Q4 2022 Fomento Economico Mexicano SAB de CV Earnings Call
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Bring to work each and every day.
In terms of the full quarter. We note the continued strength of operating trends at OXXO Mexico.
But traffic again grew by several per center.
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Moving on to discuss our operations beginning with the Americas.
We added 559 units during the fourth quarter to reach 1027 net new stores for the last 12 months.
This includes 120 stores from our open market acquisition in Chile.
Consolidated during the second quarter.
In Mexico, we ended up a little bit short of our target of 800 dedication but.
<unk> keeps improving.
The pipeline is looking good for the next dropdown.
Productivity of our new stores continue to materially exceed that of previous new store cohorts.
OXXO same store sales were up 11, 4% below the fourth quarter, driven by an increase of six 8% in average customer ticket.
Slide four 3% growth in traffic.
This continues to reflect a pickup in the recovery.
It would be and the gathering conception location that have continued to perform at a very strong level.
Gross margin was 44, 2% continuing a recent trend.
Our fast growing loyalty program and slightly lower contribution from financial services more than offset healthy commercial income dynamics.
Despite the margin pressure at the gross level income from operation increased 17, 4%, while operating margin increased 10 basis points compared to the same period of 2021 to reach 12, 7%.
Driven by a structurally leaner expense structure and the resulting operating leverage.
Our proximity Europe , we began consolidating <unk> in early October . So we are showing 84 days of results.
We closed the year with 2766 outlet.
Revenues came in at $9 8 billion, reflecting a recovery in traffic driven by improved customer mobility.
Gross margin was 46, 9% and operating margin was three 4% driven by the contribution of foodservice as well as the integration of recent application.
I hope so that revenue is maintained where we can obtain an increased 25, 4%.
<unk> sales grew 19, 7% relative to the fourth quarter of 2021 at vehicle mobility continued to improve.
<unk> volumes were again supported by robust pick up in corporate and wholesale activity.
During the quarter gross margin was 32% while operating margin was four 4%, reflecting tight expense control and improved operating leverage.
Moving onto Panther helped operation during the third quarter, we expanded our sorry fourth quarter, we expanded our drugstore count by 124 net additions to reach a total of 4095 units across our territories at the end of December and 434 total net new stores for the last dropdown.
Our target for the year up over 400, new drugstores.
Revenues increased 1%, while same store sales decreased an average of four 5%.
However, as was the case last quarter. It is important to note that on a currency neutral basis revenues grew six 2% and same store sales increased eight 3% a solid performance across all of our operations.
Gross margin decreased 60 basis points in the quarter, mostly reflecting a negative mix effect that reflects the strong growth of our operations in Colombia, partially offset by improved efficiency and more effective collaboration and execution with key supplier partners in Mexico.
However, operating margin expanded 40 basis points as tight expense control.
All of our territories more than offset the impact from this lower gross margin.
Regarding our logistics and distribution business revenues increased 34, 2% relative to the fourth quarter of 2021, reflecting the steady pace of acquisitions made in the past 12 months by Amboy solutions.
Our managed basis total revenues increased eight 5%, reflecting the strong performance across all of our solutions with segment.
With good demand dynamics in our operations in Latin America.
Operation operating margin contracted significantly to two 5%, reflecting onetime off provision related to pass through institutional customer accounts and obsolete inventory around voice solution as well as higher cost of labor and transportation and taking the market <unk>.
Excluding these one off provision operating margin would've been in line with recent trends.
Finally, moving on to Coca Cola FEMSA delivered a strong set of results to close an equally strong year total volume grew four 6% driven by growth in most of their territory total revenues increased 49% and operating income grew 15, 9% as operating margin expanded by 10 basis points.
To reach 47% you can listen to the conference call today at 10 Am Mexico tax.
Now I will turn it back to Daniel for some final comments Danielle.
Thank you Daniel.
I just want to finalize by saying that I am proud of what our extraordinary team of more than 350000 colleagues have achieved during 2020 to representing the best of FEMSA company wide commitment to long term value creation.
As we look into 2023 I'm confident that the steps we have started to take the word or FEMSA forward vision will position our company to maximize value creation as never before leveraging the same bosses among our three core businesses as well as our strong team.
Of professionals that I am sure will again be able to navigate any challenges that come across in 2023 and beyond.
And with that let's open the line for questions operator please.
Okay.
Sure. Thank you as a reminder, if you'd like to ask a question or make a contribution on todays call. Please press star one on your telephone keypad and to Redraw. Your question. Please press star two.
The first question comes from the line of Ventura, calling from Barclays. Please go ahead.
Good morning, everyone and thanks for taking my question. Congrats on the results wanted to ask if I may.
The the half one is really related to some of the comments you made in your press release about incremental acquisitions and voyage just wanted to understand the strategy that you've laid out last week and Boyd.
Uh huh.
To be disposed.
Assets or a business unit, but then at the same time, you're putting it in your press release that you've acquired six different smaller players are adding on an annual basis to $1 billion. How should we think about the capital allocation, particularly into something that's supposedly for sale go forward are you going to continue to add here.
Or is that still one offs that were in the process that just happened to close in the fourth quarter.
Hi, Bonnie.
Go ahead go ahead.
Okay.
Thanks.
Thanks for your question with regards to one boy I mean, as you know part of the investment thesis. There is that there is still a long runway of acquisition throughout two engagement there to create value by consolidating into the system. So that was no different our strategy trying to be in the fourth quarter, given what we announced an intent.
The forward our strategy for envoy.
Again to continue to for the business to continue to be executing on this strategy, having said that the capital commitment upfront from Samsung would be relatively lower until we find a document solution for the envoy business. So again, we will.
Getting the business execute on its strategy, but the capital commitments coming from Samsung.
We look for strategic alternatives, you should not expect those to be significant going forward as we look for strategic alternatives for the asset.
Okay that makes sense. Thank you very much and then if we if we take a look at the just the composition of same store sales data can you give us a little more color on what's been so supportive to traffic.
During the quarter because of a little over 4%, obviously very strong number it's above the last 12 months ever rates such as to understand what you've done differently in the fourth quarter.
The convenient stores to drive traffic.
Yes, Ben.
Four quarter, usually stronger in the convenience store efficacy as the holiday period. That's number one number two as we highlighted in the in the in the comments there is a significant recovery in terms of post pandemic consumer behavior and that is also helping and last but not least.
In a number of our stores we started.
The.
Hello.
The complete portfolio of beer and that also increased.
The traffic in the stores.
Yes, if you can just complementing this.
This is kwan.
As we mentioned in the original remarks.
Gathering location is certainly key in the fourth quarter.
And tobacco point beer is a category that hasn't been performing very very well.
We just finalized.
We just finalized the last wave of you remember the opening of the stores to the Abi portfolio.
With lower loan.
A few weeks ago.
World Cup, which even though it wasn't we apps because of the timing of the matches some of them happened early in the morning.
A lot of people drink beer in the morning, but still it all kind of came together.
To drive double digit growth in that category, which is one of our most important and just overall I think the team was working recycling because traffic I mean, when we look at the past 24 months, we have been talking with you with the market about how ticket has been performing very very well, but traffic was coming up a little bit short.
I'm sure the team at OXXO has been looking for ways to incentivize traffic too.
Leverage that they have a pricing.
Promotional activity further segmentation and it's working well and I would even say.
Sure.
It's moving into this year, we're off to a very strong start in 'twenty three.
Loyalty program also premiere is also beginning to add I mean, we're talking about.
One out of five transactions at OXXO now being associated with a rewards program. So a lot of a lot of things coming together at the same time too I think.
Buying to help this for over four points of traffic, which is just fantastic I think.
Okay, perfect well cheers to that thank you very much.
Thanks, Brian .
Ladies and gentlemen for your information if we can just imitate.
Q&A session. Paul one question per person that will allow everyone to ask a question. Thank you very much for you on the understanding and cooperation. The next question comes from the line of Paul Quinn.
Calling from Bank of America. Please go ahead.
We don't hear you Bob.
You might be on mute.
Tim we have lost Bob.
Mike called back probably we will go ahead and skip to the next person.
Who is Alan Alanis cutting from Santander. Please go ahead.
Thank you so much can you hear me.
Yes.
Perfect Okay.
I'm sorry.
Hey, just two quick questions. The first one is the focus.
Focused on the prostate.
Quick question on that.
The ticket.
It's half of food inflationary with 7% if you can elaborate a bit on that why did the average ticket is not easy low inflationary in Mexico, but the most important question I think is more strategic.
I mean, you've seen the share price moved pretty much flat.
Friday's conference call.
Youre going to see investors.
Next week in the United States and Europe could you share your thoughts about what you what you ponder what you've learned what you've decided to communicate and what you do you will aim to achieve next week meeting investors in all of these people.
Regarding regarding the reaction of the stock after after the announcement and I think specifically rigs.
Regarding the capital allocation.
Potential dividend, perhaps thank you.
Alright.
Thank you for the questions and just where the traffic and the ticket size.
And your comment on inflation and clearly these are variables that are at talks on languages.
Turning to what is happening on the market on the competitive side, what each of the category in there in the store.
Are doing from a supplier standpoint, and clearly the objective is always to keep.
Oil prices below inflation.
Clearly the priority.
Second the ticket continues to be.
<unk>.
To be benefited by the job that <unk> done over the last several months regarding the channel.
Categories that.
That were added to the store like <unk> for example, second the segmentation work that has been done by the <unk>.
But by the team.
Third I would say just a natural movement of weapons tumors are choppy. So I'm moving forward just similarly to the traffic there are a number of structural or fundamental things that improve over the over the last few months.
We expect.
To continue benefit benefiting from.
And that's why the traffic is behaving and the ticket and the ticket side.
I think just.
Your ticket collectible packages.
We pass through as you know, we passed UV leases from our suppliers. So.
Mix mix is a big part of it.
The number is a little bit different from just general CPI. It will basically mean that our mix is different from the CPI basket.
But we don't we don't ever keep any of that price increase can swallow it our sales as you know it's a full pass through situation.
On your other question about about what we're trying to achieve going on the road I mean, obviously, what we communicated last week is relevant and meaningful and.
From a lot of questions on it.
Certainly the service.
Going in and meeting with.
Some of our biggest investors, we're going to be meeting with many of you guys.
And also with investors that for one or a reason or another have not been invested in <unk> bought back historically should have or have been kind of a good fit between the portfolios on water company, yes. So I think it's an important.
A couple of weeks that we're going to be knocking on doors.
And.
Hopefully answering all the questions I think you kind of shaped your question are framed your question having to do with the share price I mean, obviously the share price had a very nice.
Actions to be announcements.
We've been monitoring volumes on our volumes are double at least double what they normally answer clearly there are investors that have performed well.
Now we're taking profits.
But we're excited to get on the plane and talk about what we think is super exciting message.
Okay.
Alan but just quickly on ticket you have to remember also the services category, we picked up a couple of financial institutions that had not been present.
Over the past fourth quarter, so that that pickup in traffic with lower ticket, we felt good and part of that mix effect that Tom was talking about.
And with regards to the Roadshow just to complement also upfront.
Again, we heard you guys loud and clear last week and through our interactions with you guys over the week that capital allocation going forward is a is a big.
I think the topic that you guys would like to add a few more about and again, we'll talk again not only in the roadshow back to all of you throughout after water interactions.
We recognize that that is going to be a hot topic going forward. However, as we said in the call last time.
We intend to give you more color as all of these transactions that we intend to execute materialize. They are all subject to market conditions.
In other situations, but the most important thing to keep in mind is that we have committed number one to the leverage target of two times and number two not to be holding any inefficiency amounts of cash at the holding company.
So I hope that gives you as much color as we can right now, but as we start to execute on a lot of these.
All of these initiatives, we should be able to give you and pinpoint with more exact clarity.
How we're going to deal with the capital allocation going forward.
Great I appreciate that thank you so much.
Your next question comes from the line of <unk> <unk>, calling from Scotia Bank. Please go ahead.
Thank you hi, Thank you very much for taking my questions very very quick.
You have mentioned that you want to build the platform for the traditional channel with OXXO and cost. So I would like to know how we execute in that strategy to supply channel.
On the on how you are also Thompson Coca Cola FEMSA.
Thanks.
Adaptor space as well.
Mom and Pops, what kind of product.
Would you be able to submit to them how long until we start seeing this already happened.
Full scale and some details as possible on an integrated partners.
How much capex will be directed to me. Thank you.
Alright extra thank you for the question.
As we as we.
The opportunities and the pain points of the.
Traditional channel.
There are certain things that they have been suffering from over the last several years I would say.
We have targets in some of the meetings, we have had with you I mean on the one hand there is.
The disruption they have on the daily operations to go and shop for the products. They sell in the store they have a number of.
Our limitations in how they can shop for those I mean, sometimes they need to buy one unit and they actually need to buy the whole case.
<unk>.
Evidently those pain points have been exacerbated by the fact that now many times in the store they cut the receipt.
Then different trucks during debate and there is only one person working in that needle story now.
On top of that as we started identifying opportunities we saw that one clear element.
The fact that they needed also evidently a good pricing good service additional financial services in the future.
Clearly as we look at our businesses on the one hand.
Coca Cola FEMSA with it tremendous knowledge of the traditional market.
<unk>.
With.
So with tremendous relationship with.
Suppliers.
Knowledge of how to do the peaking FX plain ones in terms of how many how many cases or how many product how many units each individual store would need I mean, those are knowhow that have been developed over the years.
Very very <unk>.
Important for these type of platforms. So and then on top of that of these two knowledge.
Thursday, we'll call them and Knowhow center that we have in Coca Cola FEMSA.
In OXXO, we have the digital business that we have been creating which clearly.
With the spin and the financial possibilities that it opens to the traditional store I mean, just today for example, many of these small stores cannot accept trading.
Trading card they don't have access to credit they need to pay in cash.
So the suppliers, sometimes most of the time customers and consumers they need to pay cash to them they cannot accept.
Service payments, so all those things can be enabled by the digital platform.
<unk> digital with the other two businesses serving as the connection point. So that's the intention that we have we're giving this omnichannel platform and evidently there are ways in which that can work there will be some categories that tango.
<unk>.
All in a common truck under kind of the other categories I mean, clearly Coca Cola FEMSA that can continue.
Being delivered through the Coca Cola.
Coca Cola FEMSA trucks. So this is a hybrid model the <unk> like pretty much like.
Like a marketplace.
Our Super App.
And thats the intention that we have built on this platform, we know that on top of that there. The other element that is important in diesel mechanics, FMC the amount or the <unk> side.
Of the portfolio that we can target.
Evident through the categories that we have in Oxford with Coca Cola FEMSA and other potential partners. We believe that we can represent a significant portion of the portfolio product that more retailer sale, which is a very important component. So that it solves one of the key pain points that they have today together with the other ones I mentioned.
Maybe the only additional comment that I would like to make a start.
One of the advantages that we also often both platforms, so OXXO and Coca Cola FEMSA, if the capillarity.
Now us really to pilot or Michael just mentioned and then we floor. We are seeing in terms of escalating we can learn how we can really solve the pain points of the of the customers are and what are the key elements that are relevant to them in terms of valuable system. So I mean does that also I think it really help us with.
Before we make any final decision in terms of how fast or how.
While the escalation would be.
Thank you. Thank you very much so would it be fair to assume that we could be seeing the strategy.
And the next one or two years.
Definitely.
Alright. Thank you. Thank you very much for the color.
The next question comes from the line of muscle up.
<unk> from credit Suisse. Please go ahead.
Hi, gentlemen, thank you for taking my questions I have two quick ones as well basically the first is for proximity Americas East.
What can we expect in terms of gross margin trends going forward as you continue accelerating the digital initiatives and to what extent are you.
You also can continue managing that with efficiencies and the second one very quickly you guys are announced closing of figures for proximity to Europe .
But without a comparison basis. So can you just give us a color.
How these figures reported compared to those from the year before it. Thank you so much.
Okay.
At this point I think on the on the gross margin question.
I would.
Think about stable margins I mean, we have been.
I believe this quarter was another instance, where.
We are still booking very conservatively.
The rewards the loyalty program, we are assuming that all of the points are going to get utilized that is not really happening in practice and we know that there is going to be a breakage number that is going to get some relief on the gross margin. So.
We are already getting to the point, where some of that.
Users Orange are beginning to expire and remember that this is all very new so although things are happening for the first time, but.
But we're already beginning to see patterns of certain percentages that.
The points, just expire and Thats obviously.
Cash flow for us.
But we're right now we're assuming.
And accounting perspective, we're assuming that it's not there.
And you also mentioned a few minutes ago.
On the financial services I think the overall trend.
We are getting back some of the banks that had for one reason or another stopped using multiple other correspondent Bob.
The general trend is that profitability is a little bit lower floor financial services. So you get more volume at a slightly lower margin.
Those trends I think will continue.
On the other trends you have commercial income, which is coming back right.
Actual income, which are an important driver of gross margin.
I think OLED, obviously disrupted commercial income in a big way and we're seeing it come back we now have four practical purposes, both brewers.
Participating in commercial income along with many other of our big suppliers. So I would say stable growth margins.
In terms of modeling I wouldn't expect any any change there now in terms of our lora.
Obviously Europe .
Yes.
About that yeah. So marcella. Thank you it's good to hear from you.
In the Lora, what what we can tell you is that for the total year. The sales grew double digits in the mid teens.
Gross profit.
Growth in the mid teens.
In the indirect line it was about flat versus the previous year.
Yes, and I think margin wise I mean, we're showing an EBITDA margin of basically 12%.
Only a little bit lower than the full year number that we had the prior year.
Obviously, they're dealing like we are everywhere else with inflation and with there is an overall macro environment in Europe that is clearly not.
A good fit.
Are we all wish it is.
So it's a tough it's a tough macro environment, but still.
The numbers and the fact that they're integrating a lot of the things they frequently bought foodservice, which is a higher margin category. So yes.
For many reasons to be optimistic about that.
The next question comes from the line of Ricardo Alves, calling from Morgan Stanley . Please go ahead.
Hello, everybody. Thanks for the call I'll limit myself to one question is required.
<unk>.
OXXO is kind of related to the past question OXXO return as if we could talk about returns, particularly in the context of the efficiency gains that you achieved.
Gently in Mexico at the SG&A level, how are you thinking about.
Returns I mean from our stance.
It seems that OXXO might be running at all time highs. So I just wanted to hear a little bit on that from the Mexico OXXO perspective.
When you think about that in the context of your strategic review and considering that you.
Have reached out to all of your divisions all of the other countries country operations, what is the upside for the other regions in terms of returns.
Is there a way that you can compare.
Or give us some numbers so that we can compare with the potential upside because it's really surprising what you did at the SG&A level.
Mainly in Mexico, and how could that be replicated in other places in the context of this big review I would assume that you're probably.
Thinking about the other regions.
Not only in terms of growth contribution that they could have to the overall business, but also returns. Thank you.
Thank you.
Okay. Let me comment and then you can complement to be.
I'll say that I mean in terms of your.
Western our own returns I mean, obviously, we are at a very high level. So I think you are right and I think also and you mentioned during the last week goal that I mean in terms of additional value creation global one started in OXXO in Mexico, Obviously is one of the most profitable in.
<unk> that we can make so that is why we will continue doing so having said that I mean, when you think in the medium and long term that is why we think that the the growth outside of Mexico and.
Specifically regarding.
South America, I think that will give us a nice way to in the future compensate.
The scale that in Mexico up a T cell on a store level as I also mentioned during the last call, we feel pretty comfortable where we are in.
Achieving I will tell you at this stage, mainly in Colombia, and Chile, which gave us a nice way to escalate the basis.
Speed up the organic growth obviously.
Obviously in the case of Brazil, I mean, the value proposition is proving to be very successful.
In Brazil, we will make a big difference in terms of the scale of the business in South America, Peru, It's also doing well, but I mean, obviously, it's a much smaller operation compared with the other three so we're very positive in terms of the goal and in terms of the returns that we will achieve but we recognize that we need to do to reach certain level.
The scale in terms of the number of stores and it will take a while until we get there, but I mean very positive when you compare like for like in stores in Colombia with one store in Mexico. I mean, I think we are very optimistic about <unk>. So Kenya sure. Thank you Daniel just to compliment you have to remember that during the <unk>.
The business did a fantastic job in terms of curtailing some of the losses. We had in same store sales are through better store efficiencies.
Better supply chain dynamics et cetera, and those.
Those learnings are basically continuing to add traffic and ticket came up.
On top of that expansion.
New store expansion that we've been experiencing have been operating in what we call batting average is which is what percentage of the new stores that we're opening our meeting.
Target sales per store as they mature.
All time highs in terms of batting averages. So we're being a lot more strategic and a lot more targeted in pinpointing the right point.
So that the net new stores that we're adding are being a lot more productive than the ones. We were writing before plus I mean, all the efficiencies that we gained during the pandemic on the learnings about opening hours about ships about.
<unk> supervision patterns about inventory stocking segmentation et cetera have produced these all time high ROIC. These at the store level and that would be at.
The whole country level in Mexico, and again as Daniel said in the in the rest of the countries, Brazil being a perfect example, I think on the top line perspective in terms of the product mix and the segmentation at those stores are performing much higher than what we expected. Originally so that is definitely the good news as we scale out.
And start to absorb some of the fixed cost of a distribution center and the rest of the supply chain dynamics, but that bodes well in terms of being able to achieve.
Thanks <unk>.
Four basis points of improvement in terms of our ladies in Brazil on a relatively quick quick basis same can be said I think now that we're expanding with the okay market acquisition in Chile, and Colombia, where we're still we have a lot of room to improve to improve we have the scale to achieve much higher returns and hopefully at some point.
Closer to the kinds of returns that we're getting in Mexico.
Yes.
Let me just add this is juan.
Obviously following on with Aneel and everything you just said scale being a big part of the secret sauce of our eventually allows other very good things to happen when you kind of know what youre doing.
In terms of openings, because we did see in the beginning.
When you mentioned, we came a little bit short of the 800 targeted in Mexico.
But that doesn't mean that were slowing down.
So confident and we're looking at the productivity of the new stores.
And what the pipeline is looking like that the target for this year is closer to 900 or so we're going to be opening.
Again getting towards the 1000 stores targeted in Mexico, but the thing I wanted to highlight is that we are getting also close to a point, where we're opening in South America, almost 50% of what we are opening in Mexico right. So thats, obviously never happened before so if in Mexico, where.
Somewhere between 800 900.
In South America only.
The JV in Brazil, it's a JV, but we're probably talking about somewhere between 204 hundred new stores, if not a little bit more.
So it's getting to the point where scale.
I'll be begin to be achieved.
In these countries that means you can have your distribution centers and vendor.
Our absorption is so much better and then you begin to have the robotics.
Begin to close the gap I think another another piece with this.
<unk> has to happen is not as dramatic but when you look at the health Division, where you have Chile with certain scale in certain margins and when you look at Columbia and Mexico on it while we're kind of closing that gap and a big part of it has to do with scale. So I just wanted to leave that out there because the numbers were accelerating the openings and south Americas.
Definitely now beginning to move the needle.
That's very helpful. Thanks, everybody.
Thank you Kirk next.
Next question comes from the line of Battle, Dr. Chuck Gordon from <unk>.
BTG. Please go ahead.
Hi, good morning, good morning, gentlemen.
Thanks for the space.
Two follow ups so.
Firstly, a follow up on <unk> question earlier talking about the traditional channel.
I think it would be helpful maybe to define exactly what Broncos.
<unk>.
And then sort of what the strategic rationale is sort of helping out your competitors now we'd always thought of OXXO.
Also eating into the traditional channel slowly, but surely sort of what what the strategic rationale is there would be would be would be helpful. And then just.
Second follow up on gross margin.
I think you mentioned financial services was actually a drag.
We've always thought financial services was a higher margin business with.
In the context of mix, so sort of what maybe zooming in on what happened this quarter.
Maybe waiting how much was spent and how much was the analyst financial services. Thank you very much.
Sure.
Go ahead Greg.
Okay.
Yes, let me just start with the first one and then.
Then obviously the rest of the income compliment you bet I would like to start by first saying that.
In addition, there are there is a misconception on who is the competitor of OXXO I mean, the traditional channel all the mall stores that are out there. They serve a purpose to have certain categories that we don't carry in OXXO.
They have a smaller surfaces usually so.
The type of consumer.
The consumers.
The consumer needs.
Take place in the smaller stores.
For months now of course, there is.
Some.
Some some some some of them that are the same but in general again, I don't think that eventually over the years, there will be only a convenience stores or they will be Australia stores. These are.
Great types that can.
Lead together and that has been the case over the years and I don't think that when you look at the traditional channel today. It has changed in terms of upside versus how they decided they had to in the absolute before also existed so.
I think that that is important because at the end of the day, what Bronco is trying to achieve is basically.
Health <unk>.
Some of these traditional channel and enable them with some of the pain point that I described before.
Reality that once.
Once again I want to use this example, because PDL yet.
Highlights some of these very specific pinpoint that nobody else, but probably also consult.
Small store actually goes to the usual at the wholesaler.
To get the product they need now there are some products that have a very low rotation. So they probably still one bottle one specific category lithium master.
A month.
But when they go to the wholesaler they need to buy a full Kate and if they don't buy a full case that will not get the price that they want.
Whereas when you look at OXXO, how we serve our stores.
Through the.
Supply chain system that we have we have a peaking system and we deliver tourist stores by unit.
Which is not an easy task and that's why the wholesaler. They don't do it now we know that we have that capability and we know that there are nearly.
1 million traditional stores in Mexico.
This pain point that we serve.
<unk>.
We know that front of handheld to actually enable these is monitored for a better business now that doesn't mean that we are.
Helping our competition no I mean, we are just taking the opportunity to create value by serving or fixing a pinpoint of very specific rate that will continue to exist.
And then.
No.
For the fourth.
I guess can you just comment was related to the fact that we brought back at Copel.
In the financial institutions that we didn't have any of the system.
In the previous months.
Comment what related to that.
You want to spend on that sure.
Sure just to address the question before was regarding to ticket so clearly financial services.
<unk> drive more traffic, but a lower ticket, but your question Alberto was more towards the impact on gross margin gross margin.
Correct and the impact on gross margin is clearly financial services, it's a much higher gross margin than the name having said that back during the quarter was offset by some of the trends that we're seeing related to the loyalty program.
And seeing that that's kind of offsetting part of that.
Improvement in mix from financial services. So the net effect is what you've seen the results and what kind of is.
The trend that Bob Martell last question earlier, one responded to was alluding to that we will.
Be modeling flattish gross margins going forward, having said that to the extent that we start to see some breakage in oxo premium.
And a better engagement from the customer more elasticity in terms of how much how many times he comes back vis vis the point that he redeem.
Could be some upside to that to that assumption.
Great. Thank you very much. Thank you the next.
Next question comes from the line of Chuckle Waterloo cheek, calling from Goldman Sachs. Please go ahead.
Yes, hi, good morning, everyone. Thanks.
Questions I had some follow up and I would like to explore a little bit the bottom line dynamics right.
And then there is the impact of noncash tax effect.
Net financial expenses.
But it also seems to me that equity income.
Softer than expected right.
There are a few things.
What counts there I would just like to get a better color from you on how the results from Brazil are trained ranked top demand near term.
We're very early on in disorders to maturing, but it's fair to assume that most of the story.
R&D printing above breakeven and widen the margin our level of returns and margins that you expect for Brazil.
First one and the second one very quickly get to make sure we understand other dynamics right when the central power.
<unk> plan Youll mention pulp.
Consolidated net income up to 92 types had been nine or 19 reported $8 80, 384 panned out from here.
What's the right change and whatnot.
Two questions. Please.
Yes, if I understood. The first question correctly. It was on the read through on the on the equity consolidation part of net income.
And the trends that Brazil had come back with that.
The first question right.
Partly.
Thats right perfect perfect. So first let me just remind you that in that line. We also are passing to the results from Heineken.
And if you recall Heineken last year had an extraordinary gain given the consolidation of the Indian operation. So on a like for like basis. There was a steep contraction in the net income portion of that so thats, what what's driving that.
We will maintain that specific line item on Brazil, what I can tell you is that again, both on the top line and at the store level, we're performing better than expected. We are still in expansion mode. I mean, we are opening up.
Upwards of 100 or more stores per year. So that is clearly still dragging in terms of their contribution both from an operating income perspective as well as from a net income perspective. So that of course will change over time and you will see that start to flow into that line item in the income statement going forward, but at this point it is not a significant contributor.
<unk> that you see there is.
Mostly related to the Heineken.
And then second question is with regard to the difference between the net income and then we.
Flashed last week in depends upon which state and what you saw just to remind you that the one we flagged last year was an audited we continue to work with our operators to get the final milestone and there were some movements.
Equally on the tax line.
<unk> because we continue to.
Fine tune adjustments on.
On the deferred taxes in the current part of taxes that are creating some movement there, but nothing related to our operations is just as we are fine tuning our expectations on what the final tax number will be in an R&D statements out which is now obviously in that in the report that you saw this morning.
Sure.
Net income.
Thank you very much.
Thank you.
Next question comes from the line of Bob Ford from Bank of America. Please go ahead.
Hey, good morning, everybody and thanks for taking my question.
I'll hand, your what's the Capex budget for this year and next year for the retained businesses with the step up and can you provide a breakdown of that by division and geography and geography place.
Sure Bob I can give you a little bit more color. We do expect this year to be at that.
For the remaining businesses.
About one 7 billion of Capex.
The majority of it would be.
<unk>.
At the proximity division as we continue on the App store expansion and there will be a.
Pickup in Capex in the cough and Im sure Jorge and the coffee, we will talk to you about that a little bit more but in the core businesses. We're seeing also a lot of growth capex given the long term relationship model that we have with the Coca Cola company and how that is incentivizing us to I mean.
To.
Grow in all the categories, both our capex time, including production lines.
More importantly, more coolers, our bottles and cases and thats. So.
Primarily it would be proximity and comp driving most of the capex for this year.
I don't know.
One Jorge or gave you have anymore color on that yes.
Thank you.
Following up on that I mean that it will be a higher.
Capex for the year than we've had in a long time.
It has to do I think partially with the fact that the businesses and I think again global experiment sure but.
There was perhaps some underinvestment during COVID-19.
Also the fact that.
Demand is so healthy.
And the businesses are growing at such a pace that it requires more lines it requires more capacity.
Focusing on kind of ex call for a second I think we can talk about proximity probably about $750 million.
Held about $100 million.
Then.
About a 124 for the other the other smaller businesses.
And then calls again with a bigger number than what they've done in the past so it will take us to.
Two higher levels, but it's all driven by by growth and demand from the business. So I think.
It's very positive.
That's helpful. And then when we think about the investments youre, making in Fintech, how much of that is being capitalized versus expense.
It's mostly being expensive.
Bob at this point, we're not capitalizing.
Any significant amount can take at this point.
Awesome. Thank you very much.
Thanks, Bob.
We currently have no questions coming through so I will hand over to your host to conclude today's conference.
Thank you. Thank you for joining us today, obviously, we've spoken a lot.
You recently, and we look forward to.
Seeing many of you in person.
Next week.
Have a great weekend.
Thank you Ben I think thank you Paul.
Okay.
Thank you for joining today's call you may now disconnect.
Yes.
Okay.
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Yes.
Yes.