Arcos Dorados Holdings Inc (ARCO) 2018 Q1 法說會逐字稿

Good morning, and welcome to the Arcos Dorados First Quarter 2018 Earnings Conference Call.

A slide presentation will accompany today's webcast, which will also be available in the Investors section of the company's website, www.arcosdorados.com/ir.

(Operator Instructions) Today's conference call is being recorded.

At this time, I would like to turn the call over to Daniel Schleiniger, Vice President of Corporate Communications and Investor Relations.

Please go ahead.

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 Mariano Tannenbaum, our Chief Financial Officer.

Please turn to Slide 2. Before we proceed, I would like to read 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 obligations 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 today with the SEC on Form 6-K.

As we mentioned on our most recent earnings conference call, the differences in exchange rate and inflation in Venezuela generate material accounting distortions impacting both reported results of our Venezuelan operation as well as our consolidated results.

For that reason, and unless otherwise indicated, all results referenced in our comments today and shown on the accompanying presentation exclude the results of our Venezuelan operation, both at the consolidated level as well as for the Caribbean division.

For your reference, we have also added a full income statement, excluding Venezuela to our earnings release beginning with this quarter.

We trust this additional detail will provide you with greater visibility into our operating results.

With that, 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.

Please turn to Slide 3. The positive operating and consumer trends for 2017 carried into the first quarter of 2018, and we expect to continue to see strong operating performance moving forward.

All the levers of our business are pointing in the right direction.

We have been sustainably increasing comparable restaurant traffic across all of our major markets for 6 consecutive quarters.

Profit growth, value-driven pricing and an improving product mix are generating comparable sales well above inflation in each of those markets as well.

As a result, we are outpacing our main competitor set and continue to gain share across the region.

The shift in mix is a sign that our customers recognize the value that we offer at every tier of our menu board and across our segments.

As we have noted before, our business model generates margin leverage as we gain scale, and all signs are pointing to continue traction on that front.

Comparable sales grew 9.8% in the quarter or 300 basis points above blended inflation.

This comes on top of a similarly strong performance last year.

By driving a positive shift in mix as well as increased restaurant traffic, we delivered another quarter of EBITDA margin expansion in Brazil.

And with the same drivers, we also reversed the prior results in NOLAD and SLAD.

Both of these divisions generated solid EBITDA margin expansion in the first quarter of this year after a decline in margins last year.

This was not just a result of strong top line growth, but also of key cost running at or below inflation.

The supply chain team is doing a great job keeping many costs below inflation.

And we're also seeing the benefit of our efforts aimed at increasing labor productivity.

Our strong top line growth coupled with our streamlined cost structure delivered adjusted EBITDA of $58 million (sic - $68 million) in the quarter, which is our highest first quarter result, excluding Venezuela for at least the last 5 years.

Experience of the Future or EOTF features prominently in our continued growth strategy.

As we told you at our recent Investor Day, we plan to have 650 EOTF restaurants by the end of 2019, primarily, in Brazil and Argentina, while also preparing the rest of our markets for future EOTF deployment.

The key enhancement of EOTF is through the experience that we offer our guests.

This not only boosts our competitive advantage in the short-term, but like all of our investments, it introduces the tools that will allow us to continue capturing the long-term opportunity of this business.

To summarize, we are focused on bringing more customers to our restaurants more often by offering compelling value up and down our menu board and by delivering the best experience in the QSR segment.

And over the next 2 to 3 years, we expect consolidated EBITDA margin to expand by an additional 100 to 200 basis points as compared to 2017 adjusted EBITDA.

I am confident that our strategy combined with a better medium- to long-term economic outlook in our region will deliver sustainable growth and significant shareholder value creation over the next several years.

Now I will hand the call over to Marcelo for our view of key advantage around each of our 3 strategic pillars and to discuss progress in our development initiatives.

Thank you, Sergio.

Now please turn to Slide 4. As you all know, we are the #1 QSR chain in Latin America with significant potential for the McDonald's brand to continue to grow in the region.

Our strategic plan is based on 3 main pillars designed to build on our leadership position for the long-term: our restaurants; our food; and our people.

Our strategy is completely aligned with McDonald's global velocity growth plan, which is aimed at unlocking meaningful growth and increasing guest counts.

Specifically, we are focused on: first, running great restaurants by creating memorable and inviting environments staffed with the best trained and most welcoming teams; second, retaining existing customers by building and expanding on the core of our brand, which is our highly successful family business, our attractive affordability platforms and our main innovations that bring appealing local flavors to our guests; third, regaining guests, we lost to lower tier IEO competitors during the recent severe economic recession by offering them value at every level of our menu board as well as delivering the unmatched quality, experience and complements that our guests expect; and finally, fourth, converting casual customers to committed customers by innovating the underdeveloped categories and occasions as well as competing more aggressively via our brand extensions.

As Sergio noted, EOTF brings the newest image in the McDonald's system to our guests, introducing new features to enhance their experience in and around our restaurants.

At the end of March, we had 144 EOTF restaurants.

And having developed local suppliers for some EOTF features, we will be accelerating the deployment of these transformations in the coming quarters.

We have also made significant progress with McDelivery.

We are now operating McDelivery in delivery in 8 markets across all region, both via the global agreement with Uber EATS and local agreement with other leading delivery partners.

During the first quarter, we continued to add restaurants to the delivery footprint.

While still in the pilot phase in some markets, we are capturing incremental guest counts in the restaurants that offer this service.

On the mobile front, our app has been downloaded more than 13 million times in our geography.

And in each of the 10 countries, where it has been launched, our app is among the top-3 most downloaded in the food category.

Every category of our menu from the affordability platforms to our core product to our signature line saw growth in the first quarter.

Additionally, we continued to drive volume to our discharge centers.

Finally, on the people front, the implementation of our Cooltura de Servicio program in 2017 across Arcos Dorados is delivering some very sticky results.

The program, which has been deployed in all of our 20 markets, is centered on people by taking service beyond the front counter and allowing our restaurant employees to exercise freedom within a framework.

This initiative does not require significant investments like other initiatives, such as EOTF.

But it really represents an important change in our operational culture.

Last year, our restaurant crew turnover, which is one of the lowest in the industry, decreased significantly and first quarter turnover numbers continue to be encouraging.

Better service and lower turnover contribute to improved productivity, which was one of the main drivers for lower payroll costs as a percentage of sales in the first quarter.

These are some of the examples of the tremendous lasting effects we are achieving with our Cooltura de Servicio program.

Please turn to Slide 5. We have the best restaurant footprint in our industry by far.

With over 1,300 freestanding and in-store locations and the highest sales per unit of any major QSR chain in the region, we will generate cash flow growth not just by adding units, but also by leveraging our streamline cost structure through sustainable top line growth.

Our unit growth strategy, which includes more than 200 restaurant openings from 2017 to 2019 is based on leveraging our decades of expansion experience to add more freestanding locations to our strong restaurant portfolio.

This slide also provides you with a breakdown of company-operated and franchised restaurants, and new additions as well as an overview of format by division.

So whether it's our restaurants, food or people, we are confident that our strategy and competitive advantages will deliver the growth and the value that our shareholders expect.

Mariano will now take you through discussion of our key financial results.

Mariano?

Thanks, Marcelo.

Please turn to Slide 6. The first quarter of 2018 was our sixth consecutive quarter of driving positive traffic in our business.

Importantly, comp sales growth far outpaced inflation in each of our divisions during the quarter.

This means that the underlying business trends continue to be favorable with all 3 top line drivers, volume, mix and pricing contributing to growth.

And by offering value rather than heavily discounting our menu, we are sustainably building top line for the long run without sacrificing our gross margin.

Please turn to Slide 7. Looking at margins, while top line growth exceeded inflation, our key cost items were either in line with or below inflation.

During the quarter, we reduced our food and paper cost in almost all of our divisions.

We posted lower payroll cost mainly due to increased productivity, and we achieved some leverage in other operating expenses as well.

Our G&A expenses remained flat as a percentage of revenues, despite some additions to our team needed to support our increased investment plan.

Please turn to Slide 8. Our strong top line growth and continued cost leverage generated an adjusted EBITDA increase of 12.5% to $68 billion, with solid EBITDA growth in Brazil, SLAD and NOLAD.

And our adjusted EBITDA margin expanded by 60 basis points to 8.5%, despite the 40 basis point increase in royalty fees versus the prior year quarter.

Moving to the bottom line.

In this quarter, we generated $13.6 million of net income compared to $41 million in the same period last year.

Our previous quarter results included $51.9 million from the company's redevelopment initiative compared with $200,000 this year.

As we already announced, we have concluded our redevelopment program, as we have achieved our goal of bringing the leverage ratio to below our target range.

Excluding this nonrecurring item, our net income would have increased almost $9 million, led by higher year-over-year operating results, combined with a positive variance below the operating line.

Net interest expense was $1.8 million lower year-over-year, mainly due to the lower interest rate of the restructured long-term debt.

We reported better noncash foreign currency exchange results and income tax expenses versus last year.

Please turn to Slide 9 for more detail of our divisional results.

Brazil's comparable sales growth of 4.6% was well above inflation, backed by improvements in volume and mix.

This regarding the impact of re-franchising with shifts revenue recognition from Arcos-operated sales to franchisee-operated revenue.

Total systemwide McDonald's brand sales in Brazil grew 7.4% in constant currency.

Guests continued to respond well to our affordability platform and other value offerings and we continued to gain share in the market.

NOLAD's 11.4% comparable sales growth was nearly 4x the blended inflation for the division.

Each of the division's 3 markets delivered strong comp sales growth.

I am particularly pleased with the results we are achieving in Mexico.

Volumes in that market continue to perform strongly, significantly outpacing the competition with the highest comparable traffic growth since the formation of Arcos Dorados in 2007.

Our affordability platform, innovative marketing and digital initiatives as well as our focus on delivering a better guest experience are driving the improved performance.

I should note that results in Mexico benefited during the quarter from the Easter holiday shift versus the prior year.

SLAD's comparable sales growth of 19.7% was also above the division's blended inflation rate in the quarter.

A favorable shift in mix, successful marketing campaigns and higher restaurant traffic supported top line growth and drove outperformance versus our main competitors.

The Caribbean division's comparable sales increased by 10.3%, well above blended inflation.

Performance in Colombia and Puerto Rico was particularly strong during the quarter with solid contributions from some of the smaller markets as well.

Please turn to Slide 10.

Brazil's adjusted EBITDA margin added 100 basis points to reach 13.4% in the quarter.

We achieved this high margin mainly by capturing efficiencies in food and paper costs and payroll expenses.

We have also completed the hedge of our dollar-linked food and paper costs for the balance of the year.

For NOLAD, adjusted EBITDA increased a robust 40.1%.

Importantly, we also reversed the negative margin performance from 2017 and expanded NOLAD's adjusted EBITDA margin by 130 basis points in the first quarter.

By driving sustained volume growth, we captured efficiencies in all cost line items, except royalty fees.

In SLAD, adjusted EBITDA margin grew by 50 basis points.

As was the case with NOLAD, we captured efficiencies in all cost items except royalty fees.

We were pleased to see SLAD regain traction during the quarter.

In the Caribbean division, adjusted EBITDA totaled $3.8 million versus $3.4 million in the same period of last year.

Adjusted EBITDA margin contracted by 10 basis points with efficiencies in most line items offset by higher food and paper costs and royalty fees.

On Slide 11, you can see that we continued to maintain a strong and healthy balance sheet during the quarter.

As of March 31, 2018, cash and equivalents were $256.8 million, and our net leverage ratio was 1.4x adjusted EBITDA.

As a reminder, our leverage ratios are calculated using consolidated as reported results.

With that, the uptick in our leverage versus the end of 2017 was largely due to 2 factors: seasonal working capital needs and the noncash accounting impact of Venezuela's result on consolidated adjusted EBITDA.

The seasonality in cash usage is consistent with the history of our business, and we are comfortable that we will remain below our target ceiling of 2x to 2.5x net debt to adjusted EBITDA.

Finally, we are very pleased with the strong results we have delivered in this quarter.

And as we mentioned in our recent Investor Day, looking ahead, our plan is to generate comparable sales growth well above inflation by attracting more guests to our restaurants more often.

When we combine of our expected top line growth and our leaner cost structure with our aggressive investment plan, we expect to generate incremental returns that will lead to a 100 to 200 basis point margin expansion over the next 2 to 3 years.

I will now hand the call back to Sergio.

Thank you, Mariano.

Please turn to Slide 12.

As the region's largest restaurant chain, we are in a unique position to leverage our scale to make an important impact on the communities we serve.

We are aligned with McDonald's recent global commitments related to packaging and recycle, kids nutrition and climate change.

We're also making a difference with young people, not just by generating the most first time formal job opportunity in our region, but also by investing in their futures.

We have formed partnerships with NGOs across many of our markets to bring training and educational opportunities that go well beyond our kitchens.

I truly believe this is one of the reasons why we are receiving more and more recognition as a great place to work.

Putting it all together, we're generating consistently strong operating results, which are the consequence of many actions taken across the entire organization over time.

For this reason, I am very confident that the business is firmly on track to continue to grow and deliver shareholder value in a long-term sustainable fashion.

We're moving in the right direction and, despite any short-term headwinds that we still face, I fully expect that positive, longer-term, global and regional trends will fortify our results.

So thank you for your attention.

And I would now like to open the call to questions.

(Operator Instructions) Our first question comes from Robert Ford of Bank of America Merrill Lynch.

Thanks for the disclosure on Venezuela and congratulations for the underlying improvements.

I had a question with respect to NOLAD?

You mentioned that Easter had an impact, and I was curious if you comment -- or if you could comment on trends in April and May in NOLAD as well please?

Yes.

Let me give you a few words on what's going on in the division, the NOLAD customer, kind of, portfolio details on sales and all that.

Well, big driver in NOLAD has been Mexico.

In reality, in the last week, we disclosed in previous calls in the last 5, 6 quarters, Mexico has been consistently outperforming the market.

As we also discussed many times in the past, Mexico is a market, where we're focused on regaining volume, because we know that that's the way to put the country in the place it can have in our geography.

Mexico is a market that doesn't need of the volumes in absolute terms that we have in other markets like Brazil or Argentina to reach the same margin levels, percentage-wise.

I mean, we all know that volumes, in general, in Mexico are lower.

We're very pleased with the results we're getting.

I mean, there are some details and we know that if you compare the performance of the market in Q1, in some cases, we are multiple times beating the market, the competition.

So we know that this is -- is a very strong signal, and we know that the market, it is in the right path to be what we want Mexico to be.

Marcelo, why don't you give some color on the chain's performance overall?

Yes.

Let me address the Easter part of your question.

Easter affect our business in different ways depending on the market.

But in the case of Mexico, that week and the next one are sometime holidays in the country.

So there's no school.

That's why, during that period, there's a lift in sales that affects not only us, but the region in general.

That's why I think it's so important what Sergio mentioned about our comparison with other information from the market from retailers and some direct competition from the market that we saw that we beat them multiple times.

In the case of the numbers of Q1 2018 of the division of NOLAD division, we can say that around 2 percentage points of the comparable sales are related to the shift of the Easter period from April to March.

So even excluding those 2 percentage points, the comp sales for the region will be great, almost 10%.

At the same time, as Sergio mentioned, we are very pleased with the results coming from Mexico, and the word is that -- we were talking a lot about our affordability platform in Mexico, which continued to be a main contributor to our results.

But, at the same time, there are other tiers of our menu board, particularly the core pattern and the premium pattern, which is doing very well.

So the beauty of the results from Mexico I think is that they are pretty consistent all across the menu board from all the segments of the business and even from all the day parts.

So I think that we are pretty confident that we are in the right path to put this market where we need it to be.

Yes, and clearly showing in the answer above -- the trend continues in kids, right, so we're very pleased.

No, that's fantastic, Sergio.

And congratulations, I know you've been working on it for a long time.

Is there anything else you could give us with respect to, I don't know, net promoter scores or menu additions or maybe doing a little bit more with breakfast, or even the impact of some of the BK store closures?

It seems as if you have many things working in your favor right now in Mexico?

Look, I mean, we said it many, many times.

Ours is a business that, obviously, take time.

I mean, you can change the course, you can change the trend, but it takes time.

In Mexico, particularly, we have some -- we faced some market and regional challenges when it comes, for example, to media cost.

So it's much more expensive, it's much more difficult to companies like us, and certainly in the other competitors as well, to communicate aggressively what you're doing.

So that creates an additional factor that takes time.

That's a reality.

The important thing is, I believe Marcelo said it somehow, all the levers of the market are moving in the right direction.

So we have a very strong affordability platform that we kept in the last 2 years or so.

And it's still performing very well and growing.

And then, we have these other categories.

All the different segments of the business are moving in the right direction.

By the way, that's the only way to create an environment where growth is sustainable, as we are.

I mean, we're not pushing to get volumes out of discounting or creating platforms that are really hard to be sustained in the future.

So it may not take time -- it will probably take more time.

We believe that at this pace it will make a few quarters to get where we want to be.

But we're very confident, but this is not a silver bullet, it's a result of, I would say...

Multiple efforts.

Multiple efforts.

Yes, thank you Marcelo.

And particularly both on customer satisfaction scores that we shared with most of you during our Investor Day.

During first quarter, particularly in Mexico, but in most of our countries, we saw some additional progress in terms of customer satisfaction.

So again, in going forward, what Sergio mentioned before.

Our next question comes from Ravi Jain of HSBC.

Just wanted to hear your thoughts on how you're seeing the Argentine consumer, especially maybe you can give us a little bit of April and May, how are you seeing traffic?

Is it decelerating or is it kind of stable, given inflation is still pretty high and the peso is depreciated?

And also on Brazil, your same-store sales was slightly slower than last year, it was at 4.6%.

Is there anything in the first quarter?

Do you expect that to accelerate in the balance part of the year?

How should we look at Brazil traffic for the balance part of the year?

Okay.

Well, again, let me give you the headline on both Argentine and Brazil.

Then Marcelo, you go ahead with details.

Look, of course, we know that the situation in Argentina overall has been sort of volatile and changing, particularly the last couple of weeks or even the last couple of days.

But having said that, in the market, we were able to perform very well.

Comp sales were above inflation.

We were positive.

I mean, we've been positive in traffic.

Of course, this is the time and we've been here -- we've been in situations like this many, many times in Argentina.

This is a time where we have to sustain our strategy of building the customer base, which is what we're doing.

At some point, as customers feel that their disposable income is reducing, they will have options -- they do actually in our plan portfolio, to keep visiting us, to keep going to McDonald's, and probably changing what they normally buy from us, things that you would -- to core some -- from a core to any of our probability options, but the strategy we are putting into place, which is growing the customer base, it is working.

It may have some impact in margin, percentage-wise, yes.

Effectively, people need to trade down what they buy because of lack of money to be spent, that will be the case as has happened in the past.

But the most important thing and the reason that we've been discussing this a lot in the last couple of days with all the recent developments that we have is, we have a product implied lineup, which is the right thing to do, and the right thing to have under this scenario.

We do not (inaudible) either react with new product launches or new pricing strategies, dramatically changing what we have to cope with this situation.

And that is what gives us, I would say, a good view and we focus for what's going to happen in our business in this country.

By the way, while all this is happening, we are gaining share in the market.

So Marcelo, why don't you give us some...

I think that we are very pleased because both SLAD and Brazil were positive in traffic during first quarter.

And as Sergio mentioned about NOLAD, that trend continues in the second quarter.

And particularly, in both cases, we are with positive traffic on top of positive traffic last year.

So I think that the trend of our volume in both markets is pretty good.

And that results are coming, for example, from our affordability platforms in those 2 -- in these 2 countries.

It's in the same platform, which are priced at very competitive price points.

And on top of that, we mentioned during the call that we have more than 30 million people that has -- that have our app in their phones right now, most of them in Brazil and Argentina.

So we can communicate with all those people through the app with promotions and with some coupons, in order to attract them to our restaurants.

So I think that, as Sergio mentioned, we have the right strategy in place in the market.

We have the right laborers in order to work on.

The results are coming as we expect.

So I think that...

[We] want to give you more color on the Brazil piece, Ravi.

If you look at our comp sales, they're clearly above the inflation for the quarter.

And the comp sale is coming from what we already discussed, from both growth in volume and growth in other check.

Our check grew higher than our price adjustment.

And the difference -- the compliment is also a remarkable improving in the product mix in what we sell.

So all the levers, again, are moving in the right direction.

And by the way, that is what explained the 100 basis point margin expansion we got in the quarter.

So I mean, again, we're not, obviously, ignorant to what's going on, on the challenges we have, on the political situation and all that.

We are very close to that.

But the reality is that the business is performing very, very well.

And again, just indicates that Mexico or even Argentina is not something that we're harvesting today because of what we did yesterday.

It's a strategy that is bringing us to the place where we want to be to sustain the [gorgeous] performance looking forward.

That's very helpful.

And a quick follow-up, if I may.

I mean we have seen the dollar strengthening and you do have imported costs in Brazil, a little bit in Argentina and a lot in Mexico.

How are you seeing your pricing strategy for the next few quarters?

Are you -- do you think you want to still focus on traffic and volumes or do you think that you want to try and pass that weaker currency at least through prices?

Sure.

Ravi, why don't you split the question?

Mariano, why don't you take the part of impacted FX and hedges and all that, and then we'll come back -- Marcelo and I will come back with the pricing.

Perfect.

Well, as we know we have around 25% to 30% of our consolidated food and paper costs are dollar linked, then it will (inaudible) according to each of our markets.

To your question, specifically in Mexico and Brazil, the -- what we do is, we have a hedging policy.

On a rolling basis, we hedge around 50% of total food and paper imported goods.

So far this year, we are around that figure.

So we feel comfortable, we are about to finish the hedging program for 2018.

And in that respect, the recent depreciations of currencies both in Mexico and Brazil are covered with our hedging policy.

To give you an idea around the forwards we closed for Brazil on average of around BRL 3.35 to the dollar, which are lower than the current spot, and in Mexico, around 19.2.

So it's also an efficient -- we did it in an efficient way well ahead -- or we were -- let's put it that way -- ahead of the depreciations of the currency.

It's important to note, however, that this policy -- the intention of this policy to give certainty and to give predictability on our cost structure and it's not a speculative approach.

So in this case, because of the depreciations, we note that they're working well.

But we are going to do it anyway.

It's not that we're doing it on a speculative way, but to give predictability to reduce volatility on our P&L.

So having said that, I'll...

Yes which, by the way, help us in terms of the pricing strategy because precisely, to have predictability in our costs, in our [bank] of prices, is what give us the chance to be strategical when it comes to pricing, which is what is creating the momentum plan that we have.

Yes.

I do not foresee a major change in our strategy on pricing, neither in Mexico or Argentina.

We are trying to be up inflation or below inflation with our prices.

And that's what is helping us to build more volume and to build some shifted in the mix of what we are selling, which are improving our results.

So I don't foresee major changes in that strategy, in that approach to your pricing.

(Operator Instructions) Our next question comes from Robert Schweich of RMB Capital.

I would like to follow up on the currency situation?

The Brazilian currency today is about 10% lower than the average of the second quarter last year?

I don't know what it will average for the second quarter, but it's going to be significantly lower?

So this is going to affect the conversion when you report your results?

But I'd like you to discuss that and I'd like you to also discuss the broader macro factors and the implications of these factors that's causing the Brazilian currency to weaken as well as get into the Argentinian situation, which is far less important for you, but far more dramatic in terms of its experience?

Okay.

Let me take the first -- I mean, let's take the first question and then we'll go to the translation effects and all that.

What we have seen in Brazil in the last couple of years, I would say, 1.5 years, is that the economy and the political situation kind of decoupled.

So there is in the market much more political instability than economy.

I mean, the economy, it is performing better than what happened in last year.

In spite of -- look at the consumer sentiment, they're not as positive.

But the reality is most of the activity indicators in the market are positive and are growing and so we are.

So from a broader context, I would say that our understanding is -- the main reason why the local currency is depreciating is probably what's going on at the world level, I mean, global level, what's going on is the strengthening of the U.S. dollar.

In the case of Brazil, obviously, it's impacting Brazil.

Keep in mind that, reasons attributable to Brazil when -- I don't know, in 2015, and was much more dramatic than the 10% depreciation that we have Q-over-Q.

That's on the Brazil piece.

On the Argentinian part, well, you will say it is more dramatic, so we are Argentinian.

The reality is that, it has a different implication.

It is more, and again, there's a political situation and there is a market or a consumption environment that has been impacted by the removal of the subsidies that the previous government used to have on public prices, electricity, gas, transport and other things.

Those subsidies have been removed by the current government, and that obviously creates additional pressure on people's response or intent, that impacts the overall consumption and actually potentially will impact our business as well.

There happens to be -- we put in place the marketing strategy, product and price by explaining forward and explaining to you very, very well.

Are we concerned about the potential development of the Argentinian situation?

Yes, we are.

I mean the government has just started talks and negotiations with the IMF.

It's not clear yet what will be the outcome of those negotiations.

But as I've said before, I mean, in person I do not see a major disaster in the economy that we had in 2001.

I believe that this is short-term.

We may face some additional headwinds.

But the future, the long-term prospects are still very positive for Argentina as well, and our performance, we believe, is a testimonial of that.

There are, however, some technical events in the translation.

Mariano, why don't you expand on that?

We look at the FX impact in our business in 3 ways.

The first one is the one that explains in the previous question to Ravi, regarding the impact on our food and paper imports in each country that are dollar linked.

And for that, we do the rolling hedges every 3 month.

And we cover the possible impact of depreciations or devaluations in different currencies.

In that respect, for 2018, I repeat, we are in line with our policy, and I think we covered quite well that ratio.

On a second level, we have the FX impact on our debt.

We have approximately $650 million in debt.

What we have is dollar issued bonds, 1 maturing in 2023, the other 1 in '27.

And both are hedged at -- 50% of those bonds are hedged to the Brazilian real.

That means that the depreciation of the Brazilian real also reduces our gross debt, which is the purpose in this case -- the purpose why we do this cross currency swap is to have that coverage in case of depreciations of local currency, mainly the Brazilian real, where we generate the majority of our cash.

So by having that cross-currency swap in place, we can face these movements or this volatility in the FX on a much better way.

So those 2 risks are the risks that we cover proactively.

Then we have the third risk, which is the translational risk.

That means when the FX depreciates, it has a direct impact on our P&L through converting our results in local currencies to the U.S. dollar.

We cannot cover that risk, actually Latin American companies don't cover that risk because it took time and it's impossible to do it.

But if you look at in the short-term, it might have some impact on our results.

But on the mid- to long-term, what happens in Latin America is that, usually, depreciations at the end match local inflations.

And because we don't have, we operate in an industry that has not -- we don't have regulated prices, we have the capacity to translate prices to local inflation, in the mid- to the long-term that should not affect materially our business.

Of course, the impact for a specific quarter can be more significant than in the mid- to long-term.

But we are not specifically worried at this time, of that affect.

So I think that's the explanation to the exposure we have to the FX.

That's a beautiful response, I got that.

And I just want to tie one more thing into this.

I recall from the seminar that you had that you're looking to improve your profitability over the next 2 to 3 years significantly.

And might I assume that none of this currency issue is going to interfere with that plan as -- so long as the underlying economy in Brazil continues to be firm as you have discussed?

Exactly.

The one here -- we said that we expect to increase our margins by -- between 100 and 200 basis points.

And we're focused and everything -- every aspect of the business, that it is under our control.

The key for that is to continue to grow volumes, and the reality is that we are improving quarter after quarter that as long as you keep our pace on growing volumes and bringing in more customers to existing restaurant base, that is the best way to -- shortest way to capitalize and make -- and convert all those visits into margin expansion.

And if I may, let me give you just a few words trying -- rounding things up.

Look, we are growing volumes everywhere, we're expanding margins significantly.

We are gaining share.

We have a very compelling investment plan for the next couple of years.

The company is strong.

The business is performing well and we are strong.

We know that we have to face probably some headwinds here and there, particularly here in Argentina, maybe in Brazil.

We don't know.

That's not clear yet, it will depend on the elections and all that.

But the reality is that we are focused on doing the right things.

And my personal stance, and we shared this with the team, is the company is stronger than ever.

We will focus on making little stronger and that's the best way to drive shareholder value.

We're all concerned about stock price.

We are as concerned as all of you are for many reasons: number one, because we are professional, we are dealing both in the business for long; second one is not secret to anyone, we get a fair amount of our compensation based on our stock price.

So we're professionally in first place concerned and personally also concerned about that and I want to make this clear.

The business is performing very well.

All the levers that we have, all that we have in our hands to be driven, it is doing well and it's our commitment to continue to boost in that direction.

This concludes our question-and-answer session.

I would like to turn the conference back over to Sergio Alonso for any closing remarks.

Yes, thank you very much for your questions, and again, for your attention today.

So as always the team remains available to meet with you and answer any questions that you may have.

So, again, thank you very much and enjoy the rest of the day.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect your lines.