Hello, and welcome to the Coca-Cola FEMSA Fourth Quarter 2025 Conference Call. My name is Sophia, and I'll be your moderator for today's event. Please note that this conference is being recorded. [Operator Instructions] I would now like to hand the call over to Jorge Collazo, Investor Relations Director at Coca-Cola FEMSA. Jorge, please go ahead.

Thank you, Sofia. Good morning, and welcome to this conference call to review our fourth quarter and full year 2025 results. Before we begin, let me remind all participants that today's conference call may include forward-looking statements and should be considered as good faith estimates made by the company. These forward-looking statements reflect management's expectations and are based upon currently available data. Actual results are subject to future events and uncertainties that can materially impact the company's performance. For more details, please refer to the full disclaimer in the earnings release that was published earlier today. Joining me this morning are Ian Craig, our Chief Executive Officer; Gerardo Cruz, our Chief Financial Officer; and the rest of the Investor Relations team. After prepared remarks, we will open the call for Q&A. [Operator Instructions] With that, let me turn the call over to Ian, our CEO, to begin our presentation. Ian, please go ahead. Ian M. Craig García: Thank you, Jorge. Good morning, everyone. We appreciate you joining us for today's call. 2025 tested our business in multiple ways, which provided the opportunity to learn and adjust to changing conditions. It also underscored the resilience of our core business and reinforced our conviction in our strategy of following a sustainable long-term growth model. Throughout the year, we implemented decisive measures to react to the short term while ensuring we continue progressing towards our long-term objectives. Among other actions, in Mexico, we adjusted our promotional grid and strengthened our affordability initiatives to address a weaker-than-expected consumer and the effects of temporary unfavorable brand sentiment early in the year. We focused on recovering our competitive position and protecting profitability with swift and decisive actions that became a best practice within the global Coca-Cola system. On the other hand, our markets in South America…

Thank you, Ian, and good morning, everyone. I appreciate you joining us today. I will begin by summarizing our division's results for the quarter. In Mexico and Central America, our volumes were even as a slight volume decline in Mexico was offset by growth in Guatemala, Nicaragua, Panama and Costa Rica. Revenues increased 1.6% to MXN 42.2 billion, driven mainly by revenue growth management initiatives that were partially offset by unfavorable mix and currency translation effects into Mexican pesos. On a currency-neutral basis, revenues increased 3.3%. Gross profit increased 2.6% to reach MXN 20.8 billion, resulting in a gross margin of 49.2%, a 40 basis point expansion year-on-year. This margin increase was driven mainly by lower raw material costs such as sugar and PET, coupled with the appreciation of the Mexican peso as applied to our U.S. dollar-denominated raw material costs. These effects were partially offset by unfavorable mix effects and fixed costs. Operating income in the division declined 1.1% to MXN 6.9 billion, and our operating margin contracted 40 basis points to 16.3%. As described in our earnings release, our operating income includes the recognition of insurance recoveries in Mexico, net of expenses for MXN 116 million. By excluding this effect and related expenses in the same period of the previous year, normalized operating income would have declined 8.1%, resulting in an operating margin contraction of 170 basis points. This contraction was driven mainly by an increase in marketing, depreciation and labor, coupled with a lower operative foreign exchange gain as compared to the previous year. These effects were partially offset by operating expense efficiencies such as maintenance and distribution. Finally, our adjusted EBITDA in the division increased 1.3% with a flat margin as compared to the previous year to reach 22.9%. Importantly, by normalizing insurance claims and related…

[Operator Instructions] Our first question comes from Ben Theurer with Barclays.

I wanted to get some incremental color, if you can, as to the performance, particularly in Mexico over the course of the fourth quarter and then heading into the first quarter. What have you seen in regards to the volume behavior, October through December and particularly now with taxes being in place early on, what are like the early signs of sensitivities that you've been seeing amongst key customers? And how have you been reacted on that as it relates to the tax and then ultimately, your pricing strategy throughout the year? That would be my question. Ian M. Craig García: What you saw during last year, if you remember, I think in Mexico in the first quarter was around a 5% decline. Then the second quarter, when we really had the impact of the consumer sentiment around the 15% decline -- no, sorry, around 10%, if I remember more or less. And then third quarter, 3.7%. And finally, by the fourth quarter, it was almost flat, declining 0.9%. So you saw a sequential improvement. And I mentioned in the prepared remarks that December was the strongest December on record for Mexico in terms of volume growth. So you can see how the underlying trend was improving to the point of having a December that was the highest on record in terms of volume. That being said, we continue with the same guidance for 2026, which is a low to mid-single-digit decline in Mexico simply because we had to transfer the impacts of the IEPS excise tax, and that was a large price increase that we had to transfer through for the IEPS tax. So we're not changing our guidance there, and we are seeing the impacts of that tax increase in the first quarter.

As expected, like the volume declines or very much... Ian M. Craig García: As expected.

Our next question comes from Ricardo Alves with Morgan Stanley.

Ian, I remember the cycle of investments in 2024, the focus on growth and then you have 2025 with all the challenges and one-offs, IEPS came through. And I think that to credit Coke FEMSA, the company was very fast in adjusting the cost structure as needed, the price hikes. So when you think about -- the question is your strategic views into 2026. When you think about everything that you have in place, right, I think that since 2024, all the investments or the major investments at least were made, even rebuilding plans. The costs were adjusted in Mexico, a big discussion that we had in the first half of last year. You priced through the tax issues or IEPS issues into 2026. So with -- assuming that all of that is kind of behind you, what would be for this year and the next 2 years, your main strategic ambitions for 2026, not necessarily Mexico only, but across the board. What is keeping you awake as big opportunities ahead? And then just one other question for Jerry. Just a quick update on the shareholder remuneration would be much appreciated given the below 1x EBITDA leverage. So I think that an update on shareholder distribution would be appreciated. Ian M. Craig García: Thank you, Ricardo. Well, just to be clear, as you mentioned, we're very proud of the adjustment that our Mexico team or the reaction, let's say, the rapid reaction that our Mexico team had when we were facing the change in consumer sentiment and the sluggish demand, coupled together with weather, by the way. So it was a quick and swift reaction, and that's behind us. Going into 2026, we are already with a lean structure, and we adjusted our CapEx primarily in Mexico because the rest…

Yes. Thank you, Ricardo. And to briefly complement Ian, I would like to just connect a few of the points that Ian mentioned regarding first, our grow the core strategic initiative as well as our digital enablers as our second most important growth strategic priority. because it came -- or it's coming at the right precise moment that we can leverage those digital capabilities and the AI-enabled capabilities that our platforms have to take the best advantage of our revenue growth management initiatives at a moment where specifically in Mexico, we're facing important challenges with the IEPS tax coming online. Going to capital allocation, Ricardo, I think we are very -- or following very closely our capital structure situation. We understand that we are pending to give information to the market regarding what we're doing. with our dividend strategy. Given that we're facing this challenge in Mexico with IEPS, we're holding on a little bit to see how cash flow behaves during the year. We'll certainly try to do our best to have the less disruption possible from this effect in our cash flow generation. But we're being a bit cautious, just waiting out and see how the first half of the year develops with the World Cup coming on and see how our projection for cash flow for the remainder of the year progresses. So we'll give you a bit more information as the year moves on.

Our next question comes from Thiago Bortoluci with Goldman Sachs. We are going to move on to the next question that comes from Rodrigo Alcantara with UBS.

Can you hear me? Ian M. Craig García: Hello Rodrigo.

Nice to hear from you. One question for Ian to elaborate on the very encouraging momentum observed in Brazil, right? I mean we discussed here in terms of the 0 concepts momentum, but also judging on competitors' performance, looking -- your performance is quite strong as well. So I'm not sure if we're -- if it's a matter also of price relativity, allowing you guys to give better performance, digital tools. Just wanted to understand the drivers behind not only the strong category growth momentum, but also the relative performance versus competitors in Brazil. That would be for nonalcoholic beverage. And the other question for Jerry, and this is a topic that to tell you truth, I mean, we were asked as writing the review today, what happened to cash flow? I mean, there was a meaningful outflow in working capital, Jerry, that actually burn all the gains that we saw at the EBITDA level. So I just wanted to -- I mean, investors wanted to understand precisely this and what happened to working capital. And if I recall correctly, I mean, -- it's something to do with payables and stuff like that, but it's a topic that we have previously discussed in the past. So I thought that we have turned the pitch on that. So just curious on this and when can we expect some sort of normalization on working capital? Those would be my 2 questions. Ian M. Craig García: Rodrigo, so just in terms of the market performance, Brazil is the perfect example of having decided to adopt a long-term sustainable growth model where we are leveraging a top-notch portfolio of brands, consistent investment year-over-year over-year above the line and below the line. with the widest distribution in network, focusing on expanding our customers, improving our…

Rodrigo, thank you for your questions and for your time. Regarding working capital, it's exactly accounts payable, the effect that you're seeing, and it's an effect in the base. Just to remind everyone in the call, we are in the process of rolling out and deploying the implementation of our new ERP, SAP/4HANA. Due to delays last year, we had a significant increase in accounts payable that were a big effect in fourth quarter of '24. So when you compare to a normalized fourth quarter of '25, you see that large reduction in accounts payable, which basically is the hold effect that you're seeing in working capital. We have normalized that for the year and don't expect to see any further disruptions coming from accounts payables or receivables for 2026.

Awesome. And so just to confirm, starting 1Q '26, we should go back to normal on those outflows or inflows on working capital.

That's correct. Even since fourth quarter '25, I would say, is the normal, that the disruption comes from the base fourth quarter '24 when we had unusual increase in accounts payable back then.

Okay. No, that's encouraging. I mean excluding -- I mean, that said, I mean, it was a great quarter, guys. Congrats.

Our next question comes from Thiago Bortoluci with Goldman Sachs.

Can you hear me now? Ian M. Craig García: Yes Thiago.

I would just like to move the conversation back into Mexico with 2 follow-ups. The first one, I know you mentioned January moving in line with expectations, and it's still too early to call for a more aggressive capital allocation. But I remember having prior conversations on pricing. Obviously, the industry as a whole has been pretty clear in passing the IEPS, but we had some diverging views on whether to go for a second round of increase to cover the underlying raw materials inflation, right? So the first question is, with the elasticities that you're seeing so far in Mexico, how comfortable you are or not in implementing another round of price adjustments this time to cover your underlying cost inflation? This is the number one. And then the number two is with the level of hedges that you have so far, particularly on the FX line, what's the visibility that you have in the direction of your gross margins and cost inflation for the next 12 months? That's the question. Ian M. Craig García: I'll take the first half, Thierry. It's still too early to tell. We need to let the first half -- the first quarter flow through. If you remember, January of last year was very strong. Then we have February where we started seeing changes in sentiment. And in March, we started seeing both the change in sentiment as well as weather. So it's too early to tell. We need to be a little more cautious. From what I see today, I can tell you this, the elasticity is behaving as we have imagined. The consumer is still sluggish in Mexico. So it wouldn't be prudent to venture into an additional increase today. At least I need to see how we end up closing the quarter and things are reacting. And that gives us plenty of time in any case, before we could do any sort of adjustment, additional adjustment.

And Thiago, connecting my answer to Ian's, I would say, gross margins for Mexico, we are seeing a bit of pressure. We're certainly going to follow up on any pricing decisions that we have to make. We're being very cautious, but we are very concerned with maintaining sustainable growth for the long term and following up on that promise to the market. But we are seeing a bit of pressure in gross margins, even though we see a benign raw material environment with the exception of aluminum, we see flattish to favorable prices in sweeteners, in plastic, but we do see a bit of pressure in aluminum that should result in some pressure in gross margins that we're aiming to try to compensate in fixed cost and expenses to try to deliver as close to flat EBIT margins as possible. It's still a work in progress, but that's what we're expecting for the year... Ian M. Craig García: For the full year.

Exactly.

Our next question comes from Renata Cabral with Citi.

My questions are about the Brazilian operations, some follow-ups. So the first one is regarding the supply chain improvements. We have discussed in the previous quarter, the improvement because of the normalization of the operation in Rio Grande do Sul. My question is how much of incremental savings potential remains in the distribution cost to serve for 2026? Or if it -- in this specific line, we are getting to a peak? And my second question is a follow-up regarding CapEx investments in Brazil. Is Brazil still receiving incremental capacity investment? Or does the current footprint support the growth in the upcoming years without incremental fixed cost improvement or investments this year? Ian M. Craig García: Renata, I would say we still have a couple of months where we're cycling still the Porto Alegre plant closure. So most of the improvements you're going to see really in freight come from that extra freight that was occurring there up until May. In terms of capacity, I think we put in over 4 -- over 5 lines in Brazil. So we've done a lot for the short term in Brazil in terms of lines, and that should not be an issue. Given the growth that we're seeing, if this continues as strong, and we have to see, remember, 2027, a new tax is going to come into effect. So it's a little early to say whether we'll need -- when we'll need the new plant in Brazil. So our projections today is that we will need one to start around 2030. And so investments for that will be in 2029. So I would say from here to 2028, things are at a lower level of investments because we have already invested quite a bit. So from having invested around 8% of revenues we should go down to around 6.5% over the following years, and then it steps up again in 2029 with the start of a new plant. That's the base scenario. But we have to see what sort of impact we see in 2027 from the tax, okay?

Our next question comes from Alvaro Garcia with BTG.

I have 2 questions. I have a bigger picture question on affordability in Mexico. In the context of -- you've stated your long-term sustainable growth model. If you zoom out, is it fair to assume that we could be entering just sort of a longer period of affordability? And we obviously had a phase, let's say, in the 2015, '16, '17, where you probably passed a little too much price, and we've discussed that in the past. given your price gaps today, so maybe some commentary on that would be helpful relative to your competition. And just given the tax and given what the consumer is feeling, is it fair to assume that we could be entering just a multiyear cycle where you're maybe favoring volumes in the context of your long-term sustainable growth model. So any thoughts there would be greatly appreciated. And then just one quick one, Jerry, on CapEx levels for 2026. I think last quarter, you mentioned potentially lower CapEx levels. I'm not sure if you've mentioned it on this call yet or not. I know you cleared up sort of capital allocation, but any comments on specific CapEx levels for '26 would be helpful as well. Ian M. Craig García: Hello Alvaro. I think your general read is some point. We believe this model is the one that delivers the best results, not only in terms of share of volume or even share of value, but also in terms of sustainable bottom line growth. So we saw this, like you mentioned, we lost too much share in the 8 to 10 years prior to 2022. We adjusted the strategy then. It reacted very quickly in 2023, so much so that then we had an availability issues in 2024. I'm talking about Mexico. Then last year,…

Alvaro, I would like to highlight very quickly 2 aspects that I think are very relevant for the implementation of the strategy that Ian was elaborating on, which is our digital capabilities, the ability that we have now to capture and process information from the market and act on that information quickly through our revenue growth management initiatives, I think, is -- puts us in a very strong position to address both the situation that we're facing in Mexico this year and the situation that we will be facing next year in Brazil with the start of the excise tax there as well. The other component, I think, that is worth mentioning is -- we have the learnings from the experience we had in 2014 with -- when the YES was originally enacted. So that will allow us to -- or is allowing us to take more informed decisions with respect to the market to address our growth opportunities in the best way selectively throughout the market. Regarding your question on CapEx, as we were talking about the last couple of years, last year, we invested 8.2% of revenues for the whole year with a big increase coming from deploying capacity, both in manufacturing and distribution. For this year, we're expecting, given the phasing out that Ian already mentioned in our Southeast plant in Mexico as well as our plant in Brazil. We're able to generate a little bit of savings in our investments for this year, dropping our CapEx to revenues from a range of 7% to 7.5%, probably ending in the lower end of that range for the year with the expectations that we have in our business plan.

Our next question comes from Froylan Mendes with JPMorgan.

Can you hear me? Ian M. Craig García: Yes, Froylan.

You mentioned December was the highest monthly volume in Mexico. Was there any overstocking, probably a reaction from the different channels with the upcoming hike on the taxes. Also, you mentioned that price gaps are manageable. Does that mean that the price gap was reduced? And is that a sense that you have been gaining share so far with the IEPS implementation in the industry? That would be great if you could give us some color on how competitors have reacted.

So I don't -- we don't believe there's a stock effect in those -- in that December figure, firstly, because we never used all channels at the same time. And in this case, we adjusted the traditional trade mid-month. So any event of overstocking was, let's say, flow through within the month. So that was done around the mid-December. And the modern trade, as you know, has a huge incentive to improve their working capital in year-end. So they did not really stock in any major form entering into January, and that price flowed through in January. So I don't see that major effect in the Mexico December volumes. It was the highest December on record for our 4 largest operation. and it was the highest fourth quarter on record for Guatemala, Colombia and Brazil. So those are like underlying green shoots that tell you about the strength of the NARTD market that we serve. And in terms of the price gap, it varies a lot by competitor, region and channel. So what I can tell you is the overall mix, it's either the same or very slightly improved than what we have before. But it's very different by competitor and channel geography. It's not a homogeneous thing.

You mentioned a bit about -- no competitor doing anything crazy, right? Ian M. Craig García: No, no deterioration in the price gap. You could say there are some competitors that are being aggressive in certain channels and geographies. What I'm giving you is the blended overall picture.

I mentioned, Froy, a bit about share performance. I think we're very proud of the job, as Ian mentioned in prepared remarks, of the job that the Mexico team did recovering from the backlash effect that we had in the second quarter of last year. And we're very excited of the base from where we're starting this year having recovered that share. So this should be a good position, a good platform to start this year that we're facing the challenge of IEPS with the pricing strategy and RGM initiatives that we elaborated on.

Our next question comes from Antonio Hernandez with Actinver.

Just a quick one regarding -- I mean, you mentioned the different tailwinds for Brazil, especially for this year and next year might be a little bit more complicated. But more specifically, how are you seeing in terms of any volume guidance or sales guidance in Brazil for the year? Ian M. Craig García: Sales guidance, Antonio, what I can say is the year started off this first by [indiscernible] continuing on the back of the strong trend. We've seen no changes there. We had good weather in January. We have social programs. We have election-related spending. So everything moving on strong in Brazil anything that you want to share on that?

Yes. Maybe to complement on that part, Ian, I would say that with all the tailwinds that we're seeing and so far, Brazil has been to a good start of the year, both January and February have been good months. Some of these tailwinds are already materializing from the social spending, even weather has been positive. So with all things considered, I would say that we expect to grow volumes in Brazil this year, which, as you know, when you zoom out and you see Brazil over the past couple of years, all years have been quite strong. And we have been able to outperform even to initial expectations that was -- or has been what has been happening in Brazil. So all things considered, I would say that if we were to put a number, and please consider this as an early take for the year, I wouldn't call it guidance. But I think we can work with positive volumes probably on the low to mid-single digits range. But we will progressively update you on that as the year progresses. But I think that's a fair assumption for you guys to model.

If I may add, Antonio, I think we're cautiously optimistic and a bit excited of what we've been seeing in terms of share gains in Brazil. I want to highlight this because it's a particular situation. Ian mentioned in one of the earlier questions. But one of the big boost that we're getting from the launching of our adviser tool in Brazil that is also online in Mexico and are excited for what we may see in Mexico as well. But a good result that we've seen has resulted in share improvement through improvement in combined coverage, both in CSDs and stills. This tool allows us to better execute at the point of sale, reducing out of stocks as much as possible, and this has resulted in good share trends in all of the categories, which is especially exciting when we see the breakdown. So we're optimistic of what this tool will bring for the rest of our business, especially with the late last year launch in Mexico and the expectation of launching in Colombia and Guatemala this year.

Next question from Gabriela Martinez with [indiscernible].

Do you already have an estimate of the impact of the World Cup? And could you share more details on your strategies to capitalize the opportunities it will bring?

Gabriela, yes, it's Jorge here. I think as Ian and Jerry have mentioned in previous earnings calls, we are very excited about the opportunity that the World Cup brings, not only because of the local aspect of being a host country, but perhaps most especially for the power that it has for our brands. creates a lot of opportunities for us to engage with the consumers, with the customers, with activation and not only for brand Coca-Cola, Coke Zero, but also in other categories as Power it, for example. So we're, as I said, very excited about that. It's hard to put a number like to put a number on the model, let's say, for the World Cup. But I would say the most important upside that we see for the World Cup is regarding to brand engagement, the opportunities on frequency. That is a great opportunity for us to capitalize. And I would say not only in Mexico, in other markets as well. It's a great opportunity to gather. It brings more consumption occasions, and that's a great, great opportunity that we have. We have, for example, not only during the tournament, -- but even before and even after the tournament, we have a lot of activations happening. We have the trophy tour ongoing. It's coming to Mexico as well. So those are the kind of opportunities that I would highlight for the World Cup.

If I may add, Gabriela, as well, regarding the World Cup and the expectations for the year, we are particularly proud of the strength and depth of our portfolio of products because we can offer a product for all of the different consumption occasions that our consumers will have around this event, be it at home, be it on the road or be it on the venues occurring during the event itself. So we offer a consumption occasion and a brand and an SKU that allows us to capture all of these opportunities, be it hydration, be it energy, be it indulgence. All of this is -- has a lot of synonyms with the World Cup, and we're proud to be able to serve the Coca-Cola portfolio of products around this event, which is a good engagement -- brand engagement event for us.

Our next question comes from Fernando Ferreira with Bank of America.

Just a quick follow-up regarding volumes. You have mentioned or you share some outlook on Mexico and Brazil. But maybe if you can give us some color about what you're expecting on a consolidated basis, mainly given the strong recovery that we have seen in Argentina, Colombia and the very good performance of Guatemala, that would be great.

Yes. Thanks for the question. Look, when we put it all together, as I mentioned, we already mentioned low to mid-single-digit decline in Mexico. low to mid-single-digit growth in Brazil and the rest with the -- putting it all together with the rest of the markets, I would say consolidated volume for 2026 will be more of a flattish year, of course, flattish to slightly positive, I would say, if we were to give a range. That's what the team is working on. Of course, we will, as I mentioned before, progress you along the year as the year progresses. Ian and Jerry highlighted the effect of the excise tax that is ongoing, and we still need to get a feel on that. So consider this like an early take on the outlook. But there are several moving pieces, but this is what we have for now, what we've been working on. And of course, the team is very focused on achieving growth this year.

So Ian mentioned, Fair, our sustainable growth model, and we've been talking about this for the past few years. I highlighted performance in share that we are seeing positive performance in share across our territories. So our teams are striving to get -- to return to this path of growth in all of our operations. And I think this year, we certainly will be aiming to deliver slight volume growth across our territories.

This concludes the question-and-answer section. At this time, I would like to turn the floor back to Mr. Jorge for any closing remarks.

Well, just to thank everyone for your interest in Coca-Cola FEMSA and for joining us on today's call. As always, we are available to answer any remaining questions, and we look forward to meeting with you, hopefully, in person throughout the year. Thank you very much.

Thank you. This does conclude today's presentation. You may disconnect now, and have a nice day.