Restaurant Brands International Inc. (NYSE:QSR) Q4 2020 Earnings Conference Call February 11, 2021 8:30 AM ET
Chris Brigleb – Head of Investor Relations
José Cil - Chief Executive Officer
Josh Kobza - Chief Operating Officer
Matt Dunnigan - Chief Financial Officer
Conference Call Participants
Nicole Miller - Piper Sandler
Chris Carril - RBC Capital Markets
David Palmer - Evercore ISI
John Glass - Morgan Stanley
Dennis Geiger - UBS
Brian Bittner - Oppenheimer & Company
Good morning and welcome to the Restaurant Brands International Fourth Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Chris Brigleb, please go ahead -- Chris Brigleb, RBI’s Head of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and welcome to Restaurant Brands International’s earnings call for the fourth quarter ended December 31st, 2020. As a reminder, a live broadcast of this call may be accessed through the Investor Relations webpage at investor.rbi.com, and a recording will be available for replay.
Joining me on the call today are Restaurant Brands International’s CEO, José Cil; COO, Josh Kobza; and CFO, Matt Dunnigan.
Today’s earnings call contains forward-looking statements, which are subject to various risks set forth in the press release issued this morning and in our SEC filings. In addition, this earnings call includes non-GAAP financial measures. Reconciliations of non-GAAP financial measures are included in the press release available on our website.
Let’s quickly review the agenda for today’s call. José will start with some opening remarks on our performance during Q4 and our ongoing recovery from the COVID-19 pandemic before providing additional detail around our performance at Tim Hortons, Burger King, and Popeyes. Josh will then provide an update on technology and to conclude, Matt will review our financial results before opening the call up for Q&A.
I’d now like to turn the call over to José.
Thanks, Chris and good morning everyone. Thank you for joining us on today's call for the fourth quarter and full year ended December 31st, 2020. I hope everyone is doing well and staying healthy.
It's been almost a year since the start of the COVID-19 pandemic and our response to mobilize behind a clear set of priorities to confront the crisis. We've seen considerable progress in our objectives over the past year, and the recovery in our business we've seen since March highlights the resilience of our three iconic brands and our network of strong and well-capitalized partners around the world.
It's also a testament to the incredible hard work from our restaurant team members, franchisees, and employees to reopen restaurants and get back to safely serving delicious food and coffee to our guests.
Burger King, Tim Hortons, and Popeyes are all leaders in their respective categories and offer high-quality craveable food and beverages combined with convenience that few can match. We also offer familiarity and comfort as well as great value, characteristics we've seen consumers gravitate towards in more trying times like those we face today.
We've reopened nearly 6,000 restaurants globally since the peak of the crisis. And as of the end of Q4, over 96% of our restaurants were open worldwide with substantially all of our restaurants open in North America and APAC and approximately 94% open in EMEA and Latin America. Although, I would note that in regions like Canada, EMEA and Latin America, many of our restaurants are open; but with continued limitations on dining rooms or walk-in traffic.
Moving into 2021, we remain focused on the key priorities we outlined last year to adapt our strategy to evolving conditions and drive a continued recovery in sales and ultimately get back to global system-wide sales growth. Our diversified network of strong and well-capitalized master franchisees has been a key pillar of our platform for years, and we're working hard alongside our partners to return to growth. We're also working closely with our partners around the world to prepare for what we believe will be opportunities for growth and building strong pipelines for development as we move past the pandemic and look ahead.
There's considerable white space for each of our brands around the world and we believe that dislocation caused by COVID-19 has reinforced the positioning and consumer value of world-class brands like Burger King, Tim Hortons and Popeyes. We believe all 3 brands are well-positioned to take advantage of an opportunity to win market share as economies around the world reopen and normal routines are reestablished.
I would now like to share some highlights from the quarter and some areas where challenges remain. As we noted in prior quarters, the strength of our off-premise channels, particularly in our home markets, has been an important differentiator for our systems and a key component in our recovery. After strong performances in Q2 and Q3, drive-thru sales at all of our brands were up again double digits year-over-year in Q4.
We've made great progress in our work to revolutionize our drive-thru experience and have now installed outdoor digital menu boards at around 1/3 of the over 10,000 drive-thru’s in the U.S. and Canada. Josh will provide more details around our continued progress in this area.
Digital sales reached record levels globally at $6 billion and digital sales in home markets more than doubled in 2020. We've seen strong growth in average delivery sales per restaurant through December, including on our own app, and we're confident the market penetration we've been building in our delivery channels will position us well for continued off-premise growth as we emerge from this crisis.
The strong growth that we've seen in our digital and delivery businesses is part of the larger exciting digital journey that we're on to become a leader in our industry. However, challenges remain. We're seeing re-imposed lockdowns in many regions, but especially in Canada and EMEA, routines remain on-hold for many of our guests. This has resulted in mixed performance across dayparts.
Breakfast remains significantly impacted at Tims Canada and Burger King U.S., especially in core urban areas. Late night continues to struggle as well, especially where restrictions and limitations on nightlife are more prevalent. Despite these challenges, we spent 2020 investing in priorities essential to our brands. This past year, we announced our Restaurant Brands for Good framework and published a number of major initiatives for Burger King, Tim Hortons and Popeyes.
We launched the Real Whopper, our flagship iconic sandwich without colors, flavors or preservatives from artificial sources in all Burger King Restaurants in the U.S. and more than a dozen key international markets. Burger King and Tim Hortons announced the partnership in October with an industry-leading zero waste platform where we'll pilot a new reusable and returnable packaging system for food and beverages on the go in 2021. And for the first time ever, we measured our global carbon footprint and are working to set and disclose a clear plan and strategy for reduction in the near future.
We also made important commitments on diversity and inclusion. In 2020, we once again achieved 100% on the Corporate Equality Index as a positive LGBTQ+ workplace. And for the first time in our history, we earned a Great Place to Work certification based on employee feedback on culture and management.
Moving on to Tim Hortons. In 2020, our system-wide sales decreased approximately 18% to $5.5 billion, mainly driven by a decrease in global comparable sales of approximately 16%, including a decrease in comparable sales of 17% in Canada.
In the fourth quarter, Tim Hortons system-wide sales decreased approximately 13% to $1.5 billion, driven by a decrease in global comparable sales of approximately 11% and Canada comparable sales of negative 12%.
The increase in cases of COVID-19 and reinstatement of restrictions in different parts of Canada in the fourth quarter had a negative impact on mobility. Since the start of COVID, we've seen a strong correlation between the incidence of lockdowns and disruption through routines and transit mobility, which in turn negatively impacted our sales performance.
Despite the ongoing disruption and because of the proactive work our teams have done throughout the quarter, overall Canada comparable sales improved to negative high single digits in December, the strongest result we've seen since the onset of the crisis.
And while we've seen a greater impact on our more urban in-line restaurants, it's important to note that two-thirds of our system in Canada has a drive-thru, which is the largest drive-thru network in the country. In drive-thru restaurants in Canada, our comparable sales did get back to about flat at various points in the quarter.
As we more recently saw stricter lockdowns in curfews in Ontario and Quebec, sales softened in January at the levels of performance we saw in Q3. We've seen a clear distinction between the nature and the impact of these lockdowns in Canada versus the U.S., including at similar Tim Hortons restaurants just across the border.
And we're continuing to make substantial progress in the initiatives we shared with you earlier this year, including elevating the quality of our coffee with our fresh brewers. To date, about 90% of the system in Canada is now growing delicious Tim Hortons coffee in our new fresh brewers, and we've seen a quantifiable increase in our customer satisfaction scores to date.
We've also worked to modernize our brand image through the rollout of roughly 1,300 outdoor digital menu boards in Canada in 2020, with the remainder expected to be upgraded in 2021. While it's still early days, we've seen encouraging results from restaurants when we've installed outdoor digital menu boards and modernized the overall drive-thru experience, and Josh will talk more about this a little later.
Finally, we innovated on our core offerings, with successful launches from products like the new and much improved Dark Roast, Tims Craveables and freshly cracked eggs last week. These quality initiatives help reaffirm our belief and our research findings that guests absolutely love our coffee and food offerings, and they vote with their feet and their wallets when we focus on quality and taste, and we get it right.
Our Tims Rewards program positively contributed to our fourth quarter comparable sales performance. We're pleased with the progress we've made to scale the program over the last 18 months. Incredibly, nearly one-third of all Canadian adults have used Tims Rewards so far, and we believe that Tims Rewards will be a powerful tool to engage with our guests in months and years ahead, particularly as they reestablish their routines.
On franchise profitability, in 2020, as expected, we saw a decrease in full year four-wall profitability at Tims in Canada, driven by the decline in sales. However, including the impact of government wage subsidy programs designed to keep team members employed, our franchisees are generally in a good financial position exiting the year.
We remain confident that the combination of our long-term investments and improvements in food and beverage quality, guest experience and modernization of our drive-thrus, as well as digital investments in loyalty and delivery will position Tim Hortons to return to growth.
We're already starting to see our guests' experience and our market share improve and we'll continue to make the necessary investments to enhance the brand's position, capitalize on opportunities, and build on our momentum.
Turning to Burger King, in 2020, our system-wide sales decreased approximately 11% to $20 billion, driven by a decrease in global comparable sales of 8%, including home market comparable sales decrease of 6%, temporary closures in our international markets and net restaurant growth of approximately negative 1%.
For the quarter, system-wide sales decreased approximately 8%, driven by a decrease in global comparable sales of 8%, including home market comparable sales decrease of 3%, temporary closures in our international markets, and net restaurant growth of approximately negative 1%.
We continue to see varied performance dayparts in the fourth quarter as the COVID-19 pandemic continues to affect routines in the US, with particular softness in breakfast and late night, partially offset by growth in our lunch and snack dayparts.
While we're disappointed by the negative growth this quarter, we're happy with the progress we made transforming the Burger King brand and positioning our more than 7,000 restaurants in the US for long-term growth. We launched and promoted the 100% Real Whopper with no artificial flavors or preservatives. We know that our guests crave real products and high-quality ingredients and with this change to the Whopper, around 85% of our permanent menu is now free from artificial flavors or preservatives with a path to getting to 100% in the next few months.
We also revisited our value offering. After months of research, testing, design, and redesign, as of the end of December, we launched the Burger King $1 Your Way Menu, a quality everyday value-for-money offering. While still early days, we're encouraged by the initial results of $1 Your Way Menu, and we'll continue to invest behind it and build the program.
Since its launch, comparable sales in the US have moved into positive territory in the month of January. To be sure, this is not a victory lap since some of that performance improvement was bolstered in part by the government stimulus.
That said, a straightforward, easy-to-understand, everyday value proposition featuring craveable products only Burger King can offer is something QSR fans are demanding, and we're happy to oblige and confident we're on the right path.
Beyond transformation changes in value, product quality, and brand visual identity, we continued investing in our tech capabilities in the fourth quarter and saw exciting results in digital and delivery across the Burger King brand that Josh will touch on shortly.
Moving on to franchisee profitability, four-wall profitability was down versus 2019, driven by declines in sales as a result of the COVID-19 pandemic. However, when coupled with government support that many of our franchisees qualified for and use to support their team members and staff, our franchisees in the US generally finished 2020 in a solid position.
Turning now to our international business, system-wide sales decreased 12%, reflecting comparable sales declines of 12%, in addition to the impact from restaurants that remain temporarily closed.
Sales in our EMEA region were particularly impacted in the fourth quarter due to the reintroduction of lockdowns in many markets after we've seen a nice recovery in Q3 when lockdowns had eased, with about 94% of our restaurants open at the end of Q4.
Despite the challenges in EMEA, progress in our APAC market gives us confidence that falling COVID case counts, reopening of dining rooms and the return of routines, in addition to exciting digital and product activations, is a powerful recipe for growth.
For example, our restaurants in Australia and New Zealand saw comparable sales growth of 8%, restaurants in Japan were up 7%, and restaurants in Korea were up 4% with a combination of strong digital and product news that catered well to the demands of our hungry guests.
We've also seen progress in other parts of the world as markets have begun slowly reopening. In Latin America, where Q3 same-store sales declined 21% with 84% of our restaurants open, we've now improved to Q4 comparable sales of negative 11% with 94% of our restaurants open. The recovery in these markets has demonstrated the strength and resilience of our Burger King brand internationally, and the work we've done to reposition the brand and business in the U.S. sets us up well for future growth.
In 2021, we remain focused on proactively confronting the pandemic as vaccines roll out around the world. Our strong off-premise and digital capabilities, along with our network of well-capitalized partners, gives us confidence that we can get back to growth in 2021 and beyond.
Finally, at Popeyes, 2020 system-wide sales increased approximately 18% to over $5 billion, driven by an increase in global comparable sales of 14%, including home market comparable sales of 16% and net restaurant growth of 4%. Fourth quarter system-wide sales decreased approximately 1%, driven by a decrease in global comparable sales of approximately 6%, which was partially offset by net restaurant growth of 4%.
In the U.S., fourth quarter comparable sales for Popeyes decreased by 6%. Popeyes U.S. has been in an incredible run since the second half of 2019. And I'm sure you'll recall that we relaunched our Chicken Sandwich permanently in November 2019, posting a positive 38% comparable sales in the fourth quarter of 2019. Nominal sales in Q4 of 2020 continued at very strong levels driven by sustained sandwich sales and also success across the menu and in group and family occasions. In January, we continue to lap the early days of the relaunch of Chicken Sandwich, but the business is back to flat and continuing to perform at healthy nominal levels.
Given the significant top line increase we've seen in the U.S. between 2019 and 2020, Popeyes today generates an average of over $1.8 million in sales per restaurant versus just $1.4 million prior to the Chicken Sandwich launch. This strong growth in top line has led to record levels of four-wall profitability for Popeyes franchisees in the U.S., making Popeyes one of the most exciting and profitable QSR concepts in the U.S..
As we've mentioned in the past, a large part of this growth is attributable to the Chicken Sandwich, but we continue to see significant growth across every category of our menu. The compelling unit economics and the consumer demand for more access to the brand have created a tremendous amount of appetite for new development. This has allowed us to develop new restaurants at a healthy pace in 2020 and continue building a strong pipeline of restaurants with an outstanding set of partners, existing and new. While the pandemic disrupted construction and permitting time lines last year, we're nonetheless making progress on our goal to transform Popeyes into a mainstream national brand.
In fact and despite the environment, 2020 was a strong year for growth for Popeyes in the U. S. with 132 net restaurant growth. We also made good progress expanding the brand's reach globally, entering several new markets and executing deals to enter several more. Now addressing development across all of our brands, you remember that in Q2, during the depth of the crisis, we laid out our views on unit growth for 2020 and 2021. We said that in 2020, we would take advantage of the challenging business environment to proactively optimize our restaurant portfolios by closing underperforming restaurants around the world.
We did just that and closed just under 1,200 restaurants in 2020, representing about 4% of global restaurants, but only about 2% of global system-wide sales. Not only is this healthy and positive for our brand image, but it positively impacts franchisee profitability and frees up resources for our franchisees to redeploy into building newer, better and more profitable restaurants.
And importantly, in 2020, our incredible network of restaurant owners also opened 1,100 restaurants around the world despite the challenges they faced in light of COVID.
They were able to do this because of compelling unit economics and strong consumer demand. This gives us confidence that we can deliver net restaurant growth in 2021 in line with what we delivered in 2018 and 2019.
With that, I'll now turn it over to Josh to talk more about technology. Josh?
Thanks, Jose, and good morning, everyone. We continue to make significant progress this quarter on our goal to build an industry-leading technology platform and grow sales across digital channels. During Q4, digital sales in the U.S. represented 8% of total sales of Burger King and over 16% of total sales at Popeyes. And at Tim Hortons in Canada, digital sales represented 23% of total sales during the quarter.
Digital sales in our home markets more than doubled versus a year ago. This continued momentum reinforces our belief that the wave of digital adoption we've seen in the wake of the pandemic has represented a step change in terms of how our guests interact with our brands and how we serve them going forward.
Delivery remained a key driver of growth, with delivery sales at Burger King and Popeyes up over 2 times and 3 times in 2020 respectively versus 2019. At Tims, delivery sales are now up about 14 times versus 2019.
We’ve achieved essentially full coverage across our brands in home markets, with approximately 10,000 restaurants offering the service via multiple aggregators and through our own apps. This year, we are bringing greater focus to our white-label delivery program, which allows our guests to order food directly through our own brand app or website with delivery fulfillment from third parties.
In Q4, we made important advances in our Tims Rewards program as well. We've shared with you previously our focus on increasing registration amongst our guests, so that we can actively engage with them and offer tailored rewards.
We successfully shifted to a fully registered program and are encouraged by positive trends we are seeing on registration. We are still very much in the early innings, but we are actively refining our features and segmentation so that over time, we'll be able to drive increased engagement and share more compelling offers with our guests.
At Burger King, we've made great progress with the app, improving the user experience, increasing monthly active users, and we think a great next step for Burger King could be loyalty. We are currently testing a program in select markets, and we're excited about its potential for the brand in the long term.
In our efforts to deliver an improved and more personalized experience to our guests, we continue to make significant progress with our initiative to upgrade our drive-thrus, with the installation of outdoor digital menu boards. We've now installed them in over 1,700 Tim Hortons drive-thrus across the U.S. and Canada, and over 1,900 Burger King drive-thrus in the U.S. and expect to have completed the considerable majority of the remaining installations by the end of this year. We will also install units at the majority of our Popeyes restaurants in 2021.
Though it's still early days, we're encouraged by the impact on speed of service, as guests can more easily read our menus on the bright, easier-to-read screens. As a result of this and other improvements, we have seen meaningful increases in guest satisfaction in many of the locations where we brought this new and improved experience. And we've also seen an uplift in check in locations where our new predictive selling technology has been implemented.
As we look into 2021 and beyond, we'll be focused on integrating the mobile experience with the drive-thru and our menu boards across our brands. We have been on an exciting digital journey to become a leader in our industry, and we have attracted strong digital and technology talent to join our global team and work on these strategic projects.
We've made investments in e-commerce platforms that now support both home markets and an increasing number of our international markets. Intelligent selling technology is being rolled out across a rapidly expanding number of our drive-thrus and other digital consumer experiences as well. And we will also be investing to improve restaurant operating systems that drive efficiency and guest satisfaction as well as rapid integration with our e-commerce channels.
I look forward to continuing to provide updates on our progress in the coming quarters and years, and we'll now turn things over to Matt to provide additional detail around our financial results.
Thanks Josh and thanks to everyone on the call for joining this morning. In 2020, our full year consolidated system-wide sales were approximately $30.7 billion, representing a 9% decrease year-over-year and reflecting the impact of COVID-19 on our results across regions.
Consolidated adjusted EBITDA was $1.864 billion, representing a nearly 18% organic decrease year-over-year. In the fourth quarter, consolidated system-wide sales decreased 8% to about $8.2 billion, while consolidated adjusted EBITDA was just over $500 million, representing a 20% organic decrease year-over-year.
Historically, our consolidated adjusted EBITDA growth rate has been closer to our system-wide sales growth. However, in 2020, we saw increased volatility related to the impacts of the pandemic as well as the steps we've taken to reinforce our plans by investing behind our people.
More specifically, in the fourth quarter, there were several factors that contributed to the difference in our consolidated growth rates. First, our year-over-year performance across all three brands reflected proactive G&A investments in our digital and technology initiatives as well as adding strong new hires in key areas of the business like marketing, field operations, and technology.
As we've discussed, building out best-in-class technology assets is a top strategic priority, which we believe will unlock exciting new avenues for growth over time. Together, these investments, combined with some year-over-year timing shifts in G&A, affected our growth rate by about negative 3% in the fourth quarter.
Looking ahead, we expect to continue investing across these key areas of our business in 2021, including the important technology initiatives Josh just mentioned. And while there were some timing impacts in Q4 that will roll off, we think that overall, the annualized level for the quarter is fairly representative of capturing the investments we plan to make this year.
Second, beyond the year-over-year sales decline, there were a few other moving pieces in our supply chain results that impacted our EBITDA growth by approximately negative 2% in the quarter. In addition to some normal fluctuations in product mix and commodities, our operating costs were higher in the quarter as we work through the final go-live transition of our distribution center project and continued to see some effects of fixed cost deleveraging, though to a lesser extent than in Q3.
Additionally, there were a few benefits from the fourth quarter of 2019 that we lapped, including our fresh brewer rollout and the timing of certain vendor discounts. Overall, these effects resulted in a slightly lower margin for the quarter. However, we expect that as the business improves and return to the historical volume levels, our margins will start to recover as well.
Third, we saw a year-over-year decline in EBITDA of about negative 2% related to non-core income streams that have also been displaced by the pandemic, including our decision with our partners to pause cash dividends from our joint ventures, which have historically been concentrated in the fourth quarter as we focus our efforts on reinvesting for growth. In addition, there were also some market-specific challenges that caused a small year-over-year decline in our income from company-operated stores.
And finally, ad fund expenses exceeded revenues by approximately $6 million more than they did in the fourth quarter of last year, resulting in an impact of approximately negative 1% to our EBITDA growth.
As we've mentioned in the past, there may be mismatches from quarter-to-quarter based on marketing calendars, timing of activations, and trends in the underlying business.
The remainder of the gap between our system-wide sales growth and adjusted EBITDA growth primarily stemmed from the shift in sales mix that we saw across brands, similar to last quarter, reflecting a more pronounced decline in sales at Tims, where in addition to franchise royalties, we also generate EBITDA from property and supply chain activities.
Moving on to segment level performance, at Tim Hortons, fourth quarter adjusted EBITDA was $229 million, which represents a decrease of approximately 24% on an organic basis. This decrease was driven by a decline of approximately 13% in system-wide sales, which included an 11% decrease in global comparable sales and the continued effects of COVID-related temporary closures, which impacted about 7% of restaurants over the quarter, as well as the supply chain impacts I just mentioned.
At Burger King, fourth quarter adjusted EBITDA was $218 million, representing a year-over-year organic decrease of approximately 18%, driven primarily by a decrease of nearly 8% in system-wide sales. The change in system-wide sales reflected a decrease in global comparable sales of 8%, temporary COVID-19-related closures of about 3% on average over the quarter and global net restaurant growth of negative 1%. In addition, the majority of the ad fund-related negative impact to our consolidated adjusted EBITDA was related to Burger King and decreased our adjusted EBITDA growth for the brand by approximately 2%.
At Popeyes, fourth quarter adjusted EBITDA was $54 million, representing an organic decrease of about 8%, driven by a decline of approximately 1% in system-wide sales, coupled with some incremental G&A investments and weaker year-over-year performance in company-operated stores more affected by COVID-19. The change in system-wide sales reflected a decrease in global comparable sales of 6% and the temporary closure of about 2% of our restaurants on average over the quarter, partially offset by continued positive global unit growth of 4%.
Our full year adjusted net income was $948 million, which compares to prior year results of $1.274 billion. This year-over-year decrease was driven primarily by the decrease in adjusted EBITDA, an increase in non-cash compensation and unfavorable FX movements, partially offset by a benefit from interest expense savings related to our refinancings. In addition, our adjusted effective tax rate was slightly lower year-over-year at about 19%.
Our full year adjusted diluted EPS was $2.03 compared to $2.72 in the prior year. This decline includes a headwind from unfavorable foreign exchange rate movements, which reduced our adjusted EPS growth rate by approximately 1 percentage point.
Now let's discuss our cash generation and capital allocation for the year. The strength of our balance sheet and cash flow efficiency, including approximately $800 million of free cash flow in 2020, have allowed us to deal with the pandemic head on, supporting our brands and driving our business forward throughout the year.
And as we look into 2021, we believe these advantages position us very well, with the flexibility needed to manage through the obstacles in this pandemic, while we continue investing behind our key priorities and returning significant capital to shareholders, which in 2020, totaled over $1.3 billion through the combination of nearly $1 billion in dividends and $380 million in share repurchases. In terms of capital investments, we made great progress across a number of exciting and impactful initiatives in 2020.
As Josh mentioned, we've installed over 1,700 outdoor digital menu boards across Tim Hortons in the U.S. and Canada and expect to cover the vast majority of the remaining installations by the end of 2021. We invested roughly $50 million into the first half of the project during 2020 and expect to finalize with a similar investment this year.
Also at Tims, as I called out before, we were very excited to complete our supply chain expansion in Canada during the fourth quarter, having invested approximately $30 million over the course of the year to finalize the transition to our new and improved facilities without any disruptions to the business.
As we move into the New Year, we're excited to ramp back up to historical levels of investment, as we focus on driving the modernization of our brands and off-premise capabilities through reimaging, drive-thru enhancements and other technology initiatives that will play a key role in advancing our growth going forward.
Now turning to the capital structure. We ended the year with net debt of $11.4 billion, taking into account $1.6 billion of cash and cash equivalents. Our net debt-to-adjusted EBITDA leverage ratio was 6.1 times, and we closed the year with approximately $2.6 billion of total liquidity, including our undrawn revolver.
During the fourth quarter, we took advantage of favorable market conditions to issue $2.9 billion or 4% second lien notes due 2030 and redeemed $2.8 billion of our 5% second lien notes due 2025. We also refinanced $725 million of 4.25% first lien notes due in 2024 with $750 million of new 3.5% first lien notes due in 2029.
These transactions drove significant interest savings, as we had discussed last quarter, considerably extended our maturity profile and further improved our balance sheet flexibility going forward.
This morning, we also announced for Q1 a $0.53 common dividend and distribution per partnership exchangeable unit at a target of $2.12 in total dividends to be declared in 2021. This announcement represents 2% growth year-over-year and our ninth consecutive annual dividend increase. Since 2012, our dividend has increased by over 13 times its original level and is among the best in the industry.
As we've shared in the past, we will maintain a balanced approach to capital allocation, investing behind important growth and technology-oriented initiatives, offering a compelling cash dividend and allocating excess capital, where we believe we can create the most meaningful long-term shareholder value.
With that, I'd like to thank everyone for joining us on the call this morning and for all your support. We'll now open the line for questions. Operator?
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Nicole Miller with Piper Sandler. Please go ahead.
Thank you and good morning. Thanks for great update. I have a lot of questions. I'll ask just one, and I'll ask it on digital. So we now are starting to see brands at scale flex pricing power in the marketplace. I'm thinking about Chipotle, let's say, last week talking about 13%, right, in the marketplace.
And then, holding price steady to really have a value opportunity when you go direct to the app, on the brand app. So what is your point of view in terms of the ability to price your flexing power, now that you're going to have more digital tools? And is it different by brand? Thank you.
Hey, Nicole, thanks for the question. I think on pricing as it relates to digital, we continue to be very surgical there with our franchisees in different markets around North America and around the globe. Pricing through our app and white label, we think we have some pricing power there, certainly, and we've tested various different opportunities to look at pricing as a driver of transactions through our mobile app versus through third-party aggregators.
I think it's an important element that our teams are working closely with our franchisees on, and we continue to test and adjust to see what can drive more consumer demand, while at the same time addressing our owner profitability. Josh, you might have something additional to add there?
Yes. Hi, Nicole. Good morning. I think, just to add to Jose's comments. I think one of the other things that we think is interesting on, as we think about developing further some of our own apps is the value that we can deliver to our guests on our apps through our loyalty programs potentially.
One of the things that we mentioned this morning is that in addition to our loyalty program, we have through Tims Rewards that we're testing a loyalty program at Burger King. And I think that's just another way to think about the value that we can deliver on our own platforms when our guests interact with us on bk.com or via the app.
And whether they're ordering and picking up and the drive-thru or at the restaurant or ordering through a white-label delivery offer, we think we can deliver a great experience and a lot of value to our guests in that channel.
Thanks for the question Nicole.
Thank you. Our next question today comes from Chris Carril with RBC Capital Markets. Please go ahead.
Hi. Thanks for taking the question. So, I wanted to return to the topic of development, and thanks for all the details so far. So, could you talk a little bit more about what gives you confidence in the reacceleration of development in 2021? And I know you mentioned strong unit economics, but is there anything else you would point to specifically as it relates to growth this year?
And then any detail on which markets specifically you expect to see a reacceleration of growth? That would be really helpful.
Chris, its Jose. Thanks for the question. Look, I think what's important about development in our business and at RBI with our three great brands is that our franchisees that are in the business all across the globe internationally and domestically, whether they've been with us for decades or they've been with us for just a few years, they're all in this to create value for themselves, in some cases, for their families, for their investors.
The great news is that they believe in our brands. They believe in being customer or guest-centric. They know that there's incredible demand out there for what we offer on the food and beverage side, in chicken, coffee, and burgers.
And they know there's an opportunity -- or there's many opportunities in the markets in which they operate, and they believe in the power of investing for growth. And it's not because we have contracts that we believe in what can happen and what will happen, we believe, in 2021. It's because we see significant opportunities.
Our franchise partners see the significant opportunities that exist. Obviously, there's been a tremendous dislocation in the industry independents and smaller chains are struggling. Real estate has become -- or opportunities in real estate have become more interesting. Our unit economics, as I mentioned earlier, are strong and compelling for all three brands in domestic and international markets. And so we've seen tremendous opportunities that our franchise partners want to participate in.
We have very good visibility into the pipelines and to the process that each of our franchisees in domestic markets and international markets kind of undergo to build their plans from a development standpoint. We work in many cases with them directly as shareholders in those joint ventures in which we have a minority stake in the business.
And we also work closely with their development teams and help build out these pipelines and make sure we have budgets and strong teams to be able to do that.
And so across the board and there's a lot of work to do. This is not one of these things that happens from quarter-to-quarter. It's a long-term process and we've been working closely with our partners since the -- obviously, prior to the pandemic, but since the onset of the pandemic to make sure their capital structures are in good place -- in a good place that the teams are solid that we're looking at opportunities for development with new formats with off-premise capabilities in addition to making sure we're in the right places in urban locations.
And all of that, including the fact that we were able to continue to grow and continue to grow and open new stores, really exciting, beautiful and high-demand new stores in 2020 at the height of the pandemic, all of that gives us confidence that we can get back to where we were in 2017, 2018, 2019, this year in 2021 and continue on our path to get to that 40,000 milestone we set for ourselves back in May of 2019.
Now that's not even including new markets in which we're partnering for each of our brands, whether it's Popeyes or Tim Hortons, and the opportunity to accelerate in certain markets around the globe with Burger King as well. So there's a lot of optimism and excitement, a lot of work to do as well. And we continue to stay close to our partners and support them every way we can to be able to achieve those goals.
As it relates to where? It continues to be everywhere for the most part. What's exciting about our 3 brands is that, we have opportunities even with Burger King to build in a number of markets, international markets around the world as well as domestically. So we continue to be surgical in that respect and make sure that we continue to work closely with our partners to drive that growth. Thanks so much for the question -- for the 2 questions.
And our next question today comes from David Palmer at Evercore ISI. Please go ahead.
Thank you. Good morning. I'm wondering about some of the unit growth -- the net unit growth, the inputs of that coming into '21, how that played out in 2020? And I'm thinking by region because my perception is that you might have higher franchise revenue in places like the U.S. than some region like Asia Pacific, for example. And if that's true, then maybe we should be more cognizant of the closure rates in those regions versus the U.S.. So any color on that and how it might impact the model into '21? Thanks.
Hey David, thanks for the question. Yes, we shared some detail in the prepared remarks in terms of openings and closures and that we landed in 2020, essentially where we said we'd land back in Q2, which is same restaurant count in 2020 as we had in 2019 or roughly the same.
The mix of closures, we obviously saw closures and took advantage of the situation to help optimize the portfolio in many markets across the globe internationally as well as domestically. We -- there was a number of -- we had started already a closure program at Burger King in the U.S., we had mentioned that back in 2018 and 2019, and we continued that in 2020 and accelerated somewhat there.
But we also had some opportunistic closures in international markets in Europe and Asia, as well as in Latin America. So that was an important part of how we landed in a flat net restaurant growth number for 2020.
And we saw the openings that I mentioned the north of 1,100 openings in 2020 come from a number of different markets as well. It wasn't -- that the mix was different for closures and openings. It was kind of consistent as we've seen throughout the last many years by region and by country. So I'm not sure if that answers your question. Matt, if you -- do you have anything else to add to that?
Yes. I would just -- I think that all makes sense. It's a good summary. I think, Jose mentioned the BK U.S. closures. We had talked about that at our Investor Day back in 2019. And so, we were working through that program already and continue to work through that and made really great progress in the year. I think, just overall, we feel really good about how we're able to execute on the proactive closure plan that we talked about over the past couple of quarters.
And we think it's a really great thing, great help to our franchisees and our systems around the world to remove unprofitable restaurants from the system; improve brand image; and overall, improve profitability and cash flow for our partners around the world, and that's also a piece of our outlook and our confidence in growing with our partners and driving NRG back to the levels that we saw in 2018 and 2019.
Yes. And one more thing, David, on the closures. When you look at closures in North America, we talked about this in the context of the U.S. closure plan. The closures that we're -- we've delivered so far, the average volume for those stores is -- even if our average volumes in the U.S. are north of 1 point -- 3.5 or 4 for Burger King, as an example, the closures are somewhere in the neighborhood of $800,000.
So the delta between what we're closing and what we're opening is pretty significant, which is why we keep highlighting the importance of these opportunistic closures to help continue to drive health and profitability in the system for the benefit of our franchisees. Thanks for the question.
And our next question today comes from John Glass with Morgan Stanley. Please go ahead.
Thanks and good morning. On the digital menu boards, could you just provide a little bit more of what you're actually -- I know it's early days, but what you're experiencing from a lift? You said there was a check benefit, maybe what that has been by the two brands. If there's a throughput benefit, maybe what that's been.
And just maybe a mechanics question. In the Tims business, do those flow through the distribution business that we should be aware of the revenue and potential margin impact? And I know I'm being a little bit greedy here, but just in terms of the G&A commentary, I just want to clarify, despite the puts and takes in the fourth quarter in G&A, that's the right run rate to think about 2021? Or are you taking something out of that and saying the run rate is lower? I just want to make sure I understand how you think about G&A in 2021. Thanks.
Hey, John. Good morning. It's Josh. Thanks for the question on the ODMBs. Yes, we're really pleased with the progress so far, especially in Burger King in the U.S. and Tims in U.S. and Canada and we've made a lot of progress over the past year or so in the rollout of the physical hardware and software and getting to over 3,000 locations so far.
And so, I think we feel really good about sort of the pace of rollout and the quality of our installations and it gives us a lot of confidence in our ability to continue that program and execute on the time line that we've set out there. And I think it's also given our franchisees a lot of confidence and excitement in what's coming to the system, because they see the impact on the guests.
I would say that, I think, we're a bit early to quantify some of the impacts that you talked about, which is why our commentary has been a bit more qualitative. But we have seen a lot of the things that you talked about.
So when we install these new digital menu boards and the drive-thrus, we're seeing impacts to the guest satisfaction that we measure in those restaurants and especially in the service motive of the drive-thru. In many cases, we're seeing benefits to speed.
We think some of that is just that it's easier to read and easier to confirm the orders you see back on those digital menu boards, the confirmation of what you're actually ordering. We think is really helpful. It also helps order accuracy.
And then also, we have been -- in different ways in the different brands for Burger King and for Tims, we're using different suggestive selling technologies that we're pretty encouraged. We're still developing those and evolving those technologies, but we're already seeing the ability to drive some pretty observable sales upside from the technologies. I think that's something that we'll continue to evolve and improve over time as we roll them out to more restaurants and improve the technology that we have.
So, I think it's very exciting. It's something that impacts a lot of our restaurants and so many of our guest experiences because of how prevalent it is in terms of service modes for our business across the US and Canada. We feel good about the pace of rollout and the ability to impact a lot of guests over the next 12 to 24 months, and we'll keep updating you all as we make progress and get more data on that front.
And I'll hand it over to Matt for the second part of your question.
Hi John. Thanks for the question. Just maybe to provide a little bit more color on my comments around G&A. I talked through the impact that it had in the quarter of about a 3% drag on EBITDA. And I think the impact is roughly split between the items that I called out versus some timing and non-recurring items in the quarter.
And the comment that I was making about the annualized level is that because we are continuing to invest behind some of these important initiatives that we talked about, especially on the tech and digital side, we will continue to grow our investments there to drive our plan for this year and beyond to drive sales generating and topline -- top sales generating activities and topline growth.
So, that's why I mentioned that the Q4 level, on an annualized basis, should be fairly representative. Some things will come out, but we're going to keep investing behind those initiatives through 2021.
And going forward, as we've done in the past just in general, I think we'll be very disciplined and focused on making the right investments, the most impactful ones to support our teams, to support our tech initiatives, and all the important projects that Josh talked about in the prepared remarks.
I think, John, I think you had another -- an additional question there on the mechanics of how ODMBs flow through in the Tims business from a distribution standpoint. Josh or -- yes, you guys want to clarify that one.
Let me clarify that one. It doesn't flow through the revenue or expenses of the supply chain business.
Yes, John, that moves through the add fund. Thanks, John. Appreciate it. Next?
And our next question comes from Dennis Geiger with UBS. Please go ahead.
Great. Morning and thanks for the question. And José and team, thanks for the commentary on the Tims' performance in the quarter. I think the flat and drive-thru performance at various points and the comparable US store outperformance; I think clearly highlights the COVID impact drag.
But maybe, José, just wondering if you could talk a bit more about what those pieces tell you about the Tims' recovery this year as restriction ease and as mobility increases, especially when you layer on some of the new menu items and loyalty and the customer experience initiatives that you talked about, just how that frames how you're thinking about that recovery?
And I think you also talked about gaining market share in the quarter or during the year, just wondering what -- how you think about that playing out as we work through 2021 as well? Thank you.
Hi Dennis. Thanks for the question. Look there were some -- as I mentioned in my prepared remarks, some encouraging signs in Q4 for Tims. Our December exit rate was high single-digit negative, which is the best performance we've seen since the onset of COVID. Obviously, we're not doing cartwheels on that, but we are encouraged by the performance and the improvement sequentially that we've seen in the business. We saw the drive-thru business perform better and continue to perform better throughout the quarter. And it got to about flat in various points of the fourth quarter. And drive-thru continues. We have about 2/3 of our business is drive-thrus in Canada and we've seen continued momentum there from the beginning of the pandemic through the fourth quarter, and that momentum continues today. Off-premise has been a key driver of sales. We've also -- and we've seen improvements in growth in -- not only drive-thru, but also delivery.
The other piece that I think is really encouraging from the data we've seen in the fourth quarter and continue to see throughout the beginning of the year is that, we’ve been working closely with our owners on number of different initiatives related to the overall guest experience through digital, through the drive-thrus, as well as the walk-up and takeout business. And we're happy to see that these improvements and this focus in operations and execution has driven improvements in our guest satisfaction scores, which is a really important indicator.
Our owners and their teams are engaged, and it's making a difference in the experience that our guests are having each and every day with the business. I mentioned, and you included in your question, the progress we're making in overall market share in the quarter. It seems like from the data that we're taking share from the smaller chains and maybe some of the independents, but we are seeing market share gains at lunch. Breakfast is relatively stable, even if that's the most interrupted and biggest part of our business. So these are all positive indicators that the work we've been focusing on in the long-term initiatives that we've shared multiple times over the last several quarters are beginning to take hold and having an impact in the business, right?
We've made improvements and we've made investments in many of our core platforms, including the fresh brewers with water filtration, that's almost done. We're probably 90% of the way there. And we've seen the product satisfaction scores for coffee continue to improve since the back half of 2019.
We've made investments in modernizing our experience in the restaurants with outdoor digital menu boards and our loyalty program and our apps. We've innovated with high-impact products in our core, the Lunch Craveable, our Dream Donuts, the much improved Dark Roast that we launched in January. And this past week, we launched Fresh Cracked Eggs in Canada across the network, which came with some important communications to the Canadian consumer, which has been well received so far, it's early days, but well-received.
And obviously, we still have a lot of work to do. The restrictions remain in place and that has an impact in our urban locations, our super urban locations. So there's much to do there. We continue to work closely with our owners to ensure we have different ways of serving our customers even in difficult circumstances. We can't control the virus and we can't control the lockdown, but we certainly can control the experience that our franchisees, our teams and our guests are having in the business every day.
And we feel confident that the investments we're making, the focus we have on experience in operations, the relationships that we're building with our owners for the long term, all of these things are resonating and having an impact. And we feel that we're well positioned when things begin to open up to be able to capture more share and continue to grow the business in Canada for the long term. So we're excited and encouraged, but we recognize that we have a lot of work to do. And we're all focused on that. Thanks for the question.
Our next question today comes from Brian Bittner with Oppenheimer & Company. Please go ahead.
Thanks. Good morning. Question on the Burger King U.S. business. When you look at the U.S. sales performance for Burger King, there's been a pretty wide underperformance gap versus the industry, versus your big competitors the last couple of quarters.
And I understand January is improving along with the industry. But what do you -- what's your specific diagnosis for this performance gap you've been witnessing in the Burger King U.S. business versus the peer group? And what ultimately do you think is the secret sauce that you need to deploy in 2021 to narrow this gap or perhaps ultimately reverse and start outperforming?
Hey, Brian, thanks for the question. Yes, I think the diagnosis or the assessment of why we haven't had a stronger performance in the BK U.S. business as we would have liked. I think, I've been pretty open about that over the last several quarters. And now the issue, I think, is our promotional approach, both to value and to new products.
I think we've -- in value, in particular, over -- it's an important part of the business. It's a big segment of the QSR business and in particular, in fast food hamburger space. And we've been a bit kind of choppy in terms of how we've address value. We haven't -- we've been doing a lot of bundling and we've been doing promotional activations, including paper coupons and other value approaches, which haven't been resonating as well. And we've had gaps in that performance or that offering of value to our guests.
And so we haven't had a value proposition, an everyday value proposition that's been credible and reliable and something that our consumers can count on for quite some time. And over the last few quarters, I mentioned that we would -- that was something that was really important for us. We thought it was critical to do the work, to do the research, to make sure we talk to consumers and figure out what it is that they're looking for.
We tested for quite some time. We designed and redesigned, and that led us to the launch of the $1 Your Way menu at the end of the year on the 28th of December, which is a very important step. It's not the plan. It's a component of a longer-term plan for us to be more focused on the core and have everyday platforms that are consumers here in the U.S. can rely on.
Value is an important one, continued investment in our core. We talked about the steps we took in the fourth quarter with the Whopper, which is an incredibly important iconic product for the BK brand, and we've seen -- we've put a lot of investment behind that in communication. We think there's an opportunity in continuing to expand the core offering with chicken. And that's something that we have in the -- on the radar for 2021.
We think breakfast, we have -- as I've mentioned in the past, we have a nice breakfast business that we think can be a much more important part of our mix. It's currently around 13%, 14%. And we think it could be a much bigger part of our business long term, and we're making the similar investments in terms of quality and making sure we have a broader offering, both on product and beverage and making the commitments for investing behind that with media, as well as with digital.
And then finally, I think the digital side of our business has been growing. We've seen healthy growth on the delivery front, healthy engagement on our app. And we think there's an exciting opportunity with loyalty at Burger King in the US, especially being able to really engage loyal customers through the app in our drive-thru.
So, there's a tremendous opportunity on all those areas. And none of these are promotions that we think we should be dropping in at some point in time. These are important platforms that will be long-standing platforms for the business to drive top line and franchise profitability for years to come. Thanks so much for the question.
And today's final question comes from Sara Senatore with Bernstein. Please go ahead.
Hi, this is Leo [ph] for Sara. Thanks for taking the question. I have a question on Tims. As we think about driving comps going forward, now that the core coffee offering has improved, what is the opportunity for specialty beverages like espresso based in Canada? And on the same topic, what have you seen in terms of the plant-based beverages? And what does that say about Tims customer receptivity to -- for beverage offerings? Thank you.
Thanks for the question. Yes, look, we think that obviously, the definition of coffee is expanding. It's not just brewed coffee anymore, and we've made important investments in a number of initiatives related to our core offering over the last 12 months or so. I've talked about that fresh brewers, water filtration with a dark roast, and those are important to get the core right. But we've also expanded with dairy alternatives in the last 12 months.
We -- probably 15 months, we've added almond milk and other offerings that we think -- skim milk as well that we think continue to expand and open up the menu to different customers and giving them the opportunity to enjoy our Tims coffee and the way they like it. And so those are important moves that we've made over the last 12, 15 months.
We think there's an opportunity with espresso-based. Long-term, we think there's a tremendous opportunity with cold beverages as well. We've seen -- we've innovated and seen growth throughout the last 12, 15 months on that front and continue to see that as a tremendous opportunity.
But as we've mentioned several times over the last few quarters, we need to get the basics right and the plan that we've laid out for the Tims business is all about prioritizing our resources, our energy, and focusing all of our teams on getting back to what made Tim Hortons famous with quality beverages, quality food offerings, baked goods, and being exceptional at service, and connecting well with our communities.
We think that, over time, is going to kind of set the foundation for us to be able to grow. And specialty beverages expanding into other offerings, I think, will be a key part of the growth for Tims in Canada for years to come. Thanks so much for the question.
Ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to José Cil for final remarks.
Great. Thanks so much, Rocco. We've made a lot of progress in 2020, a year which none of us expected. But we're even more excited looking forward in 2021 and beyond and believe our three brands are on the right path to emerge from the crisis even stronger. We're excited to get back to growth this year with our partners around the world and look forward to sharing more with you as the year progresses.
Thank you again for your time today. Stay safe and stay healthy. Thanks everyone.
Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.