John Santa Maria - Chief Executive Officer Constantino Spas - Chief Financial Officer Jorge Collazo - Investor Relations Director.

Good morning, everyone, and welcome to Coca-Cola FEMSA's Third Quarter 2022 Conference Call. As a reminder, today's conference is being recorded and all participants are on 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 on 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 would now turn the conference over to John Santa Maria, Coca-Cola FEMSA’s, Chief Executive Officer. Please go ahead Mr. Santa Maria..

First, we transformed into a digitalized model, adopting technology and digital capabilities across our value chain. Second, we are now becoming an omni-channel and multi-category acquirer, with the clear ambition of becoming a full commercial ecosystem into the future.

I am confident that we are implementing the right initiatives to achieve our short term objectives as we approach the end of the year. We have clear objectives and the capability to achieve our long-term ambitions. With that, I will hand over the call to Constantino to expand on our divisional results. .

Thank you, John, and good morning everyone. In Mexico our volumes increased a solid 8.7%, while our total revenues increase 17.5%, driven by strong volumes in all of our channels, particularly in the modern trade, coupled with our pricing initiatives, revenue growth management and a favorable price mix.

In Central America, our operations continue to deliver strong results, with double visit volume growth and a 17.6% revenue growth. Remarkably, our volumes in Guatemala continue to show significant volume growth, even when considering a high comparable baseline.

As a result, our quarterly revenues increased a solid 17.5% in Mexico and Central American division. On the profitability front, our gross profit increased 11.6%, which resulted in a gross profit margin of 46.9%, representing a margin decrease of 250 basis points as compared to the third quarter of 2021.

This contraction was driven mainly by increases in commodity prices, which were partially mitigated by revenue management and raw material hedging spend.

As in previous quarters, we were able to partially mitigate gross margin pressure by implementing savings and efficiencies in our SG&A, which enabled us to increase our operating income by 18.6% and to expand our operating margin by 20 basis points in the Mexico and Central American region.

While we continue to see macroeconomic volatility as we approach year end, we expect to carry on protecting profitability through our revenue growth management and focus on driving expense efficiency. Our operating cash flow margin for the quarter was 21.2%, which represents an expansion of 10 basis points in the Mexico and Central American division.

Now moving on to South America, this division delivered 7.1% volume growth as compared to the same period of 2021. This increase was driven mainly by a 12.1% volume growth in Argentina, a 7.2% increase in Brazil which includes that consolidation of CVI and a volume growth in Colombia and Uruguay.

Despite facing tough weather conditions in Brazil, we were able to deliver [Audio Gap]. .

I think we lost Constantino..

Yeah, let’s reconnect him.

Operator?.

Yes, just bear with me a moment. .

Yes, thank you all for waiting while we reconnect Constantino. .

Pricing and volume growth were partially offset by unfavorable currency translation effects, and the transition of a beer portfolio in Brazil. .

Constantino?.

Yes. .

You were off the air for about two minutes. .

Yes, I’m sorry. .

Maybe Constantino, if you can go back to South America, the issuance and we can take it from there. [Cross Talk].

Sorry for the technical glitch, I’m back on the line. If we move on to South America, the division delivered 7.1% volume growth as compared to the same period of 2021. This increase was driven mainly by the 12.1% volume growth in Argentina, a 7.2% increase in Brazil, which includes the consolidation of CDI and volume growth in Columbia and Uruguay.

Despite facing tough weather conditions in Brazil, we were able to deliver another quarter of volume growth driven by resilient consumer demand. On a comparable, excluding volumes of CDI in Brazil, volume in that division would have increased 4.4%.

Revenues for the division grew 19.1% as our revenue management initiatives, pricing and volume growth were partially offset by unfavorable currency translation effects, and the transition of our beer portfolio in Brazil. If we exclude currency translation and M&A effects, our top line would have increased a solid 21.9% during the quarter.

On the profitability front, our gross profit in South America increased 25.2% expanding our margins by 200 basis points. This increase was driven mainly by the operating leverage resulting from volume growth, favorable price mix effects, and raw material hedging strategies. These effects were partially offset by increases in raw material costs.

Our operating income for the division increased 2.9%, while our operating income margin contracted 150 basis points as compared to the third quarter of 2021, driven mainly by a tough comfortable baseline related to non-recurring tax effects in Brazil for Ps. 620 million Mexican recorded at the operating income level during the third quarter of 2021.

These effects were partially offset by higher gross profit and an increase in operating leverage, resulting from volume growth and expense efficiency. Finally, our operating cash flow in South America increased by 6.1%, resulting in an operating cash flow margin contraction of 190 basis points.

If we normalize by the onetime effects, I previously mentioned, our operating cash flow margin for the division increased 130 basis points year-over-year. Now let me expand on the successful relationsof our social and sustainability bonds in the Mexican market.

Consistent with our financial discipline, strong credit profile and commitment to sustainability, we priced social and sustainability bonds for a total amount of Ps6 billion Mexican. This issuance represents the first social bonds in the consumer sector in the Americans and the first social bonds of the Coca-Cola system.

Furthermore, we became the first company in the consumer sector in Mexico to price sustainability bonds. This transaction was completed in two trenches. The first trench was priced at a 9.95% and Mbono+ 0.30% for an amount of Ps. 5.5 billion Mexican due in seven years.

The net proceeds of these bonds – of this bond will be used to finance a – to finance a legible social project. The second trench was priced at a variable rate of TIIE + 0.05% for an amount of Ps. 500 million Mexican due in 4 years. The net proceeds of this bond will be used to finance eligible sustainability projects.

For additional details on our use of the proceeds and commitments related to this transaction, you can find a copy of our sustainability bonds framework on our website and a copy of the second party opinion provided by SNP, who confirmed that our ambitious targets are aligned with sustainable bond principles.

Finally, I want to underscore our focus on maintaining a disciplined financial position and our commitment with shareholder return. Our strong balance sheet and solid cash flow generation allows us to, as of September 30, 2022 have a net debt to EBITDA ratio closing at 0.8x with a cash position of more than Ps.

39 billion Mexican, even before the proceeds from the social and sustainable bonds I previously mentioned. Additionally, on November 3 we will pay the second installment of the ordinary dividend declared last March to complete a total cash distribution for our shareholders that exceeds Ps. 11 billion Mexican during 2022.

And with that, I will turn the call back to John for his final remarks. Thank you. .

In light of our research management succession announcements, I want to say that I am extremely privileged for the opportunity to serve and led Coca-Cola FEMSA as CEO for the past nine years, in building a world-class bottling company for over the last 27 years in my career.

I want to give a special recognition and thanks to all our Coca-Cola FEMSA employees. We have confronted many challenges together, but more importantly, we have achieved great milestones, and for all that we should all be very proud.

Additionally, I am tremendously grateful for the work that I have been able to share with the colleagues of the Coca-Cola Company and at FEMSA throughout this entire journey. It has been a privilege working hand-in-hand with such amazing professionals.

Finally, I'm also thankful for their continued support, feedback and interactions I've had with you, the investment community over all these years. As I previously mentioned, I am convinced that our company is better positioned than ever to capture the many opportunities that are in front of us.

I am very pleased that Ian Craig, our current CEO of Coca-Cola FEMSA Brazil has been appointed by our Board of Directors as my successor to carry out as Chief Executive Officer as of January 1, 2023.

Ian is a proven leader with a 28 year career within FEMSA and Coca-Cola FEMSA, and an outstanding track record that includes senior corporate divisions, as well as successful business turnarounds in Argentina and Brazil. Ian is a natural successor to lead the company.

He brings positive continuity to leverage up the strategy and accelerate towards the goals we have set as the organization, and I am confident in the bright future that lies ahead for Coca-Cola FEMSA under his leadership.

Finally, I want to thank and congratulate Constantino Spas, our CFO that has been fundamental to our company's transformation journey and who has invited by FEMSA to become Chief Executive Officer of FEMSA Strategic Businesses as of the next year, succeeding Alfonso Garza who is retiring after a highly successful 37 year career at FEMSA.

I wish both Ian and Constantino great success in their new appointments.

Constantino?.

Thank you, John. After five years at Coca-Cola FEMSA and four years as Chief Financial Officer, I will continue my career at FEMSA as Chief Executive Officer of FEMSA Strategic Businesses. Working at Coca-Cola FEMSA has been a privilege, nothing less.

I have worked with an extremely talented team and witnessed the company's profound transformation throughout these years, and I'm confident that we have set the right objectives and we have positioned the company together for a remarkable success.

I also want to thank you John publicly for your leadership and dedication to this company over the years. You have been a true leader in shaping Coca-Cola FEMSA into the amazing company that it is today.

And I'm beyond grateful to John, my team and all my other fellow members of Coca-Cola FEMSA, all the employees of this great company for their contributions as we have worked together to transform this company. And thank you all for your continued trust and support and for joining us today for the call.

And with that operator, we would like to open the call for questions. Thank you. .

Thank you, Mr. Constantino. [Operator Instructions]. We will now go with our first question from Alan Alanis from Santander. Please go ahead, your line is open. .

Thank you so much, operator. Good morning, everyone, and first of all congratulations to both of you. Congratulations John! I mean, you will be dearly missed and congratulations Constantino very well earned move. Let me take advantage, that that this well, I guess the last time we were going to be talking in a quarter call.

To make more of a strategic question rather than the quarter, if you could describe what do you see? I mean you see a lot in the Coca-Cola FEMSA operations, the Coke System.

What do you think will be the biggest changes that Coke is facing in the next three and five years, and what would be your advice for Ian in the operating front and as well in the relationship with the Coca-Cola Company, which by the way also reported pretty impressive results this morning. Let's leave it at that. .

Alan, can you just clarify your question one more time. .

Sure, sure.

I mean, the question is, I mean what do you think are the biggest challenges that Ian and Coca-Cola FEMSA is facing in the next three years and five years, and how do you see the evolution in the relationship with the Coca-Cola Company in recent years and going forward? I think that the relationship with the Coca-Cola Company is extremely important for the stock price and for the other than – for the driver of the stock price which is the profit split within the system.

.

Sure. I think the challenges we have are I think, addressed by all those strategies that we put in place. The first one is to continue to digitalize our company, profoundly and across all our territories. And we are very clear about how we're going to do that and roll it out.

As I said on the call, there was probably about 750,000 average monthly users on our digital base. And you can probably use that of the – you have to scale and think through that next year where we’re probably doubling that, okay. So I think our digital strategies continue to be deep, profound and accelerating.

I think along with that comes a willingness to start working with different partners, partners that will give us that relevance at the point of sale, and obviously in conjunction with the Coca-Cola Company.

And that's going to be a challenge, because obviously when you work with some new partners, either you are going to have operating issues, important to basically hiring out.

Well, when we have done this in the pilots, everywhere we're gone we’ve seen tremendous volume uplifts for all our partners, and so I think we're in the right place with the right strategy. And third, I think just you know continuing to leverage up on innovation inside the Coca-Cola Company.

We've seen that happening more towards the alcoholic waged drink sector with everything that they are coming out with, from Topo Chico Hard Seltzer, to Jack and Coke, to the Schweppes mix drinks. So I think we have a very big large area of opportunity that we have to learn from and continue to move forward.

I think more than anything else, it’s just about going out and making sure that we are reinvesting, packing in the business to be able to capture all these opportunities, and I think Alan, one thing that you have seen in Coca-Cola concern is that under this new long-term relationship model that we have with Coke, our capital investments have nearly doubled over the last two years.

We probably are going to be around that level for the next – the foreseeable next two years, because demand is growing so strongly. So I think going forward we have the right strategies in place, we have the right digitalization strategies and we have the right partner in the relationship.

I think it's just going to be a very strong operating focus from here on out for Ian to continue to do this. .

That's very clear and it makes a lot of sense for me. Thank you so much, John. Congratulations for a very successful career, and Constantino, best-of-luck over there.

You're leaving both, to run a company with a – a very, very strong company, a very strong capital balance and so I mean congratulations! Best-of-luck!.

Thank you, Alan. Thank you very much. .

Thank you. We will now take our next question from Marcella Recchia from Credit Suisse. Please go ahead, your line is open. .

Hi John, Constantino! First of all, congratulations as well to both of you for all achievements at Coke and wish you all the best going forward. I have two questions, very quickly. The first one is in Mexico. Basically you were able to more than offset a 250 bip gross margin compression because of higher input costs.

Can you just give us a little bit of more color? What were the drivers that led such amount of savings in OpEx and how sustainable they are going forward? This is my first question. And secondly, if you can elaborate a little bit more about the partnership with Heineken in Mexico. I understand you are the first bottler to distribute here in Mexico.

How you are planning to deal with the license requirement to sell a cold beverage in the traditional channel for example, and also if you have any views, how incremental is this partnership in terms of volumes and synergies? Thank you so much. .

Thank you, Marcella. On the margins in Mexico, definitely gross margins were – first of all, we’re very pressured mainly by the higher PET and sweetener costs.

Fortunately, our hedging initiatives and price mix continue to mitigate this effect, so one key element for cost containment and margin protection is revenue growth management, which is a disciplined, very disciplined practice within the – within Coca-Cola FEMSA that will continue to be there in our hedging initiatives that follow a process.

We have been quite assertive with these hedging strategies up to now. I believe that if we continue following the process, that will continue to provide for a positive impact in our margin protection.

Then on the SG&A side, our team in Mexico has been able to double down inefficiencies in an outstanding way, mainly generating the efficiency from marketing expense by doing better execution and much more optimal and optimization of the marketing expense initiatives.

Labor cost savings such as professional services, travel expenses, etc., and within that achieving this whilst facing increases in freight and maintenance costs. So on the SG&A side a lot of work too, despite increases in freight and maintenance. And our very important element is our supply chain reinvention.

This has also helped to significantly reduce our cost to make and our cost to serve. On a consolidated level we have saved approximately Ps. 935 million year-to-date. So this has been also key to protect the profitability of the business.

Having said all that, we're confident in the team's ability to continue to double down on these efficiencies and continue to protect our margins for the remaining of the year 2022 and well into 2023, considering that we will face enormous volatility and pressure on 2023. So I hope that provides a little bit of color on the margins.

And then on the pilot program with Heineken, first of all I'll have John provide more color in his view on this.

This pilot program will definitely allow Coca-Cola FEMSA to prove its distribution and selling capacity for high length in products in the beer category in Mexico and we've done that in Brazil for many years, and we're aiming to strengthen such products presence in the traditional trade channel, allowing more customers and more consumers to have access to a broader portfolio, as always putting our customer and consumer satisfaction at the center of everything that we do.

We expect that these pilot programs will allow us to obtain the necessary learning and insights to continue advancing towards a potential strategic alliance in the future. As of now we're beginning these pilot tests and evidently further details will be provided in the future.

This pilot, just to give you more precise information, will start in the state of Guanajuato. We will assess more potential territories according to the learnings and the market needs that we identify with this initial pilot.

And the focus as of now in this initial stage is that Coca-Cola FEMSA will cover a customer base that is not currently covered by the Heineken route to market, allowing for an expansion of coverage and increased execution in these particular regions. John, I don't know if you want to add something to Marcella’s question. .

No, I think that’s all right.

This is – you know the Heineken piece more than the Mexico piece, I think, you know as we go forward, you know we're going to see where it makes sense for both companies, where we can add value for Heineken, and I don't think you can take this solution as being something that is immediately translatable to all countries within Coca-Cola FEMSA.

But what makes sense and where it makes sense for us and where it makes sense and has value for Heineken, I think you're having the right dialogues to be able to go out there and learn together as to how we can go out there and maybe down the path and find something that is more reasonable, more longer-term and more sustainable.

But these are very encouraging first steps, okay, especially in territories that are difficult in the western market you know for Hein. So we'll see you know. We have the capabilities to go out there and add value to them. .

Okay, gentlemen. Thank you so much, very clear. .

Thank you, Marcella. .

Thank you. .

We will now take our next question from Felipe Ucros from Scotiabank. Please go ahead, your line is open. .

Congratulations on the recent announcements on retirement for John and future endeavors for Constantino, and thanks for this space for questions. Just a couple in my end.

The first one you know, the recent reports of marginal down trading and some of the most discretionary categories in the sector, I wanted to ask you about the role of returnables and affordability in in the current and upcoming environment.

Maybe if you can give us some color on how returnables and other affordability options behaved in prior recessions, and whether the consumer augmented its focus on returnables and whether you were able to keep the consumer within your price ladder or whether the consumer traded out of the core portfolio into maybe private label, water alternatives.

Just looking to see what kind of reaction you expect from consumers in the upcoming slowdown. .

You know, you want to add on Constantino?.

Oh! You go ahead John. You're the expert and you've seen everything in the last 30 years regarding the turnarounds. I can add more color. .

All right Felipe, I think one of the things is as you have – I think we're better positioned today than we’ve ever been positioned in the history of Coca-Cola FEMSA.

We have a broad, broad set of returnables throughout all of our organizations, all our countries, and frankly you know we continue on to build an outlook on the multi-served and the simply-served side, and there's a lot more work to be done, but we are very, very, very pleased to where we are.

In an environment that has very high economic volatility, a very high pressure for our consumers, you know we basically trade them in and out of different type of value packages. You know some are returnable, some are on par, you know a lot more advantages.

But we are allowed – what we are basically doing is pulling together an array of art pricing and packaging.

That architecture that allows to capture the consumer at any price point that he has within his pocket and the change in his pocket, and to stay within the daily rituals of drinking Coca-Cola, carbonated soft drinks, and I think that's worked for us in the past.

And when we are confronted with the volatility and exchange rate, and all of a sudden you have the pressures, their increased pricing, because the foreign exchange or the PET commodity, its cost, you know at least we have a lag effect that will last for some time, but will allow us to maintain and give them a larger value as compared to the pricing that they need to take to maintain themselves in the franchise and bring us back into the database that we are looking for.

So I think the value of returnables is not always somewhat – you know there is a sustainability handed to you, but it really is also a volatility hedge for the Coca-Cola System in all of Latin America. .

Very clear, thank you. And maybe… [Cross Talk] Yes, yes, of course, very clear. And then if I can do – I'll follow-up my second question. Congrats on the Juntos+ rollout.

I just wanted to ask a little bit about this new effort and how your ambition to beef up the product offering, whether pilots are being included in this platform, and how this fits with the WhatsApp effort that you have been rolling out since social testing across Latin America?.

I'm sorry, I had a hard time hearing you.

Did you hear that Constantino?.

Sure, it's a question regarding our omni-channel platform John, in Juntos+ and its connection with multi-category offering for the customer. So, I can take it Felipe and then have John compliment. As you have seen, we're basically expanding every month our digital coverage of our omni-channel platform.

I think there's a couple of principles there that are [Technical Difficulty] multi-category offering for the customer. First of all, this is truly a multi-channel focus, so what we are doing is using digitalization as a way to enhance and expand the touch points with our customers.

So the way that the customer interacts with Coca-Cola FEMSA through digitalization is not a productivity tool to reduce cost, but an enhancement to increase our service level and the possibility of interaction with [Technical Difficulty] physical presence and at the same time we're at [Technical Difficulty] rolling out a digital app in the case of Juntos+ in most different markets and it’s very [Technical Difficulty] So we're expanding our product.

Secondly, this allows [Technical Difficulty] being able to accept orders by [inaudible] and deliver them the next day. So in different countries we're trying different configurations with the [Technical Difficulty].

So this allows for our customers the best time constraint, browse our property and make sure that they can go over it [Technical Difficulty] categories product offering that we have, since now the customer has no time constraints and the pre-seller is less time constraint, allowing for a broader portfolio without hindering execution and efficiency on the physical routes.

This evidently will let us increase as we expand our relationship with different partners like the one that we just mentioned with Heineken in Mexico. This will allow us to continue to enhance our multi-category offering in a way that we have defined, which is customer focused and value accretive for everyone in the value chain.

So for our customer, for their consumers, for Coca-Cola FEMSA, then for the partners that can benefit from the usage of such a powerful route to market and commercial platform like Coca-Cola FEMSA.

So I – you know the very high-level construct of the thinking behind digitalization and our omni-channel capabilities, very much focused on increasing the impact and the effectiveness of our platform, and not as a means of pure efficiency and cost reduction and productivity.

Evidently productivity has come along, but the focus is on the effectiveness side and on increasing our net primary score with our customers and creating value for everyone in the value chain and evidently for our shareholders too. I don't know John if you want to complement on that, and Felipe, I don’t know if that answers your question. .

Yeah, I would just say that everywhere we put together the correct partnership on the platform.

We're seeing incremental Coca-Cola portfolio volumes, as well as incremental coverages and sales of partner volumes, and it’s turned out to be very synergistic, and we are very clear as to what the next steps need to be, to be able to continue advancing towards our goal of putting two million customers on our platform in short order in every part or in every country that we operate in.

And so you know this is one of our core foundations, our core strategies, and then through that offer the relevant services for the traditional trade as we start building this omni-channel platform. .

That's very clear. Thanks to both of you and again, congratulations for all of the achievements. .

Thank you. .

Thank you, Felipe. .

Thank you. We will now take our next question [Inaudible] from Goldman Sachs. Please go ahead, your line is open. .

Yes, hi! Good morning, everyone. Congrats on the results guys and thanks for the presentation and for taking question. I also like to take the opportunity John to say congrats on your mandate to have this cost and good luck to Ian and Constantino on the new roles. Well done guys! I have a quick follow-up on the operating.

Constantino in your remarks you mentioned PET and sweeteners were the lines in which costs came under more pressure on the quarter, especially in Mexico, right. Could you please give us a sense on how the raw material prices are evolving for 2023 and the details around the hedges? You have loopholes going forward so far. Thanks..

Yeah, let me provide some color on the hedges and I'll have also Jorge answer some of the questions, right. So in terms of raw materials and hedges, just to give you a sense of how significant the hedges have been to avoid the cost, we have saved approximately Ps. 1.2 billion year-to-date because of the raw material hedging initiatives of this year.

So as expected, we saw increases in raw material prices, as we mentioned, particularly PET and sugar across most of our markets. However, our hedging strategies have definitely helped us mitigate the impact of most of the commodities we use. Let me give you a couple of examples.

Corn prices have increased double digits, but we were able to mitigate the impact and hedge our needs of fructose at prices that are around 20% below the spot price. To give you a sense of that, we hedge 90% for Mexico in fructose in 2022 and in 2023. We have hedged 60% of all of our needs for 2022 and 30% 2023.

The most effective commodity as we mentioned has been PET and we now have covered more than 70% of our needs for 2022 and already 30% for 2023 based on our commodity risk management process. In Brazil, sugar prices have also increased importantly, but our hedging strategies once again have allowed us to partially mitigate that impact.

For 2022 we have hedged more than 90% of our needs at prices that are around 20% below market value and we have hedged 30% of our needs for 2023.

So all-in-all although it is certainly a very dynamic environment with a lot of pressure, we're confident that with our pricing initiatives, where we increased in-line or ahead of inflation depending on the market, fundamentally sustained by revenue growth management, combined with hedging initiatives like the ones that I have described, we will be able to substantially mitigate the pressures and protect the profitability of Coca-Cola FEMSA.

Jorge, I don't know if you want to add something additional to these remarks. .

I think that’s the most important part Constantino.

I would just probably say that you know combined with this, going forward the teams, the operators have a very robust plan that we are executing for the remainder of the year, but also position ourselves very well going forward in terms of you know leveraging our complying initiatives, the hedging strategies that we just described, and other capabilities that should allow us to mitigate margin pressures as we move into 2023 and some of these hedging strategies have the natural rollover effect.

.

That's clear guys. Thank you very much. .

Thank you, Tiago. We will now take our next question from Sergio Matsumoto from Citigroup. Please go ahead, your line is open. .

Yes, good morning. It's Sergio Matsumoto from Citigroup. John, all the best for your next chapter and Constantino, we look forward to working with you on the FEMSA side. .

Thank you, John. .

My question is on – Thank you. My question is on the goal that you mentioned John for 2022, I believe it's in Mexico where 65% of volume growth would like to – would come from single-serves.

Can you give us more context on this, on how much attribution you give to increase in mobility and how does the consumption environment for single-serves compare now to pre-pandemic times and what are the optimal sales mix for single-serves in the long term, not just 2022, but more on a few years out. Thank you. .

A lot of this – Sergio, thank you for your comments, you know I appreciate them very much. But you know one of the things that we are doing through our all Coca-Cola FEMSA is focusing on single-served multi-packing in modern channels.

So when you walk in there, you're going to start looking at modern channels having an extremely large assortment of single-served multi-bags, not only of consumer brands, but also combined brands where you have you know a combined pack with Coke’s or maybe Fanta’s or Coke’s and Sprite’s etc.

and it has to deal with you know going out there and giving the consumer really what they want. What we have found is that this is some behavior of drinking you know single serve with something that we had not exploited as much as we could. Given over COVID, we found that the consumption occasion went back home.

We put together these types of packages and at the end we’ve seen things growing at a remarkable way. Single-serve is 5% versus 2020 in Mexico and in Brazil. You know it’s up in terms of percentage points.

How much further can we go? You know I wouldn't venture a number there, but you will see that we are continuing to push this not only in margin channel, but also look for the light and adequate packaging, multi-pack for traditional carriers. .

Okay, thank you. .

Thank you. .

All right, thank you. We will now take our next question from Rodrigo Alcantara from UBS. Please go ahead, your line is open. .

Hi! Thank you very much for taking my question. Two quick ones if I may. On the beer sales in Brazil, it appears that the sequential recovery was a bit faster than previous quarters.

So just curious if you will have like anything here or was it just seasonality orientation driven? Any comment regarding the updates on the multi-category there in Brazil would be very helpful. And the second question would be, as we approach the rent [ph] do you have any preliminary thoughts on the dividend for next year.

Those would be my two questions. Thank you. .

Jorge, you want to take the… [Cross Talk].

Yes, thank you. Yes Constantino, absolutely. I will take the beer part, first. Thanks for the question Rodrigo. Just to point out thing. Actually, this quarter, this third quarter is the first quarter that we basically mark the unfavorable comparison that is reflecting the transition.

Now that basically happened last September, so a little bit is related to that, now that we are not fully comparing with a quarter, with a full Heineken portfolio from the previous year finally. So that's some good news in the sense of the comparison base. That this quarter marked the first or the last quarter that we cycle that transition.

For this reason, beer revenues decline around 45% this quarter as compared to the rate of approximately 60% that we had in the previous quarter. Secondly, I’m taking advantage of the question to provide you some additional color on beer. We are doing several initiatives there around beer.

Now first, for example, with Therezopolis we are rolling out a new marketing campaign with brand Therezopolis it's called in Portuguese, but it's [inaudible]. It’s a great campaign that we're rolling out.

And most importantly, as we mentioned during the previous call, we are building this portfolio for the long term in terms of build and building great brands is something that doesn't happen overnight. So we continue to focus on coverage expansion.

For example, with Eisenberg accelerating its momentum and its coverage, continue to build Tiger and the focus on execution and brand building that we're doing together with Heineken there. And so all-in-all we’re very optimistic about the portfolio and the future.

Next quarter of course we’ll mark a like-for-like comparison there for the portfolio as compared to after the transition. And it's behaving you know as we said mostly over the next curve on the development partner of the beer portfolio and that's what we are focusing on. .

And Rodrigo, on the dividend side, we have been delivering a very solid dividend. Just as a reminder, our current dividend represents an increase of 7.7% versus 2021 to an amount of Ps. 11.4 billion Mexican, which is important and it is an increase of 53.4% versus 2019, which underscores our commitment and a review of total shareholder return.

As of now, we continue to have our capital allocation priorities quite clear. First of all, to continue to deliver a sustainable, ordinary dividend that's attractive to our shareholders. Reinvest in the business. John was mentioning the significant investments in CapEx in the last couple of years that we have put behind the business.

Focused on growth, and last but not less important, to continue to look for value accretive growth opportunities. So that is our focus right now. We will pay our next installment of the dividend in November 3 and once more underscore the significant increase versus 2019 and evidently versus 2021 of our current dividend policy. I hope that helps. .

That’s great. Thanks for the comment Constantino and Jorge. And just to compliment there, if you can give a, I know it's still small, but any qualitative arguments there on how it is going on with the rest of the multi-category mantels comparing with the rest of the categories will be helpful as well. Thank you. .

Jorge, will you take that one?.

Sure, absolutely. Yeah I would say Rodrigo, what we are seeing is great results, because if you think about for example a year ago in October when we were beginning with the pilots for example of the ideal BMV in Mexico. Now we were beginning basically a one seating in each cases now.

In the case of [inaudible] for BMV, and over the course of the year we have been able to expand the critical mass of those pilots now and we are gathering learning’s and a lot of insights from that development. Similarly, we have been doing that in Brazil with [inaudible] loan gathering learnings, things are going on the right direction.

So, you know I would say that overall we're very, very enthusiastic about the trajectory that we're getting with pilots and also with the early dates of the distribution agreements that we have with [inaudible] and company. .

Okay, that’s great. Thank you very much Jorge and Constantino. .

Thank you. We will now take our next question from Luis Willard from GBM. Please go ahead your line is open. .

Hi guys! Good morning. Thanks for taking my question, and I join the rest of my colleagues on wishing you the best of luck in your next ventures.

So basically I mean I'll try not to be repetitive here in my question, but I mean it's remarkable to see the acceleration of the utilization progress, especially in Mexico as you have mentioned throughout the call.

So as it continues to gain momentum over the next quarters and the next year, and you continue to think of it as an enhancer of the ecosystem, so do you see the utilization also increasingly relevant when you think of capital allocation in the future. .

I want to – let me see if I understood your question though.

What you're mentioning is, given the evolution and the increase of relevance in digital channels for Coca-Cola FEMSA, would capital allocation on digitalization be a priority going forward? Is that the question, just to make sure Luis?.

That's precisely it. .

Okay, yes, for sure.

As we have stated in previous calls and in interactions, the way that we are looking at value accretive plays in organic growth and capital allocation, we have been focusing on assessing opportunities that are evidently on one end expanding our footprint in the current business where opportunities come, that are both strategically sound and value accretive.

We will not do any inorganic place just for the sake of growing. They definitely have to bring value both strategically and economically for shareholders.

At the same time, looking at adjacencies and other categories with the Coca-Cola Company that can make sense for our network within the beverage sector such as other categories that might be in the NARTD space, non-carbonated etc., that is something that we always look at and the Coca-Cola Company is very active on those fronts, in this region and in other parts of the world.

And also to answer your question, looking at technologies and digital partners that could enhance our value proposition to our customers in the omni-channel platform, that is fully digitally enabled, and at the same time that can allow us to accelerate with capabilities our digitalization efforts. So the answer is a, you know is a solid yes.

We are looking at and assessing different opportunities in all of those three different spaces, as we normally do, as part of the course of our activities on an everyday basis. I hope that clarifies. .

Yeah. No, that's perfect. Thank you very much. .

Thank you, Luis. It appears there is no further questions at this time. Mr. John Santa Maria, I would like to turn the conference back to you for any additional or closing remarks. .

Thank you, operator, and thank you all for your confidence and interest in Coca-Cola FEMSA. And as always, our Investor Relations team led by Jorge and all his team are available to answer any of your remaining questions or the remaining questions you may have.

And I would like to again just take the opportunity to thank all of you for your continued support during my tenure as CEO and just reiterate how excited I am about the continuity that's coming on with the team and the strategies that we’re underlying, and how we see an accelerated momentum in Coca-Cola FEMSA.

Not only are we growing faster, we're investing more and we're also returning an enormous amount of money back to our shareholders. So we've got three very good levers going in terms of the strategy and I think that the brand Coca-Cola FEMSA is an irreplaceable asset in North America that has room to growth on a global scale. So, thank you very much. .

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