Hello and welcome to FEMSA's First Quarter 2024 Results Conference Call. My name is Melisa and I will be your coordinator for today's event. I'll now turn the call over to Juan Fonseca, Head of Investor Relations. Please go ahead.

Good morning everyone. And welcome to FEMSA's first quarter 2024 results conference call. Today, we are joined by José Antonio Fernández Garza Laguera, CEO of our Proximity and Health Division; Martin Arias, our Incoming CFO, and Jorge Collazo, who Heads Coca-Cola FEMSA's Investor Relations team. As you know, one of FEMSA's strategic priorities involves engaging more directly and proactively with our key stakeholders, and that includes providing more opportunities for you, our investors and analysts, to hear from and interact with the heads of our core business verticals. José will open today's conversation with his vision for Proximity and Health and the key elements of the strategy to move towards that vision. Going forward, José will produce quarterly calls a year. After José's remarks, Martin will provide an update on the business and our quarterly results. Finally, we will open the call for your questions. José, please go ahead.

Thank you, Juan. Good morning, everyone. It is my great pleasure and privilege to be here today to begin what I hope will be regular conversations with all of you. As we move beyond the FEMSA forward transformation and focus on the future of our company, I relish the chance to help pursue and capture the substantial opportunity for growth and value creation that lie at FEMSA, particularly as we continue to develop and strengthen our leadership in Proximity and Health retail. FEMSA has always pursued long-term profitable growth, and we have a clear and focused blueprint to keep achieving that objective as we build on FEMSA's successful track record in Proximity retail. The comprehensive long-range plan we developed over the past couple of years provides us with a useful roadmap. We aim to accelerate earnings growth at our retail division, relying mainly on organic expansion and continually adding layers of value for our consumers across various formats and markets. OXXO Mexico is a mainstay of FEMSA's retail operations. For 45 years, we have evolved and improved its value proposition while expanding its footprint and growing its scale, always focused on understanding more of our customers' needs and finding new ways to serve them consistently better. As OXXO store economics have improved over time, we have increased our footprint in Mexico to over 1,000 stores while maintaining and even increasing store productivity. We have built capabilities to develop consumer insights that are continuously applied in our segmentation efforts. We are confident that we can keep the current pace of OXXO expansion in Mexico for many years under the current value proposition. We are thoughtfully accelerating our organic expansion efforts with OXXO in several markets in South America, having reached the 500-store mark in Brazil and soon in Colombia. OXXO in South America could, on a combined basis, reach a scale comparable to OXXO Mexico over time. We are taking advantage of the increasing appetite for the Proximity discount format with our Bara store. After many iterations and years of fine-tuning its value proposition, Bara is showing that it has the right unique economics and is ready for an accelerated rollout. We continue to advance with the Valora platform in Europe, where, despite high inflation and general macro headwinds, we are building on improving momentum and focusing on driving all three business platforms: retail, food service, and our B2B business. While we will pursue opportunities mainly through organic expansion, we believe entering the United States could open a new and compelling avenue for growth and value creation for FEMSA. This initiative may require a moderately-sized inorganic component to achieve certain scale upfront. We still have work to do as we fine-tune our potential entry model, always with a clear objective of long-term value creation for FEMSA. However, we know this topic is at the forefront of the market's attention, so we will keep you posted as we continue to develop our strategy. Beyond various opportunities across the Proximity spectrum, we are making progress in our Health operations, where we leverage our multi-country platform and scale to optimize purchasing, pricing, supply chain, and several other aspects of the business. Our Health division is currently navigating complex, competitive, and regulatory environments. However, we are taking clear steps to address these challenges by adjusting our operating approach. I want to share that today, if we consider all formats and all markets, we're opening more than six stores per calendar day on average. By the end of the five-year period covered by our current long-range plan, we could eventually increase that pace by up to 50%. Although these plans require considerable CapEx in the coming years, the organic and modular growth inherent in our business model puts us in a good position to capture high returns. I have asked our team to relentlessly focus on unit economics, cash flow generation, and achieving ROIC levels above our cost of capital to guide our growth decisions. Finally, we should talk about the digital opportunities that exist in and around our retail platforms. Less than three years after launching the Spin Premia loyalty platform, more than a third of OXXO Mexico's revenues are associated with the program, meaning we have access to over 4 million tickets every day that allow us to build compelling and valuable data sets. OXXO has proactively invested in using AI to capitalize on this data. The density of our store network provides us with a unique perspective of Mexican consumer behaviors and trends. Over the past year, OXXO has materially evolved its algorithms, IT systems, and data science capabilities to offer better and more effective assortment, pricing, and promotions. These AI-driven improvements are being rolled out across our store network in Mexico, resulting in measurable increases in profitability as well as improved customer satisfaction. We will drive our top line by expanding our store base and satisfying the needs of our customers. We will drive our bottom line by constantly seeking efficiency, and we will carefully pursue acquisitions where appropriate, to increase our scale and drive the virtual circle that flows from it. I look forward to continuing discussions with you, and I will now turn the call over to Martin to talk about FEMSA's first quarter results.

Thank you, José, and good morning everyone. I'm happy to be with you today to talk about this remarkable company that I have had the pleasure of calling home for 25 years. The mandate I have received from our CEO and Board of Directors is to continue executing the capital allocation strategy announced as part of FEMSA Forward, steering the finances of the company towards the leverage goal of two times net debt to EBITDA, excluding Coca-Cola FEMSA, which we expect to reach by the end of 2026. As of the end of the first quarter, that ratio stood at 0.24 times, compared to 0.1 times at the end of 2023. To meet this mandate, our CEO has asked me to focus on disciplined, organic, and inorganic capital deployment, as well as to continue monitoring additional opportunities to return capital to shareholders. Prior to reviewing our quarterly results, I would like to provide an update on the FEMSA Forward initiatives relating to returning capital to shareholders. We have been active on the share buyback front, and during the first quarter, we launched an accelerated share repurchase (ASR) program. Through that program, we were buying back $400 million worth of FEMSA shares. Earlier this year, we also received shareholder approval to pay an extraordinary dividend of approximately $600 million, the first installment of which was paid last week on April 18. This means we are in the process of returning nearly $1.1 billion to shareholders during 2024, in addition to our ordinary dividend, which was increased by 20%, representing approximately $800 million at current exchange rates. Regarding our CapEx allocation strategy, we prioritize this allocation to core organic growth initiatives that offer the highest potential for long-term value creation. In the first quarter, our CapEx reached MXN7.4 billion, representing 5.3% of total revenue and 45.1% growth over the comparable period of last year. Through these organic investments, we aim to enhance our competitive position and maximize returns for our shareholders while preserving a strong financial foundation. If these organic investments do not produce the expected returns, we will re-evaluate CapEx levels. Turning to FEMSA's consolidated quarterly results, total revenues increased 11.3% and EBITDA rose 14.4% compared to the first quarter of 2023, reflecting strong growth at Proximity and Coca-Cola FEMSA. Net consolidated income decreased 88.3% to MXN5.9 billion, mainly explained by a challenging comparative base in the first quarter of 2023, which included a gain from the reclassification of investment in Heineken to discontinued operations, and reflects an increase in the net financial expenses line. Moving to our operational results, Proximity Americas delivered a strong set of numbers. The same-store sales increased 9.7%, driven by an increase in the average customer ticket. We had the small advantage of an extra day in February and the full impact of Holy Week that tends to help the average ticket, but these are strong numbers nonetheless. Gross margins expanded 170 basis points to reach 42%, reflecting strong trends in commercial income and a positive contribution from financial services. Income from operations increased 11.5%, while the operating margin contracted 20 basis points to 7.1%. On the store expansion front, OXXO also posted strong numbers, adding 495 net new stores during the quarter. This figure for South America incorporates openings by Grupo Nós in Brazil, where OXXO has surpassed the 500 store mark. The Proximity team did an excellent job making sure that we hit the ground running, as compared to the expansion of 254 stores in the first quarter of 2023. In Proximity Europe, total revenues grew 12.6% in local currency, driven by strong performance in the Swiss convenience business. For the Health division, total revenues contracted slightly by 2.3% and same-store sales remained flat in Mexican pesos. We are focused on the situation in the Health division. We have a highly skilled team running that operation, and they are rapidly adjusting their country-specific strategies to mitigate these negative trends. Moving on to OXXO gas, same-station sales increased 6.9%, and total revenues increased by 13.9%. For Digital FEMSA, we continue to make progress. The number of active users for Spin by OXXO reached 7.4 million, reflecting 77.9% growth year-on-year. Total sales linked to Spin Premia reached significant figures that strengthen our foundation for data gathering. Coca-Cola FEMSA posted another set of remarkable results in the first quarter with double-digit growth in revenues and EBITDA. Overall, FEMSA's first quarter results indicated that our two largest business platforms, OXXO and Coca-Cola FEMSA, remain strong and we aim to nurture newer, smaller business units. We look forward to a permanent open dialogue with you, as we continue writing FEMSA's next chapter. Let's open the call for questions.

Thank you very much. Our first question is from Carlos Laboy with HSBC. Please go ahead.

Yes, good morning, everyone. Thank you for joining the call and offering your insights. Taking a broader look, what parts of the business are you most excited about?

Thank you for that question. I would say I'm quite excited about all of our opportunities in Mexico. OXXO's value proposition enhancements, the development in food, and the data analytics we are pursuing signal growth ahead for OXXO Mexico. I am also excited about our South American expansion, particularly in Brazil. If we can get it right, we could be as big as OXXO Mexico. We have tremendous partners and a strong team in place. Moreover, the food service component from Europe is another area with high growth potential. That said, I am carefully looking at the U.S. while being cautious about when and where to enter that market.

That's helpful. Thank you.

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

Yes, good morning, everyone. Congrats on the results. Could you help us understand the dynamics within your corporate expenses line?

Yes, hi. This is Martin. Thank you for your question. Corporate expenses reflect various components, not just corporate level costs. It includes results from smaller businesses historically included in other categories. The historical numbers won't provide much guidance going forward as various reclassifications in the past year have affected the clarity. The next couple of quarters should trend towards more predictable numbers.

Exactly, Thiago. We're lapping the most volatile quarter regarding FEMSA Forward. The upcoming quarters should show a more stable number. Traffic is improving, but we still face tough comparisons ahead. We are seeing positive analytics driving revenue into stores.

Yes, the Spin Premia program is important. Currently, 35% of the purchases in the store are made by customers using their premium card. This is a significant driver of traffic.

We achieved almost 10% same-store sales growth on top of an 18.5% growth a year ago. Our focus on revenue management has proven effective, and we are performing above expectations in terms of traffic and ticket split.

This is great. Thank you very much, everyone, and congrats once again.

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

Hi, everyone. Thanks for the call. I had a question on OXXO's top line. Can you discuss new store openings and the strategy surrounding these expansions?

Thank you, Ricardo. We had an extraordinary quarter in growth of store units in Mexico, and we expect that pace will normalize. We plan to open about 1,000 to 1,100 stores in OXXO Mexico this year. We are experiencing significant traction, and our stores are maturing rapidly. In South America, particularly Colombia and Peru, we see ample opportunities for acceleration, as our value proposition is now strong enough.

Once the value proposition is right, it leads to greater scale. In a couple of countries, we're shifting toward replication modes for expansion.

Thank you very much.

Thank you. Our next question is from Robert Ford with Bank of America. Please go ahead.

Thank you very much. José, you mentioned excitement with discount retailing. Can you discuss the growth of the Bara format and its implications?

Bara is in the process of becoming a hard discount retailer. Its private label percentage is growing every quarter, but it remains around the high 20s. We are seeing some cannibalization with OXXO, but it's minor, given they serve different demographics. The growth trajectory in beverages is robust.

Bara has opportunities that many competitors do not have with convenience categories integrated into the model.

Private label in beverages remains a tough category, thus we prefer to work with established players while enhancing our offerings in other categories.

Thank you both very much.

Thank you. Our next question is from Rodrigo Alcantara with UBS. Please go ahead.

Hi, José. My question concerns the U.S. market. Does this mean that the U.S. may take a step back in terms of priorities?

Thank you, Rodrigo. I am excited about the U.S. market. Its convenience store market has unique dynamics and demographics that we are analyzing carefully. I see potential in border towns and select regions with less competition. There is also potential for partnerships or acquisitions to leverage OXXO's capabilities.

Awesome. Thank you, José.

Thank you. Our next question is from Renata Cabral with Citigroup. Please go ahead.

Hi, everyone. I would like to ask about Spin by OXXO's user expansion and future opportunities.

The Spin ecosystem represents both a business opportunity and a strategic necessity. Our vision is to combine various components to offer small businesses a complete solution, including loyalty programs and payment options. The growth of Spin by OXXO has been impressive and now supports our retail and financial services.

The data we are gathering from millions of transactions will allow us to monetize our customer base effectively. We are moving toward monetization by using this data for partnerships and lending opportunities.

Our Spin Premia loyalty program is gaining traction, with significant penetration in several cities, which positively impacts our business model.

Thank you. That was helpful.

Thank you. Our next question is from Ben Theurer of Barclays. Please go ahead.

Good morning, and thank you for taking my question. Can you help us understand your capital allocation regarding leverage targets and potential shock on the M&A side?

While our focus will remain on three corporate verticals, we will consider M&A opportunities that offer clear value creation. We are keen on maintaining efficient capital allocation practices through extraordinary dividends and buybacks, depending on market conditions. Our goal is to reach two times leverage by 2026.

Thank you very much.

Thank you. Our next question is from Alejandro Fuchs with Itaú. Please go ahead.

Hello, José Antonio, Martin. I have questions on OXXO's top-line growth during the quarter and on its EBITDA margin. What strategies are in place to handle payroll pressures?

While labor pressures persist, we are controlling expenses through strategic modifications and are excited about our AI initiatives that help us efficiently staff our stores. This should help mitigate EBITDA margin pressures going forward.

Our growth margin expanded dramatically this quarter. The tools available for our revenue segmentation and new digital initiatives are helping us considerably.

Thank you for the detailed responses.

As we have no further questions, I'd like to turn the call back over to Mr. Fonseca for any closing remarks.

Thanks, everyone. I think it was a great call. Obviously, we're available for follow-ups as always. Have a great weekend.

Thank you very much. That concludes today's conference. You may now disconnect.