Fomento Económico Mexicano, S.A.B. de C.V. (FMX) Q4 2013 Earnings Report, Transcript and Summary

Good morning, and welcome, everyone, to FEMSA's Fourth Quarter 2013 Earnings Results Conference Call. [Operator Instructions] During the conference call, management may discuss certain forward-looking statements concerning FEMSA's future performance, and should be considered as good faith estimates made by the company. These forward-looking statements reflect management expectations and are based upon current available data. Actual results are subject to future events and uncertainties, which may materially impact the company's actual performance. At this time, I would now like to turn the conference over to Javier Astaburuaga, FEMSA's, CFO. Please, go ahead, sir. Javier Gerardo Astaburuaga Sanjinés: Thank you. Thank you, and good morning to everyone. Welcome to FEMSA's Fourth Quarter 2013 Results Conference Call. Juan Fonseca and Jose Castro are with us today, as always. As we normally do, during this call, we will focus on the consolidated figures for FEMSA and on FEMSA Comercio's results, as many of you probably had a chance to participate in Coca-Cola FEMSA's call yesterday. As you have also likely had a chance to go over our detailed results, we will take this opportunity basically to focus on the highlights and main trends on our business. Every year, the February conference call provides us with an opportunity to discuss with you not only the results of the fourth quarter, but also share some of our views on the full-year trends and performance, and talk a little bit about perspectives for the new year. During the fourth quarter, trends for our 2 businesses followed separate trajectories. For Coca-Cola FEMSA in Mexico, top line was resilient but profitability numbers reflected a very demanding comparison base, while the consumer environment remained tough in Brazil and local currencies continued under pressure in most of South America. And for its part, at FEMSA Comercio, sequential top line trends improved slightly and expenses remain contained during the quarter, helping us to drive positive margin dynamics. In addition, we were able to deliver on our expectations of opening more than 1,000 new stores in the calendar year yet again. On the strategic front, 2013 was an important and busy year, during which we took opportunities to increase our bottling presence in our 2 largest markets, Mexico and Brazil, with 3 key acquisitions: Yoli, Fluminense and Spaipa. These transactions should allow us to create value in the medium and long term, and we are well-advanced in our integration efforts in both countries. We also made our entrance into the Philippine market a reality with very encouraging early results. And for its part, FEMSA Comercio took the initial steps of leveraging its capabilities by entering new small-format retail markets in Mexico through acquisitions in the drugstore and quick-service restaurant segments. In fact, early results from our drugstore operations support our thesis that we can use our skill set to create value in such adjacent lines of business, encouraging us to stay on course. And so we continue to privilege the execution of our long-term strategy even in the face of short-term market noise. In terms of the macro economic environment in Mexico, we have yet to see a meaningful improvement in the key indicators, while we do not perceive further deteriorations in the trends. In Brazil, the concern continues to be the pace of growth but unemployment remains low and again, we do not see the trends worsening. Having said that, we need to keep our eye on foreign exchange pressures across the region, but particularly in Venezuela and Argentina, where, as you know, the situation has been improving. Moving on to our consolidated quarterly numbers. During the fourth quarter, total revenues increased 11% and income from operations remained flat. On an organic basis, total revenues grew 3% and income from operations declined 5%. For the fourth quarter, the line on our P&L labeled "participation in Heineken results" represents FEMSA's implied 20% participation in Heineken's fourth quarter net income. Importantly, for the full year, the line represent FEMSA's actual 20% participation in Heineken's net income, derived from Heineken's full-year 2013 numbers reported approximately a couple of weeks ago. Net income decreased 44% in the fourth quarter, driven mainly by a reduction in FEMSA's participation in Heineken's fourth quarter 2013 net income, largely reflecting a tough comparable base. As you may recall, in the fourth quarter of 2012, Heineken reported a noncash exceptional gain resulting from the revaluation of equity interests related to the APV transaction, which helped drive net income growth of 68% during that period for FEMSA. The decrease in net consolidated income reported today also reflects higher financial expenses related to bond issued during the year by FEMSA and Coca-Cola FEMSA. In terms of our consolidated net position, it increased from MXN 13 billion at the end of September to MXN 48 billion at the end of December, reflecting the purchase of Spaipa in October as well as dividends paid during the fourth quarter. These effects were partially offset by strong cash generation from our operations. On staying on the subject of dividends, we should remind you that FEMSA's 2014 ordinary dividend of MXN 6.7 billion was paid on December, as approved by shareholders. So in total, ordinary dividends of MXN 13.4 billion were paid during 2013 and we do not anticipate further ordinary dividend payments being made during this year. We usually take the opportunity in our first conference call of the year to talk about expected levels of capital expenditure for this year. As you know, Coca-Cola FEMSA is currently investing slightly more than usual as they advance in the construction of new state-of-the-art bottling plants in Brazil and Colombia, increase capacity in several markets and integrate the recently acquired franchises of Spaipa and Fluminense. Therefore, CapEx of Coca-Cola FEMSA could reach $850 million in 2014, of which approximately $200 million will go to the new 2 plants. For its part, FEMSA Comercio should deploy approximately $450 million in 2014, remaining within stable range as a percentage of revenues. Adding an estimated $50 million for our smaller logistics and refrigeration businesses, we reached a consolidated total of approximately $1.35 billion, in line with 2013 levels. And moving on to discuss briefly our operations, and beginning with FEMSA Comercio. We opened 511 net new stores during the fourth quarter, reaching 1,120 net store openings in 2013 for a total of 11,721 OXXO stores. This number was a bit ahead of our expectations, which were to surpass 1,000 net new stores for the year, which is a level of store growth which our current system is well-equipped to manage. During the fourth quarter, revenues increased 13.5%. On an organic basis total revenues increased 10%. Same-store sales were up 2.5%, in line with the first 9 months of the year. However, it was encouraging to see that even though it was the average ticket that again drove the growth, average traffic did not contract but actually increased lightly for the first time in several quarters. Gross margin expanded 60 basis points, again, driven mainly by a positive mix shift due to the growth of higher-margin categories and by an effective collaboration and execution with our key supplier partners, as well as a more efficient use of promotion-related marketing resources. In terms of operating margin, this quarter, FEMSA Comercio posted an increase of 100 basis points, as gross margin expanded and operating expenses remained contained, growing the low revenues in spite of the growth spurt in the numbers of stores. All told, FEMSA Comercio put together a strong quarter, particularly in light of the less-than-stellar consumer environment: a record number of net new stores openings, same-store sales well above our industry and margin dynamics that exceeded our own expectations. For its part, Coca-Cola FEMSA had a mixed quarter and a challenging one. Mexico and Central America showed a resilient top line but profitability was pressured by a very demanding comparison with 2012, while in South America, Brazil continued to show particularly sluggish demand, and negative currency translations continued to impact the results of other region. If we isolate these currency effects, total organic revenue growth surpassed 12% but profitability remains under pressure in most markets. Before we open the call for your questions, let me talk a little bit about our general perspectives for 2014. For FEMSA Comercio, we expect net of store openings to once again exceed 1,000 units, but this will be in a typical year during which the consumer will need to assimilate a higher tax and higher price environment for many staples and even more so along the northern border, which is an important region for us. So this makes it tricky to talk about expectations. However, assuming that consumer gains confidence as the year goes on and general economic activity also improves towards the half -- second half of the year, then we can talk about our same-store sales gradually trending toward the mid single-digit range, keeping in mind that the late timing of Easter next April will make the comparisons difficult for the first quarter results, given that Easter helped the numbers in the first quarter of last year. For Coca-Cola FEMSA, there are also several moving pieces that will impact our performance in 2014. In Mexico, the new taxes are already putting pressure on our volumes, but we're optimistic that our tools and strategies will help us mitigate the impact. And we expect trading conditions to improve as the year goes by. In Brazil, the comparison base is not very demanding and we are off to good start so we're optimistic for what should be an interesting year in that key market. Currencies, they will remain front and center in Venezuela and Argentina, and they will again play an important role in how our numbers develop. So from the perspective of FEMSA in the short term, we see several reasons to be optimistic, but we see just as many reasons to be cautious and, and as always, completely focused on the job at hand. And just as importantly or perhaps even more, the medium- and long-term opportunities continue to be ahead of us and we will continue to move in their direction. And with that, now I would like to open the call for your questions. Operator, please?

[Operator Instructions] We'll take our first question from Lauren Torres with HSBC.

My question's on OXXO. First question on OXXO relates to the margin improvement that we saw in the fourth quarter. You truthfully [ph] guided to about 10 to 20 basis points per year of improvement but we saw some notable improvement in the fourth quarter. Was just hoping if you can break down why that was the case, and any expectation on margin improvement for this year? And secondly, if you could address average -- the traffic getting a bit better. I'm not sure if you're going to note that as a reflection of the consumer getting a bit a stronger. I know it's very modest but directionally, I was curious just wonder why you think there was improvement. Javier Gerardo Astaburuaga Sanjinés: Hello, Lauren. Good morning. On the first one, the -- if you look backwards into 2013, we began the year with an expectation of Mexico GDP growing north of 3%. The economy proved us wrong and it severely slowed down, particular in the first couple of quarters. The business was somehow operating on a business plan based on this assumption. So part of the margin expansion coming into the third and fourth quarter is a little bit the result of a combination of gradually a marginal improvement as you just saw on the traffic and same-store sales number as comparing the fourth quarters of the year. And some decisions were taken during the summer, some of them started to be applied in the third quarter but more importantly, into the fourth quarter in cost containment. So the combination of, I would say, fine-tuning our plan for the year and working both with suppliers, particularly in putting much more focus on those promotions that are more price-sensitive and trying to bring more traffic into the stores, I think we're very, very successful in a number of categories, particularly in the late part of the year. But also it combines very well with -- and very nicely with the efforts of cost containment, which improved -- I mean included a number of initiatives, some of them we talked about in the October conference call, at prioritizing in a much better way some of the key projects that we didn't want to really slow down at all, as opposed to those which we feel comfortable on having a different schedule in time, having some of those rolled back to the 2014. So I would say that's a little bit the explanation I can provide on your first question. And on the second one, it's always good to see, even though as you're qualifying it as a small, better improvement on the traffic numbers, again, this is, we think, a consequence of the combination of a slightly better economic environment. And also because of what we are trying to do to bring people back to our stores. So we feel good about the number even though it's still, again, the smallest component on driving same-store sales, but it's always good to see a positive number even though it's still small. Going forward, as I said in my opening remarks, we will need to wait a little bit to see how consumers are being able to integrate the impact of tax reforms on their pockets, as well as the different landscape for pricing for some of the more important staples that Mexicans consume here in the country because of the tax reform as well.

I would just add -- Lauren, this is Juan . On the margin question, and to reiterate what Javier just said, I mean at the gross level, it looks pretty much par for the course, right? We normally get a little bit of expansion at the gross level, where you really see the difference is in the SG&A. And this is going to the -- to Javier's comments on expense and cost containment, which even included taking a look at the headcount and making some adjustments there. So I think the idea would be that we continue to benefit a little bit from this in the next few quarters.

So the 10 to 20 basis points guidance you've previously given will be also true for this year?

I mean, yes. I think Javier's point on this being an atypical year and some uncertainties remaining in terms of how consumers are going to make adjustments to the tax environment and inflation environment. But as you know, we do aspire to have moderate margin expansion pretty much year in, year out. Sometimes we do a little bit better than we expected, but this year we're very cautious, at this point, of trying to put a number on that. The expense reductions that we put in place second half of last year are still going to be in place the next few months, of course.

We'll take our next question from Antonio Gonzalez with Credit Suisse. Antonio Gonzalez - Crédit Suisse AG, Research Division: Javier and Juan, I just have 2 quick questions. First one on capital allocation. We asked yesterday Coke FEMSA, whether they would be willing to do buybacks, basically taking advantage of the obvious sharp correction in their share price and especially keeping in mind the multiple at which M&A happened in the soft drinks space in Latin America, not just for Coke FEMSA, and Hector was telling us a little bit the constraints, I guess, mostly on the delevered side that a buyback at the Coke FEMSA level would mean. So I wanted to ask -- to make you the same question. Guys, would you think that, that FEMSA -- at the FEMSA level, it makes sense to buy back shares? Either FEMSA or Coke FEMSA shares, I guess, deleverage constraint is a little bit of a problem for you and, obviously, you guys have a track record as tremendous capital allocators. So with Coke FEMSA shares down, I don't know, 40% close from peak to trough, does it make sense to start buying back shares a little bit more aggressively? I understand there's always been a liquidity constraint, but I guess the window of opportunity valuation-wise is probably a little more bit more attractive than in the past. And then I just have a quick follow-up question on OXXO's same-store sales, but I'll make it afterwards. Javier Gerardo Astaburuaga Sanjinés: Sure enough. On the first one, the clear and shorter answer, Antonio, is we look at share buybacks. We analyze data as an alternative to allocate capital. As you just mentioned, we have more financial flexibility than Coca-Cola FEMSA does have these days, so that is -- that and a potential acquisition of Coca-Cola FEMSA shares as, I have said in the past, are always open options that we continue analyze. And I'm sure you can sympathize with me by not telling any more about these, but it's always a probability of a potential use of cash going forward.

Yes, I think speculating on what's the right level or what's the right timing is something that we definitely cannot comment on, but it's something that's always on the table. Antonio Gonzalez - Crédit Suisse AG, Research Division: Okay. And then just secondly, super quick. On OXXO same-store sales, I -- if my understanding is correct, I understand the argument of the impact that excise taxes will have on OXXO's same-store sales this year is probably going to be positive, and that's mostly based on the assumption that the impact on soft drinks and on the so-called junk foods is going to be similar to what we saw in previous years in cigarettes, for example. Now the question I wanted to ask is first, whether you're seeing that year-to-date, and secondly, whether you think that in respect of the impact of same-store sales, which I tend to believe it's going to move in that direction, whether you think there's a positive impact on gross profit as well. Because I think there might be a little bit of a negative mix there that might be not so beneficial at the gross profit level, given excise taxes. Javier Gerardo Astaburuaga Sanjinés: Sure. I think you're reading it right. Again, with prices being at the levels at which they are mostly because of new taxes and as well by inflation would help, let's say, drive same-store sales number. In terms of margin, yes, there might be a potential negative mix shift because again, price sensitivity for the different categories, and not only for categories but consumption occasions, is quite different. So people very rapidly, in tight times, they have just habits of consumption, and we think we have seen some of that taking place in the fourth quarter, and we are starting to see that happen. I'm talking about going to returnables, I'm talking about going to smaller sizes, I'm talking about down-trading a little bit in some categories. So we feel that on the same-store sales number, if we are able to keep up the traffic coming to our stores, some of these new pricing will help the top line number. But on the gross margin, the question still -- is still is out there and it will have a lot to do with, again, the sensitivity of consumers for different categories and consumption occasions, and how well they're doing. And in another old picture, the most important thing I think, is how the economy performs. And I mean, we are looking at the first quarter, which is going to be very challenging because again, these new price levels being now put out there for consumers. And as long as the economy doesn't start to get more traction of what we've seen in the previous year, it's going to be a tough beginning of the year, and maybe even to the second quarter. So that's why I mentioned in my opening remarks that we are more optimistic about the second half of the year. But again, this is a very atypical year, and going back to Juan's comment about our long-term aspiration of building up margins from 10 to 20 basis points, I would say that this is a year in which we are going to have a lot of challenges, not only because of what I just mentioned, but also because of the impact that the new added-value tax label on the border towns is going to have on us. And that's going to have a clear impact and we're already seeing that had taken place. So all in all, I would say that would be my comments on your second question, Antonio.

We'll take our next question from Alan Alanis from JPMorgan. Alan Alanis - JP Morgan Chase & Co, Research Division: Javier, Juan, Pepe, a couple of questions. The first one has to do with working capital in OXXO. We saw a deterioration of like MXN 4.5 billion pesos. I mean that's not a small number on $340 million in the fourth quarter. We have not seen this kind of deterioration in OXXO before. Could you tell us what's behind -- and number one, is this OXXO or some of the other businesses, the logistical or the refrigerator business? And if it's OXXO, is it related to the expansion of the acquisition that you have now on pharmacies and fast food? And would -- should we expect that -- this to stabilize and go back, or this is a new level that should we include in our model, Javier?

Alan, let me take that one. This is a question that comes up from time to time when you try to just do the x cost -- strip out cost, and use that as a proxy for OXXO. It's a little bit noisy because there's a number of intercompany eliminations in there that you don't see, and as you mentioned correctly, there's the logistics and the refrigeration business. And this time around, in addition to that, we have 3 new assets that were acquired by FEMSA Comercio, which, even though they're small, you have to incorporate their working capital as well. So I mean, let me just say that the number that you reached and just mentioned in your question is, it's obviously a big one. But what we can do, it's unfortunate that we don't provide you the detail line by line about an OXXO balance sheet, but maybe offline we can get into a little bit more detail. But it's really, it's not a very accurate way of estimating the OXXO working capital number because of all the other stuff that is in there. Javier Gerardo Astaburuaga Sanjinés: Yes. There's lot of volatility in there.

Yes. I mean, the OXXO numbers, looking just at payables, inventories and receivables, they're in line with what you should expect. Alan Alanis - JP Morgan Chase & Co, Research Division: Okay. Okay, okay. So basically, there's -- okay, we can take this off-line, no worries. And second question, I mean, this is the first conference call you guys have with a new CEO for the last 18 years, correct? Can you tell us, I mean, even though Carlos Salazar has just got into the seat in January and we know that he's been with FEMSA all of his life before, decades of professional experience that he has. What should we expect that might change now that you have a new CEO? Javier Gerardo Astaburuaga Sanjinés: Carlos knows the business, he's been around for years, we all know him well. We've been there lots of time around as well. And what I can just basically summarize, Alan, here is, as we explained when the board decided to accept Jose Antonio's recommendation on splitting the role of Executive Chairman and CEO, the fundamental reasons behind there were very clear. And what I can tell you, things are starting to evolve precisely in now having the ability to have a standalone CEO, which has all 100% of his attention on running the business on a day-to-day basis and on spending 100% of his time looking at opportunities as opposed to again, the combination of those 2 roles. So what has been changing? Again, much more time of the CEO looking at the businesses and opportunities. And some of those have to do with how the companies should be organized and staffed in terms to get the right effectiveness in how we're managing the businesses, but also to reinforce some of the areas in which, we think, it is important to have more brainpower, manpower, to look at opportunities for the short and medium terms of the companies. So basic change in the internal dynamics is much more CEO time dedicated to running the day -- running the business on a day-to-day basis and with keeping the, let's say the benefits of not going through a transition from a CEO on the outside and having somebody, which has basically been in the company for all of his professional life and being able to look at -- not only to look, but also to manage the different businesses in the company for some years already. So, that's my answer.

We'll take our next question from Karla Miranda with GBM.

Javier, I have a follow-on regarding the stores in the broader region of the country. I was wondering if you could give us some color on how these stores have been performing during these -- the first 2 months of the year. How's the traffic going and what should we expect going forward? Javier Gerardo Astaburuaga Sanjinés: Look, Karla, when I mentioned that border towns are important to us, it's basically around 15% of our store count, and the dynamics on pricing in the border towns are, I would say are performing well, according to what we expected. That is suffering but they're not in a way which wasn't expected. So, so far so good, I would say, Karla. Numbers are developing basically in line with what we are expecting with the change in the price architecture. What I'm a little bit more concerned is, going forward, on the potential impact on the consumer's pocket and on disposable income because again of phenomenas that will keep on taking place such as the more expensive durable goods going forward and things like that. But so far, I think that most staples adjusted their price strategy, recognizing that in the past, they have this advantage of having a lower VAT and now they don't. And I think everybody's being reasonable, both consumer, product companies, as well as retailers. So I see an environment, which is, I would say, surfing the challenges in a good way

And we'll take our next question from Bob Ford with Merrill Lynch.

Javier,you made some references to the initial earnings in pharma being very encouraging, and I was hoping you might elaborate on that, please, as well as discuss pilot concepts and experiences across your different efforts in hard discount, convenience grocery, fast food and hybrids of those, please? Javier Gerardo Astaburuaga Sanjinés: Sure. Sure, Bob. What I meant when I said the initial earnings are, let's say, confirming our thesis that we can leverage our skill set, I mean, there's a number of areas in which collaboration between the acquired companies and our OXXO team has been working on. I mean, I basically can go through a long, long list, but I'll just provide some very basic examples of that. I think one area in which we have been working, I mean, very easily and fast-paced, of course, looking at cross categories in which we have a certain purchasing power that we can deliver to the new chains, of course. Second, there's also a big effort in terms of bringing our own perspectives of how to manage the supply chain going from distribution centers, working with suppliers and refining the direct-store delivery model, and there's also important learnings in there. Leveraging our network, or our organization within 56 bases all across the country for expansion knowledge is also helping a lot, it's not like we're expanding dramatically the footprint of the drugstore chains we have acquired, but we are already leveraging some of those capabilities and trying to, again, improve even better the location moral that the drugstore companies used to use in the past. Also, in terms of management processes on how to supervise the business, prioritize initiatives, work on conceptual ideas, going to test piloting and then rolling out initiatives in a massive way is also an area of work, which we think is a very strong area and which also distinguishes itself. So it -- again, it is a number of initiatives in which we're working but also, we're working a lot in terms of Human Resources, in terms of starting to introduce some of the cultural elements that also possesses into these businesses, which start with being a very collaborative organization and improving communication all across. And of course, if you improve communication and coordination, the spirit of collaboration comes with it. So there's a number of initiatives, and I even referred in the opening remarks, particularly on our drugstore learnings because this is the businesses which we have had for almost a year. In the quick-service restaurants, we're basically focused on integrating the businesses. Of course, these are tough times for fast food offerings in Mexico because of the shape of the economy, so we're concentrating on integrating the businesses, not as much in outpouring and placing initiatives in which the 2 organizations can work together. And on our other format, we are, as always, and we've been working on a number of years on trying to find the right value proposition for this format and we continue to basically do exactly that and we are not still in a situation in which we can think of increasing the store base until we find a working value proposition for that business as well.

And then Javier, just as a follow-up to that, can you talk a little bit about what you're doing in the OXXOs with grocery and produce and some of the hybrid concepts that you have there, and whether or not there might be interest in the bigger box opportunity to improve scale particularly in those categories? Javier Gerardo Astaburuaga Sanjinés: Sure. You are referring, I guess, to OXXO Super, which is basically a bigger OXXO. And we think that's an interesting format. To tell you the truth, I don't think it's a huge, let's say, opportunity in terms of the store base. But it pretty much takes care of some, again, set of consumers that are finding the OXXO stop a good way to fulfill some other consumption occasions that the OXXO regular doesn't really take care of. So we're pleased with how we have developed that. We think we have also learned a lot of things that apply to the OXXO store and that we're also trying to take advantage of it. But it seems to us that it's -- again it's an opportunity that it's out there and that we would like to grab it.

Yes, I think -- Bob, this is Juan. One way that I think about the OXXO Super is, we started some time back with some segmentation initiatives within the regular OXXO, and we came out with some stores that kind of skewed to the home market, and so we kind of noted the SKUs that would be attractive for a housewife with staples and things like that. And then at some point, you realize that you have more SKUs than you have space for and so you go a little bit bigger and you go into some of these categories that you mentioned that begin to make the store look like a supermarket. But I think of it more as kind of an extension of the segmentation strategy, which also, I think, puts it in perspective in terms of how many of these things we could ask aspire to have. So far, I think the results from that have been good.

No, that's great, Juan. And just on -- part of that question had like an embedded reference to any considerations of an inorganic move that might dramatically increase your exposure to those categories.

Not really. I mean, you should -- I mean we've said, going back to kind of the comments on the drugstores and you've heard us say this before, that the 2 acquisitions that we made are not enough, right? And that we would be looking for more assets that fit well into our strategy. So on the M&A front, definitely, it's not off the table by any means. Other than that, going into bigger boxes, that -- you should not expect us to go that route.

We'll take our next question from Alex Robarts with Citi.

I guess the first question really on OXXO. And looking at the store openings for the year and in the fourth quarter, I mean, I guess it kind -- it seems that you've only passed 1,100 in a year once before. And kind of thinking about how this 500-plus openings that came in the fourth quarter, I mean, can we think about this -- the opening -- the pace of the openings here, perhaps, related to just a slow down that you saw this year in same-store sales growth? Could it be related perhaps to just some year-end incentives or some change in that structure? Or is it just kind of simply better location availability? And should we be thinking more about you guys hitting and surpassing the guidance of store openings as we look out? And kind of the last bit of this is on consolidation. I mean, Couche-Tard has shown that it's interested to consolidate the C-store industry from its perspective in Mexico, and I'm wondering, obviously, there's a considerable size difference if you think that there could be further consolidation in the C-stores in Mexico? Javier Gerardo Astaburuaga Sanjinés: Hi, Alex. First, on the first part of your question and comment. The breakdown by quarter of the opening of stores of 2013 was not necessarily the way we planned. So we -- the opening of stores glided a little bit into the fourth quarter because of a number of reasons, mostly of them operational ones in having the ability to really get all the permits, licenses and building put in place. But not necessarily representing, I would say, either in efficiencies or decisions that we took in order to sacrifice our ability to open 1,000 stores. So we don't see -- we have had some years in which, even the fourth quarter openings were even more important than this year. But some others in which we were more able to smooth openings through all across the 4 quarters. So we are not, I would say, seeing here a trend or anything like that. On the comment on again, the reality is that once you start reaching 11,000, 12,000, 13,000 of course, there are always, let's say, easy locations to look at just following the growth of cities and things like that. But also you start to find yourself in a situation in which you have to refine your criteria and make it very sure that you're making the right decision in terms of location, and that requires, I would say, incremental capabilities and also creativity, inside of our operators in order to think of places where new stores could be open. So in terms of consolidation of the industry, I think because of our size, relative to the others, we are already very big in the country and then we have basically grow organically and I think we will continue in that route. I wouldn't speculate on anybody else doing anything different than what I just said is our strategy. But again, the industry is, I would say, fairly represented by basically, I mean, us and a couple of other medium-sized players and a number of other local regional chains. So I wouldn't speculate of what intentions of some other competitors would look like.

No, fair enough. Okay. And I guess, as I think about it through another angle, which is the 511 new stores here in the fourth quarter showing almost 20% increase on the level that was opened up in the prior year period, and I think there's only one other instance where, on a year-on-year basis, you had 20% increase. So I'm kind of, when I think about the gross margin expansion then, given what the top line was doing, I would think that somehow, that there would be incrementally more startup initial expenses, costs and such. But it sounds like -- it doesn't seem like that was happening. And you have this massive year-on-year opening at the same time with the same-store sales growth in this low single-digit. I mean, was there a phase -- I mean, could there have been a phasing, perhaps of the costs and expenses related to these 511? Or do you think what we've seen really in this quarter was numbers that, that's really what we should expect see around those 511 new stores? Javier Gerardo Astaburuaga Sanjinés: No, again, the 511 number was not necessarily the number we were looking at the start of 2013. It was higher because of the reasons that I just mentioned. And the gross margin dynamics are totally different, again, the opening of new stores. So those are 200 late additions. The gross margin behavior related much more to our ability to bring more people to the store and buying stuff, which is very marginal than others and working very closely with our suppliers in terms of, again, looking at the right price points, looking at the right price promotion activities. And also hitting kind of our targets in key categories, which helps our suppliers to move their product in our stores, which, if you see our performance against some other retailers in Mexico, continues to outperform. So in a way, we think by, again, being able to truly represent the interest of our suppliers and managing mix and traffic, we've had a tremendous fourth quarter in terms of gross margin expansion. But it relates to particular circumstances in the quarter, as well as the 511 net new stores for the quarter are related to particular circumstances on how the year played out in the sense of the ability to open a certain number of stores per quarter. But I shouldn't saying that any -- to you or to anybody else that these 2 variables are related somehow, or that they really represent kind of the way you should look at the business going forward at all.

Okay. Okay. No, listen, that's helpful. And sorry, I just -- one small last one was I, too, was interested in the management change in the fourth quarter, and perhaps the second part of the question is if you could comment a little bit on John Santa Maria taking the helm at Coke FEMSA. Should we expect this to signal more of the same focus and such? Or might it indicate some shift in the mandate? Any comment there would be great. Javier Gerardo Astaburuaga Sanjinés: Sure, Alex. No, I mean, John is taking the business, which is again facing challenging times, tax in Mexico, issues in Brazil to integrate 2 very large businesses, which basically grew our business down there 50%. So and he's been around a lot. I mean, he's been with the company 17 Years. He's managed Mexico, he's managed South America, he's been in strategic planning. He knows the business up and down and he has a very, very, I would say, strong profile as operator. He has commercial sense and of course, he's going to continue to work with Carlos. Now Carlos on his CEO role of FEMSA and John managing the Coca-Cola FEMSA business. So I mean, you shouldn't expect a radical change neither in the leadership style, neither in the strategies that the company is putting in place and neither in the very strong management team that Coca-Cola FEMSA has. So I would say, again, not major changes and the ones that we are introducing, we think are for the best.

And we'll take our next question from Lore Serra with Morgan Stanley.

I wanted to ask 2 questions, so I'll ask them separately. First, I wanted to ask about your perspective on the outlook for additional investment in related sectors, and one of the things I was thinking about was that some of the deals started to happen in Brazil when times got a little bit more difficult. And I wonder if, with Mexico turning down, do you see any more kind of opportunity in those sort of smaller spaces, given that the downturn has been as profound as it has. Javier Gerardo Astaburuaga Sanjinés: Sure, Lori. You're absolutely right. We lagged the profile of the company because it allows us to look at not only different geographies, but also different business. By that, I mean that you have seen us look at opportunities in retail expanding the format here in Mexico, and you have looked us also trying to give it a shot at going into other countries. We're also in Columbia for now some time, and still trying to again, find the proper way to build the business down there. And we also have a very interesting footprint on our logistics and refrigeration business all across Latin America, following the footprint of Coca-Cola FEMSA. So all of that provides us with a, I would say, a menu of opportunities that we look around. The decision we took last year to really put a significant amount of capital in Brazil in the Coca-Cola FEMSA that helped us to reach 40% of the volumes sold in that country of the Coca-Cola products, it's a clear signal of our belief of the long-term fundamental -- positive fundamentals of the country. And again, those holding [ph] times are always times for opportunities. And we see basically, these days that situation, evolving. So I can confirm to you that we're looking at things all the time and that we are very aware of what you're saying in terms of there might be some better timings to look at opportunistic entry into certain countries or lines of businesses. And what I would like just to reinforce is that every time we look at that, the starting point for all this is, are we good at maybe taking this opportunity or not? And then second question is, well, is the timing right? That's the sequence that we always tend to look at these potential opportunities, Lori.

Great. And the second question I wanted to ask was about Coca-Cola, and I guess it's a bit multifaceted so let me throw out some ideas and you can respond to the ones you want to respond to. One very practical question is, when I spoke to -- when I asked a question to Hector about raw materials in Venezuela, he made it sound like concentrate was a raw material. But I had the impression that you pay concentrate in Venezuela in local currency terms. So I just wanted to confirm that. But I guess the question I wanted to ask was, if you think about the relationship with Coke, and Coke seems to have a bit more challenges heading into this year than it's had in the past and you have more challenges going into this year in the Coke FEMSA system, and particularly as it relates to Mexico. So as you try to marry this goal of kind of containing costs that Hector talked about in Mexico yesterday to prepare for probably weaker revenue, how does this dialogue work with Coke in terms of the support and the marketing spend? Because from their perspective, they want more and from your perspective, you need to watch the line. And then broader speaking, I mean, as you think about expansion opportunities, they're trying to refranchise the U.S., I guess I thought the Philippines was of an important part of kind of your medium-term kind of goals. But how do you think about that as something to think about? So a couple of different questions, but all with the theme of kind of Coke. Javier Gerardo Astaburuaga Sanjinés: Sure, Lori. First, on the raw materials. We basically, I mean, we buy the concentrate, but we pay that in bolivars, as you said, but since the concentrate is imported into Venezuela, it goes to the Caribbean regime [ph]. So that's the process we have to take there. On the cost containment thing, as you can imagine, tougher times for both companies, it has proved in the past that it has brought the 2 companies together because either we do face it jointly, or again, the nonalignment between the 2 parties can be very, very bad for both. So what's taking place is, I think, an increased level of communication and debate at all levels on, again, what's good or bad. But what I would like to reinforce here is the idea is, the Coca-Cola company knows that we're a company that look at decisions not for the short term but for the long term. So if we are making efforts in terms of cost containment, I think we, most of the time, I think have the right arguments to discuss this with our partners in explaining why this is a good idea not only to, let's say, deal with short-term turbulence but also it's good for the long term. So communication and again a clear, I would say, and frank dialogue and debate on ideas on both sides of the table. I think it's a solution to face troubling times as the ones we are facing. And in terms of the, again, evolution of whatever might look like the footprint of the franchise in the world, arriving to the Philippines, we are -- again, we are working as hard as ever and we are very happy with the progress we're making as opposed to the trends that this business had previously we arrived January last year. But still, I think it's work in the making. It's -- we -- when we represented, this transaction was, this is a challenging business. This is a geography in which we can think we can leverage some of our skill sets and our capabilities, and I think we are doing that and we're making a lot of progress, but we also represented this as a multiyear work. I spoke about 2 to 3 years really to look at being out of the woods. And we're still in that phase, but as I'm saying this, I'm saying we think we have the scale, we think we have the management depth, we have, I would say, not as ample financial flexibility as we used to have before the acquisitions we made last year. But we have the obligation for our shareholders to look at any opportunity that may arise and that seems to have a little bit sense for us to look at it. So we are always interested observers. We know everybody in the system. We have, I think, the confidence both from the Coca-Cola Company and we're always there, ready to look at opportunities, Lori.

And we'll take our next question from Luca Cipiccia with Goldman Sachs.

Just a quick follow-up on OXXO and the retail trends in Mexico. Just to -- wanted to ask if you could share your views on how the taxes, the price increases that we're seeing coming through since the beginning of the year may affect the channel preferences for a consumer. That's to say, how do you think traffic will be impacted in comparison with a traditional channel, if there's -- and some of the other formats, if there's any indication for what you could monitor so far. And then, complementary to this, maybe if you could share some thoughts as well on the additional services that you've been introducing? We've seen the debit card on the OXXO side? So maybe if you could comment a bit on these incremental traffic drivers, how much relevant that they're becoming at a time when possibly some of the other categories may suffer proportionately more? Javier Gerardo Astaburuaga Sanjinés: We are still looking, I mean, mostly 2013 and early 2014. Again, we are still confident that on the consumption occasions that we play out and on the new services or services needs that consumers are looking for, we're still making strides and we are outperforming the industry. So we feel good about it. We don't think the traffic numbers in a way represent that the power of the value proposition of the store is losing traction at all. Again traffic, in a way, will be a function of how consumers mitigate or integrate the effect of higher taxes and higher prices for a number of products all across Mexico. And again, different categories have different price levels as of January 1. But also, price sensitivities across our categories are quite different as well. So are we thinking it's too early to say. But we feel confident, as I said, that we should be trending upward as the year progresses. That's one of -- the first part of your question. The second one is, we continue to bring new solutions to the store. We just launched, as we just announced, a new card that goes national [ph] in OXXO, which is linked to Banamex, in which I think we're also starting to build a new reason why it's going to be much more convenient even than today to go to OXXO to do certain transactions. The service category, as we've said in the past, is not really necessarily a big one still in the company but it's growing very fast on -- from its base. But it's also a category that help us to bring traffic into the store, so if people is going to pay a bill, they would hopefully get a Coke and a beer and a snack with them all along. So we feel very, very good about we have -- what we think is a sound strategy. It is a category that takes some times to deploy because of technological complexities and negotiations with partners. But once it's installed, it's very good because it's pretty much all margin and it's helping a lot to bring people into the store.

Just a quick -- as a follow-up to your answer, so when I think specifically about the traditional channel, the mom-and-pop, how disruptive do you think the taxes may be? Comparatively, do you see this rather as an opportunity to gain share or rather consumers may revert more to that channel? What -- how could this play out in respect of that channel, specifically? Javier Gerardo Astaburuaga Sanjinés: All in all, I think it's an opportunity. All in all, I think it's an opportunity. I think the smaller businesses, again, not [indiscernible] disadvantage, not only -- I mean, just the evolution of time goes against them, I think, because again, consumers are looking for variety and it's very hard to really offer variety in a very small, not so well-managed and sometimes lacking response to really have a good working capital to work with. And if on top of that, you put some pressure both on their finances because of tax reforms for small retailers and businesses in Mexico, together, with a new price architecture for most staples in Mexico. I tend to look at it more on opportunity. But again, it's up to us to really make it happen. I mean it's not going to happen automatically. I mean, as a starting point, I see more an opportunity than a threat. And with no more questions, I would thank everybody who participated in the conference call. I'm looking forward for the next one in April. Have a good day, everybody. Bye now.