Arcos Dorados Holdings Inc (ARCO) 2011 Q4 法說會逐字稿

Good morning, and welcome to the Arcos Dorados fourth-quarter and full-year 2011 earnings call. With us today are Woods Staton, Chairman and Chief Executive Officer; Sergio Alonso, Chief Operating Officer; the Company's CFO, German Lemmonier; Raul Mandia, Chief Marketing Officer; and Sofia Chellew, Investor Relations Director.

As a reminder, all participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions)

For your information, today's conference is being recorded. I would now like to turn the conference call over to Sofia Chellew. Please go ahead.

Thank you. Before we proceed, I would like to make the following Safe Harbor statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statement to reflect new or changed events or circumstances.

In addition to reporting financial results in accordance with generally accepted accounting principles, we report certain non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which can be found in the press release filed with the SEC on Form 6-K.

At this time, I would like to turn the call over to our Chairman and CEO, Mr. Woods Staton. Please proceed, Woods.

Thank you, Sofia, and hello, everyone. I would like to thank you all for joining us today for our fourth-quarter and full-year 2011 review of results.

As we cap off our first year as a public company, I am very proud to share with you the advances we have made across our markets. These include strong revenue and comparable sales growth and execution of ambitious opening schedule, which has extended our footprint in the region and cemented our leadership position. I would also point out that these achievements coincided with the execution of three successful capital market transactions, one of which, a debt restructuring, reduced our funding costs. As I am confident you would agree, it has been a busy year, and our achievements underscore the depth of talent at Arcos Dorados.

I would like to begin my comments with a review of our key financial results, before sharing some commentary on the environment in which we operate and my outlook for our sector and company growth in Latin America. The team will then provide a detailed analysis of results and operating performance.

In 2011, Arcos Dorados achieved its fourth consecutive year of solid growth since we acquired the Latin American operation from McDonald's in 2007, with full-year revenue and adjusted EBITDA growth of 21.2% and 13.6%, respectively. The increase was driven by comparable sales growth of 13.7%, the net addition of 85 restaurants and successful brand extensions through dessert centers, as well as McCafes.

Considering the international economic uncertainty and macroeconomic headwinds, we ended the year solidly. Fourth-quarter revenue grew 10.5% to $958.5 million, and growth in systemwide comparable sales, which are based on Company-owned and franchised restaurants open at least 13 months, was 11.5%. The results demonstrate the penetration of the McDonald's brand throughout Latin America, as well as Arcos Dorados' success in expanding its customer base and market share, as guest counts continue to outpace the industry.

In the first two months of 2012, we experienced healthy comparable sales growth, as we expand our product offerings, intensify our marketing initiative and reimage and open additional restaurants to fuel growth. Nonetheless, weaker currencies may affect results early in the year.

Strong spending, increasing employment opportunities and economic growth remain hallmarks of the region. At the same time, many Latin American countries are also experiencing high inflation, together with volatile commodity prices and moderating consumer sentiment, due largely to economic issues that Europe is going through. Combined, these factors resulted in a more challenging regional economic climate than we have enjoyed in the last few years and are making the short-term outlook more challenging.

Having worked in the Latin American consumer industry for almost 40 years and this segment for more than two decades, I am very well aware that a certain level of uncertainty and volatility have always been facts of life in Latin America. But their effects are not one-sided, nor should they be overstated. Unlike most of the developed world, Latin America is weathering the current global economic situation with strong economic fundamentals, including, by and large, resilient internal demand, fiscal discipline in most countries and continued overall optimism in the potential for the region to respond to an externally inflicted slowdown.

Despite the global contagion, the most recent World Bank projections suggest that any potential slowdown in 2012 will be temporary. What's more, Arcos Dorados' diversified geographical footprint reduces the impact of economic uncertainty and sporadic slowdowns. This portfolio approach saw particularly strong growth within our SLAD region in the fourth quarter.

Importantly, the current economic headwinds don't detract from Latin America's long-term positive outlook or in any way challenge Arcos Dorados' continued dominance within the QSR industry. We remain confident that healthy population growth, untapped demand for our products, as well as the burgeoning middle class, will provide significant long-term opportunities to further enhance our profitability, expand our business and entrench our leadership.

In the meantime, we are maintaining our focus on growth, as well as focusing in the highest potential countries, while keeping abreast of continued opportunities to improve our profitability. Now I would like to turn the call over to Sergio Alonso, who will go through Arcos Dorados' fourth-quarter performance in greater detail.

Thank you, Woods. Hello, and thank you for joining us today. The developments that stood out for me in the fourth quarter were the growth in Argentina contribution to revenues and the progress of Mexico's turnaround strategy. Argentina continues to make strides driving [current] consumptions, where we keep average check either above or in line with inflation. In Mexico, traffic and the number of transactions are improving as we succeed in enticing customers through competitive menu offerings. At the same time, the McDonald's brand remains the market leader in Brazil, as well as the vast majority of countries.

Let's begin with the Brazil division. We bolstered revenue growth for the quarter of 4.7%, or 11.1% on a constant-currency basis, and comparable sales growth of 6.3%. Given Brazil's historic contribution to revenues, I would like to provide some color regarding the country's macroeconomic environment and our operations.

Consumer spending came under pressure during the fourth quarter, evidenced by the almost 3% decline in consumer confidence over the fourth quarter of 2010, which weighted on the entire retail industry together with others, such as auto sales. Despite these [structures], we maintained healthy growth, boosted by the strength of McDonald's brand during most of the quarter, while other industries faced more serious slowdowns.

In the final month of the year however, slower countrywide consumption negatively impacted volumes. Global economic uncertainty also contributed to increased currency volatility during the last three months of the year. While it has been a period of changing economic conditions, our sustained market leadership, our loyal customer base and our menu options will see us overcome these temporary cycles as we have done in the past. For the full year, revenue growth in the Brazilian division was 18.5%, or 12.9% in constant currency, driven by a [9.2%] increase in comparable sales.

In NOLAD, we continue to expand and improve revenue growth, and were particularly pleased with the continued progress in the turnaround of our Mexican operations. Revenues for the division grew 7.2% during the fourth quarter, or 13.1% in constant currency. Quarterly comparable sales increased 8.4%. As a result, full-year revenue grew 16.5%, or 14.2% in constant currency, with comparable sales growth of 8.5%.

Throughout the region, continued to deliver impressive growth, with revenues rising 25.2% in the fourth quarter compared with the previous corresponding period. In constant currency, revenues grew 30.3%, mainly driven by 27.8% comparable sales growth. As a result, full-year SLAD revenue gained 33.5%, or 32.8% in constant currency, backed by a 29.6% increase in comparable sales. Despite high inflation levels in some countries within this division, the Company's product mix and pricing strategy have captured growth, while keeping pace with inflation.

In the Caribbean division, difficult economic conditions across some territories, as alluded to in prior results, are affecting consumption levels. In the fourth quarter, revenue grew 1%, or 2% in constant currency. This reflects a 2.2% quarterly decline in comparable sales, driven by lower volumes. However, we have actually improved market share, demonstrating that this decline affects the industry as a whole.

A weak economy recovery in the United States, coupled with the termination of subsidies on soft tourism flows are weighting on the economies of these regions. As a consequence, revenues for the year grew 2.7%, or 1.8% in constant currency, while comparable sales were 0.6% below 2010.

To deliver the best results during these difficult conditions, we remain focused on our long-term strategy of offering new and appealing products, as well as enhancing [developers' proposition] of our product portfolio.

Latin America and the Caribbean are dependent on the performance of developed market economies. Nevertheless, current government policies in many of our countries, such as interest rate cuts and other similar packages, are aimed at enhancing consumer spending, which should support growth in our business.

We also are working to improve performance by managing costs and extracting efficiencies through initiatives such as Made For You. As of December 31, more than 90% of Company-operated restaurants in Mexico are effectively operating under the Made For You platform. Similarly, in Brazil, we made significant advantage during 2011 with more than 400 restaurants implementing the platform. Finally, we also initiated the platform rollout in Argentina.

Finally, I would like to conclude my portion of this discussion by commenting on our openings plan. During the year, there were 101 openings of new restaurants, with net openings of 85 units. Additionally, we opened 39 McCafes, 156 dessert centers and also fully reimaged 121 restaurants. Aside from boosting revenues, these initiatives are valuable because they make the McDonald's brand more recognizable. We will continue to increase the number of program openings as part of our long-term strategy, and are confident that our structure will accommodate the increasing level of expansion.

And now German will comment on our financial performance.

Thanks, Sergio, and hello, everyone. Consolidated revenue for the fourth quarter increased 10.5% at $958.5 million. But in constant currencies, revenue grew 16.1% versus fourth quarter 2010.

Comparable sales for the period were 11.5% higher, while the net addition of 85 restaurants over the previous 12-month period led to a year-end total of 1840 restaurants.

Adjusted EBITDA reached $104.6 million, an increase of 6.1% versus the fourth quarter of 2010, or 10% in constant currency, and is mainly explained by, one, improved results in SLAD, which were primarily driven by strong revenue growth and the leveraging of cost and expenses; second, food and paper cost improvement as a percentage of sales in Brazil and SLAD. Food and paper costs for the fourth quarter included the effect of price adjustments negotiated with certain suppliers in Venezuela, result to which we obtained one-time rebates for the year. Excluding this effect in the quarter, consolidated food and paper costs improved 50 basis points for the fourth quarter of 2010.

These gains were partially offset by, one, general expenses including EBITDA grew over the fourth quarter 2010 net of the gain from share-based compensation resulting from the ongoing (inaudible) program, and included increased corporate expenses stemming from higher payroll, and inflation of approximately 23% in Argentina, where the majority of the Company's personnel is located, sharply exceeds currency devaluation of roughly 8%, coupled with additional headcount to facilitate regional growth going forward.

Second, an increase in net operating expense, mainly due to the provision for contingencies of $12.4 million of tax charges of royalty expenses, and which will be ongoing in Brazil (inaudible). Third, lower sales in the Caribbean division as a result of the weak economic environment in many territories which affected consumption. (Inaudible) EBITDA margin was 10.9%, down from 11.4% in the fourth quarter of 2010.

We would also like to remind you in the fourth quarter of 2010, the Company recognized special charges of approximately $25.4 million, mainly related to the accounting of its share-based compensation plan in operating results. These charges were excluded from adjusted EBITDA in the fourth quarter of 2010.

Finally, full-year 2011 registered consolidated revenues of $3,657.6 million, a 21.2% improvement over 2010, or 17.7% in constant currency. Similarly, consolidated adjusted EBITDA grew 13.6%, or 7.6% in constant currency, and was driven by the following divisional performance.

First, adjusted EBITDA for the Brazilian division grew 15.5% to $289.5 million. The improvement reflects strong revenue growth and lower food and paper costs as a percentage of sales. At the same time, margins faced pressure from increased payroll as a percent of sales, increased G&A, which mainly relates to the expansion plan for the coming year, together with the mentioned CIDE tax charge.

Second, in NOLAD, adjusted EBITDA increased by 27% in 2011 due to revenue growth of 16.5% together with improvement leverage of fixed costs as Arcos Dorados advanced its turnaround plan for the Mexican operation.

Third, in SLAD, adjusted EBITDA grew an impressive 44.6% during the full year 2011, driven by revenue growth of 33.5% for the year. Finally, adjusted EBITDA for the Caribbean division declined to $9.5 million from $23.6 million one year ago. The drop is mainly the result of economic difficult conditions we described earlier.

Now, turning to nonoperating results for the fourth quarter. The significant improvement is mainly the result of lower overall cost of funding, including derivative instruments of $8.5 million as a result of a debt restructuring completed in July 2011. This includes the consolidation of the majority of the Company's derivative instruments and the issuance of a BRL bond, resulting in a slight increase in interest expense that was more than offset by a reduction in losses from derivative instruments of $9 million. These benefits were partially offset by foreign currency exchange losses of $4.9 million in the fourth quarter 2011.

Income tax expense for the quarter totaled $20.2 million, resulting in an effective tax rate of 30.5%. Thus, the full-year effective tax rate was 27.8%, in line with what we expected in the third quarter. As a reference, in the fourth quarter 2010, the Company recognized a gain due to the reversal of the valuation allowances of our deferred tax assets in Brazil. Thus, consolidated net income in the quarter increased 12.3% to $46.2 million.

Earnings per share amounted to $0.22 for the quarter compared to $0.17 in the prior year. As a result, full-year net income totaled $115.5 million, reflecting an increase of 9% over the full year of 2010. With these results and [used] as assumption for the guidance provided during the third-quarter results, full-year revenues were within the expected ranges, 21% to 23%.

Adjusted EBITDA and net income were the within the expected ranges if we exclude the unforeseen contingency provision, which was the result of a modification and interpretation by fiscal authorities of Brazilian tax on royalty payment, as it states in our release.

From a cash flow perspective, the Company generated $110.1 million from cash generated by operating activities. Cash used in investment activities included capital expenditure for the quarter of $137 million. Cash used by financing activities reached $43.2 million, and included dividend payments totaling $25 million.

For the full year 2011, cash flow provided by operating activities amounted to $261.6 million. Cash used in investment activities for the year includes capital expenditure of $319.9 million, reflecting the seasonal increase in gross openings and rollouts of operation platforms in the year, and (inaudible) out the development of the Company's long-term strategy.

Cash provided by financial activities (inaudible) $5.7 million and included profits from the IPO in April 2011, along with the debt restructuring process in July 2011 from the redemption(inaudible) derivative instruments and BRL bond issuances. And dividend payments for the full year totaled $56.6 million.

As of December 31, 2011, total cash and equivalents were $176 million, where our total financial debt amounted $532 million. As a result, the Company maintains solid financial ratios with net debt adjusted EBITDA of one time, leaving us a comfortable position as we move ahead with our future expansion strategy.

In regards to the year 2012, we believe that given the current market dynamics and environment and based on constant currency and on the share price at the year-end 2011, revenues should grow between 15% to 17%, reflecting high-single-digit [comparison] growth and additional revenues from net restaurant openings. Adjusted EBITDA should increase between 10% to 12% as food and paper costs as a percent of sales improve and the ability to deliver SG&A should be (inaudible) through the end of the year.

We expect to continue to see payroll increase as a percentage of sales based on mandatory minimum wage increases in several countries within the region. Effective tax rate for the year should be in the range of 31% to 33%.

Capital expenditures will be in the range of $340 million to $350 million, which will include roughly 130 gross openings, continued Made For You rollout, along with market investments, strengthening our internal IT system to support projected expansion process, and all of which will assure continued higher returns for the Company.

Overall, we expect the more challenging first half of the year as we grow to measures to stimulate consumption in countries like Brazil to be more noticeable in the second half and mandatory wage increases take effect, while the Company (inaudible) gone through some of the headwinds as the year advanced, together with the Company's program market initiatives.

Now, Raul will discuss our sales performance.

Thank you, German, and hello, everyone. First, I would like to mention two activities that took place throughout the region during the quarter which served to strengthen our brand and commitment to promoting balanced lifestyles. These are the launch of menu choices.

Similar to the offering in the US, we now include a fourth item, fresh fruit, in our Happy Meal. And for adults, we now offer a side salad as an alternative to French fries in our extra value meal offerings, as well as reducing the sodium content of our menu. We are proud to say that we have led the industry in these initiatives that provide healthy menu choices and that's our key competitive advantage in the medium- and long-term.

Also, the 5-kilometer women's race in 20 cities across our territories. This event has been a great success, supporting our brand commitment to support an active lifestyle, particularly amongst mothers and family consumers, who are both key targets for our business. Over 35,000 women participated in this event in 2011, and it became the largest women's race in North America with wide media coverage.

In relation to our sales this quarter, in Brazil, quarterly comparable sales were driven by the launch of premium products such as McFlurry Toblerone and the Angus burgers, together with our pricing strategy, driving higher average check, which was the main components of comparable sales growth. Leaving the quarter, traffic slowed, but our stable market share indicates the recent (inaudible) we witnessed is in line with a retail-wide slowdown.

We continue to benefit from a premium brand image in this market, and will rely on the continued success of our value platform, with highly-competitive, high-quality core offerings at a great price that continue to attract traffic.

In our North Latin American division, or NOLAD, comparable sales grew 8.4% compared to the fourth quarter of 2010. In this region, premium sandwiches continued to drive growth. The launch Angus barbecue chipotle reinforced the category, which has been an important contributor to sales. Also, the introduction of a new Big Breakfast offer, the (inaudible) Deluxe, continues to help us grow that daypart.

Comparable sales in SLAD were up 27.8% versus the previous year, an impressive growth that is testament to our aggressive marketing strategies in countries like Colombia, as well as the highly successful performance of premium sandwiches like CBO in Argentina, (inaudible) [in other] markets, and especially bone-in chicken in Peru.

Lastly, in our Caribbean divisions, comparable sales decreased 2.2% with respect to the fourth quarter of 2010 as the region experiences challenging economic conditions. Nevertheless, our market share is improving and we continue focus on offering our great restaurant experience and our [relevant] value proposition to our consumers.

I am pleased with advances we have made in 2011. These include the launch of locally (inaudible) products, the strengthening of our brand presence and positioning through promotional activities, such as the women's race, in addition to widening our product offering to include fruits and salads. In the region, the brand remains strong, and we continue to consider new products and promotions to fully capture the imagination of consumers in our territories.

We are really excited as we look ahead and see the potential to further develop our different markets thanks to the (inaudible) of MacDonald's products available to us. In the coming year, we will remain focused on product innovation and investing in promotions to further strengthen the brand and the growing consumption opportunities available in the region.

Now I would like to turn the call over to Woods, who will provide some additional information and closing remarks.

Thank you, Raul. As you listened to Sergio, German and Raul, you probably sensed what a transformational year 2011 has been. We went from being a privately-held business to a publicly-listed company and initiating a dialogue with the goal of informing the market about our business and how we work within the region.

We restructured our balance sheet to reduce costs, while still maintaining the financial flexibility to deliver our long-term plans. We invested in our different markets through product launches, new consumption opportunities and innovative promotions. We improved operational efficiency through the rollout of our Made For You platform in key markets. And, to top it all off, we ramped up our restaurant openings as part of our long-term strategy to maintain secured McDonald's position as a leading QSR brand in the region.

Our focus in 2012 will be to drive growth through competitive offerings, innovation and an increase in the number of restaurant openings. At the same time, we will seek out efficiencies and to contain fixed costs.

The outlook has been made less certain by unfolding world events, which put pressure on some of our key markets. But this environment is what we are used to at Arcos Dorados. We have all spent the bulk of our careers in the region and industry, and use that experience to navigate the challenges and opportunities.

What we are certain of is that the region remains under-penetrated and provides an enviable platform for Arcos Dorados' future growth and that we are at the forefront of developing this industry.

Thanks for your attention, and we will now answer your questions.

(Operator Instructions) John Glass, Morgan Stanley.

A couple, if you could. One is, Wood, you talked about encouraging strong trends early in 2012. But at the same time, there was a discussion, particularly in Brazil, about a slowdown in December. So if you can just talk about are trends better than they were in December but still slower? How should we read your comments about current trends?

And as the minimum wages come in in Brazil, has that improved trends as consumers have more discretionary spending?

December was challenging. We started off the new year doing well. We expect, however, that the new economic conditions and wage increases will kick in towards the second half. We are doing all right, but they still have not kicked in. I don't know, Raul, if you would like to add some color to that.

We also have -- we are confident on our marketing plan for the year. We have a few good actions coming up. And again, we are confident. We see that the economy and the consumption is beginning to recuperate in Brazil and we really see that the second half of the year will be stronger.

Just to clarify, to read you, that current trends in Brazil are about the way they were in the fourth quarter.

Yes, maybe slightly better.

Okay. And then just on your guidance, I appreciate the high-single-digit comps. Maybe what is your estimate for the full year for Brazil, for example? And is this a first-half, second-half story, where you expect a meaningful pickup, and maybe what the degree of magnitude is and the change.

And then also, you talked about 101 -- or 130, I guess it was, gross openings versus 101 this year. What do you think the net openings will be for 2012?

We expect comps (inaudible) this year also be in the high single digits. That would be a combination of growth of transactions around 2%, 3%, and the balance will be pricing. That is in line with what we see for the Company as a whole, really. And net openings --

We mentioned before during the first part, we plan to open around 130 restaurants. And (inaudible) the closings, we had a portfolio that we will always look for, and there are some cases that we were thinking about closing, but we do not expect a higher number than we are [using] in 2011.

Thank you.

Thank you. Next question, please.

John Ivankoe, JPMorgan.

I apologize for my voice. I'm under the weather. Just looking at the margin impact from Made For You in NOLAD and Brazil, I guess maybe talk about if you are getting the kind of margin benefit from Made For You in Mexico that you expected. And as the program really gets well underway in Brazil, what type of a benefit that you are expecting to book in 2012 as a result of that.

As you recall, John, we discussed a couple times this brand, this program that we are rolling out in the most important markets. The benefits, they came out of two ways. One is the better controls that we gave on weight that helped the gross margin contribution. And the second benefit will come from a more efficient use of labor hours at the kitchen, or as we call it, the production area.

As we said before, in Mexico as well as in Brazil, we are already getting those benefits. As we said before as well, particularly the gains in productivity at restaurant level will help us offset partially the pressures that we are getting out of the minimum wage increases. As you recall, our wages for crew at the restaurant level are basically tied to minimum wages increases in (inaudible) the country.

And just to add to that, we are going to have a full effect of Made For You in Mexico in 2012. We are getting good effect in other countries where we rolled it out. And I think an important thing to add here, also. Made For You is not just a question of being more efficient; the food is much better. The food is fresher, much better-tasting. We've had great feedback from our customers.

And especially, if I may, on that comp in NOLAD, were you surprised that the margins weren't better, given the comps in the Made For You?

I think it is a combination of reasons. One, obviously, came out of the (inaudible) that we're getting from the P&L. But another important portion is that Raul mentioned the big benefits that came out of the premium sandwiches, and we keep -- get higher margins out of those products.

And I may, if it is appropriate now, could you discuss the commodity outlook for fiscal '12, and where you have kind of visibility or where you believe some of the key items, like beef, for example, (multiple speakers).

John, we have very stable outlook for commodities in the region in general. We secure part of the commodity price for the first part of the year, so we don't have any volatility there. And some specific product, like beef, we secure in Brazil the full year 2012. So we are very confident we're going to maintain and keep the commodity price in line with our projections.

Okay, great. Thank you.

Thank you. Next question, please.

Renato Salomone, Itau BBA.

Hello, gentlemen. German mentioned that food and paper costs for the quarter were impacted by negotiations with suppliers in Venezuela that led to one-off rebates for the year. We estimate this benefit at approximately $8.3 million, and we want to clarify if it is correct to consider a recurring adjusted EBITDA margin of approximately 10% for the fourth quarter. Thank you.

The number is slightly below that you mentioned. We don't consider this extraordinary. In this case, we always discuss prices with suppliers. In the case of Venezuela, because of the specific Venezuelan situation, we wait till year-end to define these rebates and basically affect the fourth quarter. But it is not extraordinary. It is basically ongoing negotiation. In the case Venezuela, you know everything is special there, so we define the final adjustment in the last quarter.

Mitch Speiser, Buckingham Research.

Thanks very much. At the store level, you experienced nice margin expansion, even excluding that one-time benefit in the food line. It seemed like it was due to the occupancy line got leveraged nicely in the fourth quarter. My question for 2012, given your comps expectations, do you expect leverage from that occupancy line item? And should we expect store-level margin expansion in 2012 if you do execute on your plan?

We don't see margin improvements in occupancy 2012. In margins in general, we expect improvement in margins, but we have Venezuela in the numbers. You know, Venezuela this year has a lot of uncertainty, elections, the health of the President. So we prefer to take a conservative approach there, and that is affecting our margins during 2012.

Thank you. And did you mention -- regarding Brazil, the minimum wage increase that I thought went through in early January of 14%, did you mention that that has not in fact flowed through to the minimum wage help? Can you explain that, please?

The minimum wage went through. What we are saying is that has not trickled down yet to consumption, so we expect to see a full impact of that wage increase more towards the second half of the year.

I see. Thank you. And my last question, on dessert centers, you put up 156, I believe, in 2011. Can you give us a sense of what the opening schedule for dessert centers might look like in 2012?

It is in line. Dessert centers are also an opportunistic action that we call. So what I can say for this year is it is in line with what we did in 2011.

Great. Thank you.

Bob Ford, Bank of America.

Good day, everybody, and thanks for taking my question. The early question with respect to Made For You, I was hopeful that you might give us an indication of maybe some of the initial experiences you've had in terms of the improvement in crew costs or efficiency, as well as the reduction in wastage, just to get a sense of how you are benchmarking right now in the rollout.

Of course. Efficiencies in crew total hours, we are gaining around -- between 5% and 6% efficiency on total hours. You will recall we explained that when we launched the platform, we were expecting to get a 10% increase in productivity, but only on those production hours that count for 60%. That explains the 5% to 6% total efficiency gain that we are getting in Mexico, Brazil and also in the pilot we are doing in Argentina.

On top of that, as I said before, also it provides great efficiency in full cost because the number of waste is obviously lower.

My understanding is that the expectation was you could save as much as 100 basis points of sales in wastage. Am I overstating the potential of Made For You, or is that about what you anticipate you can have once you stabilize?

No, 100% or basis points is way too high.

100 bps is too much?

Yes. (multiple speakers) (inaudible)

Okay. And then with respect to Venezuela, could you give us a sense of traffic versus ticket? And my interpretation from the results is actually that things are going very well. And I thought the implication from one of the earlier statements was that maybe you're budgeting Venezuela lower this year. I just wanted to confirm that you are anticipating maybe lower profitability from Venezuela, but at the same time, it looks as if sales and tickets are doing very well.

No, sales and tickets are going very well, but the problem in Venezuela, we needed to be conservative because the cost of goods there, the (inaudible) for imports and the (inaudible) that normally come in the market are making us more conservative this year than 2011. That is the reason.

Okay. But could you give a sense of where traffic and ticket is right now maybe in Venezuela and Argentina?

In both markets, we are positive. In Argentina, much more positive than in Venezuela today, but we remain positive in Venezuela. What we want to ensure in Venezuela is that our margins allow us to continue our policy that do not send dollars into that market and operate the market as fully sustainable. That is why our margins are better in Venezuela today and the growth in transactions is a little bit slower, but it remains positive.

Okay, fair enough. And as you look into 2012 in terms of the expansion, can you comment a little bit about the real estate market in Brazil, the availability of good locations and what you might be seeing in terms of occupancy costs?

Yes, we continue our expansion in Brazil. We don't see any major changes in the real estate costs. And normal. I mean, no big change between last year or the year before.

Thank you very much.

Martha Shelton, Citi.

I'm really trying to dig down -- drill down into EBITDA margins for Brazil during the fourth quarter of 2011, and trying to understand, after sieving out that $12.4 million charge in the fourth quarter -- I am trying to understand on an apples-to-apples basis how fourth quarter EBITDA in Brazil was versus fourth quarter '10. I know that there were several nonrecurring charges that were recognized in 4Q '10.

So perhaps you could give me some clarity on like a clean, non-noisy EBITDA number 4Q '11 versus 4Q '10, how the two compare to each other.

In the case of Brazil, you are right; this new tax or new interpretation about the royalty tax affecting the margin, without this cost, the margin, we'd have around 50 basis points better than the actual margins. So without the tax, improvement in margins in Brazil.

Okay, and for fourth quarter of '10, was there noise in those numbers that would have skewed those figures?

No major impact (inaudible).

Thank you.

[Isabella Bacci], JPMorgan.

Thanks for taking the question. I just want a bit of color on the EBITDA contribution of Venezuela at this point, and if you can give us an update of what you are doing with the cash (inaudible) there. Are you being able to (inaudible) in dollars outside or it is pretty much kept there. If you can give me some color.

You know that we are not giving some information about individual countries within the division. But we continue to see in Venezuela with less than 5% in EBIDTA and less than 1% in net income. There are some impacts between one year and the other, a $20 million impact between 2011 and 2012 in the EBITDA coming from Venezuela. That could explain a big part of our margin reduction.

So you mentioned a $20 million reduction from Venezuela from 2010 to 2011.

No, 2012 versus 2011.

Okay. But Venezuela not representing more than 5% of your consolidated EBITDA.

Yes.

Okay.

Lore Serra, Morgan Stanley.

Good morning. I wanted to ask one question on revenue and then one on the margin in Brazil. In terms of revenue, I wonder if you could help us think through kind of what changed in the fourth quarter. In the past, you've talked about how most of your growth has been driven by ticket, and I assume that traffic went negative in the quarter.

So can you help us think through kind of how much of that was related to mall traffic? Did you see similar kinds of slowdown off-mall versus in-mall? If you think back in terms of your experiences over the years, what does this slowdown remind you of? Is there any sense that you have taken too much pricing or are you seeing any signs that you've taken too much pricing? I would love to get a little more color from you on what drove the slowdown, please.

Yes, we target our growth in each individual country according to the situation of the market. In Brazil, we were looking for a growth which was mainly driven by check, and 2%, 3% comp transactions growth. During the last quarter, most of the growth -- or all of the growth came from pricing. It was a slightly negative transaction count for the quarter in Brazil.

The reason was -- mainly what is going on, what went on in the country at the moment, the slowdown in the shopping malls was something that was evident and that had an impact on our sales. Also there was a little bit of weather-related issues with our transactions in dessert centers. And that is why our growth came mostly from primarily check and not from transactions counts.

Now you ask me from our experience what that is similar to. Well, we've been through things like this in many markets many times. From what we are seeing and the news coming out of the market, we think back towards the end of the second quarter, second half of the year, the trend will totally reverse. Plus we are taking some actions to counter that, and maybe we can see the recuperation even earlier.

Okay, and so from that, we should assume that your trends were better in the stand-alone stores versus the mall-based stores in the fourth quarter.

Yes, it look better. Yes, that's true.

Okay. In terms of the margins, the $12.4 million tax impact that you mentioned, I guess you're saying in the release that that is going to recur for 2012 for the full year. So is that embedded in your EBITDA margin guidance, or are you assuming that tax line goes below the line?

You are right in both sentences, with -- it's (inaudible) EBITDA is ongoing, so the margins and the guidance includes the impact of the new tax interpretation.

So you are thinking that you will do high-single-digit comp growth and that will be enough to offset both the big increase you are going to get in payroll and these taxes?

Yes, you are right.

Okay. And then just last question, what is causing the higher tax rate for next year -- or for this year rather?

Basically, you need to understand that in some markets, in the consolidated number, the rate is affected when countries do not generate tax profit, like Mexico or Puerto Rico, reduce the income tax before tax. That increased the effective tax rate. But in terms of -- the tax charge for the year is $55 million, more or less in line with the previous years. So the profit in Mexico and Puerto Rico are going down, and that affected the effective tax rate.

Okay, thank you.

Mitch Speiser, Buckingham Research.

Thanks very much. Longer-term, you have talked about having the check -- the price and check running about 110% to 130% above inflation. And it just seems that your upper-single-digit comps guidance, I think you said 2% to 3% traffic, so it does imply a lot more of your comp from check in 2012. Can you talk about just how to balance trying to raise the average check that much while trying to maintain and emphasize affordability?

A couple of things. First of all, our rate of pricing versus inflation in the past few years was around 1.5, 1.6. We are now targeting a lower base of pricing. That is why we say 1.1 inflation basically, maybe 1.2.

Now, what we seen for next year is an inflation rate -- blended rate for the region of around 6%. That is why when you would say that, combined with a 2%, 2.5% maybe 3% traffic increase, we are looking at high single digits.

I see. Okay, thank you. I understand. My next question is on Mexico. And it did still incur an operating loss in 2011 at the operating income level. When we think about 2012, do you think 2012 can be the inflection point to get -- NOLAD, I should say, NOLAD profitable?

NOLAD is profitable in the other two markets, Panama and Costa Rica. In the case of Mexico, I do not have the operating income number, but I can tell you the EBITDA number should be positive in 2012. Yes, it's the inflection point for Mexico.

I'm sorry; I misspoke. I meant just NOLAD, there were operating losses in 2011. And do you think you can turn that into operating profits for NOLAD in 2012?

Sure, yes.

Okay, great. Thank you. And if I could slip in just one last question. Wood, you did mention January/February being healthy same-store sales. Not to get too detailed, but does that imply that the first two months were above the upper-single-digit guidance you have provided for the full year?

They were in line, yes, in line.

Okay, thank you.

(Operator Instructions) Bridger Capital.

It's (inaudible) from Bridger. I just wanted to go back to make sure I understand the margins on an ongoing basis. If I take out the F&P rebate and then also I imagine in the fourth quarter you had CAD income rather than CAD expense. It looks like the operating results on the EBITDA margin line are quite a bit weaker than the headline you're reporting of 50 bps margin compression.

So I realize that some F&P rebates, German, as you said, will be recurring. But regardless, it seems like the operating margins are weaker than the headline. And so just looking back at where you guys have come from, the IPO, I think at that time, the forecast was about 150 bps of gross margin improvement and 150 bps of operating leverage over five years.

Now, it looks like in 2012, you've got margin compression as well. And so sort of sitting at the end of 2012, which will be about -- almost 2 years, 20 months post the IPO, we will have seen margin compression. And I recognize labor costs have hurt, and they are obviously moving pieces across your markets. But could you give us a sense of where margin targets are now looking forward the next two, three years. And what are the big things that you think are actually under your control to get there?

Okay. We are assuming that in 2012 we have the impact of Venezuela. Without this impact, the margins between 2012 and 2011 were (inaudible) stable, let's say. In the long term, we see 2012 like a transition year. We see in the long-term the same trends that we mentioned in the IPO. We see we can reduce food and paper costs as a percentage of sales. Obviously, we cannot do that with the labor.

We are seeing some leverage in the G&A in the last part of 2012. We continue with the same vision in our geography. 2012 is a very weird year, if you like, but we continue with the long-term focus and long-term view of improving in margin, growing in number of stores and sales.

Let me just add to that. I want to repeat -- Made For You is great as far as waste and higher labor -- better labor numbers, but it is also a top-line generator. And we have a very under-penetrated QSR market. A lot of the margin compression comes from some of the labor we talked about; also some G&A. It comes in from stepping up our increased openings and remodels.

But over time, we are going to leverage those numbers. So we have some conservative areas. We talked about Venezuela. We don't really know what is going to happen in Venezuela. So far, so good. But it is a volatile situation what happens there.

We have some very good product launchings this year. We have the Olympics, where we are going to be, along with McDonald's, sponsoring, and we are going to have a lot of excitement around the marketing calendar then. So we are looking forward to a very good year from a top line, and I think that should add a lot of conservative outlook to everybody.

Good. Can I just ask in Mexico, where are transactions per month now? In the past, I think you guys had said when you get to the mid-20,000 transactions per month is where the margins start to move up significantly. If you can give a sense of where they are now.

We are improving, as we explained during the meeting last year; we are around 18,000 transactions per month.

Thank you.

Thank you.

Thank you much.

Operator?

This concludes today's question-and-answer session. I would like to turn the conference call back over to Woods Staton for any closing remarks.

Thank you very much. If there are no further questions, I would like to thank you again for participating. And in case you need any additional information, please contact Sofia Chellew, who is our Investor Relations Director. Thank you and goodbye.

This concludes today's conference call. We do thank you for attending. You may now disconnect your telephone lines.