Q1 2020 Earnings Call
[music].
Good day, you're currently on hold for the Coca Cola FEMSA first quarter 2020 conference call. At this time, we are assembling todays audience and well be underway and just a few moments. We thank you for your patience enough that you. Please.
Hi.
[music].
Please standby we're about to begin.
Good morning, everyone and welcome to Coca Cola FEMSA first quarter 2020 conference call.
As a reminder, today's conference is being recorded in all participants are not listen only mode.
At the request to the company, we will open the conference up for questions and answers after the presentation.
During this conference call to manage let me discuss certain forward looking statements concerning Coca Cola FEMSA future performance and should be considered as good state estimates made by the company.
These forward looking statements reflect managements expectations and are based upon current available data actual results are subject to future events, and uncertainties, which can materially impact the companys actual performance.
At this time I'll now turn the conference over to Mr., John Santa Maria Coca Cola FEMSA, Chief Executive Officer. Please go ahead Mr. Santa Maria.
Thank you.
Good morning, everyone. Thank you for joining us today for first quarter 2020 conference call.
Don't stuff, you know spots or Chief Financial Officer, <unk> head of Investor Relations are also on the call today.
First and foremost on behalf of all of which I Coca Cola FEMSA Hope you are your families are safe well.
And these challenging times I would like to express the solidarity with that many people who had been affected by the cobot 19 pandemic.
As well as whopper or knows recognition to the health care continuum.
I'd also like to thank all of called the Gulf answers employees across our operations for their outstanding job and train or business continuity.
In product supply in the base unprecedented times.
We enjoy a robust business that go system.
In our top priority remains the health and wellbeing of our clients consumers and overall employees.
Right limiting measures to ensure we successfully navigate these challenging environments.
Emerge a stronger company.
During today's call I will briefly address our first quarter results and trends across our markets.
Sure outlines the strategies and mitigation actions that we had been implemented across <unk>.
Finally guns dumped deal 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.
Despite headwinds our first quarter results reflect positive underlying operating performance.
Importantly, you can do increase or consumer base and improve our competitive position.
Validating our business strategies, and reflecting our leaner more agile organization.
Which is better positioned to phase two days dynamic market environments.
Notwithstanding our steady overall performance for the quarter you started.
Based on first depicts will depend on that over the last two weeks March.
Social just since June measures were gradually implemented across our jobs worse.
Additionally, during this period, you start generating constant currency devaluation pet.
That's true gold at 19 and added Mark you can fluctuate from greater greater in oil prices.
Our consolidated volumes remain flat for the quarter.
Volume growth in Colombia, Argentina in Central America, It was offset by low single digit declines in Brazil in Uruguay and relatively stable performance in Mexico.
Our top line declined 1.9% driven mainly by unfavorable currency translation effects from most of our operating currencies, partially offset by pricing initiatives in key markets.
On a comparable basis.
Currency translation effects, our top line would have increased from 3.6%.
Despite higher concentrate cost in Mexico reduced tax credits of calling concentrate in Brazil.
Yeah, the increase dollar denominated raw material costs.
Due to the appreciation much of our operating currencies are operating income remained flat for the quarter.
Jordan, mainly by declaring PDG cost and operating expense efficiencies.
On a comparable basis or operating income would have increased 6.3% and their operating cash flow would have increased 12.2 person.
Give me a sense of the currency headwind space during the quarter foreign exchange impacts accounted for more than 580, the Mexican business.
Operating income level.
Finally, our controlling net income decreased 1.5% year over year.
Driven mainly by one thing increasing their interest expense from needed to our successful definitely financing strategies during the quarter.
Hi, normalizing our controlling net income excluding currency headwinds onetime tax free claims in Brazil.
And the extraordinary increasing interest expense our earnings per share would've increased 21%.
[laughter].
During the quarter.
She began implementing restrictive measures at different paces and levels.
So was the first country in Latin America will come from Cold would case every 26.
A few weeks later the government started to implement restrictive measures and by March 24, good and hosted UC weren't doing with a full locked down the major stage.
They both 16 certain stage started to transition to partial loved ones.
Shortly after Brazil, Mexico confirmed its first Jays go get 19 up every 20 years.
On March 14, the government announced social distancing measures such as a cancellation of concerts and sporting events and by March 22nd Mexico City government announced closures of movie theaters bars and museums.
By March 30, the government announced the suspension of all non essential activities for the month of April which was later extend for the amongst <unk>.
Countries, like Argentina, Colombia, and Panama <unk> more strict measures closing borders just spending flights enforcing locked down and temporary closure is restaurants temperatures in bars, starting march 15th.
Hi, crush surcharge I used to be I've seen channel category package mix shifts driven by consumers adopting the adapting their behaviors to comply with these new social just teaching.
Yeah.
Consequently, we have seen declines in our on premise channel, partially offset by increases in the modern trade in home delivery Jones the.
The traditional trade channel complains means of mom and Pops are supposed to go to the Virginia.
Property convenient proximity for consumers across your markets.
Importantly, since most of our volumes or distribute through the judicial trade channel.
Our exposure to the on Britain's channels is relatively low.
Represent approximately 50% of large or consolidated volumes.
With regards to our beverage categories, you saw an increase in jug water.
During the beginning of abandonment.
Got to be brands Rountree loading initial days.
And it back that has been generally gradually normalize.
Couple of weeks.
In addition, we have seen resilient performance from our sparking beverage category with brand Coca Cola growing Jean Marc District Court.
I understand.
We're also seeing into declining and on the go consumption, resulting in an increase next multi serve and returnable presentations across our markets.
As many other countries, where we operate entered yet.
Hey, stricter phase of staying at home measures during April our consolidated volumes for the month fees, reflecting a mid teens contraction.
Markets like Argentina, and Colombia had been more significantly affected well Mexican Guatemala everyman 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 company.
Moving onto our strategies and mitigation actions Coca Cola FEMSA assays prices before.
Demonstrating the ability to successfully adapt to and capitalize on dynamic environments to emerge a stronger company.
Be part of the global Coca Cola system is an advantage as you work collaboratively.
Elaborate certainly with the Coca Cola company and the rest of system to share an adopt best practices from other geographies.
Hi, I'm proud of the Swift actions are operators are taken across your markets. We're working as a cohesive unit developing a comprehensive management framework designed to protect our short term results well meeting for long term goals.
As part of this framer, you're focusing our actions on key five areas.
To ensure our business continuity.
Here's what I call. The five seems you focus on collaborators clients consumers community.
Nashville.
First.
The health and wellbeing or employees is of utmost importance.
Therefore, we are implementing additional measures to support their everyday work.
We have reinforced health sanitation hygiene go to grow calls for gross purpose ladies.
And we are providing additional getting into our manufacturing commercial distribution team such as mast loves and sanitizing Joe.
Since March 16th most of our office based employees are working from home representing more than 6000 employees, we have implemented didnt monitoring communication protocols across organization.
And we are extending held at recommendations to our employees home environment as well.
Second I want to make sure our plans remain open for business and safe manner.
Our technological initiatives are enabling us to me James Britton contact with their customers, while reducing physical exposure.
Among our initiatives, you're leveraging or digital capabilities, including a multi channel strategy to take orders be a or b to b block phones.
Due to give you a sense and digital you're taking more than 6000 orders weekly you know what's up with a very encouraging repurchase great.
Moreover.
We are extending preventive measures to our clients. For example, you know to live in more than 25000 protect the screens further counters.
The plastic that we put in front of the counters in Mexico.
And 100000 matched work traditional and trade clients in Mexico.
Third we are leveraging digital and direct to consumer trends, our first mover advantage across digital trade channels.
Hi, guys increase you're going to be done for example in Mexico, we are growing our volume by more than 30% and Amazon Robbie and by 60% in corn show.
Moreover, the severe a growing or bond with more than 70% of close food aggregators.
Importantly, we are adopting our portfolio, leveraging our affordability and returnable bottles as well as or single serve multi bags, while prioritizing and simplifying our portfolio took the good profitable.
Thanks to our initiatives returnable formats are growing double digits across all markets.
Work.
We are supporting our communities across all markets. We have donated more than 1.5 billion liters of beverages, as well as transporting and donating medical supplies.
Moreover, in Mexico, we teamed up with a good color company and other organizations in Mexico to set up a temporary medical facilities of 800 people Dutch and 36 intensive care units were killed it purposes only.
Furthermore, in Brazil, we teamed up with the sugar cane industry to deliver more than 250000 meters and sanitize not called hospitals in so Paulo.
<unk> together with a Brazilian institutions red gaining donated more than 26000 called at 19 test.
Its own front line health Care's professions.
Good we're focusing stronger on cash flow management and further strengthening our balance sheet.
We develop additional cost control towers to optimize our cash sources and uses we are aggressively targeting savings and selective brave selectively prioritizing topics across our operations.
As we previously disclosed during the quarter and successfully refinanced and took on short term credits to solidify our cash position.
And during the quarter, where the cash the cash position for more used 39 billion Mexican business a level that we have maintained to do.
Across our territories, we had been working closely with governments in public health authorities complying with preventive measures reinforcing our protocols, ensuring our genes <unk> and leveraging our insurance supply chain clotting trivia availability of products, while providing essential hydration toward consumers in communities.
Given the essential nature of our products and I'll preventive more protocols governments across all territories have allowed us to continue operating.
Thanks to the relentless work of our team you do not anticipate material disruptions to our supply chain at this point.
Consistent with other people to discuss capability building strategies on the commercial manufacturing and supply chain fronts.
Digitalization nothing musician Upfronts make more something there were delighted with current then nothing.
Accordingly, we have part Reprioritize projects, an accelerated the rollout of initiatives designed to intensify our digital commercial capabilities as well as to enhance our efficiency and a world productivity.
Strengthen our customer connections, we are accelerating the rollout of around an omni channel capabilities and last quarter, we discuss encouraging signs from probably as there are now being aggressively roll though.
For instance, our enterprise what's up in Brazil is now expected to reach more than 260000 customers.
The year end, well our beat to be platforms in Brazil, and Argentina are expected to reach more than 100000 customers.
Moreover, we are exploring integration of digital payment options into our beat to be black launch drinking our value proposition for consumers and customers.
[noise] aligned with their customers joint ventured vision and strategy enable better contact with our clients going direct to consumer channels. Consequently, we consumed developing capabilities process and would change with aggregators pure players and he reaches 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 situations.
Finally.
I'm just underscoring the strength of our cash flow generation, our competency and are confident smoke Philippines, a solid finished position.
On March 17, or I guess shareholders meeting our shareholders approve the propose ordinary dividend.
Well point 86 doses per unit.
This dividend represents an increase of 37% year over year.
With its first installment to be paid on me yes.
I Coca Cola FEMSA, we embarked on a deep transformation to create a leaner more agile organization.
We developed in the gold out digital initiatives to grow stored value chain, and we and reinforce a collaborative culture across organization.
Working together you have achieved meaningful progress drench, strengthening our resilient profile and positioning organization to navigate short term challenges and then she long term success.
With that I will not handover the call took on something.
Hey, good job 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 other divisions highlights for the quarter.
In Mexico were top line increased 2.4% driven by pricing and revenue management initiatives.
Partially offset by slight volume contraction in on them favorable price mix as the result of the effects of cold, but 90.
We continue to reinforce our competitive position and expanded consumer base, allowing us to continue gaining market share.
In Central America, or volume growth continues to be driven mainly by what that I like this partially offset by you've got a lot in Panama.
They result, or top line into Mexico, and Central American Division increased 2.8%.
Importantly, and despite concentrate cost increases.
And the depreciation of the Mexican vessel operating income increased 11.7% driven mainly by declining p. costs, coupled with operating expense efficiencies.
Driven by these factors are divisions EBITDA margin expanded by 280 basis points to reach 22%.
In South America. Despite strong started the year, mainly driven by volume growth in Colombia, Argentina, the effects of Golden 19 started affecting their operation volumes in March.
Additionally, the depreciation of all while operating currency vendor division better top line to declined 7.5% during the quarter.
With regard to profitability, we faced currency headwinds coupled with her decision just temporarily suspend tax credits on concentrates in Brazil.
However, these effects were mitigated by favorable P.B. prices, our ability to drive cost and expense controls.
Savings from restructuring to perform during 2019 and the tax Reclaims in Brazil recognized during the quarter.
I will now expand on or companies <unk> going forward, specifically I will focus on the options we have taken into finance function in the life of the current situation.
As we discussed.
Your last conference call and consistent with her financial discipline.
It's actually completed debt refinancing strategies in the U.S. and Mexican markets by issuing an aggregate of $1.5 billion.
These transactions providers with a very manageable debt maturity profile.
Specifically, we extended the average life over debt from seven to approximately 10 years, while reducing where average interest rate.
Hey, more than 70% over debt matures beyond like you'd probably be flight.
Additionally, it's important to exercise that we completed our liability Madison transactions before cobot 19.
Okay, and the global pandemic underscoring are conservative profile, including approach to get under all circumstances.
As you saw today earnings release or interest expense recorded an increase up 77% versus the previous years.
This increase was driven by an extraordinarily.
1.5 billion pencils related for refinancing strategies, which we prepaid via tender offer it made all our 2023 Yankee ball for this reason you got expecting normalization of interest expense as of the second quarter.
Part of a comprehensive financial result, we recorded a foreign exchange gain.
Her and 86 million passes as a cash position and you have dollars benefited from the depreciation of the Mexican pets are doing before.
Very important to underscore the we continued to how the policy of zero net debt exposure to U.S. dollars.
Well couple offensive liquidity position is robust and our cash flow was stable no less we're taking additional measures to strengthen our cash position inadequately forecasts and control inflows and outflows.
First we took an additional short term [laughter], mainly the Mexican peso denominated debt of more than 11 billion purposes.
As of March 31st cash position reached more than 39 billion vessels and our net debt to EBITDA ratio closed the quarter at 1.2 times.
Second.
Although very prudent cash data such as part of a culture reinforcing our cash flow through the implementation of cash control towers.
The nerve centers that are focused and optimizing sources and uses of cash is control towers utilizing interrupted process to radically off day, which we do by the way weekly Oliver forecasting there's no other ways to successfully manage dynamic environment than analyzing and reacting with agility to optimize their cash.
Sorry.
As part of this initiative, we're setting the right where you already see manage working capital expenses and cap that's for the remainder of the year.
All of our operators.
Men, whose job in generating cost expense controls and efficiencies.
Although we had budgeted close to $650 million of consolidated Capex at the end of 2019 Im delighted to current environment, we reevaluated and Reprioritized immediate needs well also before in projects.
This gives us an important lever to manage your cash flow for the year.
We're fully confident that we're taking the rights that's out there right.
Okay, well defenseless conservative profile resilient business model continuous investments in digital capabilities and strong balance sheet.
It's that become even more valuable in times like these.
And with that I will now have the call back to John for his final remarks, Thank you very much.
Thank you guns don't do you know.
All crisis put our strength and resiliency to the test, but I'm convinced as was the case for our company before that challenging times also bring opportunities for the long term.
I mentioned were taken are consistent with our key your strategic 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 in a solid financial position.
Thank you for your interest in our earnings call them for you continue trust and support and Coca Cola FEMSA.
Operator, I would like to metals didn't call for questions.
Yeah. The question and answer session will be conducted electronically.
I would like to ask a question. Please press star followed by the different one if you are using that speakerphone. Please make sure your mute button, it's turned off to a lot you signaled semi cap equipment. Once again star one more question somewhat pause for just a moment.
And our first question on hair care from Dan there with Barclays.
Yeah. Good morning, John Constantino sure. Thanks for taking my questions and congratulations on all the the refinancing you were able to do I guess right in time.
Now I have one just quick accounting question, so you're showing a significant increase in Mexico.
On amortization operated noncash charges, which basically drive stuff you or your EBITDA in Mexico by approximately 500 million is that somewhat related to the refinancing you've been doing or what's behind that increase which also obviously there's been reflected on a consolidated basis.
For instance, you know you're in.
[laughter] sorry.
Hundred noted difference on this thing to bleed explained by the virtual effects, but up negatively affect to operating income the route it back to worried about.
That 500 million difference.
Around 67% is due to the loss of the operator exchange fluctuation, which is about 360 million patches.
And the other 20% this basically related to an equity method.
For two other subsidiaries, we did a we did have an impairment in early out now.
JV above there around 100 million hundred million vessels, there JV and see the JV in Brazil, So that's where that that that difference comes from.
With that I'll address your question Andrew Yes.
So it's a part of that is most likely going to be reflected as well in twoq you just because of the additional FX headwind, we're seeing in twoq compared to one Q on on the operating side correct.
Yes that would I mean, yes definitely not it I would not expect that in the same magnitude I would assume but how did the situation is extremely dynamic of the volatility is too. So we're definitely will be so I'm in fact that return.
Okay, and then one for one for you John and you elaborated on Ed a in regards to all the strategies you've been doing on a two to deal with the current situation, but often looking a little bit had been obviously.
We're seeing significant downward revision on a different economies <unk> GDP growth expectation so amongst the strategies you've been working on be it on the digital platform or be it on your sales through online channels.
Rationalization of products and what would you say is like the most relevant piece of it before you can still improve your alteration.
Prepare for what is likely going to be more severe economic slowdown and what investments would be needed to basically I'm the chief that strategy.
Sure enough things.
I think we're focused on two items, one is ensuring that we have an affordable portfolio.
No doubt affordable portfolio has enough capacity to be able to suffice demand.
That is really based on Returnables and.
We've been pushing hard on nine months I didn't mention in the call.
We're seeing a continued growth and those passengers not only because everybody's moving to home the just because the affordability involved.
And secondly, there's still a lot of efficiency that we can pull out of our markets.
Two ways one is to further a system integration processes and procedures.
And secondly is and more importantly is probably you know changing our routes to market and a lot of places we have opportunities to shifts carve out to market.
To a leading the bargain structure down that for example in Costa Rica or no.
Something like 60, or 70% of our bonds are running from third party distributors.
Practice and enhance and understood what does it mean there were probably although you know that I want Bookability sports are there I mean countries, we have Mexico, Colombia.
Being two of them, England. So I think there's a lot of lovers still yet to be gold and trends and the operating efficiencies and terminal.
Secondly, I think you know when you start thinking going forward I know, it's probably question you or somebody else is.
I think we can maintain or pricing within inflation terms, so that would give us a topline revenue.
Really that I think that consumers can accept.
Primarily through the different package mixes that we have so I think there's still a lot of work to be done.
I think you that probably he sees the revisions going forward.
Most of it comes from in second quarter.
Economic downturn and that really coming in the third and fourth quarter.
We think it's a similar situation because the local offense.
Perfect. Thank you very much.
You're welcome.
And next to live to Lucas.
With JP Morgan.
[noise] Hi, gentlemen, my first question is regarding their relationship between you and and killed.
At least a week Coca Cola how has been the relationship but you know you said during the crisis.
Entertaining serve a flexibility in the relationship and I can concentrate that you can no. The bulkers ask a good actually see etcetera.
As a service support from from people that that'd be my first question.
In the second question is regarding you know, there's kind of the financial health often some of your channels, especially that are more than the traditional or the woman bought us now doing just fine sale. So the foodservice and special rights efficiencies to be most impacted.
If you were you mentioned in the beginning some support you're getting back in terms of Ah.
Helping to provide you know a equipment et cetera, what about in terms of like the working capital.
Can you talk a little bit about the that started sustainability offload. These channel doing surprises and how can you help keeping them upgrade.
<unk>.
You want to pick that though.
Let me just start off with the relationship and you can probably had some like along with some capital.
Okay.
Oh, Yeah Lukas. Thank you for the question.
And with our relationship with Coke, there's been much closer.
Because of the crisis in a bunch more collaborative.
In terms of how we're going to market you know what actions we're taking.
And I think a you know the crisis brings out some plans have worsened the best and everyone.
And in this sense I think it's been very very positive.
So I have absolutely nothing to say, let's go to the company, but a great things because they have shared learnings.
Some other parts of Latin America, and Im sure learnings from other parts of the World. We've understood what is going on what has happened in China.
And been able to prepare for although you just don't reflect prepare for such a crisis, but understanding the dynamics and been very very.
And for US Secondly, we have every week you have conference calls, but for function with the Coca Cola company sharing our learnings understanding where things are and also with buying new best practices. So then the nearing that so the relationship and I don't think political of himself is an exception I think it's part of part of it.
Your broader pattern.
But the immune instead of relationship that we have with the company has grown dramatically over the last four to five weeks.
I think the other question you a house on concentrate whether this is something that you're going to have relief on or not really on that we haven't discussed.
And that's something that you know structural in nature core relationship or what have we have discussed vertical of Cowen <unk> company.
There's a level of marketing funds will be putting into the markets over the next.
Bumps in quarters.
To be able to ensure that we have an ex <unk> flexibility you know I know you know, but also more importantly, making sure we're making the right type of investments.
In markets in marketing and trade that ensures that they bucks at required.
In terms of channels.
Concerned right now with a those type of channels.
But harvests are large social gathering points.
I think we have very well capitalized companies in Mexico.
I want to that end.
But we'll see because the dealt with tickets till I don't know consenting if you ever.
Went to the mid.
Yeah, absolutely I.
I think the most important.
Piece of information, we'll give it a that I would.
What a share is first of all our exposure I mean, this was a phenomena that at least at this stage such good.
Much more in the initial stages the on premise non trade accounts.
Our exposure to be on trade accounts is much lower than in other parts of the world. So when you look at a total portfolio.
It's about 15% and that includes both you know the key accounts are on premises.
The QSR and also the I would say more traditional on premise account. So so beat the exposure of Coca Cola FEMSA to be on premise is is low we're probably going up by their bottlers in other parts of the though so that's that's what that's one I'll begin with.
Apart from that.
We're offering factoring solutions to our customers across the board, particularly our traditional trading swirl small customers, which is you know helping them.
With that work in working capital and we have not seen significant issues around around these these customers.
The same time, what I would say is the fact that.
The brought in this and the death of our portfolio predictor.
Our traditional tray traditional trade, which I'd be ended the day is you know the most important channel.
In Latin America and it's.
Yes sense of retail in Latin America, when you look at hurdle overall, but the the portfolio that we're able to but a two to four to <unk> to our retailers. So broad and these people are the trending.
The most Oh said the dynamic in consumer occasions, and in consumption has allowed them to be able to serve the demand quite well.
We have seen shifts from single serve packaging into multi serve packaging and were able to have bottomed at depth, you know portfolio as well as returnable packaging, which offers affordability solutions for consumers right now so our portfolio for say, it's a great advantage for traditional drain on our grew.
And your marriage.
And reach to the traditional trade is also creates a significant value for retailers because we have not disrupted our service and at the same type.
The enabling over Salesforce and a route to market solution with the digital capabilities that John mentioned, a few minutes ago. The watch trop solution or youre out would be to be solutions.
I have been able to continue to serve our customers even in the cases, where we could not have face to face complex. So you know that the.
A combination of our portfolio a route to market digital investment that we've been doing for a long time. This does not happen overnight. You don't you don't sort of 260000 customers over night on enterprise watch up just because called it 90 update you on that we've been working on bids were quite all quite a long time.
Oh, we're all working capital you know help that we're getting there or.
Customers, who own some of the factoring.
Solutions when you combine all of these things and the portfolio.
I've been able to mitigate yet but from that in but it's also been significant help on for our customers. So so far and weathering the storm quite well and we're hoping that rebuilds and retail customers do it to and and and at the same time as I mentioned, our exposure to the on trade.
Which is definitely.
The channel has been hit the most initially this is this is quite low.
Okay play places.
In the world and of that home.
Problem, it's John so that's.
Let me just to add something Lucas I think there's couple of things.
[music].
In the case it makes the also our route to market.
Portfolio also includes.
Oh mobs and home routes, we have over a thousand I think its thousand 200 routes from Mexico.
And those volumes are up you know surgeons 30, some odd percent.
So the diversification or how do we go to market is also very important.
And the other point is.
We're looking at what do we do the day after.
We're focusing very much on understanding what our.
Our route to market is gonna be.
None of the market.
But our support for traditional in small trade to ensure that those those segments or the market.
And stuff.
Trade fuel if you wish to come back so.
Hello.
Thank you very much element, that's very clear.
Thank you.
And next I moved to Carlos Laboy, H E B C.
Yes, good morning, everyone I'm, John Thanks for sharing some of that near term measures you're taking it and then some of the digital things that you're doing.
But when asked my question. This way you know if I look at your business three four years after the Tequila crisis.
It was almost unrecognisable is vastly different because of the measures that you took and after the await financial crisis. He was also vastly improved three or four years later.
How will this business.
Be different and looked at free.
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 four years from now because of these actions that you're taking in particular because of the digital evolution.
Got something around to take a crack at it could get back.
Oh sure Oh said often done though.
John complement.
I think that lives the digital capabilities that will we are building will be able not only.
Who drive much more efficiency.
You know were in our system, which is a.
A significant improvement that will be gone.
Structural you know were in our business or the one hand, but on the other hand, we will be able.
Serve better our customers I mean, the conductivity the omnichannel capabilities that we have today are capable to serve better our customers and that will definitely become an edge that its structural.
In our in our business. So I would say that that is another shaping shaping aspects of Coca Cola FEMSA.
Golan going forward.
I think that's at the same time, we're doing enormous progress in terms of portfolio, which is where sure something that has absolutely nothing to do the credit circumstance, but we're not we're not.
No we're not undermining that effort because of what we're facing right now so there's a I mean, we foresee a region were affordability played well definitely become.
More important element or the consumer value proposition and we're working strongly with that.
With a richer edible initiatives. So I think that is something that is also structural in nature and continued to to be there and then I mean, we have never rebalanced.
We're inorganic growth strategy I think the definitely these type of crisis is for sure reshape industries going forward and we have continuously stated that you can see our financials power or no.
Capability to execute inorganic transactions at the right value and that the rightside either through our equity fired power.
Or through a balance sheet, so I think but it's definitely a little bit table. We continue to monitor that side of it and then we'll need to understand how you know the system and how you industry is going to come out of this of this crisis I mean, you cannot underestimate that reshaping power.
The crisis of this magnitude too, but it's very difficult blood dissipate, how does that look going forward you know.
It's months from now.
That will definitely well equipped well prepared we have.
You know very solid financial we have a very a robust liquidity position.
And we'll preserving that significantly so I think but that will become also an asset for Coca Cola FEMSA going forward to face the the reshaping of the industry. So I think those those are the I mean for neither the big issues digital capabilities, and how would that drives efficiency and a better.
Customer service booger topline, creating more opportunities.
For growth in that regard portfolio.
On one end and on the other and the bus and that's of our financial position and our expertise and financial discipline and history and track record Oh I'm very good M&A.
Okay. The bookings that we have.
In the past that builds are.
Position is quite well so going forward as a company. This system I don't know John If you have you want to go out into this.
Yeah, I think there's a couple of things Carlos we've talked about omni channel and no really didn't want to work that we're doing it to make sure that our transactional.
Cell system are clearly fully.
Linked to all sorts of.
Sales modes.
Plus third party sales modes.
Inc. is enormous about since there was an enormous amount of complexity and there, but we're starting to see that we're starting to see that come true in Brazil, we're starting to see that come true will be your own Argentina.
And from there becomes very easy to start dropping in additional channels would be well with cousin consumers direct consumer is no home delivery routes et cetera. So so really the backbone in two or three years is going to be much further digitize, giving us a portfolio relative market. So it's even much broader than what we have today that's for.
Secondly, what we're doing is you know as we spoke about the is yet to last year or last quarter.
We have functionalize yet.
Operation and we're seeing enhanced efficiency in our processes that were putting through the functionalization. That's human resources that is a finance that is supply chain and believe it or the amount of savings that keeps on coming out of a recurring basis are very hot so the and product to this.
Is gonna be very very focused.
The market facing operation with a very efficient back and.
And there was gonna be enormous amount of synergy put out for us over them you know over the next two to three years.
Are you going to another piece you know that we're probably not making enough about yet as we continue to invest and rechargeable 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 and in the foreseeable pack, but will also be broaden that out to other other other browns and categories to allow for availability alone.
The non carbs as well as the carbonated products that's to universal bottles.
Those are going to continue we rolled out and.
And that's I think is going to make a significant evolution and making sure that people sitting in our franchise not only in preparing itself trends among cards as well.
Does that give you a picture of where things are going.
It's wonderful thank you very much appreciate it.
Thank you troublesome.
And next semester to Macau.
Oh whiskey.
Hi, good morning, everyone. Thanks for the space here two questions. The first let me regarding the deal.
He was most normal is probably yeager mutuals enough water I would say so considering bad one of the regions, where you had been monster, Let's say do not go do do you expect sort of would say piece into get easier.
Did you showed me does how was the second quite hard they're taking quite as well so far.
<unk>.
They phases I had produced vision.
And he is the second one move into two to Mexico and could you give us some condo and good pricing and try to get ahead, especially considering Quinn ethics graduates into actual hedging position. The noting is there a guy he would be helpful. You could share widow told so you're going to abusing them so of raw materials.
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Up until this.
Brazil doesn't give you a little bit of an overview of Brazil, I mean, as we mentioned previously Brazil was the first country and let them to confirm a case.
Social distancing bashers would take it.
As of March and being very restricted and so Bob though at the beginning which as you know.
One of the big markets in Brazil, So hurting the volume sport.
For the month of.
March or the cold channels definitely suffered the largest sandbox, particularly the on premise as I mentioned and and and then Additionally, it's fair to say that as well as we face buffer weather conditions more rain during the quarter compared to last year, which was a dryer warmer summer during April.
Yeah I get your question the social dispensing measures are still affect volumes. However, some states will be transition from a partial bogged down or having to wait partial bogged down from a very tough love down to a partial barnes and volumes seem to be recovering after the Easter holiday because some of the plans of grads.
Really started the opening on all in all Oh, we see all we saw the Brazil volumes in April degrees around 20% and based on that we're adjusting our portfolio towards more affordability multi bags and returnables as the new shopping habits or you know or didn't.
Shaped by this phenomena at least temporarily and and we're hoping or digital presence and that in that regard. So so that's a little bit a picture of what Brazil.
Looks like in the case indicates of Mexico, Mexico has been.
Despite the fact that we're in a very volatile environment and it's very difficult Odyssey very difficult to predict going forward. We're seeing that makes you guys going a little bit more resilient so far.
The volumes have been better than the average total on portfolio that okay wharf <unk> contraction around the mid single digits. However, it's also important to say that we are entering the worst space of the epidemic the upcoming weeks as the government has stayed at the there their projections.
There are about to beat during the week of though May eightth. So we're we're there in the worst space will be epidemic and that might change definitely the on the way the volumes are behaving I mean, but there definitely been resilient I'd seen declined in the on premise channel as a matter.
Before and the single serve mix is definitely been compensated by an increase in multi serve on presentations. So oh I'm sorry, 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.
Portfolio measures to successfully navigate this but.
Our hedging strategy I think I've been proven to be successful.
Part of your question, but I I would say that about 65%.
Over.
Dollar denominated com materials that I like your Cogs I did hedged about a route $20 per vessel, which I think is good in the lights and 20 <unk> the ball or any less per dollar bloody plenty buses for belt exactly sorry and device over of the volatility we're facing right now.
And we have designed to pricing strategies around I loved dot. So we're you know we're being very conscious a repricing.
Very conscious of the way, we bought it or portfolio and we have once more the benefits of a broad and deep portfolio that addresses quite well I think better than anyone the beverage industrial demand, but long alcoholic beverage industry the needs of their consumer and these dire types.
So I think we're very well prepared considering the circumstances and because of Mexico and the resiliency of the market in April is showing us that.
Oh that addresses your question.
Yeah, that's very clear ideal.
Thank you there.
And next the moved for Ron.
Yes.
Yes, Hello of the money every line.
My name quicker Smith, a girlfriend idea as to what percentage or Youre volume come from bar restaurant.
So that area, except <unk>, but you know.
So what's your assumption is likely to continue.
And then in brick and the future and the or or like say accuses which everybody would have to make your expect or long term crop in volume.
Well what time do.
The drop in logins home buyers that are from DBM dicker there'd be until we can get resolved by the do care 10.
Iran called nothing that's in our however, our on trade at all on threat, but well brothers, we want to call. It exposure is is about 15% I mean, they vary anywhere between 10%.
Ralph 18% indicates a Brazil, we will also serve or more bars and restaurants due to our Heineken Ah portfolio to be or a beer distribution agreement that we have but once more it is not significantly material in terms of yet but that has across gigawatts.
Business, so to roughly 15 or 16%.
It's definitely been significantly impacted as you all though.
We'll be able to forecast how this will continue to be in the long term.
We have very difficult to exercise to do but now considering that this has been they vary I will say quick and profound disruption in the market honestly, we believe the structural changes are not gonna be significant and beyond trade channel with the information that we have right now.
Hey, good analysis running right now we believe that once some of that social distancing measures and the governmental measures, but I've been put in place or.
Go back to normal progressive the global see a comeback of the alteon them as China, Let's let's also remember that we were not a spirits company like so a lot of our on premise I counts are traditional popular you know.
Restaurants or be every day every day culturally those are.
Goes there for lunch and breakfast et cetera.
I don't think that will go away honestly in my opinion that we go we'll have to understand how you know how the the channels are behaving about the long term, but you know.
Predicting the structural changes right now will be.
More than irresponsible at least from our side, but but to what we do we think we're going to return to verbally to progressive.
Oh, Thank you Ron I think just reinforcing what.
Well in something that said I think when you're going to have he's a very very small residual consumer behavior change from this this this crisis.
But I do think that you're going to see a return to normalcy on the channel on channel mix. What you will have is the impact of whatever economic could we.
Pull down you may or may see.
Employment or whatever but I don't think it's going to be related any shifts in volume is not going to be related to consumer behaviors over in the economic resin residual of this crisis.
Okay.
Thank you appreciate your feedback.
And that's something has to Christopher on a rato and please.
Hi, they try to call. They my question, though already that I'd say.
It's an excellent.
Thank you a woman Tim.
Yeah.
Hi, John HEICO, something <unk> have though I hope you're going you will you and your family there will I wanted to go back to two Brazil actually you know I was wondering John if you could sort of compare.
Very interested in in your your thoughts on the discretionary nature of both your products in Brazil.
Sort of how you expect.
Your performance in this.
This forthcoming economic crisis to compare to what we sell in 26 to.
In terms of you know the depth of your portfolio the robustness of the operation.
And so forth just we clearly saw a shift.
So you know at home consumption of.
Uh huh.
<unk>.
Substitute risk right at.
Integrates with 2060, I'm trying to get to a better sense of.
Oh, you're better equipped this time around too.
To take that on what's going on so that's one question.
Okay, well I'm trying to victory in my mind is that happened 26 features to be real honest with you.
Listen I think what we've done in Brazil over the last couple of ER.
Years, even spectacular.
Because.
He developed a returnable portfolio that weve not necessarily had before returning to develop and Coca Cola, we've developed and and.
Thanks, and flavors with that them.
I think what we have also had his depth and noncarbs. It wasn't working over the last two three years last year, we redid the whole portfolio and that's come out.
<unk> increased.
Sales volume to that and profitability more important.
The other thing to that we've had as we've been putting into the marketplace into an enormous amount of cold drink equipment.
Over the last three or four years, you consistently been investing between 40 to 50000 pieces, not 50 or more thousand pieces of the doors with equipment in the marketplace.
I know I believe that the with the the amount and the digital.
Capability that being developed down there along with the team you have a significant amount of capability to go out there and.
Participate in the lead.
In our community in emerging digital channels. When you start looking at the amount of incidents that we're getting.
On on beverages going through the.
Aggregators.
Rooms, Johnson share and not only that building owners jumps in volume. So when you start looking at everything that we put together.
The occasion base that we are even to the consumer wants who'd been attacking whether it's on premise with increased refrigeration increased portfolio.
A home delivery by Aggregators and more importantly.
Going out there and putting together a significant portfolio route to market mechanisms digitalization that allows you know as they hit.
A series of segment that consumers in a much more cost efficient manner. So you know right now like we talked about you know you're going to have 260000 accounts.
I mean service with what's up with the capability of putting it in with lots up and some other form of upsells, whether that be physical or whether that people are phone or whatever so that alters your economics in a big way and it all Theres also a frequency with which a consumer can go out there.
Customer, but there can call so <unk> fourth quarter, So I think you're gonna have much higher.
Customer Centricity Oh, we've had is much higher customer centricity.
Approval ratings much more focus on that or service level to the tree is getting increased dramatically and ER and how our survey say that you know we jump in terms of customer satisfaction to a level that you haven't seen before so I think you put it all together and I think that and you probably economy.
And so that's going to drive our performance in Brazil.
And next summer.
Garcia with <unk> T G.
Operator, I think we need to.
We'll take one mark as John needs to be so.
And without being able to.
Thank you for the other we'll be able to controls. So please <unk> Patricia that think of or else. Please go ahead.
I just actually I just asked my question says he could go into the I've got it was about LNG I'm, sorry, I'm going to Alan Alan This is Sam.
Thank you.
So I know the telling us that we hope dog.
There will be the previous again over the past its really quick question I mean change that you said, we're learning a quarter really <unk> for more returnable bottles and meet for more use of technology I'm about to your Capex outlook for Europe or do you have some problems.
Your too that's much more on returnable bottles and technology in order to come out stronger.
No.
First and then they'll have a quick.
Sure well definitely.
Go ahead, John Glass, I think again none.
Well and they have.
Oh.
Yup.
[laughter].
I had constant Jim.
Well, yeah, I mean, it has been part of our of our Capex structurally for the last a few years. So we had been prioritizing.
Digital investments on one hand and to build up and development of our returnable portfolio. Despite the fact that it will be our reprioritizing, our our capex. This year I'm in a delightful their current events a lot of the returnable capability.
The or the returnable investment is volume metric and totally variable its basically bought in some cases encouters additional coolers for returnable capabilities as we don't foresee.
You know significant hard infrastructure investments in this year for Returnables in.
In that case.
We have put in as we mentioned that the called them to put in place, but we called cash control tower, which basically in process for every Monday, we see a 13 week outlook of Howard cash flows are looking every single operation and and we compare that.
We portfolio scenarios are more longer term longer term, meaning by the end of the year that we have you have analyzed and comparing both dynamics the continuous cash flow projections on a weekly basis and the scenarios that we have.
For seem very different to major we werent able depending on how we see the casuals coming we're able to activate or trigger more investments offer returnable capabilities in terms of bottles and cases and coolers. So that's the way we're managing it in at the same time, we have placed at.
John has mentioned a significant priority under a digital capabilities. We foresee that is a structural change that we'll 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 yes, no no no.
Problem Alan how are you have both everything's good.
Listen I guess on the capital D. is.
You know what we've been focusing on this year is you know or what we've done right. Now is no ensure the fact that we have enough frozen funds.
On the initiatives to make sure that you know all or none are hard cash targets are met.
So the 650, some odd million dollars that we had approved Horde capital this year even.
You can probably say, okay, there's probably 250 million that <unk> for sure control. If they were the case and if not more you know required. So you could probably it's been a worst case chop that number and how okay. What we don't want to do and what we're continue today is no structural.
Term projects the increase capacity either in distribution.
Or in production.
Such as I do we still continue to have you know our Uruguay class Refurb go underway for not stopping that were not stopping or increase in Guatemala capacities were not starting and stopping any of our distribution increased capacities you know in terms of distribution center capacities and that.
Below the song to say, we're not looking at stopping any returnable bottle capacity.
In Mexico.
In short term.
The question is whether we would be really was in the range of what typical capex would be going forward and ER and whether any of these incremental initiatives that we're talking about would make us get out of that range and I know you my strong belief and commitment to that is that we will be within that range. Okay.
And you know a manage through the different layers of investment, but within that come with a total.
Percentage of Capex that we are allocating back into the business.
That's very clear became their space could be a reallocation.
Those capital.
I Love question has to do with Brazil, I mean, what you've heard the garden Brazil.
Hi, my friend per Se.
Not at the right well you think about consumption location channels.
Are you, saying that you want them, all and much more than that other April so I guess, what's your view regarding your.
I'll be your yes, right now helping or.
Moreover, we.
Second order and growing meeting here in.
What.
Cool stuff.
He forgot soft drinks.
Co ops.
Yeah.
Well I don't we cannot comment too much on a beer respect a respecting cytokines are positioned they already mentioned in the earnings release that in Brazil, the beer volumes declined to round up low single digits.
Premium that mainstream portfolio is performing better.
Then the economy a portfolio that was for.
The initial part of the year as your assumption definitely or that's just common sense beer b dubs much more of the on premise channel than what we have pointed out UBS us pay less and they put in place their strategies to mitigate this.
There's element, but they don't need <unk> I guess I need to redirect your question to Heineken, though in this case.
That's what they're doing.
Okay. That's okay, I mean, <unk>, yeah, you're getting mark for swap I'm sure, they're very happy with it.
Anyway, so congrats for workshops and they can somebody for taking request.
Thank you so much I hope your cellphone fabric care.
Okay. Thank you.
And at this time I'd like to turn the call back other Mr fan.
Many of the Smith for closing remarks.
Well, let me just say that these are 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 team so taking the right actions.
They are taking the actions that will allow us to come out faster of as pandemic as well.
I was just like to thank you for your confidence and continued interest in the Coca Cola FEMSA business. Thank you.
That concludes today's call, we think keeping your participation.
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Uh huh.
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