Q1 2020 Earnings Call
Arcos Dorados first quarter 2020 earnings call.
Slide presentation will accompany today's webcast, which will also be available in the investor section of the company's website.
W. W Arcos Dorados dot Com flash.
About the reminder, all participants will be in listen only about.
Will be an opportunity for you to ask questions at the end of today's presentation.
Today's conference call is being recorded.
At this time I would like to turn the call over to Dan Schleiniger, Vice President Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining our earnings call.
With me on todays call, our Marcelo Rabach, our Chief Executive Officer, Marianna Tannenbaum, our Chief Financial Officer. Please.
Please turn to slide two.
Before we proceed I would like to make the following safe Harbor statement.
Today's call will contain forward looking statements I refer you to the forward looking statements section of our earnings release and recent filings with the FCC.
We assume no obligation to update or revise any forward looking statements to reflect newer changed events or circumstances.
In addition to reporting financial results in accordance with generally accepted accounting principles.
We report certain non financial non-GAAP financial results.
Investors are encouraged to review the reconciliation of these non-GAAP financial results as compared with GAAP results, which can be found in the press release and audited financial statements filed today with the FCC.
6K.
Our discussion today excludes the results of the Venezuelan operation both at the consolidated level as well, it's where the Caribbean division due to the country's ongoing macroeconomic volatility.
I referenced we had quite a full income statement, excluding Venezuela with our earnings release.
I'd now like to turn the call over to our CEO Marcelo Rabach.
Thanks, Dan and good morning, everyone.
I hope you on your families are healthy unsafe.
Good day, Muddy I know and I will address the topics on slide three.
Starting with a review.
For the first quarter Twentytwenty.
We'll also provide another update Oh, Cobiz 19, you seemed buck in our business, including recent trends.
And we go through some of our expectations for the most <unk> 19 operating environment.
Before we review our first quarter, we sold a more recent trends.
I want to take a moment to recognize that truly heroic efforts healthcare professionals first responders and other essentially workers across the bill.
We sunk them.
Being done so I agree.
Save lives.
Our communities and ensure that we have access to essentially goods and services.
Why do we fight to contain the spread of the virus.
We extend our deepest competencies <unk>, everyone, who has been personally affected by de situation.
As we navigate <unk> historically challenging period, our primary focus and attention remains directed toward there would have been on safety.
Our restaurant group.
Sub franchisees supply, yes, I'm guessing.
I am thrilled with bright and appreciation for the hard work <unk> articles that other family in Latin America and the Caribbean.
They are these blaine our core values on a daily basis.
I didn't support to their communities we serve.
Including the donation of more than one countries on 20 don't support.
From a restaurant and distribution centers.
Well I can be took 12 cents Oh my goodness.
Of course, B dubs emergency services professionals.
Humanitarian aid organizations.
Turning to our first quarter results on slide four.
The momentum we generated in 29 theme, we know where we need three beat our study she continues into the beginning of the first quarter Twentytwenty.
Year over year systemwide comparable sales grew 10.9% for the first two months well the quarter.
In other words as we mentioned last time.
We entered these crises from well see Chanel domain.
I will start the she is supported by investments in opening new restaurants.
Well there nice in existing locations.
Putting a company menu and much Serbia.
Developing an industry leading be she does doctrine.
I'm, leaving us in the Gulf potential of the Liberty that I'd say is trying to.
Well to 2019, I need to any twentytwenty VC investments drove comparable sales growth went up Bobby inflation.
Market share gains in most of our markets.
Consistent improvements in Britain metrics and import them gains you know operational efficiency.
And we accomplished all of these while significantly reducing our financial leverage what do you know you know were strongest financial position in many years.
When the coping 19 crises began in Latin America governments through throughout the region, we implemented warranty measures.
A Monday did the closure of non essential business. These.
This was the main driver for reduced guest traffic.
Together with a growing number of restaurant closures is significant decline in March sales.
By the end of March we were operating 55% a bar restaurants.
Hi, my really through drive through the Liberty and or take away.
Against the backdrop first quarter systemwide comparable sales, which by definition includes order restaurants, you know where footprint over the last 12 months fell 4.5%, but this was the problem area.
These trends continue in April.
Looking at the evolution of our restaurant operations since the beginning of the crisis on slide five.
The number to operate in restaurants dipped below 50% in the first few days obeyed breed.
Four out of our fight let me be some markets a many smaller got even the bisha markets were completely closed for most of the first half of them up.
But it is still a long road ahead.
But we believe we make up seem divorced you neighboring.
With 64% decline in system wide comparable safe excluding Venezuela.
In Brasil, we were forced to close most of our mall based stores.
A waiver seems more than half or restaurants in the country, our freestanding or street facing we adopted these locations to operate through but I'd through the liberty or take away with systemwide comparable sales in Brasil, finishing down 54% in April.
Importantly, we saw bet there says trends during the second coupled demos.
Some of our other markets were able to partially resume operations.
Notably I can theater.
Chile, Ecuador on some of the Caribbean markets.
And so far in May we are seeing good what improvements in sales trends.
I stopped today, thanks to the largest freestanding restaurant footprint in our industry about 74% bar restaurants are operational.
I've seen is now operating 70% will be to restaurants.
No not 83%.
Does that 69% on the Caribbean operating 82% or beats restaurant, excluding Venezuela.
Throughout disgrace East we have gained invaluable insight from across the Mcdonald system.
We used which helped us to the bid up it three phase recovery plan.
This will not only guide us through the currency situation, but you social preparing us for the Pandemics impact on consumer behaviors and preferences in the long term.
I turn the call overall somebody I don't know what afford the review of our operating and financial results.
Thanks, Mark said, though.
Take a look at some of the details of our sales performance on slide six.
Especially dimension, we began the year with very strong states Lynch.
I think we sold almost 11% increase somewhat comparable sales.
Included growth above inflation.
He will sell afford emissions.
We just spread off the call. Good 19 virus in March guest traffic soft and and we began closely restaurants around him he left a month.
March declines in systemwide comparable sales, what most pronounced in SLAD Caribbean.
You had the highest level since restaurant closures and strict <unk> government quarantine guide lunch.
What your revenue constructed by just 1% <unk> constant currency somewhere south of the copied 19th and Ben.
But.
Due to the meaningful depreciation if many currencies syndicate in America.
<unk> revenue was down 15.4% U.S. dollar terms.
The combination of widespread and prolonged restaurant closures with strict warranty orders in many countries cost April stakes performance to be much you really worse than March.
Fortunately most of it already mentioned government restrictions on restaurant operations quarantine guidelines began to loosen into Nicolas April.
We saw safety performance improved during the second half of April that's when that's recently made one restrictions were further reduced.
We're cautiously optimistic that we have seen the bought them off the crises and what will now begin to gradually would be revenue trends could you ended the year I need to already 2021.
Turning to slide seven.
Consumers have recognized our high stock that's true for cleanliness and hygiene.
Some government or even you've seen our standards. That's a benchmark for me the Street you follow you independently.
I would guess have food a premium on body convenience and importantly comfortably are starting to teach for ordering and buying food.
Well, we're leveraging our nearly 11 weeks freestanding units.
I guess number of stripes and you know region.
That were unmatched did you do platform, including our more lineup that has now been downloaded by more than 39 million people.
She didn't Joyce.
Industry's highest level effect of users and customer ratings.
He has led to pump sales growth of 20% to 40% can drive city and more than 100% unbelievably across our markets.
Our check has increased substantially due to an increasing 40 sites.
So you have become more balanced between weekdays and weekends.
With our historical average of about two thirds of stage company on Friday Saturday and Sunday.
I know walk you through our cost and expenses during the first quarter once night eight.
We were able to leverage strong sales performance to generate an 11.3% increase even adjusted EBITDA.
Building 100 basis points of margin expansion in the first two months failure.
So we're sort of the sharp decline in saying she March particularly in the second half of the month adjusted EBITDA finished down 51.4% for the first quarter, an hour EBITDA margin contracted 360 basis points.
Most of the margin decline what do you lost leverage on our restaurant level payroll and occupancy expenses you meet your forward divisions.
We brought the cost reduction and expense management actions, we implemented in response to the crises begun taking effect towards the end of March.
Do you expect to benefit from the funding, but the small stuff can you should games.
During the second quarter.
How do you end up the first quarter, we reached an agreement with the remaining for some front facing Puerto Rico.
You know to the agreement reached with the markets other for sub franchisees.
The fourth quarter of 2018.
We're very pleased that fourth the legal which generates U.S. dollar cash flows and was enjoying a recovery prior to the current crises.
We'll now be a 100% company operated market.
I would told the Gionee expenses decreased 6.7% year over year end U.S. daughters.
On a constant currency basis.
<unk> expenses rose, 11.7%, which will be no the blended inflation rate of our total Ginny.
However.
Due to the shelf declining sales idea in the quarter Gosh Gionee expenses were up 50 basis points, that's a percentage of revenues.
Capital expenditures in the quarter totaled $41.2 billion, primarily related to opening seven new restaurant Reimaging 21 of our thinking best friends and opening 33 research centers before the exception of copied 19th endemic in Latin America.
But to your mum said, though.
Thanks somebody I know I say said earlier, our government blank on C a bit but he faces on slide nine.
Crises management, which we are currently focused on the safety of or beeping I'm customers.
And can seem I wouldn't hygiene and blending its procedures, while emphasizing the competitive it's trends of our operation.
Dicing, our financial liquidity.
The next phase will be recovery.
We will see the reopening of the majority do over restaurants, including the dining rooms.
We expect to find it changed consumer.
Competitive landscape focused on safety standards body, you on trusted brands.
Finally, we expect to transition to afford anybody about where consumers are local economies begins to recover financially on psychologically.
I didn't know mention we are planning for the likelihood that some of the trends we have seen today. We continue went after the koby 19 outbreak cost being brought under control.
Well before Sobi Ceris on segment is likely to take a long time to recover from these crises. The QSR segment should recover more quickly.
At Mcdonalds, Brian and our restaurant and food bring cuts many unique attributes in Latin America that will further support our favorable competitive position in the future as you'll see on slide 10.
To begin with we launched a comprehensive program called Mcbride, the quito's, where Mike safe across every one of our markets.
What are these program, we are providing it's safe environment for our employees on gift to enjoy by enhancing our industry standard quality service I'm cleanliness processes.
It was important this program our supply chain deem it cuts procure millions of face masks and tens of thousands so bleed through this upcoming Sunny day, so so far.
In addition to receiving appropriate beebe our teams are absorbing recommended social these dosing guidelines.
He dicing surface, he's more frequently and serving our dry through customers from behind newly installed protect the barriers.
In addition to convene a greater focus on hygiene consumers, we'd be seeking greater convenience when the situation normalizes.
The growth of the drive thru and anybody safe China's kuzmina consistent theme across the global Mcdonald's to seize them.
We expect this trend to continue.
Our footprint is I'm much you, let you know maybe come the Caribbean 40 to ability to capture future growth.
Through our omni channel approach.
We have by far the highest number or freestanding restaurants, but it was our nearest competitor I suppose the region, especially you know what the latter shouldn't lots just markets, Brazil, Mexico and Argentina.
We are also far more advanced you know were penetration and operational expertise when it comes to de lever.
We also did anybody Serbia across more than 15 countries restaurants in 11 countries.
Working closely with we all hope they may show aggregate those you know where main markets for years.
Well go read we expect consumers to favor is strong body proposition as we work door for Dream Bible.
We will address these needs through our robust value platform.
Being around our favorite menu items.
Well I mean from Charlie D to the industry Best Mobotap.
That's an example, we've recently the I believe you toward that anybody throw are up.
A couple seen 3.5 million customers access these function in shot the last four weeks.
This has helped us gain market share among active clients, which recently rose to nearly three times I wouldn't nearest competitor.
And while we support existing say soundness umbrella blind. We're also developing a number of other initiatives for the coming weeks or months.
We operate their favorite QSR brand in Latin America in the Caribbean. Thanks in large part to the success of our could do they said we show approach to service.
We are also the response favorably QSR button for families.
We have developed in number of product offerings for people to sure.
While strengthening their family bonds and absorbing it stay at home orders.
We believe that consumers will we got those companies not covered truck rig or make any basi TV impact on the communities they serve.
This is another one of our core values I say company, which we have outlined a spot devoted to sit on food or resi be able to future.
Our long term goals for using our scale for good will only expand after the situation for us bust.
I mean, the short term the article so those family is supporting our local communities you never bought out yet your voice.
In addition to the pool donations I mentioned earlier I am, particularly broke their work about where Hamburger University Tim Brasil.
I would deem of corporate trainers and educators have created a course to share some of our best practices around food safety Oncogene, We did brother restaurant industry.
Almost one thousands more restaurant known as <unk> joint these free on like glass so far.
Marty I know, we'll now take you through some of the specifics related to our cost our liquidity management muddy I know, but do you.
Thanks, again, let's say, though.
As I mentioned earlier, that's 40 Bucks to following you should get us to reduce cost and expense. He's shown on slide 11, we'd be realized beginning in the second quarter.
Working together with our mostly local suppliers, we have made a 30% reduction to our menu offerings in order to simplify operations streamline our supply chain improved customer satisfaction and protect margins.
And we have a rolling hedge program to mitigate the impact of FX variation.
Lumping all good portion of our food and paper, leaving us well protected NBC highly variable component of our cost structure.
In terms of restaurant, they will we ever you'll see multiple dose to reduce costs, including hiring freeze.
The non wouldn't you want of short term contract.
The reallocation of employees from closed restaurants to operating locations.
We're also working closely with local state and federal governments to recede and participate in support programs for our employees.
Beginning in April many of these programs also.
Our cash like.
One of the largest components of our occupancy expenses relates to our nearly 1800 rental contracts.
To date, we have reached agreements we've been majority of our property owners, including some rent payment for roads.
Let us a shift to 40 variable rent based on stage.
Another important component of our occupancy expenses, you, so we're tightening and promotion spending.
Connection with the Bobby linking outbreak Mcdonald's has given us the flexibility to reduce the advertising and promotion spending requirement down to 4% from 5% for girls saves for 2020.
In addition.
Mcdonald's has agreed to defer all royalty payment related to safety March April May and June 2020 on June 2021.
These deferrals as an important cash flow benefit this year.
Oh Gee any has been trending consistently downward some percentage of our sage for many years.
So we are already operating with a relatively lean cost structure.
With that said, we have implemented a number of cost saving measures, including.
The reduction of certain employee benefits.
The implementation of stuff level of hiring freeze.
The suspension of all traveling group events and the renegotiation already nation of professional service fees.
In order to support our stuff.
Following the principle that we're all 14 piece together.
The members of our executive leadership team.
Momentarily deferred 50% of our base salaries.
The deferral piece for the period from eight been first to June Thirtyth 2020 subject to extension if the situation warrants.
Additionally, all country level managing directors incorporate directors have would be for 25% of their base salaries for the same period, an under the same conditions.
Turning now to our balance sheet once night twice.
Our daily Borate approach to debt reduction seems flunky 15.
Lowered our net debt to adjusted EBITDA leverage ratio to 1.6 times that's off the end of December 2019.
In addition to starting 2020 with no material debt maturities before 2023.
We also had 50 median innovative uncommitted lines of credit.
Corporate level.
Well, that's multiple lines of credit available in our local markets.
As of March 31st 2020, we had $142.1 million in cash and equivalents.
Our leverage ratio, which is measured based on trailing 12 month EBITDA.
Rose to 1.9 times due to the decline in first quarter EBITDA.
The increase in short term debt.
I saw the end of the quarter.
You are in full compliance with all covenants for our certain lines of credit.
Our public bonds as well that's those contained in our master franchise agreement with Mcdonalds.
However.
We believe our second quarter, we'd be that we'd be but you get you worse than our first quarter. So.
We're likely to breach our debt covenants.
We are holding discussions with our lenders I just want us with mcdonalds.
King waivers for these covenants.
Importantly, our 2023 bombed noninvestment grade instrument with no debt covenant and the covenant on our 2027 bond allows for significant financial flexibility without being an event of default.
Based on our current outlook, we're confident that we have sufficient available sources of funding to cover our needs and feed our cash flow recovers.
Instead duration in scope of the outbreak remains difficult to predict we Steve can up reasonably estimate the neglecting financially, but 12 or subs.
That is why.
We will drew our long term guidance and also agreed with mcdonalds.
Well, we drill our 2020 to 2022 restaurants opening plan and reinvestment plan.
We do not expect to finalize our revised Glenn until after the coffee 19 outbreak I've been brought under control.
In conjunction with the withdrawal of the can we do not expect to see girls support from Mcdonald's at least until we developed a revised plan for the period.
However, I.
I think mentioned earlier Mcdonald's has provided relief on royalty payment and our advertising and promotional spending requirements.
With respect to Capex, we have stopped all capital investments with the exception of those we like to.
We're serving food safety evidently safety restaurants that are still operating and I'd investments to support the connectivity of our stuff and to continue developing the safe channels and digital capabilities that we meet changing customer spread frenzy.
We began 2020, we then accident rate did calendar of restaurant openings and Reimaging project.
For which we invested.
$41.2 million that I mentioned earlier.
With that limitations, we have now implemented for the full year 2020, we currently expect total capex to be no more than $18 million.
As you can see.
But do you put in place strict controls to decrease our operating expenses.
Reduce our G. a name.
Extend or deferred payment and minimize our capital expenditures.
Let me reiterate that we are confident these measures, which allows us to more than cover our cash needs with our available sources of funding.
Do you know where cash flows recover.
Let's say, though.
Thanks, Muddy I know.
Before we open the call for questions I want to recover the current situation on slide 13.
As we've been saying since our last earnings call. We entered the grown up items crises from unquestionably strong position I.
And our by far the baseball season company in our industry do effectively respond to the risks associated with these pandemic.
Also serving the needs of our guest.
Well, we're only chinanet approach to offering delivery drive through an take away when a wide spread basis.
We are leveraging the decades of industry experience of each member of our management team to.
The guy that through the crisis management recovery I'm 40 Bible faces of our plan.
They brought these steps we have taken to manage our golf on cash flows are designed to ensure that our available sources of funding both current and future we'd be more than sufficient to cover our gosh needs.
The are closely at other system, that's the recent a challenge.
We will not lose sight of the future potential over where it may seem Brian.
While we continue to support you know where people customers sub franchisees and the communities we serve.
We appreciate the airports on support well all our partners on suppliers as we work together to overcome these historic crises.
On the largest independent French I see in the Mcdonalds system, we have and we continue to leverage the benefits of being part of the warts biggest I'm Beth quick service restaurant Brian.
I have no doubt that we will emerge from the Gobi 19 pandemic.
Ready to serve our customers the great food they love.
In the safe environment, they come to expect.
I'm, even more innovative and relevant ways.
Our short term plans on strike the she are clearly evolving.
That is still a lot of work to be done.
But the long term competitive fundamentals of our business will only get stronger.
Now we're brands potential for creating shareholder value remains the most attractive in the entire Latin American and Caribbean QSR industry.
Operator, please open the gold two questions.
Yeah. Thanks, Yeah.
We will now become the question answer session.
Good question, you make Chris Dodd one on your Touchtone phone.
If you're using a speakerphone please pick up your handset before pressing the key.
So let's try your question Please press star Q.
In order to allow all listeners to participate please limit yourself to one question and one follow up question.
At this time, we'll pause momentarily to assemble a roster.
My first question comes from Robert Ford with Bank of America. Please go ahead.
Hey, Thank you a good to everybody and.
Yeah, right Breeze, well I'm not going exceed this one question limitation, but oh.
Hopefully you don't know onto its called that although quickly.
I was curious what was the last time you had your physical assets values [noise] <unk>.
What was what was the valuation at that time and then you know you you mentioned that maybe had been or you may have seen the worst in April I was curious with cash burn was for the month of April.
You mentioned on the very aggressive mitigation crude occupancy cost efforts and I was curious if those were putting in place for April.
And then my Yeah I was wondering if you could give us a more detailed update on your foreign exchange solutions and then lastly, Marcellus you mentioned that depend a lot longer term once isn't impacts on consumer preferences and I was curious what your opinion up those might be at this time. Thank you.
Okay. Good morning, both on things for your questions, we would try to cover as much as possible.
Lit.
Beginning with the first one which is related with the value of our assets I think money on oak uncovered that one.
Yes, Hi, Bob how are you.
Yes, the left comprehensive appraised other power or real estate properties was done in two.
2009, and the value at that time was above 900 million dollar spend 100 on 40 million million dollars Oh of course or you are aware that in 2016, we need the redevelopment, where we valued some of that properties, we didn't do at that time.
I comprehensive I pray said afford our real estate. It was only done for those properties that are we sold but the last one in fact for the whole company was done in 2009.
Okay I think the that covers the first part of it but the question.
In terms, so up based on occupancy another be on every cost line.
I is an important thing goes I think is.
The whole team couple of worth a hard to convert the body able as much of our fixed cost structure as possible. So we have also work to minimise doesn't mining fix goes in absolute terms, Oh, well I've seen DHMSM short term it gushing bugs. So there was a lot, though a work in <unk>.
Friend beyond their lines, maybe or might you know can cover some of that I will cover the other ones, but I think that you will have.
Some color around.
As he goes barrel another beyond that aligns well, we do a but do you could only if the bugs coming from all these work will be more visible in a boot since we began to work in these beauty March but most of these lines were planned for the month, we therefore operation that we we didn't have.
In the second part of the months of March So I didn't know why don't you go through the dipping their lines on Gionee and then I cover.
A couple more yeah.
Yes perfect.
Yes, we did not have worked in every single line well our income statement starting the most important wanting in food and paper, we extended and deferred payments to our mostly local suppliers we negotiated with.
All of them are we reduced our menu offerings by 30% also to simplify operations streamline our supply chain and improve customer centric satisfaction, while protecting margins.
We have as you know are running hedge program to mitigate the impact of FX and that's part of the of the answer links with the second or third question you asked about effects, but our hedging program in place and in fact, we hedged or on our imported.
Costs from the food and paper line or rate for almost a full 2020 at very attractive rates.
In terms of favorably would use the second line in importance.
Well, we launched various programs such as my Pirquitas first of all to make sure our people in customer so safe.
We implemented several cost reduction initiatives.
Such as I already mentioned some of them during my remarks, but we implemented a hiring freeze nonrenewal of short term contract relocating employees from coast to open restaurants, and we're working with local state and federal governments to participate in as many employees support programs as possible.
And this has already started helping our cash flow.
In terms of rent, which is another important or part of our cost we have reached agreements with the majority of our 1800 landlords.
And I.
Especially in a mentioned at the beginning we shifted to 40 viable rent.
Based on sale the majority of our contracts. So we don't have.
At this time, almost any fixed cost related to right, we're only paying rent on the opening restaurants.
We also deferred some rent payments and we are it's important to two to <unk> to remember that we own almost 500 of our location. So those are we don't they are rent I told.
Finally in in terms of DNA.
He an expensive.
Have been trending down as a percentage of sales for many years already and today, we have the lowest DNA since 2008.
We already operating with a lean cost structure, but some of the measures that we have taken in the recent weeks or east to a is that reduction of certain employee benefits staff level hiring freezes well of course, the suspension or for travel within the company a reduction of professional service fees.
We have been working with all that wordstar providers to reduce or deferred or the majority of those payments I already mentioned during their remarks, our executive leadership team have wondering tardy before 50% of their base salaries.
For a three month period and that we'd be a extended if needed as well that country lever managing director said incorporate directors that big at the same at a different rate with these measures, we expect that 20% DNA reduction in 2020 versus 2000 and like.
<unk> 19.
And we remain preferred to make difficult decisions to manage the situation. So my fellow.
Yeah, I would like to Bob about all the discussions on older conversations with mcdonalds. They have been very supportive. So they gave us the opportunity due to deferred the royalty baby payments related to the say So March April may and June on those.
Those payments were deferred until 2021 and at the same time given the situation, we agreed with Mcdonald's to have the flexibility to reduce the advertising and promotion spending requirement.
By the I'm afraid, we should invest 5% of our girls size. It's on every single year on him Twentytwenty, We agreed with Mcdonald's to reduce these requirement to four person. So those are many of their actions that diminishment, Duke in order to review.
<unk>, our gos in different areas of the business I know the same time I don't know mentioned during the call that a week God.
Significantly I worked topics expenditures.
Do not impact our costs in the short term, but it protect our liquidity and maybe muddy I know gone up some more color in terms of our liquidity situation on some additional measures that we do in order to cover I think that the last part of Bob's question. So.
[music].
Yeah.
Thanks, I say, though.
Yes in terms of liquidity, we started the year in a very good shape with a strong cash position. In addition to having $50 million committed credit lines, we have a which is not caught one for Latin American company. We have also I'm committed credit lines outstanding that allow us to.
Fund our operations, while we are not receiving all the inflows from from our our say it's important to to remark that during the first quarter and the first week of April we met on our pre coffee obligations. So what we expect the second quarter to be much.
Really worse than the first quarter in terms of free SaaS. We also believe that eight Britain, what's the worst month in terms of safe ER and cash flows are inflows.
So towards the end of April and that's important the last three weeks.
We stabilize our cash flows and we expect the situation to begin improving that's will resume operations and not safe segments to our restaurant. So maury inflows and ER, we are fully in charge of our outflows as we already or explain.
So let me conclude.
You know these long answer by saying that we're really confident that we would have access to the funding sources and cash generation to more than need our obligations moving forward. So I think that's the end of the Oh off the question.
Okay. Finally, Bob I think that you ask about Oh, where or what expectations are above the the new normality. After they go read a pandemic crises.
In the short term I think that we have Prebuilding formation, we made a lot of research.
ER on based on that we have our recovery plan in place, which beat US the first beeler because he is the main driver nowadays it at the moment of beside it to cover meal out of home. The main driver for people East you safety is be sure the the place where they are going.
I mean do all the mesh us all the audit procedures, where reinforce older brother goes to do will be a safer place. So people assurance is how we're best or if we're in terms so.
As a growing says in the short term and on top of that we've got the D. A very important business segments for us it saves China's which are key in them. So a growing says seemed to short term and we're very well position in almost all of those reach our drive through delivery and take away. So.
So yeah, we know that consumer habits, we change, especially in these early days after that they've been them Egan when the markets wanting things Feeney Asian people go to gain a there the buttons or consumption on the way they deal we.
They are the they do they business is different so safety on trust will be eastern will be a key driver in consumer decisions.
Do you go nobody can find much any impact on consumer finance He's will boot, we think a premium value on on May also drive some trading down from casual dining plus gosh, what alternatives or or full service restaurants.
Convenience on Expedience will also influence customers decision so.
Are the same timing things in terms of the competitive landscape. We expect some competitor consolidation, we think that some smaller.
Changed or indeed be celebrate doors guns make it the other side of this crisis on.
We will continue to do we also aggressive as possible in order to do either best option in the market. So.
We are convinced that we will emerge at least crises in a position accompanied him a strength, mainly due to our largest freestanding Richard I'm footprint.
Oh were great job are on the Liberty.
Did you would've been integration he's he's very high you know where gaze more than 1500 restaurants in the recent Oh for these these business segment.
But I'm Mcdonald's Oh, usually the brown <unk> Mcdonalds is recognized around the world. It by each has done thus in denim, so hygiene and food safety and we are being even more focus on that then they need to bust our favorite menu items on on all these are supported by our.
Industry, leading DC dug up I really these we mentioned during the goal that we are almost had the 40 million.
Yeah, Mark in terms of downloads, we are by far the Brian We did a biggest amount of all active users and we are using the China in order to be a very close to our customers in the region. So that's what we have.
We do not come all the answers yet, but so far we have these priorities to work going on I think that we are extremely well position to deal with these new normality going forward. So long answer, but I think that you introduced more than one question, but it was it was okay.
Thank you Bob.
Our next question comes from Gary Barnes with P.G. Please go ahead.
Gentlemen, thank you very much the presentation I think most of my questions that I see been covered I suffer the slide I T issue well.
Some of the previous questions were being a hobby and since I know saw seen that the findings from the first quarter I've just been released so I think you might to that she got covered this but just like to know something about the short term financing that you drew on during the first quarter. This about.
Close to 100 million, but you too.
Across several of the operating regions.
No what is the 10 out of these facilities of these things that are easily rolled over maybe on the she has on conditions and the fact that youve got to approximately 214 million.
Cash available for any repayment. So I just want to know how actions that short term debt is.
Okay. It was wondering on thank you Gary I will let muddy I know due to go over your.
Your question.
Perfect.
Yes, I to you as you can see at the end of March we grew $136 million thing in short term debt.
That was our initial or strategy when restaurants began closing and Florentine starting in the majority of our markets. We are we have a very good relationship with most of bonds in the region and we were.
[noise] able to access not only that of course, the committed credit lines. We have 50 million dosing committed credit lines 25 million with bank of America 75 million with JP Morgan, but until that double that we have several known committed credit lines, we a different banks in the regions. So what.
We did he or would we need east to a rule whatever we thought we need to cover the periods. When the restaurants were going to be close and that's how we arrived to the $136 million and if you see our cash by then the majority of that cash E.
In our back it out.
The good news sees that as I mentioned in the in the previous a question.
That we have not stopping nice our oh, gosh, ER outflow and our net position in the last three weeks have become a stable. They tenure of these that depends because as you can see in our financial statements in the in the notes in the note.
Number four or you have a lot of detail of the bags and interest rate first it's important to note that the majority of these that you've seen local currency. So we don't have FX exposure on that.
Secondly, even though the tenure of these that usually it's around three month, we didn't have any a problem in continue are accessing a banking credit and on top of that we are encouraged in constant conversations and discussions with.
And we did not receive any request from any all the bags to start.
To start or you know returning those those funds. So we are I am extremely confident that we would be able to rollover. These that of course. The idea is at some point try to find a as we always do.
Long.
You know long term strategy to to be so we are also analyzing different than certainly I started peaks that we have you seen a copy that market at this guy. This is no of course, the best time to go to the topic that market. They couldn't you'll see if you follow our our bonds that were dead or the 2023.
Already trading above par the 27 ease a bit below 96, a 30, that's the last quote we have so the bulk bonds are trading you know really really well and.
And we're confident that that after these crises Oh, you know passes we wouldn't be able to refinance.
Debt as we usually do we that long term instrument.
Again, if you'd like to ask a question. Please press Star then one.
Our next question comes from and live today with JP Morgan. Please go ahead.
Well, one myself I am I dunno. Thanks for the presentation. So if I may have two questions or during the presentation. You mentioned that in late April in early May sales trends are improving I like to to see if you can provide a sense on how much sales for all this first Ah two weeks off of me.
Have improved on a month over month and also if you can provide a ton of how much sales are being through each channel. So how much a dry food delivery and take away represents a of their your sales currently thank you.
Okay wouldn't want anyone on things for joining the call.
Let me.
Give you some color or about a pretty for example.
US as we mentioned during the call and I think that we show it very comprehensive chart.
The most difficult situation will seem there for two weeks of them on obey Brazil, where we have less than half war restaurants operating.
So there are differences over around 20 percentage points in terms of gum sales between the first part of the first half of April undertaken classical vapor.
Well do we are seeing nowadays is the I. Soon us we are a allowed to operate to operate in the different markets and this is true in the whole company or the people who is willing to be she does is willing to reach us. So well. This company is a sub today we have.
Almost three quarters of the of the restaurants operating more most of the restaurant that are not.
You know operations are ours will be most because those how close but even those that are open world. We ought to see needs that every single day. We are it we are putting more and more China's it on operation for example, if this week we have the the the opportunity to begun to operate.
Im going to say to see the drive-thrus that where we didn't allows to do that in the bus we were only abrading anybody. So it's not only the amount of restaurants that we can operate but it's the amount of China's week on Oprah So for the second part do we choose the the distribution.
Between China as of the say is obviously the the main.
Okay. So they took China's in these last three or four weeks. He's the right through we are very well positioned drive through that I've always with growing around.
30% to 40% in Gump in comparable sales against last year. So for example, if you dig the Brazilian market and you look at the freestanding units around 70% of the sales we are getting in those units in freestanding units in Brazil are coming from a drive through.
Around 70% another 20, 25% is coming from delivery.
We are.
Growing ecom Saes I'll do the Liberty segment above 200% and that's the case for Brasil too on the balance it to that if they get away. So the best news for US is that we are very strong in drive through we are very strong in the library on since we are able to all.
Operator, so she is we had the opportunity given by their governments to operate the different restaurants, I would assays are recuperate recuperating a very fast.
Our next question comes from Jeronimo de Guzman wet.
Hi, and see a investments. Please go ahead.
Hi, Good morning, I had to do you just scattered follow up questions. The first one is you mentioned that there are some covenants on the bonds.
Oh, the 2020 and I just wanted to see if you could just give me a little bit more detail what could be those covenants and what could be the limits that that could be imposed as you negotiate or with them and but the shorter term predators. The altered as the second follow up question was in but then fine. Thanks for the detail on the Capex for this year.
Just wanted a little bit more on.
Is there any kind of minimum expectation from mcdonalds or in the investment plan over the next three years.
And then.
The two more questions sorry, one is on the franchisee health if you could kind of comment on the sub franchisees and how they're doing and finally in terms of the supply chain are you seeing any issues with that product availability.
Okay, well do wondering could only more oh, we covered a couple of your questions and then I will listen I didn't know to talk about the covenant into bone.
Let me it's started with the topics a part or we are in constant conversations and discussions with mcdonalds. They are are they have been very supportive with us in during all these these times on this process.
And we will you got some discussions around okay whats the big correct amount of GAAP Opex for the next couple of years Im talking about this cycle Twentytwenty two twentytwenty too I think that we we felt those discussions once the this situation on a go bucks a normal.
We are thinking about the the third quarter report that a b C or to cut those kind of all of conversations obviously, we would have to forecast or assays on margins on cash flows and based on that.
I agree with Mcdonough thing, what kind of got picks or should be the right amount on an obviously, we are completely nine and I think that the relationship between the two companies. It's you know really good shape. So in terms of Capex I would say that that's more or less would we having you know where minds.
As of today in terms of sub franchisees.
This situation varies from market to market obviously.
We are giving them the same guy or we are replacing them. The same kind of all support that we're getting from mcdonalds. So in terms of the the royalty payments related with sales for March April May and June those were delayed for them and deal <unk> 2021.
On on double that we are giving us into some of them. Some addition, I was killed in them or Brent, but we are machine de support when it comes through like by country basis on a case by case basis because the these the situation is very difficult, it's very difficult to two hub.
One freed sites is a one size fits all approach because there are markets. We try to it completely closed or were completed close for several weeks. There are other the continued to operate so we are dealing with this situation on a case by case basis, but we are helping then too.
Two.
Due to be as well as possible.
It's too.
This challenge in India.
In these days on Oh, we do not expect it to revise as I mentioned before.
Our Capex plan until they go read crises under control. So when I told you that it we were thinking about quarter three or four of these here it will depend on the evolution of the pandemic. So in terms of sub franchisees on topics those would be the onset of supply chain.
ER Fortunately most of our.
So I guess, how locally so we do know because any major issue in denim so assuring our supply chain on at the same time, we took the decision to focus our menu you know where core.
Menu items. So it helps our supply chain to to deal with with all the work needed to do bring all the brands that we need to Doris and and so those are the three parts of the question that I can cover and then I will let my deanna due to cover or or to talk about the the.
From an undeniable.
Yes, hi, Thanks, Mike said on how you can anymore, yes, actually you know I thought you mentioned you into remarks. The 2023, it's an investment grade package and doesn't have any covenant. The 2027 <unk> in fact, it's an almost investment grade or package it.
That's a covenant and the covenants, except financial Inc. carbon.
Where net debt to EBITDA should be below 3.5 times.
Incurrence as you know means that Ah, we if we are above 3.5 times.
We should not take additional debt.
But the good thing in this case if that V.
Bonds and the covenant has considered.
A basket of approximately $240 million or 16% of total assets of the company, where we could even incur in additional debt for that amount that study $240 million something you that that by the way you much higher than.
The debt that we are we have at the moment 136.
As much higher than that we are planning to we're not planning to do to be in breach of that covenant or in any moment, so actually or would we can say here is that that covenant should not we should not breach the covenant all that.
When you 27 note.
There are no further questions.
I'd now like to turn the call it became a durable.
Thank you figure very much on thank you again, everyone for joining our call today for your questions. My team and I was always look forward to speaking with you again in the future. We encourage you to follow the recommendations hope your government on health officials to come but the spread of the corner virus in your communities.
So please stay safe I have a great day, thank you very much.