Coca-Cola Femsa SAB de CV

NYSE:KOF

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, everyone, and welcome to the Coca-Cola FEMSA's Third Quarter 2022 Conference Call. As a reminder, today's conference is being recorded [Operator Instructions]

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 currently 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 turn the conference over to Mr. John Santa Maria, Coca-Cola FEMSA's Chief Executive Officer. Please go ahead, Mr. Santa Maria.

[John Santa Maria Otazua, executive]

Thank you very much. Good morning, everyone. Thank you for joining us today to discuss Coca-Cola FEMSA's third quarter 2022 results. With me on the call today are: Constantino Spas, our Chief Financial Officer; and Jorge Collazo, Investor Relations Director.

It is a very important moment for our company. We are operating with momentum. We accelerated our digitalization and cultural transformation, and we continue making substantial progress towards our key long-term strategic objectives.

For the quarter, despite the uncertain and volatile environment affecting industry worldwide, our business delivered solid volume growth, coupled with double-digit growth in our revenues, operating income and earnings per share. Our strong momentum is underscored by the consistently healthy volume performance across all of our territory, while we continue to substantially mitigate margin pressures, mainly driven by increased input costs.

Notably, our operating margin expanded by 70 basis points and adjusting for extraordinary one-time FX during the previous year. Additionally, we continue leveraging the strength of our enhanced cooperation framework with the Coca-Cola Company, operating with improved alignment to increase investment in the market, exploring new revenue streams, and significantly advance the rollout of our digital strategy.

During the call today, I'll review the results of this quarter, and then reflect on the highlights of the significant transformation that our business has experienced over the past 5 years. This transmission is enabling us to capture opportunities to date, while I ideally position Cola-Cola FEMSA to continue capturing the many opportunities that are in front of us for many years to come.

Before our Q&A session, Constantino will walk you through our division's performance. closing with a few highlights of sustainable financing. We continue making history on this front, becoming the first company in the consumer sector in the Americas, and the first in the Coca-Cola system to successfully price social bonds, underscoring our profound commitment to our community.

Let's begin with a review of our consolidated results. Our consolidated volumes for the quarter grew 8.4% year-on-year and 7% on a comparable basis. This growth was driven mainly by solid volume growth in Mexico, Brazil, Colombia and Uruguay, coupled with double-digit volume growth in Argentina, Guatemala and most of our territories in Central America.

Growth has been driven by all of our categories. Our core sparkling beverage category grew 7%, driven by 6.3% growth in brand Coca-Cola and 9.8% growth in flavors. Additionally, our sales in personal water beverage categories grew 15% and 26%, respectively. Today, all our territories' volumes are ahead of a pre-pandemic level, evidencing consistent growth across our franchise territory. Indeed, when compared to the third quarter of 2019, our consolidated comparable volumes is up a solid 12.1%.

Driven by our affordability capabilities and relentless point-of-sale execution, we continue gaining share across markets and categories. We are executing to win in the away-from-home and at-home consumption occasions, thanks to several market initiatives that enable us to provide our consumers with unmatched affordability. It has been the case throughout the year with slight inflationary pressures, we continue leveraging initiatives to drive single-serve mix growth. We remain on track to reach our ambitious single-serve mix for the year, with more than 65% of our volume growth coming from single-serve presentation.

On the innovation front, we once again highlight the success of Coca-Cola Zero Sugar across all of our territories. This important growth driver increased 17.1% versus the previous year, as we continue leveraging a consistent value proposition with sampling, innovation and customer experience.

As a result of our top line initiatives, together with a resilient consumer environment, our consolidated total revenues increased 18.2% and 19.3% on a comparable basis. Our solid volumes, pricing initiatives and revenue growth management capabilities drove this growth. Notably, we achieved a solid top line performance, despite the declining beer revenue resulting from the transition of Heineken's beer portfolio and -- in Brazil, and an unfavorable currency translation effect in Mexican pesos, mainly from the devaluation of the Colombian and Argentine pesos. Importantly, this marks the last quarter that we will cycle the unfavorable beer transition effects in Brazil.

Moving on, our gross profit increased 16.4%, and our gross margin contracted 70 basis points. Our pricing initiatives, revenue growth management and favorable raw material hedging strategies, continue to largely mitigate higher PET and sweetener cost. Our operating income increased 13.3% year-on-year, leading to an operating margin contraction of 60 basis points. However, by normalizing the one-time effects recognized in the world during the previous year, our operating income margins would have expanded by 70 basis points, reflecting our resiliency and our team's ability to double down on expense efficiencies. On a comparable basis, excluding M&A and currency translation effects, our operating income increased 18.1%.

Finally, our operating cash flow margin -- pardon, our operating cash flow for the quarter increased 14% year-over-year, resulting in operating cash flow margin of 18.6%.

As we have done on previous calls, let me provide you with an update on the build-out and rollout of our omnichannel multi-category digital commercial platform. In Mexico, we added another 70,000 monthly active purchasers, reaching approximately 360,000 stores. In other words, 52% of our total client base in Mexico is an active monthly buyer. In Brazil, we now have more than 19,000 -- 195,000 monthly digital buyers, which is close to 65% of our total client base. In Colombia, we continue accelerating with close to 70%. While in Costa Rica and Panama, we reached approximately 25%.

In summary, the consolidated level, we added more than 115,000 active monthly users to reach 760,000 customers. Digital revenues in September amounted to more than $110 million, meaning that approximately 11% of our total revenues are coming from digital sales. Consistent with our vision and aligned with our enhanced cooperation framework with the Coca-Cola Company, we continue exploring new revenue streams and strategic partners.

We are encouraged that as this week, Coca-Cola FEMSA and Heineken began the pilot program in the Mexican City of [ Guanajuato ]. This pilot aims to approve the distribution and selling capabilities at Coca-Cola FEMSA to strengthen Heineken's products, presence in the traditional trade channel, enabling more customers and consumers through a broader portfolio, while always putting our customers and consumer satisfaction at the center of everything we do.

As part of this pilot program, Coca-Cola FEMSA will include products from Heineken's portfolio in the traditional channel portfolio in the region, targeting clients that are not currently serviced by Heineken's commercial fee. We expect that these pilot programs will allow us to obtain the necessary learnings and insights, to continue advancing towards the potential strategic alliance in the future. But this is the beginning of the pilot test. Further details will be provided in due course.

Now I'd like to switch gears and reflect on the significant business transformation that Coca-Cola FEMSA has experienced over the past 5 years. Since 2017, we focused on driving top line growth, and we fueled this growth by leveraging our industry-leading capabilities and value-accretive acquisitions in Brazil, Guatemala and Uruguay. At the same time, we focused on increasing profitability and driving efficiency throughout our organization. We deployed a set of initiatives, including our Fuel for Growth efficiency program, to strengthen Coca-Cola FEMSA in new ways of working and streamlining our cost base. This ultimately supports our strategic priorities, resulting in continuous return on invested capital over the past 6 years, a KPI that is now in the double digits.

The results have been driven by a profound cultural transformation based on our DNA and obsessive focus on our clients and consumers, operational excellence, putting people first, having an owner's mentality, and being able to take agile decisions. Our achievements materialized during the sociopolitical context that became more challenging throughout the region. However, in order to successfully navigate this environment, we are focused on portfolios to strengthen our core business.

First, portfolio and revenue management. First, our territories, we have made substantial progress with our reduced and zero calorie quantity. As a result, this mix has increased an impressive 57.1% as compared to 2017. At the same time, our refillable bottle volume has increased 17.7% versus 2017, supported by the successful rollout of the universal bottle.

Second, route to market and focus on improving the execution in the point of sale, resulting not only to increase cooler coverage and shared wins, but also in Coca-Cola FEMSA being consistently recognized for its execution capability. For example, our Guatemala team have been awarded for the last 3 consecutive years, the Coca-Cola System Excellence KOF, and has been recognized as Guatemala's Best Bottler in 2021 due to its historic execution score improvements and consistency.

Third, people and culture have been the key to achieve our organization transformation. We have significantly advanced on diversity inclusion with an increase of 4% from the mix of women in the company, and an increase of 6% in the mix of the women in leadership positions as compared to 2019, with such level reaching 26%. While we are not where we want to be, we are taking decisive steps in the right direction. Additionally, our organization ranks above the industry benchmark for employee engagement, with outstanding commitments from our teams to the organization and to our objectives.

Fourth, relentless focus on business efficiencies such as supply chain reinvention, has contributed to our solid results. Over the past 3 years, we have generated approximately $230 million of sales, which is more than 50% ahead of our original target for the period.

These 4 covers have been fundamental to Coca-Cola FEMSA's positive momentum today, as we continue to strive to accelerate the transformation to achieve our vision of becoming the world's preferred and most sustainable commercial ecosystem.

In order to achieve this vision, we set a clear transformational path that follows these steps. First, we transformed into a digitalized bottler, adopting technology and digital capabilities across our value chain. Second, we are now becoming an omnichannel and multi-category player, with a clear ambition of becoming a full commercial ecosystem into the future.

I'm confident that we are implementing the right initiatives to achieve our short-term objectives as we approach the end of the year. We have clear objectives and the capabilities to achieve our long-term ambitions.

With that, I will hand over the call to Constantino to expand on the divisional results.

[Constantino Montesinos, executive]

Thank you, John, and good morning, everyone. In Mexico, our volumes increased a solid 8.7%, while our total revenues increased 17.5%, driven by strong volumes in all of our channels, particularly in the modern trade, coupled with the pricing initiatives, revenue growth management and a favorable price mix. In Central America, our operations continued to deliver strong results, with double-digit volume growth and a 17.6% revenue growth. Remarkably, our volumes in Guatemala continued to show significant volume growth, even when considering a high comparable baseline. As a result, our quarterly revenues increased a solid 17.5% in Mexico and Central American division.

On the profitability front, our gross profit increased 11.6%, which resulted in a gross profit margin of 46.9%, representing a margin decrease of 250 basis points as compared to the third quarter of 2021. This contraction was driven mainly by increases in commodity prices, which were partially mitigated by revenue management and raw material hedging strategy.

As in previous quarters, we were able to partially mitigate gross margin pressure by implementing savings and efficiencies in our SG&A, which enabled us to increase our operating income by 18.6%, and to expand our operating margin by 20 basis points in the Mexico and Central American region. While we continue to see macroeconomic volatility as we approach year-end, we expect to carry on protecting profitability through our revenue growth management and focus on driving expense efficiency. Our operating cash flow margin for the quarter was 21.2%, which represents an expansion of 10 basis points in the Mexico and Central American division.

Now moving on to South America. This division delivered 7.1% volume growth as compared to the same period of 2021. This increase was driven mainly by a 12.1% volume growth in Argentina, a 7.2% increase in Brazil, which includes the consolidation of CVI, and a volume growth in Colombia and Uruguay. Despite facing tough weather conditions in Brazil, we were able to deliver…

[Technical Difficulty]

[Unknown Executive]

I think we lost contact. Let's reconnect, operator?

[Operator]

Yes, just spare me a moment.

[Unknown Executive]

Yes, thank you all for waiting while we reconnect Constantino.

[Constantino Montesinos, executive]

Pricing and volume growth were partially offset by unfavorable currency translation effects and the transition of our beer portfolio in Brazil.

[Unknown Executive]

Constantino.

[Constantino Montesinos, executive]

Yes.

[Unknown Executive]

You were off air for about 2 minutes, 3 minutes. May be we can go back to South America division. I think we can pick it from there.

[Constantino Montesinos, executive]

There was a technical glitch. I am back on air.

If we move on to South America, the division delivered 7.1% volume growth as compared to the same period of 2021. This decrease was driven mainly by a 12.1% volume growth in Argentina, a 7.2% increase in Brazil, which includes the consolidation of CDI and volume growth in Colombia and Uruguay. Despite facing tough weather conditions in Brazil, we were able to deliver another quarter of volume growth driven by resilient consumer demand. On a comparable basis, excluding volumes of CVI in Brazil, volume in this division would have increased 4.4%. Our revenues for the division grew 19.1%, as our revenue management initiatives, pricing and volume growth were partially offset by unfavorable currency translation effects and the transition of our beer portfolio in Brazil. If we exclude currency translation and M&A effects, our top line would have increased a solid 21.9% during the quarter.

On the profitability front, our gross profit in South America increased 25.2%, expanding our margins by 200 basis points. This increase was driven mainly by the operating leverage resulting from volume growth, favorable price mix effects and raw material hedging strategies. These effects were partially offset by increases in raw material costs.

Our operating income for the division increased 2.9%, while our operating income margin contracted 150 basis points as compared to the third quarter of 2021, driven mainly by a tough comparable baseline related to nonrecurring tax effects in Brazil for MXN 620 million recorded at the operating income level during the third quarter of 2021. These effects were partially offset by higher gross profit and an increase in operating leverage resulting from volume growth and expense efficiencies.

Finally, our operating cash flow in South America increased by 6.1%, resulting in an operating cash flow margin contraction of 190 basis points. If we normalize by the one-time effects, I previously mentioned, our operating cash flow margin for the division increased 130 basis points year-over-year.

Now let me expand on the [successful pricing] of our social and sustainability bonds in the Mexican market. Consistent with our financial discipline, strong credit profile and commitment to sustainability, repriced social and sustainability bonds for a total amount of MXN 6 billion. This issuance represents the first social bonds in the consumer sector in the Americas and the first social bonds of the Coca-Cola system.

Furthermore, we became the first company in the consumer sector in Mexico to price sustainability bonds. This transaction was completed in 2 tranches. The first tranche was priced at a fixed rate of 9.95%, Mbono plus 0.30% for an amount of MXN 5.5 billion due in 7 years. The net proceeds of these bonds -- of this bond will be used to finance eligible social projects. The second tranche was priced at a variable rate of TIIE plus 0.05% for an amount of MXN 500 million due in 4 years. The net proceeds of this bond will be used to finance eligible sustainability projects. For additional details on our use of the proceeds and commitments related to this transaction, you can find a copy of our sustainability bonds framework on our website, and a copy of the second-party opinion provided by S&P, who confirmed that our ambitious targets are aligned with sustainable bond principles.

Finally, I want to underscore our focus on maintaining a disciplined financial position in our commitment with shareholder return. Our strong balance sheet and solid cash flow generation allows us to -- as of September 30th, 2022, have a net debt-to-EBITDA ratio closing at 0.8x, with a cash position of more than MXN 39 billion, even before the proceeds from the social and sustainable bonds, as previously mentioned.

Additionally, on November 3rd, we will pay the second installment of the ordinary dividend declared last March, to complete a total cash distribution to our shareholders that exceeds MXN 11 billion during 2022.

And with that, I will turn the call back to John for his final remarks. Thank you.

[John Santa Maria Otazua, executive]

In light of our recent management succession announcement, I want to say that I am extremely privileged for the opportunity to serve and lead the Cola FEMSA as CEO for the past 9 years, and building a world-class bottling company for over the last 27 years in my career.

I want to give a special recognition and thanks all -- and thanks all our Coco-Cola FEMSA employees. We have confronted many challenges together, but more importantly, we have achieved great milestones, and for all of that, you should all be very proud.

Additionally, I am tremendously grateful for the work that I've been able to share with the colleagues of the Coca-Cola Company and at FEMSA throughout this entire journey. It has been a privilege working hand-in-hand with such amazing professionals.

Finally, I'm also thankful for the continued support and feedback and interactions I've had with you in the investment community over all these years.

As I previously mentioned, I am convinced that our company is better positioned than ever to capture the many opportunities that are in front of us. I'm very pleased that Ian Craig, our current CEO of Coca-Cola FEMSA, Brazil, has been appointed by our Board of Directors as my successor to carry out as the Chief Executive Officer as of January 1st, 2023. Ian is a proven leader with 28-year career within FEMSA -- in Coca-Cola FEMSA, and an outstanding track record that includes senior corporate positions as well as successful business turnarounds in Argentina and Brazil. Ian is a natural successor to leave the company. He brings positive continuity to leverage up the strategy and accelerate towards the goals we have set out in the organization. I am confident in the bright future that lies ahead for Coca-Cola FEMSA under his leadership.

Finally, I want to thank and congratulate Constantino Spas, our CFO, that has been fundamental to our company's transformation journey, and who has been invited by FEMSA to become Chief Executive Officer of FEMSA's Strategic Businesses as of the next year, succeeding Alfonso Garza, who is retiring after a highly successful 37-year career at FEMSA. I wish both Ian and Constantino great success in their new appointments. Constantino?

[Constantino Montesinos, executive]

Thank you, John. After 5 years at Coca-Cola FEMSA, and 4 years as Chief Financial Officer, I will continue my career at FEMSA as Chief Executive Officer of FEMSA Strategic Businesses. Working at Coca-Cola FEMSA has been a privilege, nothing less. I have worked with an extremely talented team and witnessed the company's profound transformation throughout these years. And I'm confident that we have set the right objectives and we have positioned the company together for remarkable success.

I also want to thank you, John, publicly, for your leadership and dedication to this company over the years. You have been a true leader in shaping Coca-Cola FEMSA into the amazing company that it is today. And I'm beyond grateful to John, my team and all my other fellow members of Coca-Cola FEMSA, all the employees of this great company, for their contributions, as we have worked together to transform this company. And thank you all for your continued trust and support, and for joining us today for the call.

And with that, operator, we would like to open the call for questions. Thank you.

[Operator]

[Operator Instructions] We'll now go with our first question from Alan Alanis from Santander.

[Alan Alanis, analyst]

Well, first of all, congratulations to both of you. Congratulations, John. I mean, you will be dearly missed, and congratulations Constantino, very well-earned move. Let me take advantage that this is what -- I guess the last time we're going to be talking in a quarterly call, to make more of a strategic question rather than the quarter. And if you could describe what do you see -- I mean, you've seen a lot in the Coca-Cola FEMSA operations in the Coke system. What do you think will be the biggest changes that KOF is facing in the next 3 and 5 years? And what would be your advice for -- in the operating front and as well in the relationship with the Coca-Cola Company, which, by the way, also reported pretty impressive results this morning? Let's leave it at that.

[Constantino Montesinos, executive]

Alan, can you just clarify your question one more time?

[Alan Alanis, analyst]

Sure. I mean, the question is, I mean what do you think are the biggest challenges that Ian in Coca-Cola FEMSA is facing in the next 3 years and 5 years, and how do you see the evolution and the relationship with the Coca-Cola Company in recent years and going forward?

[Constantino Montesinos, executive]

I think that the relationship with the Coca-Cola Company is extremely important for -- both for the stock price and for the -- obviously for the driver of the stock price, which is the profit split within the system.

[John Santa Maria Otazua, executive]

Sure. I think the challenges we have, I think, address all the strategies that we put in place. The first one is to continue to digitalize our company [indiscernible] and across all our territories. And we are very clear how we're going to do that and roll it out. As I said on the call, there's probably about 750,000 monthly -- average monthly users on our digital base. And you can probably use that scale and think through that next year, we're probably doubling that, okay? So I think our digital strategies continue to be deep, profound and accelerating.

I think along with that comes a willingness to start working with different partners, partners that will give us that relevance at the point of sale, and obviously in conjunction with the Coca-Cola Company. And that's going to be a challenge because, obviously, when you work with some new partners, you're going to have operating issues, important to basically iron up. But when we have done this in the pilots, everywhere we've gone, we see tremendous volume uplift for all our partners. And so, I think we're in the right place with the right strategy.

And third, I think just continuing to leverage up on innovation inside the Coca-Cola Company. We've seen that happening more towards the alcoholic ready-to-drink sector with everything that they're coming out with from the Topo Chico hard seltzers to Jack & Coke to the Schweppes mixed drinks. So I think we have a very big, large area of opportunity that we have to learn from and continue to move forward. But I think more than anything else, it's just about going out and making sure that we are reinvesting correctly in the business to be able to capture all these opportunities.

And I think, Alan, one thing that you have seen in Coca-Cola FEMSA is that, under this new long-term relationship model that we have with Coke, our capital investments have nearly doubled over the last 2 years. We're probably going to be around that level for the next -- foreseeable next 2 years because demand is growing so strong. So I think going forward, we have the right strategies in place. We have the right digitalization strategy. We have the right partner of the relationship. And I think it's just going to be a very strong operating focus from here on for Ian to continue to do this.

[Operator]

We will now take our next question from Marcella Recchia from Credit Suisse.

[Marcella Recchia Focaccia, analyst]

First of all, congratulations as well to both of you for all achievements at KOF and wish you all the best going forward. I have 2 questions very quickly. The first one is in Mexico. Basically, you were able to more than offset a 150 bps gross margin compression because of higher input costs. Can you just give us a little bit of more color what were the drivers that led such amount of savings in OpEx, and how sustainable they are going forward? This is my first question.

And secondly, if you can elaborate a little bit more about the partnership with Heineken in Mexico? I understand you were the first bottler to distribute beer in Mexico. How you are planning to deal with the license requirements to sell cold beverage in the traditional channel, for example? And also, if you have any views how incremental this partnership can become in terms of volumes and synergies?

[Constantino Montesinos, executive]

On the margins in Mexico, definitely, gross margins were -- first of all, we're very pressured mainly by the higher PET and sweetener costs. Fortunately, our hedging initiatives and price mix continue to mitigate this effect. So one key element for cost containment and margin protection is revenue growth management, which is a disciplined -- very disciplined practice within the -- within Coca-Cola FEMSA that will continue to be there, and our hedging initiatives that follow a process. We have been quite assertive with these hedging strategies up to now. And I believe that if we continue following the process, that will continue to provide for positive impact in our margin protection.

Then on the SG&A side, our team in Mexico has been able to double down inefficiencies in an outstanding way, mainly generating efficiencies from marketing expense by doing better execution and much more optimal -- and optimization of the marketing expense initiatives, labor cost savings, such as professional services, travel expenses, et cetera, and within that, achieving this while facing increases in freight and maintenance costs. So on the SG&A side, a lot of work too, despite increases in freight and maintenance.

And our very important element is our supply chain reinvention. This has also helped to significantly reduce our cost to make and our cost to serve. On a consolidated level, we have saved approximately MXN 935 million year-to-date. So this has been also key to protect the profitability of the business. Having said all that, we're confident their team's ability to continue to double down on these efficiencies and continue to protect our margins for the remaining of the year 2022, and well into 2023, considering that we will face enormous volatility and pressure on 2023. So I hope that provides a little bit of color on the margins.

And then on the pilot program with Heineken, first of all -- and then I'll have John provide more color and his view on this. This pilot program will definitely allow Coca-Cola FEMSA to prove its distribution and selling capacity for high-maintained products in the beer category in Mexico. And we've done that in Brazil for many years, and we're aiming to strengthen such products' presence in the traditional trade channel, allowing more customers and more consumers to have access to a broader portfolio, as always, putting our customer and consumer satisfaction at the center of everything that we do.

We expect that these pilot programs will allow us to obtain the necessary learnings and insights to continue advancing towards a potential strategic alliance in the future. As of now, we're beginning these pilot tests and evidently further details will be provided in the future. These pilots, just to give you a more precise information, will start in the state of Guanajuato. We will assess more potential territories according to the learnings and the market needs that we identified with this initial pilot. And the focus as of now in this initial stage is that Coca-Cola FEMSA will cover a customer base that is not currently covered by the Heineken route to market, allowing for an expansion of coverage and increased execution in these particular regions. John, I don't know if you want to add something to Marcella's question.

[John Santa Maria Otazua, executive]

No, I think not so –- this is on the Heineken piece more than the Mexico piece. I think as we go forward, we're going to see where it makes sense for both companies, where we can add value for Heineken. And I don't think you can take this solution as being something that is immediately translatable to all countries within Coca-Cola FEMSA. But what makes sense and where it makes sense for us and where it makes sense and has value for Heineken, I think we are having the right dialogues to be able to go out there and learn together as to how we can go out there and maybe down the path find something that is more reasonable, more longer term and more sustainable. But these are very encouraging first steps, okay, especially in territories that are difficult in the Mexican market for Heineken. So we'll see. We have the capabilities to go out there and add value to them.

[Operator]

We will now take our next question from Felipe Ucros from Scotia Bank.

[Felipe Ucros Nunez, analyst]

Congratulations on the recent announcements on retirement for John and future endeavors for Constantino. Just a couple on my end. The first one, with recent reports of marginal downtrading in some of the most discretionary categories in the sector, I wanted to ask you about the role of returnables and affordability in the current and upcoming environment. Maybe if you can give us some color on how returnables and other affordability options behaved in prior recessions? And whether the consumer augmented its focus on returnables, and whether you were able to keep the consumer within your price ladder, or whether the consumer traded out of the core portfolio into maybe private label water alternatives. Just looking to see what kind of reaction you expect from consumers in the upcoming slowdown.

[John Santa Maria Otazua, executive]

You want to grab that one, Constantino?

[Constantino Montesinos, executive]

You go ahead, John. You're the expert and you've seen everything in the last 30 years regarding the terminals. I can add more color.

[John Santa Maria Otazua, executive]

All right. I think one of the things as we have -- I think we're better positioned today than we've ever been positioned in the history of Coca-Cola FEMSA. We have a broad growth set of returnables throughout all of our organizations, all our countries. And frankly, we continue to want to build it out both on the multi-serve and single-serve side, and there's a lot more work to be done. But we're very, very, very pleased to where we are. And an environment that has very high economic volatility, a very high pressure for our consumers. We basically trade in and out of different type of value packages, some are returnable, some of them are one-way packages. So we were a lot -- what we're basically doing is going together with an array of pricing and packaging architecture that allows to capture the consumer at any price point that he has within his pocket -- change in his pocket, and stay within the very rituals of [indiscernible] of our main soft drinks.

And I think that's worked for us in the past. And when you're confronted with the volatility in exchange rate, and all of a sudden you have the pressure for increased pricing on -- because the foreign exchange of PET commodity is the costs, at least we have a lag effect that last for some time, that will allow us to maintain and give them a larger value as compared to the pricing that they need to take to maintain themselves in a franchise and bring us back into the [indiscernible] that we are looking for. So I think the value of returnables is not only from -- there's a sustainability angle to it, but it really is also a volatility hedge for the Coca-Cola system in all of Latin America.

[Felipe Ucros Nunez, analyst]

And then, if I can do a follow-up, my second question. Congrats on the Juntos+ rollout. I just wanted to ask a little bit about this new effort and how you ambition to beef up the product offering, whether pilots are being included in this platform? And how this fits with the WhatsApp effort that you have been rolling out so successfully across Latin America.

[John Santa Maria Otazua, executive]

I'm sorry, I had a hard time hearing you. Did you hear that, Constantino?

[Constantino Montesinos, executive]

Sure. It's a question regarding our omnichannel platform, John, and Juntos+ and its connection with multi-category offering for the customer. So I can take it, Felipe, and let have John complement. As you have seen, we're basically expanding every month our digital coverage of our omnichannel platform. I think there's a couple of principles that are very important in the way we have envisioned the omnichannel platform, and at the same time, how it plays along with multi-category offering for the customer.

First of all, it is truly a multichannel focus. So what we are doing is using digitalization as a way to enhance and expand the touch points with our customers. So the way that the customer interacts with Coca-Cola FEMSA through digitalization is not a productivity tool to reduce cost, but an enhancement tool to increase our service level and the possibility of interaction with us.

So as of today, we continue to center our efforts of engagement with our customers, with our pre-seller physical presence. And at the same time, we're adding WhatsApp. We have added WhatsApp capabilities and interaction through WhatsApp. And we're rolling out a digital app in the case of Juntos+ in most of our markets, in a very programmed manner, in a sequential manner.

And in the case of Mexico, we also have a pilot called Ecenta that is testing very different value proposition to a certain sector of customers, right? So we're expanding our products. Then secondly, this allows for the window -- the service window for our customers to increase significantly. In the case of Mexico, for example, in Ecenta, we are being able to accept orders by 11:59 p.m. on one day and deliver them the next day. So -- and in different countries, we're trying different configuration and service windows.

So this allows for our customers to be less time constrained, browse our product offerings, and make sure that they can go deep and broad in our portfolio. This then connects with the multi-category product offering that we have, since now the customer is less time constrained and the pre-seller is less time constrained, allowing for a broader portfolio, without hindering execution and efficiency on the physical routes. This evidently will let us increase, as we expand our relationship with different partners, like the one that we just mentioned with Heineken in Mexico. This will allow us to continue to enhance our multi-category offering in a way that we have defined, which is customer focused and value accretive for everyone in the value chain.

So for our customer, for their consumers, for Coca-Cola FEMSA, and for the partners that can benefit from the usage of such a powerful route-to-market and commercial platform like Coca-Cola FEMSA. So the a very high-level construct of the thinking behind digitalization and omnichannel capabilities, very much focused on increasing the impact and the effectiveness of our platform, and not as a means of pure efficiency and cost reduction and productivity. Evidently, productivity has come along, but the focus is on the effectiveness side and on increasing our Net Promoter Score with our customers, and creating value for everyone in the value chain and evident for our shareholders, too. I don't know, John, if you want to complement on that, and Felipe, I don't know if that answers your question.

[John Santa Maria Otazua, executive]

I would just say that everywhere we put together the correct partnership on the platform, where the incremental Coca-Cola portfolio volumes as well as incremental coverages in sales of partner volumes -- and it's turned out to be very synergistic. And we are very clear as to what the next steps need to be, to be able to continue advancing towards our goal of putting 2 million customers on our platform in short order in every country that we operate in. And so, this is one of our core foundations, of course, strategies. And then through that offer, the relevant services for the traditional trade as we start building this omnichannel platform.

[Operator]

We will now take our next question from Thiago Bortoluci from Goldman Sachs.

[Thiago Bortoluci, analyst]

Congrats on the results, guys. I have a quick follow-up on the operating front. Constantino. In your remarks, you mentioned PET and sweeteners were the lines in which costs came under more pressure on the quarter, especially in Mexico, right? Could you please give us a sense on how the raw material prices are evolving for 2023, and the details around the hedges you have to close further forward so far, please?

[Constantino Montesinos, executive]

Yes. Let me provide some color on the hedges, and I have also -- I'll answer some of the questions, right? So, in terms of raw material and hedges, just to give you a sense of how significant the hedges have been to avoid the cost. We have saved approximately MXN 1.2 billion year-to-date because of the raw material hedging initiatives of this year. So as expected, we saw increases in raw material prices, as you mentioned, particularly PET and sugar, across most of our markets. However, our hedging strategies have definitely helped us mitigate the impact of most of the commodities we use.

But let me give you a couple of examples in -- corn prices have increased double-digits, but we were able to mitigate the impact and hedger needs of fructose at prices that are around 20% below the spot price.

To give you a sense of that, we hedged 90% for Mexico in fructose in 2022 and in 2023. We have hedged 60% of our needs for 2022 and 30% for 2023. The most affected commodity, as we mentioned, has been PET, and we now have covered more than 70% of our needs for 2022, and already 30% for 2023, based on our commodity risk management process.

In Brazil, sugar prices have also increased importantly, but our hedging strategies once again have allowed us to partially mitigate that impact. For 2022, we have hedged more than 90% of our needs at prices that are around 20% below market value, and we have hedged 30% of our needs for 2023. So all in all, although it is certainly a very dynamic environment with a lot of pressure, we're confident that with our pricing initiatives, where we increased in line or ahead of inflation depending on the market, fundamentally sustained by revenue growth management. Combined with hedging initiatives like the ones that I have described, we will be able to substantially mitigate the pressures and protect the profitability of Coca-Cola FEMSA. Jorge, I don't know if you want to add something additional to these remarks?

[Jorge Alejandro Pereda, executive]

I think that's the most important part, Constantino. I would just probably say that, combined with this, going forward, the teams, the operators have a very robust plan that we are executing for the remainder of the year, but also positions us very well going forward in terms of leveraging our top line initiatives, the hedging strategies that we just described, and other capabilities that should allow us to mitigate margin pressures as we move into 2023, and some of these hedging strategies have the natural rollover effect.

[Operator]

We will now take our next question from Sergio Matsumoto from Citigroup.

[Sergio Matsumoto, analyst]

John, all the best for -- in your next chapter. And Constantino, we look forward to working with you on the FEMSA side. My question is on the goal that you mentioned, John, for 2022. I believe it's in Mexico where 65% of volume growth would like to -- would come from single serves. Can you give us more context on this, on how much attribution you give to increase in mobility? And how does the consumption environment for single serves compare now to pre-pandemic times? And what are the optimal sales mix for single serves in the long term, not just 2022 but more on a few years out?

[John Santa Maria Otazua, executive]

Well, a lot of this -- Sergio, thank you for your comments, and I appreciate them very much. But one of the things that we're doing through Coca-Cola FEMSA is focusing on single-serve multi-packing in modern channels. So when you walk in there, you're going to start looking at one-on-one channels, having an extremely large assortment of single-serve multipacks, not only of single brand, but also of combined brands, where you have a combined pack with Cokes and maybe Fantas and Cokes and Sprite, et cetera. It has to do with going out there and giving the consumer what they want. What we have found is that this is some -- the behavior of drinking single-serve is something that we had not explored as much as we could. During October, we found that the consumption occasion will impact home. We put together these types of packages. And at the end, the team --things growing at a remarkable way. Single serve is 5% versus 2020 in Mexico, and in Brazil is up in terms of percentage points.

How much further can we go? I wouldn't enter a number there, but you will see what we're continuing to push this, not only in margin channels, but also look for the right [ medical ] packaging of multipacks for traditional trades.

[Operator]

We will now take our next question from Rodrigo Alcantara from UBS.

[Rodrigo Alcantara, analyst]

2 quick ones, if I may. On the beer sales in Brazil, it appears that the sequential recovery was a bit faster than previous quarters. So just curious if you would highlight anything here, or once -- it's just seasonality or inflation driven? Any comments regarding the OpEx on the multi category there in Brazil would be very helpful.

And the second question would be, as we approach the year end, if you have any preliminary thoughts on the dividend for next year? Those would be my 2 questions.

[Constantino Montesinos, executive]

Jorge, do you want to take the…

[Jorge Alejandro Pereda, executive]

Yes, Constantino. Absolutely. I will take the beer part. Just to point out one thing. Actually, this quarter, this third quarter is the first quarter that we -- that basically mark the unfavorable comparison base, reflecting the transition that basically happened last September. So a little bit is related to that, that we are not fully comparing with a quarter, with the full Heineken portfolio from the previous year, finally. So that's some good news in the sense of the comparison base, that this quarter marks the first or the last quarter that we cycled that transition. For this reason, the year revenue declined around 45% this quarter as compared to the rate of approximately 60% that we have in the previous quarter.

Secondly, I'm taking advantage of the question, and to provide you some additional color on beer, we are doing several initiatives there, around beer. First, for example, with Therezopolis, we're rolling out a new marketing campaign with brand Therezopolis. It's called in Portuguese [Foreign Language], which -- it's a great campaign that we're rolling out. And most importantly, as we mentioned during the previous call, we're building this portfolio for the long term in terms of the -- and building great brands is something that doesn't happen overnight. So we continue to focus on coverage expansion, for example, with Eisenbahn accelerating its momentum and its coverage continue to build Tiger, and the focus on execution and brand building that we're doing together with Heineken there. So all in all, Rodrigo, we're very optimistic about the portfolio in the future. Next quarter, of course, will mark a like-for-like comparison there for the portfolio as compared to after the transition. And it's behaving, as we said, mostly as the next curve on the development part of the beer portfolio, and that's what we're focusing on.

[Constantino Montesinos, executive]

And Rodrigo, on the dividend side, we have been delivering a very solid dividend. Just as a reminder, our current dividend represents an increase of 7.7% versus 2021 to an amount of MXN 11.4 billion, which is important, and it is an increase of 53.4% versus 2019, which underscores our commitment and our view of total shareholder return.

As of now, we continue to have -- our capital allocation priority is quite clear, first of all, to continue to deliver a sustainable ordinary dividend that's attractive to our shareholders. reinvest in the business. John was mentioning the significant investment in CapEx in the last couple of years that we have put behind the business -- focused on growth. And last but not -- that's important to continue to look for value-accretive growth opportunities. So that is our focus right now. We will pay next installment of the dividend on November 3rd, and once more underscore the significant increase versus 2019 evidently versus 2021 of our current dividend policy. I hope that helps.

[Rodrigo Alcantara, analyst]

Just to complement there, if you can give -- I know it's still small, but any qualitative arguments there on how is it going on with the rest of the multi-category fundamentals compare the rest of the categories, would be helpful as well.

[Constantino Montesinos, executive]

Jorge, do you take that one?

[Jorge Alejandro Pereda, executive]

Sure, absolutely. Yes, I would say, Rodrigo, what we're seeing is great results because, if you think about -- for example, a year ago, October, when we were beginning with the pilots, for example, of Diageo, P&G in Mexico, we were beginning in basically one city in each of the -- each cases, because of -- Puebla for Diageo and Veracruz for P&G. And over the course of this year, we have been able to expand the critical mass of those pilots, and we're gathering learnings and a lot of insights from that development. Similarly, we have been doing that in Brazil with Perfetti, with Campari, gathering learnings. Things are going in the right direction. So I would say that overall, we're very, very enthusiastic about the trajectory that we're getting with pilots, and also with the early days of the distribution agreements that we have with Perfetti and Campari.

[Operator]

We will now take our next question from [ Louis Biller ] from GBM.

[Unknown Analyst]

So basically, I mean I'll try not to be repetitive here in my question. But I mean, it's remarkable to see the acceleration of the digitalization progress, especially in Mexico, as you have mentioned throughout the call. So as it continues to gain momentum over the next quarters and the next year, and you continue to think of it as an enhancer of the ecosystem, so do you see digitalization also increasingly relevant when you think of capital allocation in the future?

[Constantino Montesinos, executive]

I want to -- let me see if I understood your question. What you're mentioning is, given the evolution and the increase of relevance in digital channels for Coca-Cola FEMSA, would capital allocation on digitalization be a priority going forward. Is that the question just to make sure?

[Unknown Analyst]

That's precisely it.

[Constantino Montesinos, executive]

Okay. Yes, for sure. As we have stated in previous calls and interactions, the way that we are looking at value-accretive place and inorganic growth and capital allocation, we have been focusing on assessing opportunities that are evidently on one end expanding our footprint in the current business where opportunities come, that are both strategically sound and value accretive. We will not do any inorganic place just for the sake of growing. They definitely have to bring value both strategically and economically to our shareholders.

At the same time, looking at adjacencies and other categories with the Coca-Cola Company, that can make sense for our network within the beverage sector such as other categories that might be in the NARTD space, noncarbonated, et cetera. That is something that we always look at, and the Coca-Cola Company is very active on those fronts in this region than in other parts of the world.

And also, to answer your question, looking at technologies and digital partners that could enhance our value proposition to our customers in the omnichannel platform that is fully digitally enabled. And at the same time, that can allow us to accelerate with capabilities, our digitalization efforts. So the answer is a -- it's always yes, we are looking at and assessing different opportunities in all of those 3 different spaces, as we normally do as part of our -- of the course of our activities on an everyday basis. I hope that clarifies.

[Operator]

It appears there is no further questions at this time. Mr. John Santa Maria, I would like to turn the conference back to you for any additional or closing remarks.

[John Santa Maria Otazua, executive]

Thank you, operator, and thank you all for your confidence and interest in Coca-Cola FEMSA. And as always, our Investor Relations team led by Jorge, and all of his team are available to answer any of your questions -- or any questions you may have. And I would like to again just take the opportunity to thank all of you for your continued support during my tenure as CEO, and just reiterate how excited I am about the continuity that's coming along within, and the strategies that are underlying, and how we see an accelerated momentum in Coca-Cola FEMSA. Not only are we growing faster, we're investing more, and we're also returning an enormous amount of money back to our shareholders. So we've got 3 very good levers going in terms of the strategy. And I think that you haven the Coca-Cola FEMSA irreplaceable assets in Latin America that only has room to grow on a global sale. So thank you very much.

[Operator]

Thank you for joining today's call. You may now disconnect.

[John Santa Maria Otazua, executive]

Yes.

[Constantino Montesinos, executive]

Thank you very much, operator, for your help today.