Good morning, everyone, and welcome to Coca-Cola FEMSA's Fourth Quarter 2021 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 question-and-answer 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 a good faith estimate made by the company. These forward-looking statements reflect management's expectations and are based on current 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 Maria, Coca-Cola FEMSA's Chief Executive Officer. Please go ahead, Mr. Santa Maria..

Good morning, everyone. Welcome to our fourth quarter and full year 2021 earnings conference call. We appreciate you joining us today and we hope you and your families are safe and well.

And joining on today's call are Constantino Spas, our Chief Financial Officer and as always, Jorge Collazo, our Head-Investor Relations I'm encouraged by our results and the progress we made throughout the year.

Although, 2021 presented challenges, our results highlights our businesses resilience and our ability to deliver accelerated results across all of our strategic fronts.

We strengthen partnerships, emerged stronger from the pandemic, and close the year with escalating momentum by delivering solid top and bottom line growth, coupled with share gains across our territories.

During our call today, I will expand on our fourth quarter results and provide you with an operating update, with a special focus on key markets of Mexico, Colombia and Guatemala.

Then I will discuss our vision for 2022, a rollout of our omnichannel digital initiatives and our commitment to sustainability, underscored by the recent announcement of a new PET recycling facility in Mexico.

Before we take your actions and questions, Constantino will walk you through our division’s performance, profitability initiatives and capital allocation, including our recent acquisition of CVI in Brazil, and our CapEx plans for 2022.

Moving on to discuss our consolidated results, our volumes for the fourth quarter increased 5.4% year-on-year and 6.9% as compared to our 2019 baseline. This growth was driven mainly by significantly accelerated volume growth of 6% year-on-year in Mexico, coupled with the continuous recovery of most of our markets.

Like the third quarter, we continue to see remarkable volume performance in Colombia, Central America in RBG. For the quarter, all of our categories posted volume growth as compared with the previous year. Our core sparkling beverage categories grew 3.9%, driven by 2.9% growth of Brand Coca-Cola and 7.7% growth in Flavors.

Notably, our non-carbonated beverages and personal water beverage categories grew 16% and 23% respectively, with double-digit growth in the vast majority of our territories.

As compared to our 2019 baseline, our sparkling beverage category grew 6.2%, driven by growth in all of our territories that resulted in a solid 5.3% growth of Brand Coca-Cola and 9.8% growth in Flavors.

Across most of our territories, and despite the rapid spread Omicron towards the end of the quarter, the on-premise channel’s volumes accelerated, while the modern trade grew ahead of our forecasts, and the traditional trade continue to post healthy and resilient performance. And currently, our single serve mix remains a significant tailwind.

To give you a sense in Mexico, our single serve mix recover an additional two percentage points as compared to 2020, reaching 32% and is only one percentage point below our 2019 baseline. For the quarter, our consolidated revenues -- total revenues grew accelerately increasing 8.5% year on year.

This growth was driven by our volume performance, coupled with our pricing initiatives and favorable mix effects. These effects were partially offset by that transition on Heinekens beer portfolio in Brazil, coupled with an unfavourable currency translation effect into Mexican Pesos.

Notably, excluding unfavourable currency translation effects, our comparable total revenues increased 10.5% year on year. And when compared with our fourth quarter 2019 baseline, our consolidated revenues increased by 3%.

Despite the volatile supply chain and raw material environment, our gross profit increased to solid 9.3% and our gross profit margin expanded by 30 basis points, driven mainly by our pricing initiatives, coupled with favorable raw materials hedging strategies and efficiencies achieved across all of our operations.

Additionally, as discussed during our previous earnings call, we resumed the recognition of tax credits on concentrate purchased from the Manaus Free Trade Zone in Brazil as of the second quarter, which has also supported our gross margin performance as compared with the previous years.

Our operating income growth accelerated sequentially, increasing 7.6%, as compared with 2012. Notably, it is a 22% increase versus the fourth quarter 2019. Our operating cash flow for the quarter increased 6.5% year-over-year, resulting in a resilient operating cash flow margin of 20%.

Finally, our controlling net income increased to solid 82.8% to reach MXN 5.8 billion, driven mainly by a one time favorable effect on our consolidated tax rate, mainly related to the recognition of a favorable deferred tax credit in Brazil, coupled with a decrease in our comprehensive financing results.

It is important to highlight and summarize, our full year 2021 results. Consolidated volumes increased 5.3% year on year, improving 2.6% compared to our 2019 baseline. Consolidated revenues grew 6.1% year on year, surpassing our 2019 baseline. Finally, operating income grew 8.6% year on year, increasing 7.8% as compared to 2009.

Notably, driven by our focus on improving returns, 2021 marks the fourth consecutive year of growth in Coca-Cola FEMSA’s return on invested capital, which is now in the double digit range. I will not take a moment to discuss our operating highlights and the positive momentum of key markets, Mexico, Colombia and Guatemala.

Driven by our commercial initiatives and overall recovering environment, our Mexico operating operations volume for the quarter increased 6% year on year, while improving 3% compared to 2019. Notably, we saw substantial improvements month after month, reaching a banner month in December.

It was encouraging to see consistent volume improvements throughout the quarter, both across categories and across the different regions in which we operate. Average daily sales improved consistently from the Bahia region to the Southeast region, including Mexico City and the Gulf of Mexico.

It is also important to underscore the results of the new formula and visual identity of Coca Cola in Mexico, which grew double digits as compared to 2020 and the highest single digits as compared to 2019. Affordability played it and will continue to play an important role in our strategy.

For this reason, we continue leveraging our broad portfolio and price package architecture to provide our consumers with the right alternative at the right price, whether their choice of single serve, multi serve – multi package, returnable multi package or one way options. To give you a sense of the importance of returnable options.

Today, more than 40% of our volume in Mexico is in refillable presentations. In summary, Mexico closed the year on a high note. It made important advances across all our strategic priorities, increasing execution, bolstering affordability and advancing on both B2B omnichannel and D2C direct to consumer home delivery fronts.

We are convinced that our Mexico operation has the right team, capabilities and strategy to continue its positive momentum in 2022 and beyond. Moving on Colombia, our volume for the quarter grew 16.2%. That was 16.2% year on year and 16.5% compared with the same period in 2019.

We continue to focus on the fundamentals for success, strengthening our portfolio, offering affordability and delivering outstanding market execution. This mindset has enabled us to recover our volumes and single serve mix. while increasing our number of clients compared to pre-pandemic levels.

To give you a sense, during the year we added more than 35,000 clients, an increase of more than 8% to our client base, and achieved historic product availability.

Importantly, consumer centric portfolio renovation has increased our relevance in non-carbonated beverage categories in water, while the rollout of our universal bottle, which is growing double digits, is giving us a strength and capability to provide affordability to our consumers.

This bottle gives us the capability to provide affordability not only in Brand Coca Cola but also in flavors and non carbonated beverages. As a result, we are growing ahead of the industry, strengthening our competitive position by gaining share across categories and channels. I am encouraged by Colombia operating results.

We have a clear roadmap to continue this positive momentum into 2022 and beyond and leveraging the fundamentals of affordability, increased coverage and availability while accelerating our portfolio innovation and the rollout of our business to business omnichannel platform.

Finally, our Guatemala operation continued its consistent three year double digit growth. For the fourth quarter, our volume increased 14.1% compared with 2020, an impressive 27% compared with 2019. This growth resulted from our focus on delivering the right commercial capabilities while strengthening our portfolio across categories and channels.

Notably, our core sparkling beverage category and the traditional trade channel have largely driven this remarkable growth story.

Looking ahead, we continue to see great opportunities in Guatemala to capture new clients, reduce out of stocks and increase cooler coverage, while continuing to digitalize our operation from back office solutions to our commercial omni-channel platform.

In summary, we are convinced our positive momentum reflects the relentless working commitment of our team and underscores our understanding -- outstanding capabilities to execute and deliver against all of our strategic priorities.

Coca Cola FEMSA strategic achievements for the year were many, no milestones is as significant as our enhanced cooperation framework with the Coca-Cola FEMSA.

This framework ensures long-term alignment of our partnership, growth plans and strategy, enabling us to not only continue building a winning customer-centric portfolio but also explore new multi-category opportunities across our markets, while developing strategic digital initiatives.

This achievement is the cornerstone of our ambitious and priorities for 2022 and beyond, as you continue to position Coca-Cola FEMSA for the next wave of profitable sustainable growth. Consistent with our vision, we continue adapting and reshaping our company to thrive in the new global business environment.

We accelerate the depth of our customer-centric omni-channel, multi-category commercial platform. To give you a sense, we now have approximately 300,000 active monthly purchases on a proprietary omni-channel B2B platform that over two-fold from a year ago.

Also, we achieved a historical expansion of our direct-to-consumer home delivery routes in Mexico from approximately 800 routes to 1,200 routes reaching close to 600,000 households while beginning of a digital transformation of these routes as we speak.

Notably, digital purchases in Coca-Cola FEMSA, now represents over 6% of our total orders, generating more than $350 million of sales are close to 95 million unique cases. This marks triple-digit growth in our digital orders, volumes and revenues compared to 2022 -- sorry, 2020.

Moreover, as we explore new multi-category opportunities across all markets, we are rolling our pilot program to test the distribution of complementary categories, such as leading spirits brands and leading consumer products in certain markets.

Although most of these pilot programs are in early days, their results during the fourth quarter are encouraging. We are not only gathering valuable learnings and insights, but also increasing coverages, repurchase and revenue.

As part of our vision of becoming the world's preferred and most sustainable commercial ecosystem, I must underscore our company's commitment to sustainable development.

Consistent with this ambition, on January 25, we broke ground on a new recycling plant in Tabasco Mexico, together with ALPLA, a global leader in the development and production of packaging solutions.

The ultimate goal of the state-of-the-art plant, which will have a co-investment of more than $60 million, accelerate the transition to a circular economy plus the PET plastic recycling, strengthen the collection and recycling chain and benefit the environment and the communities in Mexico south and southeast regions.

The plant is expected to start operation during the first quarter of 2023. Finally, we are honored to be included for the second consecutive year in the S&P Global Sustainability yearbook 2022. For more than 7,000 companies evaluated worldwide, we standout as the only Mexican beverage company, including the Yearbook.

Thanks to our positive performance on S&Ps Corporate Sustainability assessment. This recognition only confirms that we are on the right path, but more importantly, strengthens our commitment to working towards a more sustainable future. With that, I'll now hand the call over to Constantino..

Thank you, John, and good morning everyone. I will now expand on our divisions fourth quarter results in Mexico are volumes increased 6% While our total revenues increased to 2.2% driven by pricing initiatives and a favorable price mix.

In Central America, our operations once again delivered a strong volume performance with all of our markets growing double digits, which combined with a revenue growth management initiatives enabled us to achieve 20.8% revenue growth compared with the fourth quarter of 2020.

As a result of this, our quarterly revenues increased 13.7% in Mexico and Central America and 13% compared to the same period of 2019. On the profitability front, our gross profit increased 9.1%, which resulted in a gross profit margin of 48.4% against the very top comparable base.

This margin contraction was driven mainly by increases in commodity prices and higher concentrate costs in Mexico. Importantly, these effects were mitigated by successful raw material hedging strategy.

Although, we continue to see normalisation of certain operating expenses during the quarter, such as labor and maintenance, our teams were able to double down on additional savings and efficiencies in order to offset the effects of this normalization.

During 2022, we expect to protect our profitability and the division by pricing aligned with or ahead of inflation across markets, while maintaining discipline hedging strategy and permanent savings and efficiencies culture.

As I mentioned in a previous conference call, despite the dynamic raw material and supply chain environment that's affecting industries worldwide, we're maintaining a high profitability base in Mexico and Central Americans division.

Notably, our full year operating cash flow margin close at 22.4%, which is 180 basis points ahead over 2019 baseline margin, the remarkable achievement for teams in the. Now moving on to South America, this division delivered 3% volume growth as compared to 2020.

And is 9.6% ahead over 2019 baseline, double-digit volume growth in Colombia and high single-digit growth in Argentina and Uruguay, partially offset by the normalization of volume growth in Brazil, which was affected by very challenging weather during the quarter.

Our revenues for this division grew 2% as a revenue management initiatives pricing and volume growth were partially offset by the unfavorable currency translation effects and the transition of our beer portfolio in Brazil, which is a very early stages.

If we exclude the currency translation effects, our top line would have increased 6.4% during the quarter. On the profitability front, our gross profit in South America increased 9.6%, expanding our margins by 280 basis points.

This increase was driven mainly by the operating leverage resulting from volume growth, favorable price mix effects and raw material hedging strategies, which coupled with the resumption of the tax credits on concentrated -- concentrate we purchased from the Manaus trade zone in Brazil.

Our operating income for the division increased 18.6%, resulting in operating income margin expansion of 170 basis points. Finally, our South American Division was able to effectively mitigate pressures from the dynamic environment and a boasts a resilient full year operating cash flow margin of 16.4% 20 basis points ahead of 2020.

I will now expand on our financial results, which reflect the strength over balance sheet and successful refinancing initiatives that carried out over the past years. For the fourth quarter our comprehensive financial results recorded a decrease of 57.9% as compared to the previous year.

This is explained to the following effects, first of all, a decline in their interest expense, net driven by an increase in interest income that can be a foreign exchange gain of MXN 79 million, as compared with a loss of MXN 346 million during the previous year, a gain of MXN 131 million as compared to a loss of MXN 214 million in the market value of financial instruments.

And lastly, a bigger gain in monetary position on inflationary subsidiaries related to Argentina as compared with the previous year.

Notably, on a full year 2021 basis our interest expense net was reduced by 23.2% driven by the effects of successful refinancing initiatives and a comparable base that included a onetime effect of approximately MXN 1 billion related to the successful refinancing initiatives.

Underscoring the strength of a balance sheet and cash flow generation, we're able to finish the year with a cash position of more than MXN 47 billion, representing a 9% increase as compared to the end of 2020. Now, let me provide you with an update on the raw material hedging strategies for 2022.

In Mexico, we have hedged approximately 75% of our PET needs for 2022 and more than 90% of our high fructose corn syrup needs for this year. Notably, we have also hedged more than 40% of aluminum needs in the country. While in Brazil, we have hedged more than 70% of our sugar needs for the year.

We're confident that these hedges coupled with our ability to price ahead of or aligned with inflation across the markets, will enable us to substantially mitigate margin pressures and protect our profitability during 2020.

Moving on to discuss capital allocation, we're very encouraged to confirm our Brazilian subsidiary acquisition of CVI, a Coca-Cola franchise partner with operations in the south southern part of the country successfully closed last month. As a result, we’ll be -- we will begin consolidating CVIs results as of February 1.

With the acquisition of CVI, Coca-Cola franchise bolsters its leadership position in the region to reach 52% of the Coca-Cola systems volume in Brazil.

Adding to our operation, one bottling facility, and three distribution centers, that serve more than 13,000 points of sale, and more than 2.8 million consumers in a territory that is full of synergies and market opportunity.

Finally, and consistent with the joint vision and growth respect, as we share with the Coca Cola Company, we expect to increase our CapEx to revenues ratio through a range of 7% to 8% during 2022.

These investments will primarily focus on strengthening our infrastructure, especially our affordability capacity and returnable capacity and investing behind these assets that increase their presence in the market in order to ensure long-term growth and transformation.

And with that, I will turn it back to John for his final remarks and then we will follow-up with Q&A session. Thank you. Thank you for your attention today..

Thank you, Constantino. Although we expect to continue operating in a dynamic market environment, we are convinced that we have the right set of capabilities to continue delivering accelerated results, growing our top and bottom-line, while substantially mitigating margin pressures during 2022.

I'm encouraged by our strategic agenda which is a clear and -- that was as clear as ever and continue building a consumer which is -- because it's clear as ever, which is based on building a clear consumer-centric multi-category portfolio, accelerate a rollout of our digital B2B and B2C omnichannel platforms, and continue placing sustainability at the center of everything we do, while fostering an agile people-centric culture going forward.

We'll provide more updates on our strategies as we continue progressing throughout the year. Thank you for your continued trust and support and for joining us today. Operator, I'd like to open to questions..

Our first question today comes from Alvaro Garcia of BTG..

Hey, John, Constantino. Thanks for the space for questions. Couple of questions, one for Constantino, on tax breaks in Brazil, I was wondering if maybe you could help give us potential -- size of potential benefits in the future. There's anything they seem somewhat recurring.

So, I was wondering if you can maybe help us put a number on that or help indicate if you expect to see more of these going forward? And to my second question for John, on the multi-category strategy, how should we think about the sort of your TAM, your total addressable market as you grow out these pilots, which are not really pilots anymore? How should we think about sort of your TAM, for that specific business? Thank you..

Hey Alvaro. Good morning. You know that Brazil is a very complex and dynamic tax environment. So, there's always changes in that context. However, we don't foresee any major changes or impacts as of today in terms of the tax environment.

So, it's very difficult to anticipate that in the mid-term, but in the short-term, I don't foresee any relevant tax impacts going forward. That answers your question. That’s what we can say. And your second question on multi-category, I will let John answer it. If you need any more color, I will feel free to jump in..

Sure Alvaro. Thanks for the question. Multi-category for us is something that we're looking as an opportunity to go out there and become more much more customer centric. And obviously, what we are trying to achieve is to participate as a share of wallet level of our customers, that's probably between the 40 to 50% share of wallet of what they saw.

So when we think about categories, okay -- and multi-categories, it is really how do we achieve the relevance to become close to 40% to 50% of the share of wallet in traditional trade, whether it be on-premise or retail.

And that's how we're defining our total addressable market, okay? But it's not only the multi-category products that we can have as an opportunity, but also the opportunity to layer on top of that. You know, services and features that allow us to continue to grow and drive value through an enhanced platform to the stores.

We have the offering of a comprehensive portfolio of products and then on top of that building services.

Does that answer your question?.

Yeah, no. It's super clear. Thank you very much..

And I'm going – if I might jump in, just to provide a little more color. When you look at digitally native - initiatives and companies and startups that are trying to leverage on creating, an ecosystem around the traditional trade, I mean, they're very good.

They have very good business cases that finding the way to monetize that point of sale beyond, you know, physical goods. The biggest issue is cost of acquisition for that particular customer and scale.

In Coca-Cola FEMSA what John is explaining, is we're moving into understanding and having a very clear picture of what are the levers and what are the services and technologies that we need to layer on top of a relative market to fully monetize the point of sale beyond physical goods.

But at the same time, we have a very valuable asset, which is, we have fantastic coverage, great drop size, and a very, I would say RAT granular salesforce and route to market that allows you at the same time to have a very relevant portion of that share wallet from the get-go.

So when you blend those views together that's where the ecosystem and what we're building going forward comes into play Because it's a combination of a great baseline, and a profitable approach and coverage of more than 2 million points of sale.

And at the same time, a series of initiatives that we're working on within Coca-Cola FEMSA to be able to crack the code of monetizing the point of sale beyond physical goods, and provide a much a robust customer centric solution for these customers. So that's how we, you know, we summarize what we are envisioning.

We're running -- as John mentioned, series of pilots, across our markets and across different segments with very encouraging results, but most importantly with a lot of learnings from the testing of different proofs of concept and we're working on to that. So I don't know if that helps to round out the idea, Alvaro..

Yeah. Certainly in those customer acquisition cost out there. Thank you very much. .

Thank you..

We can go to Carlos Laboy of HSBC..

Yes. Good morning, everyone. I was hoping that you could expand John on how high you think refillable can grow? I mean, these levels you're hitting in Mexico are pretty impressive for package that was – that was left for dead 15 years ago, 20 years ago.

What is – what's the business case also for going into recycling? And how does this plant and then you refillable target? How does this all holistically drive your plastic waste objectives? Because you seem to be doing it backwards from the way a lot of the coke system has been doing it right? You're mastering the refillable spurs.

And now you're actually putting money to work on the recycling side of the equation. If you can expand on all this, please..

Sure. And I guess is we will want to add a package that was that was lost in memory, which is refillable and so it's been a very large component part of our portfolio and it's a key part of our portfolio. Multi-serve refillable says something that has allowed us to go out there and leverage our portfolio and pricing architecture for a long, long time.

That's why we are selling differentiated pricing throughout a lot of different areas. And that we're doing it even more so with the universal bottle bringing down the bottle floats and being able to put more categories through universal bottles and just labeling instead of having different bottles.

So when you start thinking about those and we have you know, Mexico going at 40% refillable. We believe that that is something that is achievable and most of our operations definitely from Central America, definitely Colombia a good possibility in Brazil, and in Argentina. So those are benchmarks which I think are pretty much achievable everywhere.

And the issue of us going into recycling facilities is one where – it is consistent with the Coca-Cola Company's policy of a world without waste. We are right now recycling and using about 28% recycled PVC overall Coca-Cola FEMSA, some places more some places less.

And we do want to take that number up with this particular path and Mexico for about 50% of what we're using in Mexico and if you at the look forward and say you know why would – we want to do this.

First is because we think it's the right thing to do for our communities, second thing for our planet and third, when you start looking at putting together recycled resin and the cost and the price recycled resin have today versus virgin resin. The pricing structure is 30% more is higher on recycled resin than virgin.

So it is not about investment hype. So it has to do with a lot more about putting sustainability at the heart of what we're doing. Leading our industry into better practices. And this is not only, a recycling, but it's also a collection, you know, they're out there, we have put together a stream of 18 collection facilities to supply that.

So, it's a whole recycling and circular economy move that allows us to start off with a leading example, where we in Mexico, where we're where we, we have most of our investment. But this is something we'll be looking to roll out into all our different countries as well..

Thank you. Congratulations for this. This is excellent..

Thank you..

We can go to Lucas Ferreira of JPMorgan..

Hello, gentlemen.

Can you hear me?.

Yes..

Hi, John and Constantino. Yeah, I have two questions, the first one on the South America results, you guys deliver good margins, despite the pressures coming from that migration to this new contract with a Heineken, right.

So, just wondering high level thoughts, if you can comment on the margins in Brazil, if it's surprising to the upside or if it's like other countries that were pushing this margin up, and if you can also make some high-level comments about, the transition there in Brazil, how it's been going with the Tiger? So we understand what to expect for 2022..

Sure, Lucas. I will take that one. In South America, as we mentioned during the quarter our margins expanded around 160 basis points. This was mainly driven by gross margin. And solid price mix into division. So, to better explain the effects we had overall better volumes across the division. We recovered price mix, mainly in Argentina and Colombia.

And we coupled that with recovering operating leverage. We had favorable raw material of hedges, especially sugar and aluminum in Brazil, which allowed us to substantially mitigate the pressures and generate some savings.

We also had some raw material hedging strategies and efficiencies in marketing and in freight that were partially offset by the normalization expenses, such as labour and maintenance. And at the same time, the resumption of tax credits in Brazil, as of the second quarter, we had a relevant impact.

In addition to that, we also have the transition of the beer portfolio. As you know, which will we're going to talk about right now also has had a negative impact on margins. But all in all, we mitigated that with better operating leverage in the division. So that's like the compounded effect of all of these variables, generated these outcome.

In terms of beer, we're probably at the lowest point of the beer transition, after a decline of approximately 30%, in beer revenues for 2021. For 2022, the effect of this transition, we expect the revenues decline around 15%, probably, and hit the low-point of the transition, and then, start -- the rebuilding of the portfolio.

And as we have previously mentioned, we're building a very solid portfolio and with Heineken brands such as Eisenbahn. And the launch of Tiger, Eisenbahn has been, I think, the first one to pickup a lot of steam. In our platform, we're growing coverage significantly, versus where we receive the brand.

The launch of a new brand like Tiger, the value proposition needs to continue to gain traction in the market, but we're seeing some interesting green shoots there. Therezopolis brand its going super well, starting from a very, very small baseline. And now we recently acquired the distribution of SeaGalicia.

So if we put that all together, I think that, from a two to three year timeframe, we see it as a feasible target to recover our previous position with the new portfolio.

So I don't know if this provides you with some color on your questions, but definitely the reconstruction of a very different beer portfolio with great alternatives for the customer and the consumer is something doesn't happen overnight. But we are very pleased on the way that that this is evolving..

No that's great Constantino. Thank you..

Thank you for your question Lucas..

Our next question comes from Antonio Hernandez of Barclays..

Hi, good morning. Thanks for taking my question. My question is also regarding Brazil, thanks for the color that's just provided develops with a little bit more sense of the whole consumer environment and in their elections this year, there's also carnivals and also a World Cup taking place in a different part of the year.

How's is the overall environment consumer environment that you see there? Thanks..

Go ahead, John, please?.

I was going to tell, I heard only parts of the question.

So if you heard it go ahead Constantino?.

Do you want to recap, Antonio, so that John has a full idea of your question, please?.

Sure, of course question is regarding the whole Brazil environment with elections this year and the World Cup taking place at end of the year, and also basically there will be probably early the Brazilian Carnival as well. How's the consumer environment there that you're seeing there? Thanks..

Do you want to hit that one Constantino?.

Sure. You can complement. Antonio thanks for the question. We're confident the biggest disrupter that we've had in the last couple of years, which is the pandemic, that, you know, we're leaving behind the most challenging phase of the pandemic, and that's definitely something that provides a much more positive outlook for consumers.

And that's, you know, across all of our regions, it's not exclusive to Brazil, as the as you mentioned, there's no there's a very outset, typical year, in terms of elections going forward. It's a very dynamic and fluid environment.

And a couple days ago, we hit a new and very disruptive issue in the world with the events that are happening between Ukraine and Russia. So, volatility and uncertainty will be permanent, we believe. Having said that, we feel that we have a much more positive environment in terms of consumer in Brazil.

I think that our strategy that we have proven to be very solid across the last three to four years, remain unchanged. So we believe that we're going to have positive volumes, our pricing will be in mind slightly ahead of inflation.

And the executional capabilities of Coca-Cola FEMSA digitalization or priced backed architecture, and the collaborative work with the Coca-Cola Company should allow us to navigate, you know, any volatility that we face during this year, at least the ones that we can anticipate, right, so all in all, we see a positive environment going forward.

And as any year, that's an electoral year, we need to monitor it day by day, and see what adjustments we need to make. But as so far, we're very optimistic of the Brazilian market in the consumer environment as we speak. John, I don’t know if you want to add something..

And finally, I think first of all, we expect planning for strong growth out of Brazil and that strong growth comes from as Constantino says strong portfolio, but also continued share gains, we continue to gain sharing in Brazil. And we're better positioned now than ever for uncertain environment.

Concerns are as probably everyone is inflation and how we build high levels of inflation and how the Brazilian inflation environment has been developing. We are taking pricing within that line of inflation has been keeping up with inflation.

And we do have a set of tools that we didn't have in place in most parts of Brazil before which is refillable PET. We have the dual affordability packs, which has been expanded.

So there's a lot more tools in our tool chest today than we had before to be able to come front which could be a softer consumer environment, and wherever continue to be able to pick up share as we have been. And so our portfolios a better position. And I'm very encouraged to see, that so far we continue to see good momentum in Brazil.

So, it's a case where, we're very positive for the for the country for 2022..

Thank you. Thanks a lot..

Our next question comes from Marcella Recchia of Credit Suisse..

Hi, John, hi Constantino. Thank you for taking my question. My question is pretty simple. I just would like to know if you could give us something say on how the regions are performing so far, during this quarter? Thank you..

Marcella, thank you. Well, Mexico, in Mexico, the quarter was benefited by affordability, executional and recovering mobility. We see recovering mobility across all of our markets. And that is a positive element to the consumer environment, and will definitely drive in sales.

We -- in Mexico, for example, we grew in all channels, and currently in the on-premise. And we're continuing to recover mix in single serve, we reached 32% of mix and single serve, which is almost, almost 2019 levels just need to grow slightly higher, to reach 2019 levels. And I think that we will surpass that.

And as we mentioned before, returnables are around 40%, which is huge considering the size of our business. For 2022 in Mexico, we continue to see positive momentum, and it was extremely weather dependent. But as of today, weather seems fine out there.

We continue to leverage affordability in returnables and we're implementing the operating and portfolio measures to grow. That covers a little bit of Mexico. In the case of Brazil, we -- I think we tackled a positive consumer environment and we believe we have, a very solid plan in Brazil. So that is also providing us confidence for growth in Brazil.

Considering on the other hand, as I mentioned, the transition to the new portfolio. So affordability in Brazil continues to be an important play, multi-packs, returnables and a lot of digital, right, so we're moving into digital consistently, and we continue to roll out there.

We have more than 200,000 customers using WhatsApp for business application. This is about 60% of our total customer base in Brazil. And we're managing over 15,000 orders in one day and that's growing. That's the equivalent to give you an idea of over 203 sellers on the order entry effort.

Now we're not substituting, our resellers continue to be a key component of omni-channel value proposition. So this is layering on top of what we're handling in Brazil in our traditional route to market.

And in the case of Colombia, we see a fantastic momentum behind the business and we see a favourable environment, it's also electoral year, but it's going to be earlier on and we believe that we will continue to grow there.

Argentina, despite the fact that we have a very volatile macroeconomic environment, I think that we have been able to find the proper strategy, combining consumer efforts, price back architecture for a very, very constrained purchasing power in Argentina, given the macro economics and a fantastic consumer value proposition.

So I think that that will allow us to continue weathering the storm in Argentina. Then Central America continues to grow double digits in all of our markets.

Nicaragua, which is a smaller market is also a market that's very prone to volatility due to the macro environment, but even including that it was growing double digits last year, and Guatemala just continues to be a fantastic case of Coca Cola FEMSA’s capabilities focusing on the core and fixing fundamentals in the market once we consolidated the business and we continue to grow double digits after three years.

And we're seeing on top of that enormous opportunity for headroom going forward. So all-in-all that's how we're seeing the volumes evidently, volatility, and uncertainty is paramount today. But with the current conditions, we think that we have a favourable environment for growth in the upcoming year.

I don't know if that helps?.

That's excellent. Thank you very much, guys..

Our next question comes from Ricardo Alves of Morgan Stanley..

Hi, John, Constantino. Thanks so much for the call. I have two follow-ups questions that were already asked -- Brazil. First one, I am positively surprised by the consumer outlook you laid out for Brazil, its good to hear that. But still surprise, I mean, volumes going up in 2022 but the expectation with pricing ahead of inflation.

So is this based partially on what you already saw in January and February? So just trying to get a little bit more colour on this, let's say optimistic outlook. And can we try to quantify that a bit more, I mean, you – if I’m not mistaking you're running 15% above the pandemic levels in terms of volumes in the third quarter.

In the fourth quarter, that decelerated more to the 5% meeting with digit versus pandemic, is this a new baseline level we should be working with as we think about 2022. So just those two questions on Brazil? Second question very quickly, a follow-up on Brazil.

On the transition, of course, can you walk us through monthly evolution that you saw over the past quarter? I remember having discussions with you, with the hiccups that we saw in September, naturally, the first month of the transition, but how did that evolve in October, in November, in December more recently? I mean, did the new facility of Heineken in October.

Did that facilitated in a major way the transition? So just a little bit more granularity on the evolution of the transition. Thank you so much..

Thank you, Ricardo. That’s like, five questions in one. So we'll have Jorge answer, and John and myself will provide some additional color..

Sure. Recardo, thanks for the question..

Go ahead, Jorge..

Thanks for the question, Recardo. So on Brazil volumes, I would say, as John mentioned, we are very optimistic about the outlook for Brazil for 2022. The numbers you mentioned are correct. So actually, the fourth quarter 2021, if we compare to the fourth quarter of 2019, is actually 6.5% above, now the 2019 data. And we expect that momentum to continue.

Now, we have strategies around affordability and execution, the multi category strategy as well. We're implementing B2B, digital initiatives, etcetera, all combined for these optimistic expectation for Brazil. As Constantino also mentioned, the volatility is going to be paramount. It’s definitely not going to be a walk in the park.

But we are companies that we have the right capabilities. So to give you a sense, I would say that we continue to expect in low to mid single digit volume growth expectation for Brazil in 2022. And pricing, as Constantino also mentioned, it's at least in line with inflation, and we will see the opportunity to take pricing ahead of inflation.

We will continue to foster a mix recovery in Brazil. So that's broadly speaking, the strategy and the expectation for Brazil. And if we think about -- moving on to the transition of beer, Recardo, I would say that pretty much in line with what Heineken mentioned on their release a couple weeks ago. There has been solid performance from premium brands.

Eisenbahn coverage has been our focus, we have been taking over the brand and we have increased significantly the coverage of Eisenbahn in the market. Tiger is of course a recent launch.

So it takes as usual -- as it usually happens, it takes some time to adjust and make some adjustments, but we are learning from that and Tiger is getting better and better as well. And at the same time we are taking over the distribution of Estrella Galicia to nicely complement the portfolio. And we have the Therezópolis as well.

So the idea is to continue with that strategy, to continue complementing and building up these very consumer-centric and strong portfolio of beer for Brazil.

I don't know, John, Constantino, you would like to add something to that?.

No. No, Jorge, I think that was thoroughly explained. Thanks..

Thanks, Jorge..

The next question comes from Sergio Matsumoto of Citigroup..

Yes. Hi. Good morning, John and Constantino. Thank you for the space for question. I wanted to delve a bit more into the beer question, if I may. You were very successful with the distribution of Heineken and I guess the expectations for what is the new portfolio of beers it's very interesting to ask or watching you do this for the next several years.

And just wondering on the strategy the long-term strategy of this, it sounds like from what you have said in the prepared remarks? And what Jorge just mentioned -- is that the focus would be on Eisenbahn at the beginning perhaps also with Therezópolis as these two are premium beers and that's where growth is, but it's also a very competitive space with Heineken trying to dominate that and as they're also trying to reclaim that space.

What are the of the possibilities of Tiger in Brazil as the main stream was kind of ignored in the last year and a half? And maybe there is a easier base if you will to accelerate growth there. Is that a possibility? And also when you look into Estrella Azul -- excuse me Estrella Galicia they are building a new plant right.

And it's quite large and if they were to reach capacity it could represent all on its own 2% of the whole market. So that's quite big. So just I'm curious on the potential for the brand as well. And also on which channels you might focus on? Whether it will be the large retailers traditional channels etcetera? Thank you. .

Thanks for the question. I think as you pointed out we are in a transition. But we are bringing together a very strong portfolio of brands and obviously the Heineken portfolio is an extremely fundamental piece to it and a very large department. And we continue to work very closely with them. We have taken over Eisenbahn.

Eisenbahn has been -- we are growing in coverages and client base in a very significant way and the acceptance of the brand is very good extremely good. As we go forward Therezópolis is also a brand which is a very premium craft beer and the acceptance that we are getting and the growth curve that we are looking at is very strong as well.

Tiger is something that is a new brand. It's a total new brand for Brazil and we have very close collaboration with Heineken as to what we need to go out there and adjust as we go forward. There are certain packages that are working better than others there are certain graphics that maybe working better that others but it is progressing.

It's progressing and I think that's going to come back and allow us to be within that core area a good player. And Estrella Galicia we are just getting going. So it's a little bit too soon to say but as you said the plants are extremely large and the ambitions of the brand owner with the plant are there.

So I can tell you some of this -- it is also very well accepted in the market.

So we are putting together a very powerful premiumized or premium or core portfolio is something that we will continue to see the development for the next -- throughout the 16 months to 18 months in terms of digesting and settling in and probably also adding other brands to that that would enhance our offer to the customer.

Constantino you were going to say something?.

No just to complement Sergio what John mentioned I think that were -- in our view the key of putting together a successful portfolio is understanding and mapping not only price segments, but also need states and what brands can you deploy against the combination of need states, price segments and channels, where we have certain advantages and enormous capabilities.

And we have mapped out evidently with Heineken, but doing the work ourselves with other partners a possibility of creating a portfolio that addresses those key points and leverages on our capabilities. So as John mentioned, this is transition. This is not necessarily the full picture.

I can assure you we will be adding additional brands to the portfolio and these will come either from Heineken or some fully owned brands like Therezópolis or with other players to complement the portfolio. And at the same time, we continue to push and establish and grow the current value propositions that we have.

Tiger is a fantastic liquid with the flint model, pure malt formula in a market that requires easy-to-drink beers. But we need to allow time for the brand to gain traction in the consumers' mind. At the same time, Eisenbahn is a fantastic value proposition of a local craft beer that has gone more massive than small craft brands.

And Estrella Galicia has a great portfolio of premium and super premium offerings that we will continue to develop. But stay tuned because this is not necessarily the end state of what we are putting together..

Quite interesting. Thank you, very much..

Ladies and gentlemen, that's all the time we have for questions today. I would like to hand the call back for any additional or closing remarks..

Well, thank you for the confidence and interest in Coca-Cola FEMSA. As always, our Investor team is available to answer any of your questions. And we anticipate a very strong year for Coca-Cola FEMSA in 2022. Thanks for your time today and we'll be in contact..

Thank you. Have a great weekend..

Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect..