Fomento Economico Mexicano SAB de CV (FMX) 2012 Q2 法說會逐字稿

Good morning and welcome everyone to FEMSA's Second Quarter Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the presentation, there will be a question-and-answer session. During this conference call management may discuss certain forward-looking statements concerning 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 currently available data. Actual results are subject to future events and uncertainties, which can materially impact the Company's actual performance.

At this time I would now turn the conference over to Javier Astaburuaga, FEMSA's CFO. Please go ahead, sir.

Thank you. Thank you and good morning everyone. Welcome to FEMSA's second quarter 2012 results earnings conference call and Juan Fonseca and Jose Castro are with us today as always.

As discussed from earlier calls, we will focus on the consolidated figures for FEMSA and on FEMSA Comercio's results. Since many of you probably had the opportunity to participate in Coca-Cola FEMSA's conference call last Tuesday.

As you also may have seen our detailed results, we will use this opportunity to share some of what we see as highlights, and main trends on our business.

As we mentioned in our release, our performance in the second quarter was mixed. On one hand, FEMSA Comercio delivered strong revenue growth, driven by dynamic same-store sales and new store openings, where margins continue to expand.

On the other hand, Coca-Cola FEMSA faced a challenging environment and made the most of it. Topline growth was achieved through pricing, but we continue to see short term pressure on margins, particularly in Mexico, reflecting among other things, raw material and FX pressures, difficult weather comparisons, and the expenses related with the integration of our new territories in Mexico.

However, following up on comments made by Hector Trevino during his conference call on Tuesday. Given that Coke FEMSA's topline is behaving well and that several pressure points of the income statements will be short term in nature, we expect profitability to recover during the second half of the year and beyond.

As you know, at the end of March, we reported a 2011 quarterly and full year financial information under IFRS, to facilitate comparability. If you have any questions about these changes, please get in touch with Juan on our Investor Relations team, who will be glad to follow-up on that.

In terms of our perception of the environment, and the drivers for consumption, particularly in our key Mexico markets, we continue to see encouraging trends that are consistent with what we saw at the beginning of the year. Manufacturing activity and GDP growth continued to be healthy, and consumer confidence remains high, while unemployment is under control.

The one variable that has changed in trend recently, and that merits monitoring is inflation, which did spike about 4% for the first time in several months here in Mexico. However, the overall economic environment in Mexico is positive and funds seem to be flowing in the right direction, in the form of both direct and portfolio investment.

And looking briefly at the macro environment in other markets where we operate, the standouts regarding GDP are Argentina, Venezuela and Colombia, all of them posting mid-single digit growth in sharp contrast with Brazil, where we are still seeing a deceleration.

Moving on to the costs; our consolidated quarterly numbers. Total revenues increased 23% and income from operations grew 13%. On an organic basis, excluding the integration of the new bottlers, total revenues and income from operations increased by 16% and 7% respectively.

For the second quarter, the line labeled participation in Heineken results represents FEMSA's 20% participation in Heineken's first quarter net income, which was reported last April, using now the average exchange rate for the euro during the second quarter.

Net income increased 29% in the quarter. As we explained in our press release, this increase reflects growth in income from operations, the positive effect of the devaluation of the Mexican peso on the U.S. dollar denominated component of our cash position, and the lower effective income tax rate. Our effective tax rate was 24% for the quarter, resulting from a tax shield related to interest and capital included in the dividend declared in the South America division of Coca-Cola FEMSA. Normally, you should expect our tax rate range to be in the low to mid 30s.

In terms of our cash position during the second quarter, we went from having a consolidated net cash position of MXN2.6 million at the end of March to basically zero net cash levels at the end of June, reflecting dividend payments carried out during the month of May at both FEMSA and Coca-Cola FEMSA.

Moving on to discuss our operations and beginning with FEMSA Comercio, we opened 290 net new stores during the second quarter. This number is lower than the comparable figure of 2011, and if we look at the full first half of the year, we are running a bit short of the comparable number as well. However, the run rate for the last 12 months is 1,026 stores and we expect openings during the second half of the year to maintain at least or perhaps slightly increase that run rate.

In other words, 2012 will turn out to be somewhat backend loaded in terms of openings. But our confidence is very high that we will surpass a 1,000 net new stores for the year, and possibly approaching 1,100 in line with our expectations.

Loading of the backend of the year with openings is not ideal, but the focus continues to be on maintaining the highest level of quality in the new openings, and that remains the first priority for the whole organization.

On a related note, our store number 10,000 was opened a few days ago in the state of Chihuahua. We would like to take this opportunity to congratulate our colleagues at FEMSA Comercio for reaching this major landmark.

Revenues increased 17% during the quarter in FEMSA Comercio. Same store sales were again up a healthy 8%, reflecting improvements in average traffic, as well as in ticket. Our traffic increased 4%, continuing to reflect progress in our management of category and purchasing occasion mix, and the continuous fine tuning of our value proposition within the store.

Our average ticket also rose 4%, aided by price increases taken in the first quarter by several of our suppliers for important categories.

For the quarter, gross margin expanded 60 basis points, again driven mainly by positive mix shift due to the growth of higher margin categories, a more effective collaboration and execution with our key supplier partners, combined with a more efficient use of promotion related marketing resources, and a better execution of segmented pricing strategies across markets and store formats.

In terms of operating margin, this quarter FEMSA Comercio posted an expansion of 60 basis points, as operating expenses grew slightly below revenues. As you know, operating expenses have been growing ahead of revenues for a while, driven by certain initiatives related to the strengthening of the organizational structure and to increase marketing investment behind certain consumption occasions.

The fact that during the second quarter, this trend did not materialize, results from a temporary decrease in the face of such expenses, partly related to the calendarization of certain marketing programs, and to the moderate slowdown in the face of store openings for the quarter. But we should expect operating expenses to grow slightly ahead of revenues in the short to medium terms, as we continue to strengthen and support our business.

Having said that, FEMSA Comercia's results, particularly the growth in same-store sales and the expansion of the operating margin are currently running a bit ahead of our stated medium term expectations of mid-single digit sales growth, and 10 to 20 basis points of expansion per year. Since we are not expecting a major deceleration during the second quarter of the year, it is likely that our full year results will come in ahead of plan.

However, this should not signal a change in our medium term expectations for next year and beyond.

Moving shortly on to Coca-Cola FEMSA; revenues for the quarter increased 28%, versus a comparable period of 2011, as a result of double digit total revenue growth in each division and the integration of our new territories in Mexico.

On an organic basis, revenues for the quarter increased 16%, operating income 8%, driven by double digit operating income growth in each division and including the integration of the new territories in Mexico as well.

On an organic basis, operating income remained stable, compared to the second quarter of 2011, reflecting higher fructose prices in Mexico, the average depreciation of the Mexican peso as applied to our U.S. dollar denominated raw material costs, and certain other items, many of which are related to the development of new lines of businesses, and the support of Coke FEMSA's new commercial model.

If you were unable to participate in their conference call on Tuesday, you can access a replay of the webcast for additional details on the results.

Finally, on the strategic front, we are excited about Jugos del Valle's recently announced acquisition of Santa Clara, a well known premium Mexican dairy company, building on the positive learnings from our Estrella Azul dairy operation in Panama. Also, we continue to advance on our assessment of the Coca-Cola Philippines operation.

So all in all, taking into account the challenges we faced during the quarter, we feel we will be approaching the second half of the year with a good degree of optimism, and a lot of hard work as always.

And with that I would like now to open the call for your questions. Operator, please?

Thank you. The question-and-answer session will begin at this time. (Operator Instructions).

Lauren Torres, HSBC.

Good morning.

Good morning.

Javier, you mentioned -- hopefully, you could talk a little bit more about this operating margin improvement that we are seeing in the first half out of OXXO. You have already talked about 10 to 20 basis points, maybe that's a longer term growth rate, as far as improvement in margins, but we are tracking ahead of that. So I was just curious if you could kind of break down the components of that? Is it something that we are seeing now that's going to somewhat dissipate and lessen as the year goes on, or looking into next year, or is it a lever that you are able to pull as a result of weakness at Coke FEMSA? Just trying to get a sense of how sustainable these improvements are over the near term?

Sure. Over the near term, we feel positive. The expansion might not be as strong as it was in the first semester, but we do feel that it will be above the long term 20 basis points expectation that we already shared. And again, a number of factors driving that, we feel very-very good about how the different categories or products occasion, consumption occasions we are trying to build within the store are reacting very-very well to both marketing campaigns as well as a redesign of the assortment and the pricing architecture that we have been bringing into the store. And I think that's a trend that's going to be there for -- I hope for a long time.

But on the other half, Lauren, as I explained also as well, we have a different calendar for some of our marketing efforts during 2012 as compared with 2011, and when you put that together with again, slightly decreasing the store openings for the first half of the year as compared with 2011, that creates also some support for the margin expansion you are looking at June.

So going forward, my summary would be, we might see hopefully a stronger margin expansion than the long term run rate that we expect for the business, to develop in a healthy way, but not necessarily as strong as in the first half.

Okay. And if I could also ask just on same-store sales growth at OXXO, it seems year-to-date too you are trending 7%, 8%, maybe higher than mid-single digit expectations you had heading into this year. Just curious if that's also sustainable and if growth is coming in better and it should continue, if you think, over the next couple of quarters?

To tell you the truth, we are performing ahead of our own expectations. So it is a good point to be in. But again, still some of the forces behind that growth, I mean, at least the one that is above our expectations, it is very hard for us to predict if it's going to be sustainable or it's at least partly influenced by again the development of new occasions of consumption that we are trying to build within the store, and as you know, it takes time to really create a habit on the consumer. So I wouldn't dare to say much about same-store sales on top of that, we are very-very pleased and happy with the performance so far.

Okay great. Thank you.

Antonio Gonzalez, Credit Suisse.

Good morning. Thank you for taking my question. Javier, I wanted to see if you could comment in -- and I know it's preliminary, but in light of the discussions in Mexico after the elections of potential structural reforms, is there anything that you could comment on what's the structure of OXXO today. How much of the revenue mix is actually paying VAT, subject to VAT and how much is not? And is there any general comment that you could share with us on how would you foresee any impact on OXXO from potential VAT on food and medicine specifically, which is something that of course is not subject to the tax today?

I would say that in OXXO, most of the products are charged with VAT. I am just guessing, north of 70%, 75% maybe, and I think that again, sensitivity on VAT will depend a lot on again if first, there is really a consensus on doing something on that. There is again -- some of the products that will be, we think, more hit by that, are not necessarily a big component of the -- all the products that we sell in the store. So according to our estimates, it shouldn't be a big deal for us if that takes place, Antonio.

Thanks Javier, and if I may, very quickly, could you give us an update on what's the latest you have been thinking with respect to OXXO growth in formats other than convenience stores in Mexico? Is it something that you would be exploring in the short-term, you probably wouldn't comment on that, or can you give us a little bit more color, if it's something that is more feasible in the 24 months?

As we have shared, I would say in the last year or year and half, whatsoever, we have been doing a lot of work in terms of again, looking at potential opportunities, trying to leverage both the footprint, but most importantly, the capabilities that FEMSA Comercio possesses regarding the operation of the small-box formats, and as we have shared as well, we are thinking through that, we are even exploring and trying to develop some of those opportunities, and for sure, we will announce whenever we have something to say about that to the market in due time.

What I might share as well is that again, the rationale behind that is again -- what I can anticipate this again, you guys not to expect big things from the start in terms of any big transaction regarding that, but a more gradual approach in terms of again, [be now] or FEMSA Comercio participating in new small-box formats. So I can confirm to you that we are interested in again, tapping new opportunities that might have a good fit with FEMSA Comercia's capabilities, but that we are going to take that with appropriate cautious in terms of again entering new formats and taking very well calculated risks in doing so.

Thank you so much Javier.

Robert Ford, Bank of America Merrill Lynch.

I was curious, if you are seeing any delay or any additional requirements in obtaining new licenses or authorizations for space following this fall out of the WAMEX bribery allegations in Mexico?

No, no, not at all, but it hits us hard as always. You know Mexico well, you live here, so you know what I am talking about. There is like close to 15 different permits we have to get every time we want to open a store. This is -- most of them are locally, so you might find very, very efficient counties that processes these in a speedy and very straightforward way, and some others in which it takes a long time to really comply with all the requirements. But we haven't seen anything yet; you might also take into account that we are a very-very different kind of a format animal, whatsoever. We have very-very little, I would say, major considerations regarding neighborhoods or environmental considerations and the likes, as when you are thinking, very large box formats.

So no, we have not seen anything there at all.

Just to verify, you don't use (inaudible) anywhere? Is that correct, it's all your own people?

No. It's all our own people.

Great. And then with respect to the price segmentation that you are employing, can you discuss a little bit about how you are going about segmenting the market, whether they are contiguous clusters that are -- or is something that maybe is classified by levels of income or densities or surrounding areas. I was just trying to get a sense of how advanced you are and how, I guess, tailored you are to convince specific neighborhood?

You should work here. I mean, you've mentioned most of the variables we take into account on our segmentation. It's pretty much a lot of what you said, and I may add that, once you take into account all those variables and some others, you end up, I think, with a view of what's really -- what we like to call here, the [vocation] of the store, what it was made for because of where it was located. So the essence of the start, I may put it in better English, I think.

So that drives a lot of, again, the sign of the assortment of the store, and of course, if you look at the social economic level as well of the price architectures that we like to have in any different store, it's -- I mean, let's say, the aim in a very topical world will be to really have a segmentation based on 10,000 stores, that is unpractical and it's not actionable.

But we have developed, I think, very broadly at least three big frameworks of format segmentation that works for us; some of those stores are much more into what we call a recess kind of people which are having a certain routine or activities and go to the store to either have a bites or having a coffees or having something more directed with immediate consumption, as opposed to some other stores which are because of the location and the environment in terms of not only density, but the nature of the shopper, you might find some stores which are more skewed to categories which are used on a daily basis, and kind of (inaudible) trigger loading on small quantities. And we also have, what I may call the plain store, which is a little bit of everything.

So I think this is a journey, this is a never ending journey. But if you look at what we were doing maybe three years ago, we were doing very little stuff of what we are doing now in terms of store segmentation.

That's great. Thank you very much. And then just one last thing, it is a little one, on the bank deposit business, I know the cash management is pretty expensive. Where are you in that? I would expect that there has got to be great adoption from small businesses around the trade areas of your store. and I was wondering if that's kept the systems in place, and if that's the case, then how that's progressing?

No, I don't -- I mean, we're not betting high on that to happen, because again we have limits on the amount of money that people can deposit to their credit accounts. So that's not really the driving force behind this idea of being more a one-stop shop for even some financial services. So you shouldn't expect really a big chunk of our business going into that line of businesses. It's really a -- what I might say a service to our consumer, which makes it easier for them to satisfy some of their needs or requirements.

And it's coming, I would say slowly but surely building, and with very, very different behaviors depending again on the nature of the consumers. In some places such as Mexico City, this concept has been sticking very well. And I am just guessing people don't want to be in long lines in some sucursales in Mexico City.

But in some other places really going to the bank and make a long time to really present the excuse to have a good chat with your friends or with someone you might want to know better. So this is not really something that is, I would say, behaving in the same pattern all across the territory.

Thank you very much.

Alex Robarts, Citi.

I wanted to go back to the idea of the openings. You talked about kind of the focus and what's important for you is to have high quality new store openings; and I know, I guess a few months ago the idea was to hit 500 new stores, you've got 428. And I guess from an earlier comment, this is not an issue of getting new permits to open.

Could it be a function perhaps of just the proliferation of new SKUs, as you diversified your sales and such? Is there something else that maybe you can share with us that for some reason you are not hitting that high quality opening benchmark? That would be the first question.

The second one really relates to the international element here of OXXO. I appreciate it's not a big part of the business; 20 or so stores I guess are in Colombia, how is that going? And just if you could give us any color on just generally, the aspirations internationally outside of Colombia and Mexico for OXXO, that would be great? Thanks a lot.

Okay. Sure Alex, how are you? In terms of openings, when I am talking about quality, it is kind of a segment that really reflects that people in OXXO are incentivized again for opening stores at a certain pace, which we have clear objectives for that. But they are not paid on opening stores, they are paid on opening good stores.

So in order to do that, first criteria is I would say a combination of location and the right term for that, Alex. So that's where it all starts. And we think we have developed skills both in selecting good sites as well as negotiating, and we have also built a reputation of being a very-very good renter. So that's what I mean by quality.

And to your point, I think you have a right view. The whole effort of the Company is really to have a balanced approach to keep developing the business. So while you listen to me explaining to you all sorts of things happening in OXXO, the guys which are running the expansion operation have to coordinate very, very closely with the guys opening the stores in order not to have a great site with a great building, which is not going to be properly managed.

So I tend to believe that some of the slowdown in the first quarter has to do a little bit with what I just said, which is a number of things are happening within the Company and there might be some, again, slowdown in some of the coordination activities between the two organizations that might create a temporary slowdown, whereas we said we are not obsessed neither with opening more stores this year, as we did last year. We are not again preparing this Company to move to a different level of store opening, such as going to 1,200 or 1,300.

We are pleased with the balance that we have reached in opening at least above 1,000 stores a year, and both continue to make improvements in the way we are managing the business, and hopefully delivering results of the ones we just shared with you this morning.

Okay.

In terms of Colombia, as you well point out, we just have 26 stores in Bogota. We plan to open about 10 new stores this year as well. We are opening those in places in which we are going to have, I would say different environments on which we are going to hopefully get lot of [learnings]. But at the same time we continue to develop the value proposition in what I should say, a second round of adjustments, in which we are, I would say, bringing particular to small scale, limit the number of stores, a new and much more wider and we think attractive proposition for fast food into the stores.

And what I might say to you is that same store sales in Colombia still are growing very, very good. I mean, I wouldn't like to share numbers, but we are very pleased with the performance of the same-store sales performance in Colombia as well. But still -- we still think that we need to keep on the perfection in the value proposition, learn a little bit more in order for us to really move to on a stage in which we could start opening significant amount of stores on a year basis.

So that's pretty much what I can share, Alex.

Thank you.

Thank you.

(Operator Instructions). Alan Alanis, JPMorgan.

Hi, how are you? I have a few questions, and some of them are not directly related. The first one has to do with -- if you have any view as owner of 20% of Heineken regarding the bid that they announced for Asia Pacific Breweries and the -- yes, let's keep it like that very simple. And I have a couple of others regarding your business?

Our opinion, regretfully I cannot share it Alan, but I do have an opinion.

Okay.

Sorry for that, but I am sure you understand.

I do, okay. Okay, let me see if I can ask a couple of other questions where you can give me an opinion. The first one has to do with the acquisition of Santa Clara by Jugos del Valle. I understand that this dairy company has what, 150 outlets, retail outlets like small coffee shops in very premium locations. When you were talking about OXXO entering into smaller format et cetera, is there a possibility that OXXO, I mean, that OXXO would take over those 150 or so coffee shops?

Possibility, long term always is a possibility, a probability short term, no. We are not --

Okay.

-- that's the right thing to do. We have, we think, better ideas or priorities and for the short term that's really not something that we will be looking at, but it's as you said franchise based, it is working well, and we think it might be a good idea to keep that model at least for the short, medium term.

Got it.

I think it's something that has to be decided by the Coca-Cola Bottles and the Coca-Cola Company, not by us.

Okay, fair. And another quick question, I mean, if you stabilize the number of store openings at around 1,000 to 1,100 like you mentioned instead of growing like the previous year, like you did in the last 10 years. I mean, your cash flow generation is just going -- is just going to accelerate tremendously. What's the preferred use of that cash?

Hopefully finding opportunities to keep expanding. As you know, I mean, FEMSA Comercio is a wholly owned subsidiary, so we have discretionary freedom to really do whatever that might be used better for shareholders. So again, OXXO expanding to small-box format needs one of the first thing within FEMCO, FEMSA Comercio, ideas that we privilege, but that doesn't necessarily mean that we might not use some of that excess cash to any purpose we might think appropriate, such as again increasing the payment of dividends or acquiring more Coco-Cola FEMSA shares as we said in the past or even fueling higher growth rates on our FEMSA logistics business as well, which is performing extremely well.

So hopefully, we find good opportunities to reinvest most of that excess cash that FEMCO might start generating as you well point out, if we stabilize openings and continue to grow the business.

Got it. That's useful. And one last question regarding it's -- I mean, could you remind me what is the status of the exclusivities of beer antitrust investigations in Mexico, and where I am coming with this question is, could you help us understand if one day, I mean exclusivities were to be banned in Mexico, I mean, may or may not be that related because of now the imminent change of control, the largest brewery in Mexico, what would be the impact if exclusivities over here in Mexico would cease to exist, for OXXO, Javier?

It will depend a lot -- the first question, the status is basically the same. There is not a lot of noise around that. It's a very lengthy process and we don't think it has a lot of, again, merits at the -- at least the investigations or the case that some other brewers have been bringing into the table. We have what we think is a commercial contractual obligation for the next, close to eight years, to work on an exclusivity basis with the products of Cuauhtemoc Moctezuma, Heineken here in Mexico. There is nothing to really challenge about that contract under the existing laws that it was signed. So I don't really see anything at least for the next eight years, Alan. Discussing potential scenarios going beyond that is beyond my limits really.

Got it. Understood. Thank you so much Javier.

Thank you, Alan. Good to talk to you.

Margaret Kalvar, Harding Loevner.

Good morning. Just following up a little bit on the international expansion topic. There has been some speculation that you might be looking at Brazil and there is a somewhat different format or occasion, experience of characteristic of what we would call convenience stores there, and the -- that you were investigating that. Can you comment at all on whether you are still interested in that market, and if it's a short or medium term goal?

Sure Margaret. I want to pinpoint Brazil as the only market in which we might have interest in the future, and/or the only market in which we have done some analysis to really understand how consumers satisfy their needs in terms of small-box retail. Of course, we have an interest in Brazil. What I have shared in the past is that, short term, we are not necessarily thinking of anything, but that may change with progress in our own analysis and understandings. What we definitely know for sure is that, in every market, we might need to look at again what might be the winning formula, and we don't think the Mexican formula works well, particularly in Brazil.

So I would say that within that message, what you might be reading is that, your point of -- if and when the Company decides to do something in Brazil, it might need to be something which is good and liked and required by the Brazilians, not by whatever we have been successful in Mexico.

But I would say that OXXO has again, as I shared, this intention of again, leveraging its skill sets and capabilities to again tap into opportunities in related small-box format opportunities, and the international expansion which today is pretty limited to our greenfield operation in Colombia, if you ask me, medium to long term, would it be possible to see additional countries or formats in which OXXO will be present or FEMSA Comercio will be present, the answer should be yes.

But short term, I think that we are focusing on the opportunities that I just shared.

Thanks very much.

Thank you, Margaret.

Gabriel Lima, Barclays Capital.

Thanks. Good morning and congratulations on the results. Javier, my question is very much related to the very first question in the call, about margin expansion, but it's more on the gross margin expansion at OXXO. So I just, you mentioned in the release that you were seeing a better mix shift, so I want to understand what you have done and what opportunities you see going forward, such as implementing this new mix in other stores, and how much you have already implemented.

You also mention here that execution with key suppliers is also helping, so just curious to better understand that. Thanks.

Sure Gabriel. As I said, some of the margin expansion, or most of it comes basically from three things maybe, a better mix in terms of the shift of the mix is moving to categories which we are trying to build, which happen to have higher gross margins.

Another factor which I didn't mention earlier is that growth rates, all across the geography, Mexico, tends to be a little bit stronger in the north, and that we think has a lot to do with the related economic activity that the North has with the U.S., and that's also factored short-term, we don't think that's going to be there forever.

The third one is, the one you mentioned which is when I say, working in a much better way with our suppliers and partners, it's a combination again of developing specific packages for the occasions that we serve for our consumers in the C-stores and looking at -- shouldn't say magic price points or the right price points for consumers. And as well, we have been learning a lot, taking advantage of our databases of again purchasing habits and looking at how consumers satisfy their needs at fine-tuning our promotional activities.

So we're getting much more bang for our bucks in terms of putting sometimes even less money than in the past and getting much better results. And I would say that's pretty much what's driving gross margin expansion.

We have come to a point that we have very, very healthy growth margins and we have, we think, [preferred] terms with most of our suppliers. We still have a lot of work to do with some but those are -- not the majority of the suppliers. So you shouldn't be looking at margin expansions of this rate to be there for the long-term, and as we say if you translate gross margin into net margins, we are, I would say, surpassing our own expectations for the year so.

Yes. In fact this was very clear, but specifically about the product mix, can you share with us a rough idea of no this better mix I suppose for example, our food service. You have already implemented in your stores and what else on -- or how much you can further implement in your total store number, Javier, thanks.

No, we are -- I would say still in the early stages of developing the fast food category in OXXO. We have done a -- I think if you look at on an incremental basis what we have achieved. I would say that we have been -- I would say we're pleased with the results, but we've still a long way to go in terms of implementing the offerings that we are thinking are the right ones for the store, for the medium term. We're very far away from that and we're even farther away in terms of having that offering implemented in -- I shouldn't say the 10,000 stores because we, as I said are segmenting a lot around the offerings on the different occasions that we serve, depending on each store, but we still have there, Gabriel, I think a long way to go. But I shouldn't -- I shouldn't as well send a message that this is going to be so huge that it is going to impact the name in a high and a very significant way in the short-term gross margin expansion.

This is a category that takes time to build. This is not products that you just barcode and you scan at the cash machine. So you need to work a lot of your internal procedures on your supply chain. So it takes time to build this kind of categories.

I would just add, Gabriel, this is Juan. If you think about the services category which is another one that we've been talking about in terms of coming from a very small base but showing very good growth trends and obviously getting a lot of focus from the organization. That services basically are all margin, right. I mean every time you receive payment for a utility or a bank deposit or transportation card for the buses or whatever that's basically 100% margin, it flows directly to the bottom line.

Yes, okay. Thank you, Juan. Thank you, Javier, have a good day.

Jose Yordan, Deutsche Bank.

Most of my questions were answered. I just wanted to see if you could provide an update on what your total CapEx will be for the year for all of FEMSA and if -- to the extent you can talk about the next year that would be great as well.

Hi, Jose, this is Juan. I mean the numbers we put out are $710 million for KOF, $350 million for OXXO, and $50 million for the ancillary businesses, basically the refrigeration business and logistics. So that's -- that's basically where we stand for this year. We haven't really put a number out for 2013, I would think it's probably going to be in line with this because as you know there's a couple of plants being built by Coke FEMSA, and those are multiyear projects, at least two year projects. So I would think the numbers for this year are probably pretty close to what we will be talking about next year.

But essentially, the number $710 million and $350 million for OXXO et cetera, those are all numbers that you still expect to hit based on the recent development, especially the slowdown in growth in OXXO stores. [Do you think of getting] a better estimate as opposed to what the budget was?

I mean, as you recall. Normally we talk about maximum levels, and this is a number that is put on the 20-F, and sometimes we end up not hitting that number, and there is always also the issue of calendarization, right, and cash flow. I mean, sometimes you have the budget, and then you are still carrying over a little bit from the previous year, some of the expenditures are -- for this year are probably going to be made in the beginning of 2013.

But like I said, the number is usually the high end of the range, and sometimes we end up not hitting it. I mean, I don't think, when you talk about OXXO specifically, certainly, if the number of stores at the end of the day comes in within the range we have been discussing, there is not going to be a big difference in terms of the cash that those stores will require. There are a couple of new distribution centers, there is a component of it that goes to store refurbishings. There is a component of that, that goes to the supply chain and the logistics involved and development of the fast food initiative.

So I don't think we are in a position to say, to revise those numbers down just yet. I think we are going to keep them where they are.

All right. Sounds good, thanks.

Thanks.

With no further questions at this time, I will now turn the conference back to Mr. Astaburuaga for closing remarks.

Thank you everyone, have a great weekend, and see you hopefully in next three months. Bye now.

Ladies and gentlemen, if you wish to replay the webcast for this call, you may do so at FEMSA's Investor Relations website. This concludes our conference for today. Thank you for your participation and have a nice day. All parties may now disconnect.