Q4 2020 Restaurant Brands International Inc Earnings Call
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Good morning, and welcome for the restaurant brands International Inc.
For 2020 earnings conference call.
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Christopher Glib Rbi's head of Investor Relations. Please go ahead. Thank you operator.
Good morning, everyone and welcome to restaurant brands International's earnings call for the fourth quarter ended December 31 2020.
As a reminder, a live broadcast of this call may be accessed through the Investor Relations webpage at Investor RBI Dot com and a recording will be available for replay.
Joining me on the call today are restaurant brands International's CEO Jose cell C O O, Josh Kobza and CFO, Matt Dunnigan.
Today's earnings call contains forward looking statements, which are subject to various risks set forth in the press release issued this morning and in our SEC filings.
In addition, this earnings call includes non-GAAP financial measures reconciliations.
Reconciliations of non-GAAP financial measures are included in the press release available on our website.
Let's quickly review the agenda for today's call.
Jose will start with some opening remarks on our performance during Q4, and our ongoing recovery from the COVID-19 pandemic before providing additional detail around our performance at Tim Hortons Burger King and Popeye's.
Josh will then provide an update on technology and to conclude Matt will review our financial results before opening the call up for Q&A.
I'd now like to turn the call over to Jose.
Chris and good morning, everyone. Thank you for joining us on today's call for the fourth quarter and full year ended December 31, 2020 I.
I hope, everyone is doing well and staying healthy.
It's been almost a year since the start of the COVID-19, pandemic and our response to mobilize behind a clear set of priorities to confront the crisis.
We have seen considerable progress in our objectives over the past year and the recovery in our business. We've seen since March highlights the resilience of our three iconic brands.
And our network are strong and well capitalized partners around the world.
It's also a testament to the incredible hard work from our restaurant team members franchisees and employees to reopen restaurants and get back to safely serving delicious food and coffee to our guests.
Burger King Tim Hortons, and Popeye's are all leaders in their respective categories and offer high quality craveable food and beverages combined with convenience that few can match, we also offer familiarity and comfort as well as great value characteristics, we've seen consumers gravitate towards and more trying times like those we face today.
We've reopened nearly 6000 restaurants globally since the peak of the crisis and as at the end of Q4 over 96% of our restaurants were open worldwide with substantially all of our restaurants opened in North America, and APAC and approximately 94% opened in EMEA and Latin America.
Although I would note that in regions like Canada, EMEA and Latin America. Many of our restaurants are open but with continued limitations on dining rooms for walk in traffic.
Moving into 2021, we remain focused on the key priorities, we outlined last year to adapt our strategy to evolving conditions and drive a continued recovery in sales and ultimately get back to global system wide sales growth.
Our diversified network of strong and well capitalized master franchisees has been a key pillar of our platform for years and we're working hard alongside our partners to return to growth. We're also working closely with our partners around the world to prepare for what we believe will be opportunities for growth and building strong pipelines for development as we move past the pandemic and look.
Ahead.
There is considerable white space for each of our brands around the world and we believe the dislocation caused by COVID-19 has reinforced the positioning and consumer value of World class brands like Burger King, Tim Hortons and Popeye's.
We believe all three brands are well positioned to take advantage of an opportunity to win market share as economies around the world reopen and normal routines for reestablished.
I would now like to share some highlights from the quarter and some areas where challenges remain.
As we noted in prior quarters, the strength of our off premise channels, particularly in our home markets has been an important differentiator for our systems in a key component in our recovery after strong performances in Q2 and Q3 drive through sales at all of our brands were up again double digits year over year in Q4, we've made.
Great progress in our work to revolutionize our drive through experience and have now installed outdoor digital menu boards at around a third of the over 10000 drive throughs in the U S and Canada.
Josh will provide more details around our continued progress in this area.
Digital sales reached record levels globally at $6 billion.
And digital sales in home markets more than doubled in 2020.
We've seen strong growth in average delivery sales per restaurant through December including on our own App and we're confident the market penetration we've been building in our delivery channels will position us well for continued off premise growth as we emerge from this crisis.
The strong growth that we've seen in our digital and delivery businesses as part of the larger exciting digital journey that we're on to become a leader in our industry.
However challenges remain.
Being reimposed lockdowns in many regions, but especially in Canada and EMEA routines remain on hold for many of our guests. This has resulted in mixed performance across day parts.
Breakfast remains significantly impacted at Tims, Canada, and Burger King U S, especially in core urban areas.
Late night continues to struggle as well, especially where restrictions and limitations on nightlife are more prevalent.
Despite these challenges we spent twenty-twenty investing in priority is essential to our brands.
This past year, we announced a restaurant brands for good framework and published a number of major initiatives for Burger King, Tim Hortons and Popeye's, we launched the real Walker, our flagship iconic sandwich without colors flavors or preservatives from artificial sources in all Burger King restaurants in the U S and more than a dozen key international markets.
Burger King and Tim Hortons announced the partnership in October with an industry, leading zero waste platform, where we will pilot, our new reusable and returnable packaging system for food and beverages on the go in 2021.
And for the first time ever we measured our global carbon footprint and are working to set and disclosed a clear plan and strategy for reduction in the near future.
We also made important commitments on diversity and inclusion in 2020, we once again achieved 100% on the corporate equality index as a positive LGBTQ plus workplace.
And for the first time in our history, we earned a great place to work certification based on employee feedback on culture and management.
Moving on to Tim Hortons in 2020, our system wide sales decreased approximately 18% to $5 5 billion, mainly driven by a decrease in global comparable sales of approximately 16%, including a decrease in comparable sales of 17% and Canada.
In the fourth quarter, Tim Hortons system wide sales decreased approximately 13% to $1 $5 billion driven by.
A decrease in global comparable sales of approximately 11% and Canada comparable sales of negative 12%.
The increase in cases of COVID-19, and reinstatement of restrictions in different parts of Canada, Inc. Fourth quarter had a negative impact on mobility.
Since the start of Covid, we've seen a strong correlation between the incidence of lockdowns on disruption to routines and transit mobility, which in turn negatively impacted our sales performance.
Despite the ongoing disruption and because of the proactive work our teams have done throughout the quarter overall, Canada comparable sales improved to negative high single digits in December the strongest result, we've seen since the onset of the crisis.
And while we've seen a greater impact on our more urban inline restaurants, it's important to note that two thirds of our system in Canada has a drive through which is the largest drive through network in the country.
And a drive through restaurants in Canada, our comparable sales did get back to about flat at various points in the quarter.
As we more recently saw stricter lockdowns and curfews in Ontario, and Quebec.
Sales softened in January at the levels of performance we saw in Q3.
We've seen a clear distinction between the nature and impact of these lockdowns in Canada versus the U S, including at similar Tim Hortons restaurants, just across the border.
And we continued to make substantial progress on the initiatives. We shared with you earlier this year, including elevating the quality of our coffee with our fresh for us to date about 90 per cent of the system in Canada is now growing delicious, Tim Hortons coffee and our new fresh Brewers and we've seen a quantifiable increase in our customer satisfaction scores to date.
We've also work to modernize our brand image through the rollout of roughly 1300 outdoor digital menu boards in Canada in 2020 with the remainder expected to be upgraded in 2021.
While it's still early days, we have seen encouraging results from restaurants, when we have installed outdoor digital menu boards and modernize the overall drive through experience and Josh will talk more about this a little later Phi.
Finally, we innovated on our core offerings with successful launches from products like the new and much improved dark roast Tim is craveable.
And freshly cracked eggs last week. These quality initiatives helped reaffirm our belief and our research findings that guest absolutely love, our coffee and food offerings and they vote with their feet and their wallets, when we focus on quality and taste.
And we get it right.
Our tims rewards program positively contributed to our fourth quarter comparable sales performance.
We're pleased with the progress we've made to scale the program over the last 18 months incredibly nearly one third of all Canadian adults have used tims rewards so far and we believe the tims rewards will be a powerful tool to engage with our guests in the months and years ahead.
Clearly as they reestablish their routines.
On franchise profitability in 2020 as expected we saw a decrease in full year four wall profitability at Tims in Canada, driven by the decline in sales however, including the impact of government wage subsidy programs designed to keep team members employed our franchisees are generally in a good financial position exiting the year.
We remain confident that the combination of our long term investments and improvements in food and beverage quality guest experience and modernization of our drive throughs as well as digital investments in loyalty and delivery will position, Tim Hortons to return to growth, we're already starting to see our guest experience and our market share improve and we will continue to make the necessary investments to enhance the brands per.
<unk> capitalize on opportunities and build on our momentum.
Turning to Burger King in 2020, our system wide sales decreased approximately 11% to $20 billion driven by a decrease in global comparable sales of 8%, including home market comparable sales decrease of 6% temporary closures on our international markets and net restaurant growth of approximately negative 1% for the quarter system wide sales.
Approximately 8% driven by a decrease in global comparable sales of 8%, including home market comparable sales decrease of 3% temporary closures in our international markets and net restaurant growth of approximately negative 1%.
We continue to see varied performance across day parts in the fourth quarter as the COVID-19 pandemic continues to affect routines in the U S. With particular softness in breakfast and late night, partially offset by growth in our lunch and snack day parts.
While we're disappointed by the negative growth this quarter, we're happy with the progress we've made transforming the Burger King brand and positioning our more than 7000 restaurants in the U S for long term growth.
We launched and promoted the 100% real whopper with no artificial flavors or preservatives we.
We know that our guests crave real products and high quality ingredients and with this change for the whopper around 85% of our permanent menu is now free from artificial flavors or preservatives with a path to getting to 100% in the next few months.
We also revisited our value offering after months of research testing design and redesign as of the end of December we launched the Burger King $1, you're way menu quality every day value for money offerings.
While still early days, we're encouraged by initial results of the dollar Youre way menu and we'll continue to invest behind it and build the program.
Since its launch comparable sales in the U S have moved into positive territory in the month of January to be sure. This is not a victory laps and some of that performance improvement was bolstered in part by the government stimulus that said a straightforward easy to understand everyday value proposition featuring craveable products only Burger King can offer is summed.
Q S. Our fans are demanding and we're happy to oblige and confident we're on the right path.
Beyond transformation changes in value product quality and brand visual identity. We continued investing in our tech capabilities in the fourth quarter and saw exciting results on digital and delivery across the Burger King brand that George will touch on shortly.
Moving on to franchisee profitability four wall profitability was down versus 2019, driven by declines in sales as a result of the COVID-19 pandemic.
However, when coupled with government support that many of our franchisees qualified for and used to support their team members and staff our franchisees in the U S. Generally finished 2020 in a solid position.
Turning now to our international business system wide sales decreased 12%, reflecting comparable sales declines of 12%. In addition to the impact from restaurants that remain temporarily closed sales in our EMEA region were particularly impacted in the fourth quarter due to the reintroduction of Lockdowns in many markets. After we've seen a nice recovery in Q3 when locked.
Sounds at east with about 94% of our restaurants opened at the end of Q4.
Despite the challenges in EMEA progress on our APAC market gives us confidence that fallen COVID-19 case counts reopening of dining rooms, and the return of routines. In addition to exciting digital and product Activations is a powerful recipe for growth for.
For example, our restaurant in Australia, and New Zealand saw comparable sales growth of 8% restaurants in Japan were up 7% and restaurant in Korea were up 4% with a combination of strong digital on product news catered well to the demands of our hungry guests.
We've also seen progress on other parts of the world as markets have begun slowly reopening.
In Latin America, where Q3 same store sales declined 21% with 84% of our restaurants open. We've now improved for Q4 comparable sales of negative 11% with 94% of our restaurants open.
The recovery in these markets has demonstrated the strength and resilience of our Burger King brand internationally and the work we've done to reposition the brand and business in the U S sets us up well for future growth.
In 2021, we remain focused on proactively confronting the pandemic is vaccines rollout around the world.
Our strong off premise and digital capabilities, along with our network of well capitalized partners gives us confidence that we can get back to growth in 2021 and beyond.
Finally at Popeye's 'twenty 'twenty systemwide sales increased approximately 18% to over $5 billion driven by an increase in global comparable sales of 14%, including home market comparable sales of 16% and net restaurant growth of 4% for.
Fourth quarter system wide sales decreased approximately 1% driven by a decrease in global comparable sales of approximately 6%, which was partially offset by net restaurant growth of 4%.
In the U S fourth quarter comparable sales for <unk> decreased by 6%.
Popeye's U S has done an incredible run since the second half of 2019 and I'm sure you'll recall that we relaunched our chicken sandwich permanently in November 2019, posting a positive 38% comparable sales in the fourth quarter of 2019.
Nominal sales in Q4 of 2020 continued at very strong levels driven by sustained sandwich sales and also success across the menu and in group and family occasions.
In January we continue to lap the early days of the relaunch of chicken sandwich, but the business is back to flat and continuing to performance healthy nominal levels.
Given the significant topline increase we've seen in the U S. Between 2019, and 2020 popeye's today generates on average of over $1 $8 million on sales per restaurant versus just $1 4 million prior to the chicken sandwich launch.
This strong growth in topline has led to record levels of four wall profitability for popeye's franchisees in the U S. Making pompe is one of the most exciting and profitable <unk> concepts in the U S.
As we've mentioned in the past a large part of this growth is attributable to the chicken sandwich, but we continue to see significant growth across every category of our menu.
The compelling unit economics, and the consumer demand for more access to the brands have created a tremendous amount of appetite for new development.
This has allowed us to develop new restaurant at a healthy pace in 2020 and continue building a strong pipeline of restaurants with an outstanding set of partners existing and new.
While the pandemic disrupted construction and permitting timelines last year were nonetheless, making progress on our goal to transform popeye's into our mainstream national brands.
In fact, and despite the environment 2020 was a strong year for growth for pop is in the U S with 132 net restaurant growth.
We also made good progress expanding the brands reach globally entering several new markets and executing deals to enter several more.
Now addressing development across all of our brands you remember that in Q2 during the depths of the crisis, we laid out our views on unit growth for 2020 and 2021.
We said that in 2020, we would take advantage of the challenging business environment to proactively optimize our restaurant portfolio by closing underperforming restaurants around the world.
We did just that and closed just under 200 restaurants in 2020, representing about 4% of global restaurants, but only about 2% of global system wide sales.
Not only is this healthy and positive for our brand image, but it positively impacts franchisee profitability and frees up resources for our franchisees to redeploy into building newer better and more profitable restaurants.
And importantly in 2020, our incredible network of restaurant owners also opened 1100 restaurants around the world. Despite the challenges they faced in light of Covid.
We were able to do this because of compelling unit economics and strong consumer demand.
This gives us confidence that we can deliver net restaurant growth in 2021 in line with what we delivered in 2018 and 2019.
With that I'll now turn it over to Josh to talk more about technology Josh.
Thanks, Jose and good morning, everyone.
We continued to make significant progress this quarter on our goal to build an industry, leading technology platform and gross sales across digital channels.
During Q for digital sales in the U S represented 8% of total sales at Burger King and over 16% of total sales at Popeyes.
And at Tim Hortons in Canada Digital sales represented 23 per cent of total sales during the quarter.
Digital sales on our home markets more than doubled versus a year ago.
This continued momentum reinforces our belief that the wave of digital adoption, we've seen in the wake of the pandemic has represented a step change in terms of how our guests interact with our brands and how we serve them going forward.
Delivery remains a key driver of growth with delivery sales at Burger King and popeye's up over two times and three times in 2020, respectively versus 2019.
At Tims delivery sales are now up about 14 times versus 2019.
We've achieved essentially full coverage across our brands and home markets with approximately 10000 restaurants offering the service via multiple aggregators and through our own apps.
This year, we are bringing greater focus to our white label delivery program, which allows our guests to order food directly through our own brand app or website with delivery fulfillment from third parties.
In Q4, we made important advances in our tims rewards program as well.
We've shared with you previously our focus on increasing registration amongst our guests. So that we can actively engage with them and offer tailored rewards.
We successfully shifted to a fully registered program and are encouraged by positive trends, we are seeing on registration.
We are still very much in the early innings, but we are actively refining our rate our features and segmentation. So that over time, we'll be able to drive increased engagement and share more compelling offers with our guests.
At Burger King, we've made great progress with the App improving the user experience increasing monthly active users and we think a great next step for Burger King could be loyalty.
We are currently testing a program in select markets and we're excited about its potential for the brand in the long term.
And our efforts to deliver on improved and more personalized experience to our guests. We continue to make significant progress with our initiative to upgrade our drive throughs with the installation of outdoor digital menu boards.
We've now installed them in over 1700, Tim Hortons drive throughs across the U S and Canada and over 1900 Burger King drive throughs in the U S and expect to have completed the considerable majority of the remaining installations by the end of this year.
We will also install units at the majority of our popeye's restaurants in 2021.
There was still early days, we're encouraged by the impact on speed of service as guests can more easily read our menus on the bright easier to read screens.
As a result of this and other improvements we have seen meaningful increases in guest satisfaction and many of the locations where we've brought this new and improved experience.
And we've also seen an uplift in check and locations, where our new predictive selling technology has been implemented.
As we look into 2021 and beyond we'll be focused on integrating the mobile experience with the drive thru and our menu boards across our brands.
We have been on an exciting digital journey to become a leader in our industry and we have attracted strong digital and technology talent to join our global team and work on these strategic projects.
We've made investments in E commerce platforms, and now support both home markets and an increasing number of our international markets intelligent selling technology is being rolled out across a rapidly expanding number of our drive throughs and other digital consumer experiences as well and we will also be investing to improve restaurant operating systems that drive efficiency and guest satisfaction as well as rapid.
Integration with our E commerce channels.
Look forward to continuing to provide updates on our progress in the coming quarters and years and will now turn things over to Matt to provide additional detail around our financial results.
Thanks, Josh and thanks to everyone on the call for joining this morning and.
In 2020, our full year consolidated system wide sales were approximately 37 billion representing.
Representing a 9% decrease year over year, and reflecting the impact of COVID-19 on our results across regions.
Consolidated adjusted EBITDA was $1.864 billion, representing a nearly 18% organic decrease year over year.
In the fourth quarter consolidated system wide sales decreased 8% to about $8 $2 billion, while consolidated adjusted EBITDA was just over $500 million, representing a 20% organic decrease year over year.
Historically, our consolidated adjusted EBITDA growth rate has been closer to our system wide sales growth. However in 2020, we saw increased volatility related to the impacts of the pandemic as well as the steps we've taken to reinforce our plans by investing behind our people.
More specifically in the fourth quarter. There were several factors that contributed to the difference in our consolidated growth rates.
First our year over year performance across all three brands reflected proactive G&A investments in our digital and technology initiatives as well as adding strong new hires in key areas of the business like marketing field operations and technology.
As we've discussed building a best in class technology assets as a top strategic priority, which we believe will unlock exciting new avenues for growth over time.
Together these investments combined with some year over year timing shifts in G&A affected our growth rate by about negative 3% in the fourth quarter.
Looking ahead, we expect to continue investing across these key areas of our business in 2021, including the important technology initiatives, Josh just mentioned.
And while there were some timing impacts in Q4 that will roll off we think that overall the annualized level for the quarter is fairly representative of capturing the investments we plan to make this year.
Second beyond the year over year sales decline there were a few other moving pieces in our supply chain results that impacted our EBITDA growth by approximately negative 2% in the quarter.
In addition to some normal fluctuations in product mix and commodities, our operating costs were higher in the quarter. As we worked through the final go live transition of our distribution Center project and continued to see some effects of fixed cost deleveraging, though to a lesser extent than in Q3.
Additionally, there were a few benefits from the fourth quarter of 2019 that we lapped, including our fresh brewer rollout and the timing of certain vendor discounts.
Overall these effects resulted in a slightly lower margin for the quarter. However, we expect that as the business improves and returns for the historical volume levels, our margins will start to recover as well.
Third we saw year over year decline in EBITDA of about negative 2% related to non core income streams that have also been displaced by the pandemic, including our decision with our partners to pause cash dividends from our joint ventures, which have historically been concentrated in the fourth quarter as we focus our efforts on reinvesting for growth.
In addition, there were also some market specific challenges that caused a small year over year decline in our income from company operated stores.
And finally AD fund expenses exceeded revenues by approximately $6 million more than they did in the fourth quarter of last year.
<unk> and an impact of approximately negative 1% to our EBITDA growth.
As we've mentioned in the past there may be mismatches from quarter to quarter based on marketing calendars timing of Activations and trends in the underlying business.
The remainder of the gap between our system wide sales growth and adjusted EBITDA growth, primarily stemmed from the shift in sales mix that we saw across brands similar to last quarter, reflecting a more pronounced decline in sales at tims, where in addition to franchise royalties. We also generate EBITDA from property and supply chain activities.
Moving on to segment level performance at Tim Hortons fourth quarter, adjusted EBITDA was $229 million, which represents a decrease of approximately 24% on an organic basis.
This decrease was driven by a decline of approximately 13% in system wide sales, which included an 11% decrease in global comparable sales and the continued effects of COVID-19 related temporary closures, which impacted about 7% of restaurants over the quarter.
As well as the supply chain impacts I just mentioned.
At Burger King fourth quarter, adjusted EBITDA was $218 million, representing a year over year organic decrease of approximately 18% driven primarily by a decrease of nearly 8% in system wide sales.
The change in system wide sales reflected a decrease in global comparable sales of 8% temporary COVID-19 related closures of about 3% on average over the quarter and global net restaurant growth of negative 1%. In addition, the majority of the AD fund related negative impact to our consolidated adjusted EBITDA was related to Burger King and decreased our adjusted.
EBITDA growth for the brands by approximately 2%.
Ah Popeye's fourth quarter, adjusted EBITDA was $54 million, representing an organic decrease of about 8% driven by a decline of approximately 1% in system wide sales, coupled with some incremental G&A investments and weaker year over year performance in company operated stores more affected by COVID-19, the change in system wide sales reflected a decrease.
And global comparable sales of 6% and the temporary closure of about 2% of our restaurants on average over the quarter, partially offset by continued positive global unit growth of 4%.
Our full year adjusted net income was $948 million, which compares to prior year results of $1 $274 million.
This year over year decrease was driven primarily by the decrease in adjusted EBITDA, an increase in noncash compensation and unfavorable FX movements, partially offset by a benefit from interest expense savings related to our refinancings.
In addition, our adjusted effective tax rate was slightly lower year over year at about 19%.
Our full year adjusted diluted EPS was $2 three.
Compared to $2 72 in the prior year this.
This decline includes a headwind from unfavorable foreign exchange rate movements, which reduced our adjusted EPS growth rate by approximately one percentage point.
Now, let's discuss our cash generation and capital allocation for the year.
The strength of our balance sheet on cash flow efficiency, including approximately $800 billion of free cash flow in 2020 have allowed us to deal with a pandemic head on.
Supporting our brands and driving our business forward throughout the year and as we look into 2021, we believe these advantages position us very well with the flexibility needed to manage through the obstacles of this pandemic, while we continue investing behind our key priorities and returning significant capital to shareholders.
Which in 2020 totaled over $1 $3 billion through the combination of nearly $1 billion in dividends and $380 million on share repurchases in terms of capital investments, we made great progress across a number of exciting and impactful initiatives in 2020 as.
As Josh mentioned, we've installed over 1700 outdoor digital menu boards across Tim Hortons in the U S and Canada and expect to cover the vast majority of the remaining installations by the end of 2021.
We invested roughly $50 million into the first half of the project during 2020 and expect to finalize with the similar investment this year.
Also attends as I called out before we are very excited to complete our supply chain expansion in Canada during the fourth quarter.
Having invested approximately $30 million over the course of the year to finalize the transition to our new and improved facilities without any disruptions to the business.
As we move into the new year, we're excited to ramp back up to historical levels of investment as we focus on driving the modernization of our brands and off premise capabilities through re imaging drive through enhancements and other technology initiatives that will play a key role in advancing our growth going forward.
Now turning to the capital structure.
We ended the year with net debt of $11 $4 billion, taking into account $1.6 billion of cash and cash equivalents.
Our net debt to adjusted EBITDA leverage ratio was six one times and we closed the year with approximately $2 $6 billion of total liquidity, including our Undrawn revolver.
During the fourth quarter, we took advantage of favorable market conditions to issue $2.9 billion of 4% second lien notes due 2030, and redeemed $2.8 billion of our 5% second lien notes due 2025.
We also refinanced $725 million of for two five per cent first lien notes due in 2024 with $750 million of new three 5% first lien notes due in 2029.
These transactions drove significant interest savings as we had discussed last quarter.
For the extended our maturity profile and further improved our balance sheet flexibility going forward.
This morning, we also announced for Q1 of <unk> 53 cents common dividend and distribution per partnership exchangeable unit and a target of $2 12 in total dividends to be declared in 2021.
This announcement represents 2% growth year over year, and our ninth consecutive annual dividend increase.
Since 2012, our dividend has increased by over 13 times its original level and is among the best in the industry.
As we shared in the past, we will maintain a balanced approach to capital allocation investing behind important growth and technology oriented initiatives offering a compelling cash dividend and allocating excess capital, where we believe we can create the most meaningful long term shareholder value.
With that I'd like to thank everyone for joining us on the call. This morning and for all your support we will now open the line for questions.
Operator.
Thank you.
Well now begin the question and answer session.
A question you May Press Star then one of your telephone keypad.
You'll hear the term to confirm you were in the queue.
We exited the question queue you May press Star then two.
Oh colors will be limited to one question.
Today's first question comes from Nicole Miller with Piper Sandler. Please go ahead.
Thank you and good morning, Thanks for a great update.
I have a lot of questions I'll ask just one and I'll ask it on digital.
We now are starting to see brands at scale.
Flex pricing power in the marketplace on thinking about Chipotle.
Let's say last week talking about 13% right in the marketplace.
And then holding price steady.
We have a value opportunity when you go direct to that for that.
On the brain.
So what is your point of view in terms of the ability to price you're flexing power now that youre going to have more digital tools and is it different by brands. Thank you.
Hey, Nicole Thanks for the for the question I think on pricing as it relates to digital we continue to to.
To be very surgical there with our franchisees in different markets around North America and around the globe a.
Pricing.
Through our App.
And White label, we think we have some pricing power there certainly and we can and we've tested various different.
Opportunities to to.
To look at pricing as a driver of transactions through our mobile App vs.
Through third party Aggregators I think it's an important element that our teams are working closely with our franchisees on and we continue to.
To test and adjust to see what are what can drive more consumer demand while at the same time addressing our owner profitability, Josh I mean, you might have something additional to other.
Hi, Nicole good morning.
Just to add to this call.
Comments I think one of the other things that we think is interesting on as we think about developing further some of our own apps as the value that we can deliver to our guests on our on our apps through our loyalty programs potentially one of the things that that we mentioned this morning is debt.
On that in addition to our loyalty program, we have and Tim Storer Tims rewards that were that were testing a loyalty program at Burger King and I think that's just another way to think about.
On the value that we can deliver on it on our own platforms and our guests interact with us on on VK dot com or via the App and whether they're ordering and picking up on the drive through or at the restaurant or ordering through white label delivery offer.
We think we can deliver a great experience and a lot of value to our to our guests in that channel.
Thanks for the question Nicole.
Thank you. Our next question today comes from Chris Growe with RBC capital markets. Please go ahead.
Hi, Thanks for taking the question.
So I wanted to return to the topic of development and thanks for all the details so far so could you talk a little bit more about you know what gives you confidence in the Reacceleration of development in 'twenty, one and I know you mentioned and strong unit economics, but is there anything else you would point to specifically as it relates to growth this year and then any detail.
On which market specifically you expect to see a reacceleration of growth that'd be really helpful.
Hey, Chris It's Jose Thanks for the question.
Look I think what's important about about development and in our business and it are behind with our three great brands is that our franchisees that have that are in the business.
All across the globe.
Internationally and domestically, whether they've been with us for decades are where they are they've been with us for just a few years.
All in this two to create value for themselves.
Some cases for their families for their investors.
The great news is that they believe in our brands they believe in being customer or guest centric. They they know that there's incredible demand out there for.
For for what we offer on the food and beverage side in chicken coffee and burgers.
And they know there's an opportunity or there's many opportunities in the markets in which they are they operate in and they believe in the power of investing for growth and it's not because we have contracts that are that we believe in and what what can happen and what will happen. We believe in 2021, it's because.
We see significant opportunities our franchise partners see the significant opportunities that exist on.
We see there's been a tremendous dislocation in the industry are independents.
Independents and smaller chains are struggling real estate has become our opportunities in real estate have become more and more interesting our unit economics as I mentioned.
Earlier, our strong and compelling for all three brands and in our domestic and international markets and so we've seen.
Tremendous opportunities that our franchise partners want to participate in we have very good visibility into the pipelines and to the process that each of our franchisees in domestic markets and international markets undergo to build their plans from a development standpoint, we work in many cases with them directly.
As shareholders and those joint ventures in which we have a minority stake in the business.
We also work closely with our development teams and help bill.
Build out for these pipelines and make sure we have budgets and strong teams to be able to do that.
And so across the board I mean, theres a lot of work to do this is not one of these things that happens from you know from quarter to quarter. It is a it's a long term process and we've been working closely with our partners since.
Since the obviously prior to the pandemic, but since the onset of the pandemic to make sure their capital structures are in good place in a good place at the teams or our solid debt. We're looking at opportunities for development with new formats with off premise capabilities. In addition to making sure. We're in the right places and urban locations.
And all of that including the fact that we were able to continue to grow and open new stores really exciting beautiful.
And in high demand new stores in 2020 at the height of the pandemic all of that gives us confidence that we can get back to where we were in 2017 18 19. This year in 2021 and continue on our path to.
To get to that 40000 milestone we set for ourselves back in May of 2019, now that that's not even including new markets in which we're partnering.
For each of our brands, whether it's popeye's for Tim Hortons.
And the opportunity to accelerate in certain markets.
Around the globe with Burger King as well, so there's a lot of optimism and excitement a lot of work to do as well and.
And we continue to stay close to our partners and support them every way, we can to be able to achieve those goals as it relates to wear.
It continues to be everywhere and for the most part.
Think about our three brands is that we have opportunities even with Burger king to build.
And a number of markets international markets around the world as well as domestically. So we continue to.
B.
Surgical in that respect and make sure that we continue to.
We're closely with our partners to drive that growth. Thanks, So much for the question for the two questions.
And our next question comes from David Palmer with Evercore ISI. Please go ahead.
Thank you good morning.
I'm wondering about some of the unit growth the net unit growth the inputs of that.
Coming into 'twenty, one how has that played out in 2020 and I'm thinking by region. Because my perception is that you might have higher franchise revenue.
In places like the U S. Then.
Region like Asia Pacific for example.
And if that's true then maybe we should be more cognizant of the closure rates in those regions versus the U S. So any color on that and how it might impact the model into 'twenty one thanks.
Hey, Hey, David Thanks for the question.
Yeah, we shared some some detail in the prepared remarks in terms of.
Openings and closures and that we landed in 2020.
Essentially where we said we'd land back in Q2, which is the same same restaurant count in 2020 is as we had in 2019 at roughly the same.
The mix of closures, we obviously saw closures and took advantage of the situation to help optimize the portfolio.
In many markets across the globe.
Internationally as well as domestically.
There was a number of we have started already a closure program at Burger King in the U S. We had mentioned that back in 2018 in 2019, and we continue that in 'twenty and accelerated somewhat there, but we also had some some opportunistic closures in international markets in Europe.
And in Asia, as well as in as well as in Latin America.
So that that was an important part of how we landed in a flat net restaurant growth.
Our number for 2020, and we saw the openings that I mentioned.
On the north of 1100 openings in 2020 come from a number of different markets as well it wasn't it wasn't.
On the mix was different for closures and openings. It was kind of consistent as we've seen throughout the.
The last many years by region and by country. So I'm not sure if that answers. Your question. Matt. If you have do you have anything else to add.
Yeah.
I think that all that all makes sense. It's a good summary, I think Jose mentioned the BK U S closures, we had talked about that on our Investor day back in 2000.
19, and so we were working through that program already and continue to work through that made really great progress on the air.
I think just overall.
We feel really good about how we were able to execute on the proactive closure plan that we've talked about over the past couple of.
Past couple of quarters and.
Yeah, we think it's a really great thing.
It helps our franchisees on our systems around the world to remove unprofitable restaurants from the system.
Improve our brand image and overall improved profitability and cash flow for our partners around the world and nuts.
That's also a piece of our outlook and our confidence in growing with our partners in and driving NRG.
Back to the levels of debt that we saw in 2018 and 19.
One more thing.
David on on this on the closures when you look at closures in North America, we talked about this.
In the context of the U S closure plan the closures that were.
We've delivered so far that the average volume for those stores.
Is.
Even if our average volumes in the U S or north of one point.
Three five for four for.
For Burger King as an example, the closures are somewhere in the neighborhood of 800000, so the delta between what we're closing on what we're opening.
It's pretty significant which is why we keep highlighting the importance of these.
Opportunistic closures to help continue to drive health and profitability of the system for the benefit of our franchisees. Thanks for the question.
And our next question today comes from John Glass with Morgan Stanley. Please go ahead.
Thanks, and good morning on the digital menu boards could you just provide a little bit more of what you actually I know, it's early days, but what you're experiencing from our left you said there was a check benefit maybe what that has been by the two brands. If there's a if there's a throughput benefit maybe what that spend and just maybe on mechanics question in the tims business.
Did those flow through the distribution business that you should be aware of the revenue on potential margin impact.
And I know I'm being a little bit.
<unk> here, but just in terms of the G&A commentary I just wanted to clarify despite the puts and takes in the fourth quarter G&A. That's the right run rate to think about 'twenty, one or are you taking something out of that and seeing that run rate is lower I just want to make sure I understand how you think about G&A in 'twenty one.
Hey, John Good morning, it's Josh Thanks for the question on the on the ODM vs. Yeah, We're really pleased with the progress so far, especially in Burger King in the U S and Tim in the U S and Canada.
Made a lot of progress over the past year or so and in the rollout of the physical hardware and software.
And getting to over 3000 locations, so far and so I think we feel really good about sort of the pace of rollout and the quality of our installations and it gives us a lot of confidence in our ability to continue that program and execute on the timelines that we've set out there and I think I think it's also given our franchisees like covenants on it.
Excitement and what's coming to the system because they see the impact on on the guess.
I would say that I think we're a bit early to quantify some of the impacts that you talked about it which is why our commentary has been a bit more qualitative, but we have seen a lot of the things that you talked about so when when we install these new digital menu boards in the drive throughs were seeing impacts to the guest satisfaction that we measure.
In those restaurants, and especially in the service mode of the drive thru.
And in many cases, we're seeing benefits to speed. We think some of that is just that it's easier to read and easier to confirm the orders you see you see back on those digital menu boards of confirmation of.
What you are actually ordering which we think is really helpful. It also helps that order accuracy and then also we have been in different ways in the different brands for Burger King in for Tim we're using different suggestive selling technologies.
We're pretty encouraged we're still developing those and evolving those technologies.
But we're already seeing the ability to drive some some pretty observable sales upside.
From the technology and I think that's something that we'll continue to evolve and improve.
Over time, as we roll them out to more restaurants and improve the technology that we have so I think it's very exciting it's something that impacts.
Lot of our restaurants, and so many of our guests' experiences because of how prevalent. It is in terms of service modes for our business and across the U S and Canada, we feel good about the pace of rollout and the ability to impact a lot of guests over over the next 12 to 24 months and we'll keep updating you all as as we make progress and get more data on that front.
And I'll hand, it over to Matt for the second part of your question.
Hi, gentlemen, thanks for thanks for the question.
Maybe to provide a little bit more color on my comments around G&A I talk through the impact that it had in the quarter of about 3%.
No drag on EBITDA.
And I think the impact is roughly split between the items that I called out versus some some timing and nonrecurring items in the quarter.
And the comment that I was making about the annualized level is that because we are we are continuing to invest behind some of these important initiatives that we talked about especially on the tech and digital side, we will continue to.
To grow our investments there to drive our plans for this year and beyond.
To drive.
Drive sales generating and topline.
Sales generating activities and topline growth.
So that's why I mentioned that the Q4 level on an annualized basis should be fairly representative some things will come out.
But we're going to keep investing behind those initiatives at.
Through 2021 and going forward as we've done on the fastest in general I think we'll be very disciplined and focused on making the right investments the most impactful loans.
To support our teams to support our our tech initiatives and all the all the important projects that that Josh talked about on the prepared remarks.
I think John I think you had another an additional question there on the mechanics of how <unk> flow through.
In the tims business from a distribution standpoint, Joshua but yet you guys are already on that clarify that when it doesn't flow through the revenue or expenses of the supply chain business.
Yes, John that debt that moves through the Ashwin.
Great. Thanks, John appreciate it.
<unk>.
And our next question comes from Dennis Geiger with UBS. Please go ahead.
Great. Good morning, and thanks for the question and Jose on the team. Thanks for the commentary on the Tim performance on the quarter I think the debt.
Flat in drive through performance at various points in the comparable U S store outperformance I think clearly highlights.
The COVID-19 impact drag, but maybe Jose just wondering if you could talk a bit more about what what those pieces tell you about the tims recovery this year as restrictions ease and as mobility increases, especially when you layer on some of the new menu items on loyalty in the customer experience initiatives that you've talked about just how bad debt frame, how you think.
Think about that recovery on I think you also talked about gaining market share.
In the quarter or during the year, just wondering what how you think about that playing out as we work through 'twenty, one as well. Thank you.
Hi, Dennis Thanks for the question.
There was some as I mentioned in my prepared remarks, some encouraging signs in Q4 for Tim.
Our December exit rate was.
It was high single digit negative which is the best.
On a performance we've seen since the onset of Covid, obviously not.
We're not doing cartwheels on that but we are encouraged by the by the performance and the improvements sequentially that we've seen in the business.
We saw the drive through business per.
Form better and continue to perform better.
Throughout the quarter and it got to about flat in various points of or the fourth quarter and drive thru continues we have about two thirds of our business is drive throughs in Canada, and we've seen continued momentum there from from the beginning of the pandemic through the fourth quarter and that momentum continues today.
Today.
Off premise has been a key driver of sales. We've also and then we've seen improvements in growth in our not only drop through but also delivery.
On the other piece that I think is really encouraging.
From the data we've seen in the fourth quarter and continue to see.
Through throughout the beginning of the year is that we've been working closely with our owners on.
On a number of different initiatives related to the overall guest experience through digital through.
Through the drive throughs as well as the the walk up and pick up business.
And we're happy to see that the these improvements and just focus on operations and execution has driven improvements in our guest satisfaction scores, which is a really important indicator our owners and their teams are engaged and it's making a difference in the experience that our guests are having each and every day with the business.
I mentioned and you included in your question the progress, we're making in overall market share in the quarter.
It seems like from the data that we're taking share from smaller chains and maybe some of the independents, but but we are seeing market share gains at lunch breakfast is a relatively stable even if that's the most interrupted in the biggest part of our business.
So these are all positive indicators that.
That the work we've been focusing on in the long term initiatives that we shared with we've shared multiple times over the last several quarters.
We are beginning to take hold.
And having an impact on the business right. We've made improvements and we've made investments in and many of our core platforms, including the fresh Brewers with water filtration. That's almost done we're probably 90 per cent of the way there.
And we've seen the product satisfaction scores for coffee continue.
Continue to to improve since the back half of 2019, we've made investments in modernizing our experience in the restaurant with outdoor digital menu boards and our loyalty program and our apps that we've innovated with high impact products.
Our core.
Lunch craveable, our dream Donuts, the much improved dark roast that we launched in January and this past week, we launched fresh cracked eggs in Canada across the network, which Canada.
With some important communications too to the Canadian consumer which has been well received so far it's early days, but are well received and obviously, we still have a lot of work to do there restrictions remain in place and that has an impact on our in our urban locations are super urban locations.
So there is much to do there we continue to work closely with our owners to ensure we have different ways of serving our customers even in difficult circumstances, we can't control.
The virus and we can't control the locked down, but we certainly can control the experience that our franchisees our teams and our guests are having in the business every day and we feel confident that the investments we're making.
The focus we have on experience and operations of relationships that we're building with our owners for the long term all of these things are resonating and having an impact on we feel that we're well positioned when.
Things begin to open up to be able to capture.
More share and continue to grow the business in Canada for the long term. So we're excited and encouraged but we recognize that we have a lot of work to do.
And we're all focused on that thanks for the question.
Our next question today comes from Brian Bittner with Oppenheimer. Please go ahead.
Thanks, Good morning.
Question on the Burger King U S business. When you when you look at the U S sales performance for Burger King there has been a.
Pretty wide under performance GAAP versus the industry.
First of your big competitors, the last couple of quarters, and I understand januarys, improving along with the industry, but what do you. What's your specific diagnosis for this performance GAAP you've been witnessing in the Burger King U S business versus the peer group and what ultimately do you think is the secret sauce that day.
Do you need to deploy in 'twenty, one to narrow this gap or perhaps ultimately reverse and will start outperforming.
Hey, Brian Thanks for the question, Yeah, I think the.
The diagnose.
Diagnosis for the assessment of why.
We haven't had a stronger performance in the BK U S business as we would've liked.
Been pretty.
Open about that over the last several quarters and all the issue I think is a R.
Our promotional approach both for value and to new products I think we've in value in particular.
Over there, it's an important part of the business.
It's a big segment of the <unk>.
Business and in particular in the fast food Hamburger space.
And we've been a bit.
Kind of choppy in terms of how we've addressed value we haven't we've been doing a lot of.
Bundling.
And we've been doing promotional activations, including paper coupons and other.
Value approaches which haven't been.
Resonating as well and we've had gaps in that.
And that performance or that debt offering a value to our to our guests and so we haven't had a value proposition on everyday value proposition, that's been a credible and reliable and it's something that our that our consumers can can count on for.
For quite some time and you know over the last few quarters I mentioned that we would that was something that was really important for us. We thought it was critical to do the work to do the research to make sure we talk to consumers and figure out what it is that they are looking for we tested for for quite some time, we designed and redesigned and and that led us to the.
For the launch of the dollar your weight menu at the end of the year on the 28 December.
<unk>, which is a very important step it's not the plan. It's a component of a longer term plan for us to be.
Be more focused on the core and have every day platforms that are consumers here in the U S can rely on our values and important one continued investment in our core we talked about the <unk>.
<unk>, we took in the fourth quarter with the Whopper, which is an incredibly important iconic product for the BK brand and we've seen them.
We've put a lot of investment behind that in communication, we think theres an opportunity in continuing to expand the core offerings with chicken.
And that's something that we have in the on the radar for for 2021, we think breakfast we have as I've mentioned in the past we have a.
A nice breakfast business that we think can be a much more important part of our.
Of our mix.
It's currently around 13% 14%.
And we think it can be a much bigger part of our business long term and we're making similar investments in terms of quality.
And.
Making sure we have a broader offering both on product and beverage and making the commitments for investing behind that with with media.
Well as with digital and then finally I think the digital side of our business has been growing we've seen healthy growth on the delivery front.
Healthy engagement on our App.
And we think there is an exciting opportunity with with loyalty at Burger King in the U S, especially being able to really engage our loyal customers through the app in our drive throughs, So theres a tremendous opportunity on.
All of those areas and none of these are promotions that we think we should be dropping in at some point in time. These are important platforms that will be a long long standing platforms for the business to drive top line and franchise profitability for for years to come. Thanks, So much for the question.
And today's final question comes from service in the store with Bernstein. Please go ahead.
Hi, This is Neil for Sarah Thanks for taking the question I have a question on the teams as we think about driving comps going forward in all debt or coffee offering has improved.
What is it for 'twenty for specialty beverages like express will base in Canada and on the same topic. What have you seen in terms of the plant based beverages and what does that say about teams customer receptivity to for a beverage offerings. Thank you.
Yeah. Thanks for the question.
Yeah look we think that obviously the definition of coffee is expanding its not just brewed coffee anymore and we've made.
Important investments.
And a number of initiatives related to our core offerings over the last.
12 months or so I've talked about that fresh brewers water filtration.
With the dark roast and those are important to get the get the core right, but we've also.
Expanded with dairy alternatives.
In the last 12 months, we've probably 15 months we have added.
On almond milk and and other offerings that we think skim milk as well that we think continues.
To expand.
On the.
And open up the menu to different customers and giving them the opportunity to enjoy.
Tim Coffey and.
The way they like it so those are important.
Moves that we've made over the last 12 to 15 months, we think theres an opportunity with espresso based long term, we think theres, a tremendous opportunity with cold beverages as well, we've seen we've innovated and seen growth.
Throughout the last.
12, 15 months on that front and continue to see that as a tremendous opportunity, but as we've mentioned several times over the last for.
Few quarters.
To get the basics right and the plan that we've laid out for the tims business.
It is all about prioritizing our resources, our energy and focusing all of our teams on getting back to what made Tim Hortons famous with quality beverages.
Quality food offerings baked goods and being exceptional at service and connecting with our communities, we think that over.
Over time is going to kind of set the foundation for us to be able to grow in specialty beverages expanding into other offerings I think will be a key part of the growth for.
For Tims in Canada for for years to come. Thanks, So much for the question.
Ladies and gentlemen. This concludes the question and answer session I would like to turn the conference back over to Jose for final remarks.
Great. Thanks, so much Rocco we've.
We've made a lot of progress in 2020, a year, which none of us expected, but we're even more excited looking forward in 2021 and beyond and believe our three brands are on the right path to emerge from the crisis, even stronger we're excited to get back to growth. This year with our partners around the world and look forward to sharing more with you as the year progresses. Thank you again for your time today.
<unk> safe and stay healthy thanks, everyone.
Thank you Sir this concludes today's sort of in store and thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Okay.