Fomento Economico Mexicano S.A.B. de C.V.

Please stand by, we're about to begin. Good morning and welcome everyone to PHMSA fourth quarter 2021 financial results conference call. All lines have been placed on mute to prevent any background noise. After the presentation, there will be a question and answer session. During this conference call, management may discuss certain forward-looking statements concerning PHMSA's future performance and should be considered as good faith estimates made by the company. These forward-looking statements reflect management expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance. At this time, I will now turn the conference over to Juan Fonseca, FEMSA's Director of Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone. Welcome to FEMSA's fourth quarter 2021 results conference call. Today, we have Daniel Rodriguez-Cofre, FEMSA's Chief Executive Officer, Paco Camacho, our Chief Corporate Officer, and Eugenio Garza, our CFO. As always, we are also joined by Jorge Collazo, who heads COPE FEMSA's Investor Relations Center. The plan for today is to have Daniel comment on some higher-level strategic topics, and then Paco will talk about the evolution of our governance profile and certain changes that FEMSA is proposing for the upcoming shareholders' meetings. in line with feedback we have received from investors. That should enhance our board's accountability, composition, and function. Next, Eugenio will walk us through the numbers, followed by Q&A. So the call will probably be a bit longer than usual, but hopefully it'll prove to be a good use of your time. So with that, let me turn it over to Daniel.

Thank you, Juan, and good morning, everyone. Let me begin by thanking and recognizing Eduardo Padilla once again. We all know that he was instrumental in leading the effort that turned OXO into the powerhouse it is today, creating enormous value for FEMSA and its stakeholders, and setting the foundation for compelling growth avenues going forward. We're also familiar with Eduardo's self-adopted role as FEMSA's Chief Culture Officer, focusing on the development of a positive culture of trust and agile collaboration that has enabled our broad organization and our hundreds of thousands of colleagues to pull together towards a common purpose. Now, allow me to make a quick recap of how I see FEMSA in terms of its potential for long-term growth and value creation. At Coca-Cola FEMSA, we have in place a new long-term relationship model with our partner, the Coca-Cola Company. that significantly increased system alignment and created compelling opportunities for future consistent growth. In our health division, we acquired a large minority stake from our former partner in Chile, allowing FEMSA Comercio to finally integrate our operations across the four countries where we operate. With Heineken, we reached agreements to extend Coca-Cola-FEMSA's distribution partnership in Brazil. while we navigated the gravel opening of our OXXO stores in Mexico to sell other beer brands in addition to the Heineken portfolio. Finally, we have made significant involves developing our business in the United States with our investment in Jetro Restaurant Depot and the creation of Envoy Solutions, our specialized distribution platform. As I begin the journey as FEMSA CEO and take a close look at our company, I truly believe every one of Emsta's operations are in great shape. We have faced and overcome challenges, big and small, including, of course, navigating the COVID pandemic. I would like to talk a little bit about where we are today in our core business units, and then discuss some of the opportunities we see going forward. Starting with the proximity division, in 2021, We surpassed the 20,000 store milestone, and importantly, we believe there is potential to add 10,000 more stores in Mexico over the next decade. At the same time, our South American operations are getting into high growth year, including our joint venture in Brazil. In a few years, it is entirely possible that OXXO International could be generating unique growth figures comparable to those in Mexico. Today, as consumers gradually return to their normal activities and habits, our value proposition is as relevant as ever, and our comparable sales are now above pre-pandemic levels. This, combined with a leaner cost structure and improving commercial income activity, is driving structural profitability gains. This means that OXO and proximity retail, more broadly, will continue to be a key engine for FEMSA's long-term growth. We're also looking at other proximity formats with different characteristics suitable for different consumer environments. And we're always looking to grow not just in number of units, but in profitability and returns. Beyond physical format, as you are aware, we are in the early stages of developing our digital strategy. BIN by OXO, our digital wallet, and OXO Premier, our loyalty program, are off to a very promising start. and we have big aspirations to become relevant players in Mexico's digital ecosystem. These digital opportunities are so important and relevant to our long-term strategy that we have created a business unit focused on their pursuit and development. This dedicated unit reports directly to me. While we are on the subject of digital, let me give you an update on the regulatory front for SPIM. We have now received from the regulator the authorization with certain conditions. We are in the process of addressing these conditions and the SPIN brand is operating under this authorization. This is a very positive development and we will keep you posted of any incremental news. On the broader topic of our digital strategy, we are deploying the necessary resources, including in terms of organizational structure and talent. While it is a tight market, We have managed to attract key industry hires for our spin and premier platforms, and the effort is ongoing. We're also interacting with potential partners that could contribute their expertise or resources at different levels, through commercial or equity structures, with a view to maximize value creation. And while there is a natural focus on developing the ecosystem and pursuing the opportunity in Mexico, everything we learn and developed here will serve us well in other markets and other parts of our operations, such as the Health Division. Moving on the Health Division, we are now able to transfer best practices across territories, and we're growing rapidly in Colombia, Mexico, and Ecuador, leveraging the scale and execution-driven results of the core Chilean operations. beyond commercial and operational improvement that should allow us to gradually narrow the margin gap relative to Chile. We are also growing our digital offerings across the platform in terms of e-commerce, loyalty, and other related opportunities. On the expansion front, we are focused on consolidating and growing our current operations, but we remain vigilant for inorganic opportunities. Organizationally, we have evolved and simplified our structure a bit to better reflect the evolution of our business units and to allow me to be closer to the operations. Therefore, proximity, digital, and health divisions now report to me, allowing us to remove a corporate layer at FEMSA Commerce. This means we will not have a CEO of the retail businesses, but rather the retail businesses will be closer to the FEMSA leadership team. Moving on, our logistic and distribution operations are growing rapidly, driven by our successful acquisition strategy in the United States that is allowing us to execute our game plan faster than expected. We are well on our way to achieving our objective of creating a national platform, and we are already capturing meaningful synergies from our enhanced scale and from cross-selling opportunities across territories. We have added almost $1 billion in revenue through 12 acquisitions in the past 14 months. There is significant integration and further synergy capture work ahead of us, but there are also a few important markets in the U.S. where we still need to strengthen our presence. This is a business that is very attractive and one that is already delivering solid returns with potential to increase margins over time. We are committed to continue playing a relevant role in the consolidation of this market. For its part, Coca-Cola FEMSA keeps focus on profitable growth, both organic and through targeted acquisition, such as the recently announced transaction with CBI in Brazil. In an environment where further system consolidation is always possible, Coca-Cola FEMSA enjoys ample cash generation and a strong balance sheet that support not just a healthy dividend stream, but its own gross optionality. Operationally, COF continues advancing in its own digital and omnichannel initiatives. Its Juntos platform continues to make progress in Brazil and Mexico, with a fast-growing number of customers now enabled to place orders digitally, and the percentage of digital orders reaching new heights. And following the increased system alignment with the Coca-Cola company, we are finding more ways to maximize the productivity of Coke PEMSA's distribution platform through load-sharing pilot tests on our own feed, as well as through the new Nutenta business. Now, let me talk a little about some higher-level strategic considerations. As you know, FEMSA has evolved over time as we have developed certain key capabilities to allow us to pursue business verticals that share certain characteristics. We participate in mass market mainstream industries by providing highly scalable products and services. We develop high levels of capillarity, allowing us to reach and serve our customers through frequent interactions, and we rely on effective operations and processes. enable efficient logistics and distribution capabilities. All of our business units require and benefit from these key capabilities. However, our operations are at different points in their development curve. They have different capital requirements and different growth rates and potential. Therefore, when it comes to FEMSA's capital allocation and deployment, we will privilege those operations that have the best opportunity to generate a positive spread between their return on capital and their cost of capital, obviously adjusted for risk. Lately, this has meant even the growth of our retail platform, as well as our recent investment in the United States. We are convinced this is the right approach, and therefore, you should expect us to continue deploying our capital along those verticals. Finally, let's talk about our two large minority investments, Heineken and Jethro Restaurant Depots. Regarding Heineken, we have obtained very good financial return from this investment since 2010, and we have nothing but respect for Heineken. It is a well-managed, well-diversified company, and we continue to be, as we have said in the past, happy holders of their shares. However, we are constantly benchmarking this investment against potential alternative investments like those we have recently made in the United States. We have funded such investment in the past with proceeds from a partial divestiture of our Heineken steak, and we may do that again in the future. And that brings me to Jethro Restaurant People. This is primarily a strategic investment. Over time, it is a retail business to which we would like to increase our exposure. And as you know, there is also the potential to explore and eventually bring their cash and carry model to Mexico. GRD is very compelling from a financial standpoint, and we are happy holders of their shares as well. Let me close with the following. There are many moving parts in FEMSA, and right now, all of them are moving in the right direction. We truly believe the future is bright and full of promise. Our company is always evolving as we direct our resources towards the opportunities and that we believe present the most compelling long-term value creation potential, and we are moving as fast as we can. I am fortunate to lead such an extraordinary team, more than 320,000 strong and the best in the business. Attracting and developing the best people is a keystone of any business that aims to thrive in the long term, and it is a high priority for us. Together, I have no doubt that we will achieve great results and write a few more pages in the long history of our remarkable company. And while we do that, I look forward to engaging with you frequently in the months and years ahead. Now, let me turn it over to Paco.