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spk40: Hello and welcome to FEMSA's fourth quarter 2023 results conference call. My name is Melissa and I will be your coordinator for today's event. Please note this conference is being recorded and for the duration of the call your lines will be in a listen-only mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I'll now turn the call over to Juan Foseca, Head of Investor Relations. Please go ahead.
spk30: Good morning, everyone. Welcome to FEMSA's fourth quarter and full year 2023 results conference call. Today, we are joined by José Antonio Fernández, FEMSA CEO and Executive Chairman of the Board, Paco Camacho, our Chief Corporate Officer, Eugenio Garza, our CFO, and Jorge Collazo, who heads the Office of Investor Relations. The plan today is for Jose Antonio to open the conversation with some high-level comments on the full year, as well as the senior organizational changes announced today. Then we'll get a bit more into our strategic progress and business trends, followed by Eugenio, who will focus on the results. Finally, we will turn it back to Jose Antonio for some closing remarks and open the call for your questions. Jose Antonio, please go ahead.
spk29: Thank you, Juan. Good morning, everyone. Let me begin by reflecting on a year that was like no other in recent memory, full of activity and news for the company. We kicked things off with a transformational announcement of PEMSA Forward, through which we focused our strategy on our three core business verticals. of retail, what we call also proximity of health, Coca-Cola FEMSA, and digital. We then proceeded to execute on most of its related transactions in record time and with great success by investing our investment in Heineken through two successful transactions, as well as our minority stake in Jethro Restaurant Depot, merging Envoy Solutions with Brady IFS, while reducing our capital exposure to that asset. The effort is still ongoing as we are in the process of finalizing the remaining divestments. Furthermore, we are poised to begin deploying the capital allocation strategy announced last week that will allow us to increase our leverage towards our stated objective and to avoid capital idle to avoid to have idle capital on our balance sheet. During 2023, we made significant progresses, executing on the long-range plan of all our business units and in line with our three strategic priorities of accelerating growth, going increasingly digital, and balancing our rate return profile. We achieved these strong results by combining the right strategies with the hard work of our remarkable team. On that front, and in order to better leverage the FEMSA Forward Strategy, back in September, we made important changes to better align the corporate organization with our more focused structure built around our three core business verticals. In that context, And given the strengthening of the management teams of the three verticals, today we announced two important changes in our leadership team. Paco Camacho and Eugenio Garza have both made the personal decision that this is the right time for them to finish their cycle at FENSA and move on to seek new professional challenges with effect at the end of April. Their contributions to our company have been many and substantial, and we thank and appreciate them today, wishing them continued success in their future endeavors. Martin Arias, who many of you know from his 25 years of fruitful association with FEMSA, will become CFO, working closely with Eugenio to ensure a seamless transition, and with that, Let me turn it over to Paco.
spk30: Thank you, José Antonio. Good morning, everyone. Let me begin with a couple of updates regarding FEMSA Forward. First, the Envoy ISS Brady transaction announced in August successfully closed at the end of October, and the new company is already operating as a single entity. we have completed the process of carving out and transferring the distribution assets of OXO and Coca-Cola FEMSA from Solistica to their respective operations.
spk18: And they are now active in Solistica as well as other non-core operations as defined in FEMSA Forward.
spk30: And finally, we have fine-tuned our capital allocation plans as we informed last week, putting us in a position to begin returning capital to shareholders as we begin to raise our levers towards our stated objective of two times net debt to EBITDA, X cost, which we expect to achieve within two to three years. Moving on to the results for the fourth quarter, our numbers continue the positive trend seen during the first nine months of the year. Fully consistent with our strategic priorities and making progress towards the targets set by each business unit's long-range plan. Beginning with proximity, like we did in our call last quarter, it's helpful to talk for a minute about their own long-range plan and their four priorities around which it is built. Strengthening the core, developing new growth avenues, developing multiple successful formats, and growing the footprint beyond Mexico. Looking at OXO's four-quarter results through this lens, we see they again made a strong progress, a strength, and more. With same-store sales growth of 8.5% against a double-digit comparison base. This performance was again driven by a broad-save set of tailwinds, including a stronger consumer demand for thirst, gathering, and snacking occasions. solid commercial income dynamics, better segmentation of the store, and the rapid adoption of the SPIN premium loyalty program. Continuing with the positive news of a stronger core, store growth was remarkable, with Mexico and Latin adding 514 net new stores during the quarter, and 1,408 during the past 12 months. Looking only at Mexico, we surpassed the 1,000 new store threshold for the first time since before the COVID pandemic, adding 1,087 net openings. Moving on to the long-range priority of going beyond Mexico, during the quarter, Grupo Noos continued its solid advance, with revenues increasing over 119% year over year. and with offset footprint in Brazil more than doubling during the last 12 months, reaching 1,716 stores at the end of 2023. Sealing on Proximity America, but along the priority of developing multiple successful formats, Vara grew revenues by 33.7% and reached a total of 359 stores at the end of the quarter. we will increasingly talk about other successful formats that are gathering momentum, such as our coffee drive-throughs, our specialized OXO-SMART stores for controlled environments, and our traditional trade initiatives. For its part, Proximity Europe achieving strong operating results with substantial growth in a challenging macroeconomic environment. This was driven by higher sales in the food category, and the favorable effect from vertical integration. Revenues increased by a strong 16.4%, generating operating leverage. As of the end of the year, Proximity Europe had 2,808 points of sale, a net increase of 42 units over the comparable period. Our health operations showed mixed performance trends. and again reflected foreign exchange headwinds from strong Mexican peso relative to local currencies in South America. In Colombia, we are gradually shifting our business towards more retail and less institutional exposure. Given the challenges the institutional health industry is facing in the current political environment. While in Mexico, we continue to see competitive retail activity across territories. In both cases, adjustments to our strategy are in progress, and we will keep you appraised. In line with our evolving strategy, during the quarter, our health business continued to push to consolidate its competitive position in retail across markets, increasing its store footprint to reach a total of 4,474 locations. In fact, during 2023, our health vision added new locations across its territories at a pace of approximately one per day. For its part, our fuel business delivered a strong set of results, with our dynamic corporate wholesale business continuing to outperform relative to retail. Comparable sales were robust, with good contribution from traffic and ticket growth. Regarding digital access, the number of active users for Spin by OXXO reached 6.9 million during the quarter. and active users for our premium loyalty program reached 19.3 million. Importantly, approximately 31% of OXO Mexico sales are now associated with the program. We continue to privilege the acquisition of higher quality users when we make progress by tuning the use cases, value propositions, unit economics, and monetization strategies for each part of the ecosystem. In terms of financial implications, during the quarter, we deployed around 1 billion pesos on growing this business, roughly in line with the previous quarter as well as budget. Finally, Coca-Cola Sensa delivered a remarkable set of results for the fourth quarter, driven by Mexico, Brazil, Colombia, and Guatemala, enabling COF to surpass 4 billion unique cases of non-alcoholic ready-to-drink beverages for the full year. And with that, let me turn it over to Kenyon.
spk32: Thanks, Paco. Good morning, everyone. As we continue to execute on our FEMSO Forward strategy, we've made some adjustments to the show statements throughout the year to reflect the adventure of our non-core businesses. During the fourth quarter, we recorded Alpunto and the third-party components of Solistica as discontinued operations. To maintain comparability, we modified our consolidated financial statements for the fourth quarter of 2022 to reflect this change. Let's begin with PEMSA's quarterly consolidated results during the fourth quarter. Total revenues increased 4.6% and EBITDA rose 3.6% compared to the fourth quarter of 2022. Net consolidated income decreased 20.7% and stood at 6.3 billion pesos, resulting from higher gross profit and lower net interest expenses during the quarter. This was offset by a non-cash foreign exchange loss of 6.3 billion pesos related to a U.S. dollar denominated cash position and impacted by the depreciation of the Mexican peso. And a 3.2 billion net loss from discontinued operations, mostly reflecting the accounting re-measurement from historical cost to fair value of FEMSA's investment in Solistica and El Punto net of impairments. Shifting gears to our business unit results, and starting with Proximity Americas. During the fourth quarter, we incorporated 514 stores, bringing our total to 1,408 new stores for 2024, which includes 1,087 new stores in Mexico and 321 in South America. This robust growth has propelled us beyond the annual growth target, renewing our confidence that our growth runway remains long for OXO across all markets, and the opportunity for our multi-format strategy is equally compelling. OXO's same-store sales increased 8.5% in the fourth quarter, cycling strong double-digit growth from the same quarter of last year. This result was led by a 6.3% increase in average customer tickets and a 2.1% increase in traffic as the trend gradually reverts to more sustainable levels after eight consecutive quarters of double-digit growth. Gross margin grew 17.2%, an expansion of 120 basis points led by healthy commercial income dynamics and higher income from financial services. Income from operations rose by only 1%, reflecting an operating margin of 11.2%, a contraction of 150 basis points, driven mainly by higher labor expenses in Mexico, including adjustments made ahead of further regulatory changes expecting during 2024. Moving on to proximity Europe, total revenues grew by 9.5% in local currency, resulting in 16.4% growth in peso terms, boosted by the food category across all units, and the positive effect of vertical integration, particularly through the B2B pretzel business. Gross margins stood at 44.9%, while operating margin expanded by 180 basis points to reach 5.2%, reflecting the same drivers that supported revenue growth as well as higher promotional income. Turning to PEMSA's health operations, we expanded by 127 net new drugstore additions during the fourth quarter to reach a total of 4,474 units across our territories in 2023. Total revenues increased 2.6%, while same-store sales grew 5.1% in Mexican pesos. On a currency-neutral basis, revenues and same-store sales increased by 9 and 3.1% respectively, driven by a positive performance across most of our territories, which was partially offset by a challenging macroeconomic environment in Colombia and Ecuador. Beyond the top line, however, gross margin decreased 110 basis points, and operating margin was down 240 basis points, largely affecting a deteriorating environment in the Colombian institutional business, where we took a charge of 527 million pesos for uncollectible accounts. As a result of these structural headwinds, we are actively evolving our Colombian operations to rely more on a dynamic and fast-growing retail component and less on the structurally complex institutional operation. Moving on to us, same-station sales increased 4.8% and total revenue grew by 9% as we continued to develop our corporate business. During the quarter, gross margin was 13.4% and operating margin was 4.6%, reflecting tight expense control and operational efficiencies. Finally, moving on to Coca-Cola FENSA that again delivered an outstanding set of results in the fourth quarter. Total volume increased 6.1% driven by growth across most of its territories. Total revenues grew 8.1% and operating income grew 7.4% while operating margin was 14.6%. On a more strategic note, they did reach a milestone in their digital transformation journey reaching more than 1.1 million monthly active users through the Juntos Plus platform with more than $2.5 billion for the year. You can listen to the replay of their conference call held yesterday in their website. Now let me turn it back to José Antonio for some closing remarks. Go ahead, José Antonio.
spk29: Thank you, Eugenio. Before we close, let me talk a little about our progress on our sustainability efforts during 2023. As we made progress on several fronts, as an example in recognition of our ongoing efforts to advance our sustainability agenda, SAMHSA was included in the Standard and Poor's Global Sustainability Yearbook for the first time in 2024. We were for continuous improvement in water management, resource efficiency, packaging circularity, and business integrity metrics. The yearbook recognizes corporations that serve as a reference in global sustainability standards. On the governance front, we continue to evolve the composition of our board of directors with the nomination this year of two new independent directors, Elaine Stock and Olga Gonzalez-Aponte. They are remarkable executives whose experience, acumen and expertise will surely benefit our company for years to come. No recap of 2023 could be completed without mentioning our great friend, Daniel Rodriguez. For all the strategic success and operational achievements we have talked about today, our hearts are heavy and our mood is tempered by Daniel's passing. Daniel was key in defining the strategy and setting these positive trends in motion, and we hope we are making him proud today. As we look ahead, we are fortunate to have a broad set of opportunities to continue growing in every one of our core verticals. There is no doubt that the year that begins will bring some headwinds, such as higher labor costs in Mexico but also the tailwinds of higher economic activity from an electoral period in the short term and from encouraging macro trends like nearshoring in the medium and long term. Across our markets, we will again navigate a mix of challenges and opportunities, and I have no doubt that we will again find a way to thrive and create value for all our stakeholders. We start 2024 keeping our eye on the ball as we carry good momentum into what will surely be another interesting year. All our business units are well positioned for continued growth. I am particularly excited to see the many ways in which we will continue to apply our growing data analytics and AI capabilities to drive better performance, and incremental growth across our three core verticals. We are just getting started. Finally, I want to take this opportunity to thank our entire team for a job well done in 2023, and to thank all of you joining us today for our continued support and interest in our company. And with that, we are ready to open the call for questions.
spk40: Thank you very much. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question for any reason, you may press star 2. We kindly request you limit yourself to one question. Our first question comes from Ben Sawyer of Barclays. Please go ahead.
spk10: Good morning, everyone, and thanks for taking my question. Just wanted to follow up a little bit on the performance at OXO, the same-store sales composition in particular. Could you talk a little bit about the deceleration sequentially that you saw in store traffic? Because obviously we had a fairly strong first nine-month period with same-store sales growing somewhere in the mid-single digits on the track side. But now it kind of came down, and even with the base comparison, that wasn't too high. So any color you can share on that, that would be much appreciated. Thank you.
spk32: Sure, Ben. I think it has to do mostly with the fact that we had a very strong fourth quarter last year related to the World Cup and other events coming due. So there's a fair bit of that. So that excess traffic from last year did not repeat. Having said that, the underlying trend in traffic, if you see the services category, that is coming up significantly. So it's a little bit of a mix of both. And fortunately, the average ticket continues to maintain at a much higher level than it did pre-pandemic, given the change in customer taste. And I think that combination is what I think drove same-store sales to their fantastic performance throughout the year. But specifically, fourth quarter has to do with lapping of the World Cup and a change in the composition of that traffic.
spk30: And then also just to add a couple of... things and provide some more color on that. Structurally, the performance of the stores is very strong, and we saw very good performance across segments and across categories. And obviously that also generates a strong performance in the traffic. So we feel confident about structurally the traffic trend being strong as we enter into 2024. Yeah, I would just add, Ben, this is Juan. You know, to be honest, I expected this to happen back in April, you remember the call back in April, where I was already guiding people to not put a double digit same store sales number in their model. And then I was wrong for three quarters, but eventually the math kind of catches up with you. I think you're also looking at what was a very long recovery post-COVID, right? I mean, the traffic fell off a cliff in 20, and it's been coming back. And there's a lot of stuff that Paco was saying, I mean, segmentation at the stores, and the drivers for growth are very much in place, but I think the mix that we see today is a more normal mix, quite frankly, and more looking forward. I think our mix is going to look more like what we reported today than the 6%, 7%, 8% that we were showing three or six months ago.
spk19: Thank you.
spk39: Thank you. Our next question is from Ricardo Alvarez with Morgan Stanley. Please go ahead.
spk19: Hello, everybody.
spk44: Thanks for the call. Question on the senior management change. If you could add more details, you know, for instance, on the timing, particularly now in the middle of the SAMHSA Forward, just to make sure that everything is aligned with the board and so forth. We also noticed that in the part of the release you mentioned that Eugenio will launch the implementation of the capital allocation elements. Can you tell us what that means exactly? Is that related to the buybacks specifically? And then it also states that Eugenio will remain as an advisor. And if that would be related to the second stage of the Envoy that we discussed at length last year, or maybe new ventures in the U.S. So curious if you can elaborate to the extent possible a little bit more on the CFO and Paco move as well, evidently very relevant for today. And a follow-up to that question would be on the shareholder return and on the buyback point that I mentioned. The doubling of the authorization, the $2 billion or whatever the number is, is pretty significant, but We all know that there has been very limited activity to no activity depending on the timeframe. So now that the announcement is behind us, can you share with us the key hurdles or the accounting flexibility that you now seem to have overcome so that you are now really confident that you're going to be able to be active on the buybacks? Is there a timing for us to be expecting? more activity there, so just a little bit more granularity on the buyback component. Sorry for the long question.
spk29: Well, I will start with the first part of the question and we'll let Eugenio and Paco to explain the second part. But the first part that we have agreed with Paco and Eugenio is that they will stay with us helping until the end of April. By then and starting next week, Martin Arias is already fully involved and the transition of Eugenio and Martin will go very smoothly. At the same time, Eugenio offered us to continue as an advisor per project and yes, there could be some projects that we could do of investments or new investments that we could do and obviously to continue putting an eye and advising us on all the capital allocation strategy that we have designed and have presented to you recently. On the rest, I will ask Eugenio to explain.
spk32: Sure, Ricardo. Yeah, definitely what I'm going to be more focused on over the next couple of months during the transition with Martin is on the implementation of the capital return portion of the capital allocation program we announced last week. So it does have to do with share repurchases and continually monitoring the investments both in organic and organic investments as we aim to reach that two times net debt to EBITDA over the next few months. So to your question with regards to the timing of the share repurchases, with the announcement behind us, clearly now we will start to have an open to start to use that more heavily. What we will be asking the shareholder meeting in March is to increase the capacity that we currently have. But again, we have capacity currently in place to start to operate as soon as next week. So we will be implementing that capital return strategy as we mentioned in the release last week. in a way that maximizes per share value from an intrinsic perspective in the long term. So that will be a combination of both share buybacks and extraordinary dividends. As you saw, we already started with our first one and there will be additional ones to come if indeed we realize that through the operating environment we're not able to reach the two times net debt to EBITDA on our own. Those will be the levers that we will be pulling, again, with me at the helm for the next couple of months, and then with Martin and the rest of the team helping him going forward.
spk30: I would like to add, Ricardo, this is Juan. Since we did not have a call dedicated to the capital allocation release, so the fact that we're all here today, I understand that there may be some questions, and yours is the first one, on continuity. And so I would like to ensure that the strategy that was communicated last week is fully in place, that the two-tenths net debt to EBITDA target is fully in place, and that there will be no deviation from that. So I just wanted to put that out there because I know that the concern is going to be among investors.
spk43: That's helpful, gentlemen. Thank you so much.
spk31: Thanks, Ricardo.
spk43: Thanks.
spk40: Thank you. Our next question is from Alaro Garcia of BTG Paxual.
spk39: Please go ahead.
spk46: Hi, gentlemen. Thanks for the call.
spk45: All the best going forward. My question is on labor costs in Mexico. I know that SAMHSA has a philosophy of paying more than the street, of paying more than competitors or similar outlets. And that's very much true of OXO. And I'm just curious of where we are in that process of upping pay for your employee base at OXO. How much more difficult has it been to get that premium and what's your outlook for labor costs into 2024? Thank you.
spk30: Hi, Alvaro. This is Paco. Good to hear from you. I'll start and then I will let the team provide further perspective. But I guess that what we need to keep in mind when it comes to cost management, particularly in OXO, And understanding that the labor cost, specifically the labor cost during the last year was, I would say, a special situation versus other years because of its magnitude. But the reality, what we need to keep in mind is that also it's extremely good at working consistently on making our operations more efficient. So the team has been focused on making sure that all the verticals and all the possibilities that they usually explore as part of the way they do their operations of the stores continue to progress towards further efficiencies. And I guess that has to do with store management, that has to do with headcount, that has to do with how we look into the specific cost in the stores. So this is just to reassure you that, structurally speaking, and the way we approach this in the stores hasn't changed. We will continue to do so. And evidently, every time something like this comes, the teams double the efforts on maximizing efficiency. But for 2024, we have included the increases in the plans. and we are confident that we can deliver on those plans as we enter the year. Ukrainian, you want to add something on that? I would add one thing, Alvaro. This is Juan. Just because, you know, when you look at the numbers and you look at the OPSO P&L, we're making some comments about how the operating margin was impacted by, among other things, but largely by the labor cost situation. And so, you know, in terms of 2024, I just want to put out there, I hate to call it guidance, but our expectation is that operating margins for the year will be flat. That's kind of our base case. So I think the year is going to start a little bit softer and it's going to gather strength as the year goes by. But for the full 2024, our expectation is for operating margins to be flat for also Mexico.
spk19: And I think that's an important data point. Okay, great. Thank you very much.
spk40: Thank you. Our next question is from Hector Maya of Scotiabank. Please go ahead.
spk06: Hi, thank you very much for taking my question. So I just wanted to know about your update of the FEMSA Forward Plan. We saw that the execution and the investments had come ahead of time and it was exceeding expectations. Just wanted to understand why you considered it was necessary to expand the timeline window for cash deployment by an additional year, potentially. And would that be because maybe M&A opportunities take longer to appear, or is there a concern for either the economic or political environment in your operations that drove the decision to keep a relevant cash position for a little longer?
spk32: Hi, Hector. Thanks for your question. It's okay, and you're here. Look, really nothing has changed from what we said last year, and we continue to reiterate it. We are going to get to the two times net debt to VBA. We can get there in several ways. One is through special dividends, the other one is through share repurchases, and the other one will be through organic and inorganic investments. At this point, yes, we're sitting on a pile of cash that's accumulated at a higher pace than we expected because of the success that we've had with the divestiture so far. There will be more of that cash come both from the remaining sales of the remaining assets as well as the JETRO stake, which we sold in installments. And the operations will also be generating cash. So we are, I mean, painfully aware of the problem of holding too much cash, having said that, we want to deploy it in a smart way that maximizes long-term intrinsic per share value. So I think still within the range of the same two to three years, we will get to the two times net debt to EBITDA. It makes us, to be honest, feel a little bit more comfortable holding on to the cash right now at 5% interest rates that we're investing it in rather than where it was two years ago. So we're being patient as opportunities arise. But again, even if we do see inorganic opportunities, we've stated they will be in the core business verticals that we identified. under FEMSA Forward, and they will be financially accretive to long-term intrinsic pressure value. So we want to maximize that flexibility that we have to invest across our businesses and in the best investment that we have, which is our own share, and get to that two times net debt 3BDA in due course.
spk06: Thank you, that's very clear. And also, the conversation around the hard discount category and private label has been very hot right now, very active, so just also wanted to understand if we could expect your strategy with VARA to become more aggressive in the future, and how relevant could private label become for your overall strategy and maybe even for OXO?
spk18: So, Hector, just to
spk30: Just to answer that very quickly and continue with the questions from the rest of the attendance. Look, as you know, and as we highlighted in the opening remarks, I mean, clearly one of the strategies that we are following in proximity and we have stated before is multi-format. But it's an important component of of the multi-format vertical. Bara, we reported, has had very strong goals in 2023, and our intention is to continue strengthening that business in 2024 and in the years to come. Private label is a very important part of the equation of that business. It has been performing really well. So what we are doing And what we have explained we're intending to do in that business has nothing to do with the recent announcements on that segment of the retail, but basically just following the strategy we have highlighted before. And to your point, clearly private label is an important component. We are doing very well in that segment of the business in the results we posted, and our intention is to continue doing the same in the years to come.
spk31: Again, with regard to your specific question, Amara,
spk32: We're happy that the market is recognizing the value in hard discounts. I mean, there's a long, long way in that format ahead. And again, we're happy that now the market has another view into how that business is performing and that we'll continue to be friendly competitors in the market.
spk29: Let me just add, I don't know if you're aware, we hired a new director for that area called Jacobo Caller, who's an expert on this kind of multi-format and hard discount stores. And he has been here for the last three or four months already. And he's completely convinced that the potential of our VARAP project is now ready to jump and to grow fast under him. So we are really looking for how to develop and to grow all over with Ibarra as we speak.
spk19: Excellent. Very, very clear. Thank you very much. Thank you. Thanks, Hector.
spk39: Thank you very much. Our next question is from Alan Alanis with Santander. Please go ahead.
spk13: Thank you so much for taking my question, José Antonio, Paco, Eugenio, Juan, and best of luck to Paco and Eugenio. Let me put some context to the question first. I mean, FEMSA's share is down 9% this morning in the first hour of trading. That's $4 billion of lost market cap. And I think that the market is reading three negative things on this. First, the uncertainty of the capex, and that will be my question. I'll come back to that in a moment. The second, the unexpected management changes. I mean, I'm to know Martin Arias, and he's super competent, and I'm sure he's going to do us a very good job. But the market doesn't know him yet. And the results regarding the margin contraction and the disappointment seems to ourselves. I think what would be very useful in this call, Antonio and team, is to elaborate a bit more in terms of how are you going to deploy $14 billion in the next five years, of which you've indicated that 70% of that is going to go to Mexico. That means that on average, you will be getting $2 billion invested in Mexico. How are you thinking about that in terms of in which businesses, in which sectors, and how much of that money is going to OxoSpin and the aspirations that you have for OxoSpin? That would be my question. Thank you so much.
spk18: Yeah. Thank you, Alan, for your question.
spk30: Look, I think that we need to go back to answer your question, to go back to what we announced during FEMSA Forward. Because strategically speaking, we announced that we are committed to our three core verticals, basically retail, digital, and Coca-Cola FEMSA. So you should expect that the discipline that we will have in terms of deploying capital is going to be fully aligned to this strategy that we announced. So anything that we do will, first of all, be consistent with that, but second, importantly, we will be extremely disciplined on how we select potential inorganic opportunities moving forward. Yeah, let me add something on the CAPEX. This is Juan. I mean, if you look across formats, a lot of what you see is going to be deployed in organic expansion, What we're seeing, I mean, obviously in Mexico we've talked about the runway, but what we're seeing in multi-format and what we're seeing in other geographies is very, very compelling opportunities to accelerate the pace of growth. Even today, and we'll detail this over the next months and quarters, but even today, if you look across all retail formats, we are opening in the order of seven units per day. If you think about Opsos here, Opsos South America, drugstores, Opsos Marts, coffee drive-thrus, it's going to ramp up from an already very dynamic place. And that's really a big part of the CapEx numbers. Don't straight line it horizontally, but rather straight line it with a slope. Because that's what you're going to see. If you think about Colombia, we're about to accelerate significantly in Colombia. I was in Brazil a couple weeks ago. The opportunity for Grupo Nos is fantastic. So a lot of the CapEx is really going to take the form of stores and DCs and distribution assets. We've said in the past on the M&A front, we're looking for a potential entry model into the U.S. on convenience. That's Everybody knows that. We've been looking for drop stores in Mexico. That's proven a bit more elusive. And that's pretty much it in terms of what we've identified at this point. Do we like our flexibility? Sure. But it's mostly about organic growth, Alan. And I've gotten a lot of questions. We've gotten a lot of questions about the bigger CapEx numbers that were communicated last week. So hopefully this helps understand where that capital is going.
spk13: Yeah. Thank you so much for that. And if you can just final, final question here, I mean, what would you, what do you think investors are missing with such a, an abrupt stock reaction and how important is that stock price for you for, for the controlling group, for management and so forth? What's the market missing? If I may have misdiagnosed the reason why the stock is down 9% today, but if any color on that would be a tool for clarifying and hearing you do as managers in a controlled shareholder. That will be open. Thank you so much for taking the question.
spk29: Alan, you know us very well and you know that we all think long term. And we will continue being very disciplined on our strategy. FEMSA Forward has huge potential, you know, Cash is king. We always have said that. You remember Don Eugenio saying that. And Don Eugenio also said that the opportunity is the queen, and we have to keep both. The cash, some cash for doing new projects. Coca-Cola Fenza hasn't been mentioned, but it's going to invest the largest capital in history because of lack of capacity we lost. volume this year because we didn't have enough capacity in certain places. We have to fix that. So we are going to have a huge investment in capacity in Coca-Cola in various countries. And obviously we will still go looking for good opportunities on our three verticals. That's why our intention is there. We go all the way to two times EBITDA. and divest as much as possible or repurchase as much as possible on shares because that will give back dividends because we don't like to have idle resources just getting a very low interest rate.
spk34: Yep.
spk17: Thank you so much, José Antonio. Really, thank you. Thanks, guys. Thanks a lot.
spk40: Thank you very much. As a reminder, if you'd like to ask a question on today's call, you may press star 1 on your telephone keypad, and we kindly request you limit yourself to one question. Our next question is from Thiago Bordogucci with Goldman Sachs. Please go ahead.
spk33: Yes. Good morning, gentlemen. Thanks for taking my question. Let me just catch back one mention from Juan related to the target leverage of committed to that no deviations, right? I think one of the reasons for the volatility we're seeing is lack of visibility on how you will get there, right? You're mentioning two times leverage. This might give you $7, $8 billion in excess cash. But at the same time, we're mentioning you're committing to give back up to 6% of your market cap, which is 3%, right? How will we get back to two times leverage? to where this incremental four, $5 billion might be going? This is the first question. And if I may just take advantage of José Antonio being in the call. José Antonio, today you have two interim positions, right? The CEO and the CFO. How is the board thinking about this and how important it might be to fill definitely these positions in order to keep the plan moving forward? Those are the questions. Thank you very much.
spk32: I'll start with the first one, and then I'll turn it off to Jose Antonio. Yes, my math is a little bit different than yours, but ballpark is the same. I think to get times, we're talking about a number close to six, six and a half billion dollars in that neighborhood, Tiago. And yes, 6% of the market cap as of last week was three billion. So there's still some undefined allocation of resources. Having said that, we still believe we're going to get to two times, and that excess amount plus the cash that will come in from the operations will be looked at very closely between organic, inorganic, and additional return to shareholders. So it's going to be a mix of all that that will get us to two times. I understand the anxiety about not being it all spelled out in stone about where that additional $3 to $4 billion are going, but the commitment is to get to two times while maximizing shareholder value. So we don't have all the answers yet, What we can tell you is that at least the three billion will go to shareholder return at this point, and the rest we will deal with it as opportunity to rise.
spk28: And let me just comment on that before, because Antonio, another way of what Eugenio just said is, and this is the question we've been getting, could there be some upside to the three billion?
spk30: And I think Eugenio just said, in other words, yes. But like I said a few minutes ago, we really value our little bit of flexibility And so those questions will be answered over the next couple of years.
spk29: And on the second question that you had, we have discussed this at length with the board and we have agreed that on the CEO position, I am willing and open and very happy to stay for at least 24 months as CEO and chairman at the same time. I'm making this effort, I'm enjoying it, and I will stay doing it. While we are going to start the process of looking for a new CFO, as you could imagine, it will take us hopefully less than a year, or maybe a year or 18 months at the most, but we will find a new CFO for the company. As we speak, we will start the process of looking for them.
spk32: And just to be more clear about this, and I'm sure Paco will have his own views, but I think in my personal decision to leave the company at this point has more to do with kind of my personal interest. I think the skills that I brought to bear were put in place during the FEMSA Forward program over the past 18 months, and we and the team had – I mean, a lot of success doing it, and at least for me, it's on to the next project. So nothing more than that, and I'll continue to be close to the company as an advisor over the next few years, hopefully.
spk30: Yeah, and Tiago, I'm taking the opportunity also to visit Paco. Look, I'm extremely proud of what the team has accomplished in CENSA, developing the long-range plans, having a clear vision a clear perspective on what the future looks like. And in reality, my decision is something that didn't come, I didn't take that lightly, and it's exclusively related to what I want to do with the next station in my professional career. So it's an incredible time with a bright long-term perspective that I will certainly I will meet the team, I will meet Jose Antonio, I will meet everybody here. And the prospects of our company, I believe, are brighter than ever. So that made the decision even more difficult. But again, it's exclusively personal and Tremsa will always be a highlight in my over 35-year career in many big companies and Tremsa purely Thank you very much.
spk35: Our next question is from Luis Willard with GBM. Please go ahead.
spk25: Can you hear me?
spk07: Yes, we can.
spk25: Thank you. Perfect.
spk27: So my question is quite mundane and perhaps I'm reading this all wrong, but I just wanted to ask you if you could go over a bit on the changes that you mentioned on your remarks I think it was you, about the disconsolidation of operations. Because, I mean, you're reporting on a consolidated base of 4.6% growth in sales. But if you look at each of the subsidiaries that you break down, all of them in pesos grow, except for health, all of them grow above that average. So I just wanted to make sure that I'm reading this correctly and that you're that perhaps there's some deconsolidation that's not registered in the base but it is in the 4Q23 numbers. Is that correct or what am I missing on this closed breakdown of that? Thank you.
spk32: Yeah, Luis, we can touch base offline if you want and walk you through the exact numbers. But there were, as you know, because of the peso, some currency mismatches. So depending on whether you're looking at it on a currency-neutral basis or on a peso basis, some numbers are weird, especially this quarter in a lot of the lines, including the non-cash items and the taxes. And then there is also the deconsolidation. As you all said, it doesn't move the needle that much, but at the margin it does. We deconsolidated both the Alpunto business as well as the part of the Solistica business that is in the process of being divested right now. But yeah, those averages do work out, and the 4% number after all these adjustments is correct, despite the fact that the retail businesses and most of the other businesses are growing higher than that average.
spk19: All right. Well, that was it. Thank you. Thank you, Luis. Thank you, Luis.
spk39: Thank you. Our next question is from Luis Yance with Santander.
spk40: Please go ahead.
spk15: Hi, guys. Thanks for taking my questions, and good luck, Paco and Eugenio, on the next projects. My question is a follow-up on what Alvaro asked about the margin pressure, and I guess particularly driven by the pressure on labor. I mean, could you talk a little bit about where exactly is that Did that pressure come in the fourth quarter? Was it perhaps preparing for the minimum wage increases? Is it related to, I guess, the vacation or the pension reform that has an impact there? And you did mention that also part of it has to do with adjustments ahead of expected regulatory changes. I guess you meant perhaps the potential change in working hours. So just trying to understand a little bit what drove the additional pressure in the fourth quarter. And I guess a related question to it is, you know, Juan mentioned that, and I appreciate the color on the margins being, you know, kind of maybe flat for this year, but maybe start soft and get better, just trying to understand what would be the driver of the improvements in margin as we move towards the second half of the year. And I guess related to that, but also in proximity, I mean, very strong margins on on the European side of the equation. Just wondering what we saw there is kind of like a sustainable level that we should think going forward. Thanks.
spk32: Let me start, if you want, Luis, on the margin pressure in proximity Americas. On a like-for-like basis, what you said is correct. I mean, we are contemplating... We already obviously implemented all the changes related to labor reform, including vacations and whatnot, keeping up in place with just minimum wage increases and others. So that is, I think, the driver of the like-for-like comparison. But you have to remember that on top of that, we are starting a multi-format business that is quite ambitious as well. So there are a lot of staffing needs, new facilities that we're staffing up, etc., that are coming up, as well as all the other costs, which as you know, we don't capitalize on the balance sheet. So it's a little bit of a mixed bag. on a like-for-like basis explains, I would say, maybe half of the effect, but the other half has to do more with how we're ramping up for that.
spk28: Yeah, and I think the word you mentioned, Luis, preparing for, obviously there are still some uncertainties in terms of the lawmaking and some potential changes to the labor law.
spk30: that we're obviously all monitoring closely, but there's a lot of getting ready for 24 that took place in 23. And in the case of Europe, I mean, I think this was a very good quarter. I wouldn't necessarily expect all quarters to be that strong. There are some currency issues at work too. I mean, if you look at the numbers in local currency, It's a high single-digit as opposed to a double-digit top-line growth. But having said all that, there's no question that the team in Valora is executing very well in the midst of a challenging environment. So very encouraging. But again, and this is Paco Luis, I guess that the overarching element of all this is that structurally the teams have done a terrific job both on this side in America but also in Europe in terms of strengthening the operation itself to make it more efficient. And that, as you know, those are things that stay and that you need to keep in mind.
spk15: Great. Thanks a lot, guys. And maybe as a follow-up, I know you've done most of the divestitures, at least the big ones. I mean, but there's still a few, you know, non-core assets that you've mentioned in the past that you're willing to sell. Any updates on that? And can we expect that to perhaps being achieved this year as well?
spk32: Yeah, we're cautiously optimistic that they will get done much earlier than what we expected and probably faster than most people think. So we're making good progress in that.
spk20: Great, thanks a lot guys. Thank you, Luis.
spk40: Thank you very much. As a final reminder, if you'd like to ask a question on today's call, please press star 1 on your telephone keypad And we do ask that you limit yourself to one question. And our next question is from Federico Galassi with TRG. Please go ahead.
spk36: Thank you, guys, for taking my question. Well, one question related, and you took this part of the answer if you want. But the question is related to Mexico and saying to ourselves in the different formats that you have, you're talking about hopes, et cetera. But do you believe that... This is more related with any format in particular, or do you see some deceleration in the consumer in Mexico? Maybe if you can explain, Greta, is what are you seeing in the healthcare business when you have two quarters of, again in Mexico, two quarters of negative sense of sales? That's the question, thank you.
spk24: Did you say in health, Federico?
spk36: Yeah, sorry.
spk32: Sure. I mean, the first part of the question, just with regards to Mexico, I mean, the consumer continues to be strong. I mean, you're seeing it, again, on a lapping basis. Maybe the traffic is not as strong, but on an absolute basis, and compared to what we saw, I mean, for a long time, the consumer continues to have cash available, and at least with the everyday items that we sell a lot, so we continue to see strength there. And the margin pressure again has to do more with what we just discussed on labor, and it's consistent throughout all formats. I wouldn't say it's specific to either a hard discount or proximity. And then with regards to your second question on health, we are seeing a more aggressive competitive environment, generally speaking, in Mexico. Expansion of stores of our competition continues to be at a very healthy pace. we're keeping up, but you're seeing a much healthier competitive environment and different value propositions propping up that are making the operating environment a little bit more challenging from a gross margin perspective.
spk30: Yeah, Federico, just to add a couple of additional points, this is Paco. Look, I mean, when you look at the results, Mexico posted very strong results. And, you know, when you look at Toxo, when you look at Coca-Cola FEMSA, We didn't talk a lot about digital, but we have very good results. So, in general, the businesses are doing really well in Mexico. The situation with health is punctual and it happens every now and then. You have a competitive situation or you have a specific plan that isn't going as you were thinking. In this case, I mean, really, as Eugenio said, it's something related to how active competition has been being. Honestly, it's good news because that means that the market is healthy, that we are in an interesting segment of the market, and the teams are working on adjusting our strategies to face that. Honestly, we are confident that the situation will get better, but again, we are not concerned on how the business is performing in Mexico. On the contrary, we remain confident that 2024, even though we have some headwinds as usual, but we'll deploy our LRPs, we'll deploy the plans, and we should expect good results. Yeah, and I would add, Fede, I mean, we mentioned it in the remarks, but Mexico and Colombia on the health side, yes, there have been some issues in terms of competitive landscape and the shift from institutional to retail in the case of Colombia, but in both cases, the strategies are defined and we're starting to address that very, very diligently.
spk28: So hopefully in the not too distant future, we'll have different things to report on those fronts.
spk19: Okay guys, thank you so much.
spk18: Thank you.
spk30: Thanks, everyone, for attending today, for your permanent interest in our company. Obviously, the team and I are always available for follow-ups, and we'll be in touch. Thank you.
spk40: Thank you very much. That concludes today's conference. You may now disconnect. Hope you may stay on the line.
spk21: Thank you. Thank you.
spk22: Thank you. you Thank you. Thank you. Thank you.
spk40: Hello and welcome to FEMSA's fourth quarter 2023 results conference call. My name is Melissa and I will be your coordinator for today's event. Please note this conference is being recorded and for the duration of the call your lines will be in a listen only mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I'll now turn the call over to Juan Fonseca, Head of Investor Relations. Please go ahead.
spk30: Good morning, everyone. Welcome to FEMSA's fourth quarter and full year 2023 results conference call. Today, we are joined by José Antonio Fernández, FEMSA's CEO and Executive Chairman of the Board, Paco Camacho, our Chief Corporate Officer, Eugenio Garza, our CFO, and Jorge Collazo, who heads the FEMSA's Investor Relations The plan today is for José Antonio to open the conversation with some high-level comments on the full year, as well as the senior organizational changes announced today. Then we'll get a bit more into our strategic progress and business trends, followed by Eugenio, who will focus on the results. Finally, we will turn it back to José Antonio for some closing remarks and open the call for your questions. José Antonio, please go ahead.
spk29: Thank you, Juan. Good morning, everyone. Let me begin by reflecting on a year that was like no other in recent memory, full of activity and news for the company. We kicked things off with a transformational announcement of PEMSA Forward, through which we focused our strategy on our three core business verticals of retail, what we call also proximity and health, Coca-Cola, PEMSA, and digital. We then proceeded to execute on most of its related transactions in record time and with great success by investing our investment in Heineken through two successful transactions, as well as our minority stake in Jethro Restaurant Depot, merging Envoy Solutions with Brady IFS, while reducing our capital exposure to that asset. The effort is still ongoing as we are in the process of finalizing the remaining divestments. Furthermore, we are poised to begin deploying the capital allocation strategy announced last week that will allow us to increase our leverage towards our stated objective and to avoid to have idle capital on our balance sheet. During 2023, we made significant progress in executing on the long-range plan of all our business units and in line with our three strategic priorities of accelerating growth, going increasingly digital, and balancing our risk-return profile. We achieved these strong results by combining the right strategies with the hard work of our remarkable team. On that front, and in order to better leverage the FEMSA Forward Strategy, back in September, we made important changes to better align the corporate organization with our more focused structure built around our three core business verticals. In that context, and given the strengthening of the management teams of the three verticals, Today, we announced two important changes in our leadership team. Paco Camacho and Eugenio Garza have both made the personal decision that this is the right time for them to finish their cycle at FENSA and move on to seek new professional challenges with effect at the end of April. Their contributions to our company have been tremendous. many and substantial, and we thank and appreciate them today, wishing them continued success in their future endeavors. Martin Arias, who many of you know from his 25 years of fruitful association with FEMSA, will become CFO, working closely with Eugenio to ensure a seamless transition. And with that, let me turn it over to Paco.
spk30: Thank you, José Antonio. Good morning, everyone. Let me begin with a couple of updates regarding FEMSA Forward. First, the Envoy IFS Brady transaction announced in August successfully closed at the end of October, and the new company is already operating as a single entity. Second, we have completed the process of carving out and transferring the distribution assets of OXO and Coca-Cola FEMSA from Solistica to their respective operations.
spk18: And there are now as well as other non-core operations as defined in FRMSA Forward.
spk30: And finally, we have fine-tuned our capital allocation plans as we informed last week, putting us in a position to begin returning capital to shareholders as we begin to raise our levers towards our stated objective of two times net debt to EBITDA, X cost. WHICH WE EXPECT TO ACHIEVE WITHIN TWO TO THREE YEARS. MOVING ON TO THE RESULTS FOR THE FOUR QUARTERS, OUR NUMBERS CONTINUE THE POSITIVE TREND SEEN DURING THE FIRST NINE MONTHS OF THE YEAR. FULLY CONSISTENT WITH OUR STRATEGIC PRIORITIES AND MAKING PROGRESS TOWARDS THE TARGETS SET BY EACH BUSINESS UNIT LONG RANGE PLAN. BEGINNING WITH PROXIMITY, LIKE WE DID IN OUR LAST CALL last quarter, in our call last quarter, it's helpful to talk for a minute about their own long-range plan and their four priorities around which it is built. Strengthening the core, developing new growth avenues, developing multiple successful formats, and growing the footprint beyond Mexico. Looking at OXO's four-quarter results through this lens, we see they again made a strong progress strengthening the core. with same-store sales growth of 8.5% against a double-digit comparison base. This performance was again driven by a growth-safe set of tailwinds, including stronger consumer demand for first, gathering, and snacking locations, solid commercial income dynamics, better segmentation of the store, and the rapid adoption of the SPIN premium loyalty program. Continuing with the positive news of a stronger core, store growth was remarkable, with Mexico and Latam adding 514 net new stores during the quarter and 1,408 during the past 12 months. Looking only at Mexico, we surpassed the 1,000 new store threshold for the first time since before the COVID pandemic, adding 1,087 net openings. Moving on to the long-range priority of growing beyond Mexico, during the quarter, Grupo NOS continued its solid advance, with revenues increasing over 119% year-over-year, and with offset footprint in Brazil more than doubling during the last 12 months, reaching 1,716 stores at the end of 2023. Sealing on Proximity America, but along the priority of developing multiple successful formats, VARA grew revenues by 33.7% and reached a total of 359 stores at the end of the quarter. We will increasingly talk about other successful formats that are gathering momentum, such as our coffee drive-thrus, our specialized OXO-SMART stores for controlled environments, and our traditional trade initiatives. For its part, Proximity Europe achieving strong operating results with substantial growth in a challenging macroeconomic environment. This was driven by higher sales in the food category and the favorable effect from vertical integration. Revenues increased by a strong 16.4%, generating operating leverage. As of the end of the year, Proximity Europe had 2,808 points of sale, a net increase of 42 units over the comparable period. Our health operations showed mixed performance trends and again reflected foreign exchange headwinds from a strong Mexican peso relative to local currencies in South America. In Colombia, we are gradually shifting our business towards more retail and less institutional exposure. Given the challenges the institutional health industry is facing in the current political environment. While in Mexico, we continue to see competitive retail activity across territories. In both cases, adjustments to our strategy are in progress and we will keep you appraised. In line with our evolving strategy, During the quarter, our health business continued to push to consolidate its competitive position in retail across markets, increasing its store footprint to reach a total of 4,474 locations. In fact, during 2023, our health vision added new locations across its territories at a pace of approximately one per day. For its part, our fuel business delivered a strong set of results with our dynamic corporate wholesale business continuing to outperform relative to retail. Comparable sales were robust, with good contribution from traffic and ticket growth. Regarding digital expenses, the number of active users for Spin by OXXO reached 6.9 million during the quarter. and active users for our premier loyalty program reached 19.3 million. Importantly, approximately 31% of OXO Mexico sales are now associated with the program. We continue to privilege the acquisition of higher quality users when we make progress by tuning the use cases, value propositions, unit economics, and monetization strategies for each part of the ecosystem. In terms of financial implications, during the quarter, we deployed around 1 billion pesos on growing this business, roughly in line with the previous quarter, as well as budgets. Finally, Coca-Cola Sensa delivered a remarkable set of results for the fourth quarter, driven by Mexico, Brazil, Colombia, and Guatemala, enabling COFF to surpass 4 billion unique cases of non-alcoholic ready-to-drink beverages for the full year. And with that, let me turn it over to Kenyon.
spk32: Thanks, Paco. Good morning, everyone. As we continue to execute on our FEMSO Forward strategy, we've made some adjustments to the show statements throughout the year to reflect the of our non-core businesses. During the fourth quarter, we recorded and the third-party components of Solistica as discontinued operations. To maintain comparability, we modified our consolidated financial statements for the fourth quarter of 2022 to reflect this change. Let's begin with PEMSA's quarterly consolidated results during the fourth quarter. Total revenues increased 4.6% and EBITDA rose 3.6% compared to the fourth quarter of 2022. Net consolidated income decreased 20.7% and stood at 6.3 billion pesos, resulting from higher gross profit and lower net interest expenses during the quarter. This was offset by a non-cash foreign exchange loss of 6.3 billion pesos related to a US dollar denominated cash position and impacted by the depreciation of the Mexican peso. And a 3.2 billion net loss from discontinued operations, mostly reflecting the accounting re-measurement from historical cost to fair value of EMSA's investment in Solistica and El Punto net of impairments. Shifting gears to our business unit results, and starting with Proximity Americas. During the fourth quarter, we incorporated 514 stores, bringing our total to 1,408 new stores for 2024, which includes 1,087 new stores in Mexico and 321 in South America. This robust growth has propelled us beyond the annual growth target, renewing our confidence that our growth runway remains long for OXO across all markets, and the opportunity for our multi-format strategy is equally compelling. OXO's same-store sales increased 8.5% in the fourth quarter, cycling strong double-digit growth from the same quarter of last year. This result was led by a 6.3% increase in average customer tickets and a 2.1% increase in traffic as the trend gradually reverts to more sustainable levels after eight consecutive quarters of double-digit growth. Gross margin grew 17.2%, an expansion of 120 basis points, led by healthy commercial income dynamics and higher income from financial services. Income from operations rose by only 1%, reflecting an operating margin of 11.2%, a contraction of 150 basis points, driven mainly by higher labor expenses in Mexico, including adjustments made ahead of further regulatory changes expecting during 2024. Moving on to proximity Europe, total revenues grew by 9.5% in local currency, resulting in 16.4% growth in peso terms, boosted by the food category across all units, and the positive effect of vertical integration, particularly through the B2B pretzel business. Gross margins stood at 44.9%, while operating margin expanded by 180 basis points to reach 5.2%, reflecting the same drivers that supported revenue growth as well as higher promotional income. Turning to PEMSA's health operations, we expanded by 127 net new drugstore additions during the fourth quarter to reach a total of 4,474 units across our territories in 2023. Total revenues increased 2.6%, while same-store sales grew 5.1% in Mexican pesos. On a currency-neutral basis, revenues and same-store sales increased by 9 and 3.1% respectively, driven by a positive performance across most of our territories, which was partially offset by a challenging macroeconomic environment in Colombia and Ecuador. Beyond the top line, however, gross margin decreased 110 basis points, and operating margin was down 240 basis points, largely affecting a deteriorating environment in the Colombian institutional business, where we took a charge of 527 million pesos for uncollectible accounts. As a result of the structural headwinds, we are actively evolving our Colombian operations to rely more on a dynamic and fast-growing retail component and less on the structurally complex institutional operation. Moving on to us, same-station sales increased 4.8% and total revenue grew by 9% as we continued to develop our corporate business. During the quarter, gross margin was 13.4% and operating margin was 4.6%, reflecting tight expense control and operational efficiencies. Finally, moving on to Coca-Cola FENSA that again delivered an outstanding set of results in the fourth quarter. Total volume increased 6.1% driven by growth across most of its territories. Total revenues grew 8.1% and operating income grew 7.4% while operating margin was 14.6%. On a more strategic note, they did reach a milestone in their digital transformation journey reaching more than 1.1 million monthly active users through the Juntos Plus platform with more than $2.5 billion for the year. You can listen to the replay of their conference call held yesterday in their website. Now let me turn it back to José Antonio for some closing remarks. Go ahead, José Antonio.
spk29: Thank you, Eugenio. Before we close, let me talk a little about our progress on our sustainability efforts during 2023. As we made progress on several fronts, as an example in recognition of our ongoing efforts to advance our sustainability agenda, SAMHSA was included in the Standard & Poor's Global Sustainability Yearbook for the first time in 2024. We were for continuous improvement in water management, resource efficiency, packaging circularity, and business integrity metrics. The yearbook recognizes corporations that serve as a reference in global sustainability standards. On the governance front, we continue to evolve the composition of our board of directors with the nomination this year of two new independent directors, Elaine Stock and Olga Gonzalez-Aponte. They are remarkable executives whose experience, acumen and expertise will surely benefit our company for years to come. No recap of 2023 could be completed without mentioning our great friend, Daniel Rodriguez. For all the strategic success and operational achievements we have talked about today, our hearts are heavy and our mood is tempered by Daniel's passing. Daniel was key in defining the strategy and setting these positive trends in motion, and we hope we are making him proud today. As we look ahead, we are fortunate to have a broad set of opportunities to continue growing in every one of our core verticals. There is no doubt that the year that begins will bring some headwinds, such as higher labor costs in Mexico but also the tailwinds of higher economic activity from an electoral period in the short term and from encouraging macro trends like nearshoring in the medium and long term. Across our markets, we will again navigate a mix of challenges and opportunities, and I have no doubt that we will again find a way to thrive and create value for all our stakeholders. We start 2024 keeping our eye on the ball as we carry good momentum into what will surely be another interesting year. All our business units are well positioned for continued growth. I am particularly excited to see the many ways in which we will continue to apply our growing data analytics and AI capabilities to drive better performance and incremental growth across our three core verticals. We are just getting started. Finally, I want to take this opportunity to thank our entire team for a job well done in 2023 and to thank all of you joining us today for our continued support and interest in our company. And with that, we are ready to open the call for questions.
spk40: Thank you very much. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question for any reason, you may press star 2. We kindly request you limit yourself to one question. Our first question comes from Ben Sawyer of Barclays. Please go ahead.
spk10: Good morning, everyone, and thanks for taking my question. Just wanted to follow up a little bit on the performance at OXO, the same-store sales composition in particular. Could you talk a little bit about the deceleration sequentially that you saw in store traffic? Because obviously we had a fairly strong first nine-month period with same-store sales growing somewhere in the mid-single digits on the track side. But now it kind of came down, and even with the base comparison, that wasn't too high. So any color you can share on that, that would be much appreciated. Thank you.
spk32: Sure, Ben. I think it has to do mostly with the fact that we had a very strong fourth quarter last year related to the World Cup and other events coming due. So there's a fair bit of that. So that excess traffic from last year did not repeat. Having said that, the underlying trend in traffic, if you see the services category, that is coming up significantly. So it's a little bit of a mix of both. And fortunately, the average ticket continues to maintain at a much higher level than it did pre-pandemic, given the change in customer taste. And I think that combination is what I think drove same-store sales to their fantastic performance throughout the year. But specifically, fourth quarter has to do with lapping of the World Cup and a change in the composition of that traffic.
spk30: And then also just to add a couple of... things and provide some more color on that. Structurally, the performance of the stores is very strong, and we saw very good performance across segments and across categories. And obviously, that also generates a strong performance in the traffic. So we feel confident about structurally the traffic trend being strong as we enter into 2024. Yeah, I would just add, Ben, this is Juan. To be honest, I expected this to happen back in April, you remember the call back in April, where I was already guiding people to not put a double digit same store sales number in their model. And then I was wrong for three quarters, but eventually the math kind of catches up with you. I think you're also looking at what was a very long recovery post-COVID, right? I mean, the traffic fell off a cliff in 20, and it's been coming back. And there's a lot of stuff that Paco was saying, I mean, segmentation at the stores, and the drivers for growth are very much in place, but I think the mix that we see today is a more normal mix, quite frankly, and more looking forward. I think our mix is going to look more like what we reported today than the 6%, 7%, 8% that we were showing three or six months ago.
spk19: Thank you. Thank you.
spk39: Thank you. Our next question is from Ricardo Alves with Morgan Stanley. Please go ahead.
spk19: Hello, everybody.
spk44: Thanks for the call. Question on the senior management change. If you could add more details, you know, for instance, on the timing, particularly now in the middle of the SAMHSA Forward, just to make sure that everything is aligned with the board and so forth. We also noticed that in the part of the release you mentioned that Eugenio will launch the implementation of the capital allocation elements. Can you tell us what that means exactly? Is that related to the buybacks specifically? And then it also states that Eugenio will remain as an advisor. And if that would be related to the second stage of the Envoy that we discussed at length last year, or maybe new ventures in the U.S., so curious if you can elaborate to the extent possible a little bit more on the CFO and Paco move as well, evidently very relevant for today. And a follow-up to that question would be on the shareholder return and on the buyback point that I mentioned. The doubling of the authorization, the $2 billion or whatever the number is, is pretty significant, but We all know that there has been very limited activity to no activity depending on the timeframe. So now that the announcement is behind us, can you share with us the key hurdles or the accounting flexibility that you now seem to have overcome so that you are now really confident that you're going to be able to be active on the buybacks? Is there a timing for us to be expecting? more activity there, so just a little bit more granularity on the buyback component. Sorry for the long question.
spk29: Well, I will start with the first part of the question and we'll let Eugenio and Paco to explain the second part. But the first part that we have agreed with Paco and Eugenio is that they will stay with us helping until the end of April. By then and starting next week, Martin Arias is already fully involved and the transition of Eugenio and Martin will go very smoothly. At the same time, Eugenio offered us to continue as an advisor per project and yes, there could be some projects that we could do of investments or new investments that we could do and obviously to continue putting an eye and advising us on all the capital allocation strategy that we have designed and have presented to you recently. On the rest, I will ask Eugenio to explain.
spk32: Sure, Ricardo. Yeah, definitely what I'm going to be more focused on over the next couple of months during the transition with Martin is on the implementation of the capital return portion of the capital allocation program we announced last week. So it does have to do with share repurchases and continually monitoring the investments both in organic and organic investments as we aim to reach that two times net debt to EBITDA over the next few months. So, to your question with regards to the timing of the share repurchases, with the announcement behind us, clearly now we will start to have an open to start to use that more heavily. What we will be asking the shareholder meeting in March is to increase the capacity that we currently have. But again, we have capacity currently in place to start to operate as soon as next week. We will be implementing that capital return strategy as we mentioned in the release last week in a way that maximizes per share value from an intrinsic perspective in the long term. So that will be a combination of both share buybacks and extraordinary dividends. As you saw, we already started with our first one and there will be additional ones to come if indeed we realize that through the operating environment we're not able to reach the two times net debt to EBITDA on our own. Those will be the levers that we will be pulling, again, with me at the helm for the next couple of months, and then with Martin and the rest of the team helping him going forward.
spk30: I would like to add, Ricardo, this is Juan. Since we did not have a call dedicated to the capital allocation release, so the fact that we're all here today, I understand that there may be some questions, and yours is the first one, on continuity. And so I would like to ensure that the strategy that was communicated last week is fully in place, that the two times net debt to EBITDA target is fully in place, and that there will be no deviation from that. So I just wanted to put that out there because I know that the concern is going to be among investors.
spk43: That's helpful, gentlemen. Thank you so much.
spk31: Thanks, Ricardo.
spk19: Thanks.
spk39: Thank you. Our next question is from Alaro Garcia of BTG Paxual. Please go ahead.
spk46: Hi, gentlemen. Thanks for the call.
spk45: All the best going forward. My question is on labor costs in Mexico. I know that SAMHSA has a philosophy of paying more than the street, of paying more than competitors or similar outlets. And that's very much true of OXO. And I'm just curious of where we are in that process of, you know, upping pay for your employee base at OXO. You know, how much more difficult has it been to get that premium and what's your outlook for labor costs into 2024? Thank you.
spk30: Hi, Alvaro. This is Paco. Good to hear from you. I'll start and then I will let the team provide further perspective. But I guess that what we need to keep in mind when it comes to cost management, particularly in OXO, And understanding that the labor cost, specifically the labor cost during the last year was, I would say, a special situation versus other years because of its magnitude. But the reality, what we need to keep in mind is that also it's extremely good at working consistently on making our operations more efficient. So the team has been focused on making sure that all the verticals and all the possibilities that they usually explore as part of the way they do their operations of the stores continue to progress towards further efficiencies. And I guess that has to do with store management, that has to do with headcount, that has to do with how we look into the specific cost in the stores. So this is just to reassure you that structurally speaking and the way we approach this in the stores hasn't changed. We will continue to do so. And evidently, every time something like this comes, the teams double the efforts on maximizing the efficiency. But for 2024, we have included the increases in the plants. and we are confident that we can deliver on those plans as we enter the year. Eukranio, you want to add something on that? I would add one thing, Alvaro. This is Juan. Just because, you know, when you look at the numbers and you look at the OPSO P&L, we're making some comments about how the operating margin was impacted by, among other things, but largely by the labor cost situation. And so, you know, in terms of 2024, I just want to put out there, I hate to call it guidance, but our expectation is that operating margins for the year will be flat. That's kind of our base case. So I think the year is going to start a little bit softer and it's going to gather strength as the year goes by. But for the full 2024, our expectation is for operating margins to be flat for also Mexico.
spk19: And I think that's an important data point. Okay, great. Thank you very much.
spk40: Thank you. Our next question is from Hector Maya of Scotiabank. Please go ahead.
spk06: Hi, thank you very much for taking my question. So I just wanted to know about your update of the FEMSA Forward Plan. We saw that the execution and the investments have come ahead of time and it was exceeding expectations. Just wanted to understand why you considered it was necessary to expand the timeline window for cash deployment by an additional year potentially. And would that be because maybe M&A opportunities take longer to appear or is there a concern for either the economic or political environment in your operations that drove the decision to keep a relevant cash position for a little longer?
spk32: Hi, Hector. Thanks for your question. It's okay, and you're here. Look, really nothing has changed from what we said last year, and we continue to reiterate it. We are going to get to the two times net debt to the DBA. We can get there in several ways. One is through special dividends. The other one is through share repurchases, and the other one will be through organic and inorganic investments. At this point, yes, we're sitting on a pile of cash that's accumulated at a higher pace than we expected because of the success that we've had with the divestiture so far. There will be more of that cash come both from the remaining sales of the remaining assets as well as the Jetro stake, which we sold in installments. And the operations will also be generating cash. So we are painfully aware of the problem of holding too much cash, having said that, we want to deploy it in a smart way that maximizes long-term intrinsic per share value. So I think still within the range of the same two to three years, we will get to the two times net debt to EBITDA. It makes us, to be honest, feel a little bit more comfortable holding on to the cash right now at 5% interest rates that we're investing it in rather than where it was two years ago. So we're being patient as opportunities arise. But again, even if we do see inorganic opportunities, we've stated they will be in the core business verticals that we identified under FEMSA Forward, and they will be financially accretive to long-term intrinsic pressure value. So we want to maximize that flexibility that we have to invest across our businesses and in the best investment that we have, which is our own share, and get to that two times net debt 3BDA in due course.
spk06: Thank you, that's very clear. And also, the conversation around the hard discount category and private label has been very hot right now, very active, so just also wanted to understand if we could expect your strategy with VARA to become more aggressive in the future, and how relevant could private label become for your overall strategy and maybe even for OXO?
spk18: So, Hector, just to
spk30: Just to answer that very quickly and continue with the questions from the rest of the attendance. Look, as you know, and as we highlighted in the opening remarks, I mean, clearly one of the strategies that we are following in proximity and we have stated before is multi-format. But it's an important component of of the multi-format vertical. Bara, we reported, has had very strong goals in 2023, and our intention is to continue strengthening that business in 2024 and in the years to come. Private label is a very important part of the equation of that business. It has been performing really well. So what we are doing And what we have explained we're intending to do in that business has nothing to do with the recent announcements on that segment of the retail, but basically just following the strategy we have highlighted before. And to your point, I mean, clearly private label is an important component. We are doing very well in that segment of the business in the results we posted, and our intention is to continue doing the same in the years to come.
spk31: And again, with regard to your specific question on MARA, I mean...
spk32: We're happy that the market is recognizing the value in hard discounts. There's a long, long way in that format ahead. And again, we're happy that now the market has another view into how that business is performing, and that we'll continue to be friendly competitors in the market.
spk29: Let me just add, I don't know if you're aware, we hired a new company. director for that area called Jacobo Caller, who's an expert on this kind of multi-format and hard discount stores. And he has been here for the last three or four months already. And he's completely convinced that the potential of our Bara project is now ready to jump and to grow fast under him. So we are really looking for how to develop and to grow all over with Ibarra as we speak.
spk19: Excellent. Very, very clear. Thank you very much. Thank you. Thanks, Hector.
spk39: Thank you very much. Our next question is from Alan Alanis with Santander.
spk40: Please go ahead.
spk13: Thank you so much for taking my question, Jose Antonio, Paco, Eugenio, Juan, and best of lucks to Paco and Eugenio. Let me put some context to the question first. I mean, FEMSA's share is down 9% this morning in the first hour of trading. That's $4 billion of lost market cap. And I think that the market is reading three negative things on this. First, the uncertainty of the capex, and that will be my question. I'll come back to that in a moment. The second, the unexpected management changes. I mean, I'm to know Martin Arias, and he's super competent, and I'm sure he's going to do us a very good job. But the market doesn't know him yet. And the results regarding the margin contraction and the disappointment seems to ourselves. I think what would be very useful in this call, Antonio and team, is to elaborate a bit more in terms of how are you going to deploy $14 billion in the next five years, of which you've indicated that 70% of that is going to go to Mexico. That means that on average, you will be getting $2 billion invested in Mexico. How are you thinking about that in terms of in which businesses, in which sectors, and how much of that money is going to OxoSpin and the aspirations that you have for OxoSpin? That would be my question. Thank you so much.
spk18: Yeah. Thank you, Alan, for your question.
spk30: Look, I think that we need to go back to answer your question, to go back to what we announced during FEMSA Forward. Because strategically speaking, we announced that we are committed to our three core verticals, basically retail, digital, and Coca-Cola FEMSA. So you should expect that the discipline that we will have in terms of deploying capital is going to be fully aligned to this strategy that we announced. So anything that we do will, first of all, be consistent with that, but second, importantly, we will be extremely disciplined on how we select potential inorganic opportunities moving forward. Yeah, let me add something on the CAPEX. This is Juan. I mean, if you look across formats, a lot of what you see is going to be deployed in organic expansion. What we're seeing, I mean, obviously in Mexico we've talked about the runway, but what we're seeing in multi-format and what we're seeing in other geographies is very, very compelling opportunities to accelerate the pace of growth. Even today, and we'll detail this over the next months and quarters, but even today, if you look across all retail formats, we are opening in the order of seven units per day. If you think about Opsos here, Opsos South America, drugstores, Opsos Marts, coffee drive-thrus, it's going to ramp up from an already very dynamic place, and that's really a big part of the CapEx numbers. Don't straight line it horizontally, but rather straight line it with a slope. Because that's what you're going to see. If you think about Colombia, we're about to accelerate significantly in Colombia. I was in Brazil a couple weeks ago. The opportunity for Grupo Nos is fantastic. So a lot of the CapEx is really going to take the form of stores and DCs and distribution assets. We've said in the past on the M&A front, we're looking for a potential entry model into the U.S. on convenience. That's Everybody knows that. We've been looking for drop stores in Mexico. That's proven a bit more elusive. And that's pretty much it in terms of what we've identified at this point. Do we like our flexibility? Sure. But it's mostly about organic growth, Alan. And I've gotten a lot of questions. We've gotten a lot of questions about the bigger CapEx numbers that were communicated last week. So hopefully this helps understand where that capital is going.
spk13: Yeah. Thank you so much for that. And if you can just final, final question here, I mean, what would you, what do you think investors are missing with such a, an abrupt stock reaction and how important is that stock price for you for, for the controlling group, for management and so forth? What's the market missing? If I may have misdiagnosed the reason why the stock is down 9% today, but if any color on that would be a tool for clarifying and hearing you do as managers in a controlled shareholder, that would be helpful. Thank you so much for taking the question.
spk29: Alan, you know us very well and you know that we all think long term. And we will continue in very disciplined on our strategy. FEMSA Forward has huge potential, you know, Cash is king. We always have said that. You remember Don Eugenio saying that. And Don Eugenio also said that the opportunity is the queen, and we have to keep both. The cash, some cash for doing new projects. Coca-Cola Fenza hasn't been mentioned, but it's going to invest the largest capital in history because of lack of capacity we lost. volume this year because we didn't have enough capacity in certain places. We have to keep that. So we are going to have a huge investment in capacity in Coca-Cola in various countries. And obviously we will still go looking for good opportunities on our three verticals. That's why our intention is there. We go all the way to two times EBITDA. and divest as much as possible or repurchase as much as possible on shares because that will give back dividends because we don't like to have idle resources just getting a very low interest rate.
spk34: Yep.
spk17: Thank you so much, José Antonio. Really, thank you. Thanks, guys. Thanks a lot.
spk40: Thank you very much. As a reminder, if you'd like to ask a question on today's call, you may press star 1 on your telephone keypad, and we kindly request you limit yourself to one question. Our next question is from Thiago Bortolucci with Goldman Sachs. Please go ahead.
spk33: Yes. Good morning, gentlemen. Thanks for taking my question. Let me just catch back one mention from Juan related to the target leverage of committed to that no deviations, right? I think one of the reasons for the volatility we're seeing is lack of visibility on how you will get there, right? You're mentioning two times leverage. This might give you seven, $8 billion in excess cash. But at the same time, we're mentioning you're committing to give back up to 6% of your market cap, which is 3%, right? How will we get back to two times? And to where this incremental $4 billion, $5 billion might be going? This is the first question. And if I may just take advantage of José Antonio being in the call. José Antonio, today you have two interim positions, right? The CEO and the CFO. How is the board thinking about this and how important it might be to fill definitely these positions in order to keep the plan moving forward? Those are the questions. Thank you very much.
spk32: I'll start with the first one, and then I'll turn it off to José Antonio. Yes, my math is a little bit different than yours, but ballpark is the same. I think to get times, we're talking about a number close to six, six and a half billion dollars in that neighborhood, Tiago, and yes, six percent of the market cap as of last week was three billion. So there's still some undefined allocation of resources. Having said that, we still believe we're going to get to two times, and that excess amount plus the cash that will come in from the operations will be looked at very closely between organic, inorganic, and additional return to shareholders. So it's going to be a mix of all of that that will get us to two times. I understand the anxiety about not being all spelled out in stone about where that additional $3 to $4 billion are going, but the commitment is to get to two times while maximizing shareholder value. So we don't have all the answers yet, What we can tell you is that at least the three billion will go to shareholder return at this point, and the rest we will deal with it as opportunity to rise.
spk28: And let me just comment on that before, because Antonio, another way of what Eugenio just said is, and this is the question we've been getting, could there be some upside to the three billion?
spk30: And I think Eugenio just said, you know, in other words, yes. But like I said a few minutes ago, we really value our little bit of flexibility And so those questions will be answered over the next couple of years.
spk29: And on the second question that you had, we have discussed this at length with the board and we have agreed that on the CEO position, I am willing and open and very happy to stay for at least 24 months as CEO and chairman at the same time. I'm making this effort, I'm enjoying it, and I will stay doing it. While we are going to start the process of looking for a new CFO, as you could imagine, it will take us hopefully less than a year, or maybe a year or 18 months at the most, but we will find a new CFO for the company. As we speak, we will start the process of looking for them.
spk32: And just to be more clear about this, and I'm sure Paco will have his own views, but I think in my personal decision to leave the company at this point has more to do with kind of my personal interest. I think the skills that I brought to bear were put in place during the FEMSA Forward program over the past 18 months, and we and the team had – I mean, a lot of success doing it, and at least for me, it's on to the next project. So nothing more than that, and I'll continue to be close to the company as an advisor over the next few years, hopefully.
spk30: Yeah, and Tiago, I'm taking the opportunity also to visit Paco. Look, I'm extremely proud of what the team has accomplished in CENSA, developing the long-range plans, having a clear vision a clear perspective on what the future looks like. And in reality, my decision is something that didn't come, I didn't take that lightly, and it's exclusively related to what I want to do with the next station in my professional career. So it's an incredible time with a bright long-term perspective that I will certainly I will meet the team, I will meet Jose Antonio, I will meet everybody here. And the prospects of our company, I believe, are brighter than ever. So that made the decision even more difficult. But again, it's exclusively personal and Tremsa will always be a highlight in my over 35-year career in many big companies and Tremsa purely Thank you very much.
spk35: Our next question is from Luis Willard with GBM. Please go ahead.
spk07: Can you hear me? Yes, we can.
spk25: Thank you. Perfect.
spk27: So my question is quite mundane and perhaps I'm reading this all wrong, but I just wanted to ask you if you could go over a bit on the changes that you mentioned on your remarks um i think it was it was you about the the disconsolidation of operations because i mean you're reporting on a consolidated base of 4.6 percent growth in in sales but if you look at the each of the subsidiaries that you break down all of them in pesos grow except for health all of them grow about above that average so i just wanted to make sure that i'm reading this correctly in the year that perhaps there's some deconsolidation that's not registered in the base, but it is in the 4Q23 numbers. Is that correct or what am I missing on this closed breakdown of that? Thank you.
spk32: Yeah, Luis, we can touch base offline if you want and walk you through the exact numbers. But there were, as you know, because of the peso, some currency mismatches. So depending on whether you're looking at it on a currency-neutral basis or on a peso basis, some numbers are weird, especially this quarter in a lot of the lines, including the non-cash items and the taxes. And then there is also the deconsolidation. As you all said, it doesn't move the needle that much, but at the margin it does. We deconsolidated both the Alpunto business as well as the part of the Solistica business that is in the process of being divested right now. But yeah, those averages do work out, and the 4% number after all these adjustments is correct, despite the fact that the retail businesses and most of the other businesses are growing higher than that average.
spk19: All right. Well, that was it. Thank you. Thank you, Luis. Thank you, Luis.
spk39: Thank you. Our next question is from Luis Yance with Santander. Please go ahead.
spk15: Hi, guys. Thanks for taking my questions, and good luck, Paco and Eugenio, on the next projects. My question is a follow-up on what Alvaro asked about the margin pressure, and I guess particularly driven by the pressure on labor. I mean, could you talk a little bit about where exactly is that Did that pressure come in the fourth quarter? Was it perhaps preparing for the minimum wage increases? Is it related to, I guess, the vacation or the pension reform that has an impact there? And you did mention that also part of it has to do with adjustments ahead of expected regulatory changes. I guess you meant perhaps the potential change in working hours. So just trying to understand a little bit what drove the additional pressure in the fourth quarter. And I guess a related question to it is, you know, Juan mentioned that, and I appreciate the color on the margins being, you know, kind of maybe flat for this year, but maybe start soft and get better, just trying to understand what would be the driver of the improvements in margin as we move towards the second half of the year. And I guess related to that, but also in proximity, I mean, very strong margins on on the European side of the equation. Just wondering what we saw there is kind of like a sustainable level that we should think going forward. Thanks.
spk32: Let me start, if you want, Luis, on the margin pressure in proximity Americas. On a like-for-like basis, what you said is correct. I mean, we are contemplating... We already obviously implemented all the changes related to labor reform, including vacations and whatnot, keeping up in place with just minimum wage increases and others. So that is, I think, the driver of the like-for-like comparison. But you have to remember that on top of that, we are starting a multi-format business that is quite ambitious as well. So there are a lot of staffing needs, new facilities that we're staffing up, etc., that are coming up, as well as all the other costs, which as you know, we don't capitalize on the balance sheet. So it's a little bit of a mixed bag. on a like-for-like basis explains, I would say, maybe half of the effect, but the other half has to do more with how we're ramping up for that.
spk28: Yeah, and I think the word you mentioned, Luis, preparing for, obviously there are still some uncertainties in terms of the lawmaking and some potential changes to the labor law.
spk30: that we're obviously all monitoring closely, but there's a lot of getting ready for 24 that took place in 23. And in the case of Europe, I mean, I think this was a very good quarter. I wouldn't necessarily expect all quarters to be that strong. There are some currency issues at work, too. I mean, if you look at the numbers in local currency, It's a high single-digit as opposed to a double-digit top-line growth. But having said all that, there's no question that the team in Valora is executing very well in the midst of a challenging environment. So very encouraging. But again, and this is Paco Luis, I guess that the overarching element of all this is that structurally the teams have done a terrific job both on this side in America but also in Europe in terms of strengthening the operation itself to make it more efficient. And that, as you know, those are things that stay and that you need to keep in mind.
spk15: Great. Thanks a lot, guys. And maybe as a follow-up, I know you've done most of the divestitures, at least the big ones. I mean, but there's still a few, you know, non-core assets that you've mentioned in the past that you're willing to sell. Any updates on that? And can we expect that to perhaps being achieved this year as well?
spk32: Yeah, we're cautiously optimistic that they will get done much earlier than what we expected and probably faster than most people think. So we're making good progress in that.
spk20: Great. Thanks a lot guys. Thank you Luis.
spk40: Thank you very much. As a final reminder, if you'd like to ask a question on today's call, please press star 1 on your telephone keypad And we do ask that you limit yourself to one question. And our next question is from Federico Galassi with TRG. Please go ahead.
spk36: Thank you, guys, for taking my question. Well, one question related, and you took this part of the answer if you want. But the question is related to Mexico and saying to ourselves in the different formats that you have, you're talking about hopes, et cetera. But do you believe that... This is more related with any format in particular, or do you see some deceleration in the consumer in Mexico? Maybe if you can explain, Greta, is what are you seeing in the healthcare business when you have two quarters of, again in Mexico, two quarters of negative sense of sales? That's the question, thank you.
spk24: Did you say in health, Federico?
spk32: That was the second question. The first part of the question, just with regards to Mexico, the consumer continues to be strong. You're seeing it, again, on a laughing basis. Maybe the traffic is not as strong, but on an absolute basis, compared to what we saw, for a long time, the consumer continues to have cash available, and at least with the everyday items that we sell, so we continue to see strength there. And the margin pressure, again, has to do more with what we just discussed on labor. And it's consistent throughout all formats. I wouldn't say it's specific to either a hard discount or proximity. And then with regards to your second question on health, we are seeing a more aggressive competitive environment, generally speaking, in Mexico. Expansion of stores of our competition continues to be at a very healthy pace. we're keeping up, but you're seeing a much healthier competitive environment and different value propositions propping up that are making the operating environment a little bit more challenging from a gross margin perspective.
spk30: Yeah, Federico, just to add a couple of additional points, this is Paco. Look, I mean, when you look at the results, Mexico posted very strong results. And, you know, when you look at Toxo, when you look at Coca-Cola FEMSA, We didn't talk a lot about digital, but we have very good results. So, in general, the businesses are doing really well in Mexico. The situation with health is punctual and it happens every now and then. You have a competitive situation or you have a specific plan that isn't going as you were thinking. In this case, I mean, really, as Eugenio said, it's something related to how active competition has been being. Honestly, it's good news because that means that the market is healthy, that we are in an interesting segment of the market, and the teams are working on adjusting our strategies to face that. Honestly, we are confident that the situation will get better, but again, we are not concerned on how the business is performing in Mexico. On the contrary, we remain confident that 2024, even though we have some headwinds as usual, but we'll deploy our LRPs, we'll deploy the plans, and we should expect good results. Yeah, and I would add, Fede, I mean, we mentioned it in the remarks, but Mexico and Colombia on the health side, yes, there have been some issues in terms of competitive landscape and the shift from institutional to retail in the case of Colombia, but in both cases, the strategies are defined and we're starting to address that very, very diligently.
spk28: So hopefully in the not too distant future, we'll have different things to report on those fronts.
spk19: Okay guys, thank you so much.
spk18: Thank you.
spk30: Thanks, everyone, for attending today, for your permanent interest in our company. Obviously, the team and I are always available for follow-ups, and we'll be in touch. Thank you.
spk40: Thank you very much. That concludes today's conference. You may now disconnect.
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