Good morning and welcome, everyone, to FEMSA's First Quarter 2020 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the presentation, there will be a question-and-answer session.

During this conference call, management may discuss certain forward-looking statements concerning FEMSA's future performance and should be considered as good safe 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 may materially impact the company's actual performance.At this time, I would now like to turn the conference over to Mr. Eduardo Padilla, FEMSA's Chief Executive Officer. Please go ahead, sir..

Good morning, everyone, and welcome to FEMSA's first quarter 2020 results conference call. Juan Fonseca and Jorge Collazo are also on the line today. We hope that you and your loved ones are healthy and safe in these challenging times. As you might expect, today's call will be somewhat different from our usual quarterly calls.

Certainly, we'll discuss our operating and financial results for the first quarter, but we know that you are also keen to know how the health emergency is impacting our operations.What we have seen so far and what we expect going forward.

We listened to Coca-Cola conference call yesterday, and we have paid attention to the quarterly calls of other peer companies, and we'll try to address you questions and concerns as best as we can, given the high levels of uncertainty that's around the current situation and its potential duration. The first quarter got off to a strong start.

And with this being a leap year, yesterday in February came in handy, particularly since it was on Saturday.

However, by the middle of March, we began to see a meaningful fall in consumer activity, following more restrictive measures by authorities in Mexico and elsewhere.Therefore, if you simply look at our results, the quarter looks fine with most of our businesses units delivering on trend.

For the final days of the quarter, where a preview of what April would look like, and it's important to have this context.

As the severity of the crisis became more apparent, our entire organization engaged in a broad rates mitigation mode, focusing on ensuring the safety of our people and our customers, the continuity of our business and the strength of our financial liquidity.We also began working to leverage our scale and our reach to provide health to our communities.

And let me tell you that the speed and effectiveness of these actions across our company have been extraordinary. I am very proud of what our teams have reached at every operation at every level, taking advantage of our strong execution capabilities.

And it strengthens my conviction that we're in a good position not only to navigate these uncertain times, but to come out stronger on the other side.Let me mention some of the initiatives and measures we have been taking so far. Our first priority, ensuring as the safety and health of our people and our customers.

To that end, we have sent home more than 25,000 vulnerable employees with paid, and we have enabled work from home capabilities where possible. Among many initiatives, we have enforced sanitary protocols of stores and distribution facilities, including the availability of face shields and other protective gear for our people.

We're making hand sanitizers widely available at our stores, performing temperature checks and disinfecting high-traffic services periodically. We have rolled out plastic devices to enhance completion for our drugstores cashiers, and we are enforcing our low-density business in protocols for employees and customers alike.

Finally, we're making it easier for our customers to buy through digital platforms, reducing the risk of direct contract.With Coca-Cola FEMSA leading the way with their omnichannel strategy in terms of commercial making progress with their own digital initiatives.

In terms of our communities, we are donating and distributing assistance to our operations as well as through the FEMSA foundation.

Examples include providing financial support and donating water, food, medical supplies and even contributing our manufacturing expertise in a collaborative effort produced to produce low-cost medical ventilators in Mexico.From a financial standpoint, we're making every effort to further shore up our liquidity.

Our corporate cash position increased by more than 100% during the quarter, driven by debt issuances at FEMSA and Coke FEMSA during January, which totaled more than $3 billion, and we're also due down approximately $1 billion from some of our available short-term revolving credit facility.

As I mentioned before, we're definitely rationalizing expenses, including looking at our certain leases that are currently not generating income, and we're making an effort to address some fixed costs available.However, regarding our employees, our mindset is to preserve the maximum number of jobs possible, and therefore, our objective is to look for ways to keep our people employed.

Regarding CapEx.

We are carefully revising our plans, cutting or deferring noncritical investments, and we have also given ourselves some additional flexibility regarding the timing of our dividend payment, which we will likely push toward the end of the year.On the other hand, we're having a close dialogue with our supplier base, gaining visibility into our key supply chains and working with our smaller, more variable suppliers to help them through the crisis.Moving on to discuss in the consolidated quarterly numbers.

Total revenues during the first quarter increased 5.5%, while income from operations grew 6%. On organic basis, total revenues increased 2.7% and income from operations increased 4.4%.

Net income increased significantly, reflecting a noncash foreign exchange gain related to FEMSA's dollar-denominated cash position and higher income from operations across our businesses, partially offset by higher interest expense and a decrease in our participation in Heineken's results for the quarter.Our effective tax rate was 35%.

In terms of our consolidated net debt position, during the first quarter, it increased by approximately MXN15 billion compared to the previous quarter to reach a level of MXN62 billion at the end of March, reflecting debt issuances at FEMSA and the Coke FEMSA.

Moving on to discuss our operations and beginning with FEMSA Comercio Proximity division.We opened up 268 net new offshore stores during the first quarter, reaching 1,365 net store openings for the last 12 months, including new stores in our operations in South America.

All through same-store sales were up 5.5%, and it was driven by 9.1% in average customer ticket, partially offset by a 2% decrease in-store traffic. These trends accelerated during the second half of March, when the lock down period started to extend across Mexico.

We did see an increase in certain grocery and pantry-related categories as consumers stock up in a little bit of are [indiscernible] buying.

But, these represent just a small percentage of our overall mix of sales.Conversely, on the go purchases have contracted significantly, and so many of our customers have stayed at home.Moving down the income statement for the first quarter, gross margin expanded by 160 basis points, reflecting healthy trends in our commercial and income activity as well as increased and more efficient promotional programs with our key supplier partners.

Income from operations grew 50.4%. Operating margin expanded 30 basis points, even as we continue our gradual shift from commission-based store teams to employee-based teams and as we also stepped up investments in IT.Moving on to FEMSA Commercial Health division.

We added 73 drugstores during the quarter to reach 3234 units across our territories at the end of March, and 850 total net new stores for the last 12 months.

These figures include stores that were reopened in Chile, following damages from the social unrest at the end of 2019 as well as the integration of GPF in Ecuador.Revenues increased 19.9%, while on an organic basis, the increase -- they decreased 1%.

Same-store sales decreased an average of 6.8% in Mexican pesos, but increased more than 3% on the currency neutral basis, reflecting positive trends in our operations as increase helped our energy and by the all COVID emergency provided a modest tailwind during March.Gross margin contracted by 60 basis points in the quarter, reflecting modified pricing regulations in Colombia on a sub-trading in our Maicao beauty Store operations in Chile.

These were partially offset by improved efficiency and more effective collaboration and execution with key drug store suppliers in Mexico.Operating margin was stable as cost efficiencies and tight expense control across our territories were enough to offset the gross margin pressure, I just described.With part entered commercial Fuel Division added 5 net new gas stations to reach 550 units at the end of March, which is still suboptimal, but at least moves us in the right direction.As you might imagine, with our business platform, the Fuel Division is among the most exposed to the current environment of reduced mobility and social distancing, and this impact began to show towards the end of the first quarter.Same-station sales decreased 1.5% in the first quarter and gross margin was 10.6%, while operating margin was 2.2% of total revenues, reflecting lower operating leverage.Operating expenses increased 16%, reflecting higher wages and improved compensation structure for our in-station personnel aimed at reducing over in a tight labor market.

And number two, maintenance and the modern expenses related to the transition into new -- both into the new also gas brand image.Finally, moving along, we've reached the Coca-Cola FEMSA. As John highlighted yesterday, volumes were stable and ready to face significant currency headwinds during the quarter.

Today, we're able to expand their margins to the gross and operating levels. And regarding the COVID emergency, the reaction of Coke FEMSA has been amazing. As in another product of our company, their operational expertise is proving very helpful as we address the crisis.

If you were unable to participate in the conference call, you can access a replay of the webcast for additional details on the results.Looking ahead, like everyone else, we are facing an uncertain environment.

Our operators have worked hard putting together analyzing potential scenarios with varying degrees of stress, less reminding what actions we will need to take in each case with the goal of ensuring our ability to function with adequate levels of liquidity.

So as you know, a big part of the equation has to do with how long this will last? That is the question.

Most of our operations are deem essential, and therefore, our stores are open and Coke FEMSA is operating and serving most of these clients.However, food tracking is down a double-digit adoption as so many and many of our customers have stay in home.

When people are out and about on the streets, and they are thirsty or hungry or they need to satisfy a craving, those are the consumption occasions that are also light low. And they are not happening as much these days.

We have limited supply for some important categories such as beer, and it's not clear when those key suppliers will be allowed to restart production.

And there are local restrictions on our operation and customer mobility, requiring us to reduce ships and pressuring our numbers.And yet, as I mentioned before, we have moved quickly to cut expenses, defer investments and may they require adjustments to whether it's storm, even if it lasts a while.

It's very likely, for example, that we will be unable to open as many new stores as we expected at the beginning of the year. Results and performance metrics will suffer.

But the sense that we take the long view, and therefore, there are some initiatives that we are not slowing down, including everything that has to do with our digital initiatives, loyalty platforms and fintech.

And we will continue to work hard so that when the storm passes, we came out a stronger, more humane, more resilient and better positioned company.And with that, we can open the call for your questions..

[Operator Instructions] We'll now take our first question from Luca Cipiccia from Goldman Sachs..

Hello.

Can you hear me?.

Yes, we can hear you..

So I'll try to squeeze in 2 quick ones.

On your comments about April, would you be able willing to put some numbers around maybe the type of impact for OXXO or sense of sales? Just to get a sense on how the trend has impacted and what we should factor in for the quarter? And with regards to store openings pace as well, realistically, I understand earlier you do not necessarily be able to open as many.

But even in that respect, could you give us a sense of how big of an impact that could be, if you could quantify or give us some ranges, just to get a degree of the impact? That'd be the first question.The second, more general, you mentioned same [indiscernible] things long term, and you take the long view and so and so forth, which makes me wonder, in times like this, when it comes to capital allocation, there's been several transactions over the last few months, would you think that the decision-making process will lean more towards simplification or conservative or maybe being more opportunistic, assuming that there will be assets even when it comes to inorganic growth that may come up for grab or openings, including in Mexico, whether it's drug stores or whether, if you could give us a sense, how should we think about that through these periods when maybe some projects that were not available before [indiscernible] are more available or you could be more opportunistic?.

Okay. Let me start with the second question first. After these crisis, there are a lot of learnings of what we can do even better. And since there will be some, without doubt, there will be some, we have to adapt the valuable positions of the stores of in the Coke FEMSA offerings. And I think we have to adapt to the new environment.

And that will take a lot of time.

And I think our main effort is to, we arrange our operations, make them very efficient again and start growing organically and gaining share.In terms of the potential acquisitions or potential opportunities, we are not going to pursue in this period of time actively any because I will, we will refocusing ourselves to what we have done and start operating efficiently and come up with, as I said, with as right connection and adapt to the new consumer needs.

And I think we should be open to opportunities. I mean there might be some opportunities, but we will be not actively looking for them.

I don't know if you, Juan, you would like to add for the very first time?.

Yes. No. Luca, this is Juan. I think on the capital deployment, we were probably already done anyway.

I mean, having done the six transactions that we did in the last 12 to 18 months, definitely, it is a stage for digestion and stabilization and capturing of synergies and obviously, as Eduardo says, in the current environment, it's even more the case that we are not actively looking.

Having said that, I guess we should also say that since crisis breathe opportunities, if something came along that was just too attractive not to take a look at, we would. But I don't think that's a high probability occurrence in the short-term.And I think if I take the first question that had to do with kind of what we are seeing in April.

If I look at more than the whole month, if I just look at the -- maybe the last couple of weeks, I think April was -- it's a tricky -- if you look at the whole month, it's a little bit tricky because Holy week is in there.

And even though this year, Holy week was in April, in both cases, 2019 and 2020, the comparison is not ideal, given that Holy week is an important period and so. If I just look at, let's say, the last 10 days of the month or the last week, what we are seeing is kind of a low-teen contraction in sales at OXXO.

And I think if you look at, for example, the Health division, it really varies a lot by country, the most restricted country in terms of customer mobility and so on is this Colombia.But if you look at Chile, for example, I think we're looking at also kind of a low-teen contraction. I would make the caveat though.

In terms of OXXO, Eduardo mentioned in the opening remarks that beer supply is an issue. Right now, we are still stocked, both our suppliers, Heineken and Morello were able to give us a fair amount of product a few weeks ago, but they're not producing as far as we can tell.

And so when we -- if and when we run out of beer, which could happen in the next couple of weeks, that would be negative for sales as well. But in terms of what we've seen in the last few days, as I said, kind of low teens is the number, Luca..

And probably second -- is there something that has become apparent in the way consumers are using or abusing the OXXO during this period? And maybe somewhat counterintuitive? Are you -- any takeaway, maybe in behavioral changes that turn OXXO maybe more of a proximity advantage destination? Is there anything that you've learned so far with more general with regards to that?.

I mean, certainly, as Eduardo mentioned, we have seen a very -- above normal growth in the categories or the -- what we would consider daily and replenishment, grocery type of transactions, pantry loading type of items. But unfortunately for us, that represents a small proportion of our mix.

And even from a profitability standpoint, our margins are generally better in the on the go, kind of single serve, coal, beverages, snacks, that sort of things.So yes, definitely, I think some consumers are looking at the store -- at the OXXO store as a place where they can maybe refill the fridge for the short term.

But we are not nearly as benefited as the big box supermarkets, which, of course, are having a good time..

Thank you very much..

Thank you, Luca..

Thank you. [Operator Instructions] We'll now take our next question from Bob Ford of Bank of America..

I had a question with respect to mix and gross margin, particularly when it comes to the strides you've made in commercial income, transaction income, corresponding banking fees and remittances, and I was just wondering how you're thinking about that? And how those services are behaving because the points of sale have greater relevance in this kind of an environment? And how do you see that evolving over the course of the year?.

Juan?.

Yes. Sure. Bob, yes, I mean, if you look at even what happened in the first quarter, trends are still very, very strong, right? We had gross margin expansion, I believe it was 160 basis points. And when we talk about the drivers for that, and I'm talking about OXXO basically.

The drivers for that are a little bit different from what we've seen the last 2, 3 years in the sense that financial services are no longer growing double digit. I mean we had so many quarters when we were looking at 20% type of growth for financial services.

I think a lot of consumers, and I'm talking before the crisis, right? So this is kind of up until a few weeks ago. Consumers that we're going to adopt banking through OXXO, were probably already doing it.

And so most of the gross margin expansion that I just described has really been driven by commercial income, promotional activity, our own I think enhanced abilities to offer layer promotions on top of each other, shorter term, some for different parts of the country.So we would become a lot better at catering to suppliers' needs to use OXXO as an extension of their marketing arms.

And of course, as Eduardo said, we are making progress on the fintech and the loyalty side and we're not slowing down through the crisis and this is something that I expect later in the year towards the fourth quarter, hopefully, we'll have more tangible news to share with you guys in terms of how that effort is going, especially and in terms of the OXXO digital platform, putting together the loyalty program and some kind of a fintech offering that begins to take shape.

Right now, I would say, we're kind of in the middle. So financial service is not growing anymore. But getting close to the point where maybe there can be another interesting leg of development enabled by the fintech platform..

And one, when it comes to remittances, that effort has been under, it's been in place for a while.

And I know it may be a flat to contracting pie, but is there an opportunity there for you to take greater market share?.

I mean, remittances, we've been working with Western Union and with other providers now for a few quarters. Obviously, that moves in line with whatever's happening in the U.S. economy. And we do benefit probably, but not as much as the bigger kind of the durable goods stores in terms of when people receive their remittances.

A big chunk of that money logically will go to washer drives and TVs and things like that. Maybe just a small portion will go to groceries or to giving themselves a little bit of a luxury, while they're at the store at our store.

But I think we are going to learn in the next few weeks and months.One thing that I want to see personally is and this is a little bit to Luca's question a few minutes ago, if people begin to privilege proximity a little bit more because getting on public transportation, is a little bit risky or because they just don't want to be out of the house for as long.

And so then they start looking at the corner store as more, to satisfy even more needs than they have so far. So we're going to learn a lot about consumer behaviors and whether or not we can take an opportunity by leveraging the proximity in the coming months..

We'll now take our next question from Alan Alanis from Santander..

I hope you can, can you hear me correct?.

Yes, you're good. Go ahead..

Perfect. Okay. Just a couple of quick questions. One of them regarding how to think about same-store sales in the Pharmacies division? I think I was a bit surprised by the weakness there, given everything that is happening, and I know you mentioned some differences between companies, so if you could expand on that? That's a basic question.

And a more strategic question for both of you is, I think you, something is very good at thinking about consumer behavior and how to match your value proposition in terms of consumer behavior.How is your preliminary thoughts of how consumer behavior will change after this crisis.

What are the frame to references that are you using as a, from a historical perspective or from other industries that you can share with us in terms of how you're thinking about the future of the whole FEMSA platform, Eduardo?.

Well, let me try to start with the second one, Alan. Without doubt, people are, will be avoiding crowds, people will be avoiding public transportation, people will be more sensitive towards traveling everywhere or as moving as much as we were in the past.So I think being close to the customer, having so many outlets everywhere.

Having the Coca-Cola distribution, which is a massive distribution ubiquity everywhere, and I think we are in the position to be very sensible to these new behavior changes of the consumer and start adapting without doubt we don't know exactly, I mean, we don't have many self-serving things probably the hot, the Kingo's.

That will be amongst very few sole serving stuff.

But we, in the other side, we also aboard our platform, which is served, worn in, by someone, which already has a very, very sanitary procedure to serve our customers that could grow to.So I think we, with these things happening and as we know, we, things might get better, but I think people will be very sensible to those social distancing issues.

I don't know we will be -- time will tell. I think we'll be very much sensitive to what things might change. And I mean, we -- you understand that we're -- social distance in Mexico , we have been seeing because we tend to be very closer to speaking, where probably some of the [indiscernible].

So I don't know, I just think we just have to be [Indiscernible]. You might have very good idea, Alan, that I know..

Well, I mean, it's not an idea, but it's something that is very evident. And it's unfortunately just it's not a good thing, it's kind of sad, no? I mean we're going through one of the most massive economic recessions that we've seen in Mexico. So I would think that people have to buy more on a daily basis.

And eventually, that will be possible for OXXO. But early to tell soon, too soon to tell.

Unfortunately, that's something that we're expecting as positive for auction on the back of something negative for the economy, but we'll see.And Juan, you wanted to comment on the pharmacies?.

Yes, Alan, I mean, basically, the exchange rates, the way that the Chilean peso, and the Colombian peso moved relative to the Mexican peso, made a big difference. I mean the figures we have, for example, for revenues for the Health division. And of course, South America is about 80% of that.

As reported, it's basically 20% increase, but if we adjust for currencies, it's actually 36% increase.And if we look at same-store sales, as reported, they decreased 6.8%. But adjusting for currency, they actually grew by 3.1%. So that's basically a 10-point shift in same-store sales once you control for exchange rates.

So I mean, as you said, and as it would be logical in the current environment for drug stores to perform well, but the FX did distort the data. But the trends are fine in terms of the local operations are doing well, and then we just need to deal with the FX once we consolidate information..

Thank you so much. Stay safe. Thank you..

Thank you..

Thank you. Your next question comes from Marcelo Alvisio from Credit Suisse. Please go ahead..

Hi, thank you for taking my question. My question is more related to the recent acquisitions in U.S. and Brazil.

Just would like to understand, if you can give us some color on how the integration of these assets has been? How you were -- the open update of the integration of these assets into FEMSA? And also if you can have some visibility of when you should start disclosing some of these numbers for the market? Thank you very much..

We just had our very first board meeting, and it went very well. And unfortunately now, the current environment is really putting everything upside down. So -- but I think we're very happy. We have very much the same way of thinking and how to make progress into the Brazilian market. And so far, so good, really, I would say.

I think we are not going to be as aggressive as we thought with terms of expansion because of the consequences. But I think we are very happy with the relationship and it will be same, sharing the same objectives and purpose of doing things in Brazil. So we think we are very happy.

I don't know, if you want to add anything, Juan?.

Yes. No. I mean, specifically talking about AGV, the warehousing operation, which I think is the first one that Marcelo was referring to and that you just explained. I think generally, it has exceeded our expectations in terms of the quality of the asset, and the management and the processes that they had in place.

And so I would say that bringing that business into our platform has been better than expected or faster than expected.

I also would like to comment, I think, on the [indiscernible] front in Ecuador, also very quickly expanding profitability and performing perhaps a little bit ahead of schedule.In what is a very complicated context because I think of the different countries where we operate. Ecuador has been especially hit by the pandemic.

I think going to the second part of the question, having to do with disclosure, definitely, we are, we're already working with our Solistica business, the logistics business, which is the one that really bought AGV, which is now, it's basically round numbers, but it's about $1 billion revenue company.

We are working with them, so that we're already to start disclosing their numbers probably a year from now. So we were really shooting for first quarter of 2021.I think the acquisition that we are also in the process of making in the U.S. of waxy and North American corporation, the specialized distribution platform that we're creating in the U.S.

Also, we should be in a position, that's a transaction that has not closed yet, but it will close soon. And also, I think we will be ready to start disclosing those results at the same time as Solistica kind of first quarter of 2021.

So if you think about it a year from now, we are going to start showing the performance, the income statement, the operating metrics of businesses that basically represent combined, about $2 billion. But today, you're not seeing. So we're working on that, and that is our expectation right now, Marcelo..

Your next question comes from Alvaro Garcia from BTG..

My question is on the balance sheet. You mentioned you're thinking about disposing the dividend. But I was wondering if you could you mentioned in the release also you drew in some credit line.

And if you could just remind us, if you could remind us on what that amount was? And if you could remind us on what your net debt position is at FEMSA sort of on a pro forma basis, assuming WAXIE and Jan-San transaction is closed, that would be very helpful..

Alvaro, this is Juan. Let me take a whack at that. So on the dividend, what we're saying is, I mean, normally, and the way that we've been paying the dividend for a number of years now has been in 2 installments. 1 in early May, 1 in early November.

And what we did this time around was to just give us the flexibility to rather than pay something up in May, which will basically be next week, we are giving ourselves the flexibility to do it later in the year.

And in all likelihood, I think this is going to go to November, right? The way that the shareholder meeting resolution ended up being drafted.

It says that dividend will be paid no later than November 5, 2020.So it's not, I mean, it's, I guess it's postponing the first half of the payment and moving it, again, I don't think it's been decided, but my view would be that it's going to be basically towards November, but it will be paid during 2020.

In terms of, I mean, I have the figures on a per share basis, but, I mean, we can give you the total number a little bit later. You can calculate that..

That was the main, the main set of question was whether or not it would be paid or not. That's clear that it will be paid rather in installment than the cancellation..

Okay. And in terms of, I mean, the, in terms of the WAXIE-North American transaction, that's basically $900 million investment. So the numbers that we're disclosing today in terms of our press release are obviously pre that.

The comments that we made that Eduardo made on his remarks about the bond issuance and the drawing of the credit lines, you would need to subtract $900 million that will be paid for that transaction in the coming, probably, certainly in the next month or so for a couple of months..

Our next question comes from Carlos Laboy from HSBC..

Juan, Eduardo, can you please comment on the sustainability of the Coke FEMSA dividend and your expectation of that dividend going forward? And also, perhaps share a little bit more insight on recent transactions?.

Well, regarding to the sustainability of the, Carlos, this is Eduardo. No, we don't have any problem. I mean, it is -- in fact, it's growing. And I think the way Coke FEMSA is really coming up out of these economic crises, they are doing just fine.

I think we are very happy with the way the company is performing, the way they've been adjusting their structure to this new environment. So I think we are happy the way we've been working together. And I think for the long term, we are working to set up a better way of understanding between us and the Coca-Cola Company.

So we're making progress out of that.And I think we're happy that in the long run, we will be better prepared to sort out this new economic and consumer environment. And regarding the, you said regarding the acquisitions that we made, well, I think we're very happy with synergy, I think, and the right, and the currencies in the in the right sector.

And I think we are just understanding how to close the deal by not being able to travel and not being able to connect as much as we could. But I think the current top management of both companies, WAXIE and North American, we're very happy with them. And I think we're very much aligned to try to close this deal somewhere during May.

I don't know if you would like to add one about the other acquisitions Carlos Laboy is referring to..

Yes. Carlos, I mean, generally, and this is something that I think we've discussed with all of you on the line in the past. There is certainly an appetite from a returns-driven appetite to continue to grow the retail component of FEMSA. And of course, some of the transactions that we've announced in the last year or so move us in that direction.

Whether it's the JV for OXXO in Brazil, for Proximity in Brazil, whether it's the investment in Cash and Carry in the U.S.

and the optionality that that gives us to develop that platform in Latin America, in Mexico and beyond.Obviously, the special distribution is another part of the strategy where we are in the process of growing where we think it will -- these are businesses that will kind of satisfy our requirements in terms of ROIC over WACC spread, so to speak.

So I think directionally, we're moving in that direction.

Obviously, also thinking about this, the way that -- if you go kind of back a little bit, go back in history, when Coke-FEMSA went into and acquired Jugos del Valleor Santa Clara kind of expanding the scope a little bit of what they did and when FEMSA Comercio went into drug stores, I think our incursions into the U.S.

and these 2 acquisitions or investments that we've made in the U.S. follow the same logic, which is -- this is -- there's a lot of things about these companies that we are familiar with. It's just that they're operating in the U.S.

as opposed to Latin America, and we need to learn how to do that.And of course, leverage local existing management as is the case in both of these transactions. So directionally moving towards retail and specialized distribution, geographically, looking at the whole continent as places where opportunities might arise.

But of course, these are things that in the current environment are taking kind of a backseat to kind of getting through the current situation as best as we can, and then we can retake the expansion phase more actively..

Thank you..

Thank you, Carlos..

Thank you. Our next question comes from Joseph Giordano from JP Morgan. Please go ahead..

Hi. Good morning everyone. And thanks for taking my question. Hope everyone stay safe and healthy here. Just like very briefly here on the digital initiatives being implemented by the company.

So I'd like to understand like how is the rollout of New OXXO taking place? So like the level of engagement you are seeing within consumers? And what are being the main challenges here? And things are like a little bit beyond the COVID outbreak.

How do you see like opportunities to further connect like the OXXO platform and also the logistics and distribution structure that exists inside a company with other e-commerce operators basically becoming more like a service provider, but also like empowering those OXXO stores with, let's say, ship-from-stores kind of capabilities catering like to potential, a new need from consumer given social distancing kind of like mindset that should remain in here.

And then like moving away from the technology part, I'd like understand like what's the view from new guy? Are potential opportunities to further expand into Latin America as severe, particularly Brazil, in light of the economic downturn, we may be seeing here.

So maybe you have like plenty of available good locations that could like the OXXO stores? So those are my questions..

Joe, this is Juan. Taking the first part of your question in terms of digital. Certainly, we probably were a little bit late out of the gate on the whole fintech development vis-à-vis other players. But we are, I think we're catching up.

This is going to be a very interesting year, where I think both on the loyalty program and the fintech platform, we are going to make a lot of progress. There are a fair amount of resources being deployed to those efforts, not necessarily financial. I mean there's some investment, obviously, but also human and in terms of management time and focus.

We are currently testing the loyalty program in a number of markets.For many years, also did not have a real loyalty program.

But obviously, now it's become, I think, more attractive than ever because it brings with it the information, the consumer insights of knowing who's buying what and the opportunities that then present for potential monetization of that data.

And on the fintech side, also, as I mentioned a few minutes ago, I think this is going to be an interesting year where, hopefully, by the fourth quarter, we have more and more tangible information to share with you in terms of our product, and what it can do.

I mean, obviously, we approach this with the benefit of, like I would say, a structural advantage that is unique to OXXO, which is the 19,000 plus physical stores where people are in terms of putting cash in and out of a new wallet, the stores are obviously very, very relevant.And also the fact that the OXXO brand already is a very broadly used and much trusted platform for cash payments today.

And so I think as the Mexican consumer gradually embraces cashless and digital transactions that we can leverage the strength of our brand and the ubiquity of our store network.

I'm not saying, we mentioned earlier in the call, I mean, I think the current environment, these are some of the initiatives that we are not slowing down precisely because thinking about how the consumer emerges from this crisis, we believe the reliance on digital transactions probably will increase.

It's not clear if this is going to be the catalyst that finally brings the most Mexican into the digital space, probably not. But certainly move us in that direction.In terms of Brazil, the second, your second question, I mean, obviously, we are, our partners down there, the Raizen team is very, very knowledgeable. And they already have one.

As you know about 1,000 stores in their gas stations.

But also in terms of the intelligence of where should we start looking, especially when we think about the stand-alone stores, which I think is going to be the biggest challenge, but potentially the biggest reward in the long run of this effort.We are obviously relying a lot on the Raizen team to help us decide where the first stores are going to go, whether or not and at what point and where would we need some distribution capacity in terms of disease.

So the strategies are already taking place. I think it's a little bit early for us to disclose with more detail what the plans are.

But in terms of the current environment and expectations for Brazil, I mean, we, as Eduardo mentioned in his opening remarks, we tend to take a long view.And so the current, whatever is happening in the short run in Brazil or in any one of our markets, doesn't really change the long-term expectation.

And so we are as excited as ever to finally have our foot in the door in Brazil. And hopefully, also as the year progresses, we'll be in a position to share a little bit more about how that joint venture is going..

Our next question comes from Rodrigo Alcantara from UBS..

Just a follow-up on the Health Division. So in 1Q, it was clearly the FX a negative effect, which could potentially revert in Q2. However, my question here is on the performance you have seen at e-commerce on drug stores, particularly at Cruz Verde? Some industry numbers suggest that this segment, e-commerce, is growing double digit.

So what are you seeing at Cruz Verde in terms of e-commerce?.

This is Juan. Yes, you're absolutely right. Looking at it not from an industry perspective, but just from the Cruz Verde perspective. And of course, Cruz Verde is a large player in Chile. I think the loyalty platform and the e-commerce and the home delivery platform, are pretty well advanced.

And definitely, the current juncture facilitates or provides extra incentives for people to buy from home. Chile is a market where mobility restrictions are in place that are stricter than the most of our other countries.

I think maybe Colombia is the only place where there are, Colombia and Equador are also strict, but certainly more than Mexico, right? And so I think it makes perfect sense for the consumers to be relying more on this type of e-commerce platforms. And I would say, Cruz Verde is definitely well positioned for that..

And if you can provide a revenue contribution or growth, at least in the last few weeks, perhaps, that would be helpful..

I don't have the breakdown for the last few weeks in terms of e-commerce versus traditional. But it's something that we can definitely look into and get back to you with the figure. I apologize for that..

No worries. Thank you, Juan. And just a follow-up on the Solistica Division. Just qualitatively speaking, I mean you besides FEMSA, you also serve other clients, right? So if you can comment on the performance that this division, Solistica, particularly in Mexico has had in recent weeks, that would be helpful. Thanks..

I think in Solistica, I mean, it's itself a collection of several different business units. So for example, there's the Less than Truckload operation, the warehousing operation, the dedicated carrier operation. And they're performing a little bit differently. I would say, for example, our dedicated carrier operation in Mexico. Heineken is a big client.

And so with Heineken, basically not operating right now, that is clearly a problem for our Solistica team. I think Less than Truckload in Brazil has also had some weakness in their figures.

But there are other parts of the operation, like transportation management, which is performing well.So it varies in the different businesses and different geographies. Warehousing, for example, is really not, not impacted because you have long-term contracts, and you're managing the space. And that is not something that changes from week to week.

It's much more sticky in that sense. But directionally, yes, I would say Solistica has been -- has been affected, probably, especially from direct fleet with the brewers and with some other clients, but I would highlight Heineken because of what's happening in Mexico.

And I would say, Less than Truckload Brazil also seeing some weakness as economic activity come down there..

Thanks very helpful. Thank you, Juan..

Thank you.

Do we have any more questions?.

Hello? Juan, I think somehow we've been disconnected..

Yes. No. Maybe let's give it a couple of minutes if --.

[Indiscernible].

Yes..

We'll now take our next question from Antonio Hernández from Barclays. Please go ahead. Your line is open..

Hi, good morning. Thank you all for taking my question. And congrats on the results. My question is, if you could give us more light on the rate of the proportion of OXXO that are exposed to least sick areas. And also to like corporate areas that can be affected due to social distancing and work from home restrictions? Thanks..

Antonio, could you repeat the question because we could hardly hear you.

Will you please ask the question again, please?.

Sure. My question is regarding OXXO.

If you could give us a break down or some light on the proportion of OXXOs that are located into least sick areas or that can be affected by work from home policies?.

Let me tell you, we, the spectrum of, we are really analyzing on a store-by-store basis. As you may imagine, some stores, let's say, in front of, in Cancun, where the hotel environment is, they have had a major production sales.

But some others that we probably are closer to hospitals or closer to certain areas, even have to have some medical division.

I would say that in terms of tourist areas, I would say, between 5% and 8%, probably of the current, But I think really as the major really damage to our OXXO store platform is that we really lead by big [indiscernible] that are on the go, either that are on-the-go pedestrian or by car, there are people that is always moving.

And because they are moving, whenever they need anything, OXXO is there to satisfy their needs.So I think that is really the main sector. And I would say that will be probably around 50% or 60% of our stores that have this reduction.

I think as when the economy starts opening, that could be anywhere by the end of May, I think we'll probably come up with better understanding of the market. I would say the other threat that we have is really the beer sales. We don't know, there will be some different siding from development or the breweries. But they will be open up or they are not.

So I think there are still, the coin is still in the air. And we don't know yet if they will be allowed to manufacture here again in the near term. I don't know if you want to add anything, Juan..

Yes. I think in terms of, as you say, on the sale of beer, and generally, the liquor regulation liquor sales regulation is very local.

And so we have seen varying degrees of restrictions in different parts of the country, some states where you, much fewer hours in the day, for example, where you can sell alcohol, a small proportion of the markets where you are not selling really alcohol at all.

But the bigger concern, Eduardo was saying, is that for a category that is one of our most important that we could be running out of product in the not-too-distant future..

We'll now take our next question from Gustavo Oliveira from UBS..

My question was really on the beer supply.

If you could just shed a little bit more light on when you think you're going to be running out of inventories? And what is the discretion on the ground today for the supply in general? Do you think it could normalize soon? Or you foresee more problems on that front going forward?.

Let me give my -- this is my own opinion, this is Eduardo speaking. Really, by sanitary procedures, beer makers have an excellent track of how well sanitize is the manufacturing facility. So I think they're more thinking about distribution. And again what really concerns me more is that there are a lot of Changarros in Mexico that live by selling beer.

And I think the Changarros are being hit dramatically. So I really think, I hope the beer distribution comes up alive again because there will be a lot of Changarros that really live because they do sell beer. And again, people is a major lubricant for social interaction.

And I think probably the government might be afraid that because if they do bring beer, there will be more social interaction. So I don't know really -- I have my own opinion that I think the beer should start opening in some step at some procedure by opening up a little bit more and more. But I think we don't know yet how will this end.

Juan, I don't know if you want to add anything..

Yes. Gustavo, so I don't want people to just get off the call and run to the store. But right now, we're probably looking at about 10 days of inventory..

Although, there are some open stores that do not longer have inventory because there might be some at [indiscernible]..

Thank you. There are no further questions in the queue. Ladies and gentlemen, that's all the time we had. I will now turn the conference back to Mr. Padilla for posing additional remarks..

Well, thank you very much, everybody, for your participation today. Stay safe and be well. Look forward to the next conference call. Thank you..

Thanks, everyone..

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 all for your participation, and have a nice day. All parties may now disconnect..