Good morning, and welcome, everyone, to FEMSA's Third Quarter 2015 Earnings 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 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 may change, which can materially impact the company's actual performance. At this time, I would now like to turn the conference over to Daniel Rodríguez, FEMSA's CFO. Please go ahead, sir. Daniel Rodríguez: Thank you very much. Good morning, everyone, and welcome to FEMSA's third quarter results conference call. Juan Fonseca and Roland Karig are also with us today. As we usually do, we will focus the call on the consolidated figures for FEMSA and on FEMSA Comercio results. Since many of you probably had the opportunity to participate in Coca-Cola FEMSA's conference call yesterday. 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. Beginning with some comments on consumer demand in Mexico, the news continues to be encouraging. Favorable trend such as growth in real salaries, remittances from the U.S. and manufacturing activity seems to be cricking down to actual consumption, resulting in healthy comparable growth rates for the retail sector. Specifically same-store sales were also increased over 9% during the quarter. As I've indicated throughout this year, the data is benefiting from on-demand incomes, so we must keep that in mind, but it also clear that the Mexican consumer is now in relatively good shape. In Mexico, however,…

Thank you. [Operator Instructions] Our first question is from Robert Ford from Bank of America.

Thank you and good day everybody. Daniel, I had a question with respect to gas write-in and I was wondering what the implications were, the decision to liberalize gasoline prices in Mexico earlier right with respect to the band? And in the move from the current tax to the proposed quota as well as the implications it may have or your decisions to investment in infrastructure with respect to storage and pipelines? Daniel Rodríguez: Well, hi, Robert, thank you very much for your question. I think as I mentioned before at this stage we are really very much focused on the gas station really on the weakest part of the business. And that is the area that we want to continue working. Having said that, obviously, I mean as the energy reforms evolved, we will continue setting other opportunities, I mean that's part of the -- what we call the midstream, okay. So far we've not made any decision and really as I said over we still continue creating that platform in terms of the gas station, but I don't know Juan, if you would like to add any comments?

Yes. Hi, Bob. I think with regard to the earlier liberalization of the price, I think what's really happening here is that the government wants to set a floor for the excise tax. Right now it's not the lower end tax. And with the expectation that prices will come down in the near future, I think the government wants to make sure that their tax revenues don't go down too much. And so I think the take away that we have a good time is that its really about setting a floor for the excise tax not so much changing materially the time at which things are going to open up. And we're going to start being able to buy from other people and sale at whatever price would be appropriate. So, I think it's a little bit more noise than -- probably disturbing, and there is the practical reason for it as I just described on the part of the government. Daniel Rodríguez: And additionally, I would add that this is not uncommon because it's practice revenue also seen in other market.

Your next question comes from Antonio González from Credit Suisse. Antonio González: Hi. Good morning, Daniel and Juan. Just first a very quick follow-up with the numbers that you gave Daniel on the FEMSA Comercio figures OXXO gas for the previous year, if I'm doing the math correctly, I just wanted to verify that you have a gross margin expansion on FEMSA Comercio OXXO gas of roughly 40 bps and basically a flat G&A. So I just wanted to verify a) if these numbers are correct, and b) I think that we did see some operating leverage in the last quarter or the last couple of quarters and this might not be the case this quarter. So I just wanted to see if you can add any comments on that because obviously with these very strong FEMSA sales I would have expected operating leverage as well? And then secondly -- very quickly sorry about that, just very quickly, I guess I understand if you can't make too many comments but I guess we still need to ask. Is there anything that you can share after the ABI SABMiller news that preliminarily changed the way you think about Heineken, would you think you will be more active on the M&A space irrespective of whatever you're doing on the retail side more on the beverage side or there is not much that you can share at this point? Thanks.

Antonio let me take the first part of the question. In terms of the gross margin and the operating margin expansion OXXO gas, I mean we rounded the number with Bob a few minutes ago a little bit, but the number that we come up with are 30 basis points expansion at the gross level and 70 at the operating level. So clearly there is an improvement between the growth and the operating line. I think it's been a while since I've seen 70 basis expansion at the operating level for us also. I mean we can kind of talk a little bit more about why we think that is, we mentioned the electricity charge still being a bit of a tailwind, which we don't really know how much longer that’s going to be there. But a lot of the things that guys do at the stores are having a benefit on the SG&A in terms of our expense control, so I would say this is a pretty good quarter in terms of operating leverage. And I'll let Daniel take the other strategic question. Daniel Rodríguez: Hi, Antonio. I mean regarding your question about the deal, I would say that as you correctly said, I mean the deal is yet not closed. And really we don't want to speculate any conclusion. The only thing that I can share with you is that I mean we are very happy with our investment in Heineken, I mean that has not changed at all. And we have also mentioned that the operational performance of Heineken has been very good and their results were delivered yesterday to the market. And assume you have seen, I mean they had a very great quarter. So I mean overview for the time being has not changed. But at the same time we also know that we have the flexibility that right from the fact that the lock up period has expired we can have that flexibility going to work, but I mean no comment.

And our next question is from Mauricio Serna from JPMorgan.

Hi, good morning. Thanks for taking my question. Just a couple of things on the OXXO side, I mean very impressive same-store sales you delivered, you could maybe explain a little bit more and what would have been the major drivers to this acceleration both in terms of ticket and traffic. I mean in all the economies doing overall well, but may be talk a little bit more about internal factors and other competitive environment. And also maybe if you could provide if you have some sort of guidance for this new drug stores acquisition you're doing in Chile and Colombia, is there like any guidance you can give us on growth of these formats in the short-term? Daniel Rodríguez: Well, I mean regarding your question on OXXO, I think as I mentioned during the other call. We need to keep in mind that the comps I mean are benefiting us. And obviously, we are very happy with this trend but having said that we -- I mean this for us is not the new normal I mean we still keep our view that in the long-term we will remain on a mid single digit growth. So I think that is important to give, having said that obviously I mean the economy particularly in the north of Mexico is performing very well, so we are benefiting from that. And also as I also mentioned I think we have to increase significantly our ability to execute short run in and out promotion okay. And I think that I mean together with the fast growing on the service category is really helping us okay. So I think there is not one element only, there are several elements, one is the execution. Second, I mean the good performance of the market and also…

I think I'd like to add one thing to what Daniel mentioned in terms of the promotions and kind of a short term in and out. This is not something that we have talked about in the recent past. I mean as you're all aware OXXO operates with this or has been operating for a long time with this four week promotional periods. And I think now they improved the IT part of it and the operational and the processes part of it to enable them to do much shorter promotions in addition to the four week program. So that around something like Independence Day weekend or the playoffs of the Mexican Soccer Championship, or Halloween or whatever the case may be, they can execute very targeted very three day, four day type of promotions and that's the flexibility that is actually very, very powerful and benefits suppliers obviously but its also turning out to be very good for OXXO as well.

And your next question is from Alex Robarts from Citibank.

Thanks, and hi, everybody. I want to go back to gas and just to understand the margin evaluation or the weakening margin on a sequential basis. I mean it seems to me that you've got down here to 1.5% margin sequentially because of this bump up in admin expenses. And I guess, I wanted to understand that dynamic a little bit more, do we think that there is room for the gas businesses margin to continue to decline. And is it fair to assume that there is a connection with your ramp up in the admin expenses and such on margins going forward in the gas business. And kind of the last bit of gas is just I mean there is a current proposal right, for the budget next year and the [indiscernible] has proposed on gas to move higher, you've talked about what government is keen to do to kind of secure a flow on the excise tax. But, if I understand this and this tax, in this proposed tax reform is and actually is approved, it would also bring the gas liberalization up and accelerate up to next year, such that it would seem to me that the gas prices at the pump next year wouldn't be stable with this year in that, you have the higher -- you have the special tax, but then you also have some liberalization. So I just wanted to kind of test that out on you guys, if you though that that would be a potential scenario of where gas prices could be at the pump next year versus this year. Thanks so much. Daniel Rodríguez: Okay. Well, thank you very much for your question. I mean regarding the first part of your question, I mean most probably you have noticed that we have been growing I mean almost 30%, okay. So we are in a fast growth mode and clearly it takes some time I mean to ramp up our expected levels of operation. So, I think the decline that we are seeing in our margins, I would say are normal in the sense that we're growing fast and on top of that to do -- I mean to achieve that growth as you correctly noticed, we are also adding structure to the business. I mean we are for example adding structure at a regional level in order that we can have I mean the proper network in order to allow us to continue to grow. And so, I think we are in that period, where we are investing in order to get the growth and obviously it will take some time until we reach the normal operation levels. I mean in terms of price, if I understand correctly your question, I would say that for next year, I would agree with your view so I mean really I don't have anything else to comment. I don't know, Juan?

No. I think certainly when we're looking at the budget for 2016, we are basically, does not contemplate any change to the price at the pump. So I think you're correct in your read that the price to the consumer is probably going to be in-line with what we have right now. And that what the government is doing in terms of protecting their excise tax doesn't really affect the price to consumers to end consumer right now.

And your next question comes from Andrea Teixeira from JPMorgan.

Thanks. Good morning there. I just want to follow-up on the question that we had last go back a little bit form the financial service business and basically you had a tremendous growth there. And I was wondering if you can measure the traffic on tremendous traffic pickup that you had in the quarter, if you can measure like people who actually go for financial services only which will be interesting, but if not, if you see the momentum, it starts to phase out or deaccelerated by any means, I mean the 150,000 I think you are issuing in terms of number of cards. And then I think, I mean I'm sorry that we all asking a lot of questions about the gas stations, but does that change on -- the second question would be, does that change the excise tax change excise tax change would impact by any means your experience which you would consolidate next year or the re-branding or anything that you had indicated before. And lastly on the drug store, I'm surprised I mean we haven't been asking a lot on the drug store side, do you still see there is opportunities for inorganic acquisitions in Mexico and if there is anything or that takes a back seat? Thank you.

Hi, Andrea this is Juan. I'm going to take the first one of your questions. I think with regards to the financial services we continue to see very good numbers in fact and this is a little bit counterintuitive, we've actually seen an acceleration. So for example last month I think we opened 200,000 accounts an improvement over the 150 K that we had been opening. The last number that I have for Saldazo is 2.6 million accounts. So I think we are on a pace to wrap up the year probably with 3 million accounts. So that's going I think ahead of expectations. Now to the second part of your comment, I think you touched on something that is true which is often times these visits that are related to financial services are -- the cross selling is not huge right, so they will on occasion pick up a pack of cigarette or something else. But the cross selling factor if you will of services tends to be a little bit lower than others and especially there are some like telephony recharges that have the lowest cross selling of all. So not all traffic is built equal. We work them all of course and then each transaction that we do leaves us a key but some are better than others. In general I think in addition to the financial services you are beginning to see a little bit of effect from prepared food. I mean we roll out OXXO to more stores that is drawing an incremental consumer, so not the same consumer that was eating the king roll or a sandwich, we're getting a new consumer that is going for the tacos. And there is other various services that OXXO is continually working on, you probably heard about…

Yes. But that is probably not as what the economy, the way it really struggled with the sellers are taking a breather now. I mean, the growth, I mean if you could kind of give us a sense of how the drug stores are performing relative to your 9% same-store sales, are they performing similar fashion or much… Daniel Rodríguez: No. Actually same-store sales -- same-store sales for the drugstores are running ahead of the 9.1%. But I think there is also a reason for that in the sense that there are many, I'm going to call it low hanging fruit. I mean there are a lot of things that we are improving in terms of the -- some of the assets that we have acquired and there are a number of pretty major things are taking place in terms of the value proposition of the store. So there is a lot more to fix or to improve I think in our drugstores than there is at OXXO. But I think obviously, we maintained the valuation discipline, I don't know that there is a shortage of targets. I mean we've discussed in the past when you look at the map of Mexico, we now built some critical mass in the extremes of the country both in the northwest and the southeast, but there is still a glaring vacuum in the center, so we would like to begin to develop critical mass there. So we are going to be active on the M&A front as much as in the organic, I mean if you look at the State of Veracruz, Veracruz is the State where we had zero drugstores when we acquired Esa and being contiguous to the Esa territory now we have a lot of stores in Veracruz and that's an area where we dropped operation leverages. The OXXO know-how and the people on the ground that OXXO has across the country it makes it easier for our drugstore guys to find the right locals and to go through the permitting processes and the construction processes or certainly the speed at which we are being able to grow organically on the pharma front benefits from the OXXO infrastructure.

And that is due is, Juan since you mentioned that like the integration of the systems that's still to be rolled out next year, right, I mean the SAP implementation that is on track.

Right. That's very, very early days. We are in the beginning stages of that that is going to be powerful in terms of eventually having all of the three chains operating at one. We've also talked about the project for the brand, currently we're still operating with three legacy brands and its something that ultimately we aspire to have a unified brand but these are all things in the future, so hopefully there is a lot of improvement in the operations coming in the future.

That's very helpful. Thank you Juan and Daniel and congrats on the results.

Thank you, Andrea. Daniel Rodríguez: Thank you, Andrea.

Your next question is from Jeronimo De Guzman from Morgan Stanley.

Hi, good morning. I wanted to ask a question on OXXO sales fronts, you mentioned kind of some of the things that are helping traffic. I wanted to understand the ticket growth 5.9% that's running more than two times inflation. So I just wanted to understand what is helping drive this acceleration and ticket and kind of how should we think about it going forward. And then I also wanted to follow-up on Socofar just wanted to understand I mean I get the kind of the longer term perspective, but in the next I guess the next year or so, I wanted to understand what are some of the next steps with the integration of Socofar and also wanted to know if you have plans for organic growth within the next year with this franchise? Daniel Rodríguez: Okay, thank you. Well, I mean regarding your first question, I would say that I mean that growth is mainly due to the mix of product that we sell and also services. So I mean its not like only one element that explain that -- and we are also benefiting from some I mean commercial income, okay. So there are several elements commercial income and the mix of categories that really are increasing that part of the margin. Regarding your second question on Socofar, I mean we are, we just closed the deal by the end of September, so we are in the process of working together with our partner the business plan for next year. We have I mean Board of Directors meeting next week in Chile. And we will then discuss I mean quarter, our opportunities both on the organic and non-organic side. And our focus today is really to make sure that the - I mean that the operation and the results were well and we also would like to start to share best practices. I mean I think we hear from OXXO we can bring I mean some good practices to that operation in Chile, but as well there are certain things that we can learn from the Chilean operation like distribution and they also have the beauty store. So we see very much the next I would say six to 12 months trying to see how much we can learn from each other and make sure that we continue the business plan that the partners have in that operation in Chile and also start to think how we can use that platform to continue growth in the region.

Okay. Thank you. Daniel Rodríguez: You're welcome.

And from Goldman Sachs, we have Luca Cipiccia. Please go ahead.

Hi, good afternoon. Thanks for taking my questions. I wanted to follow-up on the Socofar and the drugstores more just to understand how much you think that will help you in structuring or expanding the drugstore business in Mexico itself, how much of know-how or best practice there may be is already potentially happening? And secondly on the acquisition cleanly there was an interest in that space that we've seen you become a more active in drugstores. There is a regional component as well you mentioned Colombia before but the bulk of it is Chile. So how do you think about that market in terms of opportunities and how does it fit your portfolio, what was the appeal from -- for a segment for channel where you clearly wanted to get more critical mass but also giving you an additional geographic diversification into a large market that you were not present into before. And then, lastly just very small one, are you going to separate Socofar and drugstores in the next quarter as the same way that you're doing gas now, just for us to sort of plan or see how we can excel that business from the consolidated numbers? Daniel Rodríguez: Yes. I will, I mean we, regarding your first question, I mean we should not forget that we -- I mean the acquisition was from the leader in a very material market like Chile, okay. So really I mean in that sense we are really adding I mean an operation that is very well developed. I mean they have a very big knowledge of the industry, the sector. And as I already mentioned, I think from the size of the Mexican pharma operation I think there are a couple of things that we can learn from the Chilean…

Okay. I understand, thank you. Thanks very much.

Your next question is from [Daniela Iger from Predisco] [ph]. Please go ahead. And Daniela please make sure that your mute function is off. And we'll move on to your next question from Robert Ford from Bank of America.

Hey, thank you very much. I just wanted to follow-up, there were sharp increases in the administrative cost at OXXO as well as gas and I was hoping you could detail what that additional spending is on? And then you mentioned that pharma was above OXXO in terms of same store sales, how is gas? And then lastly in response to the question of growth in average ticket, Daniel, you mentioned that commercial income was a factor and I was just wondering if that’s being booked on the revenue line because I had the impression that it would somewhere else?

Hey, Bob, let me start taking those and then we'll sort it out among -- the three of us I guess. In terms of the admin as Daniel mentioned certainly this is the period where we are making investments and spending to accommodate for future growth some of that gets booked in the selling but some of that gets booked in the admin. We opened for example the new region [indiscernible] for the gas business so. Our gas station business starts in Monterrey and we have some in Cuadrilla and we kind of been growing I guess radially from where we sit in Monterrey and we're now going after the third [indiscernible] so there was some spending related to that. So I would say both businesses pharma and the gas stations, you are going to see more G&A just generally doing these kind of faster growth periods and I think for our gas stations in particular we have talked about 20% now we're talking about somewhere between 20 and 30. We’re actually growing at 30% these days and it is possible we would like to accelerate that. So that would be a comment on kind of the SG&A numbers. You mentioned same stores sales are actually running ahead of OXXO not just in pharma but also in I believe in gas they were also very healthy. I forget if they were a little bit better or not but they were certainly in the same ballpark so the improvement which is pretty broad based. And remind me Bob with your final question.

Commercial income was the last one Juan.

Yes, commercial income its part and part right some of it is booked above and some of its below depends on the supplier depends on the promotion. Daniel Rodríguez: That’s correct.

Okay, fair enough. Thank you very much.

Thank you. Daniel Rodríguez: Thank you.

And your next question is from Jose Yordan from Deutsche Bank. Please go ahead sir.

Hi, good afternoon guys. In all the conference calls, we heard earlier this week from other retailers in Mexico many were mentioning the fact that Walmart especially the Bodega format that they have seen an increased level of aggressiveness in terms of prices et cetera. Not sure many didn't specify whether it was the big Bodega or the express formats that are the closest to you even if not completely -- completely competitors to you. But just in general, I was curious as to how you were seeing the development of the smaller formats, how it's affecting your business and how -- what you're doing in order to anticipate additional aggressiveness from that format in the future? Daniel Rodríguez: Thank you for your question. To be honest with you I mean we have a very clear study at OXXO and we have been telling them and during the call regarding what we are doing. And we should always keep in mind that not -- we don't have I mean always the same customer visiting us and visiting them or what we call middle or large box. So I think that makes a difference. So we're having I mean notice at least that we see some impact for us, anything more aggressive I mean that we are concerned. I think I can understand that that could be potentially accounted for the big boxes, but the overlap that we have between our OXXO stores and then its relatively smaller I would say so I mean this is not an issue for us.

Okay. Thank you so much.

And your next question is from Rafael Shin from BTG. Please go ahead, sir.

Yes, hi good morning guys. I just -- I was wondering if you could give us an update on the prepared food initiatives, or may be tell us what you're thinking about Doña Tota and I know you had a couple of pilots in OXXO and see if you are ready to be a little bit more aggressive on that side? Thank you. Daniel Rodríguez: Yes, well I mean the case of Doña Tota, I mean this is a very -- I would say very small acquisition. I mean, this is a format that as we have stated from the beginning is something that we would like to learn, I mean we are learning from that operation. But I mean its something that is growing at a slow pace and we are continuing trying to get a better understanding of that. I think so, in that particular regard I would say that we are in the process and obviously once we feel more comfortable in terms to may be to go much faster we will do so, but for the time being we are very much in the learning mode I would say. On the case of the categories inside OXXO, I mean I think we have seen I mean a very good response from the customers. And this is an area that obviously is not function that we are going to deploy in all the stores, but the assumption that is taking its space and we are continually evaluating and seeing how much more we can grow. So that is what I can comment on that I'm not sure Juan if you would like to add anything?

Yes. I mean I just in terms of orders of magnitude, I mean if you look at Doña Tota, we have about couple of 100 a little bit less than couple of 100 stores in Mexico. We are going to start growing next year a little bit after this long period of let's call it stabilization that we've been discussing where there were a number of things that needed to be brought up to FEMSA standards in terms of how that company was operated. So we will be talking next year about some additions on the Doña Tota front, but if you look at the [OXXO ore] [ph] module within in the OXXO stores, we are looking to finish this year with something like 600 of those. So right there you have a factor of 3X and next year we will probably roll out certainly more than 200, so more likely something like 300. So in any given year we are going to be adding of OXXO ore modules than the entirety of Doña Tota. So as Daniel was saying I mean some of the learning from Doña Tota are finding their way into how we are executing OXXO ore and that was a big part of the rationale for the transaction itself. And as I said income start growing on a standalone basis and if you’re comfortable that is now ready to do that. But I think in terms of eventually moving the needle for FEMSA Comercio, OXXO ore really has a lot more relevant investments. So that will be my comment.

Okay. Very helpful, thank you.

Thanks Rafael.

Your next question is from Antonio Rocha from BTG. Please go ahead sir.

Hi, Juan and Daniel congratulations on your results and the impressive execution at OXXO, question is on the company's current deal on the mid term implications of the ABI and SAB merger on the beverages industry?

Well, I mean I, I already mentioned that I mean this transaction has not been closed yet. So we don't want to provide any comment. The only thing that I can comment that we are very, very happy with the performance of Heineken, I mean overview on the mid term and long- term regarding all the position of Heineken has not changed at all. And you can see actually with the result that they were posted yesterday that they have a great performance. So we don't want to comment more until we get more clarity about really how will the transaction end and then even after that we know that it will take some time until this is implemented. Daniel Rodríguez: I think may be one thing that we could add just because it’s something that we have commented in the past. This is not a transaction that took any of us by surprise this is something that for a number of years actually. We had internally been kind of modeling and we're gaming and trying to understand potential impacts of such a transaction on our business on Heineken's business and we feel very good about the prospects of Heineken in a post ABI SAB world but that would be really the extent of the comment.

Thanks a lot.

Sure.

And your next question is from Alex Robarts from Citibank.

Right, Alex Robarts at Citi. Listen, thanks for the follow-up and I wanted to go back to the kind of more medium longer term idea behind Socofar and drugstores. In Latin America, you've given us some good guidance on how to think about this in the shorter term and the opportunities and such but as we think two, three years down the road in Chile is it safe to assume that our next step would be thinking about bringing in OXXO in a definitive way. And to the extent that the combination right of the Socofar stores in Colombia and with the OXXO stores provide some impetus to do and invest more in that country over the medium term. And then the third and final piece of this is, Hispanic, Latin America I guess the rest of Latin America what does the Socofar deal kind of suggest in terms of further acquisition and possible deals, so that would be great if you would touch on that more medium to longer term picture of small box retail in Latin America? Daniel Rodríguez: Yes. Thank you for your question. I mean as you correctly said that with the strategic view but we decided to make over entrance to the pharma industry or sector was by trying to bring our other expertise in the small boxes and I think that was really the rationale behind entering that sector and that is how the business started here in Mexico. Now, we also I mean by analyzing the sector in South America, we saw that there were opportunities that we can use by doing some of decision. And the deal that we have structure with Socofar in Chile is a deal that the intention is to use that vehicle to develop that business in South…

Great, thank you. Daniel Rodríguez: Welcome.

[Operator Instructions] Ladies and gentlemen at this time, we have reached the full time for our questions today. I would now like to turn the conference back over to Mr. Rodríguez for closing and additional remarks. Daniel Rodríguez: Okay. Thank you very much for your participation today and good bye for now.

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