Q2 2024 Coca-Cola FEMSA SAB de CV Earnings Call

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Operator: Good day, and welcome to today's Coca-Cola FEMSA second quarter 2024 conference call. Throughout today's presentation, all participants will be in a listen-only mode.

Speaker Change: Good day and welcome to today's Coca Cola FEMSA second quarter 2024 conference call. Throughout today's presentation, all participants will be in a listen-only mode. Later, we will conduct a question and answer session.

Speaker Change: If you wish to register for a question at any time, you may press star 1 on your telephone keypad. And now I'd like to hand the call over to your host, Jorge Collazo. Please go ahead, sir.

Jorge Alejandro Collazo Pereda: Later, we will conduct a question and answer session. If you wish to register for a question at any time, you may press star 1 on your telephone keypad. And now, I'd like to hand the call over to your host, Jorge Collazo. Please go ahead. Thank you. Good morning, everyone. Welcome to this webcast and conference call to review our second quarter twenty twenty four results. Joining me this morning are Ian Craig, our Chief Executive Officer, and Gerardo Cruz, our Chief Financial Officer. As usual, after prepared remarks, we will open the call for a question and answer session.

Jorge Alejandro Collazo Pereda: Thank you. Good morning, everyone. Welcome to this webcast and conference call to review our second quarter 2024 results.

Speaker Change: Joining me this morning are Ian Craig, our Chief Executive Officer, and Gerardo Cruz, our Chief Financial Officer.

Speaker Change: As usual, after prepared remarks, we will open the call for a question and answer session.

Jorge Alejandro Collazo Pereda: Before we proceed, please allow me to remind all participants that this conference call may include forward-looking statements that 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. For more details, please refer to the disclaimer in the earnings release that went out this morning. With that, let me turn the call over to our CEO. Please go ahead, Ian.

Speaker Change: Before we proceed, please allow me to remind all participants that this conference call may include forward-looking statements and should be considered good faith estimates made by the company.

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

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

Speaker Change: For more details, please refer to the disclaimer in the earnings release that went out this morning.

Speaker Change: With that, let me turn the call over to our CEO .

Ian Marcel Craig Garca: Thank you, Jorge. Good morning, everyone. Thank you for joining us today to discuss our second quarter results. Let me begin by saying that I am encouraged by the progress we are making on the priorities we set for the year. For the second quarter, we continued building on the growth momentum of our core business, increasing our consolidated volumes by 7.5% year-on-year while driving double-digit top and bottom line growth. We're also progressing on becoming our customers' preferred commercial platform with Juntos Plus.

Ian Marcel Craig Garca: Please go ahead, Ian.

Ian Marcel Craig Garca: Thank you, Jorge. Good morning, everyone. Thank you for joining us today to discuss our second quarter results.

Ian Marcel Craig Garca: Let me begin by saying that I am encouraged by the progress we are making across the priorities we set for the year.

Ian Marcel Craig Garca: For the second quarter, we continued building on the growth momentum of our core business, increasing our consolidated volumes by 7.5% year-on-year, while driving double-digit top and bottom line growth.

Ian Marcel Craig Garca: We're also progressing on becoming our customers' preferred commercial platform with Juntos Plus.

Ian Marcel Craig Garca: During the quarter, we finished rolling out the new version 4.0 of our app in our two largest markets, Mexico and Brazil, while beginning its rollout in Guatemala, Panama, and Colombia. Now, more than half of our total customer base are digital buyers. Importantly, we are taking significant steps in deploying Coca-Cola FEMSA's principles, the foundation of the culture that we envision for our long-term growth and success.

Ian Marcel Craig Garca: During the quarter, we finished rolling out the new version 4.0 of our app in our two largest markets, Mexico and Brazil, while beginning its rollout in Guatemala, Panama and Colombia. Now more than half of our total customer base are digital buyers.

Speaker Change: Importantly, we are taking significant steps in deploying Coca Cola FEMSA's principles, the foundation of the culture that we envision for our long-term growth and success.

Ian Marcel Craig Garca: Although a positive quarter, our resilience and ability to respond to challenges was put to the test as we faced unprecedented flooding in the state of Rio Grande do Sul in southern Brazil. I want to take a moment to express our heartfelt support to all of the people affected by these events and to recognize the leadership and swift actions taken by our team to ensure the well-being of our Brazilian colleagues as well as their families and to provide effective community support. Our team mobilized quickly to ensure business continuity and minimize disruption.

Speaker Change: Although a positive quarter, our resilience and ability to respond to challenges was put to the test as we faced unprecedented flooding in the state of Rio Grande do Sul in southern Brazil.

Speaker Change: I want to take a moment to express our heartfelt support to all of the people affected by these events and to recognize the leadership and swift actions taken by our team to ensure the well-being of our Brazilian collaborators as well as their families.

Speaker Change: and to provide effective community support. Our team mobilized quickly to ensure business continuity and minimize disruption.

Ian Marcel Craig Garca: I will expand on these actions later today when I touch on Brazil. During our call today, I will summarize our quarterly results and provide an update on key developments across our territories. Then, Jerry will walk you through our division's performance, closing with an update on the progress we are making to add capacity across our operation, aligned with our strategic pillar to remove infrastructure bottlenecks and digitize the enterprise. Moving on to review our consolidated results for the second quarter. Our volumes continued their positive momentum, increasing 7.5% year-on-year.

Speaker Change: I will expand on these actions later today when I touch on Brazil.

Ian Marcel Craig Garca: This increase was driven mainly by the strong performance achieved in Mexico, Brazil, Guatemala, and our Central America South Territories, which offset volume declines in Argentina and Uruguay. Our strategy is to grow our core business and continue driving results. Parking beverage volumes grew 6.8%, driven mainly by brand Coca-Cola's 7.8% growth.

Speaker Change: During our call today, I will summarize our quarterly results and provide an update of key developments across our territories.

Speaker Change: Then, Jerry will walk you through our division's performance, closing with an update on the progress we are making to add capacity across our operations, aligned with our strategic pillar to remove infrastructure bottlenecks and digitize the enterprise.

Ian Marcel Craig Garca: Fueled beverages grew 13.2%, and bottled water grew 13.4%. Total revenues for the quarter grew 13.1%, reaching 69.5 billion pesos, driven mainly by volume growth, offsetting an unfavorable currency translation mainly related to the depreciation of the Brazilian real and the Argentine peso, as compared to the Mexican peso. On a currency-neutral basis, our total revenues increased 17.9%. Gross profit increased 17.2% to 32 billion pesos, leading to a margin expansion of 160 basis points to 46%.

Jerry: Moving on to review our consolidated results for the second quarter.

Jerry: Our volumes continued their positive momentum, increasing 7.5% year-on-year. This increase was driven mainly by the strong performance achieved in Mexico, Brazil, Guatemala, and our Central America South Territories, which offset volume declines in Argentina and Uruguay.

Jerry: Our strategy is to grow our core business, continue driving results. Sparking beverage volumes grew 6.8%, driven mainly by brand Coca Cola's 7.8% growth.

Jerry: Steel beverages grew 13.2% and bottled water grew 13.4%.

Jerry: Total revenues for the quarter grew 13.1%, reaching 69.5 billion pesos.

Jerry: Driven mainly by volume growth, offsetting an unfavorable currency translation mainly related to the depreciation of the Brazilian Real and the Argentine Peso, as compared to the Mexican Peso.

Jerry: On a currency-neutral basis, our total revenues increased 17.9%.

Jerry: Gross profit increased 17.2% to 32 billion pesos, leading to a margin expansion of 160 basis points to 46%.

Ian Marcel Craig Garca: This increase was driven mainly by operating leverage resulting from solid top-line performance coupled with favorable packaging costs and hedging strategies. However, these effects were partially offset by higher sweetener costs and a significant depreciation of the Argentine peso as compared with the previous year.

Jerry: This increase was driven mainly by the operating leverage resulting from our solid top-line performance coupled with favorable packaging costs and hedging strategies.

Jerry: These effects were partially offset by higher sweetener costs and a significant depreciation of the Argentine peso as compared with the previous year.

Ian Marcel Craig Garca: Our operating income increased 13.8% to $9.7 billion, with operating margin reaching 14%. As was the case during the first quarter, our operating leverage and cost and expense efficiencies enabled us to protect margins, offsetting extraordinary expenses related to the flooding in the south of Brazil, as well as increases in freight, labor, and maintenance. Notably, this quarter also includes approximately 400 million pesos related to a non-cash operating foreign exchange loss driven by the quarterly depreciation of the Mexican peso.

Jerry: Our operating income increased 13.8% to $9.7 billion, with operating margin reaching 14%.

Jerry: As was the case during the first quarter, our operating leverage and cost and expense efficiencies enabled us to protect margins, offsetting extraordinary expenses related to the flooding in the south of Brazil, as well as increases in freight, labor, and maintenance.

Jerry: Notably, this quarter also includes approximately 400 million pesos related to a non-cash operating foreign exchange loss driven by the quarterly depreciation of the Mexican pesos.

Ian Marcel Craig Garca: By normalizing the extraordinary effects related to the flooding in Brazil, our operating margin would have expanded 30 basis points to 14.2%. Adjusted EBTA for the quarter increased 21.7% to reach 13.9 billion pesos, and the EBTA margin expanded 148 basis points to 20%. The difference between adjusted EBDA and operating income is mainly explained by the increase in non-cash expenses related to the 400 million pesos operating foreign exchange loss that I previously described.

Jerry: By normalizing the extraordinary effects related to the flooding in Brazil, our operating margin would have expanded 30 basis points to 14.2%.

Jerry: Adjusted EBITDA for the quarter increased 21.7% to reach $13.9 billion pesos.

Jerry: and EBDA margin expanded 148 basis points to 20%. The difference between adjusted EBDA and operating income is mainly explained by the increase in non-cash expenses related to the 400 million pesos operating foreign exchange loss that I previously described.

Ian Marcel Craig Garca: Finally, our majority net income increased 13.8% to reach 5.6 billion pesos. This increase was driven mainly by operating income growth coupled with a decrease in our comprehensive financing result. This decrease in our comprehensive financing result was driven mainly by a foreign exchange gain that resulted from the depreciation of the Mexican peso during the quarter as applied to our dollar cash flows.

Jerry: Finally, our majority net income increased 13.8% to reach 5.6 billion pesos.

Jerry: This increase was driven mainly by operating income growth, coupled with a decrease in our comprehensive financing results. This decrease in comprehensive financial results was driven mainly by a foreign exchange gain that resulted from the depreciation of the Mexican peso during that quarter, as applied to our dollar cash position.

Ian Marcel Craig Garca: Now, let me expand on our operational highlights for the second quarter. In Mexico, the implementation of our long-term sustainable growth model, coupled with favorable weather and a resilient consumer environment, supported our 7.9% volume growth for the quarter, reaching 600 million unit cases for the first time in our franchise's history. Additionally, thanks to the efforts of our supply chain team to add capacity and generate productivity, in May, we broke the record of historic monthly production that we had previously established in March, producing 198 million unit cases.

Jerry: Now, let me expand on our operations highlights for the second quarter.

Jerry: In Mexico, the implementation of our long-term sustainable growth model, coupled with favorable weather and a resilient consumer environment, supported our 7.9% volume growth for the quarter, reaching 600 million unit cases for the first time in our franchise's history.

Jerry: Additionally, thanks to the efforts of our supply chain team to add capacity and generate productivity, in May we broke the record of historic monthly production that we had previously established in March, producing 198 million unit cases.

Ian Marcel Craig Garca: Efforts to satisfy unserved demand in the southeast region of the country prompted us to relocate a production line to the city of Villahermosa, which began production last June, bolstering our capacity in this important and growing region of the country. However, as was the case during the first quarter, the demand we saw continued to exceed our installed capacity, generating stockouts and limiting our share recovery efforts.

Jerry: Efforts to satisfy unserved demand in the southeast region of the country prompted us to relocate a production line to the city of Villahermosa, which began production last June .

Jerry: Bolting our capacity in this important and growing region of the country. However, as was the case during the first quarter, that demand we saw continued to exceed our installed capacity, generating stockouts and limiting our shared recovery efforts.

Ian Marcel Craig Garca: Finally, an update on Juntos Plus in Mexico. As I previously mentioned, we finished the rollout of version 4.0 with more than 335,000 active buyers in the new version of the app, effectively digitizing more than 50% of our customer base in the country. We remain confident in Mexico's momentum and in our team's ability to resolve capacity constraints and continue delivering solid results as we enter the second half of the year. Moving on to Central America

Jerry: Finally, an update on Juntos Plus in Mexico. As I previously mentioned, we finished the rollout of version 4.0 with more than 335,000 active buyers in the new version of the app, effectively digitizing more than 50% of our customer base in the country.

Speaker Change: We remain confident in Mexico's momentum and in our team's ability to resolve capacity constraints and continue delivering solid results as we enter the second half of the year.

Ian Marcel Craig Garca: Volumes in our Central America South Territories, which include Costa Rica, Nicaragua, and Panama, increased 6.2%. In Costa Rica, our commercial initiatives continue driving volume growth. For instance, to complement our single-serve offerings, we introduced a 250-ml presentation of Sprite, Fresh, and Fused Tea.

Ian Marcel Craig Garca: In addition, our multi-serve packs grew 8% year-on-year as we focused on the execution of refillable and one-way presentations to capture the important meals' location. Moreover, in Costa Rica and Panama, we launched alcoholic ready-to-drink cocktails in two flavors, Schweppes Gin & Tonic and Schweppes Vodka Citrus, to capture growth in this emerging beverage category. Finally, in Nicaragua, we delivered a solid second quarter. Brand Coca-Cola continues to outperform with double-digit growth, supported by strong performance in both single-serve and multi-serve presentation.

Speaker Change: Moving on to Central America, volumes in our Central America South Territories, which include Costa Rica, Nicaragua, and Panama, increased 6.2%.

Speaker Change: In Costa Rica, our commercial initiatives continue driving volume growth. For instance, to complement our single-serve offerings, we introduced a 250 ml presentation of Sprite, Fresh, and Fused Tea.

Speaker Change: In addition, our multi-serve packs grew 8% year-on-year as we focused on the execution of refillable and one-way presentations to capture the important meals' location.

Speaker Change: Moreover, in Costa Rica and Panama, we launched alcoholic ready-to-drink cocktails in two flavors, Schweppes Gin & Tonic and Schweppes Vodka Citrus, to capture growth in this emerging beverage category.

Speaker Change: Finally, in Nicaragua, we delivered a solid second quarter. Brand Coca Cola continues outperforming with double-digit growth, supported by strong performance in both single-serve and multi-serve presentations.

Ian Marcel Craig Garca: Notably, with brands Monster and Fury, our energy portfolio volumes grew more than 50% year-over-year, capturing value share. We're convinced that there are many growth opportunities in Central America to continue capturing growth, profitability, and accelerate our digital transformation. Moving on to South America, as I mentioned during my introductory comments, the South of Brazil experienced the worst flooding in the region's history, affecting approximately 2.4 million people.

Speaker Change: Notably, with brands Monster and Fury, our energy portfolio volumes grew more than 50% year-over-year, capturing value share.

Speaker Change: We are convinced that there are many growth opportunities in Central America to continue capturing growth, profitability, and accelerate our digital transformation.

Speaker Change: Moving on to South America.

Speaker Change: As I mentioned during my introductory comments, the South of Brazil experienced the worst flooding in the region's history.

Speaker Change: Affecting approximately 2.4 million people.

Ian Marcel Craig Garca: In this challenging environment, our team rapidly activated crisis protocols, focused on ensuring our collaborators and their families' safety as the utmost priority. Among other actions to support our team in the region, we donated food and water, advanced salary payments, and made vaccines available. In the words of Don Eugenio Garzasada, one of FEMSA's most prominent leaders in the 20th century, what a person is and may possess is an opportunity to help others, an opportunity to serve.

Speaker Change: In this challenging environment, our team rapidly activated crisis protocols.

Speaker Change: focused on ensuring our collaborators and their families' safety as the utmost priority.

Speaker Change: Among other actions to support our team in the region, we donated food and water, advanced salary payments, and made vaccines available.

Speaker Change: In the words of Don Eugenio Garzasada, one of FEMSA's most prominent leaders in the 20th century, what a person is and may possess is an opportunity to help others, an opportunity to serve.

Ian Marcel Craig Garca: And with this in mind, FEMSA and Coca-Cola FEMSA's relief fund donated approximately $1 million to help cover all our affected collaborators, resources that are being used to support home rebuilding, replace furniture, and basic house appliances that were lost to the torrential rain. In addition, community relief efforts were coordinated with support from our partners at the Coca-Cola Company and the rest of the Coca-Cola system in Brazil, who also donated resources and water to the most affected communities in the region. Regarding business continuity, as we announced in early May, we suspended operations in our plant in Porto Alegre.

Speaker Change: And with this in mind, FEMSA and Coca Cola FEMSA's relief fund donated approximately $1,000,000

Speaker Change: to help cover all our affected collaborators, resources that are being used to support home rebuilding, replace furniture, and basic house appliances that were lost to the torrential rains.

Speaker Change: In addition, community relief efforts were coordinated with support from our partners at the Coca Cola Company and the rest of the Coca Cola system in Brazil, whom also donated resources and water to the most affected communities in the region.

Ian Marcel Craig Garca: We have now completed site cleaning and removed more than 5,000 tons of debris and finished products and are working hand-in-hand with our equipment manufacturing partners towards a gradual reopening as of the fourth quarter of the year. In the meantime, our supply chain team rapidly adapted our sales and distribution network to serve our customers in the region, setting up two distribution centers around Porto Alegre that allowed us to reach more than 90% of our customer base.

Speaker Change: Regarding business continuity.

Speaker Change: As we announced in early May, we suspended operations in our plant in Puerto Alegre. We have now completed site cleaning and removed more than 5,000 tons of debris and finished product.

Speaker Change: and are working hand in hand with our equipment manufacturing partners towards a gradual reopening as of the fourth quarter of the year.

Speaker Change: In the meantime, our supply chain team rapidly adapted our sales and distribution network.

Speaker Change: to serve our customers in the region.

Speaker Change: Setting up two distribution centers around Porto Alegre.

Speaker Change: that allowed us to reach more than 90% of our customer base.

Ian Marcel Craig Garca: To source finished products, we are currently shipping from other Coca-Cola FEMSA territories in Brazil, Uruguay, and Argentina, as well as from other bottlers in the Coca-Cola system, allowing us to mitigate the temporary capacity gap while we reopen our Porto Alegre facility.

Speaker Change: To source finished products, we are currently shipping from other Coca Cola FEMSA territories in Brazil, Uruguay, and Argentina.

Speaker Change: as well as from other bottlers from the Coca Cola system, allowing us to mitigate the temporary capacity gap while we reopen our Porto Alegre facility.

Ian Marcel Craig Garca: Despite the challenges faced in Rio Grande do Sul, volume in Brazil increased by a solid 12.1%. Favorable weather in most of our territory, coupled with our initiatives to grow the core business, enabled us to achieve record volume. We are also encouraged by the results of Coca-Cola's Zero Sugar, which continues to grow 50% year-on-year. In addition, Powerade and Monster grew 64% and 32%, respectively. As we mentioned, during the first quarter, we strengthened our competitive position, gaining share not only with the Coca-Cola brand but also in flavors, energy, teas, sports drinks, and juices. However, in Colombia, consumer confidence has continued to deteriorate.

Speaker Change: Despite the challenges faced in Rio Grande do Sul, volume in Brazil increased a solid 12.1%.

Speaker Change: Favorable weather in most of our territory, coupled with our initiatives to grow the core business, enabled us to achieve record volumes.

Speaker Change: We are also encouraged by the results of Coca Cola's Zero Sugar, which continues to grow 50% year-on-year.

Speaker Change: In addition, Powerade and Monster grew 64% and 32% respectively. As we mentioned, during the first quarter, we are strengthening our competitive position, gaining share not only with brand Coca Cola, but also in flavors, energy, teas, sports drinks and juices.

Speaker Change: In Colombia, consumer confidence has continued to deteriorate. This macroeconomic backdrop, coupled with unfavorable weather during the quarter, resorted in sequential deceleration in volume growth.

Ian Marcel Craig Garca: This macroeconomic backdrop, coupled with unfavorable weather during the quarter, resulted in sequential deceleration in volume growth. In this complex environment, our team remains focused on our goal, the core initiative. Adjusting Our Product Offerings to Capture Key Price Points, This initiative, coupled with service and availability improvement, continued enabling us to outperform the industry, resulting in share gains. Aligned with our initiative to increase capacity, in late June, we opened a new distribution center in Funza, on the outskirts of Bogota, increasing capacity by 90,000 pallet positions, bolstering our service to more than 30,000 clients in the region. Moving further south to Argentina.

Speaker Change: In this complex environment, our team remains focused on our Grow the Core initiatives.

Speaker Change: Adjusting our product offerings to capture key price points

Speaker Change: These initiatives, coupled with service and availability improvements,

Speaker Change: Continued enabling us to outperform the industry, resulting in share gains.

Speaker Change: Aligned with our initiatives to increase capacity, in late June , we opened a new distribution center in Funza, in the outskirts of Bogota, increasing capacity by 90,000 pallet positions, bolstering our service to more than 30,000 clients in the region.

Ian Marcel Craig Garca: As was the case during the first quarter, we continue seeing the effects of a 31% contraction in disposable income, leading our volumes to decline 9.9%. However, prospects of more controlled inflation and a gradual recovery in disposable income are being reflected in consumer sentiment. Our team continues executing the playbook needed to emerge stronger from these macro-adjustments, strengthening our affordable platform to maintain household penetration and consumer preference while driving cost and expected efficiencies as well as implementing productivity initiatives. Finally, volumes in Uruguay declined 12.1% year-on-year.

Speaker Change: Moving further south to Argentina.

Speaker Change: As was the case during the first quarter, we continue seeing the effects of a 31% contraction in disposable income, leading our volumes to decline 9.9%.

Speaker Change: However, prospects of a more controlled inflation and a gradual recovery of disposable income are being reflected in consumer sentiment.

Speaker Change: Our team continues executing the playbook needed to emerge stronger from these macro-adjustments, strengthen our affordable platform to maintain household penetration and consumer preference, while driving cost and expected efficiencies, as well as implementing productivity initiatives.

Speaker Change: Finally...

Speaker Change: Volumes in Uruguay declined 12.1% year-on-year.

Ian Marcel Craig Garca: This decline is explained mainly by a tough comparison base. A severe drought in 2023 drove extraordinary growth for personal water, coupled with unfavorable conditions during most of the quarter this year. As we enter the second half of the year, we remain confident in our strategy as well as the investments being deployed to improve service levels. We expect that the consumer environment to remain resilient in the majority of our markets. We continue to see a long runway for Coca-Cola FEMSA's value creation as we progress in the implementation of our sustainable long-term growth. With that, I will hand the call over to Jerry. Thank you, Ian. Good morning, everyone.

Speaker Change: This decline is explained mainly by a tough comparison base, as severe drought in 2023 drove extraordinary growth for personal water, coupled with unfavorable conditions during most of the quarter this year.

Speaker Change: As we enter the second half of the year, we remain confident in our strategy as well as the investments being deployed to improve service levels.

Speaker Change: We expect the consumer environment to remain resilient in the majority of our markets. We continue to see a long runway for Coca Cola FEMSA's value creation as we progress in the implementation of our sustainable long-term growth model.

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

Gerardo Cruz Celaya: Summary of our division's results for the second quarter. In Mexico and Central America, volumes increased 8.1% to reach 695.6 million units, with volume growing across all of the division's territory. Revenues increased 15.3% to 45.1 billion pesos.

Jerry: Thank you, Ian. Good morning, everyone.

Speaker Change: Summarizing our division's results for the second quarter.

Jerry: In Mexico and Central America, volumes increased 8.1% to reach 695.6 million unit cases.

Jerry: with volume growing across all of the division's territories.

Speaker Change: Revenues increased 15.3% to $45.1 billion pesos.

Gerardo Cruz Celaya: This growth was driven mainly by volume performance and a favorable mix effect. Our gross profit increased 17.8% to reach 21.9 billion pesos, resulting in a gross margin of 48.7%, expanding 100 basis points year on year. Our operating leverage resulting from top-line growth, improving packaging costs, and favorable hedging initiatives were partially offset by higher sweetener costs and the depreciation of the Mexican economy. However, operating income increased 12% to 7.3 billion pesos, driven mainly by the gross profit performance I previously described.

Speaker Change: This growth was driven mainly by volume performance and favorable mix effects.

Speaker Change: Our gross profit increased 17.8% to reach 21.9 billion pesos.

Speaker Change: Resulting in a gross margin of 48.7%, expanding 100 basis points year-on-year.

Speaker Change: Our operating leverage, resulting from top-line growth, improving packaging costs, and favorable hedging initiatives were partially offset by higher sweetener costs and the depreciation of the Mexican PES.

Speaker Change: Operating income increased 12% to 7.3 billion pesos driven mainly by the gross profit performance I previously described.

Gerardo Cruz Celaya: However, our operating margin contracted 50 basis points to 16.2%. This contraction was driven mainly by a non-cash operating foreign exchange loss generated by the depreciation of the Mexican peso, coupled with an increase in operating expenses such as labor, marketing, and freight.

Speaker Change: However, our operating margin contracted 50 basis points to 16.2%. This contraction was driven mainly by a non-cash operating foreign exchange loss generated by the depreciation of the Mexican peso.

Speaker Change: coupled with an increase in operating expenses such as labor, marketing, and freight.

Gerardo Cruz Celaya: Finally, our adjusted EBITDA in Mexico and Central America grew 20.1% with a 90 basis point margin expansion to 21.9%. Moving on to the South America Division, volumes increased 6.5% to 400 million units. This performance was driven mainly by double-digit growth in Brazil and partially offset by volume contraction in Argentina and Uruguay. Supported by this volume performance and revenue management initiatives, our revenues in the division increased 9.2% to $24.4 billion. These effects were partially offset by unfavorable currency translation effects into Mexican pesos, especially driven by the depreciation of the Argentine peso and the Brazilian.

Speaker Change: Finally, our adjusted EBITDA in Mexico and Central America grew 20.1% with a 90 basis point margin expansion to 21.9%.

Speaker Change: Moving on to the South America Division.

Speaker Change: Volumes increased 6.5% to 400 million unit cases.

Speaker Change: This performance was driven mainly by double digit growth in Brazil and partially offset by a volume contraction in Argentina and Uruguay.

Speaker Change: Supported by this volume performance and revenue management initiatives, our revenues in the division increased 9.2% to 24.4 billion pesos.

Speaker Change: These effects were partially offset by unfavorable currency translation effects into Mexican pesos, especially driven by the depreciation of the Argentine peso and the Brazilian reai.

Gerardo Cruz Celaya: When excluding currency translation, our total revenues in South America increased 22.3%. Gross profit in South America increased 16%, leading to a margin expansion of 240 basis points to reach 41.1%. As was the case during the first quarter, this increase was driven mainly by operating leverage, declining packaging costs, and favorable hedging. However, these effects were partially offset by increases in sweetener costs and the depreciation of most of our operating currencies in the division as applied to our U.S. dollar-denominated raw materials.

Speaker Change: When excluding currency translation, our total revenues in South America increased 22.3%.

Speaker Change: Gross profit in South America increased 16%, leading to a margin expansion of 240 basis points to reach 41.1%.

Speaker Change: As was the case during the first quarter, this increase was driven mainly by operating leverage, declining packaging costs, and favorable hedging strategies.

Speaker Change: However, these effects were partially offset by increases in sweetener costs and the depreciation of most of our operating currencies in the division as applied to our U.S. dollar denominated raw material costs.

Gerardo Cruz Celaya: Operating income for the division increased 19.6% to 2.5 billion pesos, and the operating margin expanded 90 basis points to 10.1%. This margin expansion was driven mainly by gross profit growth, coupled with cost and expense efficiencies across our operation. However, these effects were partially offset by margin pressures in Argentina, coupled with an increase in operating expenses mainly related to the flooding in the south of Brazil. On a currency-neutral basis, operating income increased a solid $36.3%.

Speaker Change: Operating income for the division increased 19.6% to 2.5 billion pesos and operating margin expanded 90 basis points to 10.1%.

Speaker Change: This margin expansion was driven mainly by our gross profit growth, coupled with cost and expense efficiencies across our operations.

Speaker Change: However, these effects were partially offset by margin pressures in Argentina, coupled with an increase in operating expenses mainly related to the flooding in the south of Brazil.

Speaker Change: On a currency-neutral basis, operating income increased a solid 36.3%.

Speaker Change: Finally, adjusted EBITDA in South America increased 25.9% to $4 billion pesos, or 46.5% on a currency-neutral basis.

Gerardo Cruz Celaya: Finally, adjusted EBITDA in South America increased 25.9% to $4 billion, or 46.5% on a quarantine neutral basis. As usual, I will provide you with a quick summary of our comprehensive financial result, which recorded an expense of 885 million pesos as compared to an expense of 1.4 billion pesos during the same period of the previous year. For the second quarter, the main driver of this decline was a foreign exchange gain of 177 million pesos as compared to a loss of 437 million pesos in the second quarter of 2020.

Speaker Change: As usual, I will provide you with a quick summary of our comprehensive financial result, which recorded an expense of $885 million pesos as compared to an expense of $1.4 billion pesos during the same period of the previous year.

Speaker Change: For the second quarter, the main driver of this decline was a foreign exchange gain of $177 million as compared to a loss of $437 million in the second quarter of 2023.

Speaker Change: As a reminder, we maintain a U.S. dollar net cash position that was positively impacted by the quarterly depreciation of the Mexican peso and the Brazilian reai.

Gerardo Cruz Celaya: Finally, before opening up the call to your questions, I will provide you with an update on the progress we're making regarding our strategic priority to de-bottleneck our infrastructure and digitize it. In order to unlock growth, we are increasing our manufacturing and distribution. To do this, we are implementing new modeling capabilities that optimize our footprint and capacity. In 2024, we are adding seven new bottling lines, two in Mexico, two in Guatemala, two in Brazil, and one in Colombia. From these lines, one in Mexico and one in Brazil will begin operations during the second half of the year. The rest are already online.

Speaker Change: Finally, before opening up the call to your questions, I will provide you with an update on the progress we are making regarding our strategic priority to de-bottleneck our infrastructure and digitize the enterprise.

Speaker Change: In order to unlock growth, we are increasing our manufacturing and distribution capacity.

Speaker Change: To do this, we are implementing new modeling capabilities that optimize our footprint and capacity allocation.

Speaker Change: In 2024, we are adding 7 new bottling lines, 2 in Mexico, 2 in Guatemala, 2 in Brazil, and 1 in Colombia.

Speaker Change: From these lines, one in Mexico and one in Brazil will begin operations during the second half of the year. The rest are already online.

Gerardo Cruz Celaya: Regarding warehousing, we are not only adding capacity but opening new distribution centers but also via layout redesign. We estimate that, year to date, we have avoided an approximate $25 million in CAPEX through these initiatives. Once again, Coca-Cola FEMSA delivered a solid quarter, driven mainly by volume growth thanks to the focus and commitment of our whole team. And certainly the aligned vision of our leadership and the support of our partners at Coca-Cola. We feel encouraged by the consistent performance of the business through multiple quarters and across operations and are positive in the short and long term.

Speaker Change: Regarding warehousing, we are not only adding capacity, but opening new distribution centers, but also

Speaker Change: But via layout redesign, we estimate that year to date, we have avoided an approximate $25 million of CAPEX through these initiatives.

Speaker Change: Once again, Coca Cola FEMSA delivered a solid quarter, driven mainly by volume growth, thanks to the focus and commitment of our whole team, and certainly the aligned vision of our leadership and the support of our partners at the Coca Cola company.

Speaker Change: We feel encouraged by the consistent performance of the business through multiple quarters and across operations and are positive on the short and long term.

Gerardo Cruz Celaya: Thank you all for joining us on today's call. Operator, we are ready to open the call for questions. Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2.

Speaker Change: Thank you all for joining us today's call. Operator, we are ready to open the call for questions.

Operator: Again, it is Star 1 to ask a question over the telephone. Hi, good morning, and thanks for taking my question. I have two related to volumes.

Speaker Change: Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad.

Speaker Change: If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. Again, it is star 1 to ask a question over the phone. Now, the first question comes from Fernando Olvera from Bank of America. Please go ahead.

Fer: First, I would like to hear how you think about your volume guidance after the strong demand seen in the first half of the year and what is your view for the remainder of the year? And my second question, if you could comment on how your market share is behaving, mainly your main key markets, Mexico and Brazil, would be great. Thank you.

Fernando Olvera Espinosa de los Monteros: Hi, good morning and thanks for taking my question. I have two related to volumes. First, I would like to hear how are you thinking about your volume guidance after the strong demand seen in the first half of the year?

Fernando Olvera Espinosa de los Monteros: And what is your view for the remaining of the year? And my second question, if you can comment about how is your market share behaving? Mainly your main key markets, Mexico and Brazil, would be great. Thank you.

Jorge Alejandro Collazo Pereda: Hi Fer, it's Jorge here. Thank you for the question. I will take the first part of the question regarding Volume Outlook, because as you mentioned, and Ian and Jerry mentioned during the call, we are very encouraged by the performance that we have had year to date, but we are at the half mark of the year. There is still a lot that we need to do across our operations to continue delivering, and we have the plans to do that. But really, there was no change in the Volume Outlook.

Fernando Olvera Espinosa de los Monteros: Hi Fer, it's Jorge here. Thank you for the question. I will take the first part of the question.

Speaker Change: Regarding regarding volume volume outlook fair because as you mentioned I think we can

Speaker Change: Ania and Jerry mentioned during the call, we are very encouraged by the performance that we've had year to date, but we are at the half mark of the year.

Speaker Change: Now, there's still a lot that we need to do across our operations to continue delivering, and we have the plans to do that, but really no change on the volume outlook. I think we can maintain that outlook that we have mentioned of around mid-single-digit volume growth for the full year.

Jorge Alejandro Collazo Pereda: I think we can maintain that outlook that we have mentioned of around mid-single-digit volume growth for the full year. Okay, so at this time, we think it will be too early maybe to change that. But as we said, and I think the call really reflects this, we are optimistic about the outlook for the second. (Inaudible) In Mexico, we have been impacted by share this year with continued supply chain shortages. So our stockouts and availability continue to remain high.

Speaker Change: Okay, so at this time we think it will be too early maybe to change that, no? But as we say, and I think the call really reflects this, we are optimistic about the outlook for the second half.

Fernando Olvera Espinosa de los Monteros: It's done regarding, regarding, uh, Chair Fernando.

Fernando Olvera Espinosa de los Monteros: In Mexico, we have been impacted by share this year with continued supply chain shortages. So our stockouts and availability continue to remain high. We have...

Jorge Alejandro Collazo Pereda: We have irregular performance, even high volume, and that has been what has impacted our shares, especially in flavors and certain NCBs, because when you have limited production, you start prioritizing Coca-Cola brands and the most profitable SKUs. So you see that hit in other less profitable or less key SKUs.

Fernando Olvera Espinosa de los Monteros: Specially in flavors.

Fernando Olvera Espinosa de los Monteros: and certain NCBs because when you have a limited production, you start prioritizing Coca Cola brands and most profitable SKUs. So you see that hit in other less profitable or less key SKUs, Fernando.

Jorge Alejandro Collazo Pereda: In Brazil, our share has been very, very positive, and now we are starting to see the impact of share losses in Rio Grande do Sul. So if you look at Brazil overall, it continues with very positive trends year to date. But if you drill down to the last month, we saw share losses in Rio Grande do Sul because, unlike our competitors, our plan for the region went down.

Fernando Olvera Espinosa de los Monteros: In Brazil, our share has been very, very positive.

Fernando Olvera Espinosa de los Monteros: Now we are starting to see, this last month, the impact of share losses in Rio Grande do Sul. So, if you look at Brazil overall, it continues with very positive trends year to date.

Speaker Change: But if you drill down to the last month, we saw share losses in Rio Grande do Sur because unlike our competitors, our plan for the region went down.

Jorge Alejandro Collazo Pereda: So if you look at the Brazil numbers from here forward, including last month, I think you'll continue to see strong gains in all of our territories and pressure in Rio Grande do Sur, okay? If I can add one point there, Fer, regarding share and capacity constraints, just to emphasize something that Ian mentioned during his prepared remarks. Because, as he said, he said, OK, we have capacity constraints, but it's important to say that this is a situation that has been identified and that we are working on it.

Speaker Change: So, if you look at the Brazil numbers from here forward, including last month, I think you'll continue to see strong gains in all of our territories and pressure in Rio Grande do Sul. Okay?

Speaker Change: If I can add one point there regarding also share and capacity constraints just to

Speaker Change: Emphasize something that Ian mentioned during the prepared remarks.

Ian Marcel Craig Garca: Because as he said, we have capacity constraints, but it's important to say that this is a situation that is identified and that we are working on it. We added a new line in Mexico during March.

Jorge Alejandro Collazo Pereda: We added a new line in Mexico during March. There was another one that was relocated and started operations in June. And then there is another line that's coming in the second half of the year. No, so there are actions that are being implemented by the supply chain team in order to resolve this situation. Yes, as well as obviously quite substantial investments in distribution capacity for Mexico. Okay.

Ian Marcel Craig Garca: There was another one that was relocated and started operations in June and then there is another line that's coming in the second half of the year. So there are actions that are being implemented by the supply chain team in order to resolve this situation.

Ian Marcel Craig Garca: Yes, as well as obviously the quite substantial investments in distribution capacity for Mexico as well.

Ian Marcel Craig Garca: Okay, no, perfect. Thank you so much.

Jorge Alejandro Collazo Pereda: Perfect. Thank you so much. Thank you for not interrupting us. We will now take our next question from Thiago Arduin from Citigroup. Please go ahead. Good morning, Gerardo, Jorge.

Ian Marcel Craig Garca: Thank you for now. We will now take our next question from Thiago Arduin from Citigroup.

Thiago A. Bortoluci: Thank you for taking my question. I wanted to discuss two points. The first one is that I wanted to hear a bit from you guys about coffee.

Thiago A. Bortoluci: Good morning, Gerardo, Jorge. Thank you for taking my question. I wanted to discuss two points here.

Thiago A. Bortoluci: The first one, I wanted to hear a bit from you guys about costs.

Thiago A. Bortoluci: So what you're expecting, maybe on a qualitative basis, or... But for 2024, maybe 2025, just to see what you guys have for the output for the main commodities and share a bit more about the hedges you have in place. And the second point would be a bit on the Brazil beer side, right? So just hear what you have to say about, like, overall industry dynamics in the short term, the overall consumer environment, brand performance, whatever you think is interesting to share with us. So, yeah, that's it. Thank you, guys. Thank you, Thiago.

Speaker Change: So what you're expecting, maybe on a qualitative basis, or...

Thiago A. Bortoluci: But for 2024, maybe 2025, just to see what you guys have for the output for the main commodities and hear a bit more about the hedges you have in place.

Thiago A. Bortoluci: And the second point would be a bit on

Speaker Change: On the Brazil beer side, right? So just hear what you have to say about like overall industry dynamics in the short term, the overall consumer environment, brand performance, whatever you think is interesting to share with us.

Speaker Change: So, yeah, that's it. Thank you guys.

Gerardo Cruz Celaya: I'll start with the first one regarding cost in our hedging position, and maybe Jorge and Ian can comment on the second one regarding beer in Brazil. But as you know, and we've discussed before, for hedges, we have this process in which we usually maintain a hedge position for a rolling 12-month period for both our FX components on dollarized raw materials, as well as the price of the raw materials itself. And this allows us to provide better certainty to our operators so they can focus on bringing in the unit. Having said that, we currently have a position regarding FX for 2024 or the rest of 2024. In Mexico and Argentina, above 60% of our exposure to dollarized raw materials is covered.

Speaker Change: Thank you Thiago. I'll start with the first one regarding cost in our hedging position and maybe Jorge and Ian can compliment on the second one regarding beer in Brazil.

Speaker Change: But as you know, and we've discussed before for hedges, we have this process in which we usually maintain both

Speaker Change: Hedge position in a rolling 12-month period for both our FX components on dollarized raw materials as well as the price of the raw material itself.

Speaker Change: This allows us to provide better certainty to our operators so they can focus on bringing in the unit cases.

Speaker Change: Having said that, we have currently a position regarding FX for 2024 or the rest of 2024.

Speaker Change: In Mexico, Argentina, above 60% of our exposure of dollarized raw materials is covered.

Gerardo Cruz Celaya: For Brazil, Colombia, and Uruguay, a little above 40% of our requirements are hedged for the year. And we have already started this process, a 12-month rolling period, hedging the first half of 2025 exposures where we're starting to build positions. Regarding raw materials, the prices of raw materials themselves, we have a very good position in hedging sweeteners. Sugar, both in Brazil and Uruguay, where we have active hedging positions, is close to 100% of our requirements for 2024 hedged, with a good position as well for 2025, above 50% of our requirements.

Speaker Change: For Brazil, Colombia, and Uruguay, a little above 40% of our requirements are hedged for the year.

Speaker Change: And we already started in this process 12-month rolling period hedging the first half of 2025 exposures where we're starting to build positions.

Speaker Change: Regarding raw materials, the prices of raw materials itself, we have a very good position in hedging sweeteners.

Speaker Change: Sugar, both in Brazil and Uruguay, where we have active hedging positions, are close to 100% of our requirements for 2024 hedged.

Speaker Change: with a good position as well for 2025, above 50% of our requirements.

Gerardo Cruz Celaya: HFCS in Mexico, a similar situation where we're close to 90% of our requirements hedged, and we have a good position for aluminum in Mexico and Brazil above 60% of our requirements, as well as for PET in Mexico above 50% of our requirements. All right.

Speaker Change: HFCS in Mexico, a similar situation where we're close to 90% of our requirements hedged.

Speaker Change: And we have a good position for aluminum in Mexico and Brazil, above 60% of our requirements, as well as plastic PET in Mexico, above 50% of our requirements for the year.

Gerardo Cruz Celaya: In terms of beer in Brazil, I think what we're seeing there is that with a flat market in terms of volume, there's a lot of pressure going around to the beer players and intensified competition. So we see really, really intense competition with some key brands holding prices since last year. In that picture, our volumes have been very challenging, and we have held our share. I think it's declined 0.2 basis points in terms of 20 basis points in terms of share of value.

Speaker Change: In terms of beer in Brazil, I think what...

Speaker Change: We're seeing there is, with a flat market in terms of volume, there's a lot of pressure going around to the beer players and intensified competition.

Speaker Change: So we see really, really intense competition with some key brands holding prices since last year. In that picture, our volumes have been very challenging.

Speaker Change: And we have held our share, I think it's declined 0.2%.

Speaker Change: Basis points in terms of 20 basis points in terms of share of value

Gerardo Cruz Celaya: So, what I would say is as long as that market continues to be flat, I think there's going to be a very intense competitive scenario as the two large beer players compete to hit growth again. Very clear.

Speaker Change: So what I would say is, as long as that market continues to be flat, I think there's going to be a very intense

Speaker Change: Competitive Scenario as the two large beer players compete to hit growth again.

Operator: Thank you. We will now take our next question from Raheem Pani from Barclays. Please go ahead. Awesome. Thank you so much for coming in for Ben.

Speaker Change: Very clear, thank you.

Speaker Change: We will now take our next.

Speaker Change: We will now take our next question from Raheem Pani from Barclays. Please go ahead.

Raheem Pani: Can you give more color on the impact from a slightly weaker consumer? I think you said a more sensitive consumer, I assume from lower spending. Lower government spending in Mexico, maybe some stats on the slowdown in purchases in June and into July, if possible, or any other comments on consumer elasticity by region. Thank you so much.

Rahib Pani: Awesome, thank you so much coming in for Ben.

Raheem Pani: Can you give more color on the impact from a slightly weaker consumer, I think you said more sensitive consumer, I assume from lower government spending in Mexico, maybe some stats on the slowdown in purchases in June and into July , if possible, or any other comments on consumer elasticity by region. Thank you so much.

Jorge Alejandro Collazo Pereda: Hello Rajiv, and send our regards to Ben. I would say across our region where we see pressure on the consumer would be Colombia and Argentina. So those right here are the two markets where we see pressure. We are seeing a softer environment this month in Mexico, but so far from what we see, I think it relates directly to weather.

Speaker Change: Hello, Rajiv. Send our regards to Ben, please.

Speaker Change: I would say across our region where we see pressure on the consumer would be Colombia and Argentina.

Speaker Change: So those right here are the two markets where we see pressure. We are seeing a softer environment this month in Mexico, but so far from what we see,

Jorge Alejandro Collazo Pereda: Because, as you know, our business is impacted by precipitation, and usually, the first things that see softness are water, and then a little bit in single surf, and that's exactly what we're seeing this month. So I would not think that that has to do with consumer strength in Mexico, because there's still practically no unemployment. All projects keep chugging along.

Speaker Change: I think it relates directly to weather because, as you know, our business is impacted by precipitation.

Speaker Change: And usually the first things that see softness are water and then a little bit in single serve. And that's exactly what we're seeing in this month. So I would not think that that has to do with with consumer.

Speaker Change: Strength in Mexico because I mean there's still practically no unemployment all projects keep chugging along so our reach so far Is consistent with more of a weather related softness

Jorge Alejandro Collazo Pereda: So our reach so far is consistent with more of a weather-related softness. Does that make sense, Rocco? Yes, for sure. Thank you. We will now take our next question from Lucas Mussi from Morgan Stanley. Please go ahead. Good morning, everyone.

Speaker Change: Does that make sense, Rocky?

Rocky: Yes, for sure. Thank you so much.

Speaker Change: Thank you. We will now take our next question from Lucas Mussi from Morgan Stanley . Please go ahead.

Lucas Mussi: Thanks for taking my question. I have one on the South America margins. You guys delivered an EBITDA margin that was quite strong in the quarter, up more than 200 BPC over a year. So I just wanted to better understand what the drivers behind the strong margin performance were. We understand that sweeteners were still a headwind, and packaging costs were more favorable, but we just wanted to hear more thoughts on the color of magnitude around the cost components.

Speaker Change: Good morning, everyone. Thanks for taking my question. I have one on South American margins.

Lucas Mussi: You guys delivered an EBITDA margin which was quite strong on the quarter, up more than 20, more than 200 BPC over a year. So I just wanted to better understand what was the drivers behind.

Speaker Change: The strong margin performance. We understand that sweeteners were still a headwind Packaging costs were more favorable, but just wanted to hear more thoughts

Lucas Mussi: Also, is it safe to say that at this point with today's sprint, it's reasonable to expect that perhaps we're going to be closing the year with healthier margins than we previously expected in the beginning of the year? Or, I don't know, perhaps we could see a cost curve that's a little bit tougher for the next couple of quarters? If you could share any comments on that, that would be very helpful. Thanks, everyone. Thank you, Lucas.

Speaker Change: on the color of magnitude around the cost components

Speaker Change: Also, is it safe to say that at this point with today's sprint that it's reasonable to expect that perhaps

Speaker Change: We're going to be closing the year with more healthier margins than we previously expected in the beginning of the year, or I don't know, perhaps we could see a cost curve that's a little bit tougher for next couple of quarters. You know, if you could share any comment on that would be very helpful. Thanks everyone.

Gerardo Cruz Celaya: I'll start with the margins in South America. Certainly, we saw better performance. And this is a result of the model that we have as our strategic priorities as we established them when we started this journey of leveraging our operating capabilities. So growing our business and the sustainable growth model that we are all focused on and working on allows us to capture the benefits of margin by growing our scale. We expect this to continue to be the case in the long term, which is our bet and what we're working towards.

Speaker Change: Thank You Lucas. I'll start with the margins in South America. Certainly we saw better performance and this is a result of a model that we are our strategic priorities as we established them when we started this journey.

Speaker Change: of Leveraging on our Operating Capabilities. So, growing our business and the sustainable growth model.

Speaker Change: That we are all focused on and working on allows us to capture the benefits of margin by growing our scale.

Speaker Change: We expect this to continue to be the case in the long term, which is our bet and what we're working towards.

Gerardo Cruz Celaya: Certainly, we've seen a better outlook on the cost structure than we had previously expected in our business plan, and we expect, specifically, from sugar in Mexico to see a better outlook on sugar prices towards the end of the year. Slightly better.

Speaker Change: Certainly, we've seen a better outlook in cost structure that we had previously expected in our business plan. And we expect...

Speaker Change: specifically from sugar in Mexico to see a better outlook in sugar prices towards the end of the year.

Gerardo Cruz Celaya: I wouldn't think that it would be a significant change, but certainly less worrying than what we had expected initially. Regarding our expectations for the full year, I think we're still a little bit waiting to see how things continue to develop. I don't think we're ready to send out different expectations in terms of maintaining flattish sort of margins for the year as compared to last year. Thanks, everyone. Thanks, Operator, and good morning, Ian, Jerry, and team. Thanks for the space. A couple of questions on Juntos Plus, if I may.

Speaker Change: Slightly better. I wouldn't think that it would be a significant change, but certainly less worrying than what we had expected initially.

Speaker Change: Regarding our expectations for the full year, I think we're still a little bit waiting to see how things continue to develop. I don't think we're ready to send out different expectations in terms of maintaining flattish sort of margins for the year as compared to last year's.

Speaker Change: Thanks, everyone.

Speaker Change: Thank you. We will now move to our next question from Felipe Ucras from Scotiabank. Please go ahead.

Felipe Ucros Nunez: Thanks, operator, and good morning, Ian, Jerry, and team. Thanks for the space.

Felipe Ucros Nunez: The first one on loyalty, you know, as you've been developing Juntos 4, you've also been delving deeper into the loyalty programs for your consumers. Just wondering if you can give us a first look at how this is going. Perhaps you can comment on adoption speeds from your clients and what differences you're noticing between clients that are using the loyalty platform versus those that are not using it.

Felipe Ucros Nunez: A couple of questions on Juntos Plus if I may. The first one on loyalty.

Felipe Ucros Nunez: As you've been developing Juntos4, you've also been delving deeper into the loyalty programs for your consumers. Just wondering if you can give us a first look on how this is going.

Speaker Change: So perhaps you can comment on adopt speech from your clients and what differences you're noticing between clients that are using the loyalty platform.

Ian Marcel Craig Garca: And perhaps if you could give us an update on the FinTech side of things. I know you've been working on partnerships across the region, so just wondering if you have any updates on that. Thank you.

Speaker Change: Versus those that are...

Speaker Change: that are not using it. And perhaps if you can give us an update also on on the FinTech side of things. I know you've been working on partnerships across the region, so just wondering if you have any updates on that. Thank you.

Ian Marcel Craig Garca: Hello everyone, I think. Regarding our loyalty program, we have some numbers on the uplift in volume between clients that participate in the loyalty program and clients that don't. I don't have them on top of my head, so I don't want to mention them, Felipe, but we do see a significant uplift. So the more that we can be rolling out the adoption, the better this is for us. When we go out in the market, and you talk to clients, you hear all sorts of positive comments regarding the loyalty program, from anecdotal things like, "Oh, finally, you guys remembered us."

Speaker Change: Hello, everyone. I think.

Speaker Change: Relating to our loyalty program.

Speaker Change: We have some numbers on the uplift in volume between clients that are participating in the loyalty program and clients that don't. I don't have them on top of my head, so I don't want to mention those, Felipe, but we do see a significant uplift.

Speaker Change: So, the more that we can be rolling out the adoption...

Speaker Change: The better that this is for us, and when we walk the market, and you talk to clients, you hear all sorts of positive comments regarding the loyalty program.

Felipe Ucros Nunez: From anecdotal things like, oh, finally, you guys remembered us. So it's, you can tell that it.

Speaker Change: has an effect on when they decide to purchase from another site or from a wholesaler versus continuing to add points in our program. And you have to remember that this program's cash conversion cycle is very, very short.

Speaker Change: Because immediately as they put in the order, they can see that the points that they have, they quickly redeem. And you're talking about two or three days where they end up selling this product. Let's say they redeem it for a case of Coke or any other product.

Felipe Ucros Nunez: And, you know, it immediately translates into cash, Felipe, is what I'm trying to say. So it's a very positive tool for us. It has surprised us. And it's going very, very well. Jerry, do you want to...

Ian Marcel Craig Garca: So you can tell that it has an effect on when they decide to purchase from another site or from a wholesaler versus continuing to add points in our program, because immediately as they put in the order they can see that the points that they have they quickly redeem and you're talking about two or three days where they end up selling this product let's say they redeem it for a case of coke or any other products and you know it immediately translates into cash Felipe is what I'm trying to say so it's a very positive tool for us it has surprised us and it's going very very well Jerry do you want to, Just very quickly, I have the numbers for Mexico, where we have deployed our loyalty program that Ian was mentioning, and we have had a great performance with 750,000 customers already online with our loyalty program across our operations. Thank you. We will now move to our next question from Alejandro Fuchs from Itao. Please go ahead.

Jerry: Just very quickly, I have the numbers for Mexico, where we have deployed our loyalty program that Ian was mentioning, and we have had a great performance with 750 applicants.

Jerry: thousand customers already online with with our loyalty program across our operations.

Speaker Change: Thank you. We will now move to our next question from Alejandro Fuchs from Itao. Please go ahead.

Alejandro Fuchs: Thank you. Good morning, Ian, Gerardo, Jorge, and congratulations on the results. Thank you for the space for questions. I have two very quick ones from my side, maybe a follow-up on the volumes.

Alejandro Fuchs: Thank you. Good morning, Ian, Gerardo, Jorge, congratulations on the results. Thank you for the space for questions. I have two very quick ones from my side, maybe a follow-up on the volumes. We have seen, you know, very strong volumes in Mexico and Brazil for quite some time now.

Alejandro Fuchs: We have seen, you know, very strong volumes in Mexico and Brazil for quite some time now. So I wanted to maybe see if you could help us understand how much of this is being influenced by Juntos Plus, how much is multi-category, and how do you see this new digital initiative adding to the core platform in terms of growth? And the second one, maybe for Gerardo, real quick; just want to see if I understood correctly in terms of the one-off that you had in the quarter.

Speaker Change: So I wanted to maybe see if you could help us understand how much of this is being influenced by Juntos Plus.

Speaker Change: How much is multi-category? How do you see this?

Speaker Change: A new digital initiative adding to the core platform in terms of growth.

Speaker Change: And the second one maybe for Gerardo real quick.

Speaker Change: I just want to see if I understood correctly in terms of the one-off that you had in the quarter. You said that in Mexico, in terms of the non-cash impact, it was 400 million pesos.

Alejandro Fuchs: You said that in Mexico, in terms of the non-cash impact, it was 400 million pesos. And then, in Rio Grande do Sul, the impact, maybe we can think about around 200 million pesos. I don't know if that sounds correct. Maybe you could clarify that. It would be very helpful.

Gerardo Cruz Celaya: And then in Rio Grande do Sul, the impact, maybe we can think about around 200 million pesos, I don't know if that sounds correct, maybe you could clarify that, it would be very helpful. Thank you.

Jorge Alejandro Collazo Pereda: Thank you. Yes, Alejandro. Thank you for the question. My name is Jorge, and I'm going to start with the first part.

Gerardo Cruz Celaya: Yes, Alejandro, thank you for the question. It's Jorge, and I'm going to start with the first part, I think.

Jorge Alejandro Collazo Pereda: Something that we are seeing, and we have been discussing with the team, for example, in Brazil and in Mexico about the upside of Juntos Plus. Of course, these are analyses that are being done when we, for example, separate a cluster that is being served by Juntos Plus and another that is not. It's very hard now because it's basically all over now to do those control tests. But during control tests and bigger, we have seen an upside of around 6%, which is more or less what we're starting to see with Juntos Plus.

Gerardo Cruz Celaya: Something that we are seeing and we have been discussing with the team, for example, in Brazil and in Mexico about the upside of Juntos Plus.

Gerardo Cruz Celaya: Of course, these are analyses that are being done when we, for example, separate a cluster that is being served by Juntos Plus and another that is not. It's very hard now because it's basically all over now to make those control tests.

Gerardo Cruz Celaya: But during control tests and bigger, we have seen an upside of around 6% is more or less what we're starting to see with with juntos plus

Jorge Alejandro Collazo Pereda: And of course, it's a combination of factors, you know, what we have seen to drive these very positive volumes, for example, in Mexico. I think something that we continue to see, that has been a driver of volumes, has been, as Ian mentioned, when we think about the macro, low unemployment. It's something that we continue to see across our territories, and we continue to see this strong demand. And beyond this low unemployment, we're also seeing remittances. And we're also seeing, of course, increases in real wages. So that is also bringing this positive environment, and on top of that environment, we are executing on the plans. So Juntos Plus has been the only one.

Gerardo Cruz Celaya: And, of course, it's a combination of factors, what we have seen to drive these very positive volumes, for example, in Mexico, I think something that we continue to see.

Gerardo Cruz Celaya: that has been a driver of volumes, has been, as Ian mentioned, when we think about the macro, low unemployment. It's something that we continue to see across our territories and we continue to see this strong demand.

Speaker Change: And beyond this low unemployment, we're also seeing remittances. We're also seeing, of course, increases in real wage. So that is also bringing this positive environment, and on top of that environment, we are executing on the plans.

Jorge Alejandro Collazo Pereda: I would say multi-category is still small in relative terms. We continue to be more or less to what we have been updating in previous calls, which is more or less around 1% of our revenues. It's about 1.3% of our revenues today on a consolidated basis, that is multi-category, but it's certainly helping us. I think multi-category, we have the proof points of countries where it has been there for a while, such as Brazil, and countries, small countries like Central America, and Europe, where you get the complete distribution of all channels with most of the partners, where you have countries already at 3 to 3.5% of

Speaker Change: So, Juntos Plus has been one. I would say multi-category is still small in relative terms. We continue to be more or less to what we have been updating in the previous calls, which is more or less around 1% of our revenues. It's about 1.3% of our revenues today on a consolidated basis.

Speaker Change: That is multi-category, but it's certainly helping us. I think multi-category, we have the proof points of countries where it has been there for a while.

Speaker Change: such as Brazil, Libya, and countries.

Speaker Change: Small countries like Central America, Europe , where you get the complete distribution of all channels with most of the partners.

Speaker Change: where you have countries already at 3% to 3.5% of revenues. So I think that the road map is there. Our target, our ambition is to get to 5% of revenues, but it is a moving target in the sense that our base business continues to grow very fast.

Jorge Alejandro Collazo Pereda: So I think that the roadmap is there. Our target, our ambition is to get to 5% of revenues, but it is a moving target in the sense that our base business continues to grow very, very fast. So, it's a good problem to have for that percentage to grow to be relevant because our base core business continues, you know, to deliver solid top-line growth. Regarding Juntos Plus, just to expand a little bit on your question, Alejandro, the two encouraging findings that we're getting from what we're doing, especially in Mexico and Brazil, are an uplift in the number of SKUs that customers are buying. And that makes sense because they have more time to place their order in their own time.

Speaker Change: So it's a good it's a good problem to have for that percentage to grow to be relevant because our base core business continues you know to deliver solid top-line growth.

Speaker Change: Regarding Juntos Plus, just to expand a little bit on your question, Alejandro, the two encouraging findings that we're getting from what we're doing, especially in Mexico and Brazil,

Speaker Change: is getting an uplift in the number of SKUs that customers are buying. And that makes sense because they have more time to place their order on their own time. And the second is the average ticket per transaction, which we're also seeing an uplift there.

Jorge Alejandro Collazo Pereda: And the second is the average ticket per transaction, which we're also seeing an uplift in. So that's encouraging, and we're excited about that. Regarding your other questions on the non-cash operating expenses, exactly in Mexico, that was the amount of the impact of the FX depreciation at the end of June, 400 million pesos that we saw going through our P&L this quarter, affecting operating income but not EBTA. In the case of Brazil, the number, the net impact that we absorbed in the quarter was 130 million Mexican pesos, a little bit below Thank you very much. It was very clear.

Speaker Change: So that's encouraging and we're excited about that.

Speaker Change: Regarding your other question on the non-cash operating expenses exactly in Mexico that was the the amount of the impact of the FX depreciation and at the end of June 400 million pesos that we saw going through our P&L this quarter.

Speaker Change: Affecting Operating Income, but not EVTA. In the case of Brazil, the number, the net impact that we absorbed in the quarter was 130 million Mexican pesos. A little bit below the 200 number that you had in mind.

Gerardo Cruz Celaya: Thank you. We will now take our next question from Lucas Ferreira from JP Morgan. Please go ahead.

Speaker Change: Thank you very much. It was very clear.

Speaker Change: Thank you. We will now take our next question from Lucas Ferreira from J.P. Morgan. Please go ahead. Your line is open.

Fernando Ferreira: Your line is open. Hi guys. Good morning.

Speaker Change: Bye.

Fernando Ferreira: Hi guys, good morning. Thanks for your time and congrats on the results.

Fernando Ferreira: Thanks for your time and congratulations on the results. Once again, a follow-up on volumes. It's been very surprising how fast volumes are expanding, and then especially in an environment where, for instance, in Brazil, market share is growing and your capacity is somewhat limited. How should we think about pricing?

Speaker Change: Once again, a follow-up on volumes. It's been very surprising, you know, how fast volumes are expanding.

Fernando Ferreira: And then especially in an environment where, for instance, in Brazil market share is growing and your capacity is somewhat limited, how to think about pricing? I have a sense that this category had much less pricing over the last two years than others.

Fernando Ferreira: I have a sense that this category had much lower pricing over the last two years than others. If you look at food inflation, I don't know, beer, for instance, had much bigger hikes. So, wondering if, you know, in a year of probably lower costs or easier costs, that was something of a strategy for keeping prices somewhat in line with inflation. So, my question is basically how to think about pricing from here, if you see room for an improving mix or even adjusting overall pricing, if that's something that you have in mind.

Speaker Change: If you look at food inflation, if you look at, I don't know, beer, for instance, had much bigger hikes.

Speaker Change: So, wondering if, you know, in a year of probably lower cost or easier cost, that was something, a strategy for keeping, you know, prices somewhat in line with inflation. So, my question is basically...

Speaker Change: How to think about pricing from here if you see room for an improving mix or even adjusting overall pricing if that's something you have in mind.

Fernando Ferreira: And another question on Argentina. I think you also had a good volume performance relative to many other companies that operate in the region. So, wondering how you see the environment in the country, if there's anything different you're doing, or how to think about, you know, the quarters to come if you see a rebound, or what to expect basically for the next, I don't know, 6-12 months. Thank you very much. Thank you, Lucas.

Speaker Change: And another question on Argentina, I think you also had a good volume performance relative to many other companies that operate in the region, so wondering how you see the environment in the country, if there's anything different you're doing, or how to think about the quarters to come if you see already a rebound, or what to expect basically for the next, I don't know, 6-12 months. Thank you very much.

Gerardo Cruz Celaya: I'll jump on the first one regarding pricing. The name of the game for us is sustainable growth. And in that sense, our focus is to maintain a balanced strategy and look towards revenue per unit case to grow that in line with inflation across our market. We have a new capability with the digitization of the business and Juntos Plus to be able to personalize the portfolio and execution, and that allows us to maximize value both for us as well as our customers.

Speaker Change: Thank you, Lucas. I'll jump on the first one regarding pricing.

Speaker Change: The name of the game for us is sustainable growth, and in that sense, our focus is to maintain a balanced strategy and look towards revenue per unit case to grow that in line with inflation across our markets.

Speaker Change: We have a new capability with the digitization of the business and Juntos Plus to be able to personalize portfolio and execution and that allows us to maximize value both for us as well as our customers.

Gerardo Cruz Celaya: We will certainly continue to prioritize the competitiveness of our portfolio. We're focusing on being able to grow our volumes sustainably in the long term. We will continue to drive affordability and foster single-serve growth to be able to get the benefit of the mix in pricing on our P&L. And on the last one, we are expecting a more benign raw material environment as we move toward the second half, especially in sugar. That had been a source of pressure for us.

Speaker Change: We will continue to prioritize, certainly, the competitiveness of our portfolio.

Speaker Change: We're focusing on being able to grow our volumes sustainably in the long term.

Speaker Change: We will continue to drive affordability and foster single-serve growth to be able to get the benefit of the mix in pricing on our P&L.

Speaker Change: And the last one, we are expecting a more benign raw material environment as we move toward the second half, especially

Gerardo Cruz Celaya: So, that will also provide a relief in terms of allowing us to be more active in our revenue management. I think just complementing, Jerry, in line with probably what you're thinking is, yes, when we do have, for example, unavailability issues, we practically zero our promotions in those SKUs because, you know, there's not enough there to supply.

Speaker Change: in sugar that had been a source of pressure for us. So that will also provide a relief in terms of allowing us to be more active in our revenue management.

Speaker Change: I think just complementing, Jerry, in line with your...

Speaker Change: Your

Jerry: Probably what you're thinking is, yes, when we do have, for example, unavailability issues.

Speaker Change: We practically zero our promotions in those SKUs.

Gerardo Cruz Celaya: So you see some effects of adjusting the tactical calendar to basically cancel out any sort of promotion or tactical activity other than what we have by contracting in, you know, the modern trade. So you see some effects of that also filtering through. In Argentina, I believe we took a slightly different strategy to other players in the sense that we believe this crisis is temporary, and scenarios with not necessarily the best government measures will help the country recover, and we think right now the government is taking very good and appropriate measures. So we're very confident in the recovery; we're actually quite optimistic in Argentina. So the strategy that we implemented was, you know, we didn't want to lose household penetration or consumer preference.

Speaker Change: because, you know, there's not enough there to supply. So you see some effects of adjusting the tactical calendar to basically canceling out any sort of promotion or tactical activity other than what we have by contracting in, you know, the modern trade.

Speaker Change: So you see some effects of that also filtering through.

Speaker Change: In Argentina, I believe we...

Speaker Change: We took a slightly different strategy to to other players in the sense that We believe this crisis is temporary. We've seen it happen recurrently in Argentina where even under

Speaker Change: Scenarios with not necessarily the best government measures the country recovers and we think right now the government is taking very good and appropriate measures.

Speaker Change: So, we're very confident in the recovery. We're actually quite optimistic in Argentina. So, the strategy that we implemented was, you know, we didn't want to lose household penetration or consumer preference.

Gerardo Cruz Celaya: So we made sure we focused on, you know, having affordability initiatives there, maintaining our household penetration, and we're ready to face, you know, what we thought were going to be nine to 12 months of an impact. I think we've seen the initial share impact that we had in the first couple of months quickly be reversed, and the volume structure or decline is smaller and smaller and smaller each month. So I think good days are ahead for Argentina, but we still expect a tough year this year and a return to growth next year.

Speaker Change: So we made sure.

Speaker Change: We focused on, you know, having affordability initiatives there, maintaining our household penetration.

Speaker Change: And we're ready to face, you know, what we thought were going to be nine to 12 months.

Speaker Change: of an impact. I think we've seen the initial share impact that we had in the first couple of months quickly be reversed.

Speaker Change: and the volume structure or decline.

Speaker Change: is smaller and smaller and smaller each month.

Speaker Change: So...

Speaker Change: I think good days ahead for Argentina, but still we expect a tough year this year and a return to growth next year. I think it's safe to say that we see it improving month over month.

Gerardo Cruz Celaya: I think it's safe to say that we see it improving month over month, but, you know, the country faces a large challenge, and you can see the FX rate gap. It's not going to be a straight line of improvement. So there are challenges there, but our operation continues to improve month over month, and I think we hit on the right strategy. Super clear.

Speaker Change: But, you know, the country faces a large challenge, and you can see the FX rate gap, it's not going to be a straight line of improvement. So there are challenges there, but our operation continues to improve month over month, and I think we hit on the right strategy.

Gerardo Cruz Celaya: Thank you very much. Thank you. And we will now take our next question from Alvaro Garcia from BTG. Please go ahead.

Speaker Change: Super clear. Thank you very much.

Speaker Change: Thank you. And we will now take our next question from Alvaro Garcia from BTG. Please go ahead.

Ian Marcel Craig Garca: Hey, gentlemen, thanks for the space and questions. There are two questions. One on Guatemala. I was wondering if you could zoom out a bit and just maybe discuss per capita and sort of what's driving, seems to be just sort of this perpetual double-digit growth machine there for quite some time now, consumer strength, etc. And then on Argentina, just zooming in on what you were just talking about, Ian, where are we in the battle against multi-service? Or how can you handle a crisis like this?

Ian Marcel Craig Garca: Hey gentlemen, thanks for the questions. Two questions. One on Guatemala. I was wondering if you could zoom out a bit.

Ian Marcel Craig Garca: and just maybe discuss per capita and sort of what's driven.

Ian Marcel Craig Garca: It seems to be just sort of this perpetual double-digit growth you've seen there for for quite some time now. Consumer strength, etc. And then on Argentina just...

Speaker Change: Zooming in on what you were just talking about, Ian, where are we in the battle against multiserve, or how can you take a crisis like this to sort of, you know, maybe try to shift consumer behavior away from multiserve, if that is indeed a strategy at all? Thank you.

Ian Marcel Craig Garca: Sponsored ADR Class L, I'll start with Argentina and then go over Guatemala. Consumers are feeling the pinch, usually the mix of returnables increases. So we're seeing that in Argentina. You're also seeing the relationship with multiservice as well. But it's very minor, it's maybe 60 basis points of an increase in multiservice. It's not that big, Alvaro.

Speaker Change: I'll start with Argentina and then go over...

Speaker Change: Guatemala. So, with Argentina, just to keep with the flow of the prior question, it's one of the few markets where you see the impact of increasing returnable mix. So, once you see...

Speaker Change: Consumers are feeling the pinch. Usually the mix of returnables increases. So we're seeing that in Argentina. You're also seeing the

Speaker Change: The relationship with multiservice as well, but it's very minor, it's maybe 60 basis points of an increase in multiservice, it's not that big, Alvaro.

Ian Marcel Craig Garca: Where I do see the switch is within one way to the multiserve presentation, where you do see a big move in Argentina towards returnables. It's the one market where you see that increasing. Moving on to Guatemala, sorry. Yeah, the question on per capita. I think maybe just to clarify, can you repeat the first question? I think it was related to per capita, right?

Speaker Change: Where I do see the switch is within one way to multi-serve presentation where you do see a big move in Argentina towards returnables. It's the one market where you see that increasing. Moving on to Guatemala... Sorry.

Speaker Change: Yeah, the question on per-caps. I think maybe just to clarify, can you repeat the first question? I think it was related to per-capitas, right? But we just wanted to make sure if you can repeat the first question to make sure we get it right.

Ian Marcel Craig Garca: But we just wanted to make sure you could repeat the first question to make sure we got it right. I'm just trying to sort of wrap my head around the very strong volume growth we've seen out of Guatemala over the last several years. And, you know, I'm assuming per capita has bumped up, but not significantly higher, so maybe reviewing that would help, but maybe a discussion on disposable income and sort of occasions and how maybe that's changed over the last five years, but just reviewing the strength that I want them on would be very helpful. I mean, I think we've talked about this in the past, Alvaro.

Speaker Change: Just trying to sort of wrap my head around the very strong volume growth we've seen out of Guatemala over the last several years now, and yeah, I'm assuming per capita's have bumped.

Speaker Change: Not significantly higher, so maybe reviewing that would help, but maybe a discussion on disposable income and sort of occasions and how maybe that's changed over the last five years. Just reviewing the strength that I want them on that would be very helpful.

Ian Marcel Craig Garca: I mean, I think we've talked about this in the past, Alvaro. We're still, you know, we used to be, I think last year it was around $180 or $190. Right now we're at $220. So, I mean, per capita are still...

Ian Marcel Craig Garca: We're still, you know, we used to be, I think last year it was around 180 or 190. Right now, we're at 220. So, I mean, per capita is still low enough.

Ian Marcel Craig Garca: We still have a lot of legroom per capita, and I think one of the beautiful things in Guatemala is that it's a very large and very young population with stable income growth. And, you know, a lot of remittances. Something that's been surprising to me is the strength of remittances there, the importance of remittances. So it's just a country that's getting wealthier and wealthier and wealthier, very stable, very pro-business. You know, employment is up. They're even getting some nearshoring in textiles. So to us, I mean, there's no reason that Guatemala shouldn't double in size.

Speaker Change: low enough. We still have a lot of legroom in per capita and I think one of the beautiful things in Guatemala is it's a very large and very young population.

Speaker Change: with stable income growth.

Speaker Change: And, you know, a lot of remittances, something that's been surprising to me is the strength of remittances there, the importance of remittances, so it's just a country that's getting

Speaker Change: Wealthier and wealthier and wealthier, very stable, very pro-business, you know, employment is up. They're even getting some nearshoring in textiles.

Speaker Change: So to us, I mean, there's no reason that Guatemala shouldn't double in size. That's our view.

Ian Marcel Craig Garca: That's our view. So it's a very good business, and we're working to make that happen. And we've been One of the best projects was the new plants and capacity expansions, and those were filled almost immediately. There's a lot of upside to remaining Guatemala. Of course, the percentage trend, as is natural, will start to decrease over time, but there's still plenty of upside to that territory. And just one last one, and it's just a jewel of a territory as well in the mix of single serve being very, very high. So it's really a good place to be. Sorry, Jerry.

Speaker Change: So it's a very good business and we're working to make that happen and we've been

Speaker Change: One of the best projects was the new plants and capacity expansions, and those were filled almost immediately. There's a lot of upside to remaining Guatemala, of course.

Speaker Change: The percentage trend, as is natural, will start to decrease over time, but there's still plenty of upside to that territory.

Speaker Change: Another and just one last one and it's just a jewel of a territory as well in the mix of single serve

Speaker Change: being very very high. So it's a really a good place to be in. Sorry Jerry. Another important component just to compliment Ian Alvaro is that in Guatemala in the past few years we've gained an important amount of share.

Gerardo Cruz Celaya: Another important component, just to compliment Ian Alvaro, is that in Guatemala in the past few years, we've gained an important amount of share. In Guatemala, we had headroom for share, specifically in colas, as you know, that's our biggest right to win with the brand Coca-Cola. So we've gained a significant amount of share these past, I guess, four or five years. Seven points.

Speaker Change: In Guatemala, we had headroom in shares, specifically in colas, as you know, that's our biggest right to win with brand Coca Cola.

Speaker Change #100: So we've gained a significant amount of share these past, I guess, four or five years. More than five points. It's a lot of shares. Yeah.

Ian Marcel Craig Garca: It's a lot of share. Yeah. Great, thank you very much.

Ulises Argote Bolio: Thank you. We'll now move to our next question from Ulises Argote from Santander. Please go ahead.

Jerry: Great, thank you very much.

Speaker Change #101: Thank you. We will now move to our next question from Ulises Argote from Sun Thunder. Please go ahead.

Ulises Argote Bolio: Thanks for this Facebook question. So just to understand a bit better, do you have something to share around what is kind of the ballpark in terms of new unit cases that you're adding to the pipeline with these seven lines that you were mentioning that you're rolling out this year? And will those kinds of seven lines leave you at a comfortable level for production, or should we expect more additions of lines or maybe even plants in some regions in the coming years? All of this, obviously, with the very strong demand that you guys are experiencing. Thank you. Thank you, Ulises.

Speaker Change #101: for

Speaker Change #101: Sorry.

Ulises Argote Bolio: Thanks for the question. So just to understand a bit better, do you have something to share around what is kind of the ballpark in terms of new cases that you're adding to the pipeline with this seven lines that you were mentioning that you're rolling out this year? And will those kind of seven lines leave you in a comfortable level for production or should we expect more additions of lines or maybe even planting in some regions in the coming years? All of this obviously with the very strong demand that you guys are having. Thank you.

Gerardo Cruz Celaya: The number that we have for expansion in capacity, specifically manufacturing, is creating 15% additional capacity in a three-year period that started in 2023. So, 2023, 2024; by the end of 2025, we expect to have 15% more capacity. As you know, and you've seen in our reports, we've been outpacing our initial projection, so we'll probably be adjusting that capacity creation as we move forward, marginally probably a little above that 15% new capacity. In terms of distribution capacity, we have the ability, when we're surpassing capacity, to be able to rent third-party assets, trucks, and warehouses.

Speaker Change #103: Thank you, Ulises. The number that we have in expansion and capacity specifically manufacturing is creating 15% additional capacity in three-year period that started in 2023.

Speaker Change #104: So 23, 24, by the end of 25, we expect to have 15% more capacity.

Speaker Change #104: As you know, and you've seen in our reports, we've been outpacing our initial projections, so we'll probably be adjusting that capacity creation as we move forward, marginally probably a little above that 15% new capacity.

Speaker Change #104: In terms of distribution capacity, there we have the ability, when we're surpassing capacity, to be able to rent third-party assets, trucks, warehouses.

Gerardo Cruz Celaya: So we're a little bit behind in distribution capacity, but there we're expecting to increase distribution by 30% in that same period of time. And just in terms of new plants, Ulises, what we're trying to do is saturate our current facilities, but eventually, we will need a new plant to serve the Southeast Territory of Mexico. So as long as we can keep adding lines to our facilities, that's the way to go, but we will be triggering, at some point, a full new greenfield for Mexico and, at some point, for Brazil as well. Okay, this is super clear.

Speaker Change #104: So we're a little bit more behind in distribution capacity. There we're expecting to increase distribution by 30% in that same period of time.

Speaker Change #104: And just in terms of new plant releases, what we're trying to do is saturate our current facilities, but eventually we will need a new plant to serve the Southeast Territory of Mexico.

Speaker Change #104: So, as long as we can keep adding lines to our facilities, that's the way to go. But we will be triggering at some point a full new greenfield for Mexico and at some point for Brazil as well.

Ulises Argote Bolio: Thanks for that, guys. Thank you. And we will now take our final question today from Thiago Bortoluci from Goldman Sachs. Yes. Good morning, everyone.

Speaker Change #105: Okay, super clear. Thanks for that, guys.

Speaker Change #106: Thank you. And we will now take our final question today from Thiago Bortoluci from Goldman Sachs. Please go ahead.

Thiago A. Bortoluci: Thanks for taking the question and congrats on the results. Look, if I were to put everything that you said and everything together, right, what we're seeing is mid-single-digit volume growth for the year, better costs, right, probably because of your effects hedges, demand apparently continues to be super solid, and we're facing some capacity constraints, right? So if I were to imagine the second half of the year and you had been indicating mid-single-digit volume growth and coming to that stable profitability, where is the upside risk with this combination, right?

Thiago A. Bortoluci: Yes. Good morning, everyone. Thanks for taking the question and congrats on the results. Look, if I were to put everything that you said and everything together, right,

Speaker Change #107: reflecting its mid-single-digit volume growth for the year.

Speaker Change #109: Better costs, right, probably because of your effects hedges. Demand apparently continues to be super solid, and we're facing some capacity constraints, right? So if I were to imagine the second half of the year, and you have been indicating mixing will be this volume growth and

Speaker Change #113: to get stable profitability, where is the upside risk with this combination? I think we've been well above expectations, and the question is more to get a clear view, right? With this capacity constraint...

Thiago A. Bortoluci: I think we've been well above expectations, and the question is more... to get a clear view, right, with this capacity constraint. Should we eventually expect that Coca-Cola FEMSA will take this opportunity eventually to push margins a little bit higher? Yes, thank you, Thiago, and thanks for the question. I think, yeah, getting around the capacity constraint is something that the team is definitely working on, you know. As Jerry mentioned during his prepared remarks, he highlighted that just this year we are installing seven new lines. Most of them have been installed already, and this is only for 2024, right, but there is more on the plan for 2025 and so on, as you know.

Speaker Change #110: Should we eventually expect that Coca Cola FEMSA will take this opportunity eventually to push margins a little bit higher? Thanks.

Speaker Change #108: Yes, thank you, Thiago, and thanks for the question.

Speaker Change #112: I think getting around the capacity constraint is something that definitely the team is working on.

Speaker Change #111: As Jerry mentioned during his prepared remarks,

Speaker Change #118: He highlighted that just this year we are installing seven new lines.

Jerry: Most of them have been installed already, and this is only for 2024, right? But there is more on the plan for 2025 and so on, as you know.

Jorge Alejandro Collazo Pereda: There are some investments that we are doing in CAPEX in this period of time. We have estimated that it's going to be between 8% to 9% of our revenues, you know. So there are significant projects there that are coming, and Ian referred to that. And I think the summary you made for the expectation of the second half of the year is correct. I think we have guided for a full year that we expect volumes to be in the mid-single digits.

Speaker Change #114: There are some investments that we are doing on the CAPEX.

Speaker Change #119: In this period of time, we have guided that it's going to be between 8% to 9% of our revenues. So there are significant projects there that are coming. Also, Ian referred to that.

Speaker Change #114: And I think the summary you made for the expectation of the second half of the year are correct, I think.

Ian Marcel Craig Garca: We have guided for a full year that we expect volumes to be on the mid-single digits.

Jorge Alejandro Collazo Pereda: We are seeing, as you mentioned, a more benign environment on the cost front. We have implemented our hedging strategies, and the team is executing on both the commercial and the supply chain. So things are going well, but at the same time, we maintain the outlook for margins. We are more focused on the growth side of the equation than on protecting profitability.

Speaker Change #115: We are seeing, as you mentioned, a more benign environment on the cost front. We have implemented our hedging strategies.

Speaker Change #115: and the team is executing on both the commercial, the supply chain, so things are going well.

Speaker Change #116: But at the same time, we maintain the outlook of margins.

Speaker Change #117: We are more focused on the growth side of the equation than on protecting the profitability. That's one way, I would say, to put it. So, yes, definitely, I think that after the first six months of the year,

Jorge Alejandro Collazo Pereda: That's one way I would say to put it. So yes, definitely. I think that after the first six months of the year... We are more optimistic about potentially having some upside potential, probably in profitability. But, as Jerry mentioned, we're at the half mark of the year, so the summary I think is correct: mid-single digits, volume growth, and margins should be on the flattish side. And, of course, we cannot forget that in the second half of the year, we could have some volatility, effects, or other things.

Speaker Change #117: We are more optimistic about potentially having some upside potential, probably in profitability, no? But as Jerry mentioned,

Jerry: We're at the top mark of the year.

Jerry: So, the summary, I think, is correct, no? Meet single digits.

Speaker Change #120: Volume growth and margins should be on the on the flattish side and of course we cannot forget that you know in the second half of the year

Jerry: We could have some volatility, there are effects or other things. I think this year, the first half has also been a reminder of that. Volatility can come. Weather has happened in the south of Brazil and those kind of things. We cannot forget that those things can happen.

Jorge Alejandro Collazo Pereda: I think this year's first half has also been a reminder of that. Volatility can come. Weather, as happened in the south of Brazil, and those kinds of things. We cannot forget that those things can happen.

Jorge Alejandro Collazo Pereda: So that's why we are optimistic about the outlook, but at the same time, we maintain the outlook that we have set for the full year. As always, thank you for having me. Thank you. Thank you. With that, I'd like to hand the call back over to Jorge Collazo for his closing remarks. Over to you, sir. Well, thank you very much, everyone, for joining us on today's call. As always, myself, Lorena, and Marene are available for any of your remaining questions. And also, maybe a very quick announcement regarding the IR team.

Jerry: So that's why we are optimistic on the outlook, but at the same time we maintain the outlook that we have set for the full year.

Jerry: And as always, thank you for having us.

Jerry: Thank you. Thank you. Thank you, Sergio. With this, I'd like to hand the call back over to Jorge Collazo for closing remarks. Over to you, sir.

Jorge Alejandro Collazo Pereda: Well, thank you very much, everyone, for joining us on today's call.

Speaker Change #121: As always, myself, Lorena, and Marene.

Jorge Alejandro Collazo Pereda: are available for any of your remaining questions. And also, maybe a very quick announcement regarding the IR team. Marene, who has been part of the team, she's moving to a new role in strategic planning within the company. So, Marene, thank you very much for your support since 2020. You have been a very valuable member of the team. I know you know the analysts very well, so...

Jorge Alejandro Collazo Pereda: Marene, who has been part of the team, is moving to a new role in strategic planning within the company. So, Marene, thank you very much for your support since 2020. You have been a very valuable member of the team. I know you know the analysts very well.

Jorge Alejandro Collazo Pereda: So, thank you, Marene, and good luck on your next role. Thank you, everyone. Thank you. Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen.

Speaker Change #122: Thank you, Marina, and good luck on your next role. Thank you, everyone. Thank you. Thanks. Thank you. This concludes today's conference call Thank you for your participation. Ladies and gentlemen, you may now disconnect