Good morning, everyone, and welcome to Coca-Cola FEMSA First Quarter 2020 conference call. As a reminder, today’s conference is being recorded, and all participants are in a listen-only mode.

At the request of the company, we will open the conference up for questions-and-answers after the presentation.During this conference call, management may discuss certain forward-looking statements concerning Coca-Cola 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 will now turn the conference over to Mr. John Santa María, Coca-Cola FEMSA’s Chief Executive Officer.

Please go ahead, Mr. Santa María..

Thank you. Good morning, everyone. Thank you for joining us today for our first quarter 2020 conference call. Constantino Spas, our Chief Financial Officer; and Jorge Collazo, our Head of Investor Relations, are also on the call today.First and foremost on behalf of all of us at Coca-Cola FEMSA so we hope you and your families are safe and well.

In these challenging times I would like to express solidarity with the many people who have been affected by the COVID-19 pandemic, as well as offer our utmost recognition to the healthcare community.I would also like to thank all of Coca-Cola FEMSA’s employees across our operations for their outstanding job ensuring our business continuity and product supply in the phase of these unprecedented times.

We enjoy a robust business ecosystem and our top priority remains the health and well-being of our clients, consumers and overall employees.

We are implementing measures to ensure we successfully navigate these challenging environments and emerge a stronger company.During today’s call, I will briefly address our first quarter results and trends across our markets.

I will also outline the strategies and mitigation actions that we have been implementing across our territories.Finally Constantino will guide you through the steps we have taken to strengthen our liquidity and overall financial position as well as our approach to cash flow in CapEx for the forthcoming months.

Despite headwinds our first quarter results reflect our positive underlying operating performance.Importantly, we continue to increase our consumer base and improve our competitive position validating our business strategies and reflecting our leaner more agile organization which is better positioned to face today’s dynamic market environments.

Notwithstanding our steady overall performance for the quarter, we started to face the first effects of the pandemic over the last two weeks of March and social distancing measures were gradually implemented across our territories.Additionally during this period we started accelerating currency devaluation headwinds suit both to COVID-19 and added market complexity from trading oil prices.

Our consolidated volumes remained flat for the quarter.

Volume growth in Colombia, Argentina and Central America was offset by low single-digit declines in Brazil and Uruguay and relatively stable performance in Mexico.Our topline declined 1.9% driven mainly by unfavorable currency translation effects for most of our operating currencies partially offset by pricing initiatives in key markets.

On a comparable basis renewing currency translation effects, our top line would have increased 3.6%.

Despite higher concentrate costs in Mexico, reduced tax credits and concentrate in Brazil and increase dollar denominated raw material costs due to the appreciation of most of our operating currencies.Our operating income remained flat for the quarter driven mainly by declining PET costs and operating expense efficiencies.

On a comparable basis, our operating income would have increased 6.3% and our operating cash flow would have increased to 12.2%.

To give you a sense of the currency headwinds faced during the quarter, foreign exchange impacts accounted for more than MXN 580 million at the operating income level.Finally, our controlling net income decreased 1.5% year-over-year driven mainly by a onetime increase in our interest expense related to our successful debt refinancing strategies during the quarter.

By normalizing or controlling net income excluding currency headlines, onetime tax free claims in Brazil and the extraordinary increase in interest expense our earnings per share would have increased 21%.During the quarter, country began implementing restrictive measures at different paces and levels.

Brazil was the first country in Latin America with a confirmed COVID case on February 26, a few weeks later the government started to implement restrictive measures and by March 24 it announced a quarantine with a full lockdown in major states.

As of April 16 certain states started to transition to partial lockdowns.Shortly after Brazil, Mexico confirmed its first case of COVID-19 on February 28. On March 14 the government announced social distancing measures such as the cancellation of concerts and sporting events.

And by March 22 Mexico City's government announced closures of movie theaters, bars and museums.

By March 30 the government announced a suspension of all non-essential activities for the month of April which was later extend for the month of May.Countries like Argentina, Colombia and Panama took more strict measures closing borders, suspending flights, enforcing lockdowns and temporary closures of restaurants, cafeterias and bars starting March 15.

Across our territories we have seen channel category and package mix shifts driven by consumers adapting -- adapting their behaviors to comply with these new social distancing realities.Consequently, we have seen declines in our on-prem news channel partially offset by increases in the modern trade in home delivery times.

The traditional trade channel compliance new with mom and pop stores has proved relatively resilient Offering convenient proximity for consumers across our markets and important since most of our volumes are distributed through the traditional trade channel our exposure to the on-premise channel is relatively low, representing approximately 50% of our consolidated bonds, with regards to our beverage categories, we saw an increase in jug water during the beginning of the pandemic, driving pantry loading in the initial days and in fact there has been generally gradually normalizing for the past couple of weeks.In addition, we have seen resilient performance from our sparkling beverage category with brand Coca-Cola growing in key markets during the quarter.

Understandably, we are also seeing a decline in on the go consumption resulting in an increased mix of multiserve and returnable presentations across our markets as many other countries where we operate entered a stricter phase of staying at home measures during April.Our consolidated volumes for the month is reflecting mid-teens contraction.

Markets like Argentina and Colombia have been more significantly affected, while Mexico and Guatemala have remained more resilient although there is still a high level of uncertainty at this point based on current trends, we expect our second quarter results to be most affected by the pandemic.Moving on to our strategies and litigation actions, Coca-Cola Femsa has faced crises before demonstrating the ability to successfully adapt to and capitalize on dynamic environments to emerge stronger company, being part of the global Coca-Cola system is an advantage as we work collaboratively to collaboratively with the Coca-Cola Company and the rest of their system to share and adopt best practices from other geographies.I am proud of the swift actions that our operators are taking across our markets.

We are working as a cohesive unit, developing a comprehensive management framework designed to protect our short-term results while maintaining our long-term goals, as part of this framework, we are focusing our actions on key five areas to ensure our business continuity, this is what I called the 5Cs, we focus on collaborators, clients, consumers, community and cash flow.First the health and well being of our employees is of utmost importance.

Therefore we are implementing additional measures to support their everyday work.

We have reinforced our health, sanitation and hygiene protocol across our facilities and we are providing additional equipment to our manufacturing commercial and distribution teams, such as mask, gloves and sanitizing gel.Since, March 16, most of our office based employees are working from home, representing more than 6,000 employees.

We have implemented daily monitoring and communication protocols across our organization and we are extending health recommendations to our employees home environment as well.Second we want to make sure our clients remain open for business in a safe manner.

Our technological initiatives are enabling us to maintain frequent contact with our customers, while reducing physical exposure.

Among our initiatives, we are leveraging our digital capabilities including our multichannel strategy to take orders via our B2B platforms, contact centers, and WhatsApp initiatives.To give you a sense, and on result, we are taking more than 6,000 orders weekly via WhatsApp with a very encouraging repurchase rate.

Moreover, we are extending preventive measures to our clients. For example we are delivering more than 25,000 protective screens; further counters, it's a plastic that we put in front of the counters in Mexico and 100,000 mats to our traditional trade clients in Mexico.Third we are leveraging digital and direct to consumer channels.

Our first new advantage for our digital trade channels has increased significantly. For example in Mexico, we are growing our volume by more than 30% in Amazon and Rappi and by 60% in common shop.

Moreover in Brazil, we are growing our volume by more than 70% or close through the aggregators.Importantly, we are adapting our portfolio, leveraging our affordability and return of our platforms, as well as our single serve multibags by prioritizing and simplifying our portfolio to protect profitability.

Thanks to our initiatives, returnable formats are growing double digits across all markets.Fourth, we are supporting our communities across our markets we have donated more than 1.5 million liters of beverages as well as transporting and donating medical supplies.

Moreover, in Mexico we teamed up with the Coca-Cola company and other organizations in Mexico to setup a temporary medical facility with 854 beds and 36 intensive care units for COVID purposes owned.Furthermore, in Brazil we teamed up with the sugar cane industry to deliver more than 250,000 liters of sanitizing alcohol to hospitals in Sao Paulo.

Importantly, together with a Brazilian institutions we are donating more than 26,000 COVID-19 tests focused on frontline healthcare professions. Fifth, we are focusing stronger on cash flow management and further strengthening our balance sheet.We developed additional task control towers to optimizing our cash sources and uses.

We are aggressively targeting savings and selectively prioritizing CapEx across our operations.

As we previously disclosed during the quarter we successfully refinanced and took on short-term credits to solidify our cash position, ending the quarter with a cast position of more than MXN 39 billion, level that we have maintained to do.Across our territories, we have been working closely with the governments and public health authorities complying with preventive measures, reinforcing our protocols, assuring our safety and leveraging our end to end supply chain plan to ensure the availability of products, while providing essential hydration to our consumers and communities.

Given the essential nature of our products and our preventive more protocols governments across all territories have allowed us to continue operating and thanks to the relentless work of our team.We do not anticipate material disruptions to our supply chain at this point.

Consistent with our previously discussed capability building strategies on the commercial, manufacturing and supply chain fronts, our digitalization optimization efforts make more sense than ever in the light of current pandemic.Accordingly we have reprioritized projects and accelerate the rollout of initiatives designed to intensify projects and accelerated the rollout of initiatives designed to intensify our digital commercial capabilities as well as to enhance our efficiency and overall productivity.

To strengthen our customer connections, we are accelerating the rollout of our omni-channel capabilities.

On the last quarter, we discussed encouraging signs from players that are now being aggressively rolled out.For instance, our enterprise WhatsApp in Brazil is now expected to reach more than 260,000 customers by the year end while our B2B platforms in Brazil and Argentina are expected to reach more than 100,000 customers.

Moreover we are exploring integration and digital payment options into our B2B platforms particularly our value proposition for consumers and customers.Aligned with our customer centric vision, we strive to enable better contact with our clients in direct consumer channels.

Consequently, we continue developing capabilities, process and opportunities with aggregators, peer players and e-retailers across all our operations.Our ambition is to continue capitalizing on these capabilities during this crisis and most importantly to give us a sustained competitive advantage during the post crisis conditions.

Finally, underscoring the strength of our cash flow generation, our confidence level and our confidence in Coca-Cola FEMSA’ solid financial position.On March 17, at our annual shareholders meeting, our shareholders approved the proposed ordinary dividend of MXN 4.86 per unit.

This dividend represents an increase of 37% year-over-year with its first installment to be paid on May 5. At Coca-Cola FEMSA, we embark any deep transformation to create a lean, more agile organization.We developed and rolled out digital initiatives across our value chain and then we reinforced a collaborative culture across organization.

Working together, we have achieved meaningful progress, strengthening our resilient and positioning our organization to navigate short-term challenges and achieve long-term success.With that, I will now hand over the call to Constantino..

Thank you, John. And thank you all for your interest in today's call. As John noted we hope you and your loved ones are safe and well.

I’ll briefly discuss each of our divisions’ highlights for the quarter.In Mexico our top line increased 2.4% driven by pricing and revenue management initiatives partially offset by a slight volume contraction and an unfavorable price mix as a result of the effects of COVID-19.

We continue to reinforce our competitive position and expand the consumer base allowing us to continue gain in market share.In Central America, our volume growth continues to be driven mainly by Guatemala and was partially offset by Nicaragua and Panama. As a result, our top line in the Mexico and Central American division increased 2.8%.

Importantly and despite concentrate cost increases and the depreciation of the Mexican peso, our operating income increased 11.7% driven mainly by declining PET costs coupled with operating expense efficiencies driven by these factors.

Our division's EBITDA margin expanded by 280 basis points to reach 22%.In South America, despite a strong start of the year mainly driven by volume growth in Colombia and Argentina, the effects of COVID-19 started affecting our operation volumes in March.

Additionally, the depreciation of all our operating currencies and the division led our top line to decline 7.5% during the quarter.With regards to profitability we faced currency headwinds coupled with a decision to temporarily suspend tax credits on concentrate in Brazil. However, these effects were mitigated by favorable PET prices.

Our ability to drive cost and expense controls, savings from restructurings performed during 2019 and the tax reclaims in Brazil recognized during the quarter.I will now expand on our company's preparedness going forward. Specifically, I will focus on the actions we have taken in the finance function in the light of the current situation.

As we discussed during our last conference call and consistent with our financial discipline we successfully completed debt refinancing strategies in the US Mexican markets, by issuing an aggregate of $1.5 billion, these transactions provide us with a very manageable debt to maturity profile specifically we extended the average life of our debt from seven to approximately 10 years while reducing our average interest rate.Today more than 70% of our debt matures beyond 2025, additionally it's important to emphasize that we completed our liability management transactions before COVID-19 became a global pandemic underscoring our conservative profile and prudent approach to debt under all circumstances.As you saw in today earnings release or interest expense recorded an increase of 77% versus the previous year, this increase was driven by an extraordinarily MXN 1.5 billion related to refinancing strategies for which we prepaid via tender offer and made our 2023 Yankee bond, for this reason you can expect a normalization of interest expense as of the second quarter.Part of the comprehensive financial result, we recorded a foreign exchange gain MXN 486 million as a cash position in US dollars benefited from the depreciation of the Mexican peso during the quarter, it is very important to underscore that we continue to have a policy of zero net debt exposure to US dollars, Coca-Cola FEMSA’s liquidity position is robust and our cash flow is stable, nonetheless we're taking additional measures to strengthen our cash position and adequately forecast and control inflows and outflows first we took an additional short term mainly Mexican peso denominated debt of more than MXN 11 billion as of March 31 the cash position reached more than MXN 39 million and our net debt to EBITDA ratio closed the quarter at 1.2 times.Second although very prudent cash management is part of our culture, we're reinforcing our cash flow through the implementation of cash control towers using nerve centers that are focused on optimizing sources and uses of cash, these control towers utilize an iterative process to periodically update which we do by the way weekly all of our forecasting, there is no other way to successfully manage dynamic environment and analyzing and reacting with agility to optimize our cash cycle, as part of this initiative, we're setting the right priorities to manage our working capital, expenses and CapEx for the remainder of the year.All of our operators are doing a tremendous job in generating cost, expense controls and efficiencies although we had budgeted close to $650 million of consolidated CapEx at the end of 2019 in the light of the current environment we reevaluating and reprioritize immediate needs while also deferring projects.

This gives us an important lever to manage our cash flow for the year, we're fully confident that we're taking the right steps at the right moment, Coca-Cola FEMSA’s conservative profile, resilient business model, continues investments in digital capabilities and strong balance sheet, our assets that become even more valuable in times like these.And with that I will now hand the call back to John for his final remarks.

Thank you very much..

Thank you, Constantino, all crisis put our strength and resiliency to the test.

But I am convinced as was the case for our company before that challenging times also bring opportunities for the long term, the measures we are taking are consistent with our clear strategic and long-term priorities, taking care of our people, satisfying our clients and consumers and continue to create shareholder value through a very disciplined approach to capital allocation and a solid financial position.Thank you for your interest in our earnings call and for your continued trust and support of Coca-Cola FEMSA.

Operator I would like to now open the call for questions Q&A.

Thank you. The question-and-answer session will be conducted electronically. [Operator Instructions] And our first question, we’ll here from Ben Theurer with Barclays..

Yeah. Good morning, John, Constantino. First of all, thanks for taking my questions and congratulations on all the refinancing you were able to do I guess right in time.

Now, as one just a quick accounting question, so you're showing a significant increase in Mexico on amortization operated non-cash charges, which basically drives up your EBITDA in Mexico by approximately MXN 500 million.

Is that somewhat related to the refinancing you've been doing or what's behind that increase, which also obviously that's been reflected on a consolidated basis?.

Constantino?.

Sorry. The MXN 500 million difference, is principally explained by the virtual affects that are negatively affect to operating income, write it back to EBITDA.

From that MXN 500 million difference around 67% is due to the loss of the operating exchange fluctuation, which is about MXN 360 million and the other 20% is basically related to an equity method for two of our subsidiaries and we did we did an impairment in early now JV about that around MXN 100 million -- MXN 100 million with over JV and CB and JV in Brazil that's where that difference comes from.

And does that address your question, Benjamin?.

Yeah.

So, part of that is most likely going to be reflected as well into 2Q just because of the additional FX headwind we're seeing in 2Q compared to 1Q on the operating side, correct?.

Yes, that would. I mean, yes, definitely -- I would not expect that in the same magnitude, I would assume, but I mean, the situation is extremely dynamic and the volatility is too, so there definitely will be some impact in that regard..

Okay.

And then one for -- one for you John and you've elaborated on it, in regard to all the strategies you've been doing on to deal with the current situation but also looking a little bit ahead and obviously we're seeing significant downward revision on different economies, GDP growth, expectation, so amongst the strategies you've been working on, be it on the digital platform, be it on your sales through online channels, rationalization of product, what would you say is like the most relevant piece of it or you can still improve your operation to prepare for what is likely going to be a more severe economic slowdown and what investments would be needed to basically achieve that strategy?.

Certainly. Thanks..

I think we're focused on two items. One is ensuring that we have an affordable portfolio and that affordable portfolio has enough capacity to be able to suffice demand and that is really based on returnable and we've been pushing hard on that.

And as I mentioned on the call we're seeing a continued growth in those packages not only because everybody is moving to the home, it’s just because of the affordability involved.

And secondly, there is still a lot of efficiency that we can pull out of our markets two ways.One is to further systematization of processes and procedures and secondly is and more importantly is probably you know changing our routes to market and in a lot of places we have opportunities to shift our route to market to a linear Third party structure, we have done that for example in Costa Rica, where we're now something like 60% or 70% of our volumes are running through third party distributors.We practice and understood what we learn and we probably have -- that has applicability for other main countries we have that I've got the ability for its other main countries we have Mexico, Colombia being two of the main ones.

So I think there is a lot of levers still yet to be pulled in terms of the operating efficiency and turnover.

Secondly I think you know when we start looking going forward I know it's probably a question you or somebody else asked, I think we can maintain our pricing within inflation terms.So that will give us the topline revenue really, that I think that consumers come accept and primarily through the different package mixes that we have.

So I think there's still a lot of work to be done, I think if we look forward and we see the revisions going forward, most of it comes from the second quarter economic downturn and relief coming in the third quarter and fourth quarter, we think it's a similar situation for the open..

Okay, perfect. Thank you very much..

And next we move to Lucas Ferreira with JPMorgan..

Hi gentlemen. My first question is regarding their relationship of between new and KO with Coca-Cola.

How has been the relationship now in this time of crisis If there's any sort of flexibility in the relationship and price of concentrating you can the bulk of could actually see as a sort of support from KO that would be my first question and the second question is regarding you know kind of financial health of some of your channels especially more of the traditional or the mom-and-pops.Now during this time and also the food service and special seems to be most impacted if you are -- you mentioned in the beginning you mentioned in the beginning, some supports -- even then in terms of helping to providing you know, equipment et cetera but what about in terms of like your working capital, can you talk a little bit about the service sustainability of this channel during this crisis and how can you help keeping them upgrading? Thank you..

Do you want to take that John?.

Let me just start out with the relationship and you can probably add some….

Right..

More color on the working capital. I think, Luca, thanks for the question. I think our relationship with Coke has been much closer because of the crisis and a much more collaborative in terms of how we're going to market, you know how -- what actions we're taking.

And I think you know the crisis brings out sometimes the worst and the best in everyone and in this sense, I think it's been very, very positive.And so I have absolutely nothing to say about the Coca-Cola company but great things because they have shared learnings from other parts of Latin America and they've shared learnings from other parts of the world.

We've understood what is going on and what has happened in China and been able to prepare for it, although you don't fully prepare for such a crisis, but understanding the dynamics has been very, very important for us.Secondly we have every week, we have conference calls by port function with the Coca-Cola Company sharing our learnings understanding where things are and also find new best practices.

So I think, the newness of the relationship and I don't think of Coca-Cola franchise is an exception.I think, it's part of part of the broader pattern, but the newness of the relationship that we have with the company has grown dramatically over the last four to five weeks.

I think the other question you asked on concentrate whether this is something that you're going to have relief or and not relief on, that we haven't discussed, okay, I think, that’s something that you know that is structural and in nature for our relationship but what have we have discussed with the Coca-Cola Company is a level of in the marketing plans.But we are putting into the markets over the next months and quarters to be able to ensure that we have enough flexibility in our -- and in our P&L, but also and more importantly making sure we're making the right type of investments in markets and marketing and in trade that ensures the paybacks that we require.

And in terms of channels, concerned right now with those type of channels that a large social gathering points. I think we have very well capitalized companies in Mexico and to that end, so we'll see because that will take it’s toe, I don’t know Constantino if you have a point to be made..

Yeah. Absolutely. I think the most important piece of information that I would -- that I would want to share is first of all our exposure.

I mean this is a phenomena that at least at this stage has affected much more in the initial stages beyond on premise, beyond trade accounts and our exposure to be on trade accounts is much lower than in other parts of the world.So when you look at our total portfolio it's about 15% and that includes both the key accounts on-premises, the QSRs and also the I would say more traditional on-premise accounts.

So the exposure of Coca-Cola FEMSA to the on-premise is lower probably than the other bottlers in other parts of the world, so that’s one big element.Apart from that we’re offering factoring solutions to our customers across the board particularly our traditional trade and small customers which is helping them with the working capital and we have not seen significant issues around these customers.And at the same time, what I would say is the fact that the broadness and the best of our portfolio particularly for our traditional trade -- traditional trade which at the end of the day is --you know the most important channel in Latin America.It's the essence of retail in Latin America, where you look at it on overall but the portfolio that we're able to put forward to deploy retailers is so broad and it's capable of attending the -- I would say, the dynamic in consumer locations and in consumption has allowed them to be able to serve the demand quite well.

We have seen shifts from you know single serve packaging into multi serve packaging and we're able to have on that the debt you know portfolio as well as returnable packaging, which offers affordability solutions for our consumers right now.So our portfolio per se is a great advantage for traditional trade, on our granularity and reach to the traditional trade is also -- it's a significant value to our retailers because we have not disrupted our service.

And at the same time, the enabling of our sales force and a route to market solution with the digital capabilities that John mentioned a few minutes ago, the WhatsApp solution or URL B2B solutions have been able to continue to serve our customers even in the cases, where we could not have face to face context.So you know -- the combination of our portfolio, our route to market, digital investment that we've been doing for a long time, this does not happen overnight.

We don't serve 260,000 customers overnight on enterprise on WhatsApp just because of COVID-19 hit you. We've been working on this for quite a -- quite a long time.I mean we've been working on this for quite a long time.

Our working capital you know help that we're giving to our customers through some of the factoring solutions when we combine all of these things on the portfolio we have been able to mitigate the impact from that end but it's also been of significant help on -- for our customers.So far I think we're weathering the storm quite well and we're helping our retails -- retail customers do it too.

And at the same time as I mentioned our exposure to the entrée which is definitely the channel has been hit the most. Initially this is -- this is quite low compared to other places in the world. I don’t know if that in a couple of couple of months time..

Let me just add something, Lucas. So I think there's a couple of things. You know in the case of Mexico also our route to market portfolio also includes home routes. In home routes we have over -- we have 1,000, I think it’s 1,200 routes from Mexico and those volumes are up at 30-some-odd-percent.

So the diversifications how do we go to market is also very important. And the other point is you know we're looking at what do we do the day after.

And we're focusing very much on understanding what our routing market is going to be, not our routing market but our support for traditional small trade to ensure that those -- those segments of the market have enough trade fuel if you wish to come back soon..

And next I’ll move to Carlos Laboy with HSBC..

Yes. Good morning everyone. John, thanks for sharing some of the near-term measures you're taking and then some of the digital things that you're doing. But I want to ask my question in this way.

You know If I look at your business three years, four years after the tequila crisis, it was almost unrecognizable, it’s vastly different because of the measures that you took and after the 2008 financial crisis, it was also vastly improved three years or four years later, how will this business be different and look different three years from now, four years from now because of your actions.Can you share with us on a longer term kind of visionary basis, where you see this landing three years, four years from now because of these actions that you're taking in particular because of the digital evolution?.

Constantino, do you want to take a crack at?.

Sure. I've also done a complement.

I think Carlos the digital capabilities that we are building will be able not only to drive much more efficiency in our system which is a significant improvement, but will become structural in our business on one hand.But on the other hand, we will be able to serve better our customers and the connectivity, the omni-channel capabilities that we have today are capable to serve better our customers and that will definitely become an edge that is structural in our business.So I would say that that is another shaping aspect of Coca-Cola FEMSA going forward.

I think that at the same time we’re doing enormous progress in terms of portfolio which is for sure something that has absolutely nothing to do with the current circumstance.

But we're not undermining that effort because of what we're facing right now.So there is a -- I mean we foresee a region where affordability play will definitely become a more important element of the consumer value proposition and we're working strongly with that with our returnable initiatives.

So I think that is something that is also structural in nature and continue to be there.And then maybe have never renounced were in organic growth strategy.

I think that definitely these type of crisis’s for sure reshape industries going forward and we have continuously stated that, we can see in our financials, our capability to execute inorganic transactions at the right value and at the right time either through our equity firepower or through a balance sheet.So I think that is definitely on the table.

We continue to monitor that.

And then we need to understand how the system and how the industry is going to come out of this crisis, I mean we do not underestimate the reshaping power of a crisis of this magnitude too, but it's very difficult to anticipate how does that look going forward six months from now, but we’re definitely well-equipped, well-prepared, we have very solid financial, we have a very robust liquidity position and we're preserving that significantly.So I think that that will become also an asset for Coca-Cola FEMSA going forward to face the reshaping of the industry.

So I think those are the I mean to lead the big issues, digital capabilities and how will that drive efficiency and better customer service, improving our top-line, creating more opportunities for growth in that regard.

Portfolio on one end and on the other end the robustness of our financial position and our expertise and financial discipline and history and track record of very good M&A capabilities that we have had in the past, so I think that those have positioned us quite well going forward as a company in this system.

I don't know John if you have -- if you want to add into this?.

Yeah, I think there's a couple things, Carlos. When we talked about omni-channel and you know really didn’t the work that we're doing to make sure that our transactional sales system are fully, fully linked to all sorts of sales notes plus third-party sales notes.

I think is enormous advancement.There is an enormous amount of complexity in there what we're starting to see that we're starting to see that come true.

In Brazil, we're starting to see that come true with URL in Argentina and from there it becomes very easy to start dropping in additional channels if you will with consumers -- direct consumers know home delivery routes et cetera.So, really the backbone in two or three years is going to be much further digitized giving us a portfolio route to markets that much broader than what we have today.

That's first. Secondly what we're doing is we know as we spoke about this yet the last year or last quarter we have functionalized yet the operation and we're seeing enhanced efficiency in all processes that we're putting through the functionalization as human resources.That is finance. That is supply chain.

And really the amount of savings that keeps on coming out on a recurring basis are very high.

So, the end product that is going to be a very, very focused, market phase in operation with a very efficient back end and there is going to be enormous amount of synergy put out for that over the next two to three years.I think another piece you know that we're probably not making enough about the others we are continuing to invest in [indiscernible] channel capability and given where the affordability issue is going to be with consumers, we're not only going to be able to stick with Coca-Cola in the portable pack, but will also be broadening that out to other brands and categories to allow for availability along the non-carbs as well as re-carbonated products that’s through Universal bottles.Those are going to continuing to be rolled out.

And that's I think it's going to be a significant evolution of making sure that people stay in our franchise not only in carbonated soft drinks but non-carbs as well. Does that give you a picture of where things are going..

And next we’ll move to Miguel Tortolero with GBM..

Hi good morning everyone. Thanks for the questions. The first one is regarding the deal it was mostly enormous part of the year with initial end of quarter. I would say so considering that given one of the reasons where you have been marked let’s say the GE business, could you share you share with us.

How was the second quarter, how has the second quarter evolved so far and while we give you expectations ahead for the region.And the second one moving to Mexico could you give us some color on your present strategy ahead, especially considering current FX levels and your actual hedging position? And also in this regard it would be helpful if you could share with us to your general views in terms of raw materials..

Okay Miguel let me jump into this one. Brazil let me give you a little bit of an overview of Brazil.

I mean as we mentioned previously Brazil was the first country in LATAM to confirm a case but with social distancing measures were taken in March and being very restricted in São Paulo in the beginning which is you know one of the big markets in Brazil, so hurting the volumes for the month of March.The coal channels definitely suffered the largest impact particularly on premise as I mentioned.

And in addition it's fair to say that as well as we faced tougher weather conditions more rain during the quarter compared to last year which was a drier and warmer summer during April directly to your question the social distancing measures are still affecting our volumes.However some states will be transition from a partial lockdown, I mean, to a partial lockdown from a very tough lockdown to a partial ones in volumes, seem to be recovering after the Easter holiday, because some of the plants that have gradually started reopening.All in all we see -- we saw the Brazil volumes in April decreased around 20% and based on that we're adjusting our portfolio towards more affordability in multi packs and returnables as the new shopping habits are you know -- are being shaped by this phenomenon at least temporarily.

And we're opting our digital presence in that -- in that regard.

So -- so that's a little bit of a picture of what Brazil looks like.In the case -- in the case of Mexico, Mexico has been -- despite the fact that we're in a very volatile environment and it's very difficult, honestly very difficult to predict going forward, we're seeing that Mexico has been a little bit more resilient so far and the volumes have been better than the average of the total portfolio of KOF, contraction around the mid-single digits.However, it's also important to say that we are entering the worst case of the epidemic in the upcoming weeks as the government has stated, that their projections are -- are about to peak during the week of May 8, we're there -- and in the worst phase of the epidemic and that might change definitely the way -- the volumes are behaving, I mean, but there definitely been resilience.I've seen declines in the on-premise channel as I mentioned before and the single serve mix, with definitely been compensated by an increase in multi-serve on presentations.

But -- so I think that -- that is -- that is a big element of how the demand is behaving right now in Mexico and we're definitely implementing operating and portfolio measures to successfully navigate this environment.Our hedging strategy I think has been proven to be successful as part of your question and I would say that about 65% of our dollar denominated materials that are impacting your COGS have been hedged at around $20 per peso which I think is good in the light….

MXN 20 per dollar..

MXN 20 per dollar exactly. So in the lights of the volatility we're facing right now and we have designed the pricing strategies around that.

So we're being very conscious of our pricing, very conscious of the way we manage our portfolio and we have once more the benefit of a broad and deep portfolio that addresses quite well I think better than anyone in the beverage industry and in the non-alcohol beverage industry, the needs of the consumer in these dire times.So I think we're very well-prepared considering the circumstances in the case of Mexico and the resiliency of the market in April is showing us that.

Hope that addresses your question..

And next we’ll move to Ron [ph] with MUFG..

Yes. Hello. Good morning, everyone. My main question is can you give us an idea as to what percentage of your volumes come from bars, restaurants, food service areas et cetera.

And the social distancing measure is likely to continue in the future and the overall lifestyle changing which everyone will have to make do you expect a long term drop in volume or over time, do you think that the drop in volumes from bars, restaurants, stadiums et cetera will be ultimately absorbed by the retail channel..

Our on trade -- you know on-prem or on-premise whatever you want to call it exposure is about 15%.

I mean they vary anywhere between 10% to around 18% in the case of Brazil, we also serve more bars and restaurants due to our Heineken portfolio -- our beet distribution agreement that we have but once more it is not significantly material in terms of the impact it has across KOF’s business.So roughly 15% 16% definitely been significantly impacted as you all know to be able to forecast how this will continue to be in the long term, it could be a very difficult exercise to do right now, considering that this has been a very I will say quick and profound disruption in the market, honestly we believe that the structural changes are not going to be as significant in the on trade channel but with the information that we have right now and the analysis that we are running right now, we believe that once some of that social distancing measures and the governmental measures that have been put in place go back to the normal progressively, we will see a comeback of the on-premise channel, let’s also remember that we are not spirit’ company.So a lot of our on-premise accounts are traditional popular you know restaurants where every day -- every day consumables are you know those are for lunch and breakfast, et cetera.

I don't think that will go away honestly in my opinion. But we -- we’ll have to understand how you know how the channels are behaving in the long term. But you know predicting the structural changes right now will be more than irresponsible a bit from our side. That's the way we do it and we think we’ll kind of return to morality progressively..

Okay..

Thank you, Ron. I think just reinforcing what Constantino said, I think what you’re going to have is a very, very small residual consumer behavior change from this -- this crisis. But I do think that you're going to see a return from normalcy on the channel on -- channel mix.

But you will have the impact of whatever economic we pull down you may see you know unemployment and whatever. But I don't think it's going to be related to any ships and buying. It’s not going to be related to consumer behaviors other than the economic residual of those crisis..

And next I’ll move to Christopher [ph]..

My questions are already been answered..

Thank you. We’ll move to Alvaro Garcia with BTG Pactual..

I hope you guys are well and your families are well. I wanted to go back to Brazil actually.

I was wondering John if you could sort of compare, I’m very interested in hearing your thoughts on the discretionary nature of your products in Brazil and sort of how you expect your performance in this year's forthcoming economic crisis to compare to what we saw in 2016 in terms of you know the depth of your portfolio, the robustness and the operation and so forth.Just we clearly saw a shift change you know at home consumption of -- the substitute risk related into -- in 2016, I’m trying to get a better sense of how you're better equipped this time around to take that on what's going on so? That’s my question..

Okay. Well, I'm trying a big picture in my mind is what happened in 2016 just to be well uncertainty. Well, so, I think what we've done in Brazil over the last couple of years has been spectacular because we did offer a returnable portfolio that we not necessarily had before we return we developed in Coca-Cola, we developed in flavors was Fanta.

I think what we have also had is a depth in non-carbs that wasn’t working over the last two to three years.Last year, we redid the whole portfolio and have come up with the increased sales volume to that and profitability more important.

I think the other thing too that we've had is that we've been putting into the marketplace an enormous amount of cold drink equipment.Over the last, three or four years, we've consistently been investing between 40,000, 50,000 pieces, now 50,000 or more thousand pieces of adores of equipment in the marketplace.

I believe that now with the amount of digital capability that being developed down there along with the team we have a significant amount of capability to go out there and participate in the need in our the emerging digital channels.When you start looking at the amount of incidents that we're getting on beverage is going through the aggregators.

We’ve had the enormous jumps in share and not only that but the numbers jumps in volume.

So, when you start looking at everything that we put together, the occasion base that we are -- that the consumer launch we've been attacking whether it's on-premise, with increased pressurization, increased portfolio.Home delivery by aggregators, and more importantly, going out there and putting together a significant portfolio of relative market mechanisms made near digitalization that allows you know us to hit a series of segmented consumers in a much more cost efficient manner.So you know right now like we talked about you know you're we’re going to have 260,000 accounts being serviced with WhatsApp or the capability of putting it in with WhatsApp and some other form of up sales, whether that would be the physical or whether that would be phone or whatever.

So that alters your economics in a big way and then also -- there's also a frequency with which a consumer can go out there and -- you know, a customer can go out there and can call sell -- or order.So I think, we are going to have much higher customer centricity or we have as much higher customer centricity approval ratings, much more focus on that, our service level to the trade has been increased dramatically and all our surveys say that you know we have jumped in terms of customer satisfaction to a level that we haven't seen before.

So I think, we put it all together and I think you know that -- in the troubling economy, is what’s going to drive our performance in Brazil..

And next we’ll move to Alvaro Garcia with BTG..

Operator, we think we need take one more. Okay. And we’re not being able to contact you for the other controls. So please on -- appreciate that. Thank you..

Alvaro please go ahead..

Actually I just asked that question. So if you can move on to the next….

Yeah, Alvaro was the last one..

Yeah, Alan -- sorry we’ll move to Alan Alanis with Santander..

Thank you. So I know that John has been new mute, may I hope, John, your family is well.

Just two quick questions, I mean, regarding the changes that you said regarding affordability and the need for more returnable bottle, and then need for more use of technology and the need for more returnable bottle and the need for more use of technology, change your CapEx outlook this year and for the years to come, this here to invest much more and returnable bottles in technology in order to come out stronger, that will be first question..

Well yeah Alan, I mean it has been part of our CapEx structurally for the last few years, we have been prioritizing digital investments on one hand and the buildup and development of our returnable portfolio, despite the fact that we are reprioritizing our CapEx in this year I mean in the light of the current events, a lot of the returnable capability or the returnable investment is volume metric and totally variable, it’s basically bottles and cases and coolers, additional coolers for returnable capabilities as we don’t foresee you know significant high infrastructure investments in this year for returnables in that case as we have put in place, as we mentioned in the call and we put in place, what we call cash control tower which basically a process where every Monday we see a 13-week outlook on how our cash flows are looking and every single operation.And we compare that with a portfolio of scenarios more longer term, longer term meaning by the end of the year that we have, we have analyzed and comparing both you know dynamics of continuous cash flow projections on a weekly basis and the scenarios that we have foreseen that are very different in nature we are able depending on how we see the cash flow comings, we’re able to activate the cash flow is coming, we're able to activate or trigger more investments for our returnable capabilities in terms of bottles and cases and coolers.So either way we're managing it and at the same time we have placed as John has mentioned, a significant priority on to our digital capabilities, we foresee that is a structural change that will continue to be part of our business.

And we are -- we’re protecting those investments going forward. John, do you want to complement to that because I jumped in before you answered it..

No problem. How are you. Hope everything's good. Listen, I think on the capital piece, what we've been focusing on this year is or what we've done right now is ensure the fact that we have enough frozen plants on initiatives to make sure that all our cash targets are met.

So the $650-some-odd-million that we had approved for capital this year, you can probably say okay there's probably $250 million that we can, for sure, control if it were the case and if not more that's required.So you could probably if in the worst case chart that number in half. Okay.

But we don't want to do, okay, and what we're continuing to is those structural term projects that increase capacity either in distribution or in production such as we still continue to have our Uruguay plant referred underway, we're not stopping that.

We're not stopping our increasing Guatemala capacities.We're not stopping any of our distribution increased capacities in terms of distribution center capacities in below the [indiscernible] And we’re not looking at stopping any returnable bottle capacity in Mexico in short-term.

I think the question is whether we would be really within the range of what a typical CapEx would be going forward.And CapEx would be going forward and whether any of these incremental initiatives that we're talking about would make us get out of that range and that’s my strong belief and commitment to that is that we will be within that range.

And we’ll merge through the different layers of investments as the total percentage of CapEx that we are allocating back into the business..

That's very clear. It seems that they're stating reallocation to fulfill those capital needs. My last question has to do with Brazil beer, I mean what you said regarding Brazil was its going down in April for 20% and certainly it’s not a big surprise.

When you think overall consumption of cases in channels, is it fair to saying that you're much more than that during the month of April? So I guess the question is regarding your fixed assets and how beer is right now healthy or could be more overhead for you in the second quarter and the remaining of this year and what can [indiscernible] soft drinks, Colas into consumption of beer?.

Well, we cannot comment too much on beer respect -- respecting Heineken's position, they already mentioned in their earnings release that in Brazil, the beer volume declined around low single digits with premium and mainstream portfolio is performing better than the economy of the portfolio that was for the initial part of the year.

As you mentioned, definitely, I mean it's just common sense beer depends much more on the on premise China than what we have pointed out as KOF and they put in place their strategies to mitigate this development. We need to be -- I guess I need to redirect your question to Heineken in this case..

That’s okay. So I'm sure they're very happy with the work which you’re doing and so congrats for that and thank you so much for taking my questions..

Thank you so much..

And I hope you’re safe and your family too..

Yeah. Thank you..

And at this time I would like to turn the call back over to Mr. Santa María for any additional or closing remakes..

I want to just say that these are the exceptional times and I think what we’re seeing is exceptional reaction by the company. And second quarter will be proving to be a very, very tough quarter. But yeah, I'm very confident that the teams are taking the right actions.

They're taking the actions that will allow us to come out faster of this pandemic as well. And I would just like to thank you for your confidence and continued interest in the Coca-Cola FEMSA business. Thank you..

And that will conclude today's call. We thank you for your participation..