Fomento Economico Mexicano SAB de CV
NYSE:FMX
Earnings Call Analysis
Q4-2023 Analysis
Fomento Economico Mexicano SAB de CV
In a year marked by vigorous expansion, the fourth quarter saw the addition of 514 new stores, pushing the annual total to an impressive 1,408, surpassing the set growth targets for 2024. The growth was predominantly driven by the opening of 1,087 new stores in Mexico and 321 in South America, highlighting continued confidence in the long-term prospects of OXXO in various markets. Enhanced by a 6.3% increase in average customer tickets and a 2.1% increase in foot traffic, OXXO's same-store sales climbed by 8.5% in the fourth quarter. However, operational income ticked up by a modest 1%, with an 11.2% operating margin, which contracted by 150 basis points. This was primarily due to escalated labor expenses in Mexico, expected to continue rising with forthcoming regulatory changes in 2024.
For Proximity Europe, local currency revenues grew by 9.5%, translating to a 16.4% surge in peso terms. This expansion was principally fueled by robust performance in the food category and lucrative outcomes from vertical integration, particularly seen in the B2B pretzel business. The region's financial health was further bolstered by a gross margin of 44.9% and an operating margin that expanded by 180 basis points, reaching 5.2%.
The health operations wing faced a mixed bag with 127 net new drugstore launches, bringing the year's final tally to 4,474 units. Revenue growth was modest at 2.6%, with a currency-neutral increase of 9%. Coca-Cola FEMSA, conversely, demonstrated commendable performance with a 6.1% increase in total volume and an 8.1% rise in revenues, supported by enhanced operating income of 7.4% and a solid operating margin of 14.6%.
A notable milestone in the company's digital transformation journey was the attainment of over 1.1 million monthly active users on the Juntos+ platform, with transactions exceeding $2.5 billion for the year. Looking forward, the company plans to leverage its evolving data analytics and artificial intelligence capabilities to spur refined performance and incremental growth across its business verticals.
The company's dedication to sustainability and ethical business practices garnered recognition with its inclusion in the Standard & Poor's Global Sustainability Yearbook for the first time in 2024. Complementing this commitment, the appointment of two new independent directors to the Board exemplifies an ongoing investment in sound governance practices and the infusion of diverse expertise into the company's leadership.
Looking ahead to 2024, the company acknowledges potential challenges such as rising labor costs in Mexico but remains optimistic against the backdrop of increased economic activity and favorable macro trends. The overarching sentiment echoes a balanced anticipation of opportunities and obstacles, with the belief that a focus on value creation for stakeholders will continue to steer the company towards growth.
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Hello, and welcome to FEMSA's Fourth Quarter 2023 Results Conference Call. My name is Melissa, and I will be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions]. I'll now turn the call over to Juan Fonseca, Head of Investor Relations. Please go ahead.
Good morning, everyone. Welcome to FEMSA's Fourth Quarter and Full Year 2023 Results Conference Call. Today, we are joined by Jose Antonio Fernandez, FEMSA's CEO and Executive Chairman of the Board; Paco Camacho, our Chief Corporate Officer; Eugenio Garza, our CFO; and Jorge Collazo, who heads our Investor Relations. The plan today is for Jose Antonio to open the conversation with some high-level comments on the full year as well as the senior organizational changes announced today. Then we'll get a bit more into our strategic progress and business trends, followed by Eugenio who will focus on the results. Finally, we will turn it back to Jose Antonio for some closing remarks and open the call to your questions. So Antonio, please go ahead.
Thank you, Juan. Good morning, everyone. Let me begin by reflecting on a year that was like no other in recent memory, full of activity and new for the company. We kicked things off with the transformational announcement of FEMSA Forward through which we focus our strategy on our 3 core business verticals of retail, what we call also Proximity Health, Coca-Cola FEMSA and digital. We then proceeded to execute on most of its related transactions in record time and with great success, divesting our investment in Heineken through 2 successful transactions as well as our minority stake in Jetro Restaurant Depot, merging employee solutions with BradyIFS while reducing our capital exposure to that asset. The effort is still ongoing as we are in the process of finalizing the remaining divestments. Furthermore, we are poised to begin deploying the capital allocation strategy announced last week that will allow us to increase our leverage towards our stated objective and to avoid to have idle capital on our balance sheet. During 2023, we made significant progress executing on the long-range plan of all our business units and in lenders 3 strategic priorities of accelerating growth, going increasingly digital and balancing our risk return profile. We achieved these strong results by combining the right strategies with the hard work of our remarkable team. On that front, and in order to better leverage the FEMSA Forward strategy, back in September, we made important changes to better align the corporate organization with our more focused structure built around our 3 core business verticals. In that context, and given the strengthening of the management teams of the 3 verticals, today, we announced 2 important changes in our leadership team. Paco Camacho and Eugenio Garza have both made the personal decision that this is the right time for them to finish their cycle at FEMSA and move on to seek new professional challenges with effect at the end of April. Their contributions to our companies have been many and substantial, and we thank and appreciate them today, wishing them continued success in their future endeavors. Martin Arias, who many of you know from his 25 years of fruitful association with FEMSA will become CFO working closely with Eugenio to ensure a seamless transition. And with that, let me turn it over to Paco.
Thank you, Jose Antonio. Good morning, everyone. Let me begin with a couple of updates regarding FEMSA Forward. First, the MIFS Brady transaction announced in August successfully closed at the end of October. And the new company is already operating as a single entity. Second, we have completed the process of carving out and transferring the distribution assets of OXXO and Coca-Cola FEMSA from Solistica to their respective operations. And they are now active Solistica as well as other noncore operations as defined in FEMSA Forward. And finally, we have fine-tuned our capital allocation plans as we informed last week, putting us in a position to begin returning capital to shareholders as we begin to raise our leverage towards our stated objective of 2x net debt to EBITDA, ex cost, which we expect to achieve within 2 to 3 years. Moving on to the results for the fourth quarter. Our numbers continued the positive trend seen during the first 9 months of the year, fully consistent with our strategic priorities and making progress towards the targets set by each business unit's long-range plan. Beginning with Proximity, like we did in our call last quarter, it's helpful to talk for a minute about their own long-range plan and their 4 priorities around which it is built, strengthening the core, developing new growth avenues, developing multiple successful formats and growing the footprint beyond Mexico. Looking at OXXO's fourth quarter results through this lens, we see they again made a strong progress and strengthen work with same-store sales growth of 8.5% against a double-digit comparison base. This performance was again driven by a growth set of tailwinds, including stronger consumer demand for first, gathering and snacking occasions, solid commercial income dynamics, better segmentation of the store and the rapid adoption of the spin premium loyalty program. Continuing with the positive news of a stronger core, store growth was remarkable, with Mexico and LatAm, adding 54 net new stores during the quarter and 1,408 during the past 12 months. Looking only at Mexico, we surpassed the 1,000 new store threshold for the first time since before the COVID pandemic, adding 1,087 net openings. Moving on to the long-range priority of growing beyond Mexico. During the quarter, Grupo NOS continued its solid advance with revenues increasing over 119% year-over-year and with OXXO footprint in Brazil more than doubling during the last 12 months, reaching 1,716 stores at the end of 2023. Sealing on Proximity Americas, but along the priority of developing multiple successful formats, BARA grew revenues by 33.7% and reached a total of 359 stores at the end of the quarter. We will increasingly talk about other successful formats that are gathering momentum, such as our coffee drive-thrus, our specialized OXXO smart stores for controlling environment and our traditional trade initiatives. For its part, Proximity Europe achieving a strong operating result with substantial growth in a challenging macroeconomic environment. This was driven by higher sales in the food category and the favorable effect from vertical integration. Revenues increased by a strong 16.4%, generating operating leverage. As of the end of the year, Proximity Europe had 2,808 points of sales, a net increase of 42 units over the comparable period. Our health operations showed mixed performance trends and again reflected foreign exchange headwinds from a strong Mexican peso relative to local currencies in South America. In Colombia, we are gradually shifting our business towards more retail and less institutional exposure. Given the challenges in the institutional health industry is pain in the current political environment. While in Mexico, we continue to see competitive retail activity across territories. In both cases, adjustment of our strategy are in progress, and we will keep you appraised. In line with our evolving strategy, during the quarter, our Health business continued to push the consolidated competitive position in retail across markets, increasing its store footprint to reach a total of 4,474 locations. In fact, during 2023, our Shell vision added new locations across its territories a pace of approximately 1 per day. For its part, our fuel business delivered a strong set of results with our dynamic corporate wholesale business continuing to outperform relative to retail. Comparable sales were up with good contribution from traffic and ticket growth. Regarding digital at FEMSA, the number of active users for Steam by OXXO reached 6.9 million during the quarter, an active user for our premium loyalty program reached 19.3 million. Importantly, approximately 31% of OXXO Mexico sales are now associated with the program. We continue to privilege the acquisition of higher-quality users while we make progress by tuning the use cases, value propositions, unit economics and monetization strategies for each part of the ecosystem. In terms of financial implications, during the quarter, we deployed around MXN 1 billion on growing this business, roughly in line with the previous quarter as well as budget. Finally, Coca-Cola FEMSA delivered a remarkable set of results for the fourth quarter, driven by Mexico, Brazil, Colombia and Guatemala, enabling costs to surpass 4-billion-unit cases of non-alcoholic ready-to-drink beverages for the full year. And with that, let me turn it over to Eugenio.
Thanks, Paco. Good morning, everyone. As we continue to execute on our FEMSA Forward strategy, we've made some adjustments to the statements throughout the year to reflect the divestiture of our noncore businesses. During the fourth quarter, we acquired Apunto and the third-party component of Solistica as discontinued operations. To maintain comparability, we modified our consolidated financial statements for the fourth quarter of 2022 to reflect this change. Let's begin with FEMSA's quarterly consolidated results. During the fourth quarter, total revenues increased 4.6% and EBITDA rose 3.6% compared to the fourth quarter of 2022. Net consolidated income decreased 20.7% and stood at MXN 6.3 billion, resulting from higher gross profit and lower net interest expenses during the quarter. This was offset by a noncash foreign exchange loss of MXN 6.3 billion related to our U.S. dollar-denominated cash position and impacted by the depreciation of the Mexican peso and a MXN 3.2 billion net loss from discontinued operations, mostly reflecting the accounting remeasurement from historical cost to fair value of FEMSA's investment in Solistica and Apunto net of impairments. Shifting gears to our business unit results and starting with Proximity Americas. During the fourth quarter, we incorporated 514 stores, bringing our total to 1,408 new stores for 2024, which includes 1,087 new stores in Mexico and 321 in South America. This robust growth has propelled us beyond our annual growth target, renewing our confidence that our growth runway remains long for OXXO across all markets, and the opportunity for our multi-format strategy is equally compelling. OXXO same-store sales increased 8.5% in the fourth quarter, cycling strong double-digit growth from the same quarter of last year. This result was led by a 6.3% increase in average customer ticket and a 2.1% increase in traffic as the trend gradually reverts to more sustainable levels after 8 consecutive quarters of double-digit growth. Gross margin grew 17.2%, an expansion of 120 basis points, led by healthy commercial income dynamics and higher income from financial services. Income from operations rose by only 1%, reflecting an operating margin of 11.2%, a contraction of 150 basis points driven mainly by higher labor expenses in Mexico, including adjustments made ahead of further regulatory changes expected during 2024. Moving on to Proximity Europe. Total revenues grew by 9.5% in local currency, resulting in 16.4% growth in peso terms, boosted by the food category across all units and the positive effect of vertical integration, particularly through the B2B pretzel business. Gross margin stood at 44.9%, while operating margin expanded by 180 basis points to reach 5.2%, reflecting the same drivers that supported revenue growth as well as higher promotional income. Turning to FEMSA's health operations. We expanded by 127 net new drug store additions during the fourth quarter to reach a total of 4,474 units across our territories in 2023. Total revenues increased 2.6%, while same-store sales grew 5.1% in Mexican pesos. On a currency-neutral basis, revenues and same-store sales increased by 9% and 3.1%, respectively, driven by a positive performance across most of our territories, which was partially offset by a challenging macroeconomic environment in Colombia and Ecuador. Beyond the top line, however, gross margin decreased 110 basis points, and operating margin was down 240 basis points, largely reflecting a deteriorating environment in the Colombian institutional business, where we took a charge of MXN 527 billion for uncollectible accounts. As a result of the structural headwinds, we are actively evolving our Colombian operations to rely more on a dynamic and fast-growing retail components and less on the structurally complex institutional operations. Moving on to GAS. Same-station sales increased 4.8% and total revenue grew by 9% as we continue to develop our corporate business. During the quarter, gross margin was 13.4% and operating margin was 4.6%, reflecting tight expense control and operational efficiencies. Finally, moving on to Coca-Cola FEMSA that again delivered an outstanding set of results in the fourth quarter. Total volume increased 6.1%, driven by growth across most of its territories. Total revenues grew 8.1% and operating income grew 7.4%, while operating margin was 14.6%. On a more strategic note, they did reach a milestone in their digital transformation journey, reaching more than 1.1 million monthly active users through the Juntos+ platform with more than $2.5 billion for the year. You can listen to the replay of the conference call held yesterday in their website. Now let me turn it back to Jose Antonio for some closing remarks. Go ahead, Jose Antonio.
Thank you, Eugenio. Before we close, let me talk a little about our progress on our sustainability efforts during 2023. As we made progress on several fronts, as an example, in recognition of our ongoing efforts to advance our sustainability agenda, FEMSA was included in the Standard & Poor's Global Sustainability Yearbook for the first time in 2024. We were [indiscernible] continuous improvement in water management, resource efficiency, packaging circularity and business integrity metrics. The Yearbook recognizes corporations that serve as a reference in global sustainability standards. And on the governance front, we continue to evolve the composition of our Board of Directors with the nomination this year of 2 new independent directors: [ Elaine stock and Olga Gonzalez Ponte ]. They are remarkable executives, whose experience acumen and expertise will surely benefit our company for years to come. No recap of 2023 could be completed without mentioning our great friend, Daniel Rodriguez. For all the strategic success and operational achievements we have talked about today, our hearts and are heavy and are Moody's tempered by Daniel departing. Daniel was key in defining the strategy and setting these positive trends in motion, and we hope we are making him proud today. As we look ahead, we are fortunate to have a broad set of opportunities to continue growing in every one of our core verticals. There is no doubt that the year that begins will bring some headwinds such as higher labor costs in Mexico, but also the tailwinds of higher economic activity from an electoral period in the short term and from encouraging macro trends like nearshoring and in the medium to long term. Across our markets, we will again navigate a mix of challenges and opportunities and I have no doubt that we will again find a way to drive and create value for all our stakeholders. We start 2024, keeping our eye on the ball as we carry good momentum into what will surely be another interesting year. All our business units are well positioned for continued growth, and I am particularly excited to see the many ways in which we will continue to apply our growing data analytics and AI capabilities to drive better performance and incremental growth across our 3 core verticals. We are just getting started. Finally, I want to take this opportunity to thank our entire team for a job well done in 2023 and to thank all of you joining us today for our continued support and interest in our company. And with that, we are ready to open the call for questions.
[Operator Instructions]. Our first question comes from Ben Theurer from Barclays.
Just wanted to follow up a little bit on the performance at OXXO, the same-store sales composition in particular. Could you talk a little bit about the deceleration sequentially that you saw in store traffic? Because obviously, we had a fairly strong fairly strong first 9-month period with same-store sales growing somewhere in the mid-single digits on the track side, but now it came down and even with the base comparison that wasn't too high. So any color you can share on that, that would be much appreciated.
Sure, Ben. I think it has to do mostly with the fact that we had a very strong fourth quarter last year related to the World Cup and other events coming due. So there's a fair bit of that. So that, call it, excess traffic from last year did not repeat. Having said that, the underlying trend in traffic, if you see the services category, that is coming up significantly. So it's a little bit of a mix of both. And fortunately, the average ticket continues to maintain at a much higher level than it did pre-pandemic given the change in customer testing. And I think that combination is what I think drove same-store sales to their fantastic performance throughout the year. But specifically, fourth quarter has to do with lapping of the World Cup and a change in the composition of that traffic.
And also just to add a couple of things and provide some more color on that. Structurally, the performance of the stores is very strong, and we saw very good performance across segments and across categories. And obviously, that also generates a strong performance in the traffic. So we feel confident about the structural, the traffic trend being strong and as we enter into 2024.
Yes. I would just add, Ben, this is Juan. To be honest, I expected this to happen back in April. If you remember at the call back in April, where I was already guiding people to not put a double-digit same-store sales number in their model. And then I was wrong for 3 quarters, but eventually, the math catches up with you. I think you're also looking at what was a very long recovery post COVID. I mean the traffic fell off a cliff in '20, and it's been coming back. And there's a lot of sort as was saying, I mean, segmentation of the stores and the drivers for growth are very much in place. But I think the mix that we see today is a more normal mix, quite frankly, and more looking forward, I think our mix is going to look more like what we reported today than the 6%, 7%, 8% that we were showing 3 or 6 months ago.
Our next question is from Ricardo Alves with Morgan Stanley.
Question on the senior management change. If you could add more details, for instance, on the timing, particularly now in the middle of the FEMSA Forward just to make sure that everything is aligned with the Board and so forth. We also noticed that in the part of the release, you mentioned that Eugenio will launch the implementation of the capital allocation elements. Can you tell us what that means exactly? Is that related to the buyback specific? And then it also states that Eugenio will remain as an adviser. And if that would be related to the second stage of the Envoy that we discussed at length last year or maybe new ventures in the U.S., so curious if you can elaborate to the extent possible, a little bit more on the CFO and the and Paco move as well, evidently very relevant for today. And a follow-up to that question would be on the shareholder return and on the buyback point that I mentioned. The doubling of the authorization, the $2 billion or whatever the number is pretty significant. But we all know that there has been very limited activity to no activity depending on the time frame. So now that the announcement is behind us, can you share with us the key hurdles or the accounting flexibility that you now seem to have overcome so that you are now really confident that you're going to be able to be active on the buybacks? Is there a timing for us to be expecting more activity there? So just a little bit more granularity on the buyback component. Sorry for the long question.
Well, I will start with the first part of the question, and we'll let Eugenio and Paco to explain the second part. But on the first part, that we have agreed with Paco and Eugenio is that they will stay with us helping until the end of April. By then, and starting next week, Martin Arias is already fully involved going to start fully involved. And the transition of Eugenio and Martin will go very smoothly. At the same time, Eugenio, offered us to continue as an adviser per project. And yes, there could be some projects that we could do of investments or new investments that we could do and obviously, to put in an eye and advising us on all the capital allocation strategy that we have designed and have presented to you recently. On the rest, I will ask Eugenio to explain.
Sure, Ricardo. Yes, definitely, what I'm going to be more focused on over the next couple of months during the transition with Martin is on the implementation of the capital return portion of the capital allocation program we announced last week. So it does have to do with share repurchases and continually monitoring the investments, both in organic and organic investments as we aim to reach that 2x net debt to EBITDA over the next few months. So to your question with regards to the timing of the share repurchases, with the announcement behind us, clearly now we will start to have an open to start to use that more heavily. What we will be asking the shareholder meeting in March is to increase the capacity that we currently have. But again, we have capacity currently in place to start to operate as soon as next week. So we will be implementing that capital return strategy, as we mentioned in the release last week in a way that maximizes per share value from an intrinsic perspective in the long term. So that will be a combination of both share buybacks and extraordinary dividends. As you saw, we already started with our first one, and there will be additional ones to come. If indeed, we realize that through the operating environment, we're not able to reach the 2x net debt-to-EBITDA on our own. So those will be the levers that we will be pulling. Again, with me at the helm for the next couple of months and then with Martin and the rest of the team helping him going forward.
I would like to add, Ricardo, this is Juan. Since we did not have a call dedicated to the capital allocation release, so the fact that we're all here today. I understand that there may be some questions and yours is the first one, on continuity. And so I would like to ensure that the strategy that was communicated last week is fully in place, that the 2x net debt-to-EBITDA target is fully in place and that there will be no deviation from that. So I just wanted to put that out there because I know that the concern is going to be among investors.
Our next question is from Alvaro Garcia of BTG Pactual.
Eugenio and Paco, all the best going forward. My question is on labor costs in Mexico. I know that FEMSA has a philosophy of paying more than the street to paying more than competitors or similar outlets, and that's very much true of OXXO. I'm just curious of where we are in that process of upping pay for your employee base at OXXO. How much more difficult has it been to get that premium and what's your outlook for labor cost into 2024?
Let me start and then I will let the team provide further perspective. But I guess that what we need to keep in mind when it comes to cost management, particularly in OXXO, and understanding that the labor costs, specifically the labor cost during the last year was, I would say, a special situation versus other years because of its magnitude. But the reality what we need to keep in mind is that OXXO is extremely good at working consistently on making our operations more efficient. So the team has been focused on making sure that all the verticals and all the possibilities that they usually explore as part of the way they do their operations of the stores continue to progress towards further efficiencies. And I guess that has to do with store management, that has to do with headcount, that has to do with how we look into the specific costs in the stores. So this is just to reassure you that structurally speaking, and the way we approach this in the stores hasn't changed. We will continue to do so. And evidently, every time something like this comes, the teams double the efforts on maximizing the efficiency. But for 2024, we have included the increases in the plan and we are confident that we can deliver on those plans as we enter the year. Eugenio, do you want to add something on that?
I would add one thing, Alvaro, this is Juan. Just because when you look at the numbers and you look at the OXXO P&L, and we're making some comments about how the operating margin was impacted by, among other things, but largely by the labor cost situation. And so in terms of 2024, I just want to put out there, I hate to call it guidance, but our expectation is that operating margins for the year will be flat. That's our base case. So I think the year is going to start a little bit softer, and it's going to gather strength as the year goes by. But for the full 2024, our expectation is for operating margins to be flat for also Mexico. And I think that's an important data point.
Our next question is from Hector Maya of Scotiabank.
So I just wanted to know about your update of the FEMSA Forward plan. We saw that the execution and the investments have come ahead of time and it was exceeding expectations. So just wanted to understand why you considered it was necessary to expand the time line window for cash deployment by an additional year potentially? And would that be because maybe M&A opportunity to take longer to appear? Or is there a concern for either the economic or political environment in your operations that drove the decision to keep a relevant cash position for a little longer?
It's Eugenio here. Look, really, nothing has changed from what we said last year, and we continue to reiterate it. We are going to get to the 2x net debt to EBITDA. We can get there in several ways. One is through special dividends, the other one is through share repurchases, and the other one will be through organic and inorganic investments. At this point, yes, we're sitting on a pile of cash that's accumulated at a higher pace than we expected because of the success that we've had with the divestiture so far. There will be more of that cash, both from the remaining sales of the remaining assets as well as the Jetro Estate, which we sold in installments. And the operations will also be generating cash. So we are, I mean, painfully aware of the problem of holding too much cash. Having said that, we want to deploy it in a smart way that maximizes long-term intrinsic per share value. So I think still within the range of the same 2 to 3 years, we will get to the 2x net debt-to-EBITDA. It makes us, to be honest, feel a little bit more comfortable holding on to the cash right now at 5% interest rates that we're investing it in rather than where it was 2 years ago. So we're being patient as opportunities arise. But again, even if we do see inorganic opportunities, we've stated, there will be in the core business verticals that we identified on the FEMSA Forward, and they will be financially accretive to long-term intrinsic pressure value. So we want to maximize that flexibility that we have to invest across our businesses and in the best investment that we have, which is our own share and get to that 2x net debt-to-EBITDA in due course.
That's very clear. And also the conversation around the hard discount category and private label has been very hot right now, very active. So just also wanted to understand if we could expect your strategy with Bara to become more aggressive in the future? And how relevant could private label become for your overall strategy and maybe even for OXXO?
So, Hector, just to answer that very quickly and continue with the questions from the rest of the attendance. Look, as you know, and as we highlighted in the opening remarks, clearly, one of the strategies that we are following in Proximity, and we have stated before is more is in Bara. Bara is an important component of the format vertical. But we reported has had very strong growth in 2023 and our intention is to continue strengthening that business in 2024 and in the years to come. Private label is a very important part of the question of that business. It has been performing really well. So what we are doing and what we have explained we're intending to do in that business has nothing to do with the recent announcements on that part in that segment of the retail. But basically just following the strategy we have highlighted before. And to your point, I mean, clearly, private label is an important component. We are doing very well in that segment of the business in the results we posted and the intention is to continue doing the same in the years to come.
No, I was just going to say on Bara, we're happy that the market is recognizing the value in hard discount, and there's a long, long way in that format ahead. And again, we're happy that now the market has another view into how that business is performing, and that will continue to be friendly competitors in the market.
Let me just add. I don't know if you are aware, we hired a new director for that area called [ Paco Ganell ], who is an expert on this kind of multi-format and hard discount stores. And he has been here for the last 3 or 4 months already, and he is completely convinced that the potential of our Bara project is now ready to jump and to grow fast with under him. So we are really looking for how to develop and to grow all over with Bara as we speak.
Our next question is from Alan Alanis with Santander.
Best of lucks to Paco and Eugenio. Let me put some context to the question first. I mean [ Salsa's ] share is down 9% this morning in the first hour of trading. That's $4 billion of lost market cap. And I think that the market is reading 3 negative things on this. First, the uncertainty of the CapEx, and that will be my question. I'll come back to that in a moment. The second, the unexpected management changes. I mean, and to know Martin Arias, I think he's super competent and I'm sure he's going to do a very good job, but the market doesn't know him yet. And the results regarding the margin contraction and the disappointment same-store sales. I think what would be very useful in this call, Jose Antonio and team, is to elaborate a bit more in terms of how are you going to deploy $4 billion in the next 5 years of which you indicated that 70% of that is going to go to Mexico. That means that on average, you will be getting $2 billion invested in Mexico. How are you thinking about that in terms of in which provisions, which sectors? And how much of that money is going to also Spin, and the aspirations that you have at OXXO Spin? That would be my question.
Yes. Look, I think that we need to go back to answer your question to go back to what we announced during FEMSA Forward. Because strategically speaking, we announced that we are committed to our 3 core verticals, basically retail, digital and Coca-Cola FEMSA. So you should expect that the discipline that we will have in terms of deploying capital is going to be fully aligned to this strategy that we announced. So anything that we do will, first of all, be consistent with that. But second, importantly, we'll be extremely disciplined on how we select potential inorganic opportunities moving forward.
Yes. Let me add something on the CapEx. This is Juan. I mean if you look at cross formats and a lot of what you see is going to be deployed in organic expansion. What we're seeing, I mean, obviously, in Mexico, we've talked about the runway, but what we're seeing in multi-format and what we're seeing in other geographies is very, very compelling opportunities to accelerate the pace of growth. Even today and we'll detail this over the next months and quarters. But even today, if you look across all retail formats, we are opening in the order of 7 units per day. If you think about OXXO here, OXXO South America drug stores, OXXO Smarts, coffee drive-thrus, it's going to ramp up from an already very dynamic place. And that's really a big part of the CapEx numbers. I mean don't straight line horizontally, but rather straight-line it as with a slope because that's what you're going to see. If you think about Colombia, we're about to accelerate significantly in Colombia. I was in Brazil a couple of weeks ago, the opportunity for Grupo NOS is fantastic. So a lot of the CapEx is really going to take the form of stores and DCs and distribution assets. We've said in the past on the M&A front, we're looking for a potential entry model into the U.S. on convenience. Everybody knows that. We've been looking for droppers in Mexico that's proven a bit more elusive. And that's pretty much it in terms of what we've identified at this point. Do we like our flexibility? Sure. But it's mostly about organic growth, Alan. And I've done a lot of questions. We've gone a lot of questions about the bigger CapEx number that we communicated last week. So hopefully, this helps understand where that capital is going.
Yes. And final question here. I mean, what do you think investors are missing with such an abrupt reaction? And how important is that stock price for the controlling group for management and so forth. What is the market missing? Maybe I missed the agnostic, the reason why the stock is down 9% today, but any color on that would be for clarifying and hearing you as managers and to shareholders? That will be helpful.
Alan, you know us very well, and you know that we all think long term. And we will continue being very disciplined on our strategy. FEMSA Forward has huge potential. Cash is king. We always have said that. You remember Eugenio saying that. And then Eugenio also said that the opportunities that we, and we have to keep both the cash, some cash for doing new projects. Coca-Cola FEMSA as Ben mentioned, that is going to invest the largest CapEx in history. Because of lack of capacity we lost volumes this year because we didn't have enough capacity in certain places. We have to feed that. So we are going to have a huge investment in capacity in Coca-Cola in various countries. And obviously, we will still go looking for good opportunities on our 3 verticals. Our intention is there, we go all the way to 2x EBITDA and divest as much as possible or repurchase as possible on shares because that gives back dividends because we don't like to have idle resources just getting very low interest rates.
[Operator Instructions] Our next question is from Thiago Bortoluci with Goldman Sachs.
Let me just catch back one mentioned from one related to the target leverage of tons committed to that no deviations. I think one of the reasons for the volatility we're seeing is lack of visibility on how you will get there. You are mentioning 2x leverage. This might give you $7 billion, $8 billion in excess cash. But at the same time, you were mentioning you were committing to give back up to 6% of our market cap, which is 3%. How will we add back to 2x? And to where this incremental $4 billion, $5 billion might be going? This is the first question. And if I may just take advantage of Jose Antonio being in the call. Jose Antonio, today, you have 2 interim positions, the CEO and the CFO. How is the Board thinking about this and how important it might be to fill definitely this positions in order to keep the plan moving forward? That was the question.
I'll start with the first one, and then I'll turn it off to Jose Antonio. Yes, my math is a little bit different than yours, but ballpark is the same. I think to get times, we're talking about a number close to $6 billion, $6.5 billion in that neighborhood. Thiago, and yes, 6% of the market cap as of last week was $3 billion. So there is still some undefined allocation of resources. Having said that, we still believe we're going to get to 2x and that excess amount plus the cash that will come in from the operations will be looked at very closely between organic, inorganic and additional return to shareholders. So it's going to be a mix of all of that, that will get us to 2x. I understand the anxiety about not being at all spelled out in stone about where that additional $3 billion to $4 billion are going. But the commitment is to get them 2x while maximizing shareholder value. So we don't have all the answers yet. What we can tell you is that at least the $3 billion will go to shareholder return at this point. And the rest, we will deal with it as opportunities arise.
And let me just comment on that before Jose Antonio. Another way of what Eugenio just said is and this is a question we've been getting, could there be some upside to the $3 billion? And I think Eugenio just said in other words, yes. But like I said a few minutes ago, we really value a little bit of flexibility, and so those questions will be answered over the next couple of years.
And on the second question that you had, we have discussed this at length with the Board and we have agreed that on the CEO position, I am willing and open I'm very happy to stay for at least 24 months as CEO and Chairman at the same time and making this effort. I'm enjoying it, and I will stay doing it. While we are going to start the process of looking for a new CFO. As you could imagine, it will take hopefully less than a year or maybe a year or 18 months at the most, but we will find a new CFO for the company. As we speak, we will start the process of looking for them.
And then just to be more clear about the -- and I'm sure Paco will have his own views. But I think in my personal decision. To leave the company at this point has more to do with my personal interest. I think the skills that I brought to bear were put in place during the FEMSA Forward program over the past 18 months, and we and the team had, I mean, a lot of success doing it. And at least for me, it's on to the next project. So nothing more than that, and I'll continue to be close to the company as an adviser over the next few years, hopefully.
Yes. And, Thiago, taking the opportunity also, this is Paco. Look, I'm extremely proud of what the team has accomplished in FEMSA developing the long-range plan, having a clear perspective on what the future looks like. And in reality, my decision is something that I didn't take that lightly. I mean, it's exclusively related to what I want to do with the next station in my professional career. Same face, an incredible time with a bright long-term perspective that I will certainly is. I will miss the team, I will miss Jose Antonio, I will miss everybody here. And the prospects of our company, I believe, are brighter than ever. So that made the decision even more difficult. But again, it's exclusively personal and FEMSA will always be a highlight in my over 35-year career in many big companies and FEMSA clearly stays at the top of that. Thank you.
And we also miss the both of you.
Our next question is from Luis Willard with GBM.
Perfect. So my question is quite mundane and perhaps I'm reading this all wrong, but I just wanted to ask you if you could go over a bit on the changes that you mentioned in your remarks, Eugenio I think it was you, about the disconsolidation of operations? Because I mean, you're reporting on a consolidated base of 4.6% growth in sales. But if you look each of the subsidiaries that you break down, all of them in pesos grow, except for health, all of them grow above that average. So I just wanted to make sure that I'm reading this correctly in the year that perhaps there's some deconsolidation that's not registered in the base, but it is the 4Q '23 numbers. Is that correct? Or what am I missing on the let's say, undisclosed breakdown of that?
Yes, Luis, we can touch base offline if you want to walk you through the exact numbers. But there were, as you know, because of the peso, some currency mismatches depending on whether you're looking at it on a currency-neutral basis or on a peso basis, some numbers are weird, especially this quarter in a lot of the lines, including the noncash items and the taxes. And then there is also the deconsolidation as you well said. It doesn't move the needle that much, but at the margin, it does. We deconsolidated both the El Punto business as well as the part of the Solistica business that is in the process of being divested right now. But yes, those averages to work out in the 4% number after all these adjustments is correct. Despite the fact that the retail businesses and most of the other businesses are growing higher than that average.
Our next question is from Luis Yance with Santander.
Good luck, Paco and Eugenio on the next projects. My question is a follow-up on what Alvaro asked about the margin pressure and I guess, and particularly driven by the pressure on labor. I mean, could you talk a little bit about where exactly did that pressure come in the fourth quarter? Was it perhaps preparing for the minimum wage increases? Is it related to, I guess, the vacation or the pension reform that has an impact there? And you did mention that also part of it has to do with adjustments ahead of expected regulatory changes. I guess you meant perhaps the potential change in working hours. So just trying to understand a little bit what drove the additional pressure in the fourth quarter. And I guess a related question to it is. Juan mentioned that -- and I appreciate the color on the margins being kind of maybe flat for this year, but maybe start soft and get better. Just trying to understand what would be the driver of the improvements in margin as we move towards the second half of the year? And I guess related to that, but also on Proximity, I mean, very strong margins on the European side of the equation. Just wondering what we saw there is like a sustainable level that we should think going forward?
Let me start. It's Juan, Luis, on the margin pressure in Proximity Americas. On a like-for-like basis, what you said is correct. I mean, we are contemplating. We already obviously implemented all the changes related to labor reform, including vacations and whatnot, keeping up in place with just minimum wage increases and others. So that is, I think, the driver of the like-for-like comparison. But you have to remember that on top of that, we are starting a multi-format business that is quite ambitious as well. So there are a lot of staffing needs, new facilities that we're starting up, et cetera, that are coming up as well as all the other costs, which, as you know, we don't capitalize on the balance sheet. So it's a little bit of a mixed bag. On a like-for-like basis, it explains, I would say, maybe half of the effect, but the other one has to do more with how we're ramping up for that.
Yes. And I think the word you mentioned, Luis, is preparing for. Obviously, there are still some uncertainties in terms of the lawmaking and some potential changes to the labor law that we are obviously all monitoring closely, but there's a lot of getting ready for '24 that took place in '23. And in the case of Europe, I mean, I think this was a very good quarter. I wouldn't necessarily expect all quarters to be that strong. There are some currency issues that work too. I mean if you look at the numbers in local currency, it's a high single digit as opposed to a double-digit top line growth. But having said all that, there's no question that the team in Bara is executing very well in the midst of a challenging environment. So very encouraging.
But again, and this is Paco. I guess that the overarching element of all this is that structurally, the teams have done a terrific job both on this side in Americas, but also in Europe in terms of strengthening the operation itself to make it more efficient. And that's, as you know, those are things that stay and that we need to keep in mind.
Great. And maybe as a follow-up, I know you've done most of the divestitures at least the big ones. I mean, there's still a few noncore assets that you've mentioned in the past that you're willing to sell. Any updates on that? And can we expect that to perhaps being achieved this year as well?
Yes. We're cautiously optimistic that they will get done, I mean, much earlier than what we expected and probably faster than most people think. So we're making good progress on that. Thank you very much.
[Operator Instructions]. And our next question is from Federico Galassi with TRG.
One question related and you took this part of the answer, if you want. But the question is related to Mexico and same-store sales in the different formats that you have, you're talking about ops, et cetera. But we believe that this is more related with any format in particular? Or do you see some deceleration in the consumer in Mexico. Maybe if you can explain Abetas what are you seeing in the health care business when do you have 2 quarters of -- again in Mexico, two quarters of negative signs. That's the question.
I mean the first part of the question, just with regards to Mexico, the consumer continues to be strong. I mean you're seeing it, again, on a lapping basis, maybe the traffic is not as strong. But on an absolute basis and compared to what we saw and I mean, for a long time, the consumer continues to have cash available and at least with the everyday items that we sell at of. So we continue to see strength there and the margin pressure, again, has to do more with what we just discussed on labor, and it's consistent throughout all formats. I wouldn't say it's specific to either a hard discount or proximity. And then with regards to your second question on health, we are seeing a more aggressive competitive environment, generally speaking. In Mexico, expansion of stores of our competition continues to be at a very healthy pace. We're keeping up, but you're seeing a much healthier competitive environment and different value propositions propping up that are making the operating environment a little bit more challenging from a gross margin perspective.
Yes. Federico, just to add a couple of additional points, this is Paco. Look, I mean, when you look at the results, Mexico posted very strong results. And when you look at Proximity, when you look at Coca-Cola FEMSA, we didn't talk a lot about digital, but we have a very good results. So in general, the businesses are doing really well. The situation with health is function, and it happens every now and then, you have a competitive situation or you have a specific plan that even as you were thinking. In this case, I mean, really, as Eugenio said, it's something related to how active competition has been. Honestly, it's good news because that means that the market is healthy, that we are in an interesting segment of the market. And the teams are working on adjusting our strategies to phrase that. Honestly, we are confident that the situation will get better. But again, we are not concerned on how the business is not performing in Mexico. On the contrary, we remain confident that 2024, even though we have some headwinds as usual, but we'll deploy where LRPs, we'll deploy the plan and we should expect good results.
Yes. And I would add, Fede. I mean, we mentioned it in the remarks, but Mexico and Colombia, on the health side, yes, there have been some issues in terms of competitive landscape and shift from institutional to retail in the case of Colombia. But in both cases, the strategies are defined, and we're starting to address that very, very diligently. So hopefully, in the not-too-distant future, we'll have different things to report on both fronts.
Thanks, everyone, for attending today, for your permanent interest in our company. Obviously, the team and I are always available for follow-ups, and we'll be in touch. Thank you.
Thank you very much. That concludes today's conference. You may now disconnect. Hosts, you may stay on the line.