Earnings Call: Q3 2020

Oct 27, 2020

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 now like to turn the conference over to Melanie Carpenter of iAdvise Corporate Communications. Ma'am please go ahead. Thank you, Katie. Hello, everyone. Thanks for joining the senior management team of ARCA Continental this morning to review the results for the third quarter of twenty twenty. The earnings release went out this morning and 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. Emilio Marcos and the Chief Commercial and Digital Officer, Mr. Jose Pepe Borda as well as the Investor Relations team. They're probably going to be making some forward looking statements, and we just ask that you refer to the disclaimer and the conditions surrounding those statements in the press release. And with that, I will now turn the call over to the CEO, Arturo Gutierrez, to begin the presentation. So please go ahead, Arturo. Thank you, Melanie, and good morning, everyone. Thank you all for joining us today to discuss our results for the third quarter. I'd like to first take a few moments to express my sincere acknowledgment and recognition to our team for their unwavering commitment to serve our customers and consumers. The dedication of our associates in supporting our communities during the pandemic has been exemplary. I want to thank them for everything they do to represent Arca Continental so well. Turning now to our performance. I am pleased to report that our company delivered another quarter of sequentially improving results, overcoming an adverse business environment impacted by the COVID-nineteen pandemic. Consolidated revenues in the third quarter reached billion, up 5.6%, while total consolidated volume declined 5.6% to reach five fifty five million unit cases. Our business improved versus the previous quarter with encouraging results. Volume performance was better than expected during the quarantine and sequentially improved throughout the quarter. Our markets in Mexico and The U. S. Had a good performance versus last year as pandemic related closures and mobility restrictions eased to a certain extent. Our South America business trends also began to recover as businesses and economies started reopening. In addition, our Snacks business has remained very resilient. Importantly, our market position remains strong. We are sustaining value share across all our territories in the region. Consolidated EBITDA for the quarter rose 7.7%, reaching MXN8.6 billion, representing a margin of 19.3% for an expansion of 40 basis points. We have taken several bold actions to optimize our cost structure. We are moving forward with our disciplined expense control plan announced at the beginning of the pandemic and also strengthen mechanisms to further improve visibility of cash flow, working capital and liquidity preservation. One of the highlights of the quarter was the launch of Topo Chico Hard Seltzer. In Arca Continental, we fully support The Coca Cola Company's beverages for life strategy, and we are committed to exploring new products in dynamic beverage categories. As you may know, Topo Mineral Water got its start here in Monterrey. It has a strong one hundred and twenty five year history, and we are so proud that Topo Chico Hard Seltzer was inspired by the Topo Chico brand. Let me expand on the results across our operating groups and geographies beginning with Mexico. Total volume in the third quarter declined 4.2%, cycling hard comps but delivering a sequential quarter on quarter improvement of 2.1. Volume trends in Mexico continue recovering as mobility restrictions began to ease and more points of sales started to reopen. From a channel perspective, the traditional trade delivered strong growth, while the decline in the on premise channel moderated. Our focus on strengthening an impacted traditional channel through numerous commercial and social initiatives has proven to be effective, resulting in a 3.7% growth. Notably, 100% of our customers in the traditional channel in Mexico were open as of August. We continue supporting reopenings in the on premise channel with initiatives such as Open Kitchen, Local Kitchen, which have helped more than 50,000 outlets and at the same time captured over 3,600 new customers. Total net revenues in Mexico rose 1.9% in the quarter to reach 19,200,000,000.0. Average price per case, not including jug water, rose 6.2%, reaching MXN65.81, sustained by our revenue management and affordability initiatives. During the quarter, we executed commercial initiatives focused on protecting portfolio affordability supported by our returnable presentations. Returnable packages not only deliver an affordable entry price point to the category, but they also strengthen our household penetration, market share and conversion rates. Furthermore, the mix of Multi Serve packages grew 5.6% in the quarter, mainly due to new buying patterns and consumer behaviors preference for these formats. In response to this market dynamic, we accelerated the introduction of multi serve returnable packages supported by our new universal model with a wide variety of products. Moreover, we were able to grow value share in NARTD beverages as a result of the excellent market performance in still beverage categories such as water, sports drinks and juices and hectares. EBITDA increased 4.5 to MXN 4,800,000,000.0 in the quarter, representing a margin of 25% for an expansion of 60 basis points. Margin Despite the volume contraction in the quarter, we were able to expand margins driven by price increases above inflation, raw material tailwinds and efficiency initiatives. Turning now to our operations in South America. Total volume was down 10.8% in the third quarter as a result of declining volume in Peru and Ecuador, which was partially offset by growth in Argentina. The region is facing a sharp downturn this year as lockdowns have continued to pummel activity levels. Nevertheless, third quarter volume confirmed the overall sequential improvement trend from the first half of this year when the decline reached 16%. Total revenues for South America decreased 2.1% in the quarter to MXN 7,700,000,000.0, while EBITDA declined 2.8% to MXN 1,400,000,000.0, representing a margin of 18.5% for a contraction of 10 basis points. In Peru, total volume declined 15.9% in the quarter. As you remember, the stringent lockdown implemented to contain the COVID-nineteen spread gave a historic blow to the economic activity contracting by nearly a third. However, the phased reopening of different sectors has helped increase activity and establish strong recovery momentum. Over 93% of our customers are now open, with 100% of the traditional channel doing business from a low point of 80%. We grew both volume and value share in the quarter driven by the sparkling category. Coca Cola brand showed its resilience growing 8.2% in September. Fanta also posted positive results, thanks to the launch of the returnable 1.52 liter packages. Also in the quarter, we launched 600 ml PET bottle of Inca Cola and Coca Cola, seeking a more competitive price per liter presentation. The traditional channel continued providing its resilience with only 1% volume drop in the quarter. September was positive, up 5% compared to last year. We launched a new website, Open Store or Bodega Abiarta to provide thousands of customers in the traditional trade channel with free tools to manage their business and stay on top of the safety protocols in order to remain open. We also provided virtual training to more than 7,000 mom and pop customers through alliances with different institutions on topics such as how to best run their business, accessing credit, managing changes in consumption occasions and adapting to the new shopper and consumer dynamics. Shifting gears to our beverage business in Ecuador, total volume dropped 11.7 in the third quarter. A nationwide quarantine was announced since March in response to a rapidly escalating domestic COVID-nineteen outbreak. Restrictions have been gradually eased since early May and most measures have now been lifted. Mobility data shows that activity has returned to just 20% below pre COVID levels. Ninety eight percent of our customers are currently open from a low point of forty six percent. The traditional channel went from sixty percent to one hundred percent as we deployed initiatives to support the reopening. The Sparkling Beverage segment stood out once again. Coca Cola brand posted a favorable performance in September, up 3.5%. We expect this positive trend to continue as we accelerate our initiatives to increase coverage and returnable presentations across all our brands nationwide. Toni Corp, our value added dairy business posted a double digit sales decline in the quarter. In the wake of the pandemic, has faced a challenging environment. The overall dairy industry in Ecuador has been impacted by a significant drop in demand. Despite this contraction, Tony leads the value added dairy industry with a growing trend in value share in core categories such as yogurt, flavored milk and ice cream. We continue reconfiguring our portfolio to support the economy of families with new presentations oriented towards affordability without losing nutritional properties and thus maintaining our high quality credentials. I will conclude my commentary on South America with our business in Argentina, where COVID-nineteen remains a hotspot. The government recently announced another quarantine extension, suspending international flights and keeping borders closed for international tourism. Argentina is the only country in the region that has seen a consistent rise in new cases since early July. Despite these mandatory restrictions, our operation delivered sequential volume growth, up 2.1 in the third quarter, driven by growth in Colas and Still Beverages, up 9.57.2% respectively. We continue to actively promoting portability with returnable bottle initiatives. Importantly, our mix of returnables grew by high single digit in the quarter. Moving on to our beverage operation in The United States. Total volume declined 4.4% in the quarter, reaching 112,000,000 unit cases. As we continue to see the impact of the COVID-nineteen pandemic in terms of closures and restrictions, particularly in the on premise channel. Total revenue rose 0.3% in the third quarter to reach $747,000,000 Our price package strategy enabled us to deliver solid top line results, raising our price above inflation. Net price in The U. S. Grew 4.9% with a 4.8 true rate increase and a positive mix impact of 0.1%, driven by high revenue packages such as 12 ounce cans, transaction packages, energy category and body armor. We're starting to see a slow recovery of the FSOP channel as customers start reopening. Conversely, the large store channel continue to outperform as consumers are increasing at home consumption, resulting in this channel growing 4.5% versus prior year. We continue driving innovation in our still beverage portfolio. This quarter, we launched new flavors of Smart Water in 700 ml presentation. We also launched POWERADE Ultra and POWERADE PowerWater to expand our presence in the flavored enhanced water category. We're also capitalizing on the recent launch of and rapidly gaining share in the fast growing sparkling water category. On the profitability front, EBITDA grew 9%, reaching $106,600,000 representing a margin of 14.3%, a solid expansion of 110 basis points. These results reflect the steady progress of our revenue management initiatives while following operational discipline to control expenses. This equation allowed us to grow earnings faster than sales. We also accelerated the pace of key digital initiatives in our pipeline, especially our e commerce platform mycoke.com as more and more customers shifted to online shopping. The number of ordering customers on MyCoke grew 31% in the quarter. Let me close the review of our U. S. Operation with an update of our synergy program. We are 100% on track to capture $90,000,000 in synergies over a three year period. Our new facility in Houston, Texas is fully operational and has been a major enabler of these synergies. The plant brought great flexibility in terms of production as we had to adapt to a shift in consumption of certain SKUs. And now to conclude with our operations review, let's move to our Food and Snack businesses. Y Snacks delivered mid single digit sales decline in the third quarter impacted by the closure of outlets due to COVID-nineteen. The e commerce channel continued its strong performance with over 70% growth versus last year. We relaunched our variety pack portfolio and Weiss Golden Original on amazon.com. Vocados in Mexico posted solid high single digit sales growth driven by the traditional channel. We have continued our pilot program to distribute Kellogg's products, including cereal bars and Pringles chips in select territories in Northern Mexico. We are committed to adding value and delivering great brands and products to our consumers, while leveraging our distribution and merchandising capabilities in the traditional channel. Also, a new distribution center was opened in Mexico City as we deploy our plan to become a national brand in this country. We will continue making targeted partnerships and driving innovation in our portfolio, while further expanding distribution capabilities in new territories. Inalexa posted a low teen sales decline in the third quarter. As you remember, the COVID-nineteen outbreak in Guayaquil quickly escalated to one of the worst in Latin America, though case counts have since stabilized. We're rapidly adopting new digital capabilities in our snack operation in Ecuador. This quarter, the AC Digital corporate platform was deployed with a focus on the traditional channel. As of today, over 3,100 customers utilize this tool to place orders directly. Let me now turn the call over to Emilio Marcos to go over our financial results. Please, Emilio. Thank you, Arturo, and good morning, everyone. We appreciate your participation in this call. Our third quarter was still challenging in terms of volume performance due to different mobility restrictions at the beginning of the quarter in each of the countries in which we operate. As Arturo mentioned, despite the on premise channel limited consumer traffic due to governmental capacity restrictions, we're seeing a gradual recovery in both the volume and mix across our operations. We continue to demonstrate our flexibility to adapt to changing market conditions, delivering another profitable quarter driven mainly by three key factors. First, our price pack initiatives, which remain consistent with our strategy to deliver pricing growth above inflation in Mexico and The United States. Second, tailwinds in raw materials, particularly packaging and third, our cost optimization initiatives that were established right at the beginning of the pandemic together with our disciplined approach at capitalizing on efficiencies. Now moving to the results for the quarter. Consolidated revenues increased 5.6, mainly due to exchange rate benefits from our U. S. Dollar operations and a strong pricing in Mexico and The U. S. We're starting to see a recovery in channel, packaging and category mixes, which were particularly offset by the negative volume performance. It is important to mention that we reached an agreement with The Coca Cola Company regarding concentrate prices on sparkling beverages in Mexico. The new price increase became effective as of July. The agreement is part of our business partnership over the long term, allowing each to focus on strengthening the Coca Cola system. Cost of goods sold were up 5.3% during the quarter. This increase is mainly explained by FX rates and concentrate price increase in Mexico, which were partially offset by lower PET prices across all our regions. Consolidated EBITDA for the quarter rose 7.7, reaching 8,600,000,000.0, resulting in an EBITDA margin of 19.3% for a 40 basis point expansion compared to last year. This expansion was achieved by the top line growth driven by a positive performance in the pricemix of our Mexico and U. S. Operations. Federal PET prices remained lower than last year and an efficient management of OpEx in all our operations. Expenses related to COVID-nineteen for this quarter reached 160,000,000, of which MXN 17,000,000 were non recurring as our operations stabilized. When we look at our EBITDA margin results, The U. S. And Mexico posted a solid 100 basis points and 60 basis points expansion, respectively. These results were driven mainly by the factors described before: strong pricemix, lower raw material prices, SG and A efficiencies and a steady progress in delivery synergies in our beverage operation in The U. S. Our South America operations EBITDA margin recovered from 12% in the second quarter to an 18.5% in the third quarter, only 10 basis points lower versus third quarter twenty nineteen. Despite still facing a significantly challenging environment, the three countries have had sequential top line improvement and effectively executed OpEx savings initiatives. We're still on track to achieve our target of $90,000,000 in synergies with around $80,000,000 to be delivered by the end of this year. And some carryovers for 2021 as our Houston production facility completes a full year of operations. The North Pole facility is set to bring a total of $30,000,000 in annual savings in cost and operating efficiencies. Comprehensive cost of financing in the quarter registered MXN 1,100,000,000.0 from MXN $7.00 9,000,000 due to an exchange rate loss of MXN $2.00 8,000,000 as a result of our cash position in U. S. Dollar. Net income increased 6.6% to MXN2.9 billion, which represent a margin of 6.5%. Now let's turn to the balance sheet. On 09/30/2020, an extraordinary dividend of MXN 1.5 per share was distributed, which led to a payout ratio of over 70%. Our capital allocation priorities remain consistent and we continuously analyze different options to return value to our shareholders. As of September, our cash position was 32,000,000,000 with a debt of MXN 53,000,000,000, which reflects net debt to EBITDA leverage ratio of 0.8 times. Our CapEx investment in the third quarter was 4,000,000,000, around 47% less than last year as investments were optimized to better meet the needs of the current consumer environment. We expect to return to a regular CapEx level next year as the contingency continues to positively evolve. Looking ahead towards the end of the year, our priorities have not changed. We'll continue our disciplined OpEx execution, reinforce our digital and commercial initiatives and strengthen the relationship with our customers, particularly in the traditional trade, which is key component of our positive results. In 2021, we'll continue to focus on those priorities that accelerate our recovery for more effectively serve our customers while maintaining a solid profitable level. And with that, I will turn it back to Arturo. Thank you, Emilio. 2020 has been an unusual and challenging year for all, but we are encouraged by our results and our ability to thrive and excel during this COVID-nineteen pandemic. Our first priority is and has always been the safety of our associates. We put in place robust processes and policies to protect our employees and customers and further limit the spread of the virus. We are keenly aware that the uncertainty of today's health and economic landscape is likely to extend into 2021. Therefore, it is more important than ever to keep a long term vision of the business, while focusing on preserving and strengthening our relations with customers, consumers and the community. Our market focus and operational flexibility has allowed us to swiftly adapt to a weaker overall consumer environment, while maintaining profitability and market share. The progress we've made in terms of revenue management and stepped up execution prepares us to rapidly adapt to the new market dynamics. Consumer behavior has changed dramatically during the pandemic. Undoubtedly, COVID-nineteen has pushed consumers online faster than expected. As you may remember, last year during our Investor Day, we laid out our digital transformation plan and the journey we embarked on. This pandemic has certainly been an accelerator of our digital initiatives, and thankfully we were ready to pick up the pace at just the right time. We believe e commerce and home delivery platforms has consumer preferences that will remain after the contingencies. As a result, we deployed new omni channel capabilities and expanded the number of touch points with AC Digital, our e commerce mobile application. In The U. S, we're expanding our online B2B platform with new digital capabilities, including payments, loyalty programs and launching a new mycoke.com application to better interact with customers. We optimized our portfolio of SKUs, shifting towards packages sizes that better adapt for online sales and redeployed consumer and trade promotions towards digital in order to grow beverage incidents. I also want to highlight the outstanding resilience of the traditional channel. We are convinced that mom and pops are the heart and soul of our communities and are the key to reactivating economic local activities. We have been actively supporting their reopening and helping them emerge from this crisis. Another top priority going forward is to expand the reach of our digital platforms to the traditional trade and to strengthen our relationship with these customers by facilitating access to other consumer products. As we look to the remainder of the year, we will continue stringent oversight of our financial resources and seek additional opportunities to reduce costs and expenses. We are following the same disciplined methodology that we are familiar with to attain synergies in the integration of new businesses. These actions have always been an integral part of our operations, but will be further emphasized in the upcoming quarters. Our solid institutional foundation, sound financial discipline and firm dedication to adapting to the dynamic needs of our customers and consumers are the platform on which we will capture new opportunities for growth in the beverage and snack industries. That concludes our remarks. Operator, we are ready for questions please. Thank you, sir. At this time, we'll open the floor for questions. Thank you. You. Our first question will come from Ben Theurer with Barclays. Hey, good morning, Arturo, Emilio, Pepe. First of all, congratulations on the results. I have just two very quick ones. So one, the concentrate price increase in Mexico, that's because of the formula and because the business did so well and what you were able to expand gross profit in Mexico. Hence, there was like a retrospective increase on the concentrate price. So every time you do well, you're going to have to share it a little bit with The Coca Cola Company. Is that correct? Good morning, Ben. Well, yes, that is I guess conceptually correct. We have as you know well, an agreement with the Coca Cola Company that is different to what we had before regarding concentrate prices and sparkling beverages in Mexico. I think our agreement now is based on criteria. We have an ongoing conversation. And certainly, we had a very good third quarter as you saw growing EBITDA even with this impact of concentrated price increase, which was not significant as you can see from our results, margins. So yes, the answer is yes. Okay, perfect. And then the actual question I was having is about high fructose corn syrup. So where do you stand on the contracting in Mexico and U. S. Just considering what's going on in the commodities market to get a little bit of a sense into 2021 from some of the sweetener costs you might be facing and what you're going to have to do on price pass through into next year considering some of the prices there where we are right now? Yes. Well, fructose prices should remain stable in dollars, I would say. We have hedged most of our needs for 2020. The remaining is at a spot price that is slightly probably even slightly below the hedge. Maybe for 2021, the prices would be higher if current corn prices continue at current levels. In Mexico, we expect total year price reduction in 2020 compared to 2019 due to decline in corn prices in the last few months. And similar to The U. S, prices might increase going forward if the cost of corn continues at current level. So in general, I would say prices will remain relatively stable, but there is some fluctuation as I described. I don't know, Melio, if you want to add something about hedging and how we covered some of that risk. Yes. Well, as you mentioned, we have 81% cover hedge for U. S. This year at a lower price than 2019. And the rest is a spot price, which is even lower than the hedge. So we have a very good healthy combination of prices for 2020. And for 2021, considering the window and the opportunity of stable corn prices, we have hedged part of the needs for 2021. So we don't see any significant changes on high fructose prices. And sugar, while this year in Mexico, we have higher prices than last year, even a little bit above inflation. We expect next year to be most in line with inflation, sugar prices. You know that we have our own sugar mill. And in Ecuador, our very stable prices and Peru, we also have some hedges for next year, lower 75% hedge for next year at a lower price than this year. And in Argentina, as you know, we have also our own sugar mill. Perfect. Thank you very much. Thank you, Ben. Thank you. Our next question comes from Isabella Simonato with Bank of America. Thank you. Good morning, Arturo. Good morning, everyone. I have a couple of questions. First of all, when we look at volumes right, Coca Cola guided for volumes in October down low single digits. If you could comment on how you're seeing the performance across the territories. And also with a little bit of focus in Argentina, right, which I think was quite of a surprise this quarter, if you could give us a little bit more color on what are you and seeing the expectation going forward? And the second question will be the savings, right? You mentioned almost 2,000,000,000 pesos in savings year to date. If you could elaborate the sources of those savings and what is the general goal that you're looking for? Thank you. Thank you, Isabella. Good morning. Let me talk about volume trends first. So if you compare our third quarter with our second quarter, you'd see a sequential improvement across all of our operations. We compare third quarter volumes are maybe it's harder to see the recovery in our main markets. Mexico and The U. S. Had great results last year, third quarter twenty nineteen. Mexico grew more than 4% and The U. S. More than 3%. So in South America, the situation is different. So we had softer comps due to last year's volume declines in especially in Argentina and flat volumes in Peru. So throughout the quarter, we had a slowdown in July and August, which is what's to be expected. But in September, we had a great result where U. S. Grew 1.5%, Mexico grew even more than that. And Argentina grew close to 8%. Again, comps were easier in those countries. So we had positive volume growth. We had a much better month of September as compared to the rest of the quarter. And South America is still impacted, but with gradual recovery. Customers are reopening in all markets, Mexico and The U. Seem better so far, we're still cautious about with the surge of COVID cases. So what we believe is there's a clear correlation between mobility and volume performance. From the beginning of the pandemic, we have seen that correlation. And mobility was affected due to restrictions from government. I think it greater in our South American markets with the closure of establishments. And since those restrictions were lifted, we have naturally seen a recovery in mobility in our volume. Things are not yet normalized from a mobility point of view, but our volume has had a promising recovery, Especially if you look at the traditional trade, I think that is very important to see it, the healthy operation of traditional trade. And talking about Argentina, Argentina is still under mandatory isolation and that has been extended. However, during the third quarter, our volume grew 2.1% and some categories have proven very resilient. Colas is growing in Argentina. And our prices were in line with inflation pretty much throughout the quarter, but we have focused on affordability. Returnable packaging is a very important strategy in Argentina and that grew more than 12% has been growing more than 12% year to date. And it actually grew in the third quarter significantly. So we continue to expand our returnable portfolio in both sparkling and still beverages and increased coverage with those packages. We're also supporting customers to safely operate their business through multiple programs. And so Argentina as you see is showing a recovery, but again we had a not very good quarter So if we move into the savings program, I will let Emilio go into a little more detail about that. But what I can tell you is that we've been working to manage expenses throughout the crisis, committed to reduce OpEx across the board without affecting the operation. We have launched a cost savings and efficiency plan to prioritize liquidity and profitability of our business. And we have a team that's coordinating that effort. And we're using actually the same methodology that we're familiar with when we have integrated new businesses in in the last few years. So there there are a number of things that that we've optimized. We have paused hiring except for some critical roles. So obviously, limiting temporary labor, and that is obviously a consequence as well from declining volumes. So we have identified marketing spend that can be optimized. We are also reassessing deployment of capital projects. So so we're revising all discretionary operating expenses and challenging what what is essential to make sure that every expense is appropriate. So that is gonna continue not only for the fourth quarter, but going forward through 2021. So I don't know if you want to add to that, Milio? Well, only that we estimate for savings of for 2020 of around billion. We have year to date almost billion. So we expect a little bit more for the rest of the year. And basically all the initiatives and concept that Arturo just mentioned, we are really revising all discretionary operating expenses and challenging, but it's really essential to make sure that every expense is appropriate. And as Arturo said, we started that at the beginning of the pandemic and it's working with very good results in all operations. Excellent. Thank you. Thank you, Sabella. Thank you. Our next question comes from Felipe Ucros with Scotiabank. Yes. Good morning, Arturo, Emilio and Tina. Thanks for the space for questions. If I can do a first one on concentrate price increases. First, if you could comment on what the magnitude was? I imagine it was another 1% of sales. And also, if you could talk about the duration. I imagine it's this year, but not sure if you have anything said about next year or the following one for Coca Cola Company. And then, you know, assuming your comments are similar to the ones from cough yesterday, it should pro should probably be one or two years. When you start adding them up, it's it's four or 5% of sales in in in a matter of half a decade, right, five years in a row. So, you know, it it starts to add up. In Mexico, you guys have, very good margins in the mid twenties, but they've been stable to decline in the last five years. So it it seems you're sharing a lot of EBITDA with the Coca Cola company while at the same time keeping very little of the improvement. So I don't know if you can reconcile that with the comments you gave to Ben on at what point do you feel like maybe the Coca Cola company is taking a little too much or if you think this is totally fair and how you can maybe forecast it to the market in a more consistent manner? Thanks. Good morning, Felipe. Well, first with respect to the magnitude of U. S, this is about maybe 0.5% of COGS increase year to date. I would say probably Emilio can give you more detail. And well, yes, we have an agreement with Let me tell you this. We have a ninety four year relationship with Coca Coca Cola. And this is part the franchise agreement, but it is certainly much better now than before. Since we renegotiated the terms, what's important is any of these actions are implemented on the basis of previously agreed criteria. And we have the opportunity to discuss with Coca Cola the implications and also how the Coca Cola Company can continue to support our operations. So this is a relationship that goes two ways, concentrate conversations have that long term approach. We actually are discussing now how they can support our operation going forward. And that is looking to balance our relationship considering all the elements of our economic model. So again, we are in Mexico particularly where we have reached that agreement, I think we're in much better spot than we were before when we this was pretty much unilateral without any discussion. So but if you look at our margins, our margins are actually improving. If you compare even under the pandemic, our third quarter margin when this came into effect is more than 28% and it was in the 25.6% or something like that a year ago. So we believe it's a balanced relationship. Obviously, this is a negotiation. We would always like to end up in a better position. Certainly, we believe it's a much more balanced, much more stable and equitable relationship with the Coca Cola that we had years back. Thanks for the color, Arturo. And as analysts, every time we sit with investors, seem to pound on this topic. It's something that clearly investors care a lot about. Is there any way or have you at any point had conversations with the Coca Cola company about how to kind of give more visibility to the market in terms of when the increases are coming and what magnitude they are and kind of give them, more consistency, right? Because at periods, we go many years without any increases and then we go many years with increases and it becomes kind of the most talked about subject, in calls and with investors. I'm not sure that's not great for you guys, not great for the Coca Cola company or for investors. So is there any way to improve visibility? Well, the problem there, Filipe, is our relationship is very complex. We cannot disclose just one element of all our economic models. So there are many things going on and support that we get from Coca Cola. So it's not only concentrate pricing. So probably that's the reason for not detailed transparency. Got it. Fair enough. Thank you for the comments. Thanks, Felipe. Thank you. Our next question comes from Alan Alanis with Santander. Thank you so much. Good day, everyone. Hey, Arturo, Emilio, Felipe, and Lisa. I hope you and everyone around you is doing well. I'm I mean, I have to echo what Felipe just asked. I mean, the investors care a lot about this topic, and I think that you've already got enough questions about it. So I'm just gonna do a a really quick one on that topic and then and then change. You had a fifty fifty for the Jugos Del Valle, everything that doesn't have bubbles, anything that is non sparking. That doesn't change or under this agreement? And does the alcoholic beverages in Mexico go into the sparkling model or to the JV of Fugu Del Valle? Morning, Alan. Good to talk to you. Hope you're also well. Well, yes. We have, as you as you know, separate models for our different businesses. So so Jules Del Valle is a is a pure fifty fifty joint venture. And I would say in a in a traditional way, it's It's complicated accounting because we manage only the traditional trade and the company in a centralized way serves the modern channel. But certainly, it's easier conceptually to understand. In the case of sparkling, as you know, have an incidence model which is different. So new every new product that we launch will be negotiated and will have their own particular arrangement. So Topo Chico hard seltzer is not within the JV umbrella, but we can tell you that the margins, the gross margin that it contributes to our business is very healthy. And when you look at these categories, it's not only about percentages, but also about the actual peso or dollar contribution per case. And that in the case of our seltzer would be higher than sparkling because you know, it's a it's a high priced product. So so I think that's good for us and good for our system and also opens the possibility to explore, you know, a whole new range of categories. So so that, I think it's a it's it's a positive sign also flexibility. So and we're back to the concentrate discussion, our approach with Coca Cola is to look at the overall business and trying to find the balance considering you know, stills and and sparkling altogether. Yeah. And and that makes sense. And, I mean, I'm just gonna underscore repeat what you said. I mean, congratulations on the on the on the results. You have a you have a margin expansion and and the growing EBITDA in in the middle of the worst pandemic. So, clearly, you're doing a lot of things right. And I think I mean, we don't wanna surprise you with overemphasizing this topic given the excellent results that you have. It's just just that investors ask though. But let me ask one last question. Sorry? I understand that. My point is we have a again, more than ninety year relationship with Coca Cola and we hope you can trust that we have good negotiations and that they are for the best interest of our company. Yes. No, that's clearly very evident. Now let me ask you a more strategic operational question on your business. Mean, 100% of the point of sale in Mexico are open. So you're serving the traditional channel. What will happen with volumes and profitability as as the convenience stores go back into into full operation and restaurants will go into whatever new normal they'll be. And because you've been extremely good at at expanding margins, transitioning into the the traditional channel. And I just want to make sure that if we assume that you can maintain this margin expansion, I'm not missing anything in terms of profitability as you as the other channels normalize or two? Well, yes. In the case of Mexico, as you see, you know, traditional channel has has been performing very well. It's incredibly resilient and it's gained relevance. It's a proximity neighborhood store. So it's grown 4% volume year to date. And even in the quarter, it it grew 3.6% volume. So if you look where is that probably volume shifting from? It's it's coming mostly from the on premise that what we call the eating and drinking channel and the leisure channel, which are which are also very profitable. But even if it's a convenience, convenience in in in Mexico is was down, has has been down 66%, for the year, but still very profitable. I think, over the years, we've been able to balance profitability across channels. Cost to service are are different if if you think about supermarkets and convenience. And so so I think we're we're very optimistic about profitability for the future. Got it. That makes sense. I just wanted to confirm that. And again, for the results and stay safe. Thank you so much for taking my question. Thank you, Jose. Thanks. Thank you. Our next question comes from Miguel Tortolero with GBM. Hi, good morning everyone. Thanks for the special questions. My question would be on e commerce. I mean, mentioned on your press release and on your initial remarks, the growth that you've been witnessing on this channel, on this e commerce channel. And I understand the comps are still very small, with all the disruptions we have seen and the investments you've made in the digital front, it would be very interesting to hear how do you picture this channel in the long run? What's the scope you see and in the the role you expect it to have within the portfolio, let's say, ten years? Anything you could share with you you know Sure. I will let I will let good morning, Miguel. Thank you for your question. I will let Pepe will elaborate on that. I'll just tell you that, you know, the the key for us in in digital transformation is to integrate that to our current processes. So it's it's not really a separate list of projects because, you know, they have to be connected to our to our mainstream operation. And but we have a dedicated team implementing the strategy, particularly in ecommerce with key metrics, you know, interaction with food aggregators, and and and trying to understand the particularities of of how to deal with with those customers. Because, certainly, that has been growing in in The States, obviously, but also in in Latin American markets throughout the pandemic. But I will let Tepe elaborate more on that. Thank you, Arturo. And thank you Miguel for your question. So we are working in different fronts in terms of e commerce. We have strengthened our structure with a global e commerce manager and director and we're starting to put people in charge in each of the different operations. So we are seeing three different plays. One is with food aggregators in which we are a very good partner of RAPI and we're getting a very good information that helps us increase the incidence that is the amount of how many of the orders have one of our products. And our goal is to be as good as we are in brick and mortar in the e commerce arena. So we're expanding also with contract with Uber Eats and Didi. And what we're working there is mainly to make sure that we can get that attachment of one of our products in each order. That's very much food aggregators. In terms of e retailers, we have done a lot of work in terms of pricing guidelines and specific pricing and packaging architectures how these channels really intertwine with the rest of our business working on digital layouts, activation and investment guidelines. And so we are getting prepared for the growth of this channel that as you said is still very small, but is having growth of between 50100% in the different geographies. And also with the pure players like the MercadoLibres in LatAm or Amazon, we are preparing ourselves to work with them as a seller where we can own the transaction through their platforms and not as a vendor where we just sell to them. So we can work together with them to develop our products. The other arena where we're working is in that business to business both in LatAm with AC Digital in The U. S. With mycow.com. In AC Digital, we already have 120,000 downloads of the application and around 90,000 of these customers are already using this application to connect with us and to check the product, to check promotions, to take orders, to evaluate our service and many different things. So that's pretty much where we are. As you said, it's still small, but growing fast and we are getting prepared to be a very good player in that and be as good or better as we are in the brick and mortar. Great. That's very clear. Thank you. Thank you both. Now just quick one on CapEx. I mean, it's been evident that you're being more conservative in terms of your CapEx deployment this year, given, of course, the circumstances we're going through. So the question would be, how should we think about CapEx for next year? Well, I can take that one. Well, as we mentioned last conference call, we are looking at each of the investment that we're doing to be in line with the situation of each of the operations, so we have reduced that. I think it's going to be around this year 3% of our sales. If things the trend keep positive, we we expect to have next year around 6% and then the following years around 5% over sales on CapEx. Great. Thank you, Emilio, and thank you Arturo and Pepe. Thank you, Miguel. Thank you. Thank you. Our next question comes from Alvaro Garcia with BTG. Good morning gentlemen or good afternoon. I have two questions. My first one is on pricing in The US. We saw a 4.9% rate increase or 4.9 increase with the majority coming from rates tribute to pricing. There's a nice sequential declaration there. And my second question is on sort of a broader, bigger picture question on basically, Arturo, just trying to get your thoughts on what the benefits of being a larger bottler means. And this is obviously in the context of, you know, the deal we saw between, CCEP and Amityl, and it's also relevant in the context of of, the restructuring that Coke announced last week. So just your broader thoughts on the benefits of being a larger bottler and obviously that has a lot to do with digital. Thank you. Thank you, Alvaro. Well, first, about pricing. As you know, every year, our goal is to capture value adjusting prices in line or above inflation in all our markets, and that would leverage our revenue management capabilities and and our, you know, capacity to implement a segmented brand price pack architecture. So we keep we keep refining those capabilities. It's not just having the the will to do it. It's obviously doing in a a better way each time and and having the right metrics and the right processes to do it. So the the focus going forward, rather than price, actually, it's about profitability, if you think about it. Going forward, in the case of Latin America, for example, returnable packages might not represent more pricing, but margins will be healthy. In the case of The US, that net price grew 4.9%, which is, you know, significantly above inflation. The true rate increase is 4.8%, and and and the mix is is not that significant. It was only point 1%. So we did grow in in high revenue packages such as 12 ounce cans and what we call the transaction packages, the the energy category monster, and also the the the new sports drinks like body armor, that that is growing fast, and it's a it's a high priced segment. So we we do have a change in in mix of of channels that helps also as we have shifted some of the fountain volume from the on premise to more the the the the take home consumption. So that's helped as well, but we we remain committed to that strategy going forward. And talking about, you know, the the benefits of being a a larger bottler, I would say that over, you know, the the last couple of decades, probably, the the model of being a a Coca Cola bottler has changed. And I I think one of the most significant ways in in which it it has changed is is that scale has become more relevant and more important. We do have a implicit most favored nation treatment by Coca Cola, but many other things you can benefit from scale, from, you know, a procurement and and and the scale to have more robust processes within our operation. So if you if you look at how the the business have become has become more complex, what Pepe just described about digital and ecommerce, the need to have, again, more refined capabilities, commercial capabilities, but also in our supply chain and as the world moves into digital platforms, I think it's become more and more relevant. And when you think about consolidation in the in the system in the last, you know, ten or twenty years, it's created value, I I guess, to a great extent because of that. Great. Thank you very much. Thanks, Eduardo. Thank you. Our next question comes from Carlos Laboy with HSBC. Yes, hello everyone. I know Alan told us not to beat this horse anymore but I'm going to give it one more try. The Coca Cola company likes to say that they want fiftyfifty profit splits across a lot of markets and then constantly make adjustments very often hard to pursue that fiftyfifty split. How far are you from a fiftyfifty profit split with the Coca Cola Company is one question. And then just on a follow-up to that, can you expand maybe a little bit further on what are maybe some of the new revenue pools that you're discovering with your digital platforms that look like compelling low hanging fruit here over the next year as you go into 2021? Because it seems that you're probably accelerating market share and the opportunities to grow 2021 revenues even faster. Yes. Thank you, Carlos. It's always good to talk to you. And let talk first about profit splits. And certainly, as I said before, we believe we have a much more balanced relationship with Coca Cola and also more open and transparent about, you know, a profitability of our respective businesses. So I think the ideal is to approach that that balance across our operations, but that is different from one country to another. And and, certainly, it it changes over time. So what we try to do in in in our discussions with them is to have something that would be more stable rather than looking at a at a year in isolation. So so we we believe that we we have now a pretty balanced situation with Coke with respect to to to that idea, but not necessarily country by country would would apply. So but but that is the the the, obviously, the the spirit of the relationship. And second, with respect to other alternatives, I'll turn it over to to Pepe, but I'll just say that, certainly, if we are moving it successfully into a into a a digital space, some opportunities might arise. And we're we're now capitalizing most of those for our own our own core business, and it's a lot about collecting information and and big die big data and analytics. So that's been very interesting. Not as a new revenue stream, but certainly as a a a new strength within our company to sustain leadership going forward. But probably in the future, that will also create a solid foundation for additional opportunities in the market. So I will let Pepe comment on that. Thanks, Arturo, and thanks Carlos. Great to hear from you. I can tell you about three different or potential new revenue streams that we are working on or maybe they are new or we are enhancing them. One is the direct to consumer. You know that we've had this business for a while here, but we are digitizing it and that lets and gives us a much deeper connection with the consumers where we get to know them more. And as we evolve, we're going to be able to target them by name and use that information in the different platforms in the different interactions we have with them. We serve around 430,000 households, most of them are still in an analog way, but we are rapidly increasing Today, 30,000 of them in which we are serving them digitally and understanding very much the connections with them. The other one is serve retail, vending machines, micro markets and how do we interact with consumers. So we are also expanding into that arena and that is going to help us to move into ad work, into places where there are high concentration of people and that's another important revenue stream. We have an important vending business in Latin America, but we think that technology is opening up many different many other opportunities in that arena. And the third one is that automation of the traditional trade. We already have a little less than 11,000 customers with our JON platform. Just to give you some numbers, we have processed more than 7,000,000 cell phone recharges, have almost $4,000,000 payments in services. We have processed around $100,000,000 tickets in the period. So that information as Arturo was saying, that information we're going to use it to develop most of our to develop our current business. But in a while as this business grows that can also become a new revenue an important new revenue stream. We also we are also serving around those 11,000 customers and where we are seeing the possibility to also help them with their purchases and we're also testing that. So there are many other potential new revenue streams that come from the automation of a traditional trade. So I think those are the three main opportunities that we are seeing today in the digital arena. I hope that's helpful. That is helpful. Very thank you very much. But back to the original question, Arturo, do you think we are close to a fifty fifty now in Mexico? Yes, probably we're not that far from that balance. Thank you. Thank you. At this time, I would now turn the call back over to management for closing remarks. Thank you. I'd like to thank all of you for taking the time to join us this morning and for your insightful questions. We appreciate the confidence you have in Aca Continental and we hope that you and your families stay safe. Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.