Q2 2021 Fomento Economico Mexicano SAB de CV Earnings Call

[music].

Good morning, and welcome everyone to FEMSA second quarter 'twenty 'twenty.

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 and supposed free.

Future performance and should be considered as good faith estimates made by the company.

1 we're looking statements reflect management expectations and are based upon currently available debt actual results are subject to future events, and uncertainties, which can materially impact the company's actual performance.

At this time I will now turn the conference over to 1 on circa FEMSA <unk> director of Investor Relations. Please go ahead Sir.

Good morning, everyone welcome to FEMSA second quarter 2021 results conference call.

Today, we are joined by Michael Camacho, Simpson's Chief Corporate Officer.

Garza or financing corporate development director on behalf of fecal JASO, who heads our coke FEMSA investor relations effort.

The plan for today.

For her back will comment on some higher level trends and more strategic considerations and then to have it.

Walk us through the numbers for the quarter and we will follow the remarks with Q&A as always.

So with that let me turn it over to Pakoko much.

Thank you Gwen good.

As to hey, everyone. Thank.

Thank you for joining us today we.

We hope you on your families are safe and doing well.

As you know the health emergency even though over.

Despite these total.

Operations posted solid results for the second quarter of 2021.

While this partially reflects increased.

<unk> mobility on film economy recovery. It is also driven by the team's superior operational capability on the top notch ability to execute.

Exactly 1 year ago, we were discussing the full impact of the Covid pandemic and the effect of the resulting lockdowns in our operations.

Energy and resources were being quickly reallocated to prioritize the safety of our employees.

And customers to help our community to prepare for cash and to ensure the continuity for our business.

Once these priorities were addressed we look for opportunities.

Based on ways to come out stronger on the other side of this crisis.

Some of our operations, particularly OXXO and looks for that were affected by the significant reductions in consumer mobility.

Some others might Coca Cola, FEMSA, and yogurt drugstore operations were more resilient and manage to.

To deliver a solid performance in 2020.

Today 6 months into 2021, all of them are achieving much better results than they were a year ago.

And in some cases, we're already at levels that match or exceed 2019 results.

Clearly we are not out of the woods.

<unk> net backs.

Vaccination levels have been uneven across our geography.

Operating restrictions still exist in many markets and.

And consumers will generally increase or decrease their activity in inverse proportion to the level of concern.

In fact, as you know there is a bit of a rebound in cases.

Right now and what seems to be a third wave.

So it continues to be a bumpy ride.

But there is a clear recovery taking place in Mexico and in most of our markets.

This recovery combined with the learnings on efficiency developed during the crisis by your teams is helping us deliver on inquiry.

Casing set of numbers today.

On setting the stage for compelling growth going forward.

In our proximity division less stringent restrictions have led to an increase in customer mobility.

In turn this has translated into a steady recovery of.

Core ex us most.

Relevant categories like beverages in single serve presentations.

We have also been able to maintain the momentum that some other categories picked up during 2020, such as the spirit on some traditional pantry items.

Importantly, we are seeing our customers come on right.

On the store as soon as they regain some sort of normality in their routines.

Our total health Division, we continued to leverage our consolidated platform capability to increase our market share in key territories, such as Mexico, Chile and Colombia.

Even on a fuel division.

Back to that saw the deepest fall in demand last year as consumers largely stopped driving their vehicles.

Showing a recovery as demand gradually comes back even if the pace is lower than we would like.

For its part for logistics and distribution operations continued to see better demand trends across.

<unk> market.

Although some end user segments.

The U S such as hospitality education and office facilities are not yet back to normal activity levels.

Finally, Coca Cola FEMSA get finding ways to drive volumes, while its adoption of digital platforms.

Gross margin to help develop the business in Brazil and Mexico.

At the same time product mix is recovering towards the smaller more profitable presentations ultimately, helping the bottom line.

With that I will now turn the call over to Kenya, who will go over the results in more detail.

Thank you back on.

Given the operational challenges we faced in many of our operations last year growth figures relative to 2020 do not tell the full story and we will therefore complement them with some comparison data relative to 2019, where we consider this to be helpful.

Starting with FEMSA consolidated quarterly numbers total revenues during the second.

<unk> increased 19, 7% while income from operations increased 87% compared to the second quarter of 2020.

When we compare our results versus the second quarter of 2019 total revenues increased 7% while income from operations increased 17%.

Sensors net income increased significantly and reached 5.

$5.3 billion pesos, reflecting the generally on demanding comparison base from the effects of Covid in 2020.

This was made even lower by the extraordinary payment of almost $8.8 billion pesos, a grid with the Mexican tax authority certain asset impairments and a decrease in our participation and associates, which mainly reflected the results of our <unk>.

Quarter at Heineken.

In terms of for consolidated net debt position during the second quarter. It reached 75 billion pesos at the end of June for its part Capex increased 18%, reflecting a comparison base that is not relevant in the second quarter of 2020, when most of our operations suspended non critical investment activity.

<unk> moving on to discuss our operations and beginning with FEMSA Comercio proximity Division. We opened 128 net new OXXO stores during the second quarter to reach 276 openings for the last 12 months, while we are not yet.

While we are not yet up to full speed with our expansion pace. We are on track to achieve our.

Our full year target of 800, net new stores in Mexico, and our existing pipeline supports an acceleration in the months to come we.

We have also put in place and even more rigorous approval process that will ensure the high quality of future store locations.

OXXO same store sales were up 15, 6% for the second quarter, reflecting 7.4.

4% growth in store traffic and an increase of 7.6% in average customer ticket both against 2020.

When compared to the second quarter of 2019 same store sales declined 2.5%.

Gross margin increased 190 basis points to reach 41, 6%, reflecting a recovery in commercial.

Income from promotional programs with our key supplier partners.

Income from operations and operating margin increased significantly compared to the same period of 2020, reflecting improved operating leverage and strict expense discipline for across the proximity division's operations.

Relative to the second quarter of 2019 on.

Commercial income decreased 1.4%, while operating margin contracted 80 basis points.

These are encouraging numbers, given the still challenging operating environment.

Moving on to FEMSA Comercio Health Division during the second quarter, we expanded our drugstore count by 54 net additions to reach a total of 30.450.

Operating units across our territories at the end of June and 270 total net new stores for the last 12 months.

Revenues increased 17, 6% while same store sales increased an average of 14, 9%. We continued to see good momentum at our operations in Chile, Mexico, and Colombia, coupled with slowly.

9 yield improving conditions in Aquila.

Gross margin contracted by 100 basis points in the quarter, reflecting increased promotional activity and higher institutional sales in our south American operations, partially offset by improved efficiency and more effective collaboration and execution with our supplier partners in Mexico.

Operating margin.

<unk> expanded 250 basis points, reflecting increased operating leverage.

Moving on to FEMSA <unk> fuel Division revenues increased 56, 3% and same station sales grew 53, 7% relative to the second quarter of 2020.

When compared to 2019 numbers, we are not yet there reflected.

But spend mobility levels debt remained low during.

This quarter gross margin was 13% while operating margin was 3.6% of total revenues, reflecting tight expense control that partially offset operating de leverage.

Now, let me talk a little bit about our logistics and distribution business in the U S. We continue to see different speeds.

A reopening in different regions and while some end user categories, such as hospitality and entertainment have increased their activity. They are still lagging their historical performance, we expect trends to continue improving further in the second half of the year.

On the logistics front, our operations again showed good trends across its main Latin American markets.

Reflecting Brazil, Mexico, and Colombia, even if the economic recovery continues to be slower in those countries than in the U S.

Finally, moving on to Coca Cola FEMSA revenues increased 10, 9% driven by portfolio and execution initiatives.

Along with recovering mobility and improving.

Moving price mix trends.

Mexico, and Central America delivered double digit top line growth, while South America strong volume performance was driven mainly by solid growth in Brazil, coupled with recovering trends in Colombia, Argentina and Uruguay.

As a result consolidated volumes already exceeded 2019 levels by 1.3%.

You can listen to a webcast of their quarterly call that took place yesterday.

And with that let me turn it back to back on for some final comments. Thank.

Thank you Henry.

Before we open the call for questions. Let me give you a quick update on the rollout of for a digital initiatives.

First let me begin with an update on the OXXO brand yet.

Multi program rollout.

Which after a test period in the state of Chihuahua is now being deployed more broadly.

So far the results have been quite positive and this is even more relevant at OXXO Brainiac complements or it's been by OXXO product.

As you May recall is finished testing and validating.

Nausea position through our subsidiary comp per panel.

Which is operating under that particular doubled transitory for the Mexican regulation. This means we are still waiting for the definitive for regulatory approval to fully launch on market discipline by your per product.

Wrapping up a few comments.

<unk>, we are of course encouraged by these results.

We feel that way, mainly because they reflect the strength for our value propositions on our teams operating abilities. The deltas are b.

But we have discussed we still have a bit more work to do here and there when we compare versus the 2019 levels.

So.

So we need to keep our heads down and keep pushing hard execution on executing our action plans.

And moving forward, we are confident about our strategy. We are certain we are on the right path and importantly, we have over 300000 resilient extraordinary team members.

That helped us to move forward.

Good day.

Thank you for being here today and for your continued support.

And with that we can open the call for your questions operator.

Thank you for question and answer session will begin at this time, if he would like to ask a question. During this time simply press Star then the number.

Number 1 on your telephone keypad.

If he would like to withdraw your question. Please press star 2.

Question will be taken in the order that is received in the interest of time, we ask that you. Please limit yourself to 1 question at a time in order to allow for the maximum number of callers to ask their questions.

Once again that is star 1 to ask a question.

And our first question comes from the line of Bob Ford with Bank of America.

Okay. Thank you and good morning, everybody and congratulations on on the results. It's great to see you make so much progress.

Back on.

With respect to spin it appears to be accelerating very nicely right now on Saturdays put to sales.

And I was curious if you could talk a little bit about what's behind that and any a b testing that youre doing.

And you know what do you need.

To get your final regulatory approval. So you can roll out nationally.

And then you mentioned tenure and I was just curious.

I mean, the App architecture perspective, how you plan to to maybe integrate that with spin or will you.

I'll leave it there just how you plan to integrate that and maybe.

Drive some some cross channel usage.

Okay.

Okay.

Okay.

Bob Thank you for your question.

On the regulatory front, we are just making sure that we proceed according to their requirements that we have to get all the necessary approvals.

You know that this.

Thanks.

And on their side, what we need to do just to make sure that we comply with what would have been requested and that's exactly what the team is doing.

Ben.

For Premier.

As you know loyalty programs will allow us to the loyalty program will allow us to.

To give us bean.

On a significant boost in terms of consumer preference and.

I guess the debt doesn't it.

Look on it.

Sure from an architecture perspective, there theyre separated right now, but they will be put together as we rollout the spring product more broadly.

And again with the regulatory approval what it does not.

Allow us to do is to still.

Engaging in heavy marketing campaigns or full on marketing campaigns. So we're taking advantage of this time.

We've had success at least with that with regards to early or do you use but it does allow us to do is is the way b testing with different features with pricing elements and different demographics.

To make sure that that that we think are around with the product features and the value prop as as we prepare for the full rollout, but so far so good and we are encouraged with the results we're seeing.

In the initial.

Cities, where we've rolled out.

And we also by the way cities.

Go ahead I'm sorry.

I was just going to say you you've mentioned Citi. So it sounds as if you're beyond sometimes puts you see now.

Correct at this point, we are beyond currently for the <unk> still rolling out in a number of different cities.

And we expect to be nationwide by by the end of the year for EMEA right now has been launched in Chihuahua.

Salient this NDA on.

In Spain has basically I would say 5 other cities besides from Luis where we started and again all with with positive results and we also expect that as we rollout with more cities. They use case of the peer to peer product will clearly be more compelling as we start to broaden the reach.

Great. Thank you very much.

Thanks, Bob.

Thank you. Our next question comes from the line of Alan Atlantis with Santander.

Thank you so much.

Annual quantity quarter, I hope you're well.

My question has to do with capital deployment.

And I mean, you have.

Okay, Yeah, $9 billion for a little bit more than $9 billion from debt, but you have $5.4 billion of cash. So you basically I mean, you have a lot of ammunition still so the question has to do with anything change or can you give us an update regarding.

What you're thinking in terms of capital deployment criteria. The size of the acquisitions that you could be thinking are we still thinking mainly in terms of logistics in the United States and if that is the case what are the indications what are the indications that youre seeing from the logistics business in the United States that its worth continuing with the strategy of consolidating.

But business that would be my question. Thank you so much.

Alright, Thank you I'm on for the question.

I mean, as you know our portfolio per cent for I think a very attractive optionality in terms of future capital deployment, you mentioned, the logistics and distribution business that being 1 of them debt.

I mean, we do participate in a very fragmented.

Industry and we continue to look at targets that are complementary and synergistic.

Both small and large so that per center I think a good Avenue for.

For future capital deployment as well as.

As many of the other traditional businesses, where we've been.

And as well as.

The other investments we've made in Mexico in net in cash in Paris. So overall I would characterize our portfolio as being very convex in the sense that it provides a lot of downside protection. Both in terms of us being a consumer oriented company and also with diversity of our markets.

And exposure to currencies, but then also provides a nice optionality for.

Upsetting capital deployment, that's why we're keeping the liquidity on on the balance sheet for now looking for those opportunities, but also at the same time keeping in mind the comp the right capital structure to ensure adequate returns for for shareholders.

But we do see ample opportunities for for.

For value creation in deploying more capital in the verticals that we're in already without.

As a squad has mentioned before <unk>.

Increasing the complexity, we've reached the complexity in terms of industry participation already and the idea is to deploy additional capital within the.

And areas, where we described not only within the FEMSA portfolio, but also at golf with it on its own balance sheet, where b.

The announcement of our new agreement with Coca Cola and allows for also I think great Optionality for further investment and value creation opportunities.

Got it.

Actually that last part that you mentioned, what my follow up for you already answered. It. So Doug was very very clear opinion very useful. Thank you so much.

Thanks Alan.

Yeah.

We'll go next to him Luis Willard with GBM.

Hey, guys good morning.

These forward thinking my question from Rex.

And on the results.

Sure.

As you know we have been.

Recently, some platforms are starting to tap into express deliveries, that's less than let's say 10.

And for 15 minutes I know, it's still very early on.

Thank you for lump repeatable for most of them I would.

I appreciate your thoughts regarding the evolution of the industry.

Towards these types of services and then maybe I mean do you see your auction were moving.

Also within this context next years thank.

Thank you.

Right.

Sure I mean, clearly express delivery as you know.

During the pandemic I mean, a lot of the e-commerce platforms across all channels.

<unk> grew their volume exponentially and last mile delivery continues to be.

Something that debt.

But we look at very very carefully I think in terms.

The proximity value proposition that from a drop size perspective, it's really hard to justify.

And compete against.

Some of the some of the players that are focused on that segment and at this point still in kind of startup financial mode burning cash trying to adopt.

Ah adopt consumers throughout the grow.

Grow into our scale, but we are competing there in a smaller scale with or without.

On the OXXO.

Trying to attack.

Attacking a certain way that category and learn a little bit more about that I think the higher drop sizes are probably going to be in the in the play when you're on categories for larger gatherings.

That could be on option, having said that I think in the categories, where it is making sense in in our logistics Division, we are seeing more and more traffic both in our warehouse division as well as in our LPL divisions of abusing.

e-commerce platforms for for not just CPG companies, but general.

I mean, whether it would be apparel companies.

Health care companies et cetera, where they are using our warehousing services in our less than truckload services to fulfill that ecommerce and there we see a very clear opportunity more on the short term and it's actually partially responsible for for the good results you have seen in our logistics portfolio in Latin America.

So we see more of an opportunity there.

Then then in the proximity division's value prop, having said that we continue to to double their do also avi testing to see how that goes but that but we see greater promise I think in the logistics division than we do in offering.

The end to end last mile at a profitable.

Its model, except in the case on the higher drop size for patients and if I may add Louise I think that.

We need to keep in mind that these income rapidly changing environment and for business operations remain very close to.

Understanding what consumers are looking for how this whole thing is about.

Bolting on clearly because we have a growth platform.

If we see any opportunities in the future you can rest assure that we will we will take it I mean, just that's hitting you said.

Today in order for health care Division they do have.

Actually some last 9 delivery debt is performing really well in Latin America.

The total bill.

You can imagine debt moving forward, we see the opportunity, but we wanted to take it when it's convenient in terms of.

Cutting a sustainable business and.

We will keep our eyes open and we will move when the opportunity comes.

Thank you.

Very helpful.

Okay.

We'll go next to Antonio Hernandez Barclays.

Hi, Good morning, Thanks for taking my question on a on congrats on your on your results for questions regarding.

Your performance.

Basically.

Obviously, the lower on the different formats are you seeing any of these deterioration on a big level of recovery.

<unk> seen throughout the last couple of quarters are you seeing any immune stimulation there because of the rising COVID-19.

19.

Cases, and also are you seeing in those for months.

You mentioned we reported.

And not that you are having promotional activities in some regions and so formats or you're seeing some pressure. There also because of maybe back on competition or inflationary environment. Thanks.

Thanks.

Sure I will start with them I mean, if you go month by month, clearly we've seen a month on month improvement overall.

<unk> volumes with the recent uptick in cases to be honest there hasnt been as.

As much closure or restrictions in terms of mobility as we saw in the past waves of the pandemic. So we've been fortunate there I mean, having said that there are still certain restrictions.

In terms of alcohol sales of the hours of.

For operations in certain of our stores in June for example, we have the lag effect because of the elections also for so we can there was that was lost so it's still going to be a bumpy ride going forward, having said that we're not seeing we're not seeing a drastic change in measures taken by the government from what we've seen in the past.

And from what at least.

We've been reading from from the government's stance, we don't expect the force.

Full fledged lockdown like like we saw last year. So those are encouraging signs again, we will see certainly I mean, let's take us and maybe other operating restrictions in terms of hours going forward. So it'll be a bumpy road, but we're encouraged by 2 things 1 is that as a.

It comes back the use case for pantry another items that were not as typical before the pandemic that day.

These trends will stick and then also that we frankly took advantage of this pandemic to really be more efficient on the cost side and that those cost savings will continue into the future and provided for a more profitable OXXO.

Traffic, the traffic and ticket levels normalized and.

If I may Antonio on what the other thing that I will items that the pandemic on top of efficiency.

Allow the team to be significantly flexible to adapt to a specific situations of operations. So that means that whenever there is a situation.

1 of them coming up whenever there is a need on the consumer side. The teams have become even more flexible and adaptable to capture the opportunities and to react to whatever is happening out there and clearly this increase capabilities real estate around and even if governments on people as <unk> said.

Situations prone to liking headed lockdowns moving forward.

Nevertheless, the D.

The average will continue changing and shifting on the team side.

I would say better equipped than ever to respond to these situations.

I think you have to remember.

Our schools and universities for the most part are not open yet.

It seems that they will this coming semester, so that hopefully will also.

If they're already further restrictions in terms of hours on Lockdown, we will at least bring bring back some customers that haven't come to our stores for that use case since the since March of last year or so.

School that is also encouraging.

Perfect and then on the on.

On the promotional activities on the inflationary side on maybe competition are you seeing any pressure there.

Sure sorry, forgot about that we are seeing increased our promotional activity on behalf of our supplier.

And that has has tinkered around with with our gross margin is usually you will see the topline decrease but then we make it up back in commercial income. So the gross margins look probably higher than you guys are used to but it's more on the CPG side really trying to promote.

Consumption in the different.

Patients.

Tier part on we are seeing some inflationary pressures not to be honest not so much us at OXXO as we're seeing in other of our harder goods like on any better than the LTM per division.

But for the most part I think.

The inflation at the retail level has been I think a little bit more subdued.

<unk> as in the other hard goods and so far we've not seen any price elasticity impacts.

In our consumer and no impact on on our margin so far.

Our our thought is that this inflation phase hopefully will be transitory and not permanent.

And for.

For now we are not seeing.

Then and elasticity impact in terms of the consumer behavior.

Perfect. Thanks, a lot on.

Thanks.

Thank you.

And just a reminder, in the interest of time, we ask that you. Please limit yourself to 1 question at a time and.

In order to allow for the maximum number of callers to ask your question.

We'll go next to Alvero Garcia with BTG.

Hey, gentlemen, good morning, thanks for the call.

My question is on the Health Division on your gross margin in the Health Division.

Thanks for clearing on sort of the gross margin strength that OXXO.

So but in the health Division, we did see a contraction in you mentioned sort of <unk>.

For institutional sales and more promotional activities I was wondering how recurring that might be.

Going forward. Thank you.

Sure.

Has to do frankly also with mix and last year at this quarter, we will see where we are seeing a lot of.

Covid prevention or or Covid treatment options with higher margins, so that in and of itself is 1 of the reasons more institutional sales, especially in South America are hurting our on our mix as well and the promotional activity has to do I think a lot more with the non drug products that were selling and thats a little.

Bit more in terms of.

Trying to adapt.

Trying to adapt to customer taste, and driving continuing to drive traffic to our stores, especially in South America and in Chile, where disposable income is given the.

Given the liquidity that has been pumped in the system through the pension fund.

From fund withdrawals.

Seen.

And where we've adjusted that to add on.

Adjusted for pricing to drive more traffic into our stores.

So I wouldn't say that I would continue to see a longer trend on this I think thats more temporary than anything else.

But yes, a bunch of different factors affect that gross margin.

Including also.

Is that just on the mix of of now non COVID-19 related products on.

On the positive side of that just to add to that you need to also keep in mind debt.

This.

West compensated institution that we faced in the gross margin is how the medical was compensated by significant efficiency and so on the Mexico side.

Working with.

Just buyers so that we will of course keep moving forward.

Mexico, we're seeing I mean month to month, I mean recoveries of 100 basis points or more similar product categories in gross margin.

So that in and of itself is encouraging for the Mexico business.

That's great to hear and Thats a function of just the just greater buying power on your end given your greater greater volume.

For a greater greater pricing power and then also I think a shift in terms of our commercial strategy with regards to.

Working with suppliers to put out the concentrating.

So purchasing power in lesser Skus, the ones that move the greatest where we can get better margins flow through.

The team has as you can imagine and also work as strongly on getting efficiencies.

On.

Having a better operations. So that is also helping.

That's great that's super helpful. Thank you.

Thanks, Laura.

Yeah.

Our next question comes from the line of Ricardo Alves with Morgan Stanley.

Okay.

Good morning, everyone. Thanks for the call.

I'll limit myself to 1 question as well.

Any shifting a little bit on OXXO same.

Store sales if we could go back there I mean, you alluded to.

Some of these sectors, but when you think about your performance on OXXO post Covid and we discussed this in the previous call what were your key findings with <unk>.

Same store sales in the second quarter, I mean, a lot of discussions.

Enter around.

The fact that traffic will improve right. There's mobility increases, but then the question is how your average ticket will perform.

So you know curious to hear what you have to say about that you know your performance. If maybe your average ticket performance surprised you to the upside given how strong the topline was.

I don't know if maybe you have further evidence that some of the items that you alluded to we're gonna be stickier going forward.

Thanks for the call.

I will start and then net net.

And you add to it but and thank you Ricardo for the question, but clearly I mean, when you look at day at the ticket.

In OXXO.

Being aided by some of these what you're calling a sticky.

Products that we added in the portfolio in the past year I mean, just like we mentioned spirit being 1.

We continue to see helping on the ticket.

Price, but importantly, as we were mentioning the team has been very.

Very quick adapting.

Consumers needs in the offering that we have in the stores and that has made it also some of the more traditional pantry items.

And we alluded in the call are also helping in the ticket price.

Consumers are coming back from stores, but at the same time day fine.

Find more solutions in the stores and that is helping the ticket price. It is we expect that these are.

Things that will state moving forward because consumers have adjusted.

They're shopping.

What they are finding the stores. So there is a reason why you shouldn't stay there for you.

Sure.

I'd say in terms of whats sticking I think pantry items I would say spirits.

In services. So I think those for those 3 are probably the ones that are our continued on our trends that will continue in the future and the ones that I think are are amortizing I think also the fact that the consumers with personal.

On that are.

I don't like that person on soft drinks and smaller.

Smaller snack items.

Coming back to the store and lowering the average ticket from what we saw in the heat of the pandemic.

But those 3 items I would say are the categories that are keeping the ticket higher than it otherwise would have been and hopefully that will continue into the future.

Jim.

Much appreciate it thanks for the color.

Assets.

Our next question comes from the line of Rodrigo Alcantara with UBS.

Hi, guys. Good morning, Thanks for taking my question from a limit myself to 1 as well.

Bank about the integration of the U S assets I was wondering do you care to comment any on next year and.

And about this on a sequential improvement from what we saw on margin on a quarter over quarter basis was wondering if you can comment on how much. We can hit you with these 2 operating average.

Cost.

Sales initiatives.

And she and her teams there.

On the water level.

And at the margin.

We may expect for for the full year net will be my question Carlos.

Sure if you want I'll start at the back for Ya.

I mean, there was.

I think the famous and also a very.

A very strong review of Las Vegas on police because a lot of efforts on the management for a part in terms of lowering both SG&A as well as being more efficient on house and that is that is I think a good chunk of it and then volumes came back I think we're obviously compare.

Bring to remember the second quarter last year, there wasn't a beer transportation whatsoever. So that volume also contributes to operating leverage and then more and more I think where we are getting stickier contracts with better margins on both on the warehousing side as well as from the LPL.

So there has.

I think significant pickup in higher quality higher margin products. So those are encouraging news into the future and we do expect.

Again, the margins to continue to allow us to move to the upside.

Which again will be will be balanced with the logistics, sorry, with the distribution business in the states.

That operates under a different the different margin dynamics, but you should see some improvement there going forward yes.

Thank you.

The Eagle Ford the question the only couple of things that I would add.

What they are and you just said that.

So let's pick a business it is princess.

But the other operations are doing is benefiting from the fact that.

They have become significantly more efficient in the way they operate on that we should continue to see the benefits.

Moving forward on.

Second when it comes to the integration of the distribution businesses in the U S and we.

We went into that in previous calls.

The integration is also coming along with the senior debt we had expected on.

And that is also coming along according to plan on.

That's really helpful. So as we continue to integrate those businesses in the in the amongst to come.

That's very interesting. Thank you. Thank you both for organic growth.

Thanks for taking them.

Our next question comes from the line of Rodrigo <unk> with Scotiabank.

Thank you.

I wanted to revisit.

<unk> seen launch and I guess the question is what should be the full capabilities at spin at launch beyond loyalty and.

Will there be any changes on held us as a strategy for example, as a result of this launching.

I'm also particularly interested in the last mile.

Initiatives, we should briefly mention but if you could add more color on on what could we expect on the last mile.

Especially even though you've had some learnings through FEMSA ventures, and and the exposure to startups like coastal so I'm just curious.

How how can we put it all together thank you.

So I'll start and a net.

Add to it but first and thank you for the Eagle Ford the question.

Look it's been as we said we are in the process of using the test.

<unk> market is too.

On.

Really fine tune the value proposition.

And.

So we are a day moment understanding what is is that consumers want and how they are using.

On the service, what modifications and changes and improvements.

We need to make for it and that's precisely the purpose of the of the pilot test.

And as we open up other for their Cds and win.

<unk> improve.

The experience on the services, we provide based on these learnings.

As for the last mine.

And as we said in 1 of the previous questions.

We see that consumers are of course using debt service as part of the <unk>.

<unk> out of the pandemic, but we said at this stage.

We don't see a way in which we can actually have a sustainable business.

With the type of economics that dose.

Practices cut today.

We clearly see that.

Uh huh.

Cold environment is changing a lot of consumers are changing their habits.

We see that on opportunity may arise using older coal platform us too.

As a way to provide better economics on.

We will do that for <unk>.

You said when we see that.

The.

The ticket size makes it attractive.

So that we can have a sustainable business now, yes, indeed, we have learnings with.

2 there.

Some of the participations, we have in <unk> and <unk>.

Also on my OXXO. So can you said before and we're taking those and I'm sure that.

We will see a way to use those learnings into future, but can you want to go for sure.

Your last question.

I also told us by the way so that's what remains open as a product and we're letting basically consumers decide whether shall now sort of spin makes it makes sense for them. So they will coexist.

At the store.

Just quickly on on Spain, I think also you asked kind of what functionalities are being launched right now the MVP includes basically.

With regard to I mean, the ability to pay at OXXO stores through the wallet the ability to do peer to peer and cashing in cash out of those transfers Anthony OXXO store and.

And then it allows also for for Bill payments and it is integrated.

Talks for pregnancy, you can earn points and then transfer them to Europe's for Brandon.

So that's what the MVP includes clearly the Optionality there going forward I mean is limited as we can we can do I mean, Craig.

If we can do.

A lot of our staff from the platform, but that's where we're starting right now.

And just adding on into last mile. I mean, we're learning a lot in the investments, we're making book in Cusco cheaper and another.

Other.

Call it distribution heavy last mile companies that are.

That are attacking not only the consumer but also on the moment bump start stores.

But as.

<unk> I mean, the key thing is there'll be certain use cases like <unk> that has a very high average ticket volume.

And also for certain of our categories like a reunion.

And other bigger ticket items that where it will make sense and there will be others, where it makes sense. So we'll we'll make sure to have a robust for us.

Suffering.

Through for.

Our digital channels for the consumer.

We will also be very wary.

Bob of just the burning cash are being unprofitable just for the sake of having customers adopt and coming to our platform. I think there is I mean, theres a lot of value to be added from the OXXO network and a lot of.

Convenience that we can offer.

Both in terms of speed delivery and product availability.

The other platforms can offer.

And we will try to do the right things from an economic perspective.

Got it makes sense sounds like the ticket obviously is a very important.

<unk> of the equation. Thank you very much for that for the answer.

Thanks for the deal.

Our next question comes from the line from Marcelo <unk> of Credit Suisse.

Hi, Yes, I'm on and thank you for taking my question. My question is more related to walk so here in Brazil.

We know that housing has been a road show talking to the market about your expansion plans.

But it would be.

Great to hear from you and updated expectations on that.

And ultimately I have also seen a lot of more on new stores here are being opened as well. So it would be great. If you can share your initial impressions about the market dynamics and how it compares.

In Mexico.

And what are the main difference on that debt, we will likely to get it back but thank you very much.

Sure, where we're very happy with the way the partnership is going with a with a value and there are as you know we are during the pandemic b the selected.

This diverse I mean over a thousand of them remain relatively solid throughout the pandemic. They adopted of course value props and and operations, but for those remain relatively solid and we're happy with that and with the initial rollout of the proximity concept through the OXXO stores I mean, we've only got a handful of stores at this point, but.

So on which are very different from a a.

A mixed perspective than the traditional Mexican OXXO stores. They have I think a lot more foodservice a lot more bread a lot of more.

Okay shows that are not necessarily the consumption. It is more akin to compete with the local by the Es I think then.

The traditional mom and pop store in Mexico, but so far I think I mean, we're very happy with the performance there being able to compete with with I think a good product offering on the bread side, especially in.

And on certain of the of the beverage categories as well.

We're encouraged but again still too early to tell.

With it for Libya, and rolling out in the outskirts of.

So Paolo at this at this moment, but they're growing and maturing the stores from maturing. According to plan and we're encouraged about the expansion plans there.

Okay.

Okay. Thank you very much cash.

Our next question comes from the line of <unk> <unk> with J P. Morgan.

Hey, guys. Good morning, Thanks for the space for questions here. So just a quick 1 on my side wanted to ask on the performance around OXXO in Mexico, maybe on a more segmented basis. So if you can provide some color there on how trends are let's say in day.

And the C D or b exceeded locations versus the ones in the tourist centers that had been lagging a bit behind any comment there on the details on on evolution and performance will be really helpful. Thanks.

Sure I think I mean regionally certainly 1 part of it.

And as you said I mean, the tourist locations.

Patients had been very tough during.

During the heat of the pandemic over the last summer.

They are coming back having said that we are seeing a significant traffic.

In the in the beach areas in the southeast and in the Pacific Coast of Mexico. The CD it depends on which ones you look at the ones that are close to bus stops.

<unk> and traditional transportation hubs are theyre doing well through the office locations are still suffering as well as the school locations. So I think it has more to do with with specific locations generally speaking.

But again, we are encouraged by the trends that with a new product mix that that they are doing.

Doing relatively well.

And what I would add Lisa is that we see broad recovery.

This last quarter on that CD basis for OXXO.

It is more.

Within the CD the type of mobility on traffic.

That.

Our fixed consumer.

<unk>.

In a way of doing and conducting their lives.

If we have a store that is close to for example, a high school you can imagine that that has been affected even the CV is doing well.

When do we see.

Store that is closer to on.

On an officer.

They are there and that office area is back into a more normal working hours. Then of course, we also see on improvement. So this the whole way of operating which we manage the store on the depending on what is happening around it as you can imagine is helping us a lot in terms of performance.

We certainly have that ability on that type of capillarity.

Yes.

Perfect.

Thank you very much for the Argus.

Thanks for reserves.

Yeah.

Our last question comes from the line of Carlos Laboy with HSBC.

Yes, good morning.

Because.

And so once once viewed the heineken stake in strategic and later became more tactical and you started selling it down and.

And now FEMSA has new leadership members Heineken has a new CEO co clinic, and Coke FEMSA and FEMSA.

You all see cross category collaborate.

Every week growth and partnership opportunities very differently than just 2 or 3 years ago.

Does this change your view of the medium to long term merits of holding on to the Heineken stake is it becoming more strategic and less tactical now.

Yeah.

Okay.

Elaborate thanks.

Thanks for the question Carlos I think that I mean, as we've said before Heineken.

Heineken does I mean number 1 it does provide a very very stable.

Downside protect there in terms of revenue generation stability.

Developed market exposure to the portfolio and on the other side. We are also I mean as you.

Growing our partnership for for a number of years now in Brazil, and hopefully in other markets going forward. So.

It is I think both a strategic relationship as well as a good financial play from but from our perspective.

I mean, having said that we evaluate the Heineken stayed the same we reevaluate all of our businesses and are continually.

Revising kind of what what returns we expect from from their current valuation levels vis vis other opportunities as well as the cash on our balance sheet as we continue to.

To look at capital deployment opportunities and balance.

The funding requirements both for those.

On.

For those opportunities.

Looking not just at on.

Our current portfolio, but also our debt capacity and figure out.

What how the portfolio would look like GAAP pro forma that's the way we did it of course when we entered.

The Janssen space in the store.

<unk>, that's the way we funded our investment in Jetro restaurant depot.

And going forward, we will.

We'll continue to evaluate any and all funding opportunities as we look to the broke capital.

From from many sources again for now we remain happy shareholders.

And Heineken and we still think that it provides a good.

Good backdrop and safety net to the portfolio as well as having strategic implications.

But but that asset as well as any other assets is going to be looked at in the event that we looked at on a larger capital deployment opportunity going forward.

On the 1 thing to add Carlos and thank you for the question is is that as you said in the way you phrased your question.

We do have.

A very good relationship with the management of share.

Of of Heineken, and we have every relationship with the management of Coca Cola.

Company. So those are things that are also there and are important.

Thank you very much for your insights.

Yeah.

Ladies and gentlemen that is all the time, we have for questions for today I will now turn the conference back over to Francisco Camacho for posing additional remarks.

Hum.

Well I think that that's all for today. Thank you very much for your participation. Thank you for your support and have a great day.

Thank you and ladies and gentlemen, if you wish to replay the webcast for this call you may do so at fences Investor Relations website. This concludes our conference for today. Thank you for your participation.

Patient and have a nice day all parties may now disconnect.

Okay.

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