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Fomento Economico Mexicano SAB de CV
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Good morning, and welcome everyone to FEMSA's Third Quarter 2020 Financial Results Conference Call. [Operator Instructions]
During this conference call, management may discuss certain forward-looking statements concerning FEMSA's future performance and should be considered as good faith estimates made by the company. These forward-looking statements reflect management's expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance.
At this time, I'd like to turn the conference over to Mr. Juan Fonseca. Please go ahead, sir.
Good morning, everyone. Welcome to FEMSA's Third Quarter 2020 Results Conference Call. Today, we have an expanded team with us. So Eduardo Padilla is here, as usual; as is Jorge Collazo from Coke FEMSA; but we also have Eugenio Garza; and we are welcoming Francisco Camacho. As you may remember, Eugenio has been in charge of strategic planning and M&A for the last couple of years, and he has now been given broader responsibility for corporate finance, including treasury and tax. For his part, Francisco joined FEMSA very recently as Chief Corporate Officer, bringing with him decades of experience in global CPG companies, including a long trajectory at Danone. You can read a little bit more on his bio in our press release.
And so with that, let me turn the call over to Eugenio.
Thank you, Juan. Hello, everyone. Glad to be with you this morning. The third quarter was again challenging across FEMSA's operations, but it appears we did hit the lockdown-driven bottom in the middle of the second quarter. And from there, we are seeing consistent of a gradual improvement across our business units. At OXXO, same-store sales for the third quarter were still lower than last year, but sequentially, they show a better picture and trend over we just saw 3 months -- just 3 months ago. This reflects a strong average ticket, but still a double-digit contraction in average traffic as mobility remains suppressed, and regulatory restrictions are still broadly in place across Mexico.
Our Health Division had a strong quarter, including a standout performance from our Mexican drug stores, and OXXO Gas saw a sequential improvement in its recovery from a deep trough. For its part, Coca-Cola FEMSA also saw better sequential performance across its operations, delivering growth in its consolidated operating income and showing improved profitability in several key markets.
Moving on to discuss FEMSA's consolidated quarterly numbers. Total revenues during the third quarter decreased 3%, while income from operations decreased 10.1%. On an organic basis, total revenues decreased 7.1%, and income from operations decreased by 14.9%. For this quarter, the difference between reported and organic figures reflects a full quarter of [ AGV ] in Brazil as well as the results of the Jan-San distribution operations in the U.S. While we're on that subject, we should mention that the integration of WAXIE in North America is advancing right on schedule. We recently brought in a new CEO to lead the combined company and execute on the ambitious long-term growth strategy we have for that platform.
Back to FEMSA's results, net income decreased by 51% driven by lower income from operations, as I just described, higher other nonoperating expenses, mainly driven by impairments for certain assets at Coca-Cola FEMSA and a noncash foreign exchange loss related to FEMSA's U.S. dollar-denominated cash position.
In terms of our consolidated net debt position, during the third quarter, it remained stable compared to previous quarter at MXN 73 billion at the end of September. This reflects our disciplined approach to treasury management, always a priority, but even more so in the current environment. Along similar lines, our CapEx was down 28.4% as every operation continued to rationalize noncritical investments.
Moving on to discuss our operations and beginning with FEMSA Comercio's Proximity Division, let me begin by updating you on OXXO store openings. During the third quarter, we opened 139 new stores, and we reopened 126 stores that were being remodeled or receiving major maintenance. At the same time, 82 stores remain temporarily closed, and 108 stores that were underperforming for a short time were permanently closed. As a result, our net number for the third quarter was a plus 75 stores, for a total of 793 net additions in the last 12 months. This is a better number than what we saw in the previous quarter, which, as you recall, was minus 40. More importantly, if we continue to see an improvement in the mobility and consumer demand fronts, this could set the stage for a gradual return to a more robust store expansion in the coming months and quarter. We will certainly keep you posted as our analysis and thinking evolve on this.
Having said that, as we mentioned on our previous call, a portion of our store base remains subject to COVID-19 restrictions and measures that put further pressure on our sales, such as limited time windows to sell alcoholic beverages. As of the end of September, more than 30% of our stores were still under some sort of restriction.
Getting into the numbers, OXXO same-store sales were down 9.1% for the third quarter, a sequential improvement of almost 330 basis points, reflecting a 22% decline in-store traffic and an increase of 16.5% in average customer ticket. This is still far from optimal, but at least it shows a gradual and consistent improvement from the deep levels we saw in the middle of May.
Moving down the income statement. For the third quarter, gross margin contracted by 50 basis points, reflecting a decrease in commercial income that is often linked to sales targets that are not being met in the current low mobility environment. Partially offset by the resilient performance of our services category, income from operations decreased 44% and operating margin contracted 370 basis points, reflecting significant operating deleverage, but again, showing a meaningful sequential improvement.
Moving on to FEMSA Comercio's Health Division. During the third quarter, we expanded our drug store count by 60 net additions to reach a total of 3,249 open units across our territories at the end of September and 119 total net new stores for the last 12 months. Revenues increased 6.4%, while same-store sales increased an average of 7.5% in Mexican pesos, reflecting strong performance of our operations in Mexico as well as positive trends in our Colombian institutional sales and in Chile, where economic activity has picked up recently as consumers have been granted access to a small percentage of their pensions to alleviate lockdown related pressures.
Gross margin expanded by 100 basis points in the quarter, reflecting a positive sales mix effect driven by consumer behavior shifts in connection to the pandemic, more effective collaboration with key supplier partners across all of our operations and better margin performance in our business in Ecuador, where applying Socofar's operational best practices is already bearing fruit. Operating margin expanded 140 basis points, reflecting increased operating leverage and the gross margin expansion I just described.
Moving on to FEMSA Comercio's Fuel Division. We note that vehicle mobility remains well below normal levels. In that context, we are seeing some sequential improvement even as many of our locations skew towards residential neighborhoods. Those are recovering much more slowly than commercial or industrial ones.
During the third quarter, we continued to see pressure on our same-station sales, which decreased almost 32%. Gross margins reached 13.6%, while operating margin was 3.7% of total revenues, reflecting tighter expense controls and better management of our supply chain.
Finally, moving on briefly to Coca-Cola FEMSA. As John highlighted last Monday, even in the context of a moderate revenue contraction, they were able to grow operating income and improved profitability in several markets like Mexico and Central America, while South America continued to recover driven by solid volume growth in Brazil. For more detail, as always, you can listen to the webcast of the quarterly call.
Looking ahead, as a result of incipient recovery trends, we begin to see and after focusing on defense for the past couple of quarters, we are again beginning to think in terms of medium and long-term growth opportunities and are cautiously putting together some place on offense. These include: rekindling of store expansion strategy at OXXO; accelerating our digital initiatives across our platform; and very selectively considering small bolt-on acquisitions in our existing business verticals, always with a focus on prudent capital deployment and value creation. As we continue to move forward towards a new normal, the environment is still fluid, and it's not too clear what normality will eventually look like. We will all have to adapt, and we will need to adjust our approach to market segments following evolving consumer habits and patterns, emphasizing our exposure to some of these segments and rationalizing others.
In the meantime, we will continue to work hard to keep our people and our customers healthy and safe. Once again, we want to highlight the superb job done by our employees and management teams in navigating such a profound and disruptive prices so well. We are not out of it yet, and we expect to face the prolonged economic downturn across markets in the coming quarters, but we take this opportunity to recognize the commitment, resilience, flexibility and agility shown across our organization in the past 7 months.
And with that, we will open the call up for questions. Operator?
[Operator Instructions] We'll now take our first question from Alan Alanis at Santander.
Eduardo, Eugenio, welcome, Francisco, hope you are well and all your families are well. I want to expand on this topic of playing offense. And let me put some context on the question, I mean, it's very clear that the mobility issue and the Reunión location in the OXXO stores is an external environmental changes, call it that way. And I think this is -- the size that you're doing these digital initiatives, rekindling, the word that you used, store expansion strategy and build on acquisitions. I guess my question is, what does that mean in terms of examples and criteria and more specifics in terms of what specifically are you doing to address that drop in mobility in that absence of the Reunión location?
Alan, this is Eduardo. We -- let me just try to exemplify what we -- where we are operating. There are some cities in Plaza where we have now positive growth, same-store sales, positive growth. And there are some others, let's say Puerto Vallarta, where it's still -- they are still negative. So I think it has to do with cities, cities impacted very positively and cities impacted very negatively.
And with that, so you can also face what kind of stores -- I mean the stores that are very close to offices, where the shutdown of offices still exist, they are suffering a lot. So what we are facing is a very diverse performance of stores by city or by segment. And I -- and the neighborhood stores, the Reunión location now is picking up because what we're facing is now people are gathering in their houses, small gatherings compared with big gatherings.
So really what we are have been hurt the most is really snacking or eating outside of the store that people that are in offices and meet in the office to get a snack or to get something to eat. And so it's a great mix of things. So I think the opportunity that we have as we [ de-average ] the performance of OXXO, there are opportunities and some threats. And I think the more we can [ de-average ] and tackle it and make an offense moves in certain cities and certain segment, I think the better off we'll be. Juan?
Yes, Alan, following up on what Eduardo just said, I think for the last couple of quarters, the amount of bandwidth that management was dedicating to deepen, really making sure that people didn't get sick, identifying which stores probably needed to shut down, taking care of cash flows and setting up the control tower so that we were always -- should have liquidity. That's what I think we mean by playing defense.
And what you're seeing now is that kind of reversion -- gradual reversion to normalcy, where you are -- if you're in an 8-hour long meeting with the decision-makers, of course, there's actually a couple of hours that are still dedicated to the defense part of it, but now you're beginning to talk about expansion and how quickly do we turn up -- kind of turn up the volume again on the opening of new stores. You begin to have a lot more conversations again about the digital strategy and what Coke is doing through WhatsApp and what the OXXO guys are doing with their loyalty program and eventual rollout of the fintech application. You're beginning to entertain some small deals on some of the verticals.
So it feels a lot more normal, I would say, to kind of throwback to 9 months ago, and I think that's also what we mean when we say we're gradually shifting from offense to -- from defense to offense.
Got it. And just a quick follow-up on that same topic, I mean, we hear from your suppliers from Bimbo, from [ Dala ], from Coca-Cola FEMSA, Arca and so forth that they're seeing a strong pickup on the traditional mom-and-pop, okay? And OXXO historically has grounded its success by taking share of the mom-and-pops. And these different companies are still saying that the convenience store channel in Mexico, which is basically you also, is still weak. The question is, if the mobility restrictions return, which of this offensive or offense moves would contain the recovery of market share or share of pocket from the consumer that we're seeing in Mexico from the mom-and-pops?
Yes, yes, I think the idea -- this is Juan. Ideally, you should see all channels getting back to normal. And what we're seeing, and this follows up on what was said a few minutes ago, which is in those parts of the country where, let's go to this traffic light mechanism that is in place in Mexico, as you know, when you go from yellow to green, which there's very few parts of the country that have gone to green or really when you go from orange to yellow, we look at those stores in those geographies, our stores, and they recover very, very markedly. So people -- as soon as they go back out on the street, they go to the OXXO store.
And that's, of course, very -- it's comforting in the sense that it's not that people are changing their habits and now they're going to buy everything online or they're -- everybody is going to be Zooming to work. The vast majority of the people in Mexico have to be out and about to perform their work. And what we have seen is that as soon as that returns, people go to the stores.
And I would add, I mean, if we look at same-store sales numbers, obviously, the number that you saw in the press release is 9% for same-store sales. But if we look at the last 4 weeks, so basically the month of October, we're actually in the mid-single digits. Negative, but mid-single digits as opposed to high single digits. So it's a pretty straight-line when you look at middle of May to where we are today. The slope is positive, it's not super steep. But it's been pretty consistent improvement week after week after week, and so that gives us a lot of comfort.
[Operator Instructions]
[Audio Gap]
I had a question with respect to the new frontal label changes, and I was curious if that's having an impact on your mix at all? And around that, are you seeing perhaps new opportunities, particularly in some of the residential markets where you're doing so well in health and wellness categories at OXXO?
I think on the labeling issue, Bob, this is Eugenio, really it's too early to tell how that's going to play out. We've been obviously busy over the past couple of months, making sure our stores have the right SKUs with the right labels and whatnot. So I think it's still too early to tell where that's going to pan out. We've seen other examples of the labeling initiatives in Chile and whatnot and saw little effect in consumer behavior patterns. So we are cautiously optimistic that we'll be able to adapt with the right SKUs to consumer base.
And with regards to health and wellness, of course, I mean, that continues to be a very important focus for our commercial area, making sure that the -- all the categories in the different store formats are attuned to what the consumers are wanting. So we are seeing a slight pickup in terms of healthier options and a better product mix, especially in the home-focused categories.
Yes, and I would add on to what Eugenio just said. This has to be a demand-driven thing. I mean we've had -- for many years, I know that OXXO has tried introducing different types of "healthier" products. And they don't move, right, people don't buy them. And so you really want the consumer, you need the consumer to want to buy these things for everything to work out and for suppliers to eventually reformulate or do -- launch our different products. And as a retailer, obviously, you're agnostic, you will sell what the consumer wants. But those shifts definitely are yet to come. And as Eugenio said, it's way too early to know what the effect is going to be of the labeling.
No, that makes perfect sense. Panchitos over granola every day, right? But more seriously, can you talk a little bit about the performance of some of the new stores, particularly the OXXOs in Mexico? And Eugenio, you mentioned rekindling growth. How are you thinking about that? Is it more of just taking advantage of these plazas where you're seeing the stronger performance and maybe shifting some of the assortments to cater to that at-home demand a little bit more effectively?
Correct, Bob. I mean as Eduardo mentioned earlier before, I mean geographic performance of the stores -- I mean, most of it is driven by geographic issues as well as the restrictions from a governmental perspective, selling alcohol or not. So that, I think is far and away, the most important factor driving the store sales. But as we rekindle the growth going forward, we are going to be focusing on those plazas and those locations. And obviously, shifting our product mix to what makes more sense in this new reality. And if we're to steep geography constant, we are seeing the plazas, obviously, where we will -- we're able to perform -- the mixing of beers perform better than the ones that are not. And again, plazas that are closer to the home segment that are doing a lot better. So again, we are trying to pinpoint with greater accuracy the capital deployment in new stores as we try to get a better performance and a quicker return on our investment. And Eduardo, do you want to add something to that?
Yes. I might add that because of the pandemic, we've been -- the consumer has been -- the conditions have promoted the consumer has tried new things in the store. In fact, that's why the ticket is going up. And I think the -- what we expect really is one that mobility paves a way, that part of the ticket or being high in the high end will stay -- well, it might go down because of the mix of snacking. But again, there are categories that we are selling a lot that we didn't use to sell as much. And with that in mind, I think now the consumer has tried that we have good prices and a good [ preservation ] of those categories, we might end up in a better position than we were at the beginning.
Yes. And I think to exemplify that, and maybe we talked about this a little bit in the last call, but spirits and liquors have been a standout category, where I think people realize when we eventually run out of beer back in May that we actually had very good assortment and pricing of wine and liquors, and that continues to perform very, very strongly. And just generally, what you would call kind of supermarket-type categories, which we have carried, as you know, hundreds or if not even thousands of SKUs of those. But for many consumers, they didn't think of OXXO as a place to go by detergent, for example, or diapers or dog food. And now they are, right? And so that might remain beyond the current pandemic.
We'll take our next question from Álvaro García at BTG.
My question is going to be on the organizational structure. Congrats, Francisco, on a new role. In the release you mentioned, there's different teams that will report sort of into Francisco who internal reports to Eduardo. And I guess my question is maybe if you could expand a bit on the rationale of Francisco's role and whether or not this is part of a broader change in the organizational structure? That would be great.
Basically, what we are trying to do is to have the different people, different -- in different positions in the organization to be ready to jump into operating roles. And we're doing -- by doing this, we're bringing great people to our staff positions to improve our consumer sentiment and also, at the same time, to have people ready where people are getting older and we may need new replacements. So I think that's really the main thing behind it.
And I think, Alberto, this is Juan. One recent, probably useful example is Daniel Rodriguez, right, who joined a few years ago precisely into this role and not too long thereafter, he moved to FEMSA Comercio to head that operation. So I think FEMSA has come a long way. 10 years ago, 15 years ago, it was not very common for FEMSA to find kind of world-class talent outside and bring it in. I think we've gotten a lot better at that, and we're fortunate that we've been able to find executives like Daniel and Francisco. So I think that's probably a useful precedent.
We'll now take our next question from Antonio Hernández at Barclays.
[indiscernible]
Sure. Antonio, it's Eugenio. We've been pleasantly surprised with the performance during the pandemic of both businesses. The Jan-San operations are coming in just as expected, both in terms of revenue, EBITDA and free cash flow. Again, it was not as we planned. I mean certain segments are down, other segments are up. But overall, we are extremely pleased, and we are meeting and exceeding also the synergy targets that we expected in the integration of both platforms. And as I mentioned in my opening comments, we're happy that we were able to find a new CEO for the combined company and are actively looking to expand that platform into the future. So that's going on just as we expect.
The Restaurant Depot, the same thing. I mean we obviously, at the beginning of the pandemic as most other cash and carry formats focused on restaurants, they struggled a little bit, but by the middle of the summer, same-store sales were up as people were changing from going through the broadliners and taking advantage of the cash-and-carry model, convenience and pricing and assortment that the Restaurant Depot offers. So there's -- they're getting share in a smaller pie, but they're gaining share. And at this point, their revenues, EBITDA and cash flows are higher than last year despite the pandemic. So we are very, very pleased with both of our investments and continue to look at them as future capital deployment opportunities.
We'll now take our next question from Carlos Laboy at HSBC.
New talent, new CFO brings a fresh pair of eyes to old issues. And I was hoping you could share your view on 2 big ones. The first one is Coca-Cola FEMSA. So the stock trades at about half of its peers in Europe, and you saw the Amatil deal recently, right, big discount to DCF. The commercial strategy is obviously not the problem, so why do you think the valuation gap exists? But really more importantly, it's -- what do you think is in your control for capturing these $8 billion or so of shareholder value that are in this gap?
And then on the second issue, what thoughts might you have to the idea of returning cash to shareholders or Heineken value back to shareholders? And is there a view emerging at the Board of Directors for how long you might sit on cash around this type of value before you give it back to shareholders?
Carlos, this is Eduardo. Let me go to the very first question. We are very happy of Coca-Cola FEMSA transformation, how the company is improving its performance, its execution. And what we are very optimistic really is with the relation with the Coca-Cola Company, and we are very hopeful that this new organization, the Coca-Cola Company with -- hard stuff is in place and now that the Coca-Cola Company is more opening by selling beer and together, I think there are major opportunities for growth that we are envisioning.
So -- and I think we are working with the Coca-Cola Company to find better whales to align ourselves better with them. And I think we have better understanding of what their needs are, they have better understanding what our needs are. So I think what we are really doing together is aligning better, aligning better and making ourselves more agile to make decisions, to make things happen. And at the same time, the Coca-Cola Company is doing the same.
So I think we are very optimistic about the reservation, we are very optimistic of the market opportunities. So I think it's just a matter -- I mean, the -- the way the Coca-Cola FEMSA has been structured itself, how they've been able to improve their execution. And this functionalization that is in place in Coca-Cola FEMSA by leveraging the expertise of the people that know the stuff so well and deploying this in Latin America, I think we're very hopeful. I think sooner or later, the growth is -- will come back again and being such aligned with the Coca-Cola Company, I think we will be -- we're ambitioning a much better future.
Yes. Just to add on, Carlos, to what Eduardo was saying. I mean from just a portfolio perspective, we -- again, we have no control, obviously, over the stock price. We have control over the management and the strategy of going forward. And we're very happy, as Eduardo said, not only with the alignment we have with the Coca-Cola Company, but the opportunities that still present themselves for growth. Their digital initiatives are helping us penetrate the market in a much better way. And if you look at their equity story, the combination of growth in casual is still -- I mean remarkable. So we continue to see that as a key asset going forward, and it is well round out to our portfolio.
To your second question, Carlos, with regards to Heineken, I mean we are as pragmatic on our Heineken stake as we are with any of our other assets. I mean we continue to have internal targets for returns for -- and valuation for, for each one of an -- of our assets. And we see Heineken at the current stage, and we are very happy shareholders.
And again, we understand that with the tax situation that we're now facing going forward with the dividend, the hurdle for that return has gotten higher from our perspective, but we still believe that at that current levels and the current prices, the performance of the shares in our portfolio and with the mix of our portfolio is a good way not only to continue to deliver growth, but store value.
But I think more importantly, if you look at the verticals where we are right now, Carlos, I mean, that's pretty much it. I mean we -- our fourth platform is now specialized distribution into the U.S., whether it be Jan-San or food. We see very attractive capital deployment opportunities in the double-digit range for add-ons in both segments going forward, so we believe that we have a portfolio with a ton of optionality and also unfortunate from a -- we will be able to eventually show you the numbers that we are seeing in there. But we still believe that there are very accretive value creation opportunities to deploy capital in those 2 verticals.
And again, at some point, we will need to decide what -- how to fund those opportunities on our balance sheet going forward with regards to the rest of the assets. But again, we are very pragmatic. And going back to your point on Heineken, we believe that the current risk-reward situation, the current pricing to stop continues to be attractive to keep it on, and we will evaluate those capital allocation decisions as they come in future.
And Eduardo, just as a follow-up to what you said. Can you comment on the government requests you've made to -- in Colombia to -- at beer to the distribution in Colombia? And also related to that, really, can you shed light on how digital tools with proper governance rules, like the ones that Coke FEMSA has, can enable more cross-category distribution possibilities with multiple brand owners in order to sell more soft drinks better?
Yes. I would say that we are very happy with the Coca-Cola Company. They are happy that we load the beer in the red truck. And it's really a matter of how to make the bottle more efficient in order to grab the market in a better way. And I think those things that probably were things in the past that were -- that we were not aligned in the vision, I think we are very much aligned. And not only beer, but I would say that, also those hard stuff will be a major opportunity. And we are just very much impressed how fast the company has made these decisions, how quick they are deploying it to the different countries in Latin America, and we could not -- I mean, we are very, very happy with it.
And again, just to be precise to what we filed with the Antitrust Commission in Colombia is basically a request to start a pilot program to jointly distribute soft drinks and beer together with [ Robadia ] there, and we'll see how that plays out.
And just clarifying that in Colombia, you file with the antitrust regulators at the beginning of the process instead of at the end. And so we're really just getting started with this.
We'll take our next question from Rodrigo Alcantara at UBS.
My question is related to the labor expenses. So as we will approach the minimum wage discussions in Mexico and looking at the salaries you pay ad hoc, so -- that you don't gain at, appears to me that you perhaps could afford a, let's say, a double-digit increase in minimum wage and would have a meaningful impact on margins. So I just was wondering what's your view regarding labor expenses for 2021. That will be my question.
Rodrigo, let me take a crack at that one. This is Juan. I mean as you know, when the administration, the President came into power a couple of years ago, he had a plan to double the minimum wage during the course of his tenure. And the first couple of years, we have seen double-digit minimum wage increases in the country. We are a little bit isolated or there's a bit of a buffer. At that sense, I understand that not many people actually make the minimum wage. At FEMSA, we tend to -- our employees make more than that. This year, obviously, it's a different -- it's a very different story where you have lots of unemployment. And arguably, the supply and demand equation is different today than it has been in a long, long time. So I wouldn't speculate in terms of what the increase is going to be next year, but certainly, it will have to be something a little bit different than what we did the last couple of years.
Just to add on to that. I mean you have to remember, Rodrigo, that during the pandemic, upwards of 20,000 people employed by OXXO were being paid by us and not working because they were in a vulnerable position or whatnot. So I mean, you're right to say that we need to balance the kind of social aspect with the business aspects, and we've tried to do it in the past. If there's some flexibility, yes, but we, again, need to be careful going forward to make the right balance between the social aspects of the communities we serve and the business aspects of the portfolio of stores.
Also I would say that the -- the very -- in the very first stages of this pandemic, we were forced -- we were -- in order to make the people happy work in the stores, we paid a bonus. We have paid a bonus for several months until we got control of how to make the stores perfectly safe for them. And with that, also, we were making the people that were working in the store were receiving a premium compared with the people who were not working at home.
Understood. That's very helpful. Then last one, very quick. Just to corroborate 2 things. First, on the digital strategy, is it still the plan to deploy this or to disclose this by the first quarter of 2021 as well as the higher disclosure on the other businesses? Is that still the case?
Yes. I mean on the disclosure, yes, the thinking is that first quarter of next year, we will begin to provide you with a P&L for both the legacy logistics business, which is called Solistica and the new Jan-San business. I think we're still analyzing internally how we're going to do that, whether it's going to be the 2 businesses jointly, which are -- there's a lot of similarities among the 2 or separately. But we will do it in a way that doesn't harm the operation because, obviously, in some cases, especially the U.S. business, opening up the margin information, it would probably put them at a disadvantage versus their competitors. So we're looking at how we're going to do that. But either way, the market is going to have visibility into almost $2 billion worth of revenues of those 2 businesses combined. And that's going to happen Q1 of next year.
In terms of the fintech strategy, there's some -- there's a license that needs to be obtained from the regulators, and the pandemic has certainly slowed down some of those processes. So we're -- yes, we originally, as you might remember, we were shooting for end of this year. We are having to push it back to kind of first quarter, maybe first half of next year, but this is more because of external processes that are moving a little bit more slowly than we would hope than us being ready internally.
[Operator Instructions] We'll now take our next question from Luca Cipiccia at Goldman Sachs.
Actually, unfortunately, I had to miss the earlier part of the call, so I'll go back to the transcript and trying to avoid asking what I assume has already been asked. But I'll take the opportunity still.
Maybe a more general question, given the experience of the past few months, the significant volatility across segments and region. I was wondering if maybe you can discuss how do you think about the geographic balance in the portfolio going forward between -- without going into specifics of Heineken discussion or which we all know, it has already been asked. But how do you think -- or has anything changed even in light of this experience on how you think FEMSA's portfolio may evolve, whether it's reducing the concentration in Mexico, continuing to finding opportunities where you sell in the U.S.? As you believe, in the Coca-Cola business would, in spite of the volatility that it had, probably has been more resilient exposure to us in the current context that other business would have been. So I don't know if you can share some thoughts, high-level thoughts on, if not specific operations, but geographic exposure and portfolio balance that could be interesting.
Sure. Luca, it's Eugenio. Thanks for the question. I mean as you're well aware, we -- traditionally, our business platforms are mostly focused in Latin America, where because of business model reasons or more specifically, just macro reasons, most of the businesses had -- and the economies have provided the significant growth organically to provide, I mean, very reasonable returns vis-à-vis the risk involved.
More and more, that risk-reward question in Latin America is getting -- again, I'm not saying it's not there, but it's less attractive than what it was in the past. So slowly, but surely. I mean first is the Heineken -- the sale of Cervecería and the obtention of the Heineken shares in 2010, we started to make that portfolio diversification moving to emerging markets. And as I mentioned in one of the earlier questions, now we have 2 very attractive platforms in developed markets that could allow us to deploy important capital to establish platforms with double-digit return potential because of synergies and the established platform there already.
So again, I'm not saying that we will not continue to invest in the platforms that we have in emerging markets. I mean right now, the highest ROIC investment we could make is the additional lots of stores, so we're well aware of that. But we're being very prudent with the capital allocation across the divisions to make sure that more and more we kilter exposure, again, it's not because we want developed markets just because we don't think it's safe, but to develop markets where we believe because of our skills and the export of the skills into these platforms that we can achieve above market returns in a diversified geography, diversified economy. And I think more and more, you will see that, that prudence in capital allocation, play out.
And those 2 sectors that we have invested really, we see high growth, high profitability. And really, that's why we are really investing in those sectors.
And I think I would add, Luca, it's Juan. I would add, if you look at the last 6 transactions that we did, 4 of those were in Latin America, 2 of them were in the U.S. And on a regular basis, we deploy about $1 billion worth of CapEx just in Mexico. So clearly, that's going to continue to happen. As we go back to more of an expansion path and start opening hundreds of more stores, eventually thousands distribution centers, drugstores, all of that good stuff. So going into the U.S. today, the U.S. represents maybe 5% of our market cap. If we're super successful, maybe we could double that in the medium term. But because we're going to keep investing in Mexico and the rest of Latin America, that will continue to be a very small part of the company.
Again, just to make this point again, the sectors that we're in are the sectors where we will stay. It will just be a shifting around of resources on the sectors, but you should not expect us to be looking at sectors that were not present in today.
Right. So that was my follow up, actually, too. Even, again, staying on the U.S. for recently developed markets, the -- it's unlikely that you're going to be -- there are some limits in what you can do, right? You cannot move with all the verticals that you have. We all know that you cannot do C-stores in the U.S., at least for now. But does it mean that you're not going to open new verticals compared to what you have today? Or there is a possibility that if an opportunity arises, then that's something that you cannot -- that you cannot rule out? Or how should we think about that?
No, I think a message that we've been sharing with the market that I think has been well received, Luca. Because we're very well aware that we have added some complexity to the structure, right? By entering these businesses in the U.S., some of which we haven't really been able to put a lot of information out there, so there's a disclosure shortfall. So we've added complexity to the structure, but the message that we've been sharing with the market is we're basically at the peak complexity, right? This is as complicated as it's going to get. And from now, it's really growing these businesses, capturing the synergies, consolidating market shares, that sort of thing. So more of the blocking and tackling. But yes, this is it. So what you see is what you will continue to see.
[Operator Instructions] We'll now take our next question from Rodrigo Echagaray at Scotiabank.
My question is related to store closures. This quarter, there were more than 100 OXXOs that were permanently closed. I was wondering if you could share some color on how that number looks like relative to prior years? How many stores do you expect to close in the coming quarters? And I guess more importantly, what does that mean for the net new openings for next year and thereafter?
Rodrigo, this is Juan. Yes, I've been reading some of the notes that you and some of your colleagues, competitors have been putting out and just listening to the market, so I'm glad you asked the question. What's happening is basically the -- and this might be true for other companies as well, the pandemic is forcing or -- especially back in May, June, July, really forcing companies to take kind of a hard look at some things that probably we should have looked at before, right? And in our case, it's identifying some stores that were always a little bit marginal, right? Stores that never quite paid their cost of capital, that were kind of a question mark, maybe we give them a little bit more time, they'll pay their cost of capital. Internally, as you know, we look a lot at the EVA metric.
And so what you're seeing, I mean, a lot of those closures -- and I want to be clear, this is not because of what's -- I mean the pandemic has not, all of a sudden, made those stores bad. These are stores that were always kind of on their limit. And we're, in the current context, we're kind of taking the opportunity to say, make the hard choice of, yes, those stores, you should have closed a while ago.
So the message really is, it's not that things have changed structurally that we're not going to be closing a lot more stores, it's really that we're taking this juncture and saying, okay, let's look at things with a very fine kind of a magnifying light and make some tough choices.
But going forward, and I mentioned this in the beginning, this thing with the offense versus defense, we should be going back. And the question is open in terms of how quickly, but we should be going back to a number of openings in Mexico. That's not too far from what we were doing before the pandemic. We'll have to wait and see kind of the demand equation, how that evolves.
And we've also spoken a little bit about international and how that is performing well. Quite frankly, we're optimistic about the international markets, especially Brazil has a chance to become relevant eventually. But I hope that's clear, Rodrigo, that this is not all of a sudden, oh my God, there's a layer, a big layer of stores that we're going to have to close because something changed in the pandemic. But rather, there's a few stores that we probably should have closed before, and we're just kind of using this opportunity to make that tough decision.
Yes. And just to add, I mean, we are about to finish October, and we're very happy with the performance of October, too, because again, October is improving what we have in September. And we'll look for this part of the future.
Yes. And I mean if you look at the P&L of the Proximity Division, when the going is good, everything is better, right? And we mentioned commercial income and the operating leverage equation is very powerful at OXXO. So you need a little bit of improvement in top line, and it does wonders at the bottom line. And so a few points of improvement at the revenue line, which is what we're seeing, should serve us very well down the P&L.
Got it. No, very clear. So I take from your comments that this is definitely not something that should move the needle. I mean we're talking about 100 stores, which is not meaningful relative to the pool, so that's what I was after.
Especially because it shouldn't be kind of a recurring thing year after year, that's very much a punctual thing of now.
[Operator Instructions] There appears to be no further questions, I'll turn it back to you for additional comments.
Well, this is Eduardo, and thank you very much for your attention. And to prove the organization, every once in a while, it's good. I think it's giving the right signals to the organizations that we are here for the good and to keep the stores profitable and getting the growth back again.
Great. Thank you, everyone. With that, we'd like to thank you. Stay safe, and have a great weekend.
Thank you.
Ladies and gentlemen, if you wish to replay webcast for this call, you may do so at FEMSA's Investor Relations website. This concludes our conference for today. Thank you for your participation. Have a nice day. All parties may now disconnect.