Fomento Economico Mexicano SAB de CV
NYSE:FMX
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
86.64
142.16
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Fomento Economico Mexicano SAB de CV
You don't have any saved screeners yet
Good day, and welcome to FEMSA's First Quarter 2023 Results Conference Call. Today's call is being recorded.
I would now like to hand the call over to Juan Fonseca, Investor Relations. Please go ahead, sir.
Good morning, everyone, and welcome to FEMSA's first quarter 2023 results conference call. Today, we're joined by Paco Camacho, our Chief Corporate Officer and Eugenio Garza. As always, we also have Jorge Collazo on the line who leads Coke FEMSA's Investor Relations team.
Today the plan is we have Paco share some higher level strategic considerations, followed by an overview of performance trends during the quarter and then Eugenio will provide comments on the quarter results. After the remarks, I will address some changes we have introduced to our disclosure that we hope you will find helpful with some closing remarks by Paco and then we will open the call to Q&A.
Paco, please go ahead.
Thank you, Juan, and good morning to everyone on the line.
Before we get into the quarter, let me update you on our FEMSA, our commitment to achieve a focus platform built on retail, Coca-Cola FEMSA, and our digital ecosystem. And the progress we have made in the couple of months since we last spoke.
As you know, we already reduced our investment in the Heineken Group from approximately 14% to 8%, assuming our related exchangeable bonds are converted in food. Following the transactions, we carried out a tender offer for some of our outstanding bonds, significantly reducing our financial debt and bringing in -- bringing us slightly below our leverage target of 2x net debt to EBITDA ex-cost. That now stands at 1.8x.
Beyond these successful development, we are progressing on the various tracks that that will ultimately take us to the targeted structure in a value conscious fashion. We keep you updated as we move along.
As you remember, a big part of FEMSA Forward is about driving growth in our core verticals and there was a lot of that in our first quarter result. Indeed 2023 is off to a good start and we are excited about our momentum. This marks the eighth consecutive quarter that our proximity division has achieved double-digit top-line growth and the fifth in a row for Coca-Cola FEMSA.
While inflation was a factor, we're still proud of the way our teams find a way, time and again to deliver dynamic growth even as source expand. What this also means is that OXXO and Coca-Cola FEMSA achieved double-digit growth this quarter, on top of double-digit growth period of last year. Double clicking on the OXXO results, it is particularly encouraging to see that same-store sales grew by more than 18% accelerating sequentially in both tickets and traffic. This is in contrast to soften recent trends in Mexico.
To put this in perspective, we went back and looked at 20 years of top-line sales data for OXXO, and this first quarter's growth rates are the highest for that period. Continuing with the positive news, we also have a good start to the year regarding new store growth not only Mexico, but across market with a stellar performance in Brazil where our joint venture group opened almost 100 new OXXO stores during the quarter.
Our health division continued the stable trend we saw at the end of last year where the difficult comparison based in Chile along with currency headways in the rest of our market. However, we managed to deliver record margins for the first quarter at the gross and EBITDA levels. For its part, our fuel business continue to see positive consumer dynamics and solid growth throughout its income statement.
Regarding digital, the number of active users for Spin more than tripled year-over-year to reach 4.2 million, while our Premia loyalty program more than doubled to reach 12.7 million. 20% of OXXO sales are now associated with the program.
On the B2B front, we closed the acquisition of NetPay earlier this month. So we continue to move a steadily forward with [Technical Difficulty]. Just as importantly, we continue to work on the seamless integration of the three verticals into our physical networks. Moreover, we tuning the used cases, value propositions, unit economics, and monetization strategies for each of these products as we aim to ensure sustainable value creation for the ecosystem.
In fact, just last week, we launched the national transition of OXXO Premia into our coalition loyalty program in [indiscernible]. This first partnership to be operational is with OXXO Gas and it's off to a great start. The coalition platform represents an encouraging step towards the consolidation of our digital ecosystem, and we will keep you posted on new partnerships and developments.
In terms of financial implications, it is still a bit early to incorporate a full P&L for the digital business into our disclosure. But during the quarter, we deployed close to Ps. 900 million in growing this business, and we are expecting quarterly figures in that range for the next several quarters.
Finally, let me talk a little bit about our logistics and distribution. As we had discussed before, the rapid growth of Envoy Solutions over this material increase its relevance as part of the FEMSA asset base, requiring in turn increased visibility in our disclosure. Therefore, we are now reporting Envoy Solutions on a standalone basis, and we are no longer breaking out the results of Latin America logistics operations from our consolidated results. As you know, we are exploring strategic alternatives for Envoy Solutions, but as long as we consolidate the results, we will continue to disclose them separate.
Before I turn it over to Eugenio, I want to talk a little bit about our ongoing efforts to refresh and resize our Board of Directors. In our recent Annual General Meeting, our shareholders approved nomination of 15 Board members, a further reduction of two members from last year and six fewer than in 2018. Beyond recycling, two of our directors are new to our Board and they bring significant experience and expertise in retail and digital.
Governance is a key area of focus for FEMSA, and we'll keep the poster of any new development.
Finally, I want to thank and recognize our team's units for performing at such a high-level during the first quarter. As we said during our recent conversation around FEMSA Forward the outlook of our company has never been as compelling and promising as it is today. And our Q1 performance is a solid first step along that path.
And with that, let me turn it over to Eugenio.
Thank you, Paco, and everyone on the line.
Beginning with FEMSA's consolidated quarterly numbers, total revenues during the first quarter increased 22%, while income from operations increased 5.5% compared to the first quarter of 2022. On an organic basis, total revenues increased 12.4% and income from operations increased 3.3%.
Net consolidated income was Ps.50.329 million driven by a Ps.40.6 million gain in the accounting re-measurement from historical cost to fair value of FEMSA's investment in Heineken, as well as the partial divestiture of this investment as part of the FEMSA Forward strategy announced in February. This net of a Ps.7.6 million tax payments linked to this transaction. Both gains are now presented as discontinued operations in our income statement.
In addition, net consolidated income also reflects an Ps.8.5 billion non-cash financial product that most really reflects the repurchase of $1.7 billion of FEMSA's outstanding debt at favorable price levels also in connection with FEMSA Forward.
Moving on to discuss our operations, beginning with Proximity Americas. We added 157 new units during the first quarter to reach 1105th stores for the last 12 months. This includes 120 stores from our OK market acquisition in Chile that we began consolidating during the second quarter of last year. These numbers include also Mexico, but also LATAM operations comprised of Colombia, Chile, and Peru that are gradually increasing their contribution to the growth of Proximity Americas.
OXXO same-store sales were up 18.3% for the first quarter, which as Paco mentioned is the highest rate of growth we have ever seen in the last 20 years. This was driven by an increase of 11.9% in average customer ticket and a very strong 5.7% growth in traffic. This underscores the solid progress OXXO's categories throughout the quarter, but especially by the strong showing of the gathering location.
Gross margin was 40.3% continuing a recent trend where our fast growing loyalty program in a lower contribution from our financial service was more than offset by healthy commercial income dynamics. We remain comfortable that demand elasticity driven by our loyalty program is more than offsetting the gross margin contraction.
Income from operations increased 19.7% while operating margin decreased 20 basis points compared to the same period of 2022 to reach 7.3% an increase in performance-based compensation schemes for OXXO same-store personnel and by an increase in labor expenses saving from labor reforms in Mexico.
At Proximity Europe, revenues came in slightly above Ps.10 billion reflecting a recovery in traffic and ticket driven by improved customer mobility. Gross margin was 46.3% and operating margin was 1.4%, reflecting an increase in expenses driven by recent acquisitions and inflation.
Moving on to FEMSA's health operations. During the first quarter, we expanded our drugstore account by 80 net additions to reach a total of 4,186 most of our territories at the end of March and 453 total net new stores for the last 12 months. Revenues decreased slightly while same-store sales decreased an average of 5.5%. However, as was the case last quarter, it is important to note that on a currency-neutral basis, revenues grew 14% and same-store sales increased 5.8% driven by good performance at most of our operations, partially offset by a demanding comparison base in our operations in Chile and Mexico.
Gross margin increased 160 basis points in the quarter, mostly reflecting positive margin dynamics across our operations, especially in Mexico. Operating margins decreased 30 basis points, representing an increase in labor expenses in most of our markets.
At OXXO Gas, revenues maintain their recent upward trend and increased 20.6% and same station sales grew 17.4% as vehicle mobility relative to the first quarter of 2022. Retail volumes were again supported by robust pickup in corporate and wholesale activity. During the quarter, gross margin was 12.4% while operating margin was 4%, reflecting tight expense controls and improved operating leverage.
Moving on Coca-Cola FEMSA also delivered a strong set of results to start the year. Total volume grew 6.6% driven by growth across all of its territories. Total revenues increased 12% and operating income grew 12.9% as operating margining expanded by 10 basis points to reach 13.5%. You can listen to the replay of their conference call that's available online.
Finally, at Envoy Solutions, total revenues increased 23.7% relative to the first quarter of 2022, reflecting effective cross-selling in the company as well as some of the acquisitions that we did last year, while operating margin contracted 140 basis points impacted by higher transportation, labor cost, and other integration operations.
Now, let me turn it over to Juan who will briefly go over some of the changes we've made to the press release that we hope you will find helpful. Juan?
Thank you, Eugenio.
The change you will see on our press release is the net debt to EBITDA ex-Coca-Cola FEMSA table on Page 3 where we calculate and show the leverage ratio as we established when we discussed FEMSA Forward a couple of months ago. There was some confusion in trying to replicate it. So here we give you the numbers and there's a table in the back on Page 16 that goes into the adjustments in more detail.
Next, the Proximity Americas section is presented in two parts. First, we present information for OXXO that includes Mexico as well as the three countries to us LATAM, which is Colombia, Chile, and Peru. All the information on Page 4 refers to these operations and is presented in Mexican pesos.
Then on Page 5, we show a paragraph on Bara and another on the Grupo Nós joint venture in Brazil. In time, the plan is to provide income statement tables and more information for these businesses as they continue to grow and eventually we should follow a similar path for other developing formats like Toronto, OXXO SMART, and our cost of drive-throughs.
The next important change comes on Page 9, where we are introducing a table that shows growth rates for revenues, units, and same-store sales for our retail operation, making out the countries for OXXO and for health in currency neutral terms to better reflect their on-the-ground performance. We believe this table will come in very handy as these operations accelerate their pace of growth and begin to move the needle.
Finally, you will see that we are now presenting Envoy Solutions on its own as Eugenio just mentioned no longer as part of logistics and distribution. Envoy has in the past couple of years, and it merits with some disclosure for as long as we continue to consolidate its results. And those are the main changes you will find today. We will continue to listen to you in a permanent effort to improve our disclosure moving forward.
And with that, let me turn it back to Paco for some closing remarks. Paco?
Thank you. Thank you, Juan.
Just a few words about the road ahead. As we said 2023 is off to a strong start. We are aware that the rest of the year will continue to be challenging. We'll be cycling against the strong results last year. Inflation will remain high and there will always be macro and regulatory uncertainty happening somewhere in our jobs. In this context, we will remain laser-focused on creating value by meeting customers and consumer needs and executing with excellence. We are prepared to quickly adjust to the challenging environment and deliver results. We are convinced that we have a structurally strong business platform, a rich opportunity set, and most importantly, we have the best team to execute our strategy and consistently win across our markets.
And with that, let us open to the line for questions. Operator, please.
Thank you. [Operator Instructions].
Thank you. And with that, our first question today comes from Ben Theurer of Barclays.
Yes. Thank you very much, and good morning. Congrats on the strong results. So the one question I had is if you don't help us understand a little bit better some of the growth dynamics you are seeing in the health division. And thank you by the way, for the table on Page 9, but looking into that, it seems like there was a particular softness in Mexico, and I'd like to understand what's been driving that in comparison to the other markets and how you think about just the growth potential in these different markets go-forward as obviously health is one part of the core of the new FEMSA. Thank you very much.
Sure. If you want, I'll start. The softness in Mexico comes from the same-store sales basis. We're referring to the negative 7.1% that is typically very tough. That is just a very tough comp coming from the last leg of COVID induced increase in sales at the same-store level. I mean, having said that I mean going forward we do expect a strong unit growth in Mexico as well as little bit of improvement in the overall top-line on a same-store sales basis.
But more importantly, what is driving value in Mexico has been I mean few hundred basis points increase in gross margin as we have been able to partner with suppliers and get increased margin on some of the products that we're offering. But the softness is more related to a very strong comparison based in Mexico.
In the other market, Chile, as you know, we do have a strong market share there. And we're also coming off very strong results stemming from consumer pickup in demand, given all the liquidity that was released to the consumer during the COVID era in Chile. So on Chile, we're also working off a strong comparison base. Not as strong as in Mexico, but we do expect there that with commercial efforts and also with the multi-format strategy, Cruz Verde, Macau and others, that we will be able to offer consumers a good value proposition and continue to grow.
Colombia and Ecuador each are different countries. In Colombia, a lot of the growth is driven as you know, primarily by serving customers that are affiliated to EPC, but we are also growing in the retail channel significantly, which would also drive our growth. And again, Ecuador although there's still a very good value proposition, I mean, political and economic factors, there have been I think the most important driver of top-line growth there. I don't know, Paco?
Yes. Just to add on the Mexico side, Ben, we need to remember that 2022 Q1, we had the Omicron variant. So there were strong sales related to that number one and number two year-to-date the Mexico share has increased slightly so that that assures us that structurally we have a very solid business.
Our next question comes from Thiago Bortoluci of Goldman Sachs.
Yes. Hi, good morning, everyone. Thanks for taking the questions and congrats on the very solid print. I have two things here that I'd like to explore the further related to the FEMSA Forward priorities, right? I know you have to be very cautious on the forward statement and any guidance that might provide, but from what we understand, obviously there are two priorities on the plan. One is growth, and the other is capital allocation, right? You mentioned in the press release and it's clear that leverage is trending pretty well, which allows you to execute those priorities. So I'll just like to understand from a growth perspective, right? What are the kind of opportunities that for envisioning for the short and medium-term, how urgent and how large they are, and how much capital these initiatives could require going forward. This is the first one. And the second one is more on operating side, right? You posted very solid and impressive FEMSA sales in Mexico, and obviously this decoupled a little bit from your peers and even from [indiscernible] right? I like to understand a little bit more from you. How do you -- have you seen the FEMSA sales trend building out throughout the quarter? Especially early reads from April or whenever you saw in March, and how correlated do you think OXXO performance could be true and in fact going forward? Those are the questions. Thank you very much and once again, congrats on the results.
First, with regards to growth and where we see it coming I mean, as we discussed last year, all of the business units on the long range plans that involve I mean trying to double their EBIT over the next five years and frankly, all of the different business units have plans on an organic basis to achieve that. I mean most notably OXXO through the multi-format that category, we believe that we could add, I mean, on top of the natural growth in OXXO stores, we could add in other formats, in other used cases a significant amount of additional revenue there.
In Latin America, clearly a lot of more room to grow in Brazil with all the different formats. And then again with regards to the basic OXXO store, there are a lot of additions to the value proposition with regards to I mean cash management products, the integration with the digital side. And more importantly, the loyalty program where we do believe that that we could capture same-store sales growth at the traditional OXXO store in a very, very healthy fashion.
And with regards to capital allocation, most of these plans are actually self-funded by the operation. So they would not require a significant amount of cash from FEMSA parent to be able to achieve their goals.
In the case of the health division I think the same thing. A lot of room for organic growth in Mexico, as you know, we are very strong in a couple of geographic areas, but there's still others where we believe from a footprint perspective that we could grow organically. But also in Mexico, there will be -- I'm sure at some point or inorganic opportunities that would require additional capital allocation. I don't know, Paco if you want to talk about any of the others.
No, just basically to reinforce the point that as we enter into 2023, the results we are announcing today already reflect the fact that all the businesses are walking the path on the long range plan as they -- it was presented to us at FEMSA and as cities included in as part of FEMSA Forward. So the results start to reflect already the plans that were deployed as part of FEMSA Forward in each of the businesses, importantly on the organic side as Eugenio said.
The other thing to add on your question regarding relative performance vis-à-vis Walmart and Avon [ph] and the other sales, we did see a significant outperformance this quarter. And if you look at category by category used case by used case, it was mostly the gathering of patient that is bringing us more traffic in the store. So I think what we are seeing, if you go back to when the pandemic started as to how convenience formats started to lose a little bit of share and grocery format started to gain I mean some of that share, I think you're seeing some of that come back slowly but surely.
But more importantly, we are experiencing that growth in traffic and changing consumer habits with a much more well-known basket of products that are accessible at also including liquor, financial solutions and others that are making this traffic come in and not lose the high average ticket that we grew through in the pandemic. So I think the combination of a higher ticket and a recovering traffic is why you're seeing, I mean, a very strong performance on OXXO in the first quarter.
And I think that that second question of yours Thiago is related to your first question because as part of the -- of OXXO's long range plan and opportunities to continue growing organically is a significant sophistication -- further sophistication on their segmentation strategy and the ability to rapidly change the portfolio on SKU offerings and everything they do around the consumer needs.
I mean, they started to do that in a, for long time, but then they significantly improve their abilities during COVID. And frankly speaking, they have continued to do that, and it's an important part of what they expect to do over the next several years as part of the long range plan to continue sophisticated, this ability to give consumers what they want. And -- but that is reflected there. The results reflect that, and that's why we are confident that moving forward, we'll continue to see that.
Yes. I'd just like to add. Hi Thiago, this is Juan. I think building on what Eugenio said more on your -- on your [indiscernible] related question. I mean, during COVID, obviously, the market developed a couple of concerns regard OXXO, right? I'm oversimplifying here, but people were worried about the relevance of the storming, would it still continue to play the very important roles in people's lives? And obviously the slowdown in openings which was a consequence of COVID and us being able to see what was happening with some marginal stores also concerned the market because we -- as you remember, we closed a chunk of stores and we slowdown significantly, and we made it harder for us to approve new locations.
I think what we're seeing this quarter, and it really builds on the last three quarters of last year is that the answer to both of those concerns is, we're fine. OXXO -- OXXO, people are, as they return to their normal behavior patterns and habits, and there's county fairs and people are going to concerts and people are out and about you see a very healthy performance at the stores, as Paco was saying, the stores have transformed their value proposition accordingly.
But the other point is we are opening, I mean, we're not yet back to a 1,000 stores per year, but we're moving in that direction. In addition to everything that's happening outside of Mexico, but I just wanted to put a highlight on that fact that I think this quarter again demonstrates the super high relevance and all the roles that OXXO continues to play and how this translates into very, very powerful set of numbers.
And in terms of [indiscernible] specifically, unfortunately, as you know, we are not a part of that. There are other big players in the industry that are not a part of that. And so the number maybe has become a little bit less relevant and we don't have a perfect peer, but directionally, obviously, it will give you some information and hopefully we can continue to outperform it more often than not.
Our next question comes from Ricardo Alves of Morgan Stanley.
Hello everybody, thanks for the call. My first question was partially answered already on a very, very impressive OXXO same-store sales. Just wanted to expand a little -- the average ticket seems to have been the main source of acceleration, sequentially speaking the 12% increase. So can you expand just a little bit on that -- on these? We appreciate the fact that the unit revenue has been improving since the start of the pandemic. We've been -- we've discussed this in many instances, but on the margin to the first quarter, we saw a big jump in average tickets. So just wanted if there's any category that you care to highlight I think that that average ticket is something that surprises quite positively. And maybe just more important how did you see April? I mean the issue of the Holy Week. So just wanted some additional color looking for would be helpful on the OXXO same-store sales. That's my first question. Kind of a follow-up, the second question on the FEMSA Forward just a little bit more of an update as well. And I think first of all appreciate, we are applauding the disclosure and the release, so really appreciate that. It's really helpful. But qualitatively speaking, can you comment a little bit more around Envoy negotiations/interest from third-parties, perhaps structures that you guys are envisioning. Any updates on Envoy that would be helpful? And we've been getting a lot of questions on Heineken as well. Appreciate the lockup period is coming due. So just wanted to hear your latest thoughts on that. If the commitment is still there just an update on those two fronts Envoy and Heineken. Thank you.
Paco with the second and Eugenio go back to you also.
Sure. Just FEMSA Forward, we continue to I mean work on all fronts. As you mentioned Heineken and Envoy and a couple of the other good progress, the market has been conducive in all of these to -- for us to continue on our path going forward. And again, we will update you when we can. But at this point, we feel comfortable that we are on track, if not ahead of track to meet the original expectations outlined in the FEMSA Forward announcement in February.
And that for the -- just to provide a little bit more color to your question OXXO. I guess that the first thing that I will say, Ricardo, in that the ticket increase is something that we have seen consistently over the last quarter. I mean this is not something that's happened suddenly. This is -- this has to do with the way as I said before also is tackling the opportunities out there in terms of what consumers need and what consumers want, how they need to adjust the portfolio.
So it is true that following the pandemic, there are some changes in consumer habits, some of them started to buy different things in different places. And I think that also has been quick to adapt the categories that have, I mean just been the main categories in the store such as snacking, such as beverages, but same thing, they have been changing and they have buying more multi-packs, et cetera. So that's there.
In the beverage part, there is also beer, I mean, beer has been performing quite strongly as we have finished the mixed tail. And now we have also the Grupo Modelo brands in most of our stores. So that is also affecting the ticket size.
And then last but not least, I would say that the team has also done a very good job adapting the offering for the pantry in the households. So that that offering is just improved its importance in the store. And all those adjustments are what maintain the ticket going up. As I said, I think that what is important to keep in mind, this is not a standalone one quarter effect. It's something that has been continued throughout the pandemic and now is kept that way. And hopefully, we will continue to see that performance in the quarters to come.
Yes. Now let me just add a little bit to what Paco just said, just to focus on beer. And the reason for that is obvious the four-year process of incorporating the ABI portfolio into the stores. That was a big deal and unfortunately, it was kind of overshadowed by COVID, right? I mean we started literally a few months before COVID arrived. And so I don't think we fully saw the impact. I mean, I don't think we fully have seen the impact yet, but certainly you begin to see behaviors in the beer category that are very, very encouraging as you now have both brewers basically duking it out in what is their most important battleground. I think also, as you know, for a long, long time, we had been the most important channel for our brand, for Heineken.
I think we're on our way to becoming a very important channel for the ABI brands as well. And so obviously in terms of the actual number of cases that you sell implications that this might have at the commercial income level. I mean, it's just beginning to look like I always hoped it would look once we had both portfolios from the store. So just to kind of highlight that, beer is the most important category for OXXO continues to be probably always will be.
The other word I wanted to put a little bit of a dampener out there in the sense that I don't think what we saw in the first quarter is necessarily the new normal, right? I mean, don't expect to see 18% same-store sales throughout the rest of the year. I think there is no calendar change. I mean Holy Week happened in April in both years 2023 and 2022, so there's no -- kind of distortion there. But as healthy as things look, again, don't put 18% in your model because I don't think we're going to get there, but it's still looking like a very, very strong year.
[Operator Instructions].
Our next question comes from Bob Ford of Bank of America.
Thank you. Good morning, Juan, Paco, Eugenio, and thanks for taking my question. We back out a Ps.1.1 billion loss in the other division, and I was wondering if the level of investment in digital initiatives, whether there were any non-recurring expenses associated with the strategic review book there and what your expectations are for the segment going forward. Thank you.
Yes. On the digital division as you know, it's in the others category. And we are roughly running a loss during the quarter of about Ps.900 million. Part of that, if you just look at the overall ecosystem is compensated by revenues that are being generated at the proximity division related to the use of spins that are obviously reflected.
So on a consolidated basis; it's less than Ps.900 million. Having said that, it continues to be a relevant amount. A lot of that is development of the product. I mean staffing up in terms of people, outside consultants and whatnot, we're not capitalizing I mean a lot any relevant amount of that. So we continue to invest number one in obviously getting the user base to a level that that we need to. But more importantly, making sure that the used cases, the functionality and the eventual modification strategy for these customers be it through the financial side or the loyalty side are tenable.
For this year, I would expect cash burns at or about those levels. And hopefully, as revenues come up in the proximity division in other divisions via the loyalty program that cash burn over the course of the next 18 months to 24 months will start to turn. But at this point, we are committed to I mean basically putting out a product out there that that consumers will enjoy interacting with. And that will generate what we believe is long-term value from our -- for the overall ecosystem.
And Eugenio, how should we be thinking about the functionality roadmap?
The functionality roadmap? Right now, as you know, the spin product is migrating to -- from I mean the three products basically of digital, which is three side, the B2C side and then the loyalty program. They're slowly migrating to this new platform called Spin Premia.
Spin plus.
Spin plus, sorry. And the idea is to have a single app that will be able to manage, I mean, all of the different accounts there. So from a functionality perspective, first and foremost, it's just consolidating all of the product offering into a single app, and then slowly but surely adding on what we believe are going to be I mean very useful use -- right now we have obviously bill payments, money transfers, peer-to-peer et cetera, et cetera.
But more importantly, we will at some point begin to offer remittances from the U.S. start to offer some kind of credit products with a very heavy waiting on credit risk measurement and whatnot. And then eventually through the loyalty program, being able of to offer I mean our CPG customers with the digital advertising space, promotions, et cetera, and grow from there on the consumer side.
And then on the business side, now with the NetPay acquisition, the idea is to be able to kind of close the vice grip on the overall consumer experience by affiliating Mom-and-Pops, by affiliating other customers that cook is serving and putting them into the digital ecosystem by offering them the same product so that they can start to charge consumers with either a debit or a credit card or a spin card with a QR code be able to offer the multi-category and omni-channel offering to the -- to the Mom-and-Pop, and have them earn loyalty points as they run their own business as well, and make that part of the overall value proposition. And again, try to establish this closed loop system where hopefully consumers who have the spin product will be using spin, not only at also to earn and redeem points, but also at any Changarro or any other I mean restaurant or other places in Mexico. So that is the eventual dream to close the B2B and the B2C side.
And I guess just to add just a couple of things, as the team walks towards that path of all these value-added services, their focus right now is to make sure that they increase the number of active users monthly. So it is crucial that consumers that users come back and continue to use the app. And second to improve the NPS. And on both sides, we have good news. I mean, the multi-active users continue to grow and the NPS continues to improve. So that's the path today.
Our next question comes from Luis Willard of GBM.
Hi everyone, good morning, and thanks for taking my question. I wanted to talk about a bit of the dynamics in financial services and the payment at OXXO. Can you help me understand, you've seen traffic up year-over-year significantly at OXXO, but you mentioned pressure use of connection services is contributing less to a top-line. And I would assume gross profit. So can we understand a bit more on the dynamics on this front? What's the rationale behind that? And anything that you can comment on that, that would be helpful. Thank you.
Sure, Luis. With regard to financial services, remember they're made up of obviously people paying. But the biggest part of it comes from the [indiscernible] our correspondence banks doing transactions to the OXXO network. And over time, as you know, we've added different banks in Mexico, but then also some banks have dropped. So the volatility if you want it in the traffic related to financial services has more to do with banks that are either coming on or offline any given quarter. And then certain banks just because of their own value proposition are sometimes limiting the number of transactions that that customers can do at also in any given month. So it has a lot more to do with that. I would say we had slow traffic during the middle and latter half of 2022, that traffic is coming back. But again, coming off from a low base in the first quarter of 2023.
And the other thing to know, just from a peso perspective is that the commissions that we are charging have remained pretty much flat in peso terms. So when you see these numbers that are reported in real terms, we've lost some real call it real peso revenue growth in those categories related to pricing more than traffic and volume. But that that's kind of the nature of the business.
Having said that, I think the word in terms of the financial institutions that are participating with us more and more, we are seeing some of them that have left, come back at a more aggressive pace. And the number of transactions that have been limited to some in the past have been opening up. So I think in the first quarter, we're starting to see the tip of the iceberg in terms of that traffic coming back.
Yes. Right. So -- and if I may a follow-up, does this -- let's say lower peso company receiving has to do with the fact that the probably transactions, especially on the money transfers and the deposits are being done through Spin.
Not really, I think…
Not really, I think, only cash. Sorry.
Correct. I mean, we are seeing, I mean, growth in people transactions via Spin. Having said that, I mean the pricing strategy of Spin and the pricing strategy of the financial institutions I mean are in lockstep and have been relatively constant, if you want to call it throughout this period, have to do more with our financial partners deciding to reopen their interactions with OXXO in a more aggressive fashion.
Our next question comes from Alan Alanis of Santander. Please go ahead.
Appreciate it. Hi, Paco, Eugenio, Juan, congratulations on the results and thanks for taking my question. My question has to do with cash back to the shareholder -- what needs to happen in order for you to either activate a significant share buyback program or an extraordinary dividend in the context that if I get the numbers correctly, you paid $650 million of ordinary dividends. You have $4 billion of gross cash, almost $4 billion of gross cash. You could pay another similar amount of $650 million, and you would still be under 2x net debt to EBITDA. So what's the thinking process regarding cash back shareholders in terms of catalyst, in terms on timing going forward, please. Thank you so much.
Sure, Alan. Appreciate the question. And clearly that's top of mind for us right now. No question about it. Having said that, I think the priority right now is to get the structure and the portfolio structure in place. So we're more focused right now on executing those transactions. See where we end up in terms of leverage, we -- I mean, we're already there. We're already at 1.8 and these transactions are not going to do anything, but improve that ratio.
But we first want to have I think a little bit more clarity. And then I mean, we will be considering any and all options to maximize value for shareholders. I mean including I mean modifying the current dividend policy considering extraordinary dividends, doing share repurchases I mean in comparing and contrasting that with any inorganic inactivity to the extent that we believe we can create equal or more value to the shareholders than any of the other options.
But I think the focus at least for the next quarter or two; it's going to be just on getting the FEMSA Forward transactions with greater visibility so that we can make that decision of capital allocation with a lot more certainty.
And as we said this is a process I mean, implementing the FEMSA Forward is a process that will take several months is not something that will happen overnight.
And our next question comes from Rodrigo Alcantara of UBS.
Hi, thanks for taking my questions, Paco, Eugenio, Juan. Just curious here you have that form of record years, I understand you disclose it or mention it, very clearly in the press release, its very promising format very unit economics. Should we expect you guys accelerating store openings here at Bara more exploring new space. I think we are just in five, six spaces in Bara. And if an organic growth to accelerates Bara would be an option for you guys. That would be my question. And also on the Australian store openings, any updates regarding Valora if you have opportunity any plan regarding organic expansion there particularly in Germany that would be also very helpful. Thank you very much.
Yes. Let me start providing some color on your first on both questions, on the Bara side, indeed, I mean, that's part of the -- as you -- as we got these conversations Rodrigo that part of the long-range plan strategy for also is the multi-format. Bara being one of the different formats that we plan to accelerate moving forward. The Bara performing really well. The value proposition has been sharpened over the last few years, and we are confident that that format will continue to grow. And we have -- I will call it a strong ambition in terms of openings for 2023. Whether or not there will be opportunities there, well, it's not something that this stage the team is focused on is more on the organic growth opportunity for specifically for Bara.
As regarding Valora, yes, your point is absolutely right. Our priority from an organic standpoint is Germany. We -- as we have stated, I mean when we look at Valora and the number of stores we have in Switzerland it's 8 million people. We have probably 1,200 stores. When we look at Germany, we have 80 million people and we have the same number of stores. So the opportunity for organic growth in Germany is strong, and our priority at this stage for organic growth is precisely that country. And we see the possibilities in 2023 and forward.
Yes. In the first quarter, you could see seven net new store openings for Valora, which is on the low side, given where we expect to go going forward. I mean, having said that, as you know, we're still I mean digesting the acquisition integrating it into our systems, getting everything aligned, and we are juggling a very complicated inflation environment, especially in Germany. So once we get that under control and integrated, you should see a more aggressive extension in the store base going forward.
Our next question comes from Sergio Matsumoto of Citi.
Yes. Good morning, Paco, and Eugenio, and Juan. Thanks for taking my question. I want to go back to your comment about habits have changed and just ask the question in a different angle. In the past, before the pandemic, there was this value proposition from OXXO where there will be services being rendered at the stores or the convenience of going there would drive traffic into the stores. And some of that would result in cross-selling within the store where they pick up something else to buy. And I'm wondering, under the new for strategy of FEMSA Forward if the Spin and the Premia is now fully offsetting that value proposition, or has it taken over? And if not when do you expect that to take over?
Yes. Thank you. Thank you for the question. And well, look, I -- on the one hand, we believe that OXXO continues to have a very strong valuable proposition on the physical side of the store. I mean the difference in consumer habits we saw from before the pandemic to the pandemic. I mean, just let's talk about going to illustrate the point, which is that less people go to the office because more people do virtual work. I mean, that is there it's undeniable that, that is there.
That is affecting everything that consumers do, but related to us, so there are a few changes that has -- that -- that -- it has taken or done into the value proposition of the store. First, we are more careful to see where we open the stores. I mean, that's something that you have seen and we have been more strict in our store opening. And Juan has said several times, the new stores perform better today than before, simply because we are being more strict in terms of where we open the stores.
Second, look, just to illustrate one point in the past, consumers, as you said, will stop before going to the office will buy something to drink and then go to the office. Right now, as they probably stay at home for a couple of days during the week, they maybe shop less time, less frequently in the store, but they probably buy more. So now the store is selling for multi-packing for the beverages so that consumers can actually shop for whatever they are going to buy for the whole week. So these types of changes and fine tunings are what -- are allowing us to maintain a very relevant value proposition for consumers in the physical store.
Now, having said that, Spin and Premia, and I think that Ukrainian made reference to that, the way consumers are using those products is allowing us to increase the traffic in the store. Why? Because consumers will in an electronic manner receive an offer, receive a coupon, and be invited to go to the store and then add an additional purchase on top of whatever they are going there to buy.
So actually, we see that not -- it's not going to be as a switch in detriment of the physical store, but actually the way we are seeing it is that this is a physical way of consumer shopping in which they will on one hand have the digital platform and the physical store. And frankly, there will be a lot of synergies on that. And that's why -- that's what we're seeing already in fact, the increasing traffic because of the Spin and because of folks of Premia.
Our next question comes from Carlos Laboy of HSBC.
Yes. Good morning, everyone. I know you've spoken about this before, but if you could give us some updated thinking on it, it would be helpful. Do you feel that you need to make acquisition to build out your C-store footprint in the U.S. and if you were to do it organically what's the biggest challenge to that?
Sure. I'll take it out. I mean, the -- you have a second question, Carlos?
No, that's it.
Okay. I mean the quick answer to that is no, we don't -- we need an acquisition. Having said that, I mean, just given the skillset required and the tightness that the convenience formats have in the U.S. vis-à-vis the gas. I mean having some presence with knowledgeable operators and people who know the space; people who know how to trade oil and gasoline, I think will be helpful. Having said that, the short answer is, we do not need it. We do believe that we could deploy a -- the value proposition that we have it also in some of the markets where I mean co-nationals will be familiar with the concept, familiar with the value prop and be able to start with that on an organic and slow basis.
Having said that, I mean, there is a lot of activity going on in that space. There was one major transaction that was announced last week. We continued to look at different alternatives. But I think the bottom line is that whether it be organic or inorganic, we will always be looking to be I mean wary of capital allocation and making sure that we are allocating the capital in a way that maximizes absolute not relative returns vis-à-vis the other alternatives that we have including share buybacks and dividends.
So bottom line, we will be looking at both. But one does not -- I mean we do not need to do an acquisition to grow in the U.S. to the bottom line.
The next question comes from Jorge [indiscernible] of BTG.
Good morning, Paco, Eugenio, Juan, thank you for taking my questions. Going back to Envoy Solutions, with the prior question that the margin pressure in organic additions [indiscernible] margin are this pressure related to other organic drivers. Also, if you could spend color on M&A would be much appreciated. Thank you very much.
Okay. Could you just repeat you asked about margin pressures were?
Yes. Sure. It might be -- I was wondering if you could tell any comments on if this has to do with inorganic additions for margin or it is related to all organic drivers.
Combination.
Yes, it's a little bit of a combination of both. First and foremost, the first quarter is usually in the specialized distribution space because one, in terms of sales volume. So the SG&A expense that we put in starting in the second half of last year and into the first quarter, in terms of bringing in very solid integration teams that have been working on putting in all of these 30 acquisitions in the same ERP system.
A bunch of the pricing initiatives about budget of the logistics initiatives that we're putting on I mean, a bunch of that SG&A came in and during the quarter, which is usually lowest in sales, that's where you see the margin contraction.
Having said that, on the gross margin side, I think it continues to be I mean on track with what we were expecting. There are some pressures on the food service disposable category, but they're more than offset by the strong performance of the Jan-San category. And to your point, I mean, some of the -- especially the acquisitions that happened during the second half of 2022, those are still going through I mean the synergy process and making sure that we integrate the back office, et cetera, and have still not borne the fruit that we expect them to on a runway basis. So yes, it was an awkward quarter from an operating income perspective, but it's explained mostly by those two reasons.
And that is all the time we have for questions today. And that concludes FEMSA's first quarter 2023 results conference call. We thank you all for your participation. You may now disconnect.