Q4 2019 Earnings Call

Good morning, welcome everyone to stem cells fourth quarter of full year 219, Cynosure results conference call. All lines have been placed on mute to prevent any thoughts one.

After the presentation.

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And.

During this conference call management to discuss certain forward looking statements concerning send those future performance and should be considered it did see estimates made by the company.

These forward looking statements reflect managing expectations based on currently available data actually results of subject to future events, and uncertainties, which can materially impact the company's actual performance.

His time I would not to into conference over to Eduardo Gadea sense that Chief Executive Officer. Please go ahead Sir.

Good morning, everyone and welcome to themselves fourth quarter.

Your 2000 Viking before corporate school.

With regard to what degree of World right.

We usually do vocals of corn, because everybody figures the prince.

The commercial vehicles as many of you broke we have the board meeting sports betting <unk> corporate goals.

We weren't the user base cool dry rugs and border. So I'm wondering just didnt elements to this culture, where some cure.

Yes.

Sounds good.

I would result for the food water, where again going underground would've Brooks <unk> Dunn said earlier in the year.

Most of our businesses.

Terms of commercial book, So we did the future group you double digit revenue grew bigger and bigger Bulls seems girls in Mexico.

He bring stable operating margins in the Bakken shortly the expansion of the girls though.

Well its bark.

The New Jersey experience.

Operational disruptions and she lives that game and the dark pool I'm already driving in here.

I'm sorry.

Bringing mergers in the dark consultant expenses that Gerberding sports bar. The girl do these younger degree in severe operational disruptions in junior that's getting a docomos ready challenging year more kind of setting the steady improvements actors are girls older markets you viewed to be sure what they've been <unk>, a small number of stations.

Work and managed to Delever perfect debris triggering the challenging Berman.

Barack Gore going up in fact, when do you see what do you drink in both you and Central America not guilty bracing, our girls most of its mark.

Let me so do you think from the fourth quarter wasn't easy ones first we soups. It's really grows our were JV agreement right. There are a little bit Brooks and we'd be I'm convinced that the growth you are we're making good progress enhancing do rotation, but what's important road. These key markets.

Nick when we complete their wooden bedroom in general because people getting rid of agreed to partner with them with and learn from the neither an exciting market breed that he's new drugs are compared to like brucie future, Mexico and Latin America.

Sure So new speaker instead of disease doesn't work or do you.

She didn't buy you added warehouse and company, which.

The man Brady was our food and they've done girl distribution capabilities.

Well rehearsed begun the first fully integrated third party logistics solution provider in Brazil.

Board that finally, we were able to Dubai I wear.

I would minority barnard's, liquefier, Julie becoming the sole shareholder or worse, North American Carol operations.

We also bought out with our minority good part into next year compared to the help of easements and I will 100% overhead, okay, well, which will allow us to operate more efficiently.

Exchange best practices our growth markets.

We could do you have to work to find that lead Europe would reduce the deployable capital. According to worth a bridging dense Oh God forbid you said I will give you boosted write any who <unk>.

Moving on to the scope during fiscal food they didnt quarterly numbers.

Revenues during the fourth quarter and greed five Boes Grandbridge, then well go Oh abrasions degrees born fried person.

Regarding basis weapons revenues increased 9% I mean Cooper abrasions degrees 1.2 person.

Nitty gritty degrees significantly affecting their noncash foreign exchange <unk> dollar denominated gospel future higher Braden expenses go going up and circle. The mending comparison base driven by doing so well just computer abrasions raises hamburger grading of course sort of hinted that pretty busy loves need.

Yeah.

Our effective tax rate was 39% for the sake or higher tax rate of Coca Cola FEMSA.

In terms of our consolidated medical teacher during the fourth quarter decreased by approximately anything because there's a bird to abuse where to reach a net debt of 47 million business at the end of December the affecting his extensive apparently bromine and investment I just described.

What do you want to the scores are where abrasions I'm, beginning with them, mostly Brooks and division we opened up.

480, net new ultra stores during the fourth quarter, reaching 13, Gardner and 31 net store openings for the last two a month.

Good news doors in Mexico, as whereas Intermezzo is ward, majoring, but also Colombia, and Chile geared to perform above trend.

Revenues from distribution increased 10.6 prison all systems go sales were up 5.5% consistent where we're going through mid single digit there's big patients.

These were driven by a 7.8% ingredion never as customer they get partially offset by a 2% decrease in store traffic.

There's other than because the jokes into a code during the quarter, we continued to see meaningful price increases.

Our where the nation perpetuity.

I know there its or where again so consumers are destined to fit with your green shoots that were stores.

Moving down the income statement for the fourth quarter gross margin expanded by 40 basis points.

Reflecting.

Number one wrote this first got there would be prudently equals one cannot show services.

Number two Kofi branch network originally guard.

And number three degrees on more pigeon promotion or burmans would or would you buy it partners.

Two operations ingredient weren't present operating margins remained stable in line with it was picked patients even as we never one continue regardless youthful commission based doors names to employee base fees number to step up in business.

All right.

Good thing that were cyber security, but they do they need to be taken in airports I remember we continued to grow high is a good consequently gross being by increased volume a higher operating operational cost.

Although these.

I'm going to drive into becoming visible.

Energy gross where a source of the beep.

Okay. Good the number of ultra stores I know getting.

The when sources.

Moving on to <unk> to FEMSA Comercio held division, we are good one drug stores during the quarter region.

3151 units of course are with third parties at the end of December at 800 booked net new stores for the not.

Bonds.

Moving integration or keep getting the girl.

Revenues increased 2.5%, while organic basis revenues decreased 4.8%.

Same store sales degreed neighborhoods.

Good prison, reflecting severe disruptions so accretion.

She led and the negative currency effect from depreciation of the Mexican Theres really did Fuji then of course on that business.

Gross margin constructed by 10 basis point, we're reflecting on the one you break into provisions in Colombia number do increased promotional activity in Chile, and the because the nature of you'd be economic growth.

These were partially offset by improved opinions are there more effective deliberation and execution with diesel plays in Mexico.

Operating margin constructed by 90 basis point, let's go to Finjan tight expense control over legacy period birds were more than offset by lower operating leverage do you.

Number two the consolidation of Corporation, GBS, which has a relatively high higher operating expense structure I remember create expenses are they need to be restructuring programs.

Our abrasions in June that I make or.

Waste Bard offense is critical to ensure we are the fourth net new destinations Coveas fight hard enough, where you probably unit at the end December which skews to walk you know, but at least for instance.

Rolling into right direction.

Same station sales decreased 5.5% into fourth quarter gross margin was 10% or worse and gross margin was 10% while operating margin breeds going one person booked at revenues.

Operating expenses decreased 16% effecting I need to present base in the fourth quarter 2018, where we reported provisions related to certain uncollected global institutional accounts.

Well I sort of said by higher wages honey Boo compensation structure for our where his vision prison, though aimed at reducing doing over and tight labor market.

<unk> expenses as they did the times featuring new books will go.

Brand image.

Finally, moving on beef seem to go going up Hinson. During high later, just today makes a girl hooked nine compared to grow with a copaxone repricing and circular Megan book of Google the brick and momentum working mother.

While I regarding environment, and then convert before you really there were no growth in both you and then doing industrial.

In the fourth quarter work, what I've themselves into its balance sheet by reducing that I didn't know in a position to increase is due to.

If you were unable to participating Coke FEMSA corporate school you can exit there.

They are the webcast web each of the dose on the results.

[noise] priority, let me provide real good over a year to begin we're feeling the culture environment degree man's opinion Webber your continues to show gurgling resurgence.

We are cautiously optimistic about the victims or market.

More specifically can you share with you some broad direction that your expectations for one main operations.

Well, then took a major books and meet the division with great or for opening clean line because those 19, so 13 had to pick the unit growth markets.

You know we have made.

Right and fine tuning divide the proposes journey in each of office international market.

We are.

As we go to needs go use abrasion. So they should peak bridger ever margin and have entered into game going through the door with perfect doubling.

In terms of all sort of in store sales growth in Mexico, we should remain within that within that were long term inspectors range mid single digit growth.

Operating margins will be under a beat affects your but equally eating equal instructed you're willing to compensate kind of in store personnel and increased base of store growth in South America.

Oh, there's generally doing <unk> blue hasn't brain.

Would you investing in north <unk>, the drug being as we continue developing the meat folks would be the ecosystem when defense side, we should continue to benefit from together vote on them available you put the blue <unk> certain 30 threes in Mexico.

Perfect took on business helped the vision in Mexico will get the because of its improving put WPP overextended a unit growth, while increasing the never deleveraging or we'll consider data operating platform with our suppliers and customers.

It doesn't make I respect on orders during the year in Colombia.

We remain cautious about today there are still many moving pieces around your body fees.

Social under 30 chains.

In terms of bargains, we should see stable to slightly expanding operating margins.

For the who division in the <unk>, rather than making worker low year in terms of expansion and it before and we cannot say did or would agree burden than they would do quarterly growth.

Your computer, but we have enough station the dominant rutile growth. Therefore, we see the view that leisure and expanding pick the centseight in terms of out of service stations wasn't rain and its big profitability to remain stable.

In terms of dividend to be Bhavan, Doesnt, draining Oh boy <unk> proposal to shareholders Wade need grade need not callable next week. So we don't have the number so you yet.

Diluted shares as soon as weekend.

For the capital expenditures, if they patients we're more than 6% of revenues for corporate opens up and sensor for much of books. He meeting the president of revenue for.

2% of revenues will fuel and approximately 100 million brought us within a distinct under the age and operations.

We'll take our because every day that until two is the topics $1.5 billion would do isn't brain, which more than 60% would be the devoted in Mexico.

Let me go up were cautiously optimistic on the consumer environment in our main markets. We're confident that were ability to execute on our strategy and to keep using the levers are within our control.

We also aware of it started and as we continue to work drug. Okay. There were copies of two high during the call of duty.

Exercising discipline as we grow our will position our growth markets with a view on long term value creation.

And we that we cannot them to go for your questions operator.

Thank you the question and answer session will begin at this time, if he would like to ask a question.

Chris tend to number one on your telephone keypad as you would like to withdraw your question. Please state.

Good question would be chicken.

Interest.

As I can you please limit yourself to one question anytime.

For the maximum number.

A question.

Your first question comes from don't line up.

<unk>.

From Goldman Sachs.

Hey, good body and get a lot of caught everyone. Thanks for taking my question given that I have a ali why that will actually wanted to ask something a bit more [noise].

Got it all maybe today, it's not the best stay for a full for it but I wanted to take stock of the fact that 2020, but that doesn't have a serial day [noise].

I think it does actually that the feed study, but I'd say since the end of the of the lock up and looking back.

I was running the numbers, but you know I love it adds up and see if they put it out of the way the how to get this action was about 11000 OXXO stores Anglo and 5000 opposite so there's always when that all Cup ended.

And in the meantime, especially the last for five years, you become the largest truck filling operator Latin America you fill with.

New services it into it talks about it successfully.

Now I think your markets et cetera et cetera.

While a if I look at high they cannot maybe up a deal and lost a lot SWACO. So they shut price was Oh stop high so that investments continue to the data yet I $40 together in the context over the last five years and censorship prices it as a as stable as that rock in spite of.

Did I mean as the of the underlying business. So my question would be the floating if you can share your thoughts or direct show. The one what do you enjoy bats explanation of why that is the case, what do you what do you feel a day the it means on defending.

If any secondly than it is becoming a bigger cause the frustration.

Recently or at least you know given how many things that going out into underlie business, how pretty told that moccasins going to take notice and thirdly, yeah, I you had to something about it and putting them in a bed towards this data is that a flat until address that weather, but does this have you changed your capital structure, but you know you know that to be able to.

Ah maybe they are underlying retail business that not only in there to more Kim if you could share your thoughts on this I thought it would be a good time not a good day, but a good time given the diversity.

To maybe have a discussion on this.

Okay. Thank you got well basically be I will good thing.

It would be not to be that I looking to make I'm flipping.

And I couldn't be albeit closing up there make our young the best of old bind and and growth. These is really something studies luggage.

Through these footprint than in even Gee that where we were very happy with investment that we made the basket Benson did last water inflows of 19 were not necessarily in the new direction for growth opportunities. So.

What we really think do that would be left them make up would been how can we give a more stable growth environment for four were shareholders and that's what we have in mind, how do we can best our where I would probably Doug to have a more stable base for growth and for the long term so.

It was able to say that beds that we haven't did in Knoxville.

Got it wrong, yet in Mexico with growing and were very positive we thing that the double D. Does that we might have ended eastern environment, we might be able to two guys been probably 2021, but I think.

But they do now for growth.

Also in Colombia, and TV, we're very happy because those stores now are profitable the bone that we have either we lacked scale will be gone through haven't broken double operations there.

In.

No I think we have the no by owning 100% of the operations in Mexico, and I'm being sold in South America.

I think we will be in a better position to bring out more deliberate the scale of these got form and and look for opportunities or.

I mean, these operations and I think we are the foreseen that we'll be able to leverage the from giving notice that we haven't spoken to make a noted the Mexican operations and from something that we have the here taking them also to who who South America I.

I think were busted, though I think very rarely conducting they seem to write sectors.

We are very really for four four for better times going up in America and and.

Even the government business because wouldn't even if the in Mexico, you change that the the regulators also.

Good morning, Yeah include grow and and we'd be in <unk>, we have housekeeping could be an expanding operations in.

And then being in Mexico, So I think we HM.

Again has proven to be.

I I rate plays where we.

We raised the proceeds of the sale of the brewery and I think so far.

The environment, but well also in the end up from the <unk>, who knows he has decided that the Coca Cola FEMSA.

Again.

He is these are.

A few growing but again these economic environment that we are peaking in it wouldn't use up your makeup footprint.

We have not having you divide growth and I can we still got them sized varied.

I don't know standing companies that we have a lot of kind of I mean.

Promoted a good because in the way that we net yeah. We are everywhere in Latin America, where we are very bleeding operations. We are glad they wouldn't execution and believe the challenge is how can we leverage those because I think there's somewhere else to keep working and and I'm glad you're asking these because it really so no worries.

But we have put because we we are a growth company. We've done it would depend on ourselves I don't even have anything one.

Hi, Luca this is quite yeah, I think just continuing a little bit on one on one of the auto has been saying I think coke FEMSA certainly when you look at some of the bars [noise].

And if you look at a 10 year timeframe as Youre doing you know that's still captures many of the years when when Coke FEMSA was still very much on a on a growth spurt. If you will acquiring a lot of bottlers in Brazil, and Mexico and of course more recently given.

Given the you know some headwinds having to do with you know sentiment towards the category.

Among others.

You know, we probably some acquisitions in Brazil.

Happened up or maybe you're right before Brazil went into a number of self years.

Obviously, what ended up happening in the Philippines, where we also saw that Avenue for growth curtailed on many of you Didnt look at if they set up to some of the parts. The multiple that have compressed. The most have certainly been that of Coke FEMSA I think generally I'm bullish as weve.

In Brazil.

We paid a little bit of a price also on the logistics side we've made.

Investments in Brazil out about the same time at Coke FEMSA with making large investments in Brazil, and so those.

Few years, a you know from 2013 until pretty much now.

Has been have been flow years in Brazil, and quite frankly, even more broadly.

What you're seeing is this a retailization offensive I I mentioned the them the last call where the retail businesses continued to grow a tough that's ever and we continue to deploy capital in assets that are related to for the retail business and so of course, a the share price a worry sauce.

That's a it is frustrating to to look at the at the flat or performance, even as we know that so many cylinders in our engine are firing a more than adequately.

So you know we have the benefit of having some capital to deploy and I think this informs our decisions in terms of what types of businesses. A this capital goes too.

I'm also addressing I said a lot of fit in the beginning of his comment.

The high volatility that we've seen in Latin America, and therefore, the willingness of the board and the management team to look for opportunities.

In the U.S. outside of we did with Jetro.

So hopefully this for the very long answer if that's helpful.

The opportunity to take your book for the perspective. It I guess my thought it was exactly so how is to find a forward then the operating sort of growth and being amaze me, especially retail and why that the Wanda yeah, what can be done for it to be a marriage and but not necessarily and I guess the houses to some extent more voting to get us.

Slide to the capital structure.

Whether that is right or wrong, but it seems that has become a bit of a liability from a you know badu crystallization perspective, or I guess I I can't really think of many other any other reasons I. Thank you very much for the effective Alex I'll, let let them have been excellent outcome or the other question. Thank you.

If you will not your with your question. Please.

Yeah.

Question comes from to line up Antonio Gonzalez from Credit Suisse.

Good morning, and a lot of on Kwan think is almost for taking my question I wanted to us on.

Very quick team.

Just first a quick follow up on on on the previous question from do can I dialed in beta so apologies if I didn't catch up to you in Toronto book.

I wanted to ask them, so with investment that you've done at least in Pete's. It perhaps some of them are more early stage of course, there not publicly traded them like Heineken weren't really Coca Cola FEMSA. So.

Have you thought of a token we a and on at least gum and mint stores truck the progress here.

Are you I understand obviously, that's you know in some cases, you might have commitments with the older since the one.

And the lighting up would've been there might be more challenging.

Bull going forward are you thinking both at least shown with those you know the net being equal more a how the truck. So you know by New Creek the licensing in doing so.

Some of these investments will just about a follow up.

If I may very quickly I wasn't what's your perspective for it separately or close margins for it.

Be here the am I right in thinking about it as you accelerate your deep investments.

It does feel the marking a.

Progression Mytv load your your long term guidance, which obviously it typically thought that margin expansion we live.

Well I've done it would be the.

We work, but we haven't seen doesn't that we have in jet boat, we were very happy when the business. We it's a it's a growth dot from who hasn't something that makes it we would do the work here in Mexico and and the unfortunately the of the doing as a result.

If you could give about because they want to they don't want to <unk> to <unk> to be into public space.

And I'm very happy with the the with doesn't mean they these companies are there is a growth by phone with lots of opportunity and we seem to be brumby by by I think this connection will be able to come up with Sullivan.

That's than most of those are two leases nothing but again I see your concerns.

And I sympathize with him and he will be at work that we have to do with old partners, who seek out what links what the connections. We can provide you. So you could model better and has done better a decent doesn't but we that we made I don't what you want to implement the a a margin, which oh, yeah, No hi, Tony.

And even think I I didnt want about about disclosure.

Moving on to the one and margins I mean.

Certainly we we've tried to a you know you've seen a for example, oxos growth rates and profitability numbers on return numbers.

I would try to establish from some power lives or from a you know comparisons.

To try to put you on and investors in the right ballpark in terms of a historical performance for this company and I expect we'll continue to look for and hopefully find some ways to to give you an idea of how this is going obviously without without disclosing in numbers that were not allowed to discuss.

Those.

I tried to you know kind of a complement this there are other parts of our company where they just go through has has been a lower than what we normally would have of course, there's the big or others FEMSA, but that is it keeps growing we we made another acquisition in Brazil that he has you know.

Logistics side on ballistic Oh, so there's definitely a lot of work going on this year with the theme or at least to get to get them ready.

Ready for primetime Ah, so to speak and our expectation would be that 2021, a their information would be broken out.

So that you can then have access to a full PNM like like you look at or the other components offensive. So are we understand that the you know as we are deploying this capital of the structure is becoming a little bit more complex and there are more boxes on the chart so to speak and you're trying to.

Put together a valuation we need to work with you and provide you with as much.

Disclosure us as possible tried to minimize a you know the guesswork. So at least porcelain used to go which is now.

More than a billion dollar a company.

You should expect the those sets up numbers are basically a year from now I'm not in the meantime move we tried to kind of.

Bringing into the into the ballpark.

So we can in terms of the margins for OXXO or you are correct that I mean, I think its start.

From a baseline of a stable margins.

There are these two initiatives that we've talked about a little bit or a one having to do with international growth. So the faster will grow in Chile, Colombia, Peru and to some extent, Brazil, I, even though that's over the shared with with our partner there, but they're talking to grow there that's going to put a little bit of pressure on the margins.

Because we have yet to get to scale neither of those countries and the other one having to do with the digital strategy and again I think a you know they should be a year, where there's more information coming your way in terms of the the development and again, hopefully getting ready for primetime on that front as well.

In terms of the New York. So you know there's two different a leg so for that strategy and I'm. So you know the faster we grow there also a it looks a little bit of pressure on the margin. So in both cases I think.

If there is a bit of pressure on the margin it'll before the right reasons.

So having said all that I would not expect a I mean, we're really talking about maybe 10 basis points 20 basis points out the mode.

So again, if we start from flat.

Maybe minus 10 minus 20, and then there's a lot of them mentioned on the flip side of that we do have a little bit of a tailwind coming from the beer agreement a until we've got continues to be as a strong method has been and of course, we started early this year with some more cities and getting the.

You know them within the portfolio. So you know have places like get it that on play rely on them when a platform.

Getting getting the the brands that are historically.

You know pretty popular there so that should give us a little bit of Oh for relief from from from the margin pressure. So that's how we're looking at its current these things are we are also from video side that the really these new territories that we'd be in acquiring that we've been.

Mixing with.

With the Movado brand I think we've been very happy, but the performance of the mode of us into you'd really I suspect that and I think the only market that we still are.

Grow these upcoming yet is Mexico city in Devaluing, Mexico, I think the size of the of the city and the we'd like to consumer how how do the volume better yeah. They did beat the beard customer in Mexico City.

RESCULA, China was to growing but not as fast as we thought the movie the rest of the markets, we're very satisfied with the world, but we have a perceived sullenberger Brent.

Perfect. Thank you commercial I don't think.

[laughter].

Your next question comes from Benjamin.

From Barclays.

Hey, good morning, Eduardo fun. Thanks for taking my question actually goes into the same direction a bit of a follow up from from the first two one so if we take a look at the more recent performance and the increase and and same store sales performed.

Runs into proximity division and clearly the last quarter was very strong on ticket and you gave some explanation to it and I remember you've pointed out that you're aiming for something around the mid single digit same store sales growth. So if you take a look at the economic situation in Mexico.

Nomics situation in the ever of markets Europe your operational on on the proximity division.

Would you still called 2020 to be likely year to see that mid single digit growth.

Rate keeping pace with a similar composition driven by stronger ticket may be done traffic or where do you think are we going in terms of the organic growth. If you want to call it that way.

Well, let me have suffered from the smaller operations GTM, Colombia, we're very happy.

We've been surprised that the social.

So instability that we have seen cheating.

Our stores more more important for the consumer because it seems like other consumer is moving less I don't know the neighborhood stores are becoming more important indeed in distortion in the school in such a remembering that we urge you did so same store sales or we have grown dramatically XOMA, we'd be happy with.

The other kind of Columbia, It seems like after a very lumpy real time of trying to find out the right value proposition. We are now in place underscores are growing very rapidly to so again the.

She didn't Colombia, it seems like a beat the Glint got forum and the way the New York's was divided because you know doses towards a connected with the consumer a team makes a very optimistic over the oh the environment. Unfortunately, the we don't have enough stores yet.

And we do some <unk>.

A base to go in fact, we might we would love to find some minor acquisitions, just due to expenses drug for them, but now that we understand Dundee Gordon valuable procedure. The books when those markets is that book Goodwin, our public one and he's doing well connected with the consumer expectations.

Ah from Mexico, I I will ask a one to complement what I'm, just saying, but I think.

If you read we need it we face.

Kind of the same year that we'd phase 2018, I think what you said it is too that is correct.

We had a more fair where Americans will be more optimistic it again, but again, we don't know really wasnt going to happen when we they're going to make a decision. We expect there will be similar to last year. So I would say what are what Brian said about the give you a ballpark figure of what the number will.

We would be comfortable I don't know if you went through other than anyone yeah think about hi, Ben I'm, just saying I mean in terms of the growth or international growth. One one data point that I wanted to highlight has to do with the fact that even though the international stores just represents about 1% of the store base today.

They are they will contribute more than 10% of the growth and for this year I too I think thats powerful a 1% or the base today, but more than 10% of the new stores. This year are going to ER. The opening in Chile, Colombia, They do and I'm not I'm, not really company or whatever happens in Brazil in that.

Number so that I think you're you're going to increasingly hear us talk about international now that both for us our.

We're ready to contribute to the to the profitability.

If one is we get a little bit more scale.

On the on the Pimco sales Ah conversation by the way they do we're still working on it right all of the three the one that is the needs developing is if I knew what is new it and we are still.

What we have to do there.

Right now on the on the same store sales growth or you know you're right on the V., we recall, what we've been talking about the last couple of quarters, where we've seen a lot of pricing being taken by the big CPG companies and this happening simultaneously to and maybe we obviously related to.

A consumer I'm looking for maybe the you know bigger.

More value for for the money type of presentations on of course, I think the Coke FEMSA. We sold are also a consistent then illustrative of is where were healthy pricing I'm, probably preparing for little bit of volume growth. So I'd also we've continued to see that you know big categories of what we called destination.

Categories, and I think tobacco for example, with another good example of that I would also mentioned a you know we are beginning to see a leveling of the slope.

On the services front on the financial services.

You know, we've we've had a number of years, where we were looking at 20% 20 plus percent type of growth of more and more people adopt it also has a place to you know pay for their things and get their transfers under their remittances and so on and so forth. A we are seeing a bit slower growth on that.

Services front.

Kind of interesting to in the single digits now so that might have also little bit to do with with the with the traffic or dynamics bought.

So far this point, we feel comfortable a with that kind of a mid single digit we've been putting thing a mid single digit number now four years.

So I so right now we're not seeing anything out there that would make us change that expectation.

Okay perfect. Thank you very much.

Once again.

Please.

Your next question comes from the line.

Yes on the beach.

Hi, guys. Thanks, Thanks for the call 'em My question to follow up on on what you were just discussing one dawn cyber security and digitalization.

Generally firstly I was hoping you could provide some color on.

The growth for financial services, which just did and sort of how it fits into the traffic puzzled because as much as.

It's still growing I was wondering if a deceleration.

Sort of led to to.

You know explain most of the traffic decline they sell the corridor and then secondly, I was I was wondering if you could take us into the war room sort of on your digital strategy.

Let's change over the last two or three years, maybe give us a preview of although me oxo might look like and just sort of take us into the war room on that digital strategy. Thank you.

Hi, <unk> a this is one yeah, let me take the second one first.

Oh I definitely think you know we.

If we do we think of the cyber threat again, we mentioned cyber security as well as a fiber so kind of as a digital platform I think on the cyber security front that we as we communicated a few months ago. We did have a you know smoke reach a few months ago and over the addressed it quickly and it's it's a you know there the impact of that was very soon.

Paul.

But nonetheless, we have we doubled our spending on on that because because clearly the you know cyber security has become a front and center a vulnerability that that that we don't want to happen. So there's been a little bit of spending on that front and we feel good about what you know where we stand today.

On the on the digital strategy, we've spoken about three basically the three pronged approach, where you have first them because I think we probably where we are the most advanced has to do with a you know kind of the digitization of the store basically meaning.

The ability to buy anything that we sell at the store to your phone and having delivered haven't delivered obviously given the assortment on the average ticket that we have this is mostly relevant for the gathering location on for.

You know it makes it very different for AWS on its for the Big Bucks a player. So.

You know, it's important but it's not it's not game changing in of itself.

Got front I think there the testing kit in Monterrey has gone well and we're ready to getting ready to two through expanded the number of city that that that have this valuable product or the second prong, which is the loyalty program.

Which we had originally managed a separate.

Application on the phone and is now being merged with with New York So.

You know historically, we have looked at loyalty programs basic D. S. A way to drive more revenues on the you know doing the analysis based on whether or not the program could pay for itself for a you know what what they do for might be an l. standpoint, if somebody now become very clear to everyone awesome.

Alluded that the value of the loyalty program goes way beyond that and how that he has a lot to do with yeah consumer data and insights on how you can eventually monetized.

Information.

And that you know, though I think we're moving pretty quickly.

In terms of the number of cities that their loyalty program that is being tested and I think right now we're talking about four or five cities.

Last quarter, we were talking about two city. So that gives you an idea of how fast. This is moving and of course the final the final prongs to find a leg of the through which is potentially I think the most important one.

Which is the kind of the fintech or you know platform.

But having the oxo eventually function at the payments platform for people to pay a number of things.

Way above and beyond.

You know what they what they purchase at the store a very much again replicating what they what they can do.

You know physically with cash at the store today I you know one data point that I, you know kind of stuck with me we were having this conversation with the team, but also a couple of weeks ago.

When you're looking at the loyalty program test.

Where we're doing both a physical cards and and we are.

You still see a strong strong preference from the consumer for using a physical card.

So I think that's one one of the data points that does that tell us about the consumer in Mexico is still a you know.

Moving relatively gradually in terms of embracing.

The concept of a super out by the assuming that will happen, but it it's going to take a while.

So even though we have been moving maybe a little bit more slowly than we would have liked and maybe we started a little bit later than other folks we feel good about the ground that we're making up.

And hopefully later this year, we will have a something a bit more tangible to show you in terms of the viable product on defense excite you know.

But we do see also the think exciting as loyalty card will be kind of of course.

Oh, the very clear summary, very interesting.

Thank you and I guess you can have on the first question specifically.

You know how.

You know normalization of growth and financial services impacting that that negative traffic for.

You sort of touched on it yeah, no sorry about that no sorry, other I didn't mention to get to that then but I I kind of run out or feel that the grading.

[laughter].

No I don't know the topic side I think I think you're right. You know we have definitely seen very gradual but very consistent.

Slowing down of the growth and again, we had years of 20 plus growth.

But it would seem that you know a lot of consumers or haven't now adopted oak still has a place to do there you know their payments on there there are.

Money transfers and so I don't I don't feel that we're getting as many new users one thing that I, probably would challenge that statement is if you look up the number of South Africa accounts. We competed opened those so we're now just shy of 14 million accounts. So that you know that's kind of.

A contrarian data points to a consumer that is a you know that no longer a a adopting the auxel or people that were not using it for these for these purposes.

But there's probably a relationship I know you know, we still believe the high prices.

Fewer transactions from the main categories.

Soft drinks cigarettes, that's sort of thing if this powerful but increasingly it looks like the the trend in services. It's also contributing.

Two to the dynamics were seeing out on the traffic from so I think I've ever been months go by end of the quarters go by this year will have more or more clarity in terms of how this is really playing.

That's very helpful. Thank you very much.

Thank you ever.

Ladies and overtime.

Oh. Please go ahead.

No I was we're just going out and we can see on our screens that are out there are no more questions lined up.

We know that there are other a big companies in our phase that also reported this morning side, we probably shared some analysts and investors with them.

So that's I think that's it for us and the question side. So yeah. Thank you everyone and how about how the great day and already we're available for any follow ups on your side. Thanks very much.

Are there.

Ladies and gentlemen, if you wish to replace the webcast for this call you May just show us himself.

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This concludes our conference for today. Thank you for your participation have a nice me, what's how do you may now disconnect.

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