Welcome to our inaugural
Integrated Annual Report.

Our goal is to offer you a holistic view of our strategic vision, performance, and value creation by providing insight into the financial and non-financial key performance indicators that we use to execute our business strategy. Among our achievements, we accelerated our integrated transformation—focusing on our strategic pillars to consolidate our position as a diversified multi-category global beverages leader.

Integrated Transformation Strategy

Satisfying our consumers’ diverse lifestyles, we’re building a winning portfolio for each market, including a wider array of sparkling beverages, waters, teas, juices, sports and energy drinks, dairy and plant-based products. Capitalizing on brand Coca-Cola, we’re reigniting our sparkling beverage growth, rolling out affordable entry packs and returnable presentations at the right price points. Underscored by our launch of Coca-Cola Sin Azúcar, we’re reinforcing our non-caloric sparkling beverage portfolio.

We’re expanding aggressively in the rapidly growing dairy and plant-based nutrition category. With our partner The Coca-Cola Company and the Latin American Coca-Cola bottling system, we closed the acquisition of Unilever’s AdeS plant-based beverage business, offering consumers a growing mix of high-protein, low-fat, and cholesterol-free products. In Mexico, we completed a new Santa Clara plant to meet growing demand for our wholesome milk and value-added dairy products.

Driven by our Centers of Excellence’ commercial, manufacturing, distribution, and logistics initiatives, we are rapidly transforming our operating model. In 2017, our KOFmmercial Digital Platform (KDP) advanced from deployment to reality throughout Mexico, Brazil, Central America, and the Philippines, improving our point-of-sale execution, portfolio availability, and resource allocation.

Additionally, we deployed our Supply Chain Planning model across our plants, distribution centers, and primary distribution fleet in Mexico and Colombia. Simultaneously, we installed telemetry equipment on our entire Mexican secondary distribution fleet and enabled our delivery routes with our mobile delivery devices. We also began implementing Digital Distribution in Brazil. These initiatives saved US$9.1 million.

Moreover, rollout of our modular Manufacturing Management Model offers an integrated operational perspective, optimizing costs, driving efficiency, and raising productivity. Over the past three years, our manufacturing initiatives increased overall plant efficiency by over six percent—equal to US$250 million of production capacity or avoided CAPEX. We also generated hard manufacturing savings of US$145 million for this period.

We accelerated our cultural evolution, founded on the cornerstones of leadership, talent, and innovation. We’re improving our organization health—ranking among the Top 10 Fast Moving Consumer Goods companies; de-layering our organization to empower our operations; engaging in constructive dialogues with employees about their career paths; and developing new collaboration platforms to empower employees to offer ideas and help solve problems.

Furthermore, we ensure sustainability is fully embedded throughout our day-to-day business. Among our results, we used 21% of recycled materials in our PET packaging; covered 100% and 57% of our Brazilian and Mexican bottling operations’ power needs with clean energy; returned 100% of the water used to produce our beverages in Brazil, Central America, Colombia, and Mexico to the environment; and benefited over 1.6 million people through our healthy habits programs.

Integrated Transformation: Operating Highlights

Guided by our integrated strategy, we navigated a complex operating environment to deliver positive results this year. Our reported total sales volume increased 16.1% to 3.87 billion unit cases, with transactions outpacing volumes to reach 25.9 billion. Total revenues grew 14.7% to Ps. 203.8 billion. Operating income grew 9.4% to Ps. 26.2 billion. Operating cash flow grew 11.4% to Ps. 39.5 billion. As we changed the accounting method for our Venezuela operations, we reclassified a non-cash item from equity to our income statement. Consequently, on a comparable basis, earnings per share were Ps. 6.15—33.5% growth for the year.

Our first Integrated Annual Report designed to offer a holistic view of our strategic vision, performance, and value creation.

2017 was a story of transformation and turnaround. In Mexico, we built on last year’s growth through the deployment of our transformational initiatives. These initiatives, coupled with product innovation and affordability, enabled us to gain or maintain market share across our still and sparkling beverage categories. Our operation’s ability to withstand the effects of hurricanes and earthquakes—while supporting affected communities—merits our recognition.

Countering competition in Central America, we refocused and rebalanced our business to regain volume and transaction growth—positioning our operations for future revenue growth.

After a slow start in Brazil, we are encouraged by its turnaround highlighted by our affordability strategy that enabled us to grow volumes, regain market share in sparkling beverages —reaching a record high by year-end— and improve our profitability. On top of their successful integration of Vonpar—capturing synergies above expectations—our team won the Brazil Execution Cup 2017 for best overall execution among the country’s Coca-Cola bottlers.

In Colombia, we rolled out affordable returnable multi-serve presentations, maintaining our market share in a complex year. In Argentina, we enjoyed market share gains in our still beverage category, with non-caloric beverages reaching 30% of our mix. In Venezuela, our team embodied our values, passionately serving our consumers and strengthening our portfolio’s position in the market. Finally, in the Philippines, we built on last year, delivering comparable volume and operating cash flow growth.

Moving forward, we renew our focus on every facet of our business. Strategically, our priorities include: accelerating revenue growth; renewing sparkling beverage growth; increasing our still beverage business’ scale and profitability; expanding our dairy and plant-based nutrition platform; advancing our operating model transformation; enriching our accretive relationship with The Coca-Cola Company; and attracting, retaining, and developing the best multicultural talent.

On behalf of our employees, we thank you for your continued confidence in our ability to deliver economic, social, and environmental value for you all.

José Antonio Fernández Carbajal

Chairman of the Board

John Santa Maria Otazua

Chief Executive Officer