Q4 2021 Coca-Cola Femsa SAB de CV Earnings Call
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Thank you.
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Okay.
Thanks.
Good morning, everyone and welcome to Coca Cola FEMSA fourth quarter 2021 conference call.
Reminder, today's conference is being recorded and all participants are in a listen only mode.
At the request of the company, we will open the conference up for question and answers after the presentation.
During this conference call management May discuss certain forward looking statements concerning Coca Cola FEMSA <unk> 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 will now turn the conference over to Mr. John Santa Maria Coca Cola FEMSA, Chief Executive Officer. Please go ahead, Mr. Santa Maria.
Okay.
Good morning, everyone welcome to our fourth quarter and full year 2021 earnings conference call.
I appreciate you joining us today, and we hope you and your families are safe and well.
I am joined on today's call by Constantino Spas, our Chief Financial Officer, and Theres always, particularly yes, our head of Investor Relations.
I'm encouraged by our results and the progress we made throughout the year, Although 2021 presented challenges our results highlights our business resilience.
Our ability to deliver accelerated results across all of our strategic plans.
We strengthened partnerships emerge stronger from the pandemic.
Closed the year with escalating momentum by delivering solid top and bottom line growth coupled with share gains across our territories.
During our call today, I will expand on our fourth quarter results and provide you with an operating update with a special focus on key markets of Mexico, Colombia and Guatemala.
Then I will discuss our vision for 2022.
The rollout of our Omnichannel and digital initiatives and our commitment to sustainability underscored by the recent announcement of a new PTT recycling facility in Mexico.
Before we take your actions and questions.
Being able to walk you through our divisions' performance.
<unk> ability initiatives and capital allocation, including our recent acquisition of <unk> in Brazil, and our Capex plans for 2022.
Okay.
Moving onto discuss our consolidated results.
Our volumes for the fourth quarter increased five 4% year on year, and six 9% as compared to our 2019 baseline.
This growth was driven mainly by significantly accelerated volume growth of 6% year on year in Mexico.
Coupled with the continuous recovery of most of our markets.
The third quarter, we continued to see a remarkable volume performance in Colombia Central America and Argentina.
For the quarter all of our categories posted volume growth as compared with the previous year.
Of course, partly in beverage categories grew three 9% driven by two 9% growth of brand Coca Cola.
And seven 7% growth in flavors.
Notably, our non carbonated beverages, and personal water beverage category grew 16% and 23% respectively.
With double digit growth in the vast majority of our territories.
As compared to our 2019 baseline our sparkling beverage category grew six 2% driven by growth in all of our territories that resulted in a solid five 3% growth of Bryan Coca Cola and nine 8% growth in players.
Across most of our territories and despite the rapid spread of Omnipod.
Towards the end of the quarter the on premise channel volumes accelerated.
While the modern trade grew ahead of our forecast and the traditional trade continued to post healthy and resilient performance.
Importantly, our single serve mix remains a significant tailwind to give you a sense in Mexico. Our single serve mix recovered an additional two percentage points as compared to 2020, reaching 32% and is only one percentage point below our 2019 baseline.
Okay.
Yeah.
For the quarter, our consolidated total revenues total revenues grew accelerated increasing eight 5% year on year.
This growth was driven by our volume performance, coupled with our pricing initiatives and favorable price mix effects.
These effects were partially offset by the transition of Heineken beer portfolio in Brazil.
With an unfavorable currency translation effect into Mexican buses.
Notably excluding unfavorable currency translation effects are comparable total revenues increased 10, 5% year on year on when compared with our fourth quarter 2019 baseline our.
<unk> revenues increased by 3%.
Despite the volatile supply chain on raw material environment gross profit increased a solid nine 8% and our gross profit margin expanded by 30 basis points, driven mainly by our pricing initiatives, coupled with favorable raw materials hedging strategies and efficiencies achieved across all of our operations.
Additionally, as discussed during our previous earnings call. We resumed the recognition of tax credits on concentrate purchases from announced free trade zone in Brazil as of the second quarter, which has also supported our gross margin performance as compared with the previous years.
Our operating income growth accelerated sequentially, increasing seven 6% as compared with 2012.
Notably it is the 21, 22% increase versus the fourth quarter of 2019.
Our operating cash flow for the quarter increased six 5% year over year, resulting in a resilient operating cash flow margin of 20%.
Finally, our controlling net income increase was solid 82, 8% to reach $5 8 billion vessels, driven mainly by a onetime favorable effect on our consolidated tax rate.
Mainly related to the recognition of a favorable deferred tax credits in Brazil.
Although the decrease in our.
And our comprehensive financing results.
Okay.
It is important to highlight and summarize our full year 2021 results consolidated volumes increased five 3% year on year.
Improving to 6% compared to our 2019 baseline.
Consolidated revenues grew six 1% year on year, surpassing our 2019 baseline.
Finally, operating income grew eight 6% year on year, increasing seven 8% as compared to 2019.
Notably driven by our focus on improving returns 2021 marks the fourth consecutive year of growth in Coca Cola FEMSA is return on invested capital.
Which is now in the double digit range.
I will now take a moment to discuss our operating highlights and the positive momentum of key markets, Mexico, Colombia and Guatemala.
Driven by our commercial initiatives and overall recovering environment, our Mexico operating operations volume for the quarter increased 6% year on year, while improving 3% compared to two 2019.
Notably we saw sequential improvements month after months, reaching a banner.
It was encouraging to see consistent volume improvement throughout the quarter, both across categories and across the different regions in which we operate.
Average daily sales improved consistently from the Bahia region to the southeast region, including Mexico City, and the Gulf of Mexico.
It is also important to underscore the results of the new Formula and visual identity of Coca Cola Sin <unk>.
In Mexico, what we.
Which grew double digits as compared to 2020, and a high single digits as compared to 2019.
Affordability played and will continue to play an important role in our strategy.
For this reason, we continued leveraging our broad portfolio and price pack architecture architecture to provide our consumers with the right alternative at the right price whether there are choices symbol, so multi serve multipack refillable multi packs.
Or one way options.
To give you a sense of the importance of returnable options today.
More than 40% of our volume in Mexico is in refillable presentations.
In summary, Mexico closed the year on a high note and made important advances across all our strategic priorities, increasing execution bolstering affordability and advancing on both the beat to be Omnichannel in D. C.
Direct to consumer home delivery firms, we are convinced that our Mexico operation has the right team capabilities and strategy to continue its positive momentum in 2022 and beyond.
Moving on Columbia, our volume for the quarter grew 16, 2%.
And 16 point and that was 16, 2% year on year, and 16, 5% compared with the same period in 2019.
We continue to focus on the fundamentals for success strengthening our portfolio.
<unk> upward ability and delivering outstanding market execution.
This mindset has enabled us to recover our volumes and single serve mix, while increasing our number of clients compared to pre pandemic levels.
Give you a sense during the year, we added more than 35000 clients, an increase of more than 8% to our client base and achieve historic product availability.
Importantly, consumer centric portfolio of innovation has increased our relevance in non carbonated beverage categories in work.
While the rollout of our universal bottle, which is growing double digits is giving us the strength and capability to provide affordability to our consumers.
This model gives us the capability to provide affordability not only in brand Coca Cola.
But also in flavors and non carbonated beverages.
As a result, we are growing ahead of the industry strengthening our competitive position by gaining share across categories and channels.
I am encouraged by our Colombian operating results, we have a clear roadmap to continue this positive momentum into 2022.
And beyond and leveraging the fundamentals of affordability increase coverage and availability, while accelerating our portfolio innovation and the rollout of our business to business Omnichannel platform.
Finally, our Guatemala operation continued its consistent three year double digit growth.
For the fourth quarter, our volume increased 14, 1% compared with 2020.
And then and an impressive 27% compared with 2019.
This growth resulted from our focus on delivering the right commercial capabilities, while strengthening our portfolio across categories and channels.
Notably our correspondent and beverage category in the traditional trade channel largely driven this remarkable growth story.
Looking ahead, we continue to see great opportunities in Guatemala to capture new clients reduce out of stocks and increased cooler coverage.
Continuing to digitalize, our operations from back office solutions for our commercial Omnichannel platforms.
In summary, we are convinced our positive momentum reflects the relentless work.
Archie and underscores our understanding outstanding capabilities to execute and deliver against all of our strategic priorities.
Okay.
While Coca Cola FEMSA strategic achievements for the year, where many no milestone is a significant as our enhanced cooperation framework with the Coca Cola company.
This framework ensures long term alignment of our partnership growth plans and strategy.
Enabling us to not only continue building a winning customer centric portfolio, while also exploring new multi category opportunities across our markets, while developing strategic digital initiatives.
This is achievement is the cornerstone of our ambitious, but our ambitions and priorities for 2022 and beyond.
As we continue to position Coca Cola FEMSA for the next wave of profitable sustainable growth.
Okay.
Consistent with our vision, we continue adapting and reshaping our company.
To thrive in the new global business environment.
We're accelerating the buildup of our customer centric omnichannel multi category commercial platform.
To give you a sense, we now have approximately 300000 active monthly purchases on a proprietary omnichannel <unk> platform.
Over two fold from a year ago.
Also we achieved a historical expansion of our direct to consumer home delivery routes in Mexico from.
From approximately 800 routes to 1002, undergrounds, reaching close to 600000 households.
While at the beginning of the digital transformation of these droughts.
As we speak.
Notably digital purchases in Coca Cola FEMSA now represent over 6% of our total Lars generating more than $350 million of sales of close to 95 million unit cases.
This marks.
Triple digit growth in our digital orders volumes and revenues compared to 2022.
Sorry 2020.
Okay.
Moreover, as we explore new multi category opportunities across our markets. We are rolling out pilot programs to test the distribution of complementary categories, such as leading spirits brands and leading consumer products in certain markets.
Although most of these pilot programs are in early days the results during the fourth quarter are encouraging.
We are not only gathering valuable learnings and insights, but also increasing coverages repurchase and revenue.
As part of our vision of becoming the world's preferred and most sustainable commercial ecosystem I must underscore our company's commitment to sustainable development.
Consistent with this ambition on January 25th we broke ground on a new recycling plant in Tabasco, Mexico.
Together with the outlook a global leader in the development and production of packaging solutions.
The ultimate goal of the state of the art plant, which will have a co investment of more than $60 million.
<unk> and accelerate the transition to a circular economy.
The pet plastics recycling that strengthened the collection and recycling chain and benefit the environment and the communities in Mexico South.
Southeast regions.
<unk> is expected to start operation during the first quarter of 2023.
Finally, we are honored to be included for the second consecutive year and the S&P global sustainability Yearbook 2022.
For more than 7000 companies evaluating worldwide, we stout standout as the only Mexican beverage company included in the yearbook.
Thanks to our positive performance on S&P's corporate sustainability assessments.
This recognition confirms that we are on the right path, but more importantly, strengthens our commitment to working towards a more sustainable future.
With that ill now hand, the call over to Constantino.
Thank you John and good morning, everyone.
I will now expand on our division's fourth quarter results.
In Mexico, our volumes increased 6%, while our total revenues increased 12, 2% driven.
Driven by pricing initiatives at a favorable price mix.
Central America operations once again delivered a strong volume performance with all of our markets growing double digits, which combined with the revenue growth management initiatives enabled us to achieve 28% revenue growth compared with the fourth quarter of 2020.
As a result of this our quarterly revenues increased 13, 7% in Mexico, and Central America, and 13% compared to the same period of 2019.
On the profitability front.
Our gross profit increased nine 1%, which resulted in a gross profit margin of 48, 4% against a very tough comparable base.
Margin contraction was driven mainly by increases in commodity prices and higher concentrate costs in Mexico.
Importantly, these effects were mitigated by successful raw material hedging strategy.
Although we continue to see normalization of certain operating expense during the quarter, such as labor and maintenance our teams were able to double down on additional savings and efficiencies in order to offset the effect of this normalization.
During 2022, we expect to protect our profitability in the division by pricing aligned with or ahead of inflation across our markets, while maintaining a disciplined hedging strategy and our permanent savings that efficiencies culture.
As I mentioned in our previous conference call.
Despite the dynamic raw material and supply chain environment, that's affecting industries worldwide, we're maintaining a high profitability base in our Mexico and Central America.
Notably our full year operating cash flow margin closed at <unk>.
92, 4%, which is 180 basis points ahead over 2019 baseline margin.
A remarkable achievement for our teams and the Division moving South America. This division delivered 3% volume growth as compared to 2020.
And is nine 6% ahead over 2019 baseline.
Double digit volume growth in Colombia, and mid to high single digit growth in Argentina and Uruguay.
Partially offset by the normalization of volume growth in Brazil, which was affected by very challenging weather during the quarter.
Our revenues for the division grew 2% as our revenue management initiatives pricing and volume growth were partially offset by the unfavorable currency translation effects and.
The transition of our beer portfolio in Brazil, which is a very early stages.
Glued the currency translation effects, our topline would have increased six 4% during the quarter.
On the profitability front, our gross profit in South America increased nine 6%.
Expanding our margin by 280 basis points.
This increase was driven mainly by the operating leverage resulting from volume growth.
Favorable price mix effects, and raw material hedging strategies, which coupled with the resumption of the tax credits on concentrate it.
Concentrate that we purchase from them in our trade zone in Brazil.
Our operating income for the division increased 18, 6%.
Resulting in an operating income margin expansion of 170 basis points.
Finally, our South American Division was able to effectively mitigate pressures from the dynamic environment at both the resilient full year operating cash flow margin of 16, 4% 20 basis points ahead of 2020.
Okay.
I will now expand on our financial results, which reflect the strength of our balance sheet and successful refinancing initiatives carried out over the past years for the fourth quarter. Our comprehensive financial results recorded a decrease of 57, 9% as compared to the previous year.
This is explained by the following effects first of all a decline in their interest expense net driven by an increase in interest income.
Secondly, a foreign exchange gain.
$79 million vessels.
Compared with a loss of $346 million vessels during the previous year.
A gain of 131 million pets foods as compared to a loss of 214 million vessels in the market value of financial instruments and lab.
Lastly, a bigger gain on monetary position on our questionnaire subsidiaries related to Argentina as compared with the previous year.
Notably on a full year 2021 basis, our interest expense net was reduced by 23, 2% driven by the effects of successful refinancing initiatives in our comparable base that included a one time effect of approximately $1 billion vessels related to the successful written out.
Three initiatives.
Underscoring the strength of our balance sheet and cash flow generation, we were able to finish the year with a cash position of more than 47 billion in vessels, representing a 9% increase as compared to the end of 2012.
Now let me provide you with an update on our raw material hedging strategies for 2022.
In Mexico, we have hedged approximately 75% of our PD needs for 2022 and more than 90% over high fructose corn syrup needs for this year, notably we have also hedged more than 40% over aluminum in the country, while in Brazil, we have hedged more.
70% over sugar needs for the year.
We're confident that these hedges coupled with our ability to price ahead of or aligned with inflation across our markets will enable us to substantially mitigate margin pressures and protect our profitability during 2022.
Moving onto discuss capital allocation, we're very encouraged to confirm that our Brazilian subsidiaries acquisition of CVI, a Coca Cola franchise Butler with operations in the South southern part of the country successfully closed last month.
As a result, we will be we will begin consolidating <unk> results as of February one.
With the acquisition of CVI, Coca Cola FEMSA bolstered our leadership position in the region.
52% of the Coca Cola system's volume in Brazil.
Adding to our operation one bottling facility and three distribution centers.
Third more than 13000 points of sale.
And more than $2 8 million consumers in a territory that is full of synergy and market opportunities.
Finally, and consistent with a joint vision and growth perspective, we share with the Coca Cola Company, we expect to increase our capex to revenues ratio to a range of 7% to 8% during 2022.
These investments will primarily focus on strengthening our infrastructure, especially around affordability capacity returnable capacity and investing behind these assets that increase our presence in the market in order to ensure long term growth and transformation and.
And with that I will turn it back to John for his final remarks, and then we will follow up with it.
Rene section. Thank you. Thank you for your attention today.
Thank you Constantino.
Although we expect to continue operating in a dynamic market environment. We are convinced that we have the right set of capabilities to continue delivering accelerated results.
Growing our top and bottom line, while substantially mitigating margin pressures during 2022.
I am encouraged by our strategic agenda, which is a clear.
And which is as clear as ever continue and continue building, a consumer which is at close quarters ever.
It is based on building a clear consumer centric multi category portfolio accelerate our rollout of our digital <unk> and DTC omnichannel platforms and continued placing sustainability at the center of everything we do while fostering an agile people centric culture going forward.
We will provide more updates on our strategy as we continue progressing throughout the year.
Thank you for your continued trust and support and for joining us today.
I'd like to open the call up for questions.
Ladies and gentlemen, if you would like to ask a question. Please speak now by pressing star one on your telephone keypad.
Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment.
Please press star one to ask a question.
Our first question today comes from Alvaro Garcia of BTG.
Hey, John .
Thanks for thanks.
Thanks for the space for questions.
<unk>.
Couple of questions one.
For Constantino.
Tax breaks in Brazil, I was wondering if maybe you could help.
Davis potential size of potential benefits in the future. There is anything they seem similar recurring so I was wondering if you could maybe.
<unk> put a number on that or help indicate if you expect to see more of these going forward.
And to my second question for John .
The multi category strategy, how should we think about.
The sort of your Tam or total addressable market.
As you grow out these pilots.
Which are not really pilot that in or how should we think about sort of your tam.
For that specific business. Thank you.
Hey, how are you good morning.
<unk>.
You know that Brazil is a very complex.
Dynamic tax environment.
So there is always.
Changes in that context. However, we don't we don't foresee any major changes or impacts as of today in terms of the tax environment.
Very difficult to anticipate that in.
In the mid term, but in the short term I don't I don't foresee any relevant tax impacts going forward.
That answers your question.
That's what I can say.
And your second question on multi category.
I will let John answer if you need any more color feel free to jump in.
Sure how are you.
Thanks for the question.
Okay.
Multi category.
For us is something that we're looking as.
As an opportunity to go out there and become more much more customer centric.
And obviously, what we are trying to achieve is to participate.
As a share of wallet level of our customers. So it's probably between the 40% 50% share of wallet.
What they sell so.
So when we think about categories and.
In multi category.
It is really how do we achieve the irrelevance become close to 40% to 50% of the share of wallet in traditional trade whether it be on premise.
For our retail.
And that's how we're defining our total addressable market.
But it's not only the multi category.
Products that we can have as an opportunity.
But also the opportunity to layer on top of that.
Services.
And teachers, so that allow us to continue to grow.
And drive value through an enhanced platform to.
Two new stores.
The operating of our comprehensive portfolio of products and then on top of that building services.
Does that answer your question.
Yeah.
Because to be clear.
Thank you very much.
Got it.
Jump in and just provide a little more color when you look at.
When you look at the digitally native.
Initiatives in companies and startups that are trying to leverage on creating an ecosystem around the traditional trade I mean, they are very good.
We have very good business cases that you have.
Finding a way to monetize that point of sale beyond that.
Physical goods.
The biggest issue is cost of acquisition.
That particular customer and scale.
And Coca Cola FEMSA.
John is explaining if we're moving into understanding and having a very clear picture of what are the levers and what are the.
Services and technologies that we need to layer on top of our route to market to fully monetize the.
Point of sale.
<unk> physical goods.
But at the same time, we have a very valuable asset which is we have.
<unk> coverage, great drop size and a very I would say rather granular.
<unk>.
Sales force and route to market that allow view at the same time to have a very relevant.
<unk> of that share of wallet from the get go.
So when you blend those views together, that's where the ecosystem and what we're building going forward comes into play because it is the combination of a great baseline and a.
Profitable approach and coverage of more than 2 million points of sale and at the same time a series of initiatives that we're working on within Coca Cola FEMSA to be able to crack the code of monetizing the point of sale beyond physical goods and provide a much a robust customer set.
<unk> solution for these customers. So that's how we we summarize what we're envisioning we're running as John mentioned a series of pilots.
Across our markets and across different segments with very encouraging results, but most importantly, with a lot of learnings from the testing of different groups that we're working on today.
So I don't know if that is that it helps to round up the year beyond.
Certainly the lowest customer acquisition because of that thank you very much.
Thank you.
And we can go to Carlos labor of HSBC.
Yes.
Good morning, everyone.
I was hoping that you could expand jonna on how high you think renewables can go I mean these levels youre hitting in Mexico are pretty impressive.
The core package that was.
So we're left for dead 15 years ago 20 years ago.
What is what's the business case also for going into recycling.
And how does this plan and then your refillable target how does it all Holistically drive your plastic waste objectives.
Because you seem to be doing it backwards from the way a lot of the Coke system has been doing it right you're mastering the renewables first and now you're actually putting money to work on the recycling side of the equation.
If you can expand on all this.
Okay.
Sure.
Yes.
So we really never had a package that was lost.
Boston and memory, which is <unk> and it's always been a very large component part of our portfolio and it's a key part of our portfolio.
Multi serve refillable says.
Something that has allowed us to go out there and leverage our portfolio and pricing architecture for a long long time, and that's why we are selling differentiated pricing throughout a lot of different areas.
And now we're doing it even more so with the universal bottle, bringing down the bottle floats and being able to put more categories through.
Russell bottles in this labeling instead of having different bottle growth. So when you start being seen by us and we have Mexico growing at 40%.
We believe that that is something that gives us.
<unk> and most of our operations definitely from Central America, I definitely think Colombia.
A good possibility.
<unk>.
In Brazil and in Argentina.
So those are benchmarks, which I think are pretty much achievable everywhere and the issue of us going into recycling.
Facilities is one where it is consistent with the Coca Cola company's Pol.
We have a world without waste, we are right now recycling using about 28%.
Cycled TEP.
Overall, Coca Cola FEMSA, some places more someplace as well.
And we do want to take that number up with this particular plant in Mexico to about 50% of what we are using in Mexico.
And if you if you look forward and say.
Why wouldn't we want to do this versus because we think it's the right thing to do.
Our communities second thing for our planet.
When you start looking at putting together recycled resin and the costs and the prices that are recycled resin out today versus.
Virgin resin the pricing structure is 30% more.
Higher.
Recycled resin than Virgin. So it is not about investment either so it has to do with a lot more about putting sustainability at the heart of what we're doing.
Leading in leading our industry into better practices.
This is not only.
A recycling plant, but it's also a collection they are out there we have put together a stream of 18 collection facilities to supply that.
It's a whole recycling and circular economy move that allows us to start off with a leading example, and where are we in Mexico, where we are.
Where are we.
We have most of our investment but this is something we'll be looking to rollout to all of our different countries as well.
Great. Thank you congratulations for this is this is excellent.
Thank you.
Yes.
We can go to Lucas Ferreira of Jpmorgan.
Hello, gentlemen, can you hear me.
Yes.
Yes.
Hi, John and Constantino.
I have two questions. The first one on South America results you guys delivered good margins despite a bob.
The pressure is coming from the migration of thought to this new contract with Heineken right. So just wondering high level thoughts.
You can comment.
And then margins in Brazil, if it's surprising to the upside or if it's like other countries that were pushing this margins up.
And if you can also can make it some some high level comments about the transition there in Brazil, how it's been going with the Tiger.
So we understand on what to expect for 2022.
Sure Luke I'll take that one.
In South America, as we mentioned or <unk>.
During the quarter or margins expanded about 160 basis points. This was mainly driven by.
<unk> gross margin.
And in the solid price makes them the division so.
To better explain the effects, we had overall better volumes across the division, we recovered price mix, mainly in Argentina, and Colombia and we.
We coupled that with recovery in operating leverage we had favorable raw material hedges.
Especially sugar and aluminum in Brazil, which allowed us to substantially mitigate the pressures and generate.
Some of the savings we also had some savings.
Roland savings and efficiencies in marketing any freight that were partially offset by the normalization.
The expenses, such as labor and maintenance.
And at the same time, the resumption of tax credits in Brazil, Although the second quarter.
<unk>.
<unk> had a relevant impact in addition to that.
We also had the transition of the beer portfolio as you know we're going to talk about right. Now also has a negative impact on margins.
All in all we mitigated that with better operating leverage in the division.
No.
That's like a <unk>.
The compounded effect.
All of these variables.
Generated does outcome in terms of beer, we're probably at the lowest point.
The <unk> transition.
After a decline of approximately 30%.
And beer revenues for 2021.
For 2020 due to the effects of this transition we expect the revenues to decline around 15%, probably and hit the low point of the transition and then start.
And the rebuilding of the portfolio.
And as we have previously mentioned.
We're building a very solid portfolio with Heineken brands, such a I've abandoned the logical Tiger I said that has been I think the first one to pick up a lot of steam.
In our.
Our platform, we're growing coverage significantly versus where we received the brand the launch of a new brand like Tiger the value proposition needs to continue to gain traction in the market, but we're seeing some interesting.
Green shoots there that as hopefully as brand.
Score and Super Wells, starting from a very very small baseline and now we recently acquired the distribution of it.
So if we put that altogether I think that for.
I'm, a two to three year timeframe, we see it as a feasible target to recover.
Our previous position with the new portfolio.
So I don't know if this provides you with some.
Some more color on your questions, but definitely the reconstruction over very different beer portfolio with great alternatives for the customer and the consumer.
It's something that doesn't happen overnight, but we are very pleased on the way that.
This is evolving.
Okay.
No that's great Constantino.
Thank you. Thank you for your question Lucas.
Our next question comes from Antonio Hernandez with Barclays.
Yeah.
Hi, Good morning. Thanks for taking my question. My question also regarding the deal. Thanks for the color. That's just provided develops because of that.
Or is it more of sales.
The whole consumer environment and their elections.
There is also work, but they can place.
<unk> printing part of the year helps the overall environment.
And that environment.
Thanks.
Okay.
Go ahead, John Please no no no.
I was going to say.
I heard only parts of the question itself.
If you are already fully draw that conclusion.
Okay.
To recap Antonio.
John has a full idea of your question. Please.
Sure of course.
Question regarding the whole, Brazil environmentally with elections.
Thank you Bruce.
For the year.
So.
Basically they are incredibly burdensome for the rescue boat.
So how is the consumer environment that you've seen either.
<unk>.
You want to hit that one.
Sure.
Thanks for the question.
We're confident.
The biggest disruptor of ahead, we've had in the last couple of years, which is the pandemic.
But we're leaving behind the most challenging phase of the pandemic and that's definitely.
Something that provides a much more positive outlook.
For consumers and Thats across all of our regions, it's not exclusive.
To Brazil as.
As you mentioned there is no there is the very tip.
Typical year in terms of.
<unk> going forward.
Very dynamic and fluid environment.
And.
There are a couple of days ago, we hit a new.
And very disruptive.
Issue in the World.
With the events that are happening.
Between Europe in Ukraine, and Russia.
The volatility and uncertainty will be you know.
Permanent we believe having set that up.
We feel that we have a much more positive environment in terms of consumer in Brazil.
I think that our strategy that we have.
<unk> proven to be very solid across the last three to four years.
Main unchanged. So we believe that we're going to have positive volumes or pricing will be in line slightly ahead of inflation and the execution.
The capabilities of Coca Cola FEMSA digitalization.
Our price pack architecture, and the collaborative work with the Coca Cola company should allow us to navigate any volatility that we face.
And during this year at least the ones that we could anticipate right. So all in all we see a positive environment going forward.
As any year.
That's an electoral year.
We need to monitor it day by day, and see what adjustments, we need to make but so far we're very optimistic of the Brazilian market and the consumer environment as we can.
Don I don't know if you want add.
Add something.
Antonio.
Thank you.
First of all we expect and are planning for a strong growth out of Brazil.
And that strong growth comes from.
As it comes on <unk> strong portfolio, but also continued share gains.
<unk> gained share in Brazil.
And we're better positioned now than ever for an uncertain environment, where concerns as probably everyone is inflation and how we believe the high levels of inflation, although your Brazilian inflation environment has been developing.
We are taking pricing.
Within that line of inflation.
And keeping up with inflation, but.
But we do have a set of tools that we didn't have in place in most parts of Brazil, before which is you know refillable pvt missed that we have the dual portability box.
Which has been expanded so theres a lot more tools in our tool chest today than we have before to be able to confront which could be a softer consumer environment from London, where we will continue to be able to pick up share as we have been and so our portfolio is better positioned than I am very encouraged to see.
So far we continue to see good momentum in Brazil. So.
It is the case, where.
No.
We're very positive for the country for 2022.
Got it thanks a lot.
Our next question comes from Marcella Recchia of credit Suisse.
Hi, John Hi, Constantino. Thank you for taking my question. My question is pretty simple I just would like to know if you could give us some guarantee on how.
The regions are performing so far.
During this quarter.
Thank you.
<unk>.
Well, Mexico in Mexico.
The quarter was benefited by affordability execution.
And the recovery in mobility, we see recovery in mobility across all of our markets and that is a positive element to the consumer environment and we will definitely drive.
Sales in Mexico. For example, we grew at all channels importantly in the on premise and we are continuing to recover mix in single serve.
We reached 32%.
Mix in single serve which is almost almost 2019 levels.
Drove slightly higher to reach 2019 levels and I think that we will surpass that.
As we mentioned before returnable or around 40%.
Which is huge.
<unk> the size of our of our business for 2022 in Mexico, We continued to see positive momentum.
The weather dependent but as of today.
Other whether it seems.
Find out there we continue to leverage affordability and returnable and we're implementing the operating and portfolio management measures to grow that covers a little bit of.
Of Mexico in the case of.
Brazil, we I think we tackled it.
Consumer environment, and we believe we have.
A very solid plan in Brazil. So that is also providing us confidence for growth in Brazil, considering on the other hand as I mentioned the transition to the new.
New portfolio.
So affordability in Brazil continues to be important play multipack returnable.
And a lot of digital right. So we're moving into digital consistently and we continue to roll out that we have more than 200000 customers.
Using or whatsapp.
For business application. This is about 50% over total customer base in Brazil.
We're managing over 50000 orders in one day and that's growing.
The equivalent to give you an idea of over 200 pre sellers on the order entry effort now we're not substituting our resellers continued to be a key component of our omni channel value proposition. So this is layering on top of a what.
We're handling and Brazil, being our traditional route to market and in the case of Colombia.
Fantastic.
Fantastic momentum behind the business, we see a favorable environment. It's also electoral year, but it's got to be earlier on.
We believe.
We will continue to grow their Argentina.
Despite the fact that we have a very volatile macroeconomic environment I think that we have been able to.
Find the proper strategy combining.
Combining consumer efforts price pack.
Architecture for a very.
Very very constrained purchasing power in Argentina, given the macroeconomics.
Hey.
Fantastic.
<unk> value proposition, so I think that that will allow us to get any weathering.
The storm in Argentina than Central America continues to grow double digits.
In all of our markets and he kept our which is a smaller market is also a market that's very prone to volatility due to the macro environment, but even including that it was growing double digits last year and what the myeloid just continues to be tight.
That's the case.
Coca Cola FEMSA capabilities, focusing on the core.
Fixing fundamentals in the market once we consolidated the businesses and we continued to grow double digits. After three years and we are seeing.
On top of that enormous opportunity for headroom going forward. So all in all that that's how we're seeing the volumes evidently.
Volatility and uncertainty is paramount today, but with the current conditions, we think that we have a favorable environment.
For growth in the upcoming year I don't know if that helps my fellow.
That's excellent. Thank you very much guys.
Mhm.
Our next question comes from Ricardo Alves of Morgan Stanley .
Yeah.
Hi, John .
Thanks, so much for the call I have two follow ups from questions that were already asked.
And in Brazil.
First one I was positively surprised.
B E.
Through my outlook, you laid out for Brazil.
Did you hear that.
Let's do surprise unit volumes.
In 2020 to that expectation.
Pricing.
Inflation. So is this based partially on what you already saw in January and February So just trying to get a little bit more color on this.
Let's say optimistic outlook.
Can we try to quantify that a bit more I mean.
I'm not mistaken youre running.
My second book.
Demographics in terms of volumes.
In the third quarter into fourth quarter that decelerated mark to the 5% mid single digits versus pandemic is this a new baseline kind of level, we should be working with as.
As we think about 'twenty two so.
Two questions on volumes in Brazil second question very quickly a follow up on Brazil.
On the transition of course can you can you walk us through the.
The monthly evolution.
You saw over the past quarter.
Remember, having discussions with you with the heat drops that we saw in September .
Really the first month of the transition, but how did that evolve.
And the more recently.
The new facility.
The Heineken in October due debt.
Facilitating the major way that transition so just a little bit Barbara wherein the latter if you're going to see evolution of the transition. Thank you so much.
Thank you have a capital yes.
Five questions in one so we will have Jorge.
Hey.
Answer and and.
And John and myself will provide some additional color.
Sure. Thanks.
Thanks for the question, regardless, so on Brazil volumes I would say.
Young mentioned.
We are very optimistic about the outlook for Brazil for 2022.
The numbers you mentioned are correct.
The fourth quarter 'twenty, one if we compare to.
For the fourth quarter of 2019 is actually $6, 5% above the 2019 baseline and.
And we expect that momentum to continue and I wouldn't have strategies around affordability and execution.
We will take category strategy as well and we're implementing that need to be.
These are initiatives that Paypal combined.
These are optimistic expectation for Brazil no.
<unk> also mentioned.
Volatility is going to be Paramount is definitely not going to be a walk in the park of vehicles campaigns that we have the right people.
Fabulous.
So to give you a sense I would say that we continue to expect low to mid single digit volume growth expectation for Brazil in 2022 at all on pricing I think you also mentioned.
At least in line with inflation and we see the opportunity we'll take it.
Pricing ahead of inflation, we will continue to foster.
Recovery.
In Brazil, So that's broadly speaking the strategy and the expectation quote.
Brazil.
And if we think about moving onto their completion of beer, because I would say that.
Pretty much in line with what Heineken nature on the release a couple of weeks ago.
The solid performance from from premium brands, well I combined.
Coverage has been our focus we have been taking over the brand and we have increased significantly the coverage in Hawaii combined in the market Digest.
Of course, our recent launch so it takes a mutual.
This happens in quite some time.
To adjust and make some adjustments that were learning from that.
Tiger Oops.
It is getting better and better as well and at the same time, we're taking over.
The distribution of it.
Evolution.
Nicely complement the portfolio.
And we have but it is helping as well so the idea is to continue with that.
Complementing them building up these very.
Consumer centric and strong portfolio of beer.
For a full Brazil.
I don't know John can something you would like to add something to that.
No no I think it was thoroughly explain.
Thanks Jorge.
Our next question comes from Sergio Matsumoto from Citigroup.
Sure.
Yes, hi, good morning, John and Constantino, Thank you for the space for questions.
I wanted to delve a bit more into the.
There'll be a question.
If I may.
You were very successful with.
With.
Distribution of the Heineken and I guess the.
The expectations or.
Is that new portfolio of beers is very interesting too.
So who are watching you.
This for the next several years.
Just one thing on that strategy.
The long term strategy of this.
Sounds like from what you have said in the prepared remarks, then what.
Jorge just mentioned is that the focus would be on <unk>.
The beginning perhaps also instead of top bullet.
Uh huh.
Stuart premium.
Beer, then that's where they're going to say it but it's also a very competitive space with.
Hi Tech and trying to.
Eliminate that and.
And that is also trying to reclaim that space.
One of the <unk>.
The ability of the Tiger in Brazil, as the main stream was kind of ignored in the last year.
Yes.
Maybe there's a easier.
Base, if you will to accelerate growth there is that a possibility.
So when you look into our strategy.
Excuse me exchange as Alicia.
They are building, a new plant right and it's quite large.
And if there were to reach capacity.
They represent all on its own 2% of the whole market.
That's quite a big so I guess I'm curious on the potential for that brand as well.
And also on which channels EMI.
Focused on whether it would be.
Large retailers traditional channel etcetera. Thank you.
Okay.
Thanks for that Glenn Thanks for the question I think.
As you pointed out.
We're in a transition.
We're bringing together a very strong portfolio of brands and obviously the Arlington portfolio is extremely fundamental piece to us in a very large number.
We continue to work very closely with them.
We've taken over Eisenbach nice inbound has been you know we're growing coverages in client base and a very significant way and the acceptance of the brand is very good extremely good.
As you go forward that itself.
It's also a brand which is a very premium craft beer.
And the acceptance that we're getting in the growth curve that we're looking at is very very strong as well.
Tiger.
Tiger is something that is a new box total new brand of core result, and we have very close collaboration with Heineken as to what we need to go out there and adjust as we go forward. There's certain packages that are working better than others. There's certain graphics that may be working better than others.
It is progressing it's progressing and I think that's going to come back and allow us to be within that.
No.
Core area a good player in Australia.
We're just getting going so it's a little bit too close too soon to say.
But as you said the plans are extremely extremely large.
And the ambitions of the band on there with the plans are there.
Also very well accepted in the marketplace. So we're putting together a very very powerful.
Premium minus or a premium on core.
Portfolio is something that we'll continue to see the development for the next.
Uh huh.
12 to 16 to 18 months in terms of.
Digesting unsettling.
And probably also adding other brands to that would enhance our offer to the customer.
And youre going to say something.
No no just a couple of that in February but John mentioned.
And I'll review the key of putting together a successful portfolio is understanding and mapping.
Not only price segment, but also need states and what brands can.
You deploy against the combination.
Need state.
Price segment.
Channels, where we have.
Certain advantages and enormous capabilities and we have mapped out.
Evidently with high and they can better doing the work ourselves with other partners a possibility of creating a portfolio that addresses.
Those key points.
<unk> leverages on our capabilities. So as John mentioned this is transition this.
This is not necessarily the full picture.
Sure we will be adding.
Additional brands to our portfolio and these will come either from high American or some fully owned brands like that it's all police or with other other players to complement the portfolio and at the same time, we continue to push and to establish and grow the current value.
<unk> said we have.
<unk> is a fantastic liquid with a plant bottle pure malt.
Pure malt formula in a market that requires easy to drink beers, but we need to allow time for the brand to gain traction in the <unk>.
Tumors might have at the same time, I said that it's a fantastic value proposition of our local craft.
Beer that has gone.
Massive that small craft brands and Alicia has a great portfolio.
Premium and Super premium offerings that we will continue to develop but stay tuned because this is not necessarily the end state of what we.
Together.
Quite interesting thank you very much.
Ladies and gentlemen, that's all the time, we have for questions today, I would like to hand, the call back for any additional or closing remarks.
Okay.
Okay.
Well, thank you for the confidence and interest in Coca Cola FEMSA and as always our investor team is.
Available to answer any of your questions.
And we anticipate a very strong year for Coca Cola FEMSA in 2022.
Thanks for your time today, and we will be in contact.
Everyone have a great weekend.
Ladies and gentlemen that concludes today's conference call. We thank you for your participation you may now disconnect.
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