Q4 2023 Coca-Cola FEMSA SAB de CV Earnings Call - Q&A

February 22, 2024

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Operator: Please stay on the line. A A a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a, Hello and welcome to Coca-Cola FEMSA fourth quarter 2023 earnings conference call. My name is Melissa and I'll be your coordinator for today's event.

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Hello, and thank you for joining today's call it will be starting in a few moments to allow other participants to join please stay on the line.

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Operator: Please note this conference is being recorded and for the duration of the call, your lines will be in a listen-only mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star one on your telephone keypad to register your question.

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Jorge Alejandro Collazo Pereda: If you require assistance at any point, please press star zero, and you will be connected to an operator. I'll now turn the call over to Jorge Collazo, Director of Investor Relations for Coca-Cola FEMSA. Please go ahead, sir.

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Jorge Alejandro Collazo Pereda: Good morning, everyone. Welcome to our conference call to review our fourth quarter and full year 2023 results. With me this morning is Ian Craig, our Chief Executive Officer, Gerardo Cruz, our Chief Financial Officer, and the rest of the investor relations team. After prepared remarks, we will open up the call to take your questions. We ask that, in the interest of time, you make your most recent question first, and then we will enter the queue in case you have more than one.

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Jorge Alejandro Collazo Pereda: Before we proceed, I'd like to remind all participants to take note of our cautionary statement included in our earnings release. This conference call may include forward-looking statements, which should be considered as good faith estimates made by the company. These forward-looking statements reflect management's expectations and are based upon currently available data.

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Ian Marcel Craig Garca: However, actual results are subject to future events and uncertainties that can materially impact the company's performance. With that, let me turn the call over to our CEO. Please go ahead, Ian.

Ian Marcel Craig Garca: Thank you, Jorge. Good morning, everyone. We appreciate you joining us today. 2023 was an outstanding year for Coca-Cola FEMSA. We not only achieved positive results but also laid the foundation for our company's sustainable long-term growth model. As we have discussed in previous calls, we defined and implemented six strategic priorities that guide us to capture the many opportunities that are ahead of us. I am confident that we are making important progress across these pillars, from accelerating the growth of our core business to the rollout of our B2B platform, Juntos Flows. We're also making significant progress regarding culture as we foster an empowered organization with the necessary customer centricity and psychological safety that allows our teams to challenge the status quo while passionately serving our customers.

Okay.

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Hello, and welcome to Coca Cola FEMSA fourth quarter 2023 earnings Conference call.

My name is Melissa and I'll be your coordinator for today's event.

Note. This conference is being recorded and for the duration of the call. Your lines will be in a listen only mode. However, you will have the opportunity to ask questions at the end up the presentation that can be done by pressing star one on your telephone keypad to register your question.

You require assistance at any point, please press star zero and you'll be connected to an operator I'll now turn the call over to Jorge quite also director of Investor Relations for Coca Cola FEMSA. Please go ahead Sir.

Good morning, everyone.

Ian Marcel Craig Garca: During today's call, I will review our fourth quarter results and recap key highlights of the year across our operation. I will also provide you with a brief outlook on our initiatives for 2024, as we remain confident in our short and long-term positive momentum. Finally, before taking your questions, I will pass the call on to Jerry to expand on our quarterly results across our divisions and provide you with an adequate update on our savings initiatives. With that, let us begin by summarizing our consolidated results for the fourth quarter. Volume grew 6.1% year-on-year, reaching 1.06 billion unit cases.

Welcome to our girlfriend skull to review, our fourth quarter and full year 2023 results.

With me. This morning is Greg <unk>, our Chief Executive Officer Gerardo.

Our crews, our chief financial Officer, and the rest of the Investor Relations team.

After prepared remarks, we will open up the call to take your questions.

We ask that in the interest of time.

Your most pressing question first and then.

Then reenter the queue in case, you have more than one question.

Before we proceed I'd like to remind all participants to take note of our cautionary statement included in our earnings release.

This conference call May include forward looking statements and should be considered as good faith estimates made by the company.

These forward looking statements reflect management's expectations and are based upon currently available data.

Actual results are subject to future events and uncertainties that can materially impact the company's performance.

With that let me turn the call over to our CEO.

Please go ahead.

Yeah.

Ian Marcel Craig Garca: This increase was driven mainly by the positive performance achieved in our Mexico, Brazil, Guatemala, Colombia, and Central American territories, which offset a slight volume decline in Argentina and Uruguay. Excluding the integration of the Cristal Boat Water business in Mexico, consolidated volumes increased 5.1%. Regarding category performance, we're pleased to report growth across the board. Sparkling beverage volumes grew 4.6%, driven mainly by the brand Coca-Cola, which achieved 6.2% growth. Steel beverages grew 7.8%, and bottled water grew 10.3%.

Thank you good morning, everyone. We appreciate you joining us today.

2023 was an outstanding year for Coca Cola FEMSA.

We not only achieved positive results, but also laid the foundation for our company sustainable long term growth model.

We have discussed in previous calls, we defined and implemented six strategic priorities that guide us to capture the many opportunities that are ahead of us.

I am confident that we are making important progress across these pillars.

Accelerating the growth of our core business to the rollout of our <unk> platform gross flows.

We are also making significant progress regarding culture as we foster an empowered organization with the necessary customer centricity and the psychological safety that allows our teams to challenge the status quo.

Ian Marcel Craig Garca: As a Coca-Cola company, highlighted during the recent earnings call, we strengthened our value share position during the year, driven by a turnaround in share trends in Mexico, as well as share gains across all of our other operations, except for Panama, as we leverage or grow the core pillar and joint marketing and execution capability. Total revenues for the quarter grew 8%, reaching 66.1 billion pesos, driven mainly by solid volume growth that offset unfavorable currency translation headwinds related to the appreciation of the Mexican peso. Our total revenues increased by a solid 15.7%.

I assume at least serving our customers.

During today's call I will review, our fourth quarter results and recap key highlights of the year across our operations.

I will also provide you with a brief outlook of our initiatives for 2024.

As we remain confident in our short and long term positive moment.

Finally, before taking your questions I will pass the call onto Jerry to expand on our quarterly results across our divisions and provide you with inadequate.

Update on our savings initiatives.

With that let us begin by summarizing our consolidated results for the fourth quarter.

Volume grew six 1% year on year, reaching one 6 billion unit cases.

This increase was driven mainly by the positive performance achieved in our Mexico, Brazil, what the Molla, Colombia, and Central America territories, which offset a slight volume decline in Argentina and Uruguay.

Ian Marcel Craig Garca: Gross profit increased 12.6% to $30.5 billion, leading to a gross margin expansion of 190 basis points to reach 46.1%. This increase was driven mainly by our top-line performance, declining packaging costs, and the appreciation of most of our operating currencies as compared with the U.S. dollar. These effects offset headwinds driven by higher sweetener costs across our operations.

Excluding the integration of the restyled bulk water business in Mexico.

<unk> volumes increased five 1%.

Regarding category performance, we're pleased to report growth across the board.

Barkley and beverage volumes grew four 6% driven mainly by brand Coca Cola, which achieved six 2% growth.

Still beverages grew seven 8%.

Bottled water grew 10, 3%.

As the Coca Cola company highlighted during their recent earnings calls, we strengthen our value share position during the year driven by a turnaround in share trends in Mexico, as well as share gains across all of our other operations except for Panama.

Ian Marcel Craig Garca: Our operating income increased 7.3% to 9.7 billion pesos, and operating margin contracted 10 basis points to 14.6%. This performance reflected strong top-line growth, partially offset by increases in operating expenses such as labor, marketing, and maintenance. We also registered a lower operating foreign exchange gain as compared with the previous year, which was driven by the significant depreciation of the Mexican peso during the previous year.

We leverage our grow the core pillar on joint marketing and execution capabilities.

Total revenues for the quarter grew 8%, reaching $66 1 billion pesos, driven mainly by solid volume growth that offset unfavorable currency translation headwinds related to the appreciation of the Mexican peso.

On a currency neutral basis.

Our total revenues increased a solid 15, 7%.

Gross profit increased 12, 6% to 35 billion pesos, leading to a gross margin expansion of 190 basis points to reach 46, 1%.

Ian Marcel Craig Garca: Importantly, during the quarter, we incurred temporary additional freight and other expenses related to the shipment of finished products into Guerrero, resulting from Hurricane Otis's impact on the region. Excluding these one-time expenses, our consolidating operating margin expanded 30 basis points. In relation to Guerrero, we announced an investment and aid package worth 575 million pesos to support the region's recovery.

This increase was driven mainly by our topline performance declining packaging costs and the appreciation of most of our operating currencies as compared with a U S. Dollar.

These effects offset headwinds driven by higher sweetener costs across our operations.

Our operating income increased seven 3% to $9 7 billion pesos and operating margin contracted 10 basis points to 14, 6%.

This performance reflected strong topline growth, partially offset by increases in operating expenses, such as labor marketing and maintenance.

Ian Marcel Craig Garca: As a result of well-established response protocols, we not only provided support to our team and communities in Acapulco, but our regional production facility in Guerrero is now operating normally. We are confident that, with the coordinated support of the private sector, local, and federal authorities, Acapulco will continue its rapid recovery. Adjusted EBDA for the quarter increased 10% to reach 13.1 billion pesos, and the EBDA margin expanded 40 basis points to reach 19.9. Finally, our majority net income declined 24.5% to reach 5.4 billion pesos. This decrease was driven mainly by the base effect of a lower effective tax rate during the same period of the previous year.

We also registered a lower operating foreign exchange gain as compared with the previous year, which was driven by the significant depreciation of the Mexican peso during the previous year.

Importantly, during the quarter, we incurred temporary additional freight and other expenses related to the shipment of finished product into Guerrero, resulting from hurricane Oh. This is impact on the region. Excluding these one time expenses, our consolidated operating margin expanded 30 basis points.

In relation to Laredo, we announced an investment and aid package worth 575 million pesos to support the region's recovery.

As a result of well established response protocols, we not only provided support to our team and communities in a in a couple of cool, but also our regional production facility in Guerrero is now operating normally we're confident that with the accordion in support of the private sector local and federal authorities Acapulco will continue.

Its rapid recovery.

Ian Marcel Craig Garca: By normalizing this effect, our majority net income increased 8.6%. In summary, our 2023 results were outstanding. Full-year volumes increased across all of our territories, surpassing the milestone of 4.05 billion NARTD unit cases for the first time in Coca-Cola FEMSA's history. The volume growth achieved this year represented 44% of the Coca-Cola system's worldwide volume growth in 2020. Our full-year topline of 245.1 billion pesos, our full-year topline of 245.1 billion pesos, Operating Income of $34.2 billion pesos, and Adjusted EVDA of $46.4 billion pesos also represented new benchmarks for our company. To support these results, we invested a record capex of 21.4 billion pesos, representing 8.7% of revenues.

Adjusted EBITDA for the quarter increased 10%.

To reach $13 1 billion pesos and EBITDA margin expanded 40 basis points to reach 19, 9%.

Finally, our majority net income declined 24, 5% to reach $5 4 billion basis. This decrease was driven mainly by a base effect of a lower effective tax rate during the same period of the previous year by normalizing. This effect our majority net income increased $8 six.

Yep.

In summary, our 2023 results were outstanding.

Volumes increased across all of our territories, surpassing the milestone of $4 5 billion in the RTD unit cases for the first time in Coca Cola FEMSA history there.

The volume growth achieved this year represented 44% of the Coca Cola system's world wide volume growth in 2023.

Our full year topline of $245 1 billion pesos operating income of $34 2 billion pesos and adjusted EBITDA of $46 4 billion pesos also represented new benchmarks for our company.

To support these results, we invested a record capex of $21 4 billion pesos, representing eight 7% of revenues. These investments will enable us to continue adding the necessary capacity to support our growth ambitions.

Ian Marcel Craig Garca: These investments will enable us to continue adding the necessary capacity to support our growth ambition. Now, let me expand on our operations highlights for 2023. In Mexico, we continue to see a resilient consumer environment. The macroeconomic backdrop for consumption remains favorable, as evidenced by the number of jobs registered with the Mexican Social Security Institute, reaching a new record of 22.1 million jobs.

Now, let me expand on our operations highlights for 2023.

In Mexico, we continued to see a resilient consumer environment.

The macroeconomic backdrop for consumption remains favorable as evidenced by the number of jobs registered with our Mexican social Security Institute, reaching a new record of $22 1 million jobs. Additionally, the average base salary registered a nominal increase of 10, 4% the second highest in the last 23 years.

Ian Marcel Craig Garca: Additionally, the average base salary registered an annual increase of 10.4%, the second highest in the last 23 years. Additionally, our volumes for the full year in Mexico increased 8.7%, reaching 2.05 billion unit cases, a historic record for our Mexico operation. Our focus on growing the core business and expanding our consumer base mainly drove this growth. To give you a sense of the magnitude, our team in Mexico added more than 47,000 new customers during the year, expanding our traditional trade customer base by 7% year-on-year to reach more than 720,000 clients. Consistent with our priorities for Mexico in 2023, we achieved positive share performance across nearly all our non-alcoholic ready-to-drink categories, driven mainly by gains in the sparkling energy and sports drinks category. Additionally, aligned with our efforts to measure and standardize customer service KPIs across our operations, Mexico improved both its customer service and delivery service metrics.

Our volumes for the full year in Mexico increased eight 7%, reaching 2.25 billion unit cases of Historic Records for our Mexico operations.

Our focus on growing the core business expanding our consumer base, mainly drove this growth.

To give you a sense of the magnitude our team in Mexico added more than 47000, new customers during the year, expanding our traditional trade customer base by 7% year on year to reach more than 720000 clients.

Consistent with our priorities for Mexico in 2023, we achieved positive share performance across nearly all our nonalcoholic ready to drink categories, driven mainly by gains in the sparkling energy and sports drinks categories.

Additionally, aligned with our efforts to measure and standardized customer service kpis across our operations, Mexico improved both its customer service and delivery service metric.

Ian Marcel Craig Garca: [inaudible] We close the year serving more than 512,000 monthly active purchasers through Juntos Plus, our digital B2B platform, reaching 70% of our traditional trade customers in Mexico. [inaudible] Moving on to Guatemala, our volume for the year grew a solid 18.4%, reaching 174 million unit cases. This marks the sixth consecutive year of double-digit volume growth. To give you a sense of the magnitude, on a comparable basis, volume in Guatemala is two times the volume of 2017. We see plenty of opportunities for continuous growth in Guatemala driven by our initiative to grow the core, expand the customer base, and tap into opportunities in profitable stewed beverage categories. Notably, the country remains a fertile ground for these strategies as it enjoys a stable macroenvironment and favorable demographics, marked by the youngest population in Latin America with a median age of 24.4 years. Moving further down south to South America.

Finally.

We closed the year, serving more than 512000 monthly active purchasers. So would you endorse plus our digital <unk> platform, reaching 70% of our traditional trade customers in Mexico.

Importantly, we began the rollout of version four point, though of June to close during the first quarter of 2024, adding new features and significantly improving customer experience and performance.

Moving onto what the Mueller our volume for the year grew a solid 18, 4%, reaching 174 million unit cases. These marks the sixth consecutive year of double digit volume growth to give you a sense of the magnitude on a comparable basis volume in Guatemala.

Is two times the volume of 2017.

We see plenty of opportunities for continued growth in Guatemala drilling by our initiatives to grow the core expand the customer base and tap into opportunities in profitable still beverage categories, notably the country remains a fertile ground for these strategies as it enjoys a stable macro environment and favorable demographics.

Mark by the youngest population in Latin America with a median age of 24 four years.

Moving further down south to South America.

Ian Marcel Craig Garca: In Brazil, our team continues to deliver solid results. We have consistently grown our volumes and strengthened our competitive position over the past five years. Our initiatives to grow the core continue to exceed expectations. For instance, Coca-Cola Zero Sugar grew 28% versus the previous year, while we increased our single-serve mix by one percentage point to reach 24.3%. Our focus on capitalizing on profitable emerging beverage categories led energy to grow 19%, sports drinks 28%, and uses 16% year on year.

In Brazil, our team continues to deliver solid results, we have consistently grown our volumes and strengthened our competitive position over the past five years.

Our initiatives to grow the core continued to exceed expectations for instance, Coca Cola zero sugar grew 28% versus up easier, while we increased our single serve mix by one percentage point to reach 24, 3%.

Our focus on capitalizing on profitable emerging beverage categories led energy to grow 19% sports drinks, 28% and uses 16% year on year.

Aligned with our strategic priority of Debottlenecking, our infrastructure, our supply chain team installed four new lines embassy representing an additional 75 million unit cases of capacity for a year that will enable our operations to reduce space cost minimized on availability and optimize service levels.

Ian Marcel Craig Garca: Aligned with our strategic priority of de-bottlenecking our infrastructure, our supply chain team installed four new lines in Brazil, representing an additional 75 million unit cases of capacity per year. That will enable our operation to reduce face costs, minimize unavailability, and optimize service levels. Additionally, in 2023, Coca-Cola FEMSA Brazil was awarded first place in the advantage survey as a top modern trade supplier to ABRA, the Brazilian Supermarket Association. This award reflects the unwavering commitment of our team to serve our customers with excellence. Finally, our team in Brazil did an outstanding job of scalability version 4.0 of the Juntos Plus app.

Additionally, in 2023, Coca Cola FEMSA, Brazil was awarded first place in the advantage survey as the top modern trade supply to address the Brazilian supermarket Association.

This award reflects the unwavering commitment of our team to service our customers with excellence.

Finally, our team in Brazil did an outstanding job in scaling version four point of digital plus.

Ian Marcel Craig Garca: As we mentioned in our previous call, this enhanced version significantly improves the customer experience and performance. In Colombia, our customer centricity enabled us to successfully navigate a dynamic environment. During the year, our volume increased 5.3% year-on-year to reach 347 million unit cases, a new record for this operation.

As we mentioned in our previous call decent concert version significantly improves customer experience and so forth.

In Colombia, our customer Centricity enabled us to successfully navigate a dynamic environment during the year, our volume increased five 3% year on year to reach 347 million unit cases, a new record for this operation.

Ian Marcel Craig Garca: Notably, our team expanded our customer base by 17,000 customers, a 4% increase versus the previous year, reaching 480,000 clients. We also improved surveys and availability to record levels and accelerated the rollout of our digital platform. Today, Juntos Plus serves more than 223,000 active monthly purchasers in Colombia, with 20% of total orders now being done digitally. Finally, despite the uncertain environment, our volumes in Argentina increased 2.7% in 2023. Aligned with our expectations, we saw a challenging consumer environment during the fourth quarter that ultimately led to a 1% volume decline during that period.

Notably our team expanded our customer base by 17000 customers, a 4% increase versus the previous year, reaching 480000 clients.

We also improved service and availability to record levels and accelerated the rollout of our digital platform. Today June plus serves more than 223000 active monthly purchasers in Colombia with 20% of total orders now being done digitally.

Finally, despite the uncertain environment our volumes in Argentina increased two 7% during 2023.

Aligned with our expectations, we saw a challenging consumer environment during the fourth quarter that ultimately led to a 1% volume decline you said period.

Ian Marcel Craig Garca: However, throughout the year, our team in Argentina was able to leverage our single-serve mix and affordability to achieve 2.6% growth in single-serve mix and a 2 percentage point increase in household penetration of returnable presentation. We remain confident that we have the right team, joint capabilities with a Coca-Cola company, and a resilient business model to manage our operation in Argentina under difficult conditions. As we move on to 2024, we remain confident in our team's ability to continue executing our strategy, leveraging growth drivers across our rights to win in our footprint. In particular, we expect to focus on three key drivers in 2025. First, build on the growth momentum of our core business. Second, take Juntos Plus version 4.0 to the next level with the deployment of advanced AI capabilities.

However throughout the year our team in Argentina was able to leverage our single serve mix and affordability to achieve two 6% growth in single serve mix and a two percentage point increase in household penetration of returnable presentations.

We remain confident that we have the right team joint capabilities with the Coca Cola company, and a resilient business model to manage our operation in Argentina under difficult conditions.

As we move on to 2024, we remain confident in our team's ability to continue executing our strategy leveraging growth drivers across our rights to win in our footprint in particular, we expect to focus on three key drivers in 2024.

First build on the growth momentum of our core business.

Second.

June plus version four point, though to the next level with the deployment of advanced AI capabilities.

Ian Marcel Craig Garca: And third, continue fostering a customer-centric and psychologically safe culture for Coca-Cola FEMSA. For instance, regarding the momentum in our core business, we have laid out robust plans across our operations to continue strengthening our competitive position. Tapping into Per Capita Opportunities and Continue Exploring White Spaces in Profitable Non-Carbonated Beverages. Regarding Juntos Plus, we are very encouraged by the early results that our tests have shown leveraging cutting-edge AI engines for recommendation systems, personalized promos, and dynamic pricing, among others. We expect to deploy these capabilities in Mexico and Brazil during this first quarter and scale them throughout the year. Moreover, we expect to finish the rollout of version 4.0 of our app in Mexico, Central America, Colombia, and Guatemala all during this year. Finally, regarding culture, we have refreshed our vision and established the leadership principles that will guide the culture and way of working in our organization, which we are deploying across the company this year. With that, I will hand the call over to Gary.

And third continue fostering a customer centric and psychologically safe culture for Coca Cola FEMSA.

For instance regarding the momentum in our core business, we have laid out robust plans across our operations to continue strengthening our competitive position.

Wrapping into perk up in opportunities and continue exploring white spaces in brokerage non carbonated beverages.

Regarding <unk> plus we are very encouraged by the early results that our desktop shown leveraging cutting edge AI engine for recommendation systems personalized promos and dynamic pricing among others, we expect to deploy these capabilities in Mexico, and Brazil. During this first quarter and scale them throughout.

The year Mauro.

Moreover, we expect to finish the rollout of virtual <unk> four points over up in Mexico Central America, Colombia, and Guatemala, all during this year.

Finally regarding culture, we have refreshed our vision and established the leadership principles that will guide the culture and where were working in our organization, which we are deploying across the company this year.

With that I will hand, the call over to Jerry.

Gerardo Cruz: Thank you, Ian, and good morning to you all. Expanding on our division's results for the quarter, in Mexico and Central America, volumes increased 6%, reaching 581 million unit cases, as we continue to see solid volume performance across the division. Excluding the integration of Cristal's bulk water business, our volume in the division grew 4.2%.

Thank you Ian and good morning to you all.

Expanding on our divisions results for the quarter in Mexico, and Central America volumes increased 6%, reaching 581 million unit cases.

As we continued to see solid volume performance across the division.

Excluding the integration of pretty status bulk water business, our volume in the division grew four 2%.

Revenues in Mexico, and Central America increased 11, 3% to 37 6 billion pesos, driven mainly by volume growth and partially offset by an unfavorable translation effects for most central American currencies into Mexican pesos.

Gerardo Cruz: Revenues in Mexico and Central America increased 11.3% to 37.6 billion pesos driven mainly by volume growth and partially offset by an unfavorable translation effect from most Central American currencies into Mexican pesos. Our gross profit increased 17.5% to reach 18.4 billion pesos, resulting in a gross margin of 49%. 260 basis points of expansion year on year. We continue to see sequential improvement in profitability as our top line growth, the appreciation of the Mexican peso and declining packaging costs were partially offset by higher sugar prices in most territories in the division. Operating income increased 7.8% to 5.6 billion pesos driven mainly by solid gross profit performance. However, our operating margin had a 50 basis point margin contraction to 14.9%, driven mainly by an increase in operating expenses such as labor, maintenance, and marketing.

Our gross profit increased 17, 5% to reach $18 4 billion peso, resulting in a gross margin of 49%.

160 basis point expansion year on year.

We continue to see sequential improvement in profitability as our top line growth the appreciation of the Mexican peso and declining packaging costs were partially offset by higher sugar prices in most territories and the division.

Operating income increased seven 8% to $5 6 billion pesos, driven mainly by solid gross profit performance.

Our operating margin had a 50 basis point margin contraction to 14, 9% driven mainly by an increase in operating expenses, such as labor maintenance and marketing.

This quarter, we also incurred temporary freight expenses to deliver finished product to be a payroll as a result of the impact of hurricane notice.

Gerardo Cruz: This quarter, we also incurred temporary freight expenses to deliver finished products to Guerrero as a result of the impact of Hurricane Oro, as Ian previously mentioned. Excluding these effects, our operating margin would have expanded ten basis points. Finally, our adjusted EBITDA in the division grew 11.6% with margin expanding 10 basis points to reach 20.5%. Now moving on to South America, volumes for the quarter increased 6.2% to 475 million unit cases. During the quarter, we continue to see a solid performance in Brazil and Colombia, with volume increasing 7.5 and 7.6%, respectively. This growth was partially offset by a 1% volume decline in Argentina and a 2.1% decline in Uruguay.

As Ian previous previously mentioned.

Excluding these effects our operating margin would have expanded 10 basis points.

Finally, our adjusted EBITDA in the Division grew 11, 6% with margin expanding 10 basis points to reach 25%.

Now moving on to South America.

Volumes for the quarter increased six 2% to 475 million unit cases during the quarter. We continued to see a solid performance in Brazil, and Colombia with volume, increasing 7.5, and seven 6% respectively.

This growth was partially offset by a 1% volume decline in Argentina, and a two 1% decline in Norway.

Our revenues for South America Division increased three 8% to $28 5 billion pesos as our volumes and revenue management initiatives were partially offset by unfavorable currency translation effects into Mexican pesos.

To give you a sense of the magnitude of this currency headwind when excluding currency translation. Our total revenues in South America increased 19, 5%.

Gross profit in the division increased five 8% or 24, 3% on a currency neutral basis, leading to a margin expansion of 90 basis points.

Volume growth favorable mix and easing raw material costs, mainly drove this increase which was partially offset by increased sugar costs and the depreciation of the Argentine peso.

Gerardo Cruz: Our revenues for the South America division increased 3.8% to 28.5 billion pesos. As our volumes and revenue management initiatives were partially offset by unfavorable currency translation effects into Mexican pesos. To give you a sense of the magnitude of this currency headwind, when excluding currency translation, our total revenues in South America increased 19.5%, gross profit in the division increased 5.8% or 24.3% on a currency-neutral basis, leading to a margin expansion of 90 basis. Volume growth, favorable mix, and easing raw material costs mainly drove this increase, which was partially offset by increased sugar costs and the depreciation of the Argentine pe Operating income for the division increased 6.7% to 4.1 billion pesos.

As applied to our U S dollar denominated raw materials.

Operating income for the division increased six 7% to four 1 billion pesos on a currency neutral basis operating income increased 23, 6% and operating margin expanded 40 basis points to 14, 3%.

This increase was driven mainly by our gross profit growth and operating expense efficiency.

Finally, adjusted EBITDA in South America increased seven 8% to $5 4 billion pesos or 28, 3% on a currency neutral basis.

Moving on our comprehensive financial results recorded an increase during the quarter. This was mainly driven by a lower gain on monetary position in inflationary subsidiaries and the decrease in our interest income needs.

These two factors were mainly related to the significant depreciation of the Argentine peso during the quarter.

Additionally, we recorded a higher foreign exchange loss as our net debt exposure in U S dollars was negatively impacted by the appreciation of the Mexican peso and the other operating currencies during the quarter.

These effects were partially offset by a higher gain on financial instruments and a decrease in our interest expense mainly related to the maturity of our seven 5 billion Mexican peso denominated bonds.

Gerardo Cruz: On a currency neutral basis, operating income increased 23.6%, and operating margin expanded 40 basis points to 14.3%. This increase was driven mainly by gross profit growth and operating expenses. Finally, adjusted EBITDA in South America increased 7.8% to 5.4 billion pesos, or 28.3% on a currency neutral basis. Moving on, our comprehensive financial results recorded an increase during the quarter. This was mainly driven by a lower gain in monetary position and inflationary subsidiaries and a decrease in our interest income. These two factors were mainly related to the significant depreciation of the Argentine peso during the quarter.

Finally, our language financial priorities that we announced at the beginning of 2023 throughout the year. We continued to focus on reinvesting in the business to support our long term strategic vision to deliver sustainable growth.

Aligned with this strategy during 2023 reinvested eight 7% of Capex as a percentage of sales.

As we previously mentioned, we expect to increase our production capacity by 15% and warehouse capacity by 30% over the next three years.

Beyond these investments, we will continue to focus on increasing productivity and achieving significant savings across our supply chain.

These initiatives were fundamental during 2023 as our team exceeded supply chain savings to reach $80 million.

Gerardo Cruz: Additionally, we recorded a higher foreign exchange loss as our net bet exposure in US dollars was negatively impacted by the appreciation of the Mexican peso and other operating currencies during the quarter. However, these effects were partially offset by a higher gain on financial instruments and a decrease in our interest expense, mainly related to the maturity of a 7.5 billion Mexican peso denominated bond. Finally, aligned with the financial priorities that we announced at the beginning of 2023, throughout the year, we continue to focus on reinvesting in the business to support our long-term strategic vision to deliver sustainable growth. Aligned with this strategy, during 2023, we invested 8.7% of CapEx's percentage of sales. As we previously mentioned, we expect to increase our production capacity by 15% and warehouse capacity by 30% over the next three years.

Significantly mitigating margin pressures that helped us achieve our target resilient margins for the year.

For 2024, our teams targets at least an additional $60 million and cost to make cost to serve and primary freight efficiencies.

With that operator, we are ready to open the call for questions.

Yeah.

Thank you very much as a reminder, if you'd like to ask a question on todays call. Please press star one on your telephone keypad to register your questions.

If you'd like to withdraw your question for any reason you May press star two.

You will be advised to ask your question.

Our first question in terms of rebates growth of Scotiabank. Please go ahead.

Thank you operator.

And good morning, everyone and Gary and team.

Thanks for the space.

First one on digital pretty impressive growth this year again.

Thank you still draw on it.

Active users above 30%.

Hum.

Sales doubled so clearly higher ticket per client, which is exactly what you want to see.

Just wondering how all this journey has has changed your initial assumptions about where they're going to be effort could go.

If you compare what we thought in early 2020 versus out what do you think now how has the strategy evolved.

Okay.

Hello Felipe how are you. Thank you for your question you know.

Gerardo Cruz: Beyond these investments, we will continue to focus on increasing productivity and achieving significant savings across our supply chain. These initiatives were fundamental during 2023 as our team exceeded supply chain savings to reach $80 million. Significantly mitigating margin pressures that helped us achieve our target resilient market margins for the. For 2024, our team targets at least an additional $60 million in cost to make cost to serve and primary freight. With that, operator, we are ready to open the call for questions. Thank you very much. As a reminder, if you'd like to ask a question on today's call, please press star one on your telephone keypad to register your question. If you'd like to withdraw your question for any reason, you may press start. Our first question is from Felipe Ucros of Scotiabank. Please go ahead.

Like you mentioned the results have been very good and I think.

If I compare it to two our initial assessments whats really going to change is broadly.

We'll do this year I think in our initial assessments when we were looking at this in 2019 in 2020, we really werent focused on on using you know cutting edge AI and the team has been working in the World office on developing three cutting edge engines and those.

We are deploying this quarter in Mexico and Brazil.

We'll see how that scale I would say that's the one part that.

We didn't have in our original roadmap otherwise we went into this knowing that it was something that we needed to do that he was how the business was going to evolve, but we didn't have that much clarity on the adopt the.

The adoption rate of these of the solution, but so far so good you know theres been a lot of learnings it's been.

Operator: Thank you, operator. And good morning, everyone, Ian, Jerry, and the team. Thanks for the space.

A very nice journey, but I think.

The one part that we did not have that we hadn't foreseen at the beginning was this AI Bush that we're now going to put in for personalization for pricing and promotions Eamonn just another another aspect that we're very excited about it and we'll see how it scales. This year.

Felipe Ucros: First on digital, pretty impressive growth this year. Again, I think you're still growing monthly active users above 30%, and digital sales doubled. So clearly a higher ticket for clients, which is exactly what you want to see. Just wondering how all this journey has changed your initial assumptions about where the B2B effort could go. You know, if you compare what you thought in early 2020 versus what you think now, how has the strategy evolved? Hello, Felipe. How are you?

Sure.

Very clear if I take a very short follow up.

On pricing discipline and pressure across markets.

We saw what happened with Pepsico and Carrefour in Europe. So just wondering how the tone of negotiations for price increases.

Ian Marcel Craig Garca: Thank you for your question. As you mentioned, the results have been very good, and I think if I compare them to our initial assessments, what's really going to change is probably what we do this year. I think in our initial assessments, when we were looking at this in 2019 and 2020, we really weren't focused on using cutting-edge AI, and the team has been working in the world's office and developing three cutting-edge engines, and those we are deploying this quarter in Mexico and Brazil, and we'll see how that scales, and I would say that's the one part that we didn't have in our original roadmap.

<unk> across the regions as you talk to modern retailers.

And I guess also the.

Reaction from the competition on pricing if you can comment on those fronts that would be great.

Well I think Philippe.

We've been very clear that we're focusing on a sustainable growth model.

We were moving away from all the practices of you know pushing pricing and really here, we're looking for sustainable growth in our relative competitive position and that brings us to you know to reasonable pricing dynamics on so far we haven't had any any issues in that regard and we're improving.

Moving it.

Our average price looks basically through to our G M strategies in price mix.

Adjustments, but the pricing that we're pushing through you know, we always make sure that he keeps improving our relative competitive position in all of our operations. So it cuts and being an issue.

Ian Marcel Craig Garca: Otherwise, we went into this knowing that it was something that we needed to do, that it was how the business was going to evolve, but we didn't have that much clarity on the adoption rate of this solution. But so far, so good. There's been a lot of learning. It's been a very nice journey, but I think the one part that we did not have, that we hadn't foreseen at the beginning, was this AI push that we're now going to put in for personalization, for pricing and promotions, images, and other aspects that we're very excited about. And we'll see how it scales this year.

Great. Thanks for the color guys.

Thank you.

Thank you very much our next question is from.

Oh, sorry, Okay, Yeah of BTG Pactual. Please go ahead.

Hi, gentlemen, congrats on results thanks for the space for questions.

Two questions. The first one on channel breakdown in Mexico.

We've seen a lot of CPG companies talking about a very strong modern trade and I'm just curious if youre seeing some weakness out of the traditional trade or maybe that's not the case.

For you.

And then my second question is on on.

Returnable presentations.

Uh huh.

Felipe Ucros: Very clear. I can do a very short follow-up on pricing discipline and pressure across markets. You know, we saw what happened with PepsiCo and Carrefour in Europe.

I was just wondering if you can comment on sort of the longer term dynamics of.

Glaspie glass returnable versus P. T return levels and how much P. T has grown in that mix and how much do you expect it to represent in the future. Thank you very much.

Ian Marcel Craig Garca: So just wondering how the tone of negotiations for price increases is progressing across the regions, as you talk to modern retailers, and I guess also the reaction from the competition on pricing. If you can comment on those fronts, that would be great.

Hello, Alberto Thank you for the question regarding channel mix you know we are seeing more aggressive growth from the modern channel in Mexico, but which was I would say underpinned at Wassa niece Underpenetrated by the modern trade.

But due to other countries. So I think it's Barry.

Ian Marcel Craig Garca: Well, I think, Felipe, we've been very clear that we're focusing on a sustainable growth model, and we're moving away from other practices of, you know, pushing prices. And really, here, we're looking for sustainable growth in a relative competitive position. And that brings us, you know, to reasonable pricing dynamics. And so far, we haven't had any issues in that regard.

Maybe reasonable to do continue to expect outperformance in in in modern trade in Mexico that that being said.

We are not seeing weakness in the traditional drugs.

Our traditional channel is doing very well, it's growing five 3% versus prior year in this.

Around those figures if I remember correctly. So it's not an instance of weaknesses in in in the traditional channel, but rather all outperformance from modern trade on.

Operator: And we're improving how our average price looks, basically, through RGM strategies and price mix adjustments. But the pricing that we're pushing through, we always make sure that it keeps improving our relative competitive position in all of our operations. So it hasn't been an issue.

Recall the the last question on closely if you can take it please.

And the way it was yes sure sure yeah, yeah regarding.

Returnable. If this is something that of course is very important for our for our revenue management strategies across our territories.

Particular for example, Ian highlighted.

In Argentina, which have been able to increase household penetration of return levels recently, which of course in the current environment is very very.

Ian Marcel Craig Garca: Great. Thanks for the call today. Thank you. Thank you very much. Our next question is from Alvaro Garcia of VTG Pactual. Please go ahead.

Very important.

Having said that.

Have a very balanced strategy regarding regarding the mix of return levels. We continue to see the multi serve returnable in larger formats BP formats like the two five years three liter presentations in Mexico being very important as part of our turnaround strategy.

Jorge Alejandro Collazo Pereda: Hi, gentlemen. Congratulations on your results. Thanks for the space for questions, uh... two questions: the first is on channel breakdown in Mexico. We've seen a lot of [inaudible] Turnable Presentation. I was just wondering if you could comment on sort of the longer-term dynamics of Glass P Glass returnables versus PT returnables and how much PT has grown in that mix and how much Sponsored ADR Class L. Thank you very much. Hello Alvaro,

Yeah sure in Mexico as well.

But we do that as well segmenting our customers. The returnable glass that you mentioned is very important for the coal Chattanooga in Brazil. For example is very important for the on premise channel in Mexico. So all in all it's part of our.

Say on an overall strategy that helps US segment are our consumers I don't OEM. If you went to 200 and something where junior.

That's why they used planes correct. Thank you. Thank you.

Thank you. Thank you guys.

Thank you very much. Our next question comes from Fernando Olvera with Bank of America. Please go ahead.

Jorge Alejandro Collazo Pereda: Regarding channel mix, you know, we are seeing more aggressive growth from the modern channel in Mexico, but which was, I would say, under penetrated by the modern trade as compared to other countries. So I think it's very reasonable to continue to expect outperformance in modern trading in Mexico. That being said, we are not seeing weakness in the traditional channel.

Hi, good morning, Thanks for taking my questions and sorry, if I missed it but can you comment what is your outlook on volume mainly.

Mainly on markets like like basic one on Brazil.

And very quickly.

In Mexico, what is your outlook on costs this year, considering the strength of the peso.

Yeah.

Thank you for how are you talking regarding our outlook for I would say in general terms, whereas as Ian mentioned building on his comments, we are very optimistic on on the short term momentum that we have across our markets.

Jorge Alejandro Collazo Pereda: Our traditional channel is doing very well. It's up 5.3% versus prior year in this, around those figures, if I remember correctly. So it's not an instance of weakness in the traditional channel but rather a result of performance from modern trade. And I don't recall the last question, Jorge, if you can take it, please. Yes, sure. And yeah, regarding returnables, this is something that, of course, is very important for our revenue management strategies across our territories. In particular, for example, Ian highlighted in Argentina how we have been able to increase household penetration of returnables recently, which, of course, in the current environment, is very, very important. Having said that, we have a very balanced strategy regarding the mix of returnables.

Mexico of course had a very positive 2023 and with the start of the year actually has continue with in those in those positive trend snow. So we are envisioning something for the company for volumes that should be.

Close to the mid single digit range for growth in volumes in Mexico, I would say, it's pretty much in that in that regard for four for the outlook.

Brazil also we continue to be very optimistic about about the outlook.

So kind of a very strong.

Finish of 2023, similar to Mexico, obviously favorite buy buy baby very favorable weather, we're seeing strong demand in Brazil.

So the outlook I would say there is positive that's.

The Big picture of the plan that we have obviously on the on the other hand.

You have to recognize that it's a dynamic environment. So it will always come with different challenges in particular, Argentina is as expected and as Ian mentioned in the prepared remarks, we started to see a deceleration in volume performance.

Jorge Alejandro Collazo Pereda: We continue to see the multi-serve returnables in larger formats, PET formats, like the 2.5 liters and 3 liter presentations in Mexico being very important as part of our turnaround strategy in sharing Mexico as well. But we do that as well, segmenting our customers. The returnable glass that you mentioned is very important for the cold channel in Brazil, for example, is very important for the on-premise channel in Mexico.

During the fourth quarter, and we continue to see that doing the start of the year, but it's in line.

With the expectations for currently actually we do expect to see in Argentina tougher first half over the year.

And then towards the second half of the year, we expect to start seeing a gradual sequential.

Improvement I don't know if there is for the outlook that answers your question before passing it over to Jerry for for costs.

Yes, I think so much Jorge.

Thank you for your time, passing it off to Gerry regarding costs Fernando we're certainly seeing a more benign scenario in terms of commodities prices specifically.

Jorge Alejandro Collazo Pereda: So all in all, it's part of, I would say, an overall strategy that helps us segment our consumers. I don't know, Ian, if you want to add anything or not, or do you? That's what I think you explained correctly. Thank you. Thank you. Thank you all. Thank you. Thank you very much. Our next question is from Fernando Olvera of Bank of America. Please go ahead.

Specifically packaging what is still something that will we expect to continue having as a pressure for our P&L as we move forward as sugar sugar, although it's come.

Come down slightly during the start of the year, we certainly see an impact as compared to the previous year a significant impact.

So that that will continue to be a focus for us to see how we can mitigate the impact of sugar prices.

Operator: Hi, good morning. Thanks for taking my questions. Sorry if I missed it, but can you comment? What is your outlook on volume, mainly for markets like Mexico and Brazil? And very quickly, in Mexico, what is your outlook on cost this year considering the strength of the peso? [inaudible] Thank you, Fer. How are you?

Having said that we have.

Pretty healthy hedge position for our P&L for sure. It's 94 on most of our Hedgeable.

Raw materials. So we feel very confident that we will be able to deliver a good performance throughout the year.

Yeah.

Great. Thank you Gerry.

Okay, great. Thank you. Our next question is from Luis Willard GBM. Please go ahead.

Fernando Olvera Espinosa de los Monteros: It's Jorge. Regarding our outlook, I would say in general terms that we are, as Ian mentioned, not building on his comments; we are very optimistic about the short-term momentum that we have across our markets. Mexico, of course, had a very positive 2023, and the start of the year actually has continued those positive trends. So, we are envisioning something for the company in terms of volumes that should be close to the mid-single-digit range for growth in volumes. Mexico, I would say it's pretty much in that regard for the outlook.

Hi, guys. Good morning, Thanks for taking my question.

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So I think that I.

And thank you for your comment about.

The next generation of <unk>.

Of course so.

I was wondering if you could comment perhaps on a conceptual level.

These exploration plays in the context of the long term cooperation agreement with Coca Cola company and in particular.

If I understand correctly you did it go up a relevant part of the discussions.

So.

How do you see it evolving in the context of this frame work going forward.

Any potential adjustments to the to the negotiations to get to the agreement.

It's working better than what you did.

Gossip glaucoma at the time.

Jorge Alejandro Collazo Pereda: Brazil also, we continue to be very optimistic about the outlook. We've also had a very strong finish in 2023, similar to Mexico, obviously favored by very favorable weather. We're seeing strong demand in Brazil. So, the outlook, I would say, is positive. That's the big picture of the plan that we have. Obviously, on the other hand, we have to recognize that it's a dynamic environment. It will always come with different challenges, in particular Argentina, as is expected.

Any color would be helpful. Thank you.

Hello, Louis I think.

The long term relationship framework that we have with Coca Cola.

Are giving us.

The visibility that that we need to have great confidence in investing behind the business and as you've seen as we've done in capacity and also part of those investments are what we're doing in digital.

So I would put the investments that we're doing in digital on interest plus as part of the larger context of having a framework that gives us the adequate visibility on.

We estimate at returns that we can generate on our investments in the business. So it's nothing specific to digital but it's much wider than the on the digital piece, but it helps us get the same visibility that we need that the investments on digital are going to give us the adequate wheat.

Jorge Alejandro Collazo Pereda: And as Ian mentioned in the prepared remarks, we started to see a deceleration in volume performance during the fourth quarter, and we continue to see that during the start of the year. But it's in line with the expectations for currently. Actually, we do expect to see in Argentina a tougher first half of the year, and then towards the second half of the year, we expect to start seeing a gradual sequential improvement. I don't know if the outlook answers your question before passing it on to Jerry for cost. Yes, thanks so much, Jorge. Thank you for passing it on to Jerry.

So there's I wouldn't say, it's particular to digital or that there is any adjustment it but rather that as with the investments in capacity. It also gives us confidence to invest behind digital which is a key you know with our second pillar in our business strategy. So I would put it more as part of that.

General context.

Helps us have that same confidence on investing behind digital voice.

Okay Alright.

Gerardo Cruz: Regarding costs, Fernando, we're certainly seeing a more benign scenario in terms of commodity prices, specifically packaging. But what is still something that we expect to continue having as a pressure on P&L as we move forward is sugar. Sugar, although it's come down slightly during the start of the year, we certainly see an impact as compared to the previous year, a significant impact.

Sure.

So do you see better results in.

This person that's given a certain level of investment so we would say.

The rate.

Great a return on that investment.

A good point, let's say better than what you see.

So.

Uh huh.

That is correct.

And.

Could you see a coca Cola approaching yourselves through two adults suffering in terms of the level of investments or in terms of the.

Gerardo Cruz: So that will continue to be a focus for us to see how we can mitigate the impact of sugar prices. Having said that, we have a pretty healthy hedge position for our P&L for 2024 on most of our hedgeable raw materials, so we feel very confident that we will be able to deliver good performance throughout the year. Great. Thank you, Jerry.

Yeah.

A little of investments or.

The.

Prices or anything else that might affect or that might need to be renegotiated.

Oh, no not not really lose I don't see that being a trigger.

As usually has been the case our relationship with the Coca Cola company's he's he's right.

They're always seeking to do.

Co invest where we need to helps us accelerate the business or give us a support went when they see practices, that's going to help accelerate results, but nothing in structural terms really on a case by case basis and I would put this.

Operator: Thank you very much. Our next question is from Luis Willard of GBM. Please go ahead.

Luis Willard: Hi guys, good morning. Thanks for taking the question. So, seeing that, I mean, and thank you for your comments about the acceleration of Juntov Plus. So, I was wondering if you could comment, perhaps at a conceptual level, perhaps at a conceptual level, perhaps at a conceptual level, how does this acceleration play out in the context of the long-term cooperation agreement with Coca-Cola Company, and, in particular, if I understand correctly, what's a relevant part of the discussion? So, how do you see the world in the context of this framework going forward? Do you see any potential adjustments to the negotiations, to the agreement? Is it working better than what you discussed with Coca-Cola at the time? Any comment would be helpful.

Positive contributions from from their side when they want to accelerate certain capabilities and we jointly co invest behind them I don't see changes in the long term relationship framework due to adjustments in the mix of our channel structure between physical and digital I don't foresee that.

Yeah.

Oh, great. Thank you guys.

Thank you Luiz.

Thanks very much. Our next question is from Camilla Acevedo of UBS. Please go ahead.

Hi, gentlemen, thank you for taking my question and congrats on the results. My question is regarding Brazil beer. So Nielsen data shows that I haven't been had sales decreased high single digits and it doesn't have any tree widely reported growth local currency, maybe could you give us more color.

Ian Marcel Craig Garca: Thank you. Hello, Luis. I think the long-term relationship framework that we have with Coca-Cola, you know, has given us the visibility that we need to have great confidence in investing behind the business. And as you've seen, as we've done in capacity, and also part of those investments are what we're doing in digital. So I would put the investments that we're doing in digital and Juntos Plus as part of the larger context of having a framework that gives us adequate visibility on the estimated returns that we can generate on our investments in the business. So it's nothing specific to digital, but it's much wider than the digital piece, but it helps us get the same visibility that we need, that the investments in digital are gonna give us adequate returns.

On the performance by brand.

And just curious to understand what is driving this difference. Thank you.

Yeah.

Hi, Camilo how are you it's it's Jorge.

And thank you for the question.

But first let.

Let me first start with a disclaimer that we are very limited on what we can comment by by brand no. Obviously, that's part of the.

Relationship that we have agreed upon with the with Heineken.

And also as you may understand it from a competitive position and we're very limited having said that the Camilla I would link your question too to the to your question that happened in the previous earnings call and I think that explains over all the kind of performance that we saw in Brazil beer.

During all of 2023.

As you can see on the revenues that we disclose.

In reality, if you do the calculations and as we have mentioned our portfolio has been relatively stable during 2023 with regards to volume and with regards to to share more or less no.

Ian Marcel Craig Garca: So I wouldn't say it's particular to digital or that there is any adjustment there, but rather, as with the investments in capacity, it also gives us confidence to invest in digital, which is a key to our second pillar in our business strategy. It helps us have that same confidence when investing behind digital. Okay, all right. So, I may do so in particular.

There are certain brands definitely that are performing.

Performing better within their own segment.

So the economy brands for example are ones that are gaining share.

Wherever they are participating in a part of the Brazil beer segment that is getting smaller mills. So it's shrinking.

I somebody in particular, it's a brand that we of course received with the new agreement, we have with Heineken and we are focusing on expanding coverage.

Luis Willard: [inaudible] that the rate of return on that investment is, at this point, let's say better than what you previously thought of. So, uh, I mean, if that is correct. Um, do you see Coca-Cola approaching yourself to adjust something in terms of the level of investments or in terms of the, Yeah, level of investment or, you know, the license or anything else that might affect or that might need to be renegotiated? No, not really, Luis. I don't see that as being a trigger.

Yeah.

It's not easy as competitive as Brazil is within the beer segment, it's not an easy feat. However, a company like we do expect.

To see an improvement next year, though we have a robust plan to working together with Heineken and her team in Brazil has a plan in place to to start turning that around.

I don't know if that gives you a little bit of color, but in reality summarizing is that ice inbound we are repositioning it does them more premium brand within our portfolio. However, premium is highly competitive it's very competitive as stuff and it takes time.

So that's a little bit of the of the performance coming out I don't know if that answers your question.

Ian Marcel Craig Garca: As usually has been the case, a relationship with a Coca-Cola company is great. They're always seeking to... Co-invest when it helps accelerate the business or give us support when they see practices that can help accelerate results. But nothing in structural terms, really on a case-by-case basis.

Yeah. It certainly helps thank you very much for that.

Thank you thank you for coming.

Thank you very much as a reminder, if he would like to ask a question on todays call. Please press star one on your telephone keypad to register your question.

Our next question is a good day.

J P. Morgan. Please go ahead.

Hey, guys. Good morning, Thanks for the space for your questions here. So just a couple of quick ones here.

Luis Willard: And I would put this as positive contributions from their side when they want to accelerate certain capabilities, and we jointly co-invest behind them. I don't see changes in the long-term relationship framework due to adjustments in the mix of our channel structure between physical and digital. I don't foresee that.

Related to Capex expectations for 2024 can you comment a little bit on how that.

How that is kind of shaping up and maybe over the next couple of years as well.

And all of those investments and projects look like across four for the different regions for you guys.

And then the second one just related a little bit of competition in Mexico. So obviously, you're seeing getting back somewhat.

Ian Marcel Craig Garca: Sounds very clear. Thank you, guys. Theurer, Alanis, Luis Alonso, Rodrigo Bortoluci, Sergio Bortoluci, Jorge Pereda, Luis Alcantara, Fernando Montero FEMSA SAB de CV Sponsored ADR Class L. Thanks very much. Our next question is from Camila Azevedo of UBS. Please go ahead.

The market share here have you seen any reaction from competitors is there anything kind of worth flagging on that so in that sense.

Thank you.

Yeah.

Our new leases.

Yeah. This is Jerry regarding our investments as we have been talking.

Talking to you guys about during the last year and this is one of our biggest focus is sustainable growth Ian mentioned that.

Operator: Hi, gentlemen. Thank you for taking my question and congratulations on the results. My question is regarding Brazilian beer.

And for that we are requiring a capacity in and basically.

For the next three years, we're expecting to increase our manufacturing capacity by 15% and distribution capacity by around 30%. This is Ah Ah just investing in in lines through our our markets with big focus on our biggest for Mexico, Brazil.

Camila Villaa Azevedo: So news and data shows that Eisenberg sales decreased by high single digits in 2023, while you reported growth in the concurrency. Maybe could you give us more color on the performance by brand? And I'm just curious to understand what is driving this difference.

Colombia, and Guatemala, but throughout the company, we're investing heavily we expect.

Jorge Alejandro Collazo Pereda: Thank you. Hi Camila, how are you? It's Jorge, and thank you for the question. First, let me start with a disclaimer that we are very limited in what we can comment on by brand. No, obviously, that's part of the relationship that we have agreed upon with Heineken, and also, as you may understand from a competitive position, we're very limited. Having said that, Camila, I would link your question to the beer question that happened on the previous earnings call, and I think that explains, overall, the kind of performance that we saw in Brazil beer during all of 2023. As you can see from the revenues that we disclosed, In reality, if you do the calculations, and as we have mentioned, our portfolio has been relatively stable during 2023 with regard to volume and with regard to share, more or less, no? There are certain brands, definitely, that are performing better within their own segment.

Our capex as a percentage of sales remains between 8% to 9% Oh.

Until 'twenty 'twenty six and then it starts coming back to our usual investment levels that that's our projection right now.

And this is to support what we've been seeing in growth.

Not only growth that we're expecting going forward, but also underserved markets that we're seeing are.

At currently so where we have out of stocks due to capacity limitation. So we we are investing to solve that and support the growth that we're seeing across the operations.

I would just just to give you a little bit more more color in terms of new lines are planned for this year was to put in five new lines on ethics lined up.

A line that we've moved from from one plant to another that wasn't in production last year. So our plan was to put in seeks new lines that will go.

Start working this year that responds the that we're seeing so far.

We're thinking of probably investing in another three lines and bringing those investments that were in our long term plan for them for next year, bringing those forward due to easier so that growth model and the growth algorithm that we've developed with the Coca Cola company is working on we should be investing.

Jorge Alejandro Collazo Pereda: So the economy brands, for example, are ones that are gaining share. However, they are participating in a part of the Brazil beer segment that is getting smaller, no? So it's shrinking. Aizenba, in particular, is a brand that we, of course, received with a new agreement we have with Heineken, and we are focusing on expanding coverage. We, it's not easy as competitive as Brazil is within the beer segment.

Well in additional distribution centers.

Probably around one to three.

Seeks new distribution centers as well so the investment you leases is going to be there precisely to support our growth model and the interesting part is the way our operating leverage is working.

Jorge Alejandro Collazo Pereda: It's not an easy feat. However, Camila, we do expect to see an improvement next year. No, we have a robust plan for working together with Heineken, and our team in Brazil has a plan in place to start turning that around. And I don't know if that gives you a little bit of color.

This is coming together with increased return on investment capital. So it increased last year, and we expect our ROIC and we expect it to continue to increase this year. So it's these are accretive investments that are that are helping our company become more profitable in terms of return on investment capital and regarding your.

Jorge Alejandro Collazo Pereda: But in reality, summarizing, we are repositioning Eisenbahn as a more premium brand within our portfolio. However, premium is highly competitive. It's very competitive, it's tough, and takes time.

Your second question.

We switched Mexico's model due to a growth model. So Mexico had had been in yearly Shirley grind in colas in each year of the last 10 years, and we completely switch that around last year, and we return to share our role as a share of sales.

Jorge Alejandro Collazo Pereda: And so that's a little bit of the performance. Camila, I don't know if that answers your question. Yeah, it surely helps.

Our goal is I mean, the case of flavors in Mexico, we have been in five years of decline really tiny share of sales in flavors and again with a very positive year last year and shelf sales in flavors and that's the idea we don't intend to deviate from these growth model, we intend to seek a balance.

Camila Villaa Azevedo: Thank you very much, Jorge. Thank you. Thank you, Camila.

Operator: Thank you very much. As a reminder, if you would like to ask a question on today's call, please press star one on your telephone keypad to register your question. Our next question is from Ulysses Argote of J.P. Morgan. Please go ahead. Hey guys, good morning.

Sustainable growth, while we improve our relative competitive position in terms of share value year over year.

Does that help releases.

Ulysses Argote: Thanks for the space for questions here. So just a couple of quick ones here related to CapEx expectations for 2024. Can you comment there a little bit on how that is kind of shaping up and maybe over the next couple of years as well, and how those investments and projects look across the different regions for you guys? And then the second one just related a little bit to competition in Mexico.

Yes, that's perfect. Thanks, so much further color there.

Congrats on the results.

Yes.

Thank you.

Yeah.

Thank you very much as we have no further questions in the queue I would like to turn it back over to Mr class So for any closing remarks.

Yeah.

Thank you very much everyone for your interest in Coca Cola FEMSA for for joining us on today's call.

As always myself the rest of the IR team Noranda Marina Emilio we are available to answer any of your remaining questions and we look forward to speaking to all of you again very soon thank you very much.

Thank you. Thank you very much.

That concludes today's conference you may now disconnect Husky my salary.

Gerardo Cruz: So obviously, you've been getting back some of the market share here. Have you seen any reaction from competitors? Is there anything kind of worth flagging on that?

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Gerardo Cruz: Thank you. Hi Ulises. This is Jerry, uh, regarding, uh, investing. As we have been talking to you guys about during the last year, and this is one of our biggest focuses, sustainable growth. Ian mentioned it. And for that, we are requiring capacity, and basically, for the next three years, we're expecting to increase our manufacturing capacity by 15%, and our distribution capacity by around 30%. This is just investing in lines across our markets, with a big focus on our biggest four, Mexico, Brazil, Colombia, and Guatemala. But throughout the company, we're investing heavily. We expect that our capex as a percentage of sales will remain between 8 to 9% until 2026, and then it starts coming back to our usual investment levels. That's our projection right now.

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Gerardo Cruz: And this is to support what we've been seeing in growth, not only growth that we're expecting going forward, but also underserved markets that we're seeing currently. So we are out of stocks due to capacity limitations. So we are investing to solve that and support the growth that we're seeing across the operation. Just to give you a little bit more color, in terms of new lines, our plan for this year was to put in five new lines and a sixth line that's a line that we moved from one plant to another that wasn't in production last year. So our plan was to put in six new lines that would start working this year. With the response that we're seeing so far, we're thinking of probably investing in another three lines and bringing those investments that were in our long-term plan for next year, bringing those forward to this year.

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Gerardo Cruz: So the growth model and the growth algorithm that we co-developed with the Coca-Cola company is working, and we should... [inaudible] Company become more profitable in terms of return on investment. And regarding your second question, we switched Mexico's model to a growth model. So Mexico had been in yearly, yearly grinds in colas for each year of the last 10 years. And we completely switched that around last year.

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Gerardo Cruz: And we returned to share of sales for colas. And in the case of flavors in Mexico, we have been in five years of decline, of yearly decline in share of sales for flavors. And again, we had a very positive year last year in share of sales for flavors. And that's the idea. We don't intend to deviate from this growth model.

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Gerardo Cruz: We intend to seek balanced, sustainable growth where we improve our relative competitive position in terms of share of value year over year. Does that help, Ulises? Yes, no, that's perfect. Thanks so much for the color there. Yeah, there.

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Ulysses Argote: Congratulations on the results. Thank you. Thank you very much. As we have no further questions in the queue, I would like to turn it back over to Mr. Collazo for any closing remarks. Thank you very much, everyone, for your interest in Coca-Cola FEMSA and for joining us on today's call. As always, myself and the rest of the IR team, Lorena, Marene, and Emilio, we are available to answer any of your remaining questions, and we look forward to speaking to all of you again very soon.

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Jorge Alejandro Collazo Pereda: Thank you very much. Thank you. Thank you very much. That concludes today's conference. You may now disconnect, or you may stay on the line. Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female Female

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Q4 2023 Coca-Cola FEMSA SAB de CV Earnings Call - Q&A

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