Good morning, and welcome to Coca-Cola FEMSA's First Quarter 2022 conference call. As a reminder, today's conference is being recorded and all participants are in a listen-only mode. At the request of the company, we will open the conference up for question-and-answer after the presentation. During this conference call, management may discuss certain forward-looking statements concerning Coca-Cola FEMSA's future performance and should be considered as a good faith estimate made by the company. These forward-looking statements reflect management's expectations and are based on current available data. Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance. At this time, I will now turn the conference over to Mr. John Santa Maria, Coca-Cola FEMSA's Chief Executive Officer. Please go ahead, Mr. Santa Maria.

Good morning, everyone. Thank for joining us today to discuss Coca-Cola FEMSA's first quarter 2022 results.. With me on the call today are Constantino Spas, our Chief Financial Officer and Jorge Collazo, Head-Investor Relations. Against the backdrop of what is still a volatile environment we are building on last year's positive momentum to deliver a solid start to the year. Our volumes increased across all of our markets while our consolidated revenues and operating cash flow grew double digits. Importantly, we continue delivering accelerated results across all our strategic fronts. We are leveraging the strength of our enhanced cooperation framework with the Coca-Cola company to align and execute ambitious growth plans and investment. While we open new revenue streams and significantly advance our digital strategy. During today's call. I will first review our consolidated results. Then I will expand on our renew strategy, which is based on six strategic corridors, with a special emphasis on our portfolio and omnichannel digital initiatives, providing examples of how we are implementing this strategy across our diverse footprint. Before our Q&A session Constantino will walk you through our division's performance and our hedging strategies, closing with an update on the use of our green bond proceeds, as we continue progressing towards our sustainability commitments. Before discussing our consolidated results, it is important to remind you that our recent acquisition of CBI in Brazil is included as a February 1, 2022. For this reason, we will refer to certain figures as comparable, which is the year-on-year comparison, excluding the effects of M&A and currency translation. Moving on to the first quarter results. Our consolidated volumes increased 10.1% year-on-year and 9.3% on a comparable basis. This growth was driven mainly by double digit growth in Brazil, Columbia, Uruguay, and most of our territories in central America,…

Thank you, John, and good morning, everyone. I will now expand on our divisions first quarter results. In Mexico, our volumes increased 3.7%, while our total revenues increased 10.6%, driven by a very solid performance in most of our channels, pricing initiatives, revenue growth management, and a favorable price mix. Moving into Central America, in that region our operations continue to deliver a strong performance, with 11.8% volume growth and 15.8% revenue growth as compared to the first quarter of 2021. Remarkably, our volumes in Guatemala continue to show significant volume growth even when considering a high comparable baseline. As a result of this, our quarterly revenues increased 11.4% in the Mexico and Central America division. On the profitability front, our gross profit increased 7.1%, which resulted in a gross profit margin of %48.4, representing a margin decrease of 190 basis points as compared to the first quarter of 2021. This contraction was driven mainly by increases in commodity prices, which were partially mitigated our revenue management and raw material hedging strategies. As we have previously mentioned, although we continued to see the normalization of certain operating expenses during the quarter, we were able to double down on savings and efficiencies. As a result, and despite a tough, comfortable baseline, we're able to increase our operating income by 13.4%, and to expand our operating margin by 30 basis points in the Mexican and Central American region. As we continue to see a dynamic raw material and supply chain environment, we expect to continue to protect the profitability through very disciplined, raw material hedging strategies, and focus on driving expense efficiencies. Our operating cash margin for the quarter was 23.2%, which represents a flat contraction of 50 basis points. If we move on to South America, this division delivered a solid…

Thanks Constantino. Although the beginning of 2022 has enjoyed its fair share of volatility, we remain ambitious about our ability to continue delivering accelerated results across all of our strategic fronts. We're convinced that we have the right capabilities to continue growing our topline, while substantially mitigating margin pressures for the remainder of the year. I'm encouraged by our renewed strategy and by the speed at we are implementing Coca-Cola FEMSA's transformation. We remain committed to continue accelerating our digital edge, while building a customer centric multi-category portfolio together with our partner, the Coca-Cola company. Thank you for your continued trust and support and for joining us today. Operator, I like the call for questions.

Thank you. Our first question comes from Alan Alanis at Santander. Your line is open. Please go ahead.

Thank you so much and good morning. Congratulations for the results. I guess you left the most interesting news to ask a question at the very end. So now you need to get it, because you have a pilot program with Azul in Mexico with Kellogg and with Procter & Gamble in Mexico. Well, congratulations for that. Keep us posted. I mean, I think we can ask a lot of questions in terms of how far those agreements can go, John. I don't want -- I know if you want to comment a little bit about that. But what's the vision there? That'll be the first question. And then I have a couple of financial questions for Constantino.

Thanks, Alan. Thank you very much. At this point in time, what we are doing with those -- are three partners, the Azul, Kellogg, and Procter, are we're basically into pilot tests right now. And so depending on how the results go, and what have you, I would say that that will be determining what kind of arrangements we're coming into. So today, it's it is what it is, as its name says, it's a pilot test. And we're expanding those to understand what the further learnings are. But so far, all the results we've gotten are very, very encouraging for both parts. Okay. And what we are seeing throughout in the underlying is we're selling more per point of sale of a total portfolio, but also more items per store of the Coca-Cola portfolio that we have. So the synergies on this are very, very good. Thanks. You had some other questions for Constantino?

Yes. The other one really quickly. I mean, they're much more financial questions regarding - we're seeing a big discrepancy in the move of the operating income and the EBITDA this quarter. What were the changes that you were doing during the depreciation? And if you can just expand more, a little bit more on the financial losses below the operating line just to confirm that these are like non-recurrent and if they have anything to do with your hedges? Congratulations also for having all the hedges, especially in the reaming of the year it seems 20% of sugars in Mexico, 34% in Brazil and so forth. But just to understand a little bit more there, the moves of the depreciation and the extraordinary financial charging for the operating line? Thank you.

Yes. Thank you, Alan. I'm going to ask Jorge to answer this one. Are you eager to answer?

I'm going to give this question to Jorge and then I can add some more color if necessary. Jorge, can you jump in please.

Sure. Hi, Alan. Yes, Alan. So basically, the main effect is related to exchange rates actually. And there's, as you know, we are having these virtual effects because of a foreign exchange related to specific zone. So its not really changes on the depreciation, that's what I mean, coming mainly from a benefit from the appreciation of our currencies that we saw during the quarter, so they don't actually impact the EBITDA on the operating income line.

Alan, and actually, on your question on the pilot program, I would want it to add some more color in context of the initial remarks. This is evidently not only focused on Mexico. We're running different pilot programs in different regions, in Brazil, in Colombia, and in Panama, as of today, on top of Mexico, with different partners. And particularly in Brazil, I think that we announced recently an agreement with Campari. And this is very exciting, too, because, as John mentioned, the synergies that we're getting with some of these key partners that are fantastic brands by the way. And I think that's commonality that we're picking up in this approach to partnership, in the case of Campari, we believe it's an ideal partner. It's got excellent brands. It's got great potential to grow by leveraging the brands and our distribution network. And we're taking them to much more points of sale than what they reach today. That is something that is key. I mean, particularly the partners that don't have a strong DSD model as part of their core route to market are getting enormous benefits when we look at the pilots, not only in distribution, but also in execution. So in the case of Campari, particular, it's a distribution contract that brings additional brands and products in the case of spirits to a portfolio in Brazil. And in general terms, this agreement just represents one more step further with goal to continue offering, as John mentioned, a winning portfolio, and proves that our capabilities are working successfully. So approaches like the one with Campari in this case, which go as a multi year long term agreement for five years, will allow us to work for strategies in different channels, and regions, and with different emphasis. And that is something that will become I think, overtime, a commonality on the type of approach that we would take while we scale up these pilots into larger agreements throughout the different markets where we're operating. We wanted to make sure that we make the point across that it's great in Mexico as of today with these partners, but we're also scaling up other agreements with different FMCG in this case, spirit players in all over different markets. I hope that helps and provides enough information for the question.

And Alan, I know you asked as well around the comprehensive financing result. And that is mostly related to the mark-to-market of derivatives that we have related to interest rates. And so when the U.S. Treasury moved up that created these non cash effect close to a MXN1 billion that we have this quarter.

Yes. So they're all non cash effects.

We'll move to our with Ben Theurer with Barclays. Your line is open. Please go ahead.

Perfect. Thank you very much and congrats, again, just along the lines of what we've been talking around these pilot projects and thanks for clarifying that you're also doing that in other regions. So, can you help us understand what ultimately - how you think about the mix going forward? And what's like a kind of a preferred product, because obviously you're running tests with the spirits companies like the Azul, your current Campari into a deal. But you also mentioned PNG, Kellogg. So what's like the perfect target for you and is there any conflict of interest that you may have to manage at some point when it comes down to deciding what you want to put on the truck or not, just to understand a little bit the drivers of these different potential partnerships?

Sure. Thank you for the question. Let me answer it this way. Let me see if I can give you more color. What we're looking for is a portfolio of products that gives us a much better approach to our customer base depending on the channels and occasions that we serve. So ultimately what we would like to do is focus on not so much a single brand, but have the partnerships in place that allow us to have a significant share of wallet of each one of our clients. So, if you think about this in terms of what we can deliver through the Coca-Cola system, Coca-Cola FEMSA towards each one of our either small shops or bars in Brazil, et cetera, we're looking to go between from a starting point of about 20% share of wallet being a what that bar or store basically consumes to about 40% share of wallet, okay, to be able to become a very, very customer centric and preferred supplier. And with that, we can build other types of products and services on top of that platform as we go forward. Does that help?

Yes. And in addition, there's also some consideration that we take into the analysis that are more related to our internal processes, right? How synergistic or how much complexity does this add to our logistical supply chain network. I mean, is it, congruent with the type of processes that we have internally, so that we don't affect our execution. So there's other considerations. I mean, definitely this is very focused on a consumer and customer centric portfolio definition, But we also take into account the fact that we are a very efficient operation and we tend to look at it from an angle also of the disruption possible in our supply chain. So that's also something that we need to take into consideration. And obviously, as you can, as you can pick up from the type of partners that we're, the network of partner that we putting together there's also an interest in companies and brands that are great brands. And at the same time companies that are very focused on investing behind these brands on consumer insights that can provide us with the tools, so that we can transform those insights into executional capabilities that end up driving more growth, not only for the partners and for the customer, but also as John mentioned for the Coca-Cola portfolio, those are interesting analysis that we're learning actually, and we're incorporating as we learn and we progress in this journey.

We'll move next to Isabella Simonato with Bank of America. Your line is open. Please. Go ahead.

Thank you. Good morning, everyone. So following up on this partnership, right. It's interesting that you mentioned this, dimension of share of wallet that that you have and then potentially want to. How do you think when you think about the categories, right, that you plan to partnerships with brands? How do you think about weighting value, and bonds, right, during the portfolio that a bar events who carriers and price to sales in general. How strategically you think about that equation? That will be the first question. And just switching gears a little bit to consumption and volume performance, especially in Brazil, I think was a very a same quarter. And two questions, if you share with us. First, give us the color of how you're seeing consumption environment post-March, right, and this involvement throughout the quarter. And second, specifically on the still beverage. If there was a specific driver there for that 70 plus percent growth year-over-year, or that was just the comp. Just a little bit more color on to that? Thank you.

Yes, Hi, Simonato. Thank you very much for the question. Let me see. There's a lot of questions there. The first one is we have in terms of where we're going, we have a clear roadmap about what are the categories that we want to do kind of embrace to put on our omnichannel multi-category platform. And those would give us a preferential. It would be preferred in terms of both customer and at the same time value as what Constantino was saying. And it would be fit pretty well in terms of our supply chain. And those, as we started going forward, are being executed. We're trying to look at pilots with them in each one of the countries. So it's not only a volume issue, it's more about how do we go out there and get the right categories and the right margins into our business to make sure that they become route accretive. And therefore, as we go -- as we move forward, that is the focus of that roadmap that we're putting into place. Again, we think the share of wallet that we're talking about is something that would allow us to become very sticky in terms of a platform for the trade, but obviously, in a very synergistic way with the customer, consumer and the Coca-Cola portfolio. Going forward in Brazil, I think, we had a very good quarter, as you said. But the underlying growth trends that we're seeing in our business are very strong. Even as we go forward in April, April is continuing to have very strong volume performance, not as much as in March. March is probably affected a little bit by weather. But we have the right strategies in place of affordability, multipack, and multi packing, single serve multi packing, dual packing, ensuring that we have a new category enhancements with growing categories such as energy. And underlying, we see continued consumer activity, good macro economic trends throughout the year, and we think we're going to have a very solid growth year in Brazil. It's not something that we're just seeing as a first quarter event, but it's gaining momentum also in terms of execution, in terms of refrigeration, penetration. And overall, we're seeing our business in Brazil improve quarter by quarter by quarter. I don't know Constantino, would you like.

Yes. And in the case of still, Isabella, it's a combination of, definitely of comparables, but at the same time, when you look at categories like tea, energy drinks with the monster brand, and sports drinks, they're growing phenomenally. I mean, they have gained great traction with consumers or execution is fantastic. And actually, we have achieved record market share for those categories in this quarter. So it's a combination of the comparable, but also consumer trends, and micro macro environments and executional capabilities overall. But particularly in these three categories, there's also a specific trend that's accelerating in terms of performance in the market. So the combination of all those effects has delivered an excellent result for the still's category in Brazil this year.

Okay. So our next question with Lucas Ferreira at JP Morgan. Your line is open. Please go ahead.

Thank you. Good morning, John, Constantino and Jorge. I have also two questions. One is regarding multi category. If you can give us a sense, how big you think this sort of total addressable market could be for you in Mexico and Brazil, when you identify the categories are synergic to your business. So how big this addressable market could be in each of the countries, if you have an ideal sort of a what's the fair share of this market you could have in say me term? And the second question is, regarding the consumption environment in Mexico, especially, talking about price elasticity, how comfortable you are to kind of continue to face a cost pressures going forward? There are talks, the government tried to sort of eliminate inflation, I don't think you're directly back to if you can discuss this or how the government initiatives to potentially curbing price hikes and some categories if this could be directly or indirectly impacting you at some point? Thank you.

Constantino, do you want to first one, I'll take second.

Sure. In the case of the multi category, I mean, it's still very early days. We're in experimentation phase. That's why, as we were mentioning, most of these initiatives are at the pilot level right now. So we're working on the analysis of how much -- what's the actual attainable size that we can achieve. We have some hypothesis, but I think it's not, proper to share those at this point in time as we need to have a little more information than that. Having said that as John mentioned, we're looking at, and we believe we have some type of hypothesis around attainable share of wallet, and some particular channels. And depending on the market, depending on the channel, there's -- we have this underlying hypothesis that we can achieve anywhere between 30% to 40% of share of wallet of the store in the fragmented trade store that varies evidently between on-trade and off-trade. But I think that we can put together a platform that delivers against a very solid piece of business, with our fragmented trade retailers around that 30% to 40% of share wallet. That is the underlying hypothesis. We need to prove that we can deliver against that. And there's -- that's why we're working on all of these pilots. So, I hope that helps. Probably in the upcoming months, we'll have more information, and we will definitely be sharing that they mentioned of what we're trying to achieve on the multi category.

Yes. And just turning back, Lucas, on the Mexico consumer environment. I think is that -- yes, there are some preliminary discussions between the Mexican government trying to elaborate a program. Trying to reduce inflationary impact across a lot of different sectors, of which we have not been part of as of today. We don't anticipate being part of that either. I think the other issue that you mentioned was the inflation outlook in Mexico. And I think what we can anticipate is, yes, probably slightly growing inflation from this levels here. But our revenue growth management strategies are in place that we think that we can cover that and continue with positive elasticity in terms of maintaining our volume growth. We have been growing in an environment that it has had high inflation, and we are seeing growing volumes and accelerating volumes in Mexico over the last quarters. And we think that we can maintain that. We have the portfolio in place to do that, the initiatives in place to do that. And we think that we have a variety of consumer price points and package choices that allows us to move in and out of a consumer when they have different pain points. So just kind of wrapping up, the question that you asked was, is you're in a very, very formal program that has been elaborated in Mexico? I think there is something that the government is starting to work with different sectors of the public sector -- private sector in Mexico for price controls. The extent -- and I wouldn't call it price controls, I would think it's just inflation minimization impacts for certain products. And we don't see this as being broad spread, price controls as it could be perceived someplace else.

We’ll go next to Sergio Matsumoto with Citi. Your line is open. Please go ahead.

Yes. Hi. Good morning, John and Constantino. Thank you for taking my question. I wanted to kind of deeper into this pricing and inflation question. The pricing in Mexico appears to be at least for this quarter, sort of like in line with inflation like that high single digit number. Now historically your category has grown more robust pricing, often above inflation. So I'm wondering if you could give us some color on what you have in mind in terms of how you're seeing this revenue growth management that you just mentioned. There might be some mix effect of perhaps more returnables or maybe you have some these hedges that Constantino mentioned. So perhaps you don't have to do a step up pricing right now, but maybe there's more coming later in the year, perhaps in the summer. So if you could kind of give us some color that would be great? Thanks.

Sure, Sergio. Sorry, Constantino. Go ahead.

No, go ahead, Jorge, go ahead. Go ahead, please.

Just some initial comments on that and Constantino, please compliment. But I would say, Sergio that what we are leveraging on is on our revenue management capabilities. And so, we are leveraging on a lot of affordability as John mentioned on the prepared remarks. We are investing on returnables, multipack and execution to drive top line. So far during the year, we have increased prices, basically by the end of the quarter, and during March. And so the effect of that price adjustment is not fully reflected yet on the figures now. But what we're looking at is a combination, Sergio, offering these affordability to our consumers, while at the same time we have these segmentation capabilities to drive top line growth. And of course, that should be also put together with volume growth. And so that's what we are looking at. Yes, we are looking to leverage on these revenue management capabilities, which we believe that at the end of the year, we should have a pricing an average price that could be slightly above inflation. But as I said, it's not cool headline. Pricing is more of a leveraging on these revenue management and price pack architecture that we have in Mexico.

Yes. That's exactly. That's exactly, Sergio. What I would add is, as Jorge mentioned, we don't focus primarily on headline pricing. But we do it through RGM strategy. And in that in that regard, I mean, we use a lot, particularly in Mexico, which is most developed market, we use a lot of big data analytics to try to understand what's the best price pack architecture for the market, and in line with that take particular pricing in a very sequence matter throughout the year. So all-in-all, at the end of the year, just to re emphasize, I think that as Jorge mentioned, you will see most likely an outcome of pricing ahead, slightly ahead of inflation in Mexico and in Central America. And in line with inflation in South America. That would be my expectation based on all the pricing architecture and RGM strategies that we have put in place for the year. And they're better parts of you know, everyday business and processes within Coca-Cola FEMSA.

And due to time constraints, we'll take our final question from Alvaro Garcia at BTG. Your line is open. Please go ahead.

Hey, John, Constantino. Thanks for the call. Two questions from me. The first one on the six quarters. Thanks for that update. And on the first sort of quarter that you highlighted. John, you mentioned omnichannel integrating D2C into -- I'm just curious if there's sort of more integration across your different omni businesses? And if there's any sort of overhauling organization that you might want to highlight? That's my first question.

Okay. Now, right now, what we've done, sorry. When you're just talking about the omni channel businesses, we basically looking at a omnichannel strategy that is B2B directly for our traditional trade. And there we have a lot of initiatives to be able to make that a omnichannel seamless order taking delivery system. Separately, you have and primarily in Mexico, the direct-to-consumer piece, which is Coca-Cola and that's where we have the most developed business. And what we are doing there is basically, first, digitizing our businesses and we were going taking it from a traditional, knock on the door, let me give you a jug of water and plus milk et cetera piece to a digitized Salesforce. And now, the second component to that would become the development of an application that would allow you to order from home without having the truck come to your door. So it's really a change in the dilemma that we're or the paradigm that we're looking at in terms of our business. So we can actually go from there out. So at this point in time, no, we do not anticipate any types of organization changes. We do continue to look at digitizing our direct-to-consumer platform. We do look at going out there and making it a better -- we have better applications or have more multi category platforms on the truck as we go forward. And as I said we're growing our business by additional routes by digitizing the business and by going out there and creating a digital application that will allow us to pull that all together.

Great. So same quarter, but still run, still two separate businesses between D2C and B2B?

Right.

Okay, great. And then just one last one a bit of a nerdy question. But I noticed in the -- and there might not be anything here. But I noticed in the 20th, when it comes to your cash generating units, sort of how you value your distribution rights and your goodwill, you have these volume growth numbers through 2031. And there were significant increases for places like Colombia and Brazil. And I was wondering if there was anything to that at all? Or what we should think of those very steep increases? Thank you.

Hi, Alberto. Yes. It's actually a combination of a couple of things. One is, definitely there's a change in methodology in the way we are projecting, going forward. And the other one is also, we -- as John mentioned, we are also aligning more ambitious growth plans and expectations going forward. So part of that is also an update and a reflection of that. And so it's a combination of those two things. Now, this projection change, also the timeframe. For example, first, we used to project change in 10 years. And now we are changing the methodology to project five years now. And then we have the long term projections from that. So it's a combination of those two picks mainly.

And that we'll conclude the question and answer session. I'll turn the conference back for any additional or closing comments.

Thank you, operator, and thank you all for attending the call today and for your competence and interest in Coca-Cola FEMSA. I believe we were starting off the year with a very strong performance. We feel that we have the momentum in the business to maintain a very, very solid year for Coca-Cola FEMSA 2022. And as always, our Investor Relations team is available to answer any of your remaining questions. So thank you very, very much and have a good day and good weekend.

Ladies and gentlemen, that will conclude today's conference. We thank you for your participation. You may disconnect at this time.