try to be in line with last year's margins.

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João Filipe Pinto, JB Capital Markets, Sociedad de Valores, S.A., Research Division - Associate of Equities Research Portugal [4]

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Just a quick follow-up. The 260 gross openings, what can we expect for the net number?

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Mark R. Chandler, AmRest Holdings SE - CEO & Member of Management Board [5]

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The net number will be around 220. What we did is, again, we had looked at, when we bought the businesses, especially the Pizza Hut businesses, we have some franchisees that were -- that had been underperforming. And also, not even -- even not complying with royalties and such. So we had that on the radar screen, and so we are cleaning up the portfolio. We're now at that point. We will not have any further closures of franchise. So it was a onetime cleanup that we did to have us go forward and be in a stronger mode going as we head into 2020.

So that is the -- but in terms of next year, we're looking to get back online. Our -- certainly, our equity stores will be slightly higher next year, franchising will be higher as well. So we're -- we'll be more in the 320 to 350 range in terms of next year. So we expect to show growth again and that's -- and we're excited about the -- I'm talking about ROIC, also in all our new builds, has been improving. So it should also help us improve our margins as we go forward.

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Operator [6]

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The next question is from Ms. Hunter, LGM Investments.

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Irina Hunter, LGM Investments Limited - Senior Portfolio Manager [7]

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Can you hear me?

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Mark R. Chandler, AmRest Holdings SE - CEO & Member of Management Board [8]

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Yes.

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Irina Hunter, LGM Investments Limited - Senior Portfolio Manager [9]

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Great. So 2 questions. If you can speak a little bit about the -- your plans to roll kiosks in other parts of Europe, Central Europe, probably? And just maybe a little bit on economics around the kiosks, how much it costs to open them, what can we expect broadly in terms of margins, et cetera. If you can share that. And secondly, for Mark, you can talk about your debt, plans for debt reduction. I mean we have not yet -- the meaningful reduction of debt and I know at your Capital Markets Day, you'd spoken about your determination to bring the debt down. So maybe just a little bit more, putting it in perspective of what we are likely to see that number coming down.

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Mark R. Chandler, AmRest Holdings SE - CEO & Member of Management Board [10]

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Okay. Let me start to address kiosk, and, Peter, you can jump in if you want to, or Eduardo. We have -- we started with Poland with kiosks, and we've seen that we've tested further and with KFC being the brand. We're already in the process. Just actually rolled out our first kiosk for Burger King. So we will -- we have now -- we are in the process this year of covering most of CE with kiosks. We have a plan to continue into early next year. So we've seen, as Peter said, an uplift in the average ticket price but also with the rising labor cost, it's also a great one for us in terms of dealing with the labor pressures that we have.

So in terms of the -- and we've tried to keep the costs down by using the same, I guess, infrastructure for all our brands, with just changing the screen and what you see on there. We're still actually going to go out with a new one that called, I guess, the kiosk 2.0, which will be a little bit more interactive with the consumer, provides more success at selling. Also provides a little bit more, kind of, the time of day, what we're -- whether it's breakfast, lunch or dinner, and provides a little bit more guidance for us. So we expect to actually further uplift in that. In terms of the cost of kiosk, right now it's 200...

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Peter Kaineder, AmRest Holdings SE - Chief Strategy Officer [11]

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200 (inaudible) -- so the cost per unit is like EUR 2,000, rough around about per kiosk.

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Mark R. Chandler, AmRest Holdings SE - CEO & Member of Management Board [12]

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And we're getting leverage through the scale we have by having, again, a common -- the main engine is still the same, so we're getting leverage. We're doing global buying on that today. Hopefully, that addresses your kiosk one. We're excited about it, actually, because it's -- we still have -- it's -- when we bought the business in France, that was really a major driver. And in the stores, you'll see was -- it was kiosks, and it is something that we're going to continue to roll out. And all the new or openings we have will be including kiosks in those. So we're now adding ones to those that we opened up and just getting the higher-performing stores, in particular, we're focusing on. But we will probably put them in all the stores; but the smaller formats, we won't. But it is a growth driver for us going forward, so we're excited about that.

In terms of the debt, the debt is -- we were targeting this year because we had absorbed a couple of areas that we didn't count on. That was the Sushi Shop, where we didn't give them shares, but we actually gave them a cash payout, so that was not in our cash forecast. What will help us in the balance of the year is a couple things as well. I mean, first, our profit is strong still as we go forward. But also, we have the Pizzaportal transaction that we have not had in terms of the cash, but also, it drops out of our trailing 12 months calculation of the debt. So we still -- our target is to get into the mid-2, 2x area. It's going to be -- we still have some areas where we still want to invest in the digital side. We just talked kiosks, but there are some other things. So we're still looking to drive top line, top line growth, but I feel that we're heading in that direction, and we certainly don't want to be any higher than 3x going forward, but we have opportunities to reduce that.

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Eduardo Zamarripa, AmRest Holdings SE - CFO [13]

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On regular operations, we feel comfortable in terms of the EBITDA conversion into cash. So we're comfortable with that. So we are heading towards the correct direction. The thing is, these items that we didn't have in plan, but we are going to recover and the guidance that we gave and the comment that we gave on the Investor Day, we remain committed to reducing the leverage of the company.

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Irina Hunter, LGM Investments Limited - Senior Portfolio Manager [14]

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Right. Just maybe a quick follow-on. So if the new stores will include the kiosks, in what -- roughly in what proportion shall we expect them to be kiosks versus regular stores next year? Or is it too early to say? But just as roughly an idea would be helpful.

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Eduardo Zamarripa, AmRest Holdings SE - CFO [15]

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I think she misunderstands what kiosk is, no?

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Irina Hunter, LGM Investments Limited - Senior Portfolio Manager [16]

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Probably...

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Eduardo Zamarripa, AmRest Holdings SE - CFO [17]

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Kiosk is not an alternative to a store. Kiosk is mounted, it's like an...

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Mark R. Chandler, AmRest Holdings SE - CEO & Member of Management Board [18]

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An airport. Like an airport, where you check in, right?

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Irina Hunter, LGM Investments Limited - Senior Portfolio Manager [19]

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Okay, okay. Okay.

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Eduardo Zamarripa, AmRest Holdings SE - CFO [20]

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A screen within the couple of screens. You'd know it for sure if you walked into a couple of the QSR concepts, right? It's like an iPad -- it has an iPad size, right? And you order, instead of going to the...

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Irina Hunter, LGM Investments Limited - Senior Portfolio Manager [21]

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To the area itself, yes?

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Eduardo Zamarripa, AmRest Holdings SE - CFO [22]

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Exactly. It's just an alternative mode to order. It's not just -- it's not a different format of store.

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Irina Hunter, LGM Investments Limited - Senior Portfolio Manager [23]

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Yes, that clarifies it for me.

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Operator [24]

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There are currently no further questions. (Operator Instructions) And we've received another question. If you briefly introduce yourself.

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Emmanuel de Figueiredo, LBV Asset Management LLP - CIO [25]

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This is Emmanuel de Figueiredo from LBV Asset Management. I just had a clarification on Glovo. Can you remind us how much you have of Glovo? Will you invest in this capital raise? And is Glovo profitable at the moment?

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Mark R. Chandler, AmRest Holdings SE - CEO & Member of Management Board [26]

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Sure. Let me take this one. Emmanuel, so we -- obviously, there has been a couple of activities, which meant that we have been diluted from the initial 10% stake. So we currently own around 7%. That's ahead of, obviously, the upcoming raise. We will not put cash into the next round. The contribution we're going to make is Pizzaportal, because we will most likely get a portion of the EUR 35 million in shares. That's linked to the outcome of the capital raise. And what I mean with it is linked, it means that the valuation of our contribution, which means what's the basis for this contribution and the amount of cash we get, because we have optionality to get cash and returns instead of shares.

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Emmanuel de Figueiredo, LBV Asset Management LLP - CIO [27]

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So would it be reasonable to assume that your stake of 7% is going to remain relatively unchanged?

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Mark R. Chandler, AmRest Holdings SE - CEO & Member of Management Board [28]

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I think that's, again, depending on what their -- the capital needs are of them going forward, I'd say the answer is yes. We're comfortable with the position we have in the company, and at this point, I don't know what Glovo's needs are in the future. But I would say that unless they go through another raise, then we'd have to make a decision. But at this point, we're not planning on another cash contribution from AmRest.

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Emmanuel de Figueiredo, LBV Asset Management LLP - CIO [29]

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Okay. And how much is the raise?

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Mark R. Chandler, AmRest Holdings SE - CEO & Member of Management Board [30]

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Well, look, that's -- I couldn't comment on the size, right? I think the last one was north of EUR 160 million, I think, around EUR 160 million. On this one, I couldn't comment. But so far, it looks good. On profitability in the core market, Spain, they are breakeven. But of course, they just expanded into many markets. And of course, marketing spend and setting up infrastructure, that's going to take a lot of investment, yes? But they're on a very good track.

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Operator [31]

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(Operator Instructions)

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Emmanuel de Figueiredo, LBV Asset Management LLP - CIO [32]

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So maybe one more from my side. I would like to ask if you could give us some color on the EBITDA margin development in Poland concerning the minimum wage growth? You mentioned in the report that the part of the EBITDA deterioration was [concrete]? Or if not, what are the ways in which you want to address it?

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Mark R. Chandler, AmRest Holdings SE - CEO & Member of Management Board [33]

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Well, we're still going through the planning process, so there's a lot of leverage you can choose to deal with. I mean, it certainly is a significant event and something we've dealt with, I mean, this in the last several years. Food inflation is going to be a critical part, because it's, as you've seen and read that -- and first of all, our supply chain company is always done better than CPI, but it's also -- we're seeing pressure on food. So it's not as easy to offset that amount. We've also -- we just talked about kiosks. Kiosk is a great way also to deal with the labor side of it, and we also have the option of selected pricing depending on where we're at in the market. So I really -- we're not, I think, advanced enough to give you where we're at. Our goal is to try to stabilize the margins in Poland. It certainly won't be going up, but we're not looking at this point, but hopefully, to have them decline as well.

But also, a little bit will depend on our product mix and what goes on as well because we have 4 brands. And the 4 brands, we're seeing improved profitability from Starbucks and Burger King, which we didn't have before, and that will help us in terms of the product mix overall. But it isn't the easy thing to do, but we still have -- we still believe that we're going to try to commit to have fairly flat margins on Poland. But the rest of CE, we see some opportunities to go. We've seen Romania, we had a very good start also. We had our first Burger King open in Romania, which has done extremely well. I think it was actually 4x the size of what we expected in terms of the opening, and so there's a couple of other markets, the Balkans, that we have business that we're also seeing improvement in margins. So there's some offsets that go to just pure increases, and so we're still believing that CE is an area that will still hold our margins.

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Operator [34]

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We haven't received any further questions on the telephone, so I'll hand back to the speakers.

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Peter Kaineder, AmRest Holdings SE - Chief Strategy Officer [35]

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Okay. So thank you very much for your interest. Thanks for dialing in today. If any further questions, please don't hesitate to reach out. We also have 2 roadshow in a couple of cities starting next week. So in case you want to meet us, absolutely, please feel free to reach out to us.

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Mark R. Chandler, AmRest Holdings SE - CEO & Member of Management Board [36]

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Also, as I said, I mentioned that we're going to have a Capital Markets Day in Madrid, which will be likely right after we post our full year earnings, so we'll have a little bit more insight into where the companies stand at that point. We could probably give you a little bit more of a color of how we're going to move forward in 2020.

So I want to thank everybody for attending. And again, thank you, everybody, who went to Warsaw. I know people came from New York, London and many countries and had a very good representation from Poland. So I want to thank you. The management team was very excited to meet people in the investment community. So again, as Peter said, we're open to meeting you in the future. We want to be very transparent about where we stand. So I want to thank you all.

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Eduardo Zamarripa, AmRest Holdings SE - CFO [37]

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Thank you.

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Peter Kaineder, AmRest Holdings SE - Chief Strategy Officer [38]

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Thank you very much.

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Emmanuel de Figueiredo, LBV Asset Management LLP - CIO [39]

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Sorry, guys. I've got one more questions in chart concerning the share of the franchisees in -- the franchisees openings for the next year. Could you please quantify or give us some color? How many branches do you wish to attract next year?

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Mark R. Chandler, AmRest Holdings SE - CEO & Member of Management Board [40]

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It's going to be -- we're building up that number. It's going to be roughly in the 15% range for next year, but it will rise as we build the pipeline. So it's good -- it takes time to build a pipeline. But next year, we're looking at probably roughly 15% of our openings to be there. So it's -- and I see that 2021 and above, that number to be a large, much larger number. Thank you.

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Eduardo Zamarripa, AmRest Holdings SE - CFO [41]

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Thank you, everybody.

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Peter Kaineder, AmRest Holdings SE - Chief Strategy Officer [42]

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Thank you, everyone. Bye-bye.

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Operator [43]

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Ladies and gentlemen, thanks for your attendance. This call has been concluded. You may disconnect.