Fomento Economico Mexicano SAB de CV
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Fomento Economico Mexicano SAB de CV
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Good morning, and welcome everyone to FEMSA's Third Quarter 2018 Financial Results Conference. [Operator Instructions] During this conference, management may discuss certain forward-looking statements concerning FEMSA's future performance and should be considered as good faith estimates made by the company. These forward-looking statements reflect management expectations and are based upon currently available data.
The actual results are subject to future events and uncertainties, which can materially impact the company's actual performance. And now it's my pleasure to turn the conference over to Eduardo Padilla, FEMSA's Chief Executive Officer. Please go ahead, sir.
Hello, good morning, everyone, and welcome to FEMSA's third quarter 2018 results conference call. Juan Fonseca and Maria Castro are also with us today. As we usually do, we will focus the call on the consolidated figures for FEMSA and on FEMSA's commercial results as many of you probably had the opportunity to participate in Coca-Cola FEMSA's conference call yesterday. We want to use today's call to try to add some color and some qualitative elements to discussion as well as to hear your views and answer your questions.
Hopefully, you will find it useful. Before we get into the quarter results in more detail, I would like to mention briefly that out of the third quarter, we have made a change to the disclosure related to our business company name as FEMSA Comercio Retail division. We have removed those operations that are not directly related to our proximity store business, namely our restaurant and discount retail units of this segment. The segment is now named the Proximity Division, and will only include Proximity and Proximity-related operations, most of which operate today under the OXXO brand across markets. This change to our disclosure will provide a more accurate picture of the performance of this key high-growth business.
During the third quarter, we continue to see our business units making steady progress. Store counts, comparable sales and gross margins once again grew across retail formats and markets. However, operating margins were under moderate pressure, particularly in Mexico, reflecting tight labor conditions and higher operational costs as well as OXXO's increasing international organic expansion efforts. At Coca-Cola FEMSA, we saw positive top line performance in several of our markets, particularly in Mexico, as well as encouraging signs of progress in other regions, including the recently-acquired operations in Guatemala and Uruguay. On the strategic front, there are interesting news as well. We recently announced our entry into Ecuador through our Health Division. We have transaction that is effective to close in the first quarter of next year. And today, we're announcing our entry into Peru, where we're operating our first OXXO store in the city of Lima. These 2 announcements reflect our commitment to keep expanding our small-box platform across Latin America.
Moving on to discuss FEMSA's consolidated quarterly numbers. Total revenues during the third quarter increased 7.9%, and income from operations increased 8.1%. On an organic basis, that is excluding the results of the operations in Guatemala and Uruguay, at Coca-Cola FEMSA and Caffenio, at Proximity Division, total revenues increased 8.9% and income from operations decreased 1.2%. Caffenio is our sole coffee supplier in Mexico, an excellent partner where we have obtained corporate control through our ownership stake of 50%. Net income decreased significantly, reflecting the remaining comparison base across but excluding nonoperating income generated in the third quarter of last year from the sale of 5.24% of our combined interest in the Heineken Group. This decrease reported today also reflects a noncash foreign exchange loss related to FEMSA's dollar denominated cash position as impacted by the depreciation of the Mexican peso during the quarter.
Partially offset by lower interest expense, our effective tax rate was 36.6%. In terms of our consolidated net debt position during the third quarter, an increase by approximately MXN 48 billion compared to the previous quarter, to reach a net debt of MXN 75 billion at the end of September. As we have discussed in the past, these increases in net debt do not reflect additional borrowing, or rather they show our investment in liquid securities that have maturities longer than 90 days, and therefore cannot be reported as cash.
You will find these reflected in the investments and other assets lines of our balance sheet. Moving on to discuss our operations, and beginning with FEMSA's Comercio Proximity Division. We opened 182 net new OXXO stores during the third quarter, reaching 1,430 net store openings for the last 12 months. This number continues to reflect a strong pace that currently puts us slightly ahead of our stated objective for the full year of 2018.
We should also note that the period reported for the Proximity Division including the store counts evolution and same-store sales including not only Mexico, but also Columbia, Chile, and going forward, Peru. Revenues for the division increased 12.1% on organic basis. That is excluding Caffenio. Revenues grew 11.7%. OXXO's same-store sales were up 6.2%, driven by a 3.6% increase in average customer ticket and a robust 2.5% growth in store traffic. These numbers reflect a resilient consumer environment in Mexico and a low comparison base that was affected by the natural disasters in Central and Southern Mexico during September 2017.
Moving down to P&L. For the third quarter gross margin expanded 170 basis points, reflecting: one, sustained growth of the service category, including income from financial services; number two, increased and more efficient promotional programs with our key supplier partners; number three, healthy trends in our commercial income activity; and number four, the consolidation of Caffenio.
Income from operations increased 8.7%. On a run rate basis, income from operations increased 6.3%. The operating margin contracted by 30 basis points, reflecting: number one, higher secured cash transportation costs, driven by increased volume and higher operational cost, including fuel prices; number two, our continuing and gradual shift from commission-based store teams to employee-based teams; number two -- number three, an increase in electricity tariffs during the last month of the quarter; and number four, organic growth of OXXO's international operations that have achieved healthy sales levels per store, but have yet to reach sufficient scale to better absorb overhead.
Moving on to FEMSA's Comercio Health Division. We added 52 drugstores, including a small acquisition in Columbia. We reached 2,303 units across our territories at the end of September, and 135 total net new stores over the last 12 months. Revenues increased 10.2%. Same-store sales increased an average of 6.3%, which include a positive currency translation effect related to the depreciation of the Mexican peso compared to the Chilean and Colombian pesos. Gross margin expanded by 40 basis points in the third quarter, reflecting commercial activity, driving positive margin mix and volume as well as more effective execution across markets, mainly in South America.
Operating margin increased 60 basis points, reflecting the sales growth and gross margin expansion as I described above, combined with: number one, the strength of the Chilean and Colombian pesos relative to the Mexican peso during the third quarter; and number two, decreased operating leverage generated by cost efficiencies and tight expense control.
For its part, FEMSA's Comercio Fuel Division added 20 gas stations during the third quarter to reach 519 units at the end of September and 122 net new service stations for the last 12 months. Same station sales grew 7.1% in the third quarter with an average price per liter increased by 19.5%, while average volume decreased by 10.4%. Gross margin expanded by 120 basis points, reflecting improved supply turns and a recovery from a low comparable basis last year. Gross profit per liter was held flat in peso terms in certain territories.
Operating margin recovered by 10 points year-over-year. And finally, moving on briefly to Coca-Cola FEMSA. As John highlighted in the press release yesterday, he cites a robust top line performance in Chile and Mexico. There were several encouraging signs of recovery in most markets, including Brazil, Colombia and Guatemala, aided as well by lower sweetener costs and efficiency gain. If you were unable to participate in Coke's FEMSA's conference call, you can access a replay of the broadcast for additional details on the results.
As we look forward at the end of 2018 and into next year, we continue to see some macroeconomic uncertainty in many of our markets, including Mexico and Brazil. However, uncertainty can often bring opportunity, and with that view we're optimistic about our possibility to create value with our strategic path for 2019 and beyond.
So with that, we can open the call for your questions. Operator?
[Operator Instructions] And we will go first to Luca Cipiccia with Goldman Sachs.
I actually was curious to ask about OXXO international plans of expansion, if you like. It seems to me that you've become a little more assertive in area of rolling out the model outside of Mexico. So I was hoping you could maybe spend a little bit of time in discussing what the potentials you see now over the medium term. What have you learned from the past? And how are you tuning maybe that offering, I guess, this is not entirely a new project, but maybe I got the wrong impression but it seems to me that there is a little more confidence and even the speed or the breadth of the countries that you're looking at is growing. So I would appreciate if maybe you could give us some insight on how you see that project developing in the short term and in the medium term?
Okay. Basically what I would say is that we are very much surprised and confident that sales volume per store in Colombia and Chile, they are very, very good. In fact, we're very much surprised that we're selling out of our stores so good and so strong. We still have to understand better how to perform those particular markets per store in order to allocate labor and way we should have in order to expand our margin per store. But I think Colombia, we are very positive. We -- our FEMSA stores are growing now very strongly. And in Uruguay and Bogota, in this year, which has been a tough year in the beginning of 2018 was a tough year in Colombia. Now we have Chile. Chile, we have the Big John chain that we're changing little by little the store formats, the creation, well -- all the ambience, all the environment to be more also setting. And we reduce prices in Chile, too. In order to understand the convenience or proximity has not to be expensive. And we were surprised that volumes in those markets grew very strongly. We are basically -- all this has caused some problem, because we've been changing the Big John format, and we are shutting down the stores sometimes 3 or 4 months. Stores that used to have sales, now for 3 or 4 months, they are just idle and we're investing to reshape the value proposition. But we're very happy. We think that by the end of the year we have all the stores in Chile to the new format. We lack scale in order to improve our margins, but I think we have to understand better how to price, how to start moving and playing with prices. So we then really expand our markets. Given those 2, I think Chile, we will be betting to increase our stores by, I don't know, around probably with a global 30%, 40% in both markets. And now we have Peru. And Peru, we are understanding again, I mean, given our confidence that we have gained by handling the operations in Colombia and Chile, I think it's very important for us to start doing our value proposition again in Peru. And in Peru, I think we have a very interesting opportunity too. And given the knowledge and all the learning that we now have through the Colombia learning curve and the position of Big John in Chile, we feel confident that we're going to do a major bet in Peru too. And that will probably affect our results because overhead will be there with those stores. But again, we are confident that this is a time for us to do this betting and then to expand also value proposition for Colombia, Chile and Peru. I don't know if you want to add anything to that?
Luca, this is Juan. I think for purposes and the way that we've discussed and agreed with the operator that we can communicate with the market on the international operations. We are going to do it generally lumping together the 3 countries in terms of expected growth, especially I think in Peru. From a competitive standpoint, our team wants to keep kind of the cards close to the vest in terms of how many stores they will be opening. But as Eduardo just said, you should expect for next year the growth to be kind of in the 50% type of range, which of course is much more aggressive than what we have done in the past. Obviously, to put things in perspective, by the end of this year, all of our international operations together will probably represent maybe 1% of all the OXXO's stores, right? So 17,000 plus in Mexico and probably 170 or something close to that outside of Mexico. But you start growing at 50%, and the numbers begin to be not so tiny pretty quick.
That's very clear. If I may, quick follow-up. What has changed and making you feel that the, let's say, that the brand travels well. I remember in the past, in Colombia and that sort of operation has been intensive for quite some time. And there was a discussion with regards to the fact that local consumers that differ expectation in terms for convenience offering, in terms of service level, in terms of prepared food, in terms of variables. Have you moved more towards what the consumer wants? Or have you tuned your offering? Maybe if you can explain how you see the OXXO brand traveling across different countries? And then secondly, real quick, should we assume that this expansion is going to be mostly organic or you may do some M&A as you've done a small transaction you have achieved and then rebrand?
First of all, I think we do see this opportunity in those 2 markets. And really, it's all this really the benefit of having been there and doing a lot of tests, pilots, moving back and forth and adjusting and develop the value proposition. The value proposition that we have in Colombia and Chile we're very happy with it. And it does sell a lot. And what we like to have adjust is the economic model. And the economic model, it does lack scale. And also we have to understand better our -- how to labor, how purchase in Colombia, I think, the very first stores that we bet on, we're also not watching really how leases and some of it are too high, and we didn't have the experience to understand and we're sure this is better. To understand how the OXXO could be in particular expense store -- corner, probably move more to a half block point-of-sale. So I think, it's just a matter of adjusting learning. And in Chile, we were able to buy a chain. And again, we are converting the chain. And I think at the end -- and this chain was in essence very much similar to what we were in OXXO, so in Colombia. So it takes time. It takes a lot of learning because I think what we will not do is to build a lot of stores with a value proposition that we know that we will be very much fear that is not the correct one. And what I'm saying is, the value opportunity that we have in Colombia and Chile are very good. And we're just adjusting the economic model.
And I think in terms of -- before you start opening a bigger number of stores, given that, that's going to be -- that's going to put pressure on your P&L regardless, but I think we waited on it -- arguably, you could make the case that in Colombia it's taken us too long. But certainly as you open up your question, there is a level of confidence that we now have on the value proposition is much higher. Things have moved a lot more quickly, I think, in Chile, in terms of getting to the right value proposition. Our expectations would be that in Peru, we're also going to take a lot shorter time in getting to the right value proposition. And therefore, we can step into the next phase, which is one of faster world with a lot more confidence, as the numbers are going to begin moving in the right direction sooner rather than later.
And we'll go next to Alan Alanis at UBS.
I have two questions. It's a coincidence that there about $1 billion each of the questions. The first one is, you're going to soon be almost $1 billion net cash ex Coca-Cola FEMSA. I think you're right now over $900 million already. Could you remind us in terms of the criteria for deploying that capital going forward? That will be the first question. And the second question also around $1 billion. I think you're also now you have revenues about $900 million to $1 billion in your logistics business. Maybe the questions are related. How are you thinking about that logistics business? We know that you've done some acquisitions in Brazil and other parts of South America. So how should we be thinking about this business? And what are the chances that we can start seeing it as the separate business unit in the near future?
Alan, I would say that the customer channel for us will give us the great ability to allocate and to expand our footprint of things that we do -- that we know how to do well. And these are things that are massive, that have a major opportunity in different geographies. And we understand all of the things we do are multi-fashions, not big thing. And I think with that mindset, we understand whether it was in logistics, in processors, in point-of-sale operations, attending the B2B will be related to small shops. And I think all those things combined with really the screen that we're using really to see how to allocate this capital. I was just reflecting with Juan that part of this cut really comes out of the Heineken transaction that we did last year. Unfortunately, we did not extraordinary transaction. We have some of fiscal benefits. And number two, the exchange rate, the 121, now it was 114 I think. And the Heineken shares, we were able to sell at about EUR 84, EUR 85, and now it is below 80. So I think -- so far I think we're confident that we will have the win. And the other hand, some of the opportunity that we have seen are way too expensive. We don't want to buy things that are expensive, because we -- it will be very difficult to create value. In terms of logistics, we are -- we need some acquisitions. We are integrating those. And some of them, I think we did the right things, and some of them probably we bothered some of the Brazil acquisitions were made at the peak of the economic expansion in Brazil, and the exchange rate was a good one, so now we're in the process of coming back. And I think really, we have a Latin American footprint. But again, I think it's not a mature business. We are really putting it together with different things, transport management with less than top load capabilities. The other one will be storage, warehousing and directory. The directories, really we only have the Coca-Cola fleets, the OXXO fleets and the Heineken fleets. So I think that will be very much a business that is not going to be expended. I think our expansion will be very much related to warehousing, transport management and later truckload services. And that will be the thing. There are things that probably in the future we might be interested, but we don't know -- well we are doing some pilots in retailing, about last mile logistics. And those things combined probably will give us some light for the future.
I just wanted to add that -- I mean, because part of your question about kind of reporting these operations on their own. I think just following up on what Eduardo said, they are probably not ready in terms of scale within -- I mean, it's not that this is a small businesses. It's really that within the context of FEMSA, we believe that there is still some time where we can continue to develop these businesses. They are going to keep growing. And when the time is right, then we will provide a separate P&L, but that's probably not -- it's certainly not next year, and it's probably not in the next couple of years maybe.
Got it. That's very clear. Just really quickly, in terms of the skill set that you're developing for all the deployment of this capital, you mentioned Latin America, but those skill sets could be applied also in developed markets. Any comments in terms of how you're seeing and applying those skills in the United States?
Yes. That is a market that we're also paying some attention, again. We still have these, our Proximity format, we really cannot really expand because of the stricter laws in some of the states in the United States about alcohol selling. And really we see some opportunities that things are not -- markets are not consolidated, or we could be integrators. And probably with that mindset, I think -- we're not really prepared to say that probably that particular period, but I think there are things like distribution, logistics, enrollment, small transactions in geography, ubiquity. And I think those things we're very comfortable with. We had -- -- we obviously, we are not thinking at all in things where a conglomerate will be thinking like the automotive industry or the petrochemical industry, where we don't know nothing about it.
Yes, so sticking to our knitting, which is close to our core capability set.
And we'll move next to Alex Robarts at Citi.
I was hoping to really start out with OXXO vis-à-vis what we've been seeing on the cost side. And I appreciate you've kind of given us through the quarters the updates on making this transition to the employee-based teams like away from the commission-based teams. And I guess, this is really your seventh quarter as you've nearly started this compensation move in OXXO. And you've told us about the objectives and how the sophisticated stores require this type of investment and the desire to reduce turnover. How are we doing in this transition? And I kind of remember a couple of calls ago, you talked about making progress, getting toward, I guess it was 50% or 55% of the employees being employee-based teams. I mean, can we expect this transition to continue into next year? Are you getting toward the end of it? And when it's done, is it really just kind of having a more productive in store for us? Are there kind of tangible economics and benefits that you could kind of give to us about that? That's the first question.
Basically the trend towards the employee base is really about the store. It is more sophisticated than it was in the past. And when it -- that's the decision to be implemented there. I think that with the commissions we have on top of those, and really we have a really very strong drive for sales. However, they -- sometimes they don't have such strong or stable workforce. They might start with a very stable workforce, but throughout the years, the family might grew -- might grow, and some of the family members are no longer working there. And then he becomes more stable. In fact, some of the commissions we've been able to convert to the employee base. So really is how we really can keep the entrepreneurs -- the inspired entrepreneurs in our employee base, but at the very same time, how more stable our employees' workforce, where we could absorb the complexity of the store and keep adding services in order to support the market needs. I don't know if you want to add anything, Juan?
Alex, I'd just like to add. I mean, when you look at the cost pressures and you're right that the mix of commission and employee, it's approaching 50-50. In fact, we're probably a little bit past 50-50, but very little in terms of employee stores becoming the larger piece of the pie. But the other point I wanted to make is that, when I look at the kind of the 2 or 3 kind of points of pressure or reasons why the margins ended up contracting a little bit at the Proximity Division, the secured cash transportation continues to come off as the most important driver. And it's one that we are looking at different ways to address. But it's certainly the one that I would say is kind of flashing yellow. And unfortunately, it's one that we cannot manage in the sense that the migration from commission-based stores to employee-based stores is a process that is completely within our control. And we can dictate the speed at which it happens. Things like increase in volume and cost of secured gas transportation, or for that matter, when you look at electricity cost in the month of September, which also we saw a spike. Obviously, we have spoken before about how we have some significant capacity from the wind farms coming online between now and the end of the year, and then certainly, throughout 2019. But those types of cost pressures are less discretionary, and we just have to deal with them. I would say that the labor one or the employee-related one, fortunately had one that is for the structural benefit of the company, and also one that we can manage a little bit more in terms of how fast it takes place.
Yes, I agree with Juan. Labor and like -- there are things that we're investing and we're understanding better. And I think the secured transportation that's really a challenging one, because we really -- I think it probably -- it was a major surprise really to learn how much cash we're managing. And I think we are very much now in the process to understand better that business and see how come we make it more efficient and effective.
Yes, I think the speed at which the financial services runs off, the speed at which the cash began to build inside...
I think it probably was very marginal, if not marginal at all.
And a part of addressing that has to do with cash backs and the functions where you're actually dispersing cash. Whether it's because people are withdrawing from their checking accounts or because they are receiving a remittance that they can take a portion of that in cash. So it's a bit of a science, but it's also bit of an art. And I think we're getting better at it. It's clearly a high-quality problem when your most important cost pressure has to do with how much cash you're getting. That's not a bad problem to have, but still we need to deal with it.
That's good color. But just to close on the compensation issue. So there isn't, if I can paraphrase, I guess, what you're saying is that there isn't like a number 55% or 60%, where you're going to stop the employee base team and shift. I guess, you're going to be kind of seeing that ongoing until you feel like turnover levels are where you want it to be, and in-store service levels are where you want it to be. I mean, is that a safe way of thinking about it?
Yes, I think that's a fair statement. I think you can pretty -- you can be sure that we're never going to take it to 100 and 0 for sure. There's always going to be parts of a country and regions where the entrepreneurial spirit is alive and well, and the commission format still remains the preferred way to structure the stores. But it's a gradual process. And we will be keeping you guys posted in terms of how we're looking at it.
Fair enough. Okay, and my second one is a quick one, and it's on traffic. I mean, 2.5% is a robust number. I think it's the fastest in about 5 quarters. And when I think about the factors that could be driving that, one of the things that strikes me is what you've been doing with Amazon. And I was keen to kind of hear your thoughts about, you rolled this out to about 3,000 stores, about 15% of your total OXXO footprint. And is that -- are you seeing the results that you wanted to see? I know it's still early days. And I guess the last piece is, do you think looking out over the next year, you can expand further that Amazon joint venture?
Sure, Alex. No, I think at the end of the day, it's all related, right? I mean, the success of the financial services and services generally has brought a lot of people to the store. I think the near ubiquity of the stores also has meant that people can split their purchases from what used to be once a day visit to the OXXO, it became twice, and maybe even more than that. The more stores you have close to you, the more times you visit them, even if you're making smaller purchases. We now have about 1,300 partnerships, so 1,500 different services that we provide. I think the Amazon one that you highlighted has certainly been interesting. As you say, we're at about 3,000 stores, expecting to be in about 4,000 stores by the end of the year. We're basically following Amazon logistics. So whatever new city or town is enabled by their own logistics platform, the OXXO stores in that locality should have the Amazon Click and Collect service. So it's been a very successful feedback loop. I'll just say that the traffic number is better than it has been in a while. But if you look at the ticket number, it's not that great, right? I mean, when you look at it in real terms, ticket hasn't really grown. In fact, it's actually contracted over the last several years, which the only way that makes sense is when you kind of understand it in the context of the full same-store sales number, which as I said, has its component where people are going to the store more frequently and making smaller purchases.
I think for next year, as I said, you should expect more stores to have the Click and Collect. And one other thing to keep in mind is that traffic a year ago was on the low side. I think we did maybe 1%. We had the natural disasters in Central and Southern Mexico. So all of those things are, I think, are contributing to the very strong print that we put out today.
And our next question is from Antonio Gonzalez at Crédit Suisse.
Eduardo, Juan, and Maria, I wanted to come back to capital allocation. As it relates to Coke FEMSA, Eduardo, obviously, John Santa Maria has talked at length of what the exit of the Philippines means for Coke FEMSA, and we'll get some news, I guess, on whether there is increase at Coke FEMSA or not later on. But as it relates to FEMSA specifically, I wanted to hear, if possible, please, your big picture thoughts on -- at the FEMSA level, you guys already have the partial divestment from Heineken, FEMSA Comercio, particularly OXXO is generating EBITDA well in excess of its CapEx requirements. And now it's a good problem to have, right? But the problem is compounding, if we look at Coca-Cola FEMSA now being able to distribute more cash than before. So I wanted to ask, a, if you are at the FEMSA level more inclined now to become more biased towards cash distribution? Or to deploying the money in new businesses more rapidly? Or a combination of both, if these impacts are at all the way you think about capital allocation? And b, if you can remind us, I know obviously that every business unit is incentivized on EVA spreads now, and allocating money to projects that cover their cost of capital. But I wanted to ask if you can remind us whether there is an overarching set of targets at the FEMSA level in terms of any specific objective of moving money or excess money in this case from subsidiary A to subsidiary B. Any targets in terms of time to deploy the money or, obviously, keeping cash with very low yields at the FEMSA level, I guess, should have sort of a negative impact on these EVA targets that you always set. So I just wanted to hear your thoughts on any overarching targets that dictate this capital allocation between subsidiaries?
In terms of Comercio, I would say basically, yes. We're basically using all the cash that we generate. With the expansion in South America and the drugstores, the opportunities that we're foreseeing -- I think at FEMSA Comercio by itself has a lot of growth opportunities and we'll be capitalizing those in that particular set. I really think what we have here is the cash from Heineken. And that's particular cash from Heineken, going forward is really basically what I was telling to Alan. We want to invest in growth -- that in growth factors for the future of FEMSA. We are here -- we're very committed towards -- for the long run of this corporation. And we're committed to expanding the factors for growth, and probably those factors of growth will not probably be huge for major acquisitions, but will be probably 500 million, 1 billion, 1.5 billion acquisition, where we can allocate -- understand and allocate ourselves to start growing from that. And I think that will be probably the perspective. It's really going forward, we -- EVA is our major -- going forward is really how we really compensate ourselves and our executive base, and that keeps really going forward really creating value is very important. And I think what we are thinking of is how to install better for growth for the long run.
Antonio, I think just building on what Eduardo just said, I would like to highlight and remind everybody just kind of the concept on how we view growth. And as you correctly pointed out, I mean, John has spoken a lot given the current juncture at Coke FEMSA, obviously, there is point coming in from the Philippines and the significant cash flow generation of cost. But there is this structural growth bias that I know that you and I have disclosed in the past. There are these assets, some in the bottling space, some in the noncarbonated space that Coke FEMSA is in a position to pursue. But yes, there is also I think the increased probability that once the analysis is completed, as Hector was saying yesterday, there should be some room for increasing return of cash to shareholders. If that is the case, obviously, FEMSA will receive more dividend from cost. And then in turn, we will turn around and give those dividends to our own shareholders as we've spoken in the past. Our own dividend policy includes taking the dividend from both Coke FEMSA and Heineken and basically passing those to our own shareholders. So there are scenarios, probably likely scenarios where the dividend from FEMSA could increase, but that will be basically driven by cost. Whatever incremental free cash flow we have from the retail business after the growth that Eduardo addressed, then there's always the analysis and -- every year, we try to keep the dividend reflect the dynamics of the business. And if you look at the chart and you're very familiar, our dividend has grown rather healthily. But there are a lot of things that we can look at on the growth side at FEMSA as Eduardo was saying.
Okay. So just to be clear, if I needed to summarize these, any dividends you get from Coke, FEMSA will at the same time distribute to shareholders? FEMSA Comercio is forming its own growth and then the capital allocation debate the way you see it, is just how to redeploy the proceeds from the Heineken partial sale into the high growth opportunities. Is that fair?
I think that's fair. And there is a time -- I mean, you raise valid points. Obviously, the cash earns a little bit of a return, but it's not what we want to do for the long run. And so there is -- we have a sense of urgency, but there's also the discipline of acquiring the right assets at the right multiple. So it's an interesting exercise.
And we'll go next to Carlos Laboy at HSBC.
Eduardo, you rolled out a delivery app. Can you expand on what's the strategy of your home delivery? Why you're doing it? How you see it evolving over the next couple of years? And what do you know already from your consumers in terms of potential usage of this?
The home delivery -- Carlos, this is Eduardo. Home delivery, for us, the proximity thing about is also being everywhere. Is related to whatever you have quick needs, OXXO is there to serve you. And really what we want -- there is one occasion really opportunity -- you remember those consumer locations that we serve also, which is hunger, of being thirsty. The other one -- one of the good things that we can serve better is, what you call reunion, which is where people gather to see a soccer match by the TV or they gather together with friends, OXXO that is more a plan purchase. And those particular plan purchase really the home delivery, there are some trial tests that we're doing to understand that better. And the core services that we see now in the market related to the distribution -- the two distribution in Mexico, when you have tickets of MXN 50, which is $2, $3, the structural cost of delivering that to the home is a difficult one. What we think is when you can put together and having a larger ticket with a plan purchase to serve it better. And I think we are doing a good inroads with apps, and probably by the very first quarter of next year, we are doing a lot of tests everywhere. And I think we're in a very good position to serve that market in a better way. We are also doing things in FinTech where we could see how all the things are happening at the store could happen with the OXXO brand somewhere else. And those are the things that we're really working for.
Hi Carlos, this is Juan. I mean, certainly, the intensity of the internal in terms of the amount of resources that are being deployed on these type of initiatives, and I would say the interest from the markets have grown exponentially in the last, I would say, 12 months. And I think at the crux of this is it's figuring out what part of the new economy represents a challenge and what part represents an opportunity, right? And I think fortunately that equation for OXXO tends to, in our view, to be more in the side of the opportunity. Because as Eduardo described, I mean, there's certainly some of -- there is a certain percentage of what we sell that is subject to perhaps home delivery, and kind of the Amazon of the world-type purchase, but there's a big percentage, maybe 60% plus, 70% of what we sell, which are single-serve, serve-the-moment transactions for people who are thirsty or have a craving or they run out of cigarettes. And those transactions are probably well perfected from e-commerce. But the bigger question then becomes, what are the opportunities that we could capitalize on? And they would involve -- obviously, this whole thing with the app that is being rolled out first in Monterrey and hopefully eventually to a larger set of stores. But also the thing with electronic payment, gathering information on insights on the consumers, eventually finding ways to capitalize on that, monetize that, what parts of the value chain can we do ourselves, what parts of the value chain do we need partners for, which of these players do we need to have an investment in, like connect the investments on the FinTech side, other things that we're looking at. So clearly, this is something that has become top of mind. And I like I said in the beginning, it's something that's receiving a fair amount of resources, both human and financial from our side.
We'll go next to Rafael Shin at Morgan Stanley.
My question was related to the services part of it. I was wondering if you can provide a little bit more color on how the mix of services is developing? And I know that obviously you have a lot of services, so maybe we you could talk about, which out of the big ones, which ones are growing, which ones are maybe losing, I guess, some market share to mobile services and things like that. So if you can you provide us some color on that, that would be great.
Sure, this is Juan. I think within the services category, obviously, bill payments are huge. That's how it all got started. And I think a lot of the new services that we continue to sign and bring into the fold, probably fall into that category. However, the ones that have presented the fastest growth, and it's really been exponential, have been the financial services. The one data point, the one example that we usually discuss in these calls, and because it's I think symptomatic and an indication of how these things continue to evolve, is a number of transactional accounts. And it's really remarkable that more than 3 years after the launch, we are still issuing something in the order of 200,000 new accounts per month. And that pace has not changed in several years. And so right now we are looking at the September 30 number, 10.9 million accounts. So by now, we're probably past the 11 million accounts. And the percentage of these that are active is about 60-plus percent, which is about twice the normal rate of usage for debit cards in Mexico. So I wouldn't want to get into market shares. Certainly, internally, we look at other banks. I mean, at banks, because we're not a bank. We look at other issuers of cards, and we are right up there, right? I mean, we've gotten very close to the top of the list in terms of branded debit card accounts. And we don't see this slowing down. So going back to earlier questions today, this compounds the challenges that come with managing cash, but OXXO is very, very, very well suited to be the place where the average Mexican converts cash into digital money. And so we probably will continue to play that role. We need to be ready to play that role. Obviously, there are big portions of the economy that are informal or less than formal. There continues to be a lot of cash in Mexico in everyday life. And I think OXXO is well poised to continue to play a role as Mexico kind of transits into a more digital economy.
Okay, that's great. And just a very quick follow up, so for example that bill payments. When you have people being able to pay with the mobile phone very easily, are you losing some of those services as people are able to do that? Or you haven't seen any slowdown in that kind of services?
No, we really haven't seen it. Obviously, we're cognizant that there are many, many countries in the world where paying through your phone has become commonplace. And there are big players in other emerging, and there's certainly more emerging markets than Mexico. But at the end of the day, there needs to be a place where people come with their cash and they put it into some kind of wallet, right, a digital wallet. And so that's one of the things to keep in mind, and obviously we're looking into in terms of how can we ensure that we continue to be that place. And could we eventually play a role kind of the OXXO wallet or OXXO Pay or different things that are being looked at. But there has to be that physical place where people that have cash in their pockets first put it into the digital space. And then OXXO is very well positioned for that.
And ladies and gentlemen, that is all the time we have for questions today. I would like to turn the conference back over to Mr. Padilla for any additional or closing remarks.
Well, thank you, everyone. Thanks for attending our conference call. And we'll look forward to see you in the next quarter. Have a great weekend.
Ladies and gentlemen, if you wish to replay the webcast for this call you may do so at FEMSA's Investor Relations website. This does conclude our conference for today. Thank you for your participation, and have a nice day. All parties may now disconnect.