2019 was a very positive year. We successfully navigated a challenging overall macroeconomic environment, and most importantly, we continued taking significant strategic steps towards our long-term goals. Additionally, we laid important foundations and achieved important milestones in our finance function.

When I assumed the CFO position at the beginning of year, I set five key priorities:

1. Maintain our solid financial foundation to improve our return on invested capital (ROIC) – To this end, we took important steps to prioritize ROIC as a key performance indicator (KPI) across our organization and renewed our commitment to a disciplined approach to leverage, capital allocation, working capital optimization, and profitability insights.
2. Continue evolving our finance function to drive top- and bottom-line results and maximize shareholder value – Our finance function is increasingly evolving into a partner to our broader business in order to drive results. In this way, we support our operations by delivering valuable insights for better and faster decision-making to maximize shareholder value, while ensuring compliance and transactional efficiency.
3. Guarantee that we will continue attracting and developing our talent base for our finance function – Together with Human Resources and aligned with our DNA, we continue to attract and develop the right talent across diverse finance functions across our operations.
4. Continue our approach of transparency, fair disclosure, and continuous communication with our stakeholders – Building on this commitment, this year we took important steps to gain a deeper understanding of our shareholders’ perception of the company; for us, it is key to gather feedback from the market and maintain this important two-way communication. Our shareholders’ insights are fundamental as we continue to plan and execute our strategies.
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 design and implementation of our Fuel for Growth strategy that enables us to leverage new ways of working.

During 2019, we capitalized on our operational excellence, portfolio initiatives, digital transformation, and Fuel for Growth strategy. First, we enhanced our operational excellence led by our efforts across our operations to continue improving our point-of-sale execution and expanding our cooler coverage. Second, we carried on revamping our portfolio across categories, while rolling out affordability initiatives to not only accelerate growth, but also improve our competitiveness to gain market share across key markets and beverage categories. Third, we continued to take steps on our digital transformation, incorporating big data analytics and artificial intelligence and advancing our omnichannel commercial capabilities. Moreover, our digital distribution and supply chain initiatives enabled us to become more efficient while improving our service levels.

Finally, we started the rollout of our Fuel for Growth strategy—a set of ambitious productivity and efficiency initiatives designed to create an even leaner, more agile organization fully focused on our consumers. These initiatives focus on strengthening 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.

Mexico, our largest operation, achieved positive results in the face of a resilient, but challenging consumer environment. Despite market uncertainty, we delivered top-line growth, increasing our 2.5-liter and 3-liter returnable presentations’ coverage, while launching our affordable 235-ml returnable glass bottle at 5 pesos to incentivize our single-serve mix. Importantly, a more stable raw material environment, coupled with our Mexico team’s ability to generate significant savings, enabled us to stabilize and improve our profitability during the year.

Our Central America operations’ positive performance was driven mainly by our Guatemala operation’s high single-digit volume growth. In Guatemala, we expanded our portfolio. In Costa Rica, we took successful measures to reduce our cost to serve, while we worked to strengthen our retail relationships in Panama. Finally, in Nicaragua, we adapted to a challenging market environment by connecting with our consumers through our cola, affordability, and returnable strategies.

Moving onto South America, Brazil, our second largest operation, achieved high single-digit volume growth, while gaining share across beverage categories. Our Brazilian operation’s volume growth was driven by our affordability initiatives, revamped portfolio, and strong point-of-sale execution. In the face of a challenging year, our Colombia operation delivered better-than-expected volumes. During 2019, we restructured our portfolio and our business to successfully turnaround our Colombia operation. In Argentina, we adapted our portfolio to navigate an exceptionally challenging environment, and thanks to our amazing teamwork, we achieved cost and expense controls in order to protect our profitability. Finally, we seamlessly and successfully integrated our promising Uruguay operation, capturing important synergies.

Our acquisitions in Uruguay and Guatemala are success stories. We smoothly and successfully integrated these territories, and we achieved better-than-expected synergies of more than US$25 million for the year—from best practices to cost and expense efficiencies on both the supply chain and manufacturing fronts. Importantly, we successfully deployed our DNA, working seamlessly to integrate our culture while establishing management teams that combine talent from our new and existing operations. In Uruguay, we are significantly improving our competitive position across key categories, marked by market share gains in flavored sparkling beverages. Moreover, in Guatemala, we are standardizing our portfolio while improving our competitive position.

Through Finance 4 Growth, we are implementing a vision to support our front-line operations. Overall, our ambition is to serve as a business partner to our operations by delivering valuable insights for better and faster decision-making to maximize shareholder value, while ensuring compliance and transactional efficiency.

In order to enable our finance teams to partner with our broader organization to drive sustainable, profitable business growth, we are implementing a vision that will allow us to:

• Act as business advisor and integrator of our total business view
• Provide valuable insights, proactively and robustly manage challenges, and support our commercial decision-making
• Take ownership for and actively manage our company’s financial value drivers.

With this in mind, our KOF Financial Services team is in charge of applying new digital technologies and skills to continually improve our Finance Operating Model.

This year, we completed an important financial milestone. We concluded an eight-for-one stock split, the issuance of new Series B shares with full voting rights, and the listing of Series B and Series L shares in the form of units. Each new unit is comprised of 3 Series B shares and 5 Series L shares. This action enables our company to increase its capacity to issue new equity, which may be used as consideration in future share-based acquisitions, as well as for general corporate purposes. Moving forward, we feel confident that the listing of Series L shares and Series B shares in the form of units will help unlock value for our shareholders and position our company for new growth opportunities.

Importantly, and underscoring our solid financial position, which allows us to return excess cash to our shareholders without compromising our flexibility to pursue future acquisition opportunities, our Board of Directors is proposing to our Annual Shareholders Meeting an ordinary dividend of Ps. 4.86 per unit, an increase of 37% versus the previous year dividend.

Consistent with our mandate to deleverage our company’s balance sheet, we continued to repay debt to strengthen our company’s financial position. Importantly, we set the foundations to take advantage of favorable market conditions in the U.S. dollar and Mexican peso debt markets. As a result, in January 2020, we successful priced a historic public offering of US$1.25 billion principal amount of senior notes due 2030. The notes priced at US Treasury + 100 basis points and a coupon of 2.750%—the lowest spread, yield, and coupon in history for a Latin American corporate debt offering.

In addition, on February 6, 2020, we successfully placed two tranches of Mexican peso-denominated bonds in the Mexican market for a total aggregate amount of Ps. 4,727 million. The first tranche is for an aggregate amount of Ps. 3,000 for 8 years bearing an annual fixed interest rate of 7.35%, and the second tranche is for an aggregate amount of Ps. 1,727 million for 5.5 years bearing a variable interest rate of TIIE + 0.08%. This transaction received broad participation from investment-grade investors, confirming our company’s financial discipline and strong credit profile.

We intend to use the net proceeds from our sale of the 2030 notes to fully redeem our company’s 3.875% senior notes due 2023, and the remainder for general corporate purposes. This will enable us to increase the average life of our debt from 6.8 years to 8.3 years.

We are encouraged by the opportunities ahead. More than ever, we are one unified company, with our foundation for future success guided by one vision, one platform, and one future. To strengthen our P&L and maximize our ROIC, we look to take advantage of key levers to improve our business performance and profitability, including opportunities for sales growth and margin expansion, affordability initiatives, and strategic capital investments. Furthermore, we will continue executing our Fuel for Growth strategy to achieve efficiencies in our cost base, reinvent our supply chain, maximize our return on investment, and develop fit-for-purpose route-to-market models to improve our company’s profitability.

During 2019, we made good progress on our sustainability strategy aligned with Coca-Cola FEMSA´s strategic framework. As you may know, our 2020 goal is to supply 85% of Mexico’s manufacturing operations energy requirements with clean energy. For the year, we achieved significant progress towards this goal, using clean energy to cover 69% of those manufacturing plants’ energy needs, and we are confident that we will achieve our goal by the end of 2020. Moreover, we increased the use of clean energy for our bottling plants in Panama, Colombia, Brazil, Argentina, Guatemala, and Costa Rica, accomplishing 70.7% coverage of our company’s total manufacturing operations’ power needs through clean sources of energy.

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 our commitment through a market-based approach to the circular economy. Of course, 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 2019, we used an average of 23.7% recycled content in our plastic bottles, putting us on the right path to accomplish our 2020 goal of 25%; a goal that we aim to expand to include 50% of recycled materials in our PET packaging by 2030.

To address the threat of climate change, we strongly support the adoption of a science-based approach that is aligned with the goal of the Paris Agreement to limit a global temperature rise to well below 2ºC. Consequently, during 2019, we embarked on the Science Based Targets initiative (SBTi), a collaboration between CDP (formerly the Carbon Disclosure Project), World Resources Institute (WRI), the UN Global Compact, and the World Wide Fund for Nature (WWF). This company-wide effort is designed to measure and account for the carbon footprint of Coca-Cola FEMSA’s value chain, with the eventual goal of adopting a science-based target for emissions reduction that reflects our commitment to a low carbon economy.

At Coca-Cola FEMSA, we integrate sustainability into our day-to-day operations as a key driver of business decisions. This enables us to guarantee our company’s long-term development and continuity, foster the wellbeing of communities, and take care of the environment, fulfilling our mission to simultaneously generate economic and social value in collaboration with our stakeholders. We view sustainability as an enabler of our company’s business growth; thus, virtually all organizational decisions and actions, regardless of their origin, consider sustainability implications—from the selection of a particular supplier to the investment in eco-efficient infrastructure improvements, the expansion of our product portfolio to satisfy every consumer lifestyle, and our community investment. Ultimately, we understand that we share one vision, one platform, one future, and work for one Coca-Cola FEMSA.

We obsessively focus on satisfying our customers and consumers. Accordingly, transparency, fact-based information, and a high sense of responsibility form the guiding principles for our marketing practices. Given our company’s position in Latin America, our nutritional labeling recognizes that each population is different, with its own needs and habits; therefore, we fully endorse and comply with each country’s existing legal framework. When regulatory changes arise, we are always willing to take a proactive role in such changes, providing our expertise and quality information in order to ensure that our consumers receive high-quality information. Additionally, our production processes fulfill the highest quality standards, and our ingredients comply with each of our operations’ local regulations and high internal Coca-Cola standards.

Water is a key resource for our communities and our operations; therefore, we are committed to the efficient use of this natural resource in our bottling operations—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 2019, we significantly improved our water use ratio by an impressive 22% to reach 1.52 liters of water per liter of beverage produced, representing savings of more than 10.5 billion liters of this vital resource compared to our 2010 baseline. Importantly, 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. Through the Latin American Water Funds Alliance—comprised of the Nature Conservancy, FEMSA Foundation, the Inter-American Development Bank (IDB), and the Global Environment Facility—we jointly seek to offer hydrological safety in the region, ensuring sustainable access to a sufficient quantity and quality of water to sustain human life and socioeconomic development.development.

To create a community relations vision that we can put it into practice in a standardized and systematic manner, we developed a management model that includes five sequential steps, which are the foundation of our Model for Addressing Risks and Relations with the Community (MARRCO). Based on MARRCO, our work centers are designing a community engagement plan to immediately implement a series of measures, including mitigation activities to reduce our operational footprint and community programs aligned with local needs and risks. In turn, this will help us to not only ensure our positive coexistence and our business’ permanence at those locations, but also reaffirm our social license to operate.

2019 continued a trend of complex social and economic challenges in Latin America, triggered by political complexity and hyperinflation in Argentina. At Coca-Cola FEMSA, we have full confidence in the region in which we have grown for more than 25 years. Underscoring our commitment to the region, we are firmly committed to serve our markets with excellence and to grow our operations. Guided by a clear sustainability vision, we are prepared better than ever to face these challenging environments, powered by our drive to innovate, a winning product portfolio, superior point-of-sale execution, an unparalleled distribution network, unmatched cold drink equipment placement, and digital commercial capabilities.