Q1 2022 Coca-Cola Femsa SAB de CV Earnings Call
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You for holding ladies and gentlemen, your online for this Coca Cola FEMSA as first quarter 2022 conference call. At this time, we are still gathering additional participants we will get started momentarily. We thank you for your patience and ask that you. Please continue to halt.
[music].
Please standby we're about to begin.
Good morning, and welcome to the Coca Cola FEMSA as first quarter 2022 conference call.
As a reminder, today's conference is being recorded and all participants are in a listen only mode.
At the request of the company, we will open the conference up for questions and answers after the presentation.
During this conference call management may discuss for certain forward looking statements concerning Coca Cola FEMSA as 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 as Chief Executive Officer. Please go ahead, Mr. Santa Maria.
Thank you.
Good morning, everyone.
Thank you for joining us today to discuss Coca Cola FEMSA first quarter 2022 results.
With me on the call today are Constantino spas, our chief Financial Officer, and Jorge Collazo head of Investor Relations.
Against the backdrop of what is still a volatile environment. We are building on last year's positive momentum to deliver a solid start to the year.
Our volumes increased across all of our markets, while our consolidated revenues and operating cash flow grew double digits.
Importantly, we continued delivering delivering accelerated results across all of our strategic fronts.
We are leveraging the strength of our enhanced cooperation framework with the Coca Cola company to align and execute ambitious growth plans and investments, while we open new revenue streams and significantly advance our digital strategy.
During today's call I will first review our consolidated results.
Yeah, and I will expand on our renewed strategy, which is based on six strategic corridors.
With a special emphasis on our portfolio and Omnichannel digital initiatives provide any examples of how we are implementing this strategy across our diversified footprint.
Before our Q&A session Constantino will walk you through our division's performance and our hedging strategies.
<unk> with an update on the use of our Green bond proceeds as we continue progressing towards our sustainability commitments.
Okay.
Before discussing our consolidated results. It is important to remind you that our recent acquisition of CBI in Brazil is included as of February one 2022.
For this reason, we will refer to certain figures as comparable which is the year on year comparison, excluding the effects of M&A and currency translation.
Moving on to the first quarter results.
Our consolidated volumes increased 10, 1% year on year, and nine 3% on a comparable basis.
This growth was driven mainly by double digit growth in Brazil, Colombia, Uruguay and most of our territories in Central America, coupled with solid performance in Mexico, and Guatemala in Argentina.
It is important to highlight that all of our categories posted accelerated volume growth as compared with the previous year.
Our core sparkling beverage category grew seven 4% driven by six 7% growth in brand Coca Cola.
Nine 9% growth in flavors.
We are still in personal water beverage categories.
Grew 37% and 33%, respectively with an outstanding rate of growth across our territories.
Once again and despite the effects of Omnicom during January our on premise trade channels.
Volume etcetera.
Towards the end of the quarter for example in Brazil, our on premise channel grew 25%, while the traditional trade increased 15% year on year outperforming a resilient modern trade.
Importantly, our single serve mix recovery continues across all our territories.
Indeed, our single serve mix recovered an additional two percentage points in Mexico, and Brazil as compared with 2021.
Our consolidated total revenue growth accelerated increasing for 14, 6% year on year.
And 13, 4% on a comparable basis.
This growth was driven by our solid volume performance, coupled with our pricing initiatives revenue growth management positive price mix and favorable currency translation effects.
Notably we achieved a solid performance despite the decline in beer.
Beer revenues, resulting from the transition of Heineken beer portfolio in Brazil.
Despite the volatility in supply chain and raw material environment, our gross profit increased 13, 5% and our gross margin remained resilient contracting only 50 basis points.
Our pricing initiatives revenue growth management, and favorable raw material hedging strategies substantially mitigated margin pressures, mostly from higher pvt, and sweetener costs across most of our territories.
Our operating income.
Growth accelerated sequentially with solid 16% growth year on year, leading to an operating margin expansion of 20 basis points.
On a comparable basis, our operating income increased 13, 9%.
This performance reflects fixed and variable expense efficiencies across our operations.
As well as a reduction in other operating expenses, mostly related to contingencies and recognized during the same period of 2021.
Our operating cash flow for the quarter increased 11, 6% year over year, resulting in a resilient operating cash flow margin of 19, 2% as we substantially protected our profitability to deliver solid operating cash flow growth.
Finally, our controlling net income declined eight 3% to reach $2 9 billion vessels.
Impacted mainly by noncash unfavorable effects and our comprehensive financing result, such as market value loss on financial instruments related to mainly to increases in interest rate interest rates.
And a foreign exchange loss that resulted from the appreciation of the Mexican peso and the Brazilian real as applied to our U S denominated cash position.
Okay.
I'll now take a moment to provide you with a strategic update.
As we have mentioned in previous calls over the past years, we have been adapting and reshaping our company to thrive in the new business environment.
In 2000, and 2019, we began the implementation of our fuel for growth program.
She is an efficiency program.
Allowing us to restructure and functional is the company, while delivering savings and the necessary agility to navigate dependent Mike as the more resilient organization.
Building on this transformation during 2021, we announced a fundamental.
Fundamental part of our future ambition, our enhanced cooperation framework with the Coca Cola Company.
This enhanced cooperation framework enables a model that is aligned for the long term.
Opening up the opportunity to work with the Coca Cola company to leverage the Coca Cola portfolio.
Our combined capabilities and our deep customer relationships for accelerated long term system growth.
This framework adds new areas to our business relationship.
The alignment of ambitious growth plans digital initiatives and the exploration of potential new revenue streams, such as the distribution of beer spirits and other products.
Importantly, we have aligned the economics of our business and management incentives as to which investments and profit levels are mutually beneficial for both parties, thus providing us with the long term certainty and the right incentives to invest and aligned behind our business growth and market development capabilities towards.
Long term system value creation.
Aligned to this framework on April 19th we announced a new distribution agreement with the commodity group in Brazil.
Another step to strengthen and consolidate on a multi category platform with high potential meeting browse.
Now in conjunction with the release of our 2021 annual integrated report, we have renewed our strategy under a new concept that we call Ray evolution.
This strategy is based on six strategic corridors.
First.
We are rapidly building and rolling out an omni channel multi category commercial platform that encompasses our business to business and direct to consumer channels.
Second we are developing a consumer centric winning portfolio with the options for every consumer taste and lifestyle.
Third we are fostering an agile digital savvy people centric culture reshaping our company through talent, enabling key organization capabilities.
Fourth we have further deepened our company's commitment to sustainable development by placing sustainability at the heart of our organization and every decision.
Yes, we are digitized digitizing, our core capabilities with an improved architecture to facilitate the scale and integration of our Omnichannel strategy.
This is critical as we are undergoing a significant digital transformation not just in the frontline, but enabled by the implementation of a robust backbone and systems.
And finally, we.
We plan to actively pursue value enhancing acquisitions, and we are not only exploring traditional opportunities to shape, our business our company's future footprint.
But also prioritizing adjacent categories or portfolio expansion and capabilities.
Implement our value proposition.
Now, let me share a few highlights of this strategy implementation across our markets.
In Mexico, our portfolio initiatives focused mainly on affordability multi packs and innovation.
Which is enabling us to grow the sparkling beverage category and to accelerate our momentum still beverage category, including on hydration energy and nutrition segments.
To give you a sense, we have now reached 85% coverage in our territory with our two five liter universal returnable bottle.
Up 7% percentage points as compared with the end of 2021.
Regarding innovation, our new Formula of Coca Cola Zero.
Silica continues to outperform the sparkling category growing double digits as compared to the previous year.
On the Omnichannel fronts.
To show you the speed at which we are.
Escalating our platform.
In just the first quarter of the year, we have increased the number of active monthly purchases by more than 80% in Mexico to reach approximately 220000 by the end of the first quarter.
This means we added more than 100000 monthly buyers in just a quarter.
In other words, 30% of our total client base is in Mexico is now.
Active monthly buyers.
We continue to increase the number of routes in households, we serve with our direct to consumer Coca Cola until data model.
And in home delivery routes.
During the first quarter, we added more than 120, new routes and implement the strategies to increase the number of monthly buyers.
I'll continue improving our delivery effectiveness and net promoter scores.
In summary in Mexico, we are progressing across our strategic initiatives.
Increasing execution bolstering of affordability.
And advancing on both of the beat to be omni channel and direct to consumer home delivery fronts.
Moving onto Brazil, Despite a relatively challenging January we saw sequential improvements in February and an important acceleration in march to deliver an outstanding quarter.
All of our categories posted double digit growth highlighted by solid 15% growth in brand Coca Cola and 11, 4% growth in flavors during the quarter.
We are also we also continued to strengthen our competitive position and gaining share in the sparkling teeth soft.
Soft drinks are permanent sport drinks and energy category.
Aligned with our Omnichannel platform Carter, we now have more than 160000 monthly buyers, enabling us to increase the percentage of digital orders to 40% by the end of the first quarter up from 30% at the end of 2021.
Looking ahead, we are optimistic that we have the right capabilities to continue growing in Brazil.
We expect to continue strengthening our portfolio bolstering, our affordability capacity and delivering outstanding market execution to provide the right pack at the right place for Brazilian consumers as we continue expanding our multi category Omnichannel platform.
In other markets, such as Colombia, Panama, Uruguay, we are bolstering the affordability of our portfolio.
For example, the rollout of our Universal bottle, which is allows us to provide affordability not only in brand Coca Cola, but also in flavors and still Burgess.
It is providing positive results.
In Colombia. This initiative is growing more than 50% as compared with the previous year.
Similarly in Argentina, Colombia, and Panama, we are capitalizing on the reopening of the on premise channel and the strength of our multi pack strategy to recover our single serve mix, which has increased by more than six percentage points in this in these key markets.
Finally on the Omni channel front, we continue to see positive results in Colombia, Panama, Nicaragua, and Costa Rica.
We have increased the number of clients with monthly purchases by more than 30% as we continue enhancing and accelerating our client onboarding and purchase conversion to our digital systems.
So summarizing the progress and speed at which we are building our omnichannel platform.
Consolidated level at Coca Cola FEMSA, we have reached more than 400000 active monthly buyers.
To give you a sense of this pace the number of active monthly buyers, including increased close to 25% in March.
As compared to February and we achieved more than a million digital transactions just last month.
Importantly, our digital revenues in March amounted to $80 million more than 7% of our total revenues.
In other words digital revenues.
Digital revenues in one month accounted for more than 20% of the digital revenues, we achieved during the entire year of 2021.
Yeah.
I want to also emphasizes the significant investments we are making to continue bolstering our affordability capacity, especially behind returnable bottles.
During the last two years, we have invested more than $500 million in return hold production lines, and then bottles and cases.
And now for 2022, we expect to install 10, new state of the art production lines.
We are especially focused for return on capacity in Mexico.
Our positive momentum shows that we are executing and delivering against our strategic agenda.
Looking forward, we will continue building a consumer centric multi category portfolio.
Accelerate the rollout of our digital <unk> and direct to consumer Omnichannel platforms.
And continue to play sustainability at the center of everything we do while fostering an agile people centric culture across all of our markets and organization.
With that I'll now hand over the call to <unk>.
Thank you John and good morning, everyone I will now expand on our division's first quarter results.
In Mexico, our volumes increased three 7%, while our total revenues increased 10, 6% driven by a very solid performance in most of our channels pricing initiatives revenue growth management, and a favorable price mix.
Moving into Central America in that region or operations continued to deliver strong performance with 11, 8% volume growth and 15, 8% revenue growth as compared to the first quarter of 2021.
Remarkably our volumes in Guatemala continues to show significant volume growth, even when considering a high comparable base like a double.
Result of this or quarterly revenues increased 11, 4% in the Mexico and Central America Division.
On the profitability front for.
Gross profit increased seven 1%, which resulted in a gross profit margin of 48, 4% representing a margin decrease of 190 basis points as compared to the first quarter of 2021.
This contraction was driven mainly by increases in commodity prices, which were partially mitigated by our revenue management and raw material hedging strategies as we have previously mentioned, although we continue to see the normalization of certain operating expenses during the quarter, we were able to double down on savings and efficiencies.
Yeah.
As a result, and despite a tough comparable baseline were able to increase our operating income by 13, 4% and to expand our operating margin by 30 basis points in the Mexico and Central American region.
As we continue to see a dynamic raw material and supply chain environment, we expect to continue to protect our profitability through very disciplined raw material hedging strategies and focus on driving expense efficiencies.
Our operating cash flow margin for the quarter was 23, 2%, which represents a slight contraction of 50 basis points.
If we move on to South America. This division delivered a solid 17, 7% volume growth as compared to 2021.
This increase was driven mainly by the strong volume growth of 22% in Brazil, which includes the consolidation of CVI and 18, 8% in Colombia, while Argentina, Uruguay also delivered strong volume performance.
Despite facing tough weather conditions in the new COVID-19 related constraints by the beginning of the year in Brazil, we were able to deliver a very solid quarter punctuated by an outstanding performance and strong consumer demand. During March that also was helped.
Very good weather, particularly in March on a comparable basis, excluding volumes of CVI in Brazil volume in the division would have increased a solid 15.
7%.
Our revenues for the division grew 19%.
Our revenue management initiatives pricing and volume growth were partially offset by the transition of our beer portfolio in Brazil.
Excluding the currency translation and M&A effects, our top line would have increase the solve at 16, 1% during the quarter.
On the profitability front or gross profit in South America increased 25, 5% expanding our margins by 200 basis points. This increase was driven mainly by the operating leverage resulting from volume growth favorable price mix effects and raw material hedging strategies, coupled with the resumption of <unk>.
Spreads on concentrate purchase problem analogy free trade zone in Brazil.
These effects were partially offset by increases in raw material costs.
Our operating income for the division increased 23, 2%.
While our operating income margin expanded 30 basis points as compared to the first quarter of 2021, driven mainly by higher gross profit and an increase in operating leverage resulting from volume growth and expense efficiencies.
These effects were partially offset by the transition over beer portfolio in Brazil, and higher freight and labor costs.
Finally, our operating cash flow in South America increased by 17, 4%, resulting in an operating cash flow margin contraction of 20 basis points.
Now moving on to a comprehensive financing results, which recorded an expense of $2 2 billion pesos.
This is an increase of 93, 9% as compared to the previous year.
Ladies mainly by the following noncash effects.
First of all a loss of 936 million Mexican peso in the market value of financial instruments, a foreign exchange loss of $165 million vessels.
And a lower gain on monetary position on inflationary subsidiaries related to Argentina.
These effects were partially offset by a declining or interest expense net driven by an increase in interest income.
Notably underscoring the strength of our balance sheet and cash flow generation, we were able to finish the quarter with a cash position of more than 49 billion Mexican pesos.
Presenting a 5% increase as compared with the end of 2021.
Now let me provide you with an update on our raw material hedging position for the remainder of 2022 in Mexico, we have hedged approximately 75% over <unk> 2022, and more than 90% over high fructose corn syrup needs.
Notably we have also had more than 35% of our aluminum needs in the country, while in Brazil, we.
We have hedged more than 75% over sugar needs for the year.
We're confident that with these hedges coupled with our ability to segment, our consumers and our revenue growth management capabilities, we will continue to enable.
Our sustainable growth in mitigating margin pressures and protect profitability during 2022.
Highlighting the strength of our cash flow generation and our commitment to total shareholder return at our annual shareholders meeting on March 28, our shareholders approved the proposed ordinary dividend.
$5 43 vessels per unit with its first installment to be paid on may 3rd 2022.
As John previously mentioned, one of our strategic corridors displacing sustainability at the heart of our organization.
Consistent with this I want to touch on our on our approach to sustainable financing and provide you with an update on our progress towards key sustainability targets.
First of all an update on our allocation over Green bond proceeds as you know we issued our first ever Green bond in September 2020 valued at 705 million U S dollars at the time that the largest for Latin American Corporation, and a first for the Coca Cola system.
We're pleased to report that as of December 31, 2021, we had already allocated $350 million of Green bond net proceeds to eligible green projects.
Total investment so far represents 49 seven.
7% of the net proceeds that includes investments in all of the three main categories climate action water stewardship and circular economy.
Now let me provide you with an update on our progress on key sustainability targets first.
Regarding circular economy, we have a target of achieving 50% of recycled resin <unk> T bottles by 2030.
During 2021, we achieved 31% recycled resin as compared to 29% in 2020.
Second we are well underway to achieve or water efficiency commitments, which are $1 36 leaders.
Water per liter of beverage produced by 2024 and $1 26 by 2026 by the end of this year, we have achieved an industry leading $1 47.
Leaders in water use ratio improving from 149 in 2020.
As part of our commitment with the science based target initiative, we committed to reduce 50% our scope one and two absolute greenhouse emission gas emissions from our operations by 2030 as compared with our 2015 baseline, notably we have already reduced these emissions.
By 28%.
Additionally, we have increased the use of clean energy in our operations to 85%.
You can find more information of this on our recently published annual integrated report, which is available in a way websites and finally I want to mention that we continue making significant progress with regards to pilot tests for distribution of other products and categories from leading company than Brad.
Yes.
For example in Mexico, we're expanding the pilot test we have for personal care products with Procter <unk> Gamble and for spirit with the agile to more territories in the country. Additionally, last month, we began a pilot program with Kellogg's and the Paducah region and the.
Case of P&G, we already began tests and the city of better crews while would be agile, we began and prevalent in both cases, we're now expanding these pilot tests to more territories as we continue increasing our value proposition for our customers and for our partners gathering valuable learnings and insights.
And with that I will hand, the call back to John for his final remarks, and thank you very much for attending the call today.
Got it.
Thanks Constantino.
Although at the beginning of 2022 has enjoyed its fair share of volatility we remain ambitious about our ability to continue delivering accelerated results across all of our strategic fronts.
We are convinced that we have the right capabilities to continue growing our topline.
Substantially mitigating margin pressures for the remainder of the year.
I am encouraged by our renewed strategy and by the speed at which we are implementing Coca Cola FEMSA transformation, we remain committed to continue accelerating our digital edge, while building a customer centric multi category portfolio together with our partner the Coca Cola company.
Thank you for your continued trust and support.
And for joining us today.
Operator, I would like to open the call for questions.
Thank you ladies and gentlemen, it is star one on your telephone keypad, if you'd like to ask a question again that is star one for any questions.
Our first question comes from Alan Alanis at Santander. Your line is open. Please go ahead.
Thanks, so much and good morning.
Congratulations for the results I guess you left the most interesting news.
So now.
Did you have a pilot program with Diageo in Mexico, with Kellogg's, Procter and Gamble.
In Mexico.
Well congratulations for that keep us posted.
We can ask a lot of questions I'm sure it'll help far those agreements can go John I don't want to I don't know if you want to comment a little bit about about that what's your.
The vision there that'll be the first question, maybe I'll have a couple of financial questions for you.
Hum Thanks, Alan Thank you very much.
At this point in time, what we are doing with it.
Our three partners, Dr. Joe Kellogg's, Procter or where were basically into pilots us right now.
And so depending on how the results go and what have you I would say that that will be determining what kind of arrangements, where you're coming into so today is.
It's a.
It is what it is as its name says it's a pilot test.
We're expanding those to understand what what the learnings are but so far all the results. We've gotten are very very encouraging for both parts and what we are seeing throughout.
And the underlying is we're selling more per trends more per point of sale of the total portfolio, but also more items per store of the Coca Cola.
Portfolio that we have so the synergies on this are very very good.
So congratulations.
Thanks, you had some other questions for constant yes, the other what really quickly I mean, therefore theyre much more financial questions regarding.
We're seeing a big discrepancy in the move of the operating income and EBITDA this quarter.
What were the changes that youre doing there and the depreciation and if you could expand more a little bit more on the on the financial losses below the operating line just.
Just to confirm that these are nonrecurring and equal do you have anything to do with your with your hedges. Congratulations also for having all the hedges for basically the remaining of the year it seems.
98% of Sugar, Mexico say, 12%.
In Brazil, and so forth, but just to understand a little bit more of the mix of the depreciation and the extraordinary financial charges for the operating line. Thank you.
Thank you, Amit I'm going to have I'm going to.
Answer this one.
To answer so I'm going to give this question to two at hand, I can add some more color if necessary.
Can you jump in please.
Sure Hi, Alan Yes, Alan So basically the main effect is related to.
Exchange rates are actually there is a as you know.
We are having these spiritual effect because of foreign exchange.
Got it.
<unk> related to <unk>.
Oh.
So its not about really changes.
On the depreciation, but that's what I mean is coming mainly from a benefit from from the appreciation of our currencies that we that we saw during the quarter. So that they don't actually impacted.
EBITDA, it's on one of the operating income line.
Okay.
Okay.
Yes.
Actually.
On your question on the pilot programs.
I would I would have wanted to add some more color and context.
Through the initial remarks.
This is evident not only focused on on Mexico.
Running different pilot programs in different regions.
In Brazil, and Colombia, and Panama has up today on top of Mexico with different partners.
And particularly in Brazil, I think that we announced recently an agreement with Cambodia.
And this is very exciting too because as John mentioned the synergies that we're getting with some of these key.
You know partners that are fantastic brands by the way and I think that's a commonality that we're picking up and this and this approach to partnership in the case of body. We believe it's an ideal partner. It's got excellent brands, it's got great potential to grow by leveraging the brands in our distribution network and we're taking.
Them too much more points of sale than what their reach today that is something that is key I mean, particularly really.
Partners that don't have a strong DSD model as part of their core route to market are getting enormous benefits. When we look at the at the pilot is not only in distribution, but also in in execution. So in the case of commodity particular distribution contract that brings additional <unk>.
<unk> products and indications of spirits to our portfolio in Brazil.
And in general in terms of this agreement represents one more step further goal to continue offering as John mentioned, a winning portfolio and proves that our capabilities are working are working successfully crack so approaches like the one with kept body in this case.
<unk>, which is a multi year long term agreement for five years.
It will allow us to work for strategies in different channels.
In regions and with different emphasis.
And that is something that will become I think overtime a commonality on the type of approach that we would take while we scale up these pilots into entered larger agreements throughout different markets, where we operate but wanted to make sure that we.
Maybe.
The probably the Cros that it's great in Mexico is up today with these partners, but we're also scaling up other agreements with different <unk>. This case spirit players.
In all of our different markets I.
I hope that helps and provides.
You mentioned that the question.
And Alan I know you asked as well around the comprehensive financing result.
And that is mostly related to the mark to market of derivatives that we have related to interest rates.
So when the illustration of that.
Moved up that that created this is noncash effect of close to 1 billion Mexican pesos that we had this quarter.
Quarter.
Yes, they're all noncash effects.
Well move to our next question with Ben Theurer with Barclays. Your line is open. Please go ahead.
Okay perfect. Thank you very much and congrats again, just along the lines of what we've been talking around these pilot projects and thanks for clarifying that you're also doing that in other regions.
Can you help us understand.
What ultimately how are you.
Think about the mix going forward and what's like a kind of a preferred product because obviously you're running.
Tests with the spirits companies like Yeah, Joe you do turn campari into into a deal.
But you also have mentioned P&G Kellogg so what's like the perfect target for you and is there any conflicts of interest that you may have to manage at some point when it comes down to deciding what you want to put on the truck or not just to understand a little bit the drivers of these different potential partnerships.
Sure. Thank you for the question.
Let me answer it this way let me see if I can give you more color.
What we're looking for is a portfolio of products that give us us.
A much better approach to our customer base depend.
Depending on the channels.
On occasions that we serve.
So ultimately what we would like to do is focus on not so much a single brand, but have the partnerships in place that allow us to have a significant share of wallet of each one of our of our clients.
So if you think about this in terms of what we can deliver through the Coca Cola system in Coca Cola FEMSA towards each one of our either small shops or bars in Brazil et cetera. We're looking to go between from a starting point of about 20% share of wallet being a what that bar.
Or more store.
Basically consumes.
40% share of wallet.
To be able to become a very very customer centric and preferred supplier and with that we can build other types of products and services on top of that platform as we go forward.
Does that help.
Yes.
In addition in addition.
Theres also some considerations that we think until your analysis that are more related to our internal processes right, how synergistic or how much complexity does this add to our.
Logistical supply.
Chain that work I mean is it you know it.
Is it congruent with the type of processes that we have internally so that we don't affect our execution. So theres all the other considerations I mean definitely this is very focused on our consumer and customer centric ports.
For your definition, but we also take into account.
The fact that we are a very efficient operation.
We tend to look at it from an angle also of the least disruption possible inner supply chain.
That's also something that we need to take into consideration and obviously as you cannot you know as you can pick up from the type of partners.
The network of partner that we're putting together there is also an interest in you know companies and brands.
Our great brands and at the same time companies that are very.
Focused on investing behind these brands on consumer insights.
Can provide us with the tools, so that we'd get to transform those insights into execution capabilities that ends up driving more growth not all before the partners and further customer, but also as John mentioned for the Coca Cola portfolio.
Those are interesting analysis that we're learning actually and we're incorporating as we as we learn and we progress on this journey.
We'll move next to Isabella <unk> with Bank of America. Your line is open. Please go ahead.
Alright, Thank you and good morning, everyone.
Following up on this.
Great.
Correct.
Yes.
Demand from right.
Okay.
How do you think when you think about the category.
Partnership.
Brian how do you think about.
Value and volume right.
Hum.
Our bar adventure.
And find the things in general.
How strategically you think about that equation.
That will be the first question is yes.
Switching gears a little bit.
And then volume performance, especially in Brazil, I think was a very.
Water.
And two questions.
First give us a color of how you are seeing.
Environment.
Post March right.
And both of them throughout the quarter.
And second.
Beyond the still beverage.
If there was a specific driver for that 70 plus percent growth year over year, our depth with jet com.
Yeah.
Quite a bit more color on Brazil.
Mhm.
Yes. Thank you very much for the question.
Let me see here Theres a lot of questions there.
The first one is we have in terms of where we're going we have a clear roadmap about what are the categories that we want to do.
Kind of embraced to put on our Omnichannel multi category platform.
And those would give us.
Preferential.
It would be preferred in terms of both customer and at the same time value is what constantino, what I'm, saying.
It would be fit pretty well in terms of ours of our supply chain.
And those as we start going forward.
Being executed we're trying to look at pilots with them and each one of the countries. So it's not only a a ball.
Volume issue, it's more about how do we go out there and get the right categories and the right.
Margins into our business to make sure that they become ROIC accretive.
And.
And therefore as we go as we move forward.
That is the focus of that roadmap that we're putting into place again, we think the share of wallet.
Talking about is something that would allow us to become very sticky in terms of a platform for the trade.
But obviously in a very synergistic way with the customer consumer and the Coca Cola portfolio.
Going forward in Brazil, and I think we had a very good quarter as you said.
But.
The underlying growth trends that we're seeing in our business are very strong.
Even as we go forward in April April is continuing to have very strong volume performance not as much as in March March is probably affected a little bit by weather.
But we have the right strategies in place of affordability.
Affordability.
Multi pack multi packing single serve multi packing dual packing.
Ensuring that we have category enhancements with our growing categories, such as energy and under underlying we see continued consumer activity a good macroeconomic.
<unk> trends throughout the year and we think we can have a very solid growth year in Brazil.
Not something that we're just seeing as.
Is it a first quarter event, but it is gaining momentum also in terms of execution in terms of refrigeration penetration and overall, we're seeing our business in Brazil improved quarter by quarter by quarter.
No no no.
Okay.
Yes, and in the case of skills.
It's a combination of definitely a comparables, but at the same time when you look at categories like tea energy drinks.
With the Monster brand in sports strength Theyre growing phenomenally I mean, they have gained great traction with consumers or execution is it sort of drastic and actually we have achieved record market share for those categories.
In this quarter. So it's a combination of the comparable but also consumer trends and macro macro environment that execution capabilities overall, but particularly in these three categories. There's also a a specific.
Trend that's accelerating in terms of performance in the market. So the combination of all those effects.
<unk> delivered an excellent result.
<unk> category in Brazil this year.
We'll go to our next question with Lucas Ferreira Jpmorgan. Your line is open. Please go ahead.
Thank you good morning, John Constantino and Jorge.
I have also two questions. One is regarding multi category issue. If you can give us a sense.
How big you think this sort of a total addressable market could be for you in Mexico and Brazil. When you when you identify the categories right our synergy to your business. So how big is.
Addressable market could be in each of the countries. If you have an idea of sort of whats the.
A fair share of this market you could have in the knee.
Mid term.
And the second question is regarding the consumption environment in Mexico, especially talking about price elasticity.
How comfortable you are to kind of continue to face.
Cost pressures going forward.
There are talks the government trying to sort of a limit inflation I don't think you are directly impacted.
If you can discuss this or.
How the government initiatives to potentially curbing price hikes in some categories. If this could be directly or indirectly impacting you at some point. Thank you.
Dan do you want to take the personnel segment.
Sure.
In the case of a multi category I mean, it's still very early days, but we're an experimentation phase that's why.
As we were mentioning most of these initiatives are at that level right. Now. So we're you know we're working on the analysis of how much you know what's what's the actual attainable size that weekend. We can achieve we have some hypothesis, but I think it is not.
You know its not proper to two.
To share those at this point in time as we need to.
Do you have a little more information on that having said that as John mentioned, we're looking at and.
And we believe we have some type of hypothesis around attainable share of wallet.
On particular channels and depending on the market depending on the channel.
There is we have this underlying hypothesis that we can achieve anywhere between 30% to 40% of share of wallet.
Of the of the store and the fragmented trade store that varies evidently between you know on trade and off trade, but I think that we can put together.
A platform that delivers against the very solid.
Piece of business.
With our with our with or fragmented trade retailers around that 30% to 40% share of wallet that is the underlying hypothesis, we need to we need to prove that we can deliver against that and there is that that's why we're working on all of these pilots. So I hope that helps there probably in the upcoming months, we will have more informed.
It will definitely be on sharing the dimension of what we're trying to achieve on the multi category.
Oh, yes, and just staying back Lucas on the Mexico.
Consumer environment I think is there.
There are some preliminary discussions between the Mexican government trying to elaborate a program.
I'm trying to.
Reduce inflationary impact across a lot of different sectors.
Of which we have not been a.
Part of as of today.
We don't anticipate being part of that either.
I think the other issue that you mentioned was.
Yeah.
Was the inflation outlook in Mexico, and I think what we can anticipate is just probably slightly growing inflation from this levels here, but our revenue growth management strategies are in place that we think that we can cover that and continue with positive elasticity in terms of maintaining our volume growth we have been growing in an environment that is.
<unk>.
<unk> has had high inflation and we are seeing.
Growing volumes and accelerating volumes in Mexico over the last week.
Over the last quarters, and we think that we can maintain that we have.
The portfolio in place to do that the initiatives in place to do that.
We think that we have a variety of consumer price points and packaged choices that allows us to.
To move in and out of our consumer.
When they have different pain points so.
Just kind of wrapping up with the question that you asked was.
Do you is there in a very very formal.
Program that has been elaborated in Mexico, I think there is something that.
The government is starting to work with different sectors of the public sector private sector and the silver price controls the extent and I wouldn't call. It price control, but I would think it is just you know.
Inflation.
Inflation minimization.
Impacts for certain products and.
We don't see this as being broad spread price controls as it could be perceived someplace else.
Okay.
We'll go next to Sergio Matsumoto with Citi. Your line is open. Please go ahead.
Yes, hi, good morning, John and Constantino. Thank you for taking my question.
I wanted to kind of deeper into this pricing that inflation.
Question.
The pricing in Mexico appears to be at least for this quarter sort of like in line with inflation like that.
Single digit number.
Historically your category has grown.
More robust pricing often above inflation, so the one thing.
If you could give us some color on you know.
What you have in mind in terms of.
How youre seeing this revenue growth management that you just mentioned.
Might be some mix effects.
Perhaps more return levels.
Or maybe you have some.
Hedges Constantino.
Mentioned.
So perhaps you don't have to do.
Step up pricing right now, but maybe there is more coming later.
Perhaps if.
If you could kind of give us some color there.
Thanks.
Sure Sir thank you.
So sort of equal something go ahead no go ahead go ahead.
Go ahead please.
Okay.
Some initial comments on back on cost something please.
Complement.
But I would say that what we are leveraging on for.
Now revenue management capabilities.
And so we are leveraging on a lot of affordability is as John mentioned on the prepared remarks.
We are investing on returnable multi back and execution to drive to drive the top line. So far during the year, we have increased prices basically by the end of the quarter and during March and saw the effect of that price.
<unk> is not fully reflected yet.
On the feed yourself, but what we're looking at this on a combination Sergio operating beef affordability to our to our consumers while at the same time, we have these segmentation.
Capabilities to drive topline growth and of course that shall be also and put together with volume growth.
And so that's what we're looking at yes, we are looking to leverage on these revenue management capabilities, which we believe that at the end of the year, we should have a pricing and average price it could be.
Slightly above inflation, but as I say, it's not.
The headline pricing is more of a leveraging on these revenue management and price pack architecture that we have in Mexico.
Yes, that's exactly that's exactly it.
What I would add is as Jorge mentioned, we don't focus primarily on headline pricing, but we do it through our our G M strategy and in that in that regard I mean, we use a lot, particularly in Mexico, which is the most developed market. We use a lot of big data analytics to try to understand what's the best.
You know price pack architecture.
<unk> core for the market and in line with that take particular pricing in a very sequence matter.
And throughout the year. So all in all at the end of the year just to reemphasize I think that as Jorge mentioned, you will see most likely on the outcome of pricing ahead slightly ahead of inflation in Mexico and in Central America and in line with inflation in South America that would be my ex.
Spectation based on all the pricing architecture and our gym.
Strategies that we have put in place.
For the year, the better part of everyday.
Listeners and processes within Coca Cola FEMSA.
Due to time constraints, we will take our final question from Alberto Garcia of BTG. Your line is open. Please go ahead.
Hey, John because the Dana thanks for the call.
Two questions for me.
First one on the six quarters.
Thanks for that update and on the first sort of corridor that you highlighted John you mentioned.
Omnichannel and integrating DTC into them.
I'm just curious if there's sort of this sort of more integration across your different omni businesses and if theres any sort of overhauling the organization that you might want to highlight.
That's my that's my first question.
Okay.
Now right now what we've done is.
I'm sorry, Hello.
When you're talking about Omnichannel.
Businesses, we basically looking at well.
Omnichannel strategy that is <unk>.
<unk> directly for our traditional trade.
And there we have a lot of initiatives to be able to make that a omni.
How many channel a seamless order taking deliveries system separately you have in primarily in Mexico, the direct to consumer piece, which is Coca Cola and talk about and that's where we have the most developed business and what we're doing there is basically first digitizing our businesses and we were going taking it from a traditional.
<unk> internal and knock on the door, let me give you a jug water plus milk et cetera piece to a digitized salesforce and now the second component of that would become the output of the development of an application that would allow you to do that.
Order from home without having the truck come to your door. So it was really a change in the dilemma that we're or the.
The paradigm that we're looking at in terms of our business.
So we can actually.
Go from there. So at this point in time, no. We do not anticipate any types of organization changes. We do continue to look at digitizing our direct to consumer platform. We do look at going out there and making it a better yes, we have.
Better applications to or more multi category platforms on the truck as we go forward.
And as I said, we're growing that business by additional routes by digitizing the business thing, but going out there and creating a digital application that will allow for us to pull it altogether.
Great So same same quarter, but still run.
Still two separate businesses between the two right.
Great and then just one last one a bit of a nerdy question.
But I noticed in the AR and there might not be anything here, but I noticed in the 20-F.
When it comes to your cash generating units.
How you value your distribution rights in your goodwill you have these volume growth.
<unk> through 2031.
There were significant increases for places like Colombia, and Brazil, and I was wondering if there was anything to that at all.
Or you know what we should think of those very steep increases. Thank you.
Hi, although it's hard to hear yes.
Actually a combination of a couple of things one is yes.
Definitely there is a change in methodology in the way we are.
Projecting.
Going forward.
And the other one is also weak.
As John mentioned, we are also aligning more ambitious growth plans and expectations going forward. So part of that is also you know an update and a reflection of.
No.
And so it's a combination of those two things.
These projections change also the timeframe.
For example, first we used to to predicting 10 years and now we are changing the methodology.
Five years ago, and then and then we have the long term predictions from that so it's a combination of both Sam.
The expanded.
And that will conclude the question and answer session I'll turn the conference back for any additional or closing comments.
Thank you operator, and thank you all for attending.
Attending the call today and for your confidence and interest in Coca Cola FEMSA.
I believe we are starting off the year with a very strong performance you feel that we have the momentum in the business to maintain a very very solid year for Golar Cola FEMSA in 2022.
And as always our Investor Relations team is available to answer any of your remaining questions. So thank you very very much and have a good day and good weekend.
Ladies and gentlemen that will conclude today's conference. We thank you for your participation you may disconnect at this time.
Okay.
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