Q3 2019 Earnings Call
Good morning.
Welcome to emphasize third quarter 2019 financial results conference call. All lines have been placed on mute to prevent any background noise. After the presentation. They will be a question and answer session. During this conference call management may discuss certain forward looking statements concerning femsas future performance and should be can.
Sintered as good seeks estimates made by the company. These forward looking statements reflect management expectations and are based upon currently available data actual results subject to future events, and uncertainties, which can materially impact the companys actual performance at this time I will now turn the conference over to its Florida.
Yeah, Femsas Chief Executive Officer. Please go ahead Sir.
Hello, Good morning, everyone will come from since the third quarter, rather than making bristles corporate school.
Zika is with US today, and that's always been broken up into we have already that comes to whom saying Goodbye and Investor Relations workers were you asking who is thinking that goes with we'd be going forward.
Thank you Mark dealer and welcome Gore.
We should they do we will focus on the ground vehicles would be to figures for FEMSA.
Nims are commercially reasonable.
As many of you probably participated in brick went up into his girlfriend School that's Friday.
The fifth water, we're supposed to do more nimble depreciation and strategic brands operationally, we supposed wasn't performing girls or were business units ultra luxury will continue to invest in its growth of steady pace. We again soon grudging data from these international abrasions.
He'll do these you computers yourself pads in Chile, we were quickly, making progress and integration of GP of Nick when or.
Why the fuel division did not absolute number of statements boots to manage to Delever.
Regimes rose during the quarter.
With regard to go what I've himself so overseas in consumer environment in Mexico, I'm, sorry, do goes up America, when they need to lever a positive operating performance.
So basically we made two important announcements first in our new joint venture, we'd rather than the viewed more written the on the M. will you for 'em doesn't on joint venture with jet to a restaurant deeper.
These are relevant that's never quit the blue carbon selling high growth high return that because I said, we're very excited about it.
Let me spend a few minutes on beauty opportunities.
You know we have been looking for a long time for the right into the Muslim through both you booked come easy source.
We knew we want to do the leader with a strong local partner or Wilson, you that gaining certain skill would put you will allow us to develop the right valuable procedures, but he didn't <unk> consumer with some critical mass, but they are perfect WB.
We believe it or you can you just a joint venture between girls on show the right part and for Us.
We are deemed the started working or what will be a two pronged strategy growing to existing base with show select convenience stores or even got stations locations and the pro beginning to live unload the valuable procedure, where stand alone book see me just stores in New York from older deal from Brad.
We're excited to begin working on what will surely be a challenging but hopefully reward and brioche.
Regarding jet progress on D., but well worth the time as we work on effective at the private company G. R. D is very little probably we would need to pretends one of the moves that drive the view retail assets.
We got in divide in any market develop or emerging.
You know a rush enough when the business to fool you allow us to the bid and this formidable high growth high return platform, where those lead over almost a compelling new goes I would you look score.
We work to bring these obsessed with cash and carry a platform to Mexico and eventually all they're not going to make their markets down the road.
Moving on to this costumes is consolidated quarterly numbers, what kind of revenues during the third quarter increase then when people to present, an income from operations increased 18.1% well running basis, but the revenues increased 8.1 present, an income from operations rose 17.7%.
Net income increased 52.9% driven by the increase in <unk> income from operations, a noncash foreign exchange gain they did defensive.
Got it then nobody did catch procedure.
In terms of our consolidated net debt position do into this quarter decreased by approximately 26 billion vessels compared to the beat this quarter to reach our level of 20 billion pencils at the end of September mainly reflecting our diversification or certain short German business as they mature where register.
Gosh.
Moving onto this across our operations beginning with sensors for measure for can meet the division. We opened 232 net new also new stores doing just do the third quarter.
Reaching.
Certain I'm going to seek to net store openings for the last 12 months.
This figure includes new stores in Mexico, Colombia, Chile, and Peru.
Revenues for the region increased 10.1%.
Same store sales in Mexico were up 5% right in line with our long term mid single digit expectations.
He was driven by I think going 5% increasing leverage growth from a ticket they partially offset by 1.4% decrease in store traffic.
In terms of nickel procedure of same store sales. This quarter, we continued to see meaningful price increases and some over a destination categories.
As a result, we could do you do see consumers are just the frequency of visits to our stores.
Moving on bleeding down the income statement gross margin expansion was again strong at 120 basis points.
Acting sustained growth for financial services.
Number two positive trends have a commercial income activity.
Number three more efficient promotional programs with key suppliers.
Income from operations increased 9.4%.
Operating margin constructed by 10 basis points, reflecting the gross margin growth I just described.
Enough said by number one the continued strengthening of our compensation instructor tight labor market, including the governorship.
Commission based or deems to employee based deals.
A number two higher secure gosh handling costs driven by increased volume.
Hi operational costs.
During this quarter energy cost again, whereas source of relief as we continued to increase the number of ultra stores I know getting the liquidity from when sources and does not represent more than half of our stores in Mexico.
Moving onto offensive commercial Harris Health Division, we are the 69 drugstores across our legal fees territories by the end of September we have 3150 units across our territories.
India vision over 827 took <unk> dot net new stores for the rest of modes, including the consolidation of sort of production DPF for my brother.
Total revenues increased 26.6, Verizon was on organic basis revenues increased 6.2%.
Same store sales decreased by Nevers aboard 7%, reflecting stocks trading in Chile, and a negative currency effect from depreciation of the making this discount relative with Julian.
Looking at this.
Gross margin constructed by 90 basis points in the third quarter affecting new pressing the relations in Colombia increased promotional activity in Chile, and number three because they do have you'd be if in Ecuador.
These were partially offset by improved efficiency, a more to 50 could abrasion execution with pizza place in Mexico.
Operating margin constructed by 60 basis points as cost efficiencies and tight expense controls our girls how were legacies 30, threes, where more than offset by did the consolidation of GBM.
Well its part offenses commercial fuel Division station Count remained flat at get fan 41 or units at the end of September , but we continue to phase I refer you back log and approval process or new franchises.
Well this is not a deal we have ever boost pipeline of net revenues patients waiting for the green light from regulation regulators.
In fact, I think during the summer we have a four new permits.
Same station sales decreased 2.9% in the third quarter on gross margin was 10% while operating margin reached 2.7% of corporate revenues.
Operating expenses increased 14% of revenues if they can improve competition levels for our east patient personnel as well expenses related to the Gravitant vision of our stations to the new also got brand into.
Finally, moving on briefly the Coca Cola FEMSA, John highlighted in the conference call last Friday operational results for the quarter, we're encouraging.
They didn't buy a solid topline growth in Mexico and building the intention to American Brookfield were also where we also have I'm positive non the brain tax benefit.
If you weren't able to participate in the go you can actually is a replay of the webcast for additional details on the results.
Summing up our third quarter was roads, where again the boasting leveraging our receiving calls human brain over key metric our market frozen delivering encouraging numbers and a few and across many over do you ever fees were approaching the end of the year with good momentum are looking forward there it's hard to close.
And with that we cannot answer both questions operator.
Thank you.
A question and answer session will begin at this time, if you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question press the pound key your question will be taken any order that it is received in the interests of time, we ask that you. Please limit yourself to one question at a time in order to allow for the maximum number callers to ask the question.
Our first question comes from Antonio Gonzalez can see please go ahead.
Good morning, there's a lot on team. Thank you for taking my question I wanted to ask about the proximity to Vsan right.
The margins that we saw this quarter, which were flattish year on year.
Aside from the press release some of the headwinds that you sold during the quarter no.
I think we've been talking about for for quite some time now and the compensation scheme and a.
Cost sold handling gosh, it which I think are very similar actually to them headwinds that you cited during the first semester right. It get during the first semester. We saw these margin expansion that we thought was quite consistent.
<unk> driven by some other tailwinds right. Your your services category on your commercial income and so forth. So I just wanted to ask about all of you can sell pulls quantify perhaps directionally, we each of these tailwinds or headwinds it changed so that the.
Margin expansion now revert it on the any comments as to what you would expect for for the next few quarters. In this respect. Thank you so much.
Hello, I think run will be able to go beyond that.
We were specific yeah, no high I found your I think of the of the headwinds that you mentioned the one that I believe is.
Shifting a a.
Significant point, the fresher has to do compensation and on labor costs generally obviously, a you know the quote for yard to the to the border where we have a lot of course, a there hasn't been you know wage increases were high.
And I think if you asked me not only the during the quarter, but also going forward I would say that the cost of handling cash the amounts I think are going to start to get smaller in terms of you know lapping the biggest increases that happened a few quarters ago and I think.
Based on some of the initiatives that we're taking I think the cost of handling cost will be less of an issue going forward. We were already talking this quarter and I think we started last quarter.
Talking about entered a electricity costs out of the being no longer a headwind, but actually turning into Oh tailwind and I think this will also accelerate the little data as we as we get to the end of the year, where the number of stores connected to the to the wind or supply a we'll we'll continue to grow actually I think the fourth call.
Order is gonna be an important one for that because we are right now, we're very close to 60% or maybe even a little bit above 60% of the stores connected on and by the end of the year, we're going to be much closer to 80%.
So that will competed to help but but the one that kind of remains a without any significant improvement.
I think it is a labor and and we also have to wait and see over the what happens with a minimum wage increases next year.
Generally, though I think we would describe it as a pretty competitive market.
And so of the three one has already become a tailwind cash handling will get smaller a in the next few months in quarters and I think labor is the one that remains yeah.
That's that's sort of here I'm, just very quickly if I may it can you remind those have you quantified in any way a labor as a person petro fewer total expenses or revenues.
On the cost so of handling gosh, a for both have you given any metrics that you can remind those please.
Not really I mean, we used to over to make the reference to to rent.
Being the obviously the biggest expense and then after that or I mean, you have you had you have labor and then rent them or it will never actually given the number but its a.
Labor is a significant it's a significant component.
Alright, Thank you can.
Our next question comes from all the real Garcia of BTG. Please go ahead.
Hi, good morning things cycle.
My questions on Jetro, one J R. D. I was wondering if you could walk us through some of these competitive advantages.
So your rationale for for entering into this business and whether or not you'd be looking to increase your stake in this business going forward. Thank you.
You know we found a.
We think is a is apparel that is a isn't that said that he is very much heating because the being a private companies very much is not very much expose buddies is is the tackles, our market that we are very much in bulletin, which is the restaurant market or the grocery a small mom and pops a market.
And we found that the way the these management in approaches the market is very much aligned with the way we approached that thing the values of annotation is very much along with us and the history is a very passed the one we where they've been increasing share.
Increasing their participation in all over the United States and I think we abandoned the place where we could add value to them in Latin America and then at the same time participate very much aligned with or with the ownership that we have in the state.
We want to have those two basis together you know to be fully aligned because we do want to have not misalignments I haven't a JV down there that was given that there may not be in over there.
And and eat it did you are asking if we will look to increase our sure in a well depending on of the prize and depends on the circumstances, but I think we didn't do the way were set up we're very happy and I think that will be a lot of opportunities for growth in in the long run.
Our next question comes family Angio Fontanesi Bradesco. Please go ahead.
Hi, Thanks for the question I have two questions as well. The first one you commented about cash handling that it will be less of a nishu going for just to understand what measures have you taken to reduce these this problem and also you mentioned in previous conference call.
All they were considering potentially investing in this business. So just to understand what which measures are being done in that front.
In the second question, it's a extra follow up on investment in cash handling.
Just to understand you know this is sort of a new segment for you for the company.
So it's just you need a is to have a lot of cause that could be deployed just thinking about if you could enter while their segments. The fans I still not operating at this moment. Thank you.
Well you know you're right.
The first part of the question of we.
I think by understanding the cost structure of the bigger in Oh gosh collecting business.
Well now having some small operations from the standard better and see where weekend at the news the cost bye bye overseeing the system not not only the transaction a cost of the the the ban and tend to store and we're finding out that there were there are lot of different places where we could.
Worked together.
In a systematic way and and to the movies and I think we.
We could even go theater, making someone best zone was moving business with some of those operators, where we could be more line understanding the the a the cost structure better. So that's that's really what we would love to Ah Ah. That's why we are hopeful that there will be a better things for the future I don't have anything yeah.
I I think Highlander, you know basically I think of it in terms of three three different initiatives. One that has to do with a process. He's a optimization understanding the different process. Because this is not just picking up the cast putting it in a truck I'm thinking it somewhere.
Super Safe, but there are so there's a lot of counting involved and there's a you know.
Middle points between the stores on the end destination and so we have we have found that bye bye better understanding which stores require.
You know what type of frequency and making adjustments to some of these processes that you can.
Right off the bat reduced a little bit that the overall cost of the operation. The second the second of the third component is precisely what is one of the was discussing in terms of getting a very good grasp of the cost structure of these companies are a maybe you know contemplating making.
Or an investment in one of them at some point.
As you know one of the things that we have faced is up to the number of companies that provide the service in Mexico is is limited is there's not a lot of them and so we went to understand better kind of the industry dynamics on the whether there's any any improvement that we could bring about to that.
And then finally, the third component has to do with technology in terms of a certain type of machines that can be brought into the stores, where we have been actually running running by look for a for a while now and we're getting ready to be able to do more aggressive in terms of deploying a these machines due to the store.
First basically what the machines do I mean that the biggest constrained we've had historically is that if you have the cash available to disburse.
The customers a you know when they're doing a financial transaction, you know receiving a remittance or they want to do a cash back from our cash out from from one of their bank account or if you want to have the cash available to give to them. Then it's also cash studies at some risk right and so what these machines do and I'm talking to these are.
Imagine a machine and so that's not a big machine, but it's made by the same people that make ATM. So over the it's very secure machine that is connected to the network that.
Allows you know the cash to be disburse. When there is a legitimate transaction being done and this allows us to have significantly higher levels of.
Dispersible cash I supposed to the you know couple of hundred dollar for maybe not even that that the store have have today.
So that's another promising a component of the strategy. Obviously this one is going to take time and it's also going to require little bit of capex on so we need to be very careful about a base of rollout, but I think the three components together.
Represent a pretty robust.
Strategy to address this but has become obviously our recurring point of pressure in our in our Opex.
Okay.
Our next question comes from Carlos Laboy H S. C Bank. Please go ahead.
Yes, good morning, everyone.
Can you can you shed some light placed on the performance of beer growth in the OXXO stores, where you're now carrying a fuller portfolio.
What your same store sales in that beer category.
It's doing please thank you.
No we have had some so.
Over if over what we expected in some of the plateaus.
And I think he is taking a.
I will according to <unk> I think that we wouldn't do without being able to mix five passes.
And the very first ones.
First of all it takes it is taking longer.
Who oh, the consumer will believe that we're handling modelo brands in our stores. It seems like that force for so many years, we were the M. people. They look for a store operator that now when we are launching now it's taking time.
And but I think I'm, saying I'm, saying that in the other hand, I think we're very happy and we're very the results in a way up more promising than the ones we expected.
And [noise].
And so we're very happy that probably will be a a source for growth you ended the year because of those mother-in-law a brother offering.
The gross telling that we could have from that.
And I.
I think Mexico City again, which is the last glasses that we open the value of Mexico, and again, it's taking longer than expected because the consumer is difficult to make knows and busy in the end to end the value of Mexico, but again, we're happy with it and.
And.
It is taking longer than expected.
To get because new grab the attention that we have the murder, whereas you know what stores in other ways. Other than it is there anything you can do to drive consumer awareness.
I think in his mold places like I used to see we did very well in Mexico City is more difficult to really yeah, and I would I I Carlos won a I would also remind everybody I mean, we've basically done two waves.
The first one was launched in April and it included Morelia, San Luis on what other hotter and so medallion salaries not only are they smaller cities, where maybe the the communication, it's a little bit easier to get the word around.
But they've also been or you know we've had the both portfolios for longer. So I think that also helps to explain why in particular those to have have been a you know the growth has been faster and more.
Robust buy things on and then into bigger cities well ahead of what part of that first wave and then I said a lot of was saying we've had in Mexico City and the state of Mexico.
Come in a in June . So you know you have a couple of.
Month less of data I think when you look at the of the trend I don't think there's anything that deviates hugely from our expectations other than as the other says I think in in the in the greater Metro areas, it's taking a little bit longer than we thought having said that another thing to this cost or comment on is that what we've seen.
Thing is that when we're getting the you know we're getting the consumer that wasn't buying them beer elsewhere, but we're also getting the rest of that transaction then what I mean by that is you're seeing in adjacent categories saw related categories, such as Ah tobacco and snacks.
You are getting growth that.
You probably would not be getting if you if you weren't getting the beer transactions or in other words. The consumer is shifting their entire purchase talks of which obviously makes sense, but are you know once you see that the actual data. It's a very good to see yeah I might also I've got a little that modelo really.
Wasn't fully prepared and the fact, we are a different chain with different protocols with different processes and I think the our oceans are learning curve how to.
They care about the in a better way, yeah, and I think on that and that 0.1 important data point has to do with returnability versus one ways.
Overtime also has shifted a little bit more towards the one way packs.
And the multi pack you know the 12 can SK you, whereas the more they lost.
Historical traditional customers are usually returnables and so that's also part of the of the adjustments that they have needed to make in their supply chain to be able to serve such a massive customer that has a different mix than what they have historically done with where there are more traditional trade yes.
Thank you.
Sure.
Our next question comes from Martha Shelton of Santander. Please go ahead.
Hi, Thanks for taking the question. They took me regarding T that you could give some more color regarding the soft patch that you mentioned in her prepared remarks regarding what's going on in China and also given some of the reason social unrest that we've seen there just wanted to see if you could quantify the effect on your operations there during the fourth quarter.
Yes.
Hey, Martha visits there's just one I mean, when we talk about the soft patch I think generally the Chilean macro has been hasn't been soft now for several quarters.
And we in particular in the drug store space.
You know, we have been making changes to how we interact with the SAP is you know these institutions.
That have a certain number affiliates and then you bid for these property and once you're working we one of these things are those customers become kind of your captive market and last year, we started moving.
Away from that or beyond that I'm trying to innovate in terms of our sales providing some of the discounts directly and coming up with our programs to two in a way.
Build on the these operating model it wasn't board like.
Supporting our loyalty programs.
Instead of going through the SAP is where the loyalty went to be SAP in I know directly. So we're really trying to change the oh relation with the consumer getting more involved with the loyalty program directly with schools badly and not through these out there and I think we are you Mike.
Just a little bit in the short term with I think leads the red the decision for the medium and long term connection with the consumer correct and and obviously, we we've also faced a this quarter what the case FX a you know that both its land based on the Colombian peso versus the Mexican peso Oh, you know when you look at all.
Data coming out of Chile, certainly that was that was part of the of the softness I guess when you look at it in.
In Mexican peso terms.
If we talk about same store sales actually a in Chile, they were basically flat.
Or even a very very low.
Low single digit negative, but you know I would characterize hit us flat.
In local currency, obviously, the second part of your question is relevant also mostly through Socofar I mean, our exposure to Chile is much much larger to socofar than tool to upsell and it's a bit of a fluid situation over the you know the.
The.
So theres some the.
The situation continues to happen ER and as you might imagine I mean, we have more than 600 stores most of them in greater Santiago and so we definitely had some stores affected with you know different degrees. So.
Or kind of cost.
On the positive side, we can say that the insurance coverage that we have in Chile for crude Wednesdays, there's a very real Boston, So probably helped.
Up to you know use it.
But we've had a number of stores or I would say probably several dolphin stores that have been that have been impacted by the by the events over the last few days.
Great.
Our next question comes from Luca Cipiccia of Goldman Sachs. Please go ahead.
Good morning, I'd, rather have thanks for taking my question just.
Two quick follow ups first so on or the traffic trends in Mexico, considering and products so considering the.
Well, then what they shouldnt considering some of the initiatives. The fact that you.
Reiterate the positive contribution of services could you quantify maybe a bit more how or what other drivers and maybe this often that we've seen lately a admittedly tickets and prices into are being quite strong, but maybe any additional comment you gave us on on the ticket trends it would be it would be interesting and secondly on the U.S.
Mover and trends could you put the balance of.
The appeal of the opportunity I'm comparing your first.
Inroads into U.S. market I guess, that's a that's quite relevant.
As compared to bring in this business into Mexico, and the rest of Latin America and on the U.S. again, Oh. This is does it affect us and trends you typically have somewhat of a portfolio strategy when you enter markets.
I think there's any market away you only have a single bases or you don't aspires to have more so how should we think about this prospectively maybe over the medium to now that you lab some exposure to the U.S. market. Thank you Yeah. Let me let me go broke out to try to answer the second question really what we is we do see us.
I made a big opportunity for growth and and we want to be aligned in in both places in the JV and also in the corporate headquarters and because it will be very difficult not being in line, we already understand how difficult things are.
And when when the two entity starting up food in line with these I think the Atlantic was very important nobody to creation of value, we do consider that they will be.
Value creation opportunities in the JV and also in the U.S. abrasion we understand.
The market a in a different way they do we have a partnership at where where we good exchange ideas I learned and learn from them to in order to replicate what they have done in the U.S. to do in Latin America, and I think by aligning these Madison style and value system of those two company.
We feel very confident that he said it very well nice way to be involved in the U.S. and having a bit notified in Latin America by having used to entities, who today and again value creation is important value creation is important for us in the JV How's the valuation is important.
This partnership that we have these minority interest, but we haven't the United States and I can assure you the value creation is a is I'd say mantra for us and we eat we we haven't seen data opportunity for right occasion, we have not invest in this asset I know you weren't rather than get one yeah, just I think obviously.
At the kind of time zero right now the orders of magnitude are pretty different right I mean, we made to.
Or where you know we signed the documents to make the 750 million dollar investment, which you know, it's obviously not an insignificant amount of money, but it is you know, 2% two and a 5% of the market couple of the company so keeping things in perspective.
But really the point I want to make is.
Compared that to to the Mexico, JV, where we are going to start.
Looking into the format and the opportunities and and eventually I mean, I think just the terms of ballpark.
You could probably expect a each one of the partner or some of the you know in the beginning of we're gonna open two or three stores.
Maybe a all told the that requires $50 million on so each partner with something like 20 or 25 minutes. So clearly in terms of orders of magnitude. The U.S. represents I'm much more significant amount of investment in the beginning.
But with all those points down the road.
Ideally the two would would gradually converge in terms of relevant for for FEMSA.
One other comment to make I mean, we're obviously very very respectful and.
Given the GR decent private company the amount of information that it's out there, it's very very small and that obviously creates.
Little bit of a challenge for us that's a public company, but you know the message that we want to to continue to try to.
Drilling to into you guys is that a this is a a very remarkable asset in terms of its growth trajectory, it's growth opportunities profitability ROI eggs and so on and so forth.
In terms of a the other part of your question, who I rather your is the first part of your question having to do with a traffic that also Mexico. Certainly you know we've made these comments about.
Destination categories, having taken price increases and I think the consumer in some cases, you know in the case of the beverages for example.
Moving a little bit more to bigger kind of from single serve to multi serve.
We haven't seen these price increases and I think there's reason to believe that they might continue to calm and some of the of the the main categories. I don't look so and you know where you'd have to ask someone to suppliers why they're doing that but I think some people might be trying to get ahead of you know survey ethics.
Moves or just trying to.
Looking at a price increases before the end of the year and so you know that means people can come to the store a little bit less frequently.
Because the reasons why they're coming to the store you know there, they're making bigger ticket purchase because prices went up or they might be buying a bigger volume presentations.
And basically just.
Changing that are where they probably used to come in little bit more frequent for that for the for the single serve a so that's the that's what we're seeing its obviously theory from our side, but it is now being in place for a few months and we think there's you know there's something to it.
I might add that they might be some some bench.
So markets were.
Permits.
It seems like a v. the different counters in Mexico.
The deceleration is this is distributing this cash and they were in the past and some of them are very much.
The need for some cash and then my looking to some alcohol permits as would source of cash and with that in line. We have had some tension is all markets. We're we're did beat is a scaled for selling alcohol work. They have been the news and now when the purpose of negotiating a really.
What is what the idea is and I think there was probably some of the a a minor effect that we have also yeah. I think that's something for example, like we've seen in Cancun, where the window to buy beer has gotten a significantly smaller than any other than it used to be yes.
At this if I can very clear just a quick follow up on the U.S. discussion.
Well aware of the fact that you were looked into pass to bring also into this market. Then there are some legal hurdles for that to happen is this transaction a way to get a foothold in the markets eat anticipation of maybe additional sort of retailing roads down the road long.
Medium term wherever that would be possible.
Or is this something that came up as a as an opportunity.
In itself, but what I'm trying to ask is how much of this is a first step up in sort of longer sort of U.S. exposure or even Roe or an expansion or opportunity that may come down the road because we knew there was there anything story as well there over previous offense.
Okay.
We I I think by itself is is is something that has value and had a as it Pcs are they already explain but gordon going forward than understanding you as market I think yes, it might give us a I oh wait to start entering here and understanding the ninex.
The industry and yes, we what we would love to get into United States and into Covina sector, we use finding the best way to do it.
Yeah, I think if I kind of trying to take a a 30000 fit view a I think what we're also seeing is.
You know incremental steps in that process or by FEMSA moves towards the you know in our in our quest for for that Delta between Roy can walk right I mean, the retail part of the company offers very compelling spreads in that.
Lens and so obviously, there's the U.S. component or.
Perfect and a lot explain you know this is a first step we're going to keep trying to see how we can eventually hopefully be able to invest them, they're going to convenience sites, a a communist or stuff.
But.
More broadly I I think it's again.
Proof that we are very serious when we when we talk about.
Putting capital in assets that have a very good chance of generating a bigger spread between return on capital and cost of capital and and those are the parts of our business to grow the fastest and so this isn't it's another step in that in that shift towards a you know we we've called in in some conversations.
Retailization off of FEMSA, a which is a gradual process bought the you know ultra is the fastest growing part of our company and so every day every day, we're a little bit more of a of of our retail operator.
Very clear thank you, but thank you.
Our next question comes from Alan Alanis have you be yes. Please go ahead.
Thank you so much higher rather than one my question has to do would you ever sending Coca Cola FEMSA could you speak a bit of how do you see that investment going forward and I mean, as the controlling shareholder of Coca Cola FEMSA. What is your preference for a for the use of there over the cash generation in terms of capital deployment.
And I mean, I guess it to more strategic question. How do you see that are sitting the long in the long run them and if you can connect the answer with a relative.
Comparison in terms of versus versus Heineken. Your it doesn't mean heineken more done over the you you run one of them Coca Cola FEMSA in a way and you're more on for minority in Heineken, but how do you think of those assets to strategically. Thank you.
Oh, well with Coca Cola FEMSA.
We're happy with work when it comes out the way I spoke about what happens is right to restructure Israel and B M and I'd be aligned.
To tackle these Latin American market in a better way and I think or what happens is finding a way.
Evolve with this Glenn market circumstances, and in a better way by centralizing by establishing platforms and be more efficient and effective and the strategies and also is always have gone up against these ginger disclosed during this culture.
To tackle these new opportunities and be more aligned with the Uh huh with the markets what would the were enrolled.
And your hand, a we are working along with the Coca Cola company, because our weight Coca Cola as it has the best.
Platform for distribution Latin America, and we are <unk>.
The World class.
Does that matter and I think really it has to do with Coca Cola company how.
Barry we kinda line by.
In reducing or introducing brokers.
They needed for the current what a company.
Our support some orders.
As with the way, we do it in Brazil to who who do have a better economics for loads journey in distribution. So I think those might be somewhat some interesting opportunities for the future and but again, a we're very hopeful that gorgonzola company and the brokerage revenues that would be more or less.
Feature to create more value creation in the long in the middle long run I think we have had some difficulties and some headwinds, but again I think what happens it's an extraordinary company and we see that there are a steel lots of opportunities.
For growth in Latin America, I don't really want rather than anywhere else. So no I mean, I think [noise].
John John and Constantino mentioned this under calling on Friday in terms of the.
Early stage testing of some alcoholics in Brazil, and obviously this is the topic of load sharing came up in a couple of questions.
You know another characteristic overly of Coke FEMSA is the very very significant cash generation.
Capability and so the you know that one of this high quality problems I suppose that we have is.
To figure out.
No.
How to best Ah you know for Coke FEMSA how to best.
Utilize that cash hopefully some of it going to their own growth, but they've also created as you know significant equity issuance capacity they have over $3 billion. So they could issue within the new restructure that they did in the shares a few months ago.
So clearly there there's the growth bias on the you know the search for for growth opportunities I came away, but there's also a lot of cash being generated by the operation and so.
I think the analysis it will be done in terms of a you know.
Whether whether there's a opportunities to or what are the best ways to use that cash.
Those those would be that really my observations. Thank you. So much one could you could you I mean, what categorize them in goes what are the priority. So in your view us as prime side in terms of the cash usage of before that the strong cash generation of quick one of them.
Well I mean, obviously, we you know historically, we've taken the dividend from Coke FEMSA and pass it through once we do with a heineken dividend and I forgot to address.
Your Peter's question, you asked about Heineken I mean, obviously, that's a that's different situation in that we have.
Much more limited you know scope in terms of.
How the company's drawn and how that capital is deployed bought a in both cases, we've we've just taken dividend and pass it through at this point I don't think I have any recent to two thing, but that will change in the short to medium term.
Got it got about social if it's hard to say just to conclude just to sort to say that then we should expect.
In if the Coca Cola FEMSA doesn't find any any opportunity so let's see how the negotiations with the Coca Cola company evolve in terms of the use of this as a distribution platform for all the kind of product. So we should be seeing a so we could we could see I think importantly, increasing the there was.
I think it has to be in the on the menu right. It has to be a possibility.
Ladies and gentlemen, this is all the time, we have to questions. Today I will now turn the conference back to Mr. pizzi, yet so closing additional remarks.
Well, thank you very much for your participation today.
Good week, everyone and yeah, no just to give a another a shout out to my I'd like Thank you might have enough or are these yourself of health. Good luck in your new responsibilities and obviously a Jorge we you know I'm sure we're going to.
We're going to continue to do a good things together are welcome to I mean, you've been a part of the team for a long time, but then I will come to you and your new capacity as head of IR for Coke FEMSA.
So thank you guys and how quickly we are you comfortable with great reputation mail dealer.
Hi, guys thinking about along fine.
Thank you anyway.
Ladies and gentlemen, if you wish to replaying the webcast for this call you may do so at FEMSA Investor Relations website. This concludes our conference for today. Thank you for your participation and have a nice day all parties may now disconnect.