Good day, and welcome to the Grupo Bimbo Second Quarter 2023 Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. And to withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Daniel Servitje, Chief Executive Officer. Please go ahead, sir. Thank you very much. Good afternoon, everyone. Thank you for joining us. Connected on the line today is our CFO, Diego Gaxiola, our COO, Rafael Pamias, Mark Bendix, Executive Vice President, and several members of our finance team. I'm very proud of the remarkable results of the quarter. Despite the FX rate effect and a highly inflationary environment, we reached record levels of sales and EBITDA, growing more than 4% and nearly 8% respectively. Excluding FX effect, net sales grew at a double-digit rate, while the Adjusted EBITDA margin expanded 60 basis points. The Bimbo QSR and Bimbo Brasil organizations outperformed. We saw strong sales growth and EBITDA margin expansion in all four regions, even considering the continued high inflation, specifically in commodities and labor. This is a result of the strength of our brands and the hard work of our associates, who have done an outstanding job at the execution at the point of sale, with laser focus on baking and snack industries. We are committed to achieving our year-end objectives. We continue to invest in our business to expand our brands globally. I would like to share with you that our venture capital arm, Bimbo Ventures, continue to invest across different startups and venture capital funds, all of which help strengthen our position within FoodTech, including Soskende, PeakBridge, Aleph, Scantec, Olyra, Oobli, Zero Carb Company, Terra Nova, and The Yield Lab LatAm. Turning to ESG, we are very proud to have issued our first Sustainability-Linked Bond in Mexico, which Diego will touch on shortly. 24 countries are now operating with 100% renewable electricity, because Bimbo in China, Morocco, and Kazakhstan closed the quarter reaching this important milestone. Looking into the results by region for the quarter, North America delivered another strong quarter of growth, growing nearly 12% in dollar terms, mainly due to the carryover pricing effect and favorable mix. Our dollar share grew across premium bread and snacks, and we saw improved volume trends sequentially for our branded business, while private label continued to increase. Our business has remained resilient as we navigate a dynamic economic environment and an evolving consumer. Like many CPG companies, we continue to experience cost pressures across many areas of our business, from rising inputs, input costs to labor. Despite continued inflation pressure, Adjusted EBITDA margin expanded 20 basis points, reflecting carryover pricing, strong execution, and improved efficiencies. Finally, during July, we have completed the acquisition of National Choice Bakery, a Minnesota-based co-manufacturer of bagels for SKU retailers and other customers. In Mexico, net sales grew 12.6%, which was primarily attributable to favorable price product mix. We experienced growth across all the categories and double-digit growth in the convenience and retail channels. Despite the higher commodities due to the hedges in place, our Adjusted EBITDA margin expanded 20 basis points because of the strong sales performance efficiencies in the distribution network and, for example, digital solutions. In EAA, excluding FX effect, sales increased more than 31%. This was mainly due to positive price mix across the region, most notably Iberia, continued strong performance of Bimbo QSR following the reopening of China, and the organic contribution of Vel Pitar in Romania and St Pierre. Despite continued high inflation and a challenging consumer environment in Iberia, Adjusted EBITDA margin posted a 20 basis point expansion, mostly due to the strong sales performance and productivity initiatives. Finally, moving on to Latin America and excluding FX effect, net sales increased about 17%, reflecting growth in local currencies in every organization, highlighting Brazil, Chile, Argentina, and Central America.... favorable price mix across the region, strong volume performance in Brazil, which continues on a positive trend, and higher saturation. Adjusted EBITDA margin reached a sustainable record level at almost 10%, given the strong sales performance, improved product mix, and productivity benefits across the business. Margin ex-expansion across the three organizations, highlighting Latin Sur and an historical quarter for Brazil. I would now like to turn over the call to Diego, who will walk you through our financials. Please, Diego, go ahead. Thank you, Daniel. Good afternoon, everyone, thank you for joining us today. Our results of the second quarter continued to be very strong, especially when we consider a high inflationary environment, still higher commodities when compared to last year because of the hedges we implemented during the back half of 2022, a complex operating environment in some markets, a strong negative conversion effect from the Mexican peso exchange rate. Moreover, we strengthened our financial profile with the issuance of the local bond, while maintaining a conservative and efficient debt profile, well spread over time, with a responsible approach towards leverage, duration, and currency mix management. Our sales reached historic levels for a second quarter. Our EBITDA margin closed at 14%. We posted mid to high single digit, 10-year compounded annual growth rate for sales and Adjusted EBITDA. Our operating margin, excluding the net non-cash benefit that we had during the second quarter of 2022, strongly improved by 50 basis points. This happened in a quarter where the FX rate played an important role, because on one side, we have the strong negative translation effect on our financials, while on the other, we haven't seen yet the benefit from a strong peso in our cost of sales due to the hedging strategy in countries like Mexico. As a result, during the second quarter, in pesos, we see lower top line and EBITDA growth, and we still have the pressure on our gross margins. Financing costs more than doubled, mainly because of the FX effect and higher interest expenses. The effective tax rate stood at 34%. Our net minority income declined by more than 35%, mainly because of the 2Q 2022 net effect. Excluding this effect, it declined by 11%. We previously announced, Canada Bread, our Canadian subsidiary, resolved allegations made against it as part of an investigation by the Competition Bureau into packaged bread. We paid a CAD 50 million fine, equivalent to $38 million, concerning two price increases implemented more than a decade ago, when Canada Bread was owned by Maple Leaf Foods, not by Grupo Bimbo. In 2022, we recognized a provision in the North America segment because there was a high probability to reach an agreement with the authority. We did not make this provision public because it could potentially have a negative implication on being able to reach this agreement. Having said that, during this second quarter, we did not have an impact from the fine. Turning to the balance sheet, net debt to Adjusted EBITDA ratio closed at 1.8x, and our total debt increased by MXN 16.4 billion, primarily because we temporarily financed our hybrid bonds with our committed revolving facility, and finally, through the successful issuance in the Mexican market of our first Sustainability-Linked Bonds, or Certificados Bursátiles, for MXN 15 billion. In fact, it represented the largest corporate SLB in the history of the Mexican market, the fifth SLB for Scope 3 globally, and the first in Latin America, in line with our ambitious global long-term sustainability strategy. I am proud of the hard work of our team, as this transaction strengthens our financial position while reaffirming our sustainability targets, especially our commitment to become a Net Zero Carbon emissions company by 2050. As a result of this issuance, the currency mix of our debt changed substantially. Now, 57% is denominated in Mexican pesos, 33% in U.S. dollars, 6% in euros, and 4% in Canadian dollars. Our net operating capital, which mainly considers accounts receivables and payable, as well as inventories and suppliers, increased significantly by 2.4 days over the second quarter of 2022, which is the equivalent of close to MXN 2.5 billion, and this was mostly due to increases in inventories. Lastly, I would like to give an update on our guidance for the year with two important effects. First, we are including the appreciation of the Mexican peso, given that 70% of our business is outside of Mexico. Second, we are seeing better than expected trends in local currency. As compared to our initial sales guidance, we have an impact of more than 6 percentage points. As in local currency, we are performing above our initial expectation. We are adjusting our sales guidance only from mid to high single-digit to low to mid single-digit rate. These new effects adjustment in EBITDA represent close to 5 percentage points of negative impact on our growth. Also because of our performance being better than expected, we are now adjusting the guidance to a range of mid to high single-digit growth from the previous high single-digit expectation. As you can see, we are still expecting a margin expansion and trends continue to be strong, and we remain confident we will reach our expectations and surpass them in local currencies. Remember that we are past the biggest impact on our results from commodity inflation. We will gradually start to see tailwinds during the second half of the year, but more on the fourth quarter. This, coupled with the operating leverage coming from sales growth and productivity benefits from past investments in CapEx and OpEx, as well as a positive effect coming from FX rate hedges, will result in the margin expansion that we're expecting for the year. We can now proceed with the Q&A session. Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question will come from Fernando Olvera with Bank of America. Please go ahead. Hi, good afternoon, thanks for taking my question. Diego, very quickly, I missed your EBITDA guidance. If you can repeat that, I will appreciate it. My first question is, how the volume elasticity has evolved across your territories now that you are not being aggressive on pricing, or that you are not increasing prices at all? How do you expect this to evolve in the second half of the year? That's my first question. I have a second one. Thank you. Yes, thank you, Fernando. Let me tell you raise the question in two parts. Daniel, if you're okay, I can take the first part, the EBITDA expectation that we now have because of the appreciation of the Mexican peso. It's at mid to high growth for the full year. Remember that the initial guidance was more on the high single digit. We have a more than a bigger than 5 percentage point impact. Again, as I said, our results have been above our initial expectation. The negative consequence of the appreciation of the Mexican peso, it's 5 percentage points, but we are adjusting less than 5 percentage points. Great. Yes, regarding the second question, Fernando, I would say that we have experienced elasticity in particular categories. I would say mostly on the price band category. It depends country by country, but that is where we are. We are reacting to this with the particular programs in each country focused on exploring the opportunities that we find in this category and in some challenges. ... Okay, great, Daniel. If I may, just the last question, I mean, Diego, can you explain and comment what explains the increase on interest expenses, and what should we expect in coming quarters? Thank you. Sure. We have, on interest expenses, we have two effects. At the end of the first quarter, as you probably remember, we called the perpetual hybrid bond. Since that day, the bond was considered debt, the interest expenses of these $500 million became also interest expenses instead of the equity treatment that they used to have for the previous life of this instrument. That created this accounting effect on our interest expenses, as well as in the debt. We are that, this, in the first quarter, had a 0.2x increase on our net debt leverage. Second, we have a higher debt today because we have had a negative free cash flow because of the capital and the acquisitions that we have been able to conclude in this first six months. Third, also relevant, the increase that we have seen in interest rates. The combination of these three things is putting some additional pressure to the cost of financing on our results. Great. Thank you so much, Diego. The next question will come from Álvaro García with BTG. Please go ahead. Hi, good afternoon, good evening. Two questions on my side. The first one on capital allocation, sort of you mentioned how your debt has shifted significantly to peso, obviously to a higher peso mix. I was wondering sort of if this would be a new normal going forward, or if you'd expect that to fall going forward? It seemed it sort of surprised us on the upside there. My second question would be on mix in the context of your gross margin. Is there anything that we should be aware of in the U.S. or in Mexico in terms of something that might be sort of helping you on the mix front or hurting you on the mix front in this quarter? Thank you. Yes. Hi, Álvaro. Let me tell you, first, the way that we manage the currency mix on our debt is not necessarily fixed on a% basis. This means that we don't necessarily have a perfect match between the% of revenues or profits from the different operations or segments vs the composition of the percentage that we have on the debt profile of the company. What we basically take care is that we do not run any risks from a currency perspective, having an exposure to an specific currency that we do not have either the assets or the cash flow in the company. That is why we feel happy with the profile that we have today, having 6% in euros, 4% in Canadian dollars. Yes, we did saw this very important increase in the Mexican peso mix. Well, as you know, we have a very important component of our profits coming from Mexico, so it makes sense to have this component. There was also this good opportunity to tap the market in with the local Certificados Bursátiles. It was a very successful transaction. We went all the way, raising MXN 15 billion. it's not that this will continue to be the case. What I can assure you is that we will always have a responsible way to manage the currency mix on our debt. That, on one hand, again, is not that we have some specific targets in this regard, just to have an alignment. In terms of the mix, on the different regions, I would say that, I mean, there have been not necessarily a big pressure, although private label started to grow, as we mentioned, and we have a higher cost of sales and, of course, a lower gross margin. There are some other categories that have continued to grow that have slightly better margins. Today, we're not seeing really a big impact from the revenue mix. I would say that the negative effect on our gross margin, that was substantially lower than the previous quarter, has to do 100% with the, still with inflation that we're seeing from commodities because of the hedging strategy. It's gonna take time in our P&L to see the positive effect, and this for sure will happen during the fourth quarter. Very clear. Thank you. The next question will come from Ricardo Alves with Morgan Stanley. Please go ahead. Hello, everybody. Thanks for the call. Wanted to go a little bit deeper on the U.S. top line. Question on competition. We noticed, at least in our data, a little bit of more competition, or intensified competition, if you will, on sweet snacks. This would be obviously beyond the private label, not that relevant for this category. I just wanted to get an update from you guys on the competition environment in the U.S., maybe taking into consideration more specifically the sweet snacks category. The second part of the question is, we noticed in the second quarter a better top line in the U.S. than what we expected, to some extent, than what we've seen in the recent scanner data. Just wanted to see from you guys, specifically in the U.S. or in North America, what category or maybe brand that you'd care to highlight? Appreciate that salty snacks have been booming. I don't know if there was a couple of categories or brands... Yeah. that you could shed a light on. I have a follow-up. Sure. thanks for now. Ricardo, this is Mark Bendix. What you're seeing in our volumes in the U.S. is category volumes have been soft with the evolving economy and the consumer behavior. We've got the pricing that has been part of the carry-in that you're seeing the benefit of, but there is a favorable mix in terms of product that we have in there. Salty snacks and premium have delivered for us in the second quarter, you are seeing a favorable mix. In terms of more competition, I think on sweet baked goods, there's always good competition in the U.S. on sweet baked goods. In this quarter, I think it's a little bit complicated in that across most categories, you've seen some decline because all of the categories, if you look at just edibles, in total are down, you know, 4.4%. We're maintaining our shares in those categories, but there is a net volume decline because of the challenged consumer. I hope that makes sense for you. That makes sense. Thanks so much for the detail. My last question would be on the profitability. On the SG&A vs gross margin, we noticed that in pretty much all of your divisions, we saw some gross margin pressure, maybe with the exception of LatAm. For all divisions, the EBITDA margin was actually stable to slightly up. We've been discussing this for a while. I think that, you know, Diego went pretty deep into details on what's driving the SG&A and efficiency measures that you've guys taken across the regions, but maybe mostly significantly in the U.S., in North America. I just wanted to hear your latest thoughts on SG&A, if there's, you know, if there's more that we could see from here. You're still clearly reaping the fruits, so maybe, to the point that Diego was making, four quarter, better COGS trends, do you see significantly, bigger room for EBITDA margin expansion, maybe on the back of SG&A? Thanks for the time. Yeah. Great. Hi, Ricardo, this is Diego. Yes, we will continue to work on finding opportunities to improve the efficiency and the profitability, and find a productivity initiative that can allow us to be a more profitable company. It's something that we have been doing for the past several years. Of course, now it's becoming harder and harder, you know, because there is no low-hanging fruit that we can quickly do like a big investment and have a big return. It's a little more granular. We do feel very confident that the different operations across Grupo Bimbo will find those opportunities that will help us on continuously improving our margins. Thanks, Diego. Appreciate the time. The next question will come from Luis Willard with GBM. Please go ahead. Hi, guys. Good afternoon, thanks for taking my question. I wanted to ask, how do you assess your overall price structure in the markets, in the market in both Mexico and the U.S., especially when you compare vs your most relevant peers? More importantly, especially in the U.S., are you seeing any incentive or any push from mass retailers to reduce or to, you know, get you to be a bit more promotional or more aggressive on rollbacks, especially entering 2024 or the next negotiating cycle? I hope that was clear. Thank you. Rafa, would you want to take the Mexico question, and Mark, the U.S. one? Yes. For sure. Can you hear me? Yeah. Can you hear me now? Yeah. Yeah ... this is Rafael Pamias. I mean, we do not expect higher pressure in Mexico when it comes to lowering prices. I think that both retailers and ourselves, we are on a search for going back to volume growth. What we're privileging here is value-pack promotions, portfolio adjustments, some price pack architecture changes in order to get back home those consumers that left us for a while. Also, we're pushing a lot on added value innovation. The point in here is to ignite back some excitement in the category, but doing it in a way that our price per kilo is not affected. Thank you, Rafael, that's very good. Yeah. The next question. Can I-- The next question will come from Sergio Matsumoto with Citigroup. Please go ahead. Yes, hi, good evening. After the previous questions, or Mark, if you wanted to retake it? Yeah. Just, just a quick comment on what's going on for us in the U.S. We continue to our disciplined pricing execution because we've got the face of ongoing inflation, so it hasn't mitigated yet in the U.S. Our retailer partners, they understand that, and they're seeing it, so we're not feeling that pressure. We'll continue to look at our demand elasticity trends and our channel mix, so that we can adjust and meet our evolving needs of both of our customers and consumers, so that we continue to drive margin management through through our business in the U.S. Generally, we're not seeing any of that pressure, but we've got to keep a keen eye on all of those dynamics as we go forward. Okay. Thank you, Mark, and thanks for making the space for my question. It's Sergio Matsumoto from Citi. My question is about Mexico, and if I'm reading the press release correctly, there may be a diversion in the channel performance, perhaps considerably faster at C stores or modern channels than the traditional channel. If so, what does that say about consumers as it relates to baked goods category, and how are you responding to that in Mexico? That's my question. Yeah. I guess it's, it is back to me. This is Rafael Pamias. I would like to say that in overall, we're fairly satisfied with the performance in Mexico, ahead of plans, double-digit growth here and there. I agree with you that in some categories, we're seeing softer volumes. First, let's clean up something from the equation. In Q2, those who live in Mexico, they have experienced a very unseasonable hot weather in June, and that affected directly sweet baked good in the traditional channel. Your appreciation is good. In modern trade, we have had, and we continue to have positive growth. In June, we had some softer volume in sweet baked goods in DSD. What we're doing now, and we have started in July already, is a special programs to ignite volume in sweet baked goods and DSD. It is unclear yet to see whether the weather, which is more seasonable now, is gonna have a substantial effect. What can I say is that vs June, our sweet baked good volumes are better. We're not gonna wait longer. We're gonna be pushing for activities to grow volume anyway. Okay, great. That's clear. Can I ask another question on LatAm? Please. Yeah, okay. How do you view the LatAm segment's stepped up performance? Do you see it as maintaining today's margin or actually having another leg up in margin from this point onwards, you know, perhaps closer to the other regions? How much is Brazil's, Daniel, you mentioned saturation in your prepared remarks. How much is that responsible for the improvement? Can you give us more color about your recent operations in Brazil? Yeah. I'm gonna take that one, too. I will start with LatAm, and then I will focus on Brazil. On LatAm, we do have momentum, especially some geographies such as Brazil, but also Central America, Argentina, and some other countries. I would say that we are bearing the fruits of a, what we call a full potential programs across the regions, started two years ago, where the objective was a comprehensive effort to reset target and ambitions, and on the other side, upskill the organization where necessary. We still have a long way to go, but I would say that we have better growth equations, number one, and number two, we still have a fairly solid pipeline of activities. What I would say is, that we still feel that we're gonna be enjoying in second semester, good activity, both in net sales and margin-wise, for a couple of reasons. Then I will elaborate more. We still see Brazil performing well. We also are heading towards a second semester, which in many of our geographies, is high season. For example, in Argentina, we're gonna have more capacity available. It is high season, which is more volume for us, and we're gonna be enjoying better costs like everybody else. I would say- ... good prospects for the second semester. That's what we expect. When it comes to Brazil, this is actually the first country where we started our full potential program, and this is where we could believe that it has been working more solidly and deeply. As of today, as I said previously, we have come out stronger when it comes to value equation. We have more brand power, we have changed our go-to market, and we still have productivities to be cashed. I would say that there is still good momentum ahead for LatAm. Very clear. Thank you very much. Thanks. The next question will come from Antonio Hernández with Barclays. Please go ahead. Hi, good afternoon. Thanks for taking my question and congrats on the results. Quick follow-up on Ricardo's earlier question regarding the good profitability across basically all regions on an adjusted basis. As you mentioned, just mentioned in the last answer, the LatAm opportunity is still ahead, but wanted to get a better sense on where specifically do you see more, if not the low-hanging fruits, but still more room for improvement in terms of profitability across all regions? Thanks. Daniel, do you want me to take that one? Could you repeat it again, please? Yes, regarding the profitability across all regions, where do you see more room for improvement? Well, I mean, definitely Mexico is doing very well on the margin side, as you could see. The regions that have been improving over the past two years are the EAA and the LatAm regions. I would say that all in all, I feel comfortable on the different regions performing in the way they have been. I mean, this quarter was, I would say, a quarter that was similar to your expectations. I don't foresee in the next quarter or two a big change from what we're doing right now. Okay. In terms of competition, anything worth highlighting, any specific region where you think maybe consumer trade-down and competition is tougher? Well, I definitely have a lot of respect for all our competitors, and I wouldn't say that we have a harder or an easier path on any market. The structure of the market changes from one country to the other, and we might have more fragmentation and probably more micro competitors that do their job. Like, for example, in Mexico, the tortilla, the tostada, the totopo industry is super fragmented, and competition is quite intense. In others, we have a strong private label brands that command a very respectable share of the market. In those cases, we have to play totally different. We have competitors that are global in nature, and that they favor more innovation. In that sense, I mean, we have to play a different ballgame in each market, and we have plans for it. I wouldn't say that besides my earlier comment on private label and sliced bread in general, I would say that the competition is more or less what has been in the past quarters in each market. Perfect. Thanks again for the call and have a nice day. The next question will come from Felipe Ucros with Scotiabank. Please go ahead. Thank you. Good evening, Daniel, and the everyone team. Thanks for the call. Maybe a follow-up on a question that was asked about volumes. The question was a little focused in elasticity, but I was wondering if generally, whether you could comment if volumes were flattish to positive across regions? My second question relates to EAA. Very good posts, 31% growth on sales in local effects. Obviously, a lot of moving parts in there. You have the e-coms in China, the QSR recovery, and then organic forces, among others. Not sure if you have a number or approximation with you, but what does EAA look like in an organic basis? Just wanted to get a sense of that. Thank you. t one, and I don't know, Rafael or Diego, if you want to take the second one. On the first one, what I would say is that the only category that we're missing importantly is sliced bread. All in all, our volumes drop a little bit more than 1%. That's where we are in volumes. I mean, we compensate some categories that were up and some that were down. On a temporary basis, as I mentioned, sliced bread was the one that was generally hardest hit Not in all regions, not in all markets, but in many, in many of them. That's great. I can take, if it's okay, Rafael, the second question regarding the organic growth. Let me put it this way, as it was mentioned, the growth on local currency was 31%. The FX impact that we have during the second quarter was slightly above 15%. Having said this, the organic growth in local currency was more than 16%. Okay, that's a very good post. That's exactly what I was looking for. Thanks so much for that color. Maybe a last one, if I could. You mentioned how C- stores and Modern are, you know, growing particularly strongly in Mexico. Just wondering if that could cause any negative mix effects? Thank you. You want to take it, Rafael? Yeah. Actually, no, without getting into detail, we have robust profit margins in both categories that you mentioned. So what we see is that it is helping out in the overall profitability. Obviously, we want to put our bread and sweet goods in the hands of everybody, so we're doing similar exercises of volume growth in DSD2. But we're pretty, we're pretty fine with the mix so far. Okay. Thanks a lot, guys, for the space. The next question will come from Alejandro Fuchs with Itaú. Please go ahead. Hello, Daniel, Diego, and team. Thank you for the time. Congratulations on the result. Two quick questions from our side. First, would be, could you please maybe provide some color on the proportion of the hedges that you're taking today, maybe on the FX and on the raw material side, into next year, into 2024? I have a follow-up after that. Thank you. Sure. Hi, Alejandro. Let me answer clearly on the two big components. On one side, the commodities and the other, the FX. In terms of commodities, we have fully hedged the commodities that we hedge. For 2023, we already started to take some positions for the first quarter of 2024. Still, I'll say a fraction of the commodity needs that we will have for the first quarter of next year. The point here, as compared to a year ago, we are reextending the length of the hedges that we're taking as the cost and the volatility have been coming down. Still, both are high as compared to historic levels, we are starting to feel a little bit more comfortable and confident on taking longer hedges. For the FX, we are fully hedged, operationally speaking, for 2023 as well. We have continuously taking some positions, hedging the peso vs the USD. I would say that we have approximately nine months today, so if not fully, very close to being fully hedged for the first quarter of 2024. Thank you, Diego. Maybe just a quick one, the second one. Given the potential changes that we're seeing, maybe on the working days in Mexico, going from six days to five days, that should most likely be discussed in Congress soon, I wanted to ask, maybe, how is the company thinking on these potential changes into next year? Maybe if you have thought about maybe potential impacts on the SG&A front, you know, given these changes. Thank you. Alejandro, we don't, we don't speculate on things that are out of our capacity. This is just one proposal on the Congress. So we don't have any comment on it. Okay. Thank you very much. The next question will come from Ulises Argote with JP Morgan. Please go ahead. Hi, guys. Thanks for the space for questions. Just a follow-up here on capital allocation and M&A. How should we think of M&A kind of for the rest of the year, given the activity we already saw in the first half of the year, and your comment, Diego, there on the impacts around free cash flow generation? I know the match has been for small acquisitions, but just looking for any additional color here. Also kind of on those same lines, if you can remind us there on the kind of capital allocation preferences between, like, inorganic growth, buyback dividends, and where you feel comfortable there in terms of leverage, given the 1.8x where we are right now. Thank you. Allocation preference hasn't changed. The priority of the company has been, and will continue to be, to give money back into the business. As you know, we are in the middle of the most intensive year for CapEx projects. We have a plan to invest between $1.7 billion-$2 billion. Close to $750 million were already executed as of the end of June. So that is the priority. That, of course, includes the three big buckets, maintenance CapEx, which within the three buckets, I would say, is the priority number one. We will always make sure that we have available resources that are required by the different operations, either if it's manufacturing or distribution. Growth CapEx and also the productivity initiatives that require an investment. That's the preference it has been, and it will continue to be. The second one, in order to continue to advance with our strategic plan and with the opportunities that we see in many different markets, we will continue to look and to be able to conclude inorganic growth, some M&A projects. None of them are gonna be transformational. It's not that the projects are gonna move the needle in terms of the leverage of the company. As you know, we already concluded three acquisitions during the year, and I can tell you that we have a very robust pipeline of potential targets across the different geographies, either if it's markets in which we are already present or even new markets. Hard to tell and give a specific expectation because, as you know, there are too many things involved in order to be able to conclude a transaction. What we can say is that we're gonna continuously and actively look for opportunities. In terms of the leverage of the company, 1.8, I would say it's even below the target zone that we have. We're coming from a 1.5 after the deleverage process and also because of the sale of Ricolino at the end of last year. We had this pick-up of 0.2x because of the conversion of the hybrid from equity to debt. some cash flow needs that we have had during the first six months that have put the leverage at 1.8. We feel very comfortable. We believe that we have the right capital structure to be able to conclude the organic and the inorganic opportunities and continue the growth path of the company. All right, Diego. Super helpful. Thanks for the color there. The next question will come from Federico Galassi with TRG. Please go ahead. Hi, guys. Thank you for taking my question, and congrats for the results. Two quick questions. The first one is, Diego, in the original guidance, you, I believe you used, MXN 19.5 of effects. What is the level that you are using now? Yes. Hi, Federico. Yes, effectively, at the end of last year, we did consider that the FX was gonna be slightly above, MXN 19, between MXN 19 and MXN 19.50. We are now having an expectation that the average for the full year will be below MXN 18, between MXN 18-MXN 17.50. That is why we have this negative effect on the expected growth in top line and EBITDA. Almost 10% of lower effects and effect in the guidance is only 2%-3%, if we take the middle of the range. Is logical to say that? Yes. Okay, perfect. Yes, a little bit less than 10%. It's like, MXN 1.50 what we are adjusting. Okay. Which is around 7%. Yes, as you mentioned, we are lowering much more less than that, the guidance, because as you've seen, all the regions have been performing better than expected. I mean, we were seeing EAA, 31%. Mexico, of course, in local currency, 12%. The U.S., North America growing almost 12%, low double digits, and then Latin America, 17%. All the regions during the quarter, and first quarter was a little similar, have been performing very positive in local currency. Because of this performance, we feel confident that we do not need to adjust the full effect of the FX on our guidance. Basically, including the effects, we're upgrading the guidance to bottom line. Great, perfect. The second question is in Latin America, you expand margins, gross margin 120 basis points. This is one country in particular, this was in all the regions? If you could say your thoughts on that. Yes. This has to do a lot, Federico, with the turnaround process of Brazil that Rafa was commenting on, that has a positive impact across the whole P&L, including the cost of sales. We changed the way that we're going to the market, the portfolio, and all these actions have helped substantially on an improvement on gross margins and also on being more efficient on SG&A in Brazil. Because of the size of Brazil, this is material on the LatAm segment. Great. Thank you for taking my question. Congrats again. This concludes our question and answer session. I would like to turn the conference back over to Daniel Servitje for any closing remarks. Please go ahead, sir. Well, thank you very much, all of you, for your time today. As always, please do not hesitate to contact us with any further comments or questions you may have. Thank you very much. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.