Arcos Dorados Holdings Inc (ARCO) 2016 Q2 法說會逐字稿

Good morning and welcome to the Arcos Dorados second-quarter 2016 earnings call. A slide presentation will accompany today's webcast, which will also be available on the Investor section of the Company's website, www.arcosdorados.com/ir. (Operator Instructions) There will be an opportunity for you to ask questions at the end of today's presentation. And today's conference call is being recorded.

At this time, I would like to turn the call over to Mr. Daniel Schleiniger, Senior Director of Corporate Communications and Investor Relations. Please go ahead sir.

Thank you. Good morning everyone and thank you for joining us today. With me on today's call are Sergio Alonso, our Chief Executive Officer; Marcelo Rabach, our Chief Operating Officer; and Jose Carlos Alcantara, our Chief Financial Officer.

Before we proceed, I would like to make the following Safe Harbor statement. Today's call will contain certain 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 results as compared with GAAP results, which can be found in the press release and unaudited financial statements filed with the SEC on Form 6-K.

I would now like to turn the call over to our CEO, Sergio Alonso.

Thank you Dan. Hello everyone and thank you for joining us today. Let me start as we usually do by providing you with an overview of the progress against our three-year strategic plan. Over the last 18 months, we have worked to execute a plan designed to capture efficiencies in our restaurant operations, streamline our cost structure, and reduce our debt levels. To the second quarter, we have made solid progress against the key components of our plan.

Operating margins are improving as a result of technology upgrades and other management actions to run more efficient restaurants. And we are delivering our G&A reduction target well ahead of schedule. At the same time we continue to identify and realize additional G&A saving opportunities.

Earlier this year, we successfully refinanced our Brazilian real-denominated debt within challenging capital market conditions.

Our asset monetization initiative has delivered more than $90 million in cash proceeds, which we have used to reduce our total debt levels. At the end of the quarter, we have reached nearly 40 re-franchising agreements. Of those, more than 20 restaurant operations have already been transferred to our sub-franchisees.

While we expect short-term volatility to continue, I am confident in the long-term potential of our business. With a newly streamlined and more efficient organization, we will be able to quickly leverage our turnaround in economic growth in our key markets.

Turning now to our second-quarter results, we continued the positive trend in our consolidated EBITDA margins. This was despite a difficult operating environment. We achieved more than 50 basis points of margin expansion at the consolidated level. This improvement was supported by strong EBITDA performance in our NOLAD and Caribbean divisions as well as by important G&A leverage across the Company.

The current consumer fundamentals in Brazil and Argentina pressured top line growth, preventing further consolidated margin expansion in the quarter. As we mentioned on our last call, we saw a softening in consumer behavior at the end of first quarter and heading into the second quarter. Comparable sales growth of 9.5% in the second quarter is a reflection of that behavior.

We expect challenges condition to continue in the second half of 2016. In Brazil, political instability, a historically deep recession, and high unemployment have led consumers to cut back on spending. And in Argentina, consumptions have declined as inflation outpaced wage growth during the first half of this year.

Our ability to continue expanding margins will depend in part on improving consumer spending in some of our key markets. This will drive top line results and capture the operating leverage that we are building into our business. Although this ability remains low, a general consensus is forming that both Brazil and Argentina's economies are nearing a turning point.

Economies and central banks now expect a stabilization by the end of this year and a return to modest economic growth in 2017.

While we navigate the current downturn in the region's economical cycle, we are focused on our customers. We are bringing more actions across all tiers of the (inaudible), especially our affordability platform and as a result we have been able to outperform the broad retail indicators in most of our markets.

We continue to execute on the new (inaudible) that give customers more reasons to choose McDonald's. New McFlurry desserts redefined affordability platform and modern progressive restaurants are just some of these initiatives.

As part of the McDonald's global system, we plan to pilot concepts such as Experience of the Future and we will also increase our use of technology that add to the customer experience such as a mobile app that will be rolled out to our major markets in the coming months and as we move forward we are also taking a leadership role in sustainability across the region. This includes projects to source from small producers, serve only Rainforest certified coffee, buy sustainable beef, and support youth employment.

In short, we are managing the business for the long term. I remain confident that the execution of our three-year plan will continue to improve the efficiency of our operations, streamline our cost structure, and strengthen our financial position.

I will now hand the call over to Marcelo for a review of our second quarter top line results in more detail.

Thank you Sergio. Please turn to slide 3. The slowdown in consumer behavior in Argentina and Brazil that we saw at the end of the first quarter continued into second quarter. On a constant currency basis, revenues grew 10.1%, but by a 9.5% increase in comparable sales. Revenues were once again impacted by the depreciation of local currencies, mainly in Argentina and Brazil where consumer confidence continues to be under pressure.

However, in NOLAD and Caribbean divisions achieved consistent positive performance. We continue to leverage our affordability platform and the success of the Happy Meal across all markets.

Please turn to slide 4 for more detail on our divisional results. In Brazil, retail sales and consumer spending faced additional pressure in the second quarter. The economic recession, political instability, decline in employment and real wages all brought consumption down.

Based on the most recent data, retail sales fell the most on record for the month of May in Brazil. Against this backdrop, our constant currency revenues were broadly flat year over year as were comparable sales with an increase in average check offset by a decline in profit. To put this into perspective, the second quarter set a tough traffic comp from the Monopoly promotion in the prior year quarter.

Key marketing initiatives included the launch of Almoco Completo in the affordability platform, strong promotional activities and the Grand Big Mac campaign. Other initiatives included the Angry Birds in the Happy Meal, the continuation of the ClubHouse burger and the launch of the Mushroom Dijon burger both from the McDonald's signature line.

Moving to slide 5, second quarter revenues for the NOLAD division grows by mid-single-digits on a constant currency basis and comparable sales were broadly flat. The result was helped by average check growth partially offset by a slight moderation in profit. NOLAD have enjoyed consistent solid performance in recent quarters mainly supported by results in Costa Rica and Panama.

Marketing initiatives in the quarter increased. The launch of the Angry Birds campaign, the [repeat] of the Angus line with the launch of the barbecued burger as well as the McNifica campaign in the core segment.

Please turn to slide 6. The SLAD division's results were impacted by economic contraction and the decline in consumption in Argentina as economic indicators underperformed consensus market expectations. In Argentina, tax to government subsidies drove three digit increases in utility bills. Inflation outpaced salary growth during the first half of 2016, but is expected to be declining during the second half of the year.

Based on the most recent data, retail sales declined 9.8% in real terms in June and 6.4% in the first half of the year according to current Business Chamber. In this environment, we recorded double-digit growth in both revenue and comparable sales on a constant currency basis. Marketing activities in the quarter included Almuerzos Imperdibles in the affordability platform and the launch of the Angry Birds campaign. Also in the quarter, the Company launched the McFlurry Milka Nuss & Nougat Creme.

Moving to the Caribbean division on slide 7. Excluding Venezuela, constant currency revenues and comparable sales experienced low single-digit growth. The result was supported by the continued strong performance of our Colombian operations. A modest decline in our average check resulted in a partial offset to traffic growth in the division.

Marketing initiatives in the quarter included the continuation of Almuerzos Colombianos. Also in the quarter, the Company launched the Angry Birds campaign and the McFlurry Cheesecake in the dessert category.

Please turn to slide 8. Over the year to June 30th, we opened 31 new restaurants resulting in a total of 2,135 restaurants. The bulk of openings took place in Brazil where we see the highest long-term demand. The Company also added 138 dessert Centers bringing the total to 2,666. McCafes totaled 318. Our sector has been impacted by a downturn in consumption in some of our main markets. However, we have largely maintained or expanded our market share in many of our key markets.

While the current economic backdrop has been challenging, we remain confident in the long-term potential of the McDonald's brand in Latin America. We continue to prioritize the customer experience which is reflected in our ongoing investment to modernize our restaurant base and our focus on offering customers compelling offers across our main (inaudible).

Jose Carlos will now take you through a discussion of our adjusted EBITDA and key balance sheet metrics.

Thank you Marcelo. We continue to see strong results from our cost-efficiency program with important reductions in payroll and G&A in the quarter. These factors drove margin expansion and should enable greater leverage of our operating model once the environment improves. During the quarter consolidated G&A fell a 100 basis points as a percentage of sales and was 5.8% lower year over year on a constant currency basis.

This reflects efficiencies from our reorganization plan and certain non-recurring expenses in the prior year quarter. These factors more than offset the inflation driven growth of our Argentina base corporate expenses. As Sergio mentioned, we are on track to deliver on our targeted 10% G&A reduction in absolute terms by the end of this year.

Please turn to slide 9. On a constant currency basis, our consolidated adjusted EBITDA grew 34.7% in the period. However, this growth was offset by the impact of currency translation mainly in Argentina, Brazil, and Venezuela. As a result, the as reported adjusted EBITDA fell 0.6% in the quarter. Excluding Venezuela, consolidated adjusted EBITDA declined 3.7%, but increased 14.2% in constant currency terms.

The adjusted EBITDA margin grew by about 50 basis points to 5.9% in the second quarter. Efficiencies in G&A expenses, payroll, and a positive variance in other operating income more than offset higher food and paper cost and occupancy and other operating expenses as a percentage of revenues. I am particularly pleased with the payroll efficiency that we are seeing which are a direct benefit of technology upgrades and other actions we have implemented to improve the efficiency of our restaurants.

Please turn to slide 10. Expansion in the consolidated adjusted EBITDA margin were supported by margin growth in NOLAD and in the Caribbean division partially offset by margin contraction in Brazil and SLAD and the devaluations of the Brazilian real and the Argentine peso respectively. In Brazil, the adjusted EBITDA margin contracted by about 130 basis points to 9.9%. This reflects higher food and paper cost and occupancy and other operating expenses which offset efficiency in the payroll and other operating income as a percentage of revenues.

Greater food and paper cost reflect the higher foreign exchange rate at which our exposure to the imported food and paper was hedged at the end of last year as well as certain input cost pressures.

(Technical difficulty) -- adjusted EBITDA margin expansion continued its positive trend in the second quarter increasing about a 100 basis points to 8.9%. The result was underpinned by efficiencies in G&A expenses as a percentage of revenues. In the SLAD division the adjusted EBITDA margin contracted by 120 basis points to 8.2%. This was due to higher food and paper and occupancy and other operating expenses with efficiencies in payroll cost and G&A providing a partial offset.

The Caribbean division excluding Venezuela achieved adjusted EBITDA margin expansion of 60 basis points to 4.6%. The result was helped by efficiencies in occupancy and other operating expenses along with payroll as a percentage of revenues. Our three-year plan includes EBITDA margin expansion of 200 basis points to 250 basis points by the end of 2017.

We established this target at a time when the market consensus expected a resumption of growth earlier than is now foreseen. Despite this, through the first half of this year, we achieved a 120 basis points of margin expansion. While we remain focused on managing our cost and lowering our expenses, our ability to achieve our margin expansion target is also a function of improved top line performance.

As Sergio mentioned we are focused on multiple initiatives to bring customers into our restaurants more often and we expect to see additional traction with the rebound in consumer spending.

On slide 11, you can see our non-operating results for the quarter included a $15.5 million foreign currency exchange gain. This compares to a gain of $3.7 million last year. Stronger sequential Brazilian real appreciation this year combined with an increased Brazilian real net exposure drove the increase over last year's results.

Net interest expense rose $3.9 million to $20.8 million. This was due mainly to interest payments on the loan agreement signed in March 2016 which offset lower interest expenses on the remainder of the 2016 notes.

Net income for the quarter totaled $43.4 million, up from net income of $7 million in the prior year quarter. The improvement reflects stronger operating results, along with a positive variance in foreign exchange results. This was offset partially by a higher net interest expense and a negative variation in income tax expense. Operating results in the second quarter included $50 million of proceeds from the company's asset monetization initiative.

Please turn to slide 12 for an update on our debt metrics. Our strategy to reduce overall debt level is on track. Proceeds from the asset monetization initiative, a focus on cash flow improvement, and a temporary reduction in capital expenditures are all being used to lower total debt levels. As a reminder, the primary objective of our asset monetization initiative is to reduce debt. At quarter end exchange rates, we are within the range.

As of June 30, 2016, our net-debt-to-adjusted EBITDA ratio was 2.3 times which is within our target range. The improvement from 2.5 times at the end of the first quarter primarily reflects the successful $80 million tender of our US 2022 bonds. As planned, this long-term debt reduction was funded with proceeds from our asset monetization initiative. The outstanding balance of our 2023 bonds is $394 million.

The master franchise agreement with McDonald's requires the Company to maintain a minimum fixed charge coverage ratio of 1.5 times, as well as a maximum leverage ratio of 4.25 times. As of June 30, 2016 the Company's fixed charge coverage ratio was at 1.64 times and its leverage ratio was at 4.4 times. McDonald's Corporation recently granted an extension of the limited waiver through and including June 30, 2016, during which time the Company is not required to comply with the leverage ratio set forth in the MFA.

It should be noted that as of June 30, the Company had both the remaining portion of the [BRO] bond outstanding and the new loan agreement the proceeds of which were used to refinance the bond. Less than two weeks after the end of the quarter on July 13, 2016, we repaid the outstanding portion of the 2016 BRO bond thereby reducing gross debt by BRL201 million. On a pro forma basis this would have brought the MFA leverage ratio back into compliance all else being equal.

When we first communicated our three-year strategic plan, our goal was to provide our shareholders with a clear long-term vision for where we believe we can take the business. Our focus is on the elements of our business that we can most control or influence, but we are not immune to external factors that can also impact our progress and our results in the short term.

I will now hand the call back to Sergio.

Thank you Jose Carlos. We have made important progress on the targets in our three-year strategic plan. This plan not only responds to current challenges, but positions Arcos Dorados to benefit from the longer term growth opportunity in our industry.

We have made meaningful reductions to our G&A base as well as restaurant level cost structure through strategies that streamline management decision making and bring us closer to our customers. We just implemented a forecasting and scheduling system in our largest market that optimizes our personal costs without sacrificing customer service and we have strengthened our balance sheet through our asset monetization initiative and subsequent debt reduction.

These strategies have not deflected our focus on the most important aspect of our business, our customers. We have reformulated the affordability platform, introduced new and innovative menu items, and will continue to benefit from the many advancements of the global McDonald system.

In addition to our many offerings, we are also investing in the customer experience with technology upgrades and other steps aligned with McDonald's global plans for offering modern and progressive restaurant environments.

This Friday is the opening ceremony of the 2016 Olympic Games in Rio de Janeiro. As part of McDonald's official sponsorship of the event, last week we began serving athletes and other attendees at our McDonald's restaurant in the Olympic Village. On Saturday we will open the world's largest research center in the Olympic Park to serve the thousands of visitors that have arrived from all over the world for the event.

There is much more potential we can capture in Latin America. We have a clear strategy and are taking the necessary steps to strengthen our leadership position. The continued execution of our plan will result in sustained profitable growth for our Company and our shareholders. We are confident that we are taking the appropriate steps to build on Arcos Dorados' position as the premier QSR brand in Latin America.

So thank you for your attention and I will now open the call to questions.

Yes, thank you. We will now begin the question-and-answer session. (Operator Instructions) Martha Shelton, Itau.

Very quickly if you could offer an update on same-store sales in Brazil thus far in the third quarter of 2016 and then also if you could give us an estimate of the Kronos labor scheduling tool's benefits on Brazil margins, if you could just estimate that?

Just to give you some context to the volume and sales situation in Brazil in Q2, the consensus -- obviously, the conservative view that we have and we see the economy, it is under pressure and will remain under pressure throughout this year. Having said that we expect sub-inflation of the economic environment by the end of this year and we also expect a return to some growth, still balanced, in 2017.

So with all that in mind, obviously we faced tough comps in second quarter basically against Q2 in 2015 where we run the Monopoly promotion in Brazil. So that is to say obviously with the campaign we will see that we experienced some difficult trends over the last two-year period. But at the same time if we take a longer view that is what happened with volumes in the longer period view, four to five years, you will find that the trend is still very, very, very positive.

So all that said, although the traffic is -- has been very difficult this quarter, we expect to gain additional traction out of the enhancement on the affordability platform that we deployed in the market this year. But on the same-store sales situation then, on the update on the Kronos, I mean, (inaudible) schedule system update, Marcelo, let you explain.

Yes. As you know, we finished the implementation of Kronos last year in October in Brazil. Since then we are seeing -- we are right on track to get the efficiencies that we were looking for. We are seeing something around 100 basis points in terms of payroll leverage in our P&L. So we are very confident that investments we made in the last years will pay us back in terms of margin improvement.

Robert Ford, Bank of America Merrill Lynch.

I had a question with respect to redevelopment and re-franchising, and I was curious if you could give us the number of properties in terms of the redevelopment effort that you've made so far in terms of the number of properties, locations, any expected temporary store closures as those locations are redeveloped. And then how many additional locations do you expect to redevelop and the time-frame for those please?

And then with respect to re-franchising, can you talk a little bit more about the number of units that you've re-franchised so far. It doesn't simply appear to be gross openings, less closures which would suggest about 16 units that you've sold provide $875,000 each. And then with respect to the transfer of those assets to sub-franchisees, how will the economics of those sub-franchise units now work? Is there a rental income spread that Arcos will receive in exchange for the sale of those locations?

I will take first part of the redevelopment and we can check the situation of the re-franchising that by the way you are right on the thing.

Redevelopment, we're on track as we had mentioned during the speech and we have signed agreement that represent about half of our premier pipeline as we announced in March last year. So today, we raised over $80 million in cash from our redevelopment initiatives and we also expect some additional inflows within the balance of the year and entering in 2017.

And we have to keep in mind that the main goal of this division is both in this case, not only redevelopment, but also re-franchising to reduce the Company net levels and the reality so far as Jose Carlos mentioned we have reduced around $80 million our 2023 US dollar bonds. Having said on this, our focus remain to be reduce our debt levels, and bring in the net debt to EBITDA ratio back to between 2 times and 2.5 times range even if we get this level without the need of executing the entire pipeline of $200 million that we announced. So far we have a very, very small number of units in Mexico, but we're not talking about the large number of restaurants that will be redeveloped to some extent. It is also the --

(Multiple speakers) -- I'm sorry.

None of (inaudible) -- to wrap up this, this also includes, during obviously the period where the real estate will be developed, we will have a period of time when the restaurant will be closed while we wait the building of shopping mall to be rebuilt and we put our restaurant back on the same site, remember, keeping the ownership of that real estate.

Yes, may I add some thing around this? And the good news is that we will have in the future a brand new McDonald's with a better trading area with traffic generators. So after that period where -- when the restaurant will be closed we expect much better results in terms of sales traffic and profit from those units. So we are waiting for the next months in order to these -- properties redeveloped and builders build new restaurants.

No, that's great.

And then on the re-franchising piece, when we said so far as well, we already transferred over 20 restaurants out of the re-franchising effort we reached for the agreements with an ongoing process. We have a pipeline of restaurant to be re-franchised, mostly in Brazil, but we've got also in some other markets as we mentioned before like Argentina and Chile. The franchisees that those restaurants are existing franchisees which we take that as a proof of a shared confidence in the future prospects of the business.

And regarding the business model, yes, of course, once we re-franchise a restaurant, we make our profit from collective range from the franchisee and there's a -- what we call a rental margin that is composed by the difference between the rent that we get from the franchisee and the occupancy cost of those restaurants.

And Sergio, if I read the press release correctly, it seems to suggest that there was a drag on earnings because of some of the stores that may have been re-franchises. Is that the case or are some of these stores loss-making in effect or less profitable than average so that there may also be a lift in terms of earnings as you go through this transition period?

I'll pass the answer to Jose Carlos.

No, there was no drag on our profitability because we started transferred.

And in terms of future, profitability we expect neutral.

Neutral, yes.

(Operator Instructions) Jeronimo De Guzman, Morgan Stanley.

I just wanted to start with a couple of follow-ups from what you've mentioned. Maybe on the same-store sales in Brazil, you've mentioned this new reformulated affordability platform, and I just wanted to see if you could give us some color on why we still haven't seen a pick-up in traffic gains, if you think this is just a timing issue where we'll see more of a reaction going forward or if there's anything that needs to be anything else that you think needs to happen before we start seeing that acceleration?

And also if you could give us some color maybe on the -- if there's any difference in the traffic trends or the top line trends when you look at the mall units versus the standalone units? And then I also wanted to follow up on what you mentioned on Kronos, just kind of wanted to check where you are on the rollout in other markets?

Of course, yes. And you're perfectly on the point. As I said before, in this particular quarter we face a tough comparison against last year because of the Monopoly promotion. That is one important point that we need to put on the table.

A second one is there is a decent performance between this and store types. Marcelo, why don't you --

As you mentioned, we see for the whole year, and this is the case for the second quarter, a better performance in our free-standing units, our units where we rely on our ability in order to bring traffic to restaurants and it's a tougher situation in -- at malls where obviously traffic relies mainly in the ability to this -- of these malls to bring customers. So I think that this was the trend for the last few months and we are still the same for the rest of the year.

And then on the Kronos deals, the market is -- the rollout is complete Jeronimo, but as we've said last year, it would take some time to get all the restaurants with the base running in perfect shape as we are today. That is why we're seeing the benefit in the labor line more clearly than we did last year. We have all the market up and running and the benefits that we expect to get out of this report are coming through.

Robert Schweich, Burnham.

I'm wondering to what extent Arcos Dorados maybe utilizing some of the newer ideas and programs coming out of McDonald's in Chicago. There's a lot going on in terms of development there in terms of menu and I don't know how (inaudible) and breakfast and all of this sort of thing and I'm wondering how much has been applicable for you and do you envision this having an impact on your business through your own implementation of some of these programs?

Sure. No, I know my pieces. Number one the straight answer on the breakfast, that has to do with what it is habits of common in our markets. As in Latin America, in most of the markets we have sort of different culture in terms of breakfast pattern. Having said that Puerto Rico is the market that we have with closest breakfast culture than US and that is why we do have all the breakfast in Puerto Rico which by the way is doing very, very well, has been in the US.

So this is to say that on the product side and the product offerings we are always looking at opportunities not only in the US, in reality both -- we have the advantage of having the capability of -- to tap in different developments for new products everywhere in the world and that is a share exclusive we actually sometimes that we are taking to other geographies. So we always benefit from it. Marcelo?

Yes, maybe both another good example of what Sergio talking about is the signature line that's a creation of McDonald's and we are taking advantage of that development and right now we launched the ClubHouse burger as the first step of that platform, and the second one was the Mushroom Dijon that we launched in our main market. So obviously we continue to work closely with our peers in McDonald's in order to take advantage of all the research and development that the system is doing around the globe.

Good. And on the other piece of your question then, I refer in the speech as Experience of the Future pilot implementation that we are moving ahead in our geography and that is also our reflect of -- and global effort from McDonald's system. This is basically enhancing the consumer experience obviously about adding some kind of digital interfaces basically for the ordering process and some customization of the products the customer will buy.

Obviously brings also benefits on main improvement, improvement on customization as I said before, and there is also an important piece which is to enhance the look and feel of the restaurant, what the customer sees every time he enters a restaurant and goes to the drive-through. We are talking about effort and we're working on our implementation plan for that initiative in the years to come.

Thank you. And I realize that all of these specifics related to what's going on out through the McDonald's system, all this is important, but the macroeconomic political environment situation that you're expecting to see improvement, major improvement starting next year is probably the most important variable in the results of Arcos Dorados.

Yes, of course, this is -- we've tried to say that a couple of times. The reality is -- but there's an additional boost factor that we believe in that sense which is we work particularly in the last 18, 24 months on streamlining our business, on making the Company and restaurants more efficiently and to have a linear G&A and all those effect combined will put us in a much better position when the economy start to recover to capture additional margin expansion quicker than before I'm sure.

(Operator Instructions) Martha Shelton.

Very quickly on NOLAD, I've been noticing a good EBITDA margin performance for the past several quarters and I just wanted to get a sense from you regarding what sort of EBITDA margins you think that the NOLAD division could top out at? Are you thinking like low double-digits, are you thinking low teens, something in that neighborhood, I understand that it's largely a volume-oriented story?

And then another question I had for you was when should we expect to hear updates regarding the opening plan from McDonald's over the three-year period and cap expenditures from McDonald's over the three-year period?

Okay. For the first part, Martha, we do not provide future projections for EBITDA, but I believe Marcelo did give us some color on the actual performance of the division in the quarter between Puerto Rico and Panama.

Yes, as we mentioned in the call before, we are seeing great results coming from Costa Rica mainly and Panama, and this is the result of all the effort that the Company bring across the market in order to streamline our P&L and all of our costs. So the economies in the rest of the Company bring us better times in the main market obviously we are waiting for same kind of results in the rest of the divisions.

And on the negotiations with McDonald's, well, you know that what -- already initiated conversations with McDonald's about the 2017-2019 cycle, but as you know we have to get an agreement before the end of the year. So obviously as soon as we reach -- we finalize the conversation with McDonald's and we reach an agreement, we'll update you in the earning calls for sure.

And this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Sergio Alonso for closing remarks.

Well, thank you very much for your questions and for your attention today. And we certainly look forward to speaking with you again for next quarter results conference call. In the interim, our team remains available to meet with you and answer any questions that you might have. So on that said, thank you very much, and enjoy the rest of your day.

And ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.