Coca-Cola FEMSA - Q4 2021

Transcript

Operator (participant)

Good morning, everyone, and welcome to Coca-Cola FEMSA's fourth quarter 2021 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 question 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 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 will 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 (CEO)

Good morning, everyone. Welcome to our fourth quarter and full year 2021 earnings conference call. We appreciate you joining us today, and we hope you and your families are safe and well. I am joined on today's call by Constantino Spas, our Chief Financial Officer, and as always, Jorge Collazo, our Head of Investor Relations. I'm encouraged by our results and the progress we made throughout the year. Although 2021 presented challenges, our results highlights our business's resilience and our ability to deliver accelerated results across all of our strategic fronts. We strengthened partnerships, we emerged stronger from the pandemic, and closed the year with escalating momentum by delivering solid top and bottom line growth, coupled with share gains across our territories.

During our call today, I will expand on our fourth quarter results and provide you with an operating update, with a special focus on key markets of Mexico, Colombia, and Guatemala. Then, I will discuss our vision for 2022, the rollout of our omnichannel and digital initiatives, and our commitment to sustainability, underscored by the recent announcement of a new PET recycling facility in Mexico. Before we take your actions and questions, Constantino will walk you through our divisions' performance, profitability initiatives, and capital allocation, including our recent acquisition of CVI in Brazil and our CapEx plans for 2022. Moving on to discuss our consolidated results. Our volumes for the fourth quarter increased 5.4% year-on-year, and 6.9% as compared to our 2019 baseline.

This growth was driven mainly by significantly accelerated volume growth of 6% year-on-year in Mexico, coupled with the continuous recovery of most of our markets. Like the third quarter, we continued to see a remarkable volume performance in Colombia, Central America, and Argentina. For the quarter, all of our categories posted volume growth as compared with the previous year. Our core sparkling beverage categories grew 3.9%, driven by 2.9% growth of brand Coca-Cola, and 7.7% growth in flavors. Notably, our non-carbonated beverages and personal water beverage categories grew 16% and 23%, respectively, with double-digit growth in the vast majority of our territories.

As compared to our 2019 baseline, our sparkling beverage category grew 6.2%, driven by growth in all of our territories that resulted in a solid 5.3% growth of brand Coca-Cola and 9.8% growth in flavors. Across most of our territories, and despite the rapid spread of Omicron towards the end of the quarter, the on-premise channel's volumes accelerated, while the modern trade grew ahead of our forecast and the traditional trade continued to post healthy and resilient performance. Importantly, our single-serve mix remained a significant tailwind. To give you a sense, in Mexico, our single-serve mix recovered an additional two percentage points as compared to 2020, reaching 32%, and is only one percentage point below our 2019 baseline. For the quarter, our consolidated total revenues grew acceleratedly, increasing 8.5% year-on-year.

This growth was driven by our volume performance, coupled with our pricing initiatives and favorable price mix effects. These effects were partially offset by the transition of Heineken's beer portfolio in Brazil, coupled with an unfavorable currency translation effect into Mexican pesos. Notably, excluding unfavorable currency translation effects, our comparable total revenues increased 10.5% year-on-year, and when compared with our fourth quarter 2019 baseline, our consolidated revenues increased by 3%. Despite the volatile supply chain and raw material environment, our gross profit increased a solid 9.3%, and our gross profit margin expanded by 30 basis points, driven mainly by our pricing initiatives, coupled with favorable raw materials hedging strategies and efficiencies achieved across all our operations.

Additionally, as discussed during our previous earnings call, we resumed the recognition of tax credits on the concentrate purchases from Manaus Free Trade Zone in Brazil as of the second quarter, which has also supported our gross margin performance as compared with the previous years. Operating income growth accelerated sequentially, increasing 7.6% as compared with 2020. Notably, it is a 22% increase versus the fourth quarter of 2019. Our operating cash flow for the quarter increased 6.5% year-over-year, resulting in a resilient operating cash flow margin of 20%.

Finally, our controlling net income increased a solid 82.8% to reach MXN 5.8 billion, driven mainly by a one-time favorable effect on our consolidated tax rate, mainly related to the recognition of a favorable deferred tax credit in Brazil, coupled with a decrease in our comprehensive financing results. It is important to highlight and summarize our full year 2021 results. Consolidated volumes increased 5.3% year-on-year, improving 2.6% compared to our 2019 baseline. Consolidated revenues grew 6.1% year-on-year, surpassing our 2019 baseline. Finally, operating income grew 8.6% year-on-year, increasing 7.8% as compared to 2019.

Notably, driven by our focus on improving returns, 2021 marks the fourth consecutive year of growth in Coca-Cola FEMSA's return on invested capital, which is now in the double-digit range. We'll now take a moment to discuss our operating highlights and the positive momentum of key markets, Mexico, Colombia, and Guatemala. Driven by our commercial initiatives and overall recovering environment, our Mexico operations volume for the quarter increased 6% year-on-year, while improving 3% compared to 2019. Notably, we saw sequential improvements month after month, reaching a banner month in December. It was encouraging to see consistent volume improvements throughout the quarter, both across categories and across the different regions in which we operate. Average daily sales improved consistently from the Baja region to the Southeast region, including Mexico City and the Gulf of Mexico.

It is also important to underscore the results of the new formula and visual identity of Coca-Cola Sin Azúcar in Mexico, which grew double digits as compared to 2020, and the highest single digits as compared to 2019. Affordability played and will continue to play an important role in our strategy. For this reason, we continue leveraging our broad portfolio and price-pack architecture to provide our consumers with the right alternative at the right price, whether their choice is single-serve, multi-serve, multi-packs, refillable multi-packs, or one-way options. To give you a sense of the importance of returnable options today, more than 40% of our volume in Mexico is in refillable presentations. In summary, Mexico closed the year on a high note.

It made important advances across all our strategic priorities, increasing execution, bolstering affordability, and advancing on both the B2B omni-channel and D2C, direct-to-consumer home delivery fronts. We are convinced that our Mexico operation has the right team, capabilities, and strategy to continue its positive momentum in 2022 and beyond. Moving on to Colombia, our volume for the quarter grew 16.2% year-on-year and 16.5% compared with the same period in 2019. We continue to focus on the fundamentals for success, strengthening our portfolio, offering affordability, and delivering outstanding market execution. This mindset has enabled us to recover our volumes and single-serve mix, while increasing our number of clients compared to pre-pandemic levels.

To give you a sense, during the year, we added more than 35,000 clients, an increase of more than 8% to our client base, and achieved historic product availability. Importantly, consumer-centric portfolio innovation has increased our relevance in non-carbonated beverage categories and water. While the rollout of our Universal Bottle, which is growing double digits, is giving us a strengthened capability to provide affordability to our consumers. This bottle gives us the capability to provide affordability, not only in brand Coca-Cola, but also in flavors and non-carbonated beverages. As a result, we are growing ahead of the industry, strengthening our competitive position by gaining share across categories and channels. I am encouraged by Colombian operating results.

We have a clear roadmap to continue this positive momentum into 2022 and beyond, and leveraging the fundamentals of affordability, increased coverage and availability, while accelerating our portfolio innovation and the rollout of our business-to-business omni-channel platform. Finally, our Guatemala operation continued its consistent three-year double-digit growth. For the fourth quarter, our volume increased 14.1% compared with 2020, and an impressive 27% compared with 2019. This growth resulted from our focus on delivering the right commercial capabilities while strengthening our portfolio across categories and channels. Notably, our core sparkling beverage category and the traditional trade channel have largely driven this remarkable growth story. Looking ahead, we continue to see great opportunities in Guatemala to capture new clients, reduce out-of-stocks, and increase cooler coverage, while continuing to digitalize our operation, from back office solutions to our commercial omnichannel platforms.

In summary, we are convinced our positive momentum reflects the relentless working commitment of our team and underscores our outstanding capabilities to execute and deliver against all of our strategic priorities. While Coca-Cola FEMSA's strategic achievements for the year were many, no milestone is as significant as our enhanced cooperation framework with The Coca-Cola Company. This framework ensures long-term alignment of our partnership, growth plans, and strategy, enabling us to not only continue building a winning customer-centric portfolio, but also explore new multi-category opportunities across our markets while developing strategic digital initiatives. This achievement is the cornerstone of our ambitions and priorities for 2022 and beyond, as we continue to position Coca-Cola FEMSA for the next wave of profitable, sustainable growth. Consistent with our vision, we continue adapting and reshaping our company to thrive in the new global business environment.

We accelerated the build-up to our customer-centric, omni-channel, multi-category commercial platform. To give you a sense, we now have approximately 300,000 active monthly purchasers on our proprietary omni-channel B2B platform, up over twofold from a year ago. Also, we achieved the historical expansion of our direct-to-consumer home delivery routes in Mexico, from approximately 800 routes to 1,200 routes, reaching close to 600,000 households, while beginning the digital transformation of these routes, as we speak. Notably, digital purchases in Coca-Cola FEMSA now represent over 6% of our total orders, generating more than $350 million of sales or close to 95 million unique cases. This marks triple-digit growth in our digital orders, volumes, and revenues compared to 2022. Sorry, 2020.

Moreover, as we explore new multi-category opportunities across our markets, we are rolling out pilot programs to test the distribution of complementary categories, such as leading spirits brands and leading consumer products in certain markets. Although most of these pilot programs are in early days, the results during the fourth quarter are encouraging. We are not only gathering valuable learnings and insights, but also increasing coverages, repurchase, and revenue. As part of our vision of becoming the world's preferred and most sustainable commercial ecosystem, I must underscore our company's commitment to sustainable development. Consistent with this ambition, on January 25th, we broke ground on a new recycling plant in Tabasco, Mexico, together with ALPLA, a global leader in the development and production of packaging solutions.

The ultimate goal of this state-of-the-art plant, which will have a co-investment of more than $60 million, are to accelerate the transition to a circular economy, close the PET plastics recycling loop, strengthen the collection and recycling chain, and benefit the environment and the communities in Mexico's south and southeast regions. The plant is expected to start operation during the first quarter of 2023. Finally, we are honored to be included for the second consecutive year in the S&P Global Sustainability Yearbook 2022. From more than 7,000 companies evaluated worldwide, we stand out as the only Mexican beverage company included in the yearbook, thanks to our positive performance on S&P's Corporate Sustainability Assessment. This recognition only confirms that we are on the right path, but more importantly, it strengthens our commitment to working towards a more sustainable future. With that, I will now hand the call over to Constantino.

Constantino Spas (CFO)

Thank you, John, and good morning, everyone. I will now expand on our division's fourth quarter results. In Mexico, our volumes increased 6%, while our total revenues increased 12.2%, driven by pricing initiatives and a favorable price mix. In Central America, our operations once again delivered a strong volume performance with all of our markets growing double digits, which combined with the revenue growth management initiatives, enabled us to achieve 20.8% revenue growth compared with the fourth quarter of 2020. As a result of this, our quarterly revenues increased 13.7% in Mexico and Central America, and 13% compared to the same period of 2019. On the profitability front, our gross profit increased 9.1%, which resulted in a gross profit margin of 48.4% against a very tough, comparable base.

This margin contraction was driven mainly by increases in commodity prices and higher concentrate costs in Mexico. Importantly, these effects were mitigated by successful raw material hedging strategy. Although we continued to see normalization of certain operating expenses during the quarter, such as labor and maintenance, our teams were able to double down on additional savings and efficiencies in order to offset the effect of this normalization. During 2022, we expect to protect our profitability in the division by pricing aligned with or ahead of inflation across our markets, while maintaining a disciplined hedging strategy and a permanent savings and efficiencies culture. As I mentioned in our previous conference call, despite the dynamic raw material and supply chain environment that's affecting industries worldwide, we're maintaining a high profitability base in our Mexico and Central American division.

Notably, our full year operating cash flow margin closed at 22.4%, which is 180 basis points ahead over 2019 baseline margin. A remarkable achievement for our teams in the division. Moving on to South America, this division delivered 3% volume growth as compared to 2020, and is 9.6% ahead over 2019 baseline. Double-digit volume growth in Colombia and mid- to high-single-digit growth in Argentina and Uruguay, partially offset by the normalization of volume growth in Brazil, which was affected by very challenging weather during the quarter. Our revenues for the division grew 2% as our revenue management initiatives, pricing and volume growth, were partially offset by the unfavorable currency translation effects and the transition of our beer portfolio in Brazil, which is in very early stages.

If we exclude the currency translation effects, our top line would have increased 6.4% during the quarter. On the profitability front, our gross profit in South America increased 9.6%, expanding our margins by 280 basis points. This increase was driven mainly by the operating leverage resulting from volume growth, favorable price mix effects, and raw material hedging strategies, which, coupled with the resumption of the tax credits on concentrate that we purchased from the Manaus Free Trade Zone in Brazil. Our operating income for the division increased 18.6%, resulting in an operating income margin expansion of 170 basis points.

Finally, our South American division was able to effectively mitigate pressures from the dynamic environment and post a resilient full year operating cash flow margin of 16.4%, 20 basis points ahead of 2020. I will now expand on our financial results, which reflect the strength of our balance sheet and successful refinancing initiatives that carried out over the past years. For the fourth quarter, our comprehensive financial results recorded a decrease of 57.9% as compared to the previous year. This is explained by the following effects. First of all, a decline in our interest expense net, driven by an increase in interest income. Second, a foreign exchange gain of MXN 79 million, as compared with a loss of MXN 346 million during the previous year.

A gain of MXN 131 million, as compared to a loss of MXN 214 million in the market value of financial instruments. Lastly, a bigger gain on monetary position on inflationary subsidiaries related to Argentina as compared with the previous year. Notably, on a full-year 2021 basis, our interest expense net was reduced by 23.2%, driven by the effects of successful refinancing initiatives in a comparable base that included a one-time effect of approximately MXN 1 billion related to these successful refinancing initiatives. Underscoring the strength of our balance sheet and cash flow generation, we were able to finish the year with a cash position of more than MXN 47 billion, representing a 9% increase as compared to the end of 2020.

Now, let me provide you with an update on our raw material hedging strategies for 2022. In Mexico, we have hedged approximately 75% of our PET needs for 2022, and more than 90% of our high fructose corn syrup needs for this year. Notably, we have also hedged more than 40% of our aluminum needs in the country, while in Brazil, we have hedged more than 70% of our sugar needs for the year. We're confident that these hedges, coupled with our ability to price ahead of or align with inflation across the markets, will enable us to substantially mitigate margin pressures and protect our profitability during 2022. Moving on to discuss capital allocation.

We're very encouraged to confirm that our Brazilian subsidiary's acquisition of CVI, a Coca-Cola franchise bottler with operations in the southern part of the country, successfully closed last month. As a result, we will begin consolidating CVI's results as of February first. With the acquisition of CVI, Coca-Cola FEMSA bolsters its leadership position in the region to reach 52% of the Coca-Cola system's volume in Brazil, adding to our operation one bottling facility and three distribution centers that serve more than 13,000 points of sale and more than 2.8 million consumers in a territory that is full of synergies and market opportunities. Finally, and consistent with the joint vision and growth perspectives we share with the Coca-Cola Company, we expect to increase our CapEx to revenues ratio to a range of 7%-8% during 2022.

These investments will primarily focus on strengthening our infrastructure, especially our affordability capacity and returnable capacity, and investing behind these assets that increase their presence in the market in order to ensure long-term growth and transformation. With that, I will turn it back to John for his final remarks, and then we will follow up with a Q&A section. Thank you. Thank you for your attention today.

John Santa Maria (CEO)

Thank you, Constantino. Although we expect to continue operating in a dynamic market environment, we are convinced that we have the right set of capabilities to continue delivering accelerated results, growing our top and bottom line while substantially mitigating margin pressures during 2022. I'm encouraged by our strategic agenda, which is as clear as ever. Which is based on building a clear consumer-centric, multi-category portfolio, accelerate the rollout of our digital B2B and B2C omni-channel platforms, and continue placing sustainability at the center of everything we do, while fostering an agile, people-centric culture going forward. We'll provide more updates on our strategies as we continue progressing throughout the year. Thank you for your continued trust and support, and for joining us today. Operator, I'd like to open the call for questions.

Operator (participant)

Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. Our first question today comes from Álvaro García of BTG.

Álvaro García (Executive Director)

Hey, John, Constantino. Thanks for- thanks for the space for questions. Couple of questions. One, for Constantino, on tax breaks in Brazil, I was wondering if maybe you could help say there's, you know, potential size of potential benefits in the future, if there's anything. They seem somewhat recurring, so I was wondering if you could maybe help us put a number on that or help indicate if you expect to see more of these going forward. And two, my second question for John, on the multi-category strategy, how should we think about the sort of your TAM, your total addressable market, as you grow out these pilots, which are not really pilots anymore? How should we think about sort of your TAM for that specific business? Thank you.

Constantino Spas (CFO)

Hey, Álvaro, how are you? Good morning. You know that Brazil is a very complex and dynamic tax environment. So there's always, you know, changes in that context. However, we don't foresee any major changes or impacts as of today in terms of the tax environment. So, you know, it's very difficult to anticipate that in, you know, in the midterm, but in the short term, I don't foresee any, you know, relevant tax impacts going forward. I don't know if that answers your question. I don't know. That's, you know, that's what we can say.

Álvaro García (Executive Director)

Yeah.

Constantino Spas (CFO)

And your second question on multi-category, I will let John answer, and if you need any more color, I will feel free to jump in.

John Santa Maria (CEO)

Sure. Álvaro, how are you? Thanks for the question. You know, multi-category for us is something that we're looking as an opportunity to go out there and become much more customer centric. And obviously, what we are trying to achieve is to participate at a share of wallet level of our customers, that's probably between 40%-50% share of wallet of what they sell. So when we think about categories, okay, and multi-categories, it is really how do we achieve the relevance to become close to 40%-50% of the share of wallet in traditional trade, whether it be on-premise or retail. And that's how we're defining our total addressable market, okay?

But it's not only the multi-category products that we can have as an opportunity, but also the opportunity to layer on top of that, you know, services and features that will allow us to continue to grow and drive value through an enhanced platform to these stores via the offering of a comprehensive portfolio of products, and then on top of that, building services. Does that answer your question?

Álvaro García (Executive Director)

Yeah, no, it's, it's super, super clear. Super clear. Thank you very much.

Constantino Spas (CFO)

Alvaro, if I might jump in, just provide a little more color. When you look at digitally native, you know, initiatives and companies and startups that are trying to, you know, leverage on creating, you know, an ecosystem around the traditional trade, I mean, they're very good and they have very good business cases at, you know, finding a way to monetize that point of sale beyond, you know, physical goods. The biggest issue is cost of acquisition for that particular customer and scale.

In Coca-Cola FEMSA, you know, what John is explaining is we're moving into understanding and having a very clear picture of what are the levers and what are the, you know, services and technologies that we need to layer on top of a route to market to fully monetize the point of sale, beyond physical goods, but at the same time, we have a very valuable asset, which is, you know, we have fantastic coverage, great drop size, and a very, I would say, granular sales force and route to market that allows you, at the same time, to have a very relevant portion of that share wallet from the get-go, so when you blend those views together, that's where the ecosystem and what we're building going forward comes into play.

Because it's the combination of a great baseline and a profitable approach and coverage of more than two million points of sale, and at the same time, a series of initiatives that we're working on within Coca-Cola FEMSA, to be able to crack the code of monetizing the point of sale beyond physical goods and provide a robust customer-centric solution for these customers. So that's how we, you know, we summarize what we're envisioning. We're running, as John mentioned, a series of pilots across our markets and across, you know, different segments with very encouraging results, but most importantly, with a lot of learnings from the testing of different proofs of concept that we're working on today. So I don't know if that helps to round up the idea on that.

Álvaro García (Executive Director)

No, yep. Certainly the lowest customer acquisition cost out there. Thank you very much.

Constantino Spas (CFO)

Thank you.

Operator (participant)

Now we can go to Carlos Laboy of HSBC.

Carlos Laboy (Managing Director)

Yes, good morning, everyone. I was hoping that you could expand, John, on how high you think refillables can go. I mean, these levels you're hitting in Mexico are pretty impressive for a package that was left for dead 15 years ago, 20 years ago. What's the business case also for going into recycling? And how does this plant and then your refillable target, how does this all holistically drive your plastic waste objectives? 'Cause you seem to be doing it backwards from the way a lot of the Coke system has been doing it, right? You're mastering the refillables first, and now you're actually putting money to work on the recycling side of the equation. If you can expand on all this, please.

John Santa Maria (CEO)

Sure. And I guess, Carlos, is that we really never had a package that was, you know, was lost in memory, which is refillables. It's always been a very large component part of our portfolio, and it's a key part of our portfolio. You know, multi-serve refillables has been something that has allowed us to go out there and leverage our portfolio and our pricing architecture for a long time. That's why, you know, we are selling differentiated pricing throughout a lot of different areas. And now we're doing it even more so with the Universal Bottle, bringing down the bottle floats and being able to put more categories through, you know, Universal Bottles and just labeling instead of having different bottle floats.

So when you start thinking about this, and we have, you know, Mexico going at 40% for refillables, we believe that that is something that is achievable in most of our operations, definitely through Central America, definitely through Colombia, a good possibility in Brazil and then Argentina. So, you know, those are benchmarks which I think are pretty much achievable everywhere. And the issue of us going into recycling system facilities is one where, you know, it is consistent with the Coca-Cola Company's policy of a World Without Waste. Okay? We are right now recycling, using about 28% recycled PET overall Coca-Cola FEMSA. Some places more, some places less. And we do wanna take that number up with this particular plant in Mexico to about 50% of what we're using in Mexico.

And if you look forward and say, you know, why would we wanna do this? First, is because we think it's the right thing to do towards our communities. Second thing, for our planet. And third, you know, when you start looking at putting together recycled resin and the costs and the prices that a recycled resin have today versus virgin resin, the pricing structure is 30% more, is higher on recycled resin than virgin. So it is not a bad investment either. So it has to do with a lot more about putting sustainability at the heart of what we're doing, leading, you know, leading our industry into better practices. And this is not only you know, a recycling plant, but it's also a collection. You know, they're out there with...

We have put together a string of 18 collection facilities to supply that. So, you know, it's a whole recycling and circular economy move that allows us to start off with a leading example in where we, in Mexico, where we're, where we, you know, we have most of our investment, but this is something we'll be looking to roll out into all our different countries as well.

Carlos Laboy (Managing Director)

Great. Thank you. Congratulations for this. This is, this is excellent.

John Santa Maria (CEO)

Thank you.

Operator (participant)

We can go to Lucas Ferreira of JPMorgan.

Lucas Ferreira (Executive Director)

Hello, gen`tlemen. Can you hear me?

John Santa Maria (CEO)

Yes.

Constantino Spas (CFO)

Yeah.

John Santa Maria (CEO)

Yeah.

Lucas Ferreira (Executive Director)

Hi, John and Constantino. Yeah, I have two questions. The first one on South America results. You guys delivered good margins, so despite the pressures coming from the migration to this new contract with Heineken, right? So just wondering, high-level thoughts if you can comment on the margins in Brazil, if it's surprising to the upside or if it's like other countries that were pushing these margins up. And, if you can make us some high level comments about the transition there in Brazil, how it's been going with the Tiger, so we understand what to expect for 2022.

Constantino Spas (CFO)

Sure, Lucas, I'll take that. In South America, as we mentioned during the quarter, our margins expanded around 160 basis points. This was mainly driven by gross margin and solid price mix in the division. You know, to better explain the effects, we had overall better volumes across the division. We recovered price mix, mainly in Argentina and Colombia, and we, you know, coupled that with recovering operating leverage. We had favorable raw material hedges, especially sugar and aluminum in Brazil, which allowed us to substantially mitigate the pressures and generate some savings. We also had some relevant savings and efficiencies in marketing and freight that were partially offset by the normalization and, you know, the expenses such as labor and maintenance.

And at the same time, the resumption of tax credits in Brazil as of the second quarter, you know, had a relevant impact. In addition to that, we also had the transition of the beer portfolio, as you know, which we're gonna talk about right now, also has had negative impact on margins. But, all in all, we mitigated that with better operating leverage in the division. That's like, you know, the compounded effect of all of these variables generated this outcome. In terms of beer, we're probably at the lowest point of the beer transition, after a decline of approximately 30% in beer revenues for 2021.

For 2022, due to the effect of this transition, we expect the revenues to decline around 15%, probably, and hit the low point of the transition and then start, you know, in the rebuilding of the portfolio, and as we have previously mentioned, we're building a very, you know, solid portfolio. I mean, with Heineken brands such as Eisenbahn and the launch of Tiger. Eisenbahn has been, I think, the first one to pick up a lot of steam in our platform. We're growing coverage significantly versus where we received the brand. The launch of a new brand like Tiger, the value proposition needs to continue to gain traction in the market, but we're seeing some interesting, you know, green shoots there.

Therezópolis brand is going super well, starting from a very, very small, you know, baseline. And now we recently acquired the distribution of Estrella Galicia. So if we put that all together, I think that, you know, from a two to three-year timeframe, we see it as a feasible target to recover our previous position with the new portfolio. So I don't know if this provides you with some, you know, with some more color on your questions. But definitely the reconstruction of a very different beer portfolio with great alternatives for the customer and the consumer is something that doesn't happen overnight, but we are very pleased on the way that this is, you know, evolving.

Lucas Ferreira (Executive Director)

No, that's, that's great, Constantino. Thank you.

Constantino Spas (CFO)

Thank you for your question, Lucas.

Operator (participant)

Our next question comes from Antonio Hernández of Barclays.

Antonio Hernández (Analyst)

Hi, good morning. Thanks for taking my question. My question is also regarding Brazil. Thanks for the color that you just provided. But what gives you a little bit more sense of the whole consumer environment? I mean, there are elections this year. There's also Carnival. There's also World Cup taking place in a different part of the year. How is the overall environment, consumer environment that you're seeing there? Thanks.

Constantino Spas (CFO)

Over. Go ahead, John, please.

John Santa Maria (CEO)

No, no, that's all. I was gonna say, I heard only parts of the question, so if you heard it fully, go ahead, Constantino.

Constantino Spas (CFO)

Okay. Do you wanna recap, Antonio, so that John has a full idea of your question, please?

Antonio Hernández (Analyst)

Sure. Of course. Question regarding the whole Brazil environment with elections this year and the World Cup taking place at another part of the year. And also, basically the different moving pieces there in, you know, Carnival as well. How is the consumer environment that you're seeing there? Thanks.

John Santa Maria (CEO)

You wanna hit that one, Constantino?

Constantino Spas (CFO)

Sure, and you can, you can complement. Antonio, thanks for the question. Well, you know, we're confident the biggest disruptor that we've had in the last couple of years, which is the pandemic, that you know, we're leaving behind the most challenging phase of the pandemic, and that's definitely something that provides a much more positive outlook for consumers. And that's, you know, across all of the regions. It's not exclusive to Brazil. As you mentioned, there's, you know, there's a very, I would say, a typical year in terms of elections going forward. It's a very dynamic and fluid environment, and-...

You know, a couple days ago, we hit a new, you know, a new and very, you know, disruptive issue in the world, you know, with the events that are happening, you know, between Europe and, you know, Ukraine and Russia. So volatility and uncertainty will be, you know, permanent, we believe. Having said that, we feel that we have a much more positive environment in terms of consumer in Brazil. I think that our strategies that we have, you know, proven to be very solid across the last three to four years remain unchanged. So we believe that there, we're gonna have positive volumes. Our pricing will be in line, slightly ahead of inflation.

And the executional, you know, capabilities of Coca-Cola FEMSA, digitalization, our price-pack architecture, and the collaborative work with the Coca-Cola Company should allow us to navigate, you know, any volatility that we face, you know, during this year, at least the ones that we can anticipate, right? So all in all, we see a positive environment going forward. And, you know, and as any year that's an electoral year, you know, we need to monitor it day by day and see what adjustments we need to make. But so far, we're very, you know, optimistic of the Brazilian market and the consumer environment as we speak. John, I don't know if you wanna add something.

John Santa Maria (CEO)

Antonio, I think, you know, first of all, we expect and are planning for strong growth out of Brazil. You know, and that strong growth comes from, you know, as Constantino said, strong portfolio, but also continued share gains. You know, we continue to gain share in Brazil. And we're better positioned now than ever for, you know, uncertain environment. What concerns probably everyone is inflation and how we're, you know, the high levels of inflation and how the Brazilian, you know, inflation environment has been developing. You know, we are taking pricing, you know, within that line of inflation as, and keeping up with inflation. But we do have a set of tools that we didn't have in place in most parts of Brazil before, which is, you know, refillable PET.

Yes, we have the dual portability packs, which has been expanded. So there's a lot more tools in our tool chest today than we had before, to be able to confront, which could be, you know, a softer consumer environment, but one where we continue to be able to pick up share as we have been. And so, you know, our portfolio is in better position. And I'm very encouraged to see, you know, that so far, you know, we continue to see good momentum in Brazil. So, you know, it's a case where, you know, we're very positive for the country for 2022.

Antonio Hernández (Analyst)

Perfect. Thanks a lot.

Operator (participant)

Our next question comes from Marcella Recchia of Credit Suisse.

Marcella Recchia (Senior Equity Research Analyst)

Hi, John. Hi, Constantino. Thank you for taking my question. My question is pretty simple. I just would like to know if you could give us some glimpse on how the regions are performing so far during this quarter. Thank you.

Constantino Spas (CFO)

Hello, Marcella. Thank you. Well, in Mexico, you know, the quarter was benefited by affordability, executional and recovering mobility. We see recovering mobility across all of our markets, and that is a positive element to the consumer environment and will definitely drive you know sales. We in Mexico, for example, we grew in all channels, importantly, in the on-premise, and we're continuing to recover mix in single-serve. We reached 32% of mix in single-serve, which is almost 2019 levels. Just need to grow slightly higher to reach 2019 levels, and I think that we will surpass that, and as we mentioned before, returnables are around 40%, which is huge considering the size of our business.

For 2022 in Mexico, we continue to see positive momentum, and we're extremely weather dependent, but as of today, weather seems fine out there. We continue to leverage affordability in returnables, and we're implementing the operating and portfolio measures to grow. That covers a little bit of Mexico. In the case of Brazil, I think we tackled it. Positive consumer environment, and we believe we have, you know, a very solid plan in Brazil. So that is also providing us confidence for growth in Brazil, considering, on the other hand, as I mentioned, the transition to the new portfolios. So affordability in Brazil continues to be an important play, multipacks, returnables, and a lot of digital, right? So we're moving into digital consistently, and we continue to roll out that.

We have more than 200,000 customers using our WhatsApp for business application. This is about 50% of our total customer base in Brazil. You know, we're managing over 15,000 orders in one day, and that's growing. That's the equivalent, to give you an idea, of over 200 pre-sellers on the order entry effort. Now, we're not substituting. Our pre-sellers continue to be a key component of our omni-channel value proposition. So this is layering on top of what we're, you know, handling in Brazil in our traditional route to market. In the case of Colombia, we see a fantastic, you know, fantastic momentum behind the business, and we see a favorable environment. It's also electoral year, but it's gonna be earlier on.

We believe that we, you know, we will continue to grow there. Argentina, despite the fact that we have a very volatile macroeconomic environment, I think that we have been able to find the proper strategy, combining consumer efforts, price-pack architecture for a very, you know, very, very constrained purchasing power in Argentina, given the macroeconomics, and a fantastic consumer value proposition. I think that that will allow us to continue weathering, you know, the storm in Argentina. Central America continues to grow double digits in all of our markets. Nicaragua, which is a smaller market, is also a market that's very prone to volatility due to the macro environment, but even including that, it was growing double digits last year.

Guatemala just continues to be, you know, a fantastic case of, you know, Coca-Cola FEMSA's capabilities, focusing on the core, and fixing fundamentals in the market once we consolidated the businesses. You know, we continue to grow double digits, after three years, and we're seeing, you know, on top of that, enormous opportunities for, you know, headroom going forward. I would know that that's how we're seeing the volumes. Evidently, volatility and uncertainty is paramount today, but with the current conditions, we think that we have a favorable environment, for growth in the upcoming year. I don't know if that helps, Marcella.

Marcella Recchia (Senior Equity Research Analyst)

That's excellent. Thank you very much, guys.

Constantino Spas (CFO)

Mm-hmm.

Operator (participant)

Our next question comes from Ricardo Alves of Morgan Stanley.

Ricardo Alves (Analyst)

Hi, John, Constantino. Thanks so much for the call. I had two follow-ups, some questions that were already asked, and in Brazil. First one, I was positively surprised by the kind of upbeat consumer outlook you laid out for Brazil. It's good to hear that, but still surprising. I mean, volumes going up in 2022, that's the expectation with pricing ahead of inflation. So is this based partially on what you already saw in January and February, so just trying to get a little bit more color on this, let's say, optimistic outlook, and can we try to quantify that a bit more? I mean, you, if I'm not mistaken, you're running 15% above the pandemic levels in terms of volumes in the third quarter.

In the fourth quarter, that decelerated more to the 5%, mid-single digits, versus pandemic. Is this a new baseline kind of level we should be working with, as we think about 2022? Just those two questions on volumes in Brazil. Second question, very quickly, a follow-up on Brazil beer, on the transition, of course. Can you walk us through kind of the perhaps monthly evolution that you saw over the past quarter?

Remember having discussions with you with the hiccups that you saw in September, naturally, the first month of the transition. But, how did that evolve in October, in November, in December, more recently? I mean, did the new facility of Heineken in October do that, facilitated in a major way the transition? So just a little bit more granularity on the evolution of the transition. Thank you so much.

Constantino Spas (CFO)

Thanks, Ricardo. You asked, like, five questions in one, so we'll have Jorge answer, and John and myself will provide some additional color.

Ricardo Alves (Analyst)

Sure. Thank you.

Jorge Collazo (Head of Investor Relations)

Thanks for the question. Thanks for the question, Ricardo. So on Brazil volumes, I would say, you know, as John mentioned, we are very optimistic about the outlook for Brazil for 2022. The numbers you mentioned are correct, you know, so actually the fourth quarter 2021, if we compare to the fourth quarter 2019, is actually 6.5% above, you know, the 2019 baseline. And we expect that momentum to continue, you know. We have strategies around affordability and execution, the multi-category strategy as well, that we're implementing the B2B digital initiatives, et cetera, all combined for these optimistic expectation for Brazil. Now, as Constantino also mentioned, this volatility is gonna be paramount.

It's definitely not gonna be a walk in the park, but we are convinced that we have the right capabilities. So to give you a sense, I would say that we continue to expect low to mid single-digit volume growth expectation for Brazil into 2022, you know. And pricing, as Constantino also mentioned, it's at least in line with inflation, and if we see the opportunity, we will take pricing ahead of inflation. We will continue to foster a mix recovery in Brazil. So that's, you know, broadly speaking, the strategy and the expectation for Brazil.

If we think about moving on to the transition of beer, Ricardo, I would say that, you know, pretty much in line with what Heineken mentioned on the release a couple of weeks ago, you know. There has been solid performance from premium brands, you know. Heineken coverage has been our focus. We have been taking over the brand and we have increased significantly the coverage and providing brand in the market. Tiger is, of course, a recent launch, you know, so it takes some time, as usual, to adjust and make some adjustments, but we're learning from that. You know, Tiger is getting better and better as well.

At the same time, we're taking over the distribution of Estrella Galicia to nicely complement the portfolio, and we have Therezópolis as well, you know? So the idea is to continue with that strategy, to continue complementing and building up this very consumer-centric and strong portfolio of beer for Brazil. I don't know, John, Constantino, would you like to add something to that?

John Santa Maria (CEO)

No. No, Jorge, I think that was thoroughly explained. Thanks.

Jorge Collazo (Head of Investor Relations)

Mm-hmm.

Constantino Spas (CFO)

Thanks, Jorge.

Operator (participant)

Our next question comes from Sergio Matsumoto of Citigroup.

Sergio Matsumoto (Senior Equity Research Analyst of Food, and Beverage and Retailing Sectors)

Yes, hi, good morning, John and Constantino. Thank you for the space for question. I wanted to delve a bit more into the Brazil beer question, if I may. You were very successful with distribution of Heineken, and I guess the expectations for, you know, what is the new portfolio of beers is, you know, is very interesting to us who are watching you, you know, do this for the next several years. And just wondering on the strategy, the long-term strategy of this.

It sounds like from what you have said in the prepared remarks and what Jorge just mentioned is that the focus would be on Eisenbahn at the beginning, perhaps also with Therezópolis, as it's, you know, leads to a premium beers, and that's where the growth is. But it's also a very competitive space with, you know, Heineken trying to, you know, dominate that, and that is also trying to reclaim that space. What are the possibilities of Tiger in Brazil, as the mainstream was, you know, kind of ignored in the last year and a half, and maybe there's a easier base, if you will, to accelerate growth there. Is that a possibility?

And also, when you look into Estrella Artois, excuse me, Estrella Galicia, they're building a new plant, right? It's quite large. If they were to reach capacity, it could represent all on its own 2% of the whole market. That's quite big. Just I'm curious on the potential for that brand as well, and also on which channels you might focus on, whether it be the large retailers, traditional channel, and et cetera. Thank you.

John Santa Maria (CEO)

Hi, Sergio. Thanks for the question. I think, you know, as you pointed out, you know, we're in a transition, but we're putting together a very strong portfolio of brands. And obviously, the Heineken portfolio is an extremely fundamental piece to this and a very large component of this, and we continue to work very closely with them. You know, we've taken over Eisenbahn, and Eisenbahn has been, you know, we're growing in coverages and client base in a very significant way, and the acceptance of the brand is very good, extremely good. As you go forward, Therezópolis, you know, is also a brand which is a very premium craft beer, and the acceptance that we're getting and the growth curve that we're looking at is very, very strong as well.

Tiger, you know, Tiger is something that, you know, is a new brand. It's a total new brand for Brazil. And we have very close collaboration with Heineken as to what we need to go out there and adjust as we go forward. There are certain packages that are working better than others. There are certain graphics that may be working better than others. But, you know, it is progressing. It's progressing, and I think that's gonna come back and allow us to be within that core area, a good player. And Estrella Galicia, you know, is we're just getting going, so it's a little bit too close, too soon to say.

But as you said, the plans are extremely, extremely large and the ambitions of the brand owner with the plan are there. So I think it's also very well accepted in the marketplace. So the putting together of a very powerful premiumized or a premium and core, portfolio, is something that we'll continue to see the development of for the next, 12-16-18 months in terms of, you know, digesting and settling in, and probably also adding other brands to that would, enhance our offer to the client customer. Constantino, you were gonna say something?

Constantino Spas (CFO)

Yeah, no, just to complement, Sergio, what John mentioned, I think that we're, you know, that in our view, the key of putting together a successful portfolio is understanding and mapping, you know, not only price segments, but also need states and what, you know, brands can, you know, you deploy against the combination of need states, price segments, and channels where we have, you know, certain advantages and enormous capabilities. And we have mapped out evidently with Heineken, but, you know, doing our work ourselves with other partners, a possibility of creating a portfolio that addresses, you know, those key points, and leverages on our capabilities. So as John mentioned, this is transition. This is not necessarily the full picture.

I can assure you, you know, we will be adding additional brands to the portfolio, and these will come either from Heineken or some fully owned brands like Therezópolis or with other players to complement the portfolio. And at the same time, we continue to push and establish and grow the current value propositions that we have.

Tiger is a fantastic liquid with a flint bottle, you know, pure malt formula in a market that requires easy-to-drink beers. But we need to allow time for the brand to gain traction in the consumer's minds. At the same time, Eisenbahn is a fantastic value proposition of a local, you know, craft beer that has gone, you know, more massive than small craft brands. Estrella Galicia has a great portfolio of premium and super premium offerings that we will continue to develop. Stay tuned, because this is not necessarily the end state of what we're putting together.

Sergio Matsumoto (Senior Equity Research Analyst of Food, and Beverage and Retailing Sectors)

Quite interesting. Thank you very much.

Operator (participant)

Ladies and gentlemen, that's all the time we have for questions today. I would like to hand the call back for any additional closing remarks.

John Santa Maria (CEO)

Thank you for the confidence and interest in Coca-Cola FEMSA. As always, our investor team is available to answer any of your questions, and we anticipate a very strong year for Coca-Cola FEMSA in 2022. Thank you for your time today, and we'll be in contact.

Constantino Spas (CFO)

Thank you. Have a great weekend.

Operator (participant)

Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect.