Q2 2023 Coca-Cola FEMSA SAB de CV Earnings Call
People.
Finally, I want to comment on Colombia after our historic volumes here in 2022, a darker than anticipated macro uncles tumor environment has slowed our volume space during the first half of the year being flattish at 0.5% growth.
Nonetheless, despite this challenging environment, we are outperforming the industry as we strengthen our competitive position by gaining share in the sparkling personal water and non carbonated category.
Yeah.
As I previously mentioned our first half results are in line with our plan and we are encouraged to go into the second half of the year with positive momentum.
Our teams across all of our operations are well equipped to continue accelerating across all of our strategic objectives delivering on the growth strategy that we have that as an organization.
Speaking of our team on our talent I want to take the opportunity to comment on our culture, a topic that is very dear to me.
I previously shared with you one of our key strategic partners focused on strengthening our customer centric culture. This is critical to be our customers preferred commercial platform aligned.
Aligned with this priority, we're identifying opportunities to.
Better understand our customers' needs to improve customer experience and three empower our organization towards a more customer oriented culture.
We are convinced that by measuring the right API as well as in borrowing and aligning our organization towards these objectives, we will continue improving improving our customer centricity, which is our customers postpone a common feature of high growth organization.
Finally, I want to take a moment to recognize our team in Argentina.
Last week Coca Cola FEMSA, Argentina was awarded by the Coca Cola Company with a candidate for 2022.
Comeback up named after Asia Gambler founder of the Coca Cola Company.
Person, who rented the first Coca Cola franchise is.
Important award given to a bottler in recognition for its excellent in execution, coupled with its investments behind People's development training and culture, Congratulations to the Coca Cola FEMSA, Argentina team working together as one single gene with our colleagues from the Coca Cola Company in Argentina have made these recognition.
Awesome.
In summary, we're confident that we're on the right track to achieve our objectives for 2023, as we continue winning in the market and progressing on our key strategic priorities across our operations.
With that I will hand, the call over to Jerry to expand on each division's results as well as progress on our saving initiatives.
Thank you Ian and good morning, everyone.
Standing on our divisional results for the quarter.
In Mexico, and Central America volumes increased eight 9% maintaining the solid pace of the first quarter.
Growth across all of our territories and the division drove this performance.
Excluding the integration of crystals bulk water business, our volume in the division increased six 6%.
Revenues in Mexico, and Central America increased 13, 4% driven by our volume growth and revenue management initiatives.
These effects were partially offset by the unfavorable translation effects for most central American currencies into Mexican pesos.
Our gross profit increased 13%, resulting in a gross margin of 47, 7% a compression of 10 basis points year on year.
This is a sequential improvement from the first quarter of the year.
Plain growth raw material hedging initiatives and the appreciation of the Mexican peso helped to partially offset the cost of goods sold pressure.
Operating income growth for the division accelerated by 13, 7%.
This resulted in a slight margin expansion of 10 basis points, driven mainly by our top line performance, coupled with a noncash operating foreign exchange gain related to the appreciation of the Mexican peso.
Finally, our EBITDA grew nine 2% with margin declining 80 basis points due to an increase in operating expenses, mainly related to labor marketing and maintenance.
Moving on to South America Division Volte.
Volumes increased three 8% in line with the pace of the first quarter.
Low to mid single digit growth in Brazil, and double digit growth in neuro wide primarily drove this performance.
Our revenue for the South America Division declined two 2% as unfavorable currency translation effects into Mexican peso was more than offset our volume growth and revenue management initiatives.
Notably when excluding currency translation effects are comparable total revenues in South America increased a solid 23% during the partner.
Gross profit in South America declined one 6%, mainly due to a currency translation effect, resulting in a 20 basis point margin expansion.
This expansion was driven mainly by volume growth hedging initiatives and favorable mix.
These effects were mainly offset by increases in raw materials costs, such as sweeteners and the depreciation of the Colombian and the Argentine peso.
Operating income for the division increased six 6% and operating margin expanded 80 basis points as compared to the previous year.
As was the case during the first quarter of the year, our positive top line, coupled with tight expense control across our operations more than offset higher fixed costs and extend.
Yeah.
Finally, EBITDA in South America increased 4%, resulting in an EBITDA margin expansion of 90 basis points.
Moving onto our financial results results. The quarterly comprehensive financing result, recorded a significant increase as compared to the previous year.
This is explained mainly by an unfavorable compression comparison base that included a one off market value gain and financial instruments of 355 million pesos recorded during the second quarter of last year.
In addition, during the quarter, we recognized a foreign exchange loss of 437 million pesos driven by the appreciation of the Mexican peso as applied to our U S dollar cash position and the lower gain in Hyperinflationary subsidiary.
These effects were partially offset by a decrease in our net interest expense, mainly because of an increase in interest income that was driven by higher interest rates.
Finally, our controlling net income increased six 5% to reach $4 9 billion peso, resulting in earnings per share of 2009.
Yeah.
It is important to note that our controlling net income for the first six months of the year increased 17, 3% underscoring our positive underlying operations performance in the face of significant currency translation headwinds.
Finally, as part of our initiatives to generate savings and efficiency at the beginning of the year, we shared with you a target of more than $60 million in savings to be driven by your supply and supply chain team.
We are encouraged by our progress year to date, because we have achieved savings of more than $35 million. During the first half of the year driven mainly by initiatives to reduce our cost to make and our cost to serve which exceeded our expert expectations for the first half of the year.
We are confident in our team's ability to continue generating significant savings and efficiencies as we enter the second half of the year.
With that with that operator, we are ready to open the call for questions.
Thank you and as a reminder, if you do have a question. Please signal by pressing star one on your telephone keypad.
The first question today comes from Ricardo Alves of Morgan Stanley .
Hello, gentlemen, thanks, so much for the call.
I had a question on the competitive backdrop in Mexico.
On an ex <unk> basis, I believe your volume is up 5% or so in the quarter.
You think that thats comparing to the industry in Mexico.
Do you think it's fair to say Youre, gaining back some share here already.
In this first half of the year.
Perhaps on that point, if you can expand a little bit.
Perhaps on your commercial approach, depending on the channel or Opex whatever color you can give on how youre dealing with competition in Mexico that will be helpful.
My second question.
Typically and obviously, we tend to focus on the bigger markets, but when you you take what the model or the other Central American region, Colombia, together starts to build up and particularly in Central America. The growth has been pretty pretty impressive.
So just wondering if you can talk a little bit about that I I missed the earlier remarks, who made.
You guys made but.
More interested particularly in what Youre doing in what the model and maybe more importantly, what is the prospects for this market what coke FEMSA can do to further develop the market and then in Colombia.
Color you can give if this is a market where do you see big prospects for growth as well, so a little bit outside of the Brazil and Mexico questions.
Thank you so much gentlemen.
Hello, Carlos how are you. Thanks for the question in Mexico, just a little background.
<unk> been in an environment, where we have had about five years ago about the USA with deteriorating competitive position.
As I stated when when we started at the beginning of the year that we needed to stabilize that.
Start to take on.
<unk> tried to be a growth project that we've been able to accomplish that.
David lifestyle competitive position there is a lot that we're doing.
Thank you Doug.
To go into the specifics, but in general it revolves around multi serve one way.
<unk>, where we're working with a better <unk>.
More focused and targeted.
And our initiatives and also theres work to be done on certain pricing strategies between channels.
The brand is so strong or multi pipes are there our greif our flavors are there.
So far with very.
Targeted adjustments that we're doing is responding very quickly. So I think the news on Mexico on the competitive position frankly is very positive we would we'd laid up.
By year end, we expect a slight gain and that's the trajectory that we're going to look into the months thing when you look at what the myeloma, what the Mueller you said jewel for us as well as the rest of Central America, they're highly profitable market.
And in the case of what the myeloid I think I mentioned before this is a $17 million.
Population country of $17 million to $18 million.
Where our thoughts are around tools data is growing double digits. There is no reason in the medium term, we cannot take per caps up to 50, we have enough.
Differential in share, where there's still a lot of.
Sure to capture as well of organic volume. So the story there has been fantastic with grown shares almost eight points.
In the last five years.
So our margins keep expanding as well as on return on investment capital and it's a nice little secret that's very busy and a very large Coca Cola FEMSA numbers, but now it's already the third largest country in terms of profits for us and it.
It should continue gaining in importance that I don't know if that covers the appointed Carla.
Colombia on Colombia, if I may expand I think carnival.
We as Ian mentioned during the call.
We are.
Performing on top of a record volte.
Volume year, which was planning to basically in line a little bit above that.
Last year, even considering the slowdown in macroeconomic activity in the country.
We do expect some headwinds at the end of the year with.
Coming into effect of the sugar.
Added beverage.
That will come into effect in November , but we certainly continue to be very bullish on the prospects of growth in Colombia going forward.
We are operating basically.
Maximum capacity in both manufacturing and distribution.
Capacity and we are investing importantly for the following years to build up on that capacity because we certainly think that those two are the.
Biggest engines for growth going forward in Colombia and Guatemala.
Yes.
It's very helpful color I appreciate the time.
Yes.
Thanks Nicole.
And the next question comes from Thiago <unk> of Goldman Sachs.
Yes, hi, good morning, everyone things try to call them for taking the questions I would like to Doubleclick. Following up on <unk> question on Mexico, when I try to break down.
That's top line drivers of the strong volume, but a slight sequential price deceleration the rank.
However, we have seen the alcohol or demand going forward, specifically for seeing any slow down related to the Mexican peso appreciation day impact them and meet them.
And how your overall prices attracted you should behave in a context, where your cost inflation as much worthy decelerating. This is the first question.
The second one I guess, it's a more long term strategic updates on what are the sources of synergies that you are identifying and might be able to explore this new family of forward.
Backdrop.
And trying to effort to try to.
Eric is acute and monetize.
<unk> and the capillarity that both blast firms might hesitate traditional trade those are the questions. Thanks.
Thank you.
<unk>.
I think the first point.
Correctly was topline on Mexico, and how that is going so far so.
Right now our volumes in Mexico are growing around 8%.
If you take out the bulk water business at 5% growth.
So far so good we don't see any slowdown at all volumes are strong I think we're going into an election year. There is a lot of the inflows coming in from Mexico as a whole due to the near shoring. So we're very positive on on Mexico. So I don't.
Foresee any acceleration or pressure on the top line.
On the contrary I think the way we've managed to set the new competitive landscape on strategy, our topline and volumes should continue along these space barring any unforeseen or climate or are sensitive, but so far so good.
That seems to be going along nicely.
In terms of the synergies with FEMSA forward like I've told you.
Before in another call.
There are two very concrete cases, where we're collaborating.
In the case of the June two plus platform in Mexico.
Where we are tying in.
Working to sign FEMSA or spin Cleantech solution.
And the payments front.
We we will be rolling out of that as a feature for our trade partners in terms of flow and also in the loyalty plan B.
<unk> has a very large and robust loyalty plan.
What we aim to do is when we rollout the up four version for Mexico in the end of the fourth quarter.
Our loyalty plan will have a link to this being a loyalty plan implemented loyalty.
That only makes it more more attractive both for us and for the implant.
It's very simple the point will be exchangeable not only for products that we manage both of the Coca Cola company.
Our third party portfolio, but also interchangeable force in Premier rewards, which have a much wider catalog. So it just gives us a lot of added value for our great clients that basically the two large area.
Or were the largest impact that we have right now.
I don't know Gerry.
Overall <unk> don't yet.
That's great. Thank you very much thank Herman Chan.
Thank you.
The next question comes from Sergio Matsumoto of Citigroup.
Yes, hi, good morning, and thank you for taking my question.
Oh.
Yeah.
Sure.
Just now on the.
John .
And you.
Also on your prepared remark about.
Improving customer experience.
Yes.
Nice uptick on the.
Traditional trade adopting the genco.
Can you give us some.
Anecdotes on how.
They have improved.
Their experience with you.
Platform.
That's my first question.
And the second one is on Argentina.
I mean, one that Canada Cup very impressive.
Can you share.
What do you think what are the aspects so well.
Your team's performance in Argentina that was most recognized.
By the Coca Cola company.
Given that they operate in Argentina.
Challenges and.
If there are any best practices, they can transfer into Brazil and Mexico.
Thanks.
Thank you I think.
The first question on Youtube plus.
We are seeing is.
At least I think applies in general to well established platform fees.
When the clients.
Hi.
<unk> on his son.
He has the possibility of ordering more items so for us what is happening.
When we are allowing the client to place an order and the time on channel of their choosing theyre no longer comp.
Comfort to take the order only wound up reseller constant visits as you know our universe block model is Albany channel, that's a big difference to our main competitor.
What that means is we have kept that we sell a visit.
And on top of that we offer the order on the App or Whatsapp chatbot, so whenever the client and their VR whatsapp chatbot or are.
They're usually doing that when they cover a specific need that wasn't met that retailer visit.
And or when they're when they have more time on their phone.
So it ends up that are items per store.
Those orders are larger.
So what we see is an uptick for us when they're ordering online.
The increase on average frequency so they're able to manage you know their working capital in a better way. It seems we have either flexible delivery of Tim Brasil, which is you know next day delivery basically across 70% of our 33 or where we have a lot of delivery frequency such as in.
So it's an uptick for them to be able to plan and take their order when they cover so we're seeing very positive results on that front and steadily more and more of the orders are coming in digitally.
In regards to Argentina.
The candor.
Recognize three aspects that stood out in Argentina, and this is you know.
<unk> always.
Volker context.
However, they managed to ensure growth and consumption occasions. So.
First of all they've got very tight grow on the core.
High growth on single serve.
Good plants on segmentation and returnable.
Growth off of.
Women in leadership Coke no sugar there were several aspects.
So it's not only execution, but there are several minor points, such as or not minor pause there real special points such as single serve Coke no sugar women in leadership that stood out female talent and inclusion customer centricity that stood out on all of those practices we share in the.
Marshall Forum across Coca Cola FEMSA. So as you know we have.
New position that reports to me Thats, the chief growth Officer.
And they create community so a quorum across Coca Cola FEMSA commercial and marketing team, where these initiatives are shared so we were very coffee on crowd for the Argentina seemed to be recognized with this is the first time any one from Latin America has been recognized with its worldwide.
A walk from Coca Cola.
Great Thanks for that color.
Thank you Sir.
The next question comes from Fernando Olvera Bank of America.
Hi, good morning, Thanks for taking my questions.
My first question.
On a consolidated basis regarding the 1 billion digital channels at <unk>.
Reached in the first half of the year, if you can comment breakdown by country and where do you see.
Yes.
And my second question is related to the maintenance goes you can share your thoughts.
How are they outperforming the different type of project.
<unk>.
That traditional channel as well as can be seen.
And DTC platform.
Thank you.
Okay.
Hello.
Torture here on your first question regarding the sales on the DSO NEPA revenues basically what we have seen their fernando is to reach to those billions sales we've seen a high level of growth coming from Mexico. So Mexico will give you a little bit of the sense of the breakdown.
Basically represents about $360 million out of those.
Billions in sales no, but thats, a very rapid increase in Mexico has been increasing as we have been speaking before in a very fast and the rollout of <unk> of June plus plus.
And there is a very similar number coming out of Brazil.
<unk> $370 million in DSO sales coming from Brazil.
Yes.
<unk> made between the rest of the countries, we have and we have Colombia catching up as well up with around 30 $30 million and the rest is split between between the rest of the countries now, but as you can see most of this is coming from the level of growth because of the rollout of <unk> disclosed that we are having with Mexico.
Yes, and this has been the big focus of two large markets, that's where we're.
Focusing on for the version four and then the rest of Latam. So I think for US next year. The rest of Latam will be a nice upside for our general platform.
We want to concentrate the rest of this year.
I would say the first quarter of next year on both Mexico, and Brazil, which are the biggest countries for us so so far.
Great.
And regarding your pilot plant in Mexico.
So I'll refer I think the line is breaking up a little bit. So we couldnt hear the second question can you repeat please.
Oh sure if you can share your thoughts of how that's.
Outperforming the type of project.
But you are implementing.
In multi client.
I mean, novation channel as well as in the BTC and <unk> platforms.
You know.
So far so good Fernando we're adding more partners every day.
Brazil, we're around 14 partners I don't remember the amount of apartments that we have in Mexico, so far but.
In Mexico, our footprint is so much larger than any other competitive.
Platform that I know, we're signing up the largest block players.
Well ahead of our competition. So we're very positive on that as you know I have mentioned that or for these offerings to be of scale, we will need at least five to six years for these to be you know around 5% of revenue as we're growing our core business.
Year over year, and we expect to be in growth mode. It's always a challenge for these to become relevant so knowing Brazil does gets to around almost 2% of revenues because we're growing as well in Mexico.
We're going to be hitting 1% of revenue so they're still small but these are when you look at that multi category. It's doubling in size every year just that we're growing the base business as well. So you guys need to have.
Some patients until we reach you know that.
Ambition that we have to get to 5% of our revenues.
The rate that we're growing our core business, even though this is accelerating as well it's going to take its time.
Right.
Thank you so much for the color.
Thanks.
Our next question comes from Alan Alanis sometime there.
Thank you very much and congratulations on the result.
Okay.
Two questions one of them is regarding the <unk>.
Lower price of the commodity sugar aluminum until important strength of the peso could you expand a bit more on control how much are you expanding your hedge has begun well.
It will be.
And how much youre already taking advantage of lower prices of commodities and the strength.
The Mexican peso.
The first question.
Regarding Argentina could you remind us what exchange do you use.
On the consolidation of Argentina.
<unk> balance sheet, and you see a new risk given the depreciation of the peso.
<unk> seen in the last year, so two very different questions. Thank you so much.
Hi, Alan Thank you very much for your for your questions regarding commodities for 2023, we are.
With a very healthy hedging position.
On <unk> basically across all of our operations and we're starting to build a little bit of a position of hedging for next year. We are.
Affecting a benign outer.
Outlook for EEP and aluminum so we're being.
Careful to stay within the low end of the range of our hedging objective, but starting to see good opportunities to build a little bit more on both positions.
On sweeteners were basically hedged for Hfcs in Mexico, which is an important component of our sweetener expense.
Sugar Theres, a few alternatives that we have but in Brazil, we also have a.
Good position as well as in.
White basically for cleaning 'twenty, three we're a little bit above 50%, our sugar needs are hedged in 2003 in both countries.
That's a little bit.
On the actual commodity price hedging on the FX front.
We have certainly seen a good opportunity in the peso.
To build up our hedging positions.
Were basically hedged at 80% of our dollar requirements in Mexico for 'twenty three.
And being a little bit more careful to start to build positions for 24 rigs.
Regarding your question of.
The range that we are able to hedge we continue to look at a 12 month rolling period for hedging in both commodity prices and FX related to cost of goods sold so we haven't changed that and we do not expect to change that.
In the near future.
FX hedging for other operations in Brazil, Colombia and Uruguay.
We have a little bit.
Our very close to 50% of our dollar requirements hedged for 'twenty, three and also as well as in Mexico, starting to build position for.
For the first half of 'twenty foreign language that 12 month rolling period.
Going into your second question.
Argentina results, we continue using the official exchange rate.
To consolidate Argentina.
That the number that the exchange rate that we used for the consolidating of this quarter was $256 seven we really don't have any other alternatives because we have to.
Comply with the official exchange rate for purposes of consolidating that business, we understand that a portion of the economy transact.
At the parallel exchange rate, but most of our business.
The raw materials that we require as well as the capital that we require for our business are still.
Done at the official exchange rate. So we understand that this represents.
<unk>.
<unk>.
Uncertainty, but.
That's fair.
Exchange rate that we have to use to consolidate that business.
Good morning.
Very comprehensive answer.
Thank you so much.
Thank you Adam.
Okay.
The next question think comes from Antonio Hernandez Barclays.
Hi, good morning, cultural thinking that Thats, a good question Mike.
My first question in July .
Brian Morton for one.
You said that June .
But you can see in Mexico, and just a quick follow up on the.
Can you just flush penetration.
Cold tumors.
Yes.
Thank you Antonio first on your first question regarding pricing.
As we are.
Talked about in the previous few calls we're trying to focus on sustainable growth and basically in all our territories and specifically in Mexico as Ian mentioned during the script of the call.
We have been facing.
Share pressure in the past few years. So we're trying to stop that share erosion and recover our competitiveness in our portfolio, we understand that our main objective and the way that we will.
<unk> to improve performance and return of our businesses through growth and I want to underscore the word sustainable growth.
And in that sense.
We're looking at for the foreseeable future is to price base.
Basically in line at least in line with inflation.
Trying to recover that competitiveness and we've seen very good.
Data points in these first six months of the year regarding the performance of the share of our of our product.
And the second question was on <unk>, Yes, I think when you talk about dental flows you look at it in percentage of orders or about a third of our orders are coming through who to engender flaws.
When you look at that in revenues as you know this offering goes towards the traditional trade is around 16% of our of our total revenue, but when you look at traditional trade.
Revenues I'm, telling you, it's almost a quarter of our revenue so that duration of effect.
We do like assuming on Brazil, which is a country. That's first started with this platform. It's already 60% booked traditional trade volumes. So I think the penetration is encouraging like I mentioned, Brazil has started with this but Mexico is accelerating fast next year, we should have.
An uptick in the rest of Latam market. So so far so good we would use a block in terms of both the penetration and the partners that we are signing up.
Perfect. Thanks for all of the elements of it.
Yeah.
The next question comes from Luis Willard.
M.
Yeah.
Hi, guys. Good morning, and thanks for taking my question. So first of all congratulations on your new wins.
Hello.
And my question is on the digital revenues I apologize.
Fields repetitive.
<unk>.
Accelerates and they seem to be doing so nicely my question is.
At this point are you seeing any material difference in unit economics from the digital purchase versus.
A physical one or traditional one and more importantly is if youre seeing those difference already being reflected in your P&L and more importantly on the returns of your business that will be my question. Thank you.
Hi, thank.
Thank you for the comment on the calendar.
I mentioned the.
The unit the driver for us is not a.
Yes.
A cheaper cost to serve although as you intuitively R. R.
Pointing out in your question.
It is depending on the market on the labor cost of the different market. It can be all the way.
Average of 20% less cost to serve in the in the <unk>.
When it comes to the order entry so sorry <unk>.
20%, so 80% less coastal service. So you know it's a big difference. However, this has not been our driver at least what we're trying to do is be.
Higher growth company.
We.
Our intent on keeping the Omnichannel model, we're not reducing our feet on the street the role of the reseller change it as far as the more penetration on orders are taken online then we're freeing up these resellers to do more of the execution the introduction of <unk>.
New products and launches of the bringing of new partners and we want you know we think it's a big advantage to us how we look in the point of sale versus our competition and that stems from the fact that we are omnichannel because the digital portion of our platform allows us to bringing more business like I said, it's higher.
It's at a lower cost, but really when it comes to execution of the point of sale.
Having that relationship still makes a lot of different and for new product introductions as well as the new launches entering into different categories.
Developing cold channel it makes a lot of different having those specialized structures on our presenters. So we're not.
<unk> seen a difference in the cost to serve because of that we're maintaining the omni channel structure.
And like I mentioned in terms of revenues since its still in in Indiana in stages.
16% of total revenue. So it has been made that big of an impact so far but we measure those digital revenues and you can see a larger ticket. So in those digital revenues when you compare them to the traditional or salesman.
Controls.
Point of sale when we look at those from 12 point, we do have an uptick so a portion of that which is not irrelevant is incremental for us when you do those analysis.
Thank you Yeah I know you just gave me so much great thinking about costs.
Looking for ticket and higher orders. Thank you.
Thank you.
Yes.
The next question comes from the Leap day.
Oh crap of Scotiabank.
Thanks, Operator, hi.
Thanks for taking my question.
First one maybe on an update on partnerships for <unk>.
Obviously you know.
Partners in Mexico.
Pretty defined at this point in time.
But just wondering if you have made any advancements on talking to partners.
Royalty payments in the other regions.
But can you give us an update.
Of course, you may not be able to give us an update on the conversation just looking for for any updates there.
And also a question on Argentina.
[noise] done or are you looking to make any repatriations of capital ahead of a possible devaluation after elections.
Yeah.
Okay.
Hi Felipe.
In terms of our partnerships on multi customer I think you know.
I mentioned, Brazil is around 14 partners, Mexico, one pool.
Or.
Around 10 partners.
Our partners all with contracts in our line.
We're entering different categories.
Do you want to comment.
So we're happy.
This is like we want to have.
Fuel rates this portfolio.
We do not.
We do know understood on the partners that are jumping on the platform I was looking more for.
I mean will help you on payments in the other countries.
Now as a partner to start the loyalty program.
Trees outside of Mexico.
No.
I was I was getting to that.
So on the services front that we're spearheading out of Mexico. So the focus is getting that done in Mexico, and then we'll be testing that out in the rest of the market. So so far the.
On the service portion.
<unk>, which includes both financial services and loyalty partner, Mexico, as Youre getting that effort.
Okay.
Okay.
Understood very clear thank you.
On the second part of your question regarding Argentina, and our exposure there.
It's certainly not an easy solution.
Operation has been growing very importantly, so that's our first priority for using our capital.
Generated in Argentina.
Is it to continue to build capacity to make upfront.
Very healthy growth that we've been seeing.
On the second the alternatives.
Look for alternatives to invest in assets that where we can protect our our cash exposure.
<unk> depreciation and we certainly continue to see or look for opportunities that we can materialize in.
Our last position in our excess cash.
To repatriate assets, but that is much more complex.
There is no.
Access to pre lease.
<unk>.
We have a small position of our total cash of about 3% of our consolidated cash is concentrated in Argentina. So it's not a significant impact for the consolidated business, but we certainly focus on looking for candidates for using that cash.
Okay.
Absolutely clear thanks, a lot for the color on that.
And congrats on results.
Thank you Vanessa.
Yeah.
Our next question is from Al payroll Garcia of BTG Pactual.
Hi, gentlemen, thanks for the call and congrats on results a couple of questions in mind first on beer in Brazil, we saw a nice sequential acceleration there.
Was just wondering if you could maybe give us some color if that was kind of <unk> brands or maybe some of the other smaller brands.
But you've been.
<unk> been ramping up there.
And then my second question is on sort of capital allocation as a follow up to what we've discussed on past calls in terms of.
Well, what I consider a suboptimal sort of.
Cash balance in excess sort of cash balance.
What's been your thinking there is there any update with regard to.
A potential shift in how you're thinking about your dividends any sort of color there would be greatly appreciated. Thank you.
Okay.
Hi, Hello, It's Gordon.
Here on your first question regarding regarding of the year.
Yes, as you mentioned, we saw a sequential improvement as compared with the first with the first quarter.
And it comes basically from a combination of we have been implementing some plans.
With Heineken as well together too.
Accelerate the performance.
Of the portfolio. So we have some plans that we have implemented there that are starting to show some results.
That is helpful as well and other brands that we have as well.
Its accelerating its growing and it will give you a sense there in the first six months.
<unk>.
30, plus.
Right as compared versus the previous year.
So that's a little bit of what we're seeing in beer, obviously it takes time.
We know we know that but the strategy is what we have to continually improving we are improving versus the first quarter. That's that's for sure.
Alan in terms of capital allocation.
We continue to review.
What's the best.
Structure for us like I mentioned.
We want to first of all fund our growth and not look at all opportunities there doesn't seem to be so far any you know relevant inorganic opportunities out there for us.
So depending on how how this continues to go we should have.
Our ways to go.
Free up the discussion but.
I wouldn't expect anything in the short term I think that's it.
And for next year, where we'll be taking that.
Okay, Okay, and just maybe one last follow up.
On <unk> I was wondering if maybe you could walk through.
Sort of penetration and how well that.
Got it.
Thank you.
Yes, yes.
We're doing very well actually on the prepared remarks, you had mentioned a couple.
Points regarding Coke zero Sugar for example, in Mexico is growing double digits year to date.
When you look at the mix is still in the single digits, but it is growing no it's outperforming.
The case of Brazil for example.
Standing I would also highlight that Ian mentioned also during the prepared remarks.
30, plus 32% if.
If I remember correctly as compared to the previous year on the first six months of the year and there the mix is now reaching double digits also.
It's a great product, it's a great brand and we are executing that and winning in the market. So I think it's very encouraging to see what we're doing with them with Coca Cola casinos will kind of cross over.
Wonderful thank you very much and congrats again.
Thank you.
And the final question today comes from Rodrigo Alcantara UBS.
Hi, Thanks for taking my question two quick ones one for you.
In an iPhone from Gary.
First for Ian.
Thank you very much for the comments on the competitive position in Mexico.
The pricing is trying to get.
Maybe if you can replicate those.
The seal.
I guess on Brazil on the pricing just trying to what we.
Sure.
Slight deceleration.
Mary.
Deal terms.
<unk> brokerage so just curious.
Driving that what drove that.
<unk>.
And my second question would be.
Jeremy.
Yeah.
They were expensive concentration will be something more for regional industry, but we have seen like.
Any more relevance.
Modern student pressuring margins.
And so like let's just.
Sure.
If you can comment sure we don't.
Like Macy's points, Mike how much of.
Martin Chamberlain.
I'll go with that.
The increase in neighboring expense.
Incremental that also.
On the savings that you mentioned at the beginning of the call.
For next year or do you see room for more savings to come calling from from logistics.
My two questions. Thank you very much.
Yeah.
Thank you. Thank you everybody well yeah on your first question regarding pricing in Brazil.
As Ian mentioned ordering during their remarks as well.
We can definitely see that we're leveraging on on the pricing carryover that we have and also recycling pricing from from last year that was very solid.
And so we do expect that to moderate and though we're seeing inflation across most of our markets.
Normalizing and we have initiatives to continue to improve our mix leveraging revenue growth management.
But you can expect that to moderate versus the debate that we had last year again mentioned.
To summarize the target is to be at least in line with inflation. So at Berkeley that reflects on what youre seeing in Brazil.
On the other hand, we.
Continue to see on the competitive position that we are that we're gaining share and investigate.
So obviously also on the margins front, we're seeing easing.
The risks and costs. So we continue to see space, we'll be able to be more or less aggressive on that front.
Regarding your question on margins in Mexico, basically that the whole explanation of Mark margin.
In fact in Mexico is related to fixed costs and expenses and specifically labor.
It is one of the biggest impacts are I would say that of a total increase in fixed costs and expenses about 20, a little bit above 20% of the impact is related to labor Dnb marketing expenses also playing.
An important role that related to our tactic of recovering competitiveness and positioning our brands.
Recover share in the market is important and the third I guess, a big component there.
<unk> expense as the yen was mentioning.
Previous question right now, we're investing importantly in digital.
Patti and technology.
That represents an increase in Nike expense, but it's related to our one of our.
Main pillars strategic pillars for growth and in the way that we're trying to become.
Preferred b to B platform in our markets.
That's useful thank you very much.
Jeremy so for future expected Q4 Q.
Opex growing at the same rates as we have seen.
QUADRA study.
Fair assumption.
20.
Percent or something like that.
Yes, yes.
That's a good estimate it's fair.
Okay.
And regarding your thank you very much about saving them through all that ego.
We're very positive on what we've seen.
Our capacity to realize the savings that we were expecting for the year.
These savings have been concentrated in both cost of serve and cost per make most of them in cost per make with efficiencies in our manufacturing facilities related to packaging light weighting in packaging are afraid optimization.
Also the transformation from resin to model, we've seen important savings there.
And on cost to serve.
We've invested and importantly in a route efficiencies and that provided important savings operated savings for us.
Okay. That's very clear. Thank you very much Sherry. Thank you Jorge.
Thank you. Thank you.
Yeah.
And that's where I have no further questions I'd like to hand, the call over to Geraldo crews CFO for closing or additional remarks.
Thank you very much for your confidence and interest in Coca Cola FEMSA and for joining US today on today's earnings call as always our Investor Relations team is available to answer any of your remaining questions and we look forward to speaking again soon.
And that does indeed conclude I think it's kind of.
Well. Thank you all for participating and you may now disconnect.
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