Coca-Cola FEMSA

A story of expansion and growth

Our remarkable expansion in recent years includes the acquisition of multiple franchises in new territories. We are a key strategic partner within the Coca-Cola System, with over 3.4 billion unit cases sold in 2015 through approximately 20.3 billion transactions. Our geographic footprint provides compelling opportunities for organic growth based on per capita consumption trends in most of our markets.

Our growth also reflects the expansion and diversification of our product portfolio to include new lines and categories, innovative packaging options and returnable and non-returnable presentations to ensure we meet an ever broadening range of consumer needs for every occasion and at multiple price points.

Thriving in a complex and evolving market

Our geographic footprint across ten countries provides us with the benefits of diversification. In 2015, for example, we saw a gradual recovery of consumption in Mexico, our largest market, and delivered solid results there, whereas our industry faced a number of headwinds elsewhere, including competitive pressures, changing consumer habits and significant depreciation among most Latin American currencies, putting pressure on our margins.

Thus a key effort in the year was to consolidate our leadership position and protect the profitability of our businesses. To do so, we leveraged the strength of our brand portfolio and took local pricing initiatives in all of our operations, extending our Magic Price Points strategy; mitigated currency pressures through our hedging strategy; focused extensively on point-of sale-execution as well as expanded cooler coverage to strengthen consumer engagement; and introduced portfolio innovations, including a greater focus on returnables, to satisfy the evolving needs of our consumers and to offer affordable alternatives.

While sparkling beverages still comprise the largest share of our sales volume, long-term growth trends indicate that still beverages, or Non-Carbonated Beverages (NCBs), will drive an increasing share of future growth in the industry, with consumption of dairy products specifically expected to grow at an attractive rate in Latin America. To further leverage this NCB opportunity, we are investing in our relevant joint ventures and redefining the potential of value-added dairy; one compelling example is the Santa Clara portfolio of high-end dairy products in Mexico that is growing at a double-digit pace.

Our efforts to transform challenges into opportunities and achieve long-term value can be exemplified by our franchises in Brazil and the Philippines.

In Brazil, despite difficult market conditions, we have consolidated our position as the country’s leading Coca-Cola bottler over the past three years, reaching close to 40% of the Coca-Cola System’s volume in that country.

We acquired two key bottling franchises, modernized the Jundiaí mega-plant—the world’s largest Coca-Cola bottling facility, opened a new mega-distribution center in São Paulo with voice picking and warehouse management systems, and in 2015 opened our state-of-the-art bottling plant in Itabirito, Brazil, built to LEED standards and already yielding considerable cost savings and productivity gains.

Along with our Magic Price Points strategy in Brazil for single-serve presentations of brand Coca-Cola, we launched smaller one-way PET presentations and expanded coverage of the 2-liter multi-serve returnable presentation for both Coke and Fanta. Consumers are embracing our comprehensive sparkling flavor strategy, including the recently introduced premium Schweppes Guarana brand, while in the non-carbonated beverage category, our Leao FUZE tea brand platform and segmented juice offerings are appealing to a broad range of consumers.

As a result of our portfolio strategy, strengthened supply chain, and point-of-sale execution we closed the year with historically high market share, and despite the sluggish economy, our Brazilian operation delivered improved margins for the year.

In the Philippines, we continued the profitable transformation of the franchise that marked our strategic expansion beyond Latin America just three years ago.

We streamlined the portfolio of predominantly returnable glass bottles, focusing on the fastest moving SKUs; launched Mismo, a popular 250- to 300-ml single-serve, one-way PET presentation for on-the-go consumption of brand Coca-Cola, Sprite, and Royal; and recently introduced Timeout, a taller, slimmer 8-ounce, single-serve, returnable glass presentation for brand Coca-Cola, offering a more competitive value proposition for our clients and consumers.

We are also achieving a more balanced route to market across the country with the rollout of our pre-sale platform, notably in high-density urban areas, and the deployment of a dedicated sales force for our wholesalers. Furthermore, we strengthened our supply chain, modernizing our production capacity, including the installation of four high-speed tri-block bottling lines in our Manila and Mindanao facilities, while gaining full control of distribution and logistics.

Our streamlined portfolio, more robust route to market and enhanced supply chain capabilities yielded positive results in the Philippines in 2015: our core sparkling beverage portfolio generated 7.0% growth in consumer transactions on top of 8.7% volume growth, while delivering profitable financial results for the year.

	Population served (million)	Total volume growth 2015 vs 2011 (increase in mm unit cases)	Total beverage consumption per capita (8oz presentation)
Mexico	71.9	418.1	596
Central America	21.9	23.5	188
Colombia	46.7	67.9	164
Venezuela	31	45.8	182
Brazil	72.1	208.3	231
Argentina	12.2	23.2	460
Philippines	101.8	-	123
Total	357.6	786.9	296

Non-carbonated beverages are expected to grow at an attractive rate

We are profitably transforming our franchise in the Philippines

Advancing our transformation process

We embarked on an intensive multi-year process in 2014 to create a leaner, more agile and flexible organization with the right set of skills to drive our competitiveness, enhance our innovation capabilities, accelerate our decision-making, and prepare for the next wave of growth through an efficient and effective management structure.

That transformation process continued in 2015, with the following highlights in the period:

• The development of the KOFmmercial Digital Platform, a flexible new platform that will drive a dramatic evolution of our commercial processes; for example, it addresses back office transformation, segmentation and sales force automation, and predictive analytics. The platform will be tested and rolled out in Mexico over the course of 2016 and deployed across all other markets thereafter.


• Manufacturing improvements and efficiencies, including the inauguration of state-of-the-art bottling plants in Tocancipa, Colombia and Itabirito, Brazil following investments of approximately US$250 million and US$258 million, respectively. We are implementing a new Manufacturing Management Model that centralizes plant maintenance planning and budgeting, including predictive or preventative maintenance, and allows us to map critical data from our production equipment and processes.


• Distribution improvements and efficiencies, such as capacity optimization through cross-docks and cross-trucks and the redesign of our secondary trucks to increase efficiency.
  

For the third consecutive year, Coca-Cola FEMSA was the only beverage company selected to comprise the Dow Jones Sustainability Emerging Markets Index and one of only nine beverage corporations in the Dow Jones Sustainability Index family.

Financial and operating performance

Reported total revenues increased 3.4% to Ps. 152.4 billion. Excluding the translation effects of exchange rate movements and the results from hyperinflationary economies, such as Venezuela, total revenues would have grown rose 8.6%. This primarily reflected average price per unit case growth across our operations and volume growth in Mexico, Colombia, Argentina and Central America. The comparable number of transactions rose slightly in the year to 20.3 billion, compared to 20.1 billion in 2014, with still beverages outpacing both the sparkling and water categories.

Reported gross profit grew 5.3% to Ps. 72.0 billion, with gross margin expansion of 90 basis points. This was due mainly to the benefit of lower sweetener and PET prices in local currencies in most of our territories, coupled with our currency hedging strategy that helped offset the effect of the devaluation of most of our operations currencies. Reported operating income increased 9.2% to Ps. 22.6 billion, with a margin expansion of 80 basis points to 14.9%.