Fomento Economico Mexicano SAB de CV (FMX) 2009 Q4 法說會逐字稿

Good morning, everyone, and welcome to FEMSA's Conference Call. As a reminder, today's conference is being recorded. And all participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions and answers after the presentation.

During this conference call, management may discuss certain forward-looking statements concerning FEMSA's future performance and should be considered as good faith estimates made by the Company. These forward-looking statements reflect management expectations and are based upon current available data. Actual results are subject to future events and uncertainties, which can materially impact the Company's actual performance.

At this time, I will now turn the conference over to Javier Astaburuaga, FEMSA's Chief Financial Officer.

Thank you very much. And good morning, everyone. Welcome to FEMSA's fourth quarter 2009 earnings conference call. Juan Fonseca and Renaldo Estrada join me today.

Let me begin by saying how encouraged we are by our fourth quarter and full year results as well as by the strategic transaction that we're in the process of completing involving FEMSA Cerveza and Heineken. Our people across all areas and all businesses made the best of a very complex year. And we are convinced that there are exciting developments for our company going forward.

In terms of the results, we continued the trends seen in previous quarters and close an extremely challenging 2009 on a very solid note. During the fourth quarter, Coca-Cola FEMSA again delivered strong numbers driven by solid volume growth in sparkling beverages in our Mexican operations and still beverages across our markets.

Meanwhile, FEMSA Comercio once more delivered margin expansion at both the gross and operating levels as we continue to improve our competitive position. At FEMSA Cerveza, we again note the resilient consumer trends in Mexico as volumes grew slightly in the face of good pricing and a still depressed economic environment.

On that front, we continued to see a difference in the performance between the still sluggish manufacturing-heavy northern Mexican markets and the central Mexican markets. Meanwhile, we successfully continued implementing our expense containment initiatives across our beer operations. And we are reaping the results as operating expenses continue to be well under control.

In terms of FEMSA's consolidated results, operating income increased 21.5% during the fourth quarter. And below the operating line, we had two big favorable effects, the first being the favorable comparison against the quarter that was greatly impacted by volatility and foreign exchange a year ago. And the second one -- the one-time effect of the settlement of certain contingent tax liabilities at FEMSA Cerveza Brazil under the tax amnesty program offered by Brazilian tax authorities late in 2009.

And as a result, net income increased sevenfold compared to the same period of 2008. Excluding these two nonrecurring items, net income grew approximately 25% in the quarter and 12% for 2009 as a full year.

On the balance sheet front, our position continues to strengthen, driven by cash flow generation in all of our operations, particularly in Coca-Cola FEMSA. As of December 31st, 2009, our net debt-to-EBITDA ratio stood at 0.7 times, having come down from 1.1 times at the beginning of 2009. 88% of our debt is denominated in local currency, mostly Mexican pesos.

Additionally, I would like to highlight that Coke FEMSA recently placed $500 million of a ten-year bond at the yield of 4.689%, the lowest yield ever for a Latin American issuer and significantly tighter than Mexican sovereign levels, underscoring the significant strength of Coke's balance sheet as well as its cash generation potential.

Now let me elaborate on the results of each operation, starting with FEMSA Cerveza. In terms of consolidated volumes for the quarter, they increased by 1%, combining a slight growth in Mexico, a contraction in exports, and moderate growth in Brazil.

In Mexico, significant economy and unemployment-driven headwinds continued putting pressure on our beer business. Yet we remain encouraged by our resilient volume performance in such an adverse environment. While northern markets are still underperforming those in central Mexico and we're still feeling an impact from our competitor's upsizing strategy, we are already seeing signs that our relative performance is making good progress.

Pricing in Mexico was up 3% during the quarter. And at the very end of 2009 and the beginning of 2010, we carried out a national price increase rollout across our markets and on a segmented basis, which should average close to 7%. But you need to remember that a portion of that is due to the increased VAT and excise tax on beer in place since January the 1st.

In our exports, volumes decreased 9% for the quarter over very strong growth of 12% in the fourth quarter of last year and 12% growth in the previous quarter. Clearly, the fourth quarter saw high inventory levels all throughout the system, particularly in the US But for the year, our mid-single-digit growth in the US again outperformed the US beer import category by a double-digit margin.

In fact, based on the Beer Institute numbers, our brands in the US outperformed the import category by 13 percentage points during 2009. Pricing for our exports was stable in local currency for the quarter.

And in Brazil, volumes grew 3%, continuing to show an improving trend over the first nine months of 2009 as we're drawn to a more much balanced revenue growth equation in the market. Pricing in this market contracted 4% in reals during the quarter. However, for the year, average price was up close to 5% relative to 2008, slightly above Brazilian inflation.

Summing up, total revenue for the beer business increased on 6% during the fourth quarter.

On the cost side, raw materials pressure persisted, as we anticipated in previous conference calls. Cost per hectoliter increased a little under 12% as a result of year-over-year increases in the cost of raw materials, particularly related to grains and packaging inputs and the translation effect resulting from the depreciation of the Mexican peso against the Brazilian real.

As anticipated, this increase of 12% compares favorably with increases of 21%, 19%, and 15% experienced in the first three quarters of 2009. Gross profit increased 3% for the quarter. But the gross margin contracted by 220 basis points.

At the operating expense level, once again, we saw selling expenses growth remaining well contained. And this allowed us to set the pressure coming at the gross profit level and keep our operating margins stable. Income from operations at FEMSA Cerveza posted growth of 8.6% for the quarter, in line with the first nine months of 2009.

Let me make a pause now to briefly recap on the recently announced Heineken transaction. As you know, we are exchanging FEMSA Cerveza for a 20% economic interest in Heineken. And the transaction is expected to close in the second quarter pending regulatory and shareholder approval.

As we have stated before, we are convinced that this transaction represents the best course of action for FEMSA with a view to continue to create value in the beer business going forward. And we are enthusiastic about the prospects of this relationship and our increased affiliation with such a leading innovator, strong operator, and skilled brand builder as Heineken.

In the short term, between now and the closing of the transaction, we will continue to operate FEMSA Cerveza as always. But the participation of Heineken in the decision-making processes will increase as closing approaches. There will be changes in the way we report FEMSA's financials to reflect the new structure, which we will communicate to the market in due course, most likely for our second quarter numbers.

Along the same lines, we are in the process of developing our own framework with Heineken to incorporate from them the necessary business and financial information into the FEMSA disclosure in the coming months.

Now turning to our soft drink business, Coca-Cola FEMSA delivered yet another quarter of solid double-digit revenue and EBIT growth on the back of strong organic growth, driven by both pricing and volumes, particularly for sparkling beverages in Mexico and still beverages across all of our operations.

Gross margin was expanded slightly year over year in spite of higher sweetener costs and higher cost of concentrate in Mexico. Operating income increased 19%, while our operating margin contracted by 120 basis points for the quarter. For the full year, operating income grew 15.6%.

If you were unable to participate in Coca-Cola-FEMSA's conference call today, you can access a replay of the webcast for additional details on the results.

And finally, at FEMSA Comercio, same-store sales were up by 3.4% in the quarter, reflecting higher traffic and average ticket. The accounting effect of the introduction of prepaid electronic airtime that was very relevant in the past couple of years has been diminished as 2009 went by.

In terms of store-based expansion, we added 340 net new stores during the fourth quarter to reach 960 net new stores for the full year, well above our stated objective of 800 new stores for 2009. Openings throughout 2009 were distributed more evenly than in past years with approximately 45% of the openings taking place in the first semester.

I think it is good to remember that when the financial crisis in late 2008 started to hit harder, we assessed very carefully our going-forward approach for the base of opening of new OXXO stores into 2009. We are very pleased, of course, with the decision we made to even accelerate the base in 2009 as we were able to tap on opportunities to get good leasing deals, to maintain the quality of the openings as well, and also to take some share.

On the operational front, revenues increased 15.6% during the quarter. And gross margin improved 250 basis points. Main drivers behind this were, number one, more effective collaboration and execution with our key suppliers and partners, this combined with a much more efficient use of promotion-related marketing resources; number two, a positive mix effect from the growth of higher-margin categories; and finally, to a lesser extent, the final stages of the consumer shift towards electronic recharges as described before.

Operating expenses increased 16% for the quarter, largely in line with revenues as efficiencies achieved at the store level compensated for the new store openings. As a result, operating margin expanded by 240 basis points to reach 11.7% of revenues. So all in all, another very solid quarter and full year in OXXO.

Before opening the call for your questions, I would like to make one final reflection on the year that just ended and the set of results that we have just discussed. One year ago, we all had the small expectations for 2009 from a macroeconomic and financial perspective. And we braced for the rough ride ahead.

And sure enough, on a proportional basis, reflecting FEMSA geographic and market exposure, we believe GDP contracted approximately 6% in 2009 for us. Against this number, an already strong set of results looks even better. Searching for a historical reference, we see that in 1995 the tequila crisis resulted in a contraction of 7% in Mexican GDP, similar to this year. And FEMSA's operating income contracted 24% in real terms that year.

And so I would like to use this opportunity to further recognize the excellent job performed along and across our entire organization during the year that just ended. Certainly, we operate in segments of the economy that are more defensive than others. And that is part of the story. But our ability to adapt and adjust our strategy and our business plans to challenging environments and to execute accordingly has never been more evident in my view.

And on top of that, to have been able to take such a significant step forward in our strategic path as well as the Heineken transaction leaves us with greater satisfaction and even more energy to tackle the next challenges that lie ahead.

And on that note, I would like now to open the call for your questions.

Thank you, Mr. Astaburuaga. The question and answer session will begin at this time. (Operator Instructions). Our first question comes from Bob Ford, Bank of America-Merrill Lynch. Please state your question.

Hey, good day, everybody. And congratulations on the quarter, Javier. I had a question below the operating line. And that is just on the taxes. I just wanted to better understand this tax benefit for the Brazilian amnesty. It looks like you have a deferred tax benefit of about MXN4.7 billion. But the actual income tax is MXN4.3 billion. So the cash paid from a cash-out perspective doubled year on year. But it's being offset by this MXN4.7 billion deferred income tax credit, of which about MXN2.1 billion appears to be related to Brazil. So there's a portion that's outside of that.

And then I was wondering from a cash perspective if you had to pay something that's in this MXN4.3 billion number to settle your outstanding tax liabilities in the Brazilian beer business. Thank you.

Hi, Bob. Thanks. Let me go quickly through this. First, there was not a big payment. When we decided to go into the amnesty, we took the alternative that implied the ability to defer the payments among time. So that's the first part of the question. So there's really not big amounts of cash flow involved here.

Second one, the income tax that we're presenting in the P&L of about MXN1.8 billion, it's pretty much a consequence of the incremental profit for the quarter as opposed to the fourth quarter of 2008 when we suffered a severe loss from the [ex and trade] point of view. So we are taking -- I mean, we're recording both the effect of the income tax for the quarter as an effect of what I just described as well as the deferred income tax as a consequence of the treatment of deferred taxes on a customary fashion.

So all in all, the benefit that we're putting on the P&L of about MXN2 billion is pretty much the effect on the income tax cancellation on the contingencies we had registered since 2006 when we bought the business according and pretty much consistent with the caution policy of the Company regarding this since we acquired the business. We had on our books already that contingent liability, tax liability, four years ago. So in the end, now we were able to basically reduce that liability. And of course, we are now showing the benefit on the P&L.

And then with respect to those payments going forward, it just brings up a couple questions. Just so you know, the (inaudible) that you filed in Mexico shows that you have a deferred income tax credit of MXN4.7 billion and an actual tax payment of MXN4.3 billion. Without that deferral, you would've reported a net loss for the period, right? So I'm just trying to understand the rest of the deferred tax credit.

And then if you could, please, the deferred -- the payment that you settled with the Brazilian tax authorities, does that remain attached to Kaiser? Or will you be making those payments in future periods?

Yes, those -- the amnesties attached to Kaiser, the net effect of the amnesty considering the assets that we are able to recover from that as opposed to the liabilities we will need to pay, we are pretty sure that is going to be not -- is not going to have any effect on a cash flow basis along time. So there won't be -- because we are now deciding to go into the amnesty program, as a matter of fact, we are now basically not only reducing the contingent liability now being our liability, but also because of the way the amnesty works and because of the ways we have to settle those liabilities, we are comfortable that in terms of the net cash flow effect, that would be basically a wash between the liabilities and the assets that we have from a tax point of view.

In terms of the deferred tax comment you're making, I would -- can you clarify that again because I didn't really get a good grab on what you were asking about?

Yes, I don't have a very good grab either. So I apologize. But in the [BOSO] or the [Informa Tre Mistral], right, it shows that there's a total deferred tax credit of MXN4.6511 billion in the period, right? Part of that appears to be this tax benefit for the Brazilian amnesty. But in addition to that, there seems to be another MXN2.6 billion that are domestic in nature. And it may be related to the change in the consolidation tax rules. And I was just trying to understand -- I wanted to confirm the number because it's -- the breakout that you file with the authorities is a little bit different than what's on page seven of the press release, and --

No, no, let me -- maybe I can give you a very quick answer maybe on this. And we can maybe follow up offline on this. But the consequences or the effects of the changes in the consolidation tax regime in Mexico doesn't really produce any material effect on the Company. There are some effects but which are not material, considering the size of the Company. And I think that the rest are pretty much pretty straightforward things that, again, accounting wise we need to record as deferred taxes.

So I don't think there's anything to worry about in terms of either a relation, a big relation, with the tax amnesty or the changes on the consolidation tax regime in Mexico that does -- that has anything to do with the deferred tax number that you're mentioning.

But it seems to be a MXN2 billion at least cash flow impact. Is that fair to say -- maybe not a material impact on earnings but possibly cash flows?

No, there's not a MXN2 billion cash effect at all, as I explained. It's all I would say accounting treatment. And because of the way we went into the amnesty, there's really not a cash effect in the short term. And in the medium term, there is basically a wash between the liabilities we're going to have to settle and the assets from a tax point of view that we have in Brazil.

All right, thank you.

Thank you, Bob.

Our next question comes from Lauren Torres with HSBC.

Yes, hi, everyone. Over the last month or so, you talked about or at least generally talked about the opportunities now that the Cerveza business is with Heineken about opportunities for Coke FEMSA and the Comercio business. And I'm just wondering, thinking about it over the last month or so, if you could be a little bit more specific regarding these opportunities. I'm not sure if you could do that for Coke FEMSA but maybe with the Comercio business as you think about expansion plans if you have a goal of door openings for this year. Is that just in Mexico? Is there more opportunity outside of Mexico? As I said, any just general thoughts about how you think you could invest more behind these businesses?

Sure. Let me start with the second part of the question, Lauren, in terms of OXXO. Again, the year in 2010, we think in Mexico we might be I would say capable on this, always depends on I would say how well we can manage the pipeline of potential locations at which we can open stores. We feel good about that. So we're basically maintaining kind of an internal target of growing something between 900 and 1,000 stores for the year, so pretty much consistent I would say with what happened in 2009.

Under the same topic of OXXO going forward in terms of geographic expansion, what we have been telling is that we are still only months since we opened our stores in Columbia. We said since the beginning that we will open a small number of stores in order to precisely learn, adapt, and renew the value proposition that we started before opening the stores. But we need really to be there and get in touch with consumers in Colombia and to understand their habits and their patterns of behavior and what they pride more, et cetera.

So we are still looking for next year in Colombia to I would say again expand the base of stores but still with the intention of continuing this process of learning and adapting the value proposition. We are not thinking of expanding in a significant way our presence in Colombia next year. And we are I would say in the early stages of basically operating the stores and testing a number of things, very, very different things.

We're basically using everything we know about OXXO and how it's been so successful in Mexico. But basically, we're challenging everything. We are now down in Colombia. And we're challenging our own -- our operating model and looking for different alternatives in order to find the best I would say combination of the formula that was so successful in Mexico in order to again be able to be successful in Colombia as well.

We are -- I would say that in 2010, we will keep on focusing on what I just said, growing as much as we can our OXXO base in Mexico and continue to improve the infrastructure and the value proposition to keep on the learning phase and the development phase in Colombia. And we will keep on looking at other opportunities in other markets.

And we will do that, as we have said in the past, pretty much based on the fundamental I would say and thorough analysis of what we are good at and how our set of capabilities can be leveraged in some other places outside of Mexico and, of course, looking at very, very carefully at the recent landscape and taking into account again the I would say the management strengths and pull to really -- not losing focus in Mexico, which is the key every time we think of opportunities in OXXO, but hopefully taking advantage of some others.

I don't foresee 2010 really making an announcement or going maybe into another country. I cannot guarantee that being the case. But that is at least the going-on position as we speak. And so that is for OXXO.

And in terms of the Heineken relationship, I think that we have a number of possibilities. Most of them in the early stages will be pretty much focused on making sure that we have a smooth transition from a leadership standpoint of view of the business, from the adaptation that the current business plan of the business is to whatever Heineken face under due diligence think would be the appropriate actions to be taken in terms of efficiency, strategy, effectiveness, and management of the priorities.

And I would say that we will concentrate very, very much in the first stages on doing that very, very good in Mexico, Brazil, and the relationship with the USA organization. And I would say that we will continue doing most of the things in a very open and collaborative way, most of the things that we were doing being 100% owners of the business in the past.

The projects in which we are working together within the three businesses I would say will change the way those projects are being managed. But I would say that points of contact and coordination between the businesses to tap on opportunities to keep on exchanging best practice as developed common infrastructure is appropriate, those will continue.

So in the short term, I wouldn't highlight something quite different from the things that we have been working, again, as owners of 100% of FEMSA Cerveza. But for sure in the medium term, there will be a number of opportunities to take into advantage the expanded footprint when you look at these two companies face to face -- I mean, Heineken on one side and FEMSA on the other.

Okay. And if I could also just quickly ask about the consumer environment in Mexico and your markets, what you see, it sounds like conditions are still rather challenging. But have you seen as far as the consumer behavior is concerned -- are things stabilizing a bit? Are they getting tougher? How do you see that playing out as we think about this year?

Sure. I think you used the right word in terms of this is going to be still a challenging year, even though GDP numbers can look good between 3% and 4%. I would say that still consumer is going to be impacted because we're not, I mean, very sure that on -- I mean, you're going to see I think we're starting to see a little bit of a rebounding of the northern markets, which is going to be good for good -- I mean, for sure for our business at least in beer, not necessarily in Coca-Cola because we are basically in central Mexico.

But I think that we need to bear in mind that if you combine still the level of the economic activity combined with the still very high unemployment rates, even considering a growth between 3% and 4%, consumers are going to be impacted because of taxes, because of services. And I would say that even though we are still looking at I would say signs of optimism and confidence for the longer term, I would say that the first and second quarter of the year are going to be by far the most challenging in terms of consumer purchasing of disposable income in order to keep on I would say fueling the demand of our products.

So I'm a little bit more bullish for the second half of the year than for the first one. And specifically for the first quarter, of course, when you take into account the price increases we just passed to consumers and again what I just described, I think it's going to be by far the most challenging one. But as the year progresses, I'm pretty much more optimistic about the potential growth for the full year.

Okay. Great. Thank you.

Thank you.

Our next question comes from Alan Alanis with JPMorgan.

Hello, Javier, Renaldo, Juan. My question has to do also with OXXO. Clearly, this was a record year in terms of store openings. But I'm also seeing that there was a decline in the amount of CapEx. And I was wondering if you could help us understand this. I mean, what changed in terms of the investment per store?

Either is an issue that has to do with other kinds of investments than it has to do with not necessarily with store openings? Or are we -- or is it much cheaper to open OXXOs in the south or central and south part of Mexico or the like? I would like to have a better understanding of that, please, Javier.

Sure. Sure. Hi, Alan. Thank you for the question because I think it allows me to speak a little bit about also a little bit of the next coming months for OXXO as well. The basic explanation behind such a large number of openings of new stores as opposed to the CapEx in all this doesn't really lie with the I would say amount involved in the opening of stores. When you measure those in pesos, we're basically there. When you measure those in dollars, of course, it's a smaller amount, even though we have to pay higher prices for things, such as the cold chamber and things like that, which are pretty much dollar based.

But total amount invested has a lot more to do with some -- the [thoroughs] of either [remodelations] of existing stores or some infrastructure projects that we deferred during 2009 into 2010 basically because of again our very, very bullish approach in terms of opening up stores but still at the same time our I would say cautious approach in terms of managing the cash flow of the business in a very uncertain environment, which was the one prevalent in 2009. So I would say that's basically the main impact.

So going forward, you should expect some of those investments that we deferred to start appearing into 2010 and 2011. And I would say that that's basically the explanation behind the performance of CapEx as opposed to opening of stores in 2009, Alan.

Okay. And could you provide what number do you have in terms of CapEx for 2010 then for OXXO? How should we be thinking about that?

Sure, $20 million to $30 million maybe. That's kind of the going-in approach. But as I said, the more successful we are in finding opportunities to allocate the capital in this business, we will take them. We are not hesitating. We are -- I shouldn't say doubled down because we -- I mean, we are not in that mode.

But we are using the best of our efforts and capabilities in order to maximize the speed but taking very good care of the quality of the opening of net new stores. So our going-in position for the year would be $20 million to $30 million.

Thank you, Javier. Thanks.

Thanks.

Our next question comes from [Margaret Calvar] with [Harding Leviner].

Yes, good afternoon. I wanted to just get an update on your hedge positions in terms of your commodities. And how will that change on the beer side when Heineken takes over? Do they have a similar hedging strategy? Or will we see some different approaches out of them?

Hi, Margaret. This is Juan.

Hi.

In terms of the hedges that are in place this year, we have a lower percentage of our aluminum needs hedged but still about two-thirds. When you combine Mexico and Brazil -- it's mostly Mexico really -- the hedges that continue to be in place have to do with Mexican aluminum or Mexican needs for aluminum.

And so it's about two-thirds of our needs are still hedged through this year. The hedges taper off. And in 2011, basically by the second half of 2011, we have no more hedges. That's really the big one. We have some for natural gas that are less relevant.

FX is another biggie because it actually works in the opposite direction. FX we did have hedges in place in 2009 for a good chunk of our requirements. I mean, we do have a bit of a natural hedge through our exports and through some of the sales of the packaging operations. And that obviously remains in place. But we also had some forwards, a significant amount of forwards in 2009, which we don't have for 2010.

So really, the important message here is that the beer business will face some FX headwinds because we will be purchasing dollars at roughly 13, which is more or less the spot today, versus a level close to 11, which is what we were buying dollars last year. So that's where we stand today.

Obviously, once Heineken takes over the operation, we can't speak on their behalf. They will have their own policies and their own views on managing the risk going forward. But that is why it's in place today.

Okay. Thanks. And could you just update me on the sugar and sweetener from the Coke FEMSA side as well?

Yes, I think, Alfredo, if you're on the line and you can take that question, if not, we can obviously make some comments.

Yes, in the sugar front, certainly, we were already paying -- somewhat international prices are continental. Probably Mexico is a place where we're going to be facing the highest increase. However, given that we're going to end up using a mix of fructose, HFC, as in sweetener, probably the impact at the end during 2010 will be more in the range of 25% that we do expect that with the appreciation of the local currencies to offset part of that.

The other important market is Brazil. In Brazil, we have hedges in place to hedge 50% of our needs. That's significantly lower prices than the current market now. So certainly, we will face pressures in the sugar front. But it's likely that with the appreciation of local currencies we can offset that.

Okay. Thanks very much.

Our next question comes from Lore Serra with Morgan Stanley.

I have actually two questions if that's okay. Thank you in advance. One is just quickly on the beer company. It looks like the domestic pricing weakened a couple of percentage points sequentially. And I wonder if you could talk about why that was the case, if there's a little bit more price-based competition that you saw in the fourth quarter.

And then on OXXO, I wondered if you could talk to two issues. One is, when you look at the trends and sales in 2009 on same-store basis, did you see a significant difference between, let's say, the north versus the center sort of to understand your comments about how beer was tougher in the north versus the center. I just want to understand the gap you saw in same-store sales growth.

And if I look at the same-store sales for OXXO in the fourth quarter, it looks like it declined to me. And I'm looking at it on an absolute basis, the 3.4 versus some of the adjusted numbers you were presenting earlier in the year, where -- which were more in the mid to upper sort of single digits. So I wonder if you could just comment on sort of what you see as sort of organic growth at OXXO. Do you agree that it looks like it's slowed in the fourth quarter and if that has any implications for '10? So I'm sorry that's a lot of questions.

No, that's okay, Lore. We can take all of them. First, on beer, most of the impact is coming from shifts in mix in which we made some tactical pricing with the liter or quart in some geographies in which the gaps against the competitor were I would say not the right ones we think. So most of the sequential evolution of pricing is having to do with that.

And I would say the smaller component also as well is still a geographic effect, which is negative to us in terms of our higher price markets growing at much more smaller rate than the other ones. Particularly in the fourth quarter, that had an impact.

Going to OXXO, I would say that, yes, we are seeing some differences in regions. I would say that not particularly changing a lot in the fourth quarter as opposed to the previous quarters. But if you look at the performance of the beer business as a good proxy of the differences of growth in the different regions for OXXO, you wouldn't be too far away from the reality of the business.

So yes, the same-store sales in some of the regions in which unemployment and the depressed economic activity hit the most, which is basically the northern part of Mexico, OXXO had a tougher year but, again, not particularly different or something like a trend in the fourth quarter that tells us that there is something going on which is going to be significantly different from what the full performance of the year was.

Same-store sales for OXXO are still performing well ahead of what the benchmark in Mexico, which is on par the rest of the supermarkets in Mexico are performing. Still, for the fourth quarter, we were I would say pretty much with the same gap as difference of percentage points on our side against them.

And I would say that going forward we are still confident. If you look at same-store sales in real terms in 2009, what the story was in 2009 as opposed to previous years in which we had the severe contractions -- and I'm going back all the way again to the 1995 tequila crisis and then looking again at the early 2000s. And we still got same-store -- I mean, we think that same-store sales stood up very, very firmly. And we're still optimistic about being able to keep on growing that in the low single digits going forward into 2010.

Yes, let me just make one additional clarification, Lore. If we look at the same-store sales data as reported for the four quarters of 2009, we have done 1.8 in the first quarter, up 0.5, then up 2.9, and now up 3.4. So the trend has clearly been a positive one.

What we did not provide you this quarter -- and maybe that's a number that you have in your mind -- is if we exclude the effect for the shift to -- driven by the electronic recharges, we had been providing what the average ticket would've been kind of in a range. And we didn't do that this quarter because the effect of the shift to electronic recharges by now has become much smaller than it was in the past. But the 3.4 really should be comparing against the numbers I just gave you. There was still a small effect.

So in other words, the ticket would again have been in the low to mid singles, let's say in the low singles, higher than what you're seeing in the press release, if we made the numbers comparable for the electronic recharges. But it was just decided we're not going to continue to provide that because it's just becoming very, very small going forward. I don't know if that was clear.

Sure. That's fine. Thanks.

Our next question comes from Sohel Amir with Lucite Research.

Good afternoon. My question was more with regards to OXXO. And I know you've spoken a lot about it. But I was just interested in getting sense post the Heineken deal what the outlook is likely to be for OXXO. I know you're very conservative in terms of building it out. But it also seems to me that through Coke FEMSA you have an understanding of some aspect of the retail markets in various Latin countries.

And I was wondering if you want to use or to what extent could you use that information and that market know how to rollout the OXXO chain in a number of the Latin countries? And also, finally, would you consider buying any existing store franchises in Latin America?

That we would be interested in acquiring, Sohel?

Yes.

Okay. No, on the first part, it obviously helped having a presence in certain geographies when you are entering a country from a number of dimensions. Of course, we are very, very careful about not sharing any confidential information. There is collaboration within this as a win-win proposition for both companies.

So I would say that also relates I would say with Coca-Cola FEMSA, one of its more important suppliers. But as well as part of the Company, of course, there is a number of I would say supports in terms of entering a new geography such as was the case for Colombia.

So of course, when we decide in terms of which geographies are the more appealing, the component of being present or not with our Coca-Cola operations is one of them but, again, I would say doing this in a very transparent and of course [ongoing] basis.

And on the second one, we have been very successful on I would say growing the business organically. But it really doesn't show in the numbers of OXXO in terms of some of the -- I mean, at some points of time, even in Mexico, we have been I would say buying some very, very small chains, local -- not even regional -- stores, pretty much based on the location. So we cannot rule out that we will also look at some opportunities in which we might be able to tap opportunities of acquiring some small franchises. So far, we have not been in the need of doing so. But that is something that we cannot rule out going forward.

Right. And just finally in terms of margins, I mean, they've been increasing. But it seems that you have operating leverage at this point in time. So in just Mexico, do you -- is there a level at which you think, yes, at this point, our margins are going to stabilize? Or what's your outlook there?

Hopefully not. Hopefully we can keep on growing them as much as we can. But I would say that if you look at the numbers, we are now getting to I would say very, very good numbers as compared with any retailer that is present in these kind of formats. So I would say it'll be challenging and more tougher going forward than it has been in the past on one side.

On the second side, I think that also in the past I would say at least in the last year some of that margin expansion was due, as I say at some point of the conference, that in 2009 some of the, for example, remodelation of fixing stores that we deferred for 2009 into 2010, that had an impact in terms of the margin expansion for the year. So next year, we have pressure on that side.

Number two, also during 2009, we had a huge benefit of electricity, utilities bills coming down. Now they're moving in the opposite direction this year. But also during the year, we made a lot of cost containment efforts and efficiency programs for the stores. And we were very successful in that. So that will help in terms of now providing a lower base and, of course, some of those benefits rolling into 2010.

But the programs for 2010 now with this more efficient and lower cost base is going to present also a challenge to continue I would say expanding margin through operating efficiency. So all in all, I think we've done a good job so far. Going forward, it is hard to think that margins can't keep on expanding at the pace that they have been doing in the past. But of course, we will still try to keep expanding those, even though at a moderate pace going forward.

Great. Thank you very much.

Thank you.

(Operator Instructions). Our next question comes from Jose Yordan, Deutsche Bank Securities.

Hi. Good afternoon, everyone. Javier, over time, FEMSA many years ago had the problem of having some of the assets that were inside of FMX undervalued. I mean, over the last four or five years, that's been a relatively minor problem, especially with the, let's say, the expansion in the market's perception of the value of OXXO, et cetera. But now that you're back to basically being a holding company for two big blocks of shares plus a retail operation, I'm starting to fear that the market's going to go back to this sort of conglomerate discount or whatever it used to be called or holding company discount.

And I guess my question is -- what are you prepared to do, if anything, if this is something that becomes pervasive and that is not just a question of the short-term uncertainty regarding the deal with Heineken, et cetera? I mean, what happens if a year or two from now this is this big discount still persisting? What can you or what are you prepared to do?

Yes, it's true. Thanks for the question, again. I think that I will start by saying that we are conscious about the phenomena you're describing, that as we said when we did the road show of the transaction with Heineken that we will look at every single alternative that is at hand in terms of how to grow our businesses and to create value going forward, including a review of the corporate structure of the Company going forward.

We said also as well that we are still comfortable with the I would say the benefit of this structure so far. And with that, I'm speaking about having Coca-Cola FEMSA listed and not basically considering in short term the potential floating of OXXO or other stores. And going back to your question, I would say that in the short term I would say the market reaction to the new FEMSA if you want to call it that way is still something to be seen. I think this I would say this new version of FEMSA needs to -- I would say that we need to give a little bit more time to the market.

We think that we were I would say brave enough and responsible enough to do the right thing with the beer transaction being again that asset, basically the foundation of the Company but I would say the shareholders, board, and management being very conscious about that this was the best thing for all shareholders in terms of value creation.

And I think that we will use that as our I would say credentials to really communicate to the market that, again, we will look at very closely what the perception of the market is regarding the structure of the Company and the businesses that compose. We still do believe that putting those businesses together and making them work very closely and tapping opportunities is the right thing to do.

But in the short term, I mean, after the road show, I got a lot of I would say opinions. And of course, they are very varied and quite different, both in terms of what is driving the market sentiment these days -- and you can hear all the way from people which are I would say either skeptical of the Company being able to tap some good opportunities acquisition wise going forward all the way to people which are very bullish in terms of the track record of the Company being so successful in precisely finding those opportunities and convert them into value-generation opportunities.

So what I would say, again, is that we did the transaction with Heineken because this was the right thing to do, market sentiments, common goals. We need some more time I would say to really reflect and look at how it does evolve. And we will consider everything at our hand that is focused on value creation for our shareholders going forward.

And we will spend a lot of time as we told you and all of our investors when we visited them a couple of weeks ago. We will spend a lot of time precisely on not only looking at opportunities but I would say monitoring very closely market sentiment and to think through very, very carefully and responsible the next actions and hopefully transactions going forward for the Company as we continue to operate the businesses at its full potential as we have always been doing. So that's basically where we are these days, Jose.

Okay. Thanks.

Thank you.

With no further questions, I will now turn the conference back to Mr. Javier Astaburuaga.

Thank you very much. Thank you very much for your participation, everyone, today. And just finally, I would like to remind you that we'll be representing at Cagny next Tuesday afternoon. Both Carlos Salazar and I will be talking about basically what we discussed today as well as the road ahead for FEMSA, Coca-Cola FEMSA, and OXXO. And our presentation will be available via live webcast through our Investor Relations website. Thank you very much. And have a great weekend. Bye now.

This concludes our conference for today. Thank you all for participating. And have a nice day. All parties may now disconnect