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

Hello and welcome to FEMSA's third quarter 2024 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 followed by one on your keypad to register your question. If you require assistance at any point, please press star zero to be connected to an operator. I'll now turn the call over to Juan Foseca, Director of Investor Relations. Please go ahead.

Good morning, everyone. Welcome to FEMSA's third quarter 2024 results conference call. Today, we are joined by José Antonio Fernández de Garzalagüera, CEO of our Proximity and Health Division, Martín Arias, our CFO, and Jorge Collazo, who heads Coca-Cola France's investor relations team. The plan for today is for Jose to open the conversation with some comments on the performance of proximity and health during the third quarter, and then to move on to a more strategic set of topics that follows and provides an update to some of the messages he shared with you six months ago during our first quarter call, including some preliminary views on our expectation for 2025. After Jose's remarks, Martin will provide more detail on the broader business and our quarterly results. Finally, we will open the call for your questions. José, please go ahead.

Thank you, Juan. Good morning, everyone. During the third quarter, proximity and health delivered a solid set of results. As you look at our financials, you see growth almost everywhere and margin expansion in all the right places. This is certainly positive and a testament to the strength of our business platform, the skill of our teams, and the permanent effort to grow and improve quarter after quarter, year after year. But Martin will go over the results in some detail in a few minutes. I want to focus particularly on what did not go that well, particularly the dynamics of same-store sales at Proximity Americas, which came in flat for the quarter. First, Let's discuss average traffic, which contracted 5.7%, reflecting a wetter and cooler third quarter, with its negative effects on some of our most important consumption occasions, thirst and gathering. The greatest contraction was in key categories such as beer, soft drinks, and water. Beyond weather, in the third quarter, we faced a demanding comparison base as same-store sales grew over 15%, and traffic increased a remarkable 8% in the same quarter of last year. Finally, a slowing consumer environment in Mexico also contributed to the weakness. This environment is typical for the second half of an electoral year. Ofsetting the polling traffic, average ticket grew 6.1%, reflecting revenue management initiatives while having a favorable effect on gross margin. A careful review of pricing and market share data leads us to the conviction that these revenue management initiatives have been implemented without losing price competitiveness or market share in the relevant categories relative to the traditional trade as well as supermarkets. It goes without saying that we will continue to monitor the data to ensure that we maintain our competitiveness. As we look ahead, our comparison base gets easier, and we look forward to an improvement in the Mexican economy in general and the consumer environment in particular. Let me walk you through our longer-term plans for proximity and health. My team and I have taken the first year of my time as head of the division to carefully review the portfolio and to start adjusting our long-range plans with a renewed emphasis on return on invested capital by format, line of business, and country. This has led us to sharpen our focus on the investments that we're making by accelerating, decelerating, or eliminating initiatives. A significant portion of my presentation to the board in the coming weeks will be focused on an in-depth review of the entire portfolio with a specific focus on Oxo Latam. This will complement the deep dive we undertook earlier in the year in the Health and Valora businesses. We expect from this session to finalize our medium and long-term plans. Although we must receive comments and final approval from the Board, I want to take the opportunity today to share some of the initial thoughts I have as to where we need to focus in the next few years. First and foremost, OXXO Mexico, where we believe the opportunity exists to continue to create significant value for the foreseeable future. The business has structural momentum and a very high ROI widespread. The three core drivers of OXXO Mexico are sustained growth in same-store sales, sustained growth margin at the current levels, and sustained high-quality store-based expansion. On that note, our preliminary store expansion target for 2025 is in line with the current trend of about 1,100 net new stores in Mexico, or more than 4% of the base. We will also continue to evolve OXO's value proposition by developing and integrating additional value layers with a current focus on three projects, food service, price and store segmentation, and cash management initiatives to strengthen our service business. Beyond Mexico, we have several compelling opportunities, and as discussed six months ago, we have the benefits of being able to modulate the pace of investment given the organic nature of the growth process and according to the stage of development of each format. Let me briefly go over the various opportunities and where we are with our plans for each. In the U.S., we just closed our acquisition of the DELEC retail assets. These are very early days, but we're excited to finally get to work in these attractive markets. So expect more information regarding our tests around El Paso and the broader strategic path we expect to take. At Vara, we continue to optimize our discount value proposition while we meaningfully accelerate store build-up. With a preliminary target for 2025 of approximately 40% growth rate in the store base, we have also undertaken the decision to administratively and operationally Segregate VARA from Oxo Mexico to ensure that it has the resources and focus it requires from what we expect to be a new stage of higher growth. This segregation may have a short-term impact on certain costs and expansion, but it will provide a solid foundation for the future. At Oxo Colombia, our mature towers are already EBIT positive, even after allocating overhead to them. And we are confident that we have a winning format with food convenience reaching approximately 15% of revenues and average sales per store matching those in Mexico. We are excited with the evolution of this market, especially as we continue to develop specific capabilities and fine-tune our value proposition. Therefore, our preliminary target for 2025 is approximately 15% to 20% growth in store base, while we also build out our supply chain infrastructure and improve our processes in assortment, price segmentation, services, and food. For certain other Latin proximity operations, such as OXO, Chile, and Peru, we are de-emphasizing expansion as we focus on improving their profitability drivers. This strategy will also help us reduce overhead in those markets As a result of these initiatives, we expect to improve the results of Oxfam generally and reduce the level of investment required in the short term. In Europe, Valora continues to perform well, particularly retail and B2B food service, and we are working to improve traffic to B2C food service, which will depend in part on an improvement in German economic growth. We expect this improvement in the next 12 to 24 months. We are also making progress with our organic growth initiatives, particularly in German retail, but we have chosen to take a cautious approach in recognition of the complexities of that market. We're also driving continued capability sharing with the rest of proximity by Valora, for example, in food service, and from proximity to Valora, such as the use of data for price and promotion optimization, and leveraging our scale to increase commercial income opportunities. At OxoGas, we're continuing to drive growth by increasing volume at our retail stations, as well as pursuing incremental growth with institutional clients, cautiously optimistic on our ability to obtain permits to increase our station-based organics, and pursuing small, bolt-on acquisitions in a very disciplined manner. We have also launched a pilot truck stop concept, which combines an OXO gas and OXO store with PEMSA and third-party food offerings, as well as specialized facilities for truck drivers, such as showers, a rest area, and mechanical services. These stops could be located in key highway areas, offering a compelling new value proposition that better addresses the needs of Mexican truck drivers. Regarding the traditional trade, after a careful analysis, we will recommend to the board suspending our pronto initiatives, both the franchise model and wholesale distribution. We may revisit these opportunities in the future, but given the many priorities in front of us, we have concluded that renouncing certain initiatives is as essential as identifying which ones we want to accelerate. Obviously, we will continue to leverage the proximity and cost capabilities to pursue the opportunities to provide the traditional trade with services and payment platforms through our digital division. Finally, at Pensa Health, each of our four country operations are in different situations and require different strategies. For now, let me focus on two countries, the one that presents the most dynamic opportunities and the one that needs the most work. In Colombia, we are achieving rapid growth in retail as we de-emphasize exposure to the challenging institutional segment. We expect to continue growing our leadership position by expanding rapidly with a unique value proposition for Colombia in pharma and health and beauty. We have also identified an opportunity in the wholesale distribution business where we will use our scale and logistics capabilities to serve the independent pharmacies which still represents close to 50% of the market. In Mexico, we will continue rolling out our new flagship drugstores with an important component of health and beauty as we navigate an intense competitive environment. It is still early to determine the results of the new flagship stores, but we're optimistic that the dual format strategy will work as well in Mexico as it has elsewhere for us. Wrapping up, hopefully the message we leave you today is one of ample opportunities for profitable growth in the short, medium, and long term of an organization that is highly focused and a management team that is determined to prioritize and allocate resources according to each project's potential to deliver the healthiest spread between ROIC and WAC in the long term. And with that, I will now turn the call over to Martin to talk about terms of third quarter results. Martin, please go ahead.