INTERVIEW WITH
OUR CFO

Constantino Spas, our company’s Chief Financial Officer, reflects on our company’s ability to navigate a dynamic market environment and deliver accelerated results across all of our strategic fronts. He discusses the strategic importance of our enhanced cooperation framework with The Coca‑Cola Company, redesigned distribution partnership with Heineken, approach to value-enhancing acquisitions, first ever sustainability-linked bonds in the Mexican market, and disciplined capital allocation.

Constantino Spas
Chief Financial Officer

Q) Constantino, how would you reflect on the company’s performance for the year?
A)

This year, we successfully navigated a dynamic market environment to deliver accelerated results across all of our strategic fronts. We strengthened key longstanding partnerships, accelerated the build out of our customer-centric B2B and D2C omnichannel commercial platforms, achieved key milestones in our sustainable development, capitalized on value-enhancing acquisition opportunities, and emerged even stronger from the pandemic—closing the year with escalating momentum by delivering solid top- and bottom-line growth, coupled with share gains across our territories.

Thanks to our consistent strategic execution, we achieved consolidated volume growth of 5.3% year over year, improving 2.6% compared to our 2019 baseline. Consolidated revenues rose 6.1%, surpassing our 2019 baseline, and operating income grew 8.6%, increasing 7.8% compared with 2019. This enabled us to finish the year with a very solid financial foundation while continuing to improve our return on invested capital (ROIC). We further increased our annual dividend, delivering on our commitment to our shareholders.

Perhaps most importantly, based on our enhanced cooperation framework with The Coca-Cola Company, we’re reshaping our company to thrive in the new global business environment. Aligned with our purpose to refresh the world anytime, anywhere, we are working seamlessly and collaboratively across six strategic corridors: Build out an Open Omnichannel Platform; Develop a Consumer-Centric Winning Portfolio; Foster an Agile, Digital Savvy, and People-Centric Culture; Place Sustainability at the Heart of our Organization; Digitize the Core; and Actively pursue Value-Enhancing Acquisitions.
Q) Given its strategic importance, could you elaborate further on the company’s enhanced cooperation framework with The Coca-Cola Company?
A)

Our enhanced cooperation framework is great news for both of our companies. It further strengthens our relationship, ensuring long-term alignment and certainty, positioning us to accelerate further towards our shared purpose of refreshing the world. Specifically, this enhancement will ensure long-term alignment in the following key areas:

1) Growth plans. We have agreed to build and align long-term strategies and business plans to ensure coordinated execution. These growth plans aim to increase our operating income via top-line growth, volume expansion, cost and expense efficiencies, and the implementation of marketing and commercial strategies and productivity programs.

2) Relationship economics. We have agreed to ensure that the economics of our business and management incentives are fully aligned towards long-term system value creation, always considering investment and profitability levels that are beneficial to both The Coca-Cola Company and Coca-Cola FEMSA.

3) Potential new businesses and ventures. As the system continues to evolve, we agree to explore potential new businesses and ventures, such as the distribution of beer, spirits, and other consumer goods. Indeed, we’ve already rolled out pilot programs to test the distribution of complementary categories in certain markets—thereby working together to improve distribution economics and open new revenue streams by providing other CPG brands access to our deep customer relationships and robust distribution network.

4) Lastly, through a joint general framework for digital initiatives, we acknowledge the great opportunity to develop a joint digital strategy across strategic corridors.

Crucially, through our enhanced cooperation framework, we have not only renewed and reinforced our successful longstanding relationship with The Coca-Cola Company—which remains one of our key strengths—but also empowered our business’s re-evolution.
This year, we successfully navigated a dynamic market environment to deliver accelerated results across all of our strategic fronts.
We furthered capitalized on an excellent opportunity to complement our portfolio by acquiring Brazilian craft beer brand Therezópolis.
Q) Could you brief us on the company’s redesigned distribution partnership with Heineken, as well as the company’s steps to further complement its beer portfolio in Brazil?
A)

As part of our key strategic priorities, together with the Coca-Cola System, we successfully redesigned our distribution partnership with Heineken. This represents a win-win for the Coca-Cola System, Heineken, and most importantly, our customers and consumers in Brazil, who will benefit from a wider array of options.

In particular, this agreement allows our company to:

  • Strengthen our beer portfolio with solid premium, mainstream, and economy brands from Heineken’s portfolio.
  • Align our interests and provide flexibility: The Coca-Cola System will be able to produce and distribute other beers and alcoholic beverages, subject to certain mutually agreed upon terms.
  • Capture distribution synergies within the system, allowing for stronger economics.

As part of this new agreement—which became effective mid-2021—we completed the transition of the Heineken and Amstel brands to Heineken Brazil’s distribution network. We also leveraged our continuing relationship with Heineken as a key partner to complement our existing beer portfolio, including the Kaiser, Bavaria, and Sol brands, with Eisenbahn, a premium brand, and Tiger, a pure malt mainstream brand, from Heineken’s portfolio. We furthered capitalized on an excellent opportunity to complement our portfolio by acquiring Brazilian craft beer brand Therezópolis, together with Coca-Cola Andina, and by entering into a distribution agreement with leading Spanish brewer Estrella Galicia, together with the Coca-Cola System in Brazil.

Moving forward, the redesign of this successful distribution partnership with Heineken and, more importantly, the realignment of incentives, combined with our capabilities to develop the market, make us confident that we will continue growing and developing the beer category as we have successfully done in the past—building a solid portfolio of premium, mainstream, and value brands.
Q) Could you also expand on the company’s strategic approach to value-enhancing acquisitions, particularly in light of its two recent acquisitions in Brazil?
A)

Aligned with our strategy, we are not only exploring global opportunities to shape our company’s non-alcoholic ready-to-drink (NARTD) footprint of the future, but also prioritizing adjacent categories and capabilities that enhance our value proposition and foster our multi-category portfolio expansion, reaching customers and consumers across multiple channels with a wide array of products and services.

As exemplified by our two recent acquisitions, any future investment must be completely aligned with our vision and strategy, be value accretive for our shareholders, and be consistent with our extremely disciplined approach to capital allocation.

With these criteria in mind, we recently closed our acquisition of CVI, a Coca-Cola franchise bottler with operations in southern Brazil. This bolt-on acquisition bolsters our leadership position in the region—to reach 52% of the Coca-Cola System’s volume in Brazil—adding to our operation one bottling facility and three distribution centers that serve more than 13 thousand points of sale and more than 2.8 million consumers in a territory that is full of synergies and market opportunities. We also acquired Brazilian craft beer brand Therezópolis, together with Coca-Cola Andina. Marking our first ever acquisition of a beer brand, this acquisition advances our long-term strategy to complement our beer portfolio in the region.
Q) Could you briefly discuss the proactive initiatives taken to strengthen the company’s balance sheet and financial position in what was still a very dynamic environment?
A)

Consistent with our financial discipline, we continued to take advantage of favorable capital market conditions with our issuance of the first ever sustainability-linked bonds in the Mexican market.

Through this milestone transaction, we further extended the average life of our debt from 7 to approximately 9 years, while reducing our average interest expense. We also continued to adhere to our policy of zero net debt exposure to U.S. dollars.

Today, we enjoy a comfortable and conservative debt profile, with more than 85% of our debt maturing beyond 2025.
Q) In light of its strategic significance, could you elaborate further on the company’s issuance of the first ever sustainability-linked bonds in the Mexican market?
A)

Certainly, consistent with our financial discipline, strong credit profile, and commitment to sustainability, we issued the first ever sustainability-linked bonds in the Mexican market for Ps. $9.4 billion. These bonds were priced in two tranches: (i) Ps. 6.9 billion at a fixed rate of 7.36% due in 7 years, and (ii) Ps. 2.4 billion at a variable rate of TIIE + 5 basis points due in five years. This transaction received broad participation from investment-grade dedicated investors, confirming Coca-Cola FEMSA’s financial strength and position as a sustainable financing leader.

As part of this transaction—and aligned with our commitment to place sustainability at the heart of our organization—we are publicly committed to achieve a water use ratio of 1.36 liters of water used per liter of beverage produced by 2024, and a water use ratio of 1.26 by 2026. Today, our water use ratio is 1.47 liters, a benchmark of water efficiency for the Coca-Cola System.

Building on last year’s issuance of what was the largest ever green bond for a Latin American corporation, we are very proud to continue making history in terms of our sustainable financing, and we are confident that these efforts will not only have a positive environmental impact, but also bolster the commitment to sustainability across our industry.
Q) Finally, could you briefly review Coca-Cola FEMSA’s disciplined approach to capital allocation?
A)

At this point, we are well positioned financially and operationally to take advantage of any compelling inorganic growth opportunities that may arise. As of December 31, 2021, our net debt-to-EBITDA ratio closed below 1.0 time, compared to 1.13 times at the end of 2020, and we finished the year with a cash position of more than Ps. 47 billion.

With that in mind, we will leverage our disciplined approach to capital allocation as we evaluate inorganic growth opportunities from both a strategic and value standpoint. Aligned with a clear framework for value-enhancing acquisitions—as exemplified by our recent Brazilian transactions—we look to pay a correct valuation, including clearly identifiable synergies; to create value for our shareholders; to diversify our operations across geographies, categories, and currencies; and to expand our multi-category portfolio, prioritizing promising adjacent categories and capabilities for expansion.

With regards to CAPEX, we will continue to take a very disciplined approach to capital allocation, using our cash control tower methodology to ensure that we maintain solid cash flow generation. Guided by a CAPEX-to-revenue ratio of from 7% to 8%, we expect that these investments will primarily focus on strengthening our infrastructure—especially our affordability capacity—and investing behind assets that increase our market presence in order to ensure our long-term growth and re-evolution.
We are very proud to continue making history in sustainable financing as exemplified by our issuance of the first ever sustainability-linked bonds in the Mexican market.