Good morning, and welcome, everyone, to FEMSA's Third Quarter 2021 Financial Results Conference call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the presentation, there will be a question-and-answer session. During this conference call, management may discuss certain forward-looking statements concerning FEMSA's future performance and should be considered as good faith estimates made by the company. These forward-looking statements reflect management expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance. At this time, I would now like to turn the conference over to Juan Fonseca, FEMSA's Director of Investor Relations. Please go ahead, sir.

Good morning everyone. Welcome to FEMSA's third quarter 2021 results conference call. Today, we have the full team for you as we are joined by Eduardo Padilla, FEMSA's Chief Executive Officer; Paco Camacho, our Chief Corporate Officer; Eugenio Garza, our Finance and Corporate Development Director; and Daniel Rodríguez Cofré, current CEO of FEMSA Comercio, who will succeed our Eduardo, our CEO of FEMSA next January as you all know. And as always we are also joined by Jorge Collazo, who heads Coke FEMSA's Investor Relations effort. The plan for today is to have Paco comment on some higher-level trends we saw during the quarter and then Eugenio will walk us through the numbers. We will then turn the call to Eduardo and Daniel for some strategic considerations and final remarks followed by Q&A. So with that, let me turn it over to Paco Camacho.

Thank you, Juan. Good morning everyone. Thank you for joining us today. We hope you and your families are doing well. In many ways, the third quarter marks a continuation of the dynamics we saw in Q2, gradually improving health and mobility trends, tempered by some operating reductions, restrictions that remain in place in many markets and consumers that little by little feel more comfortable going back to what begins to look to them like almost normal activity levels. In our Proximity Division, same-store sales in Mexico were stable sequentially for the quarter. Importantly, we began to see an improvement in the last part of September and through the beginning of October. This means that we are increasingly seeing figures that approach 2019 levels. This combined with higher commercial income activity and a more efficient expense structure is translating into margin gains at the operating and EBITDA levels. Moving onto our Health Division, we continue to see a solid performance driven by our operations in Chile, which continued to be a market where consumers have been showered with extra liquidity even as we begin to lap a tough comparison base. Mexico and Colombia are also operating at encouraging levels with Ecuador lagging a little because of a tougher macro environment. The Fuel Division continues to see a consumer that is gradually becoming more mobile and demand numbers that are improving even as we remain below pre-pandemic level. For its part, our Logistics and Distribution operation grew its top-line sequentially. Once again, balancing positive dynamics in several markets with some end user segments in the U.S. that continue to operate below 2019 level such as facility supplies and hospitality. As a result, profitability levels were in line with those in the second quarter. Importantly, we are already seeing returns on invested capital for the U.S. business approaching its way. Further, we have made good progress in expanding our footprint in key new markets and integrating the new operations into our platform. We are executing on the strategy we define when we decided to enter this business last year and the results are very encouraging. Finally, Coca-Cola FEMSA had a strong quarter in terms of volume growth, particularly in South America. However, we face a tough supply chain and raw materials cost environment as well as a one-time adverse tax effect from the Brazilian operation that we were able to mitigate only partially through pricing, hedging and operating efficiency. Beyond the short-term results and the core operations, we are making progress with our beer portfolio in Brazil as well as pilot testing additional categories as distribution opportunity. With that, I will now turn the call over to Eugenio, who will go over the numbers in more detail.

Thank you, Paco. Well, the third quarter of last year was relatively strong in the context of the health emergency, our operations remained under severe restrictions and we're still facing operational challenges. Therefore, growth figures relative to 2020 still do not reflect the full story and we will complement that with some comparison data relative to 2019, where we consider this to be helpful as we did last quarter. Starting with FEMSA's consolidated quarterly numbers, total revenues during the third quarter increased 12.6%, while the income from operations increased 14% compared to the third quarter of 2020. When we compare against the third quarter of 2019, total revenues increased 9% while income from operations increased 2.7%. FEMSA's net income increased significantly and reached MXN16 billion reflecting higher income from operations, higher non-operating income, including dividends received from our investment in Jetro and non-cash foreign exchange gain relating to FEMSA's U.S. dollar-denominated cash position as impacted by the depreciation of the Mexican peso; and an increase in our participation in associates' results, which mainly reflects the results of our investment in Heineken. This was partially offset by high interest expense. In terms of our consolidated net debt position, it reached MXN70 billion at the end of September. For it's part, CapEx increased 38% reflecting a low comparison base in the third quarter of 2020, when most of our operations had suspended non-critical investment activity. Moving on to discuss our operations and beginning with FEMSA Comercio Proximity division, we opened 163 net new OXXO stores during the third quarter, reaching 431 net openings year-to-date. Our expansion operations were slowed down a bit by the third wave of COVID and we were running behind schedule this year. At its still sense, we still have the objective of 890 stores in Mexico for the…

Thank you, Eugenio. Good morning. This morning, I would like to reflect a little on where our company and our business units are today focusing on the big picture. As Paco mentioned, while we are still not fully more normal. It will begin with also, we have tightened our standards for approving and upgrading new stores. I will see at least 10,000 more stores in Mexico over the next decade or so. And importantly, we have reached a stage in Colombia and Chile, where we can continuously accelerate the pace of openings. But our stores already very – already profitable on a standalone basis. But we still need to increase our scale to fully absorb overhead and profitability at the country level. In Peru, we continue to fine tune our valuable position. While in Brazil, our joint venture is making progress faster than expected, setting the stage for a more aggressive pace or expansion beginning next year. And of course, all eyes on the digital opportunity, how a new platform spin in OXXO Premia are getting off to a very promising start in Mexico. There are very interesting times ahead. Our Health Division, things are also looking good. The platform we put together is operating as a single unit led by our team in Chile with ability to develop, to deploy talent and best practices such as loyalty programs and e-commerce across markets. for legacy platform, we're putting our presence in Mexico, Colombia, and Ecuador in a position to grow rapidly in the medium term. As we develop our scale in these markets and we continue to test new valuable positions and formats. We expect to see margins gains that allow us to narrow the gap relative to our benchmark operation in Chile. by mobility and regulatory changes, but it…

Thank you. The question-and-answer session will begin at this time. Our first question comes from Luis Willard with GBM.

Hi, guys. Good morning. Thanks for the opportunity and good luck Eduardo on your new face. So, Daniel, I know you're probably just starting to get some details on how do you see the company evolving and the strategies they're putting place. But I mean, as Eduardo mentioned in his comments, he leaves the company in a great shape and very well positioned to grow in the future. So maybe you could share with us and maybe ballpark what do you see as your strategic and capital allocation priorities and where do you see yourself adding more value to FEMSA in the future? Thank you. Daniel Rodríguez Cofré: Well, thank you very much. I mean, as I said before, I mean, I prefer to wait till January in order that I can share my views.

Yes, I think, the call in February having finished the year and at the start of a new year, I think that would be the perfect location for Daniel to kind of talk about those high level big picture aspirations. The idea today obviously was to focus on the quarter and the shorter term, but also to have Eduardo talk a little bit about the big picture issues that he already began to address in the opening remarks how we kind of thought it would work out.

That's perfect one. So, well, then we updated on the spin and also bring the rollout in Mexico. So I know there is still – we're still waiting for the regulatory approval to really roll it out, but can you share with us some data of users and also how do you see that – in the market where you're highlighting this, how do you see the app, especially spin working with store and you're seeing kind of maybe incremental tickets after the use of the – OXXO Premia and spin, that would be the question. Thank you.

Thank you, Luis. This is Eduardo. Basically, we're very excited. We're very excited because here we are finding something that will evolve. I mean not very agile application. And we spin, I think, we're going to be able to enable the consumer and enable the connection with the store, with the loyalty program. So I think we're very excited. And as Daniel said, basically acquiring customers in OXXO or spin is not very expensive, in fact, it's very cheap because we have a lot of customers. We have 12 million, 13 million business a day. So with that in mind, I think, the – our efforts and our set of – our obsession is to have a product that delivers value that the value proposition of the product is compelling to the consumer. That also is a sticky and it will use a lot. There has been a lot of initiatives elsewhere in the market where some of them have – although they seem to be very interesting, but they are – they don't have the stickiness and they don't have the value proposition. So I think our obsession is not really about growing. It's about having a value proposition that is compelling and adds value to the consumer. And the connection with the store is very, very important as always we have thought that is something that it will enable the store and the – the store will enable the spin as well.

Great. Thank, Eduardo. That's very helpful.

Thank you.

Our next question comes from Antonio Hernandez with Barclays.

Hi, good morning. Thanks for taking my question. Well, you mentioned the deceleration of – relation in openings of two OXXOs. So what are your expectations for the next year both for OXXOs and the pharmacies opening? Thanks.

Well, I don't know Juan do you want to add, but me just give you basically mobility affected us and the stores were a little bit down and because of – and – because we were – we set up our restrictions in a more strict way. We decided to be more cautious about opening stores. I think as mobility is coming up, the schools are backing in Mexico and offices are filling up. I think we're very confident to speed up again. I don't know Juan if you want to add on this.

Thank you. Yes, I think, we – I mean six months ago when things began to improve and, of course, we've had these three waves that we all know of. So when things were improving, the guys worked their numbers and came up with this 800 number for 2021. And then of course the third wave came along and it's complicating a little bit the way that we got there. So, as we mentioned in the opening remarks, I think, it's still within reach. So there is a bit of a stretch at this point, obviously we're a couple of months from the end of the year, but we're still shooting for 800, I think the probability if that we're going to come up a little bit short of that. Now, in terms of 2022, we'll – obviously we'll give you harder numbers across the business units in February, but I think we're returning to a place where if everything continues to improve with a lot of those points about mobility, we could put the thousand store bogey there as the aspiration and the target and we're towards that. And if there are no more ways, then I would imagine that 1,000 store numbers is reasonable. And Daniel mentioned in his remarks, 10,000 stores over the next decade continues to be the aspiration. I think Eduardo will continue.

Yes. I do also, I will say that that we are very excited also the opportunities that we’re facing in Colombia and Chile and Brazil. Columbia, and Chile, we have a very profitable store base and we just have to scale it up. And I think we’re very excited about the opportunity. And I think probably we might receive a lot of growth from Chile, Colombia, and Brazil as never before. So I think that nature for growth is there too. So these are only Mexico, Chile, Colombia, and Brazil.

Yes. I think again, we’ll tighten these numbers up in a couple months, but for South America or really for Columbia and Chile, you will probably be expecting about 150 new stores next year. And then of course, there’s the joint venture in Brazil, which is shooting for a number that’s above 200 new stores for next year. So of course we – that doesn’t flow through our P&L. But in terms of just sheer number of stores, South America should be contributing several hundred stores starting in 2022 and I think that’s very relevant.

And I think one more thing to point out that just that, that actually works in our favor is we need to figure out where the consumer spending patterns will come out after the pandemic. But if we continue to see the trends both in services now the digital offering of spin and also consumption of higher margin items such as alcohol, hard liquor, et cetera, that should make the bogey for new store openings in terms of becoming profitable better. So that should open up, I think, more space from a unit economic perspective than it did before. So I think we’ve got wind on a backs in that respect as well.

Perfect. Thanks a lot. And openings for pharmacies for the health unit expectations for next year.

For the pharmacies, it should be double digits. So let’s talk about 10% for now and we’ll fine tune that in February call.

Okay, perfect. Thanks a lot and have a nice day.

And just to clarify, as always. I mean, if you kind of do a double click on the pharmacies, the country that grow the most should be Colombia, Mexico, and Ecuador. Chile grows more moderately, it’s a more mature market, but it generates a ton of cash flow. So Chile services like a different role, but the fact that growth willing to double-digit certainly come from Mexico, Columbia.

But a gating that just happened in Chile, we have chain, which is a chain of beauty products that is just adding up all the drug store.

There being a record of failure or where – you to enhance their value proposition into many.

Yes.

Okay, perfect. Thanks a lot.

Thanks, Antonio.

Our next question comes from Alvaro Garcia with BTG.

Hi Fomento team, thanks for taking my question. All the best in one of those going forward and congrats, Daniel. My questions for Eduardo, hopefully I can sneak in a second question. My first question for Eduardo, you led the first wave of investments in the U.S. for FEMSA. And I’d be curious to hear your view on how much more American you think FEMSA will become going forward?

We were very lucky that we look for opportunities based on our capabilities. And we found these businesses related with Janssen, packaging and food disposables, and the great thing is we’ve been able to gather a group of companies that there were very well operated, but lack of scale. And now with these scales, but putting all these business together and setting up a great team in the United States and having great partners, our original the company that we bought, we’ve been able to leverage these throughout the United States, probably we are locking up. We may have probably 11, 12 companies altogether. And the beauty of it is that these companies were very well operated, and but by putting them together, we’ve been able to enhance the value proposition and have these geographical footprint. So we are very excited. We’re very excited and look forward to expand these capability even more so. I think as I said in before, we’re becoming an American company. We were a Latin American company where upon American company, and we’re very excited about it.

Yes. I think Alvaro, maybe if you look at how much capital we’ve deployed in the U.S. so far, it’s still not – it’s not even 10% of FEMSA’s market cap. You will see in the run as to whether we’re saying we’re fortunate that we are finding these small-ish companies in the greater scheme of things where we can continue to deploy capital. So we will hopefully be announcing more deals. But in terms of moving the dial beyond 10% of FEMSA, I don’t think we’re there yet anytime soon. I don’t think in the – I mean, if you think about longer horizons, yes, probably we could go above 10%, but it’s going to take us a while to get there.

Great. Thank you very much. And then just one second question, sorry for the second question here. But on the – we saw some rejections on the FinTech law front and these companies were operating under a below 2030 as well. So I was wondering if you just give us a quick update as to your status and how you felt about them, more than anything how you felt about the beveled as you look to seek approval under different type of. Thank you very much.

Sure. On our end, Alvaro, thanks for the question around, we continue to be in the same position. We’re confident that our submission to the authorities is complete well rounded in the business case makes sense. Again, are we worried about these rejections again, we don’t know the exact details. But so far I think we’re making – we were confident that with the package that we put together with the application, that we will get the approval in short notice.

Awesome. Thank you very much and congratulations on another – anyone so.

Thank you, Alvaro.

Our next question comes from with Credit Suisse.

Hi, good morning. Thank you for the opportunity to ask questions. And my first question is related to the outside gross margin. Could you please comment on what are the main drivers behind your performance? And also if you could comment on perspective stores things or sales for the fourth quarter and next year. Thank you.

Yes. I would say on gross margin, we’ve got several things going on. One is the return of, I think, more promotional activity and commercial spending by our supplier partners coupled with I think, a much better mix of services and some of the other higher margin categories together with I think a little bit better tailored merchandising as we adapt to the post-pandemic consumer habits. And your second question was with regards to yes, next – what – sorry?

Same-store sales.

Same-store sales, correct. The same-store sales, as you know, we’re about 3.3% down from where we were in 2019, traffic is still down ticket is up again, as this is a problem of double-clicking in terms of geographies, types of stores, et cetera. If you look at office buildings, we're still not doing as well as we should. But if you look at traffic stops, if you look at beaches, if you look at tourism destinations, if you look at the north versus the south, we're seeing much better traffic transport overall, you really need to do a double click. We have a high confidence that once that we are back to normal, especially with regards to traffic into the offices and schools that we will continue to see the same-store sales growth trends that we had in the past, but with a much better margin mix. So that's hopefully the double whammy that could get our operating leverage to work again in our favor.

We'll take our next question from Diego Fortunati with Goldman Sachs.

Yes. Hi, good morning, everyone. And thanks also for taking our question. My question is also on the capital allocation. You mentioned in the opening remarks that U.S. logistics already approaching our cost of capital, which is a great news, but it's also true that you're adding more assets to the base. So it gets really tricky to reconciliate all these moving parts, putting this in context to the company's overall capital allocation strategy, what is the short and medium term trajectory that we should expect for returns going forward? And also as a follow up, if we were to rank you as logistics, also expansion out from Mexico in health, where you see opportunities for higher returns, and how does it fit with the companies and organic focus going forward. Thank you very much.

If you want me to take the first question with regards to capital allocation in the U.S., the whole strategy behind this is that as we're rolling up these companies, we're able to get significant synergies on the purchasing side just by the scale that we've already accomplished. So we're serving the same customers with the same products that at much higher margins and also bringing in different skill sets in terms of distribution, infrastructure technology, et cetera, that can also just on the operating side improve our margins. So, although, we are paying multiples that I mean, are usual for these kinds of roll-ups in the U.S. and are higher than what we were used to when we were buying other kinds of assets in Latin America, because of the synergies, we're able to underwrite these kinds of valuation and get our cost of capital within the first couple of years with very little risk in terms of integrating the synergies. So that's why I think this platform makes a lot of sense to us in that we can bring our abilities and our skills and our capabilities to deploy this capital and in our returns. And again, when I say returns, we are talking about that. I mean, either high single-digit to low double-digit returns in dollar terms in the first couple of years. So it's very, very powerful in terms of a compounding activity.

Our next question comes from Alan Alanis with Santander.

Thank you so much for taking my question. I have a couple of questions, one for Eduardo and for Daniel. First of all, congratulations, and who would have thought I mean 20 years ago that you took the Oxxo chain with 1,000 stores and you were living it now 20 times a year, and more than half of it, or the market cap. So congratulations for that very successful career. My question for you is very simple. I mean, I think you're too young to retire. What are you going to do now?

No, I would never really. Thank you, Alan. I will never retire. I'm just going to reconvert myself and it's been a wonderful experience and I think really about leading and working in such in this great company, it's about very – always very passionate about what you're doing. We're always having this detachment. That is really that will – that is part of the life of the human being, detachment that leap help Charles to reconvert in something else. So I will listen to your ideas and then look forward to see you again.

Likewise, Eduardo, And Daniel, I want to be very respect – congrats. Daniel, I want to be respectful about the idea of speaking about the future until January. And that makes total sense, but can you talk a little bit about the past? I mean, I think investors would like to hear a little bit about how you’re making your decisions professionally throughout your career. Why did you choose to come to FEMSA quick reminder and what have been the biggest lessons you've learned in the five, six years that you've been running the FEMSA Comercio being part of FEMSA group. Daniel Rodríguez Cofré: No, thank you for the question, Alan. I mean, I think I've been working over 30 years and which almost 18, I worked for Shell. I mean, the oil company, and then I spent – I had experience in several markets, or it gives me, I would say a good sense about global organization and global businesses. Then I move back to Chile where I'm originally from, and I took the role of CEO for a – I mean, a large retail company with several formats. But then, I mean, if you are a football fan, when you get a call from FEMSA is like Real Madrid or Barcelona called you, I mean, so you have to hear and you have to speak. And to be honest, I think one of the elements that really convinced me to move to FEMSA, it was not only about the financial success or size of the company. What more about the value, the culture of the organization. And really I think that really much with what I believe is the right thing to do in business. I mean, how you can really create economic, but also social value going forward. So, I mean, the decision, to be honest, it was not that difficult and I'm very happy. I mean, this is the second time that I need to replace a verbal. So, I mean, it's not an easy task, but I'm very happy and really enjoy the time working. So thank you very much.

You're very welcome. I will look forward to hear your vision in January. Thank you.

Our next question comes from Rodrigo Alcantara with UBS.

Hey, hi, good morning. Thanks for taking my question. I have a simple one here on the Jetro reimbursement. So as you mentioned that the results can be while above expectations here. So I was just curious about your thoughts here, perhaps you would be considering to increase the stake and the minority, or perhaps exploring the option. I remember that as part of the deal at JB in Mexico to bring that model was in the table. So just curious about your thoughts about Jetro concerned that the standard results that we have seen so far. And just a quick one here regarding the OK Market in Chile, just curious if you can remind us, is that the acquisition has been approved in Chile or still pending. Those would be my questions. Thanks.

Okay. The European market yes, it has been approved. We're just in the process of implementing the changes they recommended. And in terms of Jetro, yes. We wanted to be aligned with them and above and align with them the JVs in Latin America, then COVID came. And I think we are very excited that there are a lot of opportunities where these capability and the way these caching carry works in the United States where this the room for growth. It will evolve also in Latin America. And also we are very excited about the opportunity. I don't know Eugenio you want to add to this.

Sure. No, absolutely. And again, both from a financial perspective, as well as just from a learning from each other perspective, it's been a wonderful relationship so far. And the joint venture in Mexico is still on obviously was put on hold because of the pandemic. But we still continue to see value in testing out these formats to compete against the model in several cities in Mexico. So we'll slowly make progress on that. And hopefully at some point I'll be able to share some better news, but we're very, very happy both with the relationship as well as with the financial returns so far.

And the opportunities ahead.

Yes.

Okay. That's great. Thank you. So, 2022 unlikely to see perhaps that format arriving to Mexico, is that fair to say?

Yes, that's fair to say. If anything, maybe later towards the year, we'll start to get a move on. But yes, that's fair to say.

Great, thanks. Thank you.

Thank you, Rodrigo.

Our next question comes from Carlos Laboy with HSBC.

Yes. good morning, everyone. Daniel, first of all, congratulations. And Eduardo thank you for so many years of educating us. I always thought the most dangerous place to stand in a room was always between you and a whiteboard. And I was thinking that this being your last whiteboard opportunity with us. What might be the most misunderstood element of FEMSA or the most exciting part of it is as you look into the future that you would want to diagram for us on this virtual whiteboard today?

The – I will say we have invested a lot in that culture and culture is a major lubricant for things – for change and improve things. And these relative tensions that usually we do, we have while you are evolving a value proposition, but you also want to have a business model that make what – you want to make this profitable. Culture makes those two things that sometimes are this tension that might be that is probably one direction. And the business model is going to the other. The cultural approach that we having of working as a team with a lot of collaboration, I'm playing, I would equals down. So the game is about the whole not about any of us that I think that's a great asset and the future. And I think the more that we need to collaborate with customers, the more we need to cooperate with suppliers, this culture is a major and enhancing opportunity. And this thing has been opportunities where this tension goes from the value proposition and the business model. This culture is a lubricant for those to flow in a very, very dramatic way. So I'm very excited and I think it's something that we don't talk about much about it. We've experienced in our lives and we experienced within the business units. And we, you, Carlos, much about our relationship with Coca-Cola Company. And for this approach, we've been able to evolve in a major, major step forward in the long-term relation model, which is collaboration and having very much align incentives. And working as a team, this never before. So I think that would say that’s a major lever that we have, and is part of our lives and we are very proud of it. And we really thrive to cooperate these 320,000 people based to be part of this a beautiful dream.

Well, thank you. Thank you very much Eduardo and best wishes to you.

Thank you, Carlos. It's been a pleasure.

Ladies and gentlemen, that is all the time we have for questions today. I will now turn the conference back to Paco Camacho for closing additional remarks.

Thank you very much for your participation today, and thank you also for your continued support to FENSA and its teams. Stay safe and have a great day everyone.

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.