Hello, and welcome to the FEMSA Second Quarter 2023 Results Conference Call. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]. I will now hand you over to your host, Juan Fonseca, begin today's conference. Thank you.

Good morning, everyone. Welcome to FEMSA's Second Quarter 2023 Results Conference Call. The plan today is a little different than usual because we are joined by Jose Antonio Fernandez, our Executive Chairman of the Board and CEO, who will open the call with some important messages. After that, Paco Camacho, Eugenio Garza and I will carry on with the second quarter results, as we usually do, followed by Q&A.

Thank you, Juan, and good morning to everyone on the line. Before we begin, I would like to thank all of you who have recently reached out to us with messages to support for Daniel after the news of his stepping down as CEO of FEMSA to focus on his health. We truly appreciate your time words and well wishes, which we have relayed to Daniel. We are grateful to the Daniel for his many meaningful contributions to strategic direction and high-performance standards of our company, always with a steady hand and clarity of purpose. Daniel always makes it easy for his team to rally behind him, follow his lead and achieve excellence. And beyond strategic acumen of business success that Niel embodies the values that define FEMSA. Thank you for everything, my friend -- I wanted to be here today to take a few minutes of your time given the unique circumstances of this recent leadership transition to convey a few important messages. First, I am now fully engaged with our senior leadership team to continue implementing our strategic priorities, including FEMSA forward. We have already executed several important steps and we are totally committed to the strategy to continue unlocking shareholder value. You should, therefore, expect full continuity focused and a smooth transition. That is very important for us that should have very clear. Second, my dual role as Executive Chairman and CEO, is not permanent. At FEMSA, we believe that those roles should be separate, and we plan to go back to that when ready. We know you have questions regarding the time frames, but please bear while we carefully go through this important process. We will let you know when we have news to report. Finally, I want to recognize our team. I am fortunate to be surrounded by a truly remarkable group of leaders and advisers that are working hard every day to keep growing and keep delivering on the potential of our great company. The opportunities ahead of us are very significant and compelling. And every business unit is executed at a high level. In fact, the strong quarterly results we announced today are a good example of what we can achieve. So with that, I will let Paco, Eugenio and Juan to discuss the results in detail. Thank you very much for your trust and confidence. Paco, please go ahead.

Thank you, Jose Antonio. Good morning, everyone. Let me begin by updating you on where we are regarding FEMSA forward. During the second quarter, we achieved 2 important milestones. First, we were able to divert FEMSA remaining investment in Heineken, retaining only a residual amount of shares to meet our obligations under our existing exchangeable bonds. And second, we signed an agreement to divest our minority stake in Jetro Restaurant Depot. These milestones have come ahead of plan and under favorable conditions. Allowing us to keep our momentum as we continue to pursue the FEMSA forward structure. As you know, FEMSA Forward, is fully aligned with FEMSA customer centricity and our broader strategic priorities for driving long-term growth, increasingly enabled by digital capability always within our core business verticals and with a disciplined approach to capital allocation. With that in mind, we can report that our second quarter results showed a continuation of the positive trends seen at the start of the year. Fully consistent with those strategic priorities and making progress towards the target set by each business unit's long-range plan. Moving on to the results and beginning with proximity. It will be helpful to talk for a minute about their own long-range plan and the 4 priorities around which it is built. Number one is strengthening the core. Second, developing new growth avenues, third, developing multiple successful formats and four, growing the footprint beyond Mexico. Looking at OXXO's second quarter results through this lens, we see they made great progress strengthening the core as same store sales growth once again stellar surpassing 15% split evenly between average ticket and traffic. And reflecting structural improvements in segmentation of the store value proposition. We again saw a particularly robust performance in the first and gathering consumer occasions. Further supported by…

Thank you, Paco, and good morning to everyone on the line. Beginning with FEMSA's consolidated quarterly numbers, Total revenues during the second quarter increased 18%, while income from operations increased 8% compared to the second quarter of 2022. On an organic basis, total revenues increased 9.5% and income from operations increased 4.5%. The Net consolidated income was MXN 8.926 billion, reflecting higher income from operations a MXN 9.4 billion nonoperating income, mostly reflecting the divestment of FEMSA's minority in Jetro Restaurant Depot and a decrease in net interest expense during the quarter. These were all partially offset by a noncash foreign exchange loss of MXN 6.5 billion related to FEMSA's U.S. dollar-denominated cash position, as impacted depreciation of the Mexican peso and a net loss of discontinued operations of MXN 3.9 billion, driven by the market value fluctuation of the Heineken shares underlying our outstanding exchangeable bond. Moving on to discuss our operations and beginning with proximity Americas. We added 444 new units during the second quarter to reach 1,391 net new stores for the last 12 months. This quarter's strong expansion set us ahead of our yearly expansion target, and it underscores OXXO Mexico's strong growth potential. Having said that, we will stick to an objective of 900 net new OXXO stores just in Mexico for the time being, and the expansion curve for the rest of the year should be smoother than usual. OXXO same-store sales were up 50.3% for the second quarter. This was driven by an increase of 7.4% in average customer ticket and a strong 7.4% growth in traffic. This underscores the solid performance we saw across OXXO's categories throughout the quarter but especially by the strong showing of the gathering and thirst locations. Gross margin was 41% and reflecting a lower contribution from financial…

[Operator Instructions]. We'll now take our first question from Thiago Bortoluci at Goldman Sachs.

Yes. Thank you for the presentation and taking the questions. Just before we get started, just want to share once again our best wishes for Daniel and also welcoming back Jose Antonio or [indiscernible] position good luck on the forward look. I have 2 questions that I'd like to explore. The first 1 has to detect allocation, right? Obviously, we understand that you need to be cautious on the communication and the movements, right? But putting in perspective where you are versus what you communicated on the terms of forward plan, you were already running at roughly $5 billion of excess cash position in the balance sheet, right? So unless there is any large in the horizon, which we don't think the case growth shouldn't be a bottleneck or an overhang for a stronger capital distribution, right? And this is not to mention the organic cash flow that the business is generating -- so I would just like to understand internally, right, what is the kind of debate and different deals that you're facing that is still preempting and step up on shareholders recurring in the first one. And the second one, we know there is this scope for pretty decent expansion of OXXO not just in Mexico but across other regions potential, including the U.S. When we look into Mexico and Brazil, which are both countries where you already have a [indiscernible] different footprint and rolling up -- your company stores overlap your bottling operations right? How important it is for you to develop indiscernible in a country to also have somehow asset trend internally on the beverage space. This is just to imagine how the growth scope might move into new regions. Thank you very much.

Hi Thiago, it's Eugenio. Thanks for the question, and we'll definitely send along your thoughts to Daniel and the team. With regards to your first question on capital allocation, Fortunately, we are well ahead of the divestiture program that we announced back in February. So we are in that privileged position that you mentioned have already been well below our 2x net debt-to-EBITDA target. So we are having discussions, very serious discussion at the Board level as to kind of what kind of framework for capital allocation we are going to be implementing. Having said that, you can feel comfortable that we will be looking at several alternatives. And for the most part, as you know, organic growth within the businesses that we decided to focus on with FEMSA forward still continues to be strong, and we feel over the next 5 or 6 years, we could deploy $7 billion or $8 billion easily in terms of the new store openings, further additions to our Coca-Cola bottling operations, et cetera. So there's plenty of role to put capital to use in low-risk projects at very high returns to continue on the growth. Having said that, and to your point, most of this will be funded with just internally generated cash, and we'll still have this cash left over. So second part of the capital allocation will be reserving some amount of capital, again, within the construct of a 2x net debt-to-EBITDA capital structure at the end, but reserving some capital for strategic optionalities that might arise, again, within the core businesses that we have identified and also sticking to very tight financial return guidelines so that the capital allocation into new initiatives, whether it be proximity, whether it be at KOF, whether it be in Latin America or elsewhere that…

Yes. Actually, Thiago, on the second question on OXXO, can you repeat it, the line wasn't totally clear when you phrased the question the first time around.

Sure, Paco. -- sorry. The question is when we imagine you penetrating other regions with [indiscernible] with OXXO, [indiscernible] operations also to partner with some sort of leverage in distribution being on beer or on soft drinks.

Thank you, Thiago. This is Juan. I mean, actually, on the proximity side, we are really agnostic, right? I think obviously, in Mexico, we have the legacy of our beer business that eventually became Heineken and that was the reason why Obviously, there was -- for a number of years, we only sold the Heineken portfolio. But when we started the office in Brazil, as you well know, you obviously work with as well as Heineken, but you don't -- I don't think we need to be a special partnership with a beverage company in every place that we think about opening retail. I mean, obviously, in Europe, we don't have such a setup. And it should not be a prerequisite. Obviously, we know everybody in the beverage business. We are close to many of them, but it's not a prerequisite, and you should not see it as either an optical or a facilitator necessarily. I mean, the 2 things really go separately.

We'll take our next question from Bob Ford at Bank of America.

Jose Antonio, Paco and Juan. Please note that our prayers are certainly with Daniel and his family. Paco, you mentioned the MXN 1 billion in digital investment. Can you discuss areas of focus in terms of functionality how you're thinking about the development road map and where the consumer and small business credit resides in that sequence?

Yes. In fact, the investment that we're doing is basic -- thank you for the question. But as we have announced before, and we have been pretty consistent with that investment, we are at this stage, a part of that is basically going into the expenses of operating that business and growing it. So we have put significant amount of money on making sure that we have the right team that we bring the right people -- and so those are part of the operational expenses that are taking part of that investment. As we move forward, and we continue developing the 3 verticals in digital that we have told you guys over time. First, our Fintech or wallet second, our loyalty program; and third, enabling the B2B business, what we are creating is really an ecosystem. So at this stage, what we are focusing on is making sure that the consumer experience of those consumers navigating through the different services and through the whole ecosystem improves with every experience and with every use of the platform. So when you look at the spin, for example, I mean, clearly, as you said, at this stage, we are focusing on -- getting a better use of the platform through the services that we have today. Which is basically the wallet and the team has become increasingly knowledgeable of the different use of patients for each of the cohorts that they are -- they have identified both demographically socio-graphically and geographically, and that will continue to be the case. Second, optimizing the expenses. So when you look at the cost of acquiring new users. It has reduced significantly sequentially over the last quarter. But importantly, we also know that once we have established these new -- these services is very likely that we will need to move to additional services such as insurance, such as credit, but that is in the pipeline, but it's not something that we are rushing into without making sure that the first stage of the of the business is completed successfully, which is making sure that they have the right consumer experience. Then when it comes to the loyalty program, it's similar. We feel confident on the survey we are providing today. As we said the tender is at 24%, 25% right now. We are seeing already the improvement of OXXO sales behind the loyalty program. So making sure that we continue improving the consumer experience, and that is important for us to get the same for the partners that we have today. As you know, we have Volaris, for example. So we are focusing on improving the experience for consumers behind that. And that is the focus at this stage.

The other thing I would add, Bob, just so you don't get scared with this MXN 1 billion per quarter operating loss at digital is that digital is generating revenues at the Proximity Division as well -- so for the overall FEMSA ecosystem, the cash burn is less than what you see reflected in the loss in the others column for us. So right now, there is a transfer price that's being assigned because of the use of the retail network. But overall, the cash burn in the ecosystem is what you just see there.

We will now move on to our next question from Ricardo Alves at Morgan Stanley. Please go ahead.

First of all, of course, all the best to Daniel and Jose Antonio, it's nice to hear from you again. I think that your message in the beginning of the call on the FEMSA forward plan that was really important to appreciate that. First, a very quick follow-up, Eugenio. You mentioned the buybacks, the dividend policy or eventual extraordinary dividends. Qualitatively speaking, is there kind of a preference you guys are leaning towards here I don't know if you've been studying these issues, why is there anything that you guys learned perhaps on the buyback front? Anything that you could share in terms of what you have learned so far this year when you're discussing those topics? And then my question -- my other question is more related to OXXO obviously, very impressive same-store sale. The gross margin was also good, but we had a little bit of a higher expectation for EBITDA. So can you guys expand a little bit more on the SG&A dynamics for OXXO specifically. Labor obviously has been a factor in Mexico, but is there anything else that you care to highlight? I don't know if maybe the stepping up of the new store openings that you had from the first quarter to the second quarter. I don't know if that's relevant enough to move the needle on the scale front, but just a little bit more thoughts on the SG&A level?

Sure, Ricardo. Thanks for the questions. First, with regards to buybacks, as you can tell, we can -- we have been looking at all sorts of academic research about kind of what the reaction is for the market for either a large dividend or a share repurchase program, et cetera, and they can all tell you kind of what you want to hear. At the end of the day, we're focused on generating value for the shareholders in using that excess capital to generate as much value. So I think that the question -- there is obviously a tax element that we're looking closely at. But I mean, mostly comfortable at this point that taxes will be relatively agnostic with regards to either choice we make but we're still perfecting that. And I guess the question is going to depend, number one, on what's the size of the return of capital program and then what the market dynamics and the valuation of the stock is at that moment in time and how much we can achieve on 1 versus the other at specific prices to ensure that we are generating as much value on a per share basis for the FEMSA shareholders who do decide to remain with us for the long term. So again, we are looking at all the academic studies and again, taking them with a grain of salt, but focusing more of the analysis on what generates the most value on a per share basis for the FEMSA shareholders. And then on the OXXO -- on the SG&A front, there are several things going on there. I mean on the 1 hand, starting with the gross margin, you do have a little bit of a mix effect with less services and more merchandise. And that obviously…

Just to add to that. it's clearly -- as he said, the 2 main factors is the labor cost; and second, the new store opening. But I think that it's also important to know that as you look at the numbers in OXXO, the fact that the sales are increasing, it's also helping to absorb the cost -- so when you look at quarter-to-quarter, we have a reduction in administrative expenses as a percentage of revenues, for example. So the performance of OXXO continues to be very, very dynamic and the cost that we grow the revenue.

Very helpful, gentlemen. Just 1 quick, I think I misunderstood. But is the loyalty still affecting OXXO? I understood that it was not.

Very little.

We'll now move on to our next question from Alan Alanis at Santander. Please go ahead.

My question and go to Jose Antonio, please, for everyone to send our prayers for the well being of Daniel that look simple of the most important thing. I want to ask a question regarding the long-term vision and long-term strategy that you have [indiscernible] intuition that you have for the next 5 years for the company over I think that will be a good opportunity for all investors to hear directly from you in terms of how do you foresee the company will be different in 5 years from now? And specifically, if you could touch regarding the relationship with the Coca-Cola Company and Coca-Cola FEMSA as many in this call know this year, there's -- if we celebrate in 3 decades of lifting Cola-Cola FEMSA in 1993. And now you have the largest Coca-Cola bottler by volume -- how do you foresee the relationship and the ownership that you have with Coca-Cola FEMSA in the next 5 years. And that will be my question.

Yes, Alan, thank you. This is Paco. I will just start answering your question, and then I'll pass it on to Jose Antonio in case he wants to add something. So -- on the first part of the question related to the next 5 years, I would like to go back to what we have discussed a couple of times, which is the long-range plan exercise that we put together recently and that we have explained to you on a number of occasions. And clearly, that continues to be our guiding light for the next 5 years. Each of the businesses have a very thorough, very complete 5-year plan that they developed. They are working towards those plans in 2023, and they will continue to do that in the next years. Part of the results that you are seeing is precisely behind the that they have developed. So you should expect that, that is not going to change. We are obviously, as in any process such as long-term planning. We will review the plan so as to check that, if anything changed in terms of competitive activity, et cetera. So you should expect that, that might happen. But clearly, we have very strong plans in place, and each of the businesses will continue to do so. At FEMSA level, as we aggregated the plan, I mean, we clearly saw the opportunities to continue our target of doubling the size of the business every 5 years. So that shouldn't change either. So we feel confident about the LRPs. And you should expect that we will stick to them, both at the business level and at FEMSA level. Part of it, as you know, is finishing and making sure that we continue deploying the FEMSA forward strategy, and you will hear news about that as they come along. But you shouldn't see any surprises on that.

Here is Jose Antonio -- thank you, Alan, for your question. On behalf of the -- what we foresee for the next 5 years in Coca-Cola FEMSA, I can tell you, and you know that I've been around with Coca-Cola and FEMSA since Roberto [indiscernible], and we cannot we cannot be happier of the situation of our relation with Coca-Cola today. We have a complete aligned critical success factors of our executives have a common perspectives of what is coming we want to continue growing. We just want the [indiscernible] from -- it was assigned to [indiscernible] did a superb job, and we won it again as many, many other times. And we are very happy we see a very good and profitable relation for the future with Coca-Cola.

Got it. So some of the capital deployment can grow also in expanding the franchisees leader. I know you've talked that maybe Coca-Cola FEMSA doesn't need that money, they can do their own capital, but if needed, you will continue to support the expansion of Coca-Cola FEMSA.

Yes -- Alan, this is Paco. KOF is always looking for inorganic opportunities. They will continue to do so. And obviously, we will support them is needed. But -- there is no change in that. They have been always actively looking for opportunities.

And I think, Alan, this is Juan. I mean the nature of the relationship and the clarity that we now have in terms of the business and the cash flows as you know, it's prompting the business itself to invest right, and you heard the team at KOF yesterday talked about their CapEx. I mean, they've been talking about it for months. They're investing more this year and the next couple of years than they ever have in adding capacity and just growing the business. So it really is looking like we have a time ahead of us when we -- KOF is going to be deploying more capital. And as Paco just said, we would be ready to step up under the right conditions for M&A.

Thank you, Alan.

[Operator Instructions]. We'll now move on to our next question from Luis Willard at GBM.

Welcome back Jose Antonio and I join my colleagues in wishing Daniel the best of his family, of course, as well. So this 1 is a bit philosophical. I would love to pick your brain and ask you which characteristics do you think the next FEMSA CEO should have especially as a relevant part of the FEMSA forward strategy would likely be already underway, if not completed. Then I have another 1 on Spin, very short one.

Well, thank you, Luis. Well, the characteristics should -- we would love to find -- first of all, we would love to have Daniel back. We don't know. We hope we're still praying, and we have hope that it will recover and will come back. Otherwise, we would look for -- as you know, this job -- Daniel Jobs he's the CEO of the coordinate CEO's, so he has to have a very good follow-through, he'll be able to hear from the whole team ideas and mix them, we have to complement and push and motivate the CEOs of the different divisions. We are in a very different problem that we had in the last 20 years. I mean, today, we have a very nice problem of having a lot of cash. We have another very nice problem of lots of opportunities geographically to develop Latin America, U.S. and even Europe organically with stores. So this is -- this has to be a matter of priorities a matter of studying very well the projects and decided which 1 goes first -- there is not a special order of the priorities because we don't know what we could find as opportunity anywhere in the world. But we will follow up the growth of all the divisions as we speak. You know the potential of digital is great. We need to know more about this. This is obviously a new venture for us, completely different than operating beer or soft drinks or retail. But the CEO should be very open to new ideas, very cautious on how to invest and which projects to pursue. But I hope, Daniel, I insist Daniel comes back. That's my expectation. .

So another one, just very quick, I think I may have asked this in the past, but is there any relationship that you might have detected between -- the ongoing lower share of financial services at OXXO, it's not the first quarter, it happens and the strong advancement of spin users thinking that if there is a relevant share of financial services that are now being made or transacted through the app at a lower profitability.

This is Juan. I think in the long run, you should expect to see a migration of some of the physical users moving to digital. But I think what we're seeing today still is much more related to kind of the vagaries and the ups and downs the relationship with correspondent banks. I mean, as you know, we've had a couple of banks that reduced their exposure to [indiscernible], they're coming back, and we are obviously need to be very careful about the fees with inflation, how do you manage your fee structure -- so I don't think that the changes that we're seeing right now is necessarily driven by the secular trend of physical becoming digital. I do think it's still much more related to whether 1 of our big banking partners is coming back or what's happening to the fee structure. So I think it will happen, but I don't think we're seeing that yet.

Understood Juan. Very clear. Thank you.

We'll take our next question from Ulises at JPMorgan.

And obviously echoing the good wishes there for Daniel. So the question that we had was more if we could explore a bit on the other retail formats in Mexico, particularly around Bara. Maybe if you can comment a little bit on what the outlook is for the rollout, any short-term targets that you can share there? And obviously, any color there around how profitability size evolving, CapEx requirements, all of that, that would be highly appreciate it.

Yes, Ulises, -- thank you for the question. Indeed, I mean Bara is 1 of the formats that the OXXO team is exploring as part of their multi-format strategy. And Bara frankly, has been doing a terrific performance during the quarter. So when we look at the results, if I'm not mistaken, the results were 22% ahead of a year ago, strong in the digit. The traffic increased by 12%, and we continue to see same-store sales at plus 12%. The private label, which is a strong part of the value equation. It is also performing significantly well. and they continue to improve all the operational aspects of the stores, reducing the inventory, reducing the operational cost. We applying the success that OXXO has had on the segmentation -- and importantly, they also continue improving the number of the opening of stores. So right now, 200 stores in 300 bara stores in particularly in the central part of Mexico. Another idea is that we'll continue with that expansion in strongly in the years to come, once again, making sure that we first continue the geographic areas that we are, and we slowly expand to others and continue fine-tuning the value proposition. But we are very confident at this stage that we have tracked that value proposition and is a are making sure that we gradually expanded in other parts of the geography in Mexico, specifically in Mexico.

If I may complement with regards to the unit level economics, I think with the gross margin structure that has been achieved through the different categories, value prop and private label penetration, we have been able to, I mean, reach unit level economics that from a marginal perspective, in terms of the store investment and the operating model that can give us, I mean, returns on investments well into the double digits. And again, at the 4-wall level, they're reaching the mature stores are reaching and in the contribution that we originally set out for the rebranded -- not the rebranded, but the reformulated value prop 3 or 4 years ago. So we're very comfortable that as the scale grows, distribution centers fill up, et cetera, that we will be achieving, I mean, much better EBIT margins than what we're seeing right now. And that the marginal dollars that are being invested here are earning, I mean, spectacular returns. So we're comfortable, again, that the unit level economics on Bara are working out either as or better than expected.

All right. That's super, super helpful. And if I may, just to follow up on that on the point there on private label. Do you have any sense or any level that you can share with us around how much private label actually represents there within the format?

Yes. When we look at the total sales, private label is at around 21% of the same-store. But then obviously, it changes depending on the categories. So it goes very high when you look at [indiscernible] for example, it is around 27%. What general merchandise is also higher at 27%. So it changes, but it is an important part of the value proposition.

Okay. Perfect. Congrats on the results guys.

We'll take our next question from Rodrigo at UBS.

Paco, Antonio, Juan [indiscernible] we'll limit the questions to 1. I would like to explore your thoughts on Nos in Brazil. It looks like you in crack the formula there delivering very impressive results in terms of same-store sales. Two questions here. I would like to hear your thoughts. The first 1 is, do you [indiscernible] mid term or even next year, a scenario where perhaps you could be like in a station in Mexico at some point like opening 1 store per day. Would you see that happening in Brazil, for instance? And the second 1 is you can mean appears to me, most of the stores being -- or even all of the stores should be in OXXO. It looks like in DJ bench, we're pretty much [indiscernible] everything we had is coming from you guys. Just if you can remind us sharing with us, I mean, what's essentially the contribution here from your counterparts from and the JV, that would be ran to cure and congrats on the overall results.

Let me take the first part and then i'll let Paco complement. I think on the 1 store per day, I mean, I don't want to put our colleagues in the hot seat, but that's actually what they did during the first quarter, right? I mean if we remember that in Brazil, they use a different fiscal year. They have their end of the year is at the end of March because of its harvest [indiscernible] year. So our first quarter was their fourth quarter, and they actually opened like 90 stores during that quarter. So it is doable. Now is that our run rate for the full year? No. But is that possible? Yes, I think in the short to medium term, that's the kind of growth that we are looking for. I'll let Paco talk about the partnership, which is really going very, very well.

Yes, yes. Thank you, Rodrigo, for the question. Look, I mean, first and foremost, we are extremely happy with the relationship we have in Brazil. We're extremely happy with the way the joint venture is working -- we are extremely happy with the -- I would call it, learning that we have and that we share between [indiscernible] the 2 entities. When you look at Brazil today, we have a very strong base of OXXO stores right now, but we also have a very strong base of the selected stores. They have -- our partners have over 1,600 stores in Brazil, and they opened 35 units in the last quarter. So -- at the end of the day, we have an ecosystem of stores in Brazil between the Select and the OXXO that are very powerful brand. As you know, they are experts on the fuel side. and it's something that we plan to even learn more as we move forward with our expansion plans in other places. So I mean, clearly, the joint venture we have there is going ahead of expectations. And we have a strong relationship with our partners that we plan to continue building in the future.

If I may add to Juan's earlier point. I just want to add to Jaun's earlier point. You have to remember, the 90 stores we opened in their last quarter -- we're just in Sao Paulo and Campinas, because we just have one, I mean, DC in place, eventually we'll be in Rio we'll be in other places. So again, I'm trying to be a little bit more aggressive than what Juan is , and I'm sure I won't put the Brazilian -- our Brazilian colleagues on the spot here. once we have 3 or 4 different areas where we're saturating the market simultaneously, we should be able to reach that growth. And again, also, just to complement on Paco's point, you have to remember, the first 3 years of the joint venture were run by someone who came from Raizen. So I mean, the local know-how, the local expertise has been invaluable in terms of rolling out the value proposition in Mexico, and we will continue to rely on them for learnings that are being put to use in the region.

I understood that, that was very clear to the degree it certainly exceeded expectations. You are already a breakeven point there, right, or still negative operating income. Maybe you can share with us -- that will be helpful.

Sure. I think at this point, even they are also a public company, we'd rather not give out the numbers. Having said that, from a free cash flow perspective, given how much we're expanding -- at this point, we're still free cash flow negative, but in a good way. What I can say is that the economics of the business are better than what we expected when we originally started 3 years ago in all income statement line. So.

Thank you. We'll move on to our next question from Ben Theurer at Barclays.

Thank you very much and congrats from my side. Just wanted to dig into recent dynamics at OXXO. Clearly, we saw a very strong second quarter, just continued a very healthy combination between ticket and traffic. I was wondering if you could explore a little bit of how much of maybe the traffic was driven just weather-related more going into stores just because of the heat buying certain beverages and so on and what the trend into the third quarter and how you're feeling about the traffic more recently.

Ben, this is Juan. I mean, we were talking a little bit about this even last quarter. We were talking about the gathering location, the thirst location. I remember making a comment in the call 3 months ago about beer being very relevant now that we have -- I mean, we've opened fully the territory, all of Mexico to both big families of brands and beginning to move the needle, even though the openings to the API portfolio happened during several years ago or began happening 3 or 4 years ago, we obviously were under COVID and people weren't really living their lives normally. But now we are, right? And so people are getting together a lot more consuming a lot more. And so we again see those trends where the beer category and the soft drink category and the snacks category and the liquor category are all performing very, very well. Now I think if we looked at it intra-quarter, Certainly, the month of June was the strongest and you point to the right reason. I mean, the heat the weather that we've had for June and the better part of July, obviously, has been an additional tailwind to the consumption of beverages. So it looks like July kind of took off where June ended. So continue to see good trends. But again, I think the broader reason is people fully going back to living their lives. I mentioned the other time concerts and fairs like the 1 in really all over Mexico, just people gathering and consuming normally where we have not for several years. That would be my comment.

Yes. No, Ben, this is Paco. The only thing that I would like to add to that is that when we look at traffic, it has been improving, as you know, sequentially for a few quarters now. The strong performance that we are seeing, the additional good news is that it is coming behind the general merchandise. I mean, basically, every single segment of the store is growing and adding traffic. And that is being reflected also on the market share. I mean, OXXO continues to gain market share. And that has to do with the basic and the core value proposition of the store. So that is the good news. Yes, all the segmentation work that is being done is paying its dividend. And I guess that the consistency of it is what is helping the traffic. And that's why we believe that in the quarters to come, hopefully, we'll continue to see the same.

Thank you. We'll move on to our next question from Alvaro Garcia at BTG. Álvaro García: Good morning. thoughts and prayers with Daniel -- just 1 quick 1 on spin. I was wondering you're seeing higher transactions per user. In the release, you mentioned increased transactions per month. But I was just wondering if the concern cohorts you're seeing just higher balances and just higher movement on a per-user basis, thank you.

Yes. Alvaro, thanks for the question. On spin, yes, we are seeing different cohorts, especially the newer ones being more prolific in terms of their transaction volumes as they find different use cases for the product. Again, cash in, cash out continues to be the main one, but what's really picking up now is peer to peer, which is what we want to because it creates the network effect and it creates stickiness [indiscernible] to the product. So I would say that for the most part, we have increased in transactions per user, the way we would want to see them. And as people see the functionality of peer-to-peer and also the payments that we were seeing being done on an analog basis, services, et cetera, that is also being -- I mean, you top up once in the month and then you use it to pay for 3 or 4 services online instead of having to come back to the cashier and pay it for 3 or 4 services over the course of the month. So I think it's moving in the right direction as we expected it. There is, I mean, some -- I mean, shift as 1 of the other questions with regards to what that's doing, I think, overall, to the financial services line. But having said that, it's -- I think from an economic perspective, it's not -- it's not extremely dilutive. But more importantly, we are having more engagement in the platform, which is at the end of the day, what we want.

We'll now move on to our next question from Sergio at Citigroup.

Yes. It's Sergio Matsumoto from Citi. And also my thought and prayers with Daniel and his family. My question is on Premier, the loyalty program. When you look at the strength of that program to drive traffic into the stores, how does that compare against those that were nondigital or analog as you just mentioned a few minutes earlier. Such as the services and the payments and the mobile phone minutes top up? That's my first question. And related to that is the ubiquity of OXXO stores play a role under -- how does the ubiquity play a role in the demo acquisition and retention in these digital platforms.

Yes. Thank you, Sergio, this is Paco. I will take the second part of your question, start on the first and then [indiscernible] you can complement me. But I mean, clearly, the OXXO stores play a very, very important role in both spend and the loyalty program. I mean having the physical store and the approach that the team is taking is a digital approach, which means the service providing on the fintech side and on the logic side are leveraging strongly on the store, both on the acquisition side, but importantly, also in terms of the consumer experience and the type of offers and programs that we put together. So there is -- at this stage, the intention is to continue leveraging on the physical presence of the store. And the teams were very close together because, I mean, clearly, the store -- when we talk about the stores, it basically means the people that work in the store. They are the ones that many times have to convey the message in terms of whether the consumers are going to use the loyalty program or not. If there's a special offer that you should be taking a look at. You need to know that they are -- for example, this is just an example, but there are dedicated coupons that people can use, but they only have them available in the application, in the app. So many times, at least at this stage, the cashier is the one that is going to suggest the user to go and look into the applications to see if there are any coupons. So that link between the store and digital is strong today, and we expect it to get even stronger in the future. And that takes us to the first part of your Question which is that of Supremia at this stage is a big part of the transactions are still on the physical side. So people go there and they have their phone number and they access their accounts through the phone number to the cashier. More and more, we are seeing that users have their application, and they do the transaction through the application. But at the end of the day, we believe there is going to be a combination of both moving forward.

Yes. If I may add, just in the ubiquity point, according to and Mexico, in all of Mexico, there's 62,000 ATMs and only 28,000 or 29,000 of those 62 are actually outside of a bank branch. If you think about OXXO, in OXXO, we have 21,000 ATMs. So technically, we've got I don't know, 40% of the outside of bank ATMs in Mexico. And if you go to the more rural areas of Mexico it would probably have to be the only ATM in town. So clearly, that is a significant portion of the value proposition, especially in a cash-rich economy in an informal based economy like Mexico is. So clearly, that is, I think, the main driver of the value proposition. Our job obviously is to take that advantage and turn it into a unique user experience that flows across not only Spain, of course, with payments and peer-to-peer, et cetera, but also with the loyalty program to drive that symbiotic relationship between the digital and the physical store. And right now, on loyalty, again, it's still early days, but I mean, you saw in the press release, we're at 24% tender. So of all the sales of OXXO are being done through a loyalty program. And these -- again, we're still running some numbers, but these customers are running tickets and traffic and purchases that are significantly higher than they otherwise would have been to a comparable cohort without the loyalty program. So I think this symbiotic relationship again between the physical store, the digital wallet and the loyalty program is causing exactly the kind of network effect that we wanted to have.

We'll take our last question from Héctor Maya at Scotiabank. Héctor Maya: Thank you for your time. Apologies if I get disconnected, I'm having some issues with my line. I just wanted to say first, our thoughts and prayers are with Daniel, and we are wishing him all the best. Also, the question I have is related to FEMSA forward. In the announcement, it was mentioned the potential of them to have with the traditional channel. So I would like to know how you're to become the supplier of the traditional channel? Do you have some clarity on the economics or how you would organize or and the red trucks with the Coca-Cola Company. In the end, I mean, do you believe that we could eventually start to think of FEMSA as a relevant supplier or even as a one-stop shareholder relational channel in Mexico?

Hector this is Paco. Thank you for your question. The line was breaking up, so I will try to answer the best i can. But Basically, we continue to believe that there is a lot of opportunity of enabling the traditional channel and solving the key pain points that for many, many years, they have had I mean, first of all, I mean, clearly, the pricing is a concern for them. And that is the -- almost a price event, making sure that they have the right price it's something that is a very important part of the value proposition. On that side, you can imagine that, I mean, clearly, we believe that we are well equipped to solve that 1 or to at least address it simply because we have a very strong commercial relationships on the OXXO side. But there are a number of other pain points that this segment has suffered over the years. One is the availability of products and the delivery because today, what they have to do is most of the time they have to go and look for the product themselves open store late because they have to go to the wholesalers or the [indiscernible] or other places to supply their products. And that means that they lose sales as they go and they come back, they have to pay for transportation, et cetera. So having an ecosystem in which you can actually receive the product, place the order the day before or 2 days before, when you have closed your operation for the day and then receiving it in full at the right price is basically going to solve a very big pain point. And the second one, which is not minor, is that every time they go and buy, they have…

I think what I would just add, this is Juan. And I know this is a question that has come up on the co-front side as well. Just remind everybody that it's still early days in terms of how we build this thing and how roles and responsibilities and capabilities and interactions, a lot is still to be defined. So it's looking very promising, but it's still early days.

There are no further questions in the queue. I will now hand it back to Juan for closing remarks. Thank you.

Thank you, everyone. Thank you, obviously, for all your kind words again regarding Daniel. We will definitely relay them to him, he might very well be listening to the call, so maybe he already heard you. We're always available, as always, myself and the team, Jose Antonio, if you want to also your going to sign off, but have a great end of the week and weekend guys and we'll be in touch.

Thank you, Juan. Thank you for your time. Thanks for the interest in the company as [indiscernible] I will try to be at least on a call of this kind of conference calls per year, not in all of them, unless there is an important news that we have to announce gladly come. And also you should know that through Juan, you can contact us all the time. We will stay in touch. Thank you very much, and see you soon.

Thanks.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Continue to stay safe. You may now disconnect.