Fomento Economico Mexicano SAB de CV (FMX) 2013 Q1 法說會逐字稿

Good morning, and welcome everyone to FEMSA's first quarter 2013 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'd like to turn the conference over to Mr. Javier Astaburuaga, FEMSA's CFO. Please, go ahead, sir.

Hi. Good afternoon, everyone. This is actually Juan Fonseca, just for a second. Welcome to our first quarter results conference call. Javier is on the call, and I will turn it over to him in just a moment. But, we wanted to let you know that he is traveling and, therefore, you may notice while we're doing the Q&A session that we're actually not in the same location. So, I just wanted to give you the heads-up on that. Jose Castro is also on the line, as always.

So, with that, Javier go ahead, please.

Thanks Juan, and hello everyone. As is customary in our calls, today 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 earlier today. As you have also likely seen our detailed results, we will use this opportunity to share some of what we see as highlights and main trends in our business.

As we mentioned in our release, we operate across many different markets, and sometimes the diverse economic environments we face manifest themselves with particular clarity in our results. This was the case during the first quarter, with our operations in Mexico performing solidly, both Coca-Cola FEMSA and especially FEMSA Comercio, but some of our operations in South America reflecting not only challenging operating conditions, but also the impact of currencies that weakened significantly against a strong Mexican peso.

In terms of the macro drivers on our perception of the consumer environment, we see trends that generally carry over the end of 2012. In Mexico, inflation has picked up slightly, while GDP growth and manufacturing activity have stabilized off the recent highs. The business mood is still positive, aided by expectations of upcoming structural reforms. However, we are sensing a slightly more cautious consumer, relative to this time last year.

Conditions are more fragile in our South American markets. In Venezuela, as you know, we are dealing not only with the recent devaluation of the currency and rising inflation with low real growth, but the current post-electoral environment remains delicate. In Brazil, Colombia, and Argentina, growth seems to have stabilized, but at low levels, and inflation has become a concern everywhere, except perhaps in Colombia.

Generally speaking, the macro backdrop is still not very constructive in many of these markets. However, as we have stated before, these types of environments are not new or unfamiliar to us, and we continue to deploy measures and strategies accordingly.

Moving on to discuss our consolidated quarterly numbers, total revenues increased 5%, and income from operations decreased 2%. On an organic basis, excluding the integration of recently-acquired bottling operations in Mexico, total revenues increased 3%, and income from operations decreased 3%.

For the first quarter, [the land label] participation in Heineken results represents FEMSA's 20% participation in Heineken's first quarter net income, which was reported earlier today.

Staying on the subject of net income, we see that it increased 5% in the first quarter. As we explained in our press release, this increase reflects an increase in FEMSA's participation in Heineken's first quarter 2013 net income, combined with lower financing expenses which more than compensated lower income from operations.

Our effective tax rate was 33% for the quarter, very much within the expected range in the low- to mid-30%'s.

And, in terms of our cash position, during the fourth quarter we went from having a consolidated net cash position of MXN2 billion at the end of December, to now having a consolidated net debt position of MXN6 billion at the end of March, reflecting the acquisition of 51% of Coca-Cola Bottlers Philippines, which was partially compensated by cash generation at both our corporations.

And, before we move on to discuss our operations, as we had mentioned before and as you read in our release, we are exploring the possibility of tapping the international bond markets, given the historical low long-term interest rate environment. While the decision to actually issue debt will depend on market conditions as determined during upcoming conversations with investors, the general objective would be to increase our liquidity in order to be ready to undertake strategic transactions as they become available.

As we have said before, we have a good pipeline of potential acquisition opportunities that are in various degrees of development. But, there is nothing imminent and certainly there is no major transaction in the immediate future that would be linked to the issuance of this debt. So, it really is all about capturing the low rate opportunity while the window is out there.

Now, moving on to discuss our operations and beginning with FEMSA Comercio, we opened 135 net new stores during the first quarter, in line with the previous year. Our objective to reach and exceed 1,000 net stores openings for 2013, also in line with 2012, remains very much in place.

Revenues for the quarter increased 14%. Same-store sales were up a solid 5%, in line with our medium-term expectations. However, when we break the number down, we see that our average ticket rose 6%, and offset a slight decrease in traffic which is not typical.

So, let me take a moment here to elaborate a bit on these dynamics, because there are a number of things going on there. First, we have the calendar effects. Holy Week took place late in the first quarter this year, as opposed to early in the second quarter last year. So, that would help the comparison versus the first quarter of 2012. Conversely, we had only one day less in February from the leap year effect, representing a tougher comparison. So, these two factors partially offset each other.

Second, we have the tough comparison of last year's pre-electoral environment which is hard to quantify, but clearly a factor, and will continue to be there in the second quarter.

And finally, but importantly, we are seeing a clear declining trend in prepaid wireless airtime revenues, driven by a significant reduction in the price per minute for the end user. During the fourth quarter of 2012 and continuing now in the first quarter of 2013, the consumer price per wireless minute decreased substantially, due to promotional campaigns all across the board. What this means ultimately is that consumers are getting more minutes for the same amount of money and, therefore, many of them are coming into the store for a top-up less frequently.

This is, of course, positive in the greater scheme of things, as the consumers can reallocate these resources to satisfy other needs. But, in the short term, it puts a bit of pressure on our numbers. It is encouraging, nevertheless, to note that a good portion of the impact from the falling telephony is being offset by the growth in other services and categories.

For the quarter, gross margin expanded 100 bps, again driven by a positive mix-shift due to the growth of higher margin categories, including services, a more efficient use of promotional-related marketing resources, and a better execution of segmented pricing strategies across markets.

This margin expansion took place even while telephony is contracting, which is worth mentioning given that we only book our margin when we sell wireless top-ups and, therefore, the category is margin enhancing. Having said that, while structurally we have often been able to deliver some margin expansion at the gross level, these 100 basis points are above trend, and we will be cautious in assuming similar performance, going forward.

Income from operations for the quarter increased a strong 21%, and operating margin posted an expansion of 30 bps in the face of incremental expenses related to the continued strengthening of FEMSA Comercio's organizational and IT structure and the development of specialized distribution routes aimed at enabling our prepared food initiatives.

Moving on to Coca-Cola FEMSA, total revenues remained stable and organically they decreased 2%, mainly as a result of high single-digit revenue growth in our Mexican and Central American division, which compensated for a mid-single digit contraction in our South American division. This contraction reflects the negative translation effect from the devaluation of several local currencies and the appreciation of the Mexican peso, as well as a volume decline in Brazil coupled with increased marketing spending in Colombia, higher freight costs in Argentina, and labor cost pressures in several markets.

On a currency-neutral basis, anyhow, and excluding the non-comparable effect of Grupo FOQUE in Mexico, total revenues increased 11%.

Clearly, Coke FEMSA is facing very different business environments in its operating divisions. While business dynamics in Mexico and Central America are stable, several markets in South America currently present challenges that go from sluggish macro growth to higher taxes and regulatory costs to weakening currencies. As tends to be the case, Coke FEMSA is making the best of these complex scenarios, and we are confident that it will emerge with stronger competitive positions and more efficient cost and expense structures. In the meantime, we must navigate with some short-term headwinds, even as we remain bullish about the medium- and long-term fundamentals of our South American markets, particularly Brazil and Colombia.

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

So, wrapping up our comments on the quarter, it was certainly a mixed set of results, but at this point we believe our objectives for the full year can be achieved. We will of course have to keep an eye on macro dynamics in South America but, by the same token, we share the broad optimism that surrounds Mexico, our most important market, and we fully expect the business trends in the rest of our territories to continue to support long-term value creation. And, so, we continue to push forward with great expectations.

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

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

Alan Alanis, J.P. Morgan.

Thank you. Hi, Javier, Juan, Pepe. My question has to do with the comment you made, Javier, regarding issuing debt. Could you provide some, a bit of more color in terms of the orders of magnitude of what you're thinking of? And, if you can make any comment regardless -- well, Coca-Cola in the United States. [Hector said] that -- as it has been said in the past, that it would be something that you would look into when the opportunity arises. If there was going to be a transaction in the United States, I would assume that this would be Coca-Cola FEMSA participating. But, I guess the question that I'm trying to ask is, would this strategic opportunity that you were talking at the FEMSA level would include something in the United States? Or, another developed market? Or, any other kind of color or update that you can give us, in terms of the thinking of those strategic initiatives would be appreciated, Javier. Thank you.

Hello, Alan. Hi. On the nature, magnitude, and tenor of the probable debt issuance, I'd rather not comment a lot. We are going to start, as I said, a roadshow early next week. And, I think it's better for us to go and talk to investors before we give any public signal on what we're aiming at. But, it shouldn't be a long time for you to find out what we're thinking.

But, I would just like to reassess the message that we're trying, again, to tap historical low interest rates and very favorable conditions in order to be flexible and ready to tap on opportunities that hopefully we can be able to tap in the foreseen future.

In terms of the Coca-Cola USA potential opportunities, as I'm sure Hector mentioned in his call, what the Coca-Cola company just [sent] out as a starting point in its process to rethink the way they are operating the US market. A number of very small transactions already were announced. And, together with that, the message that not only domestic but also international potential candidates will be taken into account for potential candidates for refranchising of parts of the territory of the US.

And, we have said in the past that given the size and the presence in this part of the world of Coca-Cola FEMSA, its financial flexibility, and its depth of management, we think it -- we will be looking at any opportunity that makes sense for us and, of course, the US is a market which is very close to our home market in Mexico. And, we will look at it with no prejudice in mind and with a very, very open mind in terms of assessing the opportunity, if presented at its proper time by the Coca-Cola company.

And, as we have said also in the past, and it is very clear to everyone, the balance sheet of Coca-Cola FEMSA is pretty strong. So, we think that Coca-Cola FEMSA would be able to really face potential opportunities related to the US market and, of course, it all depends on the size and on the conditions that that opportunity might present and at which point of time, as well. But, again, FEMSA being the controlling company of Coca-Cola FEMSA also has financial flexibility that if required can be also put to work in favor of our investments in Coca-Cola FEMSA.

So, we're not ruling out anything but, at the same time, I'm confirming that we think that the Coca-Cola FEMSA balance sheet is pretty strong these days to support a potential opportunity in that market, Alan.

OK. No, that's very clear. And, while I have you on the line, the last question on OXXO. I think you gave a very clear explanation on the issue regarding traffic and the drivers of that lower traffic. Could you expand a little bit of what's driving the ticket being now higher than -- well above inflation, to put it that way? And, that will be my last question. Thank you.

Sure. As I said in the opening remarks, if you look at traffic and at just [still the] 1% decrease we had in traffic for the quarter, compared with the previous trends, it's a reduction on the previous trends but it can be explained, we think. And, we measure tickets on an occasion basis, and there's a very high correlation with, again, the amount of times the consumers are visiting stores for top-ups related with airtime.

So, we feel confident that we are doing a good job in, again, dealing with the different needs of consumers, but there's a very, very specific reason on the traffic performance.

On the ticket, if you look at it also against past trends, it's slightly higher, and this has a lot to do with the mix of the categories that we are developing, mostly regarding food and some others which are an occasion which is very special, which is called gathering or reunion. So, that together also with the impact of the rollout we did last year in which now credit cards are being accepted in the 10,000 stores that we have all across the country, is we think having also some, even though minor, but an effect also, as well.

And, of course, if you look at, again, I would say, the pricing power that most consumer product companies in Mexico have been exercising in the past months also is a factor in which, again, people are pretty much either at least increasing prices with inflation, or everybody doing the job in trying to build a healthier and stronger pricing, working around the mix of products that they sell, and we sell, to our customers in the stores.

So, I would say it's a little bit of all these reasons why we're looking at an uptick on the ticket amount for the quarter, Alan.

OK. That's very useful. Thank you so much, Javier. Thanks.

Thank you.

Karla Miranda, GBM.

Hi. Good morning, everyone. Thanks for the call. Javier, I had a follow-on question regarding --. I know that you have been very specific on explaining what happened to the traffic during the first quarter. I'm just wondering if we should continue witness this downward trend in the quarters to come? And, how is April performing? Thank you very much.

Hi, Karla. It is hard to say going forward what's going to be the performance of traffic because, as has been the story of OXXO, you have what I would call different [course] of development of different value propositions. So, hopefully, we're able to, again, catch up with declining trends of some categories with increasing trends of some others. And, we are, again, as we speak, looking a little bit on that.

So, going forward, I would say it will depend a lot not only on the dynamics of the airtime category on itself, because of the promotional activity or the pricing strategy of the key players in Mexico, but it will depend on how well we do our job in terms of, again, bringing new offerings into the store.

And, in that regard, the service category growth is -- I would say we're enthusiastic about how it's been developed, once we are starting to roll out new banks into the solution that it's accepted in the stores. So, that coupled with the fast food and the gathering occasions and with daily and replenishment, we think that we're going to be able to hopefully continue to build same-store sales on a balanced approach within traffic and tickets.

And, April of course, not commenting a lot on this, but you will need to bear in mind that last year we had Easter in April and, now, we don't have that effect. So, with that, I think I'm telling already a lot. And, as I said in my opening remarks, the second quarter -- April, May, and June -- were months in which pre-electoral presidential elections activity was pretty much in favor for consumption. So, we are looking at a tough comp for FEMSA Comercio for the second quarter.

But, all in all, as I said also in my opening remarks, we feel very comfortable in again achieving our results for the year that we have set ourselves at the end of last year.

Great. Thank you very much.

Thank you.

Lauren Torres, HSBC.

Hi, everyone. I guess my question also is somewhat of a follow-up to the two previous questions. I think, Javier, when you said that you're expecting a slightly more cautious environment at the consumer level this year versus last year, that was specific to Mexico? Is that correct?

Yes.

So, if that's the case, I'm just trying to understand now that -- you expressed the fact that obviously last year was a strong year. So, was that more of a respect on a comparative basis? Or, you are seeing some changes, how people are spending, where they're spending?

No. No. It's much more, Lauren, on a comparative basis and, again, we had a number --. I didn't mention weather in the first quarter, because we had, I would say, a mixed bag of weather all across Mexico, particularly very, very cold, not so much wet, particularly in northwest and central north, as well. But, there are a number of effects built into last year's performance.

And, the start of the year, we have to remember as well that every six years when there's a change on the regime of the president in Mexico, there's a low start in terms of budget allocations and infrastructure building. And, a lot of projects are either finalized or at least reviewed. So, also, that's part of why we're thinking that consumers are going to be a little bit more cautious, particularly at the beginning of the year, as we have seen in the first quarter.

But, again, we are very, very optimistic about the very, fundamentals of the country, going forward. So, we will hopefully have a much stronger second half of the year. And, of course, 2013 because of a number of things that are taking place in the country should serve as a very, very good platform for growth for the medium- and long-term, as well.

Great. That's much clearer. Thank you. And, if I could also just ask about the CapEx spend. I guess you mention in this quarter that some of the increased spend was more related to Coke FEMSA. Just curious if there's any comment directionally on what you're doing at FEMSA? I know with the store openings, you're somewhat on track for your long-term, or your annual, goal of 1,000-plus stores. But, if there's anything new with respect to any updates on how you're spending and where you're spending that incremental dollar at Comercio, that'd be helpful. Thanks.

No. The structure of the CapEx program for the year [is based] on the number of stores we are targeting to open for the year and the amount of real estate we will buy hopefully, and the number of distribution centers we will open and the increase in the specialized distribution routes. The composition of the CapEx for the year from FEMSA Comercio is pretty much similar to the one we exercised in 2012, both in its breakdown and in the amount, in the total amount, that we're going to be exercising, [Lauren]. So, there shouldn't be any change there.

Basically, the increase, the substantial increase, is coming more from Coca-Cola FEMSA and particularly with the building of the two plants that we announced last year, what we will be building. And, we are actually building in Brazil, and we will start very, very soon to build in Colombia, as well.

OK. Great. Thank you.

Thank you.

Lore Serra, Morgan Stanley.

Hi. Good afternoon and thanks for the question. And, sorry to harp on a similar theme, but you were leaving me with the impression that the traffic would have been more negative in the quarter, because the Easter shift was probably more important than the leap day. So, as you think about going from this traffic growth of 3% to a number that is negative, and that ticket has gone up a lot and the gross margin has gone up a lot, is there any concern on the operator's part? You can see the segment data. You can see the specific data more than we can that there's been, I don't know, too much pricing taken by some of your suppliers? What's driving that gross margin up 100 bps?

So, Lore, hi. No, as I said and you're right, we look at the 8 million tickets we have on a daily basis, and we broke down those by consumption occasion and time of day and specific store. And, we're not really seeing anything that calls for a radical shift on habits of consumers or customers going to our stores. There is, again, if you look at the tariffs of mobile airtime in Mexico starting in maybe September, October last year and continuing into the first quarter, there was a tremendous level of discounting taking place in the market.

So, again, if a person is used to use maybe 100 minutes for every week or every couple of weeks, and now he's getting 30%, 40%, maybe, more minutes for the same price, he's going to go to the store on a less frequent basis. So, we're looking at the traffic numbers, based on the categories and occasions that we are serving, and we have very, very healthy and strong numbers still in a number of categories.

And, again, we have this slight decline in the categories, particularly that relates to the airtime top-ups that is taking place. We think mostly because of, again, the tariff dynamics that is taking place in Mexico, which it's hard to say, again, what's going to be the evolution going forward.

But, continuously, we have been able to, again, as I said, deal with declining trends, either short- or longer-term, on some categories, building precisely new offerings into the store. And, I mentioned services as one category which is bringing some additional traffic, still at the very early stages, still a lot of consumers not really acquiring the habit of going to OXXO and do their payments of services or making deposits or paying credit cards, and the likes.

But, we think that as time progresses people are going to find much more convenient go to a 24/7 convenience store which is very close to the place they work or they live, as opposed to having to go to a branch and spend maybe some time there in the line in trying to make these payments in a bank branch.

So, all in all, I would say, again, we have a good degree of comfort that we still have a good and healthy growth in both indicators -- ticket and traffic.

And, I don't think that, again, consumer product companies are going above what they think is the purchasing power of consumers in Mexico these days. If you look at the way salary renewals or negotiations or increases for the labor force in Mexico are behaving these days, most of them, organized labor, are being reviewed slightly above inflation. So, there are some consumer goods companies that are taking a little bit of pricing. But, as I said in my comments, as well, most of them are working more building either premium products or working around mix, in terms of packaging, to try to drive revenue management, such as we do in Coca-Cola FEMSA all the time.

So, I don't really have a concern on maybe people being too greedy on pricing, at all.

OK. Thank you.

Thank you, Lore.

Alex Robarts, Citi.

Thanks. Yes, I have two questions, first on the OXXO operations. Can you drill down into the OpEx and specifically the selling expenses? As a percentage of sales, they've creeped up a little bit, and I'm just wondering --? You make an interesting reference to specialized distribution routes with the whole prepared food initiative. And, is it safe to --? Or, can we assume that maybe some of this bump-up in the selling expenses is measurably related to this roll out, I guess, the prepared food project? And, specifically, where are you in the prepared food project? Sandwiches -- I know there's a lot of new products coming on line. But, as far as the penetration and how you're doing with some of the baking facilities that you have up in [Famoso] and in these areas in the country that provide support to the initiative, it would be great if you could give us a sense where you are in that process. And, do you think it gets to be, prepared food, more or less than 10% of your sales on an annual basis? So, that's the first one.

The second one is related to the stake in Heineken. The shares have been up 20% year to date. I guess today we see that first quarter had about a 5% drop in volumes on a consolidated basis. The question really I have is about the selling discipline that you guys have on this stake. You can sell some starting this quarter. You're clearly keen to raise some capital for a project that, well, I guess we'll find out at some point. But, in other words, does it make sense to trim your stake there? And, if you could just revisit your thinking really of vis-a-vis the sell discipline that you might have, or not want to exercise, regarding the Heineken stake? Thanks very much.

Sure, Alex. Hi. First, on the OXXO piece, yes, part of the explanation of the growth on selling expenses has to do with this incremental scope of having specialized routes going to the stores. And, by that, I mean [called] routes. So, having a [call] chain capability in order to properly serve the [food-in-store] location is critical for us for the long term. And, so, a little bit of the increase, a small increase, is due to that.

But, if you see, we have been able really to, again, manage growth in selling expenses slightly below the growth in gross margin. So, we have been able to keep on bringing leverage to the bottom line, as we grow the top line. So, we hopefully are able to continue doing that.

But, in terms of the penetration of this offering, we are at the very, very early stages, as I have said in the past. But, we basically have just a food processing center in Tijuana, which we opened last year, late last year, which we are still on the very, very low level of utilization. We are -- I would say it's still in, not necessarily in the best stage, but on the penetration stage for mostly stores which are on the state of Baja California and Sonora and Sonora Norte.

And, this is pretty much the only food processing center that we have built. We also had from a very long time ago a very small one in Ciudad Juarez that came with an acquisition of a number of stores we made in that city a number of years ago.

But, this is really the first effort that we have in place. So, the penetration is very, very slow -- very small, still. And the development of the category within the store is still very, very small, as compared with what our long-term objective is, which is significantly higher than the one we have today. But, as I said also in the past, this is not as simple as just bringing new products and updating them in the catalogue and scanning product barcoding in the cashiers of the 10,000 stores. This is a much more complex operation that involves production and assembly at the store level.

So, it will take a long time, I think, for this to really make a real dent, both on the top line and the bottom line. And, the trick here, I think, is to take it as fast as we can but as safe as we can to make this a real success.

And, on the Heineken stake, as we said in the past, Alex, things like the ones you mentioned and a number of other alternatives are all on the table. We of course have now starting this month of April the ability to start selling part of our stake in Heineken. I have been clear on this, that whatever we decide to do will be measured for our judgment on the value creation [prospectives] of our investment in Heineken. We are very enthusiastic about the profile of the company and the prospectives of the company. Of course, these are very, very rough times for companies which have, as Heineken does, a large exposure to the European market. But, performance in the rest of the world, we think, all things considered, are still very good.

So, whatever we decide to do, as I said, with the Heineken stake will have to pass the test of being the right thing for FEMSA shareholders for the long run, and that's basically the only thing we have in our mind when we assess the alternatives that we have regarding our Heineken stake.

As for the past three years, we continue to behave and to present our perspectives to the Heineken board, thinking on the benefit of the [company] on the first place. And, if we do that, I think we as FEMSA shareholders will benefit definitely with this investment, which has proven to be very successful for the past three years.

OK. Got it. Thanks.

Thank you, Alex.

Alex Miguel, Itau.

Hi. Good afternoon, Javier. My question is just a follow-up on the traffic. I'm not sure if I missed in the beginning, but I just wanted to understand your views going forward for how we expect traffic to behave. I understand you mentioned that you still have other initiatives to bring traffic to OXXO, like with the services and some other things. But, I'm not sure if that will take place already throughout this year. So, how do you expect traffic to behave in the following quarters? And, why?

And, my second question is mainly related to your initiatives on the drugstore and the pharmacies segment. If you can share with us where you are and what are your plans also for the following quarters, it will be excellent. Thank you.

Sure, Alex. Hi. Again, looking at the perspective of the traffic development for the rest of the year, I think that it will have a lot to do with, again, the pricing dynamics in the category which is affecting the traffic the most, as well as the success that we have in launching new the initiatives regarding fast-food offering and services and, of course, leveraging our leadership in managing categories such as refreshment, ready-to-drink beverages, alternative beverages, and the likes.

So, I would say that we will need to look at, again, how pricing dynamic in the category behaves and, hopefully, we're going to be able to, again, develop new value propositions to consumers that can compensate whatever negative effect we might have because, again, of these pricing dynamics taking place in the telephony category.

And, in terms of the pharma, Alex, we are very close to the time limit that the antitrust commission in Mexico has for declaring, or giving the resolution, which is basically the only and last final requirement we have for closing the transaction. And, we have complied with all the processes, information, inquiries that we have been subject to. And, we are very optimistic and confident that in the very, very few days or coming weeks we will be able to hopefully announce the closing of the transaction and start the work of integrating this new venture in the [small box format] arena in Mexico.

And, as we said in the past, this is a starting point and a strategy that hopefully will combine, going forward, more acquisitions in different geographies, as well as organic growth on a reviewed value proposition format for drugstores in Mexico, which is what we're aiming at. So, that's basically the status of this initiative, Alex.

Sure. Thanks a lot.

Thank you.

Antonio Gonzalez, Credit Suisse.

Hi. Good afternoon, Javier and team. I had two questions. The first one was just a follow-up on the OXXO traffic situation. I just wanted to ask if you can remind us, first, what's the average ticket at OXXO? And, then, maybe if not numerically, at least maybe if you have some qualitative comments on, of the 8 million transactions that you mentioned earlier that you have at OXXO on a daily basis, how many do you think are actually related to mobile telephony, whether that is the only item involved in the transaction or there's probably more items involved? And, I'm trying to understand qualitatively if you're seeing customers already relocating those pesos from the mobile telephony category to some other category inside the OXXO store. That's my first question, and then I just have a quick follow-up.

Sure. The average ticket is slightly below $2, Antonio. That's pretty much what it is. And, of course, it changes a little bit from geography to geography, being higher in the north than in the south and, in central, pretty much average.

But, under the second one, we don't really disclose percentages of this kind of information. We think it's competitive sensitive. What I can share, as I said, is, again, in retail you compete, in particular in formats such as the one we're present, of more than frontally on the margin. So, this situation of the pricing dynamics of the category is also taking place at a time in which you are not finding a lot of other retail offerings providing this service of airtime to consumers.

So, when we look again at how good we are at satisfying different consumer needs that we're trying to serve on a daily basis to our customers, we are seeing strong performance in those categories in which we're bringing innovation, and not only innovation but promotional activities which are well designed and which are attractive to customers.

And, as I said, the trick here is trying to balance sometimes, from time to time, declining categories or categories which are in the middle of a transition to a new future state with new emerging ones. And, that's precisely what we have been doing in the past with OXXO, going from a very, very simple offering which was pretty much [skewed] basically to beverages and snacks and things which are very, very basic, to put it one way, to a much more sophisticated and, more importantly, segmented offering based on the location of the store. So, it's not only a matter of putting just products which we might think could be interested for our customers, but also looking at the nature of the customer need that is willing to be satisfied on a certain location within a city or a town.

So, again, my main comment here would be the name of the game is continue to anticipate consumer needs and try to satisfy them in a better way. And, we think that, again, we possess a very, very strong characteristic which is, we have by far the larger number of stores which are closer to our customers. So, all we have to do is to think of what their needs are and try to satisfy them best than anybody else to continue to build healthy numbers, both on traffic and ticket. So, that's what we're doing.

Perfect. Thanks. And, secondly, if you can just remind us two particular kind of contractual relationships that you have with both Heineken and Coke FEMSA. First, on the OXXO and Heineken exclusive, can you remind us whether there is contractually any compensation or exit strategy, so to speak, if the regulatory environment in Mexico forbids exclusive agreements between brewers and retailers at some point in the future? Or, there's nothing contractual?

And, b, I wanted to also ask if you can remind us whether on the new territories that Coke FEMSA has acquired, are you extending the OXXO Coca-Cola exclusive to those territories? Or, are those just part of the former Coke FEMSA, or the original, so to speak, Coke FEMSA territory in Mexico?

Sure, Antonio. On the first one, we were very clear when we announced the Heineken FEMSA Cerveza transaction three years ago. We have a contractual agreement which was looked by the antitrust commission back in those days as part of the transaction, which still is a good seven-year, going forward, that calls for exclusive sale of Cerveceria Cuauhtemoc Moctezuma products in OXXO stores. So, that's, again, out there in the open since 2010, and it's working great, I think, for both companies.

And, on the other part, on the OXXO, we have a number of regions in the country in which we not only sell Coca-Cola products but also a number of other competitors' brands, as well. And, we are not increasing the number of stores in which we are selling only, on an exclusive basis, Coca-Cola products. Maybe not the other way around, at a very, very fast pace, but I would say that we have more instances in which we are now expanding the variety of products as opposed to reducing the variety of products in the OXXO stores, in relation with carbonated soft drinks and non-carbonated soft drinks without alcohol. But, in beer, we have a still seven-year exclusive agreement with Heineken.

Understood. And, on the Heineken agreement, there is no provision, so to speak, that stipulates what explicitly happens if there are regulatory changes? I understand the agreement between yourselves and Heineken but, if there is any regulatory change or something like that that wouldn't allow for exclusive agreements between brewers and retailers, there's no explicit provision yet in --? Or, there's no explicit provision at all in your contract with Heineken. Is that correct?

I will limit myself to say that we have a seven-year term still there, and we feel that there are the conditions for nothing changing in that regard, at all.

OK. Thank you, Javier.

That's the way I will put it, Antonio.

Thank you.

Thank you.

Thank you. Ladies and gentlemen, this is all the time we have for questions today. I will now turn the call back over to Mr. Astaburuaga for closing additional remarks.

Well, thank you everyone for taking the call, and goodbye for now, and see you -- or, talk to you on the next quarter. Bye, now.

Thank you. 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.