Q4 2020 Arcos Dorados Holdings Inc Earnings Call
And on form 6K.
Our discussion today also excludes the results of the Venezuelan operations, both at the consolidated level as well as for the Caribbean Division due to the country's ongoing macroeconomic volatility.
For your reference we include a full income statement, excluding Venezuela with our earnings release.
So please now turn to slide three Marcello over to you.
Thank you Dan.
Thanks to all of you for joining us on today's webcast.
Almost two months ago, we reported system wide comparable sales for the fourth quarter from.
Momentum on the main trends in the <unk> drive thru delivery and digital.
And delivered a preliminary outlook for 2021.
Today, we will fill in the details of our strong fourth quarter performance.
And talk about more recent trends as well.
Additionally, we will provide more color on the ongoing digital transformation of vertical hotels, which will increase our lead in the digital race across the regions restaurant industry.
Finally, we will share some important news related to our ESG commitments.
In 2020, we managed through the most unexpected and unprecedented crisis of our lifetime.
We were forced to find new ways to work in our restaurants and offices.
Managing our business with an enormous geographic and cultural footprint, while coordinating efforts with the bus network suppliers on sub franchisees.
Looking now at slide four I believe our success from crisis management was the result of our proactive and aggressive response to the crisis itself too.
Together with our historical long term strategic approach to growth.
We built a superior risks in our footprint with 60% street facing locations that are resilient in difficult times.
Flexible in terms of changing consumer behavior.
We introduced new sales segments to capture emerging growth opportunities such as mud delivery in recent years and dessert centers further back in our history.
We began investing in digital tools more than five years ago.
Likely at the earliest movers in Latin Americas USR industry.
And we never lost sight of the company's most important assets.
Our people and our relationship with the communities they serve.
The recipe for the future is rooted in generating opportunities for young people.
And ensuring that we have a positive impact on the environment for the benefit of future generations.
Before I turn it over to Lisa Mariano for specifics on the fourth quarter.
Let me take you through the highlights of the full year 2020 on slide five.
Total revenue for the year was almost $2 million, which was about 33% lower than the prior year.
Due to the impact of the pandemic and the depreciation of several of the regions key currencies.
However by focusing on the competitive strength of the three DS.
We generated strong sequential top line growth beginning in May.
Which included 33% constant currency derived from sales growth.
153% constant currency delivery sales growth.
Versus the prior year.
All of this supported by the most popular our highest rated digital mobile app in the industry.
Adjusted EBITDA was $72 5 million despite the very difficult result in the second quarter.
Both profitability and cash flow generation improved significantly in the second half of 2020.
The benefit of having both geographic and currency diversification became crystal clear in 2020.
We did not depend on any single market to navigate the crisis, notably.
Notice, we feel the impact of the pandemic in all markets at the same time.
In fact, 30% of last year's EBITDA before corporate expenses came from the U S dollar or euro generating markets and another 20% was generated in markets with relatively stable local currencies.
We began 2021 the way we ended 2020.
With strong topline and profitability trends despite the difficult comparison with the 10, 9% comparable sales growth we generated in the first two months of last year.
As we told you at the beginning of the year, we expected to face near term volatility before entering the poorly Bible phase of our plan.
In fact, several of governments recently increased restrictions from mobility and gatherings that negatively impact consumption.
This includes Brazil.
We're so Paulo state is about to complete two weeks of a strict quarantine measures.
However, in other markets, such as Argentina, and Chile in slab.
Non-GAAP, Puerto Rico, and the Caribbean and all NOLA markets. The strong recovery trends have continued so far in March.
We also do not expect renewed restrictions to left us long or have the same impact as when the pandemic began one year ago.
Today, we are a more agile and adaptable company with all the learnings from last year.
We know which safety protocols are needed.
To move inventory from closed to open restaurants, which sales channels to focus on.
In what way.
Keep in mind that the fast growing drive thru and delivery segments generated 52% of total sales in 2020.
And these segments are not materially impacted by the restrictions.
Consumers also know how to better deal with these restrictions the second time around and they know which brands. They can trust in which Dr. As a service models are available.
Finally, with our broad geographic footprint, we are seeing solid contributions from hard currency markets and benefiting from operating the industry's best brand and restaurant portfolio.
<unk> over to you for a look at operating highlights in the fourth quarter on slide six.
Thanks, Marcelo in January we'll report our fourth quarter system wide comparable sales for the company and by Division.
So today I would just point out a couple of additional highlights.
Brazil faced a tougher comparison with the prior year after posted Boston nine 5% comparable sales growth in the fourth quarter of 2019.
Despite this fourth quarter 2020 comparable sales approached 90% of the prior year's level and the accumulative sales impact of the last two years was down just 1%.
Are outperforming the industry in the period.
And at the beginning of last year with finished acquiring all some franchise restaurants in Puerto Rico.
As a result, we now recognize 100% of the revenue from those locations rather than just rental income.
Although this does not change the system wide comparable sales result.
<unk> contribute 14, four percentage points to the 19, 2% U S dollar revenue growth in the quarter.
One of the consistent themes of 2020 was the contribution of the three DS on slide seven.
The fourth quarter was no exception.
At constant currency growth in drive thru sales exceeded 48% and delivering sales rose 171% over the prior year quarter.
The contribution to total sales from these two segments declined sequentially over the last two quarters.
Sales at the front counter and other sales segments continued recovering with fewer operating restrictions in most markets.
Steel drive-through generated almost 37% and delivery contributed more than 14% of third quarter sales slightly higher than and in line with our long term expectations respectively.
Drive thru was particularly strong at the end of the year. When we reached a record number of vehicle served per restaurant in December.
And delivery started 2021 on a high note.
Reaching the highest ever number of daily orders per restaurant in February.
Both segments are performing above expectation so far this year.
We're also very proud that Mcdonalds Corporation recently named our deliveries flat among the winners of its circle of Excellence Award, which celebrates the success of cross functional teams that have come together to drive significant results across the business.
I want to congratulate our team for leading the way in Latin America and across the Mcdonald's system as well.
On the digital front at the end of 2020, we had 46 million mobile app downloads.
I am very pleased to announce that just a few days ago. We became the first Latin America restaurant, operator to cross the important milestone of 50 million downloads.
According to App Annie in Brazil, the Mcdonald's mobile App is consistently and by far the most downloaded app in the restaurant industry.
Perhaps and reflection of the apps industry, leading customer rating.
Let's turn to another important and consistent trend from 2020 on slide eight.
Market share gains in our key markets.
According to the latest report from crest, which start to tracking the industry in 2016, Mcdonalds brand reached its highest share in Brazil, skews our industry last year.
With the largest share gainer across all <unk> brands.
Maintaining a significant leadership position.
There were similar gains in markets, such us, Argentina, Chile, Colombia, and Puerto Rico, just to name a few.
While we certainly benefited from a consolidated industry and consumers, who trusted larger brands to provide a safe restaurant experience. We believe the outperformance against the industry came from factors we controlled.
Proactive management decisions that Labour rest, our freestanding restaurant portfolio a focus on the strength of the three day strategy and the rapid implementation of the macro to Helios program.
In other words, we have capitalized on the opportunity to strengthen the Mcdonald's brand across the region by taking care of our people and guest focusing on operational excellence and encase and brand trust through safety.
We expect these consistent leadership to boost future growth when markets normalize.
The Mcdonald's brand remains the most trusted restaurant brand in the region for being the safest place to eat out of home by a wide margin in.
In 2021, we will double down on the macro the Helios program to ensure excellence and consistency of execution.
Looking at the main priorities for 2021 on slide nine we are capturing further benefits from menu simplification.
Focusing marketing efforts on core products and revising the family business in support of topline growth.
We're also sharpening our focus on the competitive advantages of operating the largest number of drive through restaurants with segment specific initiatives.
For example, a swing by any way you like campaign that encourages guests to visit our drive thru Lane no matter, how they get there.
Another example is the loyalty program linked to the <unk> segment.
B IPL to Mark.
The program, which already has 900000 registered users was originally launched in Argentina and was rolled out to Colombia, Chile, with Hawaii, and all three Nolette markets.
During the fourth quarter.
Finally, I cannot overstate the significance of the deliberate business.
We are continuously reducing our delivery times, while improving the accuracy of the orders, which has resulted in some of the highest customer satisfaction scores since we launched the service in 2018.
This year's marketing plan is focused on driving delivery sales growth with a number of initiatives around special dates.
Lucid promotions and relevant consumer occasions.
While we develop expanded deliberate options, including owned delivery. We're also optimizing our aggregate our relationships in fact after launching this service and building the Max delivery brand by partnering with major Aggregators in each market. We are now testing X.
The CBD agreement with Aggregators in Brazil.
Colombia and Peru.
Among the benefits or the alignment of incentives and growth investments together with a greater focus on execution to improve the customer experience.
So far the results have been very promising.
Mariano over to you for a closer look at the company's profitability and capital structure.
Thanks Luis.
Let's start with fourth quarter adjusted EBITDA on slide 10.
We worked hard in 2020 to 24 medical sohrab of cost structure.
Hopefully converting a significant portion of previously fixed costs and expenses to variable.
This is why we saw a rapid improvement in profitability in the second half of 2020, despite softer sales.
Our decisive cash management actions together with our strong supplier in mcdonalds relationships.
To quickly stabilized our cash flows which grew throughout the second half of 2020.
In terms of margin impact from paper costs were basically flat, both sequentially and versus the prior year quarter.
All the cost pressures, we faced with protein prices changes in mix and volatile market conditions.
Payroll and employee benefits as well as occupancy and other operating expenses improved significantly versus the third quarter and were close to flat versus the prior year quarter.
Margin pressure in the quarter came mostly from other operating expenses.
Turning now to slide 11.
All four divisions improved EBITDA results versus the third quarter of 2020.
However.
Both Brazil, and NOLA, so margins in total EBITDA contract versus the prior year.
Brazil's results reflect lower sales.
A net negative impact from one off in other operating income.
And the depreciation of the Brazilian real versus the prior year.
No, let's EBITDA contraction.
It was mostly the product of the sales decline versus the prior year.
Flat EBITDA improvement was largely driven by the recovery in the Chilean business as well as margin expansion in the quarter.
Finally, excluding last year's noncash bad debt reserve reversal from equal the Caribbean division's EBITDA margin.
Pandit 990 basis points in the quarter.
Benefiting from strong U S. Dollar results now that we are operating 100% of that market.
The division's EBITDA improvement also reflects significant growth in Colombia drive for sales and another strong quarter from the euro denominated markets of the French West Indies.
Turning now to our balance sheet and cash flow metrics on slide 12.
We began 2021 with a very favorable cash position of $166 million.
Thanks to strong operating cash flow generation in the second half of 2020.
Despite all the challenges and the significantly lower EBITDA versus the prior year.
Cash flow from operations reached $66 million during the fourth quarter of 2020, compared with about $86 million in the prior year quarter.
By focusing on cash flow generation and maintaining a balanced FX hedging strategy. We successfully limited the year net debt increased to $33 $4 million or desk, 7% higher versus the prior year end.
Despite all the challenges we faced last year.
The net debt to EBITDA ratio rose to seven four times due to the decline in trailing 12 month EBITDA.
This was below our initial expectations of at least nine times for the year end and.
And we continue to expect it to gradually return to our comfort range over the final three quarters of 2021.
Our balance sheet is strong.
Not only did we start 2021 with a strong cash position and only modestly higher net debt, but it is important to highlight three other aspects of our debt profile.
First.
We have zero short term debt.
In our short term credit lines fully available.
Second <unk>.
The FX hedges that appreciated by $59 million last year are still in place.
And third.
We have a healthy maturity profile with the mixed very manageable long term debt maturity one in September of 2023.
We take a prudent approach to managing our capital structure.
When possible, we preferred to fully fund investments with cash generated from operations, while including a healthy mix of freestanding restaurants in our footprint in order to build and maintain a long term sustainable business model.
The business and the restaurant footprint, we have summarized on slide 13.
Have been adjusted and are in the process of being optimized for the road ahead.
We opened just nine restaurants last year.
But through the first two months of 2021.
We have already almost matched this number with seven new restaurant openings.
Despite the short term impact of renewed government restrictions, we are pleased with the profitability and cash flow trends during the first two months of 2021.
So we are currently evaluating growth opportunities that will take us to the top end of 40 to 50, new restaurant opening guidance for the year.
Non signal.
Back to you.
Thanks Mariano.
In January we gave you some insight into the ongoing digital transformation of our go hotels.
Today I want to provide a few more details starting with slide 14.
We began this journey more than six years ago. When few observers believed digital would meaningfully change the quick service restaurant business.
Our Chief Technology Officer, Mark Cocoa Zone joined the company about 18 months ago.
Leave three interconnected groups.
Throughout 2020, we talked mostly about the customer facing group, which we call advance.
However, the other two groups are crucial to the long term success of everything we are doing in advance.
First is information technology group.
That is work modernizing our it infrastructure.
To ensure we have the hardware software services from people necessary to extend our COVID-19 others leave in the Latin American <unk>, our industry's digital race.
Then there is the data group that is working to improve the way, we capture and analyze data to.
To make better faster are more targeted strategic decisions moving forward.
The advanced team three will be interconnected agile squads made up of around 80 employees.
Best in class partners working on delivery, which is now working to optimize our aggregate our relationships as Louis already mentioned.
As well as the logistics and operations of all delivery channels, including our own delivery capabilities.
Digital marketing has made significant progress from a couple of years ago.
When we use the mobile app for one size fits all digital company.
Today, when 100 per cent of the digital offers we send customers are segmented to drive frequency and profitability.
And we are starting to implement personalized communications and offers to take advantage of our ability to identify at least.
45% of digital sales down to individual guests.
Digital experience is the newest squad.
Formed to develop our own channels to improve the guest experience with our mobile app.
These include statements technologies mobile order and pickup options on delivery on several other initiatives that are in the early stages of development.
In order to stay on the leading niche we need to ensure that we have the technological infrastructure to support these efforts.
The information technology team is upgrading systems to ensure uniformity and efficiency across the enterprise.
This includes moving core applications, such as Oracle E business suite to the cloud.
We have chosen Oracle <unk> cloud service on Oracle cloud infrastructure to support this process.
By modernizing our it infrastructure, we can focus on other improvements such as the standardization of systems and processes enhanced cyber security.
Supporting better data collection and analysis.
Data is the key ingredient for success in these digital race.
So we hired the company's first Chief data Officer, who started on March 1st to leave the data team.
With the modernization of our it infrastructure.
Partnerships with leading CRM cloud computing on e-commerce providers, we will truly begin to lever us the data we are capturing.
Finally, let me turn to ESG on slide 15.
The recipe for the future is important to the way we run the company as well as how guests and communities Julia Brown.
This month, we welcomed <unk> et cetera.
Our senior director of social impact on sustainable development to the management Board.
Most senior members of the company's management team.
This year for the first time, we are aligning ESG reporting with our financial reporting process for the 20-F filing with the SEC.
This will ensure the next social impact on sustainable development report is published around the same time and with as much visibility as our annual financial reports.
To reinforce our commitment to the recipe for our future ESG program too.
Today, I am proud to announce that starting with 2021 day, a valuable compensation policy for the company's executives will include ESG indicators.
<unk> is the first major restaurant company in Latin America, and the Caribbean to adopt this practice.
We have a long track record of contributing to the communities we serve.
And we are committed to making a positive impact through youth opportunity sustainable sourcing packaging on recycling climate change and family well being.
This step further aligns the company with the long term social and environmental commitments. We made in recent years and ensures arcos <unk> is recognized as one of the most socially responsible companies.
In Latin America.
Don I will now turn it back to you to start the Q&A session.
Sure Marcello in order to get started please minimize the presentation slides. So that you can access the chat function on our left hand side of the webcast platform.
I'll be moderating today's Q&A session. So please limit yourself to one or two questions. So that I can read understand and convey them to our speakers.
I will now pause briefly to compile all of your questions.
Yes.
Great.
Let's start with a couple of questions we have here from <unk>.
J P Morgan.
Both of these questions I think they are for you Marcello how are sales performing after the fourth quarter and when do we expect them to normalize and.
And if we can quantify how much sales are down in Brazil in March with the second wave of pandemic and the associated Lockdowns.
Thank you Donna and good morning, Thank you for joining us for todays webcast.
And based on the conversations we have had with many of you.
In recent weeks.
But this was one of the most frequently asked questions to us. So I tried to give you a very comprehensive under answer about this.
First how we see this year and how we see 2021.
We started 2021 with relatively modest.
<unk> for the first.
Half of the year.
Our base assumption on our most likely scenario is that operating conditions, we'd be closer to normal in the second half of the year.
The year started with sales strength in line with our expectations.
But with better than expected profitability trends in both January and February.
Consumers continue responding positively to the safety of our operation onto a convenience that we are offering through the <unk> drive thru delivery and digital all of all of which maintain a very strong growth rates of the start of the year.
In March in particular, we have seen the return of government mandated restrictions in some markets most notably in Brazil.
So let's talk in detail about whats going on in Brazil in these days.
<unk> today.
About 15% to remarks specific 155 restaurants.
Our growth in Brazil, mostly in shopping malls are mostly in the state of Sao Paulo.
Remember that at the peak of the crisis last year, we have closed around 40%.
The restaurants in Brazil, and at that time, no restaurant growth.
Able to operate also.
As of today, 23% of our restaurants in Brazil are fully open our operating business segments.
We have the other.
Almost 60% operating at least one sales segment. So we.
We are fairly seen lift restrictions at this moment last year at the peak of the crisis.
And on top of that our operations has been adjusted to be more agile and adaptable applying all the learnings from last year.
Consumers have also adjusted the habits given the experience over the last 12 months.
So what we have seen we believe that sales numbers will bounce back quickly once the restrictions are lifted so.
But the situation in Brazil, which as Youll know he said part of our footprint.
This is one but adjusted part keep in mind.
We mentioned in the opening remarks, we are generating strong topline and EBITDA results in other markets.
Particularly dose those U S dollar euro.
Stable local currencies in our other three divisions last year for example, fully 50% of the year's EBITDA result, before corporate expenses came from these markets on.
And generally speaking our government restrictions have loosen in these markets, which means that we are much closer to normal when we look at the consolidated operations.
To give you an idea.
I mentioned, we have 155 restaurants closed in Brazil.
In all of the other markets, excluding Venezuela, we only have seven restaurants completely closed so we are mostly operating.
In all the restaurants in the rest of the company and in those returns or growth in the rest of the company.
More than 60% of them are operating all business segments. So.
The situation I will tell you Brazil is much greater in terms of restrictions needless to say the situation is very dynamic.
And we are closely monitoring developments in each market and we are making the adjustments to the operations as needed on leveraging all the learnings of less lost a year. So wrapping up on sorry for the long answer to your question.
I firmly believe we firmly believe that we have the right strategic approach for this year, we remain very confident in our ability to capitalize on our market share gains on our March restaurant footprint. One. These short term disruptions are behind us.
Perfect.
Next couple of questions are from Marcella Recchia of credit Suisse.
And the first one I think is for you Luis.
And she asks about the crude VIP automatic loyalty program around our drive through programs.
And if you can comment on sort of the nature of the program provide a little bit of visibility in terms of what we expect to do with it moving forward, if we're going to roll it out into Brazil, or and it also affects the only loyalty program or if there are any other loyalty programs excuse me that are underway as well.
Thank you Dan Good morning, Marci and thank you for the question first for US having a loyalty program is a strategic initiative.
<unk> stimulates the frequency of consumption of our customers increasing their loyalty to their business and to the brand.
And there are different from the way the loyalty program. We have already started through the use of digital pursing, our app, where we can identify their frequency of visits and their favorite stores and products.
Additionally, as we.
We mentioned, we have already disclosed VIP of the Mark that is the first step of building a compelling loyalty program platform.
This club is already in Argentina, Colombia, Chile, or Hawaii, Costa Rica, Panama and Mexico.
And our plan is to run it out to the rest of the region of course, Brazil included.
Today, the members receive exclusive offers and information related to their favorite products.
Morris.
And use occasion.
And it already has like with 900000.
Registered users and even though it's in the early stages, we are focusing on developing deficiently, because it's going to be very important in any in the near future.
Great and the second question from Marcella is for you Mariano NCS about sort of the nature of the tax related provisions in Brazil in the quarter from the fourth quarter of this year and last year. So if you can just.
Provide a little bit of color there that'd be great.
Yes, Thanks, Dan and thank you Marcelo for the question.
Half of the decline in Brazil, <unk> fourth quarter 2020 margin is explained actually by the other operating income line, which was mostly the result of tax related and other provisions that generated relevant positive one offs already reported in 2019.
<unk>.
And some negative one offs in the fourth quarter of 2020.
And we are not expecting that this specific items that I just mentioned will continue.
Going forward.
Okay.
Perfect.
We also have a number of questions here from a number of folks Marcel or ice from Santander would only move was mined from Inca.
And Marcelo also from credit Suisse have all asked different questions related to our delivery aggregator relationships from our relationships. We have in the various markets and also a little bit more color or if we can prove.
A little bit more background on what we mentioned in our opening remarks related to the exclusivity agreement with <unk> in Brazil.
Possibly other tests that we're doing along those lines so our Marcellus assets for you.
Okay John Thanks.
Thanks for your questions.
US Youll note. They know we are operating delivery in 17 of our 20 markets in the region.
We have.
Very strategic approach.
To be segment, which grew dramatically.
Spectacular way last year.
So we are negotiating with all the Aggregators laptop operations in our markets and the different markets and we are moving market by marker in markets in order to optimize our results our sales growth our margins on our market share in this business segment.
<unk> is very important for us so.
Typically.
We have markets most of the markets, where we work with three or four.
Aggregate those remain once in those markets and.
And at the same time from the last part of last year.
At the beginning of this year, we are running some some experiences new experiences in terms of exclusivity in some markets, particularly at this moment we have.
Some exclusivity agreements in three of our markets Brazil.
Colombia, Peru.
And in these cases.
We base the negotiations.
Aggregate dose.
We reached we we signed these agreements based on three pillars sales growth, which is maybe the most important for us we use the play out of that.
Give us the.
The fastest pace in terms of sales growth in the short term.
That obviously translates in gains in market share.
The growth for the future and third profitability, which is a main part of the decision. So.
We are very pleased with the results of the early results we are getting.
We mentioned during our opening remarks, Doug reheat our rate growth.
Sales per day per restaurant in delivering in February and let me add to that that March is looking even better.
So we have a very strategic approach and we are looking market by market. How we can optimize this channel how we can optimize the results of this business segment for the company.
We leverage obviously our size we are the only player in duration.
Conceived with any aggregate.
Talk about 17 markets of the same time.
Just one brand so it's one operator, that's a huge advantage in order to.
Negotiate different conditions across the region. So that's.
More or less what I have to say about this.
And Marciano, let me add regarding margins delivery margins.
Given the incremental lithium sales the segment. The fact that delivery does not require almost any additional investment there.
The strategic negotiations that you just mentioned with our <unk> in every market, where we operate.
The higher prices that we have in the menu board for delivery plus the higher.
Check of this segment.
We have been able to manage this segment very efficiently, allowing us to leverage on the fixed costs at the restaurant level and bringing additional dollars to the business. So that's more or less the pictures the picture regarding margin.
Related to this segment.
<unk> is very accretive from the company.
And so Mariano why don't we keep it with you Barbara from JP Morgan asks the question with respect to what your expectations are for working capital dynamics in 'twenty, one and we have a somewhat related question related from luminous capital, who was asking about sort of our margin outlook.
The margins seem pretty high considering the current sales level and I was wondering if there is a structural structurally higher margin expected than pre COVID-19 or if it's too soon to say so maybe you can sort of take the cash flow and margin perspective there.
Perfect.
Barbara Iron ore.
<unk>.
Well first of all it's worth noting that we started the year with a very strong balance sheet, including a very comfortable cash balance of $166 million.
No short term debt.
And a manageable maturity profile for our long term debt so for this year.
We're starting with a very strong cash position in part the reason for that.
All the successful negotiations.
That we performed during 2020 within those it's worth mentioning that from March to July of 2020, 22020, we did not pay.
Royalty.
Feast to Mcdonalds that we are starting to pay this year starting in January so from January to March with already a working capital we're going to have some pressure on our cash.
Because we are paying each month double royalties.
But having said that we are starting the year with a very strong cash position and on top of that we continue negotiating with all our suppliers.
In order to.
In Greece and have.
Better payment terms.
When I say suppliers I mentioning all the food and paper suppliers I'm mentioning or landlords.
All corporate suppliers, so regarding working capital 2000 22020 was.
Our cash flow the working capital generated additional cash to the company in 2021, we will go back more to normal levels, mainly because we are paying.
Sure.
This royalty fees to mcdonalds from last year, but it's important also to note that this year, we are receiving the growth support as we explained already during our investor call in January so the royalty fees for this year are going to be lower in <unk>.
Percentage terms overstates.
That's regarding working capital we are not expecting any pressure and we are very comfortable with our cash position and the cash that we will we are expecting to generate throughout the year regarding margin expectations for 2021.
And.
The questions regarding how we can keep margins for 2021.
You know that.
In 2019, we have a 10% EBITDA margin, which was the highest in the company history.
So, although we do not expect to reach those levels yet in 2021.
Sales continue to recover we do expect much better EBITDA performance versus 2020.
Especially if we see the more normalized operating environment, we're expecting for the second half of this year.
The good news is we're starting 2021 with solid top line performance and better than expected profitability in January and February.
Remember that the same period in 2020 non experienced the effects of the pandemic, which only started having a material impact on results during the second half of March.
In this line what we can say is that although the first two months of 2021 trended in the right direction. They have not yet returned to pre pandemic performance. So comparing 2021 with 2019, we expect some cost pressures mainly from protein costs in the food and paper line some higher delivery date.
Rates within the occupancy and other expense line.
And some deleveraging in terms of G&A expenses as a percentage of sales not in absolute terms, but as a percentage of sales we do.
On the other hand, the good news is that increasingly effective digital marketing menu simplification higher restaurant productivity continued improvement in front counter and dessert centers sales and the resumption of the already mentioned growth support were receiving from mcdonalds.
Help recapture some of the pre pandemic profit.
So thats the general outlook for margins in 2021, it's also relevant to point out.
We operate across a large geography and when we look at the performance on a division by Division basis, there are different stories to tell.
Caribbean Division for example, as we have already mentioned during last year.
<unk> generates a large portion of its EBITDA in U S dollars or euros has maintained the very strong performance you saw in the second half of 2020, So January and February were seeing.
A similar performance, Brazil, and flat with a solid rebound in Chile, and Argentina, mainly also performed well in the first two months of the year, but remained below.
Last year's level talking about January and February.
And no net has been the slowest to recover although we see some promising underlying trends that we hope will improve performance as the year continues so I think.
That's the overall picture for 2021 regarding each of the cost lines.
<unk>.
Of.
Our geography as well.
Thanks Mariano.
Come back.
A question from.
Of JP Morgan.
One relates to market share gains, yes, if we can quantify market share gains in Brazil, and if we believe these gains were on top of smaller players or even some of the larger USR players in the market and I think thats from ourselves.
Okay. Let me first start talking about how we measure.
Market share.
We measure and we track market share using a variety of sources of information on.
And what we do is we try to triangulate present defied trends on areas of opportunity.
Particularly talking about Brazil, we have the opportunity to work with crest at risk.
Has a very large sample size.
More than 70 cell phone cases per year. So are we to a video robust tool.
Tool and assembly narrow bodies is very small.
And according to this tool to this growth.
Two we have in 2020, our highest market share ever in Brazil EBITDA.
Measure in Brazil in 2016.
On.
Our expansion compared with 2019 was a multiple of all other players in the in the marketplace. So.
Most of the gains came from smaller players.
That's.
The information tell us.
And at the time, we have more than two times the market share that our closest competitor our cash in Brazil in both measures because we have information both from <unk> on sales on both measures we have more than two times.
The market share of our closest competitor and in both categories because they measure market share.
It related to <unk> with service restaurant industry unto the Eo and Po and eating out industry. So the whole industry.
And in both cases, we have two times more than two times.
<unk> share of our closest competitor and it's important to note is that this kind of trend.
Shall we announced that we gained market share big time last year.
Similar in other markets, where we operate not only Brazil markets like Argentina, Chile, Colombia, and Puerto Rico, we have a pretty strong market share gain in 2020 and we are.
We are building on that in order to came out of this crisis in net.
Even stronger position that we have before us.
That's more or less.
What I can disclose about market share.
Great.
We will keep it with you Marcello of walking away from it though.
Asked us to elaborate on how digital and targeted marketing will impact our pricing and cost and if we have an ongoing.
Program to improve data management, yes.
Hi, <unk>, thank you for joining us today.
Yes, definitely we see the saw zone.
As a big opportunity for us that's why we were talking about digital transformation and Arcos <unk>.
From the last few years.
Sure.
The name of the game for US in this is moving from mass marketing to mass personalization and given the fact that we have better tools and we have a better understanding we analyze better data and with better tools.
Doing artificial intelligence, we have the opportunity to book.
First segment our.
Our offers our promotions our incentives from our customers.
We are reaching the point where for example at this time.
We have approximately 45% of our digital sales identified.
Up to the customer that individual customers, so with that information and all the tools. We are building and we are working.
It's not only internal tools, but with the partners.
World Class farm assets, we are working with.
We have the opportunity to target in <unk>.
Specific promotions specific incentives.
Proposals in order to increase frequency and profitability. So we are very excited.
And the company, we talk a lot about winning.
This is a race in our region I think that we are the front runner right now but.
We still have higher aspirations.
For these in order to improve.
Improve our results going forward.
Great. Thanks Marcella.
A question I think Mariano maybe you can talk about this with respect to concerns around supply chain and how our supply chain has been performing and maybe the impact on gross margins.
Yes.
Regarding concerns about supply chain, we don't have any concern regarding availability of.
Of products too.
Two.
Arrive to our restaurants in that respect we don't have any any concern the only concern and I already mentioned something during the question about.
Margin outlook for 2021.
About the protein prices.
So far we have been.
Pretty successful defending our our gross margin. If you look at gross margin. During 2020, we have been very successful absorbing those costs either.
The successful negotiations with suppliers and also having.
The revenue management skills to.
Sure.
Identify and to be able to.
Transfer those increases to our average check and being able to sell the products that have higher margins.
Marcelo already explained how the.
Digital transformation that the company has.
<unk>.
It has allowed us to.
Improve.
Our revenue management skills, and our pricing skills.
And that's the way we are doing and Thats the way that we are expecting two two.
To continue to bleed in.
2021.
So I think the answer to the question is they are to summarize it is we see some pressures in the protein prices.
That pressure comes to the entire industry not of course, not only to US we really think that we are.
Much well preferred tool.
Face.
Challenge as we already demonstrated that.
During 2020, and you can see that in the specifically in the fourth.
Quarter.
And all the things that we are doing to improve our pricing skills.
And.
Improve also the product mix.
We also we're also very confident that.
Will that will allow us to.
Maintain a very healthy gross margin for 2021.
Thanks Mariano.
Flow up question from October <unk> of credit Suisse.
She asked if we could comment on how much pricing we pass through in Brazil in order to reach the current margin levels and Thats for you Marcella.
Okay. Thanks Ross.
I will tell you that if you look at our menu board prices or price increases.
What we did in 2020 will speed in line with inflation in the markets.
So I was mentioning before seems more and more of our sales are <unk> come from.
Different sources from different.
Tools.
Like delivery and the like.
Our Mcdonald's hub in the region.
Those sales we have the opportunity to.
Make a difference.
Price strategy.
Each customer so we have more flexibility and we are trying to offer a very compelling value.
While new propositions for customers, particularly for example last year at the beginning of this year, we are pretty focused in family bundles.
On group of products for groups of persons.
And in those we can offer a very compelling value propositions for the customers at the same time at very good prices and margins for US I think that part of the explanation for our results in terms of growth margin last year was not only the excellent job that our supply chain team did during the year in <unk>.
Order to keep.
The costs in our book door as low as possible, but at the same time the ability that we have in order to deal with pricing. So that's more or less what's going on in this area.
Perfect and we have time for one last question from hone removals and he asked for a little bit of clarity or we can comment Mariano on the FX hedges, we have in place for 2021 floor to paper purchases.
And maybe contrast that with how we were positioned last year.
Okay. Thanks can only more for the question well last year in 2020.
We were our hedging program.
I always mentioned this is not a quality with this is to give us. This program is to give us visibility on our cost structure.
Having said that during 2020 day average spot.
In almost all the hedges given the depreciation of the currencies was.
Very accretive for the company.
Just to explain how it works each time currencies depreciate and when we hedge in advance that will bring again in our food and paper.
Pay per line and we always cash six to nine months in advance.
That means that during 2020, even the sharp depreciation of Latam.
Currencies.
We had a lower food and paper cost than we would have had without hedges.
Tim is happening for 2021.
We already we already we already hedging for the third quarter of 2021.
The hedging of the FX value for those hedges.
Our.
Well below the current spot for the currency of course, the figures that we hedge for.
2021.
Are the rates at which we hedge for 2021 are higher than the one that we hedged for 2020.
It's also worth mentioning that we hedge our imports only 50% of our imports in.
The main countries, where we hedge the main countries that we have hedging in place, which are Brazil, Colombia, Uruguay, Chile and.
Thank you.
Great. Thanks, Mariano I think we're a little bit over.
And so I wanted to thank everyone again for joining you joining us today and for your interest in the company.
We look forward to speaking with you again on our May earnings call.
Obviously, the IR team is always available to you for any follow up questions today and as we move forward until we speak again, please stay safe and have a great day.
Okay.
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