Q4 2021 Fomento Economico Mexicano SAB de CV Earnings Call
[music].
Please standby were about to begin.
Good morning, and welcome everyone to FEMSA fourth quarter 2021 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 <unk> future performance and should be considered as good faith estimates made by the company. These forward looking statements reflect management expectations and are based upon the curtain currently available data actual results are subject to future events and.
Ts, which can materially impact the company's actual performance.
At this time I will now turn the conference over to Juan Francisco themselves Director of Investor Relations. Please go ahead Sir.
Thank you good morning, everyone welcome to <unk> fourth quarter, 2021 result conference call.
Today, we have Daniel Rodriguez, <unk>, Chief Executive Officer, Michael Camacho, her Chief Corporate Officer, Andrew <unk>, our CFO .
So we are also joined by FERC, We got so who heads co census, investor relations.
The plan for today is to have Daniel comment on some higher level strategic topics and then Michael will talk about the evolution of our governance profile and certain changes that FEMSA is proposing for the upcoming shareholders' meeting in line with feedback we have received from investors.
That should enhance our board's accountability competition and function.
Next can you walk us through the numbers followed by Q&A.
So the call will probably be a bit longer than usual.
But hopefully it will prove to be a good use of your time.
Let me turn it over to Daniela.
Thank you, Brian and good morning, everyone let.
Let me begin by thanking and recognizing a lot of them are yet once again.
We all know that he was instrumental in leading the effort to turn OXXO into the powerhouse it is today.
Creating enormous value for FEMSA and its stakeholders.
I think different based on compelling world, So I would use going forward.
We're also familiar we did a lot of those self adopt the role of FEMSA chief.
Okay Sir.
On the development of a positive culture of trust and collaboration that.
Has enabled over broad organization over hundred thousand colleagues altogether works a common purpose.
Now allow me to make a quick recap of how I see FEMSA in terms of its potential for long term growth and value creation.
I'd go a cola FEMSA, we have in place a new long term relationship model with our partner the Coca Cola Company.
That significantly increase system alignment and created compelling opportunities for future consistent growth.
You know where health division, we acquired a large minority stake from older format Barnett in Chile, allowing FEMSA Comercio, who finally integrates over operations across the four countries, where we operate.
With Heineken, we're reached agreements to extend or Cola FEMSA disposition partnership in Brazil, while we navigated the gradual opening of OXXO stores in Mexico.
Other beer brands in addition to the Heineken portfolio.
Finally, we have made significant inroads developing our business in the United States with over investment in Jetro restaurant you bought.
And the creation of Amboy solution.
We're specialized distribution platform.
As I begin the journey, a stem cell C O N E.
Those little company I truly believe every one of those operations are in great shape we.
We have faced and overcome challenges become smaller.
Including of course, navigating the Covid pandemic.
I would like to talk a little bit about where we are today in our core business unit and then discuss some of the opportunities we see going forward.
Starting with the proximity division in 2020 , one we surpassed 20000 store milestone and importantly, we believe there is potential and sell some more stores in Mexico over the next day.
At the same time or South American operations are getting into high growth year.
Our joint venture in Brazil.
In a few years it is entirely possible that oxo international would be generating unit growth figures are comparable to those in Mexico.
Do they as consumers return to their normal activities and habits.
Our value proposition is as relevant as ever and our comparable sales are now above pre pandemic level.
This combined with a leaner cost structure and improving commercial income activity is driving structure.
Profitability gains.
This means that OXXO and proximity retail more broadly we continue to be a key engine for FEMSA for long term growth.
We're also looking at other proximity formats with different characteristics suitable or different consumer environment.
I mean, we're always looking to roll not just the number of units, but in profitability and returns.
Yeah.
Beyond physical format. As you are aware we are in the early stages of developing or digital strategy.
Been by OXXO or digital wallet, and oxo Premia, where loyalty program are off to a very promising start.
And we have begun aspiration to become relevant players in Mexico CE ecosystem.
This digital opportunities are so important and relevant to our long term strategy that we have created a business unit focused on their pursuit and development.
Dedicated unit reports directly to me.
Well, we are on the subject of digital.
Digital let me give you an update on the regulatory pronged or spin.
We have now received from the regulator, therefore rotation with certain conditions. We're in the process of addressing these conditions and it's been Brian is operating under this authorization.
This is a very positive development and we will keep you posted of any incremental news.
On the broader topic of our digital strategy, we are deploying the necessary resources, including in terms of our organizational structure and talent.
While it is a tight market we have managed to attract industry highest we're always been and premier platforms and the effort is ongoing.
We're also interacting with potential partners that could contribute their expertise or resources at different levels.
Commercial or it would be structured with a view to maximize value creation.
And while there is a natural focus on developing the ecosystem and pursuing the opportunity in Mexico, everything we learn and develop here will serve us well in other markets.
In other parts of the world operation such as the Health Division.
Moving on the Health Division.
We are now able to transfer best practices across territories and were growing rapidly in Colombia, Mexico.
Leveraging the scale and execution Cleveland result of the Chilean operation.
Beyond commercial and operational improvements that should allow us to gradually narrow the margin gap relative to Chile.
We're also rolling out our digital offerings across the platform in terms of e-commerce loyalty and other related opportunities.
On the expansion front, we're focused on consolidating and growing our current operations.
We remain vigilant or inorganic opportunities.
Organizationally, we have evolved and simplify our structure a bit to better reflect the evolution of our business units.
Allow me to be closer to the operation.
Therefore proximity.
Unhealth initials now report to me, allowing us to remove a.
At FEMSA Comercio.
This means we will not have a CEO of the retail business.
Rather the retail businesses closer to the FEMSA leadership team.
Moving on our logistics and distribution operations are growing rapidly.
Driven by our successful acquisition strategy in the United States that is allowing us to execute our game plan faster than expected.
We're well on our way to achieving our objective of creating a national platform.
And we are already capturing meaningful synergies from our enhanced scale and from cross selling.
<unk> is a gross territories.
We have added almost $1 billion in revenue.
Acquisitions in the past 14 months.
A significant integration and while the synergy capture work ahead of us.
But there are also a pretty important market in the U S, where we still need to strength over breadth.
This is a business that is very attractive and one that is already delivering solid returns with potential to increase margins over time.
We are committed to continue play a relevant role in the consolidation of this market.
For its part Coca Cola FEMSA keeps focus on profitable growth, both organically and through targeted a decision such as the recently announced transaction with CVI in Brazil.
In an environment, where for the system consolidation is always possible.
Cola FEMSA enjoys upward cash generation and a strong balance sheet that supports not just a healthy dividend stream, but its own growth optionality.
Operationally cost continuous advancing in its own digital and Omnichannel initiatives. It's ultra slot platform continues to make progress in Brazil and Mexico.
Our fast growing number of customers now enabled to place orders, Italy, and the percentage of digital orders reached new Heights.
And following the res system alignment with the Coca Cola Company, we're finding more ways to maximize the productivity of Coke FEMSA distribution platform through load sharing pilot tests on our own fleet as well as the new desktop business.
Yeah.
Now, let me talk a little about some higher level strategic considerations.
As you know FEMSA has evolved over time as we have developed certain key capabilities to allow us to pursue business vertical that share certain characteristics.
We participate in mass market mainstream industries by providing highly scalable products and services.
We develop high level capillarity, allowing us to retail and serve our customers through frequent interactions and we rely on effective operations and processes.
Efficient logistics and distribution capabilities.
All of our business units require and benefit from this key capability. However, our operations are at different points in their development curve.
They have different capital requirements and different growth rates and potential.
Therefore, when it comes to FEMSA capital allocation and deployment, we will privilege those operations that have the best opportunity to generate a positive spread between the return on capital and their cost of capital obviously adjusted for risk.
Lately assessment, driven the growth of our retail platform as well off of where recent investment in the United States. We are convinced this is the right approach and therefore, you should expect the spiked obstacle deploying our capital along those verticals.
Finally, let's talk about over two large minority investment Heineken on Jetro restaurant people.
Regarding Heineken, we have obtained very good financial return from these investments since 2010.
And we have nothing but respect for Heineken.
It is a well managed well diversified company and will continue to be as we have said in the past happy holders of those shares. However, we are constantly benchmarking this investment against potential alternative investment like those we have recently made in the United States.
We have funded such investment in the past with proceeds from a partial divesture of our Heineken stake and we may do that again in the future.
And that brings me to Jetro restaurant depot. This is primarily a strategic investment over time. This is a regional business to which we would likely be somewhat exposure in.
And as you know there is also the potential to explore and eventually bring discussions gallery mall to Mexico.
<unk> is a very compelling from a financial standpoint, and we are happy holders of their shares as well.
Let me close with the following.
There are many moving parts in FEMSA and right now all of them are moving in the right direction.
We truly believe the future is bright and full of promise.
Our company is always evolving as we direct our resources towards the opportunities that we believe restaurant the most compelling long term value creation potential and we're moving as fast as we get.
I am fortunate to lead such an extraordinary team more than 320000 strong and the best in the business.
Attracting and developing the best people is a keystone of any business that's aimed to thrive.
In the long term.
I think it is a high priority for us.
Together I have no doubt that we will achieve great results and wait a few more pages in the long history of our remarkable company.
And while we do that I look forward to engaging with you frequently in the months and years ahead.
Now, let me turn it over to Bob.
Thank you Daniel and Hello, everyone I want to talk a little bit about why we have been doing on the corporate governance front.
Particularly with regards to the structure and functioning of our board of directors at.
As you might be aware, we circulated a press release, a few days ago detailing several relevant changes aimed at increasing the accountability and independent oversight afforded board.
Our first objective is enhancing the board accountability and to that end, our shareholders, we'd be able to vote on directors individually rather than necessarily.
For the first time this year.
We believe we are among deferred Mexican companies.
And hopefully this will become a trend.
Second we want to increase the length of three independent directors.
Back in 2018, our board had 21 directors by 2021, we had reduced the number to 18 directors in 2022, we are reducing it further by one or two directory.
We are making a commitment of reaching a final target between 14 and 16 directors next year.
Importantly, at least 40% of those director will be independent when we achieve our target.
Third we are increasing the oversight role of independent directors and key committees.
Yes, I would and corporate practices committee will continue to be composed.
Of independent directors and beginning this year the corporate practices Committee will also evaluate a nominate a candidate for independent directors and a.
Complementing the role of senior management.
Beyond 2022, we have also set three governance priority.
Third we will continue enhancing our board scope and effectiveness by balancing institutional knowledge with fresh perspective by adding new independent directors.
We will add incremental expertise or relevant new business areas, such as digital and E Commerce.
To further enhance the board's gender diversity <unk>, our current level of 22%.
And seek backgrounds in alignment with centers focused on commitment and.
And leadership in ESG matters important to our success.
Second we will ensure board focus and responsiveness by adopting limits on the outside commitments of directors.
And third we will bolster outreach to shareholders.
Their input as we continue to enhance our governance.
On a related topic and before turning the call over to Daniel Let me elaborate a little on the subject of ESG.
The evolution of where boards to better address this need we have established an internal ESG board to focus drive and continuously assess our commitment and performance. According to our ESG framework.
As you know we have put our money where our mouth is.
We have issued sustainability linked bond with ambitious targets that will become more expensive. We fall through we failed to reach our objective on important metrics like the use of renewable energy or the elimination of operational waste to landfill with certain within certain timeframes.
<unk> now turn the eight every aspect of our company and we are eager to be part of the solution.
And with that let me turn it over.
Daniel.
Thank you Michael and good morning to everyone on the line as we have done in the past several quarters, we will provide fourth quarter 2019 comparisons when we consider this to be helpful. As the 2020 comparison base reflect the impact of the pandemic and does not always tell the full story.
Starting with consolidated quarterly numbers total revenues during the fourth quarter increased 16, 3% while income from operations increased 18% compared to the fourth quarter of 2020.
When we compare against the fourth quarter of 2019 total revenues increased 14, 6% while income from operations increased 14%.
Sensors net income increased significantly and reached 10 billion petals, reflecting higher income from operations, a noncash FX gain related to <unk> dollar denominated cash position a decrease in net interest expense and an increasing our participation in associates results, which mainly reflects the improved results of our investment in Heineken.
Moving on to discuss our operations beginning with templates proximity division we.
We opened 434 net new OXXO stores during the fourth quarter to reach 865 net openings for the year, reflecting a strong push by the team to close 2021 with strong momentum.
OXXO same store sales were up 12, 5% for the fourth quarter driven by an increase of 10, 4% in average customer ticket against 2020.
When compared to the fourth quarter of 2019 same store sales increased four 4%.
Gross margin increased 150 basis points to reach 46, 1%, reflecting a recovery in commercial income from promotional programs.
Income from operations and operating margin increased significantly compared to the same period of 2020, reflecting improved operating leverage and strict strict expense discipline.
Relative to the fourth quarter of 2019 operating income increased 15%, while operating margin increased 30 basis points. These are encouraging numbers that highlight auctions resilience in an environment that remains still below pre COVID-19 levels in terms of customer mobility.
Regarding our additional digital media initiatives, let me give you a quick update.
In the recent months, we made very good progress on the regulatory front as Daniel mentioned and spin by OXXO continues to grow at a rapid pace.
As of last week, we had $1 6 million registered users on the platform.
On the loyalty front things are moving even faster and that's at the same date, we had more than 4 million registered users on our OXXO Premier platform, which of course will play an important role in driving customer engagement and generating actionable data.
They're still very very early days, but we are generally pleased with the trends we are seeing.
Moving on to FEMSA <unk> Health Division during the fourth quarter, we expanded our drugstore count by 112 net additions to reach a total of 3652 units across our territories at the end of December and 284 total net new stores for the full year.
Revenues increased seven 3%, while same store sales increased an average of five 7% on a currency neutral basis revenues grew 14, 3% and same store sales increased 10, 3% as we continued to see good momentum across our operations.
Gross margin remained flat in the quarter, reflecting channel and product mix headwinds mainly in our operations in South America.
Operating margin expanded 10 basis points, reflecting improved operating leverage.
Moving onto OXXO gas revenues increased 32% and same station sales grew 23, 3% relative to the fourth quarter of 2020.
During this quarter gross margin was 14, 1%, while operating margin remained flat against 2020, reflecting tight expense control that offset operating deleverage driven by the still recovering mobility.
Regarding our logistics and distribution business revenues increased sequentially, reflecting positive dynamics overall, having said that in the U S. We continued to see a different speeds of recovery at certain categories, such as facility supplies, which are still lagging their historical pace, while others, such as packaging and foodservice have recovered a lot more.
Quickly.
On the logistics front, our operation again showed good trends across most of its Latin American markets.
Finally, moving on to Coca Cola FEMSA volumes grew five 4% over the last year and almost 7% over the 2019 benchmark with most markets contributing to the positive results.
Revenues increased eight 5% and gross profit grew nine 3%, despite despite supply chain disruptions and cost pressures on certain raw materials.
Operating income increased seven 6%, reflecting a one time tax effect in Brazil.
All in all Coke FEMSA showed the resilience of the business and their ability to deliver results in challenging environments.
You can listen to the webcast of the quarterly call that took place last Friday.
As you can see we were able to close the year with good momentum across our platform and the strength seems to be carrying over into 2022 as the world continues to gradually reopen we are excited and bullish about this opportunity set as we begin this new year.
With that.
We ended the prepared remarks and can open the call up for your questions operator.
Thank you and if you'd like to ask a question. Please signal by pressing star one on your telecom keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to lawyers have military charter.
Again press Star one to ask a question.
For just a moment to allow everyone an opportunity to signal for questions.
We'll go first to Bob Ford with Bank of America.
Hey, Thank you and good morning, everybody and thanks for taking my question.
Danielle how does the creation of a digital division impact the resource commitment and the expected pace of development of spin in Colombia.
And what are the key Kpis for management and the digital Division this year.
Yes. Thank you Bob for your question I mean, maybe then you guys can complement in the answer but I mean as you well mentioned today, we are focused in two main RF into digital.
Scope. So one is spin which is really a printer organization on the second one is the loyalty program.
In terms of speed and in terms of resources, we have been very active I mean, bringing people expert from the industry and we have a leader who reports directly to me as I mentioned before.
And I would say that that is making very good progress I mean, I don't know quite a if we can show that the numbers that we have today I mean in terms of customers.
I mean, we have more than 4 million on the loyalty side.
We have one six and spin.
About 60% or 60, plus in terms of actives.
And I would say that is where we are I mean, we have made a lot of progress I'm very fast over the last couple of months and we're very positive about the future and and obviously as also mentioned during the call. We are looking for a different level of potential partnerships of different level, because we are with.
We strongly believe that that could be an opportunity in terms of value creation. So that I would say is the most relevant thing in terms of the indicators. Obviously, we are moving to the standards of the industry.
And that is how we are tracking the business and internally I would say that the fact that that.
That division is reporting to me I mean, the FEMSA leadership team is very close to them and we are following all the evolution in terms of performance and value creation on a monthly and sometimes on a quarterly basis I don't know anybody else, who would like to add anything else, yes, just to be more specific on kpis.
Going forward internally, we're looking at these indicators and going forward, we will start to share some of this in the market, but we are looking at the stickiness of the platform via the churn the average revenue per user or customer acquisition cost and the likely metrics going forward and on the loyalty front again, we are looking at.
At the tender in our stores.
Of the stickiness of the platform and that data is also being shared internally to see what kind of monetization opportunities.
Access going forward.
That's where my very.
Sorry from our repurchases tonnes, sorry about that I think that is important to mention that.
Very consistent inflow of talent that is coming from.
Relevant industries prototype that we are bringing into these.
Jay.
Was that a native talent.
US to develop further.
And just as a follow up how should we think about the evolution of the functionality and the use cases on both sides.
Well I mean bulk, but we are doing is obviously applying the same methodologies.
Industry applies so mbps.
<unk> teams.
And I think that the product is evolving as we speak and I think the most relevant thing can.
Can you just mentioned.
We are very close about the stickiness of our product and that assumption that we are improving.
And we will continue to improve going forward. So as I said, we're very positive about the product.
Thank you all very much.
One comment to add Bob.
Got.
It does look like.
Adding customers.
Obviously, it's always a challenge, but the greater challenge is going to be keeping them engaged right. I think as you know we are in an environment in Mexico, where cash is still king.
Where various as certain reluctance to embrace digital forms of payment.
A learning curve.
And so.
We can add big numbers as we already mentioned.
The additions per month are in the hundreds of thousands in the case of Premier we're almost probably almost adding 1 million per month, but.
But we need to get people to really use the product.
And more time, and obviously offering them rewards.
He is going to be useful for that but.
Just to remind everybody of the of the headwinds that we and every other player is facing in Mexico, which is deeply entrenched cash culture, which obviously for us it's kind of a.
You know.
We benefit from the cash side of things, obviously, but in terms of transitioning to digital is going to take a while.
Yes.
I think you made a very good common quant, but let me type to connect that with the <unk>.
The ability that we have today that we know exactly who is doing what I mean in terms of our customers. So we have much more powerful information and im sure. It will help us how we can improve the product and to <unk> point, how we can try to do.
The ball with the Mexican in terms of the of the cash if you want a culture. That's still is very relevant in Mexico.
Thank you very much.
Okay.
Your next question comes from the line of Ricardo Alves with Morgan Stanley .
Hi, everyone. Good morning, Thanks for the call. Thank you for being available a couple of questions on the OXXO.
Same store sales gross margin well above expectations that you highlighted in the initial remarks, just a quick question on SG&A were there any major lines or anything that surprised you.
I don't know, perhaps on the personal expense side, we were a bit.
Disappointed just a beautiful yesterday airlines, so any thoughts that you could give on that would be helpful. Now more important than that.
The OXXO how are you seeing mobility and overall year numbers throughout February .
Tomorrow. So just wanted to get your quick thoughts on <unk>.
The evolution of our mobile it in same store sales that we get.
Eventually completely past new wave that's my first question on OXXO.
And then the second question.
Moving down to Brazil, I mean, it seems that the GV surprising to the upside so.
Just.
Just want to.
Overall update on what you're thinking about to outgrow due in 2022 and.
And more broadly.
We need to broaden the question on <unk>.
Outside of Mexico, Okay. So.
Wanted to get your thoughts on how you're thinking about South America in terms of growth contribution.
The growth contribution of the region is increasing.
Relative to Mexico as it pertains to the expansion of the company as it pertains to your expansion in retail so any thoughts that you have going forward on.
Ex Mexico, we pay you that would be helpful. Thank you.
Sure. Thanks, Ricardo I'll start with the SG&A question, and then turn it over to Danielle for the Brazilian JV progress on SG&A released nothing specific dimension other than the fact that as you saw we had a big number in the fourth quarter in terms of new store openings. So we had unusually heavy.
Fourth quarter and as you know some of some of these expenses are not capitalized theyre, putting directly through the SG&A and Thats why probably you saw a little bit of a higher bump on the SG&A, but other than that I think we continue to see favorable deleveraging trends and as commercial income is coming back that gross margin benefit is flowing through to the bottom line.
In the way that we expected, but nothing specific dimension of the fourth quarter on the SG&A front.
Yes.
Before moving to Brazil, regardless in terms of mobility, which was your question in Mexico, well as we mentioned we are starting to see a recovery. We're not there yet I mean completely in terms of morality, Bob So far I mean, a very positive trend in the fourth quarter.
Then moving to Brazil.
Just a reminder to everyone. The JV that we have there with Watson, which is a 50 50 JV we have free dish.
Different models operational so one we have the traditional franchise model with the select brand inside the gas station second steel inside the gas station with solid brand we offer to the dealers if they like that we will.
Dave.
The store and we will run as we normally do with and also store here in Mexico and third one is that the OXXO.
Deployment of stores outside of the gas station and I will say that we are very much aligned and even positive in terms of what we're over or do you not plan.
The most important thing is that the best.
Customer value proposition that is proven to be very successful in Brazil any social.
We are very positive about what we have seen so far in OXXO in Brazil and for this year I mean, our plan is to open around 200 stores in 2022, and obviously that will help us to learn how.
How we can keep that momentum or even increase going forward. So that is where we are at this stage in Brazil, but very positive and very happy with the results that we have seen so far.
I appreciate the color. Thank you.
Thank you Carlos.
Your next question comes from the line of Ben Theurer from Barclays.
Yes.
Yes.
Thank you very much for taking my question.
Well, what I would like to understand a bit.
In regards to the most recent performance of the Health Division.
Could you elaborate a little bit on what.
What's the time that makes you think I mean, obviously you had some very good results during the call that maybe things have just normalizing so where do you stand right now and Gulf South America, Mexico, and particularly in Mexico, where do you stand in terms of like getting the operating efficiency.
He's from having gone through the <unk>.
Sure enough process throw out that would be my question.
Okay.
Good.
Let me talk first about South America, I mean in terms of sell some area gas we have mentioned.
Core market on the most relevant in terms of contribution is the Chilean market, but we are moving very fast in order to improve the capabilities, both in Ecuador, and Colombia and in that regard in two markets based on the synergies that we're capturing from the commercial stuff.
<unk> point, we are able to speed up our organic growth and that's what we're doing <unk> in Colombia, particularly in the case of quick well over I think mostly relevant to mention that we are.
I mean growing very fast as well with the franchise model, which is part of the if you one learnings that will bring them from our core market in Chile too.
April and then I'm in regarding Mexico.
Last year, we have made significant improvement in terms of the.
The scale of our of our Division I mean, the fact that now we own 100% of the business really has helped us to do that much faster and that also is helping us to improve or improve the speed in terms of the organic growth and we're always looking for opportunities in Mexico. We can see for example, where you are.
Changed et cetera in order, but also by using M&A as an option optionality. If we can grow faster in this market. So that I would say in a nutshell is where we are I mean in terms of the pandemic.
I think there was another question that you raised I think definitely we got the benefit at.
At the beginning of the pandemic, but so far we have enabled us to compensate if you want the reduction in dose.
Born until for.
Value proposition by the other ones.
That as I said, we have a much stronger commercial regional division that is helping really to be much more effective in terms of award value proposition in the markets that we're in and trying to be much more competitive in terms of price with our customers.
I might add onto that Neil just comment I think some of the positive dynamics you see on the margin front half to do without additional scale and the way we are operating in Mexico by concentrating volume of kids can use with less suppliers getting better terms and that has that has achieved I mean hundreds of basis points in margin improvement in Mexico that on <unk>.
Of the top line growth is that is really helping to deleveraging effort.
<unk> solid results to the bottom line.
We're just coming from Chile, right I mean to me.
Many of these practices come from from the Chilean operation and I would just add.
In terms of segmentation or the type of formats that we operate four for different reasons. Some of our markets have a mix of institutional.
Sales. So for example, Colombia.
Institutional and sort of Chile.
Mexico was basically retail.
And even if you look at retail.
Our drugstores in Mexico cater to a certain segment or small they're deeper within the neighborhoods are proposed to Ecuador, where we have two different formats, Rebecca which is a bigger box, maybe a little bit higher and I know you have some.
Simon which are smaller.
Kind of lower lower.
Economic segment.
Peter you have gross revenue, which is also a big bulk.
Bulk of that place a little bit higher so we I think we kind of look excuse me a lot of learnings in terms of what is the right value proposition and can we have more than one.
In a given market and I think that's also proven to be very profitable.
Okay perfect. Thank you very much Rob.
Thank you Ben.
Your next question comes from the line of Alan Alanis with Santander.
Thank you so much thank you for taking my questions.
<unk>.
I'm sure I'm going to ask about an elephant in the room.
I think it'll be benefit for everyone. You Didnt mentioned the share price of FEMSA.
The remarks and.
Share price are friends, playing dollars, we'll have them up again.
Your sustaining between whatever.
And $95 so.
Well, hey, how relevant is the share price because of all of the decisions that you're making in <unk>.
Typically I think the share price has gone up much because of a lack of increasing earnings per share and behind that.
Capital deployment.
The structure of FEMSA and in this case you are announcing.
Digital initiatives I think it would be good to secure how youre going to monetize.
The digital initiatives might have been.
In the near future, but in the longer term what are the options. So I guess two questions. Please.
The relevance of the share price and all of them and everything that you're doing.
And and the acknowledgment that this attrition will be sharper pricing.
What are you going to monetize the digital initiatives in the future.
Yeah. Thank you very much for your question on island.
And in terms of the.
Strong performance of our share price.
A significant component of senior management's compensation and large portion of the minority shareholders assets are in the port of FEMSA shares. So I mean, starting by myself, obviously I'm very close don't worry about the price of the stock.
And of course, we take care about the stock performance.
But I think maybe the difference.
<unk> acknowledged that we really manage our company for the long term.
I'm fully aware that this period the market is not fully recognizing that potential.
But having said that I mean, we are always evaluating alternatives that may optimize our corporate structure and for US. This is dynamic exercise so it's something that yet.
We take care of it.
Analyzing on a permanent basis.
But at the same time, we know that our main focus is how we can create value in the long term.
I would like to mention regarding the stock price.
In terms of digital.
Definitely I mean, we see that as a future opportunity I mean, as we mentioned earlier during the call.
The combination that we have in terms of forward capillarity across Mexico is showing us as Juan said before that for US acquiring customers is not the main challenge, even though that is at times, but it's not the main challenge is much more about how do we make sure that we will assess us weekend the.
<unk> that how we can get in terms of the evolution of the.
Cash culture at <unk>.
In Mexico and in terms of how we monetize that but definitely it's something that.
Will come I mean, I'm sure that it will come at this stage, we are much more focused in trying to grow the business as much as fast as we can and for that we'll recognize two key components of that one.
They need of both expert digital talent, which is something that we are bringing very fast on board and second we are permanently and as we speak assessing if there are opportunities to speed up and create more value, but haven't partner Barnett a different level of the of the business. So there is where we are at this stage.
Yeah, I would add also in terms of the changes we're doing to attract this that this management. We are trying to adapt our standard compensation practices to bring digital talent into the organization to something that replicates the at the value creation opportunities that they would get out of startup and again this value can.
And hopefully be monetize internally through lots of more disclosure as we go forward in terms of the progress of the value creation of these digital initiatives and also through both commercial and potentially equity partnerships that Danielle mentioned going forward. So so we do take that into consideration and hope that through <unk>.
All of these mechanisms that value would be a lot more transparent to you guys as shareholders.
Okay.
Super. Thank you so much that you don't think brickell Luxor. Thank you.
Thank you and thanks all of them.
Your next question comes from the line of Alvaro Garcia from BTG.
Yes.
Good morning, Danielle Coker in Uruguay.
Yeah.
Thanks for thanks for the space two questions for me.
The first one on average ticket at OXXO up 10% year over year.
I know you guys are very proactive on sort of passing price, but I was also wondering if you can comment on on what youre seeing on sort of structurally higher average ticket coming out of the pandemic and whether or not that's actually sticking or not from a mix standpoint, and then my second question on governance.
Congrats on the changes, particularly on the nomination front.
Two questions sort of 10 year, specifically, what should we expect as far as sort of the average tenure for independent board members and maybe if you could sort of comment on.
The weight that corporate the corporate practices Committee has had historically and how you might expect that to change going forward. Thank you very much.
Sure first on average ticket I mean, there is an inflation component to that no doubt.
We are trying to balance obviously the value proposition with the.
Increases that we're seeing on the supplier front that but so far I think that there is still a good chunk of the average customer ticket that has to do with changes that we believe will be permanent in terms of the average customer basket I mean, we're seeing a lot more I mean hard liquor instead of beer we're seeing.
More food consumed rather than just a snacks silver.
So overall, we're comfortable that as traffic continues to grow into store that average ticket at least for the customer the big changes habits will stick and be a permanent accretion to be add to the value proposition.
The storm, let let me complement on that okay, no because I think you're absolutely right I would say that obviously I mean, one of the things that we're still.
I mean with this evolving and will continue to evolve is what would be the new reality at the office space and I think that is something that we are we are analyzing very close I mean that could happen a positive impact in terms of the of the particularly the traffic, but then I mean, the combination of the type of consumption.
We up with people.
Go out and particularly want to work at the office that potentially on Alberta.
Also it will change a little bit the mix of that.
The size of the ticket could reduce the biggest hour at but it will be more than compensated by the better profit. So I think that's the only thing that I would like to.
If I made there is one additional thing.
The consumer has changed its had a 19 one of the things that will definitely stick is the ability of the of the OXXO teams to adapt to that they have very quickly adapted the portfolio. They have very quickly adapted.
How the mobility affected.
The consumer patterns and 19 that you should expect the ultra deep sequencing youre doing that strongly moving forward.
And on your question on governance, I mean, as you know I mean, the corporate practices Committee and certain board members are used to take care of the of the nomination in any event now, we're making an official and theyre going to be balance sheet. Following established protocols based on mostly on investor feedback and looking at stuff such as 10.
Year experience and trying to strike the right balance between.
The corporate history of the company and the experience in the decisions that they made in the past together with our fresh personalized that can look at the evolving topics such as digital ESG and other topics so rather than.
At this point Ah communicate kind of what the specific targets are with regards to tenure composition and skills matrix elements I mean that that will be playing on playing.
Playing out across the next few months and we'll communicate as need be but we are going to be looking at at number one making it explicit as to the kinds of considerations that were making and again hopefully striking the right balance between institutional knowledge and history and <unk> and fresh.
Fresh editions to the skill set of the board.
Very helpful. Thanks for answering too thank you.
Your next question comes from the line of Louis Willard GBM.
G B M group.
Hey, guys. Good morning, Thanks for the space and congrats on the results and then Jim.
So.
I mean.
Gotta go a bit off script with my question, but I hope you don't mind.
Uh huh.
If you think of your characteristics and your track record and your capabilities. How do you see them aligning with the strategic vision that you have for FEMSA and <unk>.
I'll be standing in terms of its lifecycle.
That would be my question. Thank you.
Thank you Luis well definitely.
I would say that in terms of the evolution.
During my my my comments I think the business units are in a great shape.
If you'll notice I think there are maybe.
Through three key elements that I believe that my experience will contribute to that evolution. So one.
As the international expansion I mean, as you know before before I jump FEMSA I had experienced both working at <unk>.
And then later working at <unk> with relevant expansion outside the core markets so far.
I think the particularly Brazil, I think it's a very nice room, I mean trying to combine them or knowledge or skus than with the local knowledgeable with Barnett in Brazil has proven to be a great great element.
Second I would say also I mean, the fact that we are exploring new.
Our news in the U S I think that that.
I mean again the team on another.
It's really more to recognize Eduardo.
The guys that are here around the table today.
Great job in trying to do more.
Move very fast in acquisition and really create a new vertical for FEMSA in an area that is very familiar to us. So I think that also is a positive thing and then finally on the digital.
Space.
And I would say.
In my experience before.
If you are familiar with the business in Chile, particularly we had a very very nice development in terms of the <unk>.
<unk> of this world, but also which I think is very relevant I mean, my knowledge around the loyalty program, which is something that we have developed very successfully done in Julian that we have brought to other markets in Latin America, So that I will say that.
The three main elements.
Finally, I think the most important thing for me is how we ensure that we have the right talent going forward in order that we can achieve and continue building I mean, the history of this great company.
Thank you Amanda was quite insightful.
Your next question comes from the line of Rodrigo Alcantara with UBS.
Hi, good afternoon. Good morning, Thanks for taking my questions.
Two quick ones, if I Miss here.
But first of all on the digital front, you mentioned you're being in Thailand.
The platform right.
Now did you bring in people from VIP.
The appointment of Hudson tongue out.
So my question here would be how far out do you think.
We do our international building these right Jim.
Jim on the digital.
Lots for them and also we do almost cut like any investment there or did you kind of have some interest in that.
Pension surplus.
Partner for your digital thoughts now that you've come up almost investments there.
It would be my first question and the second one very quickly just to make sure I understood correctly.
Hi, Nick its taken a penny.
Traditionally the defense were passed through to to invest.
That's right.
Have you been impairments are.
Right now with the U S. So as you mentioned, it's hard to say that the dividend will be used to fund U S acquisitions.
That's correct that would be my questions. Thank you.
Thank you very much for all that Eagle I mean.
Regarding the digital front I'm FEMSA venture and then you guys can complement me first on the digital front. Obviously, we have made a lot of brokers I mean in terms of bringing talent from outside.
<unk>.
There are if you're one expert.
In the digital space, having said that we know that this will move very fast.
That is something that we need to be bold within months. So we need to move even faster and that for me is it's like <unk> III in three fronts. One is how we make sure that we continue to improve the.
Quality for what products, so the value proposition I mean.
Disciplined regarding stickiness second how we make sure that we have the right talent.
A dispute that we really need and that is a permanent.
If you want not concerned, but it's a permanent staff.
Taking care of.
And also I think it's important that we recognize that we need to change the way that we compensate this theme and that is something that will go.
Already mentioned and the third one which if you want in some ways a combination of the two first that I. Just mentioned is the fact that we are permanently assessing if there is an opportunity at different levels to have partners and do that.
It's why I mean, when we connect very well to your comment or question regarding debenture, because some in FEMSA venture from.
From a weather if one perspective Owen intentions that we can explore opportunities in <unk>.
Substantial.
Once that in some way can connect not only to the digital world in the future, but also that could be potential relevant for all of our other business units. So that is what I would like to say regarding the digital I don't know I mean, maybe you can go public you have any additional comment on FEMSA debentures. So what I would add on FEMSA ventures is that following the good practices of corporate VC funds.
We have a do no harm.
Attitude towards the investments that we make so although do we do have investments in last mile companies and Fintech companies that complement the FEMSA portfolio again, we share learnings, we make FEMSA properties available for them to do to.
The pilot testing et cetera to create value for themselves and we.
Try to share best practices, having said that we do let that.
The ventures can flourish on their own and all of their own value creation process as well. So we again, we tried to do no harm and tried to benefit mutually throughout the agreements and I think that has been a great value proposition for the entrepreneurs as well as good learning outcomes for us that are helping us not only develop our own <unk>.
It'll platforms, but also figure out kind of where how the landscape is evolving in each one of our countries.
One thing I would like to add.
Your question on defense.
The two teams are very close together, so meaning they talk a lot of the big work together and locking in which.
Defense have interest.
Our outside looking to do a lot of things you can imagine they have learned a lot and these type of learning.
They talk to the detail team and the shared learning and also I mean, let's face it <unk>.
People are our company's language.
Some of them, we ended up not investing and some of them actually.
They end up.
Moving forward with their own project in that regard.
A lot of talent there.
Both are available and eventually and that is also to Daniel's point before is something that we.
We look into.
We tried to get more talent into the digital efforts.
And finally with regard to your question regarding Heineken dividend.
To be clear I mean, obviously I mean cash is fungible, but traditionally we've said around dividends based on on the cash flow of dividends that we get from Heineken cough, now general and to a certain extent the cash flow provided by the proximity division and that has always been the case and we will continue to be the case going forward I think the comment that Daniel made earlier referred to.
Q3, and a half years ago, you might recall, we sold off in a block trade about 5% of our original 20% holding in Heineken and use that capital to deploy into some of these newer verticals and into the U S. So that's what he was referring to.
So from a dividend perspective again, it's still to be determined over the course of the next few weeks, but we would we would continue to follow the same the same mentality and and recover hopefully.
The pre pandemic levels of dividends. This year. So it's basically a pass through correct yes.
Oh, that's great and interesting comments on the venture side, thanks for that clarification.
Thank you guys.
Thanks Ravi.
Your next question comes from the line of Rodrigo <unk> with Scotiabank.
Thanks, everyone. Good morning, I guess my comment is with regards to the changes in the corporate structure beyond the creation of a Offenseless, Utah Division, obviously cash is king in Mexico today, but.
I think there's obviously an acknowledgement that that may change over time, and hence the importance of spin and be told in general and so I guess the question is how how to make sure that.
But you guys have address whatever challenges that you.
Based in the past in terms of having the right.
Are you already.
And kpis and in compensation.
For detail.
Under the new structure like what examples perhaps can you share asked what was not necessarily working and what's the end result of the potential and result of these changes in the corporate structure.
Well I mean, let me make sure I understand your question when you refer to corporate structure, you will refer to the leadership team that is reporting to me.
Correct.
Correct, yes.
Obviously, the creation of authenticity.
Okay, fine well I mean as.
As I mentioned I mean, the fact that we are now eliminated one layer was what's the role that I had in the past, which is the CEO of FEMSA comercio or the legal business unit Formula reflects two too if you want to keep key elements first off.
First of all I think it's the fact that I mean, the businesses, particularly will save the health Division are now digital.
Area. They are growing very fast they have to go and I think that now they are at the level that we need.
Should report to the direct it to the FEMSA CEO .
But for me, it's the first thing and I think at the same time, because I mean, all the retail business is holiday was stuck in the bus and we see that there is a big opportunity going forward in terms of value creation I think.
It's very important for me that again keep very close to this too.
This business and in terms of the of the digital one well. So Ken you said, we are taking all the knowledge of the industry in orbit.
Do we evolve our compensation package that theme in order that we can megawatts up as attractive as we can so far.
To be honest with you I think we have been very successful attracting talent I mean, the market is very very competitive, but the fact that we have such a nice if you won footprint with Delaware with over.
With over.
OXXO business I think everyone in the digital industry recognized that that is a great opportunity and they see the value in terms of how we can evolve the business, but at the same time, which I think is more important.
The guys that are joining us they see how they evolve and develop their career.
Going forward.
I'm very positive, but at the same time, let me, let me be very clear that we.
We're permanently analyzing if there are other ways.
Particularly regarding potential partnerships to even grow faster in that industry.
Let me add I mean, just to follow up on those comments number one I think very importantly, we're no longer kind of trading off our resources either on the on the opex level or on the capex level with the proximity concept, where we're funding. These separately looking at it separately and and having kind of cost of capital and opportunity cost.
Discussion separately and I think that that clearly helps.
Fund investments that on the other hand, it will probably not have been funded.
That's number one.
And number two and I think more importantly, we're being a lot more agile in figuring out what we can do internally, what we cannot do internally and being open to outsource certain elements of the development of <unk>.
The business.
And being a lot quicker in that respect so I think those two elements added to what Daniel already mentioned are helping us get distraction that we're getting.
In the market.
Got it and then just maybe one just follow up so you obviously launched been.
Without.
Any partnership.
Feedback side or on the tech side, what I guess it seems to be changing in the it sounds to me like you are now a little bit more open to seeking these partnerships are around that division.
Yeah, I wouldn't say that we are more open I mean.
I think one of the very positive element of FEMSA. Instead, we have a culture of partnership so in that regard I mean I.
Don't see any if you one difference regarding that I think the only element that we are now focusing more than maybe it did in the past is the fact that we realized that with the speed that we are growing the business.
With the with the environment that we see there outside I think if we can bring someone or someone that can help us to do that and even in a faster and more more if you want effective way. We're open to do so and we are analyzing that as we speak. So I mean that is something that we already started last year.
Doing different.
We're having a different discussion with different people and potentially we can end up with different if you're one partnership models with can be from from the from a commercial point of view and can end up even.
If you want to structure partnerships that could also include equity. So that is why we are we are analyzing.
At this stage.
Yes.
Got it.
If we think of just that.
<unk> was right in terms of originating the accounts.
Partnering with visa, which of course is something that we've done.
And setting up a peer to peer payments is that something that's already happening.
But there are areas like.
You know analytics, so that's something that we probably need some help in getting kind of the state of the art.
So we need to be smart about where a partner adds value and where they wouldn't.
And I think that's kind of complements what Daniel was describing.
Great. Thanks, a lot.
Thanks.
Your next question comes from the line of Thiago Bertolucci with Goldman Sachs.
Yes, Hey, Danielle and team and good morning, everyone. Thanks for taking our questions. We have true passions exploring different capital deployment.
The first one is about logistics in the U S right.
Ramping up well you have added more assets to be flat or farm and according to our opening remarks, we understand that there's potentially more to come over the next months right.
The sequential acceleration on the P&L that we saw in the first quarter, how we perform in terms of.
And what should we expect for the very short term had been mindful pinch on your in the gaming activity should come from there going pardon the French one.
The second one is on <unk>. So you were able to put some metrics on the Richmond store openings in the first quarter.
And we have been reiterating the structured space for higher penetration in Mexico going forward. So I was just hoping to hear from you what should we expect in terms of expansion in Mexico.
Two follow ups there.
Good question. Thank you very much.
Sure. If you want I'll take the logistics question in the U S. As you know the entire strategy behind this is that.
We're looking at an industry structure, that's in our glass model. So a lot of different suppliers a lot of different customers.
And being at the center as a distributor allows you to create a ton of value and as you create a national platform I get that get synergies and value capture from from the scale.
So from that perspective, we bought our original two companies since you know in the spring of 2020, we brought we bought a total of 13 companies so far and at this point I can say a couple of things one most of the companies that we bought both originally as well as through the beginning parts of 2021 are already meeting the right targets.
With the synergies and best practices that we have been able to want to deploy.
And from our internal perspective, we're already valuing on a DCF basis based on the performance that we see so far I mean evaluation I mean, well above what we originally paid for these assets. So we're very very happy about what we've achieved so far and still feel that we have a long way to go in terms of capital deployment into that space.
And these kinds of of quick paybacks and quick.
Return on capital turnaround, so where we're happy to report that we think we made the right. The right bet on this industry and it's playing out according to plan so far.
So let me take this.
Second question on the.
Openings in Mexico.
If you remember last year, we made some adjustments in terms of raising the threshold.
For a new locations in order to get approved for a new store, we are now requiring a higher score in our internal metrics.
Because we don't want to find ourselves again in a situation, where we need to close stores because they werent good enough, which is something that happened in 2020. So we've made it tougher to kind of get approved for <unk>.
Opening in Mexico, and we've been building the pipeline.
With that criteria. So it was very good and encouraging even for us that we were able to do so well in the fourth quarter. As you said and you know more than 400 stores going forward I think we should think of kind of an 800 number and it will start with an eight probably maybe a little bit of upside there, but let's think about 800 for men.
<unk> for 2022.
As announced earlier comment, let's also think about outside of Mexico, we're probably going to be approaching 400, right. So we're going to have 200, plus in Brazil, something like a 150 <unk> hundred 60 are in Chile, and Colombia. So we're almost going to be kind of a two to one in Mexico versus international this year.
And that ratio is going to change quickly because Mexico is probably going to stay there maybe grow a little bit.
South America for sure is going to accelerate.
To the comments that <unk> made in the remarks, it's entirely possible that in.
A few years' time, we're going to be opening similar numbers in Mexico and in outside of Mexico and.
Complementing that comment.
As you know, we spoken about scale and the benefits of scale and what that does to your return. So obviously to your relationship with suppliers as we're getting bigger in these other countries.
Obviously, the profitability there begins to kind of supercharge and it begins to be a story about margins catching up are catching up as an aggressive thing because in Mexico, obviously were 20000 stores, but beginning to.
Generate profits and beginning to narrow the gap much in the way that we're seeing on the health Division where were seeing the countries begin to narrow the gap vis vis Chile, which is kind of OXXO and the health Division is preserving Julien So I hope that's helpful.
I'm Tiago before we let you go so you don't believe me Weaseling away from the REIT question on the logistics.
For most of the early acquisitions, we are looking at ROIC in the low double digits.
Even I mean, a year year and a half into their acquisition. So just to give you a sense of how powerful this business model is.
No that's great that's great.
Just a quick final one on one comments Andy.
T Rowe structural difference in terms of units.
Economics.
Mexico and not for my part we should you should have in mind when when when I didn't mention the models.
No not really I mean, we are seeing as you know different traffic and ticket patterns out throughout the portfolio. So depending on whether it's a tourist area or an urban area or residential area. We are seeing certain changes in terms of the traffic slashed ticket mix, but overall, we continue to see.
I mean, very very high marginal returns from capital similar to the ones. We've been seeing in the recent past yeah, Theres, maybe a difference I mean, just thinking about Chile.
I'd say from a value proposition standpoint, our stores in Chile are a little bit more.
Convenience.
Think about the spectrum between convenience and just.
Proximity in Mexico, I think in Chile, you have slightly higher margins.
The average ticket is higher in Chile than it is in Mexico at this point.
But obviously you know you you need to have certain critical mass. It begins to influence whether you have distribution centers and how you build up your supply chain and logistics.
So at the end of the day you are using the playbook from Mexico, You're just you're where Mexico was 30 plus years ago, but with a lot of knowledge that you didn't have in Mexico 30 years ago.
That's very clear thank you very much.
Okay.
Our next question comes from the line of Sergio Matsumoto with Citi.
Yes, good morning, it's Sergio Matsumoto from Citi.
Thank you for taking my question and my question is on.
On <unk>.
In Mexico, OXXO, and specifically on the assortment and the store footprint.
Strategy and.
You mentioned earlier.
Bonds to one of the questions.
The portfolio has adapted to the new consumption habits under the pandemic.
That makes a lot of sense.
But I seem to recall that in the past that.
You mentioned.
Hum.
Peter.
When you saw the municipalities that we own.
<unk>.
But the traffic came back and that indicated that the business model.
It was good.
That portfolio was good so it didn't really need to make too many changes.
So I'm just wondering if this might be a change in the narrative.
On your part.
So if you could help us reconcile that provides some color on how are you.
Or without dress assortment and.
Store footprint in Mexico.
Okay.
Thanks.
Okay.
It's one.
Yeah, I mean, we've made the comment repeatedly about the.
At the very beginning of Covid.
No.
It kind of looked locked ourselves up in our homes and people disappeared from the sidewalks. There were concerns certainly you know outside.
Outside of FEMSA.
And market observance, but also inside in terms of you know will there will be structural changes right over the E Commerce was growing.
And over fist.
And so some people would speculate well maybe you know people are never coming back to the streets right or maybe E. Commerce is going to be so dominant.
The spur of the moment transaction is going to lose relevance.
And so our comments when we talked about as people go out go back out.
Re resume their lives and their activities. They go back to the store and they buy what we've always thought this has implications for example for mix right. I mean, you saw a shift during COVID-19 towards multi serves and so when people come back and go back to buying a single serve of.
Snacks or beverages, and so our comments go to that to basically.
Hey look when people what we're seeing we know when when restrictions have come down when the color code has gone to Green people will go to the store and they buy their cup of coffee and their snacks and their tackles like they were doing before COVID-19 . So so we don't see a structural change, yes, Danielle mentioned.
A few minutes ago, probably we won't be opening many stores inside office buildings anytime soon.
But by the same token we are seeing higher revenue in stores that are in some residential areas. Because people are there during the week that didn't used to be there during the week and then the other comment which has to do with.
Specifically I would say spirits and the small supermarket replacement ticket, which we started talking about.
18 months ago, those have remained and I think youll cranial commented to that a few minutes ago. So we are seeing.
I guess the legacy AV we're running out of beer for a couple of months in the middle of 2020 people discovered that also has a great assortment of spirits at very good prices and that seems to have remained.
And then there's also that small supermarket replacement transaction for consumers that didn't realize that we either carried their favorite brands or that on a like for like basis. Our prices were very similar to the supermarket.
So that's how I don't think there is.
I don't think its hard to reconcile.
I was clear was that helpful.
Well, yes it is.
Hum.
It makes sense.
You may.
Maybe kind of update us on what you just mentioned about fewer OXXO in.
Alex.
Office buildings that makes sense too.
What was the ratio in the past.
What do you expect to when do you expect to be in.
For the future.
Provide any timeframe, but just if I could in general.
If you remember we were talking a few years ago about niche.
Locations and so we talked about.
Opening a few stores inside office buildings, when you talked about opening stores inside manufacturing facilities I remember talking about Honda for example, where we had some stores.
They didn't charges that he rent.
More of those in more places stores in airports. So so these were always niche it wasn't that big a big part of the numbers. So I don't really off the top of my head I don't have a percentage, but it was single digits in terms of any given openings in any given year. So this doesn't really move the needle it's more of a just.
You know reallocating to more traditional locations and on that front actually we've made some further progress on segmentation. So I think we've gotten better at.
You remember we used to have just one kind of store then we went to three types of stores now we have six or seven kind of more finely segmented types of stores.
But I wouldn't say, losing the the office building or reducing that significantly I don't really think it moves the needle very much in the 19 that is important to mention that.
This is a fluid situation of meaning.
Come out of the pandemic than purely some decisions will be made by buy office buildings by companies et cetera, and how their hybrid or not.
<unk> integration is going to be and then depending on that then.
If everybody comes back to the offices and the opening of historic Tokyo Office buildings.
We started the same way it was before so I guess, that's what is important that needs to make sure that we keep.
Our radar up and see how the situation evolves and then we will act accordingly, I think that that's what he himself I.
I think maybe the metric that can help you understand a little bit more it internally. We obviously have returned thresholds on any capital investment that we have for out for new stores and then we track. According to the harvest like January openings February opening we track how closely they are to the typical store maturity curve.
And when we reduced our openings from the low 200, 330 <unk> hundred to 800.
That number moved up materially precisely by being a lot more judicious with regards to segmentation with regards to where we'd put it et cetera, and and and and and now we're up in the 18th and 19th percentage hit rate with regards to our stores hitting their maturity in the early phases. Despite the pandemic. So I think we learned.
A lot of press a process and I think we will continue to be judicious even at the changes in consumer patterns all come up I mean, only in February now I think we've seen a widespread.
Coming back to school in the entire country, we are seeing it in the traffic numbers. We are seeing it just generally with regards to how long it takes us to get to the office and we will continue to fine tune. This formula assuring that we that expansion.
Phase or the or the assertiveness of the expansion stays at these levels.
Great.
You for that color.
Yeah.
Thank you.
Ladies and gentlemen that is all the time, we have for questions. Today I will now turn the conference back to Francisco Camacho for posing additional remarks.
Well. Thank you everyone for attending our call and thank you for your continued support.
Have a good week. Thank you.
Ladies and gentlemen, if you wish to replay the webcast for this call you may do so at Samsung Investor Relations website. This concludes our conference for today. Thank you for your participation and have a nice day all parties may now disconnect.
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