Fomento Económico Mexicano, S.A.B. de C.V. (FMX) Q4 2018 Earnings Report, Transcript and Summary

Good morning, and welcome everyone to FEMSA's Fourth Quarter and Full Year 2018 Financials Conference Call. [Operator Instructions]. During this 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 currently available data. Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance. At this time, I would like to turn the conference over to Eduardo Padilla, FEMSA's Chief Financial Officer. Please go ahead, sir.

Good morning, everyone, and welcome to FEMSA's Fourth Quarter and Full Year 2018 Results Conference Call. Juan Fonseca and Maria Castro are also with us today. And I'm to welcome CEO of FEMSA Comercio who is also joining us for this call to discuss the exciting news we communicated last Tuesday regarding OXXO and. As we usually do, we will focus the call on the consolidated figures for FEMSA and on FEMSA Comercio results since many of you probably had opportunity to participate in Coca-Cola FEMSA's conference call last Tuesday. We want to use today's call to add some color and some qualitative elements to the discussion as well as to hear your views and answer your questions. Our fourth quarter results were generally consistent with the performance in the year. FEMSA's Comercio Proximity Division achieved double-digit growth, up and down its income statement, delivering stable operating margins in the back of strong expansion at the level. The Health Division generated mid-single-digit growth and stable operating margins and the Mexico operations continued to improve sequentially. The Fuel Division delivered solid growth in revenues and grow the margin. We were unable to down to the operating line. For its part, Coca-Cola FEMSA delivered top line and volume growth in several markets with particular encouraging trends coming out of Brazil. Before we discuss the quarterly results in more detail, Daniel will comment on the announcement regarding the new commercial agreement between OXXO and that two global brewers that operate in Mexico. Daniel, please go ahead. Daniel Rodríguez: Thank you, Eduardo. As you probably know by now, after nine very positive years of working closely with Heineken and carrying only their brand portfolio in our OXXO stores starting this time in April, we will begin our process portfolio of. The process will take the better part of full year so that by the end of 2022 every store in Mexico will be carrying the brewers. It is an important in OXXO's permanent commitment to our consumers, all this time to provide them with the broader performance to satisfy their needs. And all this working to enhance our value proposition. While we are not providing financial details of the new commercial agreements, we are confident that they will allow OXXO to the proximity. The agreements that were signed last Tuesday will be formalized by definitive contract that we expect will be executed in the coming weeks. Now I would like to return the call to Juan.

Thank you. Moving on to discuss FEMSA's consolidated quarterly numbers. Total revenues during the fourth quarter increased 7.5% and income from operations increased 2.3%. On organic basis, excluding the results of operations in Guatemala and Coca-Cola FEMSA and Caffenio at the Proximity Division. Total revenues increased 6% and income from operations decreased 4.4%. Net income increased significantly reflecting an easy comparison base caused by the charge in the accounting method for Coca-Cola FEMSA operation during the fourth quarter [Technical Difficulty] a decrease by approximately MXN16 billion compared to the previous quarter to reach of a net debt of MXN60 billion at the end of December, reflecting the proceeds from the Coca-Cola FEMSA operations coupled with reduction in Coca-Cola FEMSA's debt. Moving on to discuss our operations and beginning with FEMSA's Comercio Proximity Division. We opened 21 net new OXXO stores during the fourth quarter, reaching 1,422 net store openings for the last 12 months. The includes new stores in Mexico, Colombia, Chile and Peru. Revenues for division increased 11% on organic basis. Revenue grew 10%. OXXO same-store sales were up 4.5%, driven by a 4% increase in average customer ticket and 0.5% growth in the store traffic. These numbers reflect a resilient consumer environment in Mexico, coupled with pricing initiatives and the continued strong performance of the services category. Moving down the income statement. For the fourth quarter, gross margin expansion was quite strong at 300 basis points, reflecting: Number one, sustained growth of the service category, including the income from financial services. Number two, our commercial income activity. And number three, increase and more efficient promotional programs with our key supplier partners. Income from operations increased 11.1% on organic basis. The increase - I'm sorry, increased 11.1%. On organic basis, it increased 6.4%. Operating margins remain flat, in line with our expectations in spite of: Number one, our continued achieved from the commission based store to employee based. Now we have close to 52 to 48 employees and 48 commissioners. Higher secured currency handling costs driven by increased volume and higher operation across the fuel prices. And number three, an increase in this quarter. And four, a step up in the pace of organic growth of OXXO's international operations, which have yet to reach the scale. And we are very happy with the performance in Colombia, Peru and Chile. It seems like we learned our lessons in Colombia and we are applying now for Chile and Peru. Moving on to FEMSA's Comercio Health Division. We drugstores during the quarter to reach in 2351 units across the territories at the end of December and 136 total net new stores for the last 12 months. Revenues increased 6.1%. Same-store sales increased an average of 4.5%, which includes a negative currency translation effect from depreciation of Mexican peso compared with Chilean and Colombian pesos. Gross margin contracted by 30 basis points for the fourth quarter, while operating margin remained stable reflecting the improvement of our operations in Mexico as well as increased operating leverage from our cost efficiencies and tight expense control. FEMSA's Comercio Fuel Division added 20 gas stations during the fourth quarter to reach 539 units at the end of December and 87 net new service stations for the last 12 months. Same station sales grew 6.7% in the fourth quarter and gross margin expanded to 180 basis points, reflecting terms. Operating margin contracted by 30 basis points year-over-year, reflecting provisions related to certain profitable institutional clients; number two, higher wages implemented to register in labor market; and number three, increased marketing initiatives; and four, expenses related to the remodeling of our stations and installations of new environmental controls. Finally, moving on briefing Coca-Cola FEMSA. As Juan highlighted in the press release yesterday, Mexico and Central America's top line continue to grow, while recovering environment and portfolio helped volume growth in Brazil during the fourth quarter. Coca-Cola FEMSA also strengthened its balance sheet by reducing its net debt. If you were unable to participate in Coke's FEMSA conference call, you can access the replay of the webcast for additional details on the results. Finally, let me talk a little about the year that begins. With the microenvironment is producing some mixed signals in Mexico, we continue to see a resilient consumer in our market and a resurgent consumer in Brazil. We are optimistic about most of the markets that we operate across businesses. For most specifically let me share with you some broader expectation for our main operations. FEMSA's Comercio Proximity region, we expect net OXXO openings to be in line with 2018. So more than 1,300 units in Mexico with some upside potential as well as try to improve from the previous year's number. For OXXO international, we expect to have approximately 120 net new among Colombia, Chile and Peru, reaching close to 280 total stores in South America by the end of this year. As you know, we have made strides fine tuning the value propositions markets and as we are - and we as scales these oppressions, especially to put pressure on our margins and begin to contribute to our profitability. In terms of OXXO's same-store sales growth, we should remain with our long-term expected range of mid-single-digit growth. Operating margins will be under a bit pressure, particularly given the increased pace of store growth in South America. However, we should see some upside from the government implementation of revenue agreements with Heineken and. Also, we know the remaining moving pieces regarding public policy tends to be in the first year of extension. So these are a bit more uncertainty to the mix. Finally, there is also a component that we need to be aware of given the will shift from March last year to April this year. And this improves OXXO's prospects for the second quarter and 10% expectations for the first quarter. For FEMSA Comercio Health Division, Mexico will continue to profitability of our unit growth, while increasingly leveraging our consolidated operating platform with our suppliers and customers. South America, we expect a strong year, particularly in Colombia. We expect same-store sales for the region to grow in the mid-single-digits after adjusted for currencies. In terms of margins, we should also see stable growth - see stable to slightly expanding operating margins. Also, we are still waiting for the regulatory approval for acquisition of which we expect will be happening soon. As you may remember, this acquisition will have approximately 620 new stores in the Health Division. For Fuel Division, we see it expanding at 15% to 20% range in terms of added service stations in 2019. All expanding through our asset-light approach, which revenues growing double-digit and stable operating margins. Having said that, as you know, there was a significant assumption in the supply chain earlier in this year and there is always the possibility that something is that will happen again. So there is some added uncertainty in the short-term, but no change in our medium- and long-term possibility outlook for this business. In terms of to be paid in 2019, we will be submitting to shareholders those who are on our ordinary dividend payment of MXN9.7 million, representing a full passthrough of the from the Heineken and Coca-Cola FEMSA as well as a portion of the free cash flow generated by FEMSA Comercio in 2018, consistent with the mechanics of recent years. This proposed amount represents an increase in line with the general in Mexico and is consistent with our view that the current macro environment conservative approach balance sheet management. For capital expenditures expectations, we are 6% of revenues for Coca-Cola FEMSA and FEMSA's Comercio Proximity, 3% of revenues for Health, 2% of revenues for Fuel and approximately $100 million for the logistic operations. Summing up, we are optimistic on the consumer environment in our main market, and we are confident in our ability to execute on our strategy and to keep using the leverage well within our control. I would also comment of our high-quality as we continue to work allocate our capital to higher return opportunities, exercising discipline as we grow our platform across markets with a view on long-term value creation. And finally, let me turn the call over to Juan for

I wanted to know that in the beginning of the first quarter 2019, we will be reporting our financial information under IFRS 16, which, as you know, changes the way that we treat leases in our financial statements. We will put out special press release in late March, presenting our 2018 quarterly and full year financials according to IFRS 16 and the relevant adjustments so that you can incorporate these changes into your models well ahead of our first quarter results in late April. This is very similar to what we did back when we adopted IFRS for the first time and it seemed to work well. So with that, we can open the call for your questions. So operator, please?

[Operator Instructions]. Our first question comes from the line of Luca Cipiccia from Goldman Sachs.

Actually, my one question would be on the OXXO results in the fourth quarter adding that your comment on very impressive gross margin expansion, and I think you were quite clear in attributing that to the contribution from severances - service revenues supplier terms, some of the things that we had in the past, but in terms of the market and is contribution is becoming more and more visible as well as the actual size of the improvement. So anything more that you can share on that front? Also maybe with a tie to the recent announcement of the - on the side of the business, so that would be the first part of the question how we should we think about that going forward and in relation this announcement? And secondly, clearly, we've seen that sort of cross between gross margin expansion, operating profitability not growing as fast because of the investments that you're making in SG&A and personnel. When will that process be, if not over more or less, sort of, annualized and we should see maybe a more aligned profitability trend between gross margin and operating margin?

This is Eduardo. Basically, I would say for the year, one thing that we are impacting is really the handling of cash. The handling of cash was a major impact. Currently now out of every 5 pesos that we have in the cash here, 1 peso comes from the merchandising and 4 pesos comes from services and payments. So a business that we consider that was going to be in the marginal business now is the main business for us. And I think managing of cash will even though we know how to manage and we basically take the cash daily out of the stores. I think there are some opportunities think and we designed the way to do that that. And actually, we will be confident that probably not probably in a year's time we will be able to come up with a better system because in a way it took us by surprise, the amount of cash that we are managing and it was no longer marginal and the cost of managing cash went up dramatically. I would say probably out of the first question you asked I will not give you this perspective. Juan?

I would also add. When you look at the gross margin expansion, I would mention a couple of things. One is our ability to leverage the ubiquity of the with suppliers, I think, is something that continues to grow and is somewhat structural, I think when we talk a little bit about the new agreement with the Brewers, I think that will be a component. It's something down the road. So nothing to do with 300 basis points of the fourth quarter, but down the road I would expect both Brewers to also contribute on that front. But when you look at seasonality, the fourth quarter tends to be a big one in terms of commercial income, right. This is probably the best quarter of the year when you receive help from suppliers to get their brands and promotions out in the market. And the other component, which is not structural and it's really one of but it is relevant in this quarter is the consolidation of the coffee business of Caffenio in a sense that it helps but it also hurts you down at the SG&A. So caffeine the numbers would look a little bit more like what they used to and given the caffeine use in the couple of more quarters and that should not be an issue anymore.

Understood. And maybe on those investments that you're making on the shift in the operating model at the OXXO stores how far ahead are you in that process, you've been talking about it for a while? Daniel Rodríguez: Luca, this is Daniel. As mentioned earlier in the call, we are 52% now with the that is something that we will continue moving to that direction, but we understand that is something is working and most probably now we are more concentrated to do those changes on a regional basis. Okay. So we will continue moving into that direction, but with a much more focus and try to concentrated specific reasons where we will have, I mean, the right employees for a particular region and then forward.

Your next question comes from the line of Antonio Gonzalez from Crédit Suisse.

I wanted to ask Eduardo, we are approaching the second year anniversary of the divestment in Heineken and, yes, it started to say that since then the regulatory in Mexico has arguably worsened in some of the businesses that you would like and the opportunities right in Brazil, the macro environment in certain improving and there's a lot of expectations of further improvement as well. So I wanted to see if you can share your big picture thoughts on: A, how would you describe your increased appetite, if there is such for assets in Brazil, specifically? Are you most are flexible in terms of formats and businesses that you would like to invest in? And is there also a longer timeframe because conditions have changed that you are now considering for deploying the capital, whether it's in Mexico or in Brazil? Is it just a longer timeframe now than it was before? And then secondly, if I may just super quickly taking advantage of Daniel's presence, is there any early indication that you might share on the I know that is roughly contributing roughly mid-teens to your OXXO revenues at the moment. And is there any order of magnitude that you can give as to how much more beer revenues you expect on a per-store basis and perhaps what's the white space in terms of number of new stores that this would open once it is fully deployed?

Well, let me tell you about the Brazil question you raised. We are considering some investment opportunities in Brazil and there is no format businesses. The thing is that really even though Brazil is marching there are some that things are very expensive and we already have, I mean our greenfield operations that we set up in Peru, Colombia and away in Chile are very much focused in coming up strong out of those investments. So in Brazil, we're considering some more format investments. Probably, I hope in six years - in six months - or 3 or 6 months, we able to come up with something. But as we are very present in Brazil and how to approach the market, again a great market but sometimes difficult one and as we have learned from of operations in the Coca-Cola and logistics business. Regarding to your question about the beer, Daniel would you like to add on anything? Daniel Rodríguez: Sure. Antonio, I mentioned at the beginning of the call, we are not communicating anything financially or expected impact on our results. Having said that, I mean, we know that the having the transition until we have the brewers in our stores almost for a year. So we see any impact, which will be down Antonio, and we will start Mexico cities. We will see the northern part of the country at the end of the full year. So definitely we are spending there will be increasing approximately of the beer category, and we expect obviously to sell more cases per store. That is what I can share at this stage because it's very early in the process.

Daniel, what did you of stores, how many people, I think that is a good indication of how - why we are very optimistic about this. Daniel Rodríguez: Yes. I think whether I was trying to say that if you, I mean, the sure of the Brewers in the country where Heineken has a large share of the market, we are roughly I mean, one store per 3,000 habitants. And know that indicates for having the largest market share. Today, we have 6,000 habitants per store. So that's give you a flavor about the potential that we have in terms of the organic growth.

Your next question comes from Alan Alanis from UBS.

My question is to do with how should we think about the improvements in profitability and changes in traffic, that's the top line growth of OXXO in light of the new agreement with Grupo Modelo and with Heineken? I mean, I know, it's positive, but how should we be thinking about it?

We will be optimistic, Alan. Really - not really because I would say, we are going to learn a lot on the second quarter because we will be opening up in Mexico City and Guatemala. Mexico City, the Heineken's brands preferences are very well local compared to and same happening in Guatemala. And I think those will be very important sales market for us and because now we have the full flavor of beers in the portfolio on the shelf of the stores. Daniel Rodríguez: I think I will support on that. I think most probably after a couple of months that we started, I mean, the mix in we will have a much better sense of what will be impact in terms of our financial in these two regions. And at this stage, I feel that's very early to give any kind of projection in terms of the impact, even though that Eduardo said that we are very optimistic.

And Alan.

No, go ahead.

Yes emotionally speaking is very shocking. We've been fighting against for all our lives and now we happen to have that. And this is speaking, but I speaking but of the we are shocked, we are amazed, and we are just grabbing - swallowing this new environment that we will be facing. So in a way, emotionally speaking, it will be shocking for the whole organization very end we are being very rationale in order to be connected to the consumer and I think that has to go.

Got it. That's understood and it makes a lot of sense to wait until you some source in Mexico City and Guadalajara to see what's going to be the impact on the overall traffic and the profitability of the store. So let me reframe the question slightly different just for modeling purposes on our side for our work. Was there any upfront payment? I know you cannot disclose it, but should we be expecting some onetime extraordinary payment from both Heineken and Grupo Modelo on the first quarter results or this will be embedded in the price, which you're purchasing the beer and will see it through time?

Alan, it's Juan. So it is the latter. So any upfront, this is something that will manifest itself for the recent months to go by. But I will also highlight something. If you think about it right now in Guadalajara and forever basically very few people in the greatest scheme of things have gone to OXXO because they want beer, right. I mean they came to OXXO for a lot of other reasons, but they are fans of Australia or one of the Modelo brands which 2 out of 3 or 3 out of 4 probably in the case, they haven't been going to OXXO when they have a need for beer, that's kind of the primary driver for that visit and that will change and that will change quickly. And I'm sure there's going to be a lot of promotion and media, and I'm sure Grupo Modelo is going to do a great job in communicating this, and I'm sure we're going to do it. So in those markets, the impact will be fast, it's my guess. But for this to move the needle of the whole country for the consumers everywhere and there's a lot of Daniel said for this to happen in the north it's going to be a few years. So as far as of our national numbers you're going to see it very gradually, but if you focus on some regions it's going to move the needle rather quickly.

[Indiscernible].

In terms of what we observed in the trends that we... Daniel Rodríguez: And again, it will be a learning process because we know really how to manage these brands. The logistics will be. I think really this is going to be a learning process.

The next question comes from the line of Robert Ford with Bank of America.

Eduardo, how are you thinking about the on the enforcement actions of participants in the gasoline or in the gas station space? And what implications does this disruption have and you're suggesting that there may be others, but what implications you have on your storage investments? And do you think this creates new consolidation opportunities for you in the gas station space or this administration moving out the possibility of selling these out companies they deem to be look optimistic?

Okay. Eduardo here. Let me give you a brief on this comment and I will let Daniel to speak about it. Well, we are in the progress of converting all the stores to this - to our brands and to enhance the value proposition. We - our only source of supply comes from Pemex, and we are very much well aligned with Pemex. We are understanding how these new players come and how is really the value proposition comes into play. And our main value proposition in the market was our honesty and we are the leaders the year. But that's why it is very important for us to convert all the store, all these stations and to have the full brand of OXXO GAS in that place. We know how these new operators will come, how they will be enforced the new - the value proposition of the other brands. We don't know yet what is happening. However, what we have seen is that there will be an opportunity because there are a lot of people who doesn't know how this cadence is going to play and leverage of our scale and our learning process and the value of our brand. So really is moving a lot, and in fact all these disruption that we haven't was a difficult one. But again, we are very committed to our value proposition to our brand, but we are in the process of learning what will come next. I don't know, Daniel, you want to add anything? Daniel Rodríguez: No, I think that's fine. Maybe more if you want to see only in the cases that we are getting I mean, from the authorities is that any reforms. I mean, the changes reforms will remain in place, which I think that positive one. Second on the supply side. Definitely, Pemex will be our player and we rely on them. And so far, I mean, all the supply is working well. And we should not forget that Mexico, there are roughly 12,000 gas stations. We are a little bit of 500 and we are the largest operator. So definitely, we see that there is an opportunity there in terms of increasing our size, and we see that very optimistic in terms of the competition, which was Eduardo was referring to. We know that obviously all the players they have very strong brand, but we also - we recognize that we have very strong brands here in Mexico, which is OXXO. So we know that we can that brand and we know that in terms of the consumer we need to focus definitely to keep our value proposition in terms of but on top of that we're also focusing on how we can improve and maybe differentiate ourselves from the in terms of service that we provide. We should not forget that we also all the employees that the gas station. They are the right employees for us. So we have a different model from the which for us a little bit in order that we can really deliver our value proposition.

That's helpful. And then just one question to beer picture and that is what percent of OXXO revenue is in the area of Guadalajara. It's is not just the city, but it's the major metropolitan area. Well, what percent of OXXO revenues coming from the regions of Guadalajara and Mexico where the beer categories going to open up?

Rather than revenue in terms of number of stores, there are roughly 18,000, probably a little bit over 3,000 close to area.

Yes, agreement with Heineken and Modelo is that we are starting in the center part of Mexico and the last one will be probably

Our next question comes from Álvaro García with BTG. Álvaro García: My question is on clarifying the operating margin guidance for this year in your Proximity Division. You mentioned operating margins will be under pressure. I'm assuming on an organic sort of ex-beer basis, but that the beer deal could benefit? I was wondering if you could just comment on like excluding the new beer deal what would you have expected for 2019 in terms of operating margins?

Alvaro, this is Juan. I think that we slightly contrasting. I think international components, we - like I said we have the biggest targets percentage-wise for all three markets and, of course, those operations are, none of them really have the scale to really overhead yet, especially Peru which is started we're starting fast rather your comments giving on the call. Things are looking quite good in Peru. So we are going to keep the foot on the accelerator, but that's puts some pressure on the margin. So I would say ex-beer agreement probably is slightly down. Now that we have those agreements signed, I would say there is some upside risk that maybe would allow to come out with stable margins and will play as the year - as the year goes on, we will fine tune the expectations, but that would be my thinking right and I see Daniel is not Daniel Rodríguez: Yes, I agree. I think that where we are expecting, nothing up to us. Álvaro García: That's very clear. And then just one quick follow-up on that. I was just wondering if you could comment on the growth that you're seeing in the services - the financial services category in the quarter or throughout the year at OXXO?

I think it keeps increasing. And we're very much dependent on how much cash is in the economy. So we have seen that cash is not being introduced in Mexico and convenience of paying everything on a 24/7 basis is always helpful. And we're confident in the category. Daniel Rodríguez: And maybe plus one additional color, we also are working on Heineken and expand the services that we provide to our customers by the digital strategy. How we can also satisfy our financial services throughout our stores [ph]. So we are, again, optimistic in terms of the growth as part of the business, but we also are working on how we can move faster in terms of our digital strategy.

Our next question is Alex Roberts with Citigroup.

I wanted to start out perhaps by getting your view just on some of these macro changes that have started this year in the Border States? Specifically, we see the changes with the VAT, significant reduction there in the Border States together with this doubling rider of the minimum wage in that same border state area. How are you guys thinking about the impact on your consumers on your OXXO customers in the first part of the year? Is it marginal or is it something that you think could really have a more meaningful impact as we think about the same-store sales trends? And I guess, my follow-up would be just on the Amazon joint venture? I believe you mentioned 4,000 stores could be kind of a short-term goal to have that joint venture operating with. And are we close to 4,000 stores? Are we passed it? Just kind of your thoughts on to rollout of that joint venture during this year, that would be great?

I think what is happening in the border, the labor market was very tight, and we are optimistic that there will be a lot of money in the border without doubt. But we have also to compensate our performance in order to compete in this very tight labor market. So we are learning about that, we are optimistic about it. And I will say that the net debt - there will be our net debt benefit out of what is happening at the border. That will be my opinion. I don't know if you want to add anything to that. Daniel Rodríguez: Yes, I think that right at the level. Net-net, I mean, would be a positive impact. I think it's very early in the year to see what is the impact. But lot a lot of this comment, I think one of the main challenges that we are for how we are very competitive in order to keep the labor force, and so consistently speaking, obviously there will be high revenue definitely, so higher consumption. So in that regard we are very positive. And if you want to comment on Amazon. Clearly, we are today in between 3,000 and 4,000 stores that we are doing in Amazon products. We don't have restrictions in terms of what would be the final number, but there is a challenge from the Amazon side. If you provide with the at stores, it is more a logistic challenge that we see in front of us. But so far, there is on the commercial agreement to work well.

And I think, this is Juan. What we had mentioned in the last call is that the only constraint is really how fast the Amazon logistics this their own coverage in the other parts of Mexico. So any city or any town where Amazon gets to those stores should have the capability. So we will continue to progress according to speed with which Amazon grows their own footprint in the country.

Our next question is from Martha Shelton with Santander.

My question is regarding OXXO International. I wanted to see if you could clarify the number of stores that you have in OXXO International at your end? And then I just wanted to clarify are you growing your store footprint by 77% or 80% year-over-year? So that's one question that I have for you. And secondly, in terms of long-term growth algorithm for OXXO International, how should we think of growth in OXXO International over the long term? And then just to kind of tie that up, in terms of long-term margin assumptions, I can't imagine that we will see something profitability wise that's similar to OXXO Mexico anytime soon, but can you give me a sense for how you're thinking about how EBITDA margins for OXXO International could evolve over the medium- to long-term?

Martha, this is Juan. In terms of the numbers, we closed the year with around 160 stores outside of Mexico, and you're right that given that crossing 120 for the year that's a pretty aggressive growth objective. But that is what it's looking like. We are very optimistic. And it took us a while to get to the point. It took us a while to get going in Colombia to get the value proposition to the point where revenue per store was what it needed to be and then it really took a function of scaling up to better absorb the fixed cost on the overhead. I think in Chile was the different trajectory in the sense that we acquired an asset and it's really more of an adjusting the value proposition to something that is more like in terms of improving the assortment and increasing the number of SKUs and then tinkering with the price. And then there is most recent newcomer which is Peru where we've basically been for a few months, but it's gotten off to a very strong start, interesting factors plays a much bigger role in the Peruvian stores. Chicken, interestingly, is an important part of the menu and it's flying off the. So very quickly and I think the time that it takes us to and then decide upon and proposition that the timeframes have compressed significantly. So I think it's gotten better at making adjustments. In terms of profitability and I'm going to turn over to Daniel, but certainly scale, scale is something - the numbers that we've complementary to at OXXO have a lot to do with the fact that we have thousands and thousands of stores. And so it's going to be a while. I wouldn't even in the same sentence. But certainly, you can get your margins to begin to close that gap relatively quickly. You need a few hundred stores is what I have in mind. Daniel Rodríguez: Yes, fully agree with Juan. Mainly, I think, in terms of the growth expansion, we that the scale is relevant. But having said that, we don't know that it's more important that we have quality, growth. While we are to measure of how the performance of same-store in order that one can really out to speed up the value proposition. Once you get a profitable store, that is much easier that you can speed up. So that is a scenario where we are reinforcing [indiscernible] and to our at in the call. We are, obviously, thinking about the learnings that we had in Colombia. And also the learnings that we have in Chile because there were two different first one was and obviously, that is much more and the second one goes that we have acquired a very located of convenience store, but very convenient. In terms of the price and we were able to develop a much more proximity. We have changed the demand and also change the value proposition. So product is working well. But in terms of profitability overall, the scale. But for us to create the scale, it is to make sure that we have the right store, the right location and with the right customer value proposition and that is the main focus today.

Great. And just to clarify when you're talking about your EBIT margin expectations flattish EBIT margin, bit under pressure of flattish EBIT margins in 2019 versus 2018 and that accounts for, of course, the growth of the lower margin OXXO International. The way I am reading your comments, it sounds to me like it might be you're thinking about perhaps small incremental traffic that comes from Modelo brand share, but it sounds to me what I hear is it could in fact be the benefits from the commercial income that you got from Modelo and Heineken. Is that a fair assessment of how I should think about 2019 in terms of the Proximity Division's income statement? Daniel Rodríguez: I think it's been the algorithm for a while, right, where you have a very strong margin expansion at the growth level and then a portion of that sometimes most of that goes away in the SG&A because of the electricity and labor and cash management or cash handling costs. And I think, you're right, when we factor in the beer, the new beer agreement, certainly as part of that to commercial income, but a part of that should also come from incremental beer sales, especially as we said in center and the rest of the country. And we doing in the South American operations, International operations. But I do think the upside risk from the Modelo agreement is a bit of a question mark, right. I think we have our own internal projections, but we will keep you guys posted quarter-after-quarter in terms of how that is tracking, because, I think, it does have the potential to move the needle, and we could be talking about stronger margins at the end of the year, but will have to wait and see how that goes.

Our next question is from the line of Carlos Laboy with HSBC.

Two quick questions. The first one is, are there any features of the new agreement that allow you to maybe phase in earlier or later the North of Mexico for AVI? And then the second question is the craft beer segment, I know it's very initially, but can you expand on whether this allows you to also service the independent brands and what kind of a pace might that be possible? Daniel Rodríguez: Well, I mean, first of all, the agreement that we reached perhaps. So that means that we have conditional, but also the way that we will start to mix in the regions in the country and that is part of the agreement. So there will be no changes from what we are already doing. So it is going into your first question. The second one, obviously, once we have the mix territories then we are open to have anything that we want on our so that is the straight answer to your question. So definitely this year, we can have craft beer in Guadalajara and we can have that in Mexican City as well.

[Operator Instructions]. And there are no further questions in the queue.

Well, thank you very much, guys.

Thanks, everyone, and have a great weekend.

All the best.

Ladies and gentlemen, if you wish to replay the webcast for this call you may do so at FEMSA's Investor Relations website. This concludes our conference for today. Thank you for your participation, and have a nice day. All parties may now disconnect.