Q3 2020 Fomento Economico Mexicano SAB de CV Earnings Call

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Good morning, and welcome everyone to <unk> third quarter 2014 financial results Conference call. All lines have been placed on mute to prevent any background noise.

After the presentation, there will be a question and answer session. During this conference call management may discuss certain forward looking statements concerning such as features fast performance that should be considered consider good. That's good street estimates paid by the company.

These forward looking statements reflect managements expectations and are based upon currently available data.

Actual results are subject to future events, and uncertainties, which can materially had talked to companies outperform its just.

I like to turn the conference over to Mr. Juan Fonseca. Please go ahead Sir.

Good morning, everyone working through some of the third quarter 2020 result conference call.

Today, we have an expanded team with Oh, so with all that money gets here, what's your school that is already quite yet.

From Coke FEMSA, but real hobby, when you've got Uh huh.

We are welcoming crises Cook inlet <unk>.

As you May remember it and you'll have been in charge of a strategic planning and M&A for the last couple of years.

He has now been given broader responsibility for corporate finance, including Treasury and tax.

Jorge Spark I feel good going from very recently as Chief Corporate Officer.

Bringing with him decades of experience in global CPG companies, including a long trajectory has done on a you can read a little bit more on his bio in our press release and so with that let me turn the call over to opinion.

Thank you Juan Hello, everyone glad to be with this morning.

But they're going to work against challenging across kind of the separation.

It appears we didn't hit the Dropdowns isn't bottom in the middle of the second quarter and from there we are seeing consistent, albeit gradual improvement across our business unit I.

I don't become same store sales for the third quarter were still lower than last year, but sequentially. They show a better picture and trend over we just thought three months just three months ago.

This electric strong average [laughter] fill up double digit contraction in average topic as well do it because we think the price and regulatory restrictions are still broadly in place across Mexico.

Oh Health Division had a strong quarter, including a standout performance from our Mexican drugstores.

No Cook I saw sequential improvement in recovery from a deep trough.

Thanks, Bart Brookman up himself also saw better sequential performance of <unk> Corporation.

Growth in its consolidated operating income and filling improved profitability in several key markets.

Moving on to discuss guidance, that's consolidated quarterly numbers total revenues during the third quarter decreased 3% while income from operations decreased 10.1%.

On an organic basis total revenues decreased 1.7, 0.1% and income from operations decreased by 14.9% for.

For this quarter the difference between reported and organic figures reflect a full quarter of my survey in Brazil. That's wasn't it was thought to the Janssen distribution operations into your wet.

While we're on that subject, we should mention that the integration of waxy North America is that I think right on schedule.

We recently brought in a new CEO to lead the combined company and then repeat on the ambitious long term growth strategy, we have for that platform.

Back to stem cells, we called net income decreased by 51% driven by lower income from operations that I. Just described higher other non operating expenses, mainly driven by impairments for certain assets that Coca Cola FEMSA and a noncash foreign exchange loss related defense does U.S. dollar denominated cash position.

In terms of how consolidated net debt position during the third quarter. It remains stable compared to the previous quarter at 73 billion pesos at the end of September.

This reflects our disciplined approach to treasury management always a priority, but even more so in the current environment.

Similar lines, our Capex was down 28.4%.

Every operation continued to rationalize non critical investments.

Moving on to discuss our operations and beginning with chemical Nexus proximity tuition revenue.

Begin by updating you on OXXO store openings.

During the third quarter, we opened 139, new stores and we we opened 126 stores that were being remodeled or receiving major maintenance.

At the same time 82 stores remain temporarily closed and how they're like starts that were underperforming for a certain we're permanently close.

As a result, our net number for the third quarter was a plus 75 stores for a total of 793 net additions in the last 12 months.

This is a better number than what we saw in the previous quarter, which has really the call was minus 40.

More importantly, if we continue to see an improvement in the mobility and consumer demand for it could set the stage for a gradual return to a more robust store expansion in the coming months in quarter. We will certainly keep you posted or analysis and thinking involved on this.

Having said that as we mentioned on our previous call a portion of our store base remains subject to profit 19 restrictions and measures that put further pressure on ourselves such as limited time windows to sell alcoholic beverages.

As of the end of September September more than 30% of our stores, we're still under some sort of restriction.

Getting into the numbers OXXO same store sales were down 9.1% for the third quarter, a sequential improvement of almost 330 basis points, reflecting a 22% decline in store traffic and an increase of 16.5% in average customer ticket.

This is thought still far from optimal but at least it shows a gradual consistent improvement from the deep levels. We saw in the middle of the night.

Moving down the income statement for the third quarter gross margin contracted by 50 basis points, reflecting a decrease in commercial income that is often linked to sales targets that are not being met in the current low mobility environment partially.

Partially offset by the resilient performance upper services category.

Income from operations decreased 44% and operating margin contracted 370 basis points, reflecting significant operating be leverage, but again, showing a meaningful meaningful sequential improvement.

Moving off the fence took them access health division during the third quarter, we expanded our drug store count by 16. Net addition to reach a total of 3249 opening units across our territories at the end of September.

And 119 total net new stores for the last 12 months.

Revenues increased 24%, while same store sales increased an average of 7.5% the Mexican pesos, reflecting strong performance up operations in Mexico, as well as positive trends in our Colombian institutional sales and be too late for economic activity has picked up recently I've consumers have been granted access to a small percent because their pensions.

To alleviate locked down related pressures.

Gross margin expanded by 100 basis points in the quarter, reflecting a profit of sales mix effect driven by consumer behavior shifts in connection to the pandemic more effective collaboration with key supplier partners across all of our operations and better margin performance, you know business in Ecuador, where blends simplifies operational best practices is already but.

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Operating margin expanded 140 basis points, reflecting increased operating leverage and the gross margin expansion I just described.

Moving on to Sensical matches fuel Division, we note that vehicle mobility remains well below normal levels in that context, we are seeing some sequential improvement even as many of our locations skewed towards residential neighborhoods those.

Those are recovering much more slowly than commercial and industrial loans.

During the third quarter, we continue to see pressure on our same station sales with decreased almost 32% gross.

Gross margins, which grew 1.6% while operating margin was 3.7% of total revenues, reflecting tighter expense controls and better management of our supply chain.

Finally, moving on briefly to Coca Cola FEMSA as John highlighted last Monday, even in the context of a moderate revenue contraction. They were able to grow operating income and improved profitability in several markets like Mexico, and Central America, While South America continued to recover driven by solid volume growth in Brazil, but.

For more detail as always you can listen to the webcast of the quarterly call.

Looking ahead as a result of incipient recovery trends, we began to see an after focusing on defense for the past couple of quarters. We are just beginning to think in terms of medium and long term growth opportunities and are cautiously putting together some place on offense. This includes we've been doing our store expansion strategy that also.

Accelerating our digital initiatives across our platform and very selectively considering small bolt on acquisition in our existing business verticals always with a focus on prudent growth capital deployment and value creation.

As we continue to move forward starts a new normal the environment is still fluid and it's not just do what no no amount of people eventually look like.

We will all have to adapt and we will need to adjust our approach to the market segments following evolving consumer habits and patterns emphasizing our exposure to some of these or be segments and rationalizing others.

In the meantime, we will continue to work hard to keep our people and our customers healthy and safe.

Once again, we want to highlight the suburb job done by our employees and management fees and navigating such a profound and disruptive prices fell well, we're not over yet and we expect to face the prolonged economic downturn across markets in the coming quarters, but it would take this opportunity to recognize their commitments resilience flexibility and agility shown across our organization.

In the past seven months.

And with that we will open the call up for questions operator.

[noise]. Thank you sorry to ask a question. Please signal by pressing star one on your telephone keypad choosing a speaker phone. Please make sure. Your mute function is turned off smaller single Surecheck equipment.

In the interest of time yesterday, please limit yourselves to one question at a time in order to allow for the fashion them back on number of callers to ask their questions again for a start once asked a question, we'll pause for just a moment.

Well take our first question from Alan a lot of Santander. Please go ahead.

Thank you so much like what sort of a good morning.

On the <unk>, okay local compute.

Youre welcome illegal subsidies are well.

Oh I want to expand on this topic all play you off.

Calc looks on the question.

He was going to be moving to India, We junior little teach OXXO.

OXXO stores, each I'm external environmental changes caused by the way.

Yeah, I think it gets you.

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Just wanted to just do you usually you should do is rekindling toward the high school sports I should try to build.

And Bill All night Cecil I guess my question is why wasn't it got me.

So for example.

And criteria in most it says kicks in terms of what specifically are you doing to address well off the mobility and Oh, He's got off samples eating locations.

Hey, Jim.

Hi, Robert how are you, we let me just.

Right to simplify what we were facing their arps, So Cds brasada, where we have now possibly because growth same store sales positive growth and those smokers to lets say booked right.

Where the steel and they're still in negative. So I think it has to do with Cds Cds in boxes, very positively and see this impacted very negatively.

And with that so you can also phase what's kind of the stores I mean, the stores that are very close to offices, where maybe the shutdown of officers do exist. They are suffering a lot. So what we are facing is a very diverse performance of stores.

By city, where we bought or bye bye bye segments, and you know we live right.

I'm I've been neighborhood stores.

The reunion occasion, now Weve speaking not be goes what eat what we're facing isn't a people are gathering his day houses small gatherings compare would be gathering so really what we are.

I've been.

Hurt the most is really is knocking or eating outside of the store work with it but people are in offices and leave the office together snack with to get somewhat some somebody used to eat and so if we see something it's hard grade makes oh things. So I think the opportunities that we have.

We'd be average the performance of also the opportunities and threats and I think the more we can be average and on and on Sakhalin and Makena fans moves in a certain fees and certain offend me I seem to bed or will be.

Yeah, Hi, Alan.

Following up on what a lot of just said I think you know for the last couple of quarters the amount of bandwidth.

Management was dedicating too deep and three the you know, making sure that people didn't get sick or.

Identifying which stores you know probably need shutdown.

You know taking care of cash flows and on setting up the control tower. So that a we were always should have liquidity or that's what I think we mean by playing defense on what you're seeing now is that kind of reversed and the gradual reversion to normal see where you are if you're in a in an eight hour long.

Meeting Oh wait with a decision makers of course, there's a few a couple of hours that are still dedicated to the deepest part of it but now you're beginning to talk about expansion or you know how quickly do we turned out kind of turn up the volume again on the opening of new stores are you beginning to have a lot more conversations again.

Out of their digital strategy and a you know whats Coke FEMSA is doing a laptop and what the oxo guys are doing with their loyalty program and eventual rollout of the Fintech application are you beginning to entertain some small deals on some of the verticals. So it feels a lot more normal I would say, but kind of.

Throw back to nine months ago.

And I think that's also what we mean when we say we're gradually shifting from office depot from difference to all.

Got it. Thank you so much longer than one is just a quick follow up on the uptick topic I mean, we hearing from from your suppliers from being more or less.

Well no offense that are thankful for those seeking a strong pickup all day long on the on the traditional mom and pop, okay, and auxel historically as well grounded its success by taking share of the mom and Pops and do you think you can pump and these are still saying.

Got the convenience store channel traveling at school Julie you also.

Two week Oh. The question you nimble Lucy was trips units would chose we chose this Australia table also removes which contained a recovery marketshare, Oh, well show pockets, where you can choose from what we're seeing in Mexico from the moment from the moment.

Yes.

Yeah, I mean, I think you know that.

I guess just one you know ideally you know you should feel channels are getting back to normal and what we're seeing and this follows up on what are the other said a few minutes ago, which as you know in those parts of the country, where we're let's go to this traffic lights mechanism medicines based in Mexico as you know when you go from.

No from yellow to green, which there's very few parts of the country that that front, the green or really when you go from Orange to yellow, we look up those stores in those geographies our stores and they will they recover very very marketing so people as soon as they go back out on the street. They go to the OXXO store.

And that's of course, a very it's comforting in the sense that it's not that people are changing their habits and now they're there they're going to buy everything online are there you know everybody's going to be resuming due to you know to work as the vast majority of the people in Mexico have to be out and about to perform their work and.

What we have seen is that as soon as that was turns people go to the stores and I would add I mean, if we if we look at the same store sales numbers. Obviously the number that you saw in the press release is a 9% for same store sales, but if you look at the last four weeks. So basically the month of October we're actually in the mid single digits.

A negative but mid single digits as opposed to high single digits. So you know, it's a pretty straight spine. When you look at you know middle of May to where we are today. The slope is is positive it's not super steep, but it's been pretty consistent improvements a week after week after week and so that gives us.

A lot of comfort.

Okay. Thank you so much and then again what Google just go thank you.

Appreciate it thanks.

Thank you John.

It's fun to your question has been answered you made yourself from the queue by pressing star and two after.

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Scott.

For taking my question.

I had a question with respect to the U.S potential label changes and I was curious if that's having an impact on.

On your mix at all and and around that are you seeing perhaps new opportunities, particularly in some of the residential markets, where you're doing so well and health and wellness categories at OXXO.

I think on the labeling issue, Bob Rucker and cranial.

Really it's too early to tell how that's going to play out we've been obviously busy over the past couple of months, making sure our stores have the right.

SK use with a white label and whatnot, but I think it's still too early to tell whether it's kind of been out we've seen other examples of delivering initiatives in key layer and whatnot installed so little effect in consumer behavior patterns. So we are cautiously optimistic that there will be able to adapt a with the right. If they used to have to consumer base.

And with regards to health and wellness of course, I mean that continues to be a a a very important fab focus for our commercial I would making sure that the all the categories and the and the difference.

In a different store formats are attuned to what the consumers are wanting so we are seeing a slight pickup in terms of a healthier options and a and a better product mix, especially in the in home for this category, Yeah, I know and I would add on to what else can you just said.

You know this has to be a demand driven thing I mean, we've had for many years I know that you know also has tried are introducing you know different types of quote unquote healthier products.

And they don't they don't move right people don't buy.

And so you really want the consumer you need the consumers who want to buy these things for.

For everything to work out on for suppliers to eventually you know reformulate to do what it launched our different products on another retailer obviously, you're agnostic you know you will sell what the consumer wants but those those shifts are definitely are yet to come unethical and you said, it's way too early to know what the effect is going to be able to have the labeling.

Got it that makes perfect sense, you know guidance, either silver Granola every day right, but but more seriously can you talk a little bit about the performance of some of the new stores, particularly the auctions in Mexico, and Okay, and you mentioned Greek re kindling growth how.

How are you thinking about that is it more of just taking advantage of fees just last that's where you're seeing the stronger performance and and maybe shifting some of the assortments to cater to that that at home demand a little bit more effectively.

Correct I mean, that's as good a lot of mentioned earlier before I mean geographic performance of the stores I mean, what most of it is driven of geographic guidance.

Issues as well as via restrictions from a governmental perspective, selling alcohol or not so that I think is is barb barb I far and away. The most important factor driving the the store sales, but as we would tend to all the other growth going forward, we are going to be focusing on on those plants in those locations and obviously shifting our product mix.

What that what makes more sense than not in this new reality in any steep geography constant we are seeing the block us obviously, where we will add we are able to perform the AD the mixing of of beers perform better than the ones that are not.

And against last says that are closer to the phone segments that are doing a lot better. So again, we are trying to pinpoint with greater accuracy. The the the capital deployment the new stores as as we tried to get a better performance in a in a quicker return on our investment than a lot of what you want to add.

Something left yes, you know I I might add that because of the pandemic we've been oh.

The consumer is being Oh.

We the conditions have promoted of it and the consumer has tried new things in the store impact that's why the ticket is going up.

And I think the words, we expect really is one that mobility fades away.

Part of it because oh being high in the high end will say well you might it might go down because of the mix of snacking, but again there are categories that were sending a lot, but we didn't used to set as much and with that in mind I think now the consumer has dried up we have good prices and.

Gross provision on those capabilities, we might end up in a better position that we were at the beginning yeah.

Yeah, and I think to exemplify that maybe.

Maybe we talked about this a little bit the last call, but spirits and liquor has been a standout category, where I think people realize when we eventually run out a beer back in May that we actually had very good assortment and pricing of bottle of wine and liquor license and that continues to perform very very strongly I just.

Generally what you would call it in a supermarket by categories.

Which we have carried as you know hundreds if not thousands of SK use those but for many consumers are they didnt think of OXXO as the place to go buy detergent for example, or diapers for our dog food.

And now they are right on so that might remain beyond beyond the current endemic.

That's a great point, thank you very much.

Thank you both.

We'll take our next question from although next year.

Gee. Please go ahead.

Hi, gentlemen, thank you for the call.

My question is going to be on the organizational structure. Congrats on his call the new rule in the release you mentioned.

There's different teams that will report or sort of into countries cool internal reports what was I guess my question is.

Maybe if you could expand a bit on the rationale of countries because roll and whether or not this is part of a broader change in organizational structure.

That'd be great. Thank you.

Basically what we are trying to do we used.

You have.

The different people different in different positions arrays vision.

Due to to be ready to jump into a operating roles and as were doing but by doing these were.

Bringing in.

Great people to our were stock positions to improve our where our were a consumer sentiment and then <unk> and <unk> and also at the same time.

You have people ready, where we're where people are getting older and we immediately user placements are rising in the east that's really the main themes behind it.

I think I've got all this is one that you know one one recent.

Yeah, probably useful example, if there's any other vegas right, who joined a few years ago precisely into into this role.

I'm not too long thereafter, he moved to FEMSA comercio.

You had that operation. So I think FEMSA has come a long way.

You know 10 years ago 15 years ago. It was not very common for FEMSA to find a way to kind of grow in world class talent outside and bring it in I think we've gotten a lot better at that and we're fortunate that we've been able to find a ticket it's like like the Nearline and Francisco so.

I think thats, probably a useful are useful a precedent.

Great. Okay. That's useful thank you.

I will now take our next question now from on Danielson underside Barclays. Please go ahead.

Thanks.

Oh.

Okay.

Got you.

Yes.

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Sure Hi, Anthony its that and can you know we've been pleasantly surprised with that with the performance during the pandemic about both businesses the dance and operations.

Our coming injustice expected that both in terms of revenue really be a net and free cash flow I guess it was not as we planned and in certain segments are down other segments are up but that but overall. We are we are extremely pleased and we are meeting and exceeding our suppliers. The synergy targets that we expect that and then the integration of both platforms and that then.

I mentioned in my in my opening comments I, we're happy that we were able to find a new CEO for us for the combined company and that and are actively looking to us to expand that platform into the future. So that's going on.

Just as we expect that that restaurant depot. The same thing I mean, we obviously at the beginning of the Atlantic as most other cash and carry formats focused on restaurants, they struggled a little bit but by the middle of the summer same store sales were up as people were changing from a growing through the broad liners and taking advantage of the fashion.

We are modeling convenience and pricing and assortment that restaurant deeper offer so there's they're getting share in a smaller pie, but they're gaining share.

And at this point that there are revenues EBITDA and in cash flows are higher than last year. Despite the pandemics aware, we're very very pleased with both of our investments and continue to look at them as a future capital deployment opportunities.

As long as Stacy.

I will now take our next question from Carlos Laboy HSBC. Please go head.

Yes, good morning, everyone.

No talent, a new CFO brings a fresh care of ice to old issues I was hoping you could share your view on on two big ones.

First one is Coca Cola FEMSA.

So the stock trades at about half of its peers.

In Europe, and you saw the amatil deals recently right.

Big discounts at Tcs.

The the commercial strategy is obviously not a problem. So so why do you think the valuation gap exists, but really more importantly, it's what do you think is in your control for capturing these these $8 billion or so of shareholder value.

That said I mean this gap.

And then.

And the second issue.

You know what thoughts might you have to the idea.

Returning cash to shareholders or Heineken value back to shareholders and is there a view emerging at the board of directors for for how long you might sit on cash on this type of value before you give it back to shareholders.

I.

Hello, Carlos <unk>, Let me go through the very first question.

We are very happy of Coca Cola FEMSA transformation, how the company is improving performance is good execution and you know what.

Where we are but we're very optimistic really is with the relation with the court when a company and we we we are very hopeful that use new organization of the Coca Cola company with with harvest filters in place and now that the <unk> companies more openings or bye bye.

Ending beers and together I think there may be a major opportunities for growth, but we are envisioning.

So.

And I think we are working with a gorilla company to find better ways to align ourselves better with them and I think we are I think we have better understanding of what the needs are they have better understanding what our needs are so I think what we are.

Really doing together is aligning better aligning better and making our cells.

More our giant make decisions to make things happening and is intended to grow up what everybody is doing the same. So I think we're very optimistic about the duration wherever you have diminished the go to market opportunities. So.

So I think it's just a matter I mean, maybe.

Uh huh.

The way that were growing up hymns, having the structure itself, how are they being able to improve their durable.

Execution, and and dysfunction indications already some place in Coca Cola FEMSA by by leveraging the expertise of of of of what people are those the stump, so well and the deployment is in Latin America I think we're very hopeful I think.

Sooner or later the growth is it will come back again, and then on the insertion aligned with the court when a company I think we will be we're ambition or a better much better future.

Yeah, just to add on catalyst to what a lot of was saying I mean from from just a portfolio perspective, we we think we have no control obviously over the stock price we have control over the the management and the strategy of going forward and we're very happy I said, what I said not only with the alignment we have with the Coca Cola company, but the opportunities that still present themselves.

Laura for growth their digital initiatives are helping us penetrate the market in a much better way.

And if you look at that and their equity story or the the combination of growth and cash flow is that it's still I mean, I mean remarkable. So we continue to see that as a as a key asset going forward and admit that it is a well rounded up to our portfolio on to your second question Carlos with regards to Heineken I mean.

We are aspect majdic on our Heineken stake as we are with any of our other assets. I mean, we continue to have internal targets for our returns for and validation for for each one of an asset of our assets and we see Heineken and at the current stage as that we are we are very happy shareholders and again, we understand that with the tax.

Situation that that we're now facing going forward with a dividend that the hurdle for that rig.

Returned has gotten higher from our perspective, but we still believe that the at that current level Senator card prices.

Yeah. The the performance of the of the shares are in our portfolio and with the mix of our portfolio is that is a good a good way not only to have to continue to deliver growth, but up a store value, but even more importantly, if you look at the verticals, where we are right now Carlos I'm I mean, that's that's pretty much. It I mean, we are for.

For me, it's now, especially distribution into the U.S., whether it be Johnson or food, we see very attractive capital deployment opportunities in the double digit range at forum for add ons in in both segments going forward. So we believe that we have a portfolio with a ton of Optionality and also unfortunate from a week.

We will be able to eventually show you. The the numbers that we are seeing in there, but we still believe that there are very accretive value creation opportunities to deploy capital in those two verticals.

And again at some point, we will need to decide what the how to fund those opportunities on our balance sheet going forward with regards to that the rest of the assets, but Ah, but again, we are very pragmatic and going back to your on your point on Heineken, We believe that the current risk reward.

Situation that said, that's kind of baked into the stock continues to add some things to be attractive to keep it on and we will evaluate.

Those capital allocation decisions as they come in the future.

Okay. Thank you both for that and is likely just as a follow up to what you said can.

Can you comment on the government request, you've made true in Colombia to add to your to the distribution in Colombia and also related to that really.

Can you shed light on how digital tools with proper governance rules like the launch it.

FEMSA has spoken enable more more cross category of distribution possibilities with multiple brand owners in order to sell more soft drinks better.

Yeah, but I I will say that we're very happy with the growth growing up a company. They are happy that we.

Load the beer it.

In the restaurant.

And it is really a matter of how make the buffer more fishing in order to grab the market is in a better way and I think.

Those things are pros or worst instant deposit, where we were not aligned division I think were very much in line and not only beer for I would say those are hearts doses will be a major opportunity and we are just very much in breast how fast.

Lastly, the company has made these decisions how quick they are deploying that into food through the different countries in Latin America, and we could not I mean, we're very very happy with it.

And again just to be precise start what we filed with the antitrust Commission in in Colombia is basically a request to start a pilot program to.

The drunken distribute soft drinks and beer together with that was the idea there and we'll see how that plays out.

[noise] [noise]. Thank you.

Clarifying that in Colombia, you file with a with the antitrust regulators at the beginning of the process instead of at the end and so we're really just getting started with it.

Well now take our next question from Rodrigo Okay. Okay.

Yes, just go ahead.

[music].

Hi, good morning, Thanks for taking my question.

Related to the labor and labor expenses, so as we approach the minimum wage discussions in Mexico and looking at those centers you bad, though so they do that Candace appears to me that perhaps that Florida.

Yeah.

A double digit increase in minimum wage and we have that.

Meaning both and meaningful enough in my guidance. So I just was wondering what's your view.

Got game labor expenses for 2021.

Hey, My question. Thanks.

I've already go let me take a crack at that when this is Juan I mean, as you know when when the administration. The president came into power a couple of years ago.

He had a plan to double the the minimum wage during the course of this his tenure and the first couple of years, we have seen double digit minimum wage increases in the country.

We are a little bit isolated or you know, there's a bit of a buffer and I've got some same defense that not many people actually make the minimum wage at FEMSA, we tend to use our RM for use or make make more than that.

This year, obviously, it's a different you know it's a it's a very different story, where you have.

You know lots of unemployment and arguably a you know the supply and demand equation is different today than it than it has been in a long long time, so I I wouldn't I wouldn't speculate in terms of what the increase is going to be.

Next year.

But.

Certainly it it'll have to be something little bit different than what we did the last couple of years.

Just to add onto that I mean, you have to remember nobody would have got during the pandemic upwards of 20000 people are employed by also were being paid by us and not working because it went up all of our position or whatnot. So I mean, you're right to say that there and.

We need to balance the kind of social aspect with the business aspects and with respect to blend. The path is there some flexibility Ah, yes, but we again need to be careful going forward to add to make the right balance between DM.

Between the social aspect of the communities, we serve and the business aspects of the out of the portfolio of stores Oh, So say the that the Oh I'm a.

It varies just.

The very first stages of this company. We were fortunate we were in order to make that people were happy workings of stores. We paid a bonus wheelabrator was rowan's for several months when do we got control of how to make this doors perfectly safe for them and and.

And with that also we were.

Making.

Not the people that were working to stay away brushing their premium compared with the people who are were not working at home.

Understand thank you. That's very helpful. Then last one I'm very quick I just went over it.

Two things first on the digital this tragedy.

Latin.

Hello.

So these are by the first quarter of 2021.

Well I was at a higher disclosure on the.

Other businesses is that still the case.

Yeah, I mean on the disclosure.

Yes, the thinking is that the first quarter of next year.

We will begin to provide you with a PML for both the legacy.

This this business was called for lease Deca.

Under the new Janssen business I think we're still analyzing internally, how we're going to do that whether it's going to be the two businesses jointly which are you know there's a lot of similarities among the two or separately, but you know we will we will do it in a way that doesn't harm the operations because obviously in some cases, especially the U.S. business.

Opening up the margin information that would probably put them at a disadvantage versus their competitors. So so we're looking at how we're going to do that but either way. The market is going to have visibility into where you know almost $2 billion worth of revenue.

Those two businesses combined.

I'm not going to happen in Q1 of next year in terms of the Fintech strategy or you know that there's there's some.

You know, there's a license that needs to be obtained a profit from the regulators and you know the pandemic has certainly slowed down some of those processes. So we're yeah. We we we originally as you might remember we were shooting for end of this year, we are having to push it back to kind of first quarter, maybe first half of next.

Here, but this is more because of external policies that are moving a little bit more slowly than we would hope than oh, it's being ready internally.

That's that's good thank you.

Thank you.

Once again, if youd like to ask a question. Please press star one on your telephone keypad well taken.

Your next question from <unk>.

Future Goldman Sachs. Please go ahead.

Hi, Good morning Bill.

Okay, well thanks for taking my question I actually unfortunately have to Miss the other parts of the of the cold. So I'll go back to a profit and cash flow by asking what I assume is already been asked but you know any opportunities still maybe more.

More general question.

You know given the experience of the past a few months of significant volatility across segments and regions. I was wondering if maybe you can discuss how do you think about the geographic balance in the portfolio.

Going forward between.

Without going into specifics so.

Hi, there good discussion all three of which we all know it so.

As a way to be house, you know, how how do you think or has anything changed.

In light of digits details on how you can sense of portfolio or may evolve whether rates will begin to get concentration in Mexico, continuing to find new opportunities, where you thought in the U.S. arguably even the core of our business is part of the volatility that it had probably been at mortgage isn't it.

We'll get to as indicated they call backs that other businesses would have been so I don't know if you can share some thoughts high level thoughts on on the small specific operations that geographic exposure.

Follow bolland saw it could be interesting.

Oh sure Hi, look I said is that when you're thanks for the question I mean, as you're well aware I mean traditionally our business platforms are mostly focused in Latin America, where because of business model recently, we are we sense or or more specifically just macro reasons are most of the businesses had a and the economy have provided.

Significant growth.

Organically to provide that.

I mean very reasonable returns VW that the risks involved are more and more of that risk reward a question in Latin America is getting again im not saying its not there, but it's less attractive than that it was he wants what it was in the past so slowly, but surely I mean first of the Heineken or the sale of convexity and media attention of the Heineken shares in 2010.

Started to make that portfolio diversification moving to emerging markets.

As I mentioned in a in one of the earlier questions now we have two very attractive platforms in.

In developed markets that could allow us to deploy.

Important capital adds to establish platform sat with with double digit double digit return potential because of synergies and the established knock on wood there already so again I'm not saying that we will not continue to investing in the platforms that we have in the emerging markets I mean, right now the highest ROI see investment we could make is the additional OXXO stores.

So one or whatever that but we're being very prudent with a capital allocation across the divisions to make sure that more and more we killed with Hilton exposure and then it sounds because we want to develop markets since the we because we don't think it's safe, but but the developed markets, where we believe because of our skills and the export of of that goes into these platforms that we can achieve.

Well above market returns in a diversified down geography, a diversified economy and.

And I think more and more you will see that that's prudent capital allocation plans.

Those two sectors that we have invested really we see high growth high growth high profitability and really that's why we are really embracing.

Embracing those sectors.

I think I would add hey, Lucas one I would add if you look at the last six transactions that we did four of those were in Latin America two of them were in the U.S.

And on a regular basis, we deploy about $1 billion worth of Capex just in Mexico. So clearly you know that's going to continue to happen as we go back to a more of an expansion path and start opening you know hundreds of more stores eventually thousands distribution centers drug stores all of that good stuff. So yes.

Going into the U.S.

Today, the U.S. represents maybe 5% of our market up.

If we're super successful, maybe we could double that in the medium term, but because we're going to keep investing in Mexico and the rest of Latin America that we will continue to be a very small part of the company.

Just to make the point again [laughter] sectors that were in are the sectors, where we will stay and it'll just be a shifting around of resources on the sectors, but you should not expect us to be looking at sectors that were not present in today.

I said that was my follow up I should say it anyway.

Again, staying on the last at least in the developed markets do.

Okay. It sounds like you are that you're going to be down some limits in what you can do that you can help me with all the verticals that you probably know that you cannot do C stores in the U.S.

So now, but you know it doesn't mean that you're not going to open new their signals.

Oh come back to what you have today will be the possibility today is there opportunity arises any blog, so that something that you have a lot of digital workflow or.

You know I think.

A message that we've been sharing with the market, but I think has been would receive luca.

Because were very well aware that we have added some complexity to the structure right. There by entering these businesses in the U.S. some of which we haven't really been able to put a lot of information out there. So there's a disclosure short.

Shortfall so.

So so weve added complexity to the structure, but the message I will be sharing with the market is we were basically at the peak complexity right. This is complicated us is going to get and from now it's really you know growing these businesses capturing the synergies consolidating market shares.

That sort of thing so more of the blocking and tackling.

But do you have this is it so what you see is what you will continue to see.

That's good to hear I would call to your other question about his complexities that optimism stage [laughter] Jackie thanks.

Hey, once again it is sort of honestly to ask the question pause.

Well take our next question from Rodrigo Chicken <unk> at Scotiabank. Please go ahead.

Thanks, guys my questions related to store closures this quarter more than 100 folks who knows but were permanently close I was wondering if you could share some color on on how that number looks like relative to prior years.

How many stores do you expect to close he coming quarters, and I guess more importantly, what does that mean for the net new openings for next year and thereafter. Thank you.

It'll there's this one yeah, you know I've been I've been reading some of the some of the notes that somewhat you know you on some of your your colleagues competitors have been putting out and just listening to the market.

So I'm glad you asked the question you know whats happening is basically the I know this might be true for other companies as well you know the pandemic is.

Forcing or especially back in May June July they really forcing companies to take kind of a hard look at some things that probably we should have looked at before right and then in our case it.

Identifying some stores that were always a little bit marginal right stores that never quite paid their cost of capital is that more kind of a question Mark maybe we give them a little bit more time, they'll they'll they'll pay their cost of capital.

Internally as you know we look a lot of the EPA metric I'm on so what are you seeing I mean, a lot of those closures and I want to be clear. This is not because of what I mean, the pandemic has not all of a sudden made those stores bad. These are stores that were always kind of on the on the limit.

And were you know in the current context, we're kind of taking the opportunity to to say you know make the hard choice for the year with those stores you should have closed a while ago. So so the necessarily if it's not that things have changed structurally that we're not going to be closing a lot more stores. Its really that we're taking this juncture I'm, saying.

Okay, let's look at things with a very fine kind of a magnifying light I make a you know or some some some tough choices, but going forward.

I mentioned this in the beginning with this thing with the often versus defense you know we should be going back on the question. This open in terms of how quickly, but we should be going back to a number of openings in Mexico. There is not too far from what we were doing before the pandemic, we'll we'll have to wait and see kind of the the demand equation how that evolves.

And we've also spoken a little bit about international and how that is performing well quite frankly, we're optimistic about about international markets, especially.

Brazil has a chance to become relevant eventually.

But yeah I hope that's clear out already but this is not all of a sudden Oh my God. You know there there certainly are a big layer of stores that we're going to have to close because something changed in the pandemic, but rather you know there. So this is a few a few stores that we probably should have closed before and we're just kind of a using this opportunity to come.

That's tough decision yep.

And just.

Revenue.

We are about to finish October and were very happy with the performance of Robert too because the guidance October is improving what we have in September we look for the stock for the future. Yeah. I mean, if you look at that the PML of of the proximity division.

You know when the going is good everything is better right and we mentioned commercial income and.

You know the operating leverage equation is very powerful I'd also so you need a little bit of improvement in top line and it does wonders of the bottom line and so a few points of improvement up the revenue line, which is what we are seeing should should.

Service very well down the piano.

Got it now very clear so I take from your comments that definitely not something that that should move the needle and we're talking about a 100 stores, which is not meaningful relative to put pool. So that's that's what I was asking thanks. Thanks guys appreciate it.

Actually because it shouldn't be kind of a recurring thing you know year after year, that's very much a punctual thing of now.

Got it.

Thanks for that.

Once again its star one to say to ask the question, we'll pause for just a moment.

It appears to be no further questions I'll turn it back to you for his additional comments.

Well isn't rival and thank you very much for core for your attention and suppose organization on every once in a while is good I think is getting the right titles to be Oh organization that we are here for the group and and to keep the stores profitable and and getting the growth back again.

Great. Thank you everyone with that we'd like to thank you I'll stay safe and that have a very weak.

Thank you, ladies and gents Kase and gentlemen, if you wish to replay the webcast for this call you may do so at some sort of Investor Relations website. This concludes our conference for today. Thank you for your participation have a nice day all parties may now disconnect.

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