AmRest Holdings SE (EAT) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the AmRest Q2 2020 results call. My name is Hannah, and I'll be the operator on your call today. [Operator Instructions] I will now hand over to the presentation team to begin today's conference.

Good afternoon, ladies and gentlemen. My name is Lukasz Wachelko. I'm representing Wood & Company, and I have the pleasure of moderating the call with AmRest, aims to discuss the second quarter results, but also the current situation over the third quarter. The company is being represented by CEO, Mark Chandler; with CFO Eduardo Zamarripa; and Chief of Strategy; Peter Kaineder, and they are also a [ component ] with the IR team. Trying not to take so much of airtime of yours, let's move on. Mic is yours.

Very good. Well, thank you, Lukasz. Good afternoon, everyone. I hope you and your families are well and safe. Certainly, a lot has transpired since the last time we spoke. And during today's call, I'll take you through kind of the summary of what's going on, but Eduardo will take you through a little bit more detail on finance. He will also address the KPMG -- the comment on going concern. And also, Peter will take you through some trends. And I think what we want to do today is be more transparent, provide more details on same-store sales, government assistance. And with focus really on -- since we're coming to the end of nearly our third quarter is -- give you some trends on the last several months and where we're going forward. So back in May, during our first quarter earnings call, I indicated to you that this quarter, the second quarter would be more challenging, and that the results would certainly be worse than reported in Q1. And that wasn't really such a difficult prediction to make, given the fact that both January and February were actually record months for us. And really COVID started hitting -- was visible really the last 2 weeks of March. So when we entered into the second quarter, other than Russia, which was the last in, all the countries had been impacted by COVID. So despite the fact we'd been quite aggressive and bold in the measures we had taken to deal with the crisis, we did end up the second quarter down in sales by almost 44%, and also about 34% down versus Q1 of this year. On a same-store sales basis, because of COVID adjusted for the closures, we were down 32% versus the second quarter of last year. But even though those numbers are certainly well below what we've been reporting in the past and certainly not where we want to be at that point in time, I've been really pleased with our recovery from COVID. We have exceeded our internal projections and also those projections that were given to the bank. We've gone through actually 5 sets of projections since we started COVID and each one, we keep taking up the number. And the last one, the fifth one we did was what we came to the banks. And we are well -- are outperforming both sales and profits in that. So really pleased with the recovery we're having. Certainly, it's been challenging for everybody. I think we've come out of this better than our competitors. And certainly, we're in a much better position than when we last talked. So I'm -- I think this -- again, we'll address the going concern -- discussion that, but I think we're in good shape. Our numbers are continuing to improve. Week by week, we're seeing our same-store sales numbers go up a couple of points. And the trends have certainly in the second quarter -- which were pretty disappointing. The third quarter's been very strong and up through current month we're really, as I said, not only improving on the top line but also on margins. And in fact, we had, in China, this -- the month of August was a record month for China in their history, both for sales and profits. So -- and margins were the highest we've ever had. And we had a couple of other countries as well. so --. But certainly, it's not been a smooth recovery, and it's very choppy for us, and I expect that to continue. We've seen some more restrictions come up in some countries, some others come off. Unfortunately, you can't really tell the trend of -- by just the restrictions because we've had a couple more restrictions come up in Madrid, but the numbers have actually gone up on our same-store sales. So it's difficult to predict, but the overall trend has been very positive. And as I said, with China, when I spoke to you in the first quarter, we were down -- we started out dropping off from a record high about 115% down to same-store sales of 12% then up to 60% when I spoke to you last. And now we're consistently every day, over 100% in terms of same-store sales. so very pleased with what's happened. Again, we're cautiously optimistic about how we go forward because certainly, a lot of disruption still going on in the marketplace. But the trend is in our favor. And Peter will take you through a lot more of where that is in terms of the brands and the channels. But also, what I'm very happy about is our balance sheet. If you look at the end of Q1, we had EUR 143 million in cash with all our lines drawn. Now at the end of June, we've added EUR 70 million more in cash up to EUR 217 million -- almost EUR 218 million in cash. And also, we still have EUR 20 million of unused, but committed credit lines in place. So we're -- and then also the last couple of months, we've actually improved our cash position. So I feel good right now about where that's at. Certainly, for us, we've always said that the strength of our business has been in our people and our brands and our scale. That's been our strategy. That's still -- I believe is what's helped us overcome the many difficulties that we've had with the crisis. For me, both personally and professionally, I'm so pleased and proud of the people and the culture that we have. And I think that's why we've been able to get through these very difficult times. Also, I can't -- I want to make sure we also thank some of our partners. We've had some very strong relationships with suppliers, landlords, our franchisors, all have been helping us and also our banks. And that's allowed us to be much more agile as we go forward, and also allow us to be able to cope with the challenges that [ face us ]. And we certainly know that we're not totally through this. Normality still hasn't set in yet. We've been able, though, to renegotiate many of our agreements, both -- not only with suppliers and landlords, but also with franchisors. And I think that's really set a good foundation for us moving forward. And when it comes to results, and Eduardo will spoke -- speak to those in a few minutes. I think really, it's not so much about the quarterly numbers for Q2, but it really is the month dynamics. As I said, Peter will take you through that -- the current trading and also the outlook for the year in more detail. And so -- but I will give you a few highlights on that. Regarding our store reopenings, we started the second quarter with only 44% of our stores operating, which is close to the lowest point that we faced in terms of open stores during COVID. Since then, we've grown to 56% in April and then also gradually grew in terms of the openings to 81% in May and also 92% in June. I'm happy to report right now, currently, we operate 98% of our stores. This is roughly 40 stores. We have plans for openings of those. Some of those -- our decision is not to open. And so we'll see, as we see week by week, we're gradually opening more and more stores. So also during COVID, we've been taking the opportunity to close some of our [ DART ] stores, which will also help us as we go forward. As I said, a lot what we're doing today is setting the foundation for a good start to 2021. We're -- also in terms of same-store sales, we've been -- as I mentioned at the beginning, we've been growing week by week. We're currently in the 85% to 90% range overall. We have some brands around 100% and all the brands are moving up, and that really compares to what we had in April of 49% and 79% in June. So a very positive trend. And again, Peter will take you through that. We've also opened 50 restaurants so far to date. And then most of those have been the last couple of months. We've also -- are projecting to open probably 80 to 90 this year, with probably 14 to 15 of those being franchised. Important to note that we're changing slightly the openings and type of assets that we're pursuing. We've been -- in the past had opened up in a lot of malls right now. Our focus was on drive-thru and also those where we have ability to have -- to do delivery and takeaway. So also adjusting a bit our asset mix going forward. An area that we've also focused a lot on is the consumer trends and preferences. We've rolled out, I guess really my pet project has been for several years, a new and innovative management reporting system that will help us understand the changing trends and how we can operate and react much faster to those trends. The tool is Global BI, and that's a tool we developed in our partnership, very strong partnership with Microsoft. It feeds our customer transactions from our networks' POS systems, almost in real time. And that allows us to look at transactions in ways and details that we have never really been able to look at before for the organization, and this tool will be available globally and by all our functions. So that rollout is really important because we are -- we have an initiative to fully digitalize our business from the customer-facing front all the way to the experience to back-end functions. So we're already seeing some of those benefits, especially when it comes to adjustments of menu and pricing and also better management of profitability. Also in the last few months, certainly, the #1 priority has been our health and safety measures, something that, for us, is important to have a safe environment for both our customers and our staff. Our global crisis teams are still in place. We have put procedures in place to deal with cases where we have -- also our standards are actually above and beyond the statutory requirements that are in the marketplaces. We've also prepared for any type of second wave through design of our restaurants and also ordering the necessary supplies we need to deal with that. So this is part of it. It's fully ingrained in our team's daily routines and also without any disruption to service. So it's something that we have not taken our eye off of, and something we're still focusing. And another really crucial focus is better understanding how we optimize our sales channels. We're making great progress in growing the delivery channel versus -- via our own platforms. But also, we've had long-term beneficial partnerships with our aggregators. And you've seen announced recently the one we had of signing with Takeaway.com, which covers 13 of our markets and also captures 1,000 of our restaurants. So for us, delivery, as I said, is a key channel for us. We're following the multichannel strategy, I've mentioned before. And that's really by building not only our own capability, but also providing customers a lot more options and incentives to go forward. And that's also along -- tied in with our partnerships, as I said, with [ the multiple ] aggregators. So to better address that segment and also really the demands of the customers for really a broader range of cuisines that we can consistently deliver both fast and fresh and also being reliable, we've continued to invest in our virtual brands. And those virtual brands are for delivery only at this point in time. Right now, we have very positive customer feedback from -- on our virtual brands. We have 8 virtual brands currently. And we have a really strong pipeline that we're going to be expanding across several markets. And that ties into another initiative that we've spoken about over time. And that is on shadow kitchen. We just opened our third shadow kitchen. Our first 2 shadow kitchens were comprised of only virtual brands. And we actually doubled up during COVID in terms of the performance on those shadow kitchens. And we were just now opening up in Krakow in Poland, our third shadow kitchen, and that will be the first time we'll operate both virtual brands and also franchise brands. So it's something we'll give you updates on. And then as we read that test, we'll be able to make decisions as to how we proceed forward. But so far, very, very encouraging and comes really at a good time for us. Before I hand over to Eduardo, I also want to mention that it's important in the current environment that we keep investing and selecting great talent and expertise for our key brands and especially as we take on our competition and with the market disruptions. And with that, we added just recently a new addition to our senior team, Luis Comas. He's our new brand President for La Tagliatella which, as you know, is one of our big brands. He joined us a few weeks ago, and he's fully up and running. Luis comes with 30 years of experience, and he's joining us from Alshaya, where he's in charge of their fast casual brand. So again, we're trying to continue to keep the talent flow coming. And so with that, I want to turn it over to Eduardo. So Eduardo will take you through finance. Eduardo?

Thank you, Mark, and good afternoon, everybody. Now as I move to the financial highlights of the quarter, it is worth mentioning that the comments I provide during the call include the IFRS 16 accounting standard. The total store count is 2,318 stores. We started the quarter with 44% of the units operating and were able to get to 92% at the end of the quarter. The net sales for the quarter amounted to EUR 272 million, a decline of 43.6%. The biggest impact in sales was registered in April with a sales decline of 66.9%, while we were able to recover at the end of the quarter getting to a decline of 25%. Same-store sales for the second quarter reached 68%. On a month-to-month basis, was trading up getting to 79% at the end of June. The sales generated by delivery and drive-thru channels in our equity business grew by 61% in the second quarter. Profitability was heavily affected for the quarter. Consolidated EBITDA amounted to EUR 22 million, representing a 75% decrease over the year. EBITDA margin reached 8.1% and was down 10 percentage points versus last year. The main impact came from negative effect of operational leverage from decreasing sales. Most of the cost savings programs had started since the end of March, so we were able to report a positive EBITDA figure in the month of May. For EBIT, the result was additionally impacted by accounting loss of EUR 73.1 million in Q2, mainly associated with impairment of Starbucks Germany and right-of-use assets. As a result, the EBIT for the quarter reached negative EUR 116 million. For the first half of the year, the benefits received from different governments related to payroll and social contribution programs amounted to EUR 19.5 million, which are included in the other income line. Net profit [ attributed ] to AmRest shareholders amounted to EUR 119 million, with a margin of minus 43%. Moving to segment information on Central and Eastern Europe. The revenues reached EUR 133.6 million in Q2 and were 34.3% lower compared to the same period of last year. The strength of delivery and drive-thru channels due to more QSR-oriented sales as well as gradual reopening of restaurants allowed recovery during the quarter. In June, sales were at the level of 85% versus last year. The second quarter EBITDA stood at EUR 24.2 million and was 47.2% lower than last year. EBITDA margin stood at 18.1%. A faster reopening of the economies, proper timing on the opening of our restaurants, adjustments to available channels, strong operations and supportive government, it helped the segment to recover quickly. Now I will continue with Western Europe. Sales experienced a big hit during the limitation imposed across the countries as well as higher share of dining business. For the second quarter, sales decreased by 52.8%. April was the worst month with a drop of sales of 79%, while in June, sales were down 29.6%. Limitations in dining continued across the quarter, but we finished with 91% of restaurants opened. The second quarter EBITDA was negative EUR 5 million with a negative margin of 5.4%. This segment was particularly hit due to strict lockdown measures and lack of business activity in dining restaurants. The gradual reopening, along with cost optimization initiatives, public aid programs and strong operations helped to improve the margins across the months. For Russia, sales for the second quarter were down 57%, with a recovery starting at the end of the quarter, and the region ended with 74% of the restaurants opened. In second quarter, EBITDA margin was 9.5%. The strong operations in the country allow us to have a positive margin despite having the biggest sales drop across the countries. China was the first market to be affected with the first limitation imposed. However, in the second quarter, started the path of recovery. Revenue in second quarter decreased 21% versus last year. The best month of the quarter was May with a drop of 9%. In the second quarter, the EBITDA has a strong recovery with a margin of 30% despite being a dine in-oriented business model. Before moving to the balance sheet, I want to make a reference to the emphasis of [indiscernible] paragraph related to going concerns that the auditor included in the report on the condensed consolidated interim financial statements. It is linked to the figures at 30 of June 2020. At that date, one of the bank covenants was not met, and AmRest was waived to report its syndicated bank loan balances as current liabilities. On the first of September of 2020, AmRest received the waiver letter from the banks, and the bank covenant has been waived for the quarter ending June 30, 2020. Consequently, the debt is classified as noncurrent liability from the date of receiving the waiver. According to IAS 10, receipt of bank covenants is not an adjusted bank. So this matter did not modify the presentation of the financials. But it's important to highlight that this matter did not [ modify ] the opinion of the auditors for the financials. Now with regards to the balance sheet, we have a very strong cash position, EUR 217 million. Cash preservation is one of the top priorities at this moment in AmRest. Since March, we created a cash task force that covers 2 benefit dimensions, cash flow and EBITDA. They have been split in 4 work streams. The first one is [indiscernible] terms; second, cost and G&A reductions, particularly in this first 2 [ work streams ], rentals play a very important role; the third one is government grants and payroll; and the fourth is government incentives. The cash task force is a global network across all the functions in AmRest and supported by each of the countries. It's important to highlight that we have put under review the capital expenditures as well as the noncritical projects and extensive work in terms of prioritization of the projects have been done. It's a must to keep generating cash for operations, making these investments that give the highest returns and be able to have a positive net cash flow. The CapEx for the first half of the year is EUR 36.2 million with 31 openings year-to-date. In April and May, we applied state-supported loans in Spain in the amount of EUR 45 million and France EUR 30 million. In Spain, it's still pending the withdraw of EUR 18.8 million. Net debt at the end of June 2020, excluding the impact of IFRS 16 equal to EUR 611 million, which resulted in a comparable leverage of 5.3x. On September 1, we received the waiver for the second quarter, as I've mentioned previously. We continue to have a very constructive dialogue and constant communication with our club of banks. There is still growth to be covered, and we are committed to achieve a full recovery. In the following weeks, we will be approaching to our [indiscernible] China bondholders to update them on the performance of the company. This is a very challenging environment, but I want to assure that in AmRest, we are taking several initiatives and have been applying them to all of the government support schemes offered in the countries where we are present in order to secure the continued improvement of the operations. Now I will turn the call to Peter for his remarks.

Thanks, Eduardo. Good afternoon, everyone. Well, adding to Mark and Eduardo's comments, I will be giving you some color on current trading. And unless otherwise stated, this will be referring to the most recent September month-to-date numbers. And to the extent possible, I will also comment on the outlook and views for the rest of this year. When it comes to those forward-looking statements, I would ask you to refer to the disclaimer posted in our earnings call presentation. So starting off with the top line and same-store sales trends, Mark already mentioned the 85% to 90% index range overall. But looking at it by brand, as you would expect, the speed of recovery is very diverse with some brands being able to recover faster than others. And in that respect, up in front is our business in China. Blue Frog has returned back to positive same-store sales growth already back in July, has continued on that trend also in August. And so far, in September, has kept growing with positive same-store sales as well. And that's month-to-date as of this Wednesday. Of course, we're very happy to see such a strong recovery in China, especially knowing how hard the business was hit beginning of this year. And that success is very much driven by the efforts of an outstanding team we've got locally and a very strong brand. As a reminder, in China, we currently operate 65 out of our 66 restaurants. Another brand doing very well in terms of recovery is Sushi Shop with same-store sales in August and in September at last year's level, so around 100% index or even slightly above as of Wednesday of this week. An outstanding result, especially when considering its exposure to Europe and within Europe with about 70% of its network in France, where the situation with regards to COVID creates a particularly challenging environment to operate in. And despite those headwinds, when looking at this month, we are generating same-store sales in France at last year's level. Again, that's data as of this Wednesday. Another point of reference, I would like to mention with regards to Sushi Shop is the U.K. As you know, we operate a handful of equity stores in the U.K. U.K. is a market, of course, highly competitive, especially in the Asian category, especially in sushi and deeply troubled around COVID as a country. We are up 32% in same-store sales in September and up 11% for the year. And the last data point I'd like to add are our 32 corner shops, which is the new format we are rolling out in super and hypermarkets across France in partnership with Monoprix, Leclerc and Auchan. They're up 12% in September, again on same-store sales basis. Our largest brand in terms of number of stores and business, KFC, overall trading in a range between 90% and 95% index so far in September, with large markets like Poland, Russia and Germany in that range and France, even slightly above. The laggards with respect to KFC are Spain and Hungary, both around the 80% level, which shouldn't be a major surprise given the tougher environment and restrictions in place. And on the positive side, 2 of our smaller markets, Austria and Croatia, which have recovered beyond last year's levels, are generating above 100% same-store sales index. Brands where we see recovery taking slightly longer on the one hand, are Starbucks, which is particularly hit by 3 factors. One is the lack of tourism we -- in the markets we operate; two, is the impact of people only slowly returning back to their offices; and three, the weaker fit of the brand and of the product for delivery. On the other hand, we got La Tagliatella, which as a casual dining brand in a market like Spain faces some stronger headwinds. Also in that case, delivery, even though it's a bigger part of the business than before, fails to be a strong driver of recovery, like in the other brands we operate. But despite all of this, for both brands, we are back at about 70% to 80% range across equity and franchise stores on same-store sales in September. So the combination of same-store sales recovery, I just mentioned, the store reopenings -- Mark was discussing, we are back at 98% of stores opened. And operational leverage of our business had a meaningful impact on our profitability. As a result, when looking at our bottom line, so net profit, we have been at breakeven in July and around breakeven in August. And we're achieving this at least in the last 2 months with a vast majority of state support schemes either phased out or due to the small number of closed stores having become insignificant. On the other hand, we are implementing cost-saving initiatives helping us to increase profitability, and the large majority of those will keep saving us money beyond COVID, so improve margins on a sustainable and ongoing basis in the future. On store openings, we have been discussing this quite a lot in the past months. Our intention was to find the best possible balance between our situation with regards to financial leverage and the little amount of visibility in markets on the one hand and our hunger for growth and the opportunities we see out there, but also commitments we gave to landlords and franchisers on the other hand. And I believe we found a very good solution for this year. We're aiming at 80 to 90 openings, and that's on a gross basis, of which, 50 we have already opened as of mid-September. About 15 of those openings will be franchise stores, and those will be mostly in Sushi Shop, TAG and Pizza Hut. And of course, those numbers are substantially below the 320 we have been targeting beginning of the year. But given the circumstances, I believe it's a reasonably solid rollout. And I don't see many or actually any other operator in Europe anywhere close in terms of openings this year. Finally, maybe a few words and observations with regards to customer behavior, having now entered the second wave in a large number of our markets. What we see and what we believe is that, unless forced by broad-based obligatory closure of stores, like we have seen in the first wave, the majority of customers won't turn away, especially from big brands, and return to cooking at home. Instead, we would rather expect them, at least a good part, not all, but a good part of our customers to change to different means or channel of consumption. In the past few months, we saw people coming back to dine-in and takeaway and with COVID numbers rising again and the pandemic being more visible in media, we think that a larger part of customers is more likely to prefer and move back to the delivery and drive-thru channels. So as an operator, we believe that rather than losing the majority of sales, most customers will migrate between channels. And therefore, it will be crucial to allow for an easy transition and a good experience across different sales channels, something we spent a lot of time on to get right, not just since COVID, but also before that. So we are reasonably confident that any potential softness in sales due to the second wave should not be as harsh as in the first one for as long as it's the customer's choice. And at least from today's perspective, it seems to us that those large nationwide forced closures we have seen in March and April are unlikely to be repeated, and customers will decide on our top line and [ note ] authorities. Summarizing, I think it's fair to say that for a lot of the challenges ahead, the right people, brands and scale will be an invaluable asset, and we got all of those in place. It will allow us to weather the storm better than others and to accelerate faster and in stronger shape once the environment improves and visibility returns. And lastly, you see us currently -- certainly driving in first gear and below usual speed. The speed you're used to see from us in terms of growth. We think that given the little amount of visibility out there, it's a reasonable and prudent thing to do. But at the same time, we haven't lost the appetite for faster growth, nor did we forget how to switch gears and accelerate. And this is exactly what we intend to do at the right moment in time, but obviously, not before that. And with that, I'll hand back to the operator to open the floor for questions.

[Operator Instructions] We have had one question submitted from João Pinto of JB Capital Markets.

I have several, if I may. The first one, when do you think sales and margins will recover to pre-COVID levels? I mean, what is your internal worst case scenario for this? Second question, I think it is fair to assume that it is getting more likely that restaurants will recover later than we thought at the beginning of this pandemic. A second wave is already hitting some countries, teleworking should remain for a while. This is a risk for consumption and your leverage ratio. Will you have to keep asking for waiver every single quarter? My third question, regarding these waivers, what are banks asking for in exchange? The fourth question, what resources are you considering as management, if any, to reduce leverage faster? Also, regarding strategy, your current leverage situation, I think it makes it difficult to keep your expansion equity story. Given the certainty of consumer trends going forward, don't you consider the possibility of doing a capital increase to make balance sheet stronger? I mean, to solve this concern and also I imagine that the entire sector is having difficulties. Don't you think you are missing out opportunities to acquire eventually distressed players and increase market share? Last, owing to details, the bank debt granted by government is considered in your net debt figure. And on the same-store sales that you provided, are these on a year-on-year basis?

Okay. Maybe I'll start with some of the questions, and there are quite a few questions. I'm not sure if I captured everything. But in terms of recovery, at this point in time, as I said, we put together a model based on trends we've seen not only for us but for the market. So -- and that is the model we had currently in place for the banks. And that had us by the end of the year, not quite in all businesses recovering, but in some, nearly there, casual dining, of course, being -- a little bit lagging behind. As I said, we've greatly exceeded that both in sales and profits. So I still believe that probably we're looking for -- and again, it's kind of hard to guess where we're going to be at, given, as you mentioned, the second wave -- the possibilities. But still by, I think, the middle of next year, we hope that most of our businesses will be up to the levels we were pre COVID. Some actually are there now, but there are some still, as Peter mentioned, there's trends for casual dining in Spain, where we're probably 30% down versus what we historically have been doing. But again, month-by-month and week-by-week, it's been going up. So I think the timing still is to have some of the brands, unless there's disruption, by the end of the year being close to that level and a couple of other brands probably taking a little bit longer time into next year. Again, it varies by brand, by country as well. But the trends have been positive for us, as we mentioned during today's presentation. The recovery is certainly -- has been one, which -- and again, we are preparing for possibilities of a second wave, though I don't think the second wave will be the same that we've seen in the first one. We have seen some countries already going through some additional restrictions, but that hasn't really affected substantially our business. Of course, if they shut down malls and such, we'll still go back to doing delivery in that. But our drive-thru business, our delivery and takeaway business has been at record highs. And I think that will help us to weather the storm there. In terms of the waivers itself, that is right now, but on a quarter-by-quarter basis. But I think based on the fact that our results for -- with the banks has been better than we expected, we will continue to work with them to see if we can extend that period of time in terms of the waivers. I'm optimistic; our partnership with the banks has been very strong. And so really, the results are what speak first on that. And the fact that our cash position is substantially higher than what we've given the banks at this point in time and that we have very good control over expenses, I believe that we'll have -- continue to have a dialogue going forward. But I can't commit to whether that will be happening for sure, but I think that more and more, we're getting a stronger [ case ] of the business to be able to maybe extend that period of time. So we are, as I said, working -- on the same-store sales basis, it is how we report versus last year. So it is -- the numbers you're hearing from us, when we say about China being 100% -- above 100% in same-store sales, for instance, that means that they're actually trending higher than they did last year at this point in time. So that is -- the measure is what -- has not changed, it's the same as we had before. In terms of the expansion story and capital increase part, I really can't address that at this point. It's something that -- I think it's from the shareholders and the Board and that we're certainly aware of it. But I think we -- as Peter said, we -- with what we're doing today, how we're generating cash and that we are -- and there has been always the objective even in the business model I've spoken to even to -- pre COVID, we wanted to get to be free cash flow positive. And that's what we have been every month. Our plan is to continue to do that, but we can still have growth. I think 2021 will be more of a moderate growth and with what we're going through at this point in time, which is also going through organizational design that could be more effective. We mentioned about DART stores, so -- and also we believe we can get better leverage out of our resources that we have, that we'll still have enough capital to grow next year at a moderate level and then have a really great foundation for 2022. We have renegotiated a lot of contracts with landlords. Also, as I mentioned, with our franchisor agreements have been renegotiated. And again, I thank them for our partnership. So I believe that right now, we're -- a capital increase is not being discussed because I don't think at this point, we're in that position where we need to take that on. It doesn't mean that it can always -- not happen in the future, but at this point, our internal cash flow generation has been enough for us to be able to grow and also drop down debt. And I expect that by the end of actually Q3 our debt level -- net debt level will probably also decline versus the second quarter. Guys -- Eduardo, Peter, any other points, because I don't think I covered all the questions, but…

There was one additional topic related to what are the bank's asking in exchange. If you remember, in the first quarter, we disclosed that they were asking for our business model and projection for the following months, which we complied on time. And what they are -- and what we have in the agreement of the waiver is that we continue updating this information on a monthly basis. And also that's really the request that we have received from the banks. As Mark said, in terms of our position, we have a very strong balance sheet, EUR 217 million. So that talks about the capability that we have been developed to -- for recovery. And we feel that we are well capitalized at this moment going forward.

Maybe one more comment on one of the questions with regards to accelerating growth. And that, of course, includes M&A. And yes, you're right, there are opportunities, of course. I think the second wave might even present better quality opportunities than the first one. But what is lacking at the moment is visibility because we don't know clearly when this COVID environment will end. We don't know how customers will change, how habits will change, which brands, which categories will work better in the post-COVID world than others. So I think it's just reasonable to just hold off. And that also means like store openings, no store openings plus M&A to just hold off until we have better visibility, how and when we are in the post-COVID world and how the markets and different categories will look like. But as I said, we are still a growth company, even though this is well hidden right now, of course, given the environment we are in, but we plan to return back to growth.

Just 2 follow-up questions. Regarding the first one on expectations to normalize sales, you were referring, just to confirm if I understood correctly, probably middle next week, of course, depending on COVID, is this right?

That's correct. Again, it depends by brand. Some brands have recovered almost to pre COVID already. And others will take a little bit longer. And again, it will vary by country, depending on what happens. But yes, I believe that we're, right now, assuming that the casual dining part, which is usually the one that's been lagging behind will take a little longer. Though, as I said, China, we thought that was the case as well, but they've recovered to actually above pre COVID. So it's difficult to say, but that is the plan as to get all the brands, hopefully by the middle of next year back to that level.

Great. And the second follow-up regarding the resources to reduce leverage faster. Would you consider to sell the stake in global or not in the plans?

If I understood right, about selling -- is that if I understand right, selling global? Is that…

Yes.

So we're exploring certainly all the assets that we have. We sold a property here in Poland. And certainly, we always look to see whether -- where the best use of our capital is going to be. So we continually -- when we meet with the Board, which is very frequently to review the opportunities. So everything is in play. As again, we want to make sure we're optimizing our cash in the best way. So we -- that is one of the options that we certainly would consider, but it's just, again, an option, and we will explore continually as we have -- every month we continue to look at that. So that -- those are always possibilities reducing – or selling some of – some of our assets. If we see that's the right timing for us, but we don't want to make -- we don't feel we're in a position where we have to make any moves for desperation. It's more about when is it a good timing for us -- for some of the transactions that we're doing.

We also have a question submitted from Louise Sanford (sic) [ Louise Sandberg ] of Bank of America.

Two questions. Just firstly, I missed the number in the growth of delivery in drive-thru. So if you could just repeat that. And also, have you seen that growth slow as countries open up to see the percentage delivery return to sort of pre-COVID levels? Or have you seen a continued sort of high demand? And my second question was just if you could give a little bit more detail on the performance of the Pizza Hut brand. And especially how your Pizza Hut dine-ins have operated compared to the delivery Express?

Okay. Maybe I'll give you a few numbers on delivery and drive-thru and also the dine-in part of it. And I'll first focus maybe on Central Europe because that's a big part of what we do. And so the numbers from pre COVID to now, I think delivery is in CE, for instance, has grown about 4 points to about 14% to 15%. Our drive-thru has probably risen the most. It's now settled in around again, 14% to 15%, which is versus where we were pre COVID around 9%. Of course, some of those numbers were higher before, but we're seeing the dine-in part come back on us. We had actually seen -- still, it's down versus pre COVID, we were around -- in CE, around 46%, 47%, and now we're around 37%. And takeaways slightly increased. So those are the -- for CE. And then overall -- we look at overall business, our delivery right now in August is roughly 20% of our business in April, it was around 11%. So it's almost doubled up on what we're doing. And the dine-in has actually risen from where we were about 32% to 40%. For us, drive-thru is where -- as I mentioned, where we're going to build a lot more restaurants, the asset type fits perfectly for us for growth, a lot of opportunities, especially with COVID, there's more and more sites coming available. And that also fits well with dealing with situations like this because the drive-thru part has, as I mentioned, nearly -- well nearly doubled for us. And again, that's an area for us for growth. So that's the numbers there. In terms of Pizza Hut, overall, it's growing in our markets, especially the last several months. We're still down, though, I would say, we're still trading in the 80% area. As you know, we have a combination of franchisees and our own business. Of the 40 sites that we haven't opened, probably 10 to 15 of those are actually our franchisees that haven't opened yet back up again. But we are seeing deliveries certainly lead the way. Dine-in is only -- right now, we only have dine-in, primarily in Poland, and that part is growing. It still lags behind a little bit on the delivery side. But again, those are trending more in the same-store sales in the 80%-plus area.

Right. So the -- even the Pizza Hut delivery stores are trading below 100%?

It depends by market. France has been very strong for us. And actually, Germany has been indexing above 100% for our equity stores at least that we operate. So it varies by market. I think the one that's starting to come back has been Russia because Russia was really the last one in, the first into the crisis. And probably the last one going out, but we're seeing some training there. But -- and CE overall, it's been good. It's been probably trading in the 80% to 90% area. Then the other markets, Germany has been above. And then France is -- as it's been up and down, it's coming back as well. So it's probably been, along with Starbucks, been the 2 brands by week-by-week and then coming back growing faster now because they were probably slower to come back out, but it's -- but still, we're seeing a positive trend on Pizza Hut.

We currently do not have any further questions submitted at this time.

Okay. So maybe taking the position of moderator, I would ask on current situation in Madrid because you said before that like-for-likes are improving in town, especially now when the -- some lockdown measures are being introduced, that's really interesting. So we could -- elaborate a bit more on that. It's kind of a case for the second wave and lockdowns for other markets. So if you could shed more light, what's happening over there?

Peter, you want to answer that question?

Was your question, Lukasz, on margins or what? I didn't catch the first part.

What's happening in Madrid? Because I understand that there are some lockdown measures being introduced.

in Madrid. Okay.

Yes. And still, you said that the like-for-likes are improving. So I'm really curious how it works? And can you go in more details because it can be a representation of the -- well, all the markets.

Yes. I know, I understand. Well, look, I think what we've seen in Madrid is there has been a partial lockdown of a couple of districts now within Madrid. People can still go to work. But other than that, I think there are a couple of districts, which are locked down. We are -- as far as I can tell and see, we are far away from -- like a nationwide or a bigger lockdown, anything which we have seen in March, April. In terms of trading, well, yes, look, I mean, of course, there is some impact. So we see that the recovery trend in September, the pace of recovery is slowing somewhat in the last, I would say, 2 weeks or so. But as I was trying to explain, we see people moving into delivery. Now I think, clearly, there has been a habit of many people which have started to use delivery through the first wave then people came back to dine-in. And I think people which are scared and -- when you look at the different types of customers we have between a KFC and a Tagliatella in Spain, of course, KFC, very -- usually very young people have a list, I would say, afraid to go into -- walk into a store, you feel it a bit less. But definitely, people are moving back into delivery and where they can drive through. So yes, I'm not saying there is no impact of second wave. There is some but it's not anywhere close of what we have seen in the first wave. And we are still -- and therefore, we are actually quoting a range. Now this 85% to 90%, and we didn't put a number because there is volatility, of course, especially if you -- if you're quoting month-to-date numbers, of course, there is a certain volatility. So still strong, but I think the pace of recovery has softened most recently. Yes.

And I think it is difficult to do by -- but by -- for overall trend is positive, but day by day, it's been very choppy. I mean yesterday, actually was the highest level we had on KFC and La Tagliatella in Spain in quite some time. So but it doesn't mean that, that's the continual trend. We could see it go down again. And -- but I think it's up and down. But I think the overall thing is, as Peter said, we think we're -- we've prepared for it, and we'll just have to see how severe the lockdown is.