• Constantino, how did you and your team progress on your five key priorities over the course of the year?

  This year, we successfully navigated an exceptionally challenging environment to emerge an even stronger company. Against this backdrop, we made significant progress on the five key priorities that we set when I assumed the CFO position a couple of years ago.

  
  

  1. Maintain our solid financial foundation to improve our return on invested capital (ROIC) – Aligned with our comprehensive management framework, we acted rapidly and efficiently to fortify our cash position, protect our cash flow and liquidity, reprioritize CAPEX across our operations, and aggressively target cost savings and efficiencies, while strengthening our balance sheet. This enabled us to finish the year with a very solid financial foundation to improve our ROIC year over year.

  
  

  2. Continue evolving our finance function to drive top- and bottom-line results and maximize shareholder value – This year, we proved ourselves to be a true partner to our broader business operations. Among our actions, we supported our operations by taking the lead in driving cost and expense containment; we acted quickly to tap the international al capital markets before, during, and after the pandemic hit; and we maintained our capital investment in priority projects. In this way, we worked to ensure operating continuity and product supply, expand our returnable portfolio, and accelerate the rollout of transformational initiatives—from our omnichannel strategy to our home delivery routes. We further increased our annual dividend, delivering on our commitment to maximize value for our shareholders.

  
  

  3. Guarantee that we will continue attracting and developing our talent base for our finance function – Aligned with our DNA, we continue to attract and develop our growing base of talent—infused with the right behaviors, attributes, and capabilities—across our operations’ diverse finance functions. Indeed, as part of our talent development platform, we continued to move and promote finance leaders around our organization, providing valuable opportunities for professional growth.

  
  

  4. Continue our approach of transparency, fair disclosure, and continuous communication with our stakeholders – This year, we doubled down on our engagement with the financial markets, investors, and analysts, proactively gathering feedback from and providing feedback to the market—always maintaining this essential two-way communication with our stakeholders.

  
  

  5. Finally, in my role as CFO, I continue to take important steps to support John and our senior leadership team on their journey of cultural transformation, reinforcing our DNA by taking an active role in the implementation of our multi-year Fuel for Growth program and other strategic initiatives that we established together as a team.

• Could you expand on the proactive actions taken to protect the company’s cash flow and liquidity—while strengthening the company’s balance sheet—in the face of the COVID-19 pandemic?

  Certainly, as part of our comprehensive management framework, we focused heavily on effective cash management and further strengthening our balance sheet. As I previously noted, we proactively tapped the market to successfully refinance debt and take on short-term credit to solidify our company’s cash position and protect our liquidity. Working hand in hand with our operators, we aggressively targeted savings, and we quickly reevaluated and prioritized CAPEX—ensuring investments in key projects across our operations.
  
  Importantly, our cash control towers enabled us to improve cash from operations by 12% year on year, driven by cost and expense controls, as well as disciplined working capital management. These towers or nerve centers utilize an iterative process to periodically update all of our forecasting and to provide clarity to every single operation on their financial needs on a rolling basis for a 13-week period. Over the coming year, we look to convert our cost and expense containment into reduction, while implementing our zero-based budgeting program.

• In light of those actions, how would you reflect on the company’s overall performance for the year?

  2020 underscored our company’s strength and resilience. Our robust business—coupled with our rapid deployment of market strategies and comeback plans—enabled us to navigate an extraordinarily challenging environment to deliver better than expected financial results, and most importantly, to continue to take significant steps towards our long-term strategic goals. To this end, we took tremendous strides to enable our overall digital transformation, ensure business sustainability, foster a collaborative organization, and reinforce our consumer-centric portfolio.
  
  Notably, our affordable and diverse portfolio, together with relentless point-of-sale execution, enabled us to gain market share across the non-alcoholic-ready-to-drink (NARTD) space in all of our key territories. This growth reflects our long-term strategic focus on winning during tough times while positioning our business to emerge even stronger during the recovery.
  
  Indeed, thanks to our efforts, our net-debt-to-EBITDA ratio closed the year at a healthy 1.1 times, while our cash position was more than Ps. 43.4 billion, underscoring our strong balance sheet and liquidity position moving forward.

• Could you expand on the company’s successful green bond issuance in the international capital markets?

  Consistent with our ongoing financial discipline and commitment to sustainability, we issued our first-ever green bond in the international capital markets on September 1, 2020. The successful public offering of US$705 million principal amount of notes due 2032 was priced at US Treasury + 120 basis points and a coupon of 1.85%.
  
  This transaction is the largest ever green bond for a Latin American corporation and received broad participation from investment-grade dedicated investors, confirming Coca-Cola FEMSA’s strong credit profile and ambitious sustainability agenda. We expect this bond will enable us to achieve our environmental targets in areas such as climate action, water stewardship, and a circular economy, while acting as an incentive to push even harder on the sustainability front.

• During the year, the company undertook other debt refinancing transactions. Could you briefly elaborate on this strategy and the company’s plans for additional debt refinancing?

  Consistent with our financial discipline, we completed our liability management strategies before COVID-19 became a global pandemic, reflecting our conservative profile and prudent approach to debt under all circumstances. During January and February 2020, we took advantage of favorable market conditions to complete debt-refinancing transactions in the U.S. dollar and Mexican peso debt markets by issuing an aggregate of US$1.5 billion.
  
  These transactions provide us with a very manageable debt maturity profile. Specifically, we extended the average life of our debt from seven to approximately nine years, while reducing our average interest rate. Moreover, we continued to adhere to our policy of a maximum of zero net debt exposure to U.S. dollars.
  
  Today, we enjoy a comfortable and conservative debt profile, with more than 80% of our debt maturing beyond 2025.

• Could you further update us on the company’s Fuel for Growth program and its savings?

  Our Fuel for Growth efficiency program, which we began to roll out in 2019, enabled us to not only face, but also emerge from the pandemic as an even leaner, more agile organization fully focused on our clients and consumers.
  
  Beyond delivering more than US$416 million in savings during 2020, this multi-year program is focused on a series of ambitious productivity and efficiency initiatives designed to strengthen our organization through new ways of working, eliminating redundancies, and leveraging digital enablers to streamline our cost base, while generating funds to support our strategic initiatives and reinvest in our business to fuel our top- and bottom-line growth.
  
  Among our initiatives, we look to implement our zero-based budgeting (ZBB) program over the coming year. Through ZBB, we aim to achieve more flexible budgets, focused operations, lower costs, and even more disciplined execution.

• Finally, could you briefly describe Coca-Cola FEMSA’s view on capital allocation, especially with respect to mergers and acquisitions going forward?

  At this point, we are well positioned financially and operationally to take selective advantage of any compelling inorganic business opportunities that may arise. We enjoy the benefits of not only a strong balance sheet, but also outstanding operational capabilities to smoothly integrate and extract synergies from newly acquired assets.
  
  With that in mind, we will leverage our disciplined approach to capital allocation as we evaluate inorganic opportunities for growth from both a strategic and value standpoint. Among our criteria, as exemplified by our recent transactions, we look to pay a correct valuation, including clearly identifiable synergies; to scale our business, while providing liquidity to our shareholders; to diversify our operations across geographies and currencies; and to expand our portfolio into promising beverage categories.

Our Fuel for Growth efficiency program enabled us to emerge from the pandemic as an even leaner, more agile organization fully focused on our clients and consumers.

• What would you say were Coca-Cola FEMSA’s main sustainability achievements during 2020?

  2020 was a very challenging year from both a societal and business context, impacted by one of the most severe pandemics in modern human history. At Coca-Cola FEMSA, we understand this, and we empathize with the families of those who have suffered and regretfully lost the battle against COVID-19.
  
  Because of the important role that we play to keep the economy moving and to hydrate and nourish the communities we have the privilege to serve, we were designated an “essential business,” a classification that we do not take lightly. Driven by our purpose to refresh the world, we carried on operating safely with our workforce—committed to always find the most efficient and sustainable way to put the drink of choice in our consumers’ hands anytime, anywhere.
  
  Under this business environment, we continued to focus on our sustainability strategy. As we concluded our 2020 Sustainability Framework, the year proved a successful story of key targets achieved; new ambitions set for years to come under our updated Framework; and important achievements. Notably, we became the first Mexican company to receive official approval from the Science Based Targets Initiative (SBTi) for our 2030 emissions reduction targets, aligned with a well-below 2ºC global temperature rise pathway. We further issued the Coca-Cola System’s first-ever green bond, currently the largest for a Latin American corporation.

• How would you describe Coca-Cola FEMSA’s increasing integration of sustainability, and its Framework, into the company’s business priorities?

  In 2020 we reached a milestone by completing our 2020 goals, and to give continuity to our strategy, we conducted a materiality analysis to ensure that our sustainability priorities are aligned with stakeholders’ expectations and what the business needs to thrive in the coming years. Through this analysis, we developed a new set of priorities that:

  
  

  • Helped Coca-Cola FEMSA to understand its position as part of an entire value chain

  • Position Coca-Cola FEMSA’s value chain within a society that has expectations to be met

  • Understand the role that both the company and society play in respecting environmental boundaries.

  
  

  As a result of this process, we identified a set of 45 material topics that, when viewed in its entirety, determined specific lines of action across Coca-Cola FEMSA’s value chain to ensure the sustainability of our business, business partners, and the communities in which we operate.
  
  We further kept the three axes that have guided us since the creation of our first sustainability strategy in 2013—Our People, Our Planet, and Our Communities. They are now invigorated with a new value chain approach, focusing on societal expectations, stakeholder engagement, and continuous efforts to care for the environment and, simultaneously, create economic and social value in collaboration with our stakeholders.

• What is Coca-Cola FEMSA’s strategic approach to water resource management?

  We are committed to the efficient use of this natural resource in our bottling operations and to returning to the environment and communities the same amount of water used in our beverages, while safeguarding it not only for us to use, but also for our communities to enjoy now and into the future. From 2010 through 2020, we significantly improved our water use ratio by an impressive 24% to reach 1.49 liters of water per liter of beverage produced, achieving our 2020 goal. Additionally, we currently give back to the environment more than 100% of the water we use in the production of our beverages in Brazil, Colombia, Mexico, Central America, and Argentina.
  
  Consistent with our commitment to water conservation, in collaboration with FEMSA Foundation, we carry out projects designed to improve communities’ quality of life by helping to provide them with safe water, improved sanitation, and hygiene education. We further work to strengthen water funds and conserve water basins through sustainable initiatives involving partnerships with several stakeholders.
  
  Building on our conservation efforts, this year we launched in Mexico the “Cauce Bajío” water fund in collaboration with the Latin American Water Funds Alliance, comprised of FEMSA Foundation, the Inter-American Development Bank (IDB), the Global Environment Facility, The Nature Conservancy, and the International Climate Initiative.

• What do you think is the role of Coca-Cola FEMSA in the face of climate change?

  First and foremost, we recognize that climate change is a real, imminent threat to the way that we are accustomed to live. With this in mind, we are convinced that a science-based, multi-stakeholder effort is required for humanity to address this urgent threat, and at Coca-Cola FEMSA, we are committed to doing our part.
  
  Speaking of commitments, we exceeded our 2020 target of using clean energy to supply 85% of our Mexican manufacturing operations’ power needs, satisfying 96% of these operations' electricity requirements with clean energy sources in December, 2020. Additionally, aligned with the call to action to limit global warming to well-below 2°C above pre-industrial levels, we are increasing our ambition to reduce emissions from the value chain, along with other commitments under Coca-Cola FEMSA’s Climate Change Strategy. Specifically, our new 2030 commitments (with a 2015 baseline) are to:

  
  

  • Reduce absolute GHG emissions from our operations (scopes 1 and 2) by 50%

  • Reduce absolute GHG emissions from the value chain (covering purchased goods and services and upstream transportation and distribution) by 20%

  • Achieve 100% renewable electricity in our operations.

  
  

  Importantly, when we talk about “absolute emissions,” we are decoupling business growth from GHG emissions, and actually acknowledging that no matter the size of the business in 2030, we will still make it less emissions intensive than 2015.

• What is Coca-Cola FEMSA’s strategic approach to proper waste management?

  We are convinced that the best way to tackle this challenge is through a collaborative multi-stakeholder, market-based approach to the circular economy, which requires each party responsible for waste generation to do their part. Consistent with this approach, we are doing everything possible to be part of the solution.
  
  Continuing our long-term commitment to collectively address the challenge of waste management and aligned with The Coca-Cola Company’s commitment to a “World Without Waste,” we can proudly say that, in the main markets in which we operate, collection and recycling mechanisms account for more than 50% of the PET bottles that we sell, putting us well on track to our 2030 goal of collecting 100% of the PET bottles we place in the market. While this is a challenging task, we are confident that, with the support and co-responsibility of all of the actors in the value chain, we will fulfill this goal. Importantly, we undertake this concerted effort in conjunction with our ongoing initiatives to lighten the weight of our packages, optimize the use of PET, and incorporate recycled content into our bottles.
  
  In 2020, we used an average of 29% recycled content in our plastic bottles, exceeding our 2020 goal of 25%; a goal that we aim to expand to include 50% of recycled materials in our PET packaging by 2030. We further advanced on our Zero Waste program, with two thirds of our 49 bottling facilities earning this certification.

• How did Coca-Cola FEMSA’s focus on community development, particularly in the face of the COVID-19 pandemic?

  Looking back, this aspect of our sustainability strategy required the greatest resilience and innovation. Instead of the community engagement and development initiatives planned for the year, we prioritized the safety and wellbeing of our employees, customers, consumers, and communities, while strengthening Coca-Cola FEMSA’s balance sheet and cash flow, under the comprehensive management framework that we swiftly implemented at the outset of the COVID-19 pandemic.
  
  As a leading beverage company, we have made our resources available to build on the actions of the communities where we operate. In solidarity with our communities and in collaboration with health professionals at the front line of the COVID-19 health emergency, we have offered our company’s support through the donation of over 3.8 million liters of beverages to medical centers and vulnerable communities, the communication of prevention measures, the expansion of hospital capacity, and the distribution of 1.9 million medical supplies.
  
  By prioritizing the health and safety of our employees and focusing on the needs of our customers, consumers, and communities, we reinforced Coca-Cola FEMSA’s commitment to delivering economic value, while generating social and environmental wellbeing.

financial
highlights

Despite the significant challenges posed by the COVID-19 pandemic, 2020 was a year of resilience and continuous transformation for Coca-Cola FEMSA. We addressed the pandemic with operating excellence and continued to move aggressively on all strategic and digital fronts.

Millions of Mexican pesos and U.S. dollars as of December 31, 2020 (except volume and per share data). Results under International Financial Reporting Standards.

1. U.S. dollar figures are converted from Mexican pesos using the exchange rate for Mexican pesos published by the U.S. Federal Reserve Board on December 31, 2020, which exchange rate was Ps. 19.89 to U.S.$1.00.

2. As of December 31, 2017, the Company changed the method for reporting Coca‑Cola FEMSA Venezuela to Fair Value. Due to this change, a recorded foreign currency translation charge in equity has been reclassified as a noncash one-time item to the other non-operative expenses line of the Income Statement in accordance with IFRS.

3. Based on 16,806.7 million outstanding ordinary shares as of December 31, 2020 and 2019.