agenda arcos dorados 3q2014 conf call... · key marketing initiatives marketing activities designed...
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Agenda
ARCOS DORADOS
3Q2014 Conference Call Presentation
November 4, 2014
Disclaimer
This presentation contains forward-looking statements that represent our beliefs, projections and predictions
about future events or our future performance. Forward-looking statements can be identified by terminology
such as “may,” “will,” “would,” “could,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,”
“predict,” “potential,” “continue” or the negative of these terms or other similar expressions or phrases.
These forward-looking statements are necessarily subjective and involve known and unknown risks,
uncertainties and other important factors that could cause our actual results, performance or achievements
or industry results to differ materially from any future results, performance or achievement described in or
implied by such statements.
The forward-looking statements contained herein include statements about the Company’s business
prospects, its ability to attract customers, its affordable platform, its expectation for revenue generation and
its outlook. These statements are subject to the general risks inherent in Arcos Dorados' business. These
expectations may or may not be realized. Some of these expectations may be based upon assumptions or
judgments that prove to be incorrect. In addition, Arcos Dorados' business and operations involve numerous
risks and uncertainties, many of which are beyond the control of Arcos Dorados, which could result in Arcos
Dorados' expectations not being realized or otherwise materially affect the financial condition, results of
operations and cash flows of Arcos Dorados. Additional information relating to the uncertainties affecting
Arcos Dorados' business is contained in its filings with the Securities and Exchange Commission. The
forward-looking statements are made only as of the date hereof, and Arcos Dorados does not undertake any
obligation to (and expressly disclaims any obligation to) update any forward-looking statements to reflect
events or circumstances after the date such statements were made, or to reflect the occurrence of
unanticipated events.
1
3Q14 Results & Highlights
Third quarter results reflect a weaker than expected operating
environment
2
As reported revenues impacted by the use of a weaker FX rate
to remeasure Venezuelan results
High single-digit organic revenue growth, driven by:
o 7.4% expansion in comparable sales
o Contribution of $42.5 million from 93 net openings (LTM)
o Brazil’s topline growth impacted by the FIFA World Cup
Evidence of stabilizing volume trends
2015 key measures:
o Technological investments to reduce labor costs
o Lower capital expenditures, with new restaurants to be concentrated in Brazil
o Expected efficiencies in G&A and other non-product purchasing
o Recommendation of elimination of 2015 dividend
THE McDonald's BRAND REMAINS THE PREFERRED BRAND IN
BRAZIL & OUR OTHER MAJOR MARKETS
Key Marketing Initiatives
Marketing activities designed to protect traffic and market share
3
Marketing campaigns focused on:
o Affordability platform (GPPP)
o Strengthening the McDonald’s brand
o Family experience and iconic products
Key marketing activities in 3Q14 included:
o The re-hit of Chicken McBites in the largest markets
o The Danonino yogurt in the Happy Meal in Brazil, Argentina % Uruguay
o The Triple Bacon with Cheese, McBacon and Duplo Pampa in GPPP
o The McFlurry Oreo and the McFlurry Milka Choco Swing in the Dessert
category
Ongoing campaigns across the region continue to enhance the brand
o “qué bueno que viniste” (“Glad You Came”)
o Happy character
3Q14 Performance: Brazil
Results impacted by the FIFA World Cup and a weak environment.
Evidence of a stabilization in traffic trends at quarter-end
4
Topline growth below expectations and impacted by a slowdown in economic activity
and the FIFA World Cup
As reported revenues were up 3.7%, supported by:
o The contribution of new restaurants (71 net openings, LTM)
o A 0.6% year-over-year average appreciation of the BRL
+3.0% organic revenue growth
o Comparable sales decline of 2.4%, driven by
Average check growth and negative traffic
A calendar shift in winter holidays
An ongoing soft consumption environment
Signs of stabilizing volumes at end of 3Q
Key marketing drivers:
o Chicken McBites
o Crispy Tasty & Duplo Pampa in GPPP
o McFlurry Talento Castanhas-do-Pará & Mc Flurry Oreo
3Q14 Performance: NOLAD
Results reflect a weak consumer environment and the FIFA World Cup
5
As part of our turnaround strategy in Mexico, we have been testing a new
personalized menu, the “McMío”, or “McMine”
o Enables customers to customize meals
o Provides more choices, including local tastes and spicy condiments
“Open doors” program > kitchen tours
5.1% decline in organic revenue
o Comparable sales decreased 8.3%
Declines in average check & traffic
Negative shift in mix, which more than offset price adjustments
Negative impact from the FIFA World Cup
Intensified competition in Costa Rica and Panama
Key marketing drivers:
o Chicken Festival
o Big Mac Manía
o Happy Meal
* Costa Rica, Mexico and Panama
3Q14 Performance: SLAD
Strong organic revenue growth, despite a deteriorating
macroeconomic environment in Argentina
6 * Argentina, Chile, Ecuador, Peru and Uruguay
Continued strong contributor to consolidated organic revenue growth
As reported revenues were down by 12.2%, mainly impacted by:
o 48% y-o-y average depreciation of the Argentine Peso
+19.5% organic revenue growth
o Comparable sales growth of 18.5%
Driven by average check growth
Modest decline in traffic due to soft macro
environment in Argentina and the FIFA World Cup
Key marketing drivers:
o Chicken McBites
o Triple Bacon with Cheese in GPPP
o McFlurry Tres Sueños & McFlurry Milka Choco Swing
3Q14 Performance: Caribbean
Maintained leading market share despite ongoing challenging
conditions in Venezuela
7 * Colombia, Puerto Rico, Venezuela and Caribbean Islands
Results impacted by the use of a weaker FX rate to remeasure Venezuelan business
+19.0% organic revenue growth
o Comparable sales grew 24.3%
Driven by average check growth
Excluding Venezuela:
o Organic revenue declined by 2.9%
o Comparable sales declined 11.2%
Negative traffic & lower average check
in Puerto Rico and Colombia
Negative shift in mix related to efforts
to protect market share and traffic
Key marketing drivers:
o Chicken McBites
o CBO sandwich (beef & chicken)
o McBacon (beef & chicken) in GPPP
Mexico
Colombia
Brazil
Argentina
NOLAD
Costa Rica, Mexico,
Panama
BRAZIL
SLAD
Argentina, Chile,
Ecuador, Peru,
Uruguay
CARIBBEAN
Aruba, Colombia, Curaçao, French Guyana,
Guadeloupe, Martinique, Puerto Rico, St.
Croix, St. Thomas, Trinidad & Tobago,
Venezuela
71 Restaurant Additions LTM (net)
33 Reimagings LTM
8 Restaurant Additions LTM (net)
5 Reimagings LTM
8 Restaurant Additions LTM (net)
6 Reimagings LTM
6 Restaurant Additions LTM (net)
1 Reimagings LTM
3Q14 New Unit Development & Reimaging
SLAD
Brazil
Caribbean
NOLAD
Number of systemwide
restaurants(1)
380
833
362
511
18%
40%
17%
25%
2,086 100%
8 (1) As of September 30, 2014; does not include McCafé units & Dessert Centers
3Q14 Adjusted EBITDA Bridge
Adjusted EBITDA variations ($ Million)
9
$ 90.4
$ 8.7 $ 1.9 $ 30.2
$ 4.7 $ 66.1
0
20
40
60
80
100
120
EBITDA 3Q2013 Revenues Variation @3Q2013 EBITDA Margin
EBITDA Margin Variationexcl. Special Items in CC
Fluctuation of the localcurrencies
Special Items EBITDA 3Q2014
In constant currencies
3Q14 Non-Operating Results
10
$7.7 million increase in non cash foreign currency exchange losses
o Mainly driven by the impact of the depreciation of the Brazilian Real (BRL) within
the quarter, which generated:
a loss on intercompany balances, partially offset by
a gain related to BRL-denominated long-term debt
$8.8 million decrease in net interest expense versus the prior-year quarter
o Interest expense in 3Q13 included a one-time charge of $12.7 million related to
the debt restructuring completed in that quarter
$7.3 million decrease in income tax expense
The company registered net income of $240 thousand, compared to net income of
$19.6 million in 3Q13
EPS were near zero in the third quarter of 2014, compared to $0.09 in the previous
corresponding period
Results reflect increased foreign exchange losses
(i) Total financial debt includes short-term debt, long-term debt and derivative instruments (including the
asset portion of derivatives amounting to $5.4 million and $0.5 million as a reduction of financial debt as of
September 30, 2014 and December 31, 2013, respectively).
(ii) Total financial debt less cash and cash equivalents.
3Q14: Financial Indicators
Solid financial ratios – Plan in place to reduce leverage
11
As of As of
September 30, December 31,
(In million of U.S. dollars, except ratios) 2014 2013
Cash & cash equivalents 94.8 175.6
Total Financial Debt 886.5 785.0
Net Financial Debt 791.7 609.4
Total Financial Debt / LTM Adjusted EBITDA ratio 3.2 2.3
Net Financial Debt / LTM Adjusted EBITDA ratio 2.9 1.8
12
3Q14: Closing Remarks
We are taking steps to streamline our organization These steps will:
o Improve our short-term results
o Position us well for the next upturn in the cycle
Looking ahead to 2015, we will focus on:
o Defending traffic
o Containing costs items that are under our control
o Reducing leverage
o Expanding our footprint, strategically
We expect margin improvement in 2015 as we take steps to control labor and other
non-product costs, and leverage our G&A expenses
We have a strong marketing calendar in place which we expect will drive topline
growth and a slow recovery in volumes in 2015
While cyclical, our sector produces strong growth in times of robust
economic activity
WE REMAIN DEEPLY COMMITTED TO OUR MARKET AND CUSTOMERS
13
IR Contact
For additional information:
Daniel Schleiniger
IR Director
+1.305.961.2848
+54.11.4711.2287
Patricio Iñaki Esnaola
IR Manager
+54.11.4711.2675
www.arcosdorados.com/ir