Earnings Call: Q4 2019

Feb 14, 2020

Earnings release

Good day, everyone, and welcome to the ARCA Continental Conference Call. 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. Good morning, everyone. Thanks for joining the management the senior management team of ARCA Continental this morning to review the results of the fourth quarter and the full year 2019. The earnings release went out this morning. It's available on the company website as well as the webcast. Please go to 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 going to be making some forward looking statements and we just ask that per usual, you refer to the disclaimer and the conditions surrounding those statements in the earnings release. This call is for investors and analysts only. Questions from the media will not be taken. 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. Thank you, Melanie, and good morning, everyone. Thanks for joining us this morning. Let me start by saying that we are very pleased with our fourth quarter and full year results. Our company closed the year at a high note, delivering strong financial results and a solid operating performance. 2019 presented significant challenges to our industry and to our business. The combination of economic slowdown and social unrest in some of the countries where we operate created one of the most diverse business environment in recent years. Nonetheless, once again, team's commitment and professionalism led us to achieve yet another year of positive financial and operational results. Total consolidated volume grew 3% in the fourth quarter and nearly 1% for the full year to reach more than 2,200,000,000 unit cases. Consolidated revenues rose 4.9% in the fourth quarter and 4.5 for the full year, reaching record sales of close to billion. Consolidated EBITDA grew 17.7% for the quarter and 10.7% for the full year, reaching a 19.4% margin in the quarter, up two ten basis points. Full year EBITDA margin was 18.7% and margin expansion of 110 basis points. This performance underscores our ability to generate sound financial results even in a challenging environment. Let me take a few moments to share with you that Petstar, our joint investment with Coca Cola and other Mexican bottlers obtained the Ibero American Quality Award in the Gold category, in a special event held last week in Madrid, Spain. This award recognizes the excellence and sustainable management of organizations for quality and innovation across the processes. It is considered the highest honor in Iberia America for quality. We are honored and proud for this award and committed to continue to be an international benchmark for best practices and sustainability, proving that PET collection and recycling can generate social, environmental and economic value. Let me expand on the results across our geographies. I will begin with Mexico, where we continue to demonstrate the resilience of our beverage business. We maintained a positive momentum delivering yet another solid quarter of volume growth, up 6.7%. Annual volume grew 2.8%. We achieved solid growth in the quarter across all categories with sparkling, still beverages and personal water up 4.5%, 824.7% respectively. Total net sales in Mexico rose 11.5% in the quarter to reach MXN16.9 billion, marking the eighteenth consecutive quarter of net revenue growth. Average price per case in Mexico in the quarter, not including jug water, rose 4.6%, reaching 62.96, sustained by our segmented revenue management and affordability initiatives. EBITDA increased 43.6% to MXN 3,800,000,000.0 in the fourth quarter, representing a margin of 22.2 for an expansion of 50 basis points. EBITDA margin for the year rose by 130 basis points as a result of our effective pricing combined with our disciplined focus on cost optimization and a more benign commodity market. We continue capitalizing on successful new product launches throughout the year in Mexico, leveraging digital technology to reinforce our segmented execution capabilities. In 2020, we will continue expanding our portfolio and strengthening the presence we have in the market with more than 75 brands in different beverage categories. Moving now to our beverage business in South America, total volume in the fourth quarter was down 2.9% due to declining volumes in Argentina and Peru and volume practically flat in Ecuador. Total volume for South America dropped 2.2% for the full year. Total revenues declined 2.2% in the quarter and 4.3% for the full year reaching billion. On the profitability front, EBITDA declined 4.9% in the quarter and remained essentially flat for the full year to MXN7.37 billion, representing a margin of 20.7% for an expansion of 90 basis points. Our revenue management, product innovation and reformulation initiatives coupled with our financial and operating discipline enable us to post healthy levels of profitability amid a decelerating consumer environment. Let's turn to our beverage business in Peru, where total volume in the fourth quarter was down 3.2, while for the full year, volume grew 1.3% led by the traditional channel, up 4.2%. Although we started to see a slight recovery, lingering economic weakness continued impacting general consumption. We remain focused on cost discipline, optimization and affordability. To this end, we accelerated coverage of the new two liter universal bottle refillable format with wide consumer acceptance. Notably, our mix of returnable presentations grew 5.3%. Moreover, 2019 was a year of digital transformation. We rolled out our new IT platform to nearly 80% of our sales force, enhancing point of sale execution and increasing overall productivity. We also implemented the new suggested order pilot using advanced analytics to reduce stock outs. We're capitalizing on the learnings and experience from this implementation in Mexico. We're optimistic that the growth should pick up in Peru in 2020 on the back of stronger domestic demand. Consumer spending should also benefit from moderate inflation. In Ecuador, volume in the fourth quarter and full year 2019 was practically flat at 0.40.2% respectively, driven by growth in the still beverage segment up 6.4%. As you may remember, last October, Ecuador faced major protests and social turmoil hindering normal business activities. Despite weakening consumer demand, we were able to maintain value share in ARTD. Still beverage categories posted value share gains, driven by the sports drinks, teas and juice segments. We continue to improve our portfolio for portable and returnable presentations, increasing the mix of returnable packages by four percentage points compared to last year. Toni Corp, our value added dairy business posted a mid single digit sales decline in the quarter and low single digit decline for the year. Despite the slowdown in the Ecuadorian economy, Toni Corp consolidated its market leadership and captured additional value share across core categories, yogurt, flavored milk and particularly ice cream. Our main ice cream brand Topsy has significantly expanded product coverage and developed a closer connection with consumers, thanks to our full portfolio of high quality products. Shifting gears to our beverage business in Argentina, volume in the fourth quarter declined 5.712.4% for the full year. The adverse economic environment prevailed in the latter part of 2019. Nevertheless, we continue to focus on those things we can't control. We maintain pricing in line with inflation while actively promoting affordability with returnable bottle initiatives and smaller sized packages. This quarter we launched Aquarius Flavor Water in a two liter returnable presentation. We're the first bottler in The Americas to deploy returnable packaging in the still beverage portfolio. Turning now to our beverage operation in The United States, Coca Cola Southwest Beverages closed out 2019 with a strong operating performance and delivered its eleventh consecutive quarter of revenue growth, up 6% to reach close to $711,000,000 Once again, the sales increase in the quarter was driven by strong price improvement, up 4.3%. Net price for the full year grew 5.5% to reach $6.39 per case. This is the second consecutive year where price per case grew above consumer inflation. True rate for the year grew 3.2%, while mix grew 2.3%. This was achieved by implementing an effective and coherent revenue growth strategy that allowed us to increase revenues 5% to reach $2,800,000,000 setting the highest revenue growth in the past three years. Volume for the fourth quarter was up 1.7%, driven mainly by 12 ounce cans in large stores. In small stores, volume growth in the quarter was driven by Body Armor and transaction packages. For the year, volume was down 0.4%. As we have mentioned previously, this slight decline was a result of transferring the Sani case pack volume from Sam's Gloves to a third party distributor. Excluding this effect, volume for 2019 would have increased 0.8%. Body Armor was one of the main drivers of volume growth in 2019 with a total of 4,500,000 unit cases sold. Coupling this brand with POWERADE proved to be a successful strategy. Topo Chico also delivered yet again a strong volume performance during the year with double digit growth. We continue to expand our customer base as almost 90% of the total volume was delivered from our red trucks. EBITDA for the quarter increased 11.4% to $104,000,000 representing a margin of 14.6% with an expansion of 70 basis points. This is the second consecutive quarter where earnings grew faster than revenue. 2019 was a year of achievements for our Verich operations in The U. S. Let me highlight some of the most important. Revenue and price per case grew at more than twice the rate of inflation and we managed to keep expenses flat. We introduced more than 140 new SKUs within different categories. Some of the most relevant launches were Coca Cola Orange Vanilla, Smartwater Alkaline and Antioxidant and Rain Energy Drink. We also continue to strengthening our ACT execution model and finished the first stage of our go to market project. We will now focus on the development of the new generation of service models for large stores, small stores and accelerating the digitalization of our operations. Our disciplined revenue management initiatives as well as the continuous focus on improving execution enabled us to capture the highest value share in the Sparkling category over the last five years. Now I'd like to provide an update on the progress of our synergy program. We continue to be fully committed to reaching $90,000,000 in synergies over a three year period. In 2019, we reached our goal to achieve $30,000,000 in synergies. Our manufacturing optimization project is already adding to this total. Furthermore, we are happy to announce that on December 8, we produced the first sellable product in our new state of the art production facility in Houston. I will wrap up my operations review with our food and snacks businesses in The U. S, Mexico and Ecuador. Y Snacks posted flat sales in the fourth quarter and single digit growth for the full year, mainly driven by potato chips and popcorn categories. Deep River continued consolidating as a strong brand with double digit sales growth. Vocados posted a sequential mid single digit sales increase in the quarter and high single digit growth for the full year, driven by exceptional growth in the supermarket and convenience stores channels, as well as expanded product coverage. New product launches also played a key role in our profitable growth strategy throughout the year. In 2020, we will continue making targeted investments, driving innovation in our portfolio, while enhancing brand equity and further expanding distribution capabilities in new channels and territories. In closing, Inalixa delivered excellent top and bottom line results, posting high single digit sales increases in the quarter and mid single digit growth for the full year. Let me now turn the call over to Emilio to go over our financial results. Please, Emilio. Thank you, Arturo. Good morning, everyone. Thank you for joining us today to review Argentinian's performance and financial results for the fourth quarter and full year 2019. Just like previous quarter, the fourth quarter continued with strong positive results. The strength of our year end finish is mainly due to the success of our peak price pack strategy, which has been constant throughout the year. The ability of our teams to adapt to the challenging conditions with innovative initiatives for execution at the point of sales, as well as the stability of raw material prices. 2019 was an important year as EBITDA grew above 10%. Our margins expanded in all operations with exception of Argentina. It's important to highlight that The U. S. Verus operation expanded its EBITDA margin by 50 basis points and we reached a net debt to EBITDA ratio of one time. Moving on to the figures. Consolidated revenues increased 4.9% for the last three months, Thanks to our price architecture capabilities and strong volume performance in Mexico with revenues up 11.5% and in The U. S. Up 3%, offset by the negative top line in South America down 2.2%. While the twelve months of 2019 revenues grew 4.5% with Mexico increasing 9.1, The U. S. Up 5.4% and South America decreasing 4.3%. The gross margin in the fourth quarter was 45.7%, two forty basis points higher than 2018 due to a combination of strong pricing and lower raw material prices, mainly PET and sweeteners, which yield a benefit of around MXN $250,000,000. For the quarter, consolidated EBITDA was 8,000,000,000 for an increase of 17.7% and a margin of 19.4%. The expansion is explained by the contribution margin effect and the strict control of SG and A. EBITDA in 2019 rose 10.7% to MXN30.4 billion for a margin of 18.7%, which expanded 110 basis points. The comprehensive cost of financing for the quarter reached an expense of MXN $967,000,000 versus MXN $640,000,000 in the same period of 2018. The variation is explained by the higher exchange rate loss due to the effect of the Mexican peso appreciation in our dollar cash position. For the full year, this line decreased 12.7% to MXN 3,600,000,000.0 due to a lower financial expenses combined with a lower exchange rate loss compared to 2018. This quarter, we're posting a monetary position loss from Argentina of 80,000,000. In the fourth quarter, the income tax provision increased to MXN 1,400,000,000.0 for an effective tax rate of 33.7%, explained by a Peruvian tax change for derivatives recognition and dividends received from Ecuador. For the full year, income taxes increased 30.9% to 1,500,000,000.0 for an effective tax rate in 2019 of 30.1% in line with our expectation at the beginning of the year. Net income in the quarter was 1.5% lower to MXN 2,300,000,000.0, representing a margin of 5.5%. The variation is explained by a lower tax rate in 2018 from our final deferred tax adjustment due to The U. S. Tax reform. For full year 2019, net income increased 9.7% to 9,500,000,000.0 with a margin of 5.9%. As of December, our cash position reflected an amount of MXN 22,000,000,000, while total debt was MXN 53,300,000,000.0. As I mentioned, we reached one time net debt to EBITDA ratio in line with our expectations. In 2019, our operating cash flow reached billion. Total CapEx investment for the year were MXN11.6 billion, below our MXN13 billion CapEx target announced at the beginning of the year. In 2020, we will maintain a disciplined SG and A control as we did last year, a solid balance sheet and a dynamic execution at the point of sales to be prepared for any M and A opportunity. Our focus on our business fundamentals act, disciplined strategy execution and our ingrained culture has made AC a stronger company, allowing us to adapt and succeed in challenging environments and to continue delivering value creation for our shareholders. And with that, I'll turn it back to Artur. Okay. Thank you, Emilio. 2019 was a year in which we fully capitalized on our strong execution and management capabilities to confront the challenges in the beverage industry. Our exceptional market focus and operating flexibility have allowed us to thrive in an increasingly difficult environment. Now let me provide you with our guidance for 2020. We expect consolidated annual volume growth at around 1%. We will continue adjusting prices to at least match an inflation rate at each of our operations, always ensuring that our products remain affordable. We plan to invest around 6% of total sales in CapEx. We will pursue prudent and targeted market investments to boost execution and accelerate our digital transformation agenda. In summary, while 2020 will once again be a year of challenges, we will remain focused on driving shareholder value through long term profitable growth, while maintaining an efficient and optimal capital structure. We're confident that we will generate consistent quality, organic growth and continue seeking opportunities for regional expansion in the food and beverage industries. I would like to now open the call for questions. Operator, we are ready for questions, please. Thank you, sir. At this time, we'll open the floor for questions. Thank you. Our first question will come from Antonio Gonzalez with Credit Suisse. Good morning, Arturo and Emilio. Thank you so much for taking my question and congrats on the results, quite impressive. I wanted to ask on Mexico. Obviously, the margin expansion was quite high during this quarter and we cannot really see the breakdown of whether that was more gross margin driven or expense driven. So perhaps for Emilio, you can give us a little bit of a breakdown of what are the drivers that led to this margin expansion? And most importantly, do you think this is a recurring pace of margin gains that we should be looking for 2020? What's the qualitative assessment that you could make going forward? And just super quickly, if I make a follow-up on your guidance, is there any chance you break down at least directionally that 1% volume growth? What would you expect per region for 2020? Thank you so much. Thank you, Antonio. Good morning. Thank you for your question. Yes, well, as Pudou mentioned, we have a very good quarter in all of our businesses in Mexico. In total, in the region, we increased 43% in the quarter, as I mentioned, several factors and again, in both businesses. On the beverage side, we increased 4% due to a very good volume growth and pricing. And also we have lower raw material prices in the quarter. So that allow us to improve the contribution margin in the quarter 170 basis points. So that's part of the increase is coming basically from the gross margin, the contribution margin. Additionally, we have a better OpEx over sales ratio in the fourth quarter. And I think I have to say that we have an easy comparison since fourth quarter EBITDA in 2018 decreased 1.9% and volume was also negative 2% without jobs. So there's several factors. One, the base comparison of 2018 and the good performance in volume, pricing, better raw materials and OpEx. Of course, the increase is super high if you prefer EBITDA 43%. But if you see margins and increase in the year, we believe that margins are sustainable for the year with our price strategy that we have for this year, continue to control our cost and we expect stable raw material prices. Talking about margins, feel that we should have the same levels for this year. Just adding to that, Antonio, good morning. We've been talking about some headwinds that we faced in our operations in the last few quarters. And I think now things as Emilio has explained have aligned in a much positive way for us. But also we have to say that there are many things in the operations that we sometimes don't mention, but they are very important to get to our results. We continue to identify opportunities in our operations, those things that we call the fundamentals because we believe they are under our control. And in Mexico, for example, we reduced our out of stock significantly in the traditional trade. We're executing better at the point of sale, particularly with the availability of our key SKUs in the market. We are improving our service to customers with new go to market models. Returnable packages are also have an increased availability. There are a number of things that in our operations show improvement. And when you have a better environment, as Mario was describing, things align much better. So we continue to identify those opportunities, by the way, as we get into 2020. To the second part of your question, the guidance on volume, we've talked about 1%. And I think that is pretty uniform across the countries, maybe the exception would be Argentina. Argentina is very challenging considering the consumer environment there. We expect probably a bit more growth in Ecuador and Peru. That would be the average. But all in all, they will all be in the low single digit range. Thank you so much for the comments, and Emilio. Thank you, Antonio. Thank you. Our next question comes from Benjamin Theurer with Barclays. Arturo Amelio, thank you very much for taking my question. Congrats on the results. I'd like to elaborate a little bit on The U. S. And what you're seeing in terms of the potential with the new plant coming through. So you said you've achieved about $30,000,000 of synergies in 2019, still aiming the $90,000,000 and I guess a bunch of that should come with the new plant. So we've seen about an 80 basis point extension in profitability on a year over year basis. How much additional potential do you see for 2020 with the plant, the new plant getting basically operational by the end of 1Q? How much should we expect that that's going to drive? Is it another 100 basis points just because of the plant? Or do you think we actually can get to the close to 200 basis points, I. E, the $60,000,000 of additional synergies already in 2020? If you could share some color here, that would be great. Thanks. Hi, Benjamin. Good morning. Well, yes, effectively the plant, the North Point plant is now coming into operation. It's the most important project within the list of projects for synergies in our transition. This remains on schedule. It's scheduled to open in the next month, March 2020. And what was very important about this project is that it's tracking within budget and also the original schedule also we're in line with that. And there's actually no injuries and no loss time to injury during the project. So it's a fantastic project. And it contributes, as we've said, with $30,000,000 to our synergy plan. That we've already achieved part of that, because in 2019, we shut down one of our facilities. We started optimizing some of the cost relating to another facility. So probably we had maybe between 6,000,000 and $7,000,000 of savings in 2019. Then in 2020, we have the largest portion of savings coming out from that project and that maybe would be in the range of $15 plus million. And there is some carryover effect to 2021. That's how that contributes. And this is divided by mostly manufacturing costs, some of the warehouse costs as well and a smaller part of freight costs that we're optimizing for packaging. So and with that, we're going to be getting close in 2020 to our target, although with the carryover, we're going to be in 2021 at the level of $90 plus million. And I would not consider any synergies that you could really account for the revenue management implementation that you've seen during this time. But as we've said before, when you look at margins, you have also the effect of the change that in we've been talking about. That's an erosion in margin that is something that will naturally occur. So at the end, what you've seen in improvement in margin has to consider that as well. So we've seen a pretty good margin improvement in the last quarter and the last year. And so we expect to continue to improve that, but it has to consider that other effect of mix that I was mentioning. Okay. But all in, you would say a mid teens, roughly 14.5%, 15% margin in two, three years' time should be achievable once you get all the synergies done, correct? Well, we don't have a specific target that we provided, but certainly we expect improvement in the long term to get to those levels. You. Our next question will come from Miguel Tortiello with GBM. Hi. Good morning, everyone, and congratulations on the results. Regarding what you mentioned on your press release on the universal bottle initiative, could you give more color on this, the potential you see and how relevant it could be on margins if there's any benefit? And also on concentrate prices, as far as I understand, '19 was the third and last agreed price increase. Could you share your sensitivity of what is to come in this regard? I mean, should we expect this year with no concentrate price increases or it will depend on more occasions some point during the year? Thank you. Thank you, Miguel. Good morning. I'll hand it over to Pepe for the first part. Let address the question on concentrate prices and certainly we've talked about that. And we have a continuous conversation with Coca Cola Company and it includes many of the variables of the business, which would have an effect on our business model for this year and the years to come. As you know, we have a different kind of agreement now in Mexico. So we were still defining some of those variables for this year. But in any case, we will work to mitigate the impact of any of the effects on the past three years as we've said. So with respect to the universal bottle, this project is very important that we're rolling out in our different markets because it's one of our key strengths in the market, how we remain competitive and affordable in prices and at the same time achieve the profitability and the margins that we have. So I'll ask Pepe to elaborate a little more on the universal bottle project. Thank you, Miguel, and thank you very much for your question. As Arturo said, it's important we have been making important investments in the fillable bottles and we take advantage of our broad portfolio and execution capabilities to be able to offer affordable products for the higher elasticity segments and thus protecting our overall profitability. So and we're doing that across geographies. Overall, our refillable volume has grown 3%, 24% in Ecuador, 5% in Peru, 1.5% in Mexico, and we gained three mix points in Argentina where we lost overall volumes. For example, in Argentina, we are present in 40% of the households with our refillable bottles, it's 44% of our mix. And that comes by the possibility of having this universal bottle in which we can launch all the different flavors and still beverages without the significant investment of a specific bottle. So we have moved a lot in Argentina, already in Peru, in Ecuador, in personal bottles, and we are deploying that in Mexico. So I think this is part of our overall portfolio strategy that permits us to be able to offer affordable products to our lower income customers and manage our profitability that we have been able to do in 2019 and we expect to do in 2020. And for those projects, we review not only margins, but also the return on investment because CapEx, but they proved profitable so far. All right. That's very clear. Thank you very much. Thank you, Maria. Thank you. Our next question comes from Sean King with UBS. Hi, thanks for the question. Can we get an update on the performance of the rollout of Coke Energy across Latin America and maybe what you are seeing in the recent rollout so far in The U. S? Yes. Thank you, Sean. I'll ask Pepe also to comment on that. Please. Yes. Thank you, Arturo, and thank you, Sean, for your question. We have launched innovations in all categories across geographies. In sparkling, we have very good traction with Coca Cola flavors and Coca Cola coffee in Mexico. We have also learned some important innovation in steel beverages. With Coca Cola Energy specifically, we launched it in May only in one specific customers. We have the volume in Mexico has not been very solid. We are revisiting our strategy. But in The U. S, we just launched a month ago and we are having a very, very encouraging results so far. It's still very recent, but we were launching we were having very encouraging results so far. It's a different formulation by the way in The U. S. Yes. And that's one of the things that we're revisiting in Mexico. So one thing that we need to understand, volumes might not be spectacular, but we need to get used to more granular growth also So if you think about Coca Cola Coffee and energy, they will all be adding up, but certainly their mix of the total portfolio will not be as in launches in other times. So but we're still excited about the brand and the potential of that brand. Yes. And Arturo, an added to that, for example, Coca Cola Coffee that was launched in May only in one customer and then we just moved to the rest of the market at the end of the year. We sold around 200,000 unit cases with very high margins, a very profitable product. We are in 26% of the traditional trade, and we're expecting close to 1,000,000 unit cases for next year. So these are products that, as Arturo said, might be small in volume, but are very good in contribution and specifically on bringing additional consumers to our user base. Great. Thank you very much. Thank you, Sean. Thank you. Our next question comes from Sergio Matsumoto with Citigroup. Hi, good morning. Thanks for the question. My first question is on the Mexican outlook for about inflation pricing. If you could give us perhaps some breakdown of between rate and mix and what do you think makes the consumer accept, you know, these prices because, you know, things are going quite well for you whether it's, you know, brand strength or perhaps it's a category that they, you know, they prefer to spend their money on? And the second question is on the Houston plant. Would there be any non recurring expenses this year while that plant ramps up or during the transition period? And if how much would those be? Thanks. Yes. Thank you, Sergio. Good morning. Talking about pricing in Mexico, most important thing there is that it's not only about the willingness to increase prices or having a target. I would say it's about the processes that sustain that. And I think after a few years now, we've been refining our RGM capabilities and we have much more robust processes for that. And we also have the right portfolio to do it. If you look at the many, many SKUs that we have for the different brands, it creates certainly added complexity to our operation. But at the same time, it's something that is very useful when you manage prices, when you have all those different packages and you have returnable and non returnable options. So how we do that, it's continuously based on better processes. Also, need to consider the discounts. You look at the potential that we have by optimizing discounts in the market, In the traditional and the modern trade, we've been using analytics for that. And when you see the net average price at the end of the day, it includes all those improvements and discounts as well. So we've been able to maintain affordability to sustain our share of value in market and capture those opportunities. And I think the opportunities are still there. If you look at Mexico and you compare prices in Mexico for products with other markets, we're still very affordable. And so I'm convinced there's a room for improvement if we continue to do it as we have based on very rigorous and analytical processes. With respect to the second part of your question, I will turn it over to Emilio for the Houston plant expenses. Sure. Thank you, Arturo, and thank you, Sergio. Well, good question. As you know, as far as the process, we have been disposing some assets are being replaced by this new facility, the Houston new facility. So this is a non recurring expense. It's not relating to the ongoing operation and it's also a onetime. We have registered start registering this year. It's going to be around $35,000,000 and we have registered most of it this year and I mean, last year and the rest will be this year. Thank you for that color. Thanks, Sergio. Thank you. Our next question comes from Ulysses Argote with JPMorgan. Hi, guys. Thanks for the questions and congrats on the results. I was just wondering if you can comment a bit more on the cost outlook. Emilio, you already mentioned a part there for stable cost expectations in Mexico. But can you give us a bit more color across regions and particularly what you're seeing there with the aluminum cost in The U. S. Operations? And also maybe if you can provide some update there on hedging structures that you had across your raw materials? Thank you. Yes. Thank you, Ulises. Thank you for your question. Well, terms of cost, we as you've seen, we have a much more stable environment. And we expect some price increases in sweeteners probably throughout this year. But we also have a better environment in other costs. We've been hedging some of those prices, particularly for aluminum in The U. S. As you say. So Emilio can provide you with more detail. Yes. Thank you, Arturo. Thank you, Lisa, for your question again. Yes, as I mentioned, basically PET prices will be very stable. The ones that we expect to grow I mean, to increase a little bit above inflation are sweeteners, basically in all the countries. We have hedged some of the needs on different countries. For example, in Peru, have already hedged most of our needs for 2020 Lower price than the current prices because share prices as I said has been increasing. So we have a good hedge there. The prices of our hedges are above last year, but lower than the market prices. So we're very aligned on our coverage on basically compared to our to the inflation in each of the countries. And talking about aluminum, we also have hedged not only LME, but the MWP in U. S. At a lower price than 2019. So we have hedged basically 50% of our needs in aluminum at a lower price than 2019. For currencies, we have also hedged some of our needs in Mexico and Peru. In Mexico at a lower price than the average exchange rate of 2019, It's maybe a little bit higher than the current one, but it's below the exchange rate of last year. We there's still a lot of volatility here, we believe in Mexico. So that's why we have hedged part of our needs around 50% of our needs for this year. And also in Peru, we hedge also around 47% of our needs for 2020, also a very similar exchange rate than the current ones. And it's basically a little bit below than 2019. So again, we don't expect I think in summary, don't expect any huge changes on all of these raw materials and also exchange rate. And the ones that are expecting to increase, we have already do some hedges basically in sweeteners. It's a moderate increase in sweeteners and a stable or better environment in PT and an improved situation for aluminum. I think that will be the summary. Perfect, guys. Thank you so much for the color and congrats again. Thank you, Ulises. Thank you. Our next question comes from Hector Mayer with Santander. Hi, thank you very much for taking my questions. Just wanted to know for The U. S. If you could share some more details about the evolution of the pricing strategy and segmentation in this quarter in U. S. Dollar terms? And also how agency sales behaved? And if you could help us understand what the most favorable factor was for the margin expansion in The U. S. In terms of costs and raw materials there? Yes. You asked about pricing. And the second part of the question, can you repeat that again, Hector, please? Yes. Sorry. What's about the pricing strategy and segmentation in U. S. Dollar terms, the agency sales and how costs and raw materials favoring the margin expansion there? Yes. Well, thank you. Thank you for your question Hector. Certainly, we have improved our RGM in The U. S. This is a part of our initial strategy as we've mentioned. And also as I was saying for Mexico, this is based in better processes and better segmentation also of our efforts. But it also requires the collaboration across the system. So we've been able to integrate ourselves to The U. S. System and achieve that now for a number of years because 2020, we'll still see some of that. So as you say, price is a combination of rate of the base rate and the change in the mix, which as I was saying affects margin, but also improves the average price for our products. The rate, we expect that also to be aligned with inflation, so that the mix would be in addition to that, because it plays out differently for purposes of margins and profitability. So we expect that to continue throughout 2020, and this is one of the things that we've been focusing on more directly in The U. S. Pepe, maybe you can provide more detail about the numbers for 2020. You, Al. Thank you, Hector, for your question. And as Arturo was saying, we expect around consumer inflation or slightly above prices in what is true rate. And that is pretty much already in negotiation with the customers and with the rest of the system in The U. S. But on top of that, we are focusing on packages with higher profit per case that will give us also an important mix effect such as transaction packages, what we call transaction packages that are the smaller packs, the small bottles, steel packages like Body Armor, we also make better margins, Smartwater and Coca Cola Energy that we just mentioned. Those packages will give us an important mix effect also. So if we think if you look at margins, we improved that focusing on growing products and categories that deliver higher absolute profit per case. We as I said, we transferred part of our water business and our results in the quarter resulted in top line profit expansion and bottom line efficiencies. We had volume growth and revenue growth, but we also had better pricing for raw materials, mostly PET and aluminum. We had a disciplined expense control and the benefit of the synergies that is quite significant. And that allowed the EBITDA growth that you saw despite, I would say, extraordinary insurance claims proceeds that we received in 2018. So even with that, the results were very solid. And I think there are several factors that influence the ones that I mentioned. With respect to agency, that volume, I believe declined with respect to twenty eighteen. Is that right, Emilio? Yes, slightly declined. We don't register as we have explained that volume in our total various volume. So basically the effect is in other income, the net effect, but it's minimum because as we have also explained, it's a cost base formula. So there's no basically no margin. So we have registered the net on other incomes. And the volume dropped in 2019 a little bit from 2018. The other positive effect on our results for the fourth quarter and the year was the improvement in our Oklahoma operations, that operation that we incorporated to Coca Cola Southwest. And Oklahoma doubled their EBITDA for the year after we stabilized and realized the synergies as well. Excellent. Excellent. Thank you very much. Thank you, Hector. Thank you. Our next question comes from Alvaro Garcia with BTG. Hi, Arturo, Emilio, Pepe. Thanks for the call and congrats on results. My question is a bigger picture question. You touched on it a bit at your Investor Day but I wanted to touch on the prospect for additional dividends. You're now at very comfortable levels of leverage at one point zero times net debt to EBITDA. And I wanted to sort of pick your brain as to what when you thought we might see that or if we might see that at all? Thank you. Yeah. Thank you, Albert. Good morning. Thanks for your question. Well, yeah, this is something that we continuously analyze and have conversations with our executive committee about and it requires analyzing our prospects for potential projects throughout the year and obviously the generation of cash that we have. And we will put in the in in in into perspective all these possibilities and maybe come with an update in the next call for you to see how we can, you know, better allocate our our resources throughout the year. Okay, great. I guess we'll wait until the next call. And just one follow-up on Peru. I understand it's been a bit more of a competitive environment. We noticed that in your water and stills sort of volumes for the quarter specifically. I was just sort of wondering what initiatives you might put into play in Peru specifically to sort of combat that? Thank you. Yes. The trend in the fourth quarter in Peru was certainly not positive. This year, we're working on several initiatives to reverse that, including some tactical actions in the short term. Our main volume opportunity is purified water, I would say. We also have an opportunity in sparkling flavors. We'll continue to focus on affordability, availability of the also the universal bottle. Pepe can elaborate a bit more on that and the opportunities we have in Peru. Yes, thank Arturo and thanks, Alvaro for your question. As Arturo was saying, our main volume opportunity has been in both purified water and sparking flavors. In purified water, actually in both of them, the loss is concentrated in the less profitable wholesaler channel. In Water, we are planning to recover the lost volume with our two tier brand strategy, Benedictino brand in this segment to protect the profitability of San Luis, our premium brand in the other channels. We are also focusing in affordability, increasing our availability of the refillable bottles, also improving segmented execution using our intelligence center and trying to identify granular opportunities to execute plans at the customer level, so that we can work around the competitive issues and trying to maintain profitability overall. That's very clear. Thank you very much for the space for questions. Thank you. Thank you, Alvaro. Thank you. At this time, I would now like to turn the call back over to Arturo Gutierrez for closing remarks. Thank you. And thank you all for participating in our earnings call today and for your continued interest in ARCA Continental. As always, our team is available for any additional questions you may have. Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.