Good day, and welcome to FEMSA's Third Quarter 2025 Results Conference Call. My name is Serge, and I will be your coordinator for today's event. 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 Third Quarter 2025 Results Conference Call. Today, we are joined by our CEO and Chairman, Jose Antonio Fernandez Carbajal, Jose Antonio Fernández Garza-Laguera our current CEO of our Proximity and Health division and future CEO of FEMSA; Martin Arias, our CFO; and Jorge Collazo, who heads Coca-Cola FEMSA's Investor Relations team. The plan for today is a little different than usual. We will begin with our CEO and Chairman, who is traveling today and is therefore joining us remotely. Jose Antonio will share with us some thoughts on the past couple of years, where he sees our company today, and how he sees FEMSA position for the future as he gets ready to step down from the CEO role at the end of this week. He will not be able to stay for the remainder of today's call. Next, we will hear from Antonio Hernandez Velez Leija, still in his capacity as CEO of our Proximity and Health division. As you know, he will assume the role of CEO of FEMSA in a few days. But most of his comments today will focus on the performance and trends in our key retail operations during the third quarter, as well as some thoughts on the short- and long-term initiatives we are taking to address an evolving consumer. Next, Martin Arias will discuss FEMSA's consolidated and operational results for the quarter in further detail. And finally, we will open the call for your questions. For the Q&A, please keep in mind that as of today, Jose Antonio is still the CEO of Proximity and Health, and there is a lot to discuss regarding those operations. If you would rather ask him about his views on the broader FEMSA platform, I'm sure he'll be happy to provide some high-level directional comments today, but these are early days as he onboards to his new role. Obviously, we'll be happy to dedicate ample time to this topic during our February call and beyond. And with that, let me turn it over to our Chairman, Jose Antonio, please go ahead.

Thank you, Juan. Good morning, everyone. As you all know, in June of 2023, I returned to the role of CEO at a challenging moment because our good friend, Daniel Rodriguez, had fallen gravely ill, and we were in the thick of executing our ambitious FEMSA Forward strategy. I committed at the time to wear the two hats of CEO and Executive Chairman for a certain time with a clear plan to fill the CEO position and return to the separation of these key roles within that time frame. With the help of our Board, we've been able to deliver on that plan. And while I'm happy to hand over the keys to the incoming CEO next week, I appreciated the opportunity in these past two years to get close to the operations again, particularly through such a key process as FEMSA Forward. Today, I would like to share some thoughts on our recent past and on our future. FEMSA Forward was all about maximizing long-term value creation by focusing on our core verticals, retail and beverages, enabled by digital, and setting out very clear capital allocation targets. In the past 32 months, we've been hard at work executing that plan, divesting nearly $11 billion of assets while staying within our core. At the same time, the capital allocation framework we put in place in February of last year is guiding our actions and allowing us to move steadily toward our leverage objective by distributing approximately $7.8 billion of capital through ordinary and extraordinary dividends, and also through some share buybacks between March of 2024 and March of 2027. As I briefly recap these last two years, there are two messages I want to highlight. First, that everything we set out to do when we announced FEMSA Forward, we have delivered on. We told you what we were going to do, and then we did it. Second, that these actions have been driven by our shared pursuit of long-term value creation for all of our stakeholders. Our purpose and interests are well aligned. Finally, I would like to quickly touch on how I see FEMSA's position today. I feel very confident that our business units have never been stronger. I know this year has been sluggish in Mexico. And I know that the team has addressed this, and we will discuss this later during this call. But I also know that last year was a banner year. So I am talking about the forest, not the trees. On the retail side, we have OXXO Mexico still with at least a decade of continued store growth at the current pace, world-class returns on capital, and a full range of levers to adjust as we ensure our value proposition continues to satisfy a growing number of needs for an always evolving consumer. In Mexico, we have successfully completed the leadership transition to Carlos Arroyo, an experienced retail operator with a decade-long track record, who is bringing a new set of capabilities that will serve us well for the challenges ahead. In the proximity convenience environment outside of Mexico and in the discount space in Mexico, we have a compelling set of higher growth opportunities that are ready to be scaled up, such as OXXO Brazil, OXXO Colombia and Bara, among others. Any one of these opportunities has the potential to create billions of dollars of value over the next decade and beyond. In our other retail investment, specifically Health in Europe, we are laser focused on organic growth and on improving the returns on our invested capital. At Coca-Cola FEMSA, we are in the middle of an ambitious multiyear investment phase, continuing to increase our production and distribution capacity, as well as our long-term growth capabilities. Underscoring the strength and resiliency of this business even as we navigate a challenging short-term environment. On that note, the recently announced tax increase in Mexico will present challenges, but we believe this will be like the ones we have faced in the past. And we will make the necessary adjustments in order to balance our return on invested capital while allowing us to take advantage of some growth opportunities. At Spin, we continue to grow our user base and engagement as we make steady progress in developing a digital ecosystem that will better enable our millions of users to navigate and improve their financial lives in a world that is increasingly digital. Although this is one of the longest-term bets in our core verticals, we have a firm belief that the digital capabilities we are building are indispensable to OXXO Mexico and will prove to be a source of value creation for decades to come. Jose will certainly bring a fresh perspective to this business. I have been at FEMSA for nearly 40 years. During that time, I have lived through several reinventions of FEMSA. And today, I am as excited about our long-term growth opportunities as I have ever been, and I hope you are too. I will continue to work to capitalize on those opportunities in my role as Executive Chairman, but I will have fewer chances to speak with you. So I want to take this moment to thank every one of you for your interest in our company and for your full support through all these years. And with that, let me turn it over to our new CEO.

Thank you. Good morning, everyone. Today, I want to structure my comments around three topics. First, the quarter's results with a particular focus on OXXO's Mexico same-store sales and traffic, where despite a still challenging environment, we are seeing some encouraging signs. Next, I want to talk about the actions and initiatives the team has put in place at both the short-term tactical level, but also some ideas about more strategic considerations and projects aimed at strengthening the value proposition and relevance of the OXXO store in the medium and long term. Finally, I will share with you some initial thoughts as I get ready to step into the FEMSA CEO role in a few days. So firstly, let's talk about the third quarter. As you saw in our release, same-store sales for Proximity Americas increased by 1.7%, with average ticket rising by 4.9%, and average traffic contracting by 3.1%. This represents a clear improvement versus the first half, marking an inflection in our trend that seems to be improving further in October. This quarter was the first to show positive same-store sales growth since the middle of last year, and importantly, we believe a significant part of the improvement came not from a meaningful change in macro conditions, the weather or the consumer environment, but rather from adjustments we made to address category and channel-specific challenges. As a result, we improved our competitive position in several key categories like beer, soft drinks, and snacks. And in terms of the channel, we believe we also improved our overall competitive position versus the traditional trade, reversing the trend we saw earlier in the year. Which brings me to my second topic regarding the short- and medium-term initiatives we have launched to improve performance. There is a long list of actions and initiatives designed to drive our short-term results, which are aligned with our long-term strategic objectives. One of our most important such initiatives, which I want to highlight, is pursuing affordability in our core categories of beer, soft drink, snacks, and tobacco. To this end, and working in tandem with our key supplier partners, we were able to improve our assortment and our price package architecture by adding presentations at both ends of the out-of-pocket spectrum. Larger multi-serves and returnable presentations in beverages, smaller packages for snacks and beverages, and lower-cost brands for cigarettes. In addition, we have implemented aggressive promotional campaigns in these categories and a variety of other categories. These initiatives are being supported by strong communication efforts, access to Premia-related data, and a focus on store execution, and we are already seeing positive results, improving our competitive position during the quarter for most of these categories relative to the traditional trade. At the same time, we are executing ambitious initiatives to drive productivity and efficiency across the proximity and health organization aligned with our long-term strategy, including our recently launched fit-for-purpose corporate overhead efficiency program, which will make our organization leaner and achieve significant cost savings over the next several quarters, generating a reduction in SG&A. Beyond the short term, we are in the early stages of developing the strategy that will guide the evolution of our OXXO platform in the years to come. As powerful as our value proposition has been to satisfy certain consumer needs and occasions around thirst, gathering and impulse, we believe we can expand our relevance and increase the scope of our value proposition while ensuring affordability in a more integral manner. We also see that coffee and food categories are categories where we can win by making significant improvements. We have performed a deep diagnostic on our current value proposition and are currently in the experimentation phase to launch new offerings. We are excited by the opportunity and we will keep you posted as we advance on this ambitious multiyear effort. Finally, let me talk about FEMSA and my role as future CEO for a minute. As you might imagine, I have been rapidly getting up to speed on all the matters outside the scope of Proximity and Health. However, although it is still early, and I do not start the job until next week, I want to share an initial message of strategic continuity. Over the past few years, we achieved meaningful progress driven by the vision, courage, and strategic clarity of those who came before me. They led a powerful transformation, streamlined our portfolio, and positioned FEMSA to compete with greater focus and strength. I have the privilege of learning from them and their example continues to shape how I live and think about the future. As a member of the senior leadership team, I was informed and fully supportive of FEMSA Forward and the resulting focus on our core business verticals, and I am completely aligned with our capital allocation framework and strategy. I am convinced we have in Coca-Cola FEMSA and OXXO Mexico, two of the most remarkable and valuable assets in their respective global industry. Not just because of what they represent today, but just as importantly what they can become in the future. Our retail platform is poised for dynamic long-term growth through OXXO Brazil, OXXO Colombia, and Bara, and although still at an earlier stage of development, OXXO USA. Our other retail platforms, in particular, Health and Europe, are solid self-funding operations where our focus should be on maximizing the returns on our existing assets through efficiency and primarily organic growth. I am a firm believer in the potential and optionality of the Spin ecosystem. I also want to take this opportunity to share with you that I am bullish on Mexico. We continue to deploy more than $1 billion in our CapEx in our home country every year. As attractive as some of our international long-term bets are, Mexico will continue to play an outsized role in the value creation at FEMSA for the foreseeable future. As for my management style, I favor thinking in decades while acting in days, balancing a long-term view on value creation with a sense of urgency in setting the right conditions for execution. We will have plenty of opportunities to talk about these topics in the future. But I can share some examples with you of what I mean by that. Thinking in decades requires that we methodically consider our strategy, ensuring that we do not mortgage our future for short-term fixes and gains at the expense of our long-term growth and competitive position. We should always be driven by the objective of long-term value creation, instilling a relentless focus on sustaining or having an achievable and realistic path to ROIC over WACC. Acting in days requires us to rigorously tighten our grasp on actionable expense and cash flow levers, making it a daily habit across the organization. It includes getting the right people in the right seats right now, as well as testing frequently, learning quickly, moving on fast when we fail, and acting decisively when we find a new solution that serves our customer needs. I would also add that I'd like to communicate in a no-nonsense straightforward way, and one thing I can offer you now is a commitment to be in touch with you, our investors and analysts more than in the past. Not just on these quarterly calls, but by meeting you on the road. We are already developing the plans for next year with Martin and Juan, and I look forward to seeing you all in the not-too-distant future. And with that, let me turn it over to Martin to go over the quarterly results in detail.

Thank you, Jose Antonio. Good morning, everyone. Let me begin by discussing our consolidated results for the third quarter of 2025. During the quarter, we delivered total revenue growth of 9.1% despite a still challenging but improving environment in Mexico, impacting both Proximity and Coca-Cola FEMSA, which was offset by solid top-line trends outside Mexico. Some currency tailwinds, particularly in Europe and the consolidation of the OXXO USA operation. Operating income increased by 4.3% year-over-year, reflecting inflationary effects on our costs and expenses, partially offset by expense efficiency efforts across multiple operations, especially at OXXO Mexico, Coca-Cola FEMSA Mexico, Health and Europe. Net consolidated income decreased by 36.8% to MXN 5.8 billion, driven mainly by a non-cash foreign exchange loss of MXN 1.3 billion, compared to a gain of MXN 4.3 billion last year, a swing of more than MXN 5.5 billion. This is related to our U.S. dollar-denominated cash position, which was negatively impacted by the sequential appreciation of the Mexican peso during the period. Higher interest expense of MXN 5.5 billion, compared to MXN 4.8 billion the previous year, reflects higher debt at Coca-Cola FEMSA and higher lease obligations across our retail network. Lower interest income of MXN 1.9 billion compared to MXN 2.6 billion the previous year, reflects lower interest rates and lower cash balances. Our effective tax rate for the quarter was 29.3%, showing a sequential improvement. We understand that the spike in the first half of the year in our effective tax rate, which was 42.2% in the first quarter and 40% in the second quarter, raised certain concerns. In that regard, I want to make several comments. The quarterly movement of our tax rate can be volatile and difficult to project on a quarterly basis, since it can be impacted in any given quarter by any of the following things: extraordinary settlement of fiscal contingencies from the past in one quarter, reflecting issues from several years in the past. As the year progresses, we also make adjustments to provisions for tax payments given the performance of the business. Foreign currency gains and losses on our foreign currency cash balances and debt can cause important swings. We are required to write off deferred tax assets relating to NOLs based on adjustments to internal projections. Movements of accumulated cash, excess cash from our subsidiaries to Mexico, reflecting several years of profits can cause an increase in taxes. There are certainly structural reasons why our tax rate is higher than the 30% corporate income tax rate in Mexico, including nondeductibility of certain expenses, losses relating to Spin, and higher tax rates in countries outside of Mexico. We have guided investors towards a tax rate in the mid-30s range, and we continue to believe that this is the right number under current legislation. Turning to our operating results and beginning with the Proximity Americas division. Same-store sales increased modestly by 1.7%, once again reflecting a combination of a solid average ticket growing 4.9%, offset by a traffic decline of 3.1%. This is an improvement over the previous several quarters. And as Jose Antonio just said, it includes some encouraging information regarding the effectiveness of our tactical initiatives, and an incipient recovery in our competitive position in key categories. Total revenues for Proximity Americas grew by 9.2%, or by 4.8% on an organic and currency-neutral basis, mainly driven by the expansion of our network of 1,370 stores year-on-year, a strong performance in our LatAm markets, which continue to grow at very attractive rates. The consolidation of OXXO USA, as well as favorable exchange rate effects in several of our operating currencies. Gross margin expanded by 80 basis points to 45%, reflecting a continued expansion in Mexico and LatAm, despite undertaking the affordability efforts mentioned previously in Mexico, and the consolidation of the U.S. operations which have a significant component of lower margin fuel. Operating income increased by 7.1%, while operating margin increased by 20 basis points to 8.8%, mainly due to the consolidation of the U.S. operations, which are slightly above breakeven. And despite the fact that Mexico's margin was flat, and OXXO LatAm continued to reduce its operating income losses relative to its revenues. The combined selling and administrative expenses grew by 12%, reflecting continued pressure on wages in Mexico, continued expansion-related expenses in LatAm, and the consolidation of the U.S. operating expenses. There were some reclassification of administrative expenses to selling expenses in LatAm, which makes comparison more difficult on a disaggregated line item basis. We expect, over the next few quarters, you should be able to see the effects on SG&A as we streamline corporate overhead through our fit-for-purpose initiatives. On the store expansion front, Proximity Americas added 198 new stores in the quarter, in line with our plan for the year. At OXXO USA, the conversion of DK stores into the OXXO banner continues at pace, reaching 50 converted stores in Midland-Odessa and Lubbock. We are making progress in food service with revamped hot food menus and offerings in the 50 OXXO stores, adding new partnerships aimed at driving consumer frequency and strengthening the overall food service value proposition, including clip-ins from our partners. We are also initiating the conversion process in El Paso, as well as testing stand-alone non-fuel OXXO stores in certain locations. At Bara, during the quarter, we continued our accelerated store expansion, opening 40 new stores, and we remain on track to achieve or surpass a 30% growth rate in 2025. We continue optimizing our discount value proposition by scaling our private label strategy. Bara same-store sales grew by 10.8%. In Europe, Valora delivered solid results as total revenues increased by 10.1% in pesos, or 3.3% on a currency-neutral basis, driven by higher Swiss retail sales, coupled with positive trends in Swiss B2C food service, partially offset by softer sales in B2B food service, particularly in the U.S. Gross profit grew by 10.1% in pesos, or 3.4% in currency neutral terms in line with revenues, and representing a stable margin compared with last year. Total operating expenses grew below revenues. However, selling expenses grew at almost the same rate as sales, reflecting wage pressures and inflation, but were offset by nearly flat administrative expenses. This reflects broad efforts to reduce corporate overhead expenses. Valora reported a 29.1% increase in operating income, 20.7% on a currency-neutral basis, representing a 70 basis point improvement in operating margin, and reflecting strong growth in Swiss retail, positive contribution from Swift B2C food service, and effective corporate overhead cost management, offset by our B2B food service business. Now let me walk you through the performance of our Health division. Total revenues increased by 2.9% in pesos with same-store sales growing by 0.8%, mostly explained by strong top-line performance in Chile and Colombia, offset by Mexico. On a currency neutral basis, total revenues grew by 4.5%, evidencing currency headwinds relative to the U.S. dollar in Ecuador and the Chilean peso. Growth in revenues occurred despite the continued challenging environment in Mexico, which saw same-store sales declines and the closure of 423 underperforming stores compared to the same quarter in 2024. Operating income declined by 4%, and 1.3% on a currency-neutral basis, resulting in an operating margin dilution of 30 basis points to 4%. This reflects operating deleverages in Mexico and higher labor expenses in South America, particularly driven by the rapid expansion in Colombia. Same-store sales increased by 8.3%, and total revenues grew by 5%, reflecting growth in retail volume, offset by a decline in the wholesale business. Gross margin stood at 11.8% and operating margin at 4.6%. It is worth highlighting that during the quarter, selling expenses decreased by 1.7%, underscoring our continued effort to look for efficiencies and savings to support profitability in such areas as labor costs. Now moving to Coca-Cola FEMSA. During the third quarter, they delivered gradual sequential improvement amid a challenging environment. Total volume declined slightly, driven mainly by Mexico, where a softer macro environment continued to weigh on consumption. On the other hand, South America delivered a resilient performance, with volume growth across most territories, demonstrating the adaptability of the business across regions. In terms of profitability, cost protected its margins, mainly through the implementation of mitigation actions, controlling expenses and generating efficiencies, recognizing a more difficult 2025 than expected. You can dive deeper into the results by listening to the webcast of their earnings call held last Friday. Finally, regarding capital returns to shareholders in the context of our capital allocation framework. During the quarter, we distributed a total of MXN 11.8 million in a combination of ordinary and extraordinary dividends. In terms of share buybacks, we were not active during the third quarter, so we are a bit behind schedule. As you know, whenever we become active, we will make the required filings and you will be able to follow. As we look ahead to the coming year, we are cautiously optimistic. As we mentioned before, we are beginning to see signs of improvement in the October data in Mexico. In terms of the levers and variables under our control, we are confident we are making the right adjustments and achieving the desired results across our platform. From the consumption side, we will have the additional tailwind from the FIFA World Cup to be held in our continent, with matches being played at the right time of the day. Hopefully, we will also get a slightly better environment in which to operate in Mexico. We will provide a more detailed update in our next call. And with that, we are ready to open the call for questions.

The first question is from Ben Theurer from Barclays.

Jose Antonio, congrats on the new job. And I actually have a question for you on the old jobs. So as it comes to retail, just wanted to understand a little bit and dig a little deeper into your commentary on the same-store sales performance. Well, clearly, traffic was down only 3% versus the give or take, 6% we saw in the first half. There was a very easy comp versus last year because of some of the hurricanes. But you did mention there is sequential improvement into October. So I wanted to kind of like understand if you could give us a couple of more data points as to maybe how the performance was from July through September? And how that carried into October? And what we should expect here as we move throughout the fourth quarter and then maybe into next year, just with the closing remarks being slightly optimistic into next year? So I just want to understand a little bit the traffic dynamics at OXXO.

Sure. I was expecting this question. I'm glad to see a reversal of the trends at OXXO Mexico this quarter, with improved traffic performance compared to the first half of the year. However, I'm not fully satisfied because the comparisons were relatively easy. I want to note that my team faced some weather challenges, particularly in September in Central Mexico. I'm optimistic because we’ve gained market share in beer, soft drinks, snacks, and tobacco, especially with the launch of lower-priced tobacco. October is not finished yet, but I'm encouraged by the results. If this trend continues, we should see a much better end to the year. We've also implemented initiatives that are starting to take effect, like promoting coffee and food items for breakfast, which are showing growth. We're seeing double-digit growth in coffee. The introduction of multi-returnable packages and affordability initiatives in beer and soft drinks is progressing well. We're enhancing services every quarter, and although our growth with Asian e-commerce retailers has slowed due to tariff restrictions, we're witnessing increases in services traffic that give us hope for growth. We're still awaiting permits to return to Banorte and other banks, but cash withdrawal transactions with major banks, fintechs, and Spin are also growing significantly. I am not completely satisfied with the traffic growth, but there are encouraging signs for the fourth quarter. Does that clarify things for you?

It does. And then obviously, into next year, we get the really easy comps, correct?

Well, hopefully, yes. I do think there's a lot of things we need to still do on our part, and I am very encouraged by the obsession towards market share gains that we're following through in OXXO, and I think that's a discipline we will go forward. But we should get better comps. And I do think the World Cup should help as well.

Congratulations on their new role to Jose Antonio. I have 2 quick ones, if I may. The first one on OXXO Mexico, another strong performance on gross margins this quarter. I wanted to see if you could maybe elaborate a little bit more into how much of this is the service mix continue to add to the business? How much of this is maybe a little bit of pricing? And where do you see just gross margins in Mexico continue to develop at OXXO in the future? And then the second, on Bara and also in Brazil and another also strong quarter of growth, so congratulations on that. I wanted to maybe see your thoughts on where you see these two businesses in the next 10 years? How much of our priority are they to you and to the team? And then maybe if you could elaborate a little bit into what would be the best case scenario, sort of medium to longer term for Brazil and Bara.

Thank you, Alejandro. OXXO Mexico is experiencing strong momentum and has significant potential for improving gross margins. Gross margin is a somewhat limited metric, as we need to consider the entire profit landscape from our suppliers to the consumer. I'm optimistic about further gross margin gains, though it's important to share some of that with consumers to maintain affordability. Certain categories respond differently to price changes, and we have the data to help manage that effectively. This quarter's gross margin increase is partly due to the impressive growth in commercial income and product mix. The strategies we implemented include profitable promotions on affordable products that have also contributed to margin gains. Looking ahead, I anticipate more opportunities for gross margin growth throughout the year, with a portion benefiting consumers through affordable promotions and pricing strategies. Regarding Bara and OXXO Brazil, I see them as key growth areas for FEMSA in the long term. I'm very pleased with the progress OXXO Brazil has made over the past couple of years. Not long ago, we were cautiously optimistic about significant improvements in gross margins, operating costs, and overall revenue, but now we are close to achieving these goals. We believe OXXO Brazil will evolve into a substantial business, and we are already identifying future growth locations beyond Sao Paulo. The key consideration for us is whether we envision it as a 40,000-store or a 4,000-store operation, with the expectation that it will likely fall somewhere in between. Our ambition is to engineer the business effectively to reach the upper end of that potential. As for Imbera, we are pleased with the improving return on investment from our new stores. We need to refine Bara's value proposition towards a more hard discount model. We are enthusiastic about expanding our private label brand, though we recognize we have more progress to make. We are actively collaborating with private label manufacturers from other countries looking to enter the Mexican market. Additionally, we are seeing positive developments as we expand beyond our main region of El Bajio into Guadalajara and northern Mexico, which is very encouraging.

Congrats on the results and this new position. So question regarding an update on the health business, both in Mexico and Chile, some news also...

Antonio, can you be closer to the mic? I'm not being able to...

Yes. Can you hear me there?

Yes, better.

Okay. Perfect. Just wanted to get an update on your health business. Both in Mexico and Chile saw some recent news on a new format in Chile. Also, there's a very different trend in Mexico. So I wanted to get an update on that business in both countries.

In Chile, we have been navigating a challenging competitive landscape for the past few years, and we are pleased to report that we continue to gain market share across all of our channels. Chile operates as a multichannel business, encompassing pharmacies, franchises, and distribution to independent pharmacies. We recently launched our discount pharmacy chain in Chile and are experiencing significant growth in both sales and market share. Although the competitiveness of the market can hinder bottom line growth, we are still seeing improvement in our financial results. Chile is a mature market with high market shares, but I believe there is ample opportunity for growth in new categories within the health and beauty sector, including both premium and discount options. We are also exploring new areas such as elderly care and veterinary services, which present additional growth prospects. Conversely, the situation in Mexico is quite different. We rank as the #6 player in the market, and while we could attribute some challenges to the high concentration of our stores in the security-impacted Sinaloa region, this alone does not account for the decline we are seeing. We recognize the need to make substantial improvements in Mexico, and we are committed to doing so. With the right talent now in place, we have had to close several stores, and we are actively working on improving operations, aiming to see progress in the coming months. On a more positive note, we are witnessing strong growth in Colombia and also seeing gains in market share, revenue, and profits in Ecuador. Overall, we are satisfied with our health business, with the exception of Mexico.

All the best in your new role, Jose Antonio. I have two questions. First, regarding the fit-for-purpose corporate restructuring comments you made earlier about the reduction in SG&A, I have this $100 million amount in mind that you typically guide for on the corporate front. Is that likely to change? Also, could you provide more details on how you're planning to structure the corporate expenses? Secondly, a quick question about interest expense. Martin, could you elaborate on the substantial increase at the FEMSA level, excluding Coca-Cola FEMSA? What is causing that?

I would like to divide the corporate overhead into two phases. The first phase involves a fit-for-purpose component that my team and I at OXXO have been actively working on. We've identified opportunities as we prioritize various projects in OXXO Mexico. This has allowed us to reorganize the overhead at OXXO Mexico's headquarters, which will enable some cost savings and also give executives the capacity to focus on major initiatives related to food, services, and the affordability we want to invest in. I anticipate significant savings, and you can expect to see the complete figures by the end of this year and as we enter next year. When I take on the role of CEO at FEMSA, I plan to conduct a thorough review, and with significant management changes, there will be chances to assess the overhead across the entire company. I will provide more updates on that likely in February and later. I hope that addresses your questions for now.

The comments on fit for purpose for OXXO Mexico specifically at the moment?

Yes, for now, yes.

Alvaro, could you repeat your second question? I just want to make sure I got it right.

Sure. On the interest expense, specifically, ex Coca-Cola FEMSA, we saw a pretty big sequential increase there. I was wondering if maybe there's some derivatives in there that's driving that? Or what drove that sequential uptick there?

Looking at the total interest expense, KOF actually increased; based on the net interest expense, it was flat on the overall interest expenses. The interest expense rose by MXN 600 million. I would need to check back with you on the specific details, as it's not a significant amount. Interest income is definitely declining as our cash balance decreases and as interest rates generally fall, especially in Mexico and to some extent in the United States. Regarding the MXN 600 million increase in interest expense at FEMSA, I will provide more information later.

First of all, best of luck on your expanded challenges. And also congrats to your father on another successful transition. We'll be looking forward to connecting more going forward. I have two questions. One is more conceptual, right? When you think about the one thing that you'd like to do differently in FEMSA going forward. What do you think this is the clear opportunity? This is more conceptual, right? But it still related to your vision for the company, and this is somehow also linked to the capital allocation strategy. How do you think the role that Coca-Cola FEMSA will have in the FEMSA overall portfolio going forward?

Thank you, Thiago. That's a great question. I will start by saying that I have a strong appreciation for Coca-Cola FEMSA and the talent within the business. It's an impressive operation with many factors contributing to its potential for growth. I'm particularly excited about the opportunities for digital transformation within the bottling platform, which presents growth possibilities not just in the soft drink category, but also in non-Coke products. I see significant organic growth potential in Brazil, Guatemala, Colombia, and even Mexico, despite the tax challenges. My enthusiasm for Coca-Cola FEMSA is high. The partnership with the Coca-Cola Company has never been better, likely since the formation of the joint venture. The management teams on both sides have built a strong and productive relationship. I believe Coca-Cola FEMSA should be involved in consolidation efforts through future M&A opportunities, and I'm looking forward to that. I have great respect for the bottlers in South America and particularly in Mexico. I see potential to explore collaborations with other bottling families in the region. I will share more detailed insights on future prospects later, but that highlights my excitement for Coca-Cola FEMSA. As for what I would do differently, I believe I have made that clear in my earlier comments. We need a heightened sense of urgency and a focus on resource management. At FEMSA, our goal is to be among the best proximity retailers globally, with Coca-Cola FEMSA as a key part of that vision. Achieving this requires a top-tier management team, a committed workforce, and a culture that supports long-term growth. My main focus is on demanding excellence from our corporate office and throughout management, as well as accelerating decision-making on capital allocation. This should clarify our increased sense of urgency compared to previous years.

Congratulations on the promotion, Jose. Martin mentioned some reclassifications. Were there any reclassifications or one-time items that contributed to the gross margin improvement at OXXO Mexico? And Jose, where do you see opportunities to make further improvements in the value propositions at OXXO Mexico? And then one other question, if I could. Could you discuss the charge in discontinued operations? It was a little bit bigger than what we were looking for. We're just wondering how you're thinking about Solistica and the LTL business.

Some of the reclassifications that occurred in Proximity Americas were related to OXXO LatAm and none were linked to OXXO Mexico. OXXO Mexico had an increase in its gross margin on a standalone basis.

In fact, I think, Bob, the expansion in Mexico was something like 130 basis points.

Thank you, Bob. I would say if you look into also Mexico, we have, by far, or we have a very important market share in what we call impulse gathering the beer, the soft drinks, the services category. But we still have a long ways to go in a couple of categories that OXXO is ripe for winning. One is around food. We are the biggest sellers of coffee. And if you look at our LatAm operations, all of our coffee occasions go paired with very good tasty food. And I think we have a lot of opportunity to win in food around coffee. And obviously, that leads you to breakfast. If you look at it, there's not really an affordable winning food opportunity. And that's a segment on which we have lower traffic than average. So we are very excited with increasing the opportunity for that. We still are very excited about the opportunities we see on segmentation. We know all of the stores that are close to a discount store, or discount supermarket. We have very clear actionable steps that we can put in place in the affordability space, not only in the categories that compete in the grocery space but in the impulse and gathering. So we're beginning to do some of that and it's beginning to react incredibly. There are things that will take longer to mature. But I am very excited about them. Some of them around the beyond trade and other services. That requires working with teams towards creating payment options that you can pay at Spin, but you can also send people money that they can withdraw at OXXO, and you can reward them for withdrawing at OXXO in a way. We're beginning to see some interesting things. We are still very excited about our growth in OXXO Nichos. They continue to outperform in terms of ROIC, and we are continuing to accelerate that. This year, 25%, a little bit lower than what we planned, but still much bigger than the previous year. 25% of our stores would be on the niche space, and that should just continue to gain momentum. I would leave it at that. Those are the things that we see beginning to help us gain share beyond the inputs and gathering categories and towards food and groceries and others. Does that respond to your question, Bob?

The transaction involving Solistica was completed in early July, so you will notice the impact of Solistica being removed from discontinued operations for that quarter, and it should not return. We have had numerous transactions, but there are no major transactions left to complete that would affect anything beyond this quarter. We reconsolidated the only part of Solistica that we retained, which is the less than truckload operation in Brazil, a very small business. That is the sole operation that has also been removed from discontinued operations and is now consolidated at the holding company level.

Jose, I want to discuss food, a topic we've talked about before. Food isn't new; it's been around for a while, and we previously discussed Doña Tota a couple of years ago. However, food's contribution to sales at OXXO has been relatively low and has grown slowly over the past decade. What excites you about food right now? Why might this time be different? Can we anticipate quicker adoption, especially with Sbarro and your work with Andatti? My second question is about the consolidation of OXXO Brazil once the transaction is approved. How might this consolidation affect your overall margins in the Americas? Those are my two questions.

I'll address your second question first. By next year, we aim to provide clearer insights into the differences between our South American operations and our Mexico proximity business. We believe this distinction will help reduce confusion, even though we currently operate 600 stores in that area. Combining figures for the Americas shouldn't significantly affect our overall numbers. Our intention is to offer a revised outlook regarding proximity metrics as we continue to collaborate with Juan and Martin. Regarding food, it's indeed a complex subject and we often face inquiries about what will change. One encouraging factor is the strong performance of our South American operations, which have thrived without a reliance on services, focusing instead on being customer-centric and prioritizing food. Our Mexican executives have engaged directly with consumers to understand their needs. For instance, in Brazil, our top-selling SKU, bread, significantly outperforms our second best in sales, indicating the potential of food for on-the-go consumers, a trend also seen in Mexico. While some might argue that street food is predominant in Mexico, Colombia, Peru, and Chile, we believe that this isn't a reason to shy away from innovation. We are prioritizing coffee in our offerings, seeing it as both a margin enhancer and a major traffic driver. Promotions around coffee have yielded immediate positive results. I'm enthusiastic about pairing coffee with breakfast items. I believe OXXO isn't the right venue for selling tacos due to the intense competition from street vendors who excel in that domain. Instead, we're exploring various options that cater to consumer demands for quick and portable items. We're experimenting with exciting ideas, including our partnership with Sbarro. Though we have just two locations in Mexico, their performance has already impressed us, and while it may take some time, I believe these initiatives could significantly impact our business. We're also testing new offerings like those at Doña Tota, which have shown positive effects. Ultimately, we see great potential in providing affordable breakfast options for busy consumers in Mexico, where there's clear demand. We hope to validate this approach.

Thank you, Jose Antonio, for all the support and all the interactions with the investor community over the past few years. We really appreciate that and wishing all the best to the new CEOs going forward. A couple of questions, guys. Actually, follow-ups. On the gross margin, when we exclude the U.S. in proximity, I think that we're getting to something like 46%. My question initially was if we were close to a ceiling, but I think that from the commentary that was already made, you made it clear that the answer to that question is no. That you see more opportunity to continue to expand gross margin here. My question is, how is that possible when you compare your business to other convenience store businesses outside of Mexico globally in Asia? What do you think is going to be this next lag-up driver for your gross margin to continue to expand? That's my first follow-up question. And the second one, I think that as Juan suggested, I will leave more strategic questions at the FEMSA level to next year. But taking advantage of the transition that is happening right now for the new CEO. I think that we can still talk about longer-term strategic issues at proximity. There's a lot of things going on there. You have full control of Brazil, now. Mexico, you're focusing on recovering traffic, all these efforts that we discussed here today. Colombia is growing, then you have the U.S. So there's a lot of things moving on proximity alone. What do you think should be your focus and our focus to see what is really going to move the needle under your leadership as you think about the different regions for the next 2 or 3 years?

Thank you. Regarding traffic and margin, I believe that gross margin is a somewhat incomplete figure, and I want to stress that it's important to consider the gross margins of consumer packaged goods and the pricing and relative value from the consumer's perspective. In this regard, Mexico stands out as an exception. Major CPG companies profiting from the Mexican market indicate its profitability, particularly for soft drinks, snacks, and beer. The margins here are remarkable. Mexico is unique due to the strong affinity for brands and the pivotal role of traditional trade, which provides a competitive advantage for CPG players. Additionally, we benefit from commercial income. As discount retailers continue to expand, CPGs are increasingly turning to traditional trade and convenience, leveraging our platform to effectively promote their brands. They recognize substantial returns on promotional investments through OXXO, which highlights the growth potential we have. Moving forward, as we strive to capture market share in categories where we currently have a limited presence, we will explore opportunities beyond impulse buying, gathering, and food into grocery categories where we can compete against traditional trade and supermarkets. Some of that margin may be returned to consumers, though the exact extent depends on elasticity, making it challenging to determine the final outcome. Observing the margins of my CPG partners, whom I value greatly, I still see potential for growth in both promotional income and gross margin in Mexico. I believe that over time, you'll see how we progress as we venture into new grocery categories at OXXO where I identify significant opportunities.

I would like to add a few thoughts to what Jose mentioned. Comparing ourselves to other players outside of Mexico is challenging because very few have the same significance in financial services. Our earnings from financial services have a high margin since there are no costs of goods sold related to the commissions we charge. The costs we incur are primarily associated with cash transportation and the technology required. Furthermore, if we exclude financial services, the margin looks different and aligns more closely with what you may be assessing. Additionally, there are hardly any players outside Mexico that match the scale and reach of OXXO in addressing local needs. Our main competitors are traditional mom-and-pop stores. Our distinctive value proposition enables us to collaborate with suppliers on various initiatives, thanks to our purchasing power, as Jose pointed out. Lastly, we're in a period of change, and the evolving value at OXXO will also influence margins in the future. For instance, if executed well, food can yield an attractive gross margin while managing waste effectively. We focus on the entire ecosystem rather than just targeting a specific gross margin. Certain high-margin opportunities can complicate distribution and store execution, so we avoid them. Conversely, some lower-margin items attract traffic and are easy to manage, which can be very appealing. Each category is evaluated based on competitive dynamics, in-store issues, and future growth. We dedicate less time to forecasting total gross margin and instead concentrate on maximizing value within each category.

For opportunities for proximity, I would say first and foremost, Mexico. I am very optimistic about the future there. Despite some volatility and lower declines in categories like tobacco and alcohol, some categories flourish while others fade. Our recent analysis shows that even considering declines in services and tobacco, we still see thousands of viable stores. The potential is so high that I'm hesitant to share the exact number, but it suggests at least a decade of growth at this pace. Sbarro in Mexico is improving with each cohort, and we foresee a few thousand locations. The market is large and competitive, but I believe there's room for several players. I'm pleased with our results and expansion efforts. Brazil remains a priority; we still have work to do, but we have been experiencing double-digit same-store sales growth all year, and the business is accelerating. I'm optimistic about Brazil and Colombia as well. In the U.S., I hope we will eventually gain more confidence to grow further, although it's still in the early stages. I want to emphasize that our progress in Europe has been impressive. We have a strong management team, and while our main challenge is growing in that region, we are starting to discover growth opportunities, particularly organic ones. We are satisfied with our advancements in Europe and the economic conditions in specific markets where we see potential.

Jose Antonio, congratulations on your new role. I wish you every success during this exciting time. My question is a follow-up on OXXO's digital ecosystem or financial services. The markets in Mexico are rapidly changing in this area, and it's clear that OXXO is achieving success in the digital space. Looking ahead, what is Spin's ambition? How do you see OXXO standing out in terms of wallet, telco, and fintech solutions? What are the key capabilities that the company plans to invest in on these fronts? That's my question.

That's a very good question, Renata. For me, Spin is a digital extension of OXXO's value proposition. We see it as a lever to enhance the lifetime value of our users significantly. Premia users, who are our power users involved in the loyalty program, consume three times more on average at OXXO each month compared to others. However, if you utilize Spin or your wallet alongside the Premia loyalty program, consumption increases by 42% above the Premia users. I believe there is great value in integrating the Spin ecosystem throughout our core missions. We can offer rewards and personalized promotions and provide seamless experiences that incentivize visits to the store. We are in the early stages of creating a Spin ecosystem that bolsters OXXO's relevance in our customers' lives. Some may envision a scenario where everything goes digital like in Brazil, but we see it as an opportunity to enhance how people interact with and use OXXO, effectively turning it into a place to redeem rewards. We remain focused on this. Ultimately, it’s about convenience, and Spin offers greater convenience than cash. However, many people still need cash and will require it for the foreseeable future. Even in a fully digital ecosystem, cash will remain crucial for a significant part of the economy. I am genuinely impressed during this onboarding phase, observing how people are utilizing Spin in unexpected ways. For instance, the method of tipping or paying workers at gas stations has transformed; people simply take a picture of the QR code to withdraw cash at OXXO. This has become the primary way for customers to withdraw cash from OXXO, making it easier than providing someone else with a Spin account or sharing a WhatsApp account. We notice many small developments like this that can enhance the value ecosystem. There will be a significant shift towards digital transactions. Although digital transactions might grow massively, even a 10% requirement for cash withdrawal will still account for a substantial portion of the expected decline in services at the store. To me, this presents an optimistic outlook. We'll see.

We'll now move to our next question from Froylan Mendez from JPMorgan.

Congrats on the new position, Jose. You spoke about that the pace of growth can be maintained for at least 10 more years. Can you go deeper into how the breakdown of this growth should be in terms of store expansion, same-store sales, incremental revenue from commercial income? And your thoughts on what is the adequate level of cannibalization that you can see at any point in time? And how do you feel on the ROICs of the new stores versus the more vintage space today?

That's a very difficult question to answer. If I could predict that accurately, I wouldn't be here. If you consider the level of cannibalization that occurs whenever we open a store, and project that over the next 10 years of our expansion, we believe there are at least 10,000 stores available for growth, with around 60% being regular stores and about 40% being OXXO Nichos. Our estimates suggest it could be even larger. However, it’s too early to provide specific numbers. We cannot precisely estimate how much of the growth will come from same-store sales. I can't say for sure, but we expect same-store sales to remain flat or even increase slightly when adjusted for inflation. If we succeed with breakfast offerings, grocery, and continue to capture market share, that figure could increase. But it's challenging for me to provide an exact number at this moment.

I think, Froy, this is Juan. Normally, we separate our expectations for new stores. If you project 1,100 stores per year, that's currently about 4%. Over time, that number will likely decrease to around 3%. Same-store sales represent a different aspect of our growth strategy. Our long-term guidance there has been for mid-single-digit growth. If you factor in a 4% inflation rate, which is the upper limit set by the Central Bank, and add a point from mix and pricing, you reach mid-single-digit growth. That's typically what we use for our long-term expectations. Right now, we're nearing 10%. Combining these factors over time would likely lead us into the high single digits. There are also geographical differences to consider; the opportunities in Guadalajara, the Bajío, or Mexico City differ significantly from those in Tijuana or Juárez. Most of our new openings are occurring in Central Mexico. If I were building a model, those are the figures I would include.

Although you should expect that the type of stores will also shift over time. Nichos are becoming about 15% to 20% of the stores that we're opening. Nichos are stores that are located within institutional contexts like factories, hospitals, and universities. They tend to have significantly lower staffing levels and slightly different assortments because, obviously, you're not going to be selling beer in a workplace. Over time, you could also see us testing OXXO Smart stores, which are unmanned stores, even though we aren't ready to roll them out yet because we don't think there's a sufficient opportunity. One day, you might see OXXO Smart stores in apartment buildings or smaller offices that meet specific needs. The composition of the types of stores will likely shift over time, creating new white spaces and opportunities in consumption occasions.

And one data point that we provided in the past, having to do with cannibalization is that it probably represents something like 30 basis points of growth in the overall number. I would also use that for my own modeling.

Would love if you could give us your view, please, on how you are progressing on the banking license ambitions in Mexico and the role of Spin and Spin Premia for OXXO to have an edge with that? Also, if we think about innovation at Spin and Spin Premia, what do you think could move the needle in the next two years? How could this help in competing against strong alternatives in Mexico that are accelerating like Nubank, Mercado Pago, and potentially Cashi from Walmart?

So I will let Martin answer you the first one, and I will defer to February to give you a more detailed outlook as I'm still on the re-onboarding phase on Spin, and I would love to give you more clarity but on February. But for now, Martin will give you some answers.

I think we will not be presenting our banking license for about a year. We've chosen to focus more on our credit aspect for now. This doesn't mean we will increase our credit significantly; the pace of our credit business is faster than we had anticipated. As I mentioned, we will keep you updated. We don't expect to deploy more than $20 million to $30 million next year for testing new initiatives. We concluded that we want to enhance our understanding and ability to utilize our data effectively in credit before pursuing the full banking license. Therefore, we are around a year away from the decision to file for the banking license. We have already prepared a lot for it, but we've decided to wait an additional year.

Congratulations, Jose. And also thank you to Jose Antonio for really turning over the leadership of FEMSA at a moment in history when the business is really at their most dominant, their most focused, maybe the most talent-rich and fiscally sound position that we've seen, right? So it's a gift that we can get Jose Antonio to put his full focus on and growth and value creation here. So Jose, can you please give us more insights on affordability? Beyond, obviously, the savings aspect. Can you speak to what else is driving consumer sampling, repeat consumption, and adoption, or maybe some of the more successful discount brands that you're running into in Mexico? Are there any specific categories where this is most evident? Kind of related to that also, is this pressure improving the differentiated proposition that OXXO is getting from its big branded suppliers to drilling foot traffic?

Yes, it's still somewhat of a hypothesis. However, we have been consulting with our CPG partners, and as they observe the growth of discount channels, they strengthen their collaboration with OXXO. At the national level, fewer than 10% of our stores are within 600 meters of a discount store, indicating that this is not significantly impacting our sales. Although both types of stores will continue to grow, an interesting dynamic occurs where we lose sales in some categories but gain traffic in others, as customers can easily transition between our stores and discount stores. For instance, they might buy beer from us and then complete their grocery shopping elsewhere. This dynamic is becoming more competitive as affordability becomes a permanent aspect of OXXO, reflecting the increased price sensitivity of Mexican consumers. We see a major opportunity in replenishment occasions. This is especially relevant for beer, where we're seeing a rise in returnable glass and multipacks, especially in soft drinks. While we were late to introduce mini cans, we are now doing so, which is benefiting our bottlers and enhancing consumer experiences. In tobacco, we are not seeing significant shifts from premium brands to value brands—around 70% of value brand buyers at OXXO are new customers. We are becoming less concerned about cannibalizing premium products with value options. We are expanding our affordable product range, and our suppliers are working with us to support this initiative. For example, when we introduce a value beer like Barrilito, we also promote a premium option like Negra Modelo in certain areas. The strength of our model allows us to offer affordable options in some parts of Mexico while promoting premium products in others. We will continue to explore these avenues and provide more updates as we gather more detailed data on our progress.

That's all the time we had for today's questions. With this, I'd like to hand the call back over to our host for closing remarks.

Thanks, everyone. Obviously, we're always available for follow-ups and incremental questions. But other than that, have a great rest of the week.

Thank you, everyone, and we will be seeing each other here in every conference call. So looking forward to more interactions.

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