Hello, and welcome to FEMSA's Fourth Quarter 2023 Results Conference Call. My name is Melisa, and I will be your coordinator for today's event. Please note that this conference is being recorded, and during the call, your lines will be on listen-only mode. However, you will have the opportunity to ask questions at the end of the presentation. Now, I will turn the call over to Juan Fonseca, Head of Investor Relations. Please go ahead.

Good morning everyone. Welcome to FEMSA's fourth quarter and full year 2023 results conference call. Today, we are joined by José Antonio Fernández, FEMSA's CEO and Executive Chairman of the Board; Paco Camacho, our Chief Corporate Officer; Eugenio Garza, our CFO; and Jorge Collazo, who Heads Coca-Cola FEMSA Investor Relations. The plan today is for José Antonio to open the conversation with some high level comments on the full year as well as the senior organizational changes announced today. Then we'll get a bit more into our strategic progress and business trends, followed by Eugenio, who will focus on the results. Finally, we will turn it back to José Antonio for some closing remarks and open the call to your questions. José Antonio, please go ahead.

Thank you, Juan. Good morning everyone. Let me begin by reflecting on a year that was like no other in recent memory, full of activity and new for the company. We kicked things off with the transformational announcement of FEMSA Forward, through which we focus on our strategy on our three core business verticals of retail, Coca-Cola FEMSA, and Digital. We then proceeded to execute most of its related transactions in record time and with great success, divesting our investment in Heineken through two successful transactions as well as our minority stake in Jetro Restaurant Depot, merging employee solutions with BradyIFS, while reducing our capital exposure to that asset. The effort is still ongoing as we are in the process of finalizing the remaining divestments. Furthermore, we are poised to begin deploying the capital allocation strategy announced last week that will allow us to increase our leverage towards our stated objectives and to avoid idle capital on our balance sheet. During 2023, we made significant progress executing on the long-range plan of all our business units and in addressing three strategic priorities of accelerating growth, going increasingly digital, and balancing our risk-return profile. We achieved these strong results by combining the right strategies with the hard work of our remarkable team. On that front, and in order to better leverage the FEMSA Forward strategy back in September, we made important changes to better align the corporate organization with our more focused structure built around our three core business verticals. In that context, and given the strengthening of the management teams of the three verticals, today, we announced two important changes in our leadership team. Paco Camacho and Eugenio Garza both made the personal decision that this is the right time for them to finish their cycle at FEMSA and move on to seek new professional challenges with effect at the end of April. Their contributions to our company have been many and substantial, and we thank and appreciate them today, wishing them continued success in their future endeavors. Martin Arias, who many of you know from his 25 years of fruitful association with FEMSA will become CFO, working closely with Eugenio to ensure a seamless transition. And with that, let me turn it over to Paco.

Thank you, José Antonio. Good morning everyone. Let me begin with a couple of updates regarding FEMSA Forward. First, the Envoy-BradyIFS transaction announced in August successfully closed at the end of October and the new company is already operating as a single entity. Second, we have completed the process of carving out and transferring the distribution assets of OXXO and Coca-Cola FEMSA from Solistica to their respective operations. And they are now transitioning Solistica as well as other non-core operations as defined in FEMSA Forward. Finally, we have fine-tuned our capital allocation plans as we informed last week, putting us in a position to begin returning capital to shareholders as we begin to raise our leverage towards our stated objective of two times net debt-to-EBITDA ex-cost, which we expect to achieve within two to three years. Moving on to the results for the fourth quarter. Our numbers continued the positive trend seen during the first nine months of the year, fully consistent with our strategic priorities and making progress towards the targets set by each business unit long-range plan. Beginning with Proximity, like we did in our last call, it’s helpful to talk for a minute about their own long-range plan and their four priorities around which it is built; strengthening the core, developing new growth avenues, developing multiple successful formats, and growing the footprint beyond Mexico. Looking at OXXO's fourth quarter results through this lens, we see they again made strong progress, strengthening with same-store sales growth of 8.5% against a double-digit comparison base. This performance was again driven by a broad set of tailwinds, including stronger consumer demand for gathering and snacking occasions, solid commercial income dynamics, better segmentation at the store, and the rapid adoption of the Premia loyalty program. Continuing with the positive news of a stronger core, store growth was remarkable, with Mexico and LatAm adding 514 net new stores during the quarter and 1,408 during the past 12 months. Looking only at Mexico, we surpassed the 1,000 new store threshold for the first time since before the COVID pandemic, adding 1,087 net openings. Moving on to the long-range priority of growing beyond Mexico. During the quarter, Grupo Nós continues its solid advance with revenues increasing over 119% year-over-year and with OXXO's footprint in Brazil more than doubling during the last 12 months, reaching 1,716 stores at the end of 2023. We will increasingly talk about other successful formats that are gathering momentum, such as our coffee drive-thrus, our specialized OXXO Smart stores for controlled environments, and our traditional trade initiatives. For its part, Proximity Europe achieved strong operating results with substantial growth in a challenging macroeconomic environment. This was driven by higher sales in the food category and the advantageous effect from vertical integration. Revenues increased by a strong 16.4%, generating operating leverage. As of the end of the year, Proximity Europe had 2,808 points of sales, a net increase of 42 units over the comparable period. Our Health operations showed mixed performance trends and again reflected foreign exchange headwinds from a strong Mexican peso relative to local currencies in South America. In Colombia, we are gradually shifting our business towards more retail and less institutional exposure, given the current political environment. While in Mexico, we continue to see competitive retail activity across territories. In both cases, adjustments to our strategy are in progress, and we will keep you appraised. In line with our evolving strategy, during the quarter, our sales business continued to push the consolidated competitive position in retail across markets, increasing its store footprint to reach a total of 4,474 locations. In fact, during 2023, our Health division added new locations across its territories at a pace of approximately one per day. For its part, our Fuel business delivered a strong set of results with our dynamic corporate wholesale business continuing to outperform relative to retail. Comparable sales were robust with good contributions from traffic and ticket growth. Regarding Digital at FEMSA, the number of active users for spin by OXXO reached 6.9 million during the quarter, and the active user for our Premia loyalty program reached 19.3 million. Importantly, approximately 31% of OXXO Mexico sales are now associated with the program. We continue to prioritize the acquisition of higher-quality users while we make progress fine-tuning the use cases, value propositions, unit economics, and monetization strategies for each part of the ecosystem. In terms of financial implications, during the quarter, we deployed around MXN1 billion on growing this business, roughly in line with the previous quarter as well as budget. Finally, Coca-Cola FEMSA delivered a remarkable set of results for the fourth quarter, driven by Mexico, Brazil, Colombia, and Guatemala, enabling costs to surpass 4 billion unit cases of non-alcoholic ready-to-drink beverages for the full year. And with that, let me turn it over to Eugenio.

Thanks Paco. Good morning, everyone. As we continue to execute on our FEMSA Forward strategy, we've made some adjustments to the statements throughout the year to reflect the divestiture of our non-core businesses. During the fourth quarter, we recorded Alpunto and the third-party component of Solistica as discontinued operations. To maintain comparability, we modified our consolidated financial statements for the fourth quarter of 2022 to reflect this change. Let's begin with FEMSA's quarterly consolidated results. During the fourth quarter, total revenues increased 4.6% and EBITDA rose 3.6% compared to the fourth quarter of 2022. Net consolidated income decreased 20.7% and stood at MXN6.3 billion, resulting from higher gross profit and lower net interest expenses during the quarter. This was offset by a non-cash foreign exchange loss of MXN6.3 billion related to our U.S. dollar-denominated cash position impacted by the depreciation of the Mexican peso and a MXN3.2 billion net loss from discontinued operations, mostly reflecting the accounting remeasurement from historical cost to fair value of FEMSA's investment in Solistica and Alpunto net of impairments. Shifting gears to our business unit results, starting with Proximity Americas. During the fourth quarter, we incorporated 514 stores, bringing our total to 1,408 new stores for 2024, which includes 1,087 new stores in Mexico and 321 in South America. This robust growth has propelled us beyond our annual growth target, renewing our confidence that our growth runway remains extensive for OXXO across all markets, and the opportunity for our multi-format strategy is equally compelling. OXXO same-store sales increased 8.5% in the fourth quarter, cycling strong double-digit growth from the same quarter of last year. This result was led by a 6.3% increase in average customer ticket and a 2.1% increase in traffic as the trend gradually reverts to more sustainable levels after eight consecutive quarters of double-digit growth. Gross margin grew 17.2%, an expansion of 120 basis points, led by healthy commercial income dynamics and higher income from financial services. Income from operations rose by only 1%, reflecting an operating margin of 11.2%, a contraction of 150 basis points, driven mainly by higher labor expenses in Mexico, including adjustments made ahead of further regulatory changes expected during 2024. Moving on to Proximity Europe, total revenues grew by 9.5% in local currency, resulting in 16.4% growth in peso terms, boosted by the food category across all units and the positive effect of vertical integration, particularly through the B2B pretzel business. Gross margin stood at 44.9%, while operating margin expanded by 180 basis points to reach 5.2%, reflecting the same drivers that supported revenue growth as well as higher promotional income. Turning to FEMSA Health operations, we expanded by 127 net new drug store additions during the fourth quarter to reach a total of 4,474 units across our territories in 2023. Total revenues increased 2.6%, while same-store sales grew 5.1% in Mexican pesos. On a currency-neutral basis, revenues and same-store sales increased by 9% and 3.1%, respectively, driven by a positive performance across most of our territories, which was partially offset by a challenging macroeconomic environment in Colombia and Ecuador. Beyond the top line, however, gross margin decreased 110 basis points and operating margin was down 240 basis points, largely reflecting a deteriorating environment in the Colombian institutional business, where we took a charge of MXN527 billion for uncollectible accounts. As a result of the structural headwinds, we are actively evolving our Colombian operation to rely more on a dynamic and fast-growing retail component and less on the structurally complex institutional operations. Moving on to VAS. Same-station sales increased 4.8% and total revenue grew by 9% as we continue to develop our corporate business. During the quarter, gross margin was 13.4% and operating margin was 4.6%, reflecting tight expense control and operational efficiencies. Finally, turning to Coca-Cola FEMSA that again delivered an outstanding set of results in the fourth quarter. Total volume increased 6.1%, driven by growth across most of its territories. Total revenues grew 8.1% and operating income grew 7.4%, while operating margin was 14.6%. On a more strategic note, they did reach a milestone in their digital transformation journey, reaching more than 1.1 million monthly active users through the Juntos Plus platform with more than $2.5 billion for the year. You can listen to the replay of the conference call held yesterday on their website. Now, let me turn it back to José Antonio for some closing remarks. Go ahead, José Antonio.

Thank you, Eugenio. Before we close, let me talk a little about our progress on our sustainability efforts during 2023. We made progress on several fronts. For example, in recognition of our ongoing efforts to advance our sustainability agenda, FEMSA was included in the Standard & Poor's Global Sustainability Yearbook for the first time in 2024. We were recognized for continuous improvement in water management, resource efficiency, packaging circularity, and business integrity metrics. The Yearbook recognizes corporations that serve as references in global sustainability standards. On the governance front, we continue to evolve the composition of our Board of Directors with the nomination this year of two new Independent Directors; they are remarkable executives whose experience, acumen, and expertise will surely benefit our company for years to come. No recap of 2023 could be completed without mentioning our great friend Daniel Rodriguez. For all the strategic success and operational achievements we have talked about today, our hearts are heavy and our mood is tempered by Daniel's passing. Daniel was key in defining the strategy and setting these positive trends in motion, and we hope we are making him proud today. As we look ahead, we are fortunate to have a broad set of opportunities to continue growing in every one of our core verticals. There is no doubt that the year that begins will bring some headwinds such as higher labor costs in Mexico, but also the tailwinds of higher economic activity from an electoral period in the short term and from encouraging macro trends like nearshoring in the medium and long term. Across our markets, we will again navigate a mix of challenges and opportunities. And I have no doubt that we will again find a way to thrive and create value for all our stakeholders. We start 2024 keeping our eye on the ball as we carry good momentum into what will surely be another interesting year. All our business units are well-positioned for continued growth. I am particularly excited to see the many ways in which we will continue to apply our growing data analytics and AI capabilities to drive better performance and incremental growth across our three core verticals. We are just getting started. Finally, I want to take this opportunity to thank our entire team for a job well done in 2023 and to thank all of you joining us today for your continued support and interest in our company. And with that, we are ready to open the call for questions.

Thank you very much. Our first question comes from Ben Theurer from Barclays. Please go ahead.

Yes, good morning everyone and thanks for taking my question. Just wanted to follow up a little bit on the performance at OXXO, the same-store sales composition in particular. Could you talk a little bit about the deceleration sequentially that you saw in store traffic? Because obviously, we had a fairly strong first nine months period with same-store sales growing somewhere in the mid-single digits, but now it kind of came down and even with the base comparison that wasn't too high. So, any color you can share on that, that would be much appreciated. Thank you.

Sure, Ben. I think it has to do mostly with the fact that we had a very strong fourth quarter last year related to the World Cup and other events coming due. So, there's a fair bit of that. So, call it, excess traffic from last year did not repeat. Having said that, the underlying trend in traffic, if you see the services category, that is coming up significantly. So, it's a little bit of the mix of both. And unfortunately, the average ticket continues to maintain at a much higher level than it did pre-pandemic given the change in customer taste. And I think that combination is what drove same-store sales to their fantastic performance throughout the year. But specifically, the fourth quarter has to do with lapping the World Cup and a change in the composition of that traffic.

And also just to add a couple of things and provide some more color on that. Structurally, the performance of the stores is very strong, and we saw very good performance across segments and across categories. And obviously, that also generates a strong performance in the traffic. So, we feel confident about the structural, the traffic trend being strong as we enter into 2024.

Yes, I would just add that I expected this to happen back in April. You might recall I was already advising against assuming a double-digit same-store sales figure at that time. I was mistaken for three quarters, but eventually, the reality catches up with you. We are also seeing a very long recovery post-COVID. The foot traffic plummeted in 2020, and it's been gradually returning. There is significant segmentation in the stores, and the drivers for growth remain intact. However, the composition we see today reflects a more typical mix, and going forward, I believe our results will resemble what we reported today rather than the 6%, 7%, or 8% figures we showed three to six months ago.

Thank you.

Thank you. Our next question is on Ricardo Alves with Morgan Stanley. Please go ahead.

Hello everybody. Thanks for the call. Question on the senior management change. If you could add more details, for instance, on the timing, particularly now in the middle of the FEMSA Forward just to make sure that everything is aligned with the Board and so forth? We also noticed that the part of the release mentioned that Eugenio will launch the implementation of the capital allocation elements. Can you tell us what that means exactly? Is that related to the buyback specific? And then it also states that Eugenio will remain an adviser. Would that relate to the second stage of the Envoy that we discussed at length last year or maybe new ventures in the U.S.? So, curious if you can elaborate to the extent possible, particularly about the CFO and the move as well, evidently very relevant for today? And a follow-up to that question would be on the shareholder return and on the buyback point that I mentioned, the doubling of the authorization, the $2 billion or whatever the number is, is pretty significant. But we all know that there has been very limited activity to no activity depending on the timeframe. So, now that the announcement is behind us, can you share with us the key hurdles or the accounting flexibility that you now seem to have overcome so that you are now really confident that you're going to be able to be active on the buybacks? Is there a timing for us to be expecting more activity there? So, just a little bit more granularity on the buyback component. Sorry for the long question.

Well, I will start with the first part of the question, and I'll let Eugenio and Paco explain the second part. But on the first part, we have agreed with Paco and Eugenio that they will stay with us helping until the end of April. By then, starting next week, Martin Arias is already fully involved and the transition of Eugenio and Martin will go very smoothly. At the same time, Eugenio offered us to continue as an adviser per project. And yes, there could be some projects that we could pursue in the way of investments or new investments that we could do, and obviously, to continue overseeing and advising us on all the capital allocation strategies that we have designed and have presented to you recently. On the rest, I will ask Eugenio to explain.

Sure Ricardo. Yes, definitely, what I'm going to be more focused on over the next couple of months during the transition with Martin is on the implementation of the capital return portion of the capital allocation program we announced last week. So, it does have to do with share repurchases and continually monitoring investments, both in organic and inorganic investments as we aim to reach that two times net debt-to-EBITDA over the next few months. To your question regarding the timing of the share repurchases, with the announcement behind us, clearly now we will start to have an open to start to use that more heavily. What we will be asking the Shareholder Meeting in March is to increase the capacity that we currently have. But again, we have capacity currently in place to start to operate as soon as next week. So, we will be implementing that capital return strategy, as we mentioned in the release last week in a way that maximizes per share value from an intrinsic perspective in the long-term. So, that will be a combination of both share buybacks and extraordinary dividends. As you saw, we already started with our first one, and there will be additional ones to come, if indeed we realize that through the operating environment, we're not able to reach two times net debt-to-EBITDA on our own. So, those will be the levers that we will be pulling. Again, with me at the helm for the next couple of months and then with Martin and the rest of the team helping him going forward.

I would like to add, Ricardo, this is Juan. Since we did not have a call dedicated to the capital allocation release, the fact that we're all here today, I understand that there may be some questions on yours is the first one on continuity. I want to ensure that the strategy that was communicated last week is fully in place, that the two times net debt-to-EBITDA target is fully in place and there will be no deviation from that. So, I just wanted to put that out there because I know that the concern is going to be among investors.

Yes.

That's helpful, gentlemen. Thank you so much.

Thanks, Ricardo.

Thanks.

Thank you. Our next question is from Álvaro García of BTG Pactual. Please go ahead.

Hi gentlemen. Thanks for the call. Eugenio, Paco all of that going forward. My question is on labor costs in Mexico. I know that FEMSA has a philosophy of paying more than competitors; that’s very much true of OXXO. And I'm just curious where we are in that process of upping pay for your employee base at OXXO? How much more difficult has it been to get that premium and what's your outlook for labor cost into 2024? Thank you.

Hi Álvaro, this is Paco. Good to hear from you. I will let start and then I will let the team provide further perspective. But I guess that what we need to keep in mind when it comes to cost management, particularly in OXXO, is that the labor costs during the last year was a special situation versus other years because of its magnitude. But the reality is that OXXO is extremely good at working consistently on making our operations more efficient. So, the team has been focused on making sure that all the verticals among the possibilities that they usually explore as part of the way they do their operations of the stores, continue to progress towards further efficiencies. This is just to reassure you that structurally speaking, and the way we approach this in the stores hasn't changed. We will continue to do so. And evidently, every time something like this comes, the teams double the efforts on maximizing the efficiency. But for 2024, we have included the increases in the plants and we are confident that we can deliver on those plans as we enter the year. Eugenio, do you want to add something on that?

I would like to mention, Álvaro, that when analyzing the numbers and OXXO's financial performance, it is clear that the operating margin has been affected, primarily by labor costs. Looking ahead to 2024, while I hesitate to use the term guidance, our expectation is that operating margins for the year will remain flat. This is our baseline scenario. Initially, the year may begin somewhat slowly, but we anticipate that it will gain momentum as it progresses. Overall, we expect operating margins to be flat for OXXO Mexico throughout 2024, which is an important point to highlight.

Okay, great. Thank you very much.

Gracias Álvaro.

Gracias Álvaro.

Thank you. Our next question is from Héctor Maya of Scotiabank. Please go ahead.

Thank you very much for taking my questions. So, I just wanted to know about your update on the FEMSA Forward plan. We saw that the execution and divestments have come ahead of time and it was succeeding expectations. So, just wanted to understand why you considered it was necessary to expand the timeline window for cash deployment by an additional year potentially? And would that be because maybe M&A opportunity to take longer to appear? Or is there a concern for either the economic or political environment in your operations that drove the decision to keep a relevant cash position for a little longer?

Hi Héctor. Thanks for your question, it's Eugenio here. Look, really, nothing has changed from what we said last year and we continue to reiterate it. We are going to get to two times net debt-to-EBITDA. We can get there in several ways. One is through special dividends. The other one is through share repurchases, and the other one will be through organic and inorganic investments. At this point, yes, we're sitting on a pile of cash that's accumulated at a higher pace than we expected because of the success that we've had with the divestiture so far. There will be more of that cash both from the remaining sales of the remaining assets as well as the Jetro stake, which we sold in installments and the operations will also be generating cash. So, we are, I mean, painfully aware of the problem holding too much cash. Having said that, we want to deploy it in a smart way that maximizes long-term intrinsic per share value. So, I think still within the range of the same two to three years, we will get to the two times net debt-to-EBITDA. It makes us, to be honest, feel a little bit more comfortable holding on to the cash right now at 5% interest rates that we're investing it in rather than where it was two years ago. So, we're being patient as opportunities arise. But again, even if we do see inorganic opportunities, we've stated there will be in the core business verticals that we identified on the FEMSA Forward, and they will be financially accretive to long-term intrinsic per share value. So, we want to maximize that flexibility that we have to invest across our businesses and in the best investment that we have, which is our own share and get to that two times net debt-to-EBITDA in due course.

Thank you. That's very clear. And also the conversation around the hard discount category and private label has been very hot right now, very active. So, I just also wanted to understand if we could expect your strategy with Bara to become more aggressive in the future? And how relevant could private label become for your overall strategy and maybe even for OXXO?

So, Héctor, just to answer, this is Paco. Just to answer that very quickly and continue with the questions from the rest of the attendance. Look, as you know, and as we highlighted in the opening remarks, one of the strategies we are following in Proximity, and we have stated before is performance. Bara is an important component of the multi-format vertical. Bara, we reported has had very strong goals in 2023 and our intention is to continue strengthening that business in 2024 and in the years to come. Private label is a very important part of that business. It has been performing really well. So, what we are doing and what we have explained we're intending to do in that business has nothing to do with the recent announcements in that retail segment. We're just following the strategy we have highlighted before. And to your point, private label is an important component. We are doing very well in that segment of the business in the results we posted and our intention is to continue doing the same in the years to come.

And again, regarding your specific question on Bara, I mean.

Thank you very much.

Thanks Héctor.

Thank you very much. Our next question is from Alan Alanis with Santander. Please go ahead.

Thank you for taking my question, José Antonio, Paco, and Eugenio. I want to provide some context before asking. FEMSA's share price has dropped 9% this morning, resulting in a $4 billion decrease in market capitalization. It seems the market is reacting to three negative factors: first, the uncertainty regarding capital expenditures, which I will address shortly. Second, the unexpected changes in management. While I believe Martin Arias is highly capable and will perform well, the market is not familiar with him yet, and there are concerns about margin contraction and disappointing same-store sales. It would be helpful if you could provide more details on how you plan to allocate the $14 billion over the next five years, particularly since you mentioned that 72% of this amount will be invested in Mexico. This suggests an average investment of $2 billion in Mexico per year. How do you plan to direct these funds across different sectors? Additionally, how much of this investment will support your ambitions for OXXO? Thank you.

Yes. Thank you, Alan, for your question. Look, I think that we need to go back to answer your question to go back to what we announced during FEMSA Forward. Strategically speaking, we announced that we are committed to our three core verticals; basically retail, digital, and Coca-Cola FEMSA. So, you should expect that the discipline that we will have in terms of deploying capital is going to be fully aligned to this strategy that we announced. Anything that we do will, first of all, be consistent with that. But second, importantly, we'll be extremely disciplined on how we select potential inorganic opportunities moving forward.

Yes. Let me add something regarding the CapEx. This is Juan. If you look across formats, a significant portion will be allocated towards organic expansion. We see compelling opportunities to accelerate growth, especially in Mexico and across various geographies. Currently, we are opening approximately seven units per day across all retail formats. This includes OXXO, OXXO South America drug stores, OXXO Smarts, and coffee drive-thrus, and we expect this to ramp up from an already dynamic position. This is a major aspect of the CapEx figures. It’s important to think of the growth trend as a slope rather than a straight line. In Colombia, we're set to significantly accelerate our efforts. I recently visited Brazil, and the prospects for Grupo Nós are very promising. Most of the CapEx will be invested in stores and distribution assets. We have mentioned that we are looking for a potential entry model into the U.S. convenience sector, which is well-known. Our pursuit of drug stores in Mexico has been more challenging. Overall, while we appreciate our flexibility, our main focus is on organic growth. I've received many inquiries regarding the larger CapEx figures we shared last week, and I hope this provides clarity on where that capital will be directed.

Thank you for that. For my final question, what do you think investors are overlooking regarding the sudden drop in stock price? How significant is that stock price for the controlling group and management? What is the market missing? I might have missed the reason for the stock being down 9% today, but any insights you can provide as managers and controlling shareholders would be appreciated. Thank you for taking my question.

Alan, you know us very well, and you know that we all think long-term and we will continue being very disciplined on our strategy. FEMSA Forward has huge potential. Cash is king. We always have said that. You remember Eugenio saying that. And Eugenio also said that the opportunity is the queen, and we have to keep both; some cash for doing new projects. Coca-Cola FEMSA hasn't been mentioned, but is going to invest the largest CapEx in history because of lack of capacity; we lost volumes this year because we didn't have enough capacity in certain places. We have to fix that. So, we are going to have huge investment in capacity in Coca-Cola in various countries. And obviously, we will still go looking for good opportunities in our three verticals. That's why what our intention is there, we go all the way to two times EBITDA and divest as much as possible or repurchase as much as possible on shares because we don't like to have idle resources just getting very low interest rates.

Yes. Thank you very much, José Antonio. Thank you, everyone.

Thanks Alan.

Thank you very much. Our next question is from Thiago Bortoluci with Goldman Sachs. Please go ahead.

Yes. Good morning gentlemen. Thanks for taking my question. Let me just catch back one mention from Juan related to the target leverage of two times committed to that, no deviations, right? I think one of the reasons for the volatility we're seeing is lack of visibility on how you will get there, right? You are mentioning two times leverage. This might give you $7 billion, $8 billion in excess cash. But at the same time, we were mentioning you were committing to give back up to 6% of our market cap, which is 3%, right? How will we add back to two times? Where this incremental $4 billion, $5 billion might be going? This is the first question. And if I may just take advantage of José Antonio being on the call. José Antonio, today, you have two interim positions, right, the CEO and the CFO. How is the Board thinking about this and how important it might be to fill definite positions in order to keep the plan moving forward? Those are the questions. Thank you very much.

I'll start with the first one, and then I'll turn it up to José Antonio. Yes, my math is a little bit different than yours, but ballpark is the same. I think to get to two times we're talking about a number close to $6 billion, $6.5 billion in that neighborhood. Yes, 6% of the market cap as of last week was $3 billion. So, there is still some undefined allocation of resources. Having said that, we still believe we're going to get to two times and that excess amount plus the cash that will come in from operations will be looked at very closely between organic, inorganic, and additional return to shareholders. It's going to be a mix of all that, that will get us to two times. I understand the anxiety about not being all spelled out in stone about where that additional $3 billion to $4 billion is going. But the commitment is to get to two times while maximizing shareholder value. So, we don't have all the answers yet. What we can tell you is that at least the $3 billion will go to shareholder return at this point. The rest, we will deal with it as opportunities arise.

Let me add to that before José Antonio. In response to a question we've been receiving about the possibility of an upside to the $3 billion, I believe Eugenio essentially confirmed that there could be. However, as I mentioned earlier, we appreciate having some flexibility. We will address those questions over the next couple of years.

And on the second question that you had, we have discussed this at length with the Board, and we have agreed that on the CEO position, I am willing and open. I'm very happy to stay for at least 24 months as CEO and Chairman at the same time and making this effort. I'm enjoying it, and I will stay doing it. While we are going to start the process of looking for a new CFO, as you could imagine, it will take hopefully less than a year or maybe a year or 18 months at the most, but we will find a new CFO for the company. As we speak, we will start the process of looking for.

And then just to be more clear about this and I'm sure Paco will have his own views. My personal decision to leave the company at this point has more to do with my personal interest. I think the skills that I brought to bear were put in place during the FEMSA Forward program over the past 18 months, and we, the team, had a lot of success doing it. For me, it's on to the next project. So, nothing more than that, and I'll continue to be close to the company as an adviser over the next few years, hopefully.

Yes. And Thiago taking the opportunity also, this is Paco. Look, I’m extremely proud of what the team has accomplished in FEMSA developing the long-range plan, having a clear perspective on what the future looks like. And in reality, my decision is something that I didn't take lightly. I mean, it's exclusively related to what I want to do with the next station in my professional career. FEMSA is an incredible company with a bright long-term perspective that I will certainly miss. I will miss the team. I will miss José Antonio, I will miss everybody here. The prospects of our company, I believe, are brighter than ever. So, that made the decision even more difficult. But again, it's exclusively personal and FEMSA will always be a highlight in my over 35-year career in many big companies, and FEMSA clearly stays at the top of that.

Thank you. I will certainly miss FEMSA and appreciate Paco and Eugenio very much.

Thiago.

Thank you very much. Our next question is from Luis Willard with GBM. Please go ahead.

Hi, can you hear me?

Yes, we can.

Thank you. I have a question that may seem straightforward, but I would like some clarification on the changes you mentioned regarding the deconsolidation of operations. Eugenio, I believe you addressed this. You're reporting a consolidated sales growth of 4.6%, but when I examine the individual subsidiaries, all of them show growth in pesos except for health, and all exceed the average growth rate. I want to ensure that I understand correctly. Is there a possibility that some deconsolidation is not reflected in the overall figures but is present in the 4Q 2023 data? Or is there something I'm missing regarding the undisclosed breakdown? Thank you.

Yes, Luis, we can touch base offline if you want and walk you through the exact numbers. But there were, as you know, because of the peso, some currency mismatches depending on whether you're looking at it on a currency-neutral basis or peso-basis; some numbers are weird, especially this quarter in a lot of alliances, including the non-cash items and the taxes. There's also the deconsolidation, as you well said. It doesn't move the needle that much, but at the margin, it does. We deconsolidated both the Alpunto business as well the part of the Solistica business that is in the process of being divested right now. But yes, those averages do work out, and the 4% number after all these adjustments is correct, despite the fact that the retail businesses and most of the other businesses are growing higher than that average.

All right. That was it. Thank you.

Thank you, Luis.

Thank you, Luis.

Thank you very much. Our next question is from Federico Galassi with TRG. Please go ahead.

Thank you for taking my question. I have a question related to Mexico and same-store sales across the different formats you have. You mentioned some aspects earlier. Do you think this trend is more tied to a specific format, or are you observing a slowdown in consumer spending in Mexico? Additionally, could you explain what you’re experiencing in the healthcare sector, given that there have been two consecutive quarters of negative same-store sales in Mexico? Thank you.

Did you say in Health, Federico?

That was the second question.

Sure. Regarding Mexico, the consumer remains strong. While traffic may not be as robust when compared to previous periods, on an absolute basis, it has held up well. Consumers still have cash available, and for the everyday items we sell at OXXO, we continue to see good demand. The pressure on margins is primarily due to labor costs, which is a trend that's consistent across all formats and not specific to either hard discount or proximity stores.

Yes, Federico, just to add a couple of additional points, this is Paco. Look, I mean, when you look at the results, Mexico posted very strong results. When you look at OXXO, Coca-Cola FEMSA, we didn't talk a lot about digital, but we have very good results. So, in general, the businesses are doing really well in Mexico. The situation with health is punctual, and it happens every now and then; you have a competitive situation or a specific plan that didn't go as you were thinking. In this case really, as Eugenio said, it's something related to how active competition has been. Honestly, is good news because that means that the market is healthy, that we are in an interesting segment of the market. The teams are working on adjusting our strategies to phase up. Honestly, we are confident that the situation will get better. But again, we are not concerned about how the businesses are outperforming in Mexico; on the contrary, we remain confident that 2024, even though we will have some headwinds as usual, but we'll deploy our long-range plans, we'll deploy the plans, and we should expect good results.

Yes. I would add, Federico, I mean we mentioned it in the remarks, but Mexico and Colombia, on the health side, yes, there have been some issues in terms of competitive landscape and shift from institutional to retail in the case of Colombia. But in both cases, the strategies are defined, and we're starting to address that very diligently. Hopefully, in the not-too-distant future, we'll have different things to report on those fronts.

Okay guys. Thank you so much.

Thank you everyone for attending today, for your permanent interest in our company. Obviously, the team and I are always available for follow-ups and we'll be in touch. Thank you.

Thank you very much. That concludes today's conference. You may now disconnect. Hope you may stay on the line.