Good day, and welcome to today's FEMSA's Fourth Quarter 2024 Results Conference Call. In today’s presentation, all participants will be in the listen-only mode. Later, there will be an opportunity to ask questions and instructions will be provided at that time. This meeting is being recorded. And now I'd like to hand the call over to Juan Fonseca. Please go ahead, sir.

Good morning, everyone, and welcome to FEMSA's fourth quarter and full year 2024 results conference call. Today, we are joined by José Antonio Fernández Carbajal, FEMSA's CEO and Chairman of the Board; Martin Arias, our CFO; and Jorge Collazo, who heads Coca-Cola FEMSA's Investor Relations team. The plan for today is for José Antonio to open the conversation with some high-level comments on the full year results, some thoughts on our capital allocation framework, as well as a quick update on management succession. Martin will then cover our quarterly results, as well as provide more detail on our capital return plans. Finally, we will turn it back to José Antonio for some closing remarks and then open the call for your questions. Antonio, please go ahead.

Thank you, Juan. Good morning, everyone. Let me begin by talking about FEMSA's results for the full year 2024. As you have seen in our report, our consolidated numbers showed double-digit growth across the earnings line items of the income statement, as well as notable margin expansion. These numbers reflect very strong performances at our two largest business units, Proximity Americas and Coca-Cola FEMSA coupled with solid delivery from the rest of the operations. And while numbers are important as we track our progress, I believe there are just as important messages underlying these results. Everybody talks about focusing on profitable growth, but it takes time, effort, and skill to build the platforms and the capabilities to achieve that kind of compounding on a sustained long-term basis. For example, when we look at what is driving growth at OXXO in Mexico, while it is important that we keep opening high-productivity new locations, which the team managed to excel at in 2024. It's just as important to look at new capabilities related to data analytics, segmentation, and revenue management. These capabilities enable us to adapt our value proposition to an expanding variety of consumer environments, each requiring a different assortment and pricing combination. Similarly, we are increasingly able to develop and offer more sophisticated promotional activities to our supplier partners, as well as provide an ever-growing list of services that give our customers more reasons to visit and more needs that they can satisfy at our stores, driving and sustaining performance. And then, of course, we carry many of these capabilities to other territories like Europe, the United States, and Brazil and other formats such as Bara, our performance drive-through. Likewise, on the Coca-Cola FEMSA front, it has been remarkable to watch the constant evolution of our digital capabilities and how essential they have become to the growth and momentum of business. Just as important is how these digital capabilities are evolving into a platform that will allow us to develop new lines of business and will help us maintain our leadership position in key categories as well as achieve leadership in new ones. Across our business units, we are facing rich opportunity sets and our teams are performing at a high level, which makes us optimistic as we look ahead. The second topic I wanted to discuss today is FEMSA Forward. Two years after its launch, today, we are almost finished with the planned divestitures. Having monetized an aggregate headline amount of approximately $10.7 billion as we simplified our structure and focus on our core business units. On the capital return front, in addition to paying the related taxes, we used approximately $1.7 billion to repurchase our debt under attractive terms. And during 2024, we deployed approximately MXN 44.8 billion or $2.5 billion at the exchange rate at the time of payment in a combination of ordinary dividends of MXN 14.4 billion, extraordinary dividend of MXN 10.1 billion and share buyback of MXN 20.3 billion. However, we are still far from our leverage objective of 2 times net debt-to-EBITDA excluding costs. Martin will provide you with more details in a few minutes, but assuming no extraordinary circumstances beyond our control and in order to maximize the efficiency of our balance sheet. Our plan for 2025 and 2026 involved accelerating the pace of our capital returns to reach that steady-state leverage in a disciplined fashion that takes into account rates, market dynamics, and geopolitical perspectives. Our plans for 2025 to be presented at the next shareholders' meeting are to deploy, including ordinary dividends, almost MXN 66 billion or $3.2 billion of current exchange rates over the next 12 months. This amount includes MXN 14.8 billion of ordinary dividends and MXN 51.2 billion of extraordinary dividends and buybacks, representing a 10.4% yield for shareholders at the current market capitalization. Our current plans for 2026 are to deploy, including ordinary dividends, almost MXN 41.4 billion or $2 billion at current exchange rates. This amount assumes an amount equal to this year's ordinary dividend of MXN 14.8 billion plus a minimum of MXN 26.6 billion of extraordinary dividends totaling an additional 6.4% yield for shareholders at the current market capitalization. The total sum of the amounts allocated and committed for the next two-year period between 2025 and 2026 is MXN107.4 billion or nearly $5.3 billion at current exchange rates, which represents approximately 17% of the market cap of FEMSA as of the close of yesterday. These actions should significantly help us reach our target level ratio by the end of 2026. As we have stated before, our broader capital allocation strategy aims to drive our long-term intrinsic value per share as we understand that having an efficient balance sheet and returning capital to shareholders play a key role in that strategy. Finally, as you probably read in our release and in line with the time frame we discussed on this call last year, during 2025, we plan to carry out the succession process for the position of CEO of FEMSA, which I hold on an interim basis. Since late last year, the Corporate Practices and Nominations Committee of FEMSA's Board of Directors has been diligently working on designing and developing the actions required for this important process. During the Board meeting we held yesterday, this committee recommended the creation of a special committee of the Board to oversee this process throughout this year. The Board approved this recommendation. The special committee will consist of seven directors, each of whom is independent. The special committee will be chaired by Ricardo Saldivar, who is the Chairman of Corporate Practices and Nomination of FEMSA. The committee will include all the other members of the committee, Gibu Thomas, Ricardo Guajardo, and Jaime El Koury, and in addition to them, the following directors will also form part of this special committee: Michael Larson, Elane Stock, and Olga González. Upon completion of their evaluation, the special committee will submit its recommendation to the Board of Directors. We will communicate the Board's decision at the appropriate time. In designing and executing this process as in prior CEO designations, we will have adhered to the highest corporate standards we have engaged a leading global firm with extensive experience in such matters, along with other advances from various specialties. And with that, let me turn it over to Martin.

Thank you, José Antonio. Good morning, everyone. Let me start by talking about the consolidated results for the fourth quarter of 2024. In the quarter, we achieved total revenue growth of 12.8%, while operating income rose 31.5% compared to the previous year, reflecting strong performance across our business units. Net consolidated income increased by 78.3% to nearly MXN 11 billion, mainly driven by a non-cash change gain of MXN 2.7 billion compared to a loss of MXN 6.3 billion of last year related to FEMSA's US dollar-denominated cash position, which was positively impacted by the depreciation of the Mexican peso. It was also a result of a higher net income from discontinued operations of MXN 3.3 billion, reflecting a gain from the sale of Embeda. Turning to our operating results. Starting with the Proximity Americas division, we should note that we began consolidating our US operations on October 1, 2024, reflecting a full quarter of results within the division. For clarity, we are including in our earnings release a column with organic growth rates that exclude the US results. In the first quarter of 2025, we will seek to have additional detail on our disclosure to provide greater visibility on OXXO Mexico and our proximity businesses outside of Mexico. Let me begin by focusing on same-store sales performance for the quarter. Average traffic contracted 2.8%, impacted by a sustained weaker consumer environment that has been present since the midyear elections, and we will expect will carry over to part of this year. Offsetting the decline in traffic, the average ticket increased by 6.8%, driven by our strong commercial capabilities, including segmentation, promote revenue management as well as an increase in prices by our suppliers of key food and beverage categories. The resulting growth in same-store sales was 3.8%. Total revenues for Proximity Americas grew by 13.2% or 8.1% on an organic basis, driven primarily by new store expansion, same-store sales growth, and strong commercial income dynamics. Gross margin expanded by 230 basis points, reaching 47.7% excluding the US operations, while gross expanded by 360 basis points. In the recent quarters, this performance was supported by OXXO's revenue growth management initiatives, strong commercial income, and positive performance of financial services. Operating income increased by 18.7%, well ahead of revenues, while operating margin expanded by 50 basis points to 11.7% of sales, reflecting strict selling and expense control initiatives across regions. On the store expansion front, OXXO added 205 net new stores in the quarter, including 275 openings in Mexico, partially offset by 70 net closures in LatAm, particularly 98 in Chile. Additionally, we continued expanding in Brazil with 30 new net additions. With this progress, we successfully met our store growth objectives for the year reinforcing our commitment to strengthen our presence and scale in key markets by prioritizing regions with higher growth and return potential, in this case, Colombia and Brazil relative to Chile and Peru. Turning to proximity Europe. Total revenues increased by 21.5% in pesos or 5.3% on a currency-neutral basis driven by growth in our retail revenue across countries. Gross profit rose 17.5% in pesos or 1.8% on a currency-neutral basis. The low revenues reflected changes in the mix relative to the comparable period of last year when higher-margin food service grew ahead of retail. Valora delivered an increase of 9.9% in operating income or a 4.8% decline on a currency-neutral basis and a 50 basis point dilution in operating margin, reflecting challenging comparison base from the solid results of B2B food service in late 2023. It is worth noting that in 2024, Valora achieved record operating income driven by solid growth in the convenience business and rigorous cost management enabled Valora to further support its results despite a persistently challenging economic environment. Moving on to the Health division. Total revenues grew by 13.3% in pesos with same-store sales increasing by 9.4%. This was driven by sustained strong performance in Colombia complemented by steady results in Chile and favorable currency dynamics. Operating income increased by 109.7%, while the operating margin expanded by 250 basis points to 5.5%, reflecting a favorable comparison base against 2023, and we provisioned an uncollectible account of MXN 527 million in Colombia. Pro forma for that effect, the operating income of the Health division would have grown by 9.3%. On the topic of FEMSA Health, as you can see from our press release, who was heading up the multi-format effort within proximity has now transitioned to lead our health operations. ACOBO has a strong track record with more than 35 years in global retail, including the pharmacy sector and we are confident that he will help the division navigate the current environment and capture its various growth opportunities. Turning to OXXO Gas. We continue to deliver solid results posting a 9.7% increase in same-station sales and an 8% increase in total revenues. During the quarter, the gross margin was 12.7%, while the operating margin remained stable at 4.6%. Additionally, our loyalty program in AltaGas continued to deliver strong results with a tender rate of 37% and a redemption of 31%, further strengthening customer engagement. As we look at 2025, it's becoming clear that beyond the macro headwinds we have mentioned before, the fuel business in Mexico is facing its own set of distinct pressures and we will likely see this reflected in our short-term results. Moving on to digital. The first thing to point out is that our digital ecosystem has now been fully rebranded as spin. And during the fourth quarter, we continued to execute our strategic initiatives to drive growth and maximize the value of our expanding customer base across platforms. Our spin by OXXO platform reached 8.6 million active users, reflecting 24.9% growth year-on-year while the SPIN Premia loyalty program continued its strong momentum, increasing 27.5% year-over-year to reach 24.6 million active users. Today, approximately 40.7% of the sales of OXXO Mexico are linked to SPIN Premia, reinforcing its role in driving customer engagement and return. Building on these achievements, we are leveraging our data analytics from these strong tender levels to pilot personalized offers based on user consumption patterns, enhancing engagement and loyalty. Throughout 2024, we have prioritized operational and cost efficiencies, including the integration of pay functionality with our spin by OXXO platform, which has not only lowered operational costs but also enhanced the overall user experience. These strategic improvements have fostered greater customer loyalty while simultaneously reducing operating expenses within this business unit. As a result, we can reinvest resources into additional monetization, reinforcing our long-term digital strategy. Finally, Coca-Cola FEMSA delivered its own strong close to a remarkable year, recording double-digit increases across their income statement. This growth was driven by the company's disciplined revenue management strategy and the strategic investment in CapEx throughout the year, which is expanding production and distribution capacity, enabling Coca-Cola FEMSA to meet rising demand and expand its market presence. Income from operations in the fourth quarter rose by a notable 25%, reflecting their continued focus on operational efficiencies and capturing value across markets despite the challenges posed by flooding in parts of Brazil and Mexico, which impacted two plants. For those interested in their detailed results and insights, a replay of Corp's full-year earnings call is available on our website. Let me close with a couple of comments regarding FEMSA forward. As Jose Antonio mentioned at the outset, the FEMSA forward brand was launched two years ago. From an execution standpoint, there were two broad phases to the plan. First one related to the divestiture and monetization of non-core assets and the second related to the allocation of the resulting capital, considering our medium-term investment needs in the business, the pursuit of potential M&A opportunities, and the return of excess capital to our shareholders in order to optimize our balance sheet to drive intrinsic per share value growth. Regarding the divestiture phase. As of today, we are almost finished with the related transactions. We successfully divested our stake in Heineken, our stake in Jetro Restaurant Depot, or JRD, and a portion of our stake in Envoy Solutions, now combined into BradyPLUS as well as our smaller legacy refrigeration and plastic business units. We've also announced the transaction for the bulk of our remaining logistics business, pending customary regulatory approvals. As we take final stock of these divestitures, it merits highlighting the fact that the bulk of our major investments delivered double-digit internal rates of return. In particular, the entire Heineken stake and JRD jointly generated total absolute value creation of dividends and pretax capital gains of approximately €7.6 billion and $734 million, respectively, or almost MXN 180 billion at current exchange rates. Beyond the divestitures and focusing on the allocation of the resulting capital, certainly, our number one priority is investing in growing core operations. To that effect, we are in the middle of a multi-year investment cycle across our business units. Regarding M&A, during 2024, we made our first investment in the convenience sector in the US, and we aspire to grow in that important market, but we expect a large proportion of that growth to be organic and thus, not reliant on any transactions exceeding approximately $1.5 billion. In terms of our balance sheet management, in addition to paying the relevant taxes, we carried out three separate processes to tender for some of our outstanding bonds and were able to use approximately $1.7 billion to acquire $2.1 billion of debt face value. And now that brings me to the capital return to shareholders where we were quite active in 2024. As José Antonio mentioned, we deployed MXN 44.8 billion, or approximately $2.5 billion at the exchange rate at the time of payment through a combination of $14.4 billion, or $774 million in ordinary dividends, MXN 10.1 billion, or $542 million in extraordinary dividends and MXN 20.3 billion, or $1.2 in share buybacks. However, given the steady inflows of cash from the divestitures as well as from our operations, we only managed to get our leverage ratio to 0.45x, far from our medium-term objectives of two times net debt to EBITDA, excluding Coca-Cola FEMSA. As a result, we need to pick up the pace this year. FEMSA's Board of Directors has approved to submit to the 2025 Annual Shareholders meeting the following proposals: an ordinary dividend of MXN 14.8 billion, or $725 million at current exchange rates, which reflects an increased unit per unit of 4.2% in pesos compared to 2024, in line with Mexican inflation to be paid in four installments beginning in April of 2025; pay an additional extraordinary dividend of MXN 32.7 billion, or $1.6 billion at current exchange rates over and above the ordinary dividend to be paid in installments and on the same quarterly schedule; and allocate to share repurchases an amount of up to MXN 18.4 billion, or $900 million at current exchange rates with such share repurchases to be executed subject to market conditions. Assuming no extraordinary events outside of our control, we also expect to submit at the 2026 Annual Shareholders Meeting plans for an ordinary dividend per unit in line with our recent trend and a minimum additional capital return of approximately MXN 26.6 billion, or $1.3 billion at current exchange rates. All these initiatives have anticipated minimum operation requirements and preserving cash for strategic projects at our activity division, which is why the 2026 amount is set at a minimum. This figure will be reassessed at the beginning of next year based on macroeconomic conditions, visibility regarding strategic projects, and our cash generation during the year. The aggregate amount, including ordinary and extraordinary dividends and share buybacks to be deployed in 24 months, represents almost MXN 107.5 billion, or $5.3 billion at current exchange rates, positioning us well to close the gap to our leverage objective of two times by the end of 2026. Now let me turn it back to José Antonio for some closing remarks. Please go ahead, Jose Antonio.

Thank you, Martin. As we look ahead, we are fortunate to have a wide runway to continue creating value in every one of our core verticals across markets, but the challenges are always around. There is no doubt that macro uncertainty is up, and we are already seeing a softer consumer environment in our key Mexican market. That will combine with a tough calendar set up for our first quarter performance. However, this only adds urgency to every initiative we are working on to keep driving growth, to keep defending and expanding profitability and to keep creating value. Finally, I want to take this opportunity to thank our entire team for a fantastic job in 2024, and to thank all of you for joining us today and for your continued support and interest in our company. And with that, we are ready to open the call for questions.

Our first question is from Ricardo Alves from Morgan Stanley. Please go ahead.

Hello everyone. Thanks so much for the call. First of all, congratulations on the transparency and for being consistent with the message around shareholder remuneration and balance sheet optimization. To start off on that point, on the returns proposed for 2025, a pretty impressive commitment specifically on the 3% component as it relates to buybacks, can you expand a little bit on that? How do you execute that? We saw a mix of local buyback in Mexico last year and then a couple of big accelerated share repurchases. Curious to hear, what was your experience with those different possibilities? And what are your thoughts as we go into 2025? The second question on the operations. I think that this one is more longer term, but triggered by the recent trends that we are seeing. I want to see, what are your thoughts when you win aggressive expansion of OXXO store base as we saw last year versus OXXO same-store sales trends and the store level returns. I mean you opened more than 1,000 stores in Mexico last year. And when you look at 2025, I'm curious to hear your latest thoughts, but I think that more importantly, in the longer term, what is the prospect for opening new OXXO or new OXXO stores considering that same-store sales decelerated last year or considering the traffic performance that you see? Do you perceive significant differences, for example, in the stores that you are opening right now or in the marginal returns that you see at the new stores that you opened? Is that something that you weigh in when you're thinking about five years from now and the pace in which you're going to be opening stores? Or can we still be comfortable with this quite impressive, 1,100, 1,200 stores per year? I mean, impressive numbers, but I'm just trying to see if the marginal returns are still very in line with what you expect with the new openings. Thanks so much for the time, and congrats again.

Martin, would you like to answer the first question?

Sure. With regard to MXN 900 million, I suspect there will be a mix of purchases on the Mexican Bolsa and through ASRs in order to share repurchases in the US, very similar to what was done last year. There are a variety of legal technical issues that lead us to do it that way. One of them has to do with windows. We can only be repurchasing during the trading windows. And we can only launch our during the trading windows. Number two: sometimes the windows are closed. The problem is we're not really in a position to inform the market when windows are closed because they're normally closed for a reason, which is that we have some material non-public information that impedes us from being able to execute in the market. So, I do expect there to be a mix. They won't happen at the same time, generally, but pretty much like we did last year.

Would it be end of this quarter, what it would be fair to say, Martin, within the constraints of the windows and the lower liquidity in Mexico that we'll cut last year, the mix was significantly weighted to the U.S. Would you expect a more balanced? I mean, again, based on what the markets give us.

It is quite challenging. The benefit of the ASRs is that they allow us to initiate actions during a specific timeframe, and subsequently, the bank is directed to operate over an extended duration. This enables us to engage in more days and handle larger volumes than if we were only operating in Mexico during those specific timeframes. Therefore, it will depend on the circumstances. If any of the timeframes are closed for any reason, I might lean towards ASRs to make the most of a timeframe and execute at a larger volume. Ideally, there would be a balance so that all shareholders have a chance to learn about this liquidity. While there are investors who trade both AER and the Mexican shares, it's important to recognize that there are shareholders who are invested in both markets, and we want to ensure we are as equitable as possible.

Right. On the OXXO stores, but yes, we do explain a little bit how we see this?

Mathias is the CFO for our Proximity and Health division, and we asked him to join us to also answer any questions you might have.

We monitor our expansion and the annualization resulting from it. We have not encountered any issues with the pace of our expansion over the past years, and we are very careful in our oversight. To address the first question, we don’t foresee any problems. Regarding the second part, we anticipate continuing to open even more stores at this rate. This is an ongoing process that we keep under review, ensuring that the annualization of new store openings remains manageable and adds value for us. We'll maintain our current pace. We are also expanding new formats like OXXO Smart and OXXO Meters, which have driven significant growth while maintaining safe and controlled cannibalization ratios. So, the answer is yes.

I would add, Ricardo, this is Juan again. If you remember, during COVID, we discussed the approval process for new locations. It became clear at that time that we had opened some stores that likely shouldn't have been opened. As a result, the team tightened the standards for approvals. The later cohorts of stores we have opened are performing better and are more productive than some of the stores opened in 2018 and 2019. The key point is about measuring everything, including adjusting the requirements for location approvals, which significantly improves store productivity once they open. I believe this boosts our confidence to maintain our current pace for the foreseeable future. Additionally, regarding Matthias' point about successfully finding different store types, this connects to something Jose Antonio mentioned in his remarks. This segmentation is enabling the team to establish stores in apartment buildings, office buildings, and manufacturing facilities, which allows us to sustain our growth. I'll just stop there.

Thank you so much for all the details. And congrats again, everyone.

Thanks Ricardo. Appreciate it.

Thank you. Our next question is from Lisa Lane from Bank of America. Please go ahead.

Hi, and thanks so much for taking my question, and again, for the additional insight you've provided in terms of your capital return strategy. On the topic of cannibalization in Proximity in Mexico, how much of the traffic decline would you say is attributable to cannibalization from these store openings, which I imagine is marked by design versus other factors? And then how are you thinking about operating and leveraging this year given the wage increases and softer economies? Thank you.

The traffic has several factors affecting it. One of those factors is the weather; we experienced significantly more rain this past year compared to the previous one, which, while necessary for the country, has not been beneficial for our traffic. Additionally, we observed a notable slowdown in the second half of the year. The first half was influenced by the presidential campaign, which created a lot of movement and spending in the streets. This shift certainly had an impact. Lastly, there is some cannibalization occurring. However, OXXO has an effective method for tracking the performance of stores that are near new locations we open. We analyze the extent of the impact that a new store has on surrounding stores. So far, these figures have not raised any concerns. We have successfully established stores in well-defined areas such as college campuses or large manufacturing sites. In fact, they have approached us to create OXXO locations tailored to their needs, focusing more on food options and less on alcohol. These initiatives have been very successful, and we intend to keep exploring these new formats.

There's a complement that there's a very detailed exhaustive work that gets done of measuring each store and the hurdle rate that's set internally. And if you're not meeting that hurdle rate, the store’s closed. One of the advantages of our businesses is that the amount that we invest per store gets paid back very quickly, and it's a very small amount. So we don't have the traditional pain point of a very, very large retailer that has 20 or 25-year lease and/or has invested tens of millions of dollars in a store. In this case, normally, we will just simply close the store, and we're pretty disciplined about that.

Great. Thank you so much. And on the team of operating leverage or margins in Mexico, Proximity specifically this year?

A lot of that likely relates to labor. When we examine our 2024 results, the gross margin expansion stands out, and I'm always impressed by how the team consistently manages to achieve this. As Martin pointed out during his remarks, if we exclude the US from the figures, the gross margin expansion was around 50 basis points. This effectively raised the full year above the 300 basis point expansion mark, with a 50 basis point expansion at the operating level for the quarter. Clearly, there's a noticeable gap between gross and operating expansion, largely due to labor dynamics. We've experienced six years of double-digit minimum wage increases, and while we've implemented various strategies to manage that, the trend is expected to continue, albeit at a slower pace. Minimum wage increases are now closer to 12 instead of 20. That disparity is primarily why we see such a significant difference between growth and operating margins.

Okay. Thank you.

Thank you. And I will take our next question from Hector Maya from Scotiabank. Please go ahead.

Thank you. Thank you very much for taking my questions and congratulations on the results. The first one, just if you could help us understand, please, the growth strategy in the US. You mentioned that it would be mostly organic and that you see no acquisitions at $1.5 billion. But we see that there would be interesting players in the space that could acquire in the state closer to the border. So Kentucky could become the fourth largest convenience store player in the US relatively quickly. I mean, comments on most organic growth, what would be sensitive ambition and scale in number of stores market relevance in the US in the near-term?

This is Martin speaking. Over the past few months, and continuing into the future, we will have José on the call soon to explain further. We are currently conducting a series of experiments by launching stand-alone OXXO stores and rebranding existing stores with gas stations, especially focusing on food service value propositions. We hope to gather feedback on these initiatives over the next 18 to 24 months. These experiments vary in number, and they will guide our focus for organic growth. As I have often mentioned, the United States doesn't need more convenience stores; it needs better ones, and we aim to be part of that solution. Our goal isn't to become the second, third, or fourth largest but to achieve profitability regardless of our scale and ensure good returns on our investments. Our growth expectations will hinge on the success of these experiments. We also anticipate making smaller acquisitions, enhancing our portfolio through good locations, and leveraging our scale to improve gross margins on both gas and merchandise.

I want to emphasize that OXXO has established a strong practice of organic growth in Mexico. We need to develop that capability in the United States, which is essential for us to achieve organic growth at an effective pace in prime locations. This will be our primary and most important growth strategy. Additionally, we remain open to certain opportunities for inorganic growth. Ultimately, this ties back to returns. The more we successfully grow organically, including the bolt-on strategy that Martin mentioned, the lower our expansion costs will be, increasing our chances of achieving higher returns. You can expect this discipline to be a constant focus for us.

Thank you very much. That's very clear. If you could help us understand the dynamics you're seeing in financial services and the increased contribution to margins from that, along with more details on the monetization of critical mapping speed, I’d appreciate it. How should we think about the relevance of timing for new services and potential offerings like loans and insurance? Additionally, how is FEMSA considering the possibility of obtaining a bank license in Mexico?

We are experiencing positive developments. We continue to see growth in our financial services, and our stores remain a go-to destination for financial solutions. Banks that previously exited our system have returned for correspondent banking services. OXXO PAY remains a growing online payment solution with a rising number of merchants participating. We are dedicating significant resources to enhance our Remittances business. A key part of this is the introduction of new cash registers equipped with a safe that can store a larger volume of cash, enabling secure deposits and withdrawals. We expect to roll this out to over 3,000 stores by the end of the year, which will help us increase the scale of Remittances while prioritizing the safety of our employees and the store environment. Due to the convenience our stores offer, we anticipate continued growth. However, we must also plan for the future, particularly regarding the potential digitization of certain payments. This is where our spin initiative comes in, creating an ecosystem centered around loyalty, data, retail media, and a digital wallet. This approach is essential for our transition. In line with building this ecosystem and incorporating digital components, we recognize the importance of being able to offer financial services. Therefore, in the coming months, we plan to apply for a banking license. It's still in the early stages, and we currently have no intention of making significant investments in credit. We will explore options, including potential partnerships for the credit aspect of the business, to ensure we proceed responsibly and effectively, acknowledging that financial services are crucial for monetizing our digital payment strategy. Many companies involved in payment and wallet solutions are also looking into financial services to enhance their payment systems. I hope this clarifies your query.

Yes. Thank you. Very clear. Thank you very much.

Thank you. And our next question is from Rodrigo Alcantara from UBS. Please go ahead.

Thank you for the opportunity to ask questions. The first one, which we are receiving from investors, is about your confidence in your ability to continue increasing the gross margin. Specifically, I’d like to dive deeper into Juan's comments regarding the gross margin. Could you provide some insights into the trends for gross margin across all areas of commercial and financial services? Any information on what we can expect regarding gross margin would be really helpful, especially since it has significantly helped you offset labor expenses in Mexico. Additionally, I have a quick question about Brazil. Can you update us on your operations there, particularly regarding customer reception and store profitability? Any insights on the evolution of your business in Brazil would be very valuable.

Let me address the gross margin since I'm an enthusiastic supporter of their numbers. First, I want to emphasize that the performance in 2024 shouldn't be the figure anyone includes in their model. A 300 basis point expansion is remarkable, but I would estimate something closer to a third of that or even less. There are three factors contributing to the gross margin expansion: commercial income, financial services, and our growing pricing and revenue management capabilities. Commercial income benefits from scale—having more stores increases our relevance in certain categories, enhancing our negotiations with major suppliers and allowing us to assist them beyond just selling products. This area has significantly contributed to our success. I anticipate that financial services will stabilize, given the limited number of banks and the growing number of e-tailers utilizing our stores, though I expect pricing to be the segment that grows alongside stable financial services, while commercial income may slightly decline as we may eventually reach a limit. Fortunately, the team continually surprises us by finding ways to expand the margin. Scale is essential, and we are getting larger each day. Regarding Brazil, our stores are performing well, as evidenced by our fourth-quarter same-store sales, which were around 9%. We're pleased with our approach to entering and expanding in the market, concentrating our efforts in São Paulo due to its socioeconomic advantages as the wealthiest region in Brazil. This strategy has helped us create brand awareness, with friends and acquaintances noting how popular the OXXO stores have become. We are also considering utilizing OXXO stores at gas stations, which has shown promising early results. Lastly, we are in discussions with our partner about their financial challenges and their willingness to continue investing with us. Our shareholders' agreement clearly outlines various scenarios, providing us with comfort as we continue to grow our stores in Brazil. While we expect this year's expansion to be slower than last year, we will focus on improving the operational metrics for our existing stores to enhance profitability, setting a solid foundation for future growth, especially in São Paulo. In time, we plan to explore other regions of Brazil as well. I believe 20% was the number that was given.

And I would just add that, as Martin was saying, we see improvement in sales, we see improvements in gross margins, we see improved expense on spoilage. So in general, all the operational improvements that we are doing. We see them reflected in all the different lines of our P&L in Brazil. So not to get into numbers, but we do have good expectations of keeping on improving our economics in Brazil and keeping the pace as Martin was mentioning.

Awesome, guys. Thank you very much for the answers. Very helpful.

Thanks, Rodrigo.

Thank you. We will now take our next question from Renata Cabral from Citibank. Please go ahead.

Hi, everyone. Good morning. Thank you so much for taking my question. So on some lines of the question about OXXO Brasil, my question would be actually about Bara. We saw impressive numbers about the growth in 2024. So I wonder if you could give us some color about the strategy going forward as you see the results as we see this as a vehicle of growth for the company. Thank you so much.

We are very pleased with Bara's results. This is a business we have been involved with for a long time, and we are feeling confident about its expansion due to the positive developments we are experiencing. Historically, Bara was fully integrated into OXXO, serving as a key part of its operations. To enable Bara to develop its own capabilities, which are distinct from OXXO, we are separating its operations from those systems related to commercial, procurement, and distribution. We've been cautious with our expansion efforts as we are setting up these systems to minimize any disruption to Bara, allowing it to carve out its own path. Recently, Jaime Longoria, who previously headed OXXO GAS, has taken the lead in this multi-format initiative. Jaime is an experienced retail executive with a decade at FEMSA, having managed OXXO's commercial operations successfully. We believe the business is in capable hands. Jakob, Bara’s former CEO, laid a strong foundation for it to operate independently, and we anticipate continued growth for the business as it meets market demands.

I'll just add that it's a space that we really like. We've seen how the discount formats have grown in Europe and a bit down in Colombia. We think there's a big lead way in Mexico. We've been improving our value proposition on that and we are doing lots of work in private labels, which we consider as key for the format. We are expanding our presence in Jalisco, our strong growth in Bajío and we might be opening new regions soon. So very good expectations that we have for the format I would say.

All right. Thank you so much for the color.

Thanks, Renata. Thank you. Good luck.

Thank you. Our next question is from Ulises Argote from Santander. Please go ahead.

Hi. Ulises Argote from Santander. Thanks for the added color you have been providing here. Very, very helpful. Sorry to come back to this one point, but on the traffic dynamics in OXXO, maybe I wanted to get your sense on what you were seeing at the start of 2025. Obviously, it was a bit challenging end of the year there traffic-wise. So maybe if you can just comment on what you're seeing there early 2025? And maybe on some of the specific initiatives that you're kind of taking to turn to dynamics around. The other question I had was on Delek and thanks also for the color there on the experiments that you're running and the way that you will roll out the business. But may be I was wondering if we could figure out just to see if you can share any color on transfer dynamics that may have surprised you to the upside or to the downside on these first months of operations there in that means in the US. Thank you.

Regarding the traffic issue, it’s a complex matter for us. At the beginning of the year, we were not observing positive trends in traffic. Additionally, we experienced one of the coldest Januarys in the last decade, which hasn't helped our traffic situation. However, we have been analyzing the data and are confident that we will recover the traffic in the future. We don’t anticipate any issues with annualization, pricing, or competitiveness regarding our auction value proposition. We believe that the current traffic challenges are temporary.

I would just add that regarding traffic, we mentioned this a bit in the last call. Looking at the full-year numbers, the same-store traffic decreased by 1.5%. However, the aggregate traffic increased by about 1.5%. This indicates a three-point difference between the same-store sales figure and the aggregate figure. Clearly, more people are buying overall, but this is where the careful cannibalization that Matthias discussed comes into play. There is no doubt that everyone on the call understands that since the midterms, the consumer environment in Mexico has been soft, as Martin pointed out. We are not seeing any improvement, and we are now two months into the quarter. It’s clear that the first quarter will not be when consumer confidence recovers in Mexico. However, based on our measurements, including market share dynamics and the impact of weather, we feel relatively positive. We also noted earlier that the first quarter is impacted by changes related to Semana Santa, as we have one day less to account for. Please keep that in mind while modeling for the first quarter.

The second question you asked about Delek. I think the thing that has got the most surprised is that the number of opportunities that have been identified for improving operations. This was a business that was run by a refiner. It was a business that was run primarily to push through gasoline. That was the primary objective, given that the bulk of the business was at refining. I think this is a challenge that all the big oil companies and refiners have had of managing retail is a very different business, and it's hard to run it just to push gasoline through. I think the team that's been assembled there is constantly finding all sorts of opportunities. In terms of challenges, and this was one we were well aware, this is a carve-out. So one of the things we need to do is create the platform on which this business can operate going forward. And then this is the business on that basis on which we can expand going forward. And that just doesn't refer just to systems and people and so on. It also refers to capabilities that we can transfer there, but we need to transfer the know-how so that then gets built and adjusted and adapted to U.S. needs and U.S. issues. So I would tell you that the best thing is the number of opportunities, and the biggest challenge is creating the platform. Both of them will see the value creation and have been confirmed. So maybe surprises not too quite work, but it's the two areas in which we focus on.

Actually, we can even announce you that yesterday, we opened the first OXXO in Texas. Historically, it's a very important day. We transformed one of the Delek stores. We had to change the commercial offer to make it more OXXO like aligned to what we do most in OXXO, like Mexico, and OXXO was launched in Midland Texas, will start measuring in.

Perfect. Thank you so much for the clarity there and congrats on that for OXXO. Now we'll have to make our way to Texas to test it out. Thank you. Thank you so much, guys. Congrats, guys.

Thank you.

Thank you. We'll now move to our next question from Ben Theurer from Barclays. Please go ahead.

Thank you very much and good morning. Thanks for squeezing me in. Just a real quick one. As it relates to like your willingness or your openness as to M&A. If I interpret it right, it feels a little bit more muted right now in terms of looking into M&A opportunities. But just wondering what has changed from, call it, roughly two years ago, where it was really having the opportunity to build into the different businesses and M&A felt to be more of a cornerstone of the strategy and now it feels more like a limited you've flagged just a little under MXN 400 million investment in Delek last year, but more return of cash to shareholders. So what's changed? And why is that? Maybe that would be my question I have for you this morning.

I'm going to be bluntly honest with you. I don't think we've changed. I think people have just to be honest, believed in what we've been saying. I've been out now for a year. I've been telling people don't expect big, large M&A as our entry strategy into the United States, we have repeatedly said, our focus is on the core strategic businesses that we have Coca-Cola FEMSA, which and then proximity and deemphasizing M&A in our health businesses and to some extent in Valora, although there may be opportunities in Valora and that our primary focus was to do what I would consider a small deal in the United States relative to the size of FEMSA. I've always been signaling this number of $1.5 billion. The team has been very disciplined. We have been offered opportunities within the range, and we have said no because they weren't in our view, appropriately priced and/or didn't see our strategic objective of South. I think part of this has been the nervousness around the issue of the amount of cash that we had and the speculation about the cash and what we would do with that cash. But at least since I've been here and I did my first call, I believe, in April last year, we've been sending this and I hope to the extent that people didn't have clarity about our strategy? We are patient. We have a set of controlling shareholders who I have never heard them deviate from everything I've just said to you and my and my instructions mandate from the CFO perspective, we've been very, very, very clear. So I think part of this is just expectations catching up with what we've been saying. And we have plenty of things we need to worry about. There are plenty of things we need to do $4 billion, $5 billion M&A deal is not one of them in my humble opinion.

Okay. And then one last quick one. I know you don't provide that yet. I don't know why, but kind of like same-store sales dynamic, traffic versus ticket in Europe. Anything you can share that even if it's at a high level to understand a little bit the dynamics of the consumer in Europe.

We've seen Europe quite stable. Germany obviously has struggled to come back from the COVID level as well as Switzerland. But what we've seen in our business is we're being able from our core business because a lot of the growth in that in Valora came from our B2B business. We do are improving. We are transferring capabilities from Mexico that allow us to improve our economics in Valora in our retail business, which is our core business and things I think we've mentioned in the past that commercial agreements that we improved price internet assortment. So, there are a lot of capabilities that we're transferring and helping the business to be more profitable. But with regard to consumer sentiment, Germany, we've seen it struggling and we expect to continue. So, I mean, obviously, we don't know what's going to happen with all the new government forming out there. But so far in our experience. Now, just to clarify why we don't give this information. The European business, really, if you think about it, is four or five businesses as a B2B pretzel business for traffic and those issues are not relevant. Then within Switzerland, we have a retail and a food service business. They're very different businesses. We have everything from small start-up concepts of food service to more mature convenience stores and mature food service businesses. And then we have the German business, which is in Citi retail business and a slightly more mature food service business. Again, one is I've heard he make this comment in a couple of forums, more and more olefins as we mature is going to do something very similar to what Coca-Cola Femsa did, where we obsess about volume. Now we really assess about share of sales and top-line growth because the product portfolio is so diverse that volume per se doesn't really capture. Europe, in a way, is a little bit ahead of the curve as our businesses mature, and the value proposition changes, traffic per se should be less of a concern as opposed to top-line growth. So in Europe, this is primarily the reason why we do this. It's not really trying to hide the bar. It really would be meaningful. We end up discussing these very nuanced traffic issues in four or five different businesses that would be very hard to explain and provide much insight.

Having said all that, Ben, I think we are looking for as we look at disclosure, we mentioned for the first quarter, we're planning on already making some changes to increase the transparency of OXXO Mexico and some other things that we're working on. Just directionally, we'll keep looking for ways to provide you guys on the market at large with data that allows you to kind of take the temperature of what's happening at the ground level in our different businesses.

I would just add that, for instance, in the Swiss stores, AEC, which are the convenience stores, change towards offering food with fresh food in the stores is huge, and it's moving quite well. That's one of the positive things that we can see. We are testing that to grow all over in Switzerland and maybe even taking it to Germany. So, those are good projects that are very concentrated in Switzerland to take them out to the rest of the sites.

Got it. Thank you.

Thank you. I would like to turn the call back over to our speakers for any additional or closing remarks.

Well, thank you for joining. Obviously, any follow-ups, any questions that you forgot to ask or that come up later, you know where to reach myself, Pamela, Alex, the rest of the team. And then we'll see you on the road, many of you in the coming weeks and months. Thank you.

Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.