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Edited Transcript of TPZ.MC earnings conference call or presentation 26-Sep-19 2:00pm GMT

Half Year 2019 Telepizza Group SA Earnings Call

MADRID Sep 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Telepizza Group SA earnings conference call or presentation Thursday, September 26, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Antonio Tapia Tardón

Telepizza Group, S.A. - IR Manager

* Javier Van Engelen

Telepizza Group, S.A. - Financial Director

* Pablo Juantegui Azpilicueta

Telepizza Group, S.A. - Chairman & CEO

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Conference Call Participants

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* Brian Barry;Wells Fargo;Senior Investment Analyst

* Helen Alice Rodriguez

CreditSights Ltd. - Senior Analyst of European High Yield Retail and Consumer

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to today's Telepizza conference call. My name is Todd, and I'll be coordinating your call today. (Operator Instructions) I will now hand over to Antonio to begin. Antonio, please go ahead.

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Antonio Tapia Tardón, Telepizza Group, S.A. - IR Manager [2]

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Hello, and good afternoon to everyone. Thank you very much for joining us today. This is our first report to bondholders and we will take you through the details of the performance of Telepizza during the first 6 months of 2019. You can follow the call using the presentation that we have posted on our investors website. After the presentation, there will be a Q&A session where you'll have a chance to submit your questions. I would like to hand over to Pablo Juantegui, our CEO.

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Pablo Juantegui Azpilicueta, Telepizza Group, S.A. - Chairman & CEO [3]

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Thank you, Antonio, and welcome to all of you on the call. Since today is the first time we talk to you under our new ownership of financing structure, I wanted to personally address a couple of words to you before Javier will lead you through the rest of the presentation.

As we speak, we're just over 8 months into our new strategic path of becoming a multibrand vertically integrated operator. The final closing of the Pizza Hut alliance at the end of 2018 marks the start of this new journey, about the journey it has been so far. In summary, it has been a busy, very busy period. Throughout 2018, we highlighted the significant execution risk that the Pizza Hut alliance brought with it. Not because of our change in strategy or because of the need to change our core capabilities, but mainly due to accumulation of a numerous set of smaller actions that needed to happen as we embark on our new strategic journey.

Well, credit to all of our people as they have really risen to the market challenge of integrating the business with similar sight are the ones who we're used to handle. As Javier will detail later in the presentation, not only where we ready as of day 1 to start executing our value creation plan, but at the same time, we did not lose sight of our strong Telepizza business, delivering a strong top line growth across geographies with a strong underlying cash flow generation.

As anticipated that progress is not just translating to EBITDA increase due to necessary early investments into the new Pizza Hut alliance and due to 2 very specific, but temporary, headwinds. A 22% increase minimum salary in Spain and lower-than-expected economic recovery in Chile since the July 2018 macroeconomic slowdown.

As Javier takes you through the details, please keep in mind that the numbers represent only the first 6 months of our far longer strategic journey.

I am personally very encouraged that by the early top line results and by the positive feedback we are receiving from both consumers and franchisees. That is what eventually will drive our success. I am also confident and I have early reassurance that we will overcome the temporary headwinds we faced in the first half and that our early investment into the Pizza Hut alliance will start translating into true value creation over the coming 6 to 12 months.

With this, I leave the word up to Javier Van Engelen, our CFO.

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Javier Van Engelen, Telepizza Group, S.A. - Financial Director [4]

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Thank you, Pablo, and good afternoon to everyone. It's my pleasure to guide you through the latest corporate business and financial update.

So with no further ado, let's dive into the presentation that we've posted on our website and that you should be able to follow on our screen.

As for some of you it might be the first time on our earnings call, I wanted to spend a moment on Slide 3 to recap who we are and what are some of the key facts to keep in mind as we go through the presentation.

First, following the closing of the alliance with Pizza Hut at the end of 2018, Grupo Telepizza is now the largest non-U.S.-based pizza delivery company, measured by number of stores.

More than that, we're the #1 Pizza Hut's master franchisee worldwide. This is relevant for our future, and this will allow us to translate scale, to drive synergies in operations and supply chain.

Second, Grupo Telepizza has a proven track record of becoming the undisputed market leader in its core markets; Spain, Portugal, Chile, but also in other markets in Latin America like Peru, Ecuador and Colombia. This was so far -- this was before the alliance with Pizza Hut and will even more be so following the alliance.

In our 3 core markets where both brands will coexist, we're reinforcing our total market share, and we're widening the gap versus the next competitor. In the other Latin American markets, we will continue to build on a pizza brand that in most cases beats competition on superior brand awareness and also on market share.

Third, the alliance with Pizza Hut marks the strategic shift for Grupo Telepizza, one where we've decided to step away from being a single brand company and to become a multibrand operator within the agreed perimeter. That strategic change has opened up markets with a total population for over 500 million consumers and a strongly growing middle class.

Next, while the alliance with Pizza Hut is an important strategic shift for Grupo Telepizza, it has not taken us away from the proven success model of the past, a diversified business model where healthy profits are generated through own store sales, royalty income from franchisees and the supply of products and services to our franchisees.

As we mentioned at the time of the alliance, we continue doing what we do best, but now we apply this knowledge of our universe that is about double the size versus before the alliance.

And a final point, our vertically integrated supply chain is the differentiating factor versus many of our competitors as it allows us to be a one-stop shop for our franchisees allowing them to focus on what matters most, which is making our consumers happy day after day.

At the bottom of the slide and for your reference, you see this translated into numbers for the first half of 2019. Please do note that the 83% of franchised stores is a significant increase versus before the alliance, as most of the pizza stores have entered our base being franchised stores.

Please also note that our 7 production facilities, 23 logistic centers and 2 innovation centers allow us to be closer to our consumers and to, therefore, better respond to feels or needs. That ends short recap of who we are following the Pizza Hut alliance.

So let's now move to the key highlights of the Jan/June 2019 period on Slide 4.

In summary, and as Pablo said, it's been busy times. Throughout 2018, we highlighted the significant execution risks that the Pizza Hut alliance brought with it, not because of the change in strategy or because of the need to change our core capabilities, but mainly due to the accumulation of the numerous set of smaller actions that needed to happen as we went through the transition

As Pablo already mentioned, credit goes to all Telepizza employees and also to the Pizza Hut team that has been and is supporting us in this transition.

In terms of numbers, over the first half of 2019, the group delivered a sound plus 5% system sales growth, evidencing that our commercial activity is well on the track to deliver incremental market share.

EMEA with a growth of 5.4% outpaced Latin America where we recorded a growth of 4.6%. Spain and Portugal delivered excellent results, while LATAM was still impacted by slow economic recovery in Chile.

Comparable EBITDA stood at EUR 33.3 million slightly down versus first half 2018, but fully explained by the mentioned upfront investments in infrastructure to support the Pizza Hut partnership and impact of both the minimum salary in Spain and the macroeconomic trouble in Chile.

We generated an underlying free cash flow of EUR 21.7 million, reflecting the continued healthy cash generation potential of this business. And in terms of value creation activities, we already opened 90 new stores and converted 54 Telepizza stores to Pizza Hut with sales uplift far exceeding our expectations. Both openings and conversions though will accelerate throughout the second half.

Talking back to value creation plan, slide 6 summarizes the key events of the first half, both at corporate and at operation level. We already mentioned these has been very busy times, and they are only partly reflected by the key operational milestones. The alliance was formally closed at the end of December 2018, yet we opened the first Pizza Hut store in Spain in the immediate aftermath of the deal signing. That enormous effort to get us there -- to get the successful ramp up should not be underestimated.

Our Spanish plant is already producing Pizza Hut on the located products, and we had invested in the necessary improvements in our Ecuador, Colombia and Chile plants, the last one of which has also just started up. We successfully integrated the Ecuador Pizza Hut business after this acquisition in October 2018, and we finally got antitrust approval for the planned acquisition of 45 Pizza Hut stores in Chile.

Our opening plan is on track and will further accelerate throughout the second half and so is our conversion plan where we see conversion uplifts up to 80%, 8 0, by far exceeding what we expected. This evidence is the strength of the Pizza Hut brand name in many of the Latin American countries. It's also been pretty busy at the corporate front. I will spend a detailed steps of what happened in the period, but suffice to know that KKR and their coinvestment partners now hold about 84% of the company, that the company has been refinanced and that we can count on strong support from KKR to aggressively drive our value creation plan forward.

So time to get back to our commercial results on Slide 7. As mentioned during the highlights, the base business is strong. After the year 2018, where we had some distraction from the alliance building. Our first half sales has regained momentum with a total chain sales growth of 5% or increase of EUR 30 million. EMEA delivered an increase of 5.4%, while LATAM ended with a growth of plus 4.6% despite the Chilean trouble. Please note that 2018 these numbers have been rebased to include Pizza Hut to make it more comparable to 2019.

On Slide 8, I will drill down more into the regional and brand performance. Again, please note that the numbers for 2018 have been rebased for including Pizza Hut to make it more comparable.

As we mentioned, EMEA grew a very solid 5.4% in total chain sales, 5.6% at constant currency, but more importantly it recorded an average plus 3.2% like-for-like growth.

Also important, growth was broad-based throughout our new perimeter. Telepizza, Spain recorded a like-for-like of plus 3.5%, importantly with a number of tickets increasing by plus 2.7%, which is one of our most important indicators of gaining new consumers.

Pizza Hut, Spain is still a small operation, in need of turnaround and then an aggressive growth plan that will allow us to maximize market share with 2 differentiated brands. During this first semester, we decided to acquire 30 stores from smaller franchisees, but they were not in good shape and have a negative impact on our overall results. They do serve as a great learning platform for upcoming new openings and conversions. Total growth in Pizza Hut, Spain amounted to plus 2.8%, plus the like-for-like was still negative at minus 4.6%.

Portugal recorded healthy growth on both brands plus 4.3% for Telepizza and plus 6.3% on Pizza Hut.

In EMEA, it's important in the overall, but with a clear sign of potential our Swiss and Irish businesses also performed extremely well, registering growth numbers of respectively plus 25% and plus 10%, both at constant currency. That's EMEA.

LATAM grew by plus 4.6% with positive top line growth across the region, but further held by currency headwinds. The regional numbers were dragged down by Chile's slow recovery from their macroeconomic slowdown in July 2018 with Telepizza recording a minus 4.5% sales decline in the first months -- 6 months of 2019 at constant currency. The good news though is that Telepizza entered into positive like-for-like during the summer, and thanks to our efforts in repositioning the commercial offer, we expect this strength to continue in Half 2 and to be back in solid positive like-for-like territory.

The region -- the regional decline of minus 3.2% on Telepizza reflects -- on Pizza Hut, excuse me, reflects the accelerated efforts to convert Telepizza stores into Pizza Hut in those markets where the Pizza Hut brands enjoyed stronger consumer appeal compared to Telepizza. The 1.2% growth in Pizza Hut is encouraging knowing that we have the opportunity to restore and accelerate growth in a couple of underperforming markets such as Puerto Rico, which was down 10%, also last year. Panama, which was suffering at minus 21% and Costa Rica, which was about flat, but clearly we have turnaround plans for those markets to recover in the second half.

In Ecuador, where we acquired the Pizza Hut franchisee in the second half 2018, we are accelerating conversions from Telepizza into Pizza Hut, strongly encouraged by the first conversions as our sales uplifts are up to 80%. And this is clearly far above what we originally anticipated and also therefore encourages us to accelerate further conversions. Last, in Colombia, we are recording also significant sales uplifts of up to 40% from converting Telepizza and Jeno stores to Pizza Hut, so we see the same dynamic of store uplifts on conversions.

On Slide 9, we summarize the status of openings across our perimeter. In the first half of the year, we opened 90 new stores within our new perimeter. Additionally, we have already converted 34 Telepizza stores to Pizza Hut. Our openings sequence has been slower than historical pace as we needed to get the groups with a more complex Pizza Hut opening approval process, still both the openings and conversions will significantly accelerate in the second half keeping us well ahead of the minimum targets that we have agreed to deal.

As already mentioned on the previous slide, our Pizza Hut openings are showing promising sales in the first couple of months as the conversions now delivering sales uplifts well ahead of the original expectations. As I said, in Ecuador we have seen sales uplifts of up to 80% for the stores.

On Slide 10, a very quick recap of M&A activities with the highlights of this semester being the antitrust approval of the acquisition of the majority 45 of the Pizza Hut stores in Chile. In the meantime, the acquisition has been completed at an 8x multiple of EBITDA, that multiple is expected to further drop to 6.4x multiple once we factor in cost and supply chain synergies, that in the first 2 months of the acquisition we are already seeing are real. We're also continuing our drive to divest operations outside of our Pizza Hut MFA perimeter, mainly Poland and Czech Republic. We're in advance conversations and expect to announce deals before the end of this year.

This brings us to the financial information starting on Slide 12 with an overview of system sales and revenues and the real impact versus 2018 of the Pizza Hut alliance on our chain sales and revenues.

So here we treat 2018 as it is without having rebased it for Pizza Hut. Following the alliance, our total chain sales more than doubled from about EUR 300 million in half 1 2018 to over EUR 600 million in half 1 2019. This is where the opportunity for driving economies of scale becomes a path. Please also note that the growth in chain sales is almost completely derived from franchisee stores. As I explained before, this is due to the fact that with the alliance, we absorbed the fully franchised Pizza Hut business at the exception of Ecuador where we acquired stores early on in the process.

The latter also explains why the evolution in group revenues is very different than the evolution in chain sales. While for own stores, system sales directly translates into revenue. For our franchisee business, the chain sales translates into revenue through royalty income, supply chain sales and other income streams.

In the first 6 months of the Pizza Hut Alliance, the 24% increase in franchisee revenue may reflect the new royalty and marketing income from the Pizza Hut stores.

This also evidences the value creation opportunity to bring the newly integrated Pizza Hut businesses into our vertically integrated supply chain model. Please note that supply chain sales growth and revenue growth will continue to evolve -- sorry, please note that chain sales growth and revenue growth will continue to evolve at different pace until both our supply chain of products and services and the franchisee-owned mix has stabilized. So the difference between system sales and revenues will always have this reconciliating item.

Slide 13 captures the key adjusted EBITDA movements of half 1 2019 versus the first half 2018. Total adjusted EBITDA for the Jan/June 2019 period is down EUR 1.5 million versus same period in 2018 from EUR 34.8 million to EUR 33.3 million. As stated in the presentation earlier, this is the balance of a healthy development in like-for-like openings, conversions and M&A, yet offset by temporary headwinds in Spain and Chile and our upfront investment into the Pizza Hut alliance.

In more detail, like-for-like growth together with store openings and conversions contribute to a positive EUR 1.8 million decrease in EBITDA. We see increased like-for-like momentum in the second half and we will further accelerate openings and conversions in the second half.

The EUR 1.5 million contribution of M&A reflects the purchase and successful integration of the Ecuador Pizza Hut business. In the second half, apart from further benefits from successful conversions in Ecuador, this value creation pillar will further increase with the purchase of the profitable Chilean stores. Even if 0, we have signaled our supply chain synergies as they are expected to start showing a positive contribution also in the second half of the year.

We already talked about the temporary headwinds, the 22% minimum salary increase in Spain combined with the aftermath of the Chilean macroeconomic slowdown impacted our first half results by a negative of EUR 2.4 million. Chile is showing clear signs of recovery in the second half, and we are making structural adjustments to our Spanish business to at least partially offset the current and potentially further minimum wage increases.

Finally, we have invested an upfront EUR 2.4 million into the Pizza Hut infrastructure as we target to maximize the future synergy and the value creation potential. First, we have recruited incremental resources in key value creation areas for handling the business that has doubled its size versus 2018.

Second, in Spain, we are paying so called learning money as we decided to acquire 30 loss-making Pizza Hut stores for early learning and optimization of that future rollout plan. Also in Spain, in order to allow for a smooth coexistence of Telepizza and Pizza Hut, we invested in better aligning supply chain terms between both brands.

And finally, across the entire perimeter, we have temporarily slowed down the sales of own stores to franchisees impacting our year-on-year profits from transfer fees as we are in the process of redesigning trade zones and optimal own store franchisee mix per area.

Slide 14 then shows you the income statement summary. As already discussed, the 14% increase in the revenue reflect the royalty received, the royalty earned, the marketing income increase, received from the new Pizza Hut business. Cost of product increased by 6.5%, which is in line with overall system sales growth showing that there is no significant impact of cost inflation. Operating expenses increased by 25%, but that includes about EUR 16 million of royalty and alliance fee payment to Yum! Brands. So what we have is positive in revenue goes out in operating expenses and excluding those streams after some expenses increased by 5%, which is again in line with the growth of our business.

The adjustments we reported in adjusted EBITDA are explained in attachments in Slide 22. They relate to nonrecurring expenses related to the Pizza Hut alliance and the new corporate structure, #2 items that are of nonoperating nature in the store, the real profitability of the business, and 3 P&L items that are seasonal in nature, and therefore, is both comparability with 2018 in projection to full year 2019.

First half CapEx spending detailed on Slide 15 increased by EUR 5.7 million versus comparable period 2018 in line with our strategic priorities. Higher investments mainly in digital capability in conversions and locations and in-plant capacity for first half of the year. M&A CapEx is small amount, which reflects the acquisition, smaller acquisitions in Colombia and Spain with the objective of gaining early learning into the Pizza Hut's operating system.

Slide 16 shows that our underlying free cash flow remained healthy at EUR 21.7 million, with basically the difference between EBITDA and cash flow, the tax delay in receivables that we have for Yum! in terms of royalty collection and maintenance CapEx.

Slide 17 shows you more granularity on the cash flow with a positive contribution of working capital mainly explained by pending payments of royalties to Yum! in the -- at the end of first half. We have put in plan a liquidity and working plan, a royalty capital action plan to secure healthy cash balance throughout the remainder of the year and to our first bond interest payments on Jan 15th, 2020.

This leads us to the overview of net debt and leverage on Slide 18. As of June 30, 2019, our net debt stands at EUR 266 million, including the associated investments in the acquisition of Pizza Hut in Chile, the net debt increases up to EUR 286 million, which translates into a leverage of 3.9x over last 12 months proforma EBITDA of EUR 73.9 million.

So that takes me to the end of the presentation and I will hand the floor back to Pablo to make some closing remarks

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Pablo Juantegui Azpilicueta, Telepizza Group, S.A. - Chairman & CEO [5]

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Thank you, Javier. As I stated at the beginning, the first 6 months into the Pizza Hut alliance have been active, not only on the business side, but also on the corporate side. On the business side, the difference between the 2019 reality and the 2018 assumptions regarding the Pizza Hut integration has required us to inject onetime investments to regain momentum on the Pizza Hut business. We also faced an impact of both the minimum salary increase in Spain and the macroeconomic slowdown in Chile. On the corporate side, we completed the take private of KKR, the delisting from the stock market and the refinancing of the company's debt. Amidst of all this the organization has risen to the challenge. Sales growth has regained growth momentum. The openings are on track and will further accelerate.

Sales uplift from conversion are exceeding expectations. Underlying cash flow is strong. We have completed or are about to close value-accretive acquisitions. In July and August, we're still recovering Chile and Spain and supply chain synergies will start kicking in before the end of the year.

I know the second half of the year will not be less hectic, but all of the Grupo Telepizza employees remain highly committed to this new journey, to its value creation potential and to ensuring that 2019 will be a strong base for continuing to build a successful future.

Thank you for your attention, and we will now open up for questions.

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Questions and Answers

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Antonio Tapia Tardón, Telepizza Group, S.A. - IR Manager [1]

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(Operator Instructions) So far we have one question via webcast, Alexander Stevenson from (inaudible) is asking what is the like-for-like revenue which you included in the Pizza Hut brand in the first half of 2018?

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Javier Van Engelen, Telepizza Group, S.A. - Financial Director [2]

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So revenues excluding the 2019 inflows will be a bit -- by 3%, if we understand your question correctly.

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Antonio Tapia Tardón, Telepizza Group, S.A. - IR Manager [3]

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So far we have no additional questions via webcast. Now, we'll be opening the lines. If any one of you have any additional questions via conference call.

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Operator [4]

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(Operator Instructions) Our first question today comes from [Sam Brian Giffney] from Neuberger Berman.

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Unidentified Analyst, [5]

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It's actually [Brian Giffney] here. Just a couple of questions. Firstly, on your LTM EBITDA calculation, you are showing EUR 66.7 million. Can you just explain how you get to that because I'm just sort of conscious, last year it was EUR 64 million and you are EUR 1.5 million lower in the first half, just struggling to get the EUR 66.7 million.

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Antonio Tapia Tardón, Telepizza Group, S.A. - IR Manager [6]

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Okay. Your next question?

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Unidentified Analyst, [7]

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Yes. And then the other question is, you have in the past provided us a forecast of EUR 75 million to EUR 80 million EBITDA for this year. Can you just confirm if that forecast is still the same or did that lower?

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Javier Van Engelen, Telepizza Group, S.A. - Financial Director [8]

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Sorry, just the line got muted here. Okay, on your first question, we can answer that afterwards to make the numbers comparable for 2018 and '19. We've made the same adjustments on EBITDA that we made for 2019 comparability which takes our EUR 64 million to EUR 68 million basically in 2018. The buckets are the same as what you basically see in the EBITDA adjustment that we have in the presentational Slide 22, which is adjusting for some comparable nonoperating costs in this year. Then some impacts where we have different phasing throughout the year and then nonrecurring costs that we can later on get back to you with the details on 2018 restatement if that's what you want. On your second question, the original guidance we had was EUR 75 million to EUR 80 million, we expect in this year to be slightly below that guidance. We're still finding some numbers that will probably be somewhere in the EUR 72 million, EUR 75 million range, but that's to be confirmed. And this is again mainly due to those onetime investments in the Pizza Hut alliance to basically make sure that business gets better momentum.

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Operator [9]

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Our next question comes from Helen Rodriguez of CreditSights.

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Helen Alice Rodriguez, CreditSights Ltd. - Senior Analyst of European High Yield Retail and Consumer [10]

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I just wonder if you could just talk through, you said some of the payments you guys to Yum! and Yum! to you guys were in working capital a bit later than expected. If you can just talk us through the cash flows that are going both ways, that would be quite helpful.

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Javier Van Engelen, Telepizza Group, S.A. - Financial Director [11]

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Okay. To -- thank you. To get you through the whole cash flows, it's going to take us probably too long. So let me focus if I may just on the impact it has on the first half. The flow of royalties, as you know, is we pay a 3.5% royalties on total system sales to Yum! brands. Those royalties basically, they are calculated on a monthly basis and basically throughout the year they are paid to Yum! In the first half of the year due to, let's say, the initial calculations, there have been a delay on those payments and that's from both parties. No surprise, because of fine-tuning the payment flows, and we have benefited in that roughly for about EUR 12 million that you see in working capital detail that you see in the cash flow statement, that's roughly a benefit that we have and those payments will be made in the second half of the year.

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Helen Alice Rodriguez, CreditSights Ltd. - Senior Analyst of European High Yield Retail and Consumer [12]

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Okay, great. And then in terms of the 22% in Spain, and you said there may be more coming. Where do see that kind of moving over the next couple of years?

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Javier Van Engelen, Telepizza Group, S.A. - Financial Director [13]

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That's a difficult question. As you know, Spain is currently in a bit of a turmoil in terms of political environment. We've seen a significant decrease of 22% this year. We are preparing ourselves for potential further increases. But at this point in time, there is nothing confirmed, but we think the prudent thing for us is to at least prepare for potential further decreases, which means that we will accelerate either savings opportunities or further streamlining. The other thing that we, of course, always have in mind is the minimum salary increase impact the whole sector. If there will be further salary increases, then it will be pretty obvious that the whole sector will have to look into pricing and smart pricing without giving away the consumer but obviously at some point in time, 20% increase is not manageable within the current profit of the company.

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Antonio Tapia Tardón, Telepizza Group, S.A. - IR Manager [14]

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Okay. Thank you very much. So far we have no additional questions from the conference call, but we have an additional question from the webcast. So [Sandian Yir] from Accenture is asking can you reconcile the EUR 73.9 million last 12 month proforma EBITDA currently versus the EUR 73.7 million marketed at the roadshow of this year.

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Javier Van Engelen, Telepizza Group, S.A. - Financial Director [15]

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Sorry, we were just having discussion because we are not 100% clear where the numbers came from that you are looking into. We will get back to you in a second. We will probably take 1 or 2 other questions if they are there, and we'll get back to you. We're just kind of seeing where the bridge is on the numbers where you get from, apologize.

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Antonio Tapia Tardón, Telepizza Group, S.A. - IR Manager [16]

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So an additional question from again from him from Accenture, about the difference between the EUR 160 million dividend payment, which was announced, versus the actual EUR 130 million that has been actually paid. So he is asking about the difference and if we're going to pay an additional one.

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Javier Van Engelen, Telepizza Group, S.A. - Financial Director [17]

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As we know, the roadshow was made on certain type of assumptions then basically with the final acquisition of first 50% and then the 84% has been a reshuffling of the funds. And we always said that system payment would be in function of the cash needs of the company that [indent] was established at EUR 130.9 million, that dividend being paid but there would not be incremental dividends.

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Antonio Tapia Tardón, Telepizza Group, S.A. - IR Manager [18]

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So we have an additional question via conference call. So please go ahead.

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Operator [19]

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We now have a question from Brian Barry of Wells Fargo.

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Brian Barry;Wells Fargo;Senior Investment Analyst, [20]

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Just regarding the sales uplift that you referenced in Ecuador and Colombia. Can you tell me what -- over what sample size that was experienced.

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Javier Van Engelen, Telepizza Group, S.A. - Financial Director [21]

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Can you just repeat the question because you just faded away, just in the middle of your question. It is for the stores that we acquired in Colombia and Ecuador.

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Brian Barry;Wells Fargo;Senior Investment Analyst, [22]

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No. It's regarding the conversion and the sales uplift? And over what sample size was that sales uplift recorded?

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Javier Van Engelen, Telepizza Group, S.A. - Financial Director [23]

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Yes. So we started converting basically early in the year. If you look at the Colombian business, if I just go back, I think, we talked about 10 to 15 stores and the same would be roughly in Colombia. So for us, it's broader of a sample where we can check consistency in the stores of Ecuador. Across all the stores we see uplift somewhere between 60 and more than 80. So we averaged out to 80. In Colombia, we're also talking about 10 stores, the variability is slightly bigger. Let's say, between 20% and 60%, but again it's consistent across the stores. When we convert Telepizza to Pizza Hut in Colombia, we feel the higher uplift than when we convert Jeno pizza stores, which is a more established brand in Colombia when we convert those to Pizza Hut. But that's -- we believe we got a pretty decent size to have confidence that this is a real market effect that we can count on for the future.

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Brian Barry;Wells Fargo;Senior Investment Analyst, [24]

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Okay. And then just regarding the Pizza Hut franchisees. Obviously, you mentioned, you've outlined the opportunity from the vertically integrated model and has there been much take up from franchisees and -- of Pizza Hut as a supplier.

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Javier Van Engelen, Telepizza Group, S.A. - Financial Director [25]

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Okay, as short term we just started. So to give you perspective we just have in the last week, we have all the master franchises of LATAM over here in Spain to introduce them to our supply chain. So for the first 6 months of this year there has been a call for interest, and we've also started doing some tests. As you can imagine, we first need to get the homologated tests done by Pizza Hut. We have started doing shipping tests that the product indeed can travel from our factories to other countries. We have not yet formally gone into a price quote for our products into master franchisees. What we have done though and that gives us confidence on our capability that we need to do in the stores that we have acquired in Spain and in other countries we have already shifted the Pizza Hut business into our factories. So we know we have the capability. We now actually in the second half of the year to start totally negotiating with the master franchisees in other countries to start introducing our supply chain into their business model.

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Brian Barry;Wells Fargo;Senior Investment Analyst, [26]

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And then I guess my final question would be, obviously, you've acquired master -- rather franchisees in Ecuador and Chile I think. What other countries are you looking at? And should we be thinking about potential cash out for acquisition of master franchisees in H2?

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Javier Van Engelen, Telepizza Group, S.A. - Financial Director [27]

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We can obviously not disclose our detailed plans at the time of the announcement into the alliance, we said there'll be pros and cons. We've completed at least 2 or 3. We already mentioned that from a divestiture point of view, there is going to be as we always plan the pros in the check business. Yes, there is other things on the table, but we will not disclose them at this point in time. At this point in time, we are not talking about deals, which will have a massive impact on our cash flow if they materialize one or the other way.

Okay. Just getting back to the earlier question on the pro forma. In the roadshow presentation, we showed a pro forma EBITDA of 2018, just making sure we told the same day. We showed there a pro forma EBITDA of 2018, in this presentation representing the LTM of 2019 pro forma EBITDA based on the first 6 months. The difference is only temporal. We are using the same criteria, which means that some of the Ecuador numbers are already within the numbers, and therefore there is a minor impact of stating one versus the other one. But if you need more details, let's catch up after the call to make sure that we look at the same numbers and we'll provide you detailed reconciliation.

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Antonio Tapia Tardón, Telepizza Group, S.A. - IR Manager [28]

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Okay. So we have no additional questions on the conference call and no additional questions on the webcast. So with these, we end this presentation. Thank you very much, everybody, for attending today.

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Javier Van Engelen, Telepizza Group, S.A. - Financial Director [29]

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Thank you.

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Pablo Juantegui Azpilicueta, Telepizza Group, S.A. - Chairman & CEO [30]

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Thank you.

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Operator [31]

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Ladies and gentlemen, that does conclude today's call. Thank you for joining. You may now disconnect your lines.