Eugenio Garza: Thanks Héctor.
Operator: Thank you very much. Our next question is from Alan Alanis with Santander. Please go ahead.
Alan Alanis: Thank you very much for taking my question José Antonio, Paco, Eugenio, Juan and best of lucks to Paco and Eugenio. Let me put some context to the question first. I mean FEMSA’s share is down 9% this morning in the first hour of trading. That’s $4 billion of lost market cap. And I think that the market is reading three negative things on this. First, the uncertainty of the CapEx, and that will be my question, I’ll come back to that in a moment. The second, the unexpected management changes. I mean, I’m to know Martin Arias, I think he’s super competent and I’m sure he’s going to do us a very good job, but the market doesn’t know him yet and the results regarding the margin contraction in the disappointment same-store sales.
I think what would be very useful in this call José Antonio and team is to elaborate a bit more in terms of how are you going to deploy $14 billion in the next five years of which you indicated that 72% of that is going to go to Mexico. That means that on average, you will be getting $2 billion invested in Mexico. How much — how are you thinking about that in terms of in which — which sectors? And how much of that money is going to also spin in the aspirations that you have for OXXO spin? That would be my question. Thank you so much.
Paco Camacho: Yes. Thank you, Alan, for your question. Look, I think that we need to go back to answer your question to go back to what we announced during FEMSA Forward because strategically speaking, we announced that we are committed to our three core verticals, basically retail, digital, and Coca-Cola FEMSA. So, you should expect that the discipline that we will have in terms of deploying capital is going to be fully aligned to this strategy that we announced. So, anything that we do will, first of all, be consistent with that. But second, importantly, we’ll be extremely disciplined on how we select potential inorganic opportunities moving forward.
Juan Fonseca: Yes. Let me add something on the CapEx. This is Juan. I mean if you look at across formats and a lot of what you see is going to be deployed in organic expansion. What we’re seeing — I mean, obviously in Mexico, we’ve talked about the runway, but what we’re seeing in multi-format and what we’re seeing in other geographies is very, very compelling opportunities to accelerate the pace of growth. Even today — and we’ll detail this over the next months and quarters, but even today, if you look across all retail formats, we are opening in the order of seven units per day, right? If you think about also here, OXXO here — OXXO South America drug stores, OXXO Smarts, coffee drive-thrus, it’s going to ramp up from an already very dynamic place.
And that’s really a big part of the CapEx numbers, right? I mean don’t straight line horizontally, but rather straight line as a — with a slope because that’s what you’re going to see. If you think about Colombia, we’re about to accelerate significantly in Colombia. I was in Brazil a couple of weeks ago, the opportunity for Grupo Nós is fantastic. So, a lot of the CapEx is really going to take the form of stores and DCs and distribution assets. We’ve said in the past on the M&A front, we’re looking for a potential entry model into the U.S. on convenience. That’s — everybody knows that. We’ve been looking for drug stores [ph] in Mexico that’s proven a bit more elusive. And that’s pretty much it in terms of what we’ve identified at this point.
Do we like our flexibility? Sure. But it’s mostly about organic growth, Alan. And I’ve done a lot of questions. We’ve done a lot of questions about the bigger CapEx numbers that we communicated last week. So, hopefully, this helps understand where that capital is going.
Alan Alanis: Yes. Thank you so much for that. And if you can just — final question here. I mean, what would you — what do you think investors are missing with such an abrupt stock reaction? And how important is that stock price for the controlling group, for management, and so forth. What is the market missing? If I — maybe I missed the agnostic, the reason why the stock is down 9% today, but any color on that would be for — clarifying and hearing you as managers and controlling shareholders? That will be all and thanks so much for taking my question.
José Antonio Fernández: Alan, you know us very well, and you know that we all think long-term and we will continue being very disciplined on our strategy. FEMSA Forward has huge potential. Cash is king. We always have said that. You remember Eugenio saying that. And Eugenio also said that the opportunity is the queen, and we have to keep both, the cash — some cash for doing new projects. Coca-Cola FEMSA hasn’t been mentioned, but is going to invest largest CapEx in history because of lack of capacity, we lost volumes this year because we didn’t have enough capacity in certain places. We have to fix that. So, we are going to have a huge investment in capacity in Coca-Cola in various countries. And obviously, we will still go looking for good opportunities on our three verticals.
That’s why we — what our intention is there, we go all the way to two times EBITDA and divest as much as possible or repurchase as most as possible on shares because that — giveback dividends because we don’t like to have idle resources just getting a very low interest rates.
Alan Alanis: Yes. Thanks so much José Antonio. [Indiscernible] thanks guys.
Juan Fonseca: Thanks Alan.
Operator: Thank you very much. [Operator Instructions] Our next question is from Thiago Bortoluci with Goldman Sachs. Please go ahead.
Thiago Bortoluci: Yes. Good morning gentlemen. Thanks for taking my question. Let me just catch back one mention from Juan related to the target leverage of tons committed to that, no deviations, right? I think one of the reasons for the volatility we’re seeing is lack of visibility on how you will get there, right? You are mentioning two times leverage. This might give you $7 billion, $8 billion in excess cash. But at the same time, we were mentioning you were committing to give back up to 6% of our market cap, which is 3%, right? How will we add back to two times? And where this incremental $4 billion, $5 billion might be going. This is the first question. And if I may just take advantage of José Antonio being in the call.
José Antonio. today, you have two interim positions, right, the CEO and the CFO, how is the Board thinking about this and how important it might be to fill definitely dispositions in order to keep the plan moving forward? Those are the questions. Thank you very much.
Eugenio Garza: I’ll start with the first one, and then I’ll turn it up to José Antonio. Yes, my math is a little bit different than yours, but ballpark is the same. I think to get times, we’re talking about a number close to $6 billion, $6.5 billion in that neighborhood Thiago. And yes, 6% of the market cap as of last week was $3 billion. So, there is still some undefined allocation of resources. Having said that, we still believe we’re going to get to two times and that excess amount plus the cash that will come in from the operations will be looked at very closely between organic, inorganic, and additional return to shareholders. So, it’s going to be a mix of all of that, that will get us to two times. I understand the anxiety about not being at all spelled out in stone about where that additional $3 billion to $4 billion are going.
But the commitment is to get them two times, while maximizing shareholder value. So, we don’t have all the answers yet. What we can tell you is that at least the $3 billion will go to shareholder return at this point. And the rest, we will deal with it as opportunities arise.
Juan Fonseca: And let me just comment on that before José Antonio. Another way of what Eugenio just said is — and this is a question we’ve been getting, could there be some upside to the $3 billion? And I think Eugenio just said, in other words, yes. But like I said a few minutes ago, we really value our — a little bit of flexibility. And so those questions will be answered over the next couple of years.
José Antonio Fernández: And on the second question that you had, we have discussed this at length with the Board and we have agreed that on the CEO position, I am winning and open. I’m very happy to stay for at least 24 months as CEO and Chairman at the same time and making this effort. I’m enjoying it, and I will stay doing it. While we are going to start the process of looking for a new CFO, as you could imagine, it will take hopefully less than a year or maybe a year or 18 months at the most, but we will find a new CFO for the company. As we speak, we will start the process of looking for.
Eugenio Garza: And then just to be more clear about this and I’m sure, Paco will have his own views. But I think in my personal decision to leave the company at this point, has more to do with kind of my personal interest. I think the skills that I brought to bear were put in place during the FEMSA Forward program over the past 18 months, and we and the team had, I mean, a lot of success doing it. And at least for me, it’s on to the next project. So, nothing more than that, and I’ll continue to be close to the company as an adviser over the next few years, hopefully.
Paco Camacho: Yes. And Thiago taking the opportunity also, this is Paco. Look, I’m extremely I’m extremely proud of what the team has accomplished in FEMSA developing the long range plan, having a clear perspective on what the future looks like. And in reality, my decision is something that didn’t come — I didn’t take that lightly. I mean it’s exclusively related to what I want to do with the next station [ph] in my professional career. FEMSA is an incredible company with a bright long-term perspective that I will certainly miss. I will miss the team. I will meet José Antonio, I will miss everybody here. And the prospects of our company, I believe, are brighter than ever. So, that made the decision even more difficult. But again, it’s exclusively personal and FEMSA will always be a highlight in my over 35-year career in many big many companies and FEMSA clearly stays at the top of that.
Thiago Bortoluci: Thank you. And we will also miss [Indiscernible]. Thank you very much Paco and Eugenio, thank you very much.
Eugenio Garza: Thiago.
Operator: Thank you very much. Our next question is from Luis Willard with GBM. Please go ahead. Mr. Willard, please go ahead.
Luis Willard: Hi, can you hear me?
Eugenio Garza: Yes, we can.
Luis Willard: Thank you. Perfect. So, my question is quite mundane and perhaps I’m reading this all wrong, but I just wanted to ask you if you could go over a bit on the changes that you mentioned on your remarks, Eugenio I think it was you, about the deconsolidation of operations? Because I mean, you’re reporting on a consolidated basis of 4.6% growth in sales. But if you look at the — each of the subsidiaries, that you break down, all of them in pesos grow except for health, all of them grow above that average. So, I just wanted to make sure that I’m reading this correctly in the year that perhaps there’s some deconsolidation that’s not registered in the base, but it is in the 4Q 2023 numbers. Is that correct? Or what am I missing on the — let’s say, undisclosed breakdown of that? Thank you.
Eugenio Garza: Yes, Luis, we can touch base offline if you want, and walk you through the exact numbers. But there were, as you know, because of the peso, some currency mismatches depending on whether you’re looking at it on a currency-neutral basis, or on a peso-basis, some numbers are weird, especially this quarter in a lot of alliance, including the non-cash items and the taxes. And then there is also the deconsolidation, as you well said. It doesn’t move the needle that much, but at the margin, it does. We deconsolidated both the Alpunto business as well, the part of the Solistica business that is in the part of — in the process of being divested right now. But yes, those averages do work out and the 4% number after all these adjustments is correct, despite the fact that the retail businesses and most of the other businesses are growing higher than that average.
Luis Willard: All right. That was it. Thank you.
Eugenio Garza: Thank you, Luis.
José Antonio Fernández: Thank you, Luis.
Operator: Thank you. Our next question is from Luis [Indiscernible] with Santander. Please go ahead.
Unidentified Analyst: Hi guys. Thanks for taking my questions. And good luck Paco and Eugenio on the next projects. My question is a follow-up on what Álvaro asked about the margin pressure and I guess, particularly driven by the pressure on labor. I mean, could you talk a little bit about where exactly is that did that pressure come in the fourth quarter? Was it perhaps preparing for the minimum wage increases? Is it related to, I guess, the vacation or the pension reform that has an impact there? Or — and you did mention that also part of it has to do with adjustments ahead of expected regulatory changes. I guess you meant perhaps the potential change in working hours. So, just trying to understand a little bit what drove the additional pressure in the fourth quarter?
And I guess a related question to it is, Juan mentioned that and I appreciate the color on the margins being kind of maybe flat for this year, but maybe start soft and get better. Just trying to understand what would be the driver of the improvements in margin as we move towards the second half of the year? And I guess related to that, but also on Proximity, I mean, very strong margins on the European side of the equation. Just wondering what we saw there is kind of like a sustainable level that we should think going forward? Thanks.
