Good morning and welcome everyone to FEMSA’s Third Quarter 2016 Financial 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 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’s 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 like to turn the conference over to Eduardo Padilla, FEMSA’s Chief Corporate Officer. Please go ahead.

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’s Comercio results. As many of you probably had the opportunity to participate in Coca-Cola FEMSA’s conference call last Tuesday. So we want to use the call to try to add some color and some qualitative elements to discussion. As well to as to hear your views and answer your questions. Hopefully you will find it useful. Overall, our company continued to make solid progress during the third quarter. FEMSA Comercio as a whole, including its three divisions, increasing revenues by 40% versus the third quarter of last year. The retail division, we saw strong growth in same-store sales at OXXA against a very tough comparison base in third quarter 2015. Our operating margin also faced a difficult comparison given the significant expansion of 70 basis points a year ago. And therefore we saw a contraction this quarter. We will get more into details in a few minutes. But the key message here is that the long-term margin expansion trend is very much in place. For the part our drugstore operations in Mexico performed well on a top-line basis, allowing us to continue investing heavily in the integration of a single-operating platform for the Mexican operations. In South America, we continued to run ahead of our base case, expanding our store count both organically and to a small bolt-on acquisition in Colombia. Finally, the Fuel Division saw some sequential and year-on improvements in profitability largely driven by higher prices in the Mexican market. Even as we continue with our sustained expansion strategy and we’re re-branding our shifting stations into the new…

Hi, everyone, just a quick reminder that we will take just one question per caller. As you know, this had worked well in the last couple of calls and we’d like to make it permanent. So, thank you for that. And let’s open the call for questions. Operator, please.

[Operator Instructions] We’ll go first to Lauren Torres with UBS.

Yes, hi, good morning. We continue to see some very impressive same-store sales growth at OXXO. So, I guess my one question relates to Mexico and the momentum behind this number, you mentioned tougher comps. We’re just curious to get your perspective on consumer environment, the ability to sustain these types of numbers, how are you driving these higher average ticket sales? That would be it, I guess. Thanks.

We have the - Mexico really is living through a very particular stage where we see the consumer environment feel strong. And on the other hand, there are some macroeconomic viable that are putting some pressure on the macroeconomic conditions in Mexico. But there is full employment in Mexico and I think and that figures, which is the Mexican union info, the modern trade retailers in Mexico, they’re also reporting good figures although our figures are better than them. I would say that the inclusion of ourselves in different locations, it is also helping us to perform well. And I think we are gaining share in some of those locations within the Mexican market. And I think having those six consumer locations that we manage and being focused on very much disciplined that part of the OXXO value proposition is linked to those six consumer locations. And I think that discipline has kept us deal-by-deal, gaining share and gaining better approval really from the consumer. I don’t know you have to add anything Juan.

Yes, I think there is, there is a sentiment issue which maybe has begun to turn a little bit. I mean, as Eduardo was saying, the actual variables if you look at employment, if you look at inflation, if you look at obviously the remittance is coming in which in local currency has been growing even faster because of the weaker peso. There are a lot of conditions in place for a very healthy consumer. But we actually, we were expecting for the second half of this year for a slowdown which has not yet materialized, maybe you were as well but there is no question that there begins to be some pressure on the inflation front. We have had very little past to us in terms of the devaluation. But electricity costs are starting to trend-up. And I think we’re little bit cautious going forward that the government as you know is tightening its own belt somewhat to adjust for external shocks. So, we need to be cautious. But the truth is that on the ground right now, things continue to be quite strong. And as Eduardo said, the initiatives that we have in the stores, the financial services, the daily replenishment categories which continue to grow very well, introduction of new products and the remittance initiative that we now have going on, the fact that we brought more partners from the correspondent banking. There is just always stuff going on, prepared food getting a little bit more traction. All of that helps keep the same-store sales number up.

So, maintaining this mid-single digit or, single-digit same-store sales gross target that you’ve spoken about in the past is sustainable in light of a potential slow-down?

Yes, I think that the mid single-digit range is in place, it should be.

Thank you.

Thank you.

We’ll go next to Antonio Hernandez, Barclays.

Hi, good morning. And thanks for taking my call. My question is regarding the proportion of drugstores and also the OXXO Gas that have been consolidating their operating platforms and their re-branding in terms of OXXO gas. Thanks.

Well, in terms of drugstores, we are - first we have to - we're really coming up with four drugstore chains in Mexico. And in order to benefit and to gain scale and improve our leverage with suppliers and in terms of operations, we are designing and we’re installing a common platform to the whole - for those four chains. And that perhaps will be identical. So in these four chains we’re acquired from different owners, the platforms were completely different. What we pick is, we pick the one that we, it fits better. And we are really improving it. And that improved platform is going to be installed in other three chains. Also the branding is an issue. And we are in the process of defining our branding for next year. And basically what we’re seeing is that although these chains have strong local branding, they don’t - they're not very well known outside the local environment. So what we’re trying to consolidate is come up with one single brand. And we will try to find a way to support the local brands and at the same time enhance these new brands that will cover up all these new operations in a way we will pretend in the mid and long-term to have only one brand. And I think the same is happening with OXXO Gas. In OXXO Gas, there was some time before the energy reform, it was very difficult to support branding in Mexico because Phoenix the relations, didn’t allow us many degrees to come up with a strong brand proposal. But we thought, but even that - when we had those requisites, we found a way to position our brand and to position our brand in a better way. What, we are doing now is really remodeling the gas stations and focus and enhance the brand, even more. And now the consumer will have no doubt that that devastation is OXXO gas brand. And really the consumer feedback we’re getting from our users, they’re very happy. The brand is I think I will say is, the most - I would say reputable brand in Mexico. And we’re really making - leveraging ourselves in that brand growing regionally because that brand is very well known in some local market. And by growing organically in those local markets I think we are leveraging the brand even more. So those two things combined local expansion, flows a new imagery in the service stations are really enhancing our market position in the market where we are going to operate in.

And just to finalize this thought on the gas stations, we are - right now we have about seven or eight that have been converted or really or you see the new branding, the new image. It’s not the new brand because it’s always in OXXO the new color scheme and getting rid of the 10X signage. And the objective is still to have 50 of them done by the end of the year mostly in and around monthly.

Okay, thanks a lot.

We’ll take our next question from Jeronimo De Guzman with Morgan Stanley.

Hi, good morning. I had a follow-up question on the pharmacies. When I look at the organic trends, I get into around the 2% EBITDA margin for the, I guess, it’s for the Mexico pharmacies in the quarter. So, this is, I guess, the lower we had seen last year but also the lower we’ve seen in the first half. So I just wanted to get a better understanding of what is driving the margin weaker, are you is this kind of third quarter where you intensify a lot of these restructuring efforts? And kind of how should we think about the margin going forward?

Yes, thanks for the question. Basically as we said this, a general incremental expense because we’re investing in these new platforms for the new chain, for the mid and long-term, and this is going directly to income statement. But the second thing really is the new store expansion is being stored in some South Eastern States where the economy is not doing very well because those states used to be rely very much on the oil come for their growth. And secondly, our brand is not as well-known as some other competing brands in those places. And those new stores in those regions in Veracruz Santa Baku, they are really the maturity growth for - for the maturation growth of those new openings it is taking and I agree with you, longer than expected. And what we are really doing is, is how to be more cautiously opening stores in those places and we want to keep going. And at the same time how to speed up the pace for the new platform being installed. So we will be ending up this investment probably by I don’t know third quarter next year.

Yes, I think one thing to keep in mind Jeronimo, growing the way that we’re growing organically to opening new drugstores in places like Veracruz and more recently Mexico City we already have about a dozen of them in Mexico City. It’s very inexpensive but the flipside of that is that it does take a while for those stores to become well-known and to get up to speed. I think this is the difference between the gas business and the drugstore business because obviously in the gas business the OXXO brand is very well-known all across the country whereas in the drugstore space, if you’re opening E-Sap brand in drugstores in Mexico City which is what we’re doing, it’s going to be a while before you can build a reputation on a good value proposition and good execution. So, I think to a lot of those points we are seeing e-sales basically in the Southeast of the country and Veracruz, Tabasco, Campeche, those are all very oil-dependent parts of the country. And we’re seeing some weakness related from the efforts that FMX itself is doing to kind of reduce its own cost base. But there are a couple of things going on here, the efforts to integrate the platforms and put ERP and all the systems in place that should take us a few more months. But the actual rolling out new drugstores into parts of Mexico where we don’t have a presence that will probably go on for longer. And we’re going to have that situation where it takes the stores a little bit longer to get to where they need to get and therefore to get the operating leverage. So, it’s kind of the trade-off of growing organically with a new brand for all practical purposes, as supposed to making acquisitions which right now as you know, we’ve made some acquisitions but they are many assets to acquire them.

And those I think the accountants do not help us because all these losses that go into this new stores, they go directly to income statement. Whereas when you buy running operation, all these new groups will, which is the price that you go, that we pay above the cost of really the drugstore itself goes directly to the asset base. And I think in the long-run I think, its better off to come up with [indiscernible] growth although it will reflect some losses at the beginning in the income statement from these new stores that we’re opening.

Okay, it makes sense. Just one clarification, you said you will end the investments or do you think investments should continue until third quarter next year? You’re meaning some of these investments on opening in new regions because I assume the integration?

No, I’m sorry I was talking about the new platform investment. And I think we will have all these stores being converted by third quarter next year.

The platform investments in the third quarter, which one is in the next couple of months I guess that’s where I’m not sure kind of which ends in the next several months and then what continues?

No, I mean, I think its stages. It’s not that you finish on a single day the whole thing. But it’s definitely 2017 we will be done with integration.

Yes, but I would say by the end of this year Northwest will be completely done. And then Southeast will be done by the first semester next year.

Okay, great. Thank you very much.

You’re welcome.

We’ll take our next question from Luca Cipiccia with Goldman Sachs.

Hi, good morning. Thanks for taking my question. Actually I wanted to follow-up on the discussion about the drugstore and the pharmacy. Just to clarify, so should we interpret that ISA will be the model that you - the brand that you’re going to roll-out nationally I don’t know if you already commented on this? But if you can clarify and when you were talking about the conversion by the end of next year, does that relate to the backend of infrastructure or sort of the more unified binder and format. And with the stores that you’re opening now in territories where you were not present, Mexico City in the north and south, what is the - can you remind us what is the size the mix the ideal type of positioning that you are pursuing, and if you’re going to do that under the ISA brand or some other format? Thank you.

Okay. Well, you cannot see my face but while you were telling ISA was going to be the brand, I used a smile, but I cannot say anything more.

We didn’t want to wait Luca until we were finished with the whole brand analysis. We didn’t want to wait before starting to open stores in Quirla and in Mexico City. And so that’s a brand that we’re using. The decision on what the national brand is going to be is not 100% finalized.

But there will be some - majority in-store. And I think I don’t know exactly when but I think we’ll be by the end of this quarter or the beginning of next quarter of next year where there will be new stores being up with new imagery.

I think its first quarter of next year.

First quarter next year, yes.

We know you like names that are short and that are mean.

With some components in them, yes, but I think we shall be very cautious because the cooling brands that we have are very strong locally wherever they are placed. We’re very, very subtle.

Yes, there are some of the Northwest brands it’s going to take a while to evolve them into a different brand because they are very, very strong going forward.

And we have to be very cautious.

The other part of your question Luca, so you were saying on the integration, what was yours?

Then on the new openings that you’re doing, just remind us what is that, I would assume you’re starting with your ideal size mix and type of format. So, if you’re going to remind us, what type of variability you’re using location relative to the other?

Our stores are like, will be like 1,700 square-feet, 1,800 square-feet.

800 square-feet.

800 square-feet. And we have a good variety on the floor and the back of the store.

So, many things are prescription and over the counter probably would represent two thirds of the mix. And then you have health and beauty with maybe 20%, 30% and just a little bit of front-end soft earnings and the type of things that you would find in an OXXO. So, definitely a format where you have an opportunity to drive the health and beauty parts of the equation, which up until now in Mexico, the supermarkets are really the place where people buy cosmetics and shampoos and mascara and things like that. So we want to drive that. In a way taking a page from the Brazilian proposition where obviously the drop, those are the places where these things are bought and sold. But to have a significant two thirds, almost two thirds of the mix, the medicines and within that mix to drive the generics component up from a very, very low base where it is today.

But we want to store a platform very much based on convenience. And we know convenient works and we think convenience could be enhanced very much in the drugstore environment.

Convenience and proximity, right, having small outlets near where the consumers are.

And I don’t want to you be too long on this, but just one clue on this topic. When you say finish by end of next year or third quarter of next year some of these processes. What does it mean in terms of control of the distribution centers relationship with wholesalers, is that something also you see more achievable by then? And then in terms of pace of expansion, I remember you were guiding for 20% or so if I’m correct in Mexico, maybe if you can just give an update if that’s still there, the type of space expansion that we should look for, for drugstores? And that’s it from my side.

Yes, without all the logistics and distribution, we’ll be also an enhancer for the drugstore operation. Currently the companies we bought didn’t have strong warehousing or strong distribution capabilities. And I think those capabilities are being sold in the Northwest and the Southeast too. And I think yes, little by little, that part of the thing, that by having a new platform that couldn’t get very much well with merchandizing and the warehouse management systems, that is chance that we will love to have in-stalls so we can enhance the operations and enhance the leverage to having our own distribution capabilities for our own drug stores.

And with little over 1,000 units now in Mexico, gradually we’re being able to have more direct dialogs with the pharma companies. And in a way reduce a little bit our reliance on the wholesalers and third parties. So, definitely I think that’s something that’s going to happen in parallel. We will be more self-sufficient in distribution. And in terms of the organic growth, yes, it should be somewhere between 15% and 20% in terms of new stores. Right now we’re probably running around 15% in terms of new stores.

Perfect. Thank you very much. Thank you.

You’re welcome.

We’ll go next to Robert Ford, Bank of America.

Good morning, everybody and thank you for taking my question. Eduardo, Juan, I realize there is some ambiguity but I was hoping you might be able to talk about some of the regulatory developments and possibly your outlook around the detail in the liberalization of the gasoline trade as it relates to Mexico and what the implications might be for OXXO gas?

Well, I think the Mexican authorities are liberalizing the price of gasoline. And I think before I the liberalization was going to be installed in 2018 and I think they’re coming back to it around 2017. There will be some regulations in stores and we just have to understand better how to cope with them. And, but yes, what we understand now, the current Mexican price of gasoline if you deduct the tax enrollment within the gasoline, currently I will say that the price of gasoline in Mexico is cheaper. If you take the net, the tax effect, it’s cheaper than it is in Texas, you take the taxes also out. So, I think the Mexican authorities are trying a way to reduce the subsidy that really is going through the [indiscernible] operation. And they will rather have the blame if prices go up to somebody else. But I don’t know really, that is something that we, within these new environment, we don’t know these environmental price liberalization. In OXXO Gas we have the help of a couple of guys that went through all these experience and they very much know what happened of the liberalization of gasoline in South America. And they’re very strong and they’re very good consultants for us. And we are incorporating within the OXXO gas people that have lived through all these experiences. And I think that particular thing is something that we have to learn. We have to be very cautious because margins are so low that we cannot drop so any of these filtrations. And I think in the mid-term really what we are doing is, getting to understand these better and be prepared whenever it comes. I don’t know if you want to add anything Juan?

Yes, I think as you said Bob, and Eduardo confirmed that there is still some ambiguity in terms of, it is something that will take place in ‘17 or do they stick to their original plan and stick it on ‘18. But the expectation, when you look at the price and Eduardo’s comment, it does look like right now there is a subsidy place.

Because of the exchange rage, I think exchange rate also affects.

And because there was a cap on what the price could be. And obviously during the third quarter FMX raised the price to the consumer a couple of times during the quarter and basically hit that cap. But once this year is over, we believe there is a chance that prices are going to keep crawling up to reduce that subsidy that right now the government is kind of paying for. So, at least in the short to medium term, it does look like the trend is slightly up which is the better alternative from our standpoint because as you’ve seen and you saw this quarter, small increment in price translate into good things in our P&L. But the broader question I think we’re still missing some answers, and so exactly how this is going to pan out. And in the meantime what we’re trying to do as you know is keep scaling up, keep opening more stores, transform our stations, learn about the last mile distribution and be ready to be a strong player when the dust kind of settles.

When do you expect to see some better visibility when it comes to transfer pricing or leasing agreements for some of the upstream infrastructure? And as you mentioned, does it, what are the implications for you as you start to roll-out a little bit more of that last mile?

Well, we could answer these better but I think we’re being approached by FMX, and also we’ve been approached by some other people outside of Mexico in order to align or be partnered with them. And they’re still not very much well communicated - it's not still very well communicated how the FMX infrastructure if it’s going to be shared, it’s going to be particular for FMX, those things really because there is no infrastructure in Mexico about the one that FMX has. So, that will be a major advantage or disadvantage for the players. And still we don’t know exactly how will, this evolve. But I think we are very much well prepared compared to many of our competitors in Mexico to cope with this. And this anxiety that you share with us, we do have it. And this anxiety will have us just to be very much prepared and be ready to when it comes alike.

I think we’ve covered some ground in terms of understanding the different parts of the stream. And of course as you said, we’re already somewhat involved in even testing, we already have some trucks on the streets of Monterrey delivering gas more or less as we speak, understanding what the cost savings from doing that part of it, our sales as supposed to the unions which of course play a big role in the cost structure of FMX. When we’ve looked at the storage infrastructure and the pipeline infrastructure, there is some excess capacity there. And it’s not completely clear who will be the players, I mean, obviously there are a number of people that have looked at this and I’m sure are crunching the numbers right now. But what we believe also is that, in either of the states of the world, whether it remains for a while, with just FMX for eventually you have a second provider of midstream capacity that if you become the largest player and you’re an ordering player that plays by the rules, that pays taxes. You’re an attractive partner for whoever is doing the midstream and the upstream. So, even in the current status quo where FMX is the only game in town in the upstream and the midstream, we believe and to a lot of this comment about conversation that have taken place, we believe we would be in a position to have an attractive partnership with whoever is in-charge.

And I think also that image being such a strong image within the consumer will really become a very great attractive partner to be aligned with because I think the values and promise that we do give to the consumer are very much aligned with some of this transnational oil companies that are around.

And you operate, and you operate in a way that brings discipline to the marketplace. And all of those things I think are positives, whoever you end up partnering with.

Yes.

And given this ambiguity, is there any reason for you to consider not expanding your last mile distribution to the entire chain as long as the densities of a given market are justified?

It’s going to take us a while, I think you’re right. But right now we’re just testing a portion of Monterrey where we have very good density. And you’re beginning to get the economics kind of cleared up for us in that sense. So right now I think we’re fine. Another element to consider in terms of our own business is that we’re investing very little CapEx, right. I mean, as you know we’re leasing the gas stations themselves. And we only have 20 trucks right now driving around so it’s a very small controlled pile in the greater scheme of things. And we can adjust, right, I mean, we can adjust either way based on our findings.

Great. That was very helpful. Thank you very much.

You’re welcome.

We’ll go next to Alex Robarts, Citi.

Hi, thanks everybody. I was keen to go back to the health business. And I appreciate the granularity you’ve given us around timeline and initiatives with the integration process. The one element that I was keen to ask about of this integration process relates to the direct purchasing from the drug manufacturers. You’ve mentioned that that process has begun in Mexico. And I was keen to kind of hear a little bit more about your thoughts on how that is going to ramp up the timing? We understand that NADRO has had some issues the still rates going into some of our supermarkets that we cover are complaining. I’m wondering if you’re seeing some of this as well, and might that spur you to try to accelerate the direct purchasing? And finally, the kind of last bit of this question, is, do you think with Logistica [ph] and the excess space that you get or have with the DC of OXXO, that we could get to a meaningful number of direct purchases in your supply around health by next year? Thanks.

Well, yes, we are, as I said before, really a major [indiscernible] has helped to leverage ourselves in logistics and distribution. And we do see a major opportunity and being these four is more change together being at scale and the preparation to come up with better terms and better variety for the stores. And I think generally, we’ve been operating these stores independently. The very first things that we tried to put together were the merchandizes. But little by little, by not having the same systems, it is difficult to install the same merchandizing platform for our chains. So that’s why I anticipate by the IT platform and the processes installed, the common processes will be the major enabler to come up with all these potential threats that you see or opportunities that you’re mentioning in the Mexican market. Yes, it would take time and the linkage would also, I think the linkage is also more informal. The merchandisers talk to each other, they do communicate. But it will be very difficult to leverage the drugstore operation from the OXXO platform. I think there are things to be learned, things to be shared. But I think it’s complexity would be so high that I think the benefits of scale or the benefits of having these platforms together will be - cannot be compensated by the complexity of trying to put things together. I think what we’re trying to promote is really the merchandisers to speak to each other whenever you have these annual gatherings with merchandisers for OXXO, obviously the OXXO people are invited. And they go to the same suppliers. But I think really what we try to do is to and we try to lubricate all these personal enrollments with - among teams. But it would be very difficult to use and to share the logistics or the merchandizing platform.

I think just to remember Alex the number of SPUs is mainly, as much as four times larger in the case of drugstores you’re talking about maybe 10,000 SPUs. You’re talking about more frequent visits to the store basically it has to be done on a daily basis for many of these SKUs. You’re doing it with smaller vehicles. So, certainly there are some cross fertilization I mean, some of the people that are involved in logistics on the Pharma side came from OXXO or other parts of other company. So there is knowledge that is shared and to Eduardo’s point there is a lot of communication between the two teams. But in terms of the actual physical space or the actual sharing of the trucks that’s something that’s going to be really hard to do. So, it probably won’t really take place in any major way.

Right, right, no, that’s clear. But I mean, I guess, with 1,000 drugstores, you are able to go and say to a drug manufacturer I’d like to start engaging and some purchase arrangements. And that was kind of the other piece of the question right. So, how is that going in other countries we see levels of 50% plus direct purchasing happening with?

Right, we’re really aiming for those levels.

If you look at the other big competitors in the industry there is basically three large operators, each of which have, will be more than 1,000 stores. And all of them have their own distribution platform. And that’s definitely the aspiration Alex. And of course that has margin implications because if you win yourself from the third parties in any significant way, that’s going to represent quite a bit of sickle for your margin.

Sure, sure. And just the 1.1 organic same-store sales growth here in Mexico with the drugstores, there wasn’t an issue with supply and sale rates?

No, that has a lot more to do with what we were mentioning on the Southeast. We do have a lot of stores in the Southeast both the Legacy stores that were already in basically like [indiscernible] from the ISA brand as well as some of the Veracruz stores that are, I mean, they are new booked, some of them have been around for more than a year. And definitely that part of the country and those regions where our brand is new, aren’t growing as fast as other parts of the country.

And also, I would add that our competitors are reacting really, they’re reacting probably the way we’re beginning they didn’t because as seriously as they are now taking us now. But we’re accustomed to that.

Yes, we’re used to that.

Okay. Thanks.

Thank you.

We’ll go next to Jose Yordan, Deutsche Bank.

Hi, good morning. I just wanted to clarify the comments about all the integration expenses and all that at the health division because looking back at my notes for the second quarter and delving into the reasons why pro forma EBIT was going down 40% at the time. I think you had mentioned that all these integration expenses would be over by the fourth quarter of this year. And what I’m hearing now is third quarter of ‘17. So, the question is what changed, has the amount changed or just the time it takes to get the integration done or both?

I agree with you. The major investment will take place this year although there will be some other being done the next year because it will be installment more and less development. This year has been development and installment of the new platform with the companies and the stores. So, I think basically I would say that we are thinking about it within the same terms.

Yes, I think the bulk of it or maybe the way to think about it is kind of gradually tapering off. I mean, as we head towards the end of this year, that would be heavier spending and then next year it’s more deployment and rollout.

So, the actual amount you needed to spend hasn’t really changed it was just that bulk of it?

No, it hasn’t changed.

Yes.

Okay. Thank you very much. Okay, thanks.

Yes.

We’ll go next to Pedro Leduc, JPMorgan Chase.

Thank you, thanks for the call and the question. On FEMSA, comments on the retail division itself, nice gross margin expansion this quarter on services etcetera but also a little bit on the SG&A back investors. The standards tough comps from last year but is this somewhat related to gross margin with the SG&A meaning that you need to invest in order to get the sources up and running? And if so, is there like a penetration on the store level that you’re already using these services. And then if we can expect at least for the full-year to retain the usual 20 to 30 bps of EBITDA margin expansion at the retail level? Thank you.

Yes, I think nothing really changed Pedro in terms of the expectations. If you look, this was a strange quarter in a couple of places where you had either a very tough or very easy comparisons when you look at the consolidated numbers we were talking about net income for example, right. So, it’s more than usual we actually looked at the two-year stack to isolate these ups and downs. And definitely the expectation that we can do 10 or 20 basis points at the operating level is very much in place. I don’t think there is anything related to the services category in terms of having to spend more to capture any of their benefits. In fact it’s, we’ve added a couple of banks that we were missing in the last few months.

And also we have the remittances which making with us was Western Union and now it’s been stolen.

Yes, I believe we launched the remittances product nationwide and these are not things that represent a lot of CapEx necessarily basically lots of negotiation and a little bit of hardware here and there.

Well, and there is some stuff with development and that is very costly but it’s very complex.

Yes, and it takes a while. But most of that is done at this point. So, no, I mean, obviously we worry a little bit about electricity costs because we are moving into a period where that is going to go up. And I think just generally we have to keep an eye on inflation right. And as of right now, our suppliers haven’t taken prices up a lot. Our own inflation has sustained more or less in line with general inflation. But that might change, right. And it is also dependent on whether or not there is a little bit more pass-through of the devaluation although for our mix, that’s usually not a very big component as opposed to the bigger box players which have more imported goods in their mix. But now, the long-term expectation of the 10 or 20 bps margin at the operating level and EBITDA level are very much in place, no change there, Pedro.

Okay, great. Thank you.

Sure.

We’ll go next to Gabriel Lima, Bradesco.

Hi, thanks. And coming back to the health division, it’s getting very relevant sector here for you. And you should have any comments on the same-store sales. I know you made some comments at the beginning of your call. But more clarity of what happened this quarter, it was running at high single-digits in the first half of the year. Now you came with a low single, so you mentioned some deceleration in the South Eastern market. So just wanted to understand the dynamics here, not only in the third quarter but what you’re looking for next year given that it’s been quite volatile. I know you guys have been working in this new segment but it’s been running the same-store sales pretty independently from the commercial division. So, comments on the same-store sales on the health division would be welcome. Thank you.

Well, I think what you mentioned is really, is the Mexican operation. And yes, I don’t know when.

Yes, and remember Gabriel, hi.

But I was up to speak, you haven’t asked yet. But since you haven’t asked, I would tell you how good we are performing in our Chilean operation. We’re gaining share and…

Yes, now that’s a very valid point, I mean, the South America, I mean, the two things are separate but it might as well make the comment that South America section is performing ahead of plan. But no, in Mexico, remember that the first several quarters and maybe even the first year, year and half since we entered the drugstore space in Southeast Mexico, we talked about some low-hanging fruit being available and some relatively easy improvement to the value proposition in some of the chains that we were acquiring. And I think that’s helped those drive same-store sales like the 10% that you described, right, way above inflation and way above what we were doing on the retail front. I think gradually you begin to run out of these low-hanging fruits and you get into more of a kind of a steady-state phase. But we do have and I think we cannot trivialize the two things that we mentioned earlier, I mean, the fact that we do skew to the Southeast of the country which just, even without having FMX go into some issues, the Southeast is definitely underperforming the North and we see that when I look at the regional performance of the OXXO spores, the North probably outgrows the south by 5 or 6 percentage points. So it’s not trivial. But there is this other comment, which I think is secondary but not irrelevant. That we are showing up in places where the competition is heating up and some of the large incumbent, are seeing us come along and they’re going to fight a little bit for their turf. But that’s just par for the course. It’s not something that we did not expect. And I think if you’re thinking of how to model this, I would - long-term I would also think about a mid-single-digit same-store growth rate. We’re not there right this minute but I think that’s the number I would put into my own model.

Okay. Thank you. That’s very helpful.

Sure.

We’ll go next to Alvaro Garci, DTG.

Hi guys, good morning. Thanks for the call. My question is on OXXO, and on store openings. In OXXO, when we look at last 12 months’ trend still firmly in place. I was just wondering if you could provide an update on what you view as a market holding capacity for OXXO in Mexico. And if you’re experiencing a tougher time getting them opened recently? Thank you.

Thank you, Alvaro. No, basically I think the - we’re the ones responsible for, I mean, the more we can add value to the value proposition, the more stores we can operate everywhere in Mexico. So, if we keep enhancing these, value proposition, there will be better margins at the store level, better places where we can set up this store. And I think really I will say that we can, I don’t know, we can keep growing like this or I don’t know eight years or so. Because we are ourselves the ones that will be limiting our own expansion, and even though it sounds not very nice but I think it’s true. If we keep, the more we can enhance the value position, the more market will be for us to open up new stores. If we can be very good in daily replenishments and pantry replenishment daily reposition and pantry replenishment for the housewives, the more offices it could be installed everywhere. And I think it has to be, so, in a way we are the ones that are limiting our own expansion. And so the more we can enhance the value proposition by new services, by new merchandize and by tackling very well those six consumer occasions the better off we will be to open up stores in everywhere in Mexico. We are installing some stores in some manufacturing plants when starting some stores and some office facilities. And these are places where before we didn’t even dream to have a store. But now because we’re being able to be flexible enough to adjust the valuable position to those particular needs, to those particular places, that is something that really is enhancing our possibilities of opening of stores in places that before we didn’t dream of having a store. So, I think we are the ones responsible for expanding the possibilities of having new stores, new stores everywhere in the Mexican territory.

I think Alvaro, there are, Eduardo already mentioned this what we call niche stores that are being able to - we're being able to open in non-traditional locations where you maybe adjust, maybe you don’t sell beer if you have a store inside of manufacturing plant, maybe you don’t sell cigarettes if you’re inside a hospital. But the stores are able to derive very healthy economics. And we believe there are few thousand of these stores that we could eventually have. I mean, if you’re talking about a 10-year timeframe, another thing to consider, if you just look at the growth or we assume GDP growth somewhere between 2% and 3% and population growth, the way it’s moving that probably accounts for a good 5,000 stores that we could open in that timeframe. And then the one that we keep going back to, which is central and western Mexico are so underpenetrated relative to the north of the country. The ratio if you compare the value of Mexico versus the border cities is basically 6:1. So, clearly there are several thousand stores that we could open in the Valley of Mexico and not get to the level of penetration, that we have, never mind the border city but even here in Monterrey. So, I would say the level of confidence that our team has in being able to keep adding 1,200 stores per year is very, very high.

Thank you it’s a very clear answer. And you guys are definitely doing a very impressive job of driving new occasion. And almost as if every time we talk to you that timeframe continues to grow, right, so, great stuff, very clear. Thank you.

Thank you.

Thank you.

At this time I’d like to turn it back to Eduardo Padilla for closing remarks.

Well, thanks very much for all your attendance. And thanks for the questions and thanks for the interest. And have a great weekend.

Have a good weekend guys. Thank you.

Bye now.

That concludes today’s conference. We thank you for your participation. You may now disconnect.