Q2 2025 Fomento Económico Mexicano S.A.B. de C.V. Earnings Call

Thank you.

Operator: Good day, ladies and gentlemen, and welcome to FEMSA's second quarter 2025 results conference call. Please note that this event is being recorded. At this time, all participants are in listen-only mode.

Operator: We will be facilitating a question and answer session towards the end of today's prepared remarks. If you would like to ask a question, you might do so by pressing star 1 on your telephone keypad at any time.

Good day, ladies and gentlemen, and welcome to Faz's second quarter 2025 results conference call. Please note that this event is being recorded at this time. All participants are in listen-only mode.

Operator: I will now turn the call over to your host for today.

We will be facilitating a question-and-answer session towards the end of today's prepared remarks. If you would like to ask a question, you may do so by pressing star 1 on your telephone keypad at any time.

Juan Fonseca: Juan Fonseca, Fonseca, investor relation, you might begin. Thank you.

I will now turn the call over to your host for today.

1. Investor relations. You may begin, sir.

Juan Fonseca: Thank Good morning, everyone.

Juan Fonseca: Welcome to Census second quarter 2025 results conference.

Good morning, everyone. Welcome to the Fantasy second quarter 2025 results conference call.

Juan Fonseca: Today we are joined by Juan Carlos Guillermetti, CEO of SPIN, formerly Digital Affairs of SAMHSA, Martin Arias, our CFO, and Jorge Collazo, who heads Coca-Cola FEMSA's investor relations. This is the first time Juan Carlos joins us for a quarterly conference call as part of our ongoing efforts to provide more market access to our leadership. The plan for today is for Juan Carlos to open the conversation with some background on SPIN followed by a strategic discussion on where we are today in our digital endeavor, and just as importantly, where he sees SPIN going in the future.

Today, we are joined by Franco GTI CEO, Spin Formerly, Digital Off, and Samsung Martinez, our CFO, who heads Coca-Cola's investor relations team.

This is the first time Carlos joins us for a quarterly conference call as part of our ongoing efforts to provide more market access to our leadership team.

Juan Fonseca: After his remarks, Martin will provide some detail on census quarterly results.

The plan for today is for Pan, Carlos, to open the conversation with some background on spin, followed by a strategic discussion on where we are today in our digital endeavor. Just as importantly, he will address where he sees us going in the future.

Juan Carlos Guillermetti: Finally, we will open the call for Carlos please go ahead. Thank you Juan. Good morning everyone. It's a pleasure to be here today discussing and sharing with you some of the exciting progress that SPIN has been making and what we're trying to build. Thank you for your interest and for joining us this morning.

After his remarks, Martin will provide some detail on Fomento Económico Mexicano S.A.B. de C.V.'s quarterly results. Finally, we will open the call for questions.

On Carlos, please go ahead.

Thank you, 1.

Good morning, everyone.

Juan Carlos Guillermetti: Let me begin by providing some brief context into why and how SPIN came to be, not to make a trip down memory lane, but because so much of what SPIN does today, and will do in the future, leverages and enables OXO and FEMSA's digital physical assets more broadly. As most of you know, OXXO began developing a platform for basic cash payments and services many years ago, selling prepaid long-distance telephone cards and evolving over time by enabling its customers to solve an ever-growing number of needs, from utility bill payments to correspondent banking to e-commerce payment functionality, broadening the scope of its service offering along with the needs of its customers.

It's a pleasure to be here today discussing and sharing with you some of the exciting progress that has been made and what we're trying to build. Thank you for your interest and for joining us this morning.

Let me begin by providing some brief context into why and how Spin came to be—not to make it straight down memory lane, but because so much of what Spin does today and will do in the future leverages and enables also and fences digital physical assets more broadly.

As most of you know, Oxford began developing a platform for basic cash payments and services many years ago, initially selling prepaid long-distance telephone cards and evolving over time. By enabling its customers to solve an ever-growing number of needs, from utility bill payments to correspondent banking and e-commerce payment functionality, Oxford has broadened the scope of its service offerings along with the needs of its customers.

Juan Carlos Guillermetti: More recently, as digital platforms in the market launched and evolved, it became increasingly clear that FEMSA had an opportunity, as well as a strategic need, to develop its own digital platform, not only to complement its physical cash-based functionalities, but to evolve Oxford's broader value proposition and strengthen its role as the most convenient way to meet everyday needs. Looking into the future, convenience retail cannot be imagined without a seamless integrated digital Spin is one of the most important aspects of how we ensure that OXO continues to deliver convenience across both physical and digital ecosystems while accessing new products.

More recently, as digital platforms in the market launched and evolved, it became increasingly clear that Fomento Económico Mexicano, S.A.B. de C.V. had an opportunity, as well as a strategic need, to develop its own digital platform. Not only to complement its physical cash-based functionalities, but to evolve Oxford's broader value proposition and strengthen its role as the most convenient way to meet everyday needs, looking into the future of convenience. Retail cannot be imagined without a seamless, integrated digital experience.

Juan Carlos Guillermetti: Since our foundation in 2021, we have envisioned an omni-channel ecosystem centered on payments and rewards. While we always saw it as an integrated experience, we launched SpinBioxel, our digital wallet, and SpinPremia, our rewards program, as independent, fast-to-market products focused on gaining early traction.

Spin is one of the most important aspects of how we ensure that Oxo continues to deliver convenience across both the physical and digital ecosystems, as well as accessing new profit pools.

Juan Carlos Guillermetti: We then saw the need to complement these assets with a B2B platform to expand our reach beyond OXO, which led to the acquisition of Netflix. We also acquired a minority equity stake and eventually the assets of Conecta, which has served as the enabler for Oxofay, the e-commerce payment platform where consumers can pay for their e-commerce in cash or other means within the safety of the store. Leveraging OXO's capillarity and reputation as a reliable and trusted service provider, and the commitment of our growing team of spinners, we have been able to consolidate a meaningful position in the market.

Since our foundation in 2021, we have envisioned an omni Channel, ecosystem centered on payments and rewards. While we always saw it as an integrated experience, we launched spin by oxal our digital wallet, and it's been Premia our Rewards program as independent fast to market products focused on gaining early traction. We then

I saw the need to complement these assets with a B2B platform to expand our reach beyond Doxil, which led to the acquisition of Net Pay.

We also acquired a minority equity stake and eventually the assets of Kona, which has served as the enabler for Oxo Pay, the e-commerce payment platform where consumers can pay for their e-commerce in cash.

or other means within the safety of the store.

Juan Carlos Guillermetti: Since inception, we have achieved the following major models. SpinBioxo has created more than 14.5 million SpinBioxo accounts of which more than 9.4 million have been active in the last 56 days. We operate across the MEC territory with strong penetration in nearly all municipalities. Our customer base is young and dynamic, with two-thirds under the age of 45, and more than 50% of our users are women. This is specifically relevant as women have historically been underserved by financial We continue to see strong adoption, repeat usage, and most importantly, growing trust from our customers. Every month, 3.5 million users trust us to move their money through SPIN by OXXO, averaging more than 21 monthly transactions per monthly user, out of which 20 percent are related to OXXO, either cash in, cash out, or card purchases, showing it is a very useful In SPIN PREMIA, we have over 58 million SPINIA accounts, of which 26.6 million have had transaction activity in the last nine years.

Leveraging our office, capillarity, and reputation as a reliable and trusted service provider, along with the commitment of our growing team of spinners, we have been able to consolidate a meaningful position in the market.

Since inception, we have achieved the following major milestones.

Spin by also has created more than 14.5 million Spin by also accounts, of which more than 9.4 million have been active in the last 56 days. We operate across the territory, with strong penetration in nearly all municipalities.

Our customer base is young and dynamic, with two-thirds under the age of 45, and more than 50% of our users are women. This is particularly relevant, as women have historically been underserved by financial institutions.

We continue to see strong adoption, repeat usage. And most importantly growing trust from our customers every month, 3.5 million users, trust us to move their money through spin biopsy, averaging more than 21 monthly transactions, per monthly user out, of which 20% are related to Oxford either cash in cash out, or card purchases showing, it is a very useful payment method.

Juan Carlos Guillermetti: Currently, more than 20 million OXO customers benefit from the FinPremier Rewards program each month, with an average of more than 7 monthly accumulation and redemption transactions per active user. Half of the second quarter, almost 46% of OXO sales were already identified through our Loyalty and Rewards Program. Our ecosystem is complemented by our B2B initiative, which includes NetPay and OxoPay, in which we refer to as SpinMail. It extends our platform beyond local stores by offering electronic payment solutions and services to micro, small, and medium-sized merchants, both in their physical establishments and in For more information visit www.FEMA.gov Today, with Spin Negocios, we reach almost 20,000 merchants and process almost 12 billion pesos on a monthly basis.

Accumulation and redemption transactions for active users.

As of the second quarter, nearly 46%.

Of Oxo sales were already identified through our loyalty and rewards program.

Our ecosystem is complemented by our B2B initiative, which includes Net, Pay, and Oxipay, which we refer to as Spin.

It extends our platform beyond October stores by offering electronic payment solutions and services to grow small and medium-sized merchants, both in their physical establishments and in any farms.

Today, within their reach, there are almost 20,000 merchants, processing almost 12 billion pesos on a monthly basis.

Juan Carlos Guillermetti: SIN is defining how consumers and businesses connect by creating faster, simpler, and more convenient ways to meet everyday needs. This gives us a meaningful opportunity to reach the 6 out of 10 Mexicans who remain underserved by traditional financial institutions. We aim to do so not only by expanding access, but by reimagining convenience through a digital lens. Our team is excited and committed to simplify life by removing barriers and creating opportunities for all.

Spin is defining how consumers and businesses connect by creating faster, simpler, and more convenient ways to meet everyday needs. This gives us a meaningful opportunity to reach the 6 out of 10 Mexicans who remain underserved by traditional financial institutions. We aim to do so not only by expanding access but by reimagining convenience through a digital lens. Our team is excited and committed to simplifying life by removing barriers and creating opportunities for all.

Juan Carlos Guillermetti: As we look ahead, SPIN is here to bring EMSA's physical relevance into the digital space, and we're excited by the opportunity to leverage and enhance OCSO's unique value proposition to an increasingly digitized customer base. What differentiates SPIN is our unique ability to view where people truly Physically and digitally by combining accessible technology with trusted everyday touch points like We have learned that our customers are looking for solutions that are neither purely digital nor purely in-store. By offering digital solutions or in-store digitally enabled solutions, we can maximize the value proposition delivered to our users. Cell phone pop-ups are a great example.

As we look ahead, spend it here to bring fences physical, relevance into the digital space, and we're excited by the opportunity to leverage and enhance obstacles. Unique value proposition to an increasingly digitized customer base.

With differentiated spin, our unique ability is to be where people truly are.

Physically and digitally, we are combining accessible technology with trusted everyday touch points like OXXO.

We have learned that our customers are looking for solutions that are neither purely digital nor purely in-store. By offering digital solutions or in-store, digitally enabled solutions, we can maximize the value proposition delivered to our users.

Juan Carlos Guillermetti: The user journey can be digital only, but sometimes when customers run out of data and can no longer perform the pop-up transaction from their phone, making an in-store cash pop-up can perfectly fit into the ecosystem proposal. Similarly, digitalized customers can transfer money to recipients who only accept These interactions allow someone to make a peer-to-peer payment to a service provider via QR code, which can then be cashed out in the store. Likewise, customers can pay for their online purchases through AuxoPay and complete the physical payment again in the store. The data generated through the ecosystem will allow us to better understand each customer's Deliver more personalized services and products and unlock two major opportunities for First, devolve convenience by enhancing OCSIS value proposition through data and personalization, making everyday interactions more relevant and seamless.

Cell phone pop-ups are a great example. The use of Journey can be digital only, but sometimes when customers run out of data and can no longer perform the pop-up transaction from their phone, making an in-store cash pop-up can perfectly fit into the ecosystem for clothing solutions. Similarly,

Digitalize customers can transfer money to recipients, who only accept cash these interactions. Allow someone to make a peer-to-peer payment to a service provider via QR code, which can then be cashed out in the store, likewise customers can pay for their online purchases through oxipay and complete. The physical payment again in the store,

The data generated through the ecosystem will allow us to better understand each customer's context, deliver more personalized services and products and unlock 2 major opportunities for enso.

Juan Carlos Guillermetti: In the long term, this foundation will enable additional use cases such as retail media, an expanded catalog, last mile delivery, and other ecommerce features like click and Second, the opportunity to build financial services on top of payments and rewards, offering both savings and credit products tailored to our target. Related to this topic, we remain active towards upgrading our license and establishing a partnership to significantly improve our risk-reward program. We can assure you that we will be cautious in testing and potentially rolling out these financial services and we'll keep you updated as developments unfold. We promise no surprises.

First evolved convenience by enhancing access, value proposition through data and personalization making everyday interactions more relevant and seamless.

In the long term, this foundation will enable additional use cases such as retail media and expanded catalog. Last mile delivery and other e-commerce features like click and collect.

And second the opportunity to build Financial Services on top of payments and rewards offering both savings and Credit products tailored to our Target segments related to this topic. We remain active towards upgrading our license and establishing a partnership to significantly improve our risk reward profile.

We can assure you that we will be cautious in testing and potentially rolling out these financial services and we'll keep you updated as developments unfold. We promise no surprises.

Juan Carlos Guillermetti: Touching briefly on the current economics of the business. Since cash burn has been gradually improving as we continue to gain scale and cement best-in-class customer acquisition costs and cost to serve. From approximately 4 billion pesos a couple years ago to a range today that is closer to 3 billion pesos per year for the core spending. As an example of what we have done to reduce cash burn, we have implemented several initiatives such as renegotiating commercial terms with dealers and connecting directly to SPAE, which together have allowed us to reduce our cost of service by 48% compared to last year.

Touching briefly on the current economics of the business.

Spent cash burn, has been gradually improving, as we continue to gain, scale and cement best-in-class, customer acquisition costs and cost to serve.

From approximately 4 billion pesos a couple years ago to arrange today that is closer to 3 billion pesos per year for the core spin businesses.

Juan Carlos Guillermetti: These actions are part of our broader effort to strengthen SPIN's financial sustainability. Additionally, it's important to note that we follow a conservative approach for cash learning. Clear example or premier related While these costs are primarily reflected in SPIN's P&L, the vast majority of its current benefits of increased sales are captured at the Oxford Similarly, a significant portion of the benefits that SPIN by AUXA generates to FEMSA are not fully reflected in the SPIN cash burn. For example, SPIN by AUXA is the second largest driver of AUXA's cash inactivity with more than 25% of total.

As an example of what we have done to reduce cash burn, we have implemented several initiatives such as renegotiating commercial terms with dealers and connecting directly to space which together have allowed us to reduce our cost to serve by 48% compared to last year. These actions are part of our broader effort to strengthen spin's Financial sustainability.

Additionally, it's important to note that we follow a conservative approach for cash burn accounting. A clear, example, our Premier related expenses, while these costs are primarily reflected in spin's. Pnl, the basket majority of its current benefits of increased sales are captured at the Oxo business.

Fully reflected in the spin cache. Burn for example spin biopsy is the second largest driver of oxus cache and activity with more than 25% of total transactions.

Juan Carlos Guillermetti: Wrapping up, we would like to leave you with the message that we're uniquely positioned to help Mexico evolve towards financial inclusion. We want SPIN to earn the same level of relevance, trust, and customer love in the digital world that Auxo has earned in the physical one with the intention not of replacing but complementing the store to create a nominee channel digital approach. And beyond offering a trusted platform for day to day needs, we're committed to driving financial inclusion. It means opening new opportunities and supporting our customers through financial We have been focused on bringing world-class capabilities and talent to SPIN and our leadership and way of work has evolved to one of the consumer tech organizations facing fast-paced change and challenge.

Wrapping up we would like to leave you with the message that we're uniquely positioned to help Mexico evolve towards Financial inclusion. We want spin to earn the same level of relevance trust and customer love in the digital world that also has earned in the physical 1 with the intention, not of replacing. But complementing the store to create an omni Channel, digital approach and Beyond offering a trusted platform for day-to-day needs. We're committed to driving Financial inclusion and means opening new opportunities and supporting our customers through financial education.

We have been focused on bringing world-class capabilities and talent to spin and our leadership and way of work has evolved to 1 of the consumer Tech organization facing fast-paced change and challenges.

Juan Carlos Guillermetti: We're building something ambitious, something that matters, not only for us, but for the next 100 years of PEMSA.

Juan Carlos Guillermetti: And we believe we have everything it takes to get it And with that, let me turn it over to Martin to discuss FEMSA's second quarter results.

We're building something ambitious. Something that matters not only for us but for the next hundred years of them and we believe we have everything, it takes to get it done.

Martin Yaniz: Martin, please go ahead. Thank you, Juan Carlos.

And with that let me turn it over to my team to discuss them. Says second quarter results Martine. Please go ahead.

Martin Yaniz: Good morning, everyone. Let me begin by discussing our consolidated results for the second quarter of 2025. During the quarter, we delivered total revenue growth of 6.3% despite a challenging environment in Mexico, impacting both proximity and correctal offenses. Offset by Solid Top-Line Trends Outside Mexico, Currency Tailwinds, and the Consolidation of the Offshore USA Operation. Operating income increased by only 0.2% year over year as the more challenging consumer environment in Mexico did not allow us to absorb the inflationary effects on our costs and expenses as effectively. In addition, our operations were geared to a stronger consumer environment than the one that materialized.

Thank you.

Good morning everyone. Let me Begin by discussing our Consolidated results for the second quarter of 2025.

during the quarter, we delivered total revenue growth of 6.3%, despite a challenging environment in Mexico, impacting both proximity and Coca-Cola fenca

Which was offset by solid. Topline trends of outside Mexico, currency, tailwind, and the consolidation of the Oxo USA operation.

Operating income increased by only 0.2% year-over-year as the more challenging consumer environment. In Mexico, did not allow us to absorb the inclusionary effects on our costs and expenses as effectively.

In addition.

Martin Yaniz: Plus our cost and expenses ran a bit ahead of actual volume and traffic. While this impacted profitability, we remain confident in our ability to navigate short-term headwinds by maintaining strong operational discipline and leveraging the solid fundamentals of our business.

Our operations were geared to a stronger consumer environment than the 1 that materialized.

Plus our cost and expenses, ran a bit ahead of actual volume and traffic.

While this impacted profitability, we remain confident in our ability to navigate short-term headwinds by maintaining strong, operational discipline, and leveraging, the solid fundamentals of our business.

Martin Yaniz: Net consolidated income decreased by 64.3% to 5.6 billion pesos, driven mainly by, one, a non-cash foreign exchange loss of 4.1 billion pesos compared to a gain of 6.1 billion pesos last year, a swing of more than 10 billion pesos related to FEMSA's U.S. dollar denominated cash position, which was negatively impacted by the sequential appreciation of the Mexican peso in the period. And number two, lower interest income of 2.1 billion pesos compared to 4.1 billion pesos the previous year, reflecting lower.

Net Consolidated income decreased by 64.3% to 5.6 billion pesos driven, mainly by 1 a non-cash, foreign exchange Los a 4.1 billion pesos compared to a gain of 6.1 billion pesos last year. A swing of more than 10 billion pesos related to fences US dollar denominated cash position which was negatively impacted by the sequential appreciation of the Mexican peso in the period.

And number 2, lower interest income of 2.1 billion pesos compared to 4.1 billion pesos the previous year, reflecting lower interest rates.

Martin Yaniz: Turning to our operating results and beginning with the Proximity Americas Division. Overall, the division delivered mixed results this quarter, improving sequentially at the top-line level, but still reflecting a challenging consumer environment in Mexico that was partially mitigated by a robust performance in our other markets in La Pana. Bank store sales declined modestly by 0.4%, once again reflecting a combination of a solid average ticket growing 6.6% offset by looper traffic, which contracted 6.6% as well. It is worth noting that while same-store sales remain lackluster in Mexico. They grew nicely in Auxo Latam, increasing in the high teens even after accounting for foreign currency tailwind.

during to our operating results and beginning with the proximity America's division,

Overall, the division delivered mixed results. This quarter improving sequentially at the Top Line level, but still reflecting a challenging consumer environment in Mexico that was partially mitigated by a robust performance in our other markets in the left hand.

Thanks to our sales declined modestly by 0.4%, once again reflecting a combination of a solid average ticket growing 6.6%.

Offset by weaker traffic, which contracted 6.6% as well.

It is worth noting that while same store sales remain lackluster in Mexico. They grew nicely in Octo latan.

Increasing in the High Teens. Even after accounting for foreign currency Tailwind.

Martin Yaniz: While these operations are small in relative terms, these are promising results. While we are encouraged by the team's ability to drive average ticket above inflation, leveraging our targeted promotional activities and the positive seasonal effect of larger baskets around Holy Week, the sustained weakness in traffic in Mexico is a clear focal point for our commercial initiatives as we start the second half of the year. As has been the case for several quarters now, the decline in average traffic was mainly attributable to a persistently weak consumer environment in Mexico combined with atypically adverse weather conditions across the country.

While these operations are small in relative terms, these are promising results.

But we incur while we are encouraged by the team's ability to drive average, ticket of inflation, leveraging, our targeted promotional activities, and the positive seasonal effect of larger baskets around Holy Week, the sustained weakness in traffic in Mexico, is a clear focal point for our commercial initiatives, as we start the second half of the year.

As has been the case for several quarters. Now, the decline in average traffic was mainly attributable to a persistently weak consumer environment in Mexico, combined with 8 types of adverse weather conditions across the country.

Martin Yaniz: This hits some core convenience categories such as soft drinks, beer, and tobacco particularly hard. On this point, our data suggests these convenience categories may have lost competitiveness relative to others across channels during the quarter. We believe this effect is not driven by SKU level pricing, but rather by the mix of presentations, such as multi-serve returnable beverages, smaller snack presentations, and low-cost cigarette alternatives, which are currently available in other channels, such as the traditional trade, but not at Oxfam. Total revenues for Proximity Americas grew 6.9%. or 2% on an organic and currency neutral basis. mainly driven by the continued expansion of our network by 1,500 stores year on year, a strong performance in our LATAM market.

Beer and tobacco, particularly hard.

on this point, our data suggests these convenience categories may have lost competitiveness relative to others across channels during the quarter

We believe this effect is not driven by SKU level pricing, but rather by the mix of presentations such as multi-serve, returnable beverages smaller, snack presentations, and low-cost cigarette Alternatives, which are currently available in other channels, such as the traditional trade, but not at aqsa.

Total revenues for proximity Americans, grew 6.9%.

Or 2% on an organic and currency neutral basis.

Martin Yaniz: Consolidation of OXO-USA as well as a favorable exchange rate. Gross margin remains stable at 44.1% and expanded by 120 basis points if we exclude the options outside Mexico. Operating income decreased by 2.8% while operating margin decreased by 90 basis points to 9%. Operating expenses move faster than revenues. However, it is worth noting that selling expenses, the biggest component of our op act. grew in line with our expansion of 6.3%. Thus reflecting our continued efforts to offset labor cost increases with greater FTE efficiency in the stores through the use of data analytics and new, more flexible shift policies.

Mainly driven by the continued expansion of our Network by 1500 stores year on year. A strong performance in our last and markets. The consolidation of oxy USA, as well as a favorable exchange rate.

Gross margin remains stable at 44.1% and expanded by 120 basis points, if we exclude the options outside Mexico.

Operating income decreased by 2.8%. While operating margin decreased by 90 basis points to 9%.

Operating expenses grew faster than revenues. However, it is worth noting that selling expenses, the biggest component of our Opex,

Grew in line with our expansion of 6.3%.

Thus reflecting our continued efforts to opposite labor costs increases with greater FTE efficiency in the stores. So the use of data analytics and new more flexible shift policies.

Martin Yaniz: On the expansion front, Proximity Americas added 334 new stores in the quarter in line with our plan. In the U.S., we continue to make progress in the conversion of DK stores into OXOs, focusing currently on the Midland-Odessa and Lubbock metro areas in West Texas, where we have converted 40 stores as of the end of the second quarter. Later in the year, we will begin the process in El Paso. Applying the learnings from the earlier conversion. These include, involve not just rebranding, but also the addition of several hundred SKUs, including our adaptive coffee value proposition. Early results in terms of incremental sales are promising.

On the expansion front proximity of America's added 334. Net new stores in the quarter in line with our plan.

In the US, we continue to make progress in the conversion of DK storage into oxxos focus. It currently on the midline of Dia and launch Metro areas in West Texas where we have converted 40 stores as of the end of the second quarter.

Later in the year, we will begin the process in El Paso. Applying the learnings from the earlier conversions.

These include involved, not just revamp rebranding, but also, the addition of several hundred skus, including our adaptive coffee value proposition.

An early results in terms of incremental, sales are promising.

Martin Yaniz: We will continue to test fluid concepts and to tweak the overall value proposition, and we will keep you updated on developments.

We will continue to test the food Concepts and to tweak the overall value proposition and we will keep you updated on developments.

Martin Yaniz: At Bata, during the quarter, we continued our accelerated store expansion, opening 23 new stores, and we remain on track to achieve a 30 to 40% growth rate in 2025. We continue optimizing our discount value proposition while scaling our private label strategy. Bada thank store sales grew 8.9%, but they grew in the low teens if we exclude the convenience categories, reflecting the current consumer trends and consistent with the dynamic seen at up.

during the quarter, we continued our accelerated store expansion opening 23 new storage and we remain on track to achieve a 30 to 40% growth rate in 2025

We continue optimizing our discount value proposition while scaling our private label strategy.

B, same store, sales grew 8.9%, but they grew in the low teams and we exclude the

Categories reflecting the current consumer Trends and consistent with the Dynamics seen at opso.

Martin Yaniz: In Europe, Valora delivered solid results as total revenues increased by 31.4% in pesos or 45.9% on a currency neutral basis. Driven by a strong performance in our retail business in Switzerland, partially offset by lower sales in our B2B and B2C food service. We continue to focus on converting stores into the successful AVEC banner, which has proven to offer a compelling value proposition tailored to the evolving needs of consumers in the region. Originally launched in Switzerland, our AVEC format travels well across borders and presents an attractive opportunity for organic growth. Gross profits grew 25.6% in pesos, or 1.2% currency neutral.

In Europe delivered solid results as total revenues increased by 31.4% in facials or 5 5 on our currency neutral basis.

Driven by a strong performance in our retail business in Switzerland. Partially offset by lower sales and our B2B and b2c food service.

We continue to focus on converting stores into the successful acts Banner, which has proven to offer a compelling value proposition tailored to the evolving needs of consumers in the region.

Originally launched in Switzerland are a veck format travels. Well across the borders and presents an attractive opportunity for organic growth.

Martin Yaniz: representing a dilution of 190 basis points compared to last year. Due to the slowdown in our higher margin B2C business, as well as the impact of changes to the operating model with our retail operation. Alona reported a 54.4% increase in operating income, 24% on a currency neutral basis. Accompanied by a 70-basis point improvement in operating margins. This result reflects continued, this result reflects continued progress in cost discipline and operational efficiency across the business.

Growth profits, grew 25.6% in pesos or 1.2% currency neutral.

Representing a dilution of 190 basis points compared to last year.

Due to the slowdown in our higher margin, B Toc business, as well as the impact of changes, to the operating model with our retail operations.

an order reported a 54.4% increase in operating income 24% on a currency neutral basis accompanied by a 70 basis, point Improvement in operating margin

This result reflects continued, this result reflects continued progress and cost discipline and operational efficiency across the business.

Martin Yaniz: Now, let me walk you through the performance of our health division. Total revenues increased 15.6% in pesos, with the same store sales growing 13.1%. Mostly explained by strong top-line performance in Colombia and Ecuador supported by favorable FX dynamics. Currently through neutral basis, total revenues grew 6.7%.

Now, let me walk you through the performance of our health division.

Shows like 13.1%.

Mostly explained by strong top-line, performance in Colombia, and Ecuador, supported by favorable, FX Dynamics.

Our currency neutral basis, total revenue grew 6.7%.

Martin Yaniz: The growth in revenues occurred despite the continued challenging environment in Mexico, which saw same-store sales decline and the closure of 432 underperforming stores versus the same quarter in 2024. Operating income rose 5.7% but declined 5.2% on a currency neutral basis. resulting in an operating margin dilution of 30 basis points to 3.8%.

The growth in revenues occurred, despite the continued challenging environment in Mexico, which saw same store sales declined and the closure of 43,200 Performing stores versus the same quarter in 2024.

Operating income, Rose 5.7%, but declined 5.2% on a currency neutral basis, resulting in an operating margin dilution of 30 basis points to 3.8%.

Martin Yaniz: This performance of operating income reflects one-time restructuring charges in Mexico and in Chile.

this performance of operating income, reflects, 1, time, restructuring charges in Mexico and in Chile,

Martin Yaniz: The new management team has been in place for over 100 days and is well-advanced in its diagnostic process and they are taking some decisive actions to improve profitability. In addition to the closure of 432 underperforming stores in Mexico in the last 12 months, the team has executed a significant overhead reduction, which is reflected in the operating expenses. For its part, Columbia Retail continues to show solid momentum driven by robust same-store sales growth, new store openings, and improved mix towards retail versus institution. while Ecuador delivered a strong set of results as it focused on expense control and revitalizing existing formats.

The new management team has been in place for over 100 days and is well Advanced and is diagnostic process and they are taking some decisive actions to improve profitability.

In addition to the closure of 43200 Performing stores in Mexico, in the last 12 months, the team has executed a significant overhead reduction, which is reflected in the operating expenses.

For its part Columbia retail continued to show solid momentum driven by robust same store, sales growth, new store, openings and improved mixed towards retail versus institutional.

While Ecuador delivered, a strong set of results as it focused on expense control and revitalizing, existing formats.

Martin Yaniz: Finally, Chile's sales remained positive, but profits were flat due to overhead restructuring charges, which put pressure on markets. Adoxo Gas, same station sales increased by 4.9%. The total revenue is moved by 0.6%. Reflecting Growth in Retail Volume Offset by Decline in the Wholesale Business. Those margins stood at 12.6% and operating margin at 4.7%.

Finally, Chile sales, remained positive. But profits were flat due to overhead restructuring charges, which put pressure on margins.

And Axle gas.

Stain, same station sales increased by 4.9% and total revenues moved by 0.6% reflecting growth in retail volume offset by a decline in the wholesale business.

Martin Yaniz: We continue to look for further efficiencies and savings to support profitability in areas like labor and other selling.

Gross margin stood at 12.6% and operating urging a 4.7%.

as we continue to look for further efficiencies in Saving, to support profitability, in the areas like labor and other selling expenses,

Martin Yaniz: Now moving to Cobra Cola FEMSA, during the quarter, revenues increased 5% in the face of adverse weather conditions and a tougher demand environment, particularly in Mexico and Central America where volumes declined by nearly 10% while lower operating leverage put pressure on profitability.

Now, moving to COA.

During the quarter revenues increased 5% in the face of adverse weather conditions and a tougher demand environment, particularly in Mexico and Central America, where volume declined by nearly 10% while lower operating leverage pressure on profitability.

Martin Yaniz: Despite these temporary headwinds, Coca-Cola FEMSA remains well-positioned to execute its strategy. Leveraging Recent Investments to Increase Production and Distribution Capacity. along with a diverse grant portfolio to meet evolving consumer demands.

Despite these temporary headwinds remains, well, positioned to execute its strategy.

Martin Yaniz: For a detailed analysis of their results, you can access the webcast of their earnings call held last Wednesday.

Leveraging recent Investments to increase production and distribution capacity, along with a diverse brand portfolio to meet evolving consumer demands.

For a detailed analysis of the results, you can access the webcast webcast of their earnings call held last Wednesday.

Martin Yaniz: Before we close, let me give you a brief recap on capital allocation and our outlook for the second half of the year. As part of the FEMSA Forward Plan, we successfully completed the diagnostic of the bulk of our remaining logistics business on July 1st. In terms of capital deployment, our top priority remains in investing and growing our core operations. which includes an ongoing multi-year investment plan across all business units to support long-term growth. Regarding shareholder remuneration, we remain on track with our commitment to deploy 66 billion pesos, approximately $3.2 billion. between March 2025 and March 2026 through a combination of ordinary and extraordinary dividends as well as share repurchase.

Before we close, let me give you a brief recap on Capital allocation and our outlook for the second half of the year.

As part of the offensive forward plan, we successfully completed the divestiture of the bulk of our remaining Logistics business on July 1st.

in terms of capital deployment, our top priority remains in investing and growing our core operations which includes an ongoing multi-year investment plan across all business units to support long-term growth,

Regarding shareholder remuneration, we remain on track with our commitment to deploy 66 billion pesos approximately 3.2 billion dollars.

During March 2025 in March 2026, the re combination of ordinary and extraordinary dividends as well as share repurchases.

Martin Yaniz: As of the end of July 2025, we have executed approximately $374 million in share buybacks, including repurchases in the local market, and a $250 million Accelerated Share Repurchase Program, or ASR, which concluded last week. Additionally, we have paid out two out of the four installments of ordinary and extraordinary dividends for the year, totaling nearly $1.2 billion. As of the second quarter, we reached a leverage ratio of 0.93 times, excluding COBRA-GOLA FEMSA, and have deployed $1.6 billion in extraordinary returns, representing half of the $3.2 billion commitment announced earlier this year. As we look ahead, we remain confident in the strength and resilience of our diversified portfolio, and we are maintaining our expectations for stable full-year operating margins at Proximity America.

As of the end of July 2025, we have executed approximately 374 million in share buyback, including repurchases in the local market and a 250 million accelerated share repurchase program or ASR which concluded last week.

Additionally, we have paid out of the 4 installments of ordinary we've paid out 2 out of the 4, installments of ordinary and extraordinary dividends for the year totaling nearly 1.2 billion dollars.

As of the second quarter we reached a leverage ratio of 0.93 times excluding over 1 and have deployed 1.6 billion dollars in extraordinary returns representing half of the 3.2 billion dollars of commitment announced earlier this year.

Martin Yaniz: Last Wednesday, Juan Fonseca shared a similar message maintaining their long-term perspectives on change. So, we are directionally in sync. As we look at the next couple of quarters, we remain cautiously optimistic for the second half of the year, acknowledging potential volatility amid the soft macroeconomic environment. Beyond that, we believe our continued focus on operational disciplines, strategic investments, and rigorous capital allocation position us well to navigate the involving consumer environment and deliver sustainable growth ahead.

Your operating margins at proximity America.

Last Wednesday at a similar message, maintaining your long-term perspectives on change. So we, we are directionally in sync.

As we look at the next couple of quarters, we remain cautiously cautiously optimistic for the second half of the Year acknowledging potential volatility amid the soft macroeconomic environment.

Beyond that, we believe our continued focus on operational disciplines to strategic Investments and rigorous Capital allocation.

Position as well to navigate the involving consumer environment and deliver sustainable growth ahead.

Martin Yaniz: Finally, regarding our management succession. And as Jose Antonio mentioned during the February call, FEMSA's board of directors appointed a special committee for this purpose. The committee is currently working on this process, and we expect to have more news for you later in the year.

Finally regarding our management succession. And as Jose Antonio mentioned, during the February call and this is board of directors appointed, a special committee for this purpose. The committee is currently working on this process and we expect to have more news for you later in the year.

Operator: And with that, we are ready to open the call for questions. Thank you.

And with that, we are ready to open the call for questions.

Operator: Ladies and gentlemen, we will start now the Q&A session, so if you would like to ask a question, please press star 1 now on the telephone keypad, and to redraw your question, please press star 2.

Benjamin Theurer: The first question comes from the line of Ben Theurer calling from Barclays. Please go ahead. Good morning and thank you very much for taking my question.

Thank you, ladies and gentlemen, we will start now the Q&A session. So if you would like to ask a question, please press star 1, now, on to the fun keypad and to redraw your question, please press star 2

The first question comes from the line of been thorough calling from Barclays. Please go ahead.

Benjamin Theurer: I wanted the opportunity to dig a little bit more into some of the comments you made in the opening and talking a little bit about SPIN and the opportunities here, and particularly how you think to bring this back into proximity America and to hopefully trying to see some sort of a recovery. As you've seen the business evolving over the last couple of years from the early stages to now, and obviously you're showing progress here on still acquiring new customers with them actually using as well the platform. What would you say are the missing pieces in order to really make the most out of SPIN and SPIN Premium as it relates to really boosting again maybe some of that traffic or some of that recovery of the proximity stores, particularly in Mexico?

Um, yeah, good morning and uh, thank you very much for taking my question. I wanted to the opportunity um, to dig a little bit more into, um, some of the comments you made and the opening. Um, and and talking a little bit about at Spin and the opportunities here and particularly how you think to bring this back into.

Operator: That would be my question.

Proximity America and and to, like, hopefully trying to see some some sort of a recovery. So as you've seen the business evolving over the last couple of years from the early stages to now and obviously you're you're you're showing progress here on on still acquiring new customers with uh them actually using as well. Uh, the platform, what would you say are the missing pieces in order to really make the most out of Spin and spin premium as it relates to really boosting again, maybe some of that traffic or some of that recovery, um, of the proximity stores particularly in Mexico. That would be my question.

Juan Carlos Guillermetti: We're going to take a couple of seconds, we'll be on mute first. Thank you for the question.

Uh, we're going to take a couple of seconds. Uh, we'll be uh, unmuted for a little bit.

Thank you for the question.

Um I'd like to First highlight that in terms of where we see the future from an Oxo perspective we're already well underway in leveraging. The data that comes from our Premier rewards program

Juan Carlos Guillermetti: Accelerate our Retail Media Efforts. And the early results are quite promising as we have more data on our customers and we continue to penetrate further our base. Our expectation is that how we can personalize and customize our offers is going to continue to improve, allowing us to drive higher commercial income.

to accelerate our

Juan Carlos Guillermetti: On the spin side of things, we're very early in our monetization journey as we're currently only starting to explore financial services, including savings and credit products. We launched our first personal loans earlier in the year and are very excited about the prospects of how this can evolve in the future, but recognize that we're going to be doing so in a very careful manner and taking time to progress our financial services value proposition.

Um, retail media efforts, and the early results are quite promising as we have more data on our customers. And we continue to penetrate further our base. Uh, our expectation is that how we can personalize and customize our offers is going to continue to improve allowing us to drive higher commercial income.

On the spin side of things. Um, we're very early in our monetization journey. As we're currently only starting to explore financial services, including savings and Credit products. We launched our first personal loans, um, earlier in the year and, uh, our very excited about the prospects of how this can evolve in the future but recognize that we're going to be doing. So in a very careful manner, uh, and taking the time uh to progress our financial services value proposition.

Juan Carlos Guillermetti: Lastly, I would highlight that we have interest in moving all of our SPIN products beyond OPSL, beyond proximity and health, to have a much wider value proposition. And we're also quite early in that journey, that will start primarily focused on payments and rewards and evolve into financial services.

Lastly, I'd highlight that we have interest in moving all of our spin products Beyond also Beyond proximity and health, uh, to have a much wider value proposition. And we're also quite early in that Journey that will start primarily focused on payments and rewards and evolved into Financial Services as well.

Juan Carlos Guillermetti: I think I would also add, Ben, this is Juan. If you just look at the tender, this figure that we've been reporting of what percentage of OXXO sales are going through the premium program, that's a number that goes up by one or two percentage points per month. We were discussing among ourselves, we gave you a figure today of I think 45.8, almost 46, but the reality is that June was already at 47, and so I'm sure three months from now we're going to be talking somewhere in the 50s. I think we're still very much in the early stages of people.

Okay. I will also add been. This is Juan.

Juan Carlos Guillermetti: embracing this and to having it impact their their habits right in terms of going to OXO more frequently and choosing OXO versus other alternatives because it gives you those rewards, and then how this feeds through the engagement on whether you're using your physical card or your app, and then kind of the broader purpose of SPIN as an ecosystem. But I still think, I mean, the growth rate This thing has only been around for a couple of years, right? A little bit more than a couple of years. And the slope of that curve is really remarkable.

This is the Premier program. That's a number that goes up by 1 or 2 percentage points per month, right? I mean we were discussing among ourselves. We gave you a figure today. If I think 4 4, 5. 8 4 6,

Going to walk some more frequently and choosing Oxo versus other Alternatives because it gives you those rewards and then how this speeds through the engagement on whether you're using your physical card or your app, and then the kind of the broader purpose of of spin as an ecosystem. But I, I still think, I mean, the the growth rates,

Juan Carlos Guillermetti: So I do think there's a lot more to come in terms of just people. Again, internalizing that if you do this transaction at OXA versus elsewhere, it gives you these benefits that you didn't have, you know, not that long ago.

This thing has only been around for a couple years, right? A little bit more than a couple of years. And and the the slope of that curve is is, is really remarkable, so, I I do think there's there's a lot more to come in terms of just people

Again.

Internalizing that if you if you do the transaction at Oxford versus elsewhere, it gives you these these benefits that you didn't have uh you know not that long ago.

Benjamin Theurer: Can I just quickly follow up on that? So, with that tender going up, are you seeing better traffic data with the ones that are signed up for SPIN slash SPIN PREMIA than traffic data with the customers that aren't signed up?

Juan Carlos Guillermetti: So, is there something that potentially can help you recovering the traffic as we move into the coming quarters and then into 2026? In fact, we do because that 47% of sales tends to favor heavy users. In other words, the percentage of users that represent that 47% is a lower percentage. And so what that indicates to you is it drives loyalty and engagement with people. So people are obviously choosing to go more to the store more frequently to buy more things driven by the accuracy of the points. And the value proposition of that program...

Can I can I just quickly follow up on that. So with that tender going up, are you seeing better traffic data with the ones that are signed up for spin? Spin premium, then traffic data with the customers that aren't signed up. So, is there something

Potentially can help you recovering the traffic as we move into the coming quarters, and then into 2026.

In fact, we do because that's 47% of sales is tends to favor heavy users. In other words, the percentage of users that represent the 47%, uh, is a lower percentage.

And so what that indicates to you is it drives loyalty and engagement with uh uh with people. So people are obviously choosing to go more to the store more frequently to buy more things driven by the access to the points and that is the value proposition of that program.

Juan Carlos Guillermetti: still going to experience significant improvement in terms of customization, in terms of the types of promotions you offer. As we refine the data, we improve the data, we learn more how to use the data without obviously overwhelming the customer.

Is still going to experience significant Improvement in terms of customization, in terms of the types of promotions you offer. Um, as we refine the data, we improve the data, we learn more, how to use the data without obviously overwhelming the consumer.

Juan Carlos Guillermetti: I think there's also a kind of a double click you can do on the tender number because the number we give you is percentage of sales, but we're increasingly tracking and incentivizing the number of transactions, which would kind of connect with traffic more directly. And then, of course, there's a second click, or a third click in this case, that has to do with services transactions, right? Because those give you a lot of information that, you know, it's very different what you can glean from a transaction of somebody buying a Coke, as opposed to somebody paying their bills.

Juan Carlos Guillermetti: And so, there's still a lot of room to keep improving that data acquisition and processing, and then implementation within the SPIN ecosystem.

And I think there's also a kind of a double click you can do on the on the tender number because that the number we give you is uh percentage of sales. But we're increasingly tracking and incentivizing the number of transactions which would kind of connect with with traffic more directly. And then of course there's a second click which has or a third click. In this case that has to do with Services transactions, right? Because those give you a lot of information that, you know, it's it's very different what you can glean from a, from a transaction that somebody buying a Coke as opposed to somebody paying their bills. And so, there's still a lot, a lot of room to keep improving that data, uh, acquisition and processing and then, uh, implementation in in, within the spin ecosystem,

Operator: Perfect.

Operator: I'll pass it on.

Perfect. Thank you very much. I'll pass it on.

Alvaro Garcia: The next question comes from the line of Alvaro Garcia calling from BTG, please go ahead. Hi, thanks for... My question is for Juan Carlos, keeping you on the line. I'd love to ask you about it also.

The next question comes from the line of Alvaro Garcia calling from btg. Please go ahead.

Hi. Thanks for the space for your questions. Um, my question is for Hong Carlos, uh, given these on the line as much as I love to ask about hope. So, um,

Alvaro Garcia: Alvaro Garcia, Thiago Bortoluci, Fernando Solther, Rodrigo Alves, Martin Yaniz, Fomento Additionally, we need to It's the second question within digital. You know, how you feel about, uh... Not burning cash necessarily, but being a lot more aggressive when it comes to leaning into specific revenue streams like net pay, like credit. Merchant Acquiring, etc. Thank you. Thanks for the question. Generally, we're excited. I think the environment inside of FEMSA is one where we have the independence and the autonomy to drive a differentiated culture within SPIN than the rest of FEMSA. It's a culture that is much more consumer tech focused, where we have strong emphasis in agility and rapid iteration testing based on customer Needs and Demand.

On culture, sort of other fantasy subsidiaries very much focused on profitability. You've had the benefit of sort of being isolated from that mentality. For some time. Now I had sent a digital. How do you feel about sensitive digital fitting within Oxo to really leverage that physical footprint.

um,

And and this is obviously in the context.

Of potentially leaning into certain.

sort of its the second question within digital, which is

You know how you feel about. Um,

Not burning cash necessarily but being a lot more aggressive when it comes to leaning into specific revenue streams like net, pay like credit.

Like Merchant acquiring, Etc. Thank you.

Juan Carlos Guillermetti: And hence, we've been able to develop our own culture within SPIN. Now, I recognize that our right to play starts from the assets that we have within Temsam, more specifically with the capillarity that we have with OXO and the significant footprint and customer presence across the OXO platforms, which requires tremendous amount of collaboration between our teams that, although it is a challenge, given the differences around culture, the reality is that we have strong alignment, both at the board as well as at the management level, that we need to evolve our thinking towards digital. And hence, this is a strategic imperative for the company.

And Rapid iteration testing, uh, based on customer needs and demand. Uh, and hence we've been able to develop our own culture within spin. Uh, now I recognize that our rights of play

Juan Carlos Guillermetti: And there's tremendous amount of focus from the OXO team in working together with SPIN as we evolve our value. On your question related to cash burn and our ability to be more aggressive on the growth side and not necessarily as focused on profitability, you're absolutely right. You know, within SPIN, we recognize that for us to be a relevant digital platform, we have to have the scale, the massive penetration within Mexico and the frequency of use. And that requires us investing in the business to be able to drive that stickiness that ultimately will enable us to drive two big opportunities, as we mentioned earlier in our remarks.

starts from the assets, uh, that we have within Femme, some more specifically, uh, with the capillarity that we have with Oxo and the, uh, significant footprint in customer presence across the Oxford platforms, which requires tremendous amount of collaboration between our teams that, um, although it is a, a challenge given the differences around culture, the reality is that we have strong alignment, uh, both at the board as well as at the management level, uh, that we need to uh, evolve our thinking towards digital. And hence, this is a strategic imperative for the company. And there's tremendous amount of focus from the Oxford team and working together with spin, as we evolve our, our value prop,

On your question related to to cash burn and uh our ability to be more aggressive on the growth side. Uh and not necessarily ask focused on profitability. You're absolutely right you know within spin we recognize that for us to be a relevant digital platform, we have to have the scale, the massive penetration within Mexico and the frequency of use and that requires us investing in the business, uh, to

Juan Carlos Guillermetti: The first one being evolving OXO's convenience value proposition into digital with a much more digital value prop that leverages both their existing physical footprint but our SPIN digital ecosystem. And then two, driving financial services both for savings and credit, where we see a significant monetization opportunity and we're very early in that journey of deploying credit.

Be able to drive that stickiness, that ultimately will enable us to drive 2, big opportunities. As we mentioned earlier in our remarks, the first 1 being evolving, October's convenience, value proposition into digital with a much more digital value prop that leverages both their existing physical footprint. But our, our uh, spin digital ecosystem and then, 2 2 driving Financial Services, both for savings and Credit where we see a significant monetization opportunity and we're very early in that journey of deploying credit.

Juan Carlos Guillermetti: I would compliment on just two small points. One, as an issue of alignment between the two organizations, we hope to, by the end of this year, so that it applies next year, we come up with a system of joint P&Ls and joint KPIs where key executives that need to cooperate in OXO and in SPIN will be receiving their bonuses, or a significant portion of their bonuses, tied to the same exact objective. So we hope that will align interests and will align efforts a lot more. And number two, and out of fairness to SPIN. We are conservative in how we measure the cash burn.

I would compliment. I'm just too small points, 1 as the issue of alignment between the 2 organizations. Uh, we hope to by the end of this year so that it applies next year we come up with a system of joint p&ls and Joint kpis where key Executives that need to cooperate. And also and in spin will be receiving, their bonuses. A significant portion of their bonuses tied to the same exact objective. So, uh, we hope that will align interests and will align efforts a lot more. And uh number 2 and out of fairness to spend

Juan Carlos Guillermetti: If you think about premia... The percentage increase in sales that you would have to believe. To make PREMEA, Just PREMEA, a break-even business is very low, very, very low single In other words, if you just take the incremental sales multiplied times the gross margin, thinking that having 47% of your sales tied to PREMIA has to be driving incremental sales, then PREMIA, there is no doubt that PREMIA today is profitable. The problem is we wanted to avoid measurements such as that because they can then justify any number of things with regards to just spending more and more and more.

Here, uh, conservative and how we measure the cash current spent as, uh, on capitalist mentioned. If you think about premiere,

the, the percentage increase in sales that you would have to believe,

Uh, to make Premier just Premiere a, a, a break, even uh, business, uh, is very low, very, very low, single digits. And other words to reduce the incremental sales multiplied times, the gross margin can give that

Juan Carlos Guillermetti: And so we purposely, for purposes of the P&L and cash-furnished spending, said, no, no, no. I just want to know the cost that you're spending and the points that you sell the opportunity. Incremental sales doesn't get included into your P&L, but we well know that this is driving a significant amount of incremental sales.

having 47% of your sales has to be driving incremental sales. Um, um, then yeah, there is no doubt that Premiere today is profitable. Uh, the problem is we want to do avoid measurements such as that because they can then justify any number of things with regards to just spending more and more and more. And so, we purposely for purposes of the p&l and cash burn experiment. We said, no, no, no. I just want to know the cost that you're sending and the points that you sell the Oxo incremental sales, doesn't get included into your p&l, but we, well know that this is driving a significant amount of incremental sales.

Thank you.

Thanks.

Thiago Bortoluci: The next question comes from the line of Thiago Bortoluci calling from Goldman Sachs, please go ahead. Hi, good morning, everyone. Thank you very much for taking our questions. I would like to explore more the semester sales dynamics at... All right, now it's been roughly the fourth quarter in a row that we are discussing traffic and what is happening there, what are the pressures. And when will it inflect? Obviously, there are a lot of moving parts, weather, macro, that comes from the election. But one thing that caught our attention this quarter was in the beginning of the presentation in Martin's prepared remarks.

The next question comes from the line of Thiago. Bi calling from Goldman Sachs, please go ahead.

Thiago Bortoluci: He said, you know, some loss of competitiveness versus other channels and other points of sales, number one. And on the opening remarks on the press release, I see a focus for management to work on a sort. increasing the prices on an SKU light to SKU light. But again, I think the best example is, for example, beer. If before you were buying one-way glass presentations, or you were buying cans, and now, because you have a little bit less money in your pocket because of the economy, and when you have some friends over, you're gonna buy the one-liter returnable beer package and share it with a group of friends.

and other um, points of sales, number 1, and on the opening remarks, on the press release, I see a focus from management to work on assortment

Martin Yaniz: if Oxford doesn't have that packaging present. then, in effect, it's at a competitive disadvantage. But that second part, we believe, is generally addressable. And we're working on that, both in beverages, as well as snacking with smaller presentations, as well as lower-priced tobacco products. But, you know, an example is we're seeing it with Bada as well. If you sparse up Bada and you strip out convenience categories. And you just leave the categories that go head-to-head with other similar discount channels. You can clearly see that we're doing fine on the non-convenience categories, but on the convenience categories the consumer is simply being more conservative and more cautious.

Increasing the prices on a on a SKU like to SKU like bases. But again I think the the best examples for example beer, if before you were buying uh 1-way glass presentation. So you were buying uh cans and now because you have a little bit less money in your pocket because of the economy. And when you have some friends over, you're going to buy the 1 liter returnable beer package and share it with the group of friends. Um, if Oxford doesn't have that packaging presentation then in fact it's at a competitive disadvantage.

But that second part, we believe is generally addressable, uh, and we're working on that uh, both in beverages as well in snacking with smaller presentations, as well as lower priced, uh, tobacco products.

But, you know, an example is, um, we're seeing it. We bought it as well, if you sparse out the batter and you strip out convenience categories,

Can you just leave the categories that go head-to-head with other similar? Discount, uh, channels.

Martin Yaniz: in addition to the weather issues. Central, anybody who's in Mexico City knows that the last quarter was particularly cold for the time of the year, and in other parts of Mexico, more rain.

You can clearly see that we're doing fine on the nonconvex categories. But on the convenience categories, uh, the consumer is simply being more conservative and more cautious.

Martin Yaniz: But we have to react to that, and there is a laundry list of very, very, very long, very long initiatives that's been triggered by the OXO team around beer, soft drinks, packaging formats, our coffee value proposition, more promotional activity with our supplier partners that we hope that during the second half of the year will help improve this issue with That makes sense. Thank you very much.

In addition to the weather issues, which, you know, Central anybody who's in in Mexico City knows that the last quarter was particularly cold for the time of the year and in other parts of Mexico, more rain. Um, but we have to react to that, and there is a laundry list of very, very, very long. Um, very long initiatives that's been triggered by the Oxo team, uh, around beer, soft drinks, packaging formats. Uh, our coffee value proposition, uh, more promotional activity. With our supplier partners that we hope that during the second half of the year will help uh, improve this uh, issue with the traffic.

Operator: If I may follow up now on – it's more on health and also Grouponauts in Brazil. I know in health you've been very vocal on rationalizing the portfolio and you've been closing stores over the last few quarters. And this quarter we also saw some net closures in Brazil, right?

Operator: Where would you say FEMSA is in terms of optimizing the portfolio and how should we think about net unit growth across the board?

That makes sense. Thank you very much Martin. Uh, if I may have a follow-up now on, it's more on health, uh, and also, uh, good Upon Us in Brazil. I know in health you've been, uh, very vocal on rationalizing. The portfolio and have been closing stores over the last few quarters and this quarter. We also saw some net closures in Brazil, right? Uh, where would you say famzy is in terms of

Of optimizing, the portfolio. And how should we think about net unit, growth across these 2 divisions going forward? Thank you very much.

Martin Yaniz: Let me take a first crack at this and then our team can complement. I think the two are in very, very, very different situations. On the one hand, in health, you're talking about Mexico specifically, which is going through a pretty major surgery and there's different things that are being analyzed by the team in terms of how to move forward.

Juan Carlos Guillermetti: Clearly, the national strategy and entering into some parts of the country where the brand was not well-known and trying to compete head-to-head with some of the incumbents has not turned out to be the right strategy, and so the 400-plus closures in Mexico and restructurings, we're going to talk a lot more going forward about how, and there are some really cool ideas I think internally that we're thinking about how we could disrupt this industry or do things differently, but that's one thing. Brazil, we closed a few stores of the earlier cohorts. We continue to learn about what works and what doesn't in Brazil.

You know, the 400 plus closures in Mexico and restructuring so that we're going to talk a lot more going forward about how. And there's some really cool ideas, I think internally that we're thinking about how we could disrupt this industry or do things differently. But that's that's 1, that's 1 Thing, Brazil. You know, we closed a few stores of the earlier.

Juan Carlos Guillermetti: The growth in Brazil should be at about 20 percent for the foreseeable future.

Uh, cohorts, uh, we continue to kind of, uh, learn about what works and what doesn't, uh, in Brazil, uh, the, you know.

Juan Carlos Guillermetti: We are super bullish about Brazil, and so I just want to be clear that the fact that we closed a lot of stores in Mexico Health, a few stores in Grupo NOS have nothing to do with each other in terms of the causality of what's going on there.

The growth in Brazil should be at about 20% uh for the foreseeable future. We are super uh bullish about Brazil and so I just want to be clear that the fact that we closed a lot of stores in Mexico health. A few stores in in groups, have nothing to do with each other in terms of the causality of of what going on there.

Juan Carlos Guillermetti: You know what, and I'd like to go back to your first question. I specifically asked the Oxford team before this call to run an analysis for stores that were near our discount channel. and to give me a sensitivity whether there was a decline in sales, same store sales in those stores, and the difference is really very. very, very small. I would characterize it as 1%.

You know what, and I'd like to go back to you, your first question. Um, I specifically asked to ask actually change before this call to run an analysis for stores.

That were near hard discount channels.

And to give me a sensitivity, whether there was a decline in sales, same store sales in those stores.

Juan Carlos Guillermetti: So When you look at the categories, I also asked them to help me map all the categories of a hard discount, which I know is the subject of a lot of comments that we get.

And the difference is really, very small. It's very, very, very small. I would characterize it as 1%. So if, if if

The, when you look at the categories, I also asked them to help me map.

All the categories of a hard discount, which I know is the subject of a lot of comments that we got.

Juan Carlos Guillermetti: The AIM chat tool will give you 100% responses at your fingertips, ready to media your risk information and provide lengthy and thought-provoking papers and – versus in a – on an OXO, the overlap is probably in the 20%. In other words, the consumer occasion of going to buy a coffee, going to pay financial services, of buying a Coca-Cola product, or buying, I think, an Armaleno product as you walk down the street, of buying a quick snack because you're hungry, or... Accessing to buy some bread for a quick snack, those occasions are significantly different than the one that's being offered in the hard discount model.

if you ask somebody to map out the categories that are in a hard Discount Store versus in a

In an Oxo, the overlap is probably a little in the 20% range. In other words, the, the, the consumer occasion of going to buy a coffee, going to pay Financial Services of buying Coca-Cola products or buying a a little product, uh, as you walk down the street, um, of, um, of of of buying a quick snack because you're hungry or accessing the buy, some bread for a quick snack, those occasions are significantly different than the 1 that's being offered in the heart discount models

Juan Carlos Guillermetti: We think it competes head-to-head with BARA, without a doubt, but with regards to OXO, it's... We do believe that formats will continue to exist, co-exist, with relatively contained overlaps.

Uh, we think it competes head-to-head in data, uh, without a doubt. But with regards to axo. It's a, we do believe that the formats

Will continue to, uh, exist, uh, coexist.

Juan Carlos Guillermetti: I wanted to address that because that's the subject of a lot of questions, particularly Juan gets, and commentary that we see in the analysis that's published. That's helpful.

Uh, with relatively contained overlap.

I wanted to address that because that's the subject of a lot of questions that particularly 1 guests and commentary that we see in in uh the analysis that's published.

Operator: Martin, Juan, thank you very much, guys.

That's helpful. And thank you very much guys.

Rodrigo Alcantara: The next question comes from the line of Rodrigo Alcantara calling from UBS, please go ahead. Hi, thanks. Good morning, and thanks for checking my question, Martin, Juan. I want to take the discussion, Proximity Americas, yes, but on the OPEC side, right? On one hand, you know, selling expenses, I mean, it was really, really impressive, the achievements that we saw, right, on you guys decelerating the pace of OPEC's growth. I mean, you mentioned there about initiatives to have a more efficient labor usage, right? So, my question on the OPEC side related to labor is, is it fair to assume this runway that we saw this quarter to project this going forward, which, again, was quite impressive, the efficiencies that you achieved on the labor front?

The next question comes from the line of Rodrigo Alcantara. Calling from UBS, please go ahead.

Hi, thanks. Good good. Uh, good morning and thanks for checking uh my question. Uh Martin Juan. Uh I want to take that discussion. Uh proximity America. Yes. But uh on the Opex side, right? Uh, on 1 hand, uh, you know selling expenses, I mean was really really impressive. The the achievements that that we uh saw right on you guys um H decelerating the base of of of open road. I mean, you you mentioned there about the initiative to have a more efficient labor um, use such. Right. So my question on the Opex site related to labor is, is it

Rodrigo Alcantara: And How would you say, in relation to the 40-hour working week, how compliant would you say you are currently right now, you know, to comply with that new regulation as a result of these changes that you have implemented? And my question on the other question for the OPEC side would be on the GNA, the administrative expenses, where we continue to see, you know, this line growing considerably. You give some explanation in the press release, right? But just curious on, I mean, really what's driving here? I mean, are you hiring more people? Or what is driving the GNA?

to assume this Runway that we saw this quarter to project is going forward which again was quite impressive the efficiency that you shape on the on the labor front and

how would you say in relation to the 40 hour working week, how compliant would you say you are correct right now you know to to comply with that new regulation as a result of this changes that you have implemented.

Rodrigo Alcantara: And when can we expect some sort of leverage or restabilization in this line? That would be my question. Thank you very much.

Martin Yaniz: Sure, a couple of quick things.

Martin Yaniz: Let me start with... Your compliance question. We're always. trying to get a little bit ahead of the curve, because as you know, OXO is a very big ship. And so it's not a ship that moves on a dime, and it's not moved from one quarter to another. And changes require changes in the operations, systems, culture, and so on. So today, we are not compliant with the 40 hours, because it's not the law. And so, but we have been running experiments in certain plazas, certain areas. at 45 hours and at 40 hours to see how we would change our operations and those plans are producing very valuable insights.

Or what is driving, the DNA. And when can we expect some sort of Leverage or stabilization in this line? That will be my question. Thank you very much.

Sure, um, couple of quick things. Let me let me start with, um,

Your compliance question look. Um, we're always

Trying to get a little bit of a head of the curve because, as you know, Oxo is a very big shift. And so it's not a ship that moves on a dime, and it's not moved from 1 quarter to another and uh changes require changes in the operation systems culture and so on. So uh today we are not complying.

It's not the law. Uh and so, but we have been running experiments in certain platez certain areas at 45 hours, and at 40 hours to see how we would, uh, change our operations. Uh, and those, uh, plans are producing very valuable insights.

Martin Yaniz: of how you want to use dynamic shifts. So, in other words, not everybody in a store has to be at the store the same amount of time. So you can start the day with less people if it's a slow breakfast store, and then bring in more people during lunch when you have a lot of activity, if it's a store in a downtown business district. And then in the evenings, also, you can move down. You can move people so that they work a total of 40 hours or 45 hours or 43 hours, wherever the labor reform ends up.

Of how you want to use Dynamic shifts. So in other words, not everybody in a store has to be at the store the same amount of time.

Martin Yaniz: But you could ask them to work a little bit more certain days and a little bit less other days, or give them more days off so that you use them. There are a lot of learnings that are being developed as we speak. So when the law is passed and we have greater clarity, we will be in a position to rule out that as quickly as possible.

Martin Yaniz: With regards to the issue of administrative expenses, this is a focus of the Office of Management Team. We hope over the next couple of quarters to give you a little bit more insight on that. I think they are very sensitive to, one, they need to prioritize their transformational initiatives. The growth in that has been driven in many areas. in many cases has been driven by. The issue of... Thinking about transformational initiatives, and the instruction that has come from FEMSA is we need to prioritize in times like this. We need to focus and have them very clear, and we can postpone some of them for some period.

So you can start the day with less people if it's a slow breakfast, uh, store and then bring in more people during lunch, when you have a lot of activity, if it's a store in a downtown business district, and then in the evenings also, you can move down. You can move people so that they, uh, work a total of 40 hours, or 45 hours or 43 hours wherever the the labor perform ends up. Uh, but you can ask them to work a little bit more certain days and a little bit less other days or give them more days off. So that you use them. There are a lot of learnings that are being, um, developed as we speak. So, when the law uh uh, is passed and we have greater Clarity, we will be in a position to rule out that as quickly as possible.

Uh, with regards to the issue of administrative expenses, this is a focus of the Oxford management team. Uh, we hope over the next couple of quarters to give you a little bit more insight on that. I think they are very sensitive to 1. They need to prioritize their transformational, uh, initiatives. Uh, the growth in that has been driven in, uh, many, um,

in many cases has been driven by, um,

uh, the issue of uh, uh,

Martin Yaniz: Number three, that number's a little bit impacted also, remember, by the OXO-USA incorporation into the consolidation of Proximity Americas. So the number's a little dirty relative to that, and there we're having to build out an overhead because, remember, this was a carve-out of a business. So you'll probably be seeing a little bit of that impact and a little bit of that effect. But we would expect to see that improve during the second half and certainly during the beginning of next year. Again, understanding this is a big organization and we need to be thoughtful on changes that we make.

Thinking about transformational initiatives and the the instruction that has come from fences. We need to prioritize in times like this, we need to focus and have this very clear and we can postpone some of them for some period of time.

Number 3, their numbers are a little bit impacted. Also remember by the opso,

by the Oxford USA Incorporation.

Into uh, the uh, into the consolidation consolidation of proximity America's. So the numbers are a little dirty relative to that and their we're having to build out an overhead um because remember this was a carve out of the business so you'll probably be seeing a little bit of that.

Impact. And a little bit of that effect.

Martin Yaniz: And then finally, as to the trend on labor expenses, again, the government will continue to likely increase minimum wage. I think the number that they're targeting is 12 percent. So we're going to continue to battle with that percentage. Again, it's very hard for me to predict to you where is the physical limits of the savings that we can drive through this issue of use of technology and more variable shift policies. I can assure you we will leave no rock unturned, but I'm not in a position right now to give you guidance as to how much more we can extract from that.

Um, but we would expect to see that improve, uh, during the second half and certainly during the beginning of next year. Again, understanding this is a big organization and needs. We need to be thoughtful on changes that we make

And then finally as to the trend on labor expenses again the government will continue to likely increase uh in um uh minimum wage. I think the number that they're targeting is 12%. So we're going to continue to battle with uh that percentage. Um again I it's very hard for me to predict to you. Where is the physical limit

Of the savings that we can drive through this issue of use of technology and more variable ship policies. Uh,

Rodrigo Alcantara: I do think that there is more that we can extract, but it's hard to tell you where the limit is. No, yeah, for sure. Absolutely. Thank you, Martin, for the answer.

I can assure you, we will leave, no rock on turn, but to give you, I'm not in a position right now to give you a guidance as to how much more we can extract from that. I I do think that there is more that we can extract, but, um, it's hard to tell you where the limit is.

No. Yeah, for sure. Absolutely. Thank you, marking for the the answers.

Ricardo Alves: The next question comes from the line of Ricardo Alves calling from Morgan Stanley, please go ahead. Hi everyone, thanks so much for the call and for the opportunity to ask you questions. First question on net income, considering your operations were relatively in line with what we expected at least, but as it pertains to the bottom line, we saw a big miss relative to what we expected. We saw higher taxes and significantly lower equity income, I believe from 90 million pesos in the first quarter to almost 800 million in the second quarter. Can you share more details on what's driving this volatility below the line so that we have a better basis to model the second half of the year as it relates mainly to equity income, the equity income line and then also taxes because effective taxes were also higher than expected.

The next question comes from the line of Ricardo Alves, calling from Morgan Stanley. Please go ahead.

Hi everyone uh thanks so much for the call uh and for the opportunity to ask you questions. Um,

um, um,

Considering you know your your operations were relatively in line with uh what we expected at least. Uh but uh as it pertains to the, the bottom line, we saw, uh, a big Miss relative to what we expected. We saw a higher taxes and

Uh, significantly lower Equity income. I believe from 90 million pesos in the first quarter to to almost 800 million in the second quarter.

Ricardo Alves: That's my first question on EPS.

Ricardo Alves: The second question is actually a follow-up on OXO Mexico. We share the view that the second half could be better in terms of traffic and same-store sales but we are lacking evidence of that yet and I think that some of the discussions that we had with you guys with senior management as it relates to all the initiatives that you are taking to improve traffic, I think that that discussion is very timely, it's very helpful, but it's not very clear to us what do you think is going to move the needle most into the second half.

Probably out of assumed that most of that could be related to Oxford Brazil. So, can you just share more details on what's driving? This volatility below the line just so that we have a better basis to, uh, to model the second half of the year as it relates, mainly to equity income, uh, the equity income line, and then also taxes. Because the effective taxes was were also, uh, higher than expected. So, that's my first question, uh, on EPS. Um, the second question is actually a follow-up on oxxo Mexico. Um, we we, we share the view that the second half, uh, could be better in, in terms of, you know, traffic and Sims to our sales, but we are lacking evidence of that yet. And I think that,

Ricardo Alves: Can you go into the qualitative examples of the biggest initiatives that you're taking? Is it the new proposition with the tobacco companies? Is it the soft drinks initiatives that you're taking, retail media? What do you think is going to really move the needle for us to see a second half that is better, for us to see a rebound, so also that we can have better visibility to the key drivers to see the light at the end of the tunnel?

Some of the discussions that we had with you guys with Senior Management, uh, as it relates to all the initiatives that you are taking, uh, to improve traffic. I I think that that discussion is very, um, uh, timely. It's very important, it's very helpful, uh, but it's not very clear. It was where, you know, what do you think is going to move the needle most into the second half? Can you can, can you go into the qualitative examples of

Ricardo Alves: I don't know. Maybe July was better. Maybe that could be an evidence.

Of, you know, the biggest initiatives that that you're taking are, are, is it, you know, the new proposition with uh the tobacco companies uh is it the, you know, soft drinks initiatives that you're taking retail media? What do you think is going to really move the needle for us to see a second? A second half. That is better for us to see a rebound. Uh, so so also that we can have, you know, better visibility into uh the key drivers to to see uh, the the light at the end of the tunnel. Uh, if you will, I don't know, maybe July was better. Maybe that could be an Evidence.

Martin Yaniz: Those are my questions. Thank you so much.

Um, those are my questions. Thank you so much.

Martin Yaniz: Let me start with the below the line question. The single most important reason for the decline in net income is one. is a 10 billion peso swing caused by foreign exchange losses and our US dollar excess cash Um And that just happened to be that it was a very good year last quarter, the second quarter of 2024. And here, it was worse because the pace would decline. And in that way, it's a little not tricky, particularly difficult to understand, but the balance sheet items are impacted quarter on quarter with FX moves quarter on quarter, while P&Ls are moving really with year to year FX moves.

Let me, let me start with the below the line question.

The single most important, uh, reason for the decline in that income is 1 Thing.

Is that 10 billion pesos swing caused by Foreign Exchange losses and our US dollar, uh, excess cash balances. Um,

And that just happened to be, that was a very good year dashboard. Uh, the second quarter of 2024 and here it was worse because the, the pace of the client, and in that way. It's a, it's a little not not, not tricky particularly difficult to understand, but the balance sheet items are impacted quarter on quarter with FX moves quarter on quarter while pnl.

Martin Yaniz: And so, um... If you back that $10 billion out, that explains most of it. So... Without a doubt, if you believe that the exchange rate is going to remain stable, that number should be tenth towards zero. If you believe the peso will devalue, you will see again periods where we have very good profits. So I would tell you below the line, that is the thing that's moving.

can are are moving really with year to year FX movements and so, um,

If if you back that 10 billion out that explains most of it. So, um, without a doubt um,

Uh, if if you believe that the exchange rate is going to remain stable, that number should be 10 towards zero. Uh, if you believe the the pace will devalue, you will see again period, where we have very good, uh, profits.

Martin Yaniz: The second thing is the issue of taxes. I'm sure somebody will ask about this. And we explain it in quite a bit of detail in the press release. The taxes in a period where our pre-tax income has been impacted by this loss, it tends to magnify two things in a relative marginal tax rate perspective, which is, one, the non-deductible expenses, a part of labor. As you know, in Mexico, you cannot deduct 100% of labor expenses because a portion of labor expense doesn't pay income tax. So the government has taken the position, well, if employees are not paying income tax on this part of their compensation, they only allow you to deduct, and I'm going to say approximately 50% of that portion of your labor expense, which the employee doesn't pay.

Um, so I would tell you below the line, that is the thing that's moving. The second thing is the issue of taxes, I'm sure somebody will ask about this and, uh, we, we explained it in quite a bit of detail in the press release. Uh, the taxes in a period where our pre-tax income,

Has has has has been impacted by this loss. Uh it tends to magnify 2 things in a relative marginal tax rate perspective which is 1 the uh non-deductible expenses part of Labor as you know in Mexico you cannot deduct 100% of Labor expenses because a portion of Labor expense, doesn't pay income tax. So, the government is taking the position. Well, if, uh, employees are not paying income tax on this part of their compensation, they only allow you

Martin Yaniz: As our operations have continued to grow and the labor expense has grown, such has, so has the non-deductible amount. And that is unlikely to change. There is a second part, which is the spin loss. spin losses because of where they're located within our corporate structure. At this point, we cannot deduct them, and we are not accruing or adding to our tax assets from the future application of those losses to profits from the SPIN business simply as a conservative prudent accounting matter. We no longer do that. Remember that in Mexico, accumulated losses only last 10 years, so they don't last into infinity.

To deduct and I'm going to say approximately 50% of that portion of your labor expense which the employee doesn't pay as our operations have continued to grow and the labor expense has grown such has. So has the non-deductible amount and that is unlikely to change.

there is a second part, which is the spin losses, the spin losses because of where they're located within our

Martin Yaniz: And so, therefore, at some point, you have to make a judgment of whether you will be using those losses within the remaining life of those losses before they expire. That second item is really non-cash, if you think about it, because if you're removing the losses from SPIN, you just don't have a tax shield on it, and so it increases your relative tax rate. But the tax rate on the remaining businesses, which generate the profit of the business, don't have that 40% marginal tax rate that you saw. It's a tax rate much more than the 35%.

Martin Yaniz: Also reminding you that we have operations that pay higher taxes than the Mexico tax The number you're seeing is consolidated. COF Brazil has a higher marginal tax rate than COF Mexico. And there are some other countries in South America where the tax rate is above 30%.

And we are not acquiring or adding to our tax assets from the future application of those losses to profits from the spin business simply as a conservative prudent accounting matter, we no longer do that. Remember that in Mexico accumulated losses only last ten years. So they don't last until infinity. And so, therefore, at some point you have to make a judgment whether you will be using those losses within the remaining life of those losses before they expire. Um, that second item is really non-cash if you think about it because if you're removing the the losses from spin you just don't have a tax shield on it and so it increases your relative tax rate but the the tax rate on the remaining uh businesses which uh generate the profit of uh the business. Don't have that 40% uh marginal tax rate that you saw. It's a tax rate, much more than the 35%.

Also, reminding you that we have operations that pay higher taxes in New Mexico tax rate.

The number you're seeing is consolidating hasn't Mexico? And there are some other countries in South America where the tax rate is above 30%.

um,

Martin Yaniz: That is as to this issue of what's happening below the line. If you can remind me of your second question. If you could give us more evidence to be optimistic about second half, about July. I would like to talk a little bit about July. Martin always gives me a little bit of a hard time because I look for the green shoots. I mean, if the month of July ended today, safe store sales are positive in the low single digits, for whatever that's worth. I think on the other part of that question, in terms of some of the stuff that's being done, you know, that that rotation in and out of Larger presentations, returnables, changes to the price package, those have happened over time, several times.

That is, as to this issue of what's Happening below the line. If you can remind me, your second question, is any with some more? Uh, more evidence uh, to be optimistic about about second half to talk about July? Uh, I, I would like to talk a little bit about and I Martine always gives me a little bit of a hard time because I I look for the, I look for the, the, the the green shoots. Um, I mean, if if the month of July ended today,

Same store, sales are positive and the low single digits. Um, you know, that's for whatever that's worth. Um, certainly

I think on the other part of that question, in terms of some of the stuff that's being done, you know, that that rotation in and out of

Martin Yaniz: In my tenure, I've seen it happen probably two, three times, where the consumer begins to ask for those multi-serve presentations in both beer and soft drinks, where returnable mix goes up, and then eventually things get better, and people don't want to deal with the hassle of returnables, and then you go back to the single serves, one-ways. I think we're in the middle of that, and we're in this process where more of the SKUs at OXO are going to resemble some of those SKUs at the mom-and-pop, where you can do the sharing that Martin was talking about in the multi-serves and the returnables, but there are also these two big external factors, the weather, and again, if you look at Coke French's numbers and other people that have reported, they all seem to converge on how beverages and convenience categories suffered during the quarter, and then just the overall health of the Mexican consumer and whether construction activity picks up a little bit in the second half, which is something we all hope and expect will happen, and it has a lot to do with permitting and government policy.

larger presentations, returnables, kind of changes to the price package. Those have happened over time several times, right? I mean in my tenure, I've, I've seen it happen, probably, you know, 2 or 3 times where the consumer

begins to ask for those multi-serve, uh, presentations in both beer and soft drinks where returnable mix goes up. Um, and then eventually things get better and people don't want to deal with the hassle of returnables and then you go back to the single serves 1 ways. Um, I think we're kind of in the middle of that.

Uh, and and, you know, obviously we're in this process where more of the skus at oxxo are going to resemble some of those skill use at the moment and pop where you can, uh, kind of do the, the sharing that Martin was talking about in the multi, uh, and the returnables. Um, but you know, there there are also these, uh, 2 big external factors, right? Uh, the, the, the, the weather. And, you know, again, if you look at Coke, France numbers and other people, uh, that have reported, uh, they all seem to converge on how, you know, Beverages and convenience categories, uh, suffered during the quarter, and then just the overall health of the of the Mexican consumer. And whether, you know, construction, activity picks up a little bit in the second half, uh, which is something, we all hope and expect will happen, and it has a lot to do with with, um, you know, permitting and and, and kind of government policy. Um, so I, I mean, I don't know Mark,

Martin Yaniz: You have more on that. Again, some of these things are off our control, the economy and weather, and I would suspect you guys have a view. on the economy, I assume not on the weather, and implementing many of these commercial activities, you don't just flip a switch when you want to introduce returnable packaging into the OXO system. You have to develop the systems for recollecting the bottles and cases and the amount of cash for them. As a boss of mine used to say, the most expensive packaging in the world is a returnable package that doesn't return.

If, if you have more on on on that, yeah.

Again, some of these things are outside of control the economy and and weather. And I would suspect you guys have a view on this, uh, particularly on the economy and I assume that on the weather and um, implementing many of these commercial activities. You don't just flip flip a switch when you want to introduce returnable packaging into the Oxo system. You have to develop the systems for

Martin Yaniz: So that has to be accounted for and we need to... And then we need to negotiate with our suppliers, and as you can imagine, some suppliers want to save certain packaging presentations for certain channels, and then that's where it's important that Oxy uses its commercial muscle to demand sort of equal treatment in terms of packaging, and until now, positive. There are also some commercial negotiations with some very, very, very important suppliers that are being finished as we speak, which should give us an uplift. I prefer not to identify them. But there are some important categories where we've made some very important negotiations in terms of promotions, commercial income, the margin as a retailer, we're gonna be able to keep on them.

There are also some uh, commercial negotiations with some very, very, very important suppliers that are being finished as we speak. Uh, which should give us an uplift. I prefer not to identify them. Um,

Martin Yaniz: That should flow through towards the second half that you don't see today in the first.

Martin Yaniz: Also, we have been planning for the labor reform to occur this year. We're pretty confident it's not going to happen this year. I think the government has been very sensitive to the fact that in the current economic environment, reducing work hours is likely to be somewhat recessionary. And so I think that's going to give us some breathing room with regards to things that we had otherwise planned for.

But there are some important categories where we've made some very important negotiations in terms of promotions commercial income. Uh, the margin as a retailer that we're going to be able to keep on them that should flow through uh, towards the second half that you, you don't see today in the first half, um, also we had been planning for the Labor, uh, reform to occur this year, we're pretty confident. It's not going to happen this year. Uh, I think the government has been very sensitive to the fact that in the current economic environment, uh, reducing work hours is likely to be, uh,

Somewhat recessionary, and so I think that's going to give us some breathing room with regards to things that we had otherwise planned for this year.

Operator: Martin, Juan, thank you. Thanks again.

Martin Juan, thank you. Thanks again.

Bob Ford: Thanks, Ricardo. Next question comes from the line of Bob Ford calling from Bank of America. Please go ahead. Hey, thank you. Good morning, Juan. Juan Carlos Martín. Thanks for taking my question.

Thanks for Carla.

Next question comes from the line of Bob Ford calling from Bank of America. Please go ahead.

Bob Ford: Juan Carlos, how do you think about the sustainability of SPIN's consumer fee-based revenue, and how do you see that evolving over time, if at all? And can you talk a little bit about your deal with Metcalfe Pago? How should we think about the fee income and traffic generation with Metcalfe Pago versus other correspondent banking agreements? And is the deal limited to cash in and out, or does it encompass pickup, returns, or other services? Thank you.

Hey, thank you. Good morning. Juan Carlos Martine. Thanks for taking my question. Um, 1 Carlos, how do you think about the sustainability of spins consumer fee based revenue? And, and how do you see that evolving over time, if at all and, and can you talk a little bit about your deal with MCO? Pago, how should we think about the fee income and traffic generation with MAV, Pago versus other correspondent, banking agreements? And is the deal limited to cash in and out or does it Encompass pickup returns or other services? Thank you.

Juan Carlos Guillermetti: I'll start with the second part of your question, which is the deal with Mercado Bajo. There, I would highlight that, you know, we're committed to continuing to open our infrastructure to all players in Mexico. We see an opportunity to continue to... Grow Our Ecosystem, and hence, we do deal with MercadoLibre, similar to many of the other fintechs that are now part of our network, as an enabler of consumer choice and ensuring that we have a robust offering as customers access the store. It's primarily related to both cash in and cash out. There are currently some pilots around PUDO, pick up and drop off, that we are doing with MercadoLibre, where we are excited about the prospects of how that can evolve into a digital solution over time, enabling our customers to be able to purchase on MercadoLibre and pick up and drop off, depending on their needs, directly in the store.

Thank you. I'll start with the second part of your question, uh, which is the the deal with medical there. I would highlight that, you know, we're committed to continuing to open our infrastructure to all players, uh, in Mexico. We see it. Uh uh, an opportunity to continue to

Grow our ecosystem. Uh, and hence uh, we view the deal with my fellow Apollo similar to many of the other fintechs that are now part of our our network uh, as an enabler of consumer choice. And uh, ensuring that. We have a robust offering as customers access the store. It's primarily related to both cash in and cash out. There are currently, uh, some Pilots around, Pluto, pick up and drop off that we are doing with Macau. Uh, where we are excited about the prospect of how that can evolve into a digital solution over time. Uh, enabling our customers to be able to, uh, purchase somebody and since, uh, pick up and drop off, depending on their needs, the

Juan Carlos Guillermetti: Those are still very early stage, however, we do think that that's going to be something that could be relevant down the line, especially as we continue to evolve our own digital ecosystem.

Juan Carlos Guillermetti: As it relates to your first question on fees and how we see an increased electronification of cash, the reality is that that is an ongoing trend. Having said that, our correspondent banking fees continue to be quite strong, and hence through SPIN we see an opportunity to parlay our position in physical cash into the digital ecosystem, and there monetization is going to come from the opportunities that we see in financial services, primarily around credit, which were early in our building. Very helpful, thank you so much.

Directly in the store, those are still very early stages. However, we do think that that's going to be something that could be relevant down the line, especially as we continue to evolve our own digital ecosystem.

Uh, as it relates to your first question on fees and how, you know, we see an increased electrification of cash.

Um, the reality is that uh, that is an ongoing Trend. Uh, having said that uh, our correspondent banking fees continue to be quite strong. Uh, and hence through spin, we see an opportunity to Parlay our position in physical cash into the digital ecosystem and their uh, monetization is going to come from the opportunities that we see in financial services primarily around around credit, which were early in our in our buildout.

Juan Carlos Guillermetti: Yeah, the only thing I would add, one of the things that has surprised me and it proves the power of the platform of Oxford Oaks. Every time a new FinTech player Getting access to OXO. They put out press releases sort of almost describing it as new strategic partnerships that we're developing, and the reality, they're being Managed like all the other people who access our payment platform, there's nothing. Special or unique about what Mercado Libre is doing within our OXO stores as compared to what any other traditional financial institution or other e-commerce businesses. So for us, it's sort of business as usual to bring in and to give access to more players that gives more optionality to our customers.

Very helpful. Thank you so much.

Yeah, the only thing I would add—one of the things that has surprised me.

And it improves the power of the platform of our code every time a new fintech player.

Getting access to oxxo.

They put out press releases, sort of almost describing it as new strategic partnerships that were developing, and the reality is they're being.

Managed like all the other people who access our payment platform. There's nothing.

Juan Carlos Guillermetti: You guys are special and unique, and I think that's why they're excited about the distribution. But thank you. You can say that I won't, but thank you.

Special or unique about what is doing within our Oxo stores as compared to what on any other traditional financial institution or other e-commerce. Um, other e-commerce businesses. So for us it's sort of business as usual uh, to bring in and give access to more players that gets more optionality to our customers.

Uh, you all are special and unique, and I think that's why they're excited about the, uh, the distribution.

But thank you. You can say that I won't, but thank you.

Antonio Hernandez: The next question comes from the line of Antonio Hernandez calling from Actinver, please go ahead.

The line of Antonio of air, and this calling from Actinver, please go ahead.

Antonio Hernandez: Hi, good morning. Thanks for taking the question. Uh, well, two quick ones, actually. The first one, do you want to see an improvement or what? Actually, from a weather perspective, you mentioned this and it was... as you commented, it was already quite expected. But if you could exclude the weather impact on traffic and sensor steps, how was the quality performance? And then I have a comment. Traffic X Weather is the question.

Hi, good morning. Thanks for taking my question. Uh, actually, sorry. Do you want to see an improvement or, well? Actually, from a weather perspective, you mentioned this and it was, as you come up with, already quite expected. But if you could exclude the weather impact on traffic and so on, how would that accordingly affect performance? And then I have a comment for those. Thanks.

Traffic, traffic. X weather is a question.

Martin Yaniz: The line sounds very muffled, we apologize, but we had a little bit of trouble understanding the question. Yes, questions on traffic, excluding weather is possible. Again, with a massive caveat that trying to exclude any individual cause One also runs this analysis. And if you were to ask me all the details of how they've run this and analyzed this, it would be hard for me to give you all the details. They have attributed a number of approximately 39% to the. The impact on track. But again, I myself, I'm a bit skeptical of the science behind sort of pulling on that little string of the myriad of causes for the issue of, and it's outside of our control.

Here in you, it sounds very muffled. The line sounds very muffled; we apologize, but we had a little bit of trouble understanding the question.

Yes, traffic is excluding whether it's possible.

Again, with a massive caveat.

Trying to, uh, exclude any individual cars.

uh,

When UH also runs its analysis, and if you ask me for all the details of how they conduct this and analyze it, it would be hard for me to provide you with all the specifics. They have attributed a number of approximately 39% to weather.

Of the impact on traffic.

Uh,

Again, uh, I myself am a bit skeptical of the science behind sort of pulling on that little string.

Martin Yaniz: I mean, the weather will be what the weather is. Really, on the other issues of traffic, I think. Proving our value proposition, including our mix, adding new categories into, that's where we need to focus all our efforts and our work because it will rain when it rains and it'll be hot when it's hot. Yeah, I think, I mean, obviously, there's a lot of regional data. And whether it wasn't, it's not never constant, right? So you also guys are, I've got a pretty scientific about how they measure this. But I think the main takeaway here is that it was significant, right?

Of um, the the Myriad of causes for the issue of and it's outside of our control. I mean, the weather will be what the weather is really on the, on the other issues of traffic, I think it's

Improving our value proposition, including our mix and adding new categories, is where we need to focus all our efforts and work. Because it will rain when it rains, and it will be hot when it's hot.

Yeah, I think, I mean, obviously, there's a lot of regional data.

Martin Yaniz: I mean, whether you believe it's 39 or 40, or a little bit more, a little bit less, you're talking about a significant component. It's a little bit like talking about comps, right? I mean, we are heading into a period where the comp base is a lot The Cogarbola FEMSA team is focused on what is within our control, the SKUs, the multi-service and the price architecture, and that's what the team is focused on. So when you look back at April and May of last year and how hot it was during those months relative to these years.

And whether it wasn't, it's not never constant, right? So you you you. They also guys are I've got to put you scientific about how they measure this, but I think the, the main takeaway here is that it was significant, right? I mean, whether you believe it's 39 or 40 or a little bit more, a little bit less, you're talking about a significant component. Uh, it's a little bit like talking about comps, right?

Right. I mean we are heading into a period where the comp base is a lot, you know, easier. But that's not really what you're focused on. You're focused on what is within our control. What what things, you know, this thing with the skus and the, the multi-serve and the price architecture, um, and that's what the team is focused on. But but, you know, it's rather further evidence that this is, whether driven is the fact that also has a very complicated Mexico.

Martin Yaniz: in addition to the issues of the election and the economy and so on. But again, Ecuador-Gola Tempsa's market share numbers are rock solid. They're doing well. There's no indication that there's a competitiveness issue at Ecuador-Gola Tempsa. And they also had a very, very complicated second quarter in terms of volume. Again, weather impacts the consumption of beverages. more than people realize not only the temperature but the range. So the more range, the less people go out and so the less they buy single home away servings. And at the margin, it impacts, for example, somebody was telling me about other companies that are more in the coffee business and why their safety or sales were better than ours.

So when you look back at April and May of last year and how hot it was during those months relative to these years,

Uh, in addition to the issues of the election and the economy and so on. But again, what we're going to say is, uh, market share numbers are rock solid; they're doing well. There's no indication that there's a competitiveness issue or a lot of themselves, and they also had a very, very complicated second quarter in terms of volume. Again, weather impacts the consumption of beverages.

Martin Yaniz: They were, well, when it's cold people drink coffee more than they will drink a cold beer and so again, it sounds anecdotal, but it actually does happen in the real world. Okay, thanks. I appreciate the call. And just a quick follow-up. Having said that, how does that play out with your openings expectations for both Oxus and Dara? How does that play out? Are you maybe accelerating a little bit with your opening space or just business as usual on that side?

Uh, More Than People realize, uh, not only, uh, the temperature, but the rain. So the more rain, the less people go out and so the less they buy single 1 way serving and and it, you know, at the margin it impacts, for example, uh, somebody was was telling me about, you know, other other, uh, companies that are more in the coffee business and and why they're safe to our sales were better than ours. And they say well, you know, when it's cold people drink coffee uh more than they will drink it cold beer and

So again, this is Samsung anecdotal, but it actually does happen in the real world.

Okay, extension. I appreciate the call and just a quick follow-up having said that. How does that play with your openings expectations for both options?

How does that play out? Are you maybe accelerating a little bit in the European space, or is it just business as usual on that side? Thanks.

Martin Yaniz: If I understood correctly, the question has to do whether this performance is impacting our plans for opening stores in OXO and BADA. With regards to BADA, I would say it doesn't. The reality is we're on a long journey here to expand that value proposition. And so there are very few, many changes on that. On OXO, at least for the time being, again, no major changes. I do think, and this is more of a trend that we've been seeing over the last year, year and a half, not particularly pushed by the recent performance, which is we're seeing a larger percentage of the stores we're opening being OXO niche.

Martin Yaniz: which is, again, it's stores that are enclosed. Quote-unquote secure environment. So inside universities, hospitals, plants, office buildings, et cetera. We're seeing the percentage of that increasing as a percentage of the stores that we're opening because we see a very unique opportunity, position to sell in that market. And we wanna try to capture as much of that market as we can because we think it's very strategic and very valuable. And there's a lot of demand for it in some of our nicho stores. The feedback we get from the HR of some of the factories in which we've opened this is that it actually reduces, there's a correlation between opening the OXO nicho and the rotation and absenteeism that people see within the factory because people were missing work to be able to execute financial services and they're being able to execute them inside their workplaces now in a very safe environment.

I would say, it doesn't the reality is we're on the, on a long journey here to, um, to expand that value proposition. Um, and so there are very few of any changes on that. Uh, on Oxo, at least for the time being again. No, major changes. I do think. And this is more of a trend that we've been seeing over the last, uh, year year and a half, not particularly pushed by, um, by the the recent performance, which is we're seeing a larger percentage of the storage. We're opening being oxone, which is again. It's, uh, stores that are enclosed.

Quote unquote, secure environments. So, inside universities, hospitals, plants, office buildings, etc., we're seeing the percentage of that increasing as a percentage of the stores that were opening because we see a very unique opportunity to position to sell in that market. We want to try to capture as much of that market as we can because we think it's a very strategic and very valuable.

And there's a lot of demand for it. Um, and some of our, uh, Nitro stores the feedback we get from the HR of, some of the factories in which we've opened. This is that, it actually reduces there's a correlation between opening the auction mutual, and the rotation and absenteeism that people see within the factory because people were missing work to be able to execute financial services and um, uh, they're being able to execute them inside their workplaces. Now in a very safe, uh, environment,

Martin Yaniz: But for the time being, we may revisit that in the second half of the year to slow down maybe some of the expansion if it makes sense. But for the time being, we're going to continue to open at the pace that we've been guiding to in Mexico, which is 1,000 to 1,100 stores net a day. Perfect.

Uh, but for the time being, we may revisit that in the second half of the year to slow down maybe some of the expansion if it makes sense. But for the time being, we're going to continue to open at the pace that we've been guiding to in Mexico, which is 1,000 to 1,100 stores in net additions.

Operator: I appreciate the call, Ulises.

Okay, I appreciate the call.

Ulises Argoti: The next question is from Ulises Argoti calling from Satander. Please go ahead. Thanks for the question. I have one, maybe it's a bit of a follow-up there related to Vara. So on the release, you said that some weakness there on the convenience categories, right? Could you share some additional color on how much is convenient there from the mixing data? You put some numbers there on the release, and thanks for that. But any additional color is always appreciated. And then kind of a segue into the second part of the question would be how do you see this into the future, right?

Thank you.

The next question is from Ulysse Aoti, calling from Sat Under. Please go ahead.

Ulises Argoti: Is the focus there to further expand on these categories in Vara, or are you kind of fully comfortable with the current mix? Thank you.

Okay. So uh, thanks for the uh, speech for question. I just had 1, uh, maybe to get a follow up their related to, to V so that some weakness there on the convenience categories, right? Uh, could you share some additional call around? How much is something? Is there from the mixing bar? Um, you put some numbers there on the release and and thanks for that. But any additional caller is obviously appreciate it. Um, and then kind of assess way into the second part of the question would be, how do you see this into, uh, into the future right as a focus? Yes, through further expand on this kind of categories in in battle. Are you kind of fully comfortable with the with the current next? Thank you.

Juan Carlos Guillermetti: Ulises, it's Juan. So the mix of convenience within Bara is around 30%, so it's not insignificant. We continue to see value in the Bara customers being able to buy the national brands for beverages, certainly Coke and the big beer brands. However, having said that, if you ask me, can we read the tea leaves or look into the future, certainly the focus internally is put on the private label part of things and on at least doubling the mix of private label and really continue to move the value prop towards a more of a harder discount, which then would mean that convenience component would weigh less, right?

Hey, this is Juan. The mix of convenience within bias is around 30%.

Um, so it's not insignificant, um, we we continue to see value in, uh, the vat, customers being able to buy, uh, you know, the, the, the, the national brands for for beverages, certainly Coke and, and, uh, you know, the the big beer brands. Um, however, having said that, if you ask me, can I read read the, the the tea list or look into the future? Um, certainly the focus internally is put on the private label part of uh of things and on at least doubling the mix of private label and really uh, continue to to move the the

Juan Carlos Guillermetti: So as we go from somewhere in the 20s where the private label is right now into hopefully the 30s and the 40s and beyond, I would expect the relevance of convenience to come down. But that's just directional. I don't really have, I don't think we have visibility into what the number will look like, you know, five years. No, that's all for today. Thank you. Thank you very much. Thanks, Ulises.

Value prop towards, uh, a more of a harder discount, uh, which then would mean that convenience component would would weigh less, right? So as as we go from somewhere in the 20s where the private label is right now and to hopefully the 30s and the 40s and Beyond, um, I would expect the, the relevance of convenience to come down but that's just directional. I I I don't really have, I don't think we have visibility into what the number will look like, you know, 5

No, that's what it's supposed to be 1. Thank you, thank you very much.

Thanks.

Carlos Laboy: The next question comes from the line of Carlos Laboy calling from HSBC, please go ahead. Yes, hello. Juan Carlos, I was hoping that you could speak to your your interactions with the board of directors with their level of support. and how their skill and their understanding of the firm's changing digital needs. on how it's evolving. Thank you for the question. Interaction with the board has been great. I'm very excited about the commitment that they have behind the spin efforts. If anything, they're looking for us to be much faster in our deployment and execution and really looking for the synergies that come from providing a value prop that has The mix of the physical assets on the OXO side with SPIN's digital value.

The next question comes from the line of Carlos Lavoie, calling from HSBC. Please go ahead.

Um yes. Hello. Um when Carlos I was hoping that you could speak to your your interactions with the board of directors with their level of support.

Digital needs.

Um, how it's evolving?

Thank you for the question. Um,

interaction with the board has been great. Uh, I'm very excited about the commitment that they have behind the spin efforts, if anything, they're looking for us to be much faster in our deployment and execution, and really looking for the synergies that come from, uh, providing a value prop that has

Juan Carlos Guillermetti: In terms of the expertise on the board, there's been significant changes and I'll let maybe Martin and Juan talk to them over the course of the last couple of years. We do have a number of board members that are quite well-versed in the digital arena, having gone through transformations on their own, both within big tech companies in the U.S. and driving those value props across different markets, as well as through traditional retail and moving towards a more digital offering that have been quite helpful and vocal in the needs of the strategic imperative for us to move quickly in terms of the two big opportunities that we've highlighted, which is enhancing the value prop of OXL, driving a better convenience value prop through digital, as well as the opportunity that we have in financial services and involving our current cash-based correspondent banking into a broader set of offerings that moves us beyond payments and rewards into savings and credit.

Uh, the mix of, you know, the physical assets on the Oxo side with, uh, with spins, digital value prop, uh, in terms of the expertise on the board, uh, there's been significant changes and I'll let maybe my team and 1, uh, talk to them, over the course of the last couple of years, we do have, uh, a number of board members that are quite well, quite well first uh in the digital Arena, having gone through Transformations on their own both by uh, within big tech companies in the US. And uh, you know, driving those value props across different markets, uh, as well as through traditional retail and moving towards a more digital offering, uh, that have been quite helpful and vocal in the needs, and the Strategic imperative for us to move quickly. In terms of the 2 big opportunities that we've highlighted, which is enhancing the value prop of also uh, driving a better, uh, convenience value, properly, digital

Uh, as well as the opportunity that we have in financial services and, uh, involving our current cash-based correspondent banking into a broader set of offerings that moves us beyond payments and rewards into savings and credit.

Juan Carlos Guillermetti: There are two people in particular who have been now on the board for a year and a half. B, Guido Thomas. and Daniela Leir, both of them in. previous jobs have had. Digital Businesses. And in one case, one is now very involved in media business. The areas of focus. of the question. And the challenges that they do on the board are around the cooperation of OXO and SPIN. And how do we make sure that those two organizations cooperate better? That has been, I mentioned already previously, that we're looking to have joint P&Ls going forward between executives who share responsibilities.

There are 2 people in particular who have been on the board for a year and a half to 2 years.

The Gil Thomas and Daniela, both of whom have had involvement in digital businesses in their previous jobs, are important to note.

And in one case, 1 is not very involved in the media business. The areas of focus for the questions and the challenges that they do on the board are around the cooperation of Oxo and Spin. How do we make sure that those two organizations cooperate better? That has been, as I mentioned already previously, a concern. We're looking to join the pianos going forward between executives who share responsibilities.

Juan Carlos Guillermetti: Number two, I think they and other members of the board who are less in the digital world have urged caution with regards to the credit part of the business, and that's why, as you can see in all our calls, we try to transmit the cautiousness with which we will be approaching the credit part of the monetization strategy around this, and with the continued promise of no surprises. We will keep everybody abreast of what we're doing in this regard, and the bets are very contained and small now as we build up capabilities. And we continue to explore, if possible, trying to find partners for some or all of the financial services part of the offering that we're trying to develop.

Um,

Number 2: I think they, uh, they and other members of the board were less than enthusiastic about the digital world and have urged caution with regards to, uh, the credit part of the business. And that's why, as you can see in all our calls, we try to convey a sense of cautiousness when approaching, uh, the credit part of the monetization strategy around this. We continue to promise no surprises. We will keep everybody abreast of what we're doing in this regard, and the bets are very contained and, uh, small. Now, as we build up capabilities,

Juan Carlos Guillermetti: So I would add those two comments to welcome comments. To finalize, the board is not static and just as FEMSA, we've gone through the whole FEMSA forward process and our mix of core businesses obviously has changed over the past decade, so too has changed the composition of the board and I think that it connects with the efforts of Jose Antonio in reducing the size of the board but also in getting new blood and new talent and new experience into it that is fully consistent with the challenges that the company is looking at and really the DNA of the company today as opposed to what it was 10, 20, 30, 50 years ago.

Uh and we continue to explore if possible, trying to find partners for some or all of the financial services part of the um offering that we're trying to uh, develop. So I would add those 2 comments to welcome, Carlos just to mention. Yeah. And I would just, you know, to finalize um you know, the the board is not, it's not static, right? And and just as samsa, you know, we've gone through the hole from the forward process and the our our, our mix of core businesses of the league has changed over the past decade. So to has changed the composition of the board, right? And I think that it connects with the efforts of of Antonio in in reducing the size of the board but also in getting new blood and new talent and new experience, uh, into it that is fully uh, consistent with, you know, the

Juan Carlos Guillermetti: And maybe one final point on my end, which, you know, getting perhaps to read between the lines of the question of, you know, do we have the right expertise in the digital arena around our board and our management team, I would like to highlight that also the recent changes in administration in Oaxaca, Mexico have been quite positive. Carlos Arroyo's addition to the team, having led the digital efforts at Choco, and then also having been intimately involved with the transformation in Walmart in Central America, has created a different type of discourse for us at SPIN as we think about our collaboration efforts between Oaxaca, Mexico and SPIN in a very positive manner.

The challenges that the company is looking at and really the DNA of the company today are supposed to reflect what it was 10, 20, 30, or even 50 years ago.

And maybe one final point on my end which, uh, you know,

Getting perhaps to read, between the lines of the question of, you know, do we have the right expertise and the digital Arena around our, our board and our management team? I would like to highlight that also the recent changes in administration and also Mexico have been quite positive addition to the team having led the digital efforts at Chaco. And then also having been intimacy involved with the transformation in in Walmart, in Central, America has created a different type of discourse for us.

Juan Carlos Guillermetti: That is allowing us to gain momentum across our teams and have a much better alignment behind the strategic vision that we're trying to deploy. This is all really helpful insight. Thank you. Thank you, Carlos.

Efforts between Mexico and Spain are progressing in a very positive manner. This is allowing us to gain momentum across our teams and achieve much better alignment behind the strategic vision that we're trying to deploy.

This is all really helpful insight. Thank you.

Thank you, Congress.

Ricardo Alves: There is a follow-up question coming from Ricardo Alves calling from Morgan Stanley. Please go ahead. Thanks for the follow-up, guys.

There is a follow-up question coming from Ricardo Alves, calling from Morgan Stanley. Please go ahead.

Ricardo Alves: My line was cut, so I'm sorry if this was asked, but a quick question for Martin on capital allocation. We did see the conclusion of the ASR program, and based on what's been announced, I think that you made reference to that in your preliminary remarks. That would imply perhaps another ASR, so just wanted to see if you have any expectations around that. I'm not the last ASR relative to your preliminary expectations. As it pertains to local buybacks, we've been following how active the company is on that front this year. I think that's appreciated and needs to be acknowledged.

Thanks for the follow-up, guys. Uh, my line was cut, so I'm sorry if this was asked. But, uh, quick question for Martin on capital location. We did see the conclusion of the ASR program.

Martin Yaniz: I just wanted to have your latest thoughts on if we could expect a resumption of that now that the second quarter is behind us. Thanks again for the follow-up, guys. Again, our commitment is we're targeting $900 million. of buybacks from March 25 to March 26. We're about 40% there, we're like at 375 I think is the number between the local market purchase. and the ASR. Number two, again, this is what people should expect. They should expect during Windows. where we can trade, execute in the local markets, and launching ASRs. We can't do this outside the windows.

Um, and based on what's been announced. I think that you, you you made reference to that in your preliminary remarks that would imply a, you know, perhaps another uh, ASR. So just wanted to to see if you have any expectations around that. I'm I'm not sure for instance. Uh, what was your perception with the the execution of the, the, the, the the last ASR relative to your preliminary expectations. Uh, and as it pertains to to local BuyBacks. We've we've been following how active uh, the company is on that front this year. I think that that's appreciated that needs to be acknowledged. Uh, but just wanted to, uh, to have your latest thoughts on if we could expect, uh, reception of that now that the the second quarter is behind us. Thanks again for the follow-up guys.

No problem. Um, just, uh, real quick again, our commitment is returning $900 million. Um,

Of buybacks from March 25th to March 26th, we're about 40% there. We're at approximately 375, I think, is the number between the local market purchases.

Um and uh the ASR uh, number 2 again, this is this is what people should expect they should expect during windows.

Martin Yaniz: That's number one. Number two, sometimes we have to close windows, because we have material and public information about deals or things that are happening. And I can't communicate when When a window has been opened or closed, it's just simply, I am unable to announce that. So, don't expect this to be operating in every single window. Don't expect this to announce. Everything that we're doing simply because It's impossible for me, but you should be focused on the $900 million March-to-March as our target, and obviously it will always depend on market conditions. That really should be what people are focusing on March to March and 900 million more than anything that happens or doesn't happen from one quarter.

Uh, where we can trade, executing the local markets and buying, uh, and launching ASRs. We can't do this outside the windows. That's number one.

Sometimes we have to close windows because we have material on public information about deals or things that are happening, and I can't communicate when.

Uh, when a window has been opened or closed, it's just simply. Uh, I am unable to announce that. So, don't expect this to be operating in every single window. Don't expect this to announce, uh, everything that we're doing simply because it's impossible for me. But you should be focused on the $900 million march to March as our target. Um, and obviously it was.

Always depend on market conditions, but that really should be what people are focusing on from March to March: $900 million more than anything that happens. It doesn't happen from one quarter to another.

Martin Yaniz: And I would just add, Ricardo, I mean, at the end of the day, we're kind of halfway the three-year timeframe that we provided to get to the two times, and we're at 0.93. So I think that number changed more in the last three months than it had before, so we're almost at the halfway mark if we think about kind of that North Star of 2x. And I think, again, that's what the market should be, you know, assume that we are going to move towards that target as much as we can with all the caveats of Martin Yaniz.

and I would I would just add because I mean at the end of the day we're kind of halfway to 3 year um time frame that we provided to get to the 2 times. Uh and we're at 0, 93. So uh, you know, I think I think that that number changed more in the last 3 months that it had before. So we're we're almost at the halfway mark if we think about kind of that North Star of of 2x. Um, and I think again that's that's that's what the market should be. Uh, you know, assume that we are going to move towards that Target. Uh, as much as we can with all the caveats of Martin just mentioned.

Ricardo Alves: Much appreciated again, Juan and Martin.

Operator: Thank you, Ricardo.

Much appreciated again. Uh, huan and Martin.

Emiliano Hernandez: Thank you. And the last question comes from the line of Emiliano Hernandez calling from GBM, please go ahead. Hi everyone, thanks for the stage. Most of my questions have already been asked. If you have questions, you can ask in the... Can you hear me there? You cut off a little bit, but can you restate the question?

Thank you. Thank you.

And the last question comes from the line of Emiliano, who is calling from GBM. Please go ahead.

Hi everyone, thank you for the space. Most of my questions have already been answered, maybe.

Any questions for now?

Can you hear me there?

Uh, you, you, you cut off a little bit, but can you re restate the question?

Emiliano Hernandez: I was wondering if maybe you can share with us, or in Europe, say if you could bring your training to the quarter, and if you can comment on how you've seen the consumer dynamics there, and anything you can share on the strategy you have mentioned in the past to reduce the banners and plan to start with the organic expansion. I understood the question. This is Europe, right? Consumer demand. Expansion. Thank you, Emiliano.

Yes. Uh,

I was wondering if maybe you can share the floor in Europe uh sales conversion to the quarter. Um if you can comment on how you would see the consumer Dynamics there and anything you can share on the strategy you have mentioned in the past to to reduce the banners and and plan to start with the organic expansion.

I understood the question. This is Europe, right? Consumer demand, uh-huh. An expansion. An expansion.

Martin Yaniz: One message that we've certainly shared on the European operation is that, you know, obviously the nature of organic growth in Europe is a little bit different from what we have in our Latin market, for sure, in terms of, you know, you're not The abundance of corners where it would make sense to set up, in the case of Europe, an AVEC store is not as plentiful. What we've seen is it's very successful by the Valora team, transactions where they will work with an operator of gas stations where Valora, because of their high level of execution and the level of recognition that they have through the AVEC brand and beyond, they're asked to come and operate the stores for those gas stations.

1 message. Thank you. Uh uh Emiliano 1 message that we we've certainly shared uh on on the European operation is that uh

You know, obviously, the nature of the organic growth in Europe is a little bit different from what we have in our LATAM market, for sure. In terms of, you know, you're not...

Martin Yaniz: That's something that you should expect to continue. There's another route which involves, for example, the stores in Germany that are the Deutsche Bahn in the train stations, the Deutsche Bahn by the DB banner that are going to be converted into AVEC stores, so that's an upgrade. The point I'm trying to make is a lot of the new stores that we will have or the converted, upgraded stores that we will have will be on existing stores, whether somebody else that was running in the gas stations or groups of stores like the ones that we will convert in the Deutsche Bahn stations, more than just Greenfield, build a store from scratch.

the abundance of Corners, where it would make sense to set up in the case of Europe. You know, an axe store, um, is is, is is not a plentiful, uh, and what we've seen is, you know, it's very successful by the valora team, uh, transactions where they will work with at an operator of gas stations, um, where valora, because of the, their high level of execution, uh, and the level of recognition that that they have, you know, the through the a brand and and Beyond, uh, they're asked to come and operate the stores for those, uh, gas stations. And so that's something that you should expect to continue. Uh, there's another um,

Route which involves, for example, the stores in Germany that are, uh, the Deutsche Bahn, uh, and the train stations, the Deutsche Bahn by the DB Banner that are going to be converted into a Vex store. So that's an upgrade. Uh, so the point I'm trying to make is a lot of the new stores that we will have are the converted.

Martin Yaniz: Although, there is certainly a thesis that in the outskirts of certain cities, there are white label mom and pops that are definitely convertible and upgradable into one of our That's what I would comment on the organic world. I don't know. I don't know, I'm copying that film.

Uh, upgraded stores that we will have will be on existing stores whether somebody else that was running in the, in the gas stations or, um, groups of stores. Like the ones that we will convert in the, in the Deutsche band stations more than, uh, you know, just the Green Field. Uh, you know, build a store from from scratch. Although, you know, there is there is certainly a thesis that in the outskirts of certain cities. Uh, there are white label, uh, Mom and Pops that are definitely convertible and upgradeable into 1 of our banners. Um, so that's what I would comment on on the organic growth. I don't know. Martini, uh, nothing there.

Yeah, yeah. I don't know if, hopefully, that's helpful.

Operator: Well, there are no further questions, so I will hand it back to your host to conclude today's conference. Thank you everyone for your time and your interest. And as always, Pam and Alex and myself are always available for follow-ups. So have a great week. Thank you, guys. Thank you for joining today's conference. You may now disconnect.

Well, there are no further questions, so I will hand it back to your host to conclude today's conference.

Thank you everyone, uh, for your time and your interest in femsa.

And as always, uh, you know, uh, Pam and Alex and myself are always available for follow-ups. Um, so, uh, have a great week. Thank you, guys.

Thank you for joining today's conference. You may now disconnect