Arcos Dorados Holdings Inc (ARCO) 2013 Q4 法說會逐字稿

Good morning everyone and welcome to the Arcos Dorados fourth-quarter and full-year 2013 earnings conference call.

With us today are Woods Staton, Chairman and Chief Executive Officer; Sergio Alonso, Chief Operating Officer; German Lemonnier, Chief Financial Officer; and Daniel Schleiniger, Investor Relations Director. A slide presentation accompanies today's webcast and this is available at the Investor section of the Company's website, www.arcosdorados.com.

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

At this time, I would like to turn the conference call over to Daniel Schleiniger. Please go ahead.

Thank you. Hello everybody. 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 statements 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 comparable GAAP results which can be found in the press release filed with the SEC on Form 6-K.

I would now like to turn the call over to our Chairman, Woods Staton. Woods, please proceed.

Thank you, Dan. Hello everyone and thank you so much for joining us today. We had a very good quarter and a strong year, turning in double-digit growth in our consolidated operating results for both the full year and for the fourth quarter of 2013.

For the quarter, organic revenue grow 15.8% -- grew 15.8%, supported by an increase of 10.6% in comparable sales. On an annual basis, growth in comparable sales of 11.2% drove organic revenue growth of 16.7%, which puts us solidly at the midpoint of our guidance range for 2013.

Year-over-year organic EBITDA grew 18.7%, capped off by a 20% year-over-year increase in the fourth quarter. The full-year result was well ahead of guidance and a solid result given economic deceleration in a number of our key markets.

The execution of a strong marketing calendar, successful and compelling value platforms within an inflationary environment, and the opening of 130 restaurants during the year drove strong top line growth as well as an expansion of our market share leadership in most of our markets. In fact, during the fourth quarter of 2013, we achieved a milestone, the opening of our 2,000th store.

Marketing highlights during the year include the introduction of Monopoly promotion in Brazil and Argentina, which contributed to comparable sales growth in a softer market. The launch of Chicken McBites was also a key driver of sales, as we were able to quickly scale the product throughout the country.

Our results reflect strong revenue growth and cost management. Proactive currency hedging, particularly in Brazil, and increased reliance on local suppliers and imports in Venezuela, mitigated pressure on food and paper costs caused by the appreciation of local currencies.

At the same time, favorable rulings on employee benefits in Brazil and our ongoing focus on productivity through the implementation of programs such as Made For You counterbalanced payroll pressures in our major markets.

We've been able to reduce G&A as a percentage of sales for the last couple of years. This has included a 70 basis point reduction on an organic basis in 2013 and we believe that there are more opportunities in this area going forward.

Turning to our bottom line, earnings still under pressure in 2013 due primarily to foreign exchange losses and our refinancing initiatives in the second half of the year, which strengthened our long-term financial position. Our team has amassed decades of operating experience in Latin America enabled us to draw on tested strategies to continue to grow market share and operating results during challenging market conditions.

During the past few years, we have taken numerous steps to reduce earnings volatility and enhance long-term shareholder value. In 2011, we restructured our debt to reduce foreign exchange exposure in our balance sheet, while in 2012 we lowered income statement volatility associated with our CAD program.

For the last three years, we have enacted currency hedges to again reduce foreign exchange exposure, which has successfully buffered operating results. We've also worked closely with our partner McDonald's Corporation to adapt to the dynamic operating environment in Venezuela. And in 2013, we completed a debt restructuring, which has reduced our overall cost of funding and extended the average maturity of our debt.

Finally, the structure of operations with the corporate headquarters located in Argentina continues to mitigate potential currency exposure and inflationary pressures in that country. So far in 2014, this natural hedge continues to work in our favor as cash generation from the Argentina business has been sufficient to offset the expenses of our corporate headquarters and we expect this to be the case for the entire year.

As is the case in other parts of the world, economic growth in Latin America is cyclical. During challenging periods, we as management must focus on the variables that are under our control.

The measures that I gave -- that I've just described to you show that we've been proactive in taking the appropriate steps to enhance our long-term positioning and profitability while we manage the short-term impacts associated with these cycles.

As a dominant player in the industry, we have built an unparalleled footprint of restaurants that will be difficult to replicate.

From this position of strength and in response to macroeconomic and geopolitical challenges in some key markets, we decided in the second half of the year to modulate the pace of our expansion to focus more on our key profitability drivers. These include expanding market share, maximizing traffic, increasing the relevance of our products and brands, combined with strengthening our balance sheet.

We opened 130 new restaurants in 2013, which is in line with the revised guidance we provided in our previous earnings call, bringing our overall footprint to 2,062 restaurants.

With 812 restaurants, Brazil accounted for more than one-third of our portfolio. We will discuss our restaurant opening plan for 2014 and beyond in more detail later in the call, but I would like to emphasize the financial impact of our expansion is not only a function of the number of new restaurants opened.

Today, over 45% of our portfolio is made up of freestanding restaurants. This format provides multiple revenue-generating opportunities and significantly more branding than a simple point of sale.

Freestanding restaurants can be open 24 hours a day. They have drive-through service and space for other offerings including McCafes.

In short, they provide the full experience of what the McDonald's brand stands for and have historically generated long-term sustained growth. In 2013, we opened 42 freestanding restaurants in Brazil, around six times the number of our largest listed competitor.

As a consequence, we have the best coverage of any QSR in the country, and we will continue our focus on expansion in Brazil going forward.

Our balanced restaurant opening plan is a key differentiator and resulted in market share growth as we acquired the operations from McDonald's Corporation in 2007. Currently, based on our internal measures, our market share is more than three times the size of our closest competitor.

Although we are adjusting the pace of restaurant expansion in the near term, the performance of our new units has been strong. Restaurants opened during 2010 to 2012 achieved an ROI of over 20% on average, the trailing 12 months, which is in line with our target.

In 2014, we plan to focus on cash flow generation and achievement of a higher baseline level of profitability. Without a doubt, this is a challenging period and we are acutely focused on short-term performance and results.

At the same time, our conviction in the long-term market opportunity has not changed. The expansion of the QSR segment continues to be fueled by a swelling middle class, changing consumption habits, and untapped demand for our products.

Our strategies are focused on driving long-term profitability. We have a resilient business model and experience operating in dynamic environments.

We'll now turn the call over to Sergio Alonso who will discuss our fourth quarter performance in more detail. Sergio, please proceed.

Thank you Woods and hello everyone.

Let's turn to slide 3 for a discussion of our quarterly marketing activities. During the quarter, we developed a number of marketing activities which drove comparable sales growth.

These included strong promotions in our active value platform combined with the successful launch of premium products like the Cheddar Bacon Onion and campaigns such as Tabasco and Dijon.

Value is a key McDonald's brand pillar and remains at the core of our strategy despite operating in an inflationary environment.

Turning to slide 4, Brazil's revenues declined 1.1% in the fourth quarter primarily due to the depreciation of the real. Excluding an 11% decline in its currency, we achieved organic revenue growth of 9.5%.

The Brazilian economic and retail sales environment were relatively weak in the fourth quarter resulting in lower consumption across the board.

Product mix management and menu board adjustment drove systemwide comparable sales growth of 2.2%. Marketing activities in the fourth quarter included a Tabasco Campaign and the addition of the Double Bacon sandwich in our GPPP platform.

The net addition of 81 restaurants during the last 12-months period contributed $32.8 million of revenues in constant currency.

As you can see on slide 5, revenues in the NOLAD division grew 0.9% or 1.2% on an organic basis year over year. Systemwide comparable sales declined 2.3% primarily due to the weak consumer environment in both Mexico and Costa Rica.

Our turnaround strategy in Mexico is ongoing and we are working hard to identify the optimal balance between product offerings and value in the market. And in Costa Rica, we have been able to outgrow our direct competitors despite challenges in the country.

For the region, the net addition of four restaurants during the last 12-month period contributed $3.6 million to revenue in constant currency.

Now let's move to slide 6. SLAD's revenues grew by 5.5% or 26.9% on an organic basis compared to the fourth quarter of 2012. During the quarter, systemwide comparable sales increased by 21.3%. Despite the inflationary pressures in countries like Argentina, we were able to maintain margins and volumes.

We implemented successful marketing activities including the addition of the Premium Angus Burger line and Chicken McWraps to the Flavors Festival campaign, and also the McFlurry Vauquita in the dessert category in Argentina.

Finally, the net addition of 17 restaurants during the last 12-month period contributed $14.5 million to revenues in constant currency in the quarter.

Turning to slide 7, the Caribbean division reported revenue growth of 14% in the fourth quarter. Excluding currency movements primarily relating to the devaluation of the Venezuelan bolivar, organic revenues increased by 26.1% year over year.

Systemwide comparable sales rose 27.2%, driven by an average check as we continue to pass on higher costs in Venezuela.

Despite ongoing challenging conditions in Venezuela, brand preference remained strong and we maintained a leading market share. Marketing promotion for the division included the CBO, Cheddar Bacon Onion for both beef and chicken, and also the launch of McFlurry Tres Leches and McFlurry Flaquito Chocolate in the dessert category.

The net addition of 12 restaurants during the last 12-month period contributed $7.7 million to revenues in constant currency in the quarter.

So in summary, consolidated revenues grew 3.6%, reaching more than $1 billion, and were impacted by the depreciation of local currencies versus the US dollar. Excluding exchange rate fluctuations, organic revenue growth was 15.8%.

Please turn to slide 8. As the largest QSR Company in Latin America, we have built an unparalleled restaurant portfolio that is difficult to match. During 2013, we extended our footprint with 130 new restaurant openings in line with our revised target.

More than 60% of the openings were located in Brazil, which remains our highest potential market. The year-end restaurant count was 2,062 restaurants.

Throughout the year, we have expressed our intention to expand day parts to better capitalize on demand for breakfast as well as snacking occasions which currently fall outside of peak consumption periods.

I'm happy to share with you that we have been able to add units to our portfolio of dessert centers and McCafes. 317 dessert centers were opened last year bringing the total to 2,259 units, while 20 McCafes were added taking the total to 348.

In 2013, customer satisfaction level improved for the seventh consecutive year according to McDonald's global operational efficiency matrix and once again our Company attracted one of the highest satisfaction levels within the McDonald's system.

German will now discuss our adjusted EBITDA generation, financial metrics, and outlook for 2014.

Thanks Sergio.

Please turn to slide 9 for a review our adjusted EBITDA performance. Fourth quarter adjusted EBITDA grew 5.7% year over year to $118 million. Adjusting for special items and currency impact, organic adjusted EBITDA increased 20% supported by double-digit comparable sales growth and G&A leverage.

The special items consisted of a negative variance of $12 million explained by a gain of fourth quarter 2012 from the recovery of Brazilian tax credit corresponding to prior years.

A net gain of $11.1 million related to the reversal of a provision regarding our employee meal program in Brazil also known as Programa de Alimentacao do Trabalhador. The year-over-year benefit of $800,000 related to the royalty waiver from McDonald's Corporation for Venezuela and a net gain of $1.7 million related to the CAD incentive plan.

The fourth quarter adjusted EBITDA margin as a percent of total revenues increased from 11.1% to 11.3% reflecting improvements in all divisions except the Caribbean. In addition, organic G&A as percentage of revenues decreased by 85 basis points compared to the year-ago period.

In the fourth quarter, Brazil's adjusted EBITDA was stable versus year-ago period on absolute basis. Special items included the reversal of the PAT provision and the recovery of tax credit.

During currency movement and these special items, organic adjusted EBITDA increased 13.5%. Adjusted EBITDA margin gained 14 basis points to 17.2% and was driven by reduced payroll costs and G&A expenses, mainly as a consequence of the reversal of the PAT provision.

In NOLAD, adjusted EBITDA was $9.6 million, an increase of 6% or 6.3% on an organic basis. The adjusted EBITDA margin increased by 45 basis point due to food and paper efficiencies and lower occupancy and other operating expenses as a percent of revenues.

In SLAD, adjusted EBITDA gained 12.7% or 39.2% on organic basis resulting in an adjusted EBITDA margin of 11.9%. The 76 basis point margin expansion is explained by leverage in food and paper and payroll costs which were partially offset by higher occupancy and other operating expenses as a percent of revenues.

Finally, in the Caribbean division, fourth quarter adjusted EBITDA was stable year over year at $24.5 million. Special items included the recognition of the royalty waiver from McDonald's Corporation of $2 million in the fourth quarter 2013 versus $1.2 million in the fourth quarter of 2012.

On organic basis, adjusted EBITDA increased by 14% compared to the year-ago period. The adjusted EBITDA margin declined 146 basis point to 10.6% as the higher payroll cost and the (inaudible) of a new legislation on rents in Venezuela more than offset efficiencies in all other cost items in the division.

Turning to slide 10, fourth quarter non-operating result reflected an increase in net interest and derivative instrument expenses, mainly attributable to a $10.8 million one-time charge related to the full redemption of the Company's 2019 notes in December, interest on incremental debt, and a loss related to the unwinding of the cross currency swap.

Foreign currency exchange loss of $3.5 million compared with the higher loss of $5.3 million in the fourth quarter 2012 also impacted non-operating results.

Income tax expense for the quarter totaled $21.3 million resulting in an effective tax rate of 39.8% for the quarter compared to 26.2% in the year-ago period. The higher effective tax rate primarily reflect the reversal of certain valuation allowances over deferred tax assets in the fourth quarter of 2012 and a one-time charge related to the full redemption of the 2019 notes that reduced income before tax in the fourth-quarter 2013.

The non-operating results (inaudible) more than offset improved operating performance resulting in 27.4% decline in net income to $32.1 million in the fourth quarter.

Basic earning per share were $0.15 in the fourth quarter compared to $0.21 in the previous corresponding period.

Slide 11 contain our debt indicators. Cash and cash equivalents were $175.6 million at December 31st. Total financial debt was $785 million while net financial debt was $609.4 million and the net debt-adjusted EBITDA ratio was 1.8 times.

In December, we completed the redemption of the outstanding 2019 bonds. We partially repurchased a part of the tender and exchange offer concluded in October 2013.

The debt [restructuring] successfully reduced our overall cost of funding and extended the average maturity over debt.

Now, if you turn to slide 12, you will see a comparison of our full-year results versus guidance. Revenue increased 6.2% to more than $4 billion or 16.7% on organic basis which is in line with our guidance of 15% to 18%.

Systemwide comparable sales rose 11.2% driven by Brazil, SLAD, and the Caribbean division. Adjusted EBITDA was broadly stable year over year increasing 1.1% to $344.5 million.

On organic basis, adjusted EBITDA increased by 18.7% exceeding guidance of 8% to 10% growth as we anticipated in our last call. The strong result was driven by growth in Brazil and SLAD.

The adjusted EBITDA margin contracted 43 basis points to 8.5% in 2013. The [reason was caused] by higher food and paper primarily in Venezuela where the devaluation of the bolivar drove up dollar-linked cost and increased payroll cost as a percent of sales. These factors more than offset lower G&A as a percent of revenues in the year.

Net income was $53.9 million compared with $114.3 million last year. The decline reflects several factors, primarily higher foreign currency exchange losses and net interest expense due to one-time charges.

The effective tax rate was 44.2% in 2013 compared to 28.8% in 2012 and was impacted by the aforementioned one-time charges affecting net interest expense as well as a loss incurred as a result of the devaluation in Venezuela, all of which have no related tax benefits.

Excluding the impact of such charges, the effective tax rate could be having at the low end of the guidance.

Capital expenditures amounted to $154.3 million in the quarter and $313.5 million in the year. This includes a $57.4 million purchase of real estate in Venezuela, which is in line with our stated objective to take steps to protect our excess cash in that country.

Excluding this acquisition, capital expenditure related to our operation were $256 million compared with our revised guidance of $270 million.

Turning to slide 13, our outlook for the full-year 2014 growth versus 2013 is provided on an organic basis which is in constant currency and excludes special items in both years. Guidance for 2014 also excludes the Venezuela business. I'll describe the rationale around this shortly.

Revenues are expected to grow by 13% to 16% in 2014. Adjusted EBITDA is expected to increase by 15% to 18% and the effective tax rate is predicted to range between 35% to 37%.

We expect to open 90 new restaurants in 2014 and for our capital expenditure to be around $200 million.

The increasingly complex operating environment in Venezuela has reduced the degree of certainty with respect to the full-year projection for the Venezuelan operations.

Since the beginning of the year, a number of unforeseen and material changes have occurred in the operating environment.

We have included price control, new legislation on brands, social unrest, and changes in the exchange rate regime. In fact, the new exchange rate regime went into effect only yesterday, and we do not have enough information to estimate the impact that might have on our business in Venezuela.

However, we do not expect the Venezuela business to require operating cash and support during 2014 calendar year.

Please refer to the Company's Form 6-K filed with the SEC today, which provide Venezuela revenues and operating income for 2011, 2012, and 2013.

[But we did] increase our brand in Venezuela with an operating history of 30 years we are well-positioned to manage through the current challenges. We are proactively working to mitigate our cost and currency exposure through local sourcing and by seeking out (inaudible) for the business cash.

Now I would like to hand the call back to Woods.

Thank you very much German.

Please turn to slide 14. Our fourth-quarter and full-year results demonstrates the continued strength in McDonald's brand in Latin America and our ability to draw on tested strategies to grow market share and operating results during challenging times.

During the year, we delivered double-digit comparable sales growth, expanded our market share leadership in key markets, implemented impactful marketing initiatives, and opened 130 new restaurants. We achieved G&A leverage, managed currency volatility with appropriate hedging, and executed refinancing initiatives.

These actions are in direct alignment with our guiding strategy, la receta para ganar or the recipe to win.

By modulating the pace of unit growth in 2014, we expect to achieve a higher baseline level of profitability as we advance on another of the key factors of the recipe to win, namely cost control.

To this end, we formed an internal taskforce to identify further cost reduction opportunities so we can improve our profitability even in the face of today's challenging operating environment.

We believe that streamlining our business will not only help us to navigate these choppy waters, but it will also prepare us to capitalize on growth prospects when our markets reaccelerate.

We are taking proactive steps to protect earnings in 2014, including hedging the vast majority of our dollar-linked imports this year. We expect less payroll cost pressures to our business and we expect to continue to achieve G&A leverage in 2014.

Our partner, McDonald's, continue to strongly support our efforts in the region as well as our commitment to our markets.

We have targeted marketing initiatives in place to capitalize the McDonald's sponsorship of the World Cup including new product introductions and events-related promotions.

These promotions will serve to strengthen our brand well before the World Cup begins in June including the "Champion" glasses promotion that is already underway.

Our 2014 unit opening target is part of a medium-term agreement with McDonald's Corporation under which we have committed to opening a minimum of 250 restaurants during the three-year period from 2014 to 2016.

At the tail-end of third quarter results, economic, political and currency uncertainties in some of our key markets has prompted us to modulate the pace of our restaurant openings in the near term while we redouble efforts to improve profitability and maintain a sound balance sheet.

We expect that the three-year opening plan will be focused primarily on Brazil, our highest potential market, but we will also be monitoring our other markets to identify opportunities for profitable growth in the near term.

Our team is made up of seasoned operators, each with decades of experience operating in Latin America. So we understand our business' long-term growth path will not be without its cycles.

This is why I believe that our long-term investment case remains unchanged. Latin America's population growth, swelling middle class, unmet demand for our products, and our ability to adapt to consumer demands through tapping into different day parts will drive strong growth and increase profitability over the long term.

Thank you for your attention. I would now like to open the call up to questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) John Ivankoe, JP Morgan.

And I do apologize if I may have missed this. Could you walk through how the consumer has responded to a lot of the economic news that's been happening around Argentina specifically around the currency?

I mean has there been a material change in your business, say for example from the beginning of the fourth quarter to where we are right now? And just given the fact that it's such a big market, could you give us specific outlook of what you think new traffic might be in the market as I know it's generally I think been fairly strong?

Look, there was some foreign exchange volatility in mid-January, but however from business standpoint, our operations were growing very well and we are maintaining strong margins in that division.

Consumption continues to be strong. Today comparable sales remain solid. So we have great momentum from the campaigns we had last year. They were either Dijon campaign, Happy Meal, and the McFlurry Vauquita.

So the brand is strong and we have been able to effectively drive average check and traffic. As you know, most of our inputs are -- in Argentina are Argentines, so there's a natural hedge there as well and we are going to have a strong Monopoly campaign very soon.

Lore Serra, Morgan Stanley.

Maybe I could ask two questions, although I'll ask them separately. I wonder if you could just clarify what change in terms of the rent are you talking about in Venezuela.

And I wonder -- I understand that there's a lot of uncertainty about where the exchange rate might go in Venezuela. I wonder if you could give us any sense of kind of where your operation starts to see more pressure in terms of breakeven or kind of -- because there are some people saying that the currency could go 25 or 40. I mean, these are just numbers, but in that scenario what kind of action plans do you have together with the McDonald's to preserve the profitability of the business? And maybe I could ask that first.

Yes, let me get the rent question answered. I'll have Sergio address that and we'll have German address the foreign exchange that you asked, Lore.

Basically the change that was introduced for the rent regulation in Venezuela establishes that any landlord can charge VEF250 per square meter. That rules applies to, for instance, the rent that we pay to the landlords where we have residence, but also applies to the rent that we collect from the franchisees, okay?

So -- and of course, it's a general rule, it applies to square meter regardless if it is parking lot or if it is a part of the building or the restaurant itself, right? So it's a fixed amount of bolivares per square meter.

And then on the currency thing -- the question you have, Lore, I'll pass you to German so he can answer that.

Hello Lore, this is German speaking. Basically, Lore, I mentioned in the speech there are a lot of new things coming to the market since the beginning of the year.

One of the things that you mentioned, basically a new exchange rate market, Sicad 2. It started to operate yesterday, so there's no information coming from the market and it's very difficult to project about exchange rate going forward.

So basically we try to make a strategy, the component and we don't want to inject cash in this market. And based on our working scenario, we are not injecting cash into the market.

At the same time, basically we are monitoring every day the market to see what really happens. We see this -- if this works and we have access to this market, that will be good for the country, obviously for our business, but we need to see what happens.

John Glass, Morgan Stanley.

In the fourth quarter, Brazil EBITDA margin expanded despite comps being very modest. Is this a sustainable level? In other words, have you designed the cost structure now to be able to see modest amount of margin expansion in the low single-digit comp?

And where restaurant margins actually improved, you cited reduced payroll cost and G&A. So I'm not sure which played a bigger role. Was it much more about the G&A savings in the fourth quarter or was there actually restaurant-level margin expansion in Brazil?

Let me pass you over to Sergio who will address your question.

What I would say, it's a combination of both factors. We get leverage on the labor line in our P&L in Q4 and also from G&A as well.

Regarding how sustainable is this going forward, well, as we discussed before, we know that the minimum wage increases for this 2014 are currently below the levels that were in the last years, so of course we expect to get some additional leverage out of the productivity at the restaurant level in Brazil.

If you recall, I mean we went through the minimum wage increases over 30% in the last years. We expect 6.8% to 7% for this year, so that will give us some space for further margin gains.

Yes, I think, Sergio, there's some talk also about perhaps lowering the electricity level, so that that could be helpful as well going forward.

Yes.

Bob Ford, Bank of America Merrill Lynch.

I was hoping you could round up the conversation of Venezuela a little bit with respect to some of the pricing controls that have been instituted, and then maybe expand on the mention of the real estate purchase.

And if you could I was hoping that you could give us a sense of how traffic and ticket trends were developing in Brazil. I was little bit surprised by the deceleration in same stores at the end of the year.

Okay. Let me pass the first part of the question to Sergio and then the second part to German.

Okay. Well, if you're thinking of Venezuela, of course as you may be aware, in Venezuela we agreed to revise some prices for five of our product portfolio, but the real thing is by doing that we are [resuming] our long-year commitment with the country.

The reality is that we have a very, very strong brand in the market. Of course our product and pricing policy in Venezuela is very dynamic. We have to, (inaudible) every business these days in the market, so we need to balance per monthly costs on pricing, costs and offers to provide the best service as we change traffic as much as we can in this particular environment.

Of course, we are always evaluating -- reevaluating the prices to remain competitive, but at the same time to protect margins because as we discussed before, some of the prices are increasing significantly, so we need to protect margins. That is the Venezuela market. Then the Brazil, the tough competition in Brazil, do you want me to --

Yes, go ahead.

Now don't forget that in last year we faced actually very, very tough comp because in 2012 we were running Big Mac promotion and that action ended well into Q4.

So of course we had some impact in terms of making Q4 2013 a tough comp when compared to the prior year. Of course there is also a less, I would say, dynamic environment in the market at the end of last year that also contributed to a more, I would say difficult, environment.

And Venezuela, German?

Yes. As we mentioned several times in other calls, we try to look some ways to protect the excess cash in Venezuela. And last quarter, we -- this quarter, fourth quarter we decided to invest in a real estate property with the only purpose to avoid any [resale] of the impact in the devaluation in the cash.

So remember at that moment we will have around VEF350 million and we used this excess cash to invest in real estate to protect the cash in case of devaluation. And as of December 31st, we have another VEF175 million in the market and in the end we are seeing different alternatives to protect the cash there.

Martha Shelton, Itau.

Hi, this is Martha on behalf of Joaquin Ley of Itau. The question is regarding Mexico. The consumption environment in Mexico has obviously been very weak. I would seek to know if you had some color regarding the efforts that are underway in Mexico to gain market share?

And also if you could just remind me of in Brazil what your hedging situation is for 2014? Is it the case that you've already purchased all of your food and paper requirements for 2014?

Yes, hi Martha, let me pass the hedging question to German and then we'll talk about the market share -- what we're doing with market share in NOLAD that we'll tell you.

As you know we are very proactive trying to hedge in all other markets. Particularly in Brazil in 2013, we hedged full year in all the imported food and paper costs.

This year we fixed 85% of the total cost for the year, basically trying to protect the deeper activity to marketing to take decision about pricing. So we are well-protected in Brazil this year in exchange rate that is basically in line with what's happening in the market today.

Sergio?

Okay, you said it well. I mean the actual outlook environment for Mexico, it is less dynamic than where we would like it to be.

But given the overall competition that we have for both formal or branded QSR and informal players, so our value offering has been a key part of our strategy to remain competitive and to sustain traffic in the market.

At the same time, we introduced new products and new categories mainly in desserts, the Angus Tabasco burger line, the new McFlurry product line and some other innovative products.

The real thing is also we're -- of course we're always looking for balance between sustaining our traffic and gaining share of course. In weaker economic environment, people tend to move from branded QSR to informal side of the market.

It creates a more challenging environment for us and for all branded competitors. But overall, I mean we do have a turn around starting in Mexico, it is growing. Of course, we'd like to move faster. But as you said, as we all feel it, I mean the overall economic conditions are sort of slowing the pace of progress for us.

Christopher Vandergrift, Hartford Investment Management.

Would it be possible to quantify the reduction in annual lease expense from the land acquisition in Venezuela during the fourth quarter?

I'll pass to you, German. To quantify the --

The real estate investment was $57 million in the quarter and is already done. So today we only have VEF175 million in the market is trying to reduce this cash to fund the market and -- but always we are seeking and analyzing ways to protect the cash. But we don't have today any specific additional investment in real estate in Venezuela.

(Operator Instructions) John Ivankoe, JP Morgan.

I've got two quick follow-ups if I may on Brazil. Firstly, Brazil looked like it was helped by about 200 basis points or so because of the employee meal. How much is that carry-forward as a benefit through the first three quarters of 2014, if you know that number?

And secondly it's kind of perceived from the outside or maybe from a US perspective that QSR supply in the market, while just say Burger King and you are kind of growing supply faster than demand, so if you could comment on kind of what's been happening from a competitive perspective especially as you may co-occupy food courts in some of the -- some examples, to what extent the slowdown of comps may have to do with just significant QSR supply growth in the market relative to demand growth?

Yes, hi John, this is Woods. Look, this oversupply, if you will, of us in the market is not there. I think we have had some issues with some shopping centers that have not open with all of their tenants, all right, because of the slowdown.

So if a shopping center might open without the movie theaters or some of the tenants being in that obviously has an impact. So we have to look at that. But if you look at the -- and as I said before, most of our store openings have been free standard, so there is no slowdown.

And if you looked at -- as you know, they've revised the numbers for Brazil for last year of GDP growth and they are apparently going to revise it for this first quarter as well, if those numbers come in I think all the developers would be more prone to grow quickly. And as far as your first question with the employee benefits, I'll pass it to Sergio.

Hi John. Basically we are avoiding a provision of BRL1.2 million per month. Last year was around $11 million, obviously that depending in number of employee counts, but approximately $10 million, $9 million a year is the ongoing savings for this role in several of the companies.

Christopher Vandergrift, Hartford Investment Management.

So the question I was trying to ask is what type of piece of land did you buy? Did you buy the properties that your stores are located on, so now you are not paying rent on that anymore, or did you buy just a separate piece of land that's just to preserve value?

We bought -- yes, we have been actively looking for real estate. The problem with real estate in Venezuela has been that everybody has been trying to hedge their cash through real estate, so it's been expensive and not available by the way.

So we were not able to buy something where we could put a McDonald's store or restaurant and we bought a space in a building, just to hedge that value of that money.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Woods Staton for any closing remarks.

Yes. Well, listen, thank you all for being with us. And we hope to be with you again in three months. So thank you for being with us today. Bye-bye.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.