Earnings Call: Q4 2020

Feb 16, 2021

Earnings release

Good day everyone and welcome to the ARCA Continental Conference Call. All lines have been placed on mute to prevent any background noise. Please note that this call is being recorded. After the speakers' remarks there will be a question and answer session and instructions will be given at that time. For opening remarks and introductions I would like to turn the conference over to Melanie Carpenter of iAdvise Corporate Communications. Ma'am please go ahead. Thank you, Katie. Good morning, everyone. Thanks for joining the senior management team of ARCA Continental this morning to review the results for the fourth quarter and the full year of 2020. The earnings release went out this morning. It's available on the company website at arcacontal.com in the Investor Relations section. It's now my pleasure to introduce our speakers. Joining us from Monterrey is the CEO, Mr. Arturo Gutierrez the CFO, Mr. Medio Marcos and the Chief Commercial and Digital Officer, Mr. Jose Pepe Borda as well as the Investor Relations team. They're likely going to make some forward looking statements, and we just ask that you refer to the disclaimer and the conditions surrounding those statements. It's in the quarterly release. And with that, I'm going to turn the call over to the CEO, Mr. Arturo Gutierrez, to begin the presentation. So please go ahead, Arturo. Thanks, Melanie. Good morning and thank you, everyone. We appreciate you joining us today to discuss our fourth quarter and full year twenty twenty results. I am pleased to report that we delivered sound financial results and a solid operational performance. We continue to demonstrate our ability to thrive during this unprecedented crisis and operate with agility while always maintaining a long term vision and focusing on strengthening our relations with customers, consumers and the community. In the face of an adverse operating environment, we are encouraged by the recovery and overall improving trends that we saw throughout the second half of the year. Total consolidated volume remained flat at 0.1% in the fourth quarter. Volume performance sequentially improved throughout the quarter across all our operations. Our business in Mexico and The U. S. Were the main engines of recovery with both markets showing impressive resilience despite the conditions. We continue to see the power of the sparking category. The Coca Cola brand kept outperforming with volumes up 1.8 in the quarter, maintaining or increasing relevance within the category mix. Still beverages were up 1.8% driven by energy drinks with volumes up nearly 12.3% in the quarter. Importantly, the resilience of the traditional channel was once again confirmed. The largest of our channels in Latin America experienced the lowest decline and showed the fastest recovering during the pandemic. For the full year, our total consolidated volume declined 3.8% to reach 2,100,000,000 unit cases. Consolidated revenue growth was 3% for the quarter and 4% for the full year, reaching record sales of 169,300,000,000.0. Our U. S. And Mexico businesses delivered solid mid single digit growth in the quarter. On the profitability front, consolidated EBITDA in the quarter rose 7.7% to ARS 8,600,000,000.0, representing a margin of 20.2% for an expansion of 80 basis points. For the full year, consolidated EBITDA increased 5.7%, a margin of 19% for an expansion of 30 basis points, cycling a solid 110 basis points increase in the previous year. Despite the closure of points of sale, we were able to increase profitability and expand margins across all our geographies. Digital capabilities are playing a key role in the recovery. Analytics are now more relevant than ever and our B2B platforms have seen sizable increases in online orders. We also expanded partnering initiatives with our customers to increase our digital shelf space and visibility on their own e commerce websites and work with digital only customers such as food aggregators to increase penetration of our veverics portfolio within food orders. Now let's review the performance and highlights across our operations. Total volume in our Mexico beverage business grew 0.5% in the quarter. We maintained a positive momentum, cycling a strong 6.4% increase in the same quarter of 2019 and sustaining the sequential improvement throughout the year. Volume growth in the quarter was driven by Topo Chico sparkling, personal water and Colas. The jug water category posted a 1.6% volume growth in the year as at home consumption increased. Volume in the traditional channel grew 5.4% for the year as we've kept an ongoing dialogue with store owners to help them maintain normal operations while supporting the opening of new ones. Multi serve mixed packages grew 5.1 percentage points in the quarter and 5.7 percentage points for the full year, mainly due to the changes in buying patterns and consumer preferences for these formats. In response to this market dynamic, we accelerated the introduction of the universal bottle in two liter refillable format for sparkling beverages across all our territories. Total net sales in Mexico rose 6.1% in the quarter to reach COP 17,900,000,000.0, while for the full year, revenue rose 3.1%. Average price per case in Mexico in the quarter, not including jug water, rose 5.8%, reaching COP 66.63. Our flexible price pack architecture and affordability initiatives enabled us to reach our goal of increases prices in line with or above inflation rates. We gained value share for the full year, outpacing the nonalcoholic ready to drink beverage industry in Mexico, driven by water, sports drinks, and juices and nectars categories. Our broad portfolio of products played a key role in addressing the changing dynamics of the consumer landscape during the most critical periods of the pandemic. EBITDA increased 8% to MXN 4,100,000,000.0 in the fourth quarter, representing a margin of 22.6% for an expansion of 40 basis points and marking the seventh consecutive quarter of margin expansion. EBITDA for the year rose by a 100 basis points as a result of our effective pricing combined with our disciplined focus on cost optimization, our proactive hedging initiatives and favorable negotiation of key inputs. We continued our ongoing innovation in sparkling beverages. This quarter, we launched Topo Chico Twist, a very successful brand extension that was previously launched in The US. And with respect to Topo Chico Hard Seltzer, this brand is achieving solid positioning in our main markets in key channels such as convenience stores, supermarkets, and traditional trade. Moving now to our Beverage business in South America. Total volume in the fourth quarter grew 1.5%, resulting from positive volumes in Argentina and mild declines in Peru and Ecuador. Volume growth in the fourth quarter confirmed the sequential improvement trend after significant declines of 2811% in the second and third quarters. Total volume for South America dropped 10% for the full year to four eighty five million unit cases. The traditional trade has demonstrated its resilience during this time of crisis and established a strong recovery momentum across all three countries in the region. Total revenues declined 7.8 in the quarter and 8.1% for the full year, reaching MXN 32,800,000,000.0. EBITDA increased 3.9% in the quarter to MXN 2,300,000,000.0 with a margin of 26% at an expansion close to 300 basis points. For the full year, EBITDA declined 12.4% to MXN 6,500,000,000.0, representing a margin of 19.7% for a contraction of 100 basis points. In Argentina, our Beverage business delivered a solid 8.4% volume growth in the fourth quarter and 1.4% for the full year. Volume recovery was driven by Sparkling and Still categories, up 6.446.5% respectively. Brand Coca Cola grew 11.1% in the quarter. And importantly, volume growth in our territories outpaced the beverage industry in Argentina. We continued expanding our portfolio of beverages with new flavors of Monster to further strengthen in our leadership in energy. We also launched a new presentation of Aibal to continue driving affordability in the water category. Let us turn to our beverage business in Peru, where total volume in the quarter was down 0.6% and declined 14.2% for the year. We grew both value and volume share in NARTD beverages, leveraged by changes in our mix as the sparkling category regains traction. In the Water segment, we also captured strong share gains driven by our dual strategy with San Luis and Benedictino. The traditional trade and wholesale channels led the recovery in the quarter with 163.1% growth respectively. We will continue supporting the recovery of the traditional trade by driving affordability while capitalizing on the brand equity of Coca Cola and Inca Cola. As part of the plan to strengthen our portfolio of non returnable multi serve packages, this quarter we launched Coca Cola without sugar in a three liter presentation. Also we launched Topo Chico hard seltzer across traditional and supermarket channels in Peru. We doubled down on the deployment of our AC digital platform, expanding our B2B capabilities. Currently, over 34,000 customers in the traditional channel placed orders directly using our mobile app. Moving over to Ecuador, volume declined 0.7% for the quarter and was down 10.8% for the year. The country continued facing the worst economic downturn in recent history due to the COVID-nineteen outbreak. Our sparkling category delivered sequential quarter on quarter improvement, driven by brand Coca Cola, up 3.8% in the fourth quarter. Silverages also showed a positive volume recovery trend, highlighting the performance of our energy category. The launch of Monster Ultra has helped us consolidate leadership in this segment. StoryCorps, our value added dairy business, posted a double digit sales decline both in the fourth quarter and for the full year. We reconfigured our portfolio with products that combine high nutritional properties and affordability. This quarter, we launched the new yogurt brand, Fresh, at an attractive price value proposition that allows us to better face the new market dynamics. I will turn now to our beverage operation in The United States. Before I get into the financial and operational results, I'd like to share some important milestones. We're about to enter our fourth full year of operation as a US Coca Cola bottler. Since embarking on this journey in 2017, we have faced many challenges, including major weather events like hurricane Harvey and now the COVID nineteen pandemic. From 2018 to 2020, we were able to build a strong foundation through our commercial and operational initiatives and be able to achieve sound financial results. In just a three year span, we reduced our OpEx to sales ratio by two fifty basis points to 34.3%. We grew EBITDA 17.4% to close to $400,000,000 and expanded EBITDA margins by 130 basis points to 14%. 2020 was a year like no other in history. But for us, it was also a year where we were able to prove our determination and deliver record high results in this market. We closed the year with strong operating performance and solid EBITDA growth and margin expansion. Moving over to our results. Volume for the quarter declined 3.2%, reaching 106,400,000 unit cases. For the year, volume was down 2.2%. Topo Chico and Body Armor brands delivered consecutive strong volume performance as we expanded our customer base. Revenues in The U. S. Declined 0.8% in the quarter to $7.00 $5,000,000 For the full year, total revenue grew 0.8% to $2,840,000,000 Net price for the quarter grew 2.5% with a 2.7% true rate increase and a negative mix impact of 0.2. For the full year, net price grew 3.1% with a positive 3.5% true rate and a negative mix impact of 0.4% due to FSOP restrictions and a decrease in convenience store traffic. Large stores continued to outperform all other channels throughout the pandemic with 4% volume growth. EBITDA grew 3.5% in the quarter, reaching $107,500,000 representing a margin expansion of 60 basis points and marking the sixth consecutive quarter of EBITDA growth and margin expansion. EBITDA in 2020 grew 7.3% to $399,100,000 with a margin of 14% and an expansion of 80 basis points. We are pleased to announce that we have reached our three year synergy goal with approximately $90,400,000 in synergies. Undoubtedly, a key enabler of synergies and productivity improvements was our new facility in Houston, Texas. We were able to ramp up production and fully leverage these state of the art capabilities while increasing efficiencies and consolidating production and warehouses in the region. Let me close our operations review with our food and snacks business. Wide Snacks in The U. S. Posted high single digit sales decline in the fourth quarter. The largest impact on sales due to the pandemic was in the up and down the street channel as small bag volume declined. These restrictions also impacted our foodservice on premise channel with Deep River sales down double digits as 50% of restaurants and other outlets were closed either temporarily or permanently. Our grocery business grew by single digit across our major product categories as consumers spent more time eating at home. Deep River expanded product coverage in over 1,000 new grocery stores of major retailers. We experienced significant growth in our e commerce channel with expansion of platforms such as Walmart online and amazon.com. Vocados in Mexico posted double digit sales growth and profitability expansion driven by the traditional channel. We continued innovating with the launch of brand extensions of our tortilla chips category and added a new line of confectionery products for portfolio generating incremental sales and productivity, particularly in the traditional trade. And lastly, in Alexa posted a mid single digit sales decline in the quarter. On a full year basis, sales also declined mid single digits. We accelerated the pace of adoption of our AC Digital commercial platform across our entire businesses in Ecuador. We're replicating core revenue management capabilities with a strong focus on segmentation, promotions, and discounts. Let me close with sustainability, core business strategy fully embedded in our operations, focused on managing risks and opportunities to preserve, generate, and share value. We're cautious that this cannot be achieved without the full integration of environmental, social, and governance aspects into everything we do. Throughout 2020, in response to the COVID nineteen pandemic, our focus was to deploy a comprehensive emergency response plan to provide our associates with a safe and healthy work environment. We also focused our efforts and resources towards the most urgent needs of our communities highly affected by the pandemic, following three main levers. Number one, by supporting the health care system, government institutions, and nonprofit organizations. Second, helping vulnerable groups. And third, protecting our value chain, particularly our customers in the traditional channel. Furthermore, we made significant progress in the implementation of our World Without Waste sustainable packaging strategy. We aim to collect a bottle for every bottle we sell regardless of where it comes from by 02/1930. We also honored, are honored to be included in the Dow Jones Sustainability Index for Latin America for the second straight year and in the FTSE4Good Emerging Index of the London Stock Exchange for the fifth consecutive year. Both indexes recognize publicly traded companies with the strongest commitment to best environmental, social, and corporate governance practices in the world. Our determination to be assessed based on the strictest international standards and our progress in several global sustainability indexes is in line with our principles to operate with transparency, ethics, and fairness while creating a net positive impact on the ecosystem together with the well-being of our society. With that, I will turn the call to Emilio to go over our financial results. Please, Emilio. Thank you, Arturo. Good morning, everyone. Thank you for being here with us to review our financial results in the fourth quarter and full year 2020. In line with the second and third quarter, we delivered a strong financial performance in the last three months of the year with an EBITDA margin expansion across all our operations. This was driven by our pricing strategies combined with an overall recovery in channels, tailwinds in key inputs and our deployment of the cost optimization and savings plan announced at the beginning of the pandemic. Thanks to these efforts, we had a strong finish in an unprecedented 2020, where our past experiences in difficult market conditions allow us to quickly turn to initiatives that will prioritize our associate well-being, improve our strategic partnership with our customers and service our consumer evolving needs. And now moving on to the results. In the fourth quarter, consolidated revenues increased 34% for the full year, driven by the strong pricing in Mexico and The U. S. Cost of goods sold were up 2.3% during the quarter and 3.3% in the full year. These increases were mainly related to FX rates and the concentrate price increase in Mexico, which were partially offset by lower PET prices. The contribution margin in the quarter and the full year posted a 40 basis point expansion, primarily driven by the benefits of our pricing initiatives and PET costs, which compensated for the slower volume trends. Consolidated EBITDA for the fourth quarter rose 7.7%, reaching 8,600,000,000.0, resulting in a margin of 20.2% for an 80 basis point expansion compared to the same period of last year. This improvement was achieved thanks to the disciplined execution of our efficiency plans established at the onset of the pandemic and the contribution margin expansion. It is important to mention that our comparables are recycling a strong fourth quarter performance in 2019, where we registered a two ten basis point expansion. I'm proud to announce that in 2020, we achieved two significant accomplishments. The first one, as Arturo already mentioned, the achievement of the $90,000,000 synergy plan in our U. S. Beverage business. Let me give you a breakdown by main P and L line. 20% from revenues, 50% cost and SG and A efficiencies and 30% from strategic initiatives that includes the benefit from the new North Point facility. The second important accomplishment is that we reached 2,300,000,000.0 in cost savings as part of our disciplined plan to align the operating expenses to the top line performance. Breakdown of these efficiencies, 47% comes from marketing expenses, 16% from labor and 37% from other initiatives such as transportation, production yield improvements and third party services. Also, we continue to see a decline in the expenses related to COVID-nineteen as we reached 106,000,000 in the fourth quarter. This was all registered as a recurring expense and was 33% lower than the previous quarter. Comprehensive cost of financing registered 1,500,000,000.0 in the fourth quarter compared to MXN $967,000,000 last year, primarily driven by the exchange rate loss of $959,000,000, resulting from our cash position in U. S. Dollar and the depreciation of the U. S. Dollar versus the Mexican peso. Net income rose 7.8% to MXN 2,500,000,000.0 for a margin of 5.9% and an expansion of 30 basis points compared to the same period in 2019 despite the exchange rate loss. Now moving on to the balance sheet. On 12/23/2020, we distributed a second extraordinary dividend of MXN 1 per share, which led to a payout ratio of 94% of retained earnings and a dividend yield close to 5%. Cash and cash equivalents of year end stood at 27,300,000,000.0 with a total debt of MXN 50,600,000,000.0, which translated into a net debt to EBITDA ratio In 2020, total CapEx stood at MXN 6,600,000,000.0, an overall decrease of around 42% compared to last year. We expect CapEx to be close to 6% of net sales in 2021. The solid performance in one of the most challenging and unprecedented years in the history of the company is a testament of our adaptability and resilience when faced with the hardship of an ever changing business environment. In 2021, we will continue to focus on delivering strong results by capturing and creating value for our shareholders through four key aspects of our operation: levels two, continuous developing of commercial initiatives and innovation in the market three, maintaining the disciplined control of operating expenses and four, protecting the liquidity of the business. That concludes my review of results. Back to you, Arturo. Thank you, Emilio. For those that have followed ARCA Continenta throughout the years, you know that we've been through many challenging times before and worked our way through them successfully. And so far, the global COVID nineteen crisis has not been the exception. Our company is well positioned with a clear vision and purpose. We are entering 2021, carrying forward the positive momentum of 2020, confident that our record of steady annual revenue growth will be extended throughout the current year. Combined with our cost optimization and efficiency programs, we firmly believe that this should allow us to continue delivering solid profitability in the upcoming quarters. We expect volumes to maintain a positive momentum mainly in the traditional channel, supermarkets and all channels related to at home consumption. We also expect single serve and nonreturnables to evolve positively while with returnables leading the way. In conclusion, these results as well as the agility and the speed with which we have adapted gives us confidence that we will emerge stronger from this pandemic, able to leverage our scale to capture the growth opportunities ahead. One final comment related to guidance. It isn't clear when economies will return to their pre pandemic dynamics. We continue to see new surges of COVID nineteen cases across the world, and vaccination availability is drastically different in every market. Given this continued uncertainty under the current climate, we feel it's prudent to hold off on providing 2020 guidance. Thank you for your consideration regarding this. I now hand the call over to the operator. Emilio, Pepe and I will take all questions you may have. Please, Katie. Thank you. At this time, we will open the floor for questions. If you would like to ask a question, please press the star key followed by the one key, that is star one, on your touch tone phone now. As a reminder, due to high interest and time, please limit yourself to one question. We will pause for just a moment to allow everyone the opportunity to signal for questions. Our first question today comes from Alvaro Garcia with BTG Pactual. Good morning. Good morning, gentlemen. Thank you for the call. I have many questions, but, if I if I had to leave it to to two, I I would say, look, first question is for Pepe, which, I'm very curious as to to a bit random, but it's on QR codes specifically. We've obviously seen sort of a renaissance of the use of QR codes in the region and whether or not that's an opportunity for you, to drive loyalty, to to drive better promotions, and and if you have anything on that front. And then my my second question would be on margin dynamics into this year. This and and this is maybe a little bit more for Emilio or Bruno. The operation in 2020 is obviously a lot less complicated, a lot more simple, that's usually higher than, less travel for management. You you mentioned lower transportation. I'm curious as, you know, when you're thinking about margins in 2021 and the the business, let's say, complicates up a bit with a little bit more on trade and whatnot, a little bit, higher PET prices relative to this year, what you're thinking maybe higher level into, for margins, into 2021? Thank you very much. Thank you, Alvaro. Let let me address your second question, and I'll I'll turn it over to Pepe after that. And, you know, Amelia, you can jump in anytime. With respect to margins, well, certainly, despite the uncertainty and complexity of of the pandemic, we had a very good year in 2020 from the perspective of margins. We had expansion as you saw about 40 basis points in the fourth quarter and and 30 basis points for for the full year. And the result of this was effective pricing strategy, certainly some tailwinds in raw materials, but we had a a very strong program of saving initiatives. I I would say that that part, it continues in 2021. Some things are obviously the implementation of initiatives in a crisis mode, but some of the things are learnings that we will continue to apply as we move forward. So what we have now is a a continuous effort to identify efficiencies and capitalize on those learnings for 2020. The the key highlight I would say for the fourth quarter was that all of our large operations expanded margins with a significant recovery in in South America as you saw. And that, I think, reinforces our ability to to be successful in times of crisis, especially in deploying efficiency initiatives and controlling discretionary OpEx. So as we look forward for 2021, our our objective is to regain growth and and protect our margins. A volume growth that that is gonna come gradually. The 2021 is gonna look very similar to the the quarters during the pandemic last year. We're still comparing to the, you know, pre pandemic scenario. So but our expectation is to price in line with or above inflation across our markets. We're gonna have some increase, like, increase in raw materials during the year, but we're gonna continue to have a strict cost discipline in in SG and A. So those would be the the the building blocks, I would say, for sustaining margins in in this year. We we expect, as I say, to continue to have efficiencies, and we believe we have the opportunity to identify new value creation initiatives. So I think we're gonna continue to prove our ability to be profitable under these very, very challenging circumstances. So with that, I will turn it over to Pepe for your first question on QR codes. Thank you for your question, Alvaro. Digital payments is one of our focus in the digital arena. In the B2B part of the business, AC Digital in LatAm, MyCoke in The U. S, Yomp in LatAm and AC mobile. All these tools, in all of them, we are improving the digital payments capabilities. Specifically, talking about QR, QR code adoption is still small but growing. In Mexico, there's this government initiative called CODI that has not catch up yet, but it's supported by most of the banking system. In Peru, digital payments and QR codes are more developed. In The U. S. As credit cards are widespread, we haven't seen that much demand for it. In the B2C arena, yes, we're moving with touchless vending with payment through QR codes in all our operations. And in the B2C business here in Mexico and in LatAm, we are we will be ready to accept QR codes within the next one or two quarters. Great. Thank you very much for for your answers. Thank you, Alvaro. Thank you. Our next question comes from Alan Alanis with Santander. Thank you. Hello, everyone. Arturo, Emilio Pepe. Congratulations on the results, and hope you're safe after the the weather conditions you had in Monterrey yesterday. My question I mean, I'm I'm gonna make three big questions, and I don't expect them to be exhaustive on the answers. You can just answer some bullet points. First, a little bit of context. I mean, the three of you are shareholders of Arca and you know basically that the stock is where it was five years ago. And I think that everyone listening to this this call is very interested in the stock price. And, I mean, your your your stock is a consensus buy by the sell side, and you beat expectations, yet the stock's not moving. So I do wanna share with you the same questions that I get from investors when I'm talking about ARCA and and and ask for your help in terms of what should we tell these investors. And the main pushback are from three areas. And whatever you can expand on these three areas, I know that this is a quarterly call, you have to be brief, but it'll be highly appreciated. The first one is what is the the the top line growth algorithm of this business? I mean, is can this business grow volumes again? I guess that's the first pushback that we get. The second one we get specifically for Arca has to do with, can we get comfort that in capital deployment, your any acquisition that you do in the future would be accretive and would make sense for the shareholders? And the third and trickiest one is, I mean, what is what evidence do we have that the relationship with the Coca Cola company is improving and and not getting all these surprises that the changes in concentrates are coming in surprising way at least for the market. Any comments on those three fronts would be highly appreciated, Aspuro. I don't know if that makes sense. Yes. Thank you, Alan. Let me address your points. First, with respect to the the volume, you know, this is the the story of some of our mature markets over the years and and you know the the history of our industry, especially in Mexico. As volumes continue to grow and and we continue to identify new opportunities for growth in the future. I I think that is that that can continues to be our our current perspective. 2021 is is different. It's certainly, we're gonna be comparing ourselves to to the year where the pandemic hit the hardest, which is 2020. Mhmm. The first quarter is gonna, as I said, gonna look similar. But if we look after that, I think we should be comparing to the pre pandemic situation. That that would be our baseline. And, again, 2021 is is another typical year. We don't expect volumes to go back to that pre pandemic scenario, but we we are gonna go back to a path of growth in all of our markets. And if you if you look at that growth, it comes from opportunities from from within our core categories, and it comes also from the growth of of new categories. If you think about our, you know, our our system as a bottler in general is to connect our connect leading brands and and and and and opportunities for consumers with our customers and the relationships that we have. And I think we've proven to be successful, not only the traditional categories like, you know, brand Coca Cola, but in new categories that have appeared, and now we are leaders in the marketplace. If you think about some of the skills categories in Mexico and what we're also doing in The US with Topo Chico and Body Armor and Monster. So probably growth is gonna come more from those categories to the extent they're profitable. I think it continues to be a success story going forward. Mhmm. It's not gonna be spectacular growth, I agree, from from a volume standpoint, but it's gonna be consistent and also brings the opportunity of inorganic growth in the future. You could think of of the company as a whole as as we continue to see a very fragmented cook system, you know, around the world and in our regions as well. And and that connects to your second point, which is, you know, capital deployment and m and a projects. And and well, certainly, what what you said is certainly our our priority to make sure that these projects create value for our shareholders. And I think, again, our track record has demonstrated that we are very cautious about that in valuations. Mhmm. And and and and we we are gonna continue to be prudent. We're open to evaluate attractive opportunities that could arise and even could arise from this crisis in, in the markets where we believe we can expand our capabilities. And we continue to have, as you know, a strong balance sheet position with a low leverage. So we're actively looking, but taking into account precisely what you said to make sure that these create value for us. And maybe that we need to be patient and we, you know, ask investors to be patient for the same reason. But we we, at the same time, believe there are many opportunities because we have the the possibility of expanding our practices on the one hand, and we see very natural synergies in our in our markets, even in territories that are not neighboring to ours as as we've seen in the past. And and and the relationship with Coca Cola also kinda connects with that because we need to have, as you know, their their blessing and their collaboration in in these potential projects. So, we we we are convinced that our relationship with with with Coke is is, much better than before. And I know you're worried about concentrate pricing, but, you know, in the past, this was pretty much unilateral and without any discussion. Now we we have ongoing negotiations, and we have certain, you know, guardrails under which we we decide whatever we need to do. And we also have chaos participation in key areas in our investments, marketing investments, and and even some of the CapEx as in the case of the universal model that we're deploying in Latin America where they contribute and it's this this is not, let's say, the traditional model under which we operated with them. So I think we're very pleased with what they're doing and with our dialogue and collaboration with them. That's that's very, very helpful. Thank you so much, Asuro, and stay safe. I really appreciate that you took the time to to go over the three points. Really appreciate it, man. Thank you. Thank you, Arlen. Thank you. Thank you. Our next question comes from Carlos Laboy with HSBC. Yes. Good morning, everyone. Dura, in North America, what does your channel mix look like versus pre pandemic? And as you look to rebuild the food service opportunities in North America, how do you see the volume and margin opportunity? And and maybe, you know, another element to that question is, is it are you looking to rebuild it maybe differently than you were before? Thank you, Carlos. Great question. Let let me tell you how the the the channels have evolved in The US for us in the in the last quarter as compared to the the rest of the year. As you know, large stores in The US have been more resilient. They continue to grow. They they grew 4% in fourth quarter, and they grew even more than that, I guess, in the in the full year as as consumers increase their at home consumption. So but if you look at the on premise channel, it's still declining. It was, you know, more than 30% down in the fourth quarter. And, you know, throughout the last three months of the year, it it declined less, I would say, by the end of the year, but it's still a it's a full year decline of minus 32%. And so the the mix has come down to 11% of our total volume in The US. So that is eventually gonna recover, but it's gonna be gradual. We still see some of those outlets that are have not reopened. Or even if they reopen, as you know, they're not operating at full capacity. And and probably that's gonna take some time. And and some of of these outlets or these distribution channels, maybe they're not gonna recover in in a longer time because as you know, on premise includes everything that is not a large store and and a convenience retail. So think about, you know, events or concerts or the the those kind of venues. That's gonna take a longer time. So we certainly need to adapt to that, to your point. And and at the same time, some of the channels are are are are getting that volume. It's a it's it's been migrating to other channels that that some in some cases could be more profitable to us, especially if we move from from found fountain beverages to some of the, you know, can bottle of can packaging. And that that's certainly favorable for us in the future. So we we will continue with the development of transactions in the future. We we saw transactions actually growing in in Sparkling and Still for for 2021. So one of the things that's important for that is to expand ecommerce and our digital platforms. Those two factors will be critical. Mycoke.com and its expansion as we connect with some of the customers, and also our our ecommerce initiatives in The US. This has been growing significantly as a result also of the shift in the in the channels going forward. So I would say that those would be our, you know, biggest opportunities if you think about the, the new reality in The US. Even after the, you know, the health crisis is contained, we believe this is gonna, be a a continuous strength going forward. Thank you. Thank you, Carlos. Thank you. Our next question comes from Ulysses Argote with JPMorgan. Hi guys. Congrats on the results and thanks for the space for questions here. One on The U. S. Now that you completed the original synergy plan there and congrats by the way on doing that in such a complicated year. But I wanted to see if we can maybe get more color on the margin outlook here for The U. S. Operations, right? So I remember you have mentioned before there are still opportunities beyond that original $90,000,000 plan. So I'm just wondering if you can provide some color here on how you're thinking on the trends and the main drivers for that going forward. Thank you very much. Yes. Thank you, Ulises. Well, yes, as I said, we had a very good year in 2020. We had a margin expansion, and I think the team met has done a tremendous job in managing the business during the crisis in in every aspect, you know, in pricing, in in in managing our promotions, in managing this shift in the volume across channels that I just mentioned and adapting to the change in in the consumer needs. And also in especially in in managing the OpEx throughout the year. Part of that was the synergy program that was put in place, as you know, years back, but part of it was also adapting to the situation and finding new opportunities. And as I said, that effort is gonna continue. Some of the OpEx has to come back during 2021 as volumes recover, but there are other efficiency opportunities that we've identified and will continue to support, our healthy margins, going forward. And, very importantly, our our pricing strategy is gonna continue. So we we expect to increase prices above inflation once again in 2021. And, and, we we wanna highlight that because I I think it's very important And also the way we, we manage, our discounts and promotions, as opportunities we have in our you know, in the analytics, space going forward. The, raw materials, as you know, might not be as favorable if you compare year over year, but the other factors are certainly gonna get us to very healthy margins going forward as well. There is just to mention one thing, there is a natural erosion in margins that continues in in normal market operations, which would be the growth of the still beverages. It doesn't mean that they're not profitable, but it's it's just from a percentage point of view that might result in in in turn erosion. But even with that effect, we've been able, as you've seen, to grow margins. And and if we if we compare with there's not a lot of public information in The US, but I I think we're we have very good margins if we if we compare to other players in in that market. And but we still find gonna find opportunities and and also to, you know, grow grow the business in in general. We believe that the the demographics of Texas are very favorable. This is a region that offers continuous continued growth through, you know, its its demographic profile, the influx of various industries that you see as driven by investment incentives. So that that is also an opportunity for improving the profitability of our business in The US. Perfect. Thank you so much, Arturo, for the details there and congrats again on the strong results. Thank you, Alicia. Thank you. Our next question comes from Sean King with UBS. Hey, thanks for the question. A question about the CapEx guidance for 6% in 2021. I usually think of coolers as, I guess, the main focus area for CapEx. With what you mentioned about the changing in consumer behavior and how that could be different going forward, I guess, how much of that coolers or how much of that 6% should I think of as sort of delayed upgrades versus expanding the overall cooler footprint? Thank you, Sean. Maybe I can turn it over to Amelia to explain some of the CapEx breakdown for Yeah. Thank you, Arturo. Well, thank you thank you for the question. As you know, we align our our capital expenditure last year to the needs of each of the of the operations based on the volume of each of the operations. That's why our CapEx was lower than than last year. It was 4% of our sales of sales, and it was below our budget of of the full year. So in that in that regards, we we are prioritizing investments in in the central projects. And basically, as you mentioned, are based on the business needs. One of the main allocation are coolers replacement, of course. And also, I think the main one for for last year and maybe this year also was returnable packaging. As Arturo mentioned, we're investing in the universal bottle. So that's part of the the I think that's the main, CapEx, for 2021, returnable packaging. And while the second one may be coolers and and IT capabilities for execution, that's another main chapter on on CapEx for for 2021. That that that's basically how how it it's the the main the main investments on on CapEx for 2021. And I I would say that half of the budget for CapEx for this year will go to Mexico. Again, that's when we are mainly investing in universal bottle this year. And the second one could be US and then Peru also in returnable packaging. Thank you. I appreciate the breakdown. And and, Emilio, if you if let me add, this is being happening and the growth of of ecommerce and and and new channels. I think for the for the short to midterm, coolers and refillable bottles will still maintain to be the the big chunk of of our CapEx investment. Yeah. But aside from just replacement, we are, strategically investing in in in in in those areas, particularly returnable, products considering the situation of the Okay. Markets in Latin America. Great. Thank you very much. Thank you. You. Our next question comes from Antonio Hernandez with Barclays. Hi. Good morning. Thanks for for the call and call us on on your results. Actually, two questions. The first one is, what is your outlook on on input cost pressures for for the year? Follow-up would be regarding current weather conditions in in Texas. Have you seen any operating or any any type of headwind? Yes. Thank you, Antonio. Let me talk a little bit about inputs and maybe, Emilio, you can elaborate on that. The situation for main raw materials as as you saw for for last year was positive. PET prices, for example, were lower compared to 2019 across every region, last year. On average, maybe, you know, 20% less, and, we we capture the benefit of such a decrease. For 2021, however, prices are on a slight upward trend considering PT, but we have already hedged around 30% of of that volume at lever a level that is maybe moderately above our 2020 prices. With aluminum, we also had lower prices compared to 2019. And and and for this year, we expect prices to be similar to what we paid because we've hedged at a very good level, aluminum, particularly for The US, which is our biggest consumption. We have hedged around 90% of our needs for 2021. And, in terms of sweeteners, fructose remained stable last year. We expect it to be also slightly higher in in 2021 as, you know, the the the market driven by exports to China and some some bad weather has has moved upward. So, we've already hedged also, some of our needs, more than half of our needs for for 2021. And and sugar prices will remain, fairly stable, but at higher levels compared to what we observed in in 2020. So I know if you need more detail, we'll be happy to provide. And with respect to the situation in in in Texas, well, really, this was a, you know, very, very severe storm. We're we're still being impacted. We we have also the the the situation with the the power outages. So we're we're dealing with that crisis. Certainly, operations are not normalized yet. That that's what I can say, but, you know, we have to deal with that crisis in this today and the next following days. Perfect. Thanks a lot. That that's very helpful, and, appreciate. Thanks. Thanks, Anthony. Our next question comes from Felipe Ucros with Scotiabank. Thank you. Good morning, Arturo and Miguel team and congrats on the results. Maybe if I can start with hard seltzer. You have now two quarters of Topo Chico in Mexico. So I was wondering if you could tell us what you've learned about the product category, how consumers look at it and what do you expect for the future of this type of product within the portfolio and within the system as well? And then the other question is a little bit of piggybacking off of what Alan asked, but it did jump at me that the report mentioned 90% reopening of customers on the on premise channel. So I want to ask you what that means about the other 10%. Does the 90% imply that at that point, the other 10 is probably not coming back? Or do you expect them to come back just at a delayed timing? Thanks. Yeah. Thank you, Felipe. Let me talk about, Topo Chico hot seltzer first, and maybe, Pepe can elaborate on that. You know, as you know, this is a natural extension for for the Topo Chico brand, and it's one of the fastest growing categories, as you know, in beverages in in many markets. It has, you know, premium pricing, and it it competes in a separate segment from, NARTV beverages. So it it makes a lot of sense for us. We have, launched it, as you know, in Mexico in the 2020, in, in in Peru in the in in the last quarter, the fourth quarter of of last year. And it it's gonna take some time until we we, you know, capitalize at the full potential of the brand. But we continue to increase coverage, especially in large cities in Mexico, Monterey and Guadalajara and also in Lima. So maybe, Pepe, you can add Yes. Detail, Arturo, and thank you for your question, Felipe. We're using our existing sales and distribution mechanisms complemented with higher focus on e commerce and also using third party distributors with experience in alcoholic beverages where needed. In Mexico, are reaching almost full coverage of the modern trade both in Montevay and Guadalajara. And we are gradually increasing our presence in the traditional trade and premise channels. We are now starting to expand to the major cities in our territory as we obtain the licenses to sell alcohol in those territories and we learn more about this type of the business. While the category is still small and will take some time to develop initial, I would say, unofficial market share figures show a good acceptance of our brand, our positioning and we're positioning ourselves in the first or second place in the category amongst the players in Mexico. In Peru, it was just launched in December in the traditional trade and supermarket and will roll out in the rest of the channels in the following months. So the category is still very small, but I think we are in a very good situation to expand and to be a very important player if what happens in this category is similar to what has happened in The US. And also, we are prepared for the potential launch of other flavor alcoholic beverages in the near future. You let me start with the other question, when we talk about 90%, around 90% opening of the on premise channel, This comes combined with very severe capacity restrictions going from only 25% to 50% of the available space. So that's what has kept this channel. It started on path to recovery. We started to see minus 60%, minus 80%. And we are pretty much in every country in minus 30% and we're seeing that also in this month. So this will take a while, but we've seen that when mobility starts to increase, this will recover. But this channel will definitely be hit for a while, you know. Yeah. But I I think that's that's the most relevant point that it's not only about the number of open customers, but the capacity to operate them. Guess, as you know, that's varies across our different markets, but it's it's not a 100% in any market. Sometimes 30%, 50%. The highest that we have is probably 75%. So so that that that's really where the impact mostly comes from at this point. Great. Thanks for the color, guys. If if I can do a follow-up on those, maybe you can comment a little bit on the on premise. What I'm looking for here is is kind of if we can find an implied failure rate. So, obviously, a lot of clients have opened and still very restricted, but what do you think is gonna happen with the other 10%? Are are they gonna come back at all, or should we assume that that that extra 10% is just not coming back? Well, it's it's not a 90% across all our markets. If you look at Mexico, it's, it's around 98% now. So if you if you think about, that trend, you know, you you could be optimistic about US and Peru, which are are lower than 80. But but, certainly, we we don't know if, you know, the the dynamics of The US market can can be somewhat different. We're more confident that, you know, Mexico, Ecuador, Argentina, they're they're on a trend to go back to where they were in terms of numbers number of customers, but not on, again, on on, capacity of operation. Makes makes a lot of sense. And then I don't I don't know if you can comment on this, Beth did mention that you guys were preparing for launching other categories in the near future on on alcoholic bebs. Anything you can tell us there? Well, yeah, we we believe there's an opportunity in what the category called the flavor alcoholic beverages specifically, and that's why, you know, the the learnings from the launch of Topo Chico hard seltzers that that was explaining are very important for us, not only for this particular brand, but for a, you know, a pipeline of ideas that we've discussed with the Coca Cola Company. Fantastic. Thanks so much for the color. Thank you, Felipe. Thank you. Our next question comes from Marcella Riccia with Credit Suisse. Hi, Arturo, Emilio, Pepe. Thank you for taking my question. I have two quick questions. The first one, if you could give us some trade updates for the first month and a half across territories. And the second one is more towards a portfolio perspective. If you could give us some color on what has driven the weakness of flavors category within sparking volumes. We have seen that this, category has decelerated since, before the pandemic. So just to understand, what's going on and what has been done to accelerate the category volumes. Thank you. Thank you, Marcella. What I can tell you about the the the start of the year is that, you know, it is it is not very different to what we've seen during the months of the pandemic last year. We're we're still comparing to, obviously, to a a pre pandemic scenario, and we, in fact, had a good start of the year in in 2020. So it's a similar situation. The consumption across channels is similar. As I mentioned, you know, the the on premise channel still the most impacted. A lot of that volume has shifted to other channels, particularly traditional channel in in Mexico and Latin America continues to be strong. And and we also continue to be very disciplined in our OpEx to preserve our margins. So you you should expect a a similar start of the year as what we had in the in the latter part of 2020. As we move through March and and and April, I think that is gonna change because we're we're gonna have the the comps of the of the highest impact of the pandemic, especially in South America. So we're gonna be having the the baseline of 2019 at some point within our operation to make sure that we we have the clear goals of going back to the, you know, to the pre pandemic volumes and and growing from from there. And, and the the other trend during the pandemic is that, the the cola brands were were more resilient, and that's been affecting flavors. There are some other factors there in The US, availability of, camp packaging and some things like that. Certainly, flavors have been more impacted. So I'll turn it over to Pepe to elaborate on that. Yes. Thank you, Arturo. Thank you for your question, Marcelo. Yes. As Arturo was saying, COVID in many categories, COVID has led to consumers to reduce trying new products and focusing on their most trusted and loved brands. And that has really helped our volume in Coca Cola and that has hit the volume in flavors. That as you said, Marcella was not having a good performance before even before the pandemic. In some operations, we also have had to make choices due to limitations in labor or in supply chain as Arthur was saying in The U. S. With cans. And we also have to make some choices as diminishing crush in Argentina that is the brand that gives us the lowest margins. Flavors have also been impacted by the contraction of the eating and drinking channel where flavor sales over index from other channels. Looking forward, we expect flavor brands to benefit from the universal bottle as we will be able to offer more availability in affordable presentations in flavors as well our innovation pipeline. Hope that is helpful, Marcella. That's very clear too. Thank you, Marcella. Thank you. Our next question comes from Fernando Olvera with Bank of America. Hi. Hello, Thanks for taking my questions. I have two if I may. Can you elaborate more on what explained the strong margin expansion in South America across all countries the subcom that you were facing? How should we think about margin in this first quarter? And my second question is, ahead of the annual shareholder meeting based on the past due to the unit last year, I mean, how should we think about dividend? Thank you. Yeah. Thank you, Fernando. I'll I'll turn it over to Emilio, to talk about, both margins and and and dividends. I can just mention briefly that, you know, in South America, we maintain the same focus as I've explained for the the rest of our operations. As as you as you saw, our, you know, our pricing is is focused on being in in line or above inflation. We were we couldn't accomplish that goal in in in Peru and in Ecuador because of the change in mix mostly. But but, certainly, we had other factors that were very important. For example, the reduction in OPEX in in in those countries was significant. I think it was a much bigger effort than even we anticipated at the beginning of the pandemic very, very successfully. And and, also, we had the the tailwinds from raw material pricing both in in in PT and some of the sweeteners around sugar mill production in in Argentina. That's helped a lot. It's a it it compares maybe very favorably, maybe 35% below market references in Argentina for for sugar, and and and that resulted in in much better margins. Also, the volume for the fourth quarter in in in South America started to improve. If you see, we have a a very clear sequential improvement for volume in in the fourth quarter. So we we expect that trend to continue in terms of volume, although we still we still are are facing the the crisis with the COVID cases in in all across all across the region. But we continue at the same time to be very disciplined in our our spend. So, Emilio? Yes. Thank you, Arturo. I only would add that, basically, it's really impacted by mobility restrictions. As Arturo mentioned, if you remember the second quarter, we had volume declines of around 30%, and then the third quarter around 15%, and then fourth quarter, we had a positive volume in South America. Of course, not in all countries, but we have a positive trend on volume that really helped margins, of course, top line and then reflected on the margins. And also, as we already explained, the saving initiatives that we implemented, basically, the fourth quarter, in South America had a very good, result on that. So we were able to improve margins, two ninety basis points on the fourth quarter, but unfortunately, we were not able to meet the same margins as last year. We were down 100 basis points. But I think with this positive trend, we're positive on improving margins and go back to the same levels of 2019. So I think it's first that we have the capacity to adapt. I think that would be the the most important thing to highlight, to adapt to the new circumstances. And, you know, we've been impacted on on the top line, but we've been able to maintain a profitable operation. I think that's that's key as as we look to our future and and, you know, volatility that we see eventually in Latin American markets. So and with respect to dividends, Emilion? Yes. Well, as you know, we paid last year an additional dividend on the the month of December. We have the policy of payout of at least 30%. Last year, since it was not any m and a activity, the board approved an additional dividend and we at the end, we had a payout ratio for 94% of return earnings. Of course, we as already Arturo mentioned, we our capital allocation, our CapEx, and then dividends and m and a. So if there's no, an m and a, this year that that the board could approve also, an additional dividend this year, but we don't know yet. We're we're always looking, you know, for, growing also inorganically and very actively in m and a as Arturo already mentioned. Great. Thank you so much. Thank you. Thank you, Fernando. Thank you. At this time, I would now turn the call back over to management for closing remarks. Thank you. And as always, we appreciate your support and your confidence. All of us at ARCA Continental, hope you stay safe and well. Please reach out to our Investor Relations team for any additional questions you may have. And we look forward to speaking to you again soon. Thank you. Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.