COMPREHENSIVE RISK MANAGEMENT

Our company is present in different countries and regions. Consequently, we are continually exposed to an environment that presents challenges and risks. Our ability to manage the risks that may arise in the global environment where we operate is vital for our business’ value creation. Accordingly, our strategy includes a Comprehensive Risk Management Process through which we are able to identify, measure, register, assess, prevent, and/or mitigate risks.

Main Risk Potential Impacts Key Mitigation Actions

Strategic Shareholder Relationships

Our business depends on our relationship with The Coca-Cola Company and FEMSA, and changes in this relationship may adversely affect us.

 Potential Impacts
  • Termination of the bottler agreements
  • Actions contrary to the interests of our shareholders other than The Coca-Cola Company and FEMSA
 Key Mitigation Actions
  • Comply with the bottler agreements
  • Work together and promote effective interaction between our strategic shareholders in order to maximize value creation
Main Risk

Consumer Preferences

Changes in consumer preferences, purchase drivers, and consumption habits might generate variability in the demand for some of our products.

 Potential Impacts
  • Variability in the demand for our products
 Key Mitigation Actions
  • Transform into a total beverage company aligned with consumers’ changing tastes and lifestyles
  • Build a winning total portfolio of products and presentations
  • Drive our low- and no-sugar portfolio ahead of consumer trends
  • Promote healthy habits
  • Offer sustainable packaging options for our beverages
Main Risk

Coca-Cola Trademarks

Coca-Cola’s brand reputation or brand violations could adversely affect our business.

 Potential Impacts
  • Damage to Coca-Cola’s trademark reputation
 Key Mitigation Actions
  • Maintain the reputation and intellectual property rights of Coca-Cola trademarks
  • Effective brand protection
  • Strictly comply with Responsible Marketing Policies
Main Risk

Competition

Competition could adversely affect our business, financial performance, and results of operations.

 Potential Impacts
  • Changes in consumer preferences
  • Lower pricing by competitors
 Key Mitigation Actions
  • Offer affordable prices, returnable packaging, effective promotions, access to retail outlets and sufficient shelf space, enhanced customer service, and innovative products
  • Identify, stimulate, and satisfy consumer preferences
Main Risk

Cyber Incidents

Since information systems are critical to our business, it may be impacted by the violation of security controls, affecting the confidentiality, integrity or availability of information assets.

 Potential Impacts
  • Business disruption
  • Theft or unauthorized exposure of sensitive information
  • Regulatory noncompliance
  • Fraud
  • Economic loss
  • Reputational damage and/or impact on share value
 Key Mitigation Actions
  • Systemic approach to cyber security based on industry standards
  • Cyber security-focused organizational structure
  • Oversight by the Board’s Audit Committee among other governance bodies
  • Risk management process supported by independent assessments
  • Personnel awareness and training program
  • Continuous investment to strengthen the security of existing processes and technologies
  • Security by design approach to business digital initiatives
  • Continuous improvement of monitoring incidents response and resilience capabilities
Main Risk

Economic, Political, and Social Conditions

Adverse economic conditions, political, and social events in the countries where we operate and elsewhere, and changes in governmental policies may adversely affect our business, financial condition, results of operations, and prospects.

 Potential Impacts
  • Affect and reduce consumer per capita income, which could result in decreased consumer purchasing power
  • Lower demand for our products, lower real pricing of our products or a shift to lower margin products
  • Negatively affect our company and materially affect our financial condition, results of operations, and prospects
 Key Mitigation Actions
  • Through a risk management strategy, hedge our exposure to interest rates, exchange rates, and raw material costs
  • Annually or more frequently evaluate, when the circumstances require, the possible financial effects of these conditions and, to the extent possible, anticipate mitigation measures
Main Risk

Regulations

Taxes and changes in regulations in the regions where we operate could adversely affect our business.

 Potential Impacts
  • Increase in operating and compliance costs
  • Restrictions imposed on our operations
 Key Mitigation Actions
  • Identify regulatory risks and proposals of changes to regulations that directly affect our operation or financial condition
  • Advocacy work to provide advice on legislators’ proposed regulatory changes
Main Risk

Legal Proceedings

Unfavorable outcomes of legal proceedings could adversely impact our business.

 Potential Impacts
  • Investigations and proceedings on tax, consumer protection, environmental, and labor matters
 Key Mitigation Actions
  • Comply with applicable laws and regulations and comply with workplace rights policy
Main Risk

Weather Conditions, Natural Disasters, and Public Health Crises

Adverse weather conditions, natural disasters, and public health crises may adversely affect our business, financial condition, results of operations, and prospects.

 Potential Impacts
  • Impact consumer patterns and beverage sales
  • Affect plants’ installed capacity, road infrastructure, and points of sale
  • Negatively affect our business, financial condition, results of operations, and prospects
 Key Mitigation Actions
  • Implement business continuity plans and safety protocols to protect employees and avoid significant disruptions to our business
  • Insure assets and operations against such adverse events
Main Risk

Acquisitions and Business Alliances

Inability to successfully integrate acquisitions or achieve expected synergies could adversely affect our operations.

 Potential Impacts
  • Difficulties and unforeseen liabilities or additional costs in restructuring and integrating operations
 Key Mitigation Actions
  • Integrate acquired or merged businesses’ operations in a timely and effective way, retaining key qualified and experienced professionals
Main Risk

Foreign Exchange

Depreciation of the local currencies of the countries where we operate relative to the U.S. dollar could adversely affect our financial condition and results.

 Potential Impacts
  • Financial loss
  • Increase cost of some raw materials
  • Adversely affect our results, financial condition, and cash flows in future periods
 Key Mitigation Actions
  • Closely monitor developments that may affect exchanges rates
  • Hedge our exposure to the U.S. dollar with respect to certain local currencies, our U.S. dollar-denominated debt obligations, and the purchase of certain U.S. dollar-denominated raw materials
Main Risk

Climate Change

Adverse weather conditions could adversely affect our business and results of operations.

 Potential Impacts
  • Negatively affect consumer patterns and reduce sales
  • Affect plants’ installed capacity, road infrastructure, raw material supply, and points of sale
 Key Mitigation Actions
  • Identify sources of our operations’ CO2 emissions
  • Support and comply with climate change mitigation measures
  • Identify and reduce our environmental footprint through efficient use of water, energy, and materials
Main Risk

Social Media

Negative or inaccurate information on social media could adversely affect our reputation.

 Potential Impacts
  • Damage to our brands or corporate reputation without affording us an opportunity for correction
 Key Mitigation Actions
  • Effective brand protection
  • Proactive external communication
Main Risk

Water

Water shortages or failure to maintain our current water concessions could adversely affect our business.

 Potential Impacts
  • Water supply may be insufficient to meet our future production needs
  • Water supply may be adversely affected due to shortages or changes in governmental regulations or environmental changes
  • Water concessions or contracts may be terminated or not renewed
 Key Mitigation Actions
  • Efficient water usage
  • Execute water conservation and replenishment projects
  • Maintain 100% legal compliance
  • Develop a water risk index, including four issues that need to be assessed: Community and public perception risks, Scarcity of water and other inputs, Regulatory risks, and Legal risks for each of our bottling plants
  • Update water risk assessment tool and work plans that contemplate aspects such as climate change, resilience to hydrological stress, media and social vulnerabilities, as well as regulations and production volumes for each of our bottling plants
  • Secure water concessions for our production facilities
Main Risk

Raw Materials

Increases in the price of raw materials we use to manufacture our products could adversely affect our production costs.

Insufficient availability of raw materials could limit the production of our beverages.

 Potential Impacts
  • Shortage or insufficient availability of raw materials may adversely affect our capacity to ensure production continuity
  • Adjustments to our product portfolio according to availability
 Key Mitigation Actions
  • Implement measures to mitigate the negative effect of product pricing on our margins such as hedging via derivative instruments
  • Proactively address risk of supply on our value chain
  • Strict compliance with our Supplier Guiding Principles
  • Strategically adjust our product portfolio to enable us to minimize the impact of certain operating disruptions