Q2 2022 Fomento Economico Mexicano SAB de CV Earnings Call

July 28, 2022

Ladies and gentlemen, you are currently on hold for today's PHMSA second quarter 2022 financial results conference call. At this time, we are still admitting additional participants and will begin shortly. Thank you for your patience and please continue to stay on the line.

Good morning and welcome to everyone to Hems' second quarter 2022 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 Hems' future performance and should be considered as good-face estimates made by the company. These forward-looking statements.

reflect management expectations and are based upon currently available data. Actual results are subject to future events and uncertainties which can materially impact the company's actual performance. At this time, I will turn the conference over to Mr. Juan Fonseca, Director of Investor Relations. Please go ahead, sir.

Good morning, everyone. Welcome to the second quarter of 2022, we saw the conference call.

Today we are joined by Daniel Govigitz, our CEO , and the O'Kinnick Weston, our CFO .

As always, we also have Jorge Collado on the line, who leads Co-Pensus Investor Relations team.

Today the plan is to have Danielle start with some higher level strategic considerations.

followed by an overview of performance trends during the quarter. And then Othello will provide more granular comments on the quarter results.

After their remarks, we will open the Q&A as we always do.

When you're on to go in.

Thank you Juan, and hello to everyone on the call. I hope you and your families are doing well.

As you already saw, in order to resolve release earlier today, friends are the leader and are the strong set of numbers for the second quarter, reflecting sound plants and solid execution at every business unit, and continuing with the good momentum that began at the end of the last year and has accelerated to the first of these years.

Most of our operations continue to show strong growth and profitability trends during the second quarter as consumers continue to resume.

recovery behaviors while making more suggestions required by the shape of our new normality across over different markets.

Before diving into our recent performance trends, let me share some reflections on higher level considerations.

We have established three clear strategic priorities for the coming years. First, deliver accelerated growth.

This means not only in Christian or with both Syectory and both Revenison earnings, but also ensuring that this growth is reflected in shareholder value.

Second, that as we grow faster, we selectively expand our geographical footprint.

This is consistent with a balanced investment approach that further strengthens our presence in Latin America while also allocating incremental resources to new markets where we can find pockets of growth and bring to bear the strengths of our core business verticals and create value.

And finally, that this growth is enabled and enhanced by becoming more TG South.

This is already beginning to happen. For example, a co-vergola frame style has an enable of the commercial and multi-category initiatives by the way of the exploration is that digital will become a core element of our customer's scientific value propositions and permeate every aspect of our activities. That isIt becomes a competitive punching forward for limiterwatch.

Expanding on the subject of growth and value creation, we are making progress on our long-term strategic planning for you a growth-to-company. We will give you a growth-to-company.

This is a month-long process that started by challenging each business unit and SAMHSA as a parent company to come up with strategies, both organic, inorganic and structural, that will put them in a position to catapult their scale while achieving an attractive level of risk adjusted returns over a sustained period. Historically, there have been several periods during which this objective has been met.

as well as some where we have come up a bit short. But I'm happy to share with you that the long-term plans we are putting in place now are compelling and realistic.

and they all include selectively expanding our footprint and becoming more digital.

If at the strategic level, I would like to talk about big topics that are on the minds of everyone on this call.

The first one is the very material gap that exists between our sharp price and what we would consider fair value.

Historically, we at PHMSA have focused on driving operational success and the share price of taking care of itself over time.

So the vast couple of years, however, that's as increasingly not been the case. As increasingly not been the case.

This makes it clear that this topic requires special attention from all of us, not only at the management level but from our board of directors.

The strategic planning review currently underway involves significant analysis to help us define the strategies to achieve over ambitious long-term growth objectives, but also how best to work towards reducing and eventually eliminate that valuation gap.

In the meantime, we are working to improve our disclosure further, particularly around the newer or less understood parts of our business, such as Envoy Solutions, our Health Division, Ops International and our digital initiatives.

We will keep you posted as these efforts advance.

The second big strategic topic I want to discuss now is the tender offer to acquire Balora Group 8G that we announced a few weeks ago, which is of course related to our long-term goals priorities as a justice driver.

Valora is the leading convenience and food genius operator in central Europe , and it offers a high strategic fit with our proximity operations, as well as an excellent platform on which to build a workshop called proximity busnense in Europe .

We believe we can help Balora accelerate its growth trajectory, bringing to birth not only a larger scale, but a more understanding of convenience and proximity models and our expertise in driving organic growth. Leveraging Balora strong ground to follow and management team.

In particular, within Balota's current markets, we believe Germany presents attractive potential for a country close.

And in time we will evaluate expanding to additional martyrs.

On the other hand, we will benefit from Valora's opinions and multi-formal expertise to further develop the value propositions in our high potential core markets in Mexico and Latin America.

Having said that, as you know, Valora is a listed company in the Swiss stock exchange and the tender offer process must run its course. So we keep you posted, but the process must alone. But the process must alone.

Now moving onto our businesses and beginning with proximity, same store says it also continues to show remarkable strength despite challenging micro-conditions.

As the months go by, it is increasingly clear that the pandemic generated some seemingly longer lasting changes to consumer patterns.

and the drivers of light for light growth.

Over average, the ticket is now structurally higher in real terms, reflecting an increasing categories like spirits, wine and some replenishment items, while over traffic keeps improving much more slowly and remains below 2019 levels.

The replenty of evidence that people are consuming more at home. We are using the crypts outside the home and shifting some of the purchasing habits.

Consequently, we're gathering and using data to generate insights that are already informing adjustments to our commercial and segmentation strategies as well as our expansion priorities.

allowing us to gain market share during the first half of the year.

On this topic, we are adjusting well to changing dynamics. It is encouraging to see that OXO can grow earnings by double digits and reach record operating markets even with structurally lower traffic levels.

As demonstrated again in the second quarter.

And regarding the store base expansion, we are maintaining over full year targets of approximately 100 new stores or also in Mexico.onic

Even a scroll was still below trying this quarter.

We should note that our efforts to focus only on the highest potential location is bearing fruit.

And the quality of the new stores as measured by our historical storm material curves is the highest we have ever seen in many years. It's the highest we have ever seen in many years.

We are opening stores at a lower cost per unit and generating materially higher sales and profit for a new store than before. We made the adjustment to our expiresion process.

Furthermore, we continue to replenish our pipeline after the shocks of 2020, and we are putting conditions in place to accelerate the pace next year, with a target closer to 1,000 new stores in Mexico for 2023.

On top of this, we're increasingly excited about OCSO's opportunities in South America in general and Brazil in particular.

Where after three years operating to Buenos, our joint venture with Ryzen, we are already ramping up over gross plants to add over 250 stores per year and potentially more. We are going to add over 250 stores per year and potentially more.

Moving on to our health division, our operations continue to perform well in the second portion even as the comparison rate is getting tougher, particularly in the Chilean market where high levels of consumer liquidity help us achieve very strong results the last couple of years.

Having said that, we again saw good growth trends in Colombia and Mexico.

where we continue to drive material gross margin expansion by applying some of the commercial strategies developed at cross-border.

For its part, our logistics and distribution business had a good quarter.

driven by the continuation of a secular trend at Enbal Solutions.

in the facility supplies business.

will continue to return to office in larger numbers in the US.

We are also making incremental gains in our cross-selling efforts among the three-core business verticals. We are also making incremental gains in our cross-selling efforts among the three-core business verticals. We are also making incremental gains in our cross-selling efforts among the three-core business verticals.

which represent an attractive opportunity to drive growth.

I also want to talk a little bit about word digital platforms.

Both Spin and OxoPremia, our loyalty program, have continued to grow their users, and more importantly their active user base. Together they now have more than 15 million acquired users and more than 12 million active users.

And we are working hard to expand each product's value proposition and use cases to drive engagement and further accelerate the network effect of the entire ecosystem.

As you may imagine, user data is coming in fast. And where WAPD is scaling up our analytics capabilities to improve the data's utility and potential monetization. We will improve the data's utility and potential monetization.

We will continue to keep you posted on this exciting topic.

Before I turn it over to Ocennio regarding Coca-Cola Femsa, as Constantino mentioned last few days, they achieve a solid second quarter set of results, building on a positive momentum despite the inflationary environment that is affecting industries worldwide.

substantially mitigating margin pressures by leveraging their healthy initiatives and doubling down on expense efficiencies while accelerating the rollout of their omnichallant platform, which now reaches 645,000 active monthly buyers.

And with that, let me turn the call over to El-Khenyo.

Thank you, Daniel. Good morning to everyone on the line.

Beginning with FEMFES consolidated quarterly numbers, total revenues during the second quarter increased 22.2%, while income from operations increased 9.9% compared to the second quarter of 2021.

On an organic basis, total revenues increase 18.9%, and income from operations increased 8.6%.

Census net income increased 45.4% and reached 7.6 billion pesos.

reflecting higher income operations at decreased in net interest expense, and a non-cash foreign exchange game related to census US dollar-denominated cash position at the impacted by the depreciation of the Mexican peso, which represented a positive swing of 2.5 billion pesos during the quarter.

This was partially offset by a decrease in our participation in associated results reflecting the recognition of our best estimate extraordinary impairment and other non-cash exceptional charges announced by Heineken in connection with the decision to exit their operations in Russia.

And by a 799 million negative swing, another non-operating expenses, which reflected the mountain comparison base that included dividends received during the second quarter of 2021 from our investment in general restaurant people.

Moving on to discuss our operations, beginning with proximity.

During the quarter, we added 168 units to which 834 net stores for the last 12 months.

This includes 120 stores from our OK market acquisition in Chile.

As Daniel mentioned, we are maintaining a year in target of 800 net additions for Mexico, even though we are still behind schedule and that's the first half of 2022.

Also, same-serve sales were up 15.6% for the second quarter, driven by an increase of 11.8% in average customer tickets in a 3.4% growth in traffic.

Distroflexed Distangered Covering Mobility and the Gathering Consumption Occasion that have continued to accelerate throughout the second quarter.

When compared to the second quarter of 2019, same store sales are up 15%.

Growth margin for the quarter contracted by 40 basis points to reach 41.2%. We're reflecting lower commercial income as some of our key suppliers curtail their commercial and marketing activities as a response to reduce inventory levels during the scarcity of certain raw materials.

Income from operations increased 33.7% while operating margin increased 120 basis points compared to the same period of 2021 to which 10.2% a record for comparable quarters driven by a structurally linear expense structure and the resulting operating leverage.

Out of so that, revenues increased 32.5% and same-station sales grew by 25.2% relative to the second quarter of 2021. As vehicle mobility continued to recover and gradually approached pre-pandemic levels.

During the quarter, gross margins was 12.3% while operating margin, which is 4.3%. We're selecting continued static spend controls and input operating leverage.

Moving on to preamptus health operations. During the second quarter, we expanded our drug store count by 144 net additions to reach a total of 3,862 units across our territories at the end of June . And 403 total net new stores for the last 12 months.

This represents a significant acceleration in our growth rate driven mainly by Mexico and Colombia and puts us in a great position to meet our target for 2022.

revenues increased 2.5% while think store sales increased an average of 0.5%.

However, it is important to note that an occurrence in neutral basis revenues grew 12.5% and same-store sales increased 9%. A solid performance across operations, even if the comparison base becomes more demanding, particularly in Chile.

Gross margin decreased 110 basis points in the quarter, mostly reflecting a one-off inventory write-off at our Chilean operation.

Partially offset by improved operating efficiencies and a more effective collaboration and execution with key supplier partners in Mexico.

As a result, operating margin contracted 80 basis points, a static fence controls across our territories was not enough to fully offset the impact from the slightly lower gross margin.

Regarding our logistics and distribution businesses, revenues increased 50.2% relative to the second quarter of 2021, reflecting the steady phase of acquisitions made in the past of months by OnVoy Solutions.

On an organic basis, total revenues increased 17.3%, reflecting strong performance across employee solutions to segments, especially in the retail and facilities supply segments.

coupled with good demand dynamics in our operations in Latin America, particularly in the warehouse in Spain.

Operating margin contracted by 30 basis points reflecting a higher cost and labor transportation environment in certain markets.

Finally, moving on to Coca-Cola Fenta, volume screw 11.9% with all markets contributing to the growth. Revenue's increase 19.9% and gross pockets grew 12% despite supply chain disruptions and cost pressures on certain wannapoe worlds.

Upgrading income increased 5.6% reflecting solid supply and favorable raw material ed gene strategy, coupled with operating expense efficiency.

All in all, Coke's sensor delivered a very strong set of results amidst a challenging cost environment. You can listen to the webcast of the quarterly call that took place last Tuesday.

Before we open up the call-off for questions, let me turn it back to the nail for some final comment.

Thank you, Kenyam. Wrapping up halfway through the year our business units are in great shape. And we feel good about our chances to meet our ambitious plans for the full year and beyond. Our ambitious plans for the full year and beyond.

always driven by our outstanding team of colleagues.

We will continue to push ourselves to create value through profitable growth, but as I mentioned before, we are also working to ensure that the value we create is shared by all of our stakeholders.

And with that, let us open the line for questions.

A very complete.

Thank you ladies and gentlemen. If you'd like to ask a question, please signal by pressing the star key followed by the digit one on your touchtone telephone. If you are using a speaker phone, please make sure that your mute function is turned off to allow your signal to reach our equipment.

Once again, that is star 1 to signal for a question.

And we'll take the first question from Ricardo Elvets of Morgan Stanley .

Hi everyone, thanks for the call. A very impressive same-star series that also, my first question is on that. Just a little bit more granularity on the evolution throughout the month, but maybe more important, the Howard thing is trending into July . We were surprised to the upside, of course, with the strong same-stars to use.

in the meetings. So just wondering how you're seeing things into July , if any signs of deceleration are not. Second question kind of related to the last point that Danielle touched on, capital location. This has been a key and recurring question from investors, given the cash generation, strong balance sheet, and also considering the current stock performance. Does it make sense for you to be more active on buyback at this juncture?

Again, the ongoing discussion that we have with investors, the complexity of the conglomerate, the discount valuation that you guys also touched upon, not sure if the studies are conducting, maybe if you can share already some early insights or learnings that you've had, any qualitative comments here would also be helpful. Appreciate the time. Thank you.

Thank you Ricardo. I'll start off with the first one on same-store sales for OXO. We're seeing a continuation Ricardo of the patterns that we've seen sequentially as we obviously trough in the middle part of 2020 with the peak of the pandemic, which is a couple of things. First is we've seen an average ticket that's resiliently growing at a very high level. We're still kind of in the mid-teens up from 2019 levels, mostly driven by changing consumer habits.

as they found in also a place to get a reasonably priced bundle of pantry products, as well as alcohol, hard liquor, and other categories that were traditionally not part of what the consumer thought the Oxo store could fulfill their needs. So we are seeing a continuation of that trend, and that continues to positively affect the ticket. That on the other hand, as you know, was severely contracted, severely curtailed by the construction traffic that we experienced through the pandemic.

And we're still not back. From 2019 levels, we're still down in the mid teens in terms of traffic, although it's coming up. As you saw this quarter, it was up 3.4% as mobility continues to regain. And that is a mix of factors. Again, it has to do with the store locations that we discussed before, but also some changing consumer patterns as Daniel mentioned in his comments. Consumers especially are looking more towards in-home options rather than on-the-go options as they...

changed their pattern of, I mean, working from home and others. So we're seeing certain categories gain in the supermarket segment, vis-à-vis the convenience segment. But again, that's more than offset by other categories which were lower in the past for, for also, and are now producing into a higher ticket. So we're still seeing some upside on the track number, and we see the tickets remaining the same as strong. And we see the tickets remaining the same as strong.

So overall I think there's still some upside at the same store of sales number in the future where we're optimistic above that.

Yeah, Ricardo, regarding the corporate structure, I mean, as I mentioned in my comment, definitely we are working with a long term plan for each of the business. I know we're intention, because we recognize that definitely there is a gap, I mean, between the short price and what we consider the third value of the company. So, I mean, all the options are on the table. We are not exclude anything.

And to be honest, obviously, that is something that it will take some time. And our intention is that to work year in, we will be in a better position to share where we stand in terms of the particular action plans. And that is something that obviously, as I also mentioned, required involvement of the board. So it's not only the management, but also the board. So we're working very closely with the board in order to come with a more clear, if you want the directional update towards the end of the year.

If you have a specific point on buybacks, I mean, that is one of the alternatives that they're looking at. It's as part of the overall strategic plan that entails also capital structure, not only corporate structure. So buybacks is clearly one of the tools that is available and that is being considered as Daniel said, as one of the many tools that we have in the arsenal to address this corporate economic system.

Very clear. Thank you so much. Thanks for all the details.

Thank you, Kalam.

Thank you and ladies and gentlemen, due to the interest of time, please limit yourself to 1 question to ensure that everyone has the opportunity to ask a question.

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

Thank you very much. Good morning.

How much did Pyramia weigh on proximity results in the quarter? How do you expect that to trend over the very near term? And what needs to happen to transform Pyramia from a cost center into a revenue stream and data asset? And how should we think about the timetable for that?

Well, I mean, thank you for the question. I mean, regarding the loyalty program, I mean, we are very, very excited about the results that we are seeing today. I mean, not only about the acquisition, but also the number of active users. And as I mentioned, I mean, we are in the early stage in order to how we can really monetize, I mean, that information in order that we can see how, we can create value going forward.

And then just the cost in the quarter for the proximity unit of PAMIA, just to understand how it may have had an adverse impact initially and how should we think about that evolving.

I think so far, but to be honest, the impact on gross margin of PREMIAs is still, I mean, given some lack of commercial programs, we're partnering with some of our CPG partners as well. So although the tender is high, I think the impact on gross margin is still negligible at this point. And we'll start to break down more of that impact as we move forward. But in the early stages, we are confident that the PREMIA program overall will be accretive.

to the value of the opportunity education. No doubt. Thank you so much.

of the personnel irrigation. No doubt. Thank you so much. Thank you.

And we'll now move to Sergio Matsumoto of Citigroup.

Yes, I good morning.

Daniel, I'm here, thanks for taking my question. I wanted to ask about the...

the invoice solution growth. You have a lot bigger scale now, and it appears that there's both revenue and efficiency of growth opportunities. And we just say right now you're more focused on these revenue opportunities, or if you can give us some color around that. And also.

How is the competition in this space, you know, against the other large player in the space? And what are the differences in the strategy between YouTube? Thanks.

Sure, thanks for the question, Sergio. I mean, as I said, we're very pleased with how on-going both on an organic basis and how successful the inorganic activity has been. And to be honest, we're focused on both. I think we've got a dedicated team that's looking obviously at different regional territories, which we don't have a strong presence in to be able to increase our coverage and take advantage of the scale, the purchasing scale, which is where most of the synergies come from and we will also...

to deliver to national accounts in territories we will not in. But then we also have, I mean, the core team that's focused on the day-to-day operations, keeping the efficiencies where they are, optimizing well to market, playing around with pricing and segmentation. And again, most importantly, also integrating the acquisitions into common systems and common SKU set so that we can take advantage of the scale. So we are.

We are running the plane and building the plane as we fly it, but we are overall very, very happy. The industry itself, if you look at food service disposables, and if you look at JAM stand and packaging which are the three main segments that we will focus on, is over $80 to $100 billion in size. And we are still in the $2 to $3 billion sales range. There are, as you mentioned, two other players that are playing the same role of strategy that we are in. This camp,

But we are literally competing in every market with regional players, local distributors, and at this point really not bumping up into each other. So I think there's plenty of runway for all these platforms to continue to grow and thrive. And I think it's a space with very attractive secular trends in which we are already seeing the fruits of value very soon after we bought the original platform 2 years ago. And we continue to see a big runway for additional capital deployments and value creation for the years to come.

If I may, if I could like begin deeper here, would your customers that envoy, how would they decide, you know, whether to buy from you or the competitors, is it, you know, the service or, you know, maybe to explain it geographically, you know, any color on the differences in strategy or offering?

you should have. Thanks.

Yes, thank you. Well, you know that it...

I mean, there are combinations of elements. I mean, in other for the customer, we're talking about B2B customer, how they made the decision. I mean, obviously, price is a key one, but also, I mean, the fact that now, can you mention, we have three, if you want categories or make categories, that we were able to sell. I mean, that combination also is very powerful. I mean, the fact that we can provide the service and we can come with the three categories, that is the key, so.

I think price services, I mean, and the quality of the product, are the main key decisions that the customer take into account in order to buy our company. And the fact that we are growing, obviously, we're in a good position to come with a very competitive price structure to them.

Thank you.

Thank you and our next question will come from Louis with compass.

Hi, Daniel, Eugenio, Juan, thanks for taking my questions.

Just to follow up on the complexity and I guess capital allocation concerns. And it's great that we hear that hopefully by year and we'll get more clarity, so we look forward for that. But I was wondering, there was over the past couple of months within talking about peak complexity, I guess, right? And a lot of the things that you did, where towards that, right, you know, kind of making some verticals bigger and bigger.

And while you're still doing this strategic review, it seems to me that with the acquisition, with the entrance of Europe , complexity has gone up another leg in that sense. Not in terms of formats, but in terms of geographies in particular, right? And while it was a billion plus acquisition, when I look at the stock price, you guys have lost three times that. So the reaction was even worse than in previous things. So as you go through this strategic review.

fair to assume that perhaps complexity or additional deals in kind of new areas could be on hold while you come up with the

while you come out with something or or

just help us understand a little bit more the rationale and how do you guys take those market signals into consideration. Thanks.

Well, thank you for the question, Luis. I mean, first of all, I mean, this strategic review we started before we made the decision to acquire Valora. So I think that is an element that is important to reinforce and as you can imagine, obviously, that requires time because we are analyzing several alternatives and we need obviously the involvement of the board. So that is one element. So that is one element.

Second, I mean, regarding the business complexity, I mean, the way that we see the acquisition in Europe is that we are investing in one of our key core businesses, which is proximity. And we strongly believe that there is an opportunity for us to create value for value in Europe . I mean, as you know, we have been looking for proximity opportunities in development market for many years. And we find, I mean, that investment to be very.

very attractive, not only about what we can go there, but also we strongly believe that we can learn as well from the way that around the business, I mean, to opinions, I mean, there are elements that we recognize that we can also bring into our core market in Latin America and maybe create also value here. So that's that for me, it's important because that decision was made inside the key market and I'm talking about, I mean, also one.

One element that I would like to mention that, I mean, over the last couple of years, and I think you will share that with me, I mean, the trends in Latin America are not as they were in the past. I mean, in terms of growth, I mean, when you think about risk return of our investment. So definitely, I know that when you compare the returns that we have with Valora, it's very, very difficult to compare with the returns that we have in OCSO. I think we strongly believe that thinking about the future.

in the proximity business, that was a good decision. And we are working hard, I mean in order to come with a

with the right answer or options, I mean in terms of the structural solution. And as I said, we hope that we can come with a much more clear answer towards the year end, at least.

And maybe just to conquer it with again, I mean,

As you know, in M&A, the timing is not always ideal. We have loved to finish our LRP and come up with a strategic plan before this opportunity came up and do it within the context or the concept of the new strategic plan, of course. But at this point, we felt that the timing was right to do this deal at a valuation that both made sense for the Valora shareholders and still allowed us ample room for value creation by following our own strategy. So, thank you.

We understand the frustration in the stock reacting to this complexity. But again, the good news is that the LRP plan and the structural alternative that we have to kind of capture these or eliminate these conglomerate discounts are the same that they were one month, two months, or six months ago even. So again, timing was not ideal, but we are still kind of focused and committed to attacking that gap.

Great. Thanks, Daniel and Eugenio, for the detailed answers.

And we'll now move on to all federal Garcia with BTG.

Hi, gentlemen. Thanks for...

Thanks for space for questions. Hope you're well. I can read from the digital front. I can read from the digital front.

Three questions on OXIL.

You know, is there a link between the higher ticket we're seeing it also in the greater penetration of Premia? That's my first question.

Yeah, I mean not a direct link at this point, but I wouldn't say that, I mean, but I mean it's growing, I think it's too early to tell whether the higher peak is high.

You and so on.

There's no direct link at this point between the higher ticket and PREA. Clearly the heavy users are spending more, but it's not directly related. I think the bigger part of the higher ticket has to do with the changing consumer patterns that we described in the earlier question.

Great, clear. And then just, if you mentioned the release, you mentioned your preferred remarks.

This is gross margin element at Oak, so on lower commercial income. I was wondering if you could just give us a little bit more color. There's that. You know, it's free.

we're worried about significantly lower traffic and I don't want to think that's a structurally lower sort of traffic impacting that business. I think you can just give us more color on those one-offs let's say or if they are a one-off or not this quarter. Thank you.

In the case of the gross margin, there are several elements. One, definitely, as we mentioned, and most probably you also hear that from Coca-Cola FEMSA, there is a pressure in supply chain. Obviously, based on that, many of our suppliers, they have made the decision in order to reduce or be much more selective in terms of the delivery of the product. And, I mean, lower if you want income or commercial income.

I would say that that is something that we don't see as a trend. I mean, the finitly data has been dictating in other years before and we expect that to recover in the future.

Just to round that up, if you have suppliers in key categories, let's talk about beer for a second. And you're having some issues with…

certain type of packaging, for example, which means you're not going to, you're pushing less product, right? And that means you're going to engage in less promotional activity, which at the end of the day, it is where commercial income comes from. So, as those bottlenecks we saw in terms of these packaging materials and other inputs that have been hard to come by, we assume that this problem is going to go away. But as you know,

Commercial income is a big driver of growth margin expansion historically for off-screen. And that's why we highlighted it because this is something that is happening because of the supply chain shocks, not because of anything structural.

In fact, there's a infection.

for that particular category as we head into the second half of the year and World Cup and all of that it should be interesting I think as we we get closer to the fourth quarter the activity and a number of CPG categories hopefully will ramp up

That's a very helpful color. I'll just go last since a very quick one is just on. On Belora, is the idea to staple it into proximity or is the idea to maybe leave it at the standalone entity? That's my last question. Thank you very much for the time. I mean, the intention, I mean, first of all, I mean, we need to continue to finish the processing system. I mean, so that's, I think, important to mention. Over instantion.

is that at least for the first couple of years, we will run that on a standard basis with an advisory board and with representative of PHMSA, but also with four members from the European market. So that's the intention.

I think, Alvaro, maybe part of your question, I think, probably comes from how are we going to disclose that and whether or not you're going to be able to track it. The answer is yes. I mean, we still have to fine-tune and I think there's a lot of work being done on how can we improve disclosure. We've spoken with some of you in the past about increasing access to Daniel, and Paco, and the management teams of the operations.

Neneil mentioned in his remarks a few minutes ago, Envoy, Digital, Oxo International, obviously Valor is a part of that once we finish the 10-year offer process, that we would hold investor seminars where you guys can talk to the CEOs and the management teams and importantly ask questions. But the other part of it is actually the numbers that we disclose every quarter. And so whatever shape, I think –

for the first quarter of next year, we will have an enhanced proposal. And you are going to see more data along several parts of our press releases. But in a nutshell, you will be able to track the performance of Valora. So it's not just going to disappear into proximity.

Thank you very much.

Our next question will come from Thiago Borilucci with Goldman Sachs.

Yes, hi, good morning everyone. Thanks for the presentation of our taking our questions. We have two. I think the first one is about Oxon, Brazil, right? For sure you are growing very highly from low bays in the very fast way. And the guidance of at least 250 stores per year is very welcome. But I actually understand it in a broadly long term view. What is the potential number of stores you believe you could get in the region? How compact is we are seeing the format in birds as well to proceed with the formats and batteries?

And what is the marginal return you are aiming to pursue over this kind of investment? This is the first question. And the second one regarding Chile, obviously we know there is a very hard combate that you are facing going forward, but also it's true that the underlying macro fundamentals are deteriorating, especially inflation is high, GDP is big, growth is very linked, and then the political environment is very volatile in the region. So apart from the combate, what is the underlying status of the consortium?

and how do you see the region training of your Microsoft? That's a good question. Thanks. Well, let me start with with also Brazil. I mean, definitely we as you know, the risk of the adventure which we are with, I mean, before we signed the the JV agreement, we developed a long-wrench plan. I mean, that was part of the agreement when we...

put together the young venture and we know that we will grow with OBSO on a standalone basis but also continue to develop the select brand inside of the gas station of the Shell brand in Brazil. I mean so far over the last almost three years that we have started the JB in Brazil we are very very excited by the results that we have seen with OBSO and today...

We are mainly concentrated in the Sao Paulo area. And our intention, I mean, if you compare the population of Brazil with Mexico, definitely there is room to grow. So I mean, we should not be, I mean, in the long term, we should not expect that the number could be very different from what we have seen here in Mexico. Definitely, I mean, our intention is to grow in key or relevant big cities in Brazil. And from there, I decide, I mean, if there is room to grow in more medium.

and smaller size cities. So the potential is there. I mean, in terms of the marginally, if you want returns, I mean, I don't see or see very people that there will be very different from the one that we have in Mexico. So that's what I can do in the garden. That's what I can do. I'm going to put it back on. And I'm going to put it back on. And I'm going to put it back on. And I'm going to put it back on.

And just to round off on Brazil, you asked about the kind of competition and the value profit, I think the story is coming in with a very interesting value profit because the story is smaller than your category express or any of the other small format in urban cities. It's more attuned to the Palerías, but it I think has a value proposition and a mix of products that are uniform. Of course, you know what you're getting each time you go to a different option.

And it's more like a mini market or a mini mercado format that is taking on for both foods as well as convenience uses. So I think the value proposition is kind of hitting the sweet spot and we're actually growing much faster than we originally anticipated because of that.

Your second question was with regards to Chile and the health division. I mean, clearly, as you mentioned, we are facing difficult comes. Nonetheless, the mix in format that we have, the loyalty program in Chile, and I think the resiliency of the space in the categories that the health division is serving in Chile, I think are allowing us to maintain solid unit economics, good traffic, and good profitability. So, yes, I mean, you will probably not see...

the FENSTOR sales growth that we experienced over the course of the past 24 to 28 months, but having said that the marginal economics they are continue to be very, very attractive. And then Chile also provides us with a very strong base and supplier leverage that is helping of expanding Colombia and Mexico with very attractive commercial terms that are making the United Economics at Colombia and Mexico I mean, a lot better than the otherwise would have. So I think if you look at the entire portfolio of health, I mean, notwithstanding the fact that we might see a slowdown of growth in Chile.

So you mentioned you plan to launch a plan by the end of the year just to and spend a little bit about this plan what's what do you ultimate goal is really to address to reduce the holding discounts and the perspective of the stock price and the investor to allow whatever they think is fair or it's more broadly speaking or looking for weight for for friends as a group as a company to be more efficient and then as a result baby.

reducing the holding discount is part of those measures. Just to understand, if when you hire this strategic review, the ultimate goal is really reducing the holding discount or is a more broad strategic review thinking. There are two elements and then, okay, you can compliment me, but I mean, first of all, as I mentioned during the the goal, Leandro, where we're wanting this, what we call strategic.

review and that is on a business by business basis in order to see what is the potential in terms of growth for each of the business units. So that is one element that clearly we take into account of revenue growth, how we can be more efficient and definitely can be more profitable. So that is one part of the exercise. And then on top of that, obviously as the structure review, the intention is based on those strategic plans.

What we can do in order that ideally that value that we feel very comfortable that we will create at each of the business units, we can transform into shareholder value. And we recognize that to do that, we need to review our structure. And that is what we are doing here. So I mean, as I said, it's a combination of what we are doing in each of the business and how we, by reviewing the structure and what are the options in order that ideally we can.

conveying that value creation in each of the business into the stock price. That's better to say in a natural intention of the exercise. That's the exercise. That's the exercise. That's the exercise. That's the exercise. That's the exercise.

Yeah, nothing to add to what Daniel said. I mean, basically it's bottom up was the best plan for each one of the businesses to maximize their own value. Then in the middle is how we allocate capital and the constraints of capital within the fence to fund all of these different alternatives, different initiatives. And then finally is what is the right, is the fence structure today, the right enabler to implement that capital deployment strategy or is there another one?

that is able to again, have the state, this value creation on the one hand, but on the other hand also allow the shareholders to make this value creation transparent to all shareholders to either the current structure or different structures going forward. So it's those three levels that we're looking at concurrently.

Thank you very much. If I may, just a second question which is not related to the first one. We have seen traffic at the Persimmon County Division catching up, but I understand it's still below the pre-pandemic. And then when we look at for example beverage volumes.

for the listed players, it's above the pre-pandemic. So that means that likely...

of the market, such as for example, maybe consumers learn the benefits of storing and doing purchases at supermarkets and maybe they won't need to go as much to convince stores. Just to understand if you see any potential structural changes or you're confident that you'll be able to recover to pretend that you're in a clavus. You'll be able to recover to pretend that you're in a clavus.

I think it's a big land. We are definitely seeing, especially in single serve and personal snacking categories, that trend that you mentioned with supermarket getting share in some of that, especially through multipack strategies as a consumer because of inflation is looking to get the optimal per unit price. But again, there's two things. One is how quickly or not, you believe this stay at home.

phenomenon and whether we are at the peak or not of that. And the other one is we are also making changes to our own product peaks at the different types of categories to be able to compete efficiently with these college cost effective multi packs in the personal snacking category. So it's a mix of both. I think I'm included that there was a structural shift. Having said that, I think it's still being sorted out and there's still things from a commercial perspective and from a market segmentation perspective.

that we can do to get back some of that underlying traffic and gain in other categories as well.

I would just add on that, you know, when we look at our own data that goes from the market, and of course we do that, some of that ourselves, some of that we get outside held. We are gaining share versus certain other channels.

So, yeah, the overarching trend is as we've been discussing the past few minutes, but we've been able, and that's why I think Daniel mentioned in the beginning, that we're pretty confident that we're actually coming out in better shape, right? So even in the aggregate, people are doing a little bit more in-home consumption and fewer trips.

of the new dynamic assuming this stage, we are getting a bigger chunk of the pie than we were before, right? And so that's I think very encouraging. Yeah, maybe only one additional comment, I mean, and I think Paran mentioned that earlier, is the fact that, I mean, as we learn, I mean, what are the structural changes we obviously are incorporating those learnings into our processes, for example, expansion?

I mean, we have been very, very successful in order that now, I mean, over expansion, obviously taking into account both changes, and we have been very, very effective in terms of being very profitable with over expansion over the last two years. So, I mean, that is an element that I think is important to mention. And on top of that, we know that we will get much more insight, I mean, from our OXO Premier, the loyalty program, and that is something that we love. And also the OXO team, they are doing a very good job in terms of a store segmentation.

In order to see how, based on those changes, how we can better, if you want, allocate the assortment for stores and recognize in which areas, those structural changes are more relevant and in which areas maybe they are less relevant. But you can imagine with a store base of 20,000 stores, there are very, very different answers depending on which segment you are analyzing and these changes. That's it.

I would add to something that Neil just said, which is on the expansion front, and we mentioned it quickly in the opening remarks, but I think it bears repeating. The new stores that we have opened over the past, let's call it 12 months, or even 18 months, basically the cohorts of new stores that we are opening under this more stringent process that we put in place during COVID are performing twice as better.

relative to new stores or comparable cohorts in the last 10 years. So that is super encouraging. Because sometimes we get the question, you guys have 20,000 stores, are you running out of room? And it's very encouraging to see that with the right metrics and the right segmentation, you can open stores that are going to perform right out of the gate much better than stores that you opened 3, 5, 10 years ago. Question one and two, to add that data point.

Thank you, and we'll move next to Carlos Liboy of HSBC.

Yes, good morning, everyone.

Good morning, everyone.

Does the scope of the BCG study include an analysis of how the board's structure composition. How the board's structure composition.

and processes are impacting the stocks in AV discount.

In other words, I guess what I'm asking is, will the scope of the BCG study include recommendations on how the board may affect the better?

capital strategy oversight. And then related to that, can you discuss any changes that might be already happening to either at the finance committee this year or in their composition and processes? Or in their composition and processes?

Yeah, thank you Carlos. I mean, definitely the BCG scope is mainly related to what we call the study time for each of the businesses. I mean, as you most probably are aware, there was some changes, I mean, in the governance that were communicated earlier this year. And in that process, there are changes that will happen at the board level over time, which is obviously taking into account the composition and all the elements that are relevant for months.

from a governance tone of view. So I mean, those are the comments that I can make. But definitely, I mean, as part of this structural review that we are considering, I mean, definitely, there are implications, I mean, in terms of how the governance will need to be implemented going forward. I mean, we'll take into this to account. But I mean, as El Canyol said, we are looking at this moment, the three layers. So I mean, the.

I mean, the opportunities that we see inside of each of the business. So both on my exercise, then how we allocate that portfolio, and then, I mean, cut out the changes that potentially will require in terms of the structure. And based on that, then we will obviously need to decide, I mean, if some of these changes apply, how that will be managed, I mean, from a board point of view. And Carlos, I mean, just to follow up, I mean, as you know, earlier in the year we announced a gradual...

set of changes to the board committee structure composition and the size of the board. Those were started, those changes started to be effective this year, we'll have more to come next year. But just a reminder to everyone, I mean, the strategy and finance committee, which is the heart of most of these strategic decisions that get taken to the board, is made up primarily of independent directors and all these decisions or folio decision seminar decisions where we are thoroughly reviewed.

in light of what makes sense from the long term perspective for the fence of stakeholder. And again, the composition and the makeup of that committee is starting to change with the changes that we implemented this year will change also in the coming years as we bring to bear I mean more skills in the sense of digital transformation, in the sense of other call it ESG topics and another of the agenda items that are on top of mind about shareholders and other board.

But that effort continues to happen in parallel to what we're doing would be teaching. Yes, I would just add callost servarious one I mean obviously the bcg study. I mean they reached out to some of you some, some investors, So among the thing that they worked on the kind of a perception study of what the market thinks. But the bg study, that's very small. I mean it's a small part of the overall very, very comprehensive process that it's in place. So I not to I want to take anything away from the vigg study.

you foresee like more complementary to the distribution business in Brazil with HBs, holistic and Coca-Cola, census and able to the distribution side. Any sort of complementarity between the assets is just thing that you would highlight perhaps with the JB, with Ryzen, but also be another example of.

like higher, a higher partnership between but you have the logistics business in Brazil. And also very quick one.

to give us some update on the integration of drug sources in Brazil. Because that topic has been forgotten a bit, so maybe we can bring that topic again into the discussion. That would be helpful. Thank you very much. Yeah, we missed your second question. If you want to start with the first and then we'll. Yeah, I'll start with the first capability with Juan. I think one area that we've been talking a little bit about were.

UC CoFEMSA and the proximity division actually, overlapping or converging has to do with the multi-category distribution platforms and effort to enable a traditional trade to be able to order digitally, participate from a more efficient supply chain. And just partner up with large chunks of the traditional trade.

These are efforts that both CoFensa and Oxford have been working on and increasingly they're coming together when you think about a digital payment solution for the mom and pop. Could that be the spin platform that could then be applied for CoFensa customers? And I'm just spit-borne here a little bit. So that is a space where the two are converging where I think there's opportunity for interesting synergy.

On the other question, I don't know. You mentioned something about integration, but I'm not sure what business unit you are referring to.

Yes, sure. First, on the Solistic in Brazil, in partnership with KF, with Raisin, and the drug stores in Mexico, you can give us a little bit on where do we stand in terms of the, are we still going to continue with the three banners, or are you going to integrate into one banner, you can give us a little bit there on the drug stores in Mexico. That would be helpful. Oh, drug stores.

The first one just complimented me. Solistica in Brazil is having the right to enjoy adventure with their distribution effort. So again, as we mentioned in the past, we believe distribution is a core element amongst all of our business units. We actually have an internal call it logistic best practices board across all of the business units that are getting together. And at this point part of the success that Solistica is having.

Sorry, that driving is having Brazil is due to the Solistic Appartement. And with regards to integration? Yeah, I mean, regarding the integration, I mean, referring to the grants that we manage in the health division, I mean, definitely the way that we have been able to create value of the more around how we escalate our purchase capacity, in order that we can transfer, I mean, those conditions to each of the grants. So, I mean, we don't have any explicit plan in order to consolidate under one.

Brant in the case of Mexico, in the North Mexico, we have today three plants, obviously the largest one is Kiza. I mean, in the new regions, we are growing with that plant. I mean, normally those plants that are in the north, west part of the country, we are keeping those plants. And we are developing as well private label products. And then in the case of Colombia and Chile, we have Chris Berden, because I mean, both they were born with that plant.

But then also in Ecuador we have a different brand which is Fibe Can San Matano. I mean we don't have any particular plan in terms of consolidating or changing the brand. More we are focused on how we can create value with those brands because I mean the customer are very loyal to those brands. So that is where the F4 is.

That's very clear. Thank you Danilo for the long call. Thank you.

That's very clear. Thank you, Danilo, for the long call. Thank you.

Our next question will come from Alan Elena of FinTender. Hi, the meal is plenty of fun. Congratulations on the results and thanks for taking my question. I'm not gonna ask about the complexity getting already. The text analyzers that record this call will pick up that the word that was repeated I guess the most. I want to do a follow up question on the pharmacy.

Could you explain the divergence in things ourselves between oxalous and pharmacies? And you were very clear in saying that there's no integration into a single brand. But could you speak a bit about what the synergies between having pharmacies and convenience stores? Well, what the expectation and what should be expecting going forward both in terms of those synergies and the level of profitability of pharmacies which still remains quite below convenience stores?

Yeah, thank you for the question. I think there are different elements, I mean, in terms of potential synergies. I mean, first of all, normally, if you think about a, I mean, a delay out of pharmacy, you will have, I mean, convenience categories. It will have some beauty. And obviously, you will have, I mean, all the, the, the, the, the, the, the proper tracks. So in the case of convenience product, definitely, I mean, the, the RISA synergy, I mean, in terms of the scale.

and how we can leverage the scale of also, and that is something that definitely we are doing. And then secondly, I mean also in terms of expansion and the skills that we have developed at also is something that we are also using for the pharmacy business. And also related to expansion, we're already testing, I mean some locations, but when we have, I mean next year and also, I mean a pharmacy, and that we are also doing that, we don't.

I mean that is why we have those differences in terms of returns.

Yeah, hi, Alan. It's one I would just add a couple of things. I mean, we should remember that when we're looking at relative performance right now, Druster versus Alchso, Druster is coming after two pretty good years, right? So during COVID, the Druster business actually thrived, whereas Alchso, many others suffered a lot with traffic. So we're seeing Alchso still very much on the bounds.

from those troughs. And we mentioned on the drug side, we're actually facing tough bumps, especially in Chile. And the other comment I would make is regarding margins because the health division is basically operating at about a 10% EBITDA margin, which granted it's not the 15 that we have also, which has 20,000 stores, but it's a pretty respectable EBITDA margin.

where you are getting into double digits for the drugstore business. So as we continue to scale up, we've spoken in the past, Mexico is the one market where we are subscale. We are tiny in terms of market share. We have probably a low to mid single digit market share, so we definitely would like more scale in Mexico. But driven by Chile, and I think Colombia also is growing very fast, so it's playing an increasingly large role. The health division is actually going through a very, very good phase. So I would just leave that there.

the eventual digital ecosystem that we will be building out in Mexico. Those are very fair points, good points. Take a few more speaking questions. Can we grab you again? Greg, you're good.

And our final question will come from Antonio Hernandez of Barclays.

Sorry, good morning, thanks for giving me a question to put some on your results. And of course, you're providing food service capability. You see, I mean, you were entering the European market with business code food convenience and you've already had some exposure to keep some of these market as well. Are you planning any year or what do you have in you?

specific targets either on organic or inorganic growth for this segment in Mexico or in Latin.

or inorganic growth for this segment in Mexico or in Latin. Thanks.

Thank you for your question Antonio. In organic growth, no, we're not considering anything in particular. And I would say what we really, I mean, we think that the Ballora team has done a great job on the food convenience side. And we see that there are opportunities there for us to bring that experience, I mean also the multi-brand experience that they have to this part of the world. So that is where we are mainly focused in terms of value creation.

Okay, thanks a lot. Have a great day. Thank you. Have a great day.

Okay, thanks a lot. Have a great day. Thank you.

And at the same, I'll turn the conference back over to our speakers for any additional or closing.

I think that's all for today. Thanks everyone and have a great rest of the week.

Thank you.

Gracias.

Thank you, ladies and gentlemen. If you wish to replay the webcast for this call, you may do so at Thumbs of Investor Relations website. This concludes our conference for today. Thank you for your participation and have a nice day. All parties may now just connect.

Stay safe

The.

and answer session. During this conference call, management may discuss certain forward-looking statements concerning funds as future performance and should be considered as good-face estimates made by the company. These forward-looking statements reflect management expectations that are based upon currently available data. Actual results are subject to future events and uncertainties which can materially impact the company's actual performance. At this time, I will turn the conference over to Mr. One, Fantasca.

Director of Investor Relations. Please go ahead, sir. Good morning, everyone. Welcome to Fence the Second Quarter 2022 Results Conference Call.

Today we are joined by Daniel Rodriguez, our CEO , and Eugenio Garza, our CFO .

As always, we also have Jorge Collado on the line, who leads Co-Census Investor Relations team.

Today the plan is to have Danielle start with some higher level strategic considerations.

followed by an overview of performance trends during the quarter. And then it will continue to provide more granular comments on the quarter results.

After the remarks, we will open the call to Q&A as we always do. Daniel, please go ahead. Thank you, Juan, and hello to everyone on the call. I hope you and your families are doing well.

As you already saw in our results released earlier today, Friends have delivered another strong set of numbers for the second quarter, reflecting sound plans and solid execution at every business unit, and continuing with the good momentum that began at the end of last year and has accelerated to the first half of this year. Most of our operations continue to show strong growth and profitability trends during the second quarter, as consumers continue to resume and continue to grow.

pre-COVID behaviors while making more suggestions required by the shape of our new normality across different markets.

Before diving into our recent performance trends, let me share some reflections on higher level considerations. We have established three clear strategic priorities for the coming years. First, deliver accelerated growth.

This means not only in Christian or with both trajectories in both revenues and earnings, but also ensuring that this growth is reflected in shareholder value.

Second, that as we grow faster, we selectively expand what your graphic art footprint. Now what your graphic art footprint.

This is consistent with a balance investment approach that drivers try and send over presents in Latin America, why also allocate and incremental resources to new markets where we can find pockets of growth and bring to bear the strengths of our core business, verticals and create value.

And finally, that this growth is enabled and enhanced by becoming more digital. This is already beginning to happen. For example, at Coca-Cola Fremza, as an enabler of the commercial and multi-category initiatives, by the way, our aspiration is that digital will become a core element of our customer-centric valuable positions and permeate every aspect of our activities. As it becomes a competitive, advanced, broad-fremza.

Expanding on the subject of growth and value creation, we are making progress on our long-term strategic planning review across the company.

This is a month long process that started by challenging each business unit and time staff as part of a foreign company to come up with the strategies, both organic, inorganic and structural that will put them in a position to cut up all the scale while achieving an attractive level of risk adjusted returns over a sustained period. Historically, they have been several periods during which this objective has been met. As well as some where we have come up a bit short.

But I'm happy to share with you that the long term class we are putting in place now our compelling and realistic.

and they all include selectively expanding our footprint and becoming more digital. At the strategic level, I would like to talk about two big topics that are on the minds of everyone on this call.

The first one is the very material gap that exists between our share price and what we would consider fair value. Historically, we have friends that have focused on driving operational success and the share price is taking care of itself over time. The vast couple of years, however, that has increasingly not been the case.

Right now, the divergence is especially start given the strong momentum and outlook at every one of our business units and the sound performance of the investments we have made in the last couple of years. This makes it clear that this topic requires special attention from all of us, not only at the management level, but from our board of directors.

The strategic planning review currently underway involves significant analysis to help us define the strategies to achieve our ambitious long-term growth objectives, but also how best to work towards reducing and eventually eliminating that population gap.

The second big study topic I want to discuss now is the tender offer to acquire Balore Group 8G that we announced a few weeks ago, which is of course related to our long-term close priorities as I just described it.

Valora is the leading convenience and food business operator in central Europe and it offers a high strategic fit with our proximity operations as well as an excellent platform on which to build our core proximity business in Europe . We believe we can help Valora accelerate its growth trajectory, bringing to bear not only our larger scale but our understanding of convenience and proximity models and our expertise in driving organic growth.

leveraging Balota's strong grant portfolio and management team. In particular, within Balota's current markets, we believe Germany presents attractive potential for organic growth and in time we evaluate expanding to additional markets.

On the other hand, we will benefit from balloras with billions of multi-format expertise to far develop the value propositions in our high potential core markets in Mexico and Latin America. Having said that, as you know, balloras are listed companies in the Swiss stock exchange. And the tender offer process must run its course. So we'll keep you posted as the process moves along. Now moving on to our business and beginning with proximity.

Same stuff says that also continue to show remarkable strength despite challenging microconditions. As the month go by, it is increasingly clear that the pandemic generated some seemingly longer lasting changes to consumer patterns and the drivers of light for light growth.

Over our edge, the ticket is now structurally higher in real terms, reflecting an increase in categories like spirits, wine and some replenishment items. While our traffic keeps improving, much more slowly and remains below 2019 levels.

There is plenty of evidence that people are consuming more at home. We are using the trips outside the home and shifting some of the purchasing habits.

Consequently, we're gathering and using data to generate insights that are already informing adjustments to over commercial and segmentation strategies as well as over expansion priorities. Now, let's move on to our commitment consisting of Telej???? models that are unique and.... Thank you.

allowing us to gain market share during the first half of the year. On this topic, we are adjusting well to changing dynamics. It is encouraging to see that also can grow earnings by double digit and reach record operating market even with structurally lower traffic levels.

as demonstrated again in the second quarter. And regarding the store-based expansion, we are maintaining over full-year target of approximately 100 new stores or also in Mexico. In the last quarter, we are maintaining over full-year target of the store-based expansion.

Even a scroll was still below trend this quarter. We should know that our efforts to focus only on the highest potential location is burning fruit. And the quality of the new stores as measured by our historical store material curves is the highest we have a kid in many years. If the highest we have a kid in many years.

We're opening stores at a lower cost per unit and generating materially higher sales and profits for a new store than before. We made the adjustment to our expulsion process.

On top of this, we're increasingly excited about OCSO's opportunities in South America in general and Brazil in particular.

Where after three years of operating Bupunoz, our joint venture with Raisin, we are already ramping up our growth plan to add over 250 stores per year and potentially more.

Moving on to overhealth division, our operations continue to perform well in the second quarter, even as the comparison base is getting tougher. Particularly in the key Chilean market or high levels of consumer liquidity, help us achieve very strong resolve the last couple of years. I've been said that we again saw good growth trends in Colombia and Mexico, where we continue to drive material growth margin expansion by applying some of the commercial strategies developed at cross-smart. Where is Spark?

our logistics and distribution business had a good quarter, driven by the continuation of a secular trend at Emboy Solutions in the facility supply business.

People continue to return to office in larger numbers in the US.

We're also making incremental gains in our cross-selling efforts among the three core businesses verticals. We're also making incremental gains in our cross-selling efforts

which represent an attractive opportunity to buy growth. I also want to talk a little bit about our digital platforms. Both spin and oxopremia, or loyalty program, have continued to grow their users. And more importantly, their active user base. Together, they now have more than 50 million acquired users and more than 12 million active users. And more than 12 million active users.

And we're working hard to expand each product's value to position and use cases to drive engagement and further accelerate the network effect of the entire ecosystem.

As you may imagine, user data is coming in fast and we are rapidly scaling up our analytics capabilities to improve the data's utility and potential monetization. We will continue to keep you posted on this exciting topic.

Before I turn it over to Eugenio regarding Coca-Cola FEMSA, as Constantino mentioned last Tuesday, they achieved a solid second quarter set of results, building on a positive momentum despite the inflationary environment that is affecting industries worldwide, substantially mitigating margin pressures by leveraging their hedging initiatives and doubling down on expense efficiencies while accelerating the rollout of their Omnichallon platform, which now reaches 645,000 active monthly buyers.

And with that, let me turn the call over to Eugenio. Thank you, Daniel. Good morning to everyone on the line.

Beginning with FEMFES consolidated quarterly numbers, total revenues during the second quarter increased 22.2%, while income from operations increased 9.9% compared to the second quarter of 2021.

On an organic basis, total revenues increased 18.9%, and income from operations increased 8.6%. Census net income increased 45.4% and reached 7.6 billion pesos, reflecting higher income from operations, a decrease in net interest expense, and a non-cash foreign exchange gain related to census US dollar-denominated cash position as impacted by the depreciation of the Mexican peso, which represented a positive swing of 2.5 billion pesos during the quarter. This was partially offset.

by a decreasing our participation in associated results, reflecting the recognition of our best estimate, extraordinary impairment, and other non-cash exceptional charges announced by Heineken in connection with their decision to active their operations in Russia.

and by a 799 million negative swing in other non-upgrading expenses, which reflect an amazing comparison base that included dividends received during the second quarter of 2021 from our investment in Jet Road Restaurant Depot. Moving on to discuss our operations, beginning with proximity. During the quarter, we added 168 units to reach 834 net new stores for the last 12 months. This includes 120 stores from our OK Market acquisition in Chile.

continue to accelerate throughout the second quarter.

When compared to the second quarter of 2019, same store sales are up 15%.

Gross margin for the quarter contracted by 40 basis points to reach 41.2%, reflecting lower commercial income as some of our key suppliers curtail their commercial and marketing activities as a response to reduced inventory levels driven by the scarcity of certain raw materials. Income from operations increased 33.7% while operating margin increased 120 basis points compared to the same period of 2021 to reach 10.2%, a record for comparable quarters.

driven by a structurally linear expense structure and the resulting operating leverage. At also that, revenue increased 32.5% and same-station sales grew by 25.2% relative to the second quarter of 2021, as vehicle mobility continued to recover and gradually approached pre-pandemic levels. During the quarter, gross margin was 12.3% while operating margin reached 4.3% with collecting continued static expense controls and improved operating leverage.

Moving on to PEMSA's health operations, during the second quarter, we expanded our drug store count by 144 net additions to reach a total of 3862 units across our territories at the end of June and 403 total net new stores for the last 12 months. This represents a significant acceleration in our growth rate driven mainly by Mexico and Colombia and puts us in a great position to meet our target for 2022. For more information, visit www.plastics-car.com

revenues increased 2.5% while same store sales increased an average of 0.5%.

However, it is important to note that on a currency neutral basis, revenues grew 12.5% and same store sales increased 9%. A solid performance across operations, even as the comparison base becomes more demanding, particularly in Chile. Gross margin decreased 110 basis points in the quarter, mostly reflecting a one-off inventory write-off at our Chilean operations.

Partially offset by improved operating efficiencies and a more effective collaboration and execution with key supplier partners in Mexico.

As a result, our pretty margin contracted 80 basis points, a static fence controls across our territories was not enough to fully offset the impact from the slightly lower gross margin.

Regarding our logistics and distribution businesses, revenues increased 50.2% relative to the second quarter of 2021, reflecting the steady pace of acquisitions made in the past 12 months by Envoy Solutions.

On an organic basis, total revenues increase 17.3% with electing strong performance across simple solutions to segments, especially in the retail and facilities supply segments.

Couple with good demand dynamics in our operations in Latin America, particularly in the warehouse in space. Operating margin contracted by 30 basis points, we're selecting a higher cost and labor transportation environment in certain markets. Finally, moving on to Coca-Cola Femta, volume screw 11.9% with all markets contributing to the growth. Revenue increased 19.9% and gross profits grew 12% despite supply chain disruptions and cost pressures on certain ROMA payloads. Operating income increased 5.6%

reflecting solid top line in favorable raw material hedging strategies, coupled with operating expense efficiencies. All in all, co-fence has delivered a very strong set of results amidst the challenging cost environment. You can listen to the webcast of the quarterly call that took place last Tuesday. Before we open up the call-up for questions, let me turn it back to Danielle for some final comments. Thank you, Keny. Grabbing app halfway through the year, our business units are in great shape, and we feel good about our chances to meet our ambitious.

plans for the full year and beyond. Always driven by our outstanding team of colleagues. We will continue to push ourselves to create value through profitable growth, but as I mentioned before, we are also working to ensure that the value we create is shared by all of our stakeholders.

And with that, let us open the line for questions. Operator, please. Thank you, ladies and gentlemen. And if you'd like to ask a question, please signal by pressing the star key followed by the digit one on your touched on telephone. If you are using a speaker phone, please make sure that your mute function is turned off to allow your signal to reach our equipment.

Once again, that is star one to signal for a question. And we'll take the first question from Ricardo Alves of Morgan Stanley . Hi everyone, thanks for the call. Very impressive same sources that also my first question is on that. Just a little bit more granularity on the evolution throughout the month, but maybe more important. How are things trending into July ? We were surprised to the upside of course with the strong same source views.

in the meetings. So just wondering how you're seeing things into July , if any signs of deceleration are not. Second question kind of related to the last point that Danielle touched on, caps location. This has been a key and recurring question from investors, given the cash generation, strong balance sheet, and also considering the current stock performance. Does it make sense for you to be more active on buyback at this juncture? Yes.

Just an update on your thoughts on this front, perhaps in conjunction with the potential or eventual sale of HINEC and any thoughts that you can share on that front. And my final question just quickly on the corporate structure kind of related to the point below, at least as it pertains to HINEC, but any updates or thoughts on the corporate structure of the company given the, again, the own going discussion that we have with investors, the complexity of the conglomerate, the discount valuation that you guys.

2020 with the peak of the pandemic, which is a couple of things. First is we've seen an average ticket that's resiliently growing at a very high level. We're still kind of in the mid-teens up from 2019 levels, mostly driven by changing consumer habits. They found it also a place to get a reasonably priced bundle of pantry products, as well as alcohol, I mean, heart-liquor and other categories that would traditionally not part.

of what the consumer thought the Oxford could fulfill the need. So we're seeing, I mean, a continuation of that trend and that continues to possibly affect the ticket. That on the other hand, as you know, what's severely contracted, so it's severely criteled by the contraction traffic that we experienced through the pandemic. And we're still not back. We're still from 2019 levels. We're still down in the big teams in terms of traffic, although it's coming up, but you saw this quarter was up to 1.4% as mobility continues to begin.

And that is a mix of factors again. It has to do with the store locations that we've discussed before, but also some changing consumer patterns, as Danielle mentioned in his comment, consumers especially are looking more towards income options rather than on the go options as they change their pattern of, I mean, working from home and others. So we're seeing certain categories gain in the supermarket segment, these are either convenience segments. But again, that's more than offset by other categories which were lower.

in the past for for also and are now producing into a higher ticket. So we're still seeing some upside on the tracking number and we see the ticket remaining the same as strong. So overall, I think there's still some upside to the same store of film number in the future where we're optimistic above that.

Yeah, Ricardo, regarding the corporate structure, I mean, as I mentioned in my comment, definitely we are working with a long term plan for each of the business, and no more intention, because we recognize that, definitely there is a gap, I mean, between the short price and what we consider the third value of the company. So, I mean, all the options are on the table. We have not exclude anything, and to be honest, obviously, that is something that is, we take some time, an opening tension is that to work year end.

we will be in a better position to share where we stand in terms of the particular action plans. And that is something that obviously, as I also mentioned, requires involvement of the board. So it's not only the management, but also the board. So we're working very closely with the board in order to come with a more clear, if you want directional update towards the end of the year. If you're specific point on buybacks, I mean, that is one of the alternatives that we're looking at as part of the overall.

Thank you, Emily Desin-Denomen, due to the interest of time, please limit yourself to one question, to ensure that everyone has the opportunity to ask a question.

Our next question will come from Bob Ford of Think of America. Thank you very much. Good morning, Daniel. Hello, Henny. You're on. And thanks for taking my question. There's not much to pay me away on proximity results in the quarter. How do you expect that to trend over the very near term? And what needs to happen to transform premium from a cost center into a revenue stream and data asset? And how should we think about the time table for that? Well, I mean, thank you for the question.

going forward. So I mean today the tender is in the range of 15%, so which is very, very high. I mean if you see that we just started a few months ago with the with the program. So as I said we are very excited. We are I mean even though that we have several millions, I think we are in the early stage but we are very optimistic about the future of the loyalty program and how much more valuable can bring to two of so.

And then you'll just look at the cost in the quarter for the proximity unit of Pamia, just understand how it may have had an adverse impact initially, and how should we think about that evolving. And how should we think about that evolving? And how should we think about that evolving?

I think so far about to be honest, the impact on gross margin of premier is still, I mean, given the, some lack of commercial programs of world partnering with some of our CPG partners as well. So although the tender is high, I think the impact on gross margin is still negligible. At this point, and we'll start to break down more of that impact as we move forward, but in the early stages, we are confident that the premier program overall will be acquitted.

to the value of the person's delegation. Lodav, thank you so much. Thank you. And we'll now move to Sergio Matsumato of City Group.

Yes, hi, good morning, Daniel. Daniel, thanks for taking my question. I wanted to ask about the...

the invoice solution growth, you have a lot bigger scale now, and it appears that there's both revenue and efficiencies, growth opportunities. And would you say right now you're more focused on the revenue opportunities, or if you could kind of give us some color around that. And also, how is the competition in this space?

against the other large player in the space and what are the differences in the strategy between you two. Thanks.

Sure, thanks for the question, Sergio. As you said, we're very pleased with how Envoy is growing both on an organic basis and how successful the inorganic activity has been. And to be honest, we're focused on both. I think we've got a dedicated team that's looking obviously at different regional territories which we don't have a strong presence in to be able to increase our coverage and take advantage of the scale, the purchasing scale, which is where most of the synergies come from, and be able also to deliver to national accounts in territories we will not end.

But then we also have the core team that's focused on the day-to-day operations, keeping the efficiencies where they are, optimizing wealth to market, playing around with pricing and segmentation, and again, most importantly, also integrating the acquisitions into common systems and common SKU sets so that we can take advantage of the scale. So we are running the plane and building the plane as we fly it, but we are overall very, very happy.

The industry itself, if you look at food service exposables and if you look at jams and packaging, which are the three main segments that we'll focus on, is over $80 to $100 billion in size. And we're still in the $2 to $3 billion sales range. There are, as you mentioned, two other players that are playing the same role of strategy that we are in. But we are literally competing in every market with regional players, local distributors, and at this point really not bumping up into each other. So I think there's plenty of runway for all these platforms to continue to grow and thrive.

and I think it's a space with very attractive secular trends in which we are already seeing the foods of a value very soon after we bought the original platform two years ago and we continue to see a big runway for additional capital, employment and value creation for the years to come. If I may, if I could like dig in deeper here, would your customers that envoy how would they decide whether to buy from you or the competitors is it?

We have three, if you want, categories, or main categories that we were able to sell. I mean, that combination also is very powerful. I mean, the fact that we can provide a service and we can come with the three categories, if that is the case. So I think price, services, I mean, and the quality of the product are the main key decisions that the customer take into account in order to buy our company. And the fact that we are growing, obviously we're in a good position to come with a very competitive price structure to them.

Thank you. Thank you. The question will come from Louis Yant with Compass. The question will come from Louis Yant with Compass.

Hi, Daniel Ovenio. Thanks for taking my questions. Thank you for taking my questions.

Just to follow up on the complexity and I guess capital allocation concerns. And it's great that we hear that hopefully by year and we'll get more clarity, so we look forward for that. But I was wondering, there were over the past couple of months we've been talking about peak complexity, I guess, right? And a lot of the things that you did, were towards that, right? You know, making some verticals bigger and bigger.

And while you're still doing this strategic review, it seems to me that with the acquisition or the entrance of Europe , complexity has gone up another leg in that sense, not in terms of form, but in terms of geographers in particular, right? And while, you know, it was a billion plus acquisition, when I look at the stock price, you guys have lost three times that. So the reaction was even worse than in previous things. So as you go to the strategic review,

is fair to assume that perhaps complexity or additional deals in kind of new areas could be on hold while you come up with the...

Well, you come up with something or just help us understand, you know, a little bit more, you know, the rationale and how do you guys take those market signals into consideration? Thanks.

Yeah, well thank you for the question Luis. I mean, first of all, I mean this strategic review was started before we made the decision to acquire Valora. So I think that is an element that is important to reinforce and as you can imagine obviously that requires time because we are analyzing several alternatives and we need obviously the involvement of the board. So that is one element. I mean, regarding the business complexity, I mean the way that we see the acquisition in Europe .

is that we are investing in one of our key core businesses, which is proximity. And we strongly believe that there is an opportunity for us to create value for value in Europe . I mean, as you know, we have been looking for proximity opportunities in developed markets for many years. And we find, I mean, that investment to be very attractive, not only about what we can go there, but also we strongly believe that we can learn as well.

from the way that around the business, I mean to opinions, I mean, there are elements that we recognize that we can also bring into our core markets in Latin America and maybe create also value here. So that's that for me is important because that decision was made inside the key market. And on top of that, I mean also one element that I would like to mention that, I mean, over the last couple of years, and I think you will share that with me. I mean, the trends in Latin America are not as they were in the past. I mean in terms of core, I mean.

when you think about which return of our investment. So definitely, I know that when you compare the return that we have with Ballora, it's very difficult to compare with the returns that we have in OXO. I think we strongly believe that thinking in the future in the proximity business, that was a good decision. And we are working hard, I mean, in order to come with the right answer or options, I mean, in terms of the structure solution.

And as I said, we hope that we can come with a much more clear answer towards the year and the least. And maybe just to complement me again, I mean. And maybe just to complement me again, I mean.

Thanks for the space for questions. I hope you're well. Congrats on the digital front.

Three questions on OXO. Is there a link between the higher ticket we're seeing at OXO and the greater penetration of PREMIA? That's my first question.

Yeah, I mean, not a direct link at this point, Belva. I wouldn't say that, I mean, PREMIA is growing. I think it's too early to tell whether the higher side is fine.

I'm hearing some echo. There's no direct link at this point between the higher ticket and brainnet. Clearly the heavy users are spending more, but it's not directly related. I think the bigger part of the higher ticket has to do with the changing consumer patterns that we described in the earlier question. Great, clear. And then just, you mentioned the release and you mentioned in your remarks this gross margin element at OXO on lower commercial income.

I mean, there is a pressure in supply chain. I mean, and obviously, based on that, I mean, many of our suppliers, they have made the decision in order to reduce or be much more selective, I mean, in terms of the delivery of the product. Hence, I mean, lower if you want incomes or commercial income. But I would say that that is something that we don't see as a trend. I mean, definitely that has been the case in other years before. And we expect that to recover in the future.

If you have suppliers in key categories, let's talk about fear for a second. And you're having submission with...

certain type of packaging, for example, which means you're not going to, you're pushing less product, right? And that means you're going to engage in less promotional activity, which at the end of the day, it is where commercial income comes from. So as those bottlenecks we solve in terms of these packaging materials and other inputs that have been hard to come by, we assume that this problem is going to go away. But as you know, commercial income is a big driver of growth margin expansion historically for it.

for also on and that's why we highlighted it because this is something that is happening because of the supply chain shocks, not because of anything structural. Okay.

For that particular category, as we head into the second half of the year and World Cup and all of that, it should be interesting, I think, that we get closer to the fourth quarter. The activity and a number of CPG categories hopefully will ramp up.

That's a very helpful color. And just the last one, the very quick one, just on Valora. Is the idea to staple it into proximity or is the idea to maybe leave it as a standalone entity? That's my last question. Thank you very much for the time. Now, I mean, the intention, I mean, first of all, I mean, we need to continue and finish the process in Switzerland. I mean, so that's, I think, important to mention over-instantions.

is that at least for the first couple of years, we will run that on a panel basis with an advisory board and with Representative of FEMSA, but also with four members from the European market. So that's the intention. Yeah, and I think, Alvaro, maybe part of your question, I think where we come from, from how are we gonna disclose that and whether or not you're gonna be able to track it and the answer is yes. I mean, we still have to fine tune, and I think there's a lot of work being done on.

How can we improve disclosure? And we've spoken with some of you in the past about increasing access to Daniel, and Paco, and Eugenio, and the management teams of the operations. Daniel mentioned in his remarks a few minutes ago, Envoy, Digital, Oxford International, L and the whole investor seminars where you guys can talk to the CEOs and the management teams.

importantly, ask questions. But the other part of it is actually the numbers that we disclose, you know, every quarter. And so, whatever shade, I think from the first quarter of next year, we will have an enhanced, you know, proposal and you're going to see more data along several parts of our prison releases. But in an nutshell, you will be able to track the performance of a lawyer. So it's not just going to disappear into opportunity.

Thank you very much. Our next question will come from Thiago Baudolucci with Goldman Sachs. with Goldman Sachs.

Yes, hi, good morning everyone. Thanks for the presentation, for taking our questions. We have two. I think the first one is about Oxo in Brazil, right? For sure, you are growing very highly from a low base and very fast. And the guidance of at least 250 stores per year is very welcome, but I'd like to understand in a broadly long-term view, what is the potential number of stores you believe you could get in the region? For more information, visit www.oxo.com

how compact we are seeing the formative versus other proximity formats and bakeries. And what is the marginal return or any reports who overdo it kind of as best when it is the first question. And the second one regarding chugulate, obviously we know there is a very hard home base that you are facing going forward, but also it's true that the underlying macro fundamental-dirtier rating, special inflation is high, GDP is very linked and the political environment is very broad in the region.

Apart from the corn base, what is the underlying status of the consumption background and how do you see the region trending over the next 12 months? Those are the questions. Thanks.

Well, let me start, Jaro, with Oxo Brazil. I mean, definitely, we... As you know, there is a joint venture which we have with Wison. I mean, before we signed the JV agreement, we developed a long-range plan. I mean, that was part of the agreement when we put together the joint venture. And we know that we will grow with Oxo on a standalone basis, but also...

to continue to develop the select brand inside of the classification of the Shell brand in Brazil. I mean so far over the last almost three years that we have started the

the J.B. in Brazil, we are very, very excited by the results, but we have seen with also, and today we are mainly concentrated in the São Paulo area, and over-intention. I mean, if you compare the population of Brazil with Mexico, definitely there is room to grow. So, I mean, we should not be, I mean, in the long term, we should not expect that the numbers could be very different from what we have seen here in Mexico.

Definitely, I mean, our intention is to grow in key or relevant big cities in Brazil. And from there, I decide, I mean, if there is room to grow in more medium and smaller sized cities. So the potential is there. I mean, in terms of the marginal, if you want, returns, I mean, I don't see or see very difficult that there would be very different from the one that we have in Mexico. So that's what I can come and regard with that point.

you asked about the kind of the competition and the value profit, I think. The story is coming in with a very interesting value profit because the story is smaller than your category sprayers or any of the other small formats in urban cities. It's more attuned to the palerías, but it I think has a value proposition and a mix of products that are uniform. Of course, you know what you're getting each time you go to a different topso. And it's more like a mini market or a mini market format.

that is taking on for both foods as well as convenience uses. So I think the value proposition is kind of hitting the sweet spot and we're actually growing much faster than we originally anticipated because of that. Your second question was with regards to appecule and the health division. I mean clearly as you mentioned we are facing difficult counts nonetheless the mix inform that we have the loyalty program in Chile and I think the resiliency of the space in the categories that the health division is serving in Chile.

I think are allowing us to maintain solid unit economics, good traffic and good profitability. So yes, you will probably not see the same store sales growth that we experienced over the course of the past 24 to 48 months. But having said that, the marginal economics there continue to be very, very attractive. And then Chile also provides us with a very strong base and supplier leverage that is helping us expand in Colombia and Mexico with very attractive commercial terms that are making the unit economics at Colombia and Mexico.

I mean, a lot better than they otherwise would have. So I think if you look at the entire portfolio of help, I mean, notwithstanding the fact that we might see a slowdown of growth in Chile, the value creation railroad for the division itself is I think on a very positive trend.

than they otherwise would have. So I think if you look at the entire portfolio of health, notwithstanding the fact that we might see a slowdown of growth in Chile, the value creation railroads for the division itself is I think on a very positive trend. That's good. Thank you very much.

On our next question, we'll come from Leandro Fontenazi with Bread Esco.

About holding discounts

So you mentioned you plan to launch a plan by the end of the year. Just to understand a little bit about this plan, what's the ultimate goal? Is it really to address, to reduce the holding discounts and the perspective of the stock price and the investor to a level that you think is fair? Or is it more broadly speaking, looking for ways for friends as a group, as a company to be more efficient? And then as a result, maybe reducing the holding discount is part of those measures. Just to understand.

if when you hire the strategic review, the ultimate goal is really reducing this holding discount or is a more broad strategic review thinking of the group.

There are two elements and then a Kenya and Kandu can complement me. But I mean, first of all, as I mentioned during the the goal, Leandro, where we're wanting this, what we call strategic review. And that is on a business basis in order to see what is the potential in terms of growth for each of the business units. So that is one element that clearly will take into account of if the revenue growth. I mean, how we can be more efficient and definitively can be more profitable. So. So. So. So.

that is one part of the exercise. And then on top of that, obviously, as I mean, as the structure review, the intention is based on both a study plan where we can do in order that ideally, that value that we feel very comfortable that we create at each of the business units, we can transform into shareholder value. And we recognize that to do that, we need to review our structure. And that is what we are doing here. So I mean, it's a combination of what we are doing in each of the business.

and how we by reviewing the structure and what are the options in order that ideally we can convey that value creation in each of the business into the stock price. That started with saying in an actual the intention of this exercise. Yeah, nothing to add to what Daniel said. I mean, basically it's bottom up was the best plan for each one of the businesses to maximize their own value.

Then in the middle is how we allocate capital and the constraints of capital within FEMSA to fund all of these different initiatives. And then finally, is the FEMSA structure today the right enabler to implement that capital deployment strategy, or is there another one that is able to again, rehabilitate this value creation on the one hand, but on the other hand also allow the shareholders to make this value creation transparent.

below the pre-pandemic. And then when we look at, for example, the average volumes.

for the listed players, it's above the pre-pandemic. So that means that likely...

supermarkets, for example, as a channel, you still have a higher share of those waters of beverages. And just on this, and if you think maybe you could recover to the pre-pondemic levels, or the substructure change in which maybe supermarkets or other channels will have a higher percentage of the market, such as, for example, maybe consumers learned the benefits of storing and doing purchases at supermarkets and made the bill won't need to the whole as much to convince to ours. Just on this thing, you should see any.

any potential structural changes or are you confident that you'll be able to recover to prepandemic levels? I think it's a big, Leandro, we are definitely seeing especially in single serve and personal snacking categories that trend that you mentioned with supermarket gaining share in some of that, especially through multi-pack strategies as the consumer because of inflation is looking to get the optimal per unit price. But again, there's two things. There's two things, one is how quickly or not we will stay at home.

I would just add on that, when we look at our own data that comes from the market, and of course we do some of that ourselves, some of that we get outside help, we are gaining share versus certain other channels.

So, yet, the overarching trend is as we've been discussing the past few minutes, but we've been able, and that's why I think Daniel mentioned at the beginning, that we're pretty confident that we're actually coming out in better shape, right? So even in the aggregate, people are doing a little bit more in-home consumption and fewer trips of the new dynamic, assuming this stays. We are getting a bigger chunk of the pie than we were before.

Right, and so that's I think very encouraging. Yeah, maybe only one additional comment, I mean, and I think one mentioned that earlier, is the fact that, I mean, as we learn, I mean, what are the structure of changes? We obviously are incorporating those learning into our processes, for example, expansion. Well, I mean, we have been very, very successful in order that now, I mean, over expansion, obviously taking to account those changes. And we have been very, very effective in terms of being very profitable with over expansion over the last two years. So I mean, that is an element that I think is important to mention, and on top of that.

We know that we will get much more insight and I mean from over also premier the loyalty program and that is something that will go and also the also in there doing a very good job in terms of a store segmentation. In order to see how I mean based on both changes, how we can better if you want allocate the assortment for stores and recognize in which areas, I mean those structures of changes are more relevant and in which areas maybe there are less relevant. But,

But I mean, you can imagine with a store base of 20,000 store, I mean, there are very, very different answers, depending on which segment you are analyzing and I mean, this changes. And I would add on the, to some of you that Neil just said, which is on the expansion front, and we mentioned it, you know, quickly in the opening remarks, where I think it bears repeating, the new store that we have opened over the past, let's call it 12 months, or even 18 months, or in basically the cohorts of new stores that we are opening.

on the more stringent process that we put in place during COVID are performing twice as better relative to new stores or comparable cohorts in the last 10 years. So that is super encouraging. Because sometimes we get the question, you guys have 20,000 stores, are you running out of room? And it's very encouraging to see that with the right metrics and the right segmentation, you can open stores that are gonna perform right out of the gate.

much better than stores that you opened 3, 5, 10 years ago. So I just wanted to add that data point. Thank you, and we'll move next to Carlos Liboy of HSBC.

better than stores that you opened, you know, three, five, ten years ago. But you wanted to add that data. Thank you and we'll move next to Carlos Leboi of HSBC. Yes, good morning everyone. Yes, good morning everyone.

Does the scope of the BCG study include an analysis of how the boards structure, composition, and processes are impacting the stocks in AV discount?

In other words, I guess what I'm asking is, will the scope of the BCG study include recommendations on how the board may affect the better capital strategy oversight? And then related to that, can you discuss any changes that might be already happening to either at the Finance Committee this year or in their composition and processes? Yeah, thank you, Carlos. I mean, definitely the BCG scope is mainly related to what we call the study time for each of the businesses. I mean, as you most probably are aware.

There was some changes, I mean, in the governance that were communicated earlier this year. And in that process, there are changes that will happen at the board level over time, which is obviously taking into account the composition and all the elements that are relevant from a governance point of view. So I mean, those are the comments that I can make. But definitely, I mean, a spot of this structural review that we are.

We are considering, I mean, definitely there are implications, I mean, in terms of how the governance will need to be implemented going forward. I mean, we will take into this to account. But I mean, as Elkenio said, we are looking at this moment, the three layers. So I mean, the opportunities that we see inside of each of the data. So both on my exercise, then how we allocate that portfolio. And then, I mean, what are the changes that potentially will require in terms of the structure?

and based on that, then we will obviously need to decide, I mean, if some of these changes apply, how that will be managed, I mean, from a board point of view. And Carlos, I mean, just to follow up, I mean, as you know, earlier in the year, we announced a gradual set of changes to the board committee structure composition and the size of the board. Those started, those changes started to be affected this year, we'll have more to come next year.

But just as a reminder to everyone, I mean the strategy and finance committee, which is the heart of most of these strategic decisions that get taken to the board, is made up primarily of independent directors and all these decisions, portfolio decisions, M&A decisions, where we're thoroughly reviewed in light of what makes sense from the long-term perspective for the FENCIS shareholder. And again, the composition and the makeup of that committee is Shelly did her job as a purplejack. I will start by thanking our members for all the work she has done for the board in this joint effort, the time that she has focused her time on this direct process. I want to thank Board Office for her wanna be the tenants at all,

It's starting to change with the changes that we implemented this year. We'll change also in the coming years as we bring to bear. I mean, more skills in the sense of digital transformation, in the sense of a bother, call it ESG topics, another of the agenda items that are on top of mind of shareholders and other boards. But that effort continues to happen in parallel to what we're doing with BCG. Yeah, I will just add Carlos. I mean, I mean,

Obviously the B.C.G. study, I mean they reached out to some of you, some of you, some investors. Among the things that they worked on, you know, kind of a perception study of what the market thinks, but the B.C.G. study is a very small part of the overall, very, very comprehensive process that is in place. So I don't want to take anything away from the B.C.G. study, but it's just a part of everything that's going on.

the B.C.G. study, I mean they reached out to some of you, some of you, some of the some investors. So among the things that they worked on, you know, kind of a perception study of what the market thinks, but the B.C.G. study is a very small, I mean, it's a small part of the overall very, very comprehensive process that is in place. So I, not to, I don't want to take anything away from the B.C.G. study, but it's just a part of everything that's going on. Thank you.

Now I want to now move on to Rodrigo Alcantara of UBS. Hi, good morning, I think for checking my question just for not the very repetitive view. I mean, look at the positive side of the complexity equation. And I was wondering if you could, you for sure like more complimentary key in the, let's say the distribution business in Brazil with HB, Solistic, uh...

Coca-Cola, Samsung's endeavor to the distribution side. Any sort of complementarities between your assets and you think that you would highlight perhaps with the JB, with Ryerson, could also be another example of a higher partnership between what you have in the logistics business in the field. And also very quick one on...

give us some update on the integration of drugs which is in the seal because that topic has been forgotten and it's so maybe we can bring that topic again into the discussion that will be helpful. Thank you very much. Yeah, we need to second question. If you want to start with the first amendment. Yeah, I know I'll start with the first table, but it was one. I think one area that we've been talking a little bit about were UC Co-Fensa and the proximity division actually you know overlap.

They're coming together when you think about, you know, a digital payment solution for the mom and mom. Could that be the spin platform that could then be applied for co-pens and customers? And I'm just spitballing here a little bit. But that is on a space where the two are converging where I think there's opportunity for interesting synergies. This feedback is really interesting for interesting synergies.

On the other question, I don't know. You mentioned something about integration, I'm not sure what business unit you are referring to.

Yeah, sure. And the on the well, first on the on the on the Solistic in Brazil, you know, and partnership with with with with with with for instance, and on the and the drugstores in Mexico. And you can give us another one. What do you stand in terms of the of the, you know, are we still going to continue with the three banners? Are you going to integrate into one banner? You can give us another there on the drugstores in Mexico. That would be helpful. Oh, drugstores. Got it. Yeah, the first one just compliment. Yeah.

Solistic and Brazil is helping the right-wing joint venture with their distribution effort. So again, as we've mentioned in the past, we believe distribution is a core element amongst all of our business units. We actually have an internal call it logistic, best practices board across all of the business units that are getting together. And at this point, part of the success that Solistic is having, sorry, that trade in is having Brazil is due to the Solistic Appartementhip. And would you go to the integration? Yeah, I mean, we're going to the integration. I mean, referring to that.

with that brand. I mean, normally those brands that are in the northwest part of the country, we are keeping those brands. We are developing as well private label products. And then in the case of Colombia and in Chile, we have Cruz Verde, because both were born with that brand. But then also in Ecuador we have a different brand which is Vibeca and San Matano. So I mean, we don't have any particular plan in terms of consolidating or changing the brand. More we are focused on how we can create values with those brands, because I mean, both are the customer.

are very loyal to those fronts. So that is where the F or F. So that's very clear. Thank you, Danila. And for the long call. Thank you.

to those fronts. So that is where the effort is. That's very clear. Thank you Danilo for the long call. Thank you. Thank you.

Our next question will come from Alan Atlanta of Fintander. Hi, the meal of any of the congratulations on the results. And thanks for taking my question. I'm not gonna ask about the complexity that being already the text analyzers that record this. This calls will pick up that the word that was repeated I guess the most. I wanna do a follow up question on the farm at least. I wanna do a follow up question on the farm at least.

Could you explain the divergence in claims to ourselves between oxalous and pharmacies? And you were very clear in saying that there's no integration into a single brand. Could you speak a bit about what the synergies between having pharmacies and convenience stores? Well, what the expectation and what should be expecting going forward both in terms of those synergies and the level of profitability of pharmacies which still remains quite below convenience stores? Thank you. Thank you for the question. I think there are different elements, I mean, in terms of potential synergies. I mean, first of all, normally, if you think about a, I mean, a delay out of a pharmacy, you will have, I mean, convenience categories. You will have some beauty. And obviously, you will have, I mean, all the proper tracks. So in the case of convenience, I brought up the finitly, I mean, the Risa synergy, I mean, in terms of the scale.

and how we can leverage the scale of OXO, and that is something that definitely we are doing. And then secondly, I mean also in terms of expansion, and the skills that we have developed at OXO is something that we are also using for the pharmacy business. And also related to expansion, we're already testing, I mean some locations when we have, I mean next to OXO, I mean a pharmacy, and that we are also doing that with our.

why we have those differences in terms of returns.

Hi Alan, it's Juan. I would just add a couple of things. We should remember that when we are looking at relative performance right now, drugstore versus OXO, drugstore is actually coming after two pretty good years. So during COVID the drugstore business actually thrived, whereas OXO and many others suffered a lot with traffic. So we are seeing OXO still very much on the bounce from those troughs. And we mentioned on the drugstore side we are actually facing tough...

in the past, Mexico is the one market where we are subscale. We are tiny in terms of market share. We have probably low to mid single digit market share, so we definitely would like more scale in Mexico. But driven by Chile, and I think Colombia also is growing very fast, so it's playing an increasingly large role. The health division is actually going to a very, very good phase. So I would just leave that there. And one final thing just on that, I think if you look at the future...

Those are very fair points, good points. Thank you so much for taking my questions. Congrats again. And our final question will come from Antonio Hernandez of Barclays. Hi, good morning. Thanks for putting in my question, congrats on your results. And questions are providing food service capability. You see, I mean, you were entering the European market with business goals, food, food, business. And you were already...

have some exposure to these market as well. Are you planning any specific targets either on an organic or inorganic growth for this segment in Mexico or in Latin? Thanks.

Thank you for your question Antonio. And I mean, in organic growth, no, we are not considering anything in particular. And I would say what we really, I mean, we think that the valor team has done a great job, I mean, on the convenient side. And we see that there are opportunities there for us to bring that experience. I mean, also the multi-brand experience that they have to be part of the world. So that is where we made.

that's in Latin America. OK, thanks a lot. I love your day.

Okay, thanks a lot. How good day. Thank you.

And at this time, I'll turn the conference back over to our speakers for any additional or closing remarks. I think that's all for today. Thanks, everyone, and have a great rest of the week. Thank you. Thank you, ladies and gentlemen. If you wish to replay the webcast for this call, you may do so at FEMSA's Investor Relations website. This concludes our conference for today. Thank you for your participation, and have a nice day.

Q2 2022 Fomento Economico Mexicano SAB de CV Earnings Call

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