Q4 2023 Fomento Económico Mexicano S.A.B. de CV Earnings Call

Melissa: www.adclinic.com Hello, and welcome to FEMSA's fourth quarter 2023 results conference call. My name is Melissa, and I will be your coordinator for today's event.

Okay.

[music].

Melissa: Please note this conference is being recorded, and for the duration of the call, your lines will be in a listen-only mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star one on your telephone keypad to register your question.

Melissa: If you require assistance at any point, please press star zero, and you will be connected to an operator. I'll now turn the call over to Juan Fonseca, Head of Investor Relations. Please go ahead. Good morning, everyone. Welcome to FEMSA's fourth quarter and full year 2023 results. Today we are joined by José Antonio Fernández, CEMSA CEO and Executive Chairman of the Board, Paco Camacho, our Chief Corporate Officer, Eugenio Garza, our CFO, and Jorge Collazo, who heads CEPCOLA CEMSA's investor relations. The plan today is for José Antonio to open the conversation with some high-level comments on the full year, as well as the senior organizational changes announced today. Then Paco will get a bit more into our strategic progress and business trends, followed by Eugenio, who will focus on the results. Finally, we will turn it back to Jose Antonio for some closing remarks and open the call to your questions. Jose, please go ahead. Thank you, Juan. Good morning, everyone.

Hello, and welcome to Suntrust fourth quarter 2023 results conference call. My name is Melissa and I will be your coordinator for today's event.

Please note. This conference is being recorded and for the duration of the call. Your lines will be in a listen only mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, Please press star zero and you'll be.

Connected to an operator I'll now turn the call over to Juan Fonseca head of Investor Relations. Please go ahead.

Good morning, everyone welcome to <unk> fourth quarter and full year 2023 results conference call.

Today, we are joined by to some wonderful language FEMSA CEO and executive Chairman of the board aka much our chief Corporate officer.

Many of our fellow CFO political yes.

<unk> with Investor Relations.

Good one today's focus I'm Toni to open the conversation with some high level comments on the full year as well as the senior organizational changes announced today.

Baca will get a bit more into our strategic progress and business trends, followed by <unk>, who will focus on the results.

Finally, we will turn it back to <unk> for some closing remarks and open the call for your questions.

Because I'm trying to please go ahead.

Thank you Juan good morning, everyone.

Juan Fonseca: Let me begin by reflecting on a year that was like no other in recent memory, full of activity and news for the company. We kick things off with a transformational announcement of PEMSA Forward, through which we focus on a strategy, our strategy for our three core business verticals of retail, what we call also proximity and health. Coca-Cola, Premsa, and Digi-Tech.

Let me begin by reflecting on the year that Wes.

Like no other in recent memory.

Full of activity and new for the company.

We kick things off with a transformational announcement of FEMSA forward.

We focus on our strategy our strategy on our three core business breath.

I'll break down what we call local proximity apparel.

Coca Cola FEMSA and digital.

José Antonio Fernández: We then proceeded to execute on most of its related transactions in record time and with great success by investing our investment in Heineken through two successful transactions as well as our minority stake in Jet Pro Restaurant Depot, merging Employee Solutions with BRADI-IFS, while reducing our capital exposure to that asset. The effort is still ongoing as we are in the process of finalizing the remaining divestment. Furthermore, we are poised to begin deploying the capital allocation strategy announced last week that will allow us to increase our leverage towards our stated objective and to avoid capital idle, thereby avoiding having idle capital on our balance sheet. During 2023, we made significant progress executing on the long-range plan of all our business units and in line with our three strategic priorities of accelerating growth, going increasingly digital, and balancing a risk-return profile.

We then proceeded to execute.

Most of it's related transactions in record time and with great success.

Besting our investment in Heineken through two successful transactions.

As well as our minority stake in Jetro restaurant people.

Every solution, we brought the <unk> pass.

While reducing our capital exposure to that asset.

The airport is still ongoing as we are in the process of finalizing the remaining divestments.

Furthermore, we are poised to begin deploying the capital allocation strategy announced last week that will allow us to increase our leverage towards our stated objectives and to avoid capital idle.

Boy too.

Idle capital on our balance sheet.

During 2023, we've made significant progress executing on the long range plan, while all our business units and in line with our three strategic priorities of accelerating growth.

Going increasingly digital Unbalancing, our risk return profile.

José Antonio Fernández: We achieved these strong results by combining the right strategies with the hard work of our remarkable team. On that front, and in order to better leverage the FEMSA Forward Strategy, back in September, we made important changes to better align the corporate organization with our more focused structure built around our three core business vertices. In that context, and given the strengthening of the management teams of the three verticals, today we announce two important changes in our leadership team. Paco Camacho and Eugenio Garza have both made the personal decision that this is the right time for them to finish their cycles at FENSA and move on to seek new professional challenges with effect at the end of April.

We achieved these strong results by combining the right strategies.

Hard work of our remarkable team.

On that front and in order to better leverage the types of forward strategy back in September we made.

Important changes to better align the corporate organization with a more full.

<unk> structure built around our three core business verticals.

In that context, and given the strengthen of the management team.

Of the three verticals today, we announced two important changes in our leadership team.

Aka module on a granular answer both.

Both made the personal decision that this is the right time for them to finish their cycle plans.

Move on to see new professional challenges with effect at the end of April.

José Antonio Fernández: Their contributions to our companies have been many and substantial, and we thank and appreciate them today. Wishing them continued success in their future endeavors. Martin Arias, who many of you know from his 25 years of fruitful association with Pensa, will become CFO, working closely with Eugenio to ensure a seamless transition. And with that, Let me turn it over to you, Jose Antonio. Good morning, everyone. Let me begin with a couple of updates regarding FEMSA Forward. Third, the Envoy I.S.S.

Their contributions to our company have been many and substantial and we think and appreciate them today.

And then continued success in their future endeavors.

Mark did not yes.

Many of you know from his 25 years of fruitful Association with FEMSA will become CFO working closely with our brand New York to ensure a seamless transition and with that.

Let me turn it over to <unk>.

Thank you for your question.

Everyone.

Let me begin with a couple of updates regarding FEMSA forward.

The envoy Iff's Brady transaction announced in August successfully closed at the end of October.

Paco Camacho: Brady transaction announced in August successfully closed at the end of October, and the new company is already operating as a single entity. Second, we have completed the process of carving out and transferring the distribution assets of OXO and Coca-Cola FENSA from Solistica to their respective operations. And they are now at, as well as other non-core operations as defined in CREMSA forward.

And the new company is already operating as a single entity.

Second we have completed the process of carving out and transferring the distribution assets of OXXO in Coca Cola FEMSA from solicit ticker to their respective operations.

And they are now.

Please pickup as well as other non core operations as defined in terms of forward.

Paco Camacho: And finally, we have fine-tuned our capital allocation plans, as we announced last week, putting us in a position to begin returning capital to shareholders as we begin to raise our levers towards our stated objective of two times net debt to equity. X.

And finally, we have fine tuned our capital allocation plans as we explore last week, putting us in a position to begin returning capital to shareholders as we begin to raise our leverage towards our stated objective of two times net debt to EBITDA ex cost.

Paco Camacho: Call, which we expect to achieve within two to three years. Moving on to the results for the fourth quarter, our numbers continue the positive trend seen during the first nine months of the year. Fully consistent with our strategic priorities and making progress towards the targets set by each business unit's long-range plan. Beginning with proximity, like we did in our call last quarter, it's helpful to talk for a minute about their own long-range plan and their four priorities around which it is built. Strengthening the Core, Developing New Growth Avenues, Developing Multiple Successful Formats, and Growing the Footprint Digital Network

Which we expect to achieve within the within two to three years.

Moving onto the results for the fourth quarter. Our numbers continued the positive trend seen during the first nine months of the year.

Fully consistent with our strategic priorities and making progress towards the targets set by each business unit long range plan.

Beginning with proximity.

We did in our last call last quarter in our call last quarter. It's helpful to talk for a minute about their own long range plan, and therefore priorities around which it is built.

We strengthened in the quarter developing new growth avenues, developing multiple successful formats and growing the footprint beyond Mexico.

Paco Camacho: Looking at Oxus's four-quarter results through this lens, we see they again made strong progress strengthening the court, with same-store sales growth of 8.5% against a double-digit comparison base. This performance was, again, driven by a broad set of tailwinds, including stronger consumer demand for first gathering and snacking occasions.

Looking at Oxford, <unk> fourth quarter results through this lens.

We see they again made a strong progress strengthening the court with.

With same store sales growth of eight 5% against a double digit comparison base.

This performance once again again, driven by a broad base set of tailwind.

Clothing, a stronger consumer demand for first gathering and knocking locations.

Paco Camacho: Solid Commercial Income Dynamics. Better Segmentation at the Store and the Rapid Adoption of the SPIN Premium Loyalty Program. Continuing with the positive news of a stronger core, Stork Road West remarked, with Mexico and LATAM adding 540 net new stores during the quarter and 1,408 during the past 12 months. Looking only at Mexico, we surpassed the 1,000-new store threshold for the first time since before the COVID pande

Solid commercial income dynamics.

Segmentation at the store and the rapid adoption of this being premier loyalty program.

Continuing with the positive news of a stronger quarter.

<unk> growth was remarkable with Mexico, and Latam, adding 540 net new stores during the quarter.

And 1408 during the past 12 months.

Looking only at Mexico, we surpassed the 1000, new store threshold for the first time since before the Covid pandemic, adding 1087 net openings.

Paco Camacho: Adding 1,087 net, moving on to the long-range priority of growing beyond Mexico. During the quarter, Grupo NOS continued its solid advance, with revenues increasing over 119% year-over-year and with its offshore footprint in Brazil more than doubling during the last 12 months, reaching 1,716 stores at the end of 2023. Dealing on Proximity America, but along with the priority of developing multiple successful formats, Barra grew revenues by 33.7% and reached a total of 359 stores at the end of the quarter.

Moving on to the long range priority of growing beyond Mexico during the quarter.

Continued its.

Solid advance with.

With revenues, increasing over 119% year over year.

With offset footprint in Brazil more than doubling during the last 12 months, reaching 1716 stores at the end of 2023.

Ceiling on proximity Americas, but along the priority of developing multiple successful formats. BARDA grew revenues by 33, 7% and reached a total of 359 stores at the end of the quarter.

Paco Camacho: We will increasingly talk about other successful formats that are gathering momentum, such as our coffee drive-throughs, our specialized Oxford Smart Stores for controlled environments, and our traditional trade initiatives. For its part, Proximity Europe achieved strong operating results with substantial growth in a challenging macroeconomic environment. This was driven by higher sales in the food category and the favorable effect from vertical integration. Revenues increased by a strong 16.4%.

We will increasingly talk about dollar successful formats that are gathering momentum such as our coffee breakthroughs are specialized officemax store tour control environment.

Our traditional trade initiatives.

For its part proximity Europe, achieving strong operating results with substantial growth in a challenging macroeconomic environment.

This was driven by higher sales in the food category and the favorable effect from vertical integration.

Revenues increased by a strong 16, 4% generating operating leverage as of the end of the year proximity to Europe.

Paco Camacho: Generating Operating Leverage. So, at the end of the year, Proximity Europe had 2,808 points of sale, a net increase of 42 units over the comparable period. Our health operations showed mixed performance trends and again reflected foreign exchange headwinds from a strong Mexican peso relative to local currencies in South America. In Colombia, we are gradually shifting our business toward more retail and less institutional export.

As 2808 points of sale and net increase of 42 units over the comparable period.

Or shelf operations show mixed performance trends and again reflected foreign exchange headwinds from a strong Mexican peso relative to local currencies in South America in Colombia, we are gradually shifting our business towards more retail and institutional exposure given the challenging institutional.

Paco Camacho: Given the challenges the institutional health industry is facing in the current political environment, while in Mexico, we continue to see competitive retail activity across 30, In both cases, adjustments to our strategy are in progress, and we will keep you updated. In line with our evolving strategy, during the quarter, our health business continued to push to consolidate its competitive position in retail across markets, increasing its store footprint to reach a total of 4,474 locations.

The industry is facing in the current political environment, while in Mexico, we continue to see competitive retail activity across territories.

Both cases adjustment of our strategy are in progress and we will keep you appraised.

In line with our evolving strategy during the quarter or accounts business looking at to boost consolidated competitive position in retail at gross market <unk>.

Increasingly it's historic footprint to reach a total of 4474 locations in.

Paco Camacho: In fact, during 2023, our Sheldon mission added new locations across its territories at a pace of approximately one per day. For its part, our fuel business delivers a strong set of results, with our dynamic corporate wholesale business continuing to outperform relative to retail. Comparable sales were robust, with good contribution from traffic and ticket growth. Regarding digital advancement, the number of active users for Stim Bioxo reached 6.9 million during the quarter, and active users for our premium loyalty program reached 19.3 million.

In fact during 2023, our shelf mission added new locations across the territory.

Base of approximately one per day.

For its part or fuel business delivered a strong set of results.

With our dynamic corporate wholesale business continued to outperform relative to retail.

Comparable sales were robust with good contribution from traffic and ticket growth.

Regarding digital a trend set the number of active users for a spin by OXXO reached $6 9 million during the quarter.

Active users for our Premier loyalty program reached $19 3 million.

Paco Camacho: Importantly, approximately 31% of OXXO's OXXO Mexico sales are now associated with the product. We continue to prioritize the acquisition of higher quality users while we make progress fine-tuning the use cases, value propositions, unit economics, and monetization strategies for each part of the company. In terms of financial implications, during the quarter, we deployed around 1 billion pesos in growing this business. Roughly in line with the previous quarter, as well as... Finally, Coca-Cola Senza delivered a remarkable set of results for the 4th quarter, driven by Mexico, Brazil, Colombia, and Guatemala.

Importantly, approximately 31% of OXXO OXXO, Mexico sales are now associated with the project.

We continue to privileged acquisition of higher quality users when we make progress fine tuning the use cases value preposition unit economics and monetization strategies for each part of the ecosystem.

In terms of financial implications.

During the quarter, we deployed around 1 billion pesos on growing this business.

In line with the previous quarter as well as budgets.

Finally, Coca Cola FEMSA deliver a remarkable set of results for the fourth quarter, driven by Mexico, Brazil, Colombia, and Guatemala, enabling cost to surpassed 4 billion unit cases of another colleague ready to drink beverages for the full year.

Eugenio Garza: Enabling cough to surpass four billion unit cases of non-alcoholic ready-to-drink beverages for the full year. And with that, let me turn it over to Kenya. Thanks, Paco. Good morning, everyone. As we continue to execute on our Frensel Forward Strategy, we've made some adjustments to the financial statements throughout the year to reflect the literature of our non-core businesses. During the fourth quarter, we recorded Alpunto and the third-party components of Solistica as discontinued operations.

And with that let me turn it over to Kenya. Thanks.

Thanks, Pat good morning, everyone.

As we continue to execute on our FEMSA forward strategy, we've made some adjustments to the financial statements throughout the year to reflect the divestiture of our noncore businesses do.

During the fourth quarter, we recorded a total in the third party component of silicic as discontinued operations.

Eugenio Garza: To maintain comparability, we modified our consolidated financial statements for the fourth quarter of 2022 to reflect this change. Let's begin with PEMSA's quarterly consolidated results for the fourth quarter. Total revenues increased 4.6%, and EVDA rose 3.6% compared to the fourth quarter of 2022. Net Consolidated Income decreased 20.7% and stood at 6.3 billion pesos, resulting from higher gross profit and lower net interest expenses during the quarter

<unk> compatibility, we modified our consolidated financial statements for the fourth quarter of 2022% to reflect this change.

Let's begin with temperature quarterly consolidated results during the fourth quarter total revenues increased four 6% and EBITDA rose three 6% compared to the fourth quarter of 2022.

<unk> net consolidated income decreased 27% and stood at $6 3 billion pesos, resulting from higher gross profit and lower net interest expenses. During the quarter. This was offset by a non cash foreign exchange loss of $6 3 billion peso is related to a U S dollar denominated cash position and impacted by the appreciation of the Mexican peso.

Eugenio Garza: This was offset by a non-cash foreign exchange loss of 6.3 billion pesos related to a U.S. dollar denominated cash position and impacted by the depreciation of the Mexican peso, and a $3.2 billion net loss of discontinued operations, mostly reflecting the accounting remeasurement from historical cost to fair value of FEMSA's investment in Solistica and El Punto Net of Impairment. Now During the fourth quarter, we opened 514 stores, bringing our total to 1,408 new stores for 2024, which includes.

And a $3 2 billion net loss from discontinued operations, mostly reflecting the accounting remeasurement from historical cost to fair value, all FEMSA investment and holistic and therefore net of impairments.

Shifting gears to our business unit results and starting with proximity Americas.

During the fourth quarter, we incorporated 514 stores, bringing our total to 1400 eight new stores for 2024, which includes <unk>.

Eugenio Garza: 1,087 new stores in Mexico and 321 in South America. This robust growth has propelled us beyond the annual growth target, renewing our confidence that our growth runway remains long-term across all markets, and the opportunity for our multi-format strategy is equally compelling. OXXO Same Store sales increased 8.5% in the fourth quarter, demonstrating strong double-digit growth from the same quarter of last year.

1087, new stores in Mexico, and 321 in South America.

This robust growth has propelled us beyond our annual growth target. We are confident that our growth runway remains long for OXXO across all markets and the opportunity for our multi format strategy is equally compelling.

OXXO same store sales increased eight 5% in the fourth quarter cycling strong double digit growth from the same quarter of last year.

Eugenio Garza: This result was led by a 6.3% increase in average customer ticket sales and a 2.1% increase in traffic, as the trend gradually reverts to more sustainable levels after 8 consecutive quarters of double-digit growth. Gross margin grew 17.2%, an expansion of 120 basis points, led by healthy commercial income dynamics and higher income from financial services. Income from operations rose by only 1%, reflecting an operating margin of 11.2%, a contraction of 150 basis points, driven mainly by higher labor expenses in Mexico, including adjustments made ahead of further regulatory changes expected during 2024. Moving on to Proximity Europe, total revenues grew by 9.5% in local currency, resulting in 16.4% growth in peso terms, boosted by the food category across all units and the positive effect of vertical integration, particularly through the B2B PREP solution.

This result was led by a six 3% increase in average customer ticket and a two 1% decrease in traffic at the drain gradually gradually revert to more sustainable levels after eight consecutive quarters of double digit growth.

Margin grew 17, 2% an expansion of 120 basis points led by led by healthy commercial income dynamics and higher income from financial Services, Inc.

Income from operations rose by only 1%, reflecting an operating margin of 11, 2% a contraction of 150 basis points, driven mainly by higher labor expenses in Mexico, including adjustments made ahead of further regulatory change is expecting during 2024.

Moving onto proximity Europe total revenues grew by nine 5% in local currency, resulting in $16, 4% growth in peso terms boosted by the food category across all units and the positive effect of vertical integration, particularly through the beat to be pretzel business.

Eugenio Garza: Gross Margin stood at 44.9%, while Operating Margin expanded by 180 basis points to reach 5.2%, reflecting the same drivers that supported revenue growth as well as higher promotional income. Turning to PEMSA's health operations, we expanded by 127 net new drugstore additions during the fourth quarter to reach a total of 4,474 units across our territories in 2023. Total revenues increased 2.6% while same-store sales grew 5.1% in Mexican pesos. On a currency-neutral basis, revenues and same-store sales increased by 9 and 3.1%, respectively, driven by a positive performance across most of our territories, which was partially offset by a challenging macroeconomic environment in Colombia and Ecuador. Beyond the top line, however, gross margin decreased 110 basis points and operating margin was down 240 basis points, largely affecting a deteriorating environment in the Colombian institutional business, where we took a charge of 527 million pesos for uncollectible accounts.

Gross margins stood at 44, 9%, while operating margin expanded by 180 basis points to reach five 2%, reflecting the same drivers that supported revenue growth as well as higher promotional income.

Turning to FEMSA <unk> health operations, we expanded by 127 net new drugstore additions during the fourth quarter to reach a total of 4474 units across our territories in 2023.

Other revenues increased two 6% while same store sales grew five 1% in Mexican pesos on.

On a currency neutral basis revenues and same store sales increased by 9% and three 1% respectively, driven by a positive performance across most of our territories, which was partially offset by a challenging macroeconomic environment in Colombia and Ecuador.

Beyond the top line. However, gross margin decreased 110 basis points and operating margin was down 240 basis points, largely reflecting a deteriorating environment in the Colombian institutional business. While we took a charge of 527 billion vessels for uncollectable accounts.

Eugenio Garza: As a result of these structural headwinds, we are actively evolving our Colombian operations to rely more on a dynamic and fast-growing retail component and less on the structurally complex institutional operations. Moving on to Oaxaca, same station sales increased 4.8% and total revenue grew by 9% as we continue to develop our corporate business. During the quarter, Gross Margin was 13.4% and Operating Margin was 4.6%, reflecting tight expense control and operational

As a result of these structural headwinds we are actively evolving our Colombian operations to rely more on a dynamic and fast growing retail components and less on the structurally complex institutional operation.

Moving off to work so that same station sales increased four 8% and total revenue grew by 9% as we continue to develop our corporate business during the quarter gross margin was 34% and operating margin was four 6%, reflecting tight expense control and operational efficiencies.

Eugenio Garza: Finally, moving on to Coca-Cola Pensa, which again delivered an outstanding set of results in the fourth quarter. Total volume increased 6.1%, driven by growth across most of its territories. Total revenues grew 8.1%, and operating income grew 7.4%, while operating margin was 14.6%. On a more strategic note, they did reach a milestone in their digital transformation journey, reaching more than 1.1 million monthly active users through the Juntos Plus platform and with more than $2.5 billion for the year. You can listen to the replay of their conference call held yesterday on their website. Now, let me turn it back to Jose Antonio for some closing remarks. Go ahead, Jose Antonio.

Finally, moving on to Coca Cola FEMSA that again delivered an outstanding set of results in the fourth quarter.

Total volume increased six 1% driven by growth across most of its territories.

Revenues grew eight 1% and operating income grew seven 4%, while operating margin was 14, 6%.

On a more strategic note they did reach a milestone in their digital transformation journey, reaching more than $1 1 million monthly active users through our centers plus platform with more than $2 5 billion for the year you can listen to the replay of the conference call held yesterday in their website.

Now, let me turn it back to Jos Antonio for some closing remarks go ahead Anthony.

José Antonio Fernández: Thank you, Eugenio. Before we close, let me talk a little about our progress on our sustainability efforts during 2023. As we made progress on several fronts, as an example in recognition of our ongoing efforts to advance our sustainability agenda, SAMHSA was included in the Standard and Poor's Global Sustainability Yearbook for the first time in 2024. We were acknowledged for our continuous improvement in water management, resource efficiency, packaging circularity, and business integrity metrics. The yearbook recognizes corporations that serve as a reference for global sustainability standards.

Thank you Daniel before we close let me talk a little about our progress on our sustainability efforts during 2023.

We made progress on several fronts as an example in recognition of our ongoing therefore.

Our sustainability agenda.

What's included in the standard <unk> Poor's global sustainability yearbook for the first time.

1024.

We were knowledge for continuous improvement in water management resource efficiency packaging circularity and business integrity metrics. The yearbook recognizes corporations that serve as a reference in global sustainability standards.

José Antonio Fernández: And on the governance front, we continue to evolve the composition of our board of directors with the nomination this year of two new independent directors, Elaine Stock and Olga Gonzalez-Aponte. They are remarkable executives whose experience, acumen, and expertise will surely benefit our company for years to come. Finally, no recap of 2023 could be completed without mentioning our great friend Daniel Rodriguez.

On the Governor on strong we continue to evolve the composition of our board of directors with the nomination of these year of Guild Wars.

Two new independent directors Elane stock.

<unk> appointed a remarkable remarkable and the executives Fuchs, who has experienced acumen and expertise will surely benefit our company for years to come.

No recap of 2023.

Would be completed without mentioning our great brand Daniel Rodriguez.

José Antonio Fernández: For all the strategic success and operational achievement we have talked about today, our hearts are heavy, and our mood is tempered by Daniel's passing. Daniel was key in defining the strategy and setting these positive trends in motion, and we hope we are making him proud today. As we look ahead, we are fortunate to have a broad set of opportunities to continue growing in every one of our businesses. There is no doubt that the year that begins will bring some headwinds, such as higher labor costs in Mexico, but also the tailwinds of higher economic activity from an electoral period in the short term and from encouraging macro trends like nearshoring in the medium and long term.

For all the strategic success and operational achievements, we have booked about today our hearts.

R R.

Or more of these tempered by the nearest passing that Neil was key in defining the strategy on certain these positive trends in motion and we hope we're making key proud today.

As we look ahead, we are fortunate to have a broad set of opportunities to continue growing <unk>.

Every one of our core verticals. There is no doubt that the year that begins will bring some headwinds such as higher labor costs in Mexico or also the daily wins of prior economic activity from an electoral.

In the short term.

Encouraging macro trends like near shoring.

In the medium and long term.

José Antonio Fernández: Across our markets, we will again navigate a mix of challenges and opportunities, and I have no doubt that we will again find a way to thrive and create value for all our stakeholders. We start 2024 keeping our eye on the ball as we carry good momentum into what will surely be another interesting year. All our business units are well positioned for continued growth, and I am particularly excited to see the many ways in which we will continue to apply our growing data analytics and AI capabilities to drive better performance and incremental growth across our three-core. We are just getting started. Finally, I want to take this opportunity to thank our entire team for a job well done in 2023. And to thank all of you joining us today for our continued support and interest in our company. And with that, we are ready to open the call for questions. Thank you very much. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. To withdraw your question for any reason, you may press star two.

Across our markets, we will again navigate a mix of challenges and opportunities and that capital doubt that we will again find a way to drive and create value for all our stakeholders. We start 2020 for keeping our eye on the ball.

Gary good momentum into what we can surely be another interesting year.

All our business units are well positioned for continued growth and I am particularly excited to see.

There are many ways in which we will continue to apply our growing data analytics.

May I capability to drive better performance unimpaired mental growth across our three core verticals.

We are just getting started.

Finally, I want to take this opportunity to thank our entire <unk> team for a job well done in 2023.

And to thank all of you joining us today for our continued support and interest in our company and with that we have.

We're ready to open the call for questions.

Sure.

Thank you very much as a reminder, if you would like to ask a question. Please press star one on your telephone calls.

To withdraw your question for any reason you May press star two.

Melissa: We kindly request you limit yourself to one question. Our first question comes from Ben Sawyer of Barclays. Please go ahead. Yeah, good morning, everyone.

Zane request you limit yourself to one question.

Our first question comes from Ben <unk> of Barclays. Please go ahead.

Hi, good morning, everyone and.

Ben Sawyer: And thanks for taking my question. Um, just wanted to follow up a little bit on the performance at OXO, the same stores, and sales composition in particular. Could you talk a little bit about the deceleration sequentially that you saw in store traffic? Because obviously, we had a fairly strong, um, a fairly strong first nine months period with same store sales growing somewhere in the mid single digits on the traffic side. But now it kind of came down, and even with the base comparison, that wasn't too high. So any color you can share on that will be much appreciated.

Thanks for thanks for taking my question just wanted to follow up a little bit on the performance at OXXO same store sales composition in particular could you talk a little bit about.

The deceleration sequentially that you saw in store traffic, because obviously, we had a fairly strong.

But for a fairly strong first nine months period with same store sales growing somewhere in the mid single digits on the traffic side.

But now it kind of came down and even with the base comparison that wasn't too high. So any color you can share on that that will be much appreciate it. Thank you.

Paco Camacho: Thanks. Sure, Ben. I think it has to do mostly with the fact that we had a very strong fourth quarter last year related to the World Cup and other events coming up. So there's a fair bit of that. So that COVID excess traffic from last year did not repeat. Having said that, the underlying trend in traffic, if you look at the services category, that is coming up significantly. So it's a little bit of a mix of both.

Okay.

Sure Ben I think it has to do mostly with the fact that we had a very strong fourth quarter last year related to the World Cup and other.

Events are coming due so there is a fair bit of that so that call. It excess traffic from last year did not repeat having said that the underlying trend in traffic. If you see the services category that is coming up significantly. So it's it's a little bit of a mix of both and Fortunately the average ticket continues to maintain at a much higher level than it did.

Paco Camacho: And fortunately, the average ticket continues to maintain at a much higher level than it did pre-pandemic, given the change in customer taste and mix. And I think that combination is what I think drove same-store sales to their fantastic performance throughout the year. But specifically, the fourth quarter has to do with the lapping of the World Cup and a change in the composition of that traffic. And then also just to add a couple of things and provide some more color on that. Structurally, the performance of the stores is very strong.

Pre pandemic, given the changing customer tastes the mix and I think that combination is what what I think drove drove same store sales to other fantastic performance throughout the year, but specifically fourth quarter has to do with lapping of the World Cup and a change in the composition of that traffic.

Also just to add a couple of things.

And provide some more color on that structurally the performance of the source is very strong and we saw.

Paco Camacho: And we saw a very good performance across segments and across categories. And obviously, that also generated a strong performance in the traffic. So we feel confident about the structurally the traffic trend being strong as we enter into 2024. Yeah, I would just add, Ben, this is Juan. You know, to be honest, I expected this to happen back in April.

Very good performance across segments.

Segments and across categories.

Obviously that also generates a strong performance in the traffic so we feel confident about.

With truck triangular traffic trend being strong.

As we enter into 2024.

This is juan.

To be honest I expected this to happen back in April you remember us to call back in April.

Juan: You remember the call back in April where I was already guiding people to not put a double-digit same-store sales number in their model. And then I was wrong for three quarters, but eventually, the math kind of catches up with you. I think you're also looking at what was a very long recovery post-COVID, right? I mean, traffic fell off a cliff in 2020, and it's been coming back. And there's a lot of stuff, as Paco was saying, I mean, segmentation at the stores and the drivers for growth are very much in place. But I think the mix that we see today is a more normal mix, quite frankly, and more looking forward. I think our mix is going to look more like what we reported today than the 6%, 7%, 8% that we were showing three or six months ago. Thank you. Thank you. The next question is from Ricardo Alves with Morgan Stanley. Please go ahead.

Where I was already guiding people to not put a double digit same store sales number in their model and then I was wrong for three quarters, but eventually the math kind of catches up with you.

I think Youre also looking at what was a very.

Long recovery.

Right.

The traffic fell off a cliff in 2000.

And it has been coming back and there is a lot of talk of Michael was saying I mean segmentation of the stores and the drivers for growth are very much in place, but I think the mix that we see today.

A more normal mix quite frankly and more.

Looking forward I think our mix is going to look more like what we reported today than the.

678% that we were showing three or six months ago.

Okay. Thank you.

Thank you. Our next question is from Ricardo Alves with Morgan Stanley. Please go ahead.

Ricardo L. Alves: Hello everybody. Thanks for the call. Question on the senior management change. If you could add more details, you know, for instance, on the timing, particularly now in the middle of the FEMSA forward, just to make sure that everything is aligned with the board and so forth.

Hello, everybody thanks for the call.

Question on the senior management change if you could add more details.

You know for instance on the timing, particularly now in the middle of the FEMSA forward just to make sure that everything is aligned with the board and so forth.

José Antonio Fernández: We also noticed that in the part of the release where you mentioned that Eugenio will launch the implementation of the capital allocation elements. Can you tell us exactly what that means? Is that related to the buybacks specifically? And then it also states that Eugenio will remain as an advisor. And if that would be related to the second stage of the envoy that we discussed at length last year, or maybe new ventures in the US. So, so curious if you can elaborate to the extent possible a little bit more on the CFO and the... And Paco move as well, obviously very relevant for today, and a follow-up to that question would be on the shareholder return. And on the buyback point that I mentioned, The doubling But we all know that there has been very limited activity to no activity, depending on the timeframe.

We also noticed that.

The part of the release you mentioned that he will hand, you will launch the implementation of the capital location elements can you.

Tell us what that means exactly is that related to the buybacks specifically.

And then it also states that he will hand, it will remain as adviser.

And if that would be related to the second stage of the envoy that we discussed Atlanta last year.

Or maybe new ventures in the U S. So curious if you can.

All about eight to the extent possible a little bit more on the CFO.

And in Basel move as well evidently very relevant for today and a follow up to that question would be on the shareholder return.

And on the buyback point point that I mentioned.

The doubling of the authorization to $2 billion or whatever the number is it is pretty significant but we all know that there has been very limited activity to low activity depending on the timeframe. So now that the announcement is behind US can you can you share with us.

Eugenio Garza: So now that the announcement is behind us, can you share with us the key hurdles or the accounting flexibility that you now seem to have overcome so that you are now really confident that you're gonna be able to be active on the buybacks? Is there a timetable for us to be expecting more activity there?

The key hurdles or the accounting flexibility that you now seem to have overcome so that you are now really confidence that youre going to be able to be active on the buybacks is that timing for us to be expecting more activity. There. So just a little bit Margaret literally on the on the buyback component sorry for the long question.

Eugenio Garza: So just a little bit more granularity on the buyback component. Sorry for the long question. Well, I will start with the first part of the question, and we'll let Eugenio and Paco explain the second part of the first part.

<unk>.

Well I will start with the first part of the question and will let Glen you on Buckler split in the second part was the first part.

José Antonio Fernández: We have agreed with Paco and Eugenio that they will stay with us helping until the end of April. By then, and starting next week, Martin Arias, who is already fully involved, is going to start fully involved, and the transition between Eugenio and Martin will go very smoothly. At the same time, Eugenio, thank God, offered us to continue as an advisor per project, and yes, there could be some projects that we could do involving investments or new investments that we could do. And obviously, to continue to keep an eye on and advise us on all the capital allocation strategies that we have designed and have presented to you recently. On the rest, I will ask Eugenio to explain. Sure, Ricardo.

What we have agreed with the <unk> is that they will.

State without scalping until the.

The end of April.

But by then.

Starting next week, but did not yet he is already fully mall list I'm going to start will embolden. The transition overall revenue on <unk> will go very smoothly at the same time millennial.

He said that he offer those to continue.

Advisor project.

Yes.

Could be some.

Projects that we could do all of it.

<unk>.

So investments that we could do on novel mid two.

Continue.

Within EMEA and advising us on all the capital allocation strategy that we have.

Designed.

<unk> presented to you recently.

On the rest I will ask <unk> to make.

Eugenio Garza: Yeah, definitely what I'm gonna be more focused on over the next couple of months during the transition with Martn is the implementation of the capital return portion of the capital allocation program we announced last week. So it does have to do with share repurchases and continually monitoring the investment both in organic and inorganic investments as we aim to reach that two times net debt to EVDA over the next few months. So to your question with regard to the timing of the share repurchases, with the announcement behind us, clearly now we will start to have an open market to start to use that more heavily. What we will be asking at the shareholder meeting in March is to increase the capacity that we currently have.

Sure Riccardo, yes definitely.

Im going to be more focused on over the next couple of months are doing the transition with my team is on the implementation of the capital return a portion of the.

Capital allocation program, we announced last week.

So it does have to do with share repurchases and continue to continually monitoring.

Investments, both inorganic and organic investments as we aim to reach that two times net debt to EBITDA over the next few months.

So to your question with regards to the timing of the share repurchases with the announcement behind US clearly now we will start to have an open to us to start to use that more heavily what.

What we will be asking the shareholder meeting in March is to increase the capacity that we currently have but again, we can't we have capacity currently in place to start to operate as soon as our summit next week. So we will be implementing that capital return strategy as we mentioned in our release last week in a way that maximizes our per share.

Eugenio Garza: But again, we have capacity currently in place to start to operate as soon as next week, so we will be implementing that capital return strategy, as we mentioned in the release last week, in a way that maximizes per share value from an intrinsic perspective in the long term. So that will be a combination of both share buybacks and extraordinary dividends. As you saw, we already started with our first one, and there will be additional ones to come if, indeed, we realize that through the operating environment we're not able to reach the two times net debt to EVDA on our own. So those will be the levers that we will be pulling. Again, with me at the helm for the next couple of months and then with Martine and the rest of the team helping him going forward.

<unk> from an intrinsic perspective in the long term so that will be a combination of both share buybacks are an extraordinary dividends as you saw we already started with not with our first one and there will be additional ones to come if indeed, we realized that through the operating environment, we're not able to reach that two times net debt to EBITDA on a.

So those will be the levers that we will be pulling again with me at the helm for the next couple of months and then with my team and.

And in the rest of the team, helping keep going forward.

Juan: I would like to add, Ricardo, this is Juan. Since we did not have a call dedicated to the capital allocation release, the fact that we're all here today, I understand that there may be some questions, and yours is the first one on continuity, right? And so I would like to ensure that the strategy that was communicated last week is fully in place, that the two-tenths-negative target is fully in place, and that there will be no deviation from that. So I just wanted to put that out there because I know that the concern is going to be... That's helpful, gentlemen. Thank you so much.

I would like to ask recoveries as one since we did not call dedicated to the capital allocation.

<unk> so the fact that grow here today.

I understand that there may be some questions on yours was the first one on continuity right and so I would like to ensure that the strategy that was communicated last week is fully in place.

But the two times net debt to EBITDA target is fully in place and that you know.

But there will be no no deviation from that.

Carlos Laboy: Thank you, Carlos. Thank you, thank you. Our next question is from Alvaro Garcia of VTG Factual. Please go ahead.

So I just wanted to put that out there because I know that the concern is going to be among investors.

Yes.

That's helpful gentlemen, thank you so much.

Thank you Carlos.

Thank you. Our next question is from Alvaro Garcia of BTG Pactual. Please go ahead.

Alvaro Garcia: Hi, gentlemen. Thanks. Cool. Paco, all the best, going forward. My question is about labor costs in Mexico. I know that Funcha has a philosophy.

Hi, gentlemen, thanks for thanks for the call.

I'll send you back all the best.

Going forward.

My question is on labor cost in Mexico, I know that FEMSA has a philosophy of of <unk>.

Paco Camacho: PAY MORE THAN THE STREET TO PAY MORE, ADR Class B, Much true of Oaks, and I'm just curious where we are in that process. Employee Base at, I don't know how much more difficult it is to get that premium and what you're out... Class. Hi, Alvaro. This is Paco.

Paying more than the street to pay more than.

And then competitors or similar outlets.

And that's very much true evokes and I'm, just curious of where we are in that process.

You know up and pay for your employee base at OXXO.

How much more difficult has it been to to get that premium and what's your outlook for labor costs into 2024. Thank you.

Paco Camacho: Good to hear from you. I'll start, and then I will let the team provide further perspective. But I guess that what we need to keep in mind when it comes to... post-management, particularly in OXO, and understanding that the labor cost, specifically the labor cost during the last year, was, I would say, a spatial situation versus other years because of its magnitude. But the reality, what we need to keep in mind is that OXO is extremely good at working consistently on making our operations more efficient. So the team has been focused on making sure that all the verticals and all the possibilities that they usually explore as part of the way they do their operations in the stores continue to progress towards further efficiencies. And I guess that has to do with store management, that has to do with headcount, that has to do with how we look into the specific costs in the stores. So this is just to reassure you that.

Hi, Alberto <unk> Bank of hope to hear from you.

I'll start and then I will let the team through the perspective, but I guess that when we need to keep in mind when it comes to deploy.

Deposit management, particularly in OXXO.

You're standing that the labor costs are up.

Specifically the labor cost during the last year with all I would say a special situation versus other years and because of its magnitude.

The reality was we need to keep in mind, you that ultra is extremely good.

<unk>.

At working consistently making our operations more efficient.

The team has been focused on making sure that all the verticals and one of the possibilities of B B.

The usual explore as part of the way they do their operations at the stores continue to progress.

Progress towards further efficiencies and I guess that that has to do with our store management that has to do with head count that has to do with.

With.

Which how we.

Looking to the specific cost in the stores. So this is just to reassure you that structurally speaking.

Paco Camacho: Structurally speaking, and the way we approach this in the stores, hasn't changed. We will continue to do so. And evidently, every time something like this comes, this doubles the efforts on maximizing efficiency. But for 2024, we have included the increases in the plans. And we are confident that we can deliver on those plans as we enter the year. So, Creni, do you want to add something to that? I would add one thing, Alvaro. This is Juan.

And the way we approach this in the stores has been changed we will continue to do so and.

Evidently every time something like this come deems doubles the efforts.

On maximizing efficiency, but for 2024, we have included.

Yes.

The increases in the in the plant and we are confident that we can deliver on those plans as we enter the year and creating something on that.

Juan: Just because, you know, when you look at the numbers and you look at the OPS or P&L, we're making some comments about how the operating margin was impacted by, among other things, but largely by the labor cost situation. And so, you know, in terms of 2024, I just want to put it out there. I hate to call it guidance, but our expectation is that operating margins for the year will be flat. That's kind of our base case.

I would I would add one thing out of all this is Juan.

Just because when you look at the numbers. So when you look at the OXXO P&L.

We're making some comments about how the operating margin was impacted by among other things, but largely by by the labor cost situation and so.

No.

In terms of 2024.

I just wanted to put out there.

I hate to call it guidance, but our expectation is that operating margins for the year will be flat, but I just kind of our base case. So I think the year is going to start a little bit softer and it is going to gather strength as the year goes by but for the full 2024, our expectation is for operating margins to be flat for OXXO Mexico.

Juan: So I think the year is going to start a little bit softer, and it's going to gather strength as the year goes by. But for the full 2024, our expectation is for operating margins to be flat for Oaxaca, Mexico. And I think that's important data. Great, thank you. Gracias, Alvaro.

And I think that's an important data point.

Okay, great. Thank you very much.

Congrats hurdle.

Alvaro Garcia: Thank you. Our next question is from Hector Maya of Scotiabank. Please go ahead.

Sure.

Okay.

Thank you. Our next question is from Hector Maya of Scotiabank. Please go ahead.

Hector Maya: Thank you very much for taking my question. So I just wanted to know about your update on the FEMSA Forward Plan. We saw that the execution and the investments went ahead of time, and they exceeded expectations. So just wanted to understand why you considered it was necessary to extend the timeline window for cash deployment by an additional year, potentially. And would that be because maybe M&A opportunities might take longer to appear, or is there a concern about either the economic or political environment in your operations that drove the decision to keep a relevant cash position for a little longer? Hi, Hector.

Alright. Thank you very much for taking my question. So I just wanted to know about your uptake of the FEMSA for work plan.

We saw it the execution and divestments.

<unk> Com ahead of time and it was exceeding expectations. So just wanted to understand why even consider it wasn't necessary to extend the timeline window.

Employment by an additional year potentially.

Would that be because maybe M&A opportunities might take longer to appear or is there a concern for either the economic or political environment in your operations at two hours.

Patient to keep irrelevant cash cash position for a little longer.

Eugenio Garza: Thanks for your question. It's OK, and you're here. Look, really nothing has changed from what we said last year, and we continue to reiterate it. We are going to get to the two-times net debt to the VA. We can get there in several ways. One is through special dividends.

Hi, Thanks for your question, it's OK Neil here.

Really nothing has changed from what we said last year and we continue to reiterate it we are going to get to the two <unk> net debt to EBITDA, we can get there in several ways. One is through our special dividends. The other one is through share repurchases and the other one will be through organic and inorganic investments.

Eugenio Garza: The other one is through share repurchases, and the other one will be through organic and inorganic investments. At this point, yes, we're sitting on a pile of cash that's accumulated at a higher rate than we expected because of the success that we've had with the debenture so far. There will be more of that cash to come, both from the remaining sales of the remaining assets as well as the JETRO stake which we sold in installments, and the operations will also be generating cash. But we are painfully aware of the problem of holding too much cash.

At this point, yes, we're sitting on a pile of cash that <unk> accumulated at a higher pace than we expected because of the success that we've had with the divestiture. So far there will be more of that cash to come out both from the.

Remaining sales of the remaining assets as well as the Jetro stake, which we sold.

In installments and that the operations will also be generating cash. So we are we are painfully aware of the problem of holding too much cash having said that we want to deploy it in a smart way that maximizes long term intrinsic per share value.

Eugenio Garza: Having said that, we want to deploy it in a smart way that maximizes long-term intrinsic per share value. So I think, still within the range of the same two to three years, we will get to the two-times net debt to the VA. It makes us, to be honest, feel a little bit more comfortable holding on to the cash right now at the 5% interest rates that we're investing it in rather than where it was two years ago.

So I think it's still within the range at the same two to three years, we will get to the two times net debt to EBITDA. It makes us to be honest feel a little bit more comfortable holding onto the cash right now at the 5% interest rates that were investing it in rather than where it was two years ago. So while we're being we're being patient as as opportunities arise.

Eugenio Garza: So we're being patient as opportunities arise. But again, even if we do see inorganic opportunities, we've stated they will be in the core business verticals that we identified in the FEMSA Forward, and they will be financially accretive to long-term intrinsic per share value. So we want to maximize that flexibility that we have to invest across our businesses and in the best investment that we have, which is our own share, and get to that two-times net debt to the VA in due course. Thank you, that's very clear. And also, the conversation around the hard discount category and private label has been very hot right now, very active. So I just also wanted to understand if we could expect your strategy with Bada to become more aggressive in the future.

But again, even if we do see.

Organic opportunities we've stated they will be in the core business verticals that we identified under FEMSA forward and they will be financially accretive to long term intrinsic per share value. So.

We want to maximize that flexibility that we have to invest across our businesses and in the best investment that we have which is our own share and get to that two times net debt to EBITDA in due course.

Thank you that's very clear and also the conversation around the hard discount category and private label has been very hot right now very active. So just also wanted to understand if we could expect your strategy.

Paco Camacho: And how relevant could private label become for your overall strategy and maybe even for ours? So, Hector, just to answer that very quickly and continue with the questions from the rest of the audience. Look, as you know, and as we highlighted in the opening remarks, I mean, clearly, one of the strategies that we are following in proximity, as we have stated before, is multi-format. BADA is an important component of the multi-format vertical. BADA, as we reported, had very strong results in 2023, and our intention is to continue strengthening that business in 2024 and in the years to come.

Two to become more aggressive in the future and how relevant perhaps enable becomes for your overall strategy, maybe even for OXXO.

So.

So just to answer this but just to answer that very quickly and continue with the questions from from from the rest of the attendance.

As you know and as we highlighted in the opening remarks, I mean, clearly one of the strategy that we're following proximity and we have a stated.

Before he's even more performance.

<unk> is an important component of all for the multi form of therapy.

The format vertical, but we report this has caused some very strong results in 2023 and the orientation is to continue.

A strengthening that business in 2024 and the years to come.

Paco Camacho: Private label is a very important part of the equation of that business; it has been performing really well. So, what we are doing and what we have explained we are intending to do in that business have nothing to do with the recent announcements on that part, in that segment of retail, but basically just following the strategy we have highlighted before. And to your point, I mean, clearly, private label is an important component; we are doing very well in that segment of the business in the results we posted, and our intention is to continue doing the same this year. And again, with regard to your specific question, I'll find out. Thank you very much.

Private label is.

It's a very important part of the equation of that business has been performing really well.

So what we are doing.

What we have explained we are intending to win that business.

Nothing to do with the recent announcements on that.

And that segment of the retail, but basically just following to try to get we have highlighted before and to your point I mean, clearly private label is an important component we are doing very well.

In that.

Segment of the business.

We posted.

Pension to continue being the same that used to call.

With regard to your question.

Paco Camacho: Oh, go ahead. No, I was just going to say on Bada that we're happy that the market is recognizing the value in hard discounts. I mean, there's a long, long way in that format ahead.

Oh go ahead.

Now, let's just going to say Bryan we're happy we're happy that the market is recognizing the value in the hard discount I mean, theres, a long long way in that format.

Paco Camacho: And again, we're happy that now the market has another view into how the business is performing and that we'll continue to be friendly competitors in the market. Let me just add, I don't know if you're aware, we hired a new director for that area called Jacobo Caller, who's an expert on this kind of multi-format and hard discount stores. And he has been here for the last three or four months already.

And again, we're happy that that now the market has another view into.

How that business is performing and that will continue to be our friendly competitors, citing the market. Let me just add I don't know if you are aware.

We hired a new.

Director for that area <unk> got kind of a multi format.

Hard discount.

Thor.

And he is he has been here for the last three years four months already on Keith completely off base.

José Antonio Fernández: And he's completely convinced that the potential of our Bada project is now ready to jump and grow fast under him. So we are really looking for ways to develop and grow all over with Bada as we speak. Excellent. Very, very clear. Thank you very much.

The potential of our BARDA.

Yes.

Now.

We're ready to jump on to grow fast.

We are working so we are really looking for how to do that.

<unk>.

Grow all over with.

As we speak.

Hector Maya: Thank you. Thank you. Thank you very much. Our next question is from Alan Alanis with Santander. Please go ahead.

Excellent very very clear. Thank you very much. Thank you.

Thanks Victor.

Okay.

Thank you very much. Our next question is from Alan Alanis with Santander. Please go ahead.

Alan Alanis: Thank you very much for taking my question, Jose Antonio, Paco, Eugenio, Juan, and best of luck to Paco and Eugenio. Let me put some context into the question first. I mean, SEMSA's share price is down 9% this morning in the first hour of trading. That's $4 billion of lost market cap. And I think that the market is reading three negative things into this. First, the uncertainty of the capex, and that will be my question. I'll come back to that in a moment. Second, the unexpected management changes. I mean, I happen to know Martin Arias, and he's super competent, and I'm sure he's going to do a very good job.

So much for taking taking my question wholesome perennial barco hidden requirement Bristol blocks to two popcorn.

Let me put some context to the question first.

So im sure is down 9%. This morning in the first hour of trading.

$4 billion of lost market Cup and I think that the market is reading three negative thinks on this first the uncertainty of the Capex that would be my question I'll come back to that in a moment. The second be unexpected management changes I mean, I happen to know Martina ideas and he is super competent and I'm sure. He is going to go so very good.

José Antonio Fernández: But the market doesn't know him yet, and the results regarding margin contraction and disappointment in sales. I think what would be very useful on this call, Jose Antonio and team, is to elaborate a bit more in terms of how you are going to deploy $14 billion in the next five years, of which you've indicated that 70% of that is going to go to Mexico. That means that, on average, you will be investing $2 billion in Mexico. How are you thinking about that in terms of which businesses, in which sectors, and how much of that money is going to Oxfordspin and the aspirations that you have for Oxfordspin? That would be my question. Thank you so much.

John.

But the market does know Kim jet and the results regarding the margin contraction in the disappointment same store sales.

What would be very useful in this call for joining a team is to elaborate a bit more in terms of how are you going to deploy $40 billion in the next five years, which you indicated that 70% of that he's going to go to Mexico that means but on average you excluding Canadian.

<unk> invested in Mexico.

How much how are you thinking about Bob in terms of in.

Which quickly.

In which sectors and how much of that money is going.

MBS durations, yet you have <unk> that would be my questions. Thank you so much.

Paco Camacho: Yeah. Thank you, Alan, for your question. Look, I think that we need to go back to answer your question and go back to what we announced during FEMSA Forward. Because, strategically speaking, we announced that we are committed to our three core verticals, basically, retail, digital, and Coca-Cola FEMSA. So you should expect that the discipline that we will have in terms of deploying capital is going to be fully aligned to this strategy that we announced. So anything that we do will, first of all, be consistent with that. But second, importantly, we will be extremely disciplined on how we select potential inorganic opportunities moving forward. Yeah, let me add something about capital expenditure. This is Juan.

Yes.

Thank you Alan for your question.

Look I think that we need to go back to I answered. Your question to go back to what we announced during first half forward because it strategically speaking we announced that we are committed to award three core vertical basically retail digital and Coca Cola FEMSA. So you should expect the discipline.

That we will have in terms of deploying capital is going to be fully aligned to the strategy that we announced.

So anything that we do well first of all be consistent with that but importantly, it will be extremely disciplined in how we select potential inorganic opportunities moving forward.

Yes, let me add something on the Capex Alan This is Warren.

Juan: I mean, if you look across formats, a lot of what you see is going to be deployed in organic expansion. What we're seeing, I mean, not only in Mexico, we've talked about the runway, but what we're seeing in multi-format and what we're seeing in other geographies is a very, very compelling opportunity to accelerate the pace of growth. Even today, and we'll detail this over the next months and quarters, but even today, if you look across all retail formats, we are opening in the order of seven units per day. If you think about Opsos here, Opsos South America, drugstores, Opsos Marts, coffee drive-throughs, it's going to ramp up from an already very dynamic place, and that's really a big part of Don't straight line it horizontally, but rather straight line it with a slope, because that's what you're going to see. If you think about Colombia, we're about to accelerate significantly in Colombia. I was in Brazil a couple of weeks ago.

I mean, if you look across formats.

A lot of what you see is going to be deployed inorganic expansion.

What we're seeing I mean, obviously in Mexico, we've talked about the wrong way, but what we're seeing in multi format and what we're seeing in other geographies.

Very very compelling.

To accelerate the pace of growth.

Even today and we will we will detail this over the next months and quarters, but even today. If you look across all retail formats. We are opening in the order of seven units per day right. If you think about OXXO see here also South America Drugstores Ultra smart.

Coffee drive throughs.

No.

It's going to ramp up from an already very dynamic place and that's really a big part of the Capex numbers right I mean don't don't straight line it.

Horizontally, but rather straight lining us up.

With a slope.

Thats, what youre going to see if you think about Colombia, we are about to accelerate significantly in Colombia.

Juan: The opportunity for Grupo North is fantastic. A lot of the CapEx is really going to take the form of stores, and VCs, and distribution assets. We've said in the past, on the M&A front, we're looking for a potential entry model into the U.S. on convenience. Everybody knows that.

In Brazil, a couple of weeks ago, the opportunity for Grupo northeast Fantastic. So a lot of a lot of the Capex is really going to take the form of stores and Dcs of distribution methods. We have said in the past on the M&A front, we're looking for a potential entry model into the U S on convenience.

Juan: We've been looking for drugstores in Mexico, and that's proven a bit more elusive, and that's pretty much it in terms of what we've identified at this point. Do we like our flexibility? Sure. But it's mostly about organic growth, and I've gotten a lot of questions, we've gotten a lot of questions about the bigger CapEx numbers that were communicated last week, so hopefully, this helps understand where that capital is going. Yeah, well, thank you so much for that. And if you can just answer one final question here.

That's.

Everybody knows that.

We've been looking for drop offs in Mexico has proven a bit more elusive.

That's pretty much it.

In terms of what we've identified at this point.

Do we like our flexibility sure.

But it's mostly about organic growth island.

I've got one last question, we've got more questions about the bigger capex numbers that were communicated last week. So hopefully this helps.

Help us understand where that capital is going.

Yes.

Thank you so much for that and if you can just.

Alan Alanis: I mean, what would you what do you think investors are missing with such a an abrupt stock reaction? And how important is that stock price for you for for the controlling group for the management and so forth? What's the market missing? If I maybe I misdiagnosed the reason why the stock is down 9% today, but if any color on that would be clarifying and ensuring your view as management is in the control of shareholders? That'll be open.

Final question I mean, what would you what do you think investors are missing with such an abrupt reaction and how important is that spot price for your for the controlling group.

For management, and so forth, what's the market missing.

Ms <unk> the reason why the stock is down 9%.

Any color on that would be appropriate levels of product buying in <unk> again as management Anthos.

The controlling shareholders that will be helpful. Thanks, So much for taking my question.

José Antonio Fernández: Alan, you know us very well, and you know that we all think long term. And we will continue being very disciplined on our strategy. Pemsa Forward has huge potential. You know, cash is king.

You know very well and you know that the.

We all think long term.

And we will continue being very disciplined on our strategy firm support work has huge potential you know cash is king we always have.

José Antonio Fernández: We always have said that. You remember Don Eugenio saying that. And Don Eugenio also said that opportunity is the queen. And we have to keep both.

I would say that you remember those and you'll see that and you also said the opera.

Opportunities that we and we have to keep both the cash some cash for four new.

José Antonio Fernández: The cash, some cash for doing new projects, Coca-Cola FEMSA hasn't been mentioned, but it's going to invest in the largest capacity in history because of a lack of capacity. We lost volume this year because we didn't have enough capacity in certain places. We have to fix that. So we are going to have a huge investment in capacity for Coca-Cola in various countries. And obviously, we will still go looking for good opportunities in our three versions. That's why we, our intention is there, we go all the way to two times EBITDA and divest as much as possible or repurchase as much as possible in shares, because that, or give back dividends, because we don't like to have idle resources just getting a very low interest rate. I'm Antonio Gonzalez. Thank you very much. Thanks, guys. Thanks a lot.

New projects, the Coca Cola FEMSA Hasnt been mentioned, but it is going to burst.

Has the largest capex in Q3 because of lack of capacity. We lost volume this year, because we didn't have enough capacity in certain places we have to keep that so we are going to have a huge investment in capacity in Coca Cola.

Various countries and obviously, we will still though looking for work opportunities on our three verticals. So that's why we.

Our intention is there.

Go all the way to two times EBITDA.

Divest as much as possible or repurchase or most of it is possible and chairs because of that.

But dividends because we don't like crap idled.

The resources just.

Getting the very low interest rates.

Thiago Bordolucci: Thank you very much. As a reminder, if you'd like to ask a question on today's call, you may press star one on your telephone keypad, and we kindly request you limit yourself to one question. Our next question is from Thiago Bordolucci with Goldman Sachs. Please go ahead.

Yes.

Thanks, guys.

Thanks, a lot.

Thank you very much as a reminder, if you'd like to ask a question on close call. You May Press Star one on your telephone keypad and we've tied to their question limit yourself to one question.

Our next question is from Thiago <unk> with Goldman Sachs. Please go ahead.

Thiago Bordolucci: Yes, good morning, gentlemen. Thanks for taking my question. Let me just catch up on one mention from Juan related to the target leverage of two times committed to that, no deviations, right? I think one of the reasons for the volatility we're seeing is a lack of visibility on how you will get there, right? You're mentioning two times leverage, which might give you $7,8 billion in excess cash. But at the same time, we're mentioning you're committing to give back up to 6% of our market cap, which is 3%, right? How will we get back to two times?

Yes, good morning, gentlemen, thanks for taking my question Landon just catch Mack one.

Some from one related to the target leverage of two times committed to that no deviations right.

One of the reasons for the volatility we are seeing is lack of visibility on how you will get there right.

Turning two times leverage this might give you seven $8 billion in excess cash but at the same time were mentioning you were committing to get back up to 6% of our market cap, which is 3% rate how will we get back to two two times and to where these incremental.

Eugenio Garza: And where might this incremental four, $5 billion might be going? This is the first question. And if I may just take advantage of Jose Antonio being on the call. Jose Antonio, today, you have two interim positions, right? The CEO and the CFO.

<unk> $5 billion might be goal. This is the first question if I may just can vintage.

Jose Antonio being in the call. So as Antonio today, you have to incur any positions right. The CEO and the CFO how is the board thinking about this.

José Antonio Fernández: How is the board thinking about this? And how important might it be to feel strongly about these positions in order to keep the plan moving forward? It was like the question. Thank you very much. I'll start with the first one, and then I'll turn it off to Jose Antonio.

And how important it might be too feel definitely dispositions in order to keep the plan moving forward.

A question I think of our image.

I'll start with the first one and then I'll turn it off to us because I'm talking about.

Eugenio Garza: Yes, my map is a little bit different than yours, but ballpark, it's the same. I think to get to two times, we're talking about a number close to $6, $6.5 billion in that neighborhood, Tiago. And yes, 6% of the market cap as of last week was $3 billion. So there's still some undefined allocation of resources.

Yes, my math is a little bit different than yours, but ballpark. Its the same I think to get to two times, we're talking about a number of close to $665 billion in that neighborhood, yes, well, yes, 6% of the market cap as of last week was $3 billion. So there is still some undefined allocation of resources, having said that we still believe we're going to get to.

Eugenio Garza: Having said that, we still believe we're going to get to two times, and that excess amount, plus the cash that will come in from the operations, will be looked at very closely between organic, inorganic, and additional return to shareholders. So it's going to be a mix of all of that that will get us to two times. I understand the anxiety about not having it all spelled out in stone, about where that additional $3 to $4 billion is going, but the commitment is to get to two times while maximizing shareholder value. So we don't have all the answers yet. What we can tell you is that at least the $3 billion will go to shareholder return at this point, and the rest we will deal with it as an opportunity to write. And let me just comment on that before, because Antonio... Another way of saying what I've only just said is, and this is the question we've been getting. Could there be some upside to the $3 billion? And I think Euphenia just said, in other words, yes.

And that excess amount plus the cash that will come in from the operations will be looked at very closely between organic inorganic and additional return to shareholders. So it is going to be a mix of all of that that will get us to two times I understand the anxiety about not being it all felt at.

Spelled out in stone about where that additional $3 billion to $4 billion are going but the commitment is to get two times, while maximizing shareholder value. So we don't have all the answers yet what we can tell you is that at least in the $3 billion will go to shareholder return at this point and the rest of that we will deal with it as opportunities arise.

Let me just comment on that before because I'm telling you.

<unk>.

Another way of what I heard.

You just said is and this is the question we've been getting could there be some upside to the $3 billion and I think it really just said.

Juan: But, like I said a few minutes ago, we really value our little bit of flexibility. And so those questions will be answered over the next couple of years. And on the second question that you had. We have discussed this at length with the board, and we agreed that on the CEO position, I am willing and open, and I'm very happy to stay for at least 24 months as CEO and chairman at the same time.

In other words, yes.

But like I said, a few minutes ago, we really value our little bit of flexibility.

And so those questions will be answered over over the next couple of years.

And on the second question on that.

You have.

We have discussed this at length with our board and we have agreed.

On the CEO.

Precision Ikea Wyndham.

Winning in open.

I'm very happy to stay up for at least 24 months, our CEO and chairman at the same time I'm, making this effort I am enjoying it and I will stay.

José Antonio Fernández: I'm making this effort. I'm enjoying it, and I will keep doing it. While we are going to start the process of looking for a new CFO, as you can imagine, it will take, hopefully, less than a year, or maybe a year or 18 months at the most, but we will find a new CFO for the company as we speak.

Good.

We are.

Going to start the process of looking for a new CFO as you could imagine.

It is baked <unk>, hopefully less than a year or maybe a year or 18 months at the most what we will find a new CE therefore for the company.

Eugenio Garza: We will start the process of looking for, and just to be more clear about this, and I'm sure Paco will have his own views, but I think my personal decision to leave the company at this point has more to do with a kind of my personal interest. I think the skills that I brought to bear were put in place during the FEMSA Forward Program over the past 18 months, and we and the team had a lot of success doing it. And, at least for me, it's on to the next project. So nothing more than that, and I'll continue to be close to the company as an advisor over the next few years, hopefully. Yeah, I'm taking this opportunity. Also, this is Paco.

We will start with the process of looking for them.

And just just to be.

More clear about that in a short cycle or have his own views, but I think in my personal decision.

To lead the company at this point has more to do with kind of my personal interest I think up the skills that I brought to bear out where we're putting place during the FEMSA forward program.

Over the past 18 months and and we and the team had I.

I mean, a lot of success doing it then and at least for me it's onto the next stop projects. So nothing more than that and I will continue to be close to the company.

And as an advisor over the next few years hopefully.

Yes.

Picking the opportunity also this cycle.

Paco Camacho: Look, I'm extremely proud of what the team has accomplished in SEMSA, developing the long-range plant, and having a clear perspective on what the future looks like. And in reality, my decision is something that didn't come easily, I didn't take that lightly, and it's exclusively related to what I want to do with the next station in my professional career. SEMSA is an incredible company with a bright, long-term perspective that I will certainly miss. I will miss the team, I will miss Jose Antonio, and I will miss everybody here.

Luke.

I am extremely.

<unk>.

I'm extremely proud of what the team has accomplished.

Developing the long range plan, having a clear.

A clear perspective on what the future.

It looks like.

The reality my decision is.

<unk> is something that didn't come I didn't I didn't take that lightly and it's exclusively related to to what I want to do with the Knicks station in my professional career.

Same thing, it's an incredible company with.

Bryce.

A bright long term perspective that I will certainly miss.

I will need the team I will meet with Antonio everybody here.

Paco Camacho: And the prospects of our company, I believe, are brighter than ever. So that made the decision even more difficult. But again, it's exclusively personal, and FEMSA will always be a highlight in my over 35-year career at many big companies. And FEMSA clearly stays at the top of my list. Thank you, and we also miss the opportunity to work with you. Thank you very much, Pato Coelho, brigaddo. Thank you very much. Our next question is from Luis Willard with GBM. Please go ahead. Mr. Wheeler, your line is open.

And the prospects of our company I believe are brighter than ever.

So that made the decision even more difficult.

But again, it's exclusively personnel and change that will always be.

A highlight in my over 35 year career.

Many big companies and severely.

It takes at the top of that.

Thank you and also Mr booked choices for you. Thank you very much part of the quarter was anything from it.

But then I look at it.

Thank you very much. Our next question is from Luis Willard with UBS. Please go ahead.

Jim.

Yeah.

Luis Miranda: Please go ahead. Hi. Hi, guys. Can you hear me?

Yeah.

Okay.

Luis Miranda: Yes, we can, Lucia. Thank you. Perfect. So my question is quite mundane, and perhaps I'm reading this all wrong, but I just wanted to ask you if you could, you know, go over a bit on the changes that you mentioned in your remarks. And Eugenio, I think it was you, about the disconsolidation of operations, because, I mean, you're reporting on a consolidated basis of 4.6% growth in sales. But if you look at each of the subsidiaries... uh... that you break down, all of them in pesos grow, except for health, all of them grow above that average. So I just wanted to make sure that I'm reading this correctly throughout the year. But perhaps there's some deconsolidation that's not registered in the base, but it is, in the 4Q23 numbers. Is that correct or not?

Please go ahead.

Hi, guys.

Can you hear me.

Yes exactly.

Thank you perfect.

So my question is pregnant lane, and perhaps I'm reading this all wrong, but.

I just wanted to ask you.

If you could.

Go over a bit on the changes that you mentioned.

In your remarks.

Okay and you think it was it was.

About the this consolidation of operations because youre reporting.

Putting on a consolidated basis, four 6% growth in sales but.

But if you look at the each of the subsidiaries.

That you break down all of them in vessels grow except for health all of them grow about above that average so that's one.

Wanted to make sure that I'm reading this correctly in Europe.

But perhaps.

There is some consolidation that's not registered in the base, but it is.

In the fourth.

Eugenio Garza: What am I missing on the, let's say, closed breakdown of that? Thank you. Yeah, Luis, we can touch base offline if you want and walk you through the exact numbers. But there were, as you know, because of the peso, some currency mismatches. So depending on whether you're looking at it on a currency-neutral basis or on a peso basis, some numbers are weird, especially this quarter on a lot of the lines, including the non-cash items and the taxes. And then there's also the deconsolidation, as you well said.

<unk> 33 numbers is that correct or.

Or what what am I missing on the <unk>.

Let's say your undisclosed breakdown of off of.

Thank you.

Yes, so as we can we can touch base offline. If you want to walk you through the exact numbers, but they were as you know because of the peso some currency mismatches of depending on whether you're looking at it on a currency neutral basis or on a personal basis.

Some numbers are we're especially this quarter in a lot of alliance, including the noncash items and the taxes.

Eugenio Garza: It doesn't move the needle that much, but at the margin, it does. We deconsolidated both the Alpunto business as well as the part of the Solistica business that is in the process of being divested right now. But yeah, those averages do work out, and the 4% number after all these adjustments is correct, despite the fact that retail businesses and most of the other businesses are growing faster than that average. All right, well, that was it.

And then there is also the deconsolidation that's as you well said it doesn't move the needle that much but it but at the margin. It does we de consolidated both the LP.

<unk> business as well as the.

Part of the <unk> business that that has been in the part of the App in the process of being divested right now.

But yes, those averages to work out in the numbers the 4% number after all these adjustments is that correct.

Despite the fact that the retail businesses and most of the other businesses are growing.

Higher than that average.

Luis Miranda: Thank you. Thank you. Our next question is from Luis Yance of Santander. Please go ahead.

Alright, well thank you.

Thank you Lee thinkers.

Thank you. Our next question is from Luis Yes, with Santander. Please go ahead.

Luis Miranda: Hi, guys. Thanks for taking my questions. And good luck, Paco and Eugenio, on the next projects. My question is a follow-up to what Alvaro asked about the margin pressure, and I guess particularly driven by the pressure on labor. I mean, could you talk a little bit about where exactly that pressure came from in the fourth quarter?

Hi, guys. Thanks for taking my questions and good luck Beichuan ohanian on the next projects.

My question is a follow up on what Alberto I'll ask about the margin pressure and they got to.

Clearly you know driven by by the pressure on labor.

I mean could you could you talk a little bit about you know where exactly is that did that pressure come in the fourth quarter was it perhaps preparing for the minimum wage increases as it related to I guess, the vacations or or the pension reform you know that has an impact there.

Eugenio Garza: Was it perhaps preparing for the minimum wage increases? Is it related to, I guess, the vacations or the pension reform that has an impact there? And you did mention that also part of it has to do with adjustments ahead of expected regulatory changes. I guess you meant, perhaps, the potential change in working hours. So just trying to understand a little bit what drove the additional pressure in the fourth quarter.

And you did mention that also part of it it has to do with adjustments ahead of expect the regulatory changes I guess you meant perhaps you know the the potential change in working hours. So just trying to understand a little bit you know.

Eugenio Garza: And I guess a related question to that is Juan mentioned that, and I appreciate the color on the margins being kind of maybe flat for this year, but maybe start soft and get better. Just trying to understand what would be the driver of the improvements in margin as we move towards the second half of the year. And I guess related to that, but also in proximity, I mean, very strong margins on the European side of the equation. Just wondering if what we saw there is kind of like a sustainable level that we should think about going forward. Thank you. Let me start, if you want, Luis, on the margin pressure in Proximity Americas. On a like-for-like basis, what you said is correct. I mean, we are contemplating.

What drove.

The additional pressure in the fourth quarter and I guess a related question to that is you know one mentioned that and then.

Appreciate the color on the margins being you know kind of maybe flat for for this year, but maybe star solved and get better just trying to understand.

What would be the driver of the improvement in margin as we move towards the second half the second half of the year and I guess related to that but also on proximity I mean very strong margins on.

On the European side of the equation just wondering if what we saw there is kind of like a sustainable level that we should think going forward. Thanks.

Let me start if you want to lease on on the margin pressure in proximity Americas on a like for like basis. What you said is correct. I mean, we are contemplating we already obviously implemented all the changes related to labor reform, including vacations and whatnot keeping up.

Eugenio Garza: We have already obviously implemented all the changes related to labor reform, including vacations and whatnot, keeping up in place with just minimum wage increases and others. So that is, I think, the driver of the like-for-like comparison. But you have to remember that on top of that, we are starting a multi-format business that is quite ambitious as well. So there are a lot of, I mean, staffing needs, new facilities that we're staffing up, et cetera, that are coming up, as well as all the other costs, which, as you know, we don't capitalize on the balance sheet. So it's a little bit of a mixed bag on a like-for-like basis.

With that I would just minimum wage increases and others.

That is I think the driver of our like for like comparison, but you have to remember that on top of that we are starting a multi format business that is a quite ambitious as well. So there are a lot of staffing needs.

These facilities that we're staffing up et cetera that are coming up as well as all the other costs, which as you know we don't capitalize on the balance sheet. So it's it's a little bit of a mixed bag on a like for like basis explains I would say maybe half of the effects of the other.

Eugenio Garza: It explains, I would say, maybe half of the effect, but the other half has to do more with how we're ramping up for that. Yeah, and I think the word you mentioned, Luis, preparing for, obviously, there are still some uncertainties in terms of the legislative process and some potential changes to the labor law that we are obviously all monitoring closely, but there's a lot of getting ready for 24 that took place in 23. And in the case of Europe, I mean, I think this was a very good quarter. I wouldn't necessarily expect all quarters to be that strong.

Has to do more with how we're ramping up for that.

Yes.

I think the word you mentioned Luis preparing for obviously there are still some uncertainties in terms of the lawmaking and some potential changes to the labor law.

We are over the old monitoring closely but there is a lot of getting ready for 24 that took place in 'twenty three.

In the case of Europe, I mean I think.

This was.

Obviously, a very good quarter.

I wouldn't.

Eugenio Garza: There are some currency issues at work, too. For example, if you look at the numbers in local currency, it's a high single-digit as opposed to double-digit top-line growth. But having said all that, there's no question that the team in Valora is executing very well in the midst of a challenging environment. It's very encouraging. But again, and this is part, Luis, I guess that the overarching element of all this is that, structurally, the team has done a terrific job both on this side in America but also in Europe in terms of strengthening the operation itself to make it more efficient. And that, as you know, those are things that will stay and that you need to keep in mind.

This is Charlie <unk> expect all quarters to be that strong.

There are some currency.

Issues at work too I mean, if you look at the numbers in local currency. It is a high single digit as opposed to a double digit.

Topline growth.

But having said all that there's no question that the team in the Lora is executing very well in the midst of a challenging environment. So very encouraging but again. This is part of the lease I guess that the.

The overarching.

Element of <unk> is that a structural need the teams have done a terrific job both on these undecided Americans at.

Also in Europe in terms of strengthening.

The operation itself to make it more efficient.

And that's as you know those are things that stay on.

Luis Miranda: Great, thanks a lot, guys. And maybe as a follow-up, I know you've done most of the divestitures, at least the big ones. I mean, but there's still a few, you know, non-core assets that you've mentioned in the past that you're willing to sell. Any updates on that? And can we expect that to perhaps be achieved this year as well?

Uh huh.

We need to keep in mind.

Great. Thanks, a lot guys and maybe as a follow up I know you've done most of the divestitures I'd leave the big ones I mean, but theres still a few non core assets that you've mentioned in the past that you're willing to sell at any updates on that and can we expect that to perhaps being achieved this year as well.

Eugenio Garza: Yeah, we're cautiously optimistic that they will get done much earlier than we expected and probably faster than most people think. So we're making good progress on that. Great.

Yes.

Cautiously optimistic that they will get done I mean, much earlier than what we expected and.

Luis Miranda: Thanks a lot, guys. Thank you, Luis. Thank you very much.

And probably faster than that than most people think so while we're making good progress on that.

Great. Thanks, Hello, guys.

Melissa: As a final reminder, if you'd like to ask a question on today's call, please press star 1 on your telephone keypad, and we do ask that you limit yourself to one question. And our next question is from Federico Galassi with TRG. Please go ahead.

Thank you Luis.

Thank you very much as a final reminder, if you'd like to ask a question on todays call. Please press star one on your telephone keypad and we do ask that you limit.

Yourself to one question.

And our next question is from Federico Gallazzi with Archie. Please go ahead.

Federico Galassi: Thank you, guys, for taking my question. One question related to Mexico, and you can talk about this part of the answer if you want, but the question is related to Mexico and think of sales in the different formats that you have. You're talking about Oaks, et cetera, but do you believe that this is more related to any format in particular, or do you see some deceleration in the consumer in Mexico? Maybe if you could explain, that would be better, what are you seeing in the health care business when you have two quarters of, again, in Mexico, two quarters of negative centers? That's the question. Did you say in health, Federico? That was the second question. Second question?

Thank you guys for taking my question one question I'm going to.

Did that get co produce.

The onslaught, if you want.

But the question is related to Mexico, I think those credits in the different formats that you've got you're talking now about folks have picked it up but do you believe that.

This is more related with any format in particular.

Or do you see some deceleration in the consumer in Mexico, maybe the if you've gotten explained that we'd be better is what you're seeing in the different business. When do you have to quote their soft again in Mexico to cut it off and they like the Central States Duck that question. Thank you.

Eugenio Garza: I'm referring to... Yeah, sorry. Sure, I mean, the first part of the question, just with regard to Mexico, the consumer continues to be strong. I mean, you're seeing it again, on a lapping basis, maybe the traffic is not as strong, but on an absolute basis, and compared to what we saw, I mean, for a long time, the consumer continues to have cash available, and at least with the everyday items that we sell a lot, so we continue to see, I mean, strength there. And the margin pressure, again, has to do more with what we just discussed about labor I wouldn't say it's specific to either hard discount or proximity.

Did you obtain a healthcare vertical that was the second question second question.

I'm going to fit into two yes.

Yes, sorry.

Sure I mean, the first part of the question just with regards to Mexico I mean, the consumer continues to be strong I mean, youre seeing it again on a lapping basis, maybe it's that the traffic is not as strong but on an absolute basis and compared to what we saw in <unk>.

For for a long time that the consumer continues to have cash available and at least with the with the.

Everyday items that we sell it off so we continue to see.

<unk> strength, there and the margin pressure again has to do more with up.

With what we just discussed on labor and.

It's consistent throughout all formats, I Wouldnt say its specific to either a hard discount our proximity.

Eugenio Garza: And then, with regard to your second question on health, we are seeing a more aggressive competitive environment, generally speaking, in Mexico. Expansion of stores of our competition continues to be at a very healthy pace. We're keeping up, but you're seeing a much healthier competitive environment and different value propositions emerging that are making the operating environment a little bit more challenging from a gross margin perspective. Yeah, Federico, just to add a couple of additional points, this is Paco.

And then with regards to your second question on Health, we are seeing a more aggressive competitive environment generally speaking in Mexico.

Expansion of source of our competition continues to be at a very healthy pace.

We're keeping up but yields you are seeing a much healthier competitive environment and different value propositions propping up that are making the operating environment, a little bit more challenging from a gross margin perspective, yes.

Paco Camacho: Look, I mean, when you look at the results, Mexico posted very strong results. And when you look at Toxo, when you look at Coca-Cola FEMSA, we didn't talk a lot about digital, but we had very good results. So, in general, businesses are doing really well. The situation with health is punctual, and it happens every now and then you have a competitive situation, or you have a specific plan that didn't go as you were thinking.

So just just to add a couple of additional points. This is Michael.

Look I mean, when you look at the result, Mexico posted very strong results.

And.

When you look at folks that when we look at Coca Cola FEMSA, we didn't talk a lot about digital but we have a very good result.

So in general the.

The businesses are doing really well.

The situation withheld dysfunctional and it happens every now and then you have a.

A competitive situation or you have a specific plan that you can go out to you as you were thinking in this case I mean really appropriate said he is.

Paco Camacho: In this case, I mean, really, as Eugenio said, it's something related to how active competition has been. Honestly, it's good news because that means that the market is healthy and that we are in an interesting segment of the market. And the teams are working on adjusting our strategies to face that. Honestly, we are confident that the situation will get better. But again, we are not concerned with how the business has performed in Mexico.

Is it something related to how active competition.

Being honestly is good news because that means that that the market is healthy that we are in a in an interesting segment of the market.

And the teams are working.

On adjusting our strategies to.

Two phase that honestly, we are confident that the situation will will get better.

But again.

We are not concerned.

On how the business is outperforming in Mexico in the country and we remain confident that 2024, even though we have some headwinds.

Paco Camacho: On the contrary, we remain confident that 2024, even though we have some headwinds as usual, but we'll deploy our LRP, will deploy the plant, and we should expect good results. Yeah, and I would add, I mean, we mentioned it in the remarks, but Mexico and Colombia on the health side, yes, there have been some issues in terms of the competitive landscape and the shift from institutional to retail in the case of Colombia.

Headwinds as usual, but.

We'll deploy where aarp's will deploy the plan and.

You should expect with yourself, yeah and.

And then we would have.

I mean, we mentioned it in the remarks, but.

Mexico, and Colombia on the shale side, yes, there have been some issues in terms of competitive.

Landscape and the shift from institutional to retail in the case of Colombia, but in both cases the strategies are.

<unk> defined and.

We're starting to address that very very diligently so.

Hopefully in the not too distant future we will.

Different things to report on those fronts.

Eugenio Garza: But in both cases, the strategies are defined, and, you know, we're starting to address that very, very diligently. So, hopefully, in the not too distant future, we'll have different things to report on. Okay guys, thank you so much. Thank you. Thanks, everyone, for attending today and for your permanent interest in our company. Obviously, the team and I are always available for follow-ups, and we'll be in touch. Thank you. Thank you very much. That concludes today's conference. You may now disconnect. I hope you may stay on the folder. Yeah, yeah, I'm, ok, ok, ok.

Okay guys. Thank you so much.

Thank you thanks to everyone for attending today.

Sure.

Permanent interest in our company obviously.

Jim and I are always available for follow ups.

We'll be in touch thank you.

Yeah.

Thank you very much that concludes today's conference you may now disconnect.

He may stay on the line.

Okay.

Hum.

Okay.

Okay.

<unk>.

Okay.

Thank you.

Sure.

[music].

Yes.

[music].

Okay.

Yes.

Yeah.

[music].

Okay.

Okay.

Okay.

Yes.

Yes.

Okay.

Okay.

<unk>.

Okay.

Okay.

Yes.