Good morning and welcome everyone to FEMSA's Fourth Quarter and Full Year 2019 Financial Results Conference Call. [Operator Instructions]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. The 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 will now turn the conference over to Eduardo Padilla FEMSA's Chief Executive Officer. Please go ahead sir.

Good morning everyone and welcome to FEMSA's fourth quarter and full year 2019 results conference call. Juan Fonseca and Jorge Collazo are also with us today. As we usually do we'll focus the call on the consolidated figures for FEMSA and on FEMSA Comercio's results since many of you probably have the opportunity to participate in Coca-Cola FEMSA's conference call yesterday. We want to use today's call to try to add some color and some qualitative elements to the discussion as well as to hear from your views and answer your questions.Our results for the fourth quarter were again generally consistent with the performance trend set earlier in the year at most of our businesses. FEMSA's Comercio Proximity Division continued its double-digit revenue growth driven by robust same-store sales in Mexico delivering stable operating margins on the back of solid expansion at the gross level. For its part the Health Division experienced severe operational disruptions in Chile that came on the top of an already challenging year I'm sorry stable operating margins on the back of solid expansion at the gross level. For its part the Health Division experienced severe operational disruptions in Chile that came on top of an already challenging year more than offsetting the steady improvements accessed across other markets. The Fuel Division was able to add a small number of stations to its network and managed to deliver profitability gains in a challenging environment. For its part Coca-Cola FEMSA continues to see good volume trends in Brazil and Central America and healthy pricing across most of its markets.On the strategic front the fourth quarter was a busy one. First we successfully closed our JV agreement with Raizen to develop the proximity and convenience formats in Brazil and we're making good progress enhancing the organization that will…

[Operator Instructions] Your first question comes from the line of Luca Cipiccia from Goldman Sachs.

Good morning, everyone. Thanks for taking my question. Given that I have only one I actually wanted to ask something a bit more general. Maybe today is not the best day for it but I wanted to take a stock of the fact that 2020 is the 10th anniversary of the Heineken transaction and the 5th anniversary since the end of the lockup. And looking back I was running the numbers but a lot has happened since. We could put it another way the Heineken transaction was about 11000 OXXO stores ago and 5000 OXXO stores are growing when the lockup ended. And in the meantime especially in the last of five years you've become the largest drugstore operator in Latin America. You've put new services into OXXO very successfully. You've now entered new markets etcetera, etcetera; while if I look at Heineken and maybe I'll point to your last week also the share price was that high so that investment has continued to deliver. Yet I put it all together in the context over the last five years and FEMSA share price is as stable as a rock in spite of the dynamism of the underlying business.So my question would be the following. If you can share your thoughts on directionally one what is your best explanation of why that is the case? Where do you feel there is a misunderstanding if any? Secondly is this becoming a bigger cause of frustration recently? Or at least given how many things are going on in the underlying business how little the market seems to have taken notice? And thirdly are you going to do something about it? To put in better words is there a plan to address it whether not necessarily change your capital structure but in order to be able to make the underlying retail business and not only sort of emerge more clearly? If you can share your thoughts on this and I thought it would be a good time not a good day but a good time given the anniversary to maybe have a discussion on this.

Okay. Thank you, Luca. Well, basically the our footprint is within the Latin American footprint. And currently the economies in Latin America aren't in the best of all times and growth is really something that is sluggish into this footprint. And even Chile where we were very happy with the investment that we made on the past events in the last quarter in 2019 we're not necessarily in the direction for growth opportunities. So what we really think is that with this Latin American footprint how can we give a more stable growth environment for our shareholders? And that's what we have in mind how to invest our capital to have a more stable base for growth and for the long term. So secondly I will say that of the bet that we have and detailed in OXXO in Colombia I mean Mexico we're still growing and we're very positive. We think that the opportunities that we might have in the digital environment we might be able to grasp them probably in 2021. But I think the opportunities now for growth and also in Colombia and Chile we're very happy because those stores now are profitable. The problem that we have is we lack scale to become to have a profitable operations there.In health, I think we have the now by owning 100% of the operations in Mexico and so far in South America I think we will be in a better position to bring out more and to leverage the scale of this platform and look for opportunities within these operations. And I think we are foreseeing that we will be able to leverage the from the knowledge that we have in South America leverage the Mexican operations and transform something that we have here take them also to…

Yes. Luca, this is Juan. Yes I think just continuing a little bit on what Eduardo has been saying I think Coke FEMSA certainly when you look at the sum of the parts actually if you look at a 10-year time frame as you are doing that still captures many of the years when Coke FEMSA was still very much on a growth spurt if you will acquiring a lot of bottlers in Brazil and in Mexico. And of course more recently given some headwinds having to do with the sentiment towards the category among others we probably some of the acquisitions in Brazil happened that maybe right before Brazil went into a number of soft years. Obviously what ended up happening in the Philippines where we also saw that avenue for growth curtailed. I mean if you just look at as I said at the sum of the parts the multiple that has compressed the most have certainly been that of Coke FEMSA. I think generally as bullish as we've been on Brazil we paid a little bit of a price also on the logistics side. We made investments in Brazil at about the same time as Coke FEMSA was making large investments in Brazil. And so those few years from 2013 until pretty much now have been slow years in Brazil. And quite frankly, and even more broadly, I think what you're seeing is this retailization [ph] of FEMSA that I mentioned on the last call where the retail businesses continue to grow as fast as ever and we continue to deploy capital in assets that are related to the retail business. And so of course the share price where you saw it some is it is frustrating to look at the flat performance even as we know that so many cylinders in our engine are firing more than adequately. So we have the benefit of having some capital to deploy.And I think this informs our decisions in terms of what types of businesses this capital goes to also addressing as Eduardo said in the beginning of his comment the high volatility that we've seen in Latin America. And therefore the willingness of the board and the management team to look for opportunities in the U.S. as we did with Jetro. So, hopefully this very long answer is helpful.

Yes, absolutely. Thank you both for the perspective. And I guess my point was exactly this I mean so it has to find a fault in the operating sort of growth and dynamism especially in retail. But one has to wonder what can be done for it to be emerging not necessarily and I guess to some extent more indicators point to the capital structure whether that is right or wrong. But it seems that it's become a bit of a liability from a value crystallization perspective or I guess I can't really think of any other reasons. So thank you very much for the perspective and I'll let the next one ask another question.

[Operator Instructions] Your next question comes from the line of Antonio Gonzalez from Credit Suisse.

I wanted to ask very quickly. Just first a quick follow-up on the previous question from Luca. And I dialed in later so apologies if I didn't capture your entire answer. But first I wanted to ask on some of the investments that you've done recently. Perhaps some of them are more early stage. Of course they're not publicly traded in like Heineken or Coca-Cola FEMSA. So have you thought of how can we analysts and investors track your progress here? I understand obviously that in some cases you might have commitments with the owners and so on hence providing a full P&L might be more challenging. But going forward are you thinking of at least sharing with us the net income? Or how do you track how value crystalizes in some of these investments? So just that as a follow-up. And if I may very quickly I wanted to ask your perspective for separately OXXO's margins for this year. Am I right in thinking that as you accelerate your digital investments this year the margin progression might be below your long-term guidance which obviously typically has a margin expansion in there?

Well, Antonio the what we have the investment that we have in Jetro we're very happy with the business. We are it's a growth platform who has some connections with our retail network here in Mexico. And the unfortunately the owners are very critical about they want to they don't want to be in the public space. And but we are very happy with the investment made. It's a very it's a growth platform with lots of opportunities. And we think that we probably by having this connection we'll be able to come out with some of these platforms also to place it in Latin America. I see your concerns and I sympathize with them. And I think it will be a work that we have to do with our partners to see how what links or what connections we can provide you so you could model better and understand better these investments that we make. I don't know if you want to complement the margin question? Or...

Yes. No, Antonio. I even think on this one about disclosure before moving on to the one on margins I mean certainly we've tried to using for example OXXO's growth rates and profitability numbers and return numbers. We try to establish some parallels or some comparisons to try to put you and investors in the right ballpark in terms of historical performance for this company. And I expect we'll continue to look for and hopefully find some ways to give you an idea of how this is going obviously without disclosing any numbers that we're not allowed to disclose. To try to kind of complement this there are other parts of our company where the disclosure has been lower than what we normally would have. Of course there's this big or there's FEMSA that is keeps growing. We made another acquisition in Brazil as you know on the logistics side on Solistica. So there's definitely a lot of work going on this year with the team at Solistica to get them ready for prime time so to speak.And our expectation would be that 2021 their information would be broken out so that you can then have access to a full P&L like you look at the other components of FEMSA. So we understand that as we are deploying this capital the structure is becoming a little bit more complex and there are more boxes on the chart so to speak. And if you're trying to put together a valuation we need to work with you and provide you with as much disclosure as possible to try to minimize the guess work. So at least for Solistica which is now more than $1 billion company you should expect those sets of numbers basically a year from now. And in the meantime…

I would add also from the beer side that we really these new territories that we've been acquiring that we've been mixing with the Modelo brands I think we've been very happy with the performance of the Modelo brands and is really as expected. And I think the only market that we still are growth is not coming yet is Mexico.

Mexico City.

In the Valley of Mexico, I think the size of the city and the way to connect to consumer how to deploy better the beer platform in Mexico City and that's still a challenge. We're still growing but not as fast as we thought it will be. The rest of the markets we are very satisfied with the growth that we have received from the Modelo brands.

Thank you so much.

The next question comes from Benjamin Theurer from Barclays.

Actually goes into the same direction a bit of a follow-up from the first two ones. So if we take a look at the more recent performance and the increase in same-store sales performance in the Proximity Division and clearly the last quarter was very strong on ticket and you gave some explanation to it. And I remember you've pointed out that you're aiming for something around the mid-single-digit same-store sales growth. So if you had to take a look at the economic situation in Mexico the economic situation in the other markets you're operational on the Proximity Division would you still call 2020 to be a likely year to see that mid-single-digit growth rate keeping pace with a similar composition driven by stronger ticket maybe than traffic? Or where do you think are we going in terms of the organic growth if you want to call it that way?

Well, let me start from the smaller operations. In Chile and Colombia we're very happy. In fact we've been surprised that the social instability that we have seen in Chile make our stores more important for the consumer because it seems like the consumer is moving less. And now the neighborhood stores are becoming more important in the social in this current social environment that we have in Chile. So same-store sales we have grown dramatically so I will be happy with it. On the other hand Colombia it seems like after a very long period of time of trying to find out the right value proposition we are now in place and the stores are growing very rapidly too. So, again, the Chile and Colombia it seems like the current platform and the way the OXXO's the value proposition of the OXXO stores are connected with the consumer I think makes us very optimistic of the environment. Unfortunately, we don't have enough stores yet and we still have some room a place to go. In fact we might we would love to find some minor acquisitions just to expand this platform. But now that we understand that the current value proposition of OXXO in those markets is the appropriate one and is very well connected with the consumer expectations.For Mexico I will ask Juan to complement what I'm just saying. But I think it really if we face kind of the same year that we faced 2019 I think what you said is still it is correct. If we had a more favorable environment we'll be more optimistic again. But again we don't know really what's going to happen with the current Mexican situation. We need to expect that will be similar to last year. So I would say what Juan said about the giving you a ballpark figure of what the number will be where we feel comfortable. I don't know if you want to add anything, Juan?

Ben, yes, I would just say I mean in terms of the growth international growth one data point that I wanted to highlight has to do with the fact that even though the international stores just represents about 1% of the store base today they will contribute more than 10% of the growth in stores this year. So I think that's powerful. 1% of the base today but more than 10% of the new stores this year are going to be opening in Chile Colombia Peru. And I'm not really counting whatever happens in Brazil in that number. So that I think you're going to increasingly hear us talk about international now that those stores are ready to contribute to the profitability as soon as we get a little bit more scale. On the same-store sales conversation...

By the way Peru we are still working on it.

Right. Of the three it is the one that is the least developed probably, it's newest.

It's the newest. And we are still finding out what we have to do there.

Right. Now on the same-store sales growth you're right on this. If we recall what we've been talking about the last couple of quarters where we've seen a lot of pricing being taken by the big CPG companies and this happening simultaneously too and maybe obviously related to a consumer looking for maybe bigger more value for the money type of presentations and of course I think the Coke FEMSA results are also consistent and illustrative of this where healthy pricing probably precludes a little bit of volume growth. So I'd also we continue to see that. Big categories what we call destination categories. And I think tobacco for example is another good example of that. I would also mention we are beginning to see a leveling of the slope on the services front and the financial services. We've had a number of years where we were looking at 20% 20-plus percent type of growth as more and more people adopted OXXO as a place to pay for their things and get their transfers and their remittances and so on and so forth.We are seeing a bit slower growth on the services front kind of in the single digits now. So that might have also a little bit to do with the traffic dynamics. But to Eduardo's point we feel comfortable with kind of a mid-single digits. We've been printing a mid-single-digit number now for years. And so as of right now we're not seeing anything out there that would make us change that expectation.

Perfect. Thank you very much.

[Operator Instructions] The next question comes from the line of Alvaro Garcia from BTG.

Hi, guys, thanks for the call. My question is a follow-up on Juan what you were just discussing Juan on cyber security and digitalization generally. Firstly I was hoping you could provide some color on the growth of financial services which you just did. And sort of how it fits into the traffic puzzle because as much as it's still growing I was wondering if a deceleration sort of led to explain most of the traffic decline we saw in the quarter. And then secondly I was wondering if you could take us into the war room sort of on your digital strategy and what's changed over the last two or three years. Maybe give us a preview of what new OXXO might look like and just sort of take us into the war room on that digital strategy.

Alvaro, this is Juan. Yes let me take the second one first. I definitely think we if we think of the cyber-strategy and you mentioned cybersecurity as well as cyber as kind of a digital platform I think on the cybersecurity front as we communicated a few months ago we did have a small breach a few months ago and obviously addressed it quickly. And it's the impact of that was very small. But nonetheless we have redoubled our spending on that because clearly the cybersecurity has become front and center a vulnerability that we don't want to have. And so there's been a little bit of spending on that front. And we feel good about where we stand today. On the digital strategy we've spoken about three basically the 3-pronged approach where you have first and this is I think we probably where we are the most advanced has to do with the kind of the digitalization of the store basically meaning the ability to buy anything that we sell at the store through your phone and having delivered have it delivered. Obviously given the assortment and the average ticket that we have this is mostly relevant for the gathering occasion and for it's very different for us and it's for the big box players.So, it's important but it's not game-changing in and of itself. On that front I think the testing here in Monterrey has gone well and we're ready to getting ready to expand the number of cities that have this viable product. The second prong which is the loyalty program which we had originally managed as a separate application on the phone and is now being merged with new OXXO. Historically we have looked at loyalty programs basically as a way to drive more revenues and…

But we do see also that the fintech side and this loyalty card will be connected.

Of course.

It was a very clear summary very interesting. And I guess on the first question specifically on how this normalization of growth in financial services is impacting that negative traffic print you sort of touched on that.

Yes. No, sorry about that. Sorry, Alvaro; I didn't actually get to that and I kind of ran out of steam. No, on the traffic side, I think you're right; we have definitely seen a very gradual but very consistent slowing down of the growth. And again, we had years of 20%-plus growth. But it would seem that a lot of consumers have now adopted OXXO as a place to do their payments and their money transfers. And so I don't feel that we're getting as many new users. One thing that probably would challenge that statement is if you look at the number of Saldazo accounts we continue to open those. So, we're now just shy of 14 million accounts. So that's kind of a contrarian data point to a consumer that is no longer adopting the OXXO people that were not using it for these purposes. But there's probably a relationship. And we still believe the high prices fewer transactions from the main categories soft drinks cigarettes that sort of thing it's just powerful. But increasingly it looks like the trend in services is also contributing to the dynamics we're seeing on the traffic front. So I think as the months go by and as the quarters go by this year we'll have more clarity in terms of how this is really playing.

Very helpful. Thank you very much.

Ladies and gentlemen -- all the time -- oh please, go ahead, sorry.

No. No, we're just going to -- we can see on our screen that there are no more questions lined up. We know that there are other big companies in our space that also reported this morning so we probably shared some analysts and investors with them. So that -- I think that's it for us on the question side. So yes thank you everyone and have a great day. And obviously we are available for any follow-ups on your side.

Yes. Thanks very much. Have a great day.

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.