Q3 2022 Fomento Economico Mexicano SAB de CV Earnings Call

October 31, 2022

Uh huh.

Okay.

Good day and welcome to the fence says three Q2022 results conference call. Please note. This conference is being recorded and for the duration of all your lines will be in listen only however, you will have the opportunity to ask questions at the end of the call.

This can be done by pressing star one on your telephone keypad to ask a question.

If you require assistance at any point, Please press star zero and you won't be connected to an operator.

I will now hand, you over to Juan Fonseca.

Yeah.

Good morning, everyone and welcome to the substance third quarter 2022 results conference call.

Today, we're joined by Chocolate Camacho, our Chief Corporate Officer.

In Nebraska.

It's always a we also have political you also on the line who needs Coke FEMSA to Investor Relations team.

Gary Packer will begin with some general considerations on our quarterly results and strategy and then Daniel will provide more granular comments on the numbers.

After that we will open the call to Q&A as always.

Michael Please go ahead.

Thank you Juan.

Hello to everyone on the call. We appreciate your participation today.

As you can tell from our quarterly results positive momentum, we have seen across our businesses.

For several quarters now is still going strong.

Working with proximity OXXO, Mexico delivered yet another strong set of numbers with traffic accelerating its pace of growth on top of a robust tickets expansion, but it's still reflect a resilient consumer environment and the positive performance of some of the key categories.

This is strong topline performance combined with a leaner expense structure drove operating leverage which in turn allowed OXXO deliver a strong operating income growth.

Beyond OXXO, Mexico, we continued to see dynamic growth trends, particularly in Colombia and in our Brazilian joint venture.

Furthermore, as you probably saw a.

A few weeks ago, we have finalized the acquisition of <unk>.

We are already working in tandem with the team in Europe , and we will keep you posted on the plans and initiatives there in due course.

For its part OXXO gas had another strong quarter on the back of increased vehicle mobility, and finally, reaching pre COVID-19 levels.

As well as a strong corporate sales and wholesale activity, which together drove strong volume recovery.

On the digital front, we continue to add OXXO, premia and spin by OXXO customers at an accelerated pace.

<unk> over 22 million.

More than 4 million users respectively.

More importantly earlier this month <unk> received its definitely our core station to operate a fintech in Mexico.

This is a relevant stone as it will allow us to continue pursuing our ambition to become the preeminent fintech in Mexico.

As we expand its value proposition to solve more financial needs for its ever growing user base.

Importantly, these will allow us.

To operate level III account significantly raising the peso amount that the user can deposit every month and making the product a better fit for small businesses.

Along these lines unnecessarily digital ecosystem gained critical mass. We are also building the third leg of our digital strategy.

To be component.

That will accelerate the pace at which it's small businesses in Mexico adopt digital payments.

This will in turn leverage and grow the use cases for a spin and we're evolving loyalty platform, thus, creating a digital flywheel.

For its part our health Division deliver a stable result that were offset by currency depreciation mainly in Chile, where our operations are still performing well against a demanding comparison base, while facing a challenging macroeconomic environment.

Within logistics and distribution and voice solutions had a standout quarter.

With a strong topline organic and inorganic growth in both nominal and re earns on a stable margins.

These figures reflect the full consolidation of our recent acquisition of Sigma supply.

Enhancing our capabilities in the packaging vertical and allowing us to make more progress on efficient cross selling initiatives.

And last but not least at Coca Cola FEMSA volumes grew across its territory until drive double digit decreases at the top and bottom lines.

Before before I turn the call over to Daniel Let me take a moment to comment on a couple of more strategic points.

First as you are in not where a couple of weeks ago, We announced the retirement of Johnson <unk>.

CEO of Coca Cola, FEMSA, and Alfonso <unk>, our CEO of FEMSA strategic businesses effective December 31.

John and Alfonso have been key members of FEMSA senior leadership team for decades, and they have been instrumental in making <unk> the driving enterprise it is today.

We take this opportunity to again, thank them and recognize their tremendous contributions to the FEMSA success story.

As you know Ian Craig will become Coke FEMSA, CEO and Konstantinos, Pat will become CEO of the strategic businesses unit on January one.

We look forward to the exciting future <unk> and Constantino will help us build.

Finally, let me talk briefly about our strategic planning review currently underway.

Danielle mentioned during our last call. These processing both significant analysis to help us define the strategy to achieve our ambitious long term value creation objectives, but also how best to work towards eliminating the valuation gap that exists between our share price and the true value of our business.

In recent months desktop because being top of mind for investors, prompting questions on the speculation in the market about where we may be in the process potential outcomes et cetera.

Therefore, and given the relevance of the subject we want to use this call to make a clear statement.

The processes ongoing.

The analysis being done is growth and thorough and we do not expect to comment further on distribute on the rates or the resulting speculation on this call or in other interactions with the mark until we are ready to provide a relevant update.

Our target date for such innovative is shared with our fourth quarter and full year 2022 results in late February 2023.

Rest assured that we have also heard investors community desire for greater transparency and more simplicity loud and clear.

We are taking these topics and others into accounting or efforts.

And with that let me turn the call over to Kenny.

Thank you Paul and good morning to everyone on the line beginning with Ventas consolidated quarterly numbers total revenues during the third quarter increased 25% while income from operations increased 13, 8% compared to the third quarter of 2021 on an organic basis total revenues increased 54% and income from operations.

Increased 10, 1%.

<unk> net income decreased 17, 3% and reached $13 2 billion pesos, reflecting higher income from operations a decrease in net interest expense and an all cash operating foreign exchange gains sorry, noncash foreign exchange gain this was offset by a decrease in our participation and associates results, which mainly reflects the results of our inverse.

And Heineken and <unk> and a $1 9 billion peso negative swing in other non operating expenses, which reflect a demanding comparison base that included dividends received during the third quarter of last year from our investment in Jetro restaurant depot.

Moving on to discuss our operations and beginning with proximity we added 231 units during the third quarter to reach 902 net new stores for the last 12 months. This includes 120 stores from our okay market acquisition in Chile that we began consolidating there in the second quarter in Mexico, we are still a little behind pace.

For our target of 800 net additions, but the debt keeps ramping up the pipeline is looking good for the next 12 months and the productivity of our new stores continues to materially exceed that of previous new store cohorts.

OXXO same store sales were up 17, 5% for the third quarter driven by an increase of 11, 9% in average customer ticket and a notable four 9% growth in traffic. This reflects a pickup in the recovery pace of mobility and the gathering consumption location that has continued to perform at a very strong level when compared to the.

Third quarter of 2019 same store sales increased 15, 5%.

Gross margin contracted 110 basis points to reach 42%, reflecting a phasing out of commercial income activity at some of our key suppliers differ commercial and marketing activities in anticipation of the FIFA World Cup and the December holiday season.

We should also mention the affected OXXO premium our loyalty program is beginning to have on the income statement.

Given it meteoric meteoric growth definitely is already having a positive impact on the top line, but it's also affecting the gross margin line as we take a very conservative approach to accounting for point redemption. The two effects almost canceled each other out at this stage, but as the program grows and evolves. We are working on several strategies that will allow us to monetize that.

Program further in the medium term.

Income from operations increased 23, 5%, while operating margin increased 30 basis points compared to the same period of 2021 to reached nine 4% another record for our comparable quarter driven by a structurally leaner expense structure and the resulting operating leverage.

So that revenues increased 33, 6% and same station sales grew 25, 1% relative to the third quarter of 2021 as vehicle mobility continue to improve finally recovering the pre pandemic levels.

Volumes were further aided by robust pick up in corporate and wholesale activity.

During the third quarter gross margin was 12, 8%, while operating margin reached 5% reflect tight expense control and improved operating leverage.

Moving on to FEMSA <unk> health operations during the third quarter, we expanded our drug store count by 84 net additions to reach a total of 3971 units across our territories at the end of September and 431 total net new stores for the last 12 months. This represents an acceleration in our growth rate.

Driven mainly by Mexico, and Colombia, and puts us in a good position to meet our target for 2022 of more than 400, new drugstores.

Revenues increased one 1% while same store sales decreased by an average of 3%. However, it is important to note that on a currency neutral basis. <unk> grew 13, 5% and same store sales increased six 3% a solid performance across our operations, even as a comparison base becomes a more demanding one.

Particularly in Chile.

Gross margin decreased 50 basis points in the quarter, mostly reflecting a negative mix effect that reflect the strong growth of our operations in Colombia, partially offset by improved efficiency and a more effective collaboration and execution with key supplier partners in Mexico.

As a result operating margin contracted 20 basis points as tight expense control across our territories was not enough to fully offset the impact of the lower gross margin.

Regarding our logistics and distribution business revenues increased 773% relative to the third quarter of 2021, reflecting the steady pace of acquisitions made in 12 months by envoy solutions.

On an organic basis total revenues increased 14, 6%, reflecting strong performance across <unk> solutions segments, especially in the retail and facility supplies segments, coupled with good demand dynamics in our operations in Latin America.

Operating margin contracted 10 basis points, reflecting higher cost of labor and transportation in certain markets.

Finally, moving on to Coca Cola FEMSA volumes grew eight 4% with all markets contributing to the growth revenues increased 18, 2% and gross profit grew 16% despite supply chain disruptions and cost pressures on certain raw materials.

Operating income increased 33%, reflecting solid top line and favorable raw material hedging strategies, coupled with operating expense efficiencies.

All Coke FEMSA delivered a strong set of results amid a very challenging cost environment, you can listen to the webcast of the quarterly call that took place last week.

Before wrapping up I would also like to anticipate to you that in the spirit of greater transparency and disclosure that backhaul alluded to in his remarks and given the steep growth trajectory of <unk> solutions. We will begin reporting its results on a standalone basis separate from the Latin America logistics business, starting in the first quarter of 2020.

Three Furthermore, as mentioned during the process of acquiring by Laura we will be presenting its results separately in our releases beginning with this fourth quarter.

Finally, we are also working on additional enhancements to our disclosure that you reduce the complexity of measuring the performance of our business units and investments.

We are hopeful that despite making our financials a little bit longer to go through they will provide a better picture of the true value being created by our teams.

And with that let US open the lineup for questions operator please.

Once again it is star one for questions. We ask that you. Please limit yourself to one question you have additional follow ups. Please re queue.

And we will take our first question from Ricardo Alves with Morgan Stanley .

Hi, everyone. Thanks, so much for the call.

Another set of good numbers operationally speaking EBITDA generation, considering the commentary that <unk> recent discussions with investors.

How are you.

Thinking about shareholder return I mean, any updates on dividends and buybacks of extraordinary dividends and so forth.

First a very quick question the second one when.

When you're thinking about your geographic diversification I know that you cannot talk about the strategic review itself. Because you said in the remarks, but when you are thinking about one of your pillars of geographic diversification.

What's your aspiration as of now for example, we're considering just achieved part of that would have a lauder transaction in Europe .

And it seems that the growth going forward as well.

Florida seems to be more focused locally in Germany as opposed to.

Breadth of expansion abroad or more M&A.

Just wondering if thats the right way to think about it or what can you share on your geographic expansion pillar.

Considering simply strategic.

The strategic long term view.

The time thank you.

Sure. If you want I'll start with the first one again the strategic review encompasses all of the different levers that we believe are available to us to unlock the value of the operation. So so yes all of the tools that you mentioned are being taken into account, having said that at this point, we're not ready as Pekka mentioned to come.

Went on which ones will use but we are we are certain that.

There is a lot of value that we can unlock from from our operations by by using those in and other tools and then Pat do you want to go through the geographic diversification question, Yes. Thank you Ricardo for your question.

Again, when it comes to geographic diversification he has to do with the intent to to better manage or the risk of geographic portfolio and.

And I guess, the best way to answer your question to say that we feel very comfortable with a geographies. We are competing in right now.

We don't we don't expect to be expanding that.

A number of geographies we're in.

For the time being.

Okay.

Hi, Carlos this is Juan.

Hum.

Mark will comment on this because.

Questions will be receiving.

From investors.

Many weeks and months.

Regarding do you think that Bernard Kathryn.

Couple of years after envoy.

And.

Strategy itself.

<unk> a lot of M&A right, we did it from the beginning when we started yielding envoy.

All that is required creating a national platform and.

Targeting bobbi.

A fair amount of acquisitions.

Obviously for the law is very different and that's really the point I want to make right now.

<unk>.

We are in the markets, where we are and we've talked a bit about Germany, you have a courtyard growth opportunity we see.

Hubert.

Strategy for Valero is very different from strategy Korean boy and I again, I traded because there are investors out.

How do you thinking well, maybe substitute gonna be acquisitive in Europe .

I've been with <unk>.

That's not correct.

Some strategies from the get go are very different.

Okay.

And moving on we'll go to Luis Willard with GBM.

Hi, guys. Good morning, Thanks for taking the question.

Nope.

Got to talk about.

Receipts.

Station when we see the numbers accelerated strongly in the fourth.

<unk> you talked about new sparkling the remarks.

Tell us a bit more about your priorities in terms of development and.

The commercial offering.

14.

And another question would be the same lines are.

We expect to see a more active.

FEMSA <unk> division in terms of use of capital in the future. After this authorization. Thank you.

Sure if I want they'll all start I mean, as you know the number of users has been growing significantly just based on the power of the acquiring platform that the OXXO stores are able to give Spain and the U S is right now, although obviously high value added there is still quite limited with the new authorization.

There's two things that we're seeing one is now we were able to.

Half dollar accounts for a physical persons in Mexico. So we can get into the remittances markets I think a lot more closely and then also we were able to open up and three accounts. So level three accounts in Mexico, which allow for higher deposits and higher average balances and we can tailor that product for the beat to be customer.

Youll start to see us get more aggressive into the b to B space.

In that way to close the loop between the consumer and the <unk>.

Our merchants so that we can try to develop an overall payment strategy.

Together with the loyalty program and other up at the FERC that we can offer through OXXO will be a powerful combination and we think that this powerful combination will be able to better serve both both types of customers and on the product side again once once we get a more stable user base and with its authorization.

We will start to get as well into other other products such as personal loans working capital loans for small businesses. So so definitely we will see some more use of capital being put to use I think gotten not necessarily aggressively but.

But with with a lot of we think bank for the Buck in terms of the returns that we're able to get from monetizing the current customer base.

And I guess that what I would add is that as we do all of that the degree and you described it is true that as you can.

Can imagine.

We accelerated the acquisition of users both its been in our loyalty program, we get to know them better. So you should expect that also the value proposition will continue to be sharpened.

Constantly so that we meet consumers' needs.

Better in what we have today. So that's something that you should also expect coming from or digital platforms.

Yeah.

That's very clear.

If I make a quick follow up.

When they come to us under our level III accounts are.

Like plug and play right you don't need to do much.

In terms of the.

Apple architecture, perhaps <unk> needs a bit.

More time post to be upper running is that correct.

Yes, yes, not necessarily plug and play but clearly those two offerings are I think much sooner in the pipeline then.

The full development that will lead to be platform, yes.

Alright.

Hello.

Thanks Louise.

And next we'll go to Hector <unk> with Scotia Bank.

Hi, Thank you for taking my questions.

So all of that.

Antonio.

Thanks Darren.

There is a.

10 million Nielsen Kristine by <unk>.

We believe we will continue on your current user base.

You would have to machines.

About 30% more monthly Nielsen, Brazil hydrology stern.

So in that light.

No.

And then shifting back.

So I wanted to talk slowly.

New users, possibly above 500000 mark.

According to timeline for medium large blocks of premium <unk>.

To accelerate even more the number of users.

Our question is would you be pushing.

<unk> seen the mom and Pops.

And we do have a quite a bit on backlog numbers that you could share. Thank you.

Yes. Thank you Victor for your question.

So let me provide some perspective on how the whole acquisition user acquisition is going because in fact.

We feel very comfortable with the.

The user acquisition trend for a spin and that can lead to to your point on the number of users we are aiming to have active.

In the mid <unk>.

The really the tricky to on one hand, if you continue with the strong acquisition right, but at the same time, we also need to encourage you.

User or registered users to be more active in the platform.

So there is a component of that that will increase the percentage of users that register and then.

The keep us active in the in the platform and that has to do with a number of things first.

How friends and the platform is.

Second the type of services, you provide and third of course definitely location that you put out there for consumers to truly understand the capabilities of the platform. So I think that when you look at the rate of active versus register that we have today, we should expect that that ratio will increase in the in the future and industrial arena.

I don't know if you went to assure the only thing I would add is that as.

As you know there are network effects associated with that with these kinds of products and we're starting to just the tip of the iceberg with regards to the geographic panel. So I think certain other use cases like peer to peer or whatever have more value. The more users that are on the platform. So we would expect.

Some sort of riding.

Writing of the exponential curve in the shorter time and Thats. All I think we're comfortable that we will get to that $10 million.

10 million user target that potential was talking about anecdote I think the second part of your question was related to the relationship between spin or loyalty program.

I mean, clearly there is.

There is.

Our relationship because at the end of the data we will look at this is a digital ecosystem, which things are connected so indeed.

We should expect that moving forward part of the B to B component before Michael system, we have to do with how we can actually.

Allow us.

The small traditional stores to use 15 and be part of our loyalty program on a business to business component and then also on the other side when you look at.

Loyalty program and the spin.

Now would you open and it's been accounts you are also part of the loyalty program. So I mean, there is there is.

Synergy components synergistic component that as we move forward it will be stronger and consumers will be actually better off because they will have more services at their disposal.

As part of the platform and just finally, the partnership with with golf, obviously on an arm's length basis, but that I think will allow.

Hopefully add to have I mean Corey.

Customers, who use the <unk> platform in <unk>.

<unk> way that will allow the synergies that Bob was talking about in terms of customer acquisition costs and <unk> space to be.

To be a very powerful combination for both parties.

Excellent.

And moving on we'll go to Alan Alanis with Santander.

Hi, good morning. Thank you so much for taking my question.

Questions one of them.

I guess the answer is it's going to sound like very obvious to you.

For investors to listen in.

And it's.

Could do a recap of what triggered this strategic review.

I don't.

Makes total sense not to speak about about what the potential outcomes, but it might be good to remind investors. How do you define the situation or how do you define the problem.

That would be the first request if I may.

Second one has to do with this move toward <unk>.

Need to be.

In Spain.

And I guess, there's going to be a lot of questions around this in terms of not only the architecture.

Question.

Asked before but also in terms of the scope and the.

Hi.

And then why not have just applied for a full banking license.

But I guess the specific question for this call would be.

When are you going to start attracting business because of the small to mid businesses mid sized businesses to open sprint accounts can be direct right now what's going to be the approach.

And what's going to be the scope and timing of moving from a platform Douglas understood I think for many of us.

As a platform for four four.

For consumers basically a pretty big for consumers now in terms of moving to a pretty big for small to midsize companies in Mexico. Thank you.

Sorry, if I, what I'll I'll take the first question and then back or maybe you can address the second one.

I mean, Daniel Rodriguez. This term starting in January and this was his priority number one to both strategic review, both bottom up as well as top down of all of the portfolio of FEMSA and.

And make the long term have a longer term view with regards to capital allocation going forward. So that's really what triggered in the meantime as does the.

The market turned a little bit South and then our portfolio starting to get more complex. We started to see the disconnect between the stock price and the.

And what we believe to be the underlying value of the businesses and Thats why the I think the urgency to come to a conclusion from the market at least and we're hearing that loud and clear but to be clear.

The trigger of the strategic review was done he is desire to have a full blown plan at 2% to the board and obviously the U S shareholders as to what his priorities from a capital allocation would be going forward.

The timing is still I mean, he said he was going to do it. During this year, we are sticking to that timeframe. As originally stated I think there is it's just the market dislocation in terms of price, that's putting a little bit more of a sense of urgency, but again, we're taking our time, we're comfortable that each one of the businesses has spectacular optionality is a spectacular plan.

To be able to create a tremendous amount of value and then from a top down perspective that we have the levers available to unlock the value that's already there and also crystallize the value that we can create in the future.

Okay.

Sure.

And Alan Thank you for your question because actually it's an important point regarding the second part of your question, which is the <unk> component of digital platform.

We'd like to.

Go back a bit.

When we started.

Working on their digital business because at the time, we said all right we're going to focus on three main verticals, we said very fintech with the with the spin wallet there is.

The loyalty program and then we said there is the <unk> component, which is.

Primarily also enabling.

The traditional trade.

That was the focus we have.

Let's continue the gate so of course.

We started because we had already a platform for a bogo in OXXO premia on Athene by OXXO working on the first two vertical.

This strategy and the results of that they are going extremely well, but it certainly is.

We have reached this level of performance in these first two verticals, we start thinking that in order to close.

The loop and to have a complete flywheel.

Of course need to need to deliver on the on the B to b component because at the end of the day.

Yeah.

Part of the mission that we have is to it.

Enable both consumers and small trade on the financial side, giving them.

Access to services.

And two I would say financial elements under daily life that they cannot do.

As we have been doing that would have been we have identified.

Obviously, we suspected that but there are a number of cohorts that interact with our products in a different manner. There is of course at the.

The regular consumer the one that goes in they are going to show up and they need to put money in their car and they need to use the wallet.

The way.

Basic weighted was designed to function, but there are other cohorts of for example people that Cabot small businesses that use that use the wallet in a different way to pay.

<unk>.

Suppliers, who are have received payment.

From their customers and <unk>.

Obviously, when we started.

The spin while if we knew that that was going to happen, but now we have significantly more data in terms of how dose cohorts are behaving and what type of services they need moving forward.

Receiving the full Fintech license will allow us to increase the type of services that we can give them.

Clothing things as simple as the amount of money they can actually putting the cart. So that's on the on the wireless side now if you move that part of the services that these cohorts need towards the B to B and we talk about this more traditional trade I mean these type of businesses also need this type of services.

But if you will they will need it in a little bit more sophisticated way because obviously they have inventories to my knowledge they have.

Larger suppliers to deal with they have more customers to serve so evidently there are some parts of the first two vertical the as I said.

The wallet, but also the loyalty program that will serve them well.

For these additional needs that they have but clearly we will need to develop others.

That are more specific specifically targeted for these type of businesses. So again. This is this is an evolution we are moving fast but at the same time is very important that we understand fully what each of the cohorts needs and that we construct something that is going to be.

I would say comprehensive and that leverages from each of the strengths of the verticals that we are developing so that's what I will say that regarding the second part of your question.

So the clear and helpful.

Okay.

To be clear we are at this point not considering a banking license we are dipping our toe in the water with the.

The Fintech license, we think.

We can learn a lot about the use cases, and whether or not it's going to be worthwhile for us. If this scale clearly thats going to be one alternative we will need to look at but for now.

We are just testing this out and let me just emphasize what packages told you I think.

This is a unique case in in financing the development of financial digital financial systems across the World, where you have the power of a distribution network to be to the customers like Coca Cola FEMSA and on the other hand, the ubiquitous ness of OXXO and its relationship to the consumer.

That can allow for a very strong combination to really create this full fledged payments ecosystem, coupled with a loyalty program and coupled with the multi category opportunities to increase wallet share in in the <unk> space through <unk> and.

Otherwise with a partnership with OXXO that I think will allow these to become.

A tremendous ecosystem that said that we really we have not seen in other places in the world.

Yeah, well, it's a mix.

A lot of sense to potentially.

And last question would you use the brand.

OXXO spin also further would be to be or will be in a good.

Brian for four months for this to be upward.

Yes, well that's.

That's a good question that the teams are.

Working on as we speak.

All I can tell you that will come some news on that respect the teams we have news on that respect.

Thank you so much I appreciate it congratulations on the results. Thank you.

Thank you.

And moving on we'll go to Albemarle Garcia with BTG Pactual.

Hi, good morning.

Cool.

My question is on EMEA.

Which is obviously growing very fast and I was just wondering if you could sort of walk through you mentioned in the release some impact to gross margin on the back of it but just the tradeoff between top line and profitability and from a strategic standpoint, and how youre thinking about that going forward. So maybe two part question first sort of what's going on this specific quarter, how is that really impacting gross margin.

Two how are you thinking about sort of increasing the size of your network long term versus profitability. Thank you very much.

Sure. If you want I'll take I'll take a crack at it overall, but that but I mean, clearly right now we are reserving a 100% of the loyalty points that are being earned we are putting in strict cost of goods sold so that is affecting the <unk>.

And the gross margin in the short term.

At the end there will be some break can be some brands.

Okay.

Sorry, I'm sorry I'm.

I'm getting a little bit of a nickel.

Can you hear me.

Yes.

Perfect. So there will be some breakage on those points and we will fine tune and kind of what we're charging in the income statement that going forward, having said that BLS TCT of the program and again 10 million users and about a 19% to 20% tender at this point as this grows I think the elasticity of the traffic coming to the stores from loyalty.

Customers in the average ticket that we're getting from them right now it works out to be a wash between the hit on the income statement from.

From the rewards for loyalty and the excess traffic in excess ticket that we're getting as this scales, we do expect loyalty to become.

A contributor of value to the company, whether we decide to use that value to reinvest.

In further store visits or whether to reinvest in other other products via digital or not digital is something that we will test out in different user groups and different <unk>.

<unk> as we go forward, but the loyalty program in and of itself is is intended to be a value generation.

Mechanism for us not not just a program to get more traffic into stores.

Yeah.

Yes, the only thing.

Right.

Yes, there is some feedback we apologize for that but.

The one thing that I would like to to what <unk> said is that.

Moving forward the first part.

The loyalty program.

Got.

He's really accurate coalition.

Graham that we're building.

As we add more partners into that program as we add more possibility for consumers to participate in the program you can imagine the amount of that on the amount of knowledge that we will generate will open a lot of possibilities in terms of additional monetization of that program.

Obviously that is working progress that is part of the evolution of Av.

The largest ecosystem.

The momentum that is having as you said gives us the confidence that moving forward. We will open a number of possibilities for both the services that we will provide for the consumers and also the.

And the possibilities of monetization that we would have.

Great many thanks.

Thank you Alberto.

And next we will go to Antonio Hernandez with Barclays.

Hi, good morning, Thanks for taking my question.

Gerardo Lora now that you have exposure to Europe , but given the current environment macro adverse backward.

The region what are your expectations there for the short to medium term.

And also.

Okay, great strategy.

So to improve.

Yes.

<unk> dropped the viewpoint.

All of them and so on that you mentioned do you think that Theres, maybe a possibility of putting some of these capabilities.

Europe as well maybe in the medium to long term.

Yes.

Let me give you a crack at it and then obviously I mean, both kicking in.

And you can complement but I mean, clearly as you can the management team of by load up has been on top of the development in Europe .

The circumstances.

In terms of inflation in terms of.

Energy costs et cetera.

What is behind your.

Your question.

The management is taking the necessary measures to.

To protect the business against the.

These headwinds.

At the same time, I think that it's important to remember that.

A big component of the value of our businesses the food billions and that that particular business that particular segment is very resilient.

When it comes to.

<unk>.

Economic downturn. So we are confident that the very senior management that we have in <unk> in place.

You remember the state.

From from the pre acquisition has the right plans in the right.

The right organization to defend our business against the situation, having said that.

As we as we get more involved in the business we are obviously.

<unk>.

Providing as much support as we can.

Given the knowledge, we have in the emerging markets regarding inflation regarding volatile environment. So this is a good transition to the second part of your question I mean, clearly there is a lot of knowledge that we have developed.

On how to handle businesses.

In nuts appropriate double situations, and obviously that component is going to be there.

As we work together with the European team, but second.

<unk> has developed a strong set of capabilities and know how in terms of operating.

The stores in a very efficient manner and.

You should expect that part of that knowledge and part of that local is going to be quickly transferred.

To the Lauder, so that they can capitalize on these learnings that we have developed over the years.

Okay and regarding your organic growth expectations in Europe .

<unk>.

Have they changed and maybe because of the situation or what do you expecting.

Maybe for the next couple of quarters.

Next year.

Yes.

As.

I highlighted at the beginning of the call the final yet.

Part of the acquisition of below that just happened a few weeks ago. So now that we are in control of the company, we're working with the team to develop the right.

Budget for the year and for the quarters to come so in working progress is in the rest of our businesses.

Okay perfect. Thanks, a lot.

Thank you.

And moving on we'll go to Rodrigo <unk>.

<unk> <unk> with UBS.

Hi, good morning, Michael.

One more question regarding on the Lora, we read there.

A different strategy.

I'll add more organic growth and M&A. So my question to you.

On.

I mean, how should we think about the funding of that organic growth that you can fund that leads.

Operating cash flow.

So while again respect some minor disposals Heineken and if you can comment about that.

A second one.

Regarding.

Endpoint solution.

Should we expect.

So it meets 2020.

Yes.

When you look.

Integration with all the assets.

Acquiring the U S.

And perhaps some synergies at the G&A level.

My two questions. Thank you.

Yep.

Thank you Rodrigo for the questions. If you want I'll start with the funding of below.

I mean below right in and of itself is generating good cash flow and it could fund.

And its own expansion and again it will be organic in certain cases, it will be I mean, new stores and in certain cases it will be.

<unk> existing independent stores in Germany, and otherwise, which is quality highly fragmented and.

And we expect those to be highly ROIC accretive from the beginning so.

In the recent need for funding we will clearly.

And the way to fund it from other of the FEMSA operations, but we do not expect this to be a major strain on defense funding structure altogether.

And with regards to your question on <unk> solutions, we are already working on that we've hired two senior people to the management team basically working 100% in terms of integrating the companies I mean, they are integrating them.

Coming from a.

Flurry of 26 acquisitions over the past couple of years. So they are working on the earlier ones and slowly integrating them into our common operating style a common operating procedure.

<unk> singles.

Single supplier platform et cetera.

And most of the synergies that we are finding and we're already finding more than from an SG&A perspective are coming just from a purchasing perspective, so equalizing the product catalog getting discounts from suppliers for scale purchases being able to serve national accounts.

From a single point of contact et cetera. So those are where the synergies are coming from and it is turning I think most of the acquisitions that we've been making at maybe low double digit EBITDA multiples with the synergies. They are turning out to be high single digit EBITDA acquisition multiples with very high cash flow conversion. So.

We're finding those to be quite accretive in the short term and hopefully you'll be able to see that for yourself. Once we start disclosing those numbers on a standalone basis first quarter of next year.

Okay.

Right.

Thank you very much just on the <unk>.

Funds from operations.

For the organic growth.

Yes, either from Valerie itself are slightly with some use of funding from FEMSA, but but nothing that will strengthen our balance sheet by any mean by any means.

Sure. Thanks.

Thank you.

And that does conclude our question and answer session I would like to turn it back to Mr funds setup for any additional or closing comments.

Thanks for your time today for your attention.

We're always available for follow ups.

My team and myself.

Have a great week.

Thank you and that does conclude today's call we'd like to thank everyone for their participation you may now disconnect.

[music].

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Yeah.

Okay.

Sure.

Yes.

Sure.

Yes.

[music].

This can be done by pressing star one on your telephone keypad to ask a question.

If you require assistance at any point, Please press star zero and you will be connected to an operator.

I'll now hand, you over to Juan Fonseca.

Okay.

Good morning, everyone and welcome to <unk> third quarter 2022 results conference call.

Today, we're joined by Chocolate Camacho, our Chief Corporate Officer, and Ukrainian Rockstar.

It's always a we also have pockets, where you have some underlying pollutes coke FEMSA to Investor Relations team.

Did you eat Taco will begin with some general considerations on our quarterly results and strategy and then okay, and who will provide more granular comments on the numbers and after that we will open the call to Q&A as always.

Michael Please go ahead.

Thank you Juan.

And Hello to everyone on the call. We appreciate your participation today.

As you can tell from our quarterly result positive momentum we have seen across our businesses.

For several quarters now is still going strong.

Starting with proximity OXXO, Mexico deliver yet another strong set of numbers with traffic accelerating its pace of growth on top of a robust ticket expansion, but it's still reflect a resilient consumer environment and the positive performance of some of the key categories.

This is strong topline performance combined with a leaner expense structure drove operating leverage which in turn allowed OXXO deliver a strong operating income growth.

Beyond OXXO, Mexico, we continued to see dynamic growth trends, particularly in Colombia and in our Brazilian joint venture <unk>.

Furthermore, as you probably saw a.

A few weeks ago, we have finalized the acquisition of <unk>.

We are already working in tandem with the team in Europe , and we will keep you posted on the plans and initiatives there in due course.

For its part OXXO gas had another strong quarter on the back of increased vehicle mobility, and finally, reaching pre COVID-19 levels.

As well as a strong corporate sales and wholesale activity, which together drove strong volume recovery.

On the digital front, we continue to add OXXO, premia and spin by OXXO customers at an accelerated pace.

<unk> over 22 million.

More than 4 million users respectively.

More importantly earlier this month <unk> received its definitely our core station to operate a fintech in Mexico.

This is a relevant stone as it will allow us to continue pursuing our ambition to become the preeminent fintech in Mexico.

As we expand its value proposition to solve more financial needs for its ever growing user base.

Importantly, these will allow us.

To operate level three account significantly raising the peso amount that the user can deposit every month and making the product a better fit for small businesses a.

Along these lines unnecessarily digital ecosystem gained critical mass. We are also building the third leg of our digital strategy.

The b to B component.

That will accelerate the pace at which it's small businesses in Mexico adopt digital payments.

This will in turn leverage and grow the use cases for a spin and we're evolving loyalty platform.

Thus, creating a digital flywheel.

For its part our health Division delivered a stable result that were offset by currency depreciation mainly in Chile, where our operations are still performing well against a demanding comparison base, while facing a challenging macroeconomic environment.

Within logistics and distribution and voice solutions had a standout quarter.

With a strong topline organic and inorganic growth in both nominal and returns and stable margins.

These figures reflect the full consolidation of our recent acquisition of Sigma supply.

Enhancing our capabilities in the packaging vertical and allowing us to make more progress on efficient cross selling initiatives.

And last but not least as Coca Cola FEMSA volumes grew across its territory until drive double digit decreases at the top and bottom lines.

Before before I turn the call over to Daniel Let me take a moment to comment on a couple of more strategic points.

First as you are in not where a couple of weeks ago, We announced the retirement of Johnson <unk>.

Yo of Coca Cola, FEMSA, and Alfonso <unk>, our CEO of FEMSA strategic businesses effective December 31.

John Alfonso have been key members of FEMSA senior leadership team for a decade.

And they have been instrumental in making FEMSA driving enterprise it is today.

We'll take this opportunity to again, thank them and recognize their tremendous contributions to the FEMSA success story.

As you know Ian Craig will become Coke FEMSA, CEO and Konstantinos, Pat will become CEO of the strategic businesses unit on January one.

We look forward to the exciting future <unk> and Constantino will help us build.

Finally, let me talk briefly about our strategic planning review currently underway.

As Danielle mentioned during our last call. These processing both significant analysis to help us define the strategy to achieve our ambitious long term value creation objectives, but also how best to work towards eliminating the valuation gap that exists between our share price and the true value of our business.

In recent months desktop because being top of mind for investors, prompting questions on the speculation in the market about where we may be in the process and potential outcomes et cetera.

Therefore, and even the relevance of the subject we want to use this call to make a clear statement.

The processes ongoing.

The analysis is being done is growth and thorough and we do not expect to comment further and distribute under rates or the resulting speculation on this call or in other interactions with the mark until we are ready to provide a relevant update.

Our target date for such innovative is paired with our fourth quarter and full year 2022 results in late February 2023.

Rest assured that we have also heard investors community desire for greater transparency and more simplicity loud and clear.

We are taking these topics and others into accounting our efforts.

And with that let me turn the call over to him.

10, 1%.

Census, net income decreased 17, 3% and reached $13 2 billion pesos, reflecting higher income from operations a decrease in net interest expense and a noncash operating foreign exchange rates are a noncash foreign exchange gain this was offset by a decrease in our participation and associate results, which mainly reflects the results of our investment.

<unk> and Heineken, and <unk> and a $1 9 billion peso negative swing in other non operating expenses, which reflect a demanding comparison base that included dividends received during the third quarter of last year from our investments in Jetro restaurant depot.

<unk> of 800 net additions, but the debt keeps ramping up the pipeline is looking good for the next 12 months and the productivity of our new stores continues to materially exceed that of previous new store cohorts.

OXXO same store sales were up 17, 5% for the third quarter driven by an increase of 11, 9% in average customer ticket and a notable four 9% growth in traffic. This reflects a pickup in the recovery phase of mobility and the gathering consumption location that has continued to perform at a very strong level when compared to the.

Third quarter of 2019 same store sales increased 15, 5%.

Gross margin contracted 110 basis points to reach 42%, reflecting a phasing out of commercial income activity at some of our key suppliers to FERC commercial and marketing activities in anticipation of the FIFA World Cup and the December holiday season.

We should also mention the affected OXXO premium our loyalty program is beginning to have on the income statement.

Meteoric meteoric growth nobody is already having a positive impact on the top line, but it's also affecting the gross margin line as we take a very conservative approach to accounting for point redemption.

Two effects almost canceled each other out at this stage, but as the program grows and evolves. We are working on several strategies that will allow us to monetize the program further in the medium term.

So that revenues increased 33, 6% and same station sales grew 25, 1% relative to the third quarter of 2021 at vehicle mobility continue to improve finally recovering the pre pandemic levels.

Volumes were further aided by a robust pick up in corporate and wholesale activity.

During the third quarter gross margin was 12, 8%, while operating margin reached 5% with tight expense control and improved operating leverage.

Moving on to FEMSA <unk> health operations during the third quarter, we expanded our drug store count by 84 net additions to reach a total of 3971 unit across our territories at the end of September and 431 total net new stores for the last 12 months. This represents an acceleration in our growth rate driven.

Mainly by Mexico, and Colombia, and puts us in a good position to meet our target for 2022 of more than 400, new drugstores.

Revenues increased one 1% while same store sales decreased by an average of 3%. However, it is important to note that on a currency neutral base business grew 13, 5% and same store sales increased six 3% a solid performance across our operations, even as a comparison base becomes a more demanding one.

Particularly in Chile.

As a result operating margin contracted 20 basis points as tight expense control across our territories was not enough to fully offset the impact of the lower gross margin.

Regarding our logistics and distribution business revenues increased 773% relative to the third quarter of 2021, reflecting the steady pace of acquisitions made in 12 months by envoy solutions, but.

But on an organic basis total revenues increased 14, 6%, reflecting strong performance across <unk> solutions segments, especially in the retail and facility supplies segments, coupled with good demand dynamics in our operations in Latin America operating margin contracted 10 basis points, reflecting higher cost of labor and transportation in certain market.

Yes.

Finally, moving on to Coca Cola FEMSA volumes grew eight 4% with all markets contributing to the growth.

Revenues increased 18, 2% and gross profit grew 16% despite supply chain disruptions and cost pressures on certain raw materials.

Operating income increased 33%, reflecting solid top line and favorable raw material hedging strategies, coupled with operating expense efficiencies all coke FEMSA delivered a strong set of results amid a very challenging cost environment.

You can listen to the webcast of the quarterly call that took place last week.

Before wrapping up I would also like to anticipate to you that in the spirit of greater transparency and disclosure that backhaul alluded to in his remarks and given the steep growth trajectory of bundling solutions. We will begin reporting its results on a standalone basis separate from the Latin America logistics business, starting in the first quarter of 2023.

Furthermore, as mentioned during the process of acquiring by Laura we will be presenting its results separately in our releases beginning with this fourth quarter.

Finally, we're also working on additional enhancements to our disclosure that you reduced the complexity of measuring the performance of our business units and investments.

We are hopeful that despite making our financials a little bit longer to go through they will provide a better picture of the true value being created by our teams.

And with that let US open the lineup for questions operator please.

Once again it is star one for questions. We ask that you. Please limit yourself to one question and have additional follow ups. Please re queue.

And we will take our first question from Ricardo Alves with Morgan Stanley .

Hi, everyone. Thanks, so much for the call.

Another set of good numbers operationally speaking EBITDA generation, considering the commentary that <unk> recent.

Our recent discussions with investors.

How are you thinking.

Thinking about shareholder return I mean, any update on dividends and buybacks of extraordinary dividends and so forth.

First very quick question the second one when.

What's your aspiration as of now for example, we're considering just achieved part of that would have a lauder transaction in Europe .

And it seems that the growth going forward as a lot of seems to be more focused locally in Germany as opposed to.

Our ASP expansion abroad or more M&A.

Just wondering if that's the right way to think about it or what can you share on your geographic expansion pillar.

Considering simply strategic.

The strategic long term view.

The time thank you.

Sure. If you want I'll start with the first one again the strategic review encompasses all of the different levers that we believe are available to us to unlock the value of the operation. So so yes all of the tools that you mentioned are being taken into account having said that at this point, we're not ready as Michael mentioned to come.

Went on which ones will use but we are we are certain that there is a lot of value that we can unlock from from our operations by by using those in and other tools and then Pat do you want to go through the geographic diversification question, Yes. Thank you Ricardo for your question.

Again, when it comes to geographic diversification and he has to do with the intent to to better manage or the risk of geographic portfolio and.

And I guess, the best way to answer your question to say that we feel very comfortable with the geographies. We are competing in right now.

We don't we don't expect to be expanding that.

A number of geographies we're in.

For the time being.

Okay.

Hi, Ricardo.

John .

Thank you.

Mark will comment on this.

Good question.

Questions will be receiving from investors. These last many weeks and months.

Regarding given that Bernard Kathryn.

A couple of years after envoy and envoy.

<unk> itself only involved a lot of M&A right. We did it from the beginning when we started yielding envoy.

That is required creating good national platform and.

And the targeting quality offer.

Fair amount of acquisitions.

Before Laura very different and that's really the point I want to make right now.

Menorah.

We are in the markets, where we are and we've talked a bit about Germany, you have a courtyard growth opportunity that we see there.

Strategy for Valero very different strategy current board and I again, I traded because there are investors about how.

Thinking well, maybe substitute is going to be.

It is in Europe as they have been with envoy.

That's not correct. The two strategies from the get go or very different. Thank you.

Okay.

And moving on we'll go to Luis Willard with GBM.

Hi, guys. Good morning, Thanks for taking the question.

I want to talk about.

Now those receipts local institution when we see the numbers accelerated strongly in.

Fourth quarter, you talked about being stuck with your remarks.

Can you tell us a bit more about your priorities in terms of development and.

The commercial offering.

Dean.

And.

Other question would be what in the same line are.

We expect to see a more active.

FEMSA default division in terms of use of capital in the future. After this authorization. Thank you.

Sure if I want to I'll start I mean, as you know that number.

Users have been growing significantly just based on the power of the acquiring platform that the OXXO stores are able to give spin and the users right now, although obviously high value added there is still quite limited with the new authorization.

Two things that we're seeing one is now we're able to.

Half dollar accounts for a physical persons in Mexico. So we can get into the remittance market I think a lot more closely and then also we were able to open up and three a council level three accounts in Mexico, which allow for higher deposits and higher average balances and we can tailor that product for the <unk> customer.

So youll start to see us get more aggressive into the b to B space.

And in that way close the loop between the consumer and the.

The merchants so that we can try to develop an overall payment strategy.

But with with a lot of we think bank for the Buck in terms of the returns that we're able to get from monetizing the current customer base.

And I guess that what I will add is that as we do all of that I think when you describe it.

It is true that as you can imagine as we accelerated the acquisition of <unk> 13, both has been in our loyalty program, we get to know them better. So you should expect that also the value proposition will continue to be sharpened.

Constantly so that we meet the consumer needs.

The better.

What we have today. So that's something that you should also expect coming from or digital platforms.

That's very clear if I make a quick follow up I mean, the limit themselves under a level three accounts are plugged.

Plug and play right you don't need to do much.

In terms of the.

Apple architecture, perhaps what <unk> needs.

A bit more time posted new upper running is that correct.

Yes, yes, not necessarily plug and play, but clearly those two offerings already much sooner in the pipeline then.

Then the full development that will be to be platform yet.

Alright, thank you.

Thanks Louise.

And next we'll go to Hector <unk> with Scotia Bank.

Hi, Thank you all for taking the questions.

We saw that.

Thanks, Gary.

There is a $10 million from target Christine by <unk>.

We believe we'll continue on your current user base.

You would have to achieve.

About 30% more monthly new deals or is there something you are just starting now so.

We would like to know what.

Thank you Vic and interesting bachman wanting to move slowly.

New users.

Simply a bulk.

<unk> thousand Mark.

According to timeline for meeting margin premium to spin Jackson.

To accelerate even more of a number of users.

Our question would you be pushing steam pumps.

And we do have a quite a bit on what those numbers and you could sure. Thank you.

Yes. Thank you for your question.

So.

Let me provide some perspective on how the whole acquisition user acquisition these going because in fact.

We feel very comfortable with.

The user acquisition trend for a spin and that can lead to your point on the number of users we are aiming to have active.

In the meter.

The really the <unk> on one hand, if you continue with the strong acquisition right, but at the same time, we also need to incur insured.

User or registered users to be more active in the platform.

There is a component of that that will increase the percentage of users that register and then the keep us active in the in the platform and that has to do with a number of things first.

How friendly platform is second the type of services you provide and third of course, the type of indication that you put out there for consumers to truly understand the capabilities of the platform. So I think that when you look at the rate of active versus register that we have today, we should expect that that ratio will increase in the.

In the future and industrial arena.

I don't know if you went to assure that the only thing I would add is that as you know there are network effects associated with that with these kinds of products and we're starting just a tip of the iceberg with regards to the geographic panel. So I think certain other use cases like peer to peer or whatever have more value. The more users that are on the platform. So we would expect.

Some sort of I mean, writing of the exponential curve in the shorter time and Thats. All I think we're comfortable that we will get to that $10 million.

10 million user target that <unk> was talking about our next door I think the second part of your question was related to the relationship between spin or loyalty program.

I mean, clearly there is.

There is.

Our relationship because at the end of the data we will look at this is a digital ecosystem, which things are connected so indeed.

We should expect that moving forward part of the B to B component before Michael system, we have to do with how we can actually.

Aloud.

The small traditional stores to use 15 and be part of our loyalty program on a business to business component and then also on the other side when you look at.

Our loyalty program and the spin.

Now would you open an account you are also part of diligently programs. So I mean, there is there is.

Synergy components synergistic component that.

Move forward, it will be stronger and consumers will be actually better off because they will have more services at their disposal as part of the platform and just finally, the partnership with with golf, obviously on an arm's length basis, but that I think will allow.

Hopefully add to have I mean Corey.

Customers, who use the <unk> platform.

<unk> way that will allow the synergies that Bob was talking about in terms of customer acquisition costs and <unk> space to be.

To be a very powerful combination for both parties.

Excellent.

And moving on we'll go to Alan Alanis with Santander.

Hi, good morning. Thank you so much for taking my question I have two.

Two questions one of them.

I guess the answer.

Salt Lake very obvious to you, but I think for investors to move towards.

And it's.

Could do a recap of what triggered this strategic review.

I don't.

It makes total sense not to speak about about what the potential outcomes, but it might be good to remind investors. How do you define the situation or how do you define the problem.

That would be the first request if I may.

The second one has to do with this move toward.

We need to be.

In Spain.

And I guess, there's going to be a lot of questions around this in terms of not only the architecture.

A question.

Before but also in terms of the scope and the timing and then why not have just applied for a full banking license.

But I guess the specific question for this call would be.

When are you going to start with trucking business, such as small to mid businesses mid sized businesses to open accounts.

Accounts can be doing right now what's going to be the approach.

And what's going to be the scope and timing of moving from a platform Douglas understood I think for many of us.

Platform for four four for consumers basically a fintech for consumers now in terms of moving to a pretty big for small to midsize companies in Mexico. Thank you.

Sure I'll take the first question and then maybe you can address the second one.

I mean, as you know I mean, Daniel Rodriguez his term starting in January and this was his priority number one to both strategic review, both bottom up as well as top down of all of the portfolio of FEMSA and.

And make the long term have a longer term view with regards to capital allocation going forward. So that's really what triggered in the meantime as the.

The market turned a little bit South and then our portfolio starting to get more complex. We started to see the disconnect between the stock price and the.

And what we believe to be the underlying value of the businesses and that's why I think the urgency to come to a conclusion from the market at least and we're hearing that lateral clear but to be clear the trigger of the strategic review was done. He is desire to have a full blown plan at 2% to the board.

And obviously the U S shareholders as to what his priorities from a capital allocation would be going forward.

To be able to create that tremendous amount of value and then from a top down perspective that we have the levers available to unlock the value that's already there and also crystallize the value that we can create in the future.

Okay.

Sure.

And Alan Thank you for your question because it's actually it's an important point regarding the second part of your question, which is the <unk> component of digital platform.

I'd like just to go back a bit when.

When we started.

Working on their digital business because at the time, we said all right we're going to focus on three main verticals, we said very fintech with the with the.

It's been wallet.

There is.

The loyalty program and then we said there is the <unk> component, which is.

Primarily also enabling.

The traditional trade.

That was the focus we have.

Let's continue the gate so of course.

We started because we had already a platform for a bogo in OXXO premia underpinned by OXXO working on the first two verticals of this strategy and the results of that they are going extremely well, but certainly as we have reached this level of performance in these first two verticals, we start thinking that in order to.

To close on.

The loop and to have a complete flywheel.

<unk> need to need to deliver on the on the B to b component because at the end of the day.

Part of the mission that we have is too.

Enable both consumers and small trade on.

On the financial side, giving them.

Access to services.

I would say financial elements under daily life that they cannot do.

As we have been doing that would have been we have identified.

Obviously, we suspected that but there are a number of cohorts that interact with our products in a different manner. There is of course the.

The regular consumer the one that both and they are going to show up and they need to put money in their car and they need to use the wallet.

Hey.

Very basic weighed whether it be signed to function, but there are other cohorts of for example people that Cabot small businesses that use Dave that use the wallet in a different way too.

The suppliers, who have received payment.

From their customers and.

Obviously, when we started.

The spin while if we knew that that was going to happen, but now we have significantly more data in terms of how those cohorts are behaving and what type of services they need moving forward.

Receiving the full Fintech license will allow us to increase the type of services that we can give them, including things as simple as the amount of money. They can actually putting the cart. So that's on the on the wireless side now if you move that part of the services of these cohorts need towards <unk>.

And we talk about this more traditional trade.

These type of businesses also need this type of services, but if you will they will need it in a little bit more sophisticated way because obviously they have inventories to minority.

Larger supplier to deal with they have.

More customers to serve so evidently there are some parts of the first two verticals.

As I said.

The wallet, but also the loyalty program that will serve them well.

For these additional needs that they have but clearly we will need to develop others that are more specific specifically targeted for these type of businesses. So again. This is this is an evolution we are moving fast but at the same time is very important that we understand fully what each of the cohorts needs and that we construct.

I think that is going to be.

I would say comprehensive and that leverage is from each of the strengths of the verticals that we are developing so that's what I would say regarding the second part of your question.

So the clear and helpful.

Okay.

To be clear Alan.

At this point not considering a banking license we are dipping our toe in the water with the.

The Fintech license, we think.

We can learn a lot about the use cases, and whether or not it's going to be worthwhile for us. If this scale clearly thats going to be one alternative we will need to look at but for now we are.

We are just testing this out and let me just emphasize what packages told you I think.

This is a unique case in in financing the development of financial digital financial systems across the World, where you have the power of a distribution network to be to be customers like Coca Cola FEMSA and on the other hand, the ubiquitous net so far of OXXO and its relationship to the consumer.

And otherwise with a partnership with OXXO that I think will allow these to become.

Tremendous ecosystem that said that we really we have not seen in other places in the world.

Yeah, no. It makes a lot of times the potential usage.

And last question would you use the brand.

<unk> also further needs to be or will be in a good.

Brian or for them for this to be upward.

Yes, well that's.

That's a good question that the teams are.

Working on as we speak.

All I can tell you that will come some news on that respect the teams we have news on that respect.

Thank you so much I appreciate it congratulations on the results. Thank you.

Thank you.

And moving on we'll go to Albemarle Garcia with BTG Pactual.

Hi, good morning, Ukrainian buckle.

My question is on EMEA.

And from a strategic standpoint, how youre thinking about that going forward. So maybe two part question first sort of what's going on this specific quarter. How is that really impacting gross margin into how are you thinking about sort of increasing the size of your network long term versus profitability. Thank you very much.

Affecting the gross margin in the short term.

At the end there will be some break maybe some brands.

Thank you.

Sorry, I'm, sorry, I'm getting a little bit of a nickel.

Can you hear me.

Yes.

Perfect. So there will be some breakage on those points and we will fine tune and kind of what we're charging in the income statement that going forward, having said that BLS DCP of the program and again 10 million users and about a 19% to 20% tender at this point as this grows I think the elasticity of the traffic coming to the stores from loyalty.

Customers in the average ticket that we're getting from them right now it works out to be a wash between the hit on the income statement from.

From the rewards for loyalty and the excess traffic in excess ticket that we're getting as this scales, we do expect loyalty to become.

I mean, a contributor of value to the company, whether we decide to use that value to reinvest.

In further store visits or whether to reinvest in other other products via digital or not digital is something that we will test out in different user groups and different view.

<unk> as we go forward, but the loyalty program in and of itself is.

It's intended to be a value generation mechanism for us not not just a program to get more traffic into stores.

Yes.

Yes, the only thing.

Got it.

Okay.

Yes, there is some feedback we apologize for that but.

The one thing that I would like to to what <unk> said is that.

Moving forward.

The loyalty program.

That is really.

Coalition program that we are building.

Obviously that is working progress that is part of the evolution of Av.

The largest ecosystem.

At.

The momentum that is having as you said gives us the confidence that moving forward, we will open a number of possibilities for both services.

Services that we will provide for the consumers and also the.

And the possibilities of monetization that we would have.

Great many thanks.

Thank you Eduardo.

And next we will go to Antonio Hernandez with Barclays.

Hi, good morning, Thanks for taking my question.

While lower now, but do you have exposure to Louisville, but given the current environment macro adverse black lung.

And whether your expectations are for the short to medium term and also.

No.

Okay, great strategy.

To improve.

B K.

Fluffy viewpoint, but well with them and so on that you mentioned do you think that there is.

May be a possibility of finding some of these capabilities.

Europe as well.

In the medium to long term.

Yes.

Give it a crack at it and then obviously I mean, both kick in.

And you can complement but I mean, clearly as you can the management team of by load up has been on top of the development in Europe .

The circumstances.

In terms of inflation in terms of.

Energy costs et cetera.

I guess what is behind your.

Your question.

The management is taking the necessary measures to protect.

Protect the business against these.

These headwinds are there.

The same time I think that it's important to remember that.

A big component of the value of our businesses the food billions and that that particular business that particular segment is very resilient.

When it comes to.

Economic downturns. So we are confident that the very senior management that we have in <unk> in place.

As you remember the state.

From the pre acquisition.

Has the right plans in the right.

Right.

Organization to defend our business against the situation.

Having said that as.

As we get more involved in the business we are obviously.

Providing as much support as we can.

Given the knowledge, we have in the emerging markets regarding inflation regarding volatile environment. So this is a good transition for the second part of your question I mean, clearly there is a lot of knowledge that we have developed on how to handle businesses.

In not so comfortable situations and obviously that component is going to be there.

As we work together with the European team, but second.

<unk> has developed a strong set of capabilities and Knowhow in terms of operating.

Historically in a very efficient manner and.

You should expect that part of that knowledge and part of that local is going to be quickly transferred.

Toyota so that they can capitalize on these learnings that we have developed over the years.

Okay and regarding your organic growth expectations in Europe .

<unk>.

How do they change here, maybe because of the situation or what do you expect.

Note that the growth.

Maybe for the next couple of quarters.

Next year.

Yes.

As I highlighted at the beginning of the call.

Finally.

Part of the acquisition of below that just happened a few weeks ago. So now that we are in control of the company. We are working with the team to develop the right.

Budget for the guide for the year and for the quarters to come so he's working progress is in the rest of our businesses.

Okay perfect. Thanks, a lot.

Thank you.

Okay.

And moving on we'll go to Rodrigo Alcantara with UBS.

Hi, good morning opinion buckle.

My questions regarding my own Menorah, we read that.

A different strategy.

I'll add more organic growth and M&A.

So my question to you.

On.

I mean, how should we think about the funding of that organic growth.

That you can fund that leads.

Operating cash flow.

So all can respect some minus all sorts of Heineken <unk> <unk>, if you can comment about that.

Second one very quickly.

Regarding amboy.

The endpoint solution.

Should we expect.

So it meets 2002.

Yes.

Where would you target integration of all the assets.

Can we acquire in the U S.

Perhaps some synergies at the G&A level.

Two questions. Thank you.

Yep. Thank.

Thank you Rodrigo further questions. If you want I'll start with the funding of <unk>.

I mean below right in and of itself is generating good cash flow and it could fund.

Its own expansion.

And again it will be organic in certain cases, it will be I mean, new stores and in certain cases it will be.

<unk> existing independent stores in Germany, and otherwise, which is highly fragmented.

And we expect those to be highly ROIC accretive from the beginning so if.

In the recent need for funding we will clearly.

Find a way to fund it from other of the FEMSA operations, but we do not expect this to be a major strain on defense funding structure altogether.

With regards to your question on novel Solutions, We are already working on that we've hired two senior people to the management team basically working 100% in terms of integrating the companies.

They are integrating them.

Coming from a <unk>.

Flurry of 26 acquisitions over the past couple of years.

They are working on the earlier ones and slowly integrating them into our common operating style a common operating procedure single.

Single supplier platform et cetera.

From a single point of contact et cetera. So those are where the synergies are coming from and it is turning I think most of the acquisitions that we've been making at that maybe low double digit EBITDA multiples with the synergies. They are turning out to be high single digits EBITDA acquisition multiples with very high cash flow conversion. So.

Okay.

Lambert. Thank you very much just on the <unk> funds from operations.

Our organic growth.

Yes, either from Valerie itself are slightly with some use of funding from FEMSA, but but nothing that will strain on our balance sheet by any mean by any means.

Sure. Thanks.

Okay.

And that does conclude our question and answer session I would like to turn it back to Mr funds setup for any additional or closing comments.

Thanks for your time today for your attention.

Always available for follow ups.

My team and myself and have a great week.

Thank you and that does conclude today's call we'd like to thank everyone for their participation you may now disconnect.

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