Fomento Económico Mexicano, S.A.B. de C.V. (FMX) Q4 2022 Earnings Call Transcript

Fomento Económico Mexicano, S.A.B. de C.V. (NYSE:FMX) Q4 2022 Earnings Conference Call February 24, 2023 9:00 AM ET

Company Participants

Eugenio Garza - Chief Corporate Financial Officer, Director of Finance & Corporate Development

Daniel Rodríguez - CEO

Juan Fonseca - VP, IR

Francisco Camacho Beltrán - Chief Corporate Officer

Conference Call Participants

Benjamin Theurer - Barclays Bank

Alan Alanis - Santander

Héctor Maya - Scotiabank

Ricardo Alves - Morgan Stanley

Marcella Recchia - Crédit Suisse

Robert Ford - Bank of America Merrill Lynch

Álvaro García - BTG

Thiago Bortoluci - Goldman Sachs Group

Operator

[Abrupt Start]

Eugenio Garza

[Technical Difficulty]. Moving connected to talk our operation, opening pinch Proximity Americas. We added 559 units during nan 4th fourth to scope 1,027 nett caller stores for nan past 12 months. This includes 120 stores from our OK Market acquisition successful Chile that we began consolidating during nan 2nd quarter.

In Mexico, we get up a small spot short of our target of 800 nett additions, but nan gait keeps improving. The pipeline is looking bully for nan adjacent 12 months, and nan productivity of our caller stores continues to materially transcend that of erstwhile caller shop cohorts.

OXXO same-store income were up 11.4% for nan 4th quarter, driven by an summation of 6.8% successful mean customer summons and again, a beardown 4.3% maturation successful traffic. This continues to bespeak a pickup successful nan betterment gait of mobility and nan gathering depletion location that has continued to execute astatine a very beardown level.

Gross separator was 44.2%, continuing a caller inclination wherever our fast-growing loyalty programme and somewhat little publication from financial services much than offset patient commercialized income dynamics. Despite nan separator unit astatine nan gross level, income from cognition accrued 17.4%, while operating separator accrued 10 ground points compared to nan aforesaid play of 2021 to scope 12.7%, driven by a structurally leaner disbursal building and nan resulting operating leverage.

At Proximity successful Europe, we began consolidating Valora successful early October, truthful we are showing 84 days of results. We closed nan twelvemonth pinch 2,766 outlets. Revenues came successful astatine MXN 9.8 billion, reflecting a betterment successful postulation and summons driven by improved customer mobility.

Gross separator was 46.9% and operating separator was 3.4%, driven by nan publication of foodservice arsenic good arsenic nan integration of caller acquisitions. At OXXO gas, revenues maintained nan caller uptrend and accrued 25.4% and same-station income grew 19.7% comparative to nan 4th fourth of 2021 arsenic conveyance mobility continued to improve.

Retail volumes were again supported by a robust pickup successful firm and wholesale activity. During nan quarter, gross separator was 13.2%, while operating separator was 4.4%, reflecting tight disbursal power and improved operating leverage.

Moving connected to FEMSA's wellness operations. During nan 3rd quarter, we expanded -- sorry, 4th quarter, we expanded our supplier shop count by 124 nett additions to scope a full of 4,095 units crossed our territories astatine nan extremity of December and 434 full nett caller stores for nan past 12 months, exceeding our target for nan twelvemonth of complete 400 caller supplier stores.

Revenues accrued 1%, while same-store income decreased an mean of 4.5%. However, arsenic was nan lawsuit past quarter, it is important to statement that connected a currency-neutral basis, revenues grew 6.2% and same-store income accrued 8.3%, a coagulated capacity crossed each of our operations.

Gross separator decreased 60 ground points successful nan quarter, mostly reflecting a antagonistic operation effect that reflects nan beardown maturation of our operations successful Colombia partially offset by improved ratio and much effective collaboration and execution pinch cardinal supplier partners successful Mexico. However, operating separator expanded 40 ground points arsenic tight disbursal controls crossed each our territories much than offset nan effect from this little gross margin.

Regarding our logistics and distribution business, revenues accrued 34.2% comparative to nan 4th fourth of 2021, reflecting nan dependable gait of acquisitions made successful nan past 12 months by Envoy Solutions. On an integrated basis, full revenues accrued 8.5%, reflecting nan beardown capacity crossed Envoy Solutions segment, coupled pinch bully request dynamics successful our operations successful Latin America.

Operating separator contracted importantly to 2.5%, reflecting onetime provisions related to past owed organization customer accounts and obsolete inventories astatine Envoy Solutions arsenic good arsenic higher costs of slate of labour and proscription successful definite markets. Excluding these one-offs, provisions, operating separator would person been successful statement pinch caller trends.

Finally, moving connected to Coca-Cola FEMSA. They delivered a beardown group of results to adjacent an arsenic beardown year. Total measurement grew 4.6%, driven by maturation successful astir of their territories. Total revenues accrued 14.9% and operating income grew 15.9% arsenic operating separator expanded by 10 ground points to scope 14.7%. You tin perceive to nan convention telephone coming astatine 10 a.m. Mexico time.

Now I will move it backmost to Daniel for immoderate last comments. Daniel?

Daniel Rodríguez

Thank you, Eugenio. I conscionable want to finalize by saying that I americium proud of what our bonzer squad of much than 350,000 colleagues person achieved during 2022, representing nan champion of FEMSA company-wide committedness to semipermanent worth creation.

As we look into 2023, I'm assured that nan steps we person started to return to activity our FEMSA Forward imagination will position our institution to maximize worth creation arsenic ne'er before, leveraging nan motion buses among our 3 halfway businesses arsenic good arsenic our beardown squad of professionals that I americium judge will again beryllium capable to navigate immoderate situation that we travel crossed successful 2023 and beyond.

And pinch that, fto america unfastened nan statement for questions. Operator, please?

Question-and-Answer Session

Operator

[Operator Instructions]. The first mobility comes from nan statement of Ben Theurer Calling from Barclays.

Benjamin Theurer

Congrats connected nan results. 1.5 if I may. And nan half 1 is really related to immoderate of nan comments you made successful property merchandise astir incremental acquisitions successful Envoy. Just wanted to understand nan strategy that you've laid retired past week, Envoy being portion of to beryllium disposed assets aliases a business unit. But past astatine nan aforesaid time, you put successful your property merchandise that you've acquired 6 different smaller players that are adding connected an yearly basis, $200 million. How should we deliberation astir nan superior allocation, peculiarly into thing that's supposedly for waste spell forward? Are you going to proceed to adhd here? Or is that still one-off that we're successful nan process that conscionable happened to adjacent successful nan 4th quarter?

Eugenio Garza

Thanks for your question. With regards to Envoy, I mean, arsenic you know, portion of nan finance thesis location is that there's still a agelong runway of acquisitions to prosecute successful location to create worth by consolidating into nan system. So that was nary different of a strategy successful nan 4th quarter. Given what we announced successful position of forward, our strategy for Envoy is again, to proceed for nan business to proceed to beryllium executing connected this strategy.

Having said that, nan superior committedness from FEMSA would beryllium comparatively little until we find an eventual solution for nan Envoy business. So again, we're letting nan business execute connected its strategy, but nan superior commitments coming from FEMSA arsenic we look for strategical alternatives you should not expect those to beryllium important going guardant arsenic we look for strategical alternatives for nan asset.

Benjamin Theurer

Okay. That make sense. And past if we return a look astatine nan -- conscionable nan creation of same-store income data, tin you springiness america a small much colour connected what's been truthful supportive to postulation done during nan quarter. Because a small complete 4%, obviously, is simply a very beardown number. It's supra nan past 12 months average. So conscionable to understand what you've done otherwise successful nan 4th fourth astatine nan convenience stores to thrust traffic?

Francisco Camacho Beltrán

Yes, Ben, nan 4th fourth is usually stronger successful nan convenience shop because it's nan vacation area. That's number one. Number two, arsenic we highlighted successful nan comments, location is simply a important betterment successful position of post-pandemic user behavior, and that is besides helping.

And past but not least, successful a number of our stores, we started nan waste of nan complete portfolio of brew and that besides accrued nan postulation successful nan stores.

Juan Fonseca

Yes, I deliberation conscionable complementing what Paco conscionable said and this is Juan. As we mentioned successful nan Daniel's original remarks, nan gathering location is surely cardinal successful nan 4th quarter. And to Paco's point, brew is simply a class that has been performing very, very well. We conscionable finalized nan past wave.

You retrieve nan opening of nan stores to nan ADI portfolio, pinch Nuevo León a fewer weeks ago. World Cup, which moreover though it wasn't really arsenic because of nan timing of nan matches immoderate of them happened early successful nan greeting and not a batch of group portion brew early successful nan morning. But still, it each benignant of came together to thrust double-digit maturation successful that category, which is 1 of our astir important.

And conscionable overall, I deliberation nan squad was moving precisely because postulation I mean erstwhile we look astatine nan past 24 months, we person been talking pinch you guys and pinch nan marketplace astir really summons has been performing very, very well, but postulation was coming up a small spot short. And truthful nan squad astatine OXXO has been looking for ways to incentivize postulation done nan levers that they have, pricing, promotional activity, further segmentation and it's moving well.

And I would moreover opportunity it's moving into this year. We're disconnected to a very beardown commencement successful '23. The loyalty program, OXXO Premia is besides opening to adhd and we're talking astir 1 retired of 5 transactions astatine OXXO now being associated pinch nan rewards program. So a batch of things coming together astatine nan aforesaid clip to, I think, mixed to thief this complete 4 points of traffic, which is conscionable fantastic, I think.

Operator

[Operator Instructions]. The adjacent mobility comes from nan statement of Bob Ford calling from Bank of America.

Daniel Rodríguez

We don't perceive you, Bob.

Operator

We will spell up and skip to nan adjacent person, who is Alan calling from Santander.

Alan Alanis

Can you perceive me?

Daniel Rodríguez

Yes.

Alan Alanis

Perfect. Okay. I'm sorry, I'm going to misbehave. Just 2 speedy questions. I mean, nan first 1 is they attraction connected nan traffic. But my speedy mobility connected nan -- it's connected nan ticket. I mean, it's half of nutrient inflation, it was 7%. If you tin elaborate a spot connected that why nan mean summons is not -- is beneath ostentation successful Mexico. But nan astir important question, I think, is much strategic. I mean, you've seen nan stock value move beautiful overmuch level since Friday's convention call.

And you're going to spell and spot investors adjacent week successful nan United States and Europe. Could you stock your thoughts astir what you ponder, what you've learned, what you've decided to pass and what you will purpose to execute adjacent week by gathering investors successful each of these group regarding nan guidance of nan banal aft nan announcement. And I deliberation specifically regarding nan superior allocation and nan imaginable dividends ahead?

Francisco Camacho Beltrán

All right. Alan, convey you for nan questions. And conscionable arsenic for nan postulation and nan summons side, and your remark connected nan inflation. I mean, clearly, these are variables that our squad astatine OXXO manages according to what is happening successful nan marketplace connected nan competitory side, what each of nan categories successful nan shop are doing from a supplier standpoint.

And clearly, nan nonsubjective is ever to support lipid prices beneath inflation. That's intelligibly nan priority. And second, nan summons continues to beryllium benefited by nan occupation that was done complete nan past respective months regarding accepted categories that were added to nan shop for illustration liquor, for example; second, nan segmentation activity that has been done by nan team; and third, I would say, conscionable a earthy activity of what consumers are shopping.

So moving forward, conscionable likewise to nan traffic, location are a number of structural and basal things that amended complete nan past fewer months that we expect to proceed benefiting from and that's why nan postulation is behaving for illustration that connected nan summons side.

Juan Fonseca

Yes. I deliberation conscionable -- Alan, I mean nan summons toward to what Paco conscionable said, we walk through, arsenic you know, we walk done nan increases from our suppliers. So operation is simply a large portion of it. And nan number is simply a small spot different from conscionable wide CPI, it will fundamentally mean that our operation is different from nan CPI basket.

But we don't ever support immoderate of nan value summation benignant of swallow it ourselves, arsenic you know, it's a afloat pass-through situation. On your different mobility astir what we're trying to execute going connected nan road, I mean, obviously, what we communicated past week is applicable and meaningful, and it punctual a batch of questions, and it surely deserves going and gathering pinch -- immoderate of our biggest investors, we're going to beryllium gathering pinch galore of you guys and besides pinch investors that for 1 logic aliases different person not been invested successful FEMSA, but that historically should person aliases person been benignant of because of nan bully fresh betwixt their portfolios and what our institution is.

So I deliberation it's an important mates of weeks that we're going to beryllium knocking connected doors and hopefully answering a batch of nan questions, I deliberation you benignant of shaped your mobility aliases framed your mobility having to do pinch nan stock price. I mean obviously, nan stock value had a very bully guidance to nan announcement.

We've been monitoring volumes. Volumes are double -- astatine slightest double what they usually ask. So clearly, location are investors that execute good and are now taking profits. But we're excited to get connected nan level and talk astir what we deliberation is simply a ace breathtaking message.

Eugenio Garza

If I tin conscionable comment, Alan, conscionable quickly connected ticket, you person to retrieve besides nan services category, we picked up a mates of financial institutions that had not been coming complete nan past 4th quarter. So that pickup successful postulation pinch little summons resulted successful portion of that operation effect that Juan was talking about.

And pinch regards to nan roadworthy show, conscionable to complement besides what Juan said, again, we heard you guys large and clear past week and to our interactions pinch you guys complete nan week, that superior allocation going guardant is simply a large taxable that you guys would for illustration to perceive much about.

And again, we'll talk, again, not only successful nan roadshow, but to each of you passim nan -- passim our interactions. And we admit that, that is going to beryllium a basking taxable going forward. However, arsenic we said successful nan telephone past time, we intend to, I mean, springiness you much colour arsenic each these transactions that we intend to execute materialize, they're each taxable to marketplace conditions and different situations.

But nan astir important point to support successful mind is that we person committed, number one, to nan leverage target of 2x; and number two, not to beryllium holding immoderate inefficient amounts of rate astatine nan holding company. So I dream that, that gives you arsenic overmuch colour arsenic we tin correct now. But arsenic we commencement to execute connected a batch of these initiatives, we should beryllium capable to springiness you and pinpoint pinch much nonstop clarity really we're going to woody pinch nan superior allocation going forward.

Operator

The adjacent mobility comes from nan statement of Héctor Maya calling from Scotiabank.

Héctor Maya

Very, very speedy ones, I promise. So you person mentioned that you want to build nan level for nan accepted transmission pinch OXXO and Coke. So I would for illustration to cognize really you will beryllium executing that strategy to proviso this transmission chiefly connected really your OXXO trucks and Coca-Cola FEMSA reddish trucks would adopt their spaces and routes to spell to mom and pops, what benignant of products and categories would you beryllium aiming to proviso to them? How agelong until we commencement seeing this already happening astatine a afloat scale? And immoderate specifications if imaginable connected an integrated bid system? And really overmuch CapEx would beryllium directed to this?

Francisco Camacho Beltrán

All right. Héctor, convey you for nan question. As we analyse nan opportunities and nan symptom points of nan accepted channel, location are definite things that they person been suffering from complete nan past respective years, I would say. And we person talked this successful immoderate of nan meetings we person had pinch you.

I mean, connected nan 1 hand, location is nan disruption they person connected nan regular operations to spell and shop for nan products they waste successful nan store. They person a number of limitations successful really they tin shop for those. I mean sometimes they request to bargain 1 unit, and they really request to bargain nan full case. And evidently, those symptom points person been exacerbated by nan truth that now galore times successful nan store, they person to person 10 different trucks during nan day. And location is only 1 personification moving successful that needle store.

Now connected apical of that, arsenic we started identifying opportunities, we saw that 1 clear constituent was nan truth that they needed besides evidently a bully pricing, bully service, further financial services successful nan future. And I mean, clearly, arsenic we look astatine our businesses, connected nan 1 hand, Coca-Cola FEMSA pinch nan tremendous knowledge of nan accepted marketplace pinch besides pinch OXXO -- pinch tremendous narration pinch nan suppliers, knowledge connected really to do nan peaking arsenic I explained erstwhile successful position of really galore cases aliases really galore products, really galore units each individual shop will need.

I mean those are know-how that person been developed complete nan years that are very, very important for these type of platforms. So -- and past connected apical of that, of these 2 knowledge centers, I would telephone them, and knowhow halfway that we person successful Coca-Cola FEMSA. And successful OXXO, we person nan integer business that we person been creating, which intelligibly pinch a rotation and nan financial possibilities that it opens to nan accepted store.

I mean, conscionable today, for example, galore of these mini stores cannot judge in installments card. They don't person entree to credit. They request to salary successful rate to their suppliers. Sometimes, astir of nan times, customers and consumers, they request to salary rate to them. They cannot judge nan work payment.

So each those things tin beryllium enabled by nan integer level of FEMSA integer pinch nan different 2 businesses serving arsenic a relationship point. So that's nan volition that we person of building this omnichannel platform. And evidently, location are ways successful which that tin work. There will beryllium immoderate categories that tin spell successful a communal truck.

And location tin beryllium different categories. I mean clearly, Coca-Cola FEMSA, they tin proceed being delivered done nan Coca-Cola FEMSA trucks. So this is simply a hybrid exemplary that serves for illustration beautiful overmuch for illustration a marketplace done a ace app. And that's nan volition that we person built successful this platform. We cognize that connected apical of that, nan different constituent that is important successful this omnichannel platforms is nan magnitude aliases nan size of nan portfolio that we tin carry.

I mean, evidently done nan categories that we person successful OXXO pinch Coca-Cola FEMSA and different imaginable partners, we judge that we tin correspond a important information of nan portfolio products that much retailers waste which is simply a very important constituent truthful that it shows 1 of nan cardinal symptom points that they person today, together pinch nan different ones I mentioned.

Daniel Rodríguez

Maybe nan only further remark that I would for illustration to make is that 1 of nan advantages that we besides person successful some platforms, OXXO and Coca-Cola FEMSA is nan capillarity. So that allows america really to aviator each what Paco conscionable mentioned.

And past earlier we deliberation successful position of escalating, we tin learn, I mean, really we tin really lick nan symptom points of nan customers and what are nan cardinal elements that are applicable to them successful position of worth proposition. So I mean, that besides I deliberation it really helps america earlier we make immoderate last determination successful position of really accelerated aliases really -- if you want, why nan escalation would be.

Héctor Maya

So would it beryllium adjacent to presume that we could beryllium seeing this strategy play retired successful nan adjacent 1 aliases 2 years?

Daniel Rodríguez

Definitely.

Operator

The adjacent mobility comes from nan statement of Marcella Recchia calling from Credit Suisse.

Marcella Recchia

I person 2 speedy ones arsenic well. Basically, nan first is for proximity Americas. If -- what tin we expect successful position of gross separator trends going guardant arsenic you proceed accelerating nan integer initiatives? And to what grade you besides tin proceed managing that pinch efficiencies? And nan 2nd one, very quickly, you guys are now closing figures for proximity Europe, but without a comparison basis. So tin you conscionable springiness america a colour connected really these figures reported compared to those from nan twelvemonth before?

Juan Fonseca

Marcella, this is Juan. I deliberation connected nan gross separator question, I would deliberation astir unchangeable margins. I mean we person been -- arsenic we -- this 4th was different lawsuit wherever we are still booking very conservatively nan rewards, nan loyalty program. We are assuming that each of nan points are going to get utilized.

That is not really happening successful practice, and we cognize that there's going to beryllium a breakage number that is going to put immoderate alleviation connected nan gross margin. So we are already getting to nan constituent wherever immoderate of nan users points are opening to expire. And retrieve that this is each very new. So a batch of things are happening for nan first time.

But we're already opening to spot patterns of definite percentages that nan points conscionable expire, and that's evidently rate travel for us. That we're -- correct now, we're assuming -- from an accounting perspective, we are assuming that it's not there.

Eugenio besides mentioned a fewer minutes agone connected nan financial services, I deliberation nan wide inclination we are getting backmost immoderate of nan banks that person for 1 logic aliases another, stopped utilizing OXXO arsenic a correspondent. But nan wide inclination is that profitability is simply a small spot little for financial services. So you get much measurement astatine a somewhat little margin.

Those trends, I think, will continue. But connected nan different hand, you person commercialized income which is coming back, right? Commercial income is an important driver of gross margin. I deliberation COVID evidently disrupted commercialized income successful a large way, and we are seeing it travel back. We now person for each applicable purposes, some brewers participating successful commercialized income, on pinch galore different of our large suppliers. So I would opportunity unchangeable gross margins. In position of modeling, I wouldn't expect immoderate alteration there.

Now successful position of Valora, you cognize nan -- evidently Europe -- yes, Pac is going to talk astir that.

Francisco Camacho Beltrán

Yes. So Marcella, convey you. It's bully to perceive from you. In Valora, what we tin show you is that for nan full year, nan income grew double digits successful nan mid-teens. Gross profit besides grew successful nan mid-teens. And successful nan EBIT line, it was astir level versus nan erstwhile year.

Juan Fonseca

And I deliberation margin-wise, I mean, we're showing an EBITDA separator of fundamentally 12%, astir apt a small spot little than nan afloat twelvemonth number that we had anterior year. Obviously, they're dealing for illustration we are everyplace other pinch ostentation and pinch conscionable an wide macro situation successful Europe that is intelligibly not arsenic bully arsenic it has been aliases we each wish it is. So it's a reliable macro environment, but still, nan numbers and nan truth that they're integrating a batch of nan things they've precocious bought nutrient service, which is simply a higher-margin category. So yes, it's galore reasons to beryllium optimistic astir that.

Operator

The adjacent mobility comes from nan statement of Ricardo Alves calling from Morgan Stanley.

Ricardo Alves

I'll limit myself to 1 mobility arsenic required. The OXXO -- it's benignant of related to nan past question. OXXO returns, if you could talk astir returns, peculiarly successful nan discourse of nan ratio gains that you achieved apparently successful Mexico astatine nan SG&A level. How are you reasoning astir returns?

I mean from our stance, it almost seems that OXXO mightiness beryllium moving astatine all-time highs. So I conscionable wanted to perceive a small spot connected that from nan Mexico OXXO perspective. And erstwhile you deliberation astir that successful nan discourse of your strategical reappraisal and considering that you person reached out, right, to each of your divisions, each nan different state operations. What is nan upside for nan different regions successful position of returns?

Is location a measurement that you tin comparison aliases springiness america immoderate numbers truthful that we tin comparison pinch nan imaginable upside? Because it's really astonishing what you did astatine nan SG&A level astir apt chiefly successful Mexico and really could that beryllium replicated successful different places. In nan discourse of this large review, I would presume that you astir apt are reasoning astir nan different regions arsenic not only successful position of maturation publication that they could person to nan wide business, but besides returns.

Daniel Rodríguez

Thank you, Ricardo. I mean fto maine remark and past you tin complement to it. But I would opportunity that, I mean, successful position of your mobility astir returns, I mean, obviously, we are astatine a very precocious level. So I deliberation successful that regard, you are right. And I deliberation also, Ken, you mentioned during nan past week telephone that, I mean successful position of further worth creation to unfastened 1 stores successful OXXO successful Mexico, obviously, is 1 of nan astir profitable finance that we tin make. So that is why we will proceed doing so.

Having said that, I mean, erstwhile you deliberation successful nan mean and agelong term, that is why we deliberation that nan maturation extracurricular of Mexico. And I would talk specifically regarding South America, I deliberation that will springiness us, I mean, a bully measurement to, successful nan future, compensate nan standard that Mexico has achieved.

So connected a shop level, arsenic I besides mentioned during nan past call, we consciousness beautiful comfortable that we person been achieving, I would say, astatine this stage, chiefly successful Colombia and successful Chile, which springiness us, I mean, a bully measurement to escalate nan business and velocity up, I mean, nan integrated growth.

Obviously, successful nan lawsuit of Brazil, I mean, nan worth proposition is proven to beryllium very successful. And Brazil will make a large difference, I mean, successful position of nan standard of nan business successful South America. Peru is besides doing well. But I mean, obviously, it's a overmuch smaller cognition compared pinch nan different 3.

So I mean we are very affirmative successful position of nan maturation and successful position of nan returns that we will achieve. But we admit that we request to scope a definite level of scale, I mean, successful position of nan number shop and aft that, you will return a while until we get there. But I mean, very affirmative erstwhile you comparison like-for-like, I mean, stores successful Colombia pinch 1 shop successful Mexico. I mean I deliberation we are very optimistic astir that. So Eugenio?

Eugenio Garza

Sure. Thank you, Daniel. Just to complement, you person to retrieve that during nan pandemic, nan business did a awesome occupation successful position of curtailing immoderate of nan losses we had successful same-store income done amended shop efficiencies I mean, amended proviso concatenation dynamics, et cetera. And those learnings fundamentally continued arsenic postulation and summons came up.

And connected apical of that, nan description and nan nett caller shop description that we've been experiencing has been operating and what we telephone batting averages, which is what percent of nan caller stores that we're opening are gathering nan target income per shop arsenic they mature and we are all-time precocious successful position of batting averages.

So we're being a batch much strategical and a batch much targeted successful pinpointing nan correct points truthful that nan nett caller stores that we're adding are being a batch much productive than nan ones we were adding earlier plus, I mean, each nan efficiencies that we gained during nan pandemic, each nan learnings about, I mean, opening hours, astir shifts astir changing supervision patterns, astir inventory stocking segmentation, et cetera, person produced these all-time precocious ROICs astatine nan shop level and astatine nan full state level successful Mexico.

And again, arsenic Daniel said, successful nan remainder of nan state is Brazil being a cleanable example, I deliberation connected a apical statement perspective, successful position of nan merchandise operation and nan segmentation, those stores are performing overmuch higher than what we expected originally. So that is decidedly nan bully news arsenic we standard retired and commencement to sorb immoderate of nan fixed costs of nan distribution halfway and nan remainder of nan proviso concatenation dynamics, but that bodes good successful position of being capable to achieve, I mean, tens -- I mean, hundreds of ground points of betterment successful position of ROIs successful Brazil connected a comparatively speedy basis.

The aforesaid tin beryllium said, I deliberation now that we're expanding pinch nan okay marketplace acquisition successful Chile and successful Colombia, wherever still we person a batch of room to improve, beryllium astatine standard to achieve, I mean, overmuch higher returns and hopefully, astatine immoderate point, beryllium person to nan guidance of returns that we're getting successful Mexico.

Juan Fonseca

Ricardo, fto maine conscionable -- this is Juan. I mean, evidently pursuing connected what Daniel and Eugenio conscionable said, standard being a large portion of the, let's telephone it, concealed condiment that yet allows different very bully things to hap erstwhile you benignant of cognize what you're doing successful position of openings because we did opportunity successful nan opening Eugenio mentioned, we came a small spot short of nan 800 target successful Mexico.

But that doesn't mean that we're slowing down. I mean, we're truthful assured and we're looking astatine nan productivity of nan caller stores and what nan pipeline is looking for illustration that nan target for this twelvemonth is person to 900. So we're going to beryllium opening again, getting towards nan 1,000 stores targeted successful Mexico. But nan point I wanted to item is that we are getting besides adjacent to a constituent wherever we're opening successful South America, almost 50% of what we're opening successful Mexico, right? So that's evidently ne'er happened before.

So if successful Mexico, we're location betwixt 800 and 900 successful South America, obviously, nan JV successful Brazil, it's a JV. But we're astir apt talking astir location betwixt 300 and 400 caller stores, if not a small spot more. So it's getting to nan constituent wherever standard will beryllium -- statesman to beryllium achieved successful these countries. And that intends you tin person your distribution centers and past your absorption is truthful overmuch better. And past you statesman to person nan ROIC. You statesman to adjacent nan gap.

I deliberation different spot wherever this we tin expect this to hap is not arsenic dramatic. But erstwhile you look astatine nan wellness section wherever you person Chile pinch definite standard connected definite margins. And erstwhile you look astatine Colombia and Mexico and each benignant of closing that spread and a large portion of it has to do pinch scale. So I conscionable wanted to time off that retired location because nan numbers -- we're accelerating nan openings and South America is decidedly now opening to move nan needle.

Operator

Next mobility comes from nan statement of Álvaro García coming from BTG.

Álvaro García

Two follow-ups. Firstly, connected a follow-up connected Héctor's mobility earlier, talking astir nan accepted channel. I deliberation it would beryllium adjuvant possibly to specify precisely what Pronto is benignant of -- and past benignant of what nan strategical rationale is of benignant of helping retired your competitors. We'd ever thought of OXXO eating into nan accepted transmission slowly, but surely benignant of what nan strategical rationale is location would beryllium helpful.

And past conscionable a 2nd follow-up connected gross margin. I deliberation you mentioned financial services is really a drag. We've ever thought financial services was a higher-margin business pinch -- successful nan discourse of mix. So benignant of what possibly -- zooming successful connected what happened this quarter, possibly waiting really overmuch was rotation and really overmuch was financial services.

Juan Fonseca

Yes, Álvaro, fto maine conscionable commencement pinch nan first 1 and past obviously, if anyone -- nan remainder of nan squad tin complement me. But I would for illustration to commencement by first saying that -- successful general, location is simply a misconception connected who is nan competitor of OXXO. I mean nan accepted channel, each nan mini stores that are retired there, they service a purpose, they person definite categories that we don't carry.

They person smaller surfaces usually. So nan type of user -- nan user that -- nan user needs that return spot successful nan mini stores are different from us. Now of course, location is immoderate of them that are nan same. But successful general, again, I don't deliberation that eventually, complete nan years, location will beryllium only committed stores aliases location will beryllium only accepted stores.

These are waste and acquisition types that tin time off together and that has been nan lawsuit complete nan years. And I don't deliberation that erstwhile you look astatine nan accepted transmission today, it has changed successful position of size versus really nan size they had successful nan absolute earlier OXXO existed. So I deliberation that, that is important because astatine nan extremity of nan day, what Pronto is trying to execute is fundamentally thief immoderate of these accepted channels alteration them pinch immoderate of nan symptom points that I described before.

Reality is that, erstwhile again, and I want to usage this illustration because it intelligibly highlights immoderate of these very circumstantial symptom points that cipher other but astir apt besides console. At promenade shop really goes to this -- usually it's a wholesaler to get nan products they need. Now location are immoderate products that person a very debased rotation.

So they astir apt waste 1 vessel of 1 circumstantial category, let's say, Monster a month. But erstwhile they spell to nan wholesaler, they request to bargain a afloat case. And if they don't bargain a afloat case, they will not get nan value that they want.

Now whereas erstwhile you look astatine OXXO, really we service our stores done nan proviso concatenation systems that we have, we person a peaking system, and we delivered to our stores by unit, which is not an easy task, and that's why nan wholesaler, they don't do it.

Now if we cognize that we person that capability, and we cognize that location are 1 cardinal -- 1 cardinal accepted stores successful Mexico that request this symptom constituent to beryllium served, past we cognize that Pronto tin thief to really alteration these mini stores for a amended business. Now that doesn't mean that we are helping our competition. No, I mean, we are conscionable taking nan opportunity to create worth by serving aliases fixing a symptom constituent of a very circumstantial waste and acquisition that will proceed to exist.

And past for nan -- I conjecture Eugenio's remark was related to nan truth that we brought backmost a mates of nan financial institutions that we didn't person successful nan OXXO strategy successful nan erstwhile months. And nan remark was related to that. Eugenio, I don't cognize if you want to grow connected that?

Eugenio Garza

Sure. Just to address, I mean, nan mobility earlier was regarding nan ticket. So clearly, financial services commissions thrust much traffic, but a little ticket. But your question, Álvaro, was much towards nan effect connected gross margin.

And nan effect connected gross separator is intelligibly a financial services, it's a overmuch higher gross separator than nan mix. Having said that, that during nan 4th was offset by immoderate of nan trends that we're seeing related to nan loyalty programme successful Spain that's benignant of offsetting portion of that betterment successful operation from financial services.

So nan nett effect is what you spot successful nan results and what benignant of is going. The inclination that Marcella's mobility earlier that Juan responded towards alluding to that we would beryllium modeling a flattish gross margins going forward. Having said that, to nan grade that we commencement to spot immoderate breakage successful OXXO Premia successful a amended engagement from nan customer, much elasticity successful position of really galore times he comes back, vis-a-vis, nan constituent that he redeems, location could beryllium immoderate upside to that assumption.

Operator

The adjacent mobility comes from nan statement of Thiago Bortoluci calling from Goldman Sachs.

Thiago Bortoluci

I person 2 follow-ups here. And I'd for illustration to research a small spot nan bottommost statement dynamics, right? So I judge location is this effect of this noncash taxation effect connected your nett financial expenses that we intelligibly understand. But it besides seems to maine that equity income brings a small spot softer than expected, right?

And obviously, location are a fewer things that you relationship there. I would conscionable for illustration to get a amended colour from you connected really nan results from Brazil are trending, right? Obviously, I understand you are very early connected and nan shop are maturing. But is it adjacent to presume that astir of nan stores are already printing supra breakeven? And what is nan marginal level of returns and margins that you expect for Brazil? Is nan first one.

And nan 2nd one, very quickly, conscionable to make judge we understand each nan dynamics, right? In nan consciousness of our plan, you mentioned imaginable consolidated nett income of , right? And I spot you reported . Sorry if I'm not incorrect here, what was nan correct alteration versus what you had to release...

Eugenio Garza

Yes. If I understood nan first mobility correctly, it was connected nan read-through connected nan equity consolidation portion of nett income and nan trends that Brazil has successful that. Was that nan first question, right? Did I get that correctly?

Thiago Bortoluci

That's right. Perfect.

Eugenio Garza

Perfect. So first, fto maine conscionable punctual you that successful that line, we besides are passing done nan results from Heineken. And if you recall, Heineken past twelvemonth had an bonzer summation fixed nan consolidation of their Indian operation. So connected a like-for-like basis, location was a steep contraction successful nan nett income information of that. So that's what what's driving nan activity successful that circumstantial statement item.

On Brazil, what I tin show you is that, again, some connected nan apical statement and astatine nan shop level, we're performing amended than expected. We are still successful dense description mode. I mean, we are opening up, I mean, upwards of 100 aliases much stores per year. So that is intelligibly -- I mean, still dragging successful position of nan contribution, some from an operating income position arsenic good arsenic from a nett income perspective. So I mean, that, of course, will alteration complete time, and you will spot that commencement to travel into that statement point successful nan income connection going forward. But astatine this point, it is not a important contributor. The activity that you spot location is mostly related to nan Heineken.

And past your 2nd mobility is pinch regards to nan quality betwixt nan nett income that we, I mean, flashed past week successful nan FEMSA guardant connection what you saw. Just to punctual you that nan 1 we flashed past twelvemonth was, I mean, unaudited. We proceed to, I mean, activity pinch our auditors to get nan last audit one.

And location were immoderate movements specifically connected nan taxation statement arsenic we proceed to, I mean, fine-tune adjustments connected nan deferred taxes and nan existent portion of taxes that are creating immoderate activity there, but thing related to our operations. It's conscionable arsenic we are fine-tuning our expectations connected what nan last taxation number will beryllium successful our statements, which is now evidently successful nan study that you saw this morning.

Operator

The adjacent mobility comes from nan statement of Bob Ford calling from Bank of America.

Robert Ford

Eugenio, what's nan CapEx fund for this twelvemonth and adjacent twelvemonth for nan retained businesses pinch nan measurement up? And tin you supply a breakdown of that by section and geography, please?

Eugenio Garza

Sure. Bob, I tin springiness you a small spot much color. We do expect this twelvemonth to beryllium astatine that for nan remaining businesses astatine about, I mean, EUR 1.7 cardinal of CapEx. The mostly of it would beryllium astatine nan Proximity Division arsenic we proceed connected nan shop description . And location will beryllium a step-up pickup successful CapEx successful nan COF, and I'm judge Jorge and nan [indiscernible] will talk to you astir that a small spot more.

But successful nan costs businesses, we're seeing besides a batch of maturation fixed nan semipermanent narration exemplary that we person pinch nan Coca-Cola Company and really that is incentivizing america to -- I mean, to turn successful each nan categories, some of CapEx and including -- I mean, accumulation lines but much importantly, much coolers, much bottles and cases and that. So primarily, it would beryllium proximity and costs driving astir of nan CapEx for this year. I don't know, Juan, Jorge aliases [indiscernible] if you person immoderate much colour connected that.

Juan Fonseca

Yes. Thanks, Eugenio. Just pursuing up connected that, I mean, location will beryllium a higher CapEx twelvemonth than we've had successful a agelong time. It has to do, I think, partially pinch nan truth that nan businesses -- and I think, again, Coca-Cola grow I'm sure, but location was possibly immoderate underinvestment during COVID.

But besides nan truth that request is truthful patient and nan businesses are increasing astatine specified a gait that it requires much lines, it requires much capacity. Focusing connected benignant of ex costs for a second. I deliberation we tin talk astir proximity, astir apt astir $750 cardinal held astir $100 million, and past possibly astir $120 cardinal for nan different smaller businesses. And past telephone america again pinch a bigger number than what they've done successful nan past. So it will return america to higher levels, but it's each driven by maturation and request from nan business. So I deliberation it's very positive.

Robert Ford

That's helpful. And erstwhile we deliberation astir nan investments you're making successful Fintech. How overmuch of that is being capitalized versus expense?

Daniel Rodríguez

It's mostly being expensed, Bob, astatine this point. We're not capitalizing, I mean, immoderate important amounts successful Fintech astatine this point.

Operator

We presently person nary questions coming through. So I will manus complete to your big to reason today's conference.

Daniel Rodríguez

Thank you for joining america today. Obviously, we've spoken a batch pinch you recently, and we look guardant to seeing galore of you successful personification adjacent week. So that's it. You person a awesome weekend.

Operator

Thank you for joining today's call. You whitethorn now disconnect.