Coca-Cola Femsa SAB de CV

NYSE:KOF

Earnings Call Transcript 2022-Q2

[Operator]

Good morning everyone, and welcome to Coca-Cola FEMSA's Second Quarter 2022 Conference Call. As a reminder, today's conference is being recorded and all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions-and-answers after the presentation.

During this conference call, management may discuss certain forward-looking statements concerning Coca-Cola FEMSA's future performance and should be considered as good faith estimates made by the company.

These forward-looking statements reflect management's expectations and are based on current available data. Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance.

At this time, I would now like to turn the conference over to Jorge Collazo, Coca-Cola Femsa’s Investor Relations Director. Please go ahead.

[Jorge Collazo, Head-Investor Relations]

Good morning, everyone. Thank for joining us today to discuss our second quarter 2022 results. Our earnings release was published yesterday and is available in the Investor Relations section of our website.

Joining us today is Constantino Spas, our Chief Financial Officer who will conduct today’s call. Due to a conferencing agenda John Santa Maria, our Chief Executive Officer will not be able to join us today. We look forward to having him back for our third quarter earnings call next October. As usual, following prepared remarks, we will open the call up to take your questions.

With that, I’ll hand the call over to Constantino.

[Constantino Spas, Chief Financial Officer]

Good morning, everyone. We thank you for joining us today. Let me begin by saying that we are very pleased to report a solid set of second quarter results. We continue building on our positive momentum with strong volume performance across our territories. This solid volume growth, coupled with our pricing initiatives and mix recovery resulted in an impressive 19.9% top-line growth, while our operating cash flow increased by 6%.

Additionally, when adjusting for the extraordinary one-time effects we recognized in 2021 related to tax credits in Brazil, our operating cash flow margin remained virtually flat. This reflects the resilience of our company and our team’s outstanding ability to substantially mitigate margin pressures in the phase of increasing input cost inflation.

As we will discuss, during the quarter, we continue to executing against our key strategic initiatives. We continue accelerating the rollout of our omni-channel digital platform and developing a consumer-centric winning portfolio, specially focused on innovation and affordability. Together with the Coca-Cola Company, we continue executing against ambitious growth plans bolstering execution and investments across our markets.

Aligned with our vision, we continue exploring complementary revenue streams as exemplified by our recently announced distribution agreement with Grupo Perfetti Van Melle in Brazil, one of the world’s largest manufacturers of confectionery and chewing gum.

Now I will switch gears to a review of our consolidated results. With our acquisition of CVI in Brazil, included in our results as of February 2022, I will refer to certain figures as comparable, which in the year-on-year comparison excluding M&A and currency translation effects.

Our consolidated volumes for the quarter increased 11.9% year-on-year and 11% on a comparable basis. The growth was driven mainly by double-digit volume growth in Brazil, Argentina, Colombia, Guatemala and most of our territories in Central America. This growth was also driven by our operations, strong performance in Mexico and Uruguay.

Once again, all of our categories posted accelerated volume growth as compared with the previous year. Our core sparkling beverage category grew 9%, driven by 8.5% growth in Brand Coca-Cola and 10.9% growth in flavors. Our still and personal water beverage categories grew 26% and 44% respectively growing in all of our categories as compared with the previous year.

It’s important to highlight that these numbers represent growth-over-growth achieved last year. This is evident when comparing against the second quarter of 2019 with consolidated comparable volume increasing 12.4%. By channel, we continue to see strong recovery in the on-premise.

To give you a sense, in Mexico, we saw growth in all of our channels underscored by double-digit growth in both the on-premise and modern trade channels with resilient performance in the traditional trade. In Brazil, the on-premise and traditional trade primarily drove our channel growth outperforming supermarkets.

Importantly, despite inflationary pressures on consumers across our markets, our affordability and mix initiatives continued to drive single-served mix growth. Year-to-date, our single served mix in Mexico have increased 1.8 percentage points, reaching 29.8%.

In Brazil, we are on track to reach 24% single served mix this year reaching and matching our 2019 baseline. This is almost 3 percentage points more than 2021. On a consolidated basis, our single served mix has increased 2.1 percentage points to reach 31%.

Our affordability capabilities, we believe are second for none. We have a deep base of returnable presentations in our affordability initiatives that allow us to provide our consumers with our unparalleled level of choice.

Additionally, we continue accelerating the roll outs of our universal returnable model to boost affordability and strengthen our revenue growth management capabilities. Our 2.5 liter bottle is now present in more than 85% of our territory in Mexico and we also have expanded our 500 ML returnable glass option to more than 40% of the territory and this continues to grow.

Another important growth engine is innovation. We are very excited about the Coca-Cola Company’s innovation pipeline. For example, we launched limited editions from Coca-Cola Creations in key markets such as the gaming inspired Coca-Cola Bites and we are now launching the new Grammy nominated artist on Coca-Cola Marshmallow, both of which include zero sugar options and are new ways of generating consumer engagements.

Also during the quarter, the Coca-Cola Company announced plans to debut a Jack Daniel’s and Coca-Cola Ready to Drink Cocktail, which will be launched in Mexico in late 2022. Importantly, the new visual identity and formula of Coca-Cola zero sugar continues growing across all of our territories. For example, in Mexico, during the first half of the year, it achieved 26% growth, while in Brazil, it achieved 20% growth and now represents approximately 10% of the Coca-Cola brand volume mix in that country.

On our consolidated total revenue growth, we accelerated, increasing 19.9% and 16.4% on a comparable basis. This growth was driven by our solid volume performance, coupled with our pricing initiatives, revenue growth management and favorable currency translation effects. Notably, we achieved solid top-line performance despite the decline in beer revenues, resulting from the transition of Heineken’s beer portfolio in Brazil.

Our gross profit increased 12% and our gross margin contracted 310 basis points. However, we are to normalize the effect of extraordinary one-time income we recognized during the second quarter of 2021 our gross margin would have contracted by 80 basis points. Our pricing initiatives, revenue growth management and favorable raw material hedging strategies partially mitigated high raw material costs, mostly from PET and sweetener costs across our territories.

Our operating income increased 5.6% year-on-year leading to an operating margin contraction of 180 basis points. But again, by normalizing the previously mentioned one-time effects, our operating income margin would have expanded by 60 basis points reflecting our ability to achieve expense efficiencies across our operations. On a comparable basis, excluding M&A and currency translation effects, our operating income increased 1.8%.

Finally, our operating cash flow for the quarter increased 6% year-over-year resulting in a operating cash flow margin of 18.5%.

Moving on, our comprehensive financial results recorded a decrease of 56.6% as compared with the previous year. In accordance with IFRS 9, as of the second quarter, we are recognizing the hedging gain or loss on the debt instruments that are being hedged using interest rate derivatives. As a result, we are now recording a one-off gain in market value – gain or loss in financial instruments of 653 million pesos corresponding to the first value – to the first quarter of 2022, sorry, and offsetting the loss recognized in the previous quarter.

Including this effect, for the second quarter of 2022, we are reporting a gain of 355 million pesos in market value and financial instruments. Additionally, our comprehensive financial results recorded a foreign exchange gain of 80 million pesos and a decline in our interest expense net, driven mainly by an increase in interest income.

Mainly the result of these effects to our comprehensive financial results are, controlling net income, increase a solid 39.5% to reach 4.6 billion Mexican pesos during the second quarter.

I will now expand on our divisions’ results. In Mexico, our volume growth accelerated increasing 7.2%, while our total revenues increased 13.1%. This was driven by solid performance across channels, coupled with the pricing initiatives and revenue growth management capabilities.

In Central America, our operations continued to deliver a strong performance with 15.7% volume growth and 18% revenue growth, compared with the second quarter of 2021. Guatemala, Costa Rica, Nicaragua achieved double-digit volume growth during the quarter. As a result, our quarterly revenues in the division increased a solid 13.9%.

On the profitability front, our gross profit increased 8.7%, which resulted in a gross profit margin of 47.8%. This represents a margin decrease of 230 basis points, as compared to the previous year. Our raw material hedging strategy has partially mitigated this contraction, driven by relevant raw material inflation, mainly from PET and sweeteners and higher concentrate costs in Mexico.

As part of our mutually beneficial relationship with the Coca-Cola Company, an increase in concentrate cost for sparking beverages in Mexico became effective this month of July. This increase is not only in line with previous adjustments as we did in previous years. We expect to offset this effect with revenue growth management initiatives and efficiencies.

Together with the Coca-Cola Company, we will continue to invest behind the market to continue driving growth. As was the case, during the first quarter, our focus on savings and efficiencies enabled us to mitigate the effect of higher freight and labor costs. As a result, our operating income in the division increased 11.6%.

Our resilient operating income margin of 16.6% reflected a 40 basis point contraction in the Mexico and Central American region. Our operating cash flow margin for the quarter was 21.9% representing a slight contraction of 60 basis points. This margin resilience was achieved in the phase of an increasingly complex inflationary environment.

Now moving on to South America. We once again achieved solid double-digit volume growth. Our volumes increased 18.4% as compared to the same period of 2021. This was driven mainly by 15.6% growth in Brazil, which includes the consolidation of CVI, 25% growth in both Argentina and Colombia, while Uruguay delivered high-single-digit growth.

On a comparable basis, excluding CVI in Brazil, volume in the division increased a solid 15.9%. Our revenue growth management capabilities, the affordability of our portfolio and a favorable translation effect of the Brazilian real into Mexican peso enabled us to increase our revenues in the division by 30.3%. This growth was achieved despite the decline in beer revenues resulting from the transition of our beer portfolio in Brazil.

If we exclude currency translation and M&A effects, our top-line would have increased 20% during the quarter. On the profitability front, our gross profit in South America increased 18.8%, while our gross margin contracted 370 basis points. However, excluding the effect of the extraordinary one-time recognition of tax effects in Brazil, our gross margin would have expanded, reflecting the positive effect of volume growth, favorable price mix effects and raw material hedging strategies.

Finally, in the phase of the challenging comparison base, that includes the previously described one-time effects, our operating income for the division decreased 9%, mainly driven by higher freight and labor costs. Finally, our operating cash flow decreased 3.5% for the quarter.

As John described during the previous earnings call, we have renewed our strategy under a new concept that we call Reevolution. This is based on six strategic corridors, building an omni-channel multi-category platform – commercial platform, developing a consumer-centric winning portfolio, faster and agile digital savvy and people-centric culture, place sustainability at the heart of our organization, digitize our core and actively pursue value-enhancing acquisitions.

Let me now provide you with an update on the first pillar, the build out and roll out of our omni-channel multi-category digital commercial platform. In Mexico, we reached approximately 290,000 active monthly buyers by the end of second quarter. This means, we added 70,000 monthly buyers during the quarter.

So now more than 40%, four zero, of our total client base in Mexico is an active monthly buyer. Additionally, our direct-to-home platform in Mexico is progressing according to plan focusing on accelerating our digital transformation and continuing to increase order fulfillment to better serve our customers.

Notably, during the quarter, we added more than 200 new home delivery routes to reach 320 routes added year-to-date. We also continue to improve key metrics such as our delivery effectiveness and net promoter score.

We move to Brazil, we now have more than 180,000 monthly digital buyers, which is close to 60% of our total client base and the percentage of digital orders has reached 40% of our total client base. In other markets, such Colombia, Costa Rica and Panama, we have also accelerated the roll out, notably, Colombia has reached an impressive 60% of monthly active digital buyers from our total client base, while Costa Rica and Panama are already close to 20%.

In summary, on a consolidated level, we have reached more than 645,000 active digital monthly buyers, up 245,000 from 400,000 at the end of the first quarter of this year. Our digital revenues in June amounted to more than $90 million, more than a 50% increase from at the beginning of 2022. We are confident that the accelerated roll out of the digital B2B and direct-to-home omni-channel platforms will continue to enable us to expand our customer service and keep taking important steps towards our vision of becoming the world’s preferred commercial ecosystem.

Now I also want to take a moment and emphasize the importance of implementing the right strategies across our markets in order to ensure we maintain our positive momentum as we continue navigating a very dynamic consumer and raw material environment.

First of all, recognizing inflation is not new to Latin America. We will continue to leverage a playbook that is familiar to us. It has allowed us to develop industry-leading revenue management capabilities. We will continue implementing portfolio initiatives across our territories to ensure we have acceptable price points.

Affordability has been and will continue to be key in our markets. For this reason, we are expanding our returnable capacity and the coverage of our returnable universal model. Second, we will continue leveraging our capabilities to increase our single served mix by leveraging multi-packs, increased cooler coverage and execution across our markets, we are confident that we will continue growing our single served mix.

Third, we will continue leveraging our disciplined hedging strategies and our capabilities to generate savings and efficiencies across our territories. As we previously mentioned, we have hedged approximately 75% of our PET needs for 2022 in Mexico and more than 90% of our high fructose corn syrup needs. We have also hedged more than 35% of our aluminum needs, while in Brazil, we have hedged more than 75% of our sugar needs for the year.

We remain confident that these hedges, coupled with our ability to segment our consumers and our revenue growth management capabilities will continue to enable us to substantially mitigate margin pressures and protect the profitability as we enter the second half of 2022.

We are also investing to digitize our core that’s fundamental for the future of our platform and bringing a tremendous amount of transformation to our supply chain, which allows us to complement revenue growth management capabilities. As an example of these initiatives is dynamic routing, which provides us with the ability of flexible dispatching and has two important effects; an increase in productivity, and a reduction of our cost of deliveries.

To this end, we are working to improve end-to-end last mile distribution focused on omni-channel customer experience and profit effectiveness. As part of our supply chain reinvention process, we have generated more than $30 million in savings year-to-date.

Building on the sustainability update, we provided during our previous earnings calls, we are proud to be recognized for the seventh consecutive as members of the FTSE4GOOD Latin American Emerging Markets index in recognition of Coca-Cola Femsa’s leading sustainability practices. According to this index methodology, Coca-Cola Femsa ranks ahead of our other industry participants due to its environmental and social initiatives.

This recognition not only reaffirms our sustainability commitments, but also provides us with a positive reinforcement to accelerate towards our long-term sustainability ambitions as we place sustainability at the heart of our organization.

Finally, I want to underscore once again our solid financial position and the acceleration of investments in our company with a positive trend of results. Year-to-date, we have increased our CapEx by more than 65% as compared to the previous year, all this while returning cash to shareholders and maintaining a solid cash position of more than 45 billion Mexican pesos.

Notably, during the quarter, both S&P and Moody’s rated Coca-Cola Femsa’s credit rating above Mexico sovereign reflecting Coca-Cola Femsa’s track record of outperformance during economic cycle downturns. Our ability to protect our profitability, as well as the markets’ trust in our prudent financial policies.

As we enter the second half of the year, we remain confident that our capabilities to continue growing, accelerating and delivering results across all of our strategic fronts, and Coca-Cola Femsa’s transformation is gaining speed and despite the economic environment I am very encouraged by Coca-Cola Femsa’s capabilities to achieve our short-term and long-term objectives.

Thank you for your continued trust and support and for joining us today for this call. Now operator, I would like to open the call for questions that both Jorge Collazo and myself will address. Thank you so much.

[Operator]

[Operator Instructions] We will take our first question from Fernando Oliveira from Bank of America. Please go ahead.

[Fernando Oliveira, Bank of America]

Hi, good morning, everyone and thank you for taking my question. I will keep with one, which is related to Mexico. Can you comment what explains the solid growth seen this quarter since it was the largest one I believe since 2016? How would you seem to think trends in July and how do you expect volumes to perform in the coming months in the middle of a tough economic environment? Thank you.

[Constantino Spas, Chief Financial Officer]

Thank you, Fernando. Thank you for the question. First of all, volumes in Mexico were definitely benefited by a series of variables, right. First of all we had very favorable climate. That is something that we need to take into consideration account and be very open and transparent about it. We are very sensitive to weather and we had very favorable climate, number one.

At the same time, as we have mentioned during our remarks in previous calls, we are taking a very adequate, we believe revenue management growth strategy and pricing steps. So I think that the adequate pricing strategy and the offering of affordable options and solutions for the consumer has allowed us to continue serving the best consumer occasions possible with the best offering and at the same time providing for a solid retainment of our consumer base.

All of our channels are growing, that is something that we also are starting to see. There is a more homogenous behavior across channels and due to the pandemic in the previous quarters we have seen some lagging behavior in the on-premise. Now we are seeing all channels growing and I believe that also less mobility restrictions and reopening of all the channels have impacted positively our performance.

At the same time, there is some disrates, Fernando, in the market is about focusing on the strategy and executing it consistently over time. I think we are starting to see that in Mexico. It’s also the compounding effect of great execution, great revenue growth management strategies and a focus on the long-term.

What do we expect for 2022? We are not – we don’t provide guidance for the future in our and the way we see the business and volatility is definitely here. I think that we can say that we continue to see as of today positive momentum. We believe that affordability and returnability will continue to allow us to sustain our consumer base.

And we are focusing on implementing operating and portfolio measures to continue growing. Maybe the growth that we saw in this quarter might taper down a little bit. That would be something that we could foresee. But as of today, we continue to be positive on the consumer environment in Mexico and the category. I don’t know, Jorge, you want to add something?

[Jorge Collazo, Head-Investor Relations]

No, Constantino, I think maybe adding to that no, the strong performance was very consistent throughout the quarter and even in May we achieved a record month for our Mexican operations. So that I can get that – it’s a very highlight to point out. And also that consistency across regions in Mexico and as you know, it’s something that in the past, sometimes we were seeing certain regions of Mexico outperforming others. What we saw in the quarter was very consistent across the board, across the regions in where we operate in Mexico, and from the center to also the south and southeast. So, that definitely, I think it’s a proof of what you just mentioned, Constantino.

[Fernando Oliveira, Bank of America]

Great. Thank you so much.

[Operator]

We will take our next question from Marcella Recchia from Credit Suisse. Please go ahead.

[Marcella Recchia, Credit Suisse]

Hi, Constantino, Jorge, thank you for taking my question. I have two questions. First one is, how concerned you are about the parallel FX rate in Argentina? If you think that it could become a problem at some point in terms of companies being able to get money out of the country or having to report at the parallel rate?

And the second question is, with regarding the roll out of the mouth category pilots, what can be shared in terms of units economics so far? What have been the main learnings and synergies of service? Thank you so much.

[Constantino Spas, Chief Financial Officer]

Thank you, Marcella. Well, I think we all know the complex environments in Argentina. Argentina has, for the last few years experienced some high volatility and a complex economic situation. I think that in our case, our operation continues to focus on driving growth and winning in the market that is the operations mandate. And in terms of the FX, we have no other view, but the official rates in Argentina as the rate that we account for and we strategize for. We definitely monitor continuously situations in Argentina regarding FX. But for the time being, there is no difference in the approach and in the focus that we’ve had for the last few years.

In terms of the distribution agreements that we have, I would say that unit – there is the specific on unit economics. Unit economics are positive. They are value accretive for us in the place that we have started implementing the pilots. Definitely, we continue to be at early stages, not most of these pilots have not been scaled to a national level in most of the geographies where we are operating in. But we consistently are seeing growth.

We are consistently seeing proof points that validates that this is an interesting avenue to complement our portfolio offering and winning in the markets. And we are seeing very happy partners too on the other side. So, from that angle, we are extremely optimistic about our commercial platform and the ability to continue pushing at that front to be able to fulfill our ambition of becoming the world’s preferred commercial ecosystem in the future.

[Marcella Recchia, Credit Suisse]

Perfect. Thank you so much.

[Operator]

We will now move to our next question from Alan Alanis from Santander. Please go ahead.

[Alan Alanis, Santander]

Thank you so much and hope you can hear me well, because I am not in a good reception area. First of all, congratulations on the results. Constantino, could you expand a bit on the trends on Brazil beer? What you are seeing over there? And the overall strategy for alcohol in the region and now we launched our Jack Daniel’s and Coke in Mexico, what’s next for alcoholic beverages from Coca-Cola Femsa? Thank you.

[Constantino Spas, Chief Financial Officer]

No, thank you, Alan for your question and I can hear you very well. In terms of beer in Brazil, this is a recurring question quarter-after-quarter. After a decline of approximately 30% in beer revenues in 2021 due to the transition, the effect of this transition for 2022 as our portfolio gains traction, we expect beer revenues to decline somewhere between 15% to 20% in 2022 versus 2021. Now this is very important to highlight that when we put together, when we built this new portfolio with our partners, which by the way we are continuing to do. We built a portfolio for the long term, right? We have mapped what are the consumer occasions. What are the brand offerings that can solved for those consumer needs in the future and we had developed a portfolio that we believe will be a very solid and winning portfolio in the future. Now, building great brands doesn’t happen overnight and in the case of beer in Brazil, it requires great brand building on one side and a fantastic commercial platform with great coverage and great execution at the same time. So, some of these brands will definitely behave more in an S curved shape and that is what we are seeing today. So we believe that in the two to three year timeframe, it’s feasible to recover the volumes that we had before. We are building on brands that have very solid brand equity that just need expansion such as Eisenbahn, which is having great traction in Brazil and at the same time, brands that are totally new to the market such as Tiger, that we need to build, that needs to build in conjunction with the Heineken. And at the same time our brands that are – of the distribution of Estrella Galicia, which were new brands, right? So, all I all, we have – we are very optimistic about the portfolio. In the future it’s behaving as I said mostly as an S curve development pattern and that is where we are focusing on.

In terms of portfolio on alcoholic beverages overall, we are tackling this in three fronts, right? Beer in Brazil is one and we pump extensively about this. The other one is all the alcoholic ready to drinks such as the Schweppes, alcoholic ready to drink sales in Brazil and Topo Chico Hard Seltzer in other markets. We are also seeing a construction of the brands from a very small base. I think we are very optimistic in most of the place that we have today. We are extremely optimistic on the innovation as we mentioned Jack Daniel’s and Coca-Cola alcoholic ready to drink is something that we are very excited about and I believe the Coca-Cola company will continue focusing on great innovation on this front.

And finally, and to complement this, we are also starting to make interesting partnerships like the ones in Brazil and in Mexico so far with Yajo and with Campari in the case of Brazil and we are seeing interesting outcomes of the partnership in both markets so far and this is something that we will continue to push in the different geographies and channels where we think this is relevant and it is value-generating, not only to us, to the Coca-Cola portfolio, to the partners, but evidently and very importantly to the customers, right? In the particular channels where these synergies make sense. So, it’s a very holistic approach to alcoholic beverages with these three very different approaches and we will continue to push in that front.

[Alan Alanis, Santander]

Now that makes a lot of sense and congratulations for that. I mean it sounds – it seems very [Indiscernible] comprehensive strategy. And the last question on a totally different topic, capital deployment. I mean, you have a generally strong balance sheet. You have more than $2 billion of cash. Any update in terms of what are your priorities and preferences for the deployment of all of that cash.

[Constantino Spas, Chief Financial Officer]

Yes, first of all, Alan, the – it’s a great, I’d say appreciation of what we are doing in our strategic thinking and thank you so much for the comments. In terms of our capital structure and cash position, I mean, first of all, as we mentioned in the remarks, we are heavily investing behind growth in the business. So far this year, we have invested 65% more CapEx behind the business and that is something that we believe is necessary as we have jointly looked at the market with the Coca-Cola Companies for the next five to ten years and we believe investing behind our core capabilities and the brands and our execution capabilities in the market is fundamental. So, part of it is CapEx. On the other end, we have maintained a very strong dividend. We will continue to do so. And also in the same time we are analyzing as we have stated before different opportunities for inorganic growth, right? Now evidently, when you look at inorganic growth and M&A options for the future, we are now seeing it also through the lens of the platform and this might entail not only continuing at the right price, with the right value, with the right strategic alignment to continue growing geographically by more consolidation of bottling capabilities in the system, but also at the same time looking at capabilities such as technological investments that we can do to enhance our platform for the future. That is something that we are looking at heavily. We are also looking at adjacencies that can enhance also a portfolio offering for the future in conjunction with the Coca-Cola Company. And also, we are looking at different types of partnerships, right. We use to see the world as a 100% acquisitions, we are also looking at possibilities of different types of investments, right. So there is a lots going on, on that front and at the same time, we continue to review our capital structure and we will provide recommendations for our Board and for our shareholders whenever we think it’s appropriate. So, it’s a very dynamic process right now. But we definitely recognize we are sitting on a lot of cash to be straightforward to your question.

[Alan Alanis, Santander]

Got it. That helps. Thank you so much and again congratulations on the quarter.

[Constantino Spas, Chief Financial Officer]

Thank you, Alan.

[Operator]

We will now take our next question from Alvaro Garcia from BTG.

[Alvaro Garcia, BTG]

Hey, Constantino, Jorge, thanks for the call. Couple questions from me, as well. One on Brazil, as we sort of defend the growth story here, I’d love to hear sort of more color on what you are seeing from clients very strong pricing over 20%, clearly the consumers willing to take it. What are you seeing from, sort of these on-premise clients and if you get to sort of paint a picture of the growth you are seeing there that’d be very, very helpful. I think that’s my first question.

[Constantino Spas, Chief Financial Officer]

Jorge, do you want to take this one?

[Jorge Collazo, Head-Investor Relations]

Sure, sure, Constantino.

[Constantino Spas, Chief Financial Officer]

And I’ll complement.

[Jorge Collazo, Head-Investor Relations]

Sure. Hey, Alvaro, so just to give you some color on channels, as I mentioned, there is strong pricing. There is some mix associated to it both in terms of packaging because we are thinking if you’ve seen single served needs growing just to give you a sense 30% increase on the single served long ways and [Indiscernible] and on the on-premise it has been the channel that has been growing the most in Brazil or in Romania or other territories. In the case of Brazil, just to give you a sense of the growth, year-to-date versus the previous year, it has gained increase of 26%. So we are definitely seeing in the case of Brazil, these external factors with a defensive labor market, social programs combined with more mobility, recovery on these channels, so, but those has been its external factors. But there are some several factors as well, I think you can support them to mention. Now we continue to see very strong performance from CSBs coming from our affordability initiatives such as multi-packs, dual packs Coca-Cola zero sugar, also very interestingly not only in Brazil but across our markets. And that’s allowing us to also gain share. So it’s a combination of, I would say, both internal and also the macro [Indiscernible]

[Alvaro Garcia, BTG]

Great. Great. Thank you. And then just a follow-up on Marcella’s question on unit economics around these complementary revenue streams or multi-category – the new multi-category, I would say, strategy, I mean, you don’t call it anymore. But the - sort of, I really appreciate the color on the unit economics you mentioned. I was wondering if you can maybe, now that you are well into some pilots in Brazil, specifically, maybe you can point to maybe some incremental cost that you might seeing or I know it’s fair to say, it’s accretive, but just to sort of qualitatively understand what incremental cost you might be seeing as you bring other products on to the crust? Thank you.

[Constantino Spas, Chief Financial Officer]

Yeah, so far, Alan, to be honest, the incremental cost is marginal, right, because we are leveraging on current capacity and capabilities. It’s more on the field sales force that we are putting together particularly on the on-trade channel. So on the on-trade channel we are adding capacity and capabilities for execution for developing the brand, with the proper net brand narratives and executions at the on-trade, but at the same time that’s incremental field sales force capacity and the ability to serve those customers with a broader portfolio are also driving incremental sales on our core business too. So, it’s an equation that needs to be looked at, I would say, outlet-by-outlet, that’s how we are seeing it. But I want to emphasize that particular effect. For example, when you look at a set of outlets from a non-alcoholic beverage portfolio view only, they might be outlets then in our segmentation we might call them silver accounts, right. Now, when you lay your alcoholic beverages, then there is a series of possibilities that actually provide for a re-segmenting and re-categorizing of those outlets to a higher tier which allows them to invest heavier behind that outlet which creates a virtue circle that benefits the Coca-Cola Femsa and Coca-Cola Company core portfolio too, right. So, some of this incremental cost which is basically, so far given the scale of these pilots associated more to the infrastructure to develop those outlets. It’s being concentrated in most of the occasions by a increase of sales in our core portfolio. I hope that provides for a little more – little more color.

[Alvaro Garcia, BTG]

That’s great color. We really appreciate it. Very clear, very clear answering. Thank you.

[Constantino Spas, Chief Financial Officer]

And actually, I want to – I don’t know if you are getting an echo, sorry. But I would like to pivot on your question because, we get a lot of questions on alcoholic beverages than on beer in Brazil which is fantastic and it’s part of our strategy and it also delineates our thinking for the future in terms of some of the focuses on multi-category. But there is also other very interesting things that are happening in the core portfolio that don’t get as many questions or we don’t provide. We get the opportunity to provide for more color in these calls and a great example of that, I would like to – call it with more on Coca-Cola no sugar. So Coca-Cola no sugar is about four times the size of beer in Brazil. And it’s part of our core strategy in terms of portfolio. It’s got great innovation from the Coca-Cola Company and it’s a fantastic option for our consumers. Uruguay has great momentum. Mexico, as we pointed out is growing 26% year-to-date, 40% in transactions. Brazil is growing 20% year-to-date and 10% almost a round up in mix of the Coke brand so far. In Costa Rica, the brand is the second brand in our portfolio already and continuing to grow. Colombia growing double-digits. In Uruguay, it continues to grow despite the fact that it’s already no sugar offerings are 38% of the mix. So, this is a great example of great things that are happening inside our core portfolio and that in contrast to some of these other initiatives that are fantastic in part of the strategy for the future, as of today, they have different levels of match the reality and they are impacting our business quite positively. So I wanted to take advantage on your question to provide some color – even other – to the portfolios that are working super well. So, thank you for that. Thank you for that.

[Alvaro Garcia, BTG]

No, it’s very helpful color. Really appreciate it.

[Operator]

We will take our next question from Carlos Laboy from HSBC. Please go ahead.

[Carlos Laboy, HSBC]

Thank you. Constantino, just to stay with this same exact theme, you seem to be getting great traction on Coca-Cola and flavor multi-packs in Brazil and in the rest of Latin America now. And that’s also seems to be driving an awful lot of activity when we go to the supermarkets and we look around, your approach to this has changed and your insights have changed. Can you speak to the scope and importance of this activity in the portfolio?

[Constantino Spas, Chief Financial Officer]

Sure, Carlos. And that is a – it’s a great question. First of all, everything begins by recognizing that we have one of the best consumer brands in the world, basically, which is the Coca-Cola brand, right. So, that is a great asset to have in your portfolio. And when we look at some channels, when we look at consumer insights, and we understand the power of the Coca-Cola brand then you can start – first of all you need to recognize that and once you are recognized and you connect the dots, then you can start developing consumer programs that can leverage of Coca-Cola. And that’s exactly what we have done with our multi-packs. We have bundled Coca-Cola with our flavor portfolio which is a great portfolio of brands that in some occasions when the shoppers go to buy for stocking – for some occasions, they want to get the best out of the brand assortment that there is in the supermarket and that’s where the multi-packs come into play. Why is it so relevant even though it’s such a simple solution as you are pointing out? Because this is a solution that’s reconceived at the Coca-Cola Femsa level. It is manufactured in a very efficient way. It is executed and exhibited in a very present way in most of these channels and it becomes a fantastic solution for our shoppers. The same thing happens with single serves. We are moving that logic into single serves. We are mixing and matching different portfolio offerings for our consumers and it’s starting to gain a lot of traction. This simplifies the consumption at the point of sale. It is very for our retailer and it leverages on the strengths of our brand assortment. But having said that, the underlying big driver of this is being able to connect the dots to use data, consumer and shopper and retailer data in the proper way and from there, develop and execute your portfolio offerings and your promotional offerings for the point of sale in the relevant markets. So I think that I wanted to stress that final point, because at Coca-Cola Femsa, we believe that we are brand builders. We are not only executers of great brands, we do great brand building in conjunction with the Coca-Cola Company and in conjunction with our multi-category partners and that’s the way we approach it by connecting the dots and by using relevant consumer and shopper and market insights to develop our solutions. I hope this provides also a good color to your question.

[Carlos Laboy, HSBC]

Thank you.

[Operator]

We will take our next question from Felipe Ucros from Scotiabank.

[Felipe Ucros, Scotiabank]

Hi, yeah. Good morning, Constantino, Jorge. Congrats on the results. Just a quick one on digital. Most of my questions were asked, but I see a little bit of a decreased focus on Whatsapp ordering on the calls and I just wanted to ask you if there is a little bit of a change in strategy maybe towards a platform that is not in Whatsapp and that was more the other B2B platforms that we are seeing throughout the world. Just wondering if you could comment a little bit on that and what’s the focus is going forward on the digital side?

[Constantino Spas, Chief Financial Officer]

Yeah, on our - thank you for your question. I mean, on our omni-channel strategy, first of all, I would like to stress what omni-channel means for us, right. And for us, omni-channel means a myriad of touchpoints for our customers to interact with Coca-Cola Femsa and be able to have a seamless experience no matter what touchpoints you use, right. First high level description. Secondly, we believe that the anchor points in our omni-channel strategy remains in the pre-seller, right. So we have not eliminated our pre-seller. We have no intent to look at our omni-channel strategy as a way of driving efficiency but actually as a way of driving effectiveness. So, our pre-seller remains the anchor, the anchor touchpoint. Having said that, our customers have primarily three interaction points, right. Our URL system laptop based, then have our Whatsapp based chat box and we have and we are developing and continue to roll out and enhance our mobile App. We are definitely seeing as we deploy our mobile App in the different countries, we are seeing a significant shift to the Apps as the means of being the preferred choice of interacting with Coca-Cola Femsa, but at the same time Whatsapp remains a core interaction tool, particularly for smaller customers and because that it is extremely organic to the way a consumer and a shopper and a retailer behaves on an everyday basis. So it’s extremely organic to everyone in Latin America, basically that is interacting with Coca-Cola Femsa. So, mobile devices are by far the largest in terms of the focus where that remains relevant for larger customers because of the complexity of the portfolio which is difficult to scroll on an mobile application or in Whatsapp due to its limitations. But as much as most of our customer base is on the traditional trade and their small stores, they tend to interact more on our mobile App and the Whatsapp chat box solution that we have in our different markets. I hope that answers.

[Jorge Collazo, Head-Investor Relations]

And Felipe, just to complement to Constantino’s comment I’ll provide you with some numbers just to give you an idea. Let’s look for Brazil for a second. So, for example, in December 2021, from all of our omni-channel clients, basically around 93% of these clients were using Whatsapp. So it was a Whatsapp based interaction the year end and last year. If we look at it today, June 2022, Whatsapp is around 45%. So we have seen that migration that Constantino is talking about towards Whatsapp, it’s very good for us recruit customers into the omni-channel platform and so far what we have seen in the first six months of this year has been an important adoption of clients using the App and also the web-based application and also Brazil has been very advancing these migration to all the omni-channel platforms. As you know we have been discussing about that. But when we look at Colombia, which is a little bit behind in that sense and Constantino mentioned that during the prepared remarks, he mentioned an impressive 60% of the clients in Colombia being monthly active purchasers. Most of it today in Colombia are Whatsapp based, as we continue to roll out we will complement this with the broad omni-channel strategy. So I hope that provides a little bit additional color to complement Constantino’s points.

[Felipe Ucros, Scotiabank]

That’s absolutely great color. It explains a lot of the question marks I had around the Whatsapp strategy. It seems like it’s a weighted channel into the mobile apps which is obviously more robust and seems better for a wider portfolio. So that’s very, very clear. Thanks a lot guys.

[Constantino Spas, Chief Financial Officer]

Thanks.

[Jorge Collazo, Head-Investor Relations]

Thanks, Felipe.

[Constantino Spas, Chief Financial Officer]

Thanks for your questions.

[Operator]

We will take our next question from Ben Theurer from Barclays.

[Ben Theurer, Barclays]

Yes. Perfect. Thank you very much and congrats on the results. Wanted to follow up on your prepared remarks, you talked about the level of hedging you’ve put in place into 2022, but I wanted to kind of zoom out and look into 2023 if you’ve done anything yet, because and some of the core ingredients if we think about aluminum but also corn, corn-related high fructose could have potentially come down a little bit. Have you took some opportunity as the most recent commodity price coming down into 2023? Have you hedged anything or is it still too far out to share any details on 2023? Thank you.

[Constantino Spas, Chief Financial Officer]

Well, Ben, let me – thank you for your question. I think it allows us to explain the way we operate. The way we look at our hedging for raw materials and FX, we go through a very disciplined process every month that’s called the commodity and risk management process where we have a 12 month rolling outlook and we start taking based on some operational guidelines and based on the analysis on the information that we have available, hedging positions and hedging decisions with the 12 month rolling outlook. So, we definitely have hedged some of our materials for 2023 and some of the FX needs for 2023, but it’s same fits the tale of that 12 months outlook we don’t like to provide for that information that far ahead. But we are definitely starting to take opportunities and the most important thing that I want to stress out, this is not a subjective view of management, if I may. This is – this follows a very rigorous and disciplined, a multi-disciplinary process where both corporate, finance and the operations take part of.

[Ben Theurer, Barclays]

Okay. Perfect. Thank you very much.

[Operator]

Due to time constraint, since we will now – that will conclude today’s question and answer session. I would like to hand the call back over to Constantino perhaps for any additional or closing remarks.

[Constantino Spas, Chief Financial Officer]

Well, thank you, operator and thank you all for your confidence and your interest in Coca-Cola Femsa. As always, our Investor Relations headed by Jorge is available to answer any of your remaining questions. And we are more than happy to continue engaging with you. And hopefully we will see you very soon in our next call. Thank you so much and have a great day.

[Operator]

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.