Q2 2020 Fomento Economico Mexicano SAB de CV Earnings Call

Please standby.

Good morning, and welcome everyone to Central second quarter 2020 financial results Conference call. Please note today's call is being recorded.

Lines have been placed on mute to prevent any background noise. After the presentation. There will be a question and answer session.

This conference call management May discuss certain forward looking statements concerning census, future performance and should be considered as good faith estimates made by the company. These forward looking statements reflect management's expectations are based upon currently available data actual results are subject to future events, and uncertainties, which can materially impact the company.

Actual performance.

This time I would now like to turn the conference over to Eduardo.

So chief Executive Officer. Please go ahead Sir.

Good morning, everyone I will go to bring subsequent border to present, bringing this old school for school.

I think its customary wonderful thank God work, where yes Roseland right.

Well, we're joined by kindergarten.

I hope that you are your loved ones are in Calgary unsafe.

The water wasn't moved strategy because we have raised approximately 90 days.

There were differences in performance among business units.

That's true exhausted year in Brooklyn, Gummy. Good luck with good you remember we do.

During the winter.

They did so I'm on for moved to work up there what do you or consumer occasions, the John's worts compounded by the lack of my only began to recover the most of you in a.

What drove the beach.

Fared better.

Demand for its production.

The main highlights what sales work stream bites drink, there's big jumps impose a good tumors and there'll be the move around but the green herbal tea South American markets.

If you have to be sure Wattenberg and most of the D.

Go Green <unk> I'm just degree however from a deeper Bobby I know that dems, usually the duration than it used to be the bumping fostered.

Well its Burke work what happens it works great to see them never Junkies <unk> once again.

I mean, my they got to be brokers on third.

Having said all that I would give refused to execute on a high level very complex environment.

We continued to focus on the safety and help our people I've heard performers above all else.

Moving onto this girl's trips that schools are they did one of the numbers, but the revenue during the script water degree.

Well you can bring abrasions degrees, 37.5% inorganic basis, but the revenues decreased 14% I need abrasion decreased by 40 blamed for person.

These were the difference between reported and organic figures reflect the most of our drugstores and they'd rather.

What are the H E B abrasion.

Brasil and 45 days of the Wuxi, North American John's Duncan <unk> buttons.

In the United States.

Very good degree they need to get the driven by.

Number one no where you can celebrate Jones I just described but.

How are your older nor the breathing expenses, including a CVRD charges. They did for the extraordinary payment almost 8.8 deals in places like Mexico Barker Brady.

Well, that's impairments you bring for sitting in that.

One of them so the group's your I'm, especially at these operations.

Our number three times or participate certainly had a good results, which were lower than up into the comparable figure reported last year.

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This quarter, you didn't Greece by approximately 10 billion that's <unk>.

The birds would it be this quarter to reach our level of 70, leading presence at the end of June.

Thanks, I went back kinda Burke, maybe they hadnt even birth the works in North American problems when talking about Drake during a very large parts stream as mentioned before.

Well, we are on the adult them to Georgia, the but we should mention but during the quarter would be 10 hard to me on burden to pick one reopening award 30 year, Florida denominated bond insurer.

Bringing the double the amount to 2.5 being brought us which brought there were already Joe's targets.

The weighted average yield bond insurance was two point <unk>, which was also we're talking back in September we started with these berger.

I'm sorry, like these because you do course nine month.

When do these market different locations north to get their mouth went the other Crosby work that we're very patient Beatle.

This is Bruce.

On the birds ended <unk> drugs being working naturalists engines.

What do you brought up the scores are worth <unk> beginning with density <unk>. We should start we don't comment about store openings well, we managed walked in a number of new stores during the quarter Wolves rose a small percentage or was burberry gravi breaking <unk> <unk>.

Right.

Some of it what was your temporary or some will be permanent as we take these important you remove certain mckinnon stores for mobile base.

The numbers for the quarter went like this.

Perfect and then you are putting 85, the opening up through mother nature and maintenance.

Going forward that those years.

I don't see berardi closures that's ever so we reported a net reduction to 40 stores for the second quarter two week I heard of net store openings for their doctor loans.

In addition to start brochures reviews in number of a brings years from fees due in the north presented superstores.

Turning towards having a bridge from a viable when they started given degree.

Sooner than others.

Well, so same store sales were down well worn for person.

The second quarter.

I think a plane footprint for any footprint workers and the Glens bird dropping an increase of 50.4 person never supposed to customer.

Your <unk> Bose this goes a little bit what happened incurred water.

We did see meaningful given that a good word went by <unk>.

Hey, Bill as you may recall.

I've been a b beer.

Some of them or what are some funding buying for certain pit they reduce the part of consumers Andy's mitigated loan.

They do need but most of the workforce.

During they are weather basically the that would be or even three we saw the steepest productions dropping making the worst month for the quarter Salinger, we'd be got the record beat availability I will also be good shirt or drop was shifts in consumer Dana.

The first part of the quarter most of the consumer demand weakness came from a really give us picture.

Third graving, okay. Some suffering from the absence of customers worrying about the street.

Okay. Okay sure reeling from sources will be syncing wherever they ended the quarter. The weakness you demand demand seems to be given the increasingly by economic hardship.

So many consumers have not their income, making begrudges debate a bit more similar to prior downstairs worlds more pronounced.

Regarding the headwinds as much as half of what stores in Mexico, where there's some type of rating. This picture local authorities and the word older than they did the sale of Oracle certain time Wyndham, let's break <unk> features will be temporary.

Moving down the income statement for the second quarter gross margin conducted by 10 basis points affecting the make up these girls makes effect caused by the beers shortcuts in may.

Good performance or where baby underpinned has been properties, partially offset by high single digit increase or services capability.

Good for abrasion degree or mostly.

Then.

No grading barging when Burton you kind of 20 basis points.

Perfect and significant operating leverage.

Moving on to print this merger held the beach or reduce the worst store.

<unk> seven bookstores.

Just a break villagers orphaned don't set a number of stores we opened during the quarter.

Having said that you have at <unk> <unk> 2000 environment, Neither an open unit.

<unk> I went through through the end of June.

Right right at 28, <unk> net new stores for the Luxfer loans.

Revenues increased 4% was on an organic basis decreased 9.1 person.

Same store sales degree and leverage night, when they present in Michigan business. Perfecting then there could be part of the street, we give a speech was implemented never spoken maker markets, including curfews.

<unk> upset by assorted performers in operations in Mexico.

Gross margin expanded by 80 basis points in the quarter, reflecting.

Number one and of course externals mix effect, driven by consumer behavior shoots <unk>.

But to what effect raise your with my partner were bridge. This is up America.

Number three better margin performance ever business and there were right Triple Fars Bridger best practices, you jury bearing fruit.

Operating margin objective, when a 30 basis points, reflecting lower operating leverage in South America.

We anticipate it last quarter and most goes to the major work as most exposed to the current environment love them and reviews would be and being part is visible.

Quarterly results, where we were able to up when you net one new agent or when it works sensation of two degrees remember, it's almost 50%. The different were gross margin reached 13.2%. We're operating margin was formed white bread a person corporate revenues that's correct.

Suitable upgrading the leverage operating expenses decreased 2% I sort of sort of tight expense control I mean greed decent.

I figured I mean can drive begins.

The one but he is recovering more group Cree <unk>.

<unk> drastic dems, showing the sequential improvement in existing weeks, what pricing from a varied from a deeper restructuring.

Right I mean, moving a bit we go going up it's not a German highlighted yesterday that are sold shoulder season in Borden performance in Mexico, <unk> improvement, both you and Columbia.

She is the strength in Brooklyn mother.

Made further progress in development.

And from the Turner and he should be.

The markets and manage the lever started perfect WD Nicky blends into our maker even become big.

And then.

Hi, Joe you can leasing the webcast required we confront school.

Looking ahead.

Well shouldnt be remains high and it is hard to make predictions. However, as I mentioned before it seems the crisis you don't really building. The beginning main guard is where severe health concern.

What's your Inmobi. These are made a Brooklyn. However, we did you do seem to think of I know there said or more so did you know the grid I'll make headwinds come into play.

The policy, but these we have more experience they were going to be doctors.

Right now.

Good to look for what our where entire business in an effort to optimize it but the changes taking place to be.

For those that seem to be the way.

For goes but seems to be underway.

And we will continue to work hard for book of a company to meet the mom and the remote in better shape on the other sites.

And with that.

We cannot there the goal for questions operator.

Thank you.

I didn't answer session will begin at this time, if you'd like to ask a question. During this time simply press. The Star then number one on your telephone Keith.

If he would like to withdraw your question press the pound starts you.

Your question will be taken in order that is received an interesting time, we atish. Please limit yourself to one question I didn't times, while the maximum number of colors. <unk> question again that is still one to ask a question.

And we'll go first to Ben Hur of Barclays.

Hey, good morning. Thank you very much for taking my question I Hope you all safe and sound good luck.

Well can you walk him will come on board so.

Question.

On the most recent.

Performance in auction on just elaborate it's how we went through the quarter.

If you could shed a little light on the current performance over the most recent weeks into July what we've seen a more states going into the orange face some of the we openings and if you could also share with us on the.

Temporary store closures, how many you currently still has closed and how do you think youre going to evolve considering some of the tourist restrictions as well as office restrictions that are still in place that would be my question. Thank you.

A good bad or.

Let me tell you, we're making progress oh, they send the border 50%.

The speech and no I would say, 35% hovers features the same store sales have improved a little bit I'm mobility is he's he's coming steel, but there's still.

If we you know if we are we just had mentioned that gets into the Google mobility index and the moving with the index in Mexico moves down around 40%.

And I really I mean may hope so relieved leads by the people are under go and moving and Andy's maybe.

Being the major cost within that people.

Are beginning to understand and adopt these meal environment.

Mobility is coming up new by legal and not all the probability, but the best immobility do and I can go defense that how why did that happen would schools who's going to next.

At water, what's been happening with offices opening or keeping it grows so I do want to me speaking about ways that we are understanding that they make better.

Sales at the not go from beaches Oh.

These ah that make into stores is very low very very low basically the problem that we haven't had would be the the Oh. We're personnel is more because they love bound to leave their house and the lack of all of their they have with connection with some dominating that.

And and most of the people got that have lead the but let me go smoothly a house nothing has not really from from from the traffic to the do the work well the store. So we are optimistic but the thing is that they know where printing, though the theme that becoming downturn is becoming <unk> is.

It is staying here and and and and we hope we are adopting the offerings too but.

We are cautiously optimistic.

Yes, that's what we have to be more thank you very much.

Right.

Our next question will come from Bob for of Bank of America.

Thank you everybody. Thank you for taking my question. What's on your opening comments you mentioned between foreclosures are in Dallas.

That would lead or lag or assessment of the store base.

How do you think about the footprint right now in terms of baby reallocate those resources to other locations or maybe just a terminated in anticipation of.

These more traditional headwinds in terms of slow down in the economy.

Well it doesn't eat a.

I love their loved ones that we have had the restrictions of unfortunately, curfews or or no downs or people see the open stores in a certain a commercial areas and and Scott was the number that we got up from 50% to have these kind of restrictions I say said, though.

Out of the 19000 stores Arab around 7000 that might have had some kind of restrictions brings to the FICO somebody buys it because weekend, we were not allowed to do so we've got we've got we have to close not only hope so I'm hopeful but the group.

The completion of the story and again I think local authorities I drank the best the bed.

And and and have countermeasures against these does that make.

Our effective.

Some are not a I would say and and but the being is we've tried to to lobby and understand what those rigs are trying to do and Hogan do a companies the objectives.

So I'd be bye bye bye.

From stuck lighting the way we work with the stores.

I think I know the problem is really through the lump out into the lack of social mobility and the Fortunately something.

Nice shifts are very very weak and we have had some besides the love bounds with features that we are asking about breakeven or selling Oracle and some are some stores also we have we closing some of the nation's because again there was no no no consumer.

Is there room, so but again, we think that will be temporary and Oh, we are adopting the best weekend.

Well, it's very much.

Thank you.

And again as a reminder, that is star one to ask a question and if you find that your question has been answered you can remove yourself.

Pressing star.

We will now go to that.

GPM.

Hi, good morning, everyone. Thanks within states real quick question, but if you didn't get timing of this crises that came right. After you bought back Buffalo companies, which have then would you say that type.

Sorry now.

But directionally [noise].

You know we were very happy with the with our partners and when would the companies we acquired a there and again it shouldn't be lives and that as you imagine young has had a a great demand pool for the grows.

Out of the do a watch he's more focused food Johnson and north of Makena and have them more diverse platform and in fact, North America had two so to some hospitality customers and I think probably that is the one that has suffered the most but I'd say.

Both companies have those up incrementally the news environment, maybe new pool to protect their employees.

But the other isn't done tried to serve the customers. So were extraordinary happy with him we'd have a great partners and I think we're going to build type mix striped out through the help of them and we before we there they have to be big.

A future.

Yeah, I think I would add and hang together just one.

Even on the on the Jitter restaurant people, which is also a one of the recent investments.

Which being less exposed or they are to the restaurant sector.

One would think or at least one would've thought for a few months ago that.

That did it would be a complicated peers for them I'm, not saying it hasn't been complicated but certainly.

They have been a adjusting and navigating the situation.

Quite frankly exceeding exceeding that these my personal expectations.

Which.

Kind of confirms our view that this is a very well positioned and very was one company. So they have been doing a as I said better than better than expected.

Adjusting and I think their customers as well they didn't restaurants adapting to curbside delivery.

I'm things begin to open up in many of the Mark is that they serve so overall I would say on the restaurant people front.

Positive surprise.

Great. Thank you are correct.

And now we will take a question from my salary of credit Suisse.

She could check your mute function were unable to hear you.

Hi, I am assuming no.

Yes. Please go ahead.

Okay, Hello, Hi, blogs.

Well just two quick questions here from my side.

One is about <unk> I saw that obesity or GMI increases across the business divisions, Joe just to understand what's driving such increase.

And secondly, very briefly a if you can give you saw PR impressions about the Mexican pension reform in terms of couple things from bats far far sons, and thank you very much.

Well I will go through the second one and I think a net one answer the first one the pension reform I think he is these whole web there.

And I think he's a good thing that we altogether tried to slow, but because it will be a very difficult for the government console and what we would like to have the sold within a desperate way and that's the good news dropped the economic environment in Mexico, where I think what we have in it for the future.

It's kind of painful, but I think it's what the right thing to do and nothing between the.

The a private companies on the government I think it's a good trend that we're together here who to fix the whole for lumber on.

The other one one what are you going direct lots of different developers question. Please.

Yes.

So we are having.

I'm going to station of ice tea investments I think I'd also front and they have continued to to invest in their new versions of some of the software.

Well, it's developing the digital platforms across the board.

We have had some Ah culture so stores.

And we've had some asset write downs holes at full sensor and NSM stuff. So I think that would be playing a part on that obviously, we can we can also follow up offline in terms of you know, making the numbers match, but I think all that several of our hedge that did those are concepts that come to mind.

Okay. Thank you.

Think about my choice.

Thank you.

And next we will go to Gustavo.

Yes.

Hi, Good morning, everyone. Thank you think of for taking my question. It's on OXXO gross margin do you mentioned that your numbers are actually very good during a very little contraction. There you mentioned that the beer shortage, obviously affects a preferred to BT, but that was offset by it.

The service category on the recovery.

Do you think that you could actually see an extension of gross margin as I don't always to service category, a we remain strong and to be clear. He could rickover could you. Please elaborate a bit on on the trends for told the gross gross margin for Fox.

Well I think you used to preserve our suppliers on AWS arc was <unk> or the lack of consumer economics.

With respect to Louise is to come up with different offerings, who do we just made them at the demand.

And here, we are we have the iwear or where are the buyers and our partners and I'm trying to do something a great for them for the consumer in England times, but I don't know weren't aware did you bought an goal will be a that they have the numbers. Please.

Sure I think on the gross margin I mean.

Historically or at least for for a long time now the two main driver. Some gross margin expansion have been the financial services category and Ah you know.

The commercial income that we that we received from our from our supplier partners right now I said Ladele, how said I think a positive surprise has been the resilience and even the you know a faster growth all financial services during the downturn as consumers have kind of made sure that.

They're keeping current with their with their membership sender utilities, and and you know realizing our or taking advantage of the fact that it's it's a lot easier to go to walk. So then to go to the bank and it's less time consuming and so even though financial services had been contracting or a piece it had been growing less in recent calls.

First in the last two quarters, a this quarter, we'd actually a the growth came kinion into into high single digits, which was a positive surprise and I think contributes to that to a high gross margin and the other question on commercial income instead of the trickier Oh because.

No. So some of those agreements I said why the also referred to.

Our our tied to volume and so it's hard to predict I mean, we do need volumes to come up transactions to go off for commercial income to go off a consequence, so I would say visibility for gross margin is not as clear assessment would like.

I wouldn't necessarily predict at this point that we will continue to expand it.

You know more than more than trend.

But at least during the during the second quarter. It did kind of hold at home.

Thank you I think it's 30 I think.

Thank you I will go through that probably the Oh, there were a small increase also in and the lack of beer also should demand to Ah to some other alcoholic beverages and I'm not those has.

But that said the margin a little bit too.

And I'd actually brings up an interesting point to a lot of up because you over the you're you're you're right.

Consumers did a shift to higher consumption of spirits during the quarter.

And interestingly I think what what the also are also colleagues for observing in recent weeks was that even though the beer came back that the volume for spirits were still holding up strong. So maybe you know is and then the effort to look for the for the silver lining or the glass half full.

Consumers realize what the assortment and the pricing is for four spirits.

He also stores that this becomes a category that that is a you know that is stronger than that historically, because historically, we haven't sold animal spirits us. That's we are selling right now so hopefully this remains after the after the pandemic is.

Gone.

Well move on to our next question.

Alan Alanis Santander.

But there's so much good morning, everyone well, though.

Well I learn.

No it did we lose.

Has lost Alan will go next to you will assist our GAAP.

Yes.

Hi, everyone. Thanks for that for the states for questions. So here I wanted to get there that's a little bit on any potential product for your recent obviously <unk> dairy milk, so and maybe if you can share any any color on what you're seeing in terms all of the sheep being in makes more recently now in July maybe going back a little bit more to that so the more profitable.

Categories that you guys have there I think you.

You know unless we change the these.

Maybe it was paid for very long because of time.

I hope, which we know we we don't think give you. The gays I think we back we have stepped up better we have put up more to be a to the lack of of consumer economic power and bye bye, probably with a different assortment probably the.

Looking forward for cheaper or or less expensive <unk> I, where we've done a boat.

A good or something or is not as a stronger as we.

We should have it no.

And those kind of sheets, we've done it lukas foresee it for the future.

No no sadly in the types of of consumer demand of full for various or or or.

Brake pads dog people gathering depending on what we think the advent jovi.

Those those type of both for consumer demand will stay he is more the lack of economic power. The consumer that were more concern than than the a real shift of local June relocations.

That's perfect, but in a bit more on that on the short instead of thinking now one on June July after that you're categories Bakken et cetera, do you have any any color and then you can share with us kind of dead wrong on this cheap, but let's see you mix.

Yeah.

So I I think I want one think depend of highlights and I think a lot of touched on it in his.

Opening remarks, why did that the quarter itself was a little bit of Oh, I don't know if a V shape, it's a little bit of a strong the script or but certainly the the trough of the of the of the trend was was the month of me.

And we believe that we hope and because that will mark the lowest point of this downturn <unk> should be the month of May and then as I have a beer comes back.

It did it helps everything right and it helps operating leverage and it helps margins and generally begins to.

To turn this into a a more traditional downturns so so to speak.

I'm. So you know the as I said, let's say in the beginning we we are seeing improving improving metrics and improving or traffic and.

Really the one concern I have is not to convey the view that.

No one's the did mobility restrictions are gone that we go back to normal immediately right. Because we are seeing this symptoms and signs self a of our more traditional economic driven downturn bought a again you know your way when you when you go dry and just have never happened before.

On the beer side.

Obviously, you have both of our suppliers on the beer from a working hard to restock that the shelves consumers themselves are probably buying a little bit more beer than they normally do to make sure. They don't go dried again, and so you know you're seeing a positive trends on until all of these a important categories, especially be or.

So I would expect that to to continue and you know, we we will obviously make the adjustments.

One of the reference so I'm in terms of <unk> packaging and mix for some important categories I think we need to to be.

Careful and work hard to understanding helps you know how quickly again and what the new normal eventually ends up looking like a in the sense that we will I'm sure adopt our value proposition to that or whether it means a you know some incremental escaped use are shifting the mix.

And that's sort of thing. So so we're we're still not a at the end of this boats, we know more about.

How the consumer is a adjusting habits than we did a couple of months ago, and we are acting and consequence.

[laughter].

Yes, yes.

And we will now go back to Alan Alanis Santander.

[laughter] led to good thing what's baked in so much. Thanks for taking my question again. Good morning told you guys are you probably so safe.

A lot of Brooklyn, Oh, I guess.

[music].

We don't do it felt like most of whats hobbled by waiting on the spot rates because of their over there it looks cheap WH than a walk so implied here now that the result of this quarter I guess the question needs.

This is hopes putting to question the business model the books for the long Rob. This is the first quarter ever order that you quote stores.

So I guess the specific question.

It's what im sorry, if I missed what what's the expectation regarding store openings going forward.

And a second thing it does look what's a we get a lot as I'm sure. One also good for the law the logical it's why been reluctant to stay away from E Commerce.

I mean, that's really joke with me. So you every time you guys mentioned the pilots with Amazon or so forth just talk reacts positively why he's already Brad you know the base band between the second floor in the maybe ops as possible to use them of the traditional for E commerce and elaborate stuff, especially given did some changes of the but then it will cost.

Turning to last question a lot to do with <unk> capital deployments I mean, I think the pool spread has been dealing in terms of capital deployment. Good luck with you mentioned about teaching disciplines like even though we are pleased that says if you guys are ready patients, but what can you expand on in terms. So well continue bulk industrial did you will remain.

[noise] discipline in terms of the capital deployment given that.

The very strong balance sheet, because they get away from that you did generate those will be my questions. Thank you so much.

Well, everybody, we're very optimistic of <unk> in new either on loan growth.

I think we haven't had this probably thought.

And is just that the we have a did right consumer.

Adjustments in the lack of a BBB, though that that will have close to being on track again in terms of your question about the E Commerce, where we're very much.

We are doing things that we're not prepared yet to disclose what I think we or anything, but then I jump in.

We see the evolution, there and we have to read the paper I know the loyalty programs as late as and connected with the dimensional popcorn.

We are the cool in the with the if you want to see those are the ones of the link which is the were making would be good about like I'm, assuming that everything we're very optimistic with those two.

Well I believe I don't know yet is the eat the home delivery.

I'm doing degree.

No we don't see how the even impart the ones that are doing homes anybody is low purchases, let's go through <unk>.

We did LIBOR.

Nobody makes money.

Got it makes money and there's still a design to got tough I'm fine I better way. So he wearing the grocery business without doubt that will be the living a little things for the for the full homes because if the economy goes it makes sense and the other than the other ones, we haven't seen yet although we have.

Some parents.

Did that neither never isn't going away with some boxboard and everything but I think there's still some learning.

Because of the gum gone into place to perform better I don't know, we want to have a because equipment weren't.

Thank you Rob, Yes, I do I think I lens first attempt at the question didn't work, but the second attempt he made sure that he covered.

Sorry about the big topic, So I will I will try to go out to it to some of these.

So on the store front a island I think what's what we're seeing is.

You know we had for a number of years, we've been opening more stores several years under previous a you know we got us highest thirteenfifty I think at the of the top.

I like what we're doing right now is are we taking this opportunity.

To look at the you know then.

You know that there's a layer of stores that are probably margin on in terms of of what they're contributing to the numbers and where were for you know figuring out which of those stores actually should not be open I kind of pruning that the base off a small a number of stores that that should not be open and just generally I think a you know that.

The budget for stores. This year before you know that pandemic kind of weird. Its its saucony had we were thinking about 1200 stores for Mexico. So that you know that he's a level that is a little bit lower than the top that we reach a couple of years ago.

But you know we were already kind of moving into a phase where you are you're becoming more demanding about what do you expect of your new stores in order to ensure a profitability and productivity of the new stores and that's the same time the budget for this year, how does with about 150 stores outside of Mexico. So I think we.

During the early stage itself that crosses where a international will begin to add you know more meaningful numbers to the number of stores and obviously once you get some scale in Colombia, Chile, eventually hopefully Brazil that it becomes not just the Mexico story, but more about <unk> of a continental story. So we are.

That stage and I think this year with a pandemic with the dynamics.

We decided to to start doing a few of those kind of marginal stores I'm most optimistic on the storefronts about for central and Western Mexico now that we have a the you know both portfolios of beers that there will be a large number of locations in places like lot of hot off the on.

Hey title, even the value of Mexico, where are the fact that you now have.

The I portfolio kind of takes a lot of those locations that were just short of being viable makes them viable and again kind of a you know ensures that we can can seem to continue to open large numbers of stores in that part of the country I think on the E Commerce front, I mean, I'd love to touched on it in terms of.

Also obviously, realizing the potential and the power of the also platform to bank or ice people or to get people to adopt new.

New technology sort of new products I mean, I think we certainly have the south basso experience that gives us a lot of comfort a in terms of our ability to get people sign up and adopt a new new means of payment or new mean self off of all saving a but one thing we don't want to do is to over promise and under delay.

Over so Oh, we're working hard at the other three legged stool off of our digital platform out I'd also which involves last mile delivery, a and I think more importantly, the loyalty program and the wallet and hopefully we'll have something to show the market.

You know toward the end of year and then finally on capital deployment.

Oh I mean, you you know you've seen us for over the years defense. So basically has a couple of ways that but we grow a we either take what do we do well to a new geography, or we take what we do well and we expanded by a couple of degrees and examples of this abound, the whether you're talking about who was the boggy or something like cloud.

Oh or the drops or business, where you took a kind of oxygen and expanded today and what it does by a few degrees and you said you're going to into drugstores. So I think what we're doing right now and I think the market to your point in terms of how you find the question.

It's still kind of getting its handset around a you know why it is that we made a couple of investments in the U.S. or how does the janssen business fit into the overall strategy.

I think you're seeing us do kind of what we usually do which is figuring out what can you know what do we do well and then taking it to another another country, obviously with the benefit of very strong partners.

As we have in in the U.S. So we understand that we you know we we are adding a little bit of complexity to the to the or chart. We will try to address that to extend that we can by increasing the disclosure and when we spoken about how we're going to start opening up the numbers force logistics there.

Yes, I swear last for the Janssen business or first quarter next year.

So you know capital deployment are decent investments on and addressing the complexity that it brings to the equation are very much a top of mind for for the team and hopefully we are in the plus up addressing it.

Got it got it well can you give so much I mean, you guys are extremely good not the best in the region in terms of large scale logistics moving things just like the false hope for a lot of investors and analysts why I mean does logistics expertise can be moved to like all the way small delivery like a lot of this.

The two largest point.

I mean, I know I'm Gonna say February humbly and things that you already know, but Ah I bought song and dance Love straight who are all of this company started we don't make money initially and then they just did you gave the skill and the Colombian guys Rafi. It's a question Mark is there going to be able to good to control.

All this bold mold drops like the Liberty and but these things up and nothing a lot of industrial thing, but you've got what you have a great opportunity you have the bother to drive the expertise and I think that initially will nobody will make body had probably because he can you probably won't big money either.

So once you get the scale if they told me I think consumers will pay a premium for using Google <unk> using trade routes, where you see got muscle and so forth with a long term vishal the trip to house and got a lot of whats your sort of kids like why are you getting into the more stripping can do to Boston, New York City, but anyway. Thank you so much that they can.

My question stage, they put a good thank you.

Thank you all that had just a question you know the concept or the notion of the Super apps and housing in other in other geographies, obviously things have evolved very quickly.

But we do have the exploration with a you know with the right platform and the right partnerships.

Hopefully become become one of those or part of part of one of those ecosystem set down the road and leverage quite frankly that.

20000 bricks and mortar stores that we have which are differentiating factor of each of the other folks.

Oh.

Thank you so much more quickly.

Thanks on your religion.

We'll go to Rodrigo.

Scotiabank.

Thank you guys. Thanks for taking my question.

To your thoughts on the state of the mom and Pops dose next he called me on one hand, it's hard to margin menu will not go off there of course and nobody can.

Our unemployment they push men set up shop in deep on my call them. So any thoughts on what you're seeing on the ground that would be appreciated.

Well I I think demand both were hardly hear it unfortunately because of the lack of beer and there was a and I know to the lack of C or because he wasn't look on Didier you guys have the we were able to do a who the bearwood cells.

With the boot inventories and but again, the and so those two where major.

They have made your effect than that.

And your hand, I think the.

John long, both ZAR goes what people need so I think I would say they are deeper mom and pops, the world, where where they were mobility was a major road yet the being has hardly hit but either and I think the ones are in the neighborhood I think there they're coming up with a good.

<unk>.

They also there they were better Procter <unk> gamble bottles that the one that returnable Sabrina compared with we'd also.

So there was a as more events, but yes I again.

I think they will recoup rate because I think the the book what else Houston being bought and I'd like I very much willing to support them and help and help them compete and so I do see that the but then it.

Those labors I think is helping them.

Uhhuh due to sustain the good does the they were very hard to hit the ones that have a lack of beer in doing these initial because of their downturn.

Great. Thank you and just relate to the last question I guess you have all pick in some states. He concern startups and I've seen that a one of those who still has to be a growing quite quite a bit any insights or things that you help a lot.

Learn on on the LIBOR Hee hee do the stakes that but you can check.

Yes.

We've been trying to support the a bit and as with some bedroom Bonnie.

Oh boy those suppliers that are very much in line with all the will help goes at doing parents of or our value proposition and I don't know if they see because of the ones you're talking about one one might have a better idea of but it wasn't working not only with that neurological suppliers proposal with.

Normally suppliers, where we couldn't help them up to become larger and in fact, we need that we the rates acquired the we had wouldn't use got venue. Good sees the ones that support the old the Gulf through abrasion and I think we've got no lids, we could be oh, great support to them.

So this time then he will also <unk> as we always low vendors, we're hoping that they've been very quickly. So they don't have these cash drugs broken but based on bending the cost to them and and so that that's those are the yes, but I was molds girls suppliers are very important.

And so did you funds, we want them does with them. So they can grow better and faster to be gone a major competitive advantage to us.

Yeah, I think on to onto a who so are you still.

Investment I mean, certainly we're trying to to help a these these new ventures to our FEMSA ventures arm, but also learn about a you know things that that would help us in our own value proposition or are there ways that we operate uncertain me distribution the use of dark dark warehouses.

Kitchen snark stores handling of perishables well. These are all things that that we would love to to be better at and to know more about and this this investment in particular, obviously has has.

They're not to be a an interesting one I mean, the amounts involved are not huge and relative to the cycle FEMSA, but certainly it's a startup that is doing very well and of course.

No that you stay close to two to these companies and their you know the different around so financing and how quickly they are growing and this is so far a very nice success story.

But thanks, a lot of up on.

And gergen local team.

Viral Garcia of <unk> BTG Pactual.

[laughter].

Good morning, and auto Ocwen well failure.

My question Ive two questions.

Two questions one Heineken I was wondering if you can call or the whether you're.

Position on the stake on owning.

This is 15% this change you're not getting the new tax agreement with <unk>.

The next day government into.

On M&A is it fair to say or an integration low Jim.

To be a nice time, good so take a breather and and integrate a lot of the different assets. You've you bought over the last couple of years.

[noise] wasn't much a question. Thank you.

Well I think in their Heineken shares a yes. He took temporary investment that we just have to probably to a way to do a boost up companies building in a better way and and and.

It is if these have not optimal as he wasn't the best of years repairing the buddies, we just have to find the right time and the right got to deploy that got the Doe and have that using those proceeds.

Good question I forgot the apartment or I proposes to them.

<unk>.

We are ready to take a breather after a lot of activity of the M&A front.

I think I mean, I I think they the answer to that is yes.

For the most part a you should expect us to to start integrating capturing synergies and kind of delivering on the promise of all of these investments I'm I would I would say, there's probably one one a exception.

You know the Gen 10 platform, a you know a big part of the of the attractiveness of that business involves a growth through acquisitions and eventually integration and you know it's hard to tell at this point, whether there will be a transactions kind of coming along a in coming months in quarters, but if they were I think we would.

Be interested in ticking looks.

But other than that for the most part time understanding that M&A, it's hard to predict.

Generally speaking that to our stance is one of five you say kind of sitting a little bit more on our hands and digesting the that a number of bikes that we took over the last 18 months.

Yes, I know hurdle.

But thinking about the fourth back from that we were looking nothing we already have it. So we don't we don't think to open a new bank or a a different vector for growth. We had the ones. We have it was rated was government books you may be held.

And now these young pumped up from I think we already very much <unk> will be real must focus into the platform that we already have.

Great that's very clear thank you very much.

Okay.

And now we will take our next question from Sergio met somebody a city.

Yes, hi, good morning. Thank you for taking my question I have that Ive two questions. One is I want to go back on the portfolio and Ah Yes, both have been question at OXXO, but.

You spoke about how you can change some of the assortment is given to the economic slowdown but could you.

Explain more on the assortment changes he can make a into say itself or the reduced mobility.

And it could especially over the long time, if this changes to the consumer habits.

If the mobility stays low for a long time and that's the first question and the second question is in Brazil logistics, which are the biggest industries that that those businesses.

I think you'll go I think in we have better.

A BBB competencies.

Two.

Suit the assortment for another hobby downturn.

Lack of ability if it will be.

Different because really the also designed to serve or people who are on undergo an industry.

Hasn't happened about the baby and the brand has been cut they've already and that is the groceries, but nothing really bind the groceries and hopefully is really the one but that's the one that you are left out into pantry and we gradually the patient that we actually have been serving I think.

At least on then we've been able do a bill.

The consumer that we have a they are a good assortment of although for for about a boundary.

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Well defined the Brazil, you on that but they are left out you buy in independently and I think by that's important at finding more they are finding that we have a good prices.

But I think that's got there already.

It will you lack of what we get the will be in place, we'll have to spend that's kept everybody compared with the or wench or or or some other capacities armament <unk> designed to serve people the armed to go but I think that would they were.

Sure.

More a time and an airport then brought that to the economic downturn.

One.

There's no I think.

On on that front, a it will be interesting for all of us to to see whether you know the consumer begins to privilege proximity even more right in terms of these are traditionally kind of supermarket type categories on whether our assortment on our pricing.

I see is compelling and off a that which obviously we will we will expect but it will be for some of these because consumers to decide to not just by the you know the coking always or the rice, so that they forgot though that they run out of.

During you know between trips to the supermarket, but that they will use all saw some more.

Frequent a source of this type of products and then we will make the necessary adjustments as we go along.

I think on and I mentioned earlier, the you know they the comment about spirits. That's another potential category, where we are hopefully a will become more kind of top of mind for the consumer in terms of how how good an assortment on how good our pricing is a core for that category. I think you also touched on the SEC.

And part of your question on.

The categories for Brazil logistics, I think generally as we have been moving towards the LTL their lives on truckload business.

And specialize warehousing certainly pharma is an industry that is very well suited.

For the for the type of logistics that but we do.

No just into distribution parts, but also on the on the worst housing side. In fact, if you look at age of either the company that we acquired a few months ago.

The you know their biggest their biggest category actually has to do with health a certain yet be components of a animal or that during our health, but also human health I think when you think about it.

The equation or the relationship between the size of the products of the weight I'm, the guy that volume I'm to cost and under type of.

Conditions that they require for their transportation under storage.

It's an attractive industry to profitable industry and it's a very good fit with what we do so I would say you should expect us to continue to try to growing in that front. Obviously, there are others, there CPG products and categories in companies that have tronics companies, but certainly the health Ah you know for both human and but during Ari.

Standout assess probably one of the biggest if not the biggest.

Thank you.

And next question will come from Carlos.

SBC.

Good morning, everyone.

John and are less than hi, Jonathan Constantino spoke of they concentrate price readjustment yesterday.

Is the controlling shareholder and what's really important rights in your equity agreement with Coke.

What role is FEMSA, playing in this negotiation and what can you tell us.

About the long term clarity of profit split.

With the brand owner well why they are they adequate for you at that point.

Got it was decent women's was fine like four years ago.

And yes, we want to have we would love to have.

A more stable on certain long there in relation to embargo I'm back that is something that is important pearls and and an important already for the finfets equivalent. Your goal. There is a very important for management because the way we compensate management they have to have some certainty because of that he's very.

Fourth them for their long run I loads of will be a minority shareholders.

On the go for a company is is.

That does this.

And and I think it really is.

You'd have to we've had created and but definitely combos I understand but where are the same should they didn't bring portland, because well be into in the background. We were not asking but definitely go to defend being from state of the current quarter company I'm, probably there were not us sympathetic to defend our income statement and.

Thing with through these conversations that we are happy with them. We're very much on line and then they have I wonder defending the world effectively the same both on the Gordon Economics. It goes does is undergoing consumer.

Behavior, we have to hear much her line. So we're trying to build as much on line as possible alignment as possible uncertainty. So we can invest and develop and talk a little bit consumer there was weekend and that they said were low I think the main two executives had to be fully.

Ryan Woodley line, and the Bill twin peaks and troughs that relationship for the long run.

So the 10 year over the last agreement with a 10 year agreement. This one you just got a negotiation four years ago that just just you just finished making it less payments on it.

Do you know.

What the 10 year of disagreement is going forward or we just really negotiating a long term agreement now.

No. We haven't these established and and Oh. This is something that they have the fine.

And and we incredibly well do you without them being fully aware, but don't worry, we're very happy with it and and and and in fact, who love to have these kind of agreement everywhere else. We cut billings is certainty for the long run and I'd like.

Alignment certainty on trust.

That's helpful thinking if it looks if I if I if I could you know a few weeks ago in one of the.

Group called to that that you you you've helped US set up with investors you you asked me the question off.

You know, it's impossible to have a a long term relationship with Coke, where where both partners a realize a a reasonable spread of rois versus WACC and my answer is ever watched wasn't yes, yes, yes, we can right I mean, yes. It is possible and I think the point I would make right now is that this is definitely.

I'm not at odds with what a you know what John on Constantino said yesterday, I mean, the alignment that it bothers talking about to the expectation that there is a formula well, where both partners can make the right level of returns a is what we're looking.

Thank you.

And now we'll take a question Sam Cardona outlays of Morgan Stanley.

[noise] learning gentleman, thanks for the Paul I'm most of my questions have been answer, but yeah. I made this seems a little bit more on the Jan San assets. I. Appreciate your comments are here now, perhaps a bit more of the strategic question I mean, how.

I'll give you you know how are you gonna be unlocking badger and be backwardation in the long Brown money.

One just mention DBM any potential but you know as we merged the two companies you come up with a bunch of seeing a good and so forth what the plant here in terms of how cheap study overall FEMSA platform or perhaps is just that the girls portfolio of these assets just improved a lot did that the NAMIC and then you know.

They will lead to be the key drivers for future cash generation. So just a few thought there would be helpful.

And then just a quick update on the game being Brazil, a as well.

Yeah, I think we have.

Very good performance, where the medium to longer on I think just aren't then because costs from some some.

Damages, but I think you've been doing month don't view of it if we have that health division, where we have opportunities there for growth. He has a few media division and then we have a revamped did you think of or the of the proposed rule, making it doesn't make a and b JV, we made in Brasil and also with old partnership.

We have here in India, and I'd say, we're very optimistic we have.

Oh, great problems, we have the they get the restaurants, we booked without a nickel has been ensure out of the bid but there's.

The major competitive or a trend, but they have and will be happy that and the other again in India.

John Kennedy isn't as.

We are that I think we made the right decision would the company thing with.

With that bothers that we have and the platforms as I've been established in the opportunities to for integration, a and I'm going forward for I know more national footprint.

As I said, we don't plan to open up a new vector for growth I think the ones are there and we just have to be very keen and probably but he's meet the short term a a pandemic disturbance or cope with it.

Line better.

Make efficiencies and probably make some decisions, but just if I were supposed to do you know environment, but we have great platforms for growth.

In the future.

One.

Yeah, I think I would just following up on what do you just said at a level you know on the whole Johnson.

Platform. There are certainly you know there's just an industry that is very highly fragmented.

Well you don't really have a huge incumbent of the platform that we are forming by combining a wash in north American already becomes a one of the larger players with Ah you know they waxy since its has a a kind of a bias to the west coast. So the U.S. north.

American out of Chicago has more of a mid west all the way down to Florida coverage, but you really don't have a players with anything we simply a big national presence and so the synergy component, they're the aspiration to integrate more of these assets I'm not the right time in the right way, it's a big part of I think the.

The aspiration that that we have for that business scale. This a beautiful thing we have a then the beneficiary so awful scale in many of our businesses and this is another one where we think of that could work its its magic you've done it in the right away.

I think you also.

Mentioned at the end of your question something about an update on the JV in Brazil.

You know obviously, the the pandemic Ah so it's a little bit of signed into the gears a in terms of the face of opening so down there, but quite frankly, we're almost on track.

In terms of Ah openings for both the first a new store Sunday select side on the on the gas station, so if I use and.

But also on the on the Standalone upsell side. So we would do aspire to start opening stores, a OXXO stores or towards the end of the year.

In Brazil, we're already making progress in terms of setting up our first distribution center down there as well so things are going very.

Very much according to plan and like I said I think that endemic has not.

For the team down in Brazil to departs a very much from the original plan. Obviously this is a we've said before this is not going to be a piece of cake is you know figuring out the right to the value proposition for for the Brazilian Inox always is going to take a little bit of time, but to the size of the opportunity and uncertainty that the partnership that we.

Have a make us very very optimistic that Ah. This would eventually be an important part of the portfolio.

And I think the but if you, but we have with <unk>.

Hi, good time, and and I think that we found a that'd be broken needed to be human there's.

Somebody's your phone.

Right way to go into Brazil, they're very happy you're earning a lot in fact, they are learning through a and they're going to be about.

Some of the select Abrasions movies news scheme, and I think there's a lot of we feel little girls ER and potential to adjust the by the position of the Cadillac stores and beautiful stores under appeal and that means that will be very.

We'll take time it will take time, but I think we're very optimistic.

Got it thank you so much.

Now back to follow up Gustavo.

Yes.

Hi, Thank you for taking my follow up question if I may.

Yesterday at Walmex Conference call. They May show up at some risks that we expect to the introduction of the new labeling and regulation rules that will start already in October.

Could you please help us understand what could be day intact off goes a new labeling rules.

And your PDR OXXO business, perhaps doing the transition time now.

As as you think limited it'll Gilbert and perhaps in Youre, a beat out of art on your suppliers of BT to push for.

Core sales growth.

We we think that the.

Sometimes.

The much information political junior and and and and and <unk>.

It seems like.

What I'd be in learning I think it is very important too important to consumers movie consumer can do.

The better the season for the there there.

I don't know footwear their health and then we'll beach and everything.

Some time, given the even if the labeling goes a bit too far.

The presumed I'd be blocking promote come off of <unk>.

How much information does he doesn't want to he yost overloaded by these are they being.

We don't know really where was it then and and I think the but could be we'll be working very diligently with us I wasn't players and I think we'll be very in a very good to see who do a that these new environment.

We don't see major these raises or happening and I don't know you went through out the produced one.

I mean, it just it just a point that I think on on beverages certainty on the Coke FEMSA side generally the consumer has been a well informed for many years now about a you know calorie count and that sort of thing and that is the industry has been evolving for a while increasing the percentage of the of the portfolio.

That has reduced or no calories at all I'm. So I think the you know the challenges from the phone. The relabeling involve more you know the costs tend to kind of it the operating conundrum solved changing labels are adjusting your packaging that sort of thing, but not so much in terms of this incremental information that because somebody would.

We see there there are other categories, where maybe the consumer has not been us hasn't that's exposed to nutritional information and I think for those that there will be a period of adaptation, but to others point or you know I think also is it's very well positioned on to the flexibility and.

It is 11 of dialogue and cooperation with suppliers.

Leads I think it to two what should be at relatively smooth transition when they see eventually becomes a effect.

During this transition I have one and rather Ed do you foresee a the risk of a a more aggressive mcdonnell just to get rid of day inventory that if.

Lead the old labeling and before or our suppliers have enough that I assumed a cost off that operation I think that could impact your.

Your Fourq results, so perhaps parts of your three key results.

No, but I I mean, if we are I know where I know.

The turnover or they just turning in milk to goes very fast.

And then there will be some opportunities there what would have who would be the makes more money, yes, I I think will be a or b or I'm trying to do but I don't know one.

No I agree with you that our inventory levels and Ah you know tend to be small and under the turnover as fast and I'm sure. We will work with suppliers on come all come up with promotional activity. If required I don't think it's something that is that is causing us to loosen a little sheep at this point.

Thank you very much further clarification. Thank you.

Hi, good stuff.

[laughter].

Ladies and gentlemen that is all the time for questions. Today I will now turn the conference back to Mr. Patty.

Closing additional freemont.

Our world. Thank you everyone. Thank you very much for your participation today.

They they.

I'm very well.

Thanks, everyone from gentleman.

Ladies and gentlemen, if you wish to replay the webcast. This call you may do so at 10 cents Investor Relations website. This includes our conference for today. Thank you for your participation and have a nice day all parties may now disconnect.

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