Coca Cola Femsa S.A.B. de C.V.
Annual Report 2017

Plain-text annual report

C O C A - C O L A F E M S A I N T E G R A T E D R E P O R T 2 0 1 7 I n t e g r a t e d T R A N S F O R M A T O N I COCA-COLA FEMSA INTEGRATED REPORT 2017 Integrated TRANSFORMATION COCA-COLA FEMSA INTEGRATED REPORT 2017 www.coca-colafemsa.com INTEGRATED transform Guided by our clear strategy, we’re accelerating our company’s integrated transformation. To consolidate our position as a multi- category global beverage leader, we are building a winning portfolio of beverages, transforming our operational capabilities, inspiring a cultural evolution, and embedding sustainability throughout our business to create economic, social, and environmental value for all of our stakeholders. . x m m o c . i n g i s : N G I S E D ABOUT OUR INTEGRATED REPORT From our headquarters in Mexico City, we present our first Integrated Report 2017 edition. Developed by the guidelines of the International Integrated Reporting Council (IIRC) and in accordance with the GRI (Global Reporting Initiative) Standards: Core option. Similarly reporting the indicators of the Sector Supplement for Food Processing Companies of the same guide in its G4 version. Furthermore, this Report complements our Communications on Progress (COP) to the United Nations Global Compact included by FEMSA in its 2017 report. The information contained corresponds to the period from January 1st to December 31st, 2017. It includes data from all the countries where Coca-Cola FEMSA, S.A.B. of C.V. has operations or a majority share. Its operations encompass franchise territories in Mexico, Brazil, Colombia, Argentina, and Guatemala and, nationwide, in the Philippines, Venezuela, Nicaragua, Costa Rica, and Panama. Héctor Treviño Gutiérrez Chief Financial Officer José Ramón Martínez Alonso Corporate Affairs Officer Stock listing information: Mexican Stock Exchange, Ticker: KOFL | NYSE (ADR), Ticker: KOF | Ratio of KOF L to KOF = 10:1 Coca-Cola FEMSA, S.A.B. de C.V. is the largest franchise bottler in the world by sales volume. The company produces and distributes trademark beverages of The Coca-Cola Company, offering a wide portfolio of 169 brands to more than 381 million consumers daily. With over 100 thousand employees, the company markets and sells approximately 4 billion unit cases through 2.8 million points of sale a year. Operating 64 manufacturing plants and 324 distribution centers, Coca-Cola FEMSA is committed to generating economic, social, and environmental value for all of its stakeholders across the value chain. The company is a member of the Dow Jones Sustainability Emerging Markets Index, Dow Jones Sustainability MILA Pacific Alliance Index, FTSE4Good Emerging Index, and the Mexican Stock Exchange’s IPC and Social Responsibility and Sustainability Indices, among others. Its operations encompass franchise territories in Mexico, Brazil, Colombia, Argentina, and Guatemala and, nationwide, in the Philippines, Venezuela, Nicaragua, Costa Rica, and Panama. For more information, please visit www.coca-colafemsa.com. ation 1 Dear STAKEHOLDERS 2 Welcome to our inaugural Integrated Annual Report. Our goal is to offer you a holistic view of our strategic vision, performance, and value creation by providing insight into the financial and non-financial key performance indicators that we use to execute our business strategy. Among our achievements, we accelerated our integrated transformation—focusing on our strategic pillars to consolidate our position as a diversified multi-category global beverages leader. INTEGRATED TRANSFORMATION STRATEGY Satisfying our consumers’ diverse lifestyles, we’re building a win- ning portfolio for each market, including a wider array of sparkling beverages, waters, teas, juices, sports and energy drinks, dairy and plant-based products. Capitalizing on brand Coca-Cola, we’re reignit- ing our sparkling beverage growth, rolling out affordable entry packs and returnable presentations at the right price points. Underscored by our launch of Coca-Cola Sin Azú- car, we’re reinforcing our non-ca- loric sparkling beverage portfolio. We’re expanding aggressively in the rapidly growing dairy and plant-based nutrition category. With our partner The Coca-Cola Company and the Latin American Coca-Cola bottling system, we closed the acquisition of Unile- ver’s AdeS plant-based beverage business, offering consumers a growing mix of high-protein, low- fat, and cholesterol-free products. In Mexico, we completed a new Santa Clara plant to meet growing demand for our wholesome milk and value-added dairy products. Driven by our Centers of Excellence’ commercial, manufacturing, distribu- tion, and logistics initiatives, we are rapidly transforming our operating model. In 2017, our KOFmmercial Digital Platform (KDP) advanced from deployment to reality through- out Mexico, Brazil, Central America, and the Philippines, improving our point-of-sale execution, portfolio availability, and resource allocation. Additionally, we deployed our Supply Chain Planning model across our plants, distribution centers, and primary distribution fleet in Mexico and Colombia. Simultaneously, we installed telemetry equipment on our entire Mexican secondary distribu- tion fleet and enabled our delivery routes with our mobile delivery de- vices. We also began implementing Digital Distribution in Brazil. These initiatives saved US$9.1 million. Moreover, rollout of our modular Man- ufacturing Management Model offers an integrated operational perspective, optimizing costs, driving efficiency, +3.8 billion unit cases +25 billion transactions +200 billion pesos in total revenues Operating cash flow billion Mexican Ps. . 4 8 2 2 . 1 3 . 5 5 3 . 5 9 3 2014 2015 2016 2017 Operating cash flow = operating income + depreciation + amortization & other operative non-cash charges INT EG RAT ED REPORT 2017 | 3 and raising productivity. Over the past three years, our manufacturing initia- tives increased overall plant efficiency by over six percent—equal to US$250 million of production capacity or avoided CAPEX. We also generated hard manufacturing savings of US$145 million for this period. We accelerated our cultural evolu- tion, founded on the cornerstones of leadership, talent, and innovation. We’re improving our organization health—ranking among the Top 10 Fast Moving Consumer Goods com- panies; de-layering our organization to empower our operations; engag- ing in constructive dialogues with employees about their career paths; and developing new collaboration platforms to empower employees to offer ideas and help solve problems. Furthermore, we ensure sustainability is fully embedded throughout our day-to-day business. Among our results, we used 21% of recycled ma- terials in our PET packaging; covered 100% and 57% of our Brazilian and Mexican bottling operations’ power needs with clean energy; returned 100% of the water used to produce our beverages in Brazil, Central Amer- ica, Colombia, and Mexico to the environment; and benefited over 1.6 million people through our healthy habits programs. INTEGRATED TRANSFORMATION: OPERATING HIGHLIGHTS Guided by our integrated strategy, we navigated a complex operat- ing environment to deliver positive results this year. Our reported total sales volume increased 16.1% to 3.87 billion unit cases, with transac- tions outpacing volumes to reach 25.9 billion. Total revenues grew 14.7% to Ps. 203.8 billion. Operating income grew 9.4% to Ps. 26.2 billion. Operating cash flow grew 11.4% to Ps. 39.5 billion. As we changed the accounting method for our Vene- zuela operations, we reclassified a non-cash item from equity to our income statement. Consequently, on a comparable basis, earnings per share were Ps. 6.15—33.5% growth for the year. 2017 was a story of transformation and turnaround. In Mexico, we built on last year’s growth through the deployment of our transformational initiatives. These initiatives, coupled with product innovation and afford- ability, enabled us to gain or maintain market share across our still and sparkling beverage categories. Our operation’s ability to withstand the ef- fects of hurricanes and earthquakes— while supporting affected communi- ties—merits our recognition. Countering competition in Central America, we refocused and rebal- anced our business to regain vol- ume and transaction growth—po- sitioning our operations for future revenue growth. After a slow start in Brazil, we are encouraged by its turnaround highlighted by our affordability strategy that enabled us to grow volumes, regain market share in sparkling beverages —reaching a record high by year-end— and improve our profitability. On top of their successful integration of Vonpar—capturing synergies above expectations—our team won the Brazil Execution Cup 2017 for best overall execution among the coun- try’s Coca-Cola bottlers. In Colombia, we rolled out afford- able returnable multi-serve pre- sentations, maintaining our market share in a complex year. In Argenti- na, we enjoyed market share gains in our still beverage category, with non-caloric beverages reaching 30% of our mix. In Venezuela, our team embodied our values, pas- sionately serving our consumers and strengthening our portfolio’s position in the market. Finally, in the Philippines, we built on last year, delivering comparable volume and operating cash flow growth. 4 Our first Integrated Annual Report designed to offer a holistic view of our strategic vision, performance, and value creation. José Antonio Fernández Carbajal Chairman of the Board John Santa Maria Otazua Chief Executive Officer Moving forward, we renew our fo- cus on every facet of our business. Strategically, our priorities include: accelerating revenue growth; re- newing sparkling beverage growth; increasing our still beverage busi- ness’ scale and profitability; ex- panding our dairy and plant-based nutrition platform; advancing our operating model transformation; enriching our accretive relationship with The Coca-Cola Company; and attracting, retaining, and developing the best multicultural talent. On behalf of our employees, we thank you for your continued confidence in our ability to deliver economic, social, and environmental value for you all. We remain focused on our strategic framework to continue strengthening our portfolio, transform our operational capabilities, and creating a strong unified corporate culture to continue delivering value for all our stakeholders. INT EG RAT ED REPORT 2017 | 5 FINANCIAL highlights Millions of Mexican pesos and U.S. dollars as of December 31, 2017 (except volume and per share data). Results Under International Financial Reporting Standards. (US$) 2017 1 (Ps.) 2017 (Ps.) 2016 % Change Sales Volume (million unit cases) 3,870.6 3,870.6 3,334.0 Total Revenues 10,376 203,780 177,718 Income from Operations 1,333 26,175 23,920 16.1% 14.7% 9.4% Controlling Interest Net Income2 -652 -12,802 10,070 -227.1% Total Assets 14,547 285,677 279,256 2.3% Long-Term Bank Loans and Notes Payable 3,625 71,189 85,857 -17.1% Controlling Interest Capital Expenditures 6,241 122,568 122,137 744 14,612 12,391 Book value per share3 2.97 58.34 58.92 0.4% 17.9% -1.0% 1 U.S. dollar figures are converted from Mexican pesos using the exchange rate for Mexican pesos published by the U.S. Federal Re- serve Board on December 31, 2017, which exchange rate was Ps. 19.6395 to U.S.$1.00. 2 As of December 31, 2017, the Company changed the method for reporting Coca-Cola FEMSA de Venezuela to Fair Value. Due to this change, a recorded foreign currency translation charge in equity has been reclassified as a non-cash one-time item to the other non-operative expenses line of the Income Statement in accordance with IFRS 3 Based on 2,100.83 million outstanding ordinary shares in 2017 and 2,072.92 million outstanding ordinary shares in 2016. 6 Our solid track record of growth and positive performance is driven by our ability to adapt to ever changing market dynamics. Underscored by our launch of Coca-Cola Sin Azúcar, we’re reinforcing our non- caloric sparkling beverage portfolio. Sales Volume million unit cases* 2014 3,417 2015 3,436 2016 3,334 2017 3,871 Total Revenues billion Mexican Ps. 2014 147.3 2015 152.4 2016 177.7 2017 203.8 Income from Operations billion Mexican Ps. Dividend per Share Mexican Ps. 2014 20.7 2015 22.6 2016 23.9 2017 26.2 2014 2.90 2015 3.09 2016 3.35 2017 3.35 * Unit case is a unit of measurement that equals 24 eight-ounce servings of finished beverage. INT EG RAT ED REPORT 2017 | 7 OPERATING highlights 2 6 1 5 7 4 3 Population served (millions) 72.1 21.7 12.3 88.4 49.6 32.1 104.9 381.1 Points of sale 853,430 118,414 48,396 396,220 372,785 158,563 818,502 2,766,310 Plants Distribution Centers 17 5 2 10 7 4 19 64 145 36 3 40 24 24 52 324 Central America Argentina Mexico Brazil 1 1 2 2 3 3 4 4 5 5 6 6 7 7 TOTAL Colombia Venezuela Philippines 8 Total Volume1 million unit cases 3,871 Transactions1 million 25,875 1,845 Mexico 173 206 765 265 64 552 Central America Argentina Brazil Colombia Venezuela Philippines 9,764 Mexico 1,467 Central America 1,020 Argentina 4,858 Brazil 2,047 Colombia 441 Venezuela 6,278 Philippines VOLUME1 Sparkling Beverages 3,028 Water & Bulk Water 580 Still Beverages 263 TRANSACTIONS1 21,572 1,920 2,383 We continue to improve our portfolio of affordable and returnable packages Product mix by package % of volume of sparkling beverages Product mix by size % of volume of sparkling beverages 5 6 8 5 5 7 3 8 6 6 2 8 1 5 5 6 6 5 2 8 8 7 9 6 3 7 8 3 5 3 2 4 5 2 7 1 4 3 8 1 9 4 returnable non-returnable 5 3 4 4 8 1 2 2 1 3 7 2 2 6 single-serve multi-serve MX CA AR BR CO VE PHI MX CA AR BR CO VE PHI PRODUCT MIX BY CATEGORY % of volume of total beverages Sparkling Water2 Bulk Water3 Mexico Central America Argentina Brazil Colombia Venezuela Philippines 73.0% 82.5% 80.7% 88.9% 75.4% 85.0% 79.4% 5.3% 6.1% 9.9% 5.3% 9.8% 10.6% 4.5% 1 Volume and transactions for the Philippines includes February to December. 2 Excludes still bottled water in presentations of 5.0 Lt. or larger. Includes flavored water. 3 Bulk water - still water in presentations of 5.0 Lt. or larger. Includes flavored water. 15.7% 0.4% 1.8% 0.9% 6.4% 0.8% 6.2% Still 6.0% 11.0% 7.6% 4.9% 8.4% 3.6% 9.9% INT EG RAT ED REPORT 2017 | 9 INTEGRATED strategy Multi-category beverage leader with global footprint CATEGORIES GEOGRAPHIES WINNING PORTFOLIO BUILD-UP • Growth in sparkling beverages • Profitable growth in stills • Accelerated growth in dairy OPERATING MODEL TRANSFORMATION CULTURAL EVOLUTION • Commercial Digital Platform • Scalable Solutions in Supply Chain • Global Business Services to leverage growth • Innovative IT strategy • Connected and inspiring leadership • Our talent is key • Inside-out perspective and innovation CHOICES FOR EVERY LIFESTYLE SUSTAINABLE COMMUNITIES AND ENVIRONMENT SUSTAINABILITY PROFESSIONAL DEVELOPMENT AND WORKPLACE RIGHTS Disciplined capital allocation Strategic mergers and acquisitions 10 Our Integrated Strategy is oriented to generate value to all our stakeholders considering our priorities, capitals and risks. CAPITALS Human Natural COMPANY ENGAGEMENT One of the pillars of our strategic business framework is encouraging the comprehen- sive professional and personal development of our people. Through our continuous evolution, we are creating a strong, unified corporate culture, founded on the corner- stones of inspirational leadership, talent management and development, and innova- tion. In this way, we look to attract, retain, and develop the best multicultural talent to ensure our sustainable success. Our business is committed to the responsible use of our natural resources. As the main in- gredient in our beverages, we have a comprehensive water strategy, focusing on ensuring efficient water management in our operations, facilitating access to safe water and sanitation in our communities and implementing water conservation and replenishment projects to the environment. We also work to increase energy efficiency across our value chain, while integrating clean and renewable energy to reduce our carbon emissions. In addition, we optimize our packaging materials through continuous packaging innovation; increase in the use of recycled materials and participation in schemes and models that support post-con- sumption collection. Social and Relationship Our communities and other stakeholders are key enablers of our business success. Accord- ingly, we are committed to creating economic, environmental, and social value by encour- aging dialogue and collaboration with our neighbors and stakeholders in order to develop and implement programs and initiatives that address their particular needs, and guarantee the continuity of our social license to operate. Financial Our financial and operating discipline, strong capital structure and financial flexibility, pas- sionate team of professionals, transformational initiatives, and adaptability to changing mar- ket dynamics enable us to capture organic and inorganic growth opportunities in our indus- try, while creating sustainable value for our investors. Intellectual Through our centers of excellence (CoEs), our business is creating sustainable competitive advantages across our value chain. By developing our critical commercial, supply chain, and manufacturing, distribution and logistics capabilities—while designing and deploying key transformational initiatives—our CoEs drive innovation, generate operating efficiencies and savings, and foster intellectual development across our organization. Manufactured Through our highly experienced team of specialists, we operate 64 bottling plants and 324 distributions centers across 10 countries, our company delivers approximately 4 billion unit cases through a primary and secondary fleet of 30,000 trucks to 2.8 million points of sale and serves a population of 381 million annually. INT EG RAT ED REPORT 2017 | 11 COMPREHENSIVE RISK MANAGEMENT Our company is present in different countries and regions all over the world. Consequently, we are continually exposed to an environment that is full of challenges and risks. Our ability to manage the risks that may arise in the global environment where we operate is vital for our business value creation. Accordingly, our strategy includes a Comprehensive Risk Management Process through which we are able to identify, measure, assess, prevent and/or mitigate risks. MAIN RISKS DESCRIPTION Strategic shareholder relationships Consumer preferences Our business depends on our relationship with The Coca-Cola Company and FEMSA, and changes in this relationship may adversely affect us. Changes in consumer pref- erences, purchase drivers, and consumption habits might reduce demand for some of our products. agreements POTENTIAL IMPACTS • Termination of the bottler • Actions contrary to the inter- ests of our shareholders other than The Coca-Cola Company and FEMSA. • Reduction in the demand for our products Coca-Cola trademarks Coca-Cola’s brand repu- tation or brand violations could adversely affect our business. • Damage to Coca-Cola’s trade- mark reputation Our competition could ad- versely affect our business, financial performance, and results of operations. • Changes in consumer • Lower pricing by our preferences competitors Competition Cyber attacks Economic, political, and social conditions Service interruption, misappropriation of data or breaches of security could adversely affect our business. Adverse economic condi- tions, political and social events in the countries where we operate and elsewhere and changes in governmental policies may adversely affect our busi- ness, financial condition, results of operations, and prospects. Regulations Taxes and changes in regu- lations in the regions where we operate could adversely affect our business. Legal proceedings Unfavorable results of legal proceedings could adverse- ly impact our business. • Financial loss • Interruption of operations • Unauthorized disclosure of ma- terial confidential information • Affect and reduce consumer per capita income, which could result in decreased consumer purchasing power • Lower demand for our prod- ucts, lower real pricing of our products or a shift to lower margin products • Negatively affect our compa- ny and materially affect our financial condition, results of operations, and prospects • Increase in operating and com- • Restrictions imposed on our pliance costs operations • Investigations and proceedings on tax, consumer protection, environmental, and labor matters KEY MITIGATION ACTIONS • Comply with our bottler agreements • Work together and promote effective interaction between our strategic shareholders in order to maximize growth and profitability and create value for all of our shareholders • Diversify our product portfolio with delicious and nutritious options • Provide a wide portfolio of products • Expand our array of low- and zero-calorie beverages • Promote healthy habits • Maintain the reputation and intel- and presentations lectual property rights of Coca-Cola trademarks • Effective brand protection • Strictly comply with Responsible Marketing Policy • Offer affordable prices, returnable packaging, effective promotions, access to retail outlets and sufficient shelf space, enhanced customer ser- vice, and innovative products • Identify, stimulate, and satisfy con- sumer preferences • Identify and address cyber threats • Provide training for information protection • Through a risk management strategy, hedge our exposure to interest rates, exchange rates, and raw material costs • Annually or more frequently evaluate, when the circumstances require, the possible financial effects of these conditions and, to the extent possi- ble, anticipate mitigation measures • Map regulatory risks and proposals of changes to regulations that directly af- fect our operation or financial condition • Advocacy work to provide advice on legislators’ proposed regulatory changes • Comply with applicable laws and reg- ulations and comply with workplace rights policy 12 MAIN RISKS DESCRIPTION Acquisitions Inability to successfully integrate acquisitions or achieve expected synergies could adversely affect our operations. POTENTIAL IMPACTS • Difficulties and unforeseen liabilities or additional costs in restructuring and integrating bottling operations KEY MITIGATION ACTIONS • Integrate acquired or merged busi- nesses’ operations in a timely and effective way, retaining key qualified and experienced professionals Foreign exchange Depreciation of the local currencies of the countries where we operate relative to the U.S. dollar could ad- versely affect our financial condition and results. materials • Financial loss • Increase cost of some raw • Adversely affect our results, financial condition, and cash flows in future periods Climate change Social media Adverse weather con- ditions could adversely affect our business and results of operations. • Negatively affect consumer patterns and reduce sales • Affect plants’ installed capacity, road infrastructure, and points of sale Negative or inaccurate in- formation on social media could adversely affect our reputation. • Damage to Coca-Cola’s trademark reputation without affording us an opportunity for correction may affect exchanges rates • Closely monitor developments that • Hedge our exposure to the U.S. dollar with respect to certain local curren- cies, our U.S. dollar-denominated debt obligations, and the purchase of certain U.S. dollar-denominated raw materials • Support and comply with climate change measures for adaptation and mitigation • Identify and reduce our environmen- tal footprint through efficient use of water, energy, and materials • Effective brand protection • Proactive external communication Water shortages or failure to maintain our current water concessions could adversely affect our business. • Water supply may be insuf- ficient to meet our future production needs • Water supply may be adverse- ly affected due to shortages or changes in governmental regulations or environmental changes • Water concessions or contracts may be terminated or not renewed Water Raw materials Increases in the price of raw materials we use to manufacture our products could adversely affect our production costs. Insufficient availability of raw materials could limit the production of our beverages. goods sold • Increase in our cost of • Shortage or insufficient avail- ability of raw materials may adversely affect our capacity to ensure production continuity • Adjustments to our product portfolio according to avail- ability replenishment projects • Efficient water usage • Execute water conservation and • Maintain 100% legal compliance • Develop Water Risk Index, including four issues that need to be assessed: Community and Public Perception Risks, Scarcity of Water and other In- puts, Regulatory Risks, and Legal Risks for each of our bottling plants • Implement a water risk assessment methodology that contemplates aspects such as climate change, re- silience to hydrological stress, media and social vulnerabilities, as well as regulations and production volumes for each of our bottling plants • Implement measures to mitigate the negative effect of product pricing on our margins, such as derivative instru- ments • Proactively address risk of supply on • Strictly comply with our Supplier • Strategically adjust our product port- folio to enable us to minimize the im- pact of certain operating disruptions Guiding Principles our value chain INT EG RAT ED REPORT 2017 | 13 Winning PORTFOLIO BUILDUP We are developing a portfolio of leading multi- category beverages, while promoting healthy habits locally—encouraging people across our communities to combine proper nutrition with physical education and activity throughout all stages of their lives. 14 Win ning PORTFOLIO BUILDUP INNOVATION 41% of the brands in our portfolio are low or no calorie beverages. INT EG RAT ED REPORT 2017 | 15 WINNING PORTFOLIO BUILDUP 169 leading brands MULTI-CATEGORY LEADERSHIP To connect more closely with our consumers, we are building a winning multi-category product portfolio, including a wider array of sparkling beverages, juices and nectars, fruit-based beverages, water and flavored water, dairy, coffee, fortified beverages, teas, sports and energy drinks, and plant-based products. In this way, we are ac- celerating our quest for leadership across each beverage segment and category. REVITALIZE SPARKLING BEVERAGES Throughout the year, we revitalized our sparkling bever- age growth through product innovation and affordability. In June 2017, we successfully launched Fanta Guaraná in 350-ml cans and 2-liter PET presentations across our Brazilian territories. This national launch—our operation’s largest in years—capitalized on Brazilian consumers’ most popular flavor. As we broadened Fanta Guaraná’s portfolio to meet demand, we expanded our share of the flavored sparkling beverage market, while generating sales of at least 1.0 million unit cases per month. We satisfied and stimulated consumer demand for our non-caloric portfolio of Coca-Cola beverages. In 2017, we successfully launched Coca-Cola Sin Azúcar across our territories in Argentina, Colombia, Costa Rica, Guate- mala, Mexico, and Panama. Coca-Cola Sin Azúcar offers consumers a sugar- and calorie-free alternative for one of the world’s most beloved brands. Launched through- out our Mexican sales channels in February, we more than doubled the volume of Coca-Cola Zero versus the previous year in the second half of 2017, while revital- izing the Coca-Cola brand among consumers. Corre- spondingly, we reignited demand for Coke Zero in Brazil. Thanks to our expanding coverage and promotions, we achieved 8% volume growth for the second half of the year—making Coke Zero our top-performing non-caloric beverage brand in Brazil. 16 We continued to satisfy our cost-conscious consumers through our strong platform of affordable, returnable packaging alternatives. In Mexico, we reinforced the coverage of our convenient 500-ml returnable glass presentation for Coca-Cola across all of our territories. In Brazil, we expanded coverage of our 1-liter multi-serve returnable glass presentation for Coca-Cola, enabling more consumers to share the magic of Coke. In Mexico, we reinforced the coverage of our 2.0-liter multi-serve returnable PET presentation for Coca-Cola, an attractive value proposition for our consumers to enjoy. In Nicara- gua, we launched our 2-liter multi-serve returnable PET presentation for Fresca, expanding the opportunity to FOSTERING CONSUMER ENGAGEMENT IN 2017, WE LAUNCHED A SUCCESSFUL NATIONAL PROMOTION TO REINFORCE BRAZILIANS’ CONSUMPTION OF OUR RE- TURNABLE BEVERAGES. WITH OUR PROMO TAPAS CAMPAIGN, CONSUMERS COLLECT- ED AND REDEEMED FIVE BOTTLE CAPS FOR ONE BOTTLE OF COKE AT APPROXIMATELY 10,000 POINTS OF SALE THROUGHOUT THE COUNTRY. NOTABLY, WE ACHIEVED A RECORD HIGH REDEMPTION RATE OF 52%—FOSTERING CONSUMER ENGAGEMENT WITH OUR PRODUCTS. share this popular brand. Similarly, in the southern states of Brazil, we launched our 2-liter multi-serve returnable PET presentation for Coca-Cola—rapidly achieving 60% coverage across those territories. Through our return- able presentations, we look to provide the right package at the right price for every consumer. Furthermore, we continued our Magic Price Points strat- egy to intensify our connection with consumers. At the end of 2016, we launched our affordable single-serve 220-ml mini-can in Brazil, capturing transactions at the magic price point of R$0.99. In 2017, we continued to expand our popular single-serve PET presentations in the Philippines, launching our 200-ml presentation at the magic price point of PHP8 to develop our product mix in the Visayas and Mindanao regions. In August 2017, we launched our appealing single-serve 250-ml PET presentation in Nicaragua, generating transactions at the magic price point of C$8. Similarly, in 2017, we launched our affordable single-serve 250-ml mini-can in Argenti- na—along with our returnable 1.25-liter glass and 2-liter PET presentations—capturing transactions at the magic price points of ARS$10, ARS$20, and ARS$30, respective- ly. We also expanded the coverage of our convenient single-serve 250-ml PET presentation in Mexico, driving consumer transactions at the Ps. 5 price point. Corre- spondingly, in Costa Rica and Guatemala, we launched our attractive single-serve 450-ml PET presentation, fos- tering transactions at the magic price points of ¢500 and Q5, respectively. Thanks to this strategy, we bolstered our Coca-Cola beverage transactions with the right port- folio at the magic price for our consumers. INT EG RAT ED REPORT 2017 | 17 WINNING PORTFOLIO BUILDUP IMPROVE COMPETITIVE POSITION IN STILL BEVERAGES As the fastest growing category in our industry, we focus on improving our competitive position and capturing the most value from our still beverage segments. To quench active consumers’ thirst for energy drinks, we reinforced our distribution of Monster energy drink across our tra- ditional and modern trade channels in Brazil, Colombia, Central America, and Mexico. Monster is proving to be one of the fastest growing, most attractive energy drinks for consumers in the region. Leveraging our robust distribution platform, Monster is outperforming expecta- tions, especially in Mexico where it now enjoys a more than 25% share of sales in the energy drink category. We more than doubled the volume growth of Monster in the country, achieving sales of close to 2 million unit cases. Moreover, in Brazil—where we began from a very low brand base—we significantly increased coverage across our sales channels, closing the year with triple-digit vol- ume growth in December 2017. RE-LAUNCHED FUZE TEA REIGNITING DEMAND IN MEXICO IN SEPTEMBER 2017, WE RE-LAUNCHED FUZE TEA, A FUSION OF GREEN AND BLACK TEA WITH REFRESHING FRUIT FLAVORS, ACROSS ALL OF OUR SALES CHANNELS IN MEXICO. OUR NEWLY FORMULATED FUZE TEA FEA- TURES ALL NATURAL SWEETENERS, A SIG- NIFICANTLY LOWER SUGAR CONTENT, AND A REINVIGORATING MIX OF ANTIOXIDANTS AND THEINE. CONSEQUENTLY, WE REIGNITED DEMAND AND REINFORCED OUR LEADERSHIP POSITION IN THE DYNAMIC TEA SEGMENT. BLUE WATER STRATEGY Premium iconic blue bottle of Ciel In the third quarter of 2017, we continued innovating across our premium beverage segments launching an iconic blue bottle of Ciel sparkling wa- ter in a new personal one-way 750-ml pre- sentation with a me- tallic cap for Mexico’s on premise and mod- ern trade channels. This refreshingly dif- ferent Ciel Blue spar- kling water, with lon- ger lasting bubbles, is ideal for multiple con- sumption occasions. 18 We continue to fulfill consumers’ growing demand for natural, juice-based beverages through the innova- tive expansion of our popular Del Valle Fresh brand. In Colombia, we launched our new presentation of Del Valle Fresh Tropical Fruit with just five calories and no added sugar. In Costa Rica, we launched our convenient single-serve 500-ml PET presentation of Del Valle Fresh Apple. Similarly, in Nicaragua, we launched our afford- able single-serve 12-ounce returnable glass bottle of Del Valle Fresh Citrus in Managua, Masaya, and León. With the contribution of these new packages and flavors, we continued to strengthen our Del Valle portfolio across our territories. JUICES DRIVING ARGENTINA’S STILL BEVERAGE GROWTH BOLSTERED BY OUR LAUNCH OF CEPITA 0% ADDED SUGARS, OUR CEPITA AND CARIOCA DEL VALLE JUICE BRANDS HELPED DRIVE DOU- BLE-DIGIT VOLUME GROWTH IN OUR ARGEN- TINE STILL BEVERAGE CATEGORY FOR 2017. We offer an innovative portfolio of still, sparkling, and flavored bottled water to rehydrate our consumers throughout their day. As part of our water strategy in Brazil, we undertook three main initiatives in 2017. 1 1. WE SHIFTED from sodium-rich mineral water to our lower sodium Crystal mineral water in our multi-serve 1.5-liter PET presentation and our per- sonal 500-ml PET presentation across our south- ern territory. With 82% less sodium, this extremely popular product achieved 44% coverage, while gaining two points of market share. 2 2. WE LAUNCHED, in November 2017, naturally flavored Crystal sparkling water in personal 300-ml cans and 500-ml PET bottles—focused on the modern and traditional trade channels, respectively—to build brand equity. 3 3. WE REACHED cost-conscious consumers across the modern and traditional trade channels with an entry-level personal 300-ml PET bottle of Crystal water Thanks to these initiatives, we steadily regained our mar- ket share throughout the year. WILKINS WATER DELIGHTING PHILIPPINE CONSUMERS CAPITALIZING ON THE STRONG BRAND EQUITY OF WILKINS DISTILLED WATER, WE LAUNCHED WILKINS DELIGHT FRUIT-INFUSED WATER IN 250-ML AND 425-ML BOTTLES IN THREE FLAVORS, APPLE, POMELO AND OR- ANGE. THANKS TO SUCH INITIATIVES, WE ACHIEVED ACCELERATED VOLUME GROWTH OF 16% IN OUR PHILIPPINE WATER PORTFO- LIO FOR THE YEAR. INT EG RAT ED REPORT 2017 | 19 WINNING PORTFOLIO BUILDUP We keep advancing into the dairy business in Latin America, which represents about 50 % of the non- alcoholic ready-to- drink business. ACCELERATE GROWTH IN STILL BEVERAGE CATEGORY In 2017, we continued to accelerate our growth across the dairy category—while entering the new plant-based beverage category through the acquisition and inte- gration of AdeS. Under our joint venture with The Coca-Cola Company, we capitalized on Santa Clara’s expanding position in Mexico’s premium UHT milk and value-added dairy category. In September 2017, we completed a new state-of-the-art dairy plant to keep up with demand for our growing portfolio of wholesome UHT white milk, flavored milk, yogurt, and ice cream products. Located in Lagos de Moreno, Mexico—close to our milk supply—this integrated still beverage facility will at least double our dairy capacity; optimize our cost to serve some of Mexico’s larger markets; and provide us with the capability to innovate and grow our offering of nutritious, delicious dairy products. 31% of the brands in our portfolio have vitamins, fiber, minerals, or nutritional supplements 20 Together with our partner The Coca-Cola Company, we closed the acquisition of Unilever’s AdeS plant-based beverage business in March 2017. Strategically, AdeS complements and expands our still beverage portfo- lio’s value offer by providing our consumers with an even wider array of nutritious, delicious choices. As the leading plant-based beverage brand in Latin America— the second-largest plant-based beverage market glob- ally—AdeS not only enjoys a strong position in our key markets of Argentina, Brazil, and Mexico, but also offers a very high potential to extend the business to our other countries where the brand is not currently present. With the integration of AdeS in Argentina, Brazil, Co- lombia, and Mexico in the second half of the year, we have only begun to tap the potential of this new bever- age category. In addition to expanding its footprint to our other operations, AdeS enables us to leverage our robust route-to-market model to extend its position in the modern trade channel throughout our traditional trade network. Additionally, AdeS is particularly well positioned to benefit from favorable dynamics in the broader dairy-alternative beverage segment, developing our total beverage portfolio through an appealing mix of high-protein, low-fat, and cholesterol-free products for our consumers’ enjoyment. A promising beverage segment In November 2017, we entered a new beverage segment with our launch of Barista Bros. brand ready-to-drink coffee in Mexico’s modern and tradi- tional trade channels. With the right combination of premium coffee and our nourishing Santa Clara milk, our 250-ml single-serve PET presentation offers on-the-go consumers an in- vigorating mix of nutrition and energy in a single and double shot. With this launch, we begin to capture growing consumer demand in this promising beverage segment. INT EG RAT ED REPORT 2017 | 21 READY-TO-DRINK COFFEE WITH THE RIGHT COMBINATION OF PREMIUM COFFEE AND OUR NOURISHING SANTA CLARA MILK. WINNING PORTFOLIO BUILDUP HEALTHY HABITS AS LEADERS IN THE BEVERAGE INDUSTRY, WE RECOGNIZE THAT WE PROMOTE HEALTHY HABITS IN OUR COMMUNITIES— ENCOURAGING PEOPLE TO COMBINE PROPER NUTRITION WITH PHYSICAL ACTIVITY AND EDUCATION AT ALL STAGES OF THEIR LIVES. RESPONSIBLE MARKETING At Coca-Cola FEMSA, we are a global company working together to meet our consumers’ daily beverage needs. Accordingly, we are committed to the responsible marketing of our products. 1 1 1. INFORMED DECISIONS To enable our consumers to make informed dietary decisions across every one of our operations, our product labels include easy-to-access nutritional content informa- tion, including the nutrients, fats, sugar, sodium, and calo- ries in each of our products. Calculated on the basis of a two-thousand-calorie diet, our nutritional labeling strat- egy is based on recommend- ed Dietary Daily Allowance Guidelines and applicable regulations in each country. 2 2 1. RESPONSIBLE MARKETING As part of our commitment to the wellbeing of our consum- ers, our advertising adheres to The Coca-Cola Company’s Responsible Marketing Policy and Global School Beverage Guidelines. In this and other ways, we underscore our com- mitment to the healthy habits of our consumers. 3 3 1. HIGHEST QUALITY To ensure that our products comply with the highest quality standards—including ISO-9001 and ISO-22000 certifications—our manufac- turing processes adhere to the Coca-Cola Operation Requirements (KORE) and to the Food Safety Manage- ment System. Accordingly, we guarantee the quality of our products throughout our plants’ production chain, which are in turn certified in food safety through the Food Safety System Certification 22000 (FSSC 22000). MULTI-SECTOR INITIATIVES To improve health issues that can affect the life quality of our communities, we must generate comprehensive solutions in collaboration with governments, the private sector, and civil society through multi-sector partnerships. For the second year we have been participating in the Latin American Commitment for a Healthy Future, a multi-sector coalition with the Healthy Weight Commit- ment Foundation and other companies in the beverage industry. The coalition’s goal is to promote the execution of national initiatives that empower school-aged children and their families to make appropriate decisions about their dietary practices and physical activity to generate healthy habits through different educational tools. The coalition also works with local allies to expand its scope and impact. 22 To implement the Latin American Commitment for a Healthy Future initiative, we also collaborated with Discovery Education to deploy the Together Counts™ online educational platform. This platform offers a study plan based on health and wellbeing adapted to each stage of development, as well as interactive tools that consider the standards recommended by professional institutions to stimulate and build healthy habits. The Latin American Commitment for a Healthy Future initiative and the Together Counts™ platform are currently active in Colombia, Mexico and Brazil where 2,672 teach- ers have been trained through the platform. OUR 2020 GOAL • BENEFIT 5 MILLION PEOPLE with our nutrition and physical activation programs and initiatives. FOSTERING HEALTHY HABITS IN OUR COMMUNITIES We strive to foster healthy habits in our communities through local initiatives focused on nutrition and physi- cal activity. Among our goals, we aim to benefit 5 million people through our healthy habits and nutrition programs from 2015 to 2020. In 2017, approximately 1.6 million people had been benefited in our programs, with an investment of US$6 million. To date our progress on this goal is 62%. To achieve this goal and complement our healthy habits programs, over the past nine years, we have also worked with the FEMSA Foundation to make strategic social invest- ments in projects—with a strong education component—fo- cused on solving food-related issues and creating healthy environments for children. Complementary investments in nutritional research are further made through the FEMSA Biotechnology Center at Tecnológico de Monterrey. The Coca-Cola Company and The Coca-Cola Foundation are also strategic partners to develop healthy habits programs. LOCAL INITIATIVES BRAZIL We improve our communities’ quality of life through Praça da Cidadania. This initiative provides access to public services, while building a network of upgraded community health, nutrition, and physical activity programs. During 2017, Praça da Cidadania provided services for more than 10,000 people in the cities of Santos, Jundiaí, Itabirito, Santo Angelo y São Carlos. MEXICO Along with the Coca-Cola System and other partners, we collaborate in the Ponte al 100 program—designed to generate healthy habits in stu- dents, while providing metabolic index measurement of different health indicators for a large portion of the targeted population. INT EG RAT ED REPORT 2017 | 23 THE PHILIPPINES In collaboration with The Coca-Cola Company, the Minute Maid Nurisha Supple- ment Program is designed to help improve the health and wellbeing of school-aged chil- dren. The program ensures that they drink an orange-flavored juice beverage that contains 14 essential macronutrients, which contribute to their mental and physical development. Current- ly, 30,000 kindergarten chil- dren participate in the program, complementing this experience by playing traditional Philippine games with our volunteers. Par- ents and teachers also learn about the benefits of the product and of healthy, economical meals. Oper ating MODEL TRANSF ORMATION We are accelerating the transformation of our operating model to strengthen our competitive advantages, creating the next generation of strategic capabilities across our value chain. We are further contributing to improve living conditions in the communities we serve and take care of the environment to ensure our social license to operate. 24 Oper ating MODEL TRANSF ORMATION 2020 GOAL 1.5 liters of water per liter of beverage produced is our goal for water efficiency. INT EG RAT ED REPORT 2017 | 25 OPERATING MODEL TRANSFORMATION CENTERS OF EXCELLENCE: TRANSFORMING OUR STRATEGIC CAPABILITIES Propelled by our centers of excellence (CoEs), we are designing, developing, and deploying state-of-the-art models, initiatives, and practices throughout our opera- tions—supported by best-in-class processes, technology, and innovation. COMMERCIAL CoE In 2017, we accelerated the implementation of our upgrad- ed KOFmmercial Digital Platform (KDP). This comprehen- sive platform is based on four integrated pillars. 1. ADVANCED ANALYTICS FOR REVENUE TRANSFORMATION 2. DYNAMIC INITIATIVE MANAGEMENT 3. OMNICHANNEL 4. ROUTE-TO-MARKET During 2017, we completed the rollout of KDP across our traditional sales channel in Mexico. Additionally, we finished the implementation of KDP in Brazil, including the recently integrated territories of Vonpar. Further- more, we concluded the deployment of KDP across our traditional sales channel in the Philippines, Costa Rica, Nicaragua, and Panama. As a result, we achieved increased point-of-sale coverage, greater availability of our primary portfolio, improved point-of-sale execu- tion, and enhanced resource allocation. In 2018, we will continue upgrading and rolling out KDP throughout our markets. 1 1 1. ADVANCED ANALYTICS FOR REVENUE TRANS- FORMATION our platform enables us to improve our revenue growth by defining strategic, tactical, and gran- ular customer segments, analyzing and detecting new market opportunities, opti- mizing our price promotion and portfolio mix, and facil- itating better resource allo- cation. For example, through our analytical platform, we utilized internal and external variables to define strategic segments for our customers in Mexico’s and Colombia’s traditional and modern trade channels. We incorporated other variables—including size, sales channels and sub-channels, socio-econom- ic factors, traffic, urbanity, and competitive intensity—to assign the appropriate pic- ture of success and value proposition for each tactical segment. We then defined granular groups for which we targeted specific monthly or weekly initiatives. KDP DEPLOYMENT 6 countries +7,300 routes +80% total volume 26 * KDP is modular, deploying from one to all four pillars in each country. 3 3 1. OMNICHANNEL we are integrating all of the connec- tion points through which we engage with our customers, including our Sales Force Automation (SFA) solution, Contact Center, and Digital Self-service. Because our pre-sale platform is currently our most important point of customer engagement, we implemented our SFA solution as the first phase of our Omnichannel pillar. This user-centric mobile SFA solution empowers our sales force with best-in-class hand- held functionalities, including faster order entry, a two-way targeted initiatives module, dashboards and 360° cus- tomer data. 4 4 1. ROUTE-TO-MARKET (RTM) captures the insights we gain from our compre- hensive KDP platform to improve our current direct and indirect RTM models in order to maximize and capture customer value cre- ation, while optimizing our cost to serve. For example, in Mexico and Colombia, we are utilizing next generation RTM models for our top stra- tegic customer segments, allocating additional resourc- es to capture the most value from these priority clients. Simultaneously, we are implementing additional in- novative models that ensure the proper availability of our portfolio, the best customer satisfaction level, all of these at the right cost to serve. 2 2 1. DYNAMIC INITIATIVE MANAGEMENT this core pillar utilizes a next-generation Customer Relationship Manage- ment (CRM) platform, including back-office processes, tools, and capabilities, to dynami- cally manage and transform the insights from our powerful analytical platform into tailored customer-focused initiatives that we publish daily on our sales force team’s mobile, hand-held SFA devices. Through this process, we consolidate, prioritize, and schedule targeted client-centric initiatives, enabling our sales force to maximize the value of their customer visits and interactions, enhance our point-of-sale execution, and achieve better resource allocation in the market. For example, in Mexico, we pro- cess approximately 4.8 million targeted initiatives per week for our customers in the tradition- al sales channel. Importantly, through our two-way process, we enjoy the agility to modify and improve our initiatives every week based on the feedback that we receive from the market and our sales force team. INT EG RAT ED REPORT 2017 | 27 OPERATING MODEL TRANSFORMATION DRIVING MANUFACTURING SAVINGS We delivered hard manufacturing savings of US$145 million over the past three years. MANUFACTURING CoE We are enlarging the scope and impact of our highly experienced team of specialists to bolster our manufac- turing quality, productivity, and efficiency. We continued the design and rollout of our Manufacturing Manage- ment Model, comprised of our: • PLANT OPERATING MODEL • CENTRALIZED PLANT MAINTENANCE PLANNING • STANDARDIZED MAINTENANCE SYSTEM • MANUFACTURING EXECUTION SYSTEM This year, we began the rollout of our new Manufac- turing Execution System (MES) plus Statistical Process Control (SPC) platform. This modular MES + SPC platform, which integrates microbiology and sensory analysis process control, is designed to digitize all of our manufacturing processes. In 2017, we implement- ed our platform’s SPC quality control modules across 45 bottling plants that produce more than 80% of our company’s total beverage volumes. We also deployed our MES platform’s real-time monitoring of our utili- ties process—covering all aspects of our plant’s power needs—throughout 10 of our bottling plants. We further deployed our full MES platform across all seven of our production processes—from water treatment to bottling and utilities—at three of our plants by year-end. Thanks to the implementation of our new MES + SPC digital platform, we not only significantly improved our produc- tion quality, but also substantially increased our energy efficiency. In 2017, we increased the number of bottling lines under our Plant Operating Model from 64 to 82 —covering 43% of our company’s total beverage volumes. With our Plant Operating Model, we match our experts’ technical skills with each of the different areas of the plant such as fillers, packers, palletizers, and auxiliary services. We also make our production crews’ self-sufficient, with the skills to produce, sanitize, change over bottling lines, and perform preventive maintenance at any time. Building on last year’s successful pilot of Centralized Plant Maintenance Planning in Brazil, we expanded our deployment of this model to six bottling plants through- out the country. Moreover, we began implementation of this model at our two largest plants in the Philippines. Through this model, we centralize our plants’ mainte- nance planning and budgeting at the country level. ADVANCED MANUFACTURING ANALYTICS THIS YEAR, WE EXAMINED THREE TYPES OF ADVANCED MANUFACTURING ANALYTICS: DATA SCIENCE, PROCESS MODELING, AND FAILURE PREDICTION. THROUGH THESE INITIATIVES, WE CONTINUE TO HARNESS THE POWER OF ADVANCED ANALYTICS TO FOSTER OUR DIGITAL MANUFACTURING PLATFORM. Additionally, we advanced on the design and deploy- ment of our Standardized Maintenance System. During the year, we designed standardized maintenance rou- tines for the equipment utilized for all of our critical production processes, including water treatment, sugar clarification, finished syrup, bottling, and utilities. We also began to deploy these standards in all of our countries’ operations—putting us on track to finish the implementa- tion of this system by 2020. 28 Ultimately, our Manufacturing Management Model offers us an integrated operational perspective to optimize costs, drive efficiency, and raise productivity. For exam- ple, as a result of our initiatives, we have increased our overall plant efficiency by more than six percentage points over the past three years—equal to approximately US$250 million of production capacity or avoided capital expenditures. Importantly, we have generated manufac- turing savings of US$145 million during the same three- year period. DISTRIBUTION & LOGISTICS CoE Under the umbrella of our redefined organizational structure, KOF Logistics Services (KLS), we designed and deployed our Supply Chain Planning model: from our strategic logistics network to weekly and daily tactical planning. Through this new model, we enhance our customer service while optimizing our costs and capital allocation by leveraging our scale and expertise through standardized processes, enhanced centralized organiza- tional capabilities, and cutting-edge technological tools. In 2017, we completed the rollout of our KLS model across all of our plants, distribution centers, and long- haul distribution fleet in Mexico and Colombia. As a re- sult, we have already generated savings of US$6.4 million across these operations. We also continued the deployment of our Digital Dis- tribution system, which is comprised of three core elements—KOF Digital Distribution app, mobile delivery devices, and vehicle telemetry equipment. These fea- tures enable us to not only offer improved customer satisfaction, but also deliver increased resource optimi- zation and enhanced driver safety. In 2017, we installed telemetry equipment on our Mexico operation’s entire secondary distribution fleet of 6,600 company-owned delivery trucks. We also implemented mobile delivery devices across 2,700 delivery routes. We further began deployment of Digital Distribution in Brazil, installing telemetry equipment on 500 company-owned and third-party delivery trucks. In Mexico, we have generated savings of US$2.7 million resulting from a 6% reduction in fuel costs, a 4% reduction in maintenance expendi- tures, as well as avoiding the use of 16.5 million sheets of paper. An additional benefit of our mobile delivery devices is the potential for cashless transactions with our customers. We further continued to benefit from warehouse opti- mization. From our voice directed picking to our truck load optimizer and our warehouse management system, we are reengineering our distribution centers’ internal processes to optimize our storage, handling, and labor costs—thereby enabling our delivery routes to spend less time at our distribution centers. Through warehouse optimization, we achieved a 67-minute distribution labor time reduction in Mexico and an 82-minute labor time reduction in Brazil at a daily basis for 2017. FLEET RENOVATION RESULTS Through our secondary fleet sub- stitution program in Mexico, we generated US$1.2 million sav- ings in maintenance expenditures during 2017. By working closely with local environmental authori- ties, we further fostered our social license to operate. INT EG RAT ED REPORT 2017 | 29 OPERATING MODEL TRANSFORMATION SUSTAINABLE OPERATIONS AT COCA-COLA FEMSA, WE ENSURE SUSTAINABILITY IS FULLY EMBEDDED THROUGHOUT OUR DAY-TO-DAY BUSINESS OPERATIONS. AS A DRIVER BE- HIND OUR STRATEGIC BUSINESS DECISIONS, OUR OPERATIONS ARE FIRM- LY COMMITTED TO GENERATING SUSTAINABLE ECONOMIC, SOCIAL, AND ENVIRONMENTAL VALUE. OUR VALUE CHAIN INGREDIENTS We work with our suppliers to have the best raw materials, concentrates and sweeteners, water, packaging materials. Packaging materials Water Concentrates and sweeteners PRIMARY DISTRIBUTION We transport our products to our distribution centers. MANUFACTURING We produce high-quality beverages in our 64 plants. We package and label them here, and then present them to the market. DISTRIBUTION CENTER This is where we put together our pre-sale processes and secondary distribution to 324 distribution centers. PRE-SALE Our pre-sale force serves our clients. POINTS OF SALE We reach 2.8 million points of sale with our portfolio. SECONDARY DISTRIBUTION Once an order is placed, the delivery routes distribute beverages to the points of sale. REFRIGERATION Our products are chilled to be enjoyed. CONSUMPTION We serve more than 381 million people, offering our broad portfolio. RECYCLING We have processes in place to collect and recycle waste generated by our packaging. 30 SUSTAINABILITY & EFFICIENCY: RESPONSIBLY ADDRESSING OUR OPERATIONS’ IMPACTS We embrace a holistic approach to sustainable devel- opment. To this end, we strategically, efficiently, and responsibly address our operations’ impacts across our value chain—from sourcing to manufacturing to distribu- tion to community development. US$37.7 million total savings due to environmental efficiencies Savings due to environmental efficiencies million of dollars Water 3.1 Energy 10.1 Waste & Recycling 24.5 Total 37.7 Investments in environmental projects million of dollars Water 7.0 Energy 6.3 Waste & Recycling 3.4 Total 16.7 US$16.7 million invested in environmental projects SUSTAINABLE SOURCING We promote the growth and development of our sup- pliers, while improving their social position and reduc- ing the environmental impact of our value chain. Our suppliers are key partners in our business’ success. To contribute to their economic, social, and environmen- tal development and to the sustainability of our industry in the countries in which we operate, we offer a com- prehensive Sustainable Sourcing Program. SUSTAINABLE DEVELOPMENT FOR SUPPLIERS We facilitate sustainable development across our value chain by ensuring that applicable social, environmental, and ethical guidelines permeate our suppliers’ processes—pos- itively impacting their people, the environment, and their communities. We continuously design action and work plans to develop these aspects of their operations. INT EG RAT ED REPORT 2017 | 31 OPERATING MODEL TRANSFORMATION IN ORDER TO GUARANTEE QUALITY, INTEGRITY, AND EXCELLENCE, WHILE RESPECTING THE DIFFERENT CUSTOMS AND CULTURES OF THE PEOPLE WITH WHOM WE INTERACT, OUR SUS- TAINABLE SOURCING PROGRAM IS FOUNDED ON A SERIES OF GUIDING PRINCIPLES. 1 1 1. THE COCA-COLA COMPANY SUPPLIER GUIDING PRINCIPLES Established by The Coca-Cola Company for specific stra- tegic input categories, these principles are aligned with their Human Rights Policy, as well as their protection of the environment and labor rights. These suppliers are evaluated and authorized by The Coca-Cola Company to sup- ply their value chain. 3 3 2 2 FEMSA SUPPLIER GUIDING PRINCIPLES Established by FEMSA for the rest of the input categories, these principles focus on four areas: Labor Rights, Envi- ronment, Community, and Ethics and Values. 100% of our suppliers adhere to these principles. SUSTAINABLE AGRICULTURE GUIDING PRINCIPLES Established by The Coca-Cola Company for those locations in which we obtain agricultur- al inputs, these principles pro- tect the labor rights of people who work the land and make a contribution to building a sustainable supply chain from its very origin. THESE PRINCIPLES REFLECT THE STANDARDS THAT GUIDE OUR DAILY ACTIVITIES TO ENSURE THAT WE HAVE RESPONSIBLE WORK CENTERS THAT PROTECT HUMAN RIGHTS AND, AT A MINI- MUM, ADHERE TO ALL APPLICABLE LABOR AND ENVIRONMENTAL LAWS. ETHICS AND VALUES • Legal compliance • Fiscal integrity • Anti-corruption • Money laundering • Fair competition • Conflicts of interest • Privacy and intellectual property • Human rights ENVIRONMENT • Impact and enviromental compliance 32 LABOR RIGHTS • Child labor • Forced labor and freedom to move • Freedom of association and collective bargaining • Discrimination and harassment • Work schedule and compensation • Occupational health and safety • Reporting mechanisms COMMUNITY • Community development FEMSA SUPPLIER GUIDING PRINCIPLES Based on these principles we follow a comprehensive five-step Sustainable Sourcing Strategy: 1. CATEGORY PRIORITIZATION 2. SUSTAINABLE PURCHASING 3. ASSESSMENT & EVALUATION 4. CAPABILITIES BUILDING 5. ASSESSMENT Consistent with this strategy, The Coca-Cola Company assesses, and enforces compliance with their own guiding principles and sustainability standards cate- gories of strategic suppliers. Consequently, we select and work only with The Coca-Cola Company’s list of approved suppliers in those categories. In 2017, 197 supplier evaluations have been performed on issues ranging from human rights to the environment and labor practices through the The Coca-Cola Company’s Supplier Guiding Principles. SUPPLIERS ASSESSED UNDER THE COCA-COLA COMPANY GUIDING PRINCIPLES 2013 2014 2015 2016 2017 COUNTRY Correspondingly, in Coca-Cola FEMSA we conduct an assessment of prioritized suppliers through our Sus- tainable Sourcing System. Through this process, we ensure our suppliers are aligned with the principles and values that form the foundation for the way in which our company operates. To ensure transparen- cy, the information obtained from our suppliers on an online evaluation platform is reviewed and verified by a third party. Based on this process, we provide feed- back and create action plans to foster supplier devel- opment, ethics, and sustainability. All suppliers with low qualifications are audited at their facilities and are re-evaluated periodically to ensure their continuous improvement. In 2017 we made 538 evaluations through FEMSA’s Supplier Guiding Principles, taking this assessment for the first time to Guatemala and Brazil. Since 2014 we have made 1,100 evaluations. SUPPLIERS ASSESSED UNDER FEMSA SUPPLIER GUIDING PRINCIPLES 2016 COUNTRY 2014 2015 Mexico Costa Rica Guatemala Nicaragua Panama Argentina Brazil Colombia Venezuela Total 46 33 33 52 40 Mexico Costa Rica Guatemala Nicaragua Brazil Total 2 8 1 0 12 46 2 5 4 5 1 2 9 61 21 4 2 3 0 1 5 54 8 1 3 5 1 0 11 47 7 0 7 8 0 3 19 102 18 0 122 140 107 126 197 30 — — — — 100 30 — — — 198 120 — 84 — 2017 245 106 44 94 49 30 130 402 538 Considering this year results, from 735 supplier evalua- tions (including TCCC and Coca-Cola FEMSA), improve- ment opportunities were identified on a range of sustain- ability areas, including environment, labor rights, human rights, and community practices. All of our new suppliers in Mexico, Costa Rica, and Nicaragua have been eval- uated on these criteria, and we continue to work to generate improvement action plans. Because Coca-Cola FEMSA is part of The Coca-Cola Company System, we comply with all of the requirements established by The Coca-Cola Company for strategic suppliers, including commitments and memberships it has acquired by being part of the Global Food Safety Initiative and the Roundtable on Responsible Palm Oil. INT EG RAT ED REPORT 2017 | 33 OPERATING MODEL TRANSFORMATION DEVELOPING BUSINESS CAPABILITIES To strengthen our suppliers’ business capabilities, we provide them access to training and growth initiatives on topics such as finances, marketing, and human resourc- es, among others. We also support their growth and strengthen their business skills, improve their companies, and develop high-quality products aligned with our prin- ciples and values. In collaboration with the Mexican Competitiveness Center (Centro Mexicano de Competitividad), we carry out a comprehensive Supplier Development Program for carefully selected small and medium-sized suppliers (SMEs) to improve their business capabilities. Through this program, we partner with these suppliers to not only improve their sustainable competitiveness, but also forge stronger relationships with our company and other large enterprises. Indeed, some participating suppliers have increased their sales by up to 50% and have reduced their costs by up to 10%. During 2016, 61 of our suppliers in Mexico participated in this program and for 2017 we added 90 suppliers from Mexico and 30 from Costa Rica with a total amount of 181 suppliers over the past two years. WATER Water is the main ingredient in the production of our beverages that meet our consumers’ hydration needs. Consequently, we are especially committed to ensur- ing that we make efficient use of this invaluable natural resource for the benefit of our company, our commu- nities, and our planet. Consistent with this commitment, we have established a comprehensive water strategy, founded on three pillars: 1. EFFICIENCY IN WATER USE AT OUR PLANTS 2. FACILITATING ACCESS TO WATER AND SANITATION IN OUR COMMUNITIES 3. REPLENISHMENT AND WATER FUNDS 1 3 2 OUR 2020 GOALS • INCREASE OUR EFFICIENCY IN WATER usage to 1.5 liters of water per liter of beverage produced. • RETURN TO OUR COMMUNITIES AND THEIR ENVIRONMENT the same amount of water used in our beverages. 34 From 2010 through 2017, we decreased our absolute water consumption by 15%—representing savings of more than 5.69 billion liters. FOSTERING WATER EFFICIENCY As a beverage bottler, efficient water management is essential to our business, our communities, and our planet. Our goal is to increase our water use ratio to 1.5 liters of water per liter of beverage produced by 2020. For 2017, we achieved 1.65 liters of water per liter of beverage produced—a 16% increase in our water use ratio from our 2010 baseline. Moreover, our water efficiency initiatives and projects generated savings of US$3 million in 2017. Through our Top 20 Water Saving Initiatives program, we foster efficient water consumption across all of our plants. To this end, we registered significant progress across our operations, focusing on 20 key measures—from our detection and elimination of leaks to optimal water use in our plants to our water recovery systems. FACILITATING ACCESS TO SAFE WATER AND SANITATION IN OUR COMMUNITIES In collaboration with the FEMSA Foundation, we carry out projects designed to improve communities’ qual- ity of life by helping to provide them with safe water, improved sanitation, and hygiene education. While the Foundation intervenes considerably at the outset of each project, all of these initiatives utilize the necessary elements to enable communities to adopt them in a sustainable way—enduring over the long term. > > 1. LAZOS DE AGUA In March 2017, FEMSA Foundation launched the second phase of Lazos de Agua in partnership with the Inter-American Development Bank (IDB), The Coca-Cola Foun- dation and One Drop. With an initial investment of US $25 million, this initiative will provide 150,000 people with access to safe and afford- able water, hygiene and improved sanitation services (WASH) in five Latin American countries by 2021. During the first year of operation, Lazos de agua impacted the lives of 7,299 people with the construction of water access infrastructure in Guatemala, Mexico, rural Nicaragua and Para- guay. In 2018 the project will also be deployed in Colombia and urban areas of Nicaragua. Efficiency in water use liters of water per liter of beverage produced 2010 1.96 2014 1.79 2015 1.77 2016 1.72 2017 1.65 Water consumption water usage beverage produced1 (billions of liters) 2010 39.1 2014 37.7 2015 37.5 2016 36.0 2017 33.4 20.0 21.0 21.2 20.9 20.3 1 Comparable information based on the number of facilities as of 2017. WASTEWATER TREATMENT ALL OF THE WATER WE DISCHARGE IS SENT TO WASTEWATER TREATMENT PLANTS, WHICH ENSURE SUFFICIENT QUALITY TO FOS- TER AQUATIC LIFE. INT EG RAT ED REPORT 2017 | 35 OPERATING MODEL TRANSFORMATION WATER REPLENISHMENT AND CONSERVATION We are committed to returning the water we use in our processes by replenishing and conserving water basins in order to ensure water equilibrium in the communities with which we interact. To this end, our goal is to return to the environment and our communities the same amount of water we use to produce our beverages by 2020. Consistent with our commitment, we currently give back to the environment more than 100% of the water we use in the production of our beverages in Bra- zil, Colombia, Mexico and Central America. In light of the substantial scope, importance, and com- plexity of water conservation and replenishment, we work to strengthen water funds and conserve water ba- sins through sustainable initiatives involving partnerships with several stakeholders. Through the Latin American Water Funds Alliance—comprised of the Nature Conser- vancy, the FEMSA Foundation, the Inter-American Devel- opment Bank (IDB), and the World Environmental Fund— we jointly seek to offer hydrological safety in the region, ensuring sustainable access to a sufficient quantity and quality of water to sustain human life and socioeconom- ic development. REFORESTATION WE HAVE PLANTED 77 MILLION TREES IN MEXICO OVER THE PAST 10 YEARS. 36 To date, the Alliance has developed 21 water funds. Of these funds, 6 are in areas of KOF operations - Brazil, Colombia, Guatemala, Costa Rica and Mexico. As a result of this partnership, the Alliance has worked to restore the infrastructure of 204,646 hectares of land through various conservation measures, benefiting approximately 15,700 families in areas near the water ba- sins through job creation and capabilities training since the beginning of the projects. We plant trees as part of our strategy to replenish and support the avail- ability of water in our communities. In partnership with The Coca-Cola Company and the Coca-Cola Bottling System, we have planted 77 million trees in Mexico over the past 10 years. Importantly, as opposed to the nor- mal 40% to 50% survival rate, more than 80% of the trees that we have planted survived. Thanks to the eco- nomic assistance of The Coca-Cola Foundation, people who once cut down trees are now hired to reforest their localities—positively impacting their communities while recovering invaluable hydrological resources. ENERGY EFFICIENCY We strive for energy efficiency across our value chain. We further integrate clean and renewable sources of en- ergy and technologies to reduce our carbon emissions thus contributing to climate change mitigation. Consequently, our operations’ energy consumption cen- ters on a comprehensive strategy that encompasses our entire value chain. Consistent with this strategy, we have defined the following 2020 goals: OUR 2020 GOALS • REDUCE THE CARBON FOOTPRINT of our value chain by 20% against our 2010 baseline. • SUPPLY 85% OF THE ENERGY we use for manufacturing in Mexico from clean sources. As part of our commitment to corporate sustainability, we measure our greenhouse gas emissions across each link in our chain—manufacturing, distribution, refriger- ation, ingredients, and packaging—in order to reduce them in the coming years. Efficiency in greenhouse gas emissions across the value chain1 grams of CO2(eq) per liter of beverage 2010 201.51 2013 213.08 2014 207.51 2015 205.42 2016 204.38 1 Due to the complexity of these measurements, the following data corresponds to 2016; in 2018, we will report the data for 2017. To reduce our CO2(eq) emissions, we have implemented several initiatives, including using recycled resin, con- suming renewable energy, implementing lightweight PET initiatives, and improving our manufacturing plants’ energy consumption, that have achieved significant ben- efits and savings. To improve the way in which we report this information, we measured the impact of these efforts since 2011, estimating that we have avoided the emission of 718,431 tCO2e from 2011 through 2016. TOTAL 2016 EMISSIONS1 4,333,800 CO2(eq) MANUFACTURING • We source from clean energies and have improved our energy efficiency by 19% since 2010. 7% 321,608 CO2(eq) PACKAGING • We invest in developing lighter packages that include recycled materials. 33% 1,445,483 CO2(eq) INGREDIENTS • We promote the efficient and sustainable use of the resources used by our suppliers, based on the Guiding Principles of The Coca-Cola Company and FEMSA. 1 Due to the complexity of these measurements, the following data corresponds to 2016; in 2018, we will report the data for 2017. DISTRIBUTION • We plan to integrate more efficient technologies to reduce fuel consumption and greenhouse gas emissions, NOx and SOx in our distribution fleet. 15% 632,795 CO2(eq) REFRIGERATION • We produce equipment that is more energy efficient and produces fewer gases that impact global warming. 27% 1,157,402 CO2(eq) 18% 776,512 CO2(eq) INT EG RAT ED REPORT 2017 | 37 OPERATING MODEL TRANSFORMATION Energy efficiency liters of beverage produced per mega joule consumed 2010 3.69 2014 4.09 2015 4.20 2016 4.38 2017 4.49 MANUFACTURING Our aim is to improve the energy efficiency of our man- ufacturing operations, while simultaneously reducing our greenhouse gas emissions. To this end, we managed to increase our energy efficiency by 22% from 2010 to 2017. REDUCING MANUFACTURING EMISSIONS From 2010 through 2017, we achieved a 35% decrease in our manufacturing operations CO2(eq) emissions, reach- ing 13.63 grams of CO2(eq) per liter of beverage produced in 2017. Efficiency in greenhouse gas emissions in manufacturing grams of CO2(eq) per liter of beverage Emissions in manufacturing tons of CO2(eq) 2010 21.10 2014 18.90 2015 18.10 2016 15.26 2017 13.63 38 276,527 Scope 1 136,412 tCO2e Scope 2 140,114 tCO2e Total 276,527 tCO2e CLEAN ENERGY CONSUMPTION By 2020, we look to satisfy 85% of our Mexican man- ufacturing operations’ energy requirements with clean energy. By year-end 2017, we achieved 57% coverage of our Mexican bottling operations’ power needs. Beyond our goal, we reached 100% clean energy utilization in our Brazilian manufacturing facilities. For the year, we reduced our energy consumption by 7.15%, resulting in the following total savings: • US$4.1 MILLION Clean energy • US$6.0 MILLION Energy efficiency • U$$10.1 MILLION Total energy savings 38% of the electric power in our operations comes from clean sources, 57% in Mexico and 100% in Brazil. SUSTAINABLE MOBILITY THROUGH OUR SUSTAINABLE MOBILITY STRATEGY, WE AIM TO REDUCE THE IMPACT OF OUR FLEET—INCLUDING OUR PRIMARY AND SECONDARY DISTRI- BUTION TRUCKS—AND TO POSITION OURSELVES AS THE INDUSTRY LEADER IN TERMS OF ENVIRONMENTAL STEWARDSHIP AND SAFETY, FOCUSING ON THREE PRIORITIES: 1 1 1. SAFETY 2 2 1. VEHICLE EFFICIENCY Implement strategies focused on a cultural evolution striving to ensure the safety of our as- sociates and of the communi- ties in which we operate. Maximize efficiencies in distri- bution by optimizing process- es and applying state-of-the- art technology. 3 3 1. EMISSIONS REDUCTION Reduce the environmental impact generated by our distribution fleet by applying clean technologies. SAFETY Our safety area defined, consolidated, and communi- cated our uniform, companywide Road Safety Standard. This standard encompasses all of our organizational levels and extends beyond our company’s drivers to our collaborators and third-party drivers. Our goal is to implement this standard throughout 2018. In 2017, we also deployed mandatory safety specifica- tions for all new secondary distribution trucks that we purchased. These specifications include: • SAFE DESIGNS – cautionary yellow/black striped bumpers, circular traffic cones, and reflective signage. • ERGONOMIC EQUIPMENT – to reduce operator injuries – handrails, internal body lights, pullout steps, stirrups, and hand truck holders. • SAFE DRIVING DEVICES – convex mirrors, reverse maneuver safety equipment, GPS to measure driv- ing habits, and onboard driver training devices. For the year, we implemented these mandatory safety specifications for 164 new delivery trucks that we bought in Mexico and the Philippines. Moreover, through our distribution ally, Solistica, our drivers of primary distribution fleet receive continual training on eco-efficient driving and safety, as well as a program to prevent transportation risks, and periodic evaluations. CRASH RATE REDUCTION By 2020, our goal is to achieve a 50% crash rate reduc- tion from our 2016 baseline. VEHICLE FLEET Our fleet includes more than 30,000 vehicles through which we deliver our beverages to our consumers across 10 countries. Thanks, to our Road Safety initiatives, we achieved a 46% crash rate reduction in 2017 INT EG RAT ED REPORT 2017 | 39 INT EG RAT ED REPORT 2017 | OPERATING MODEL TRANSFORMATION VEHICLE EFFICIENCY Currently, we are designing, developing, and testing more fuel-efficient, light-body delivery trucks. These lighter weight vehicles will not only consume less fuel, but also improve vehicle utilization through their in- creased load capacity. Beyond light-body trucks, we are working on a flexible vehicle body configuration that will enable us to generate new vehicle specifications more rapidly and respond to specific operational needs more quickly. Additionally, we are executing route optimization strate- gies to maximize our overall vehicle efficiency. In Mexico, we installed telemetry equipment on 100% of our secondary distribution fleet of 6,600 delivery trucks. We also implemented mobile delivery devices across 2,700 delivery routes. Thanks to our trucks’ telemetry data—combined with the functionality of our mobile delivery devices—we enjoy the capability to identify and correct deviations in our distribution route execution versus our route plan. This equipment also enables us to analyze our route execution patterns in order to identify an optimal combination of variables to improve our route planning process. As a result, we optimize our fleet’s usage, minimizing our vehicles’ downtime while maximizing our vehicles’ uptime. Moreover, we deployed dynamic routing across our secondary distribution fleet in Brazil, Colombia, and Argentina. Through this dynamic distribution model, we enjoy the flexibility to plan our vehicles’ routes every day, thereby optimizing our available fleet re- sources and our distances traveled to serve our cus- tomers. Consequently, we are able to improve our fleet utilization by approximately 15% and to achieve an 8-kilometer route reduction. EMISSIONS REDUCTIONS In 2017, we continued to evaluate the commercial viability of new lower emission vehicles and emission reduction devices. In Mexico, we examined electric cars for our corporate fleet, and we analyzed natural gas cars and primary distribution trucks with Solistica. We also ran tests on particle material filters and catalyt- ic converters for our secondary delivery trucks. Additionally, we leveraged our secondary fleet substitu- tion program in Mexico, where we maintain our largest volume of delivery trucks. Over the past two years, we have substituted more than 600 trucks—approximately 10% of our total fleet—with vehicles that meet higher emission standards. Thanks to this program, we not only reduce our emissions and maintenance costs, but also reinforce our commitment to eco-efficiency with local environmental authorities. In Mexico City, we continued to work closely with local governmental authorities on the metropolitan area’s self-regulation program. Under this voluntary pro- gram, we commit to minimize our local delivery fleet’s emissions through key initiatives, including our efficient maintenance process and ongoing fleet substitution program. Among other benefits, local authorities permit us to continually operate our complete secondary distribution fleet every day—fostering our social license to operate. In recognition of our voluntary efforts to reduce our vehicles’ emissions, we earned the Clean Transporta- tion Award from Mexico’s ministries of Environment and Natural Resources (SEMARNAT) and Communica- tions and Transportation (SCT) for the seventh con- secutive year. 40 40 WASTE & RECYCLING At Coca-Cola FEMSA, our objective is to mitigate the environmental impact of our operations’ processes. In this way, we help to preserve our natural resources and to decrease our emissions. We promote a culture of waste management through- out all of our operations and our value chain, focusing on the following priorities: 1. COMPREHENSIVE AND RESPONSIBLE WASTE MANAGEMENT 2. POST-CONSUMPTION COLLECTION 3. INTEGRATE RECYCLED MATERIALS IN OUR PACKAGING 1 3 2 OUR 2020 GOALS • TO RECYCLE at least 90% of the waste we generate in every one of our bottling plants. • TO INCLUDE 25% OF RECYCLED materials in our PET packaging. OPERATING WASTE MANAGEMENT In 2017, 17 of our bottling plants earned Zero Waste certification. Designed for our Mexico operations, this initiative establishes specific measures to improve waste management, disposal, and repurposing—resulting in im- proved waste efficiency per liter of beverage produced. By 2020, we aim to recycle at least 90% of our waste in each of our bottling plants. At year-end 2017, 90% of our plants successfully achieved this goal. Overall, we recy- cled 94.4% or approximately 144 thousands tons out of 152 thousands tons of manufacturing waste generated. Currently, 20 of our plants in Mexico have obtained Clean Industry certification from the Federal Environ- mental Protection Agency (PROFEPA). Moreover, in 2017, 50 of our distribution centers in Mexico received air quality certifications from PROFEPA the state of Mexico’s Environmental Agency, and Mexico City’s Ministry of the Environment, and the Secretary of the Environment of the Federal District (SEDEMA). These and other recognitions confirm our commitment to the environment and overall sustainability. To this end, we diligently work to ensure our process- es comply with the highest national and international and standards and with all applicable laws, avoiding sanctions and fines pertaining to environmental issues, while reaffirming our commitment to efficient oper- ational processes, environmental performance, and competitiveness. Waste efficiency grams of waste per liter of beverage produced Waste recycling % of waste recycled of the total waste generated 2010 8.9 2014 9.0 2015 8.2 2016 8.3 2017 7.5 2010 86.0 2014 93.0 2015 94.0 2016 93.0 2017 94.4 INT EG RAT ED REPORT 2017 | 41 INT EG RAT ED REPORT 2017 | OPERATING MODEL TRANSFORMATION INNOVATIVE PACKAGING DEVELOPMENT We foster research to develop lighter packaging that requires fewer raw materials. We also use recycled resin contributing to reducing the tons of PET used in our beverages’ packages and, consequently, producing lower greenhouse gas emissions. To this end, our goal is to incorporate 25% recycled ma- terial into all of our PET packages by 2020. In 2017, we successfully integrated 21% of recycled materials into the production of all of our PET presentations. Additionally, we launched a new bottle made of 100% recycled resin for all of our one-way PET presentations for Ciel water. Consistent with our efficient resource management and optimization of our packaging materials, in 2017, we deployed a wide-ranging light-weighting strategy for our Mexico operation’s sparkling beverage pre- sentations, including: reducing all of our 600-ml PET presentations for our flavored sparkling beverages from 20.5 grams to 17.75 grams; decreasing our 1-liter PET presentation for Coca-Cola from 29.5 grams to 26.5 grams; and implementing our third generation light-weight cap for all of our PET sparkling beverage presentations. Moreover, we introduced a new fully recyclable 20-liter PET jug for Ciel water. Similarly, in the Philippines, we maintained our lead- ership position by offering the lightest bottles in the global Coca-Cola system. In 2018, this country will also become the first ASEAN (Association of Southeast Asian Nations) nation to use 25% recycled resin in its sin- gle-serve PET presentations. In total, we have deployed 221 light-weighting projects since 2014. We carried on with our optimization strategy for all of our secondary packaging’s stretch and shrink film—re- ducing our use of low-density polyethylene by a total of 2,000 tons throughout all of our countries. Furthermore, in 2017, we introduced a new Green Crate made of 100% recycled high-density polyethylene to handle our returnable glass and PET bottles in Mexico. PET packaging materials % of renewable or recycled materials in our PET packaging 2010 4.4 2014 11.1 2015 14.6 2016 19.8 2017 21.2 42 In 2017, we launched a 100% recycled PET bottle for our Ciel water brand. Thanks to our efficient resource management, optimiza- tion of our packaging materials, and light-weighting initia- tives, we generated savings of US$24.4 million in 2017. To strengthen our packaging capabilities, we further provided mandatory training, along with accompanying certification, across our plants in the proper use of 17 packaging materials. Through this special certification process, our plants must show clear enhancement across key packaging process indicators, while imple- menting corrective and improvement actions. This year, all of our operations earned “KOF Packaging Material Certification”. POST CONSUMPTION COLLECTION & RECYCLING By joining efforts, we multiply the effects of our actions. Accordingly, as part of our collection and recycling ef- forts, we involve communities, authorities, and NGOs in the regions where we operate in different programs that promote the proper disposal and handling of the waste generated from consuming our products. For over 15 years, we have collaborated with other food and beverage companies through ECOCE, a Mexico civil associ- ation that promotes the collection of waste, the creation of a national market for recycling, and the development of re- cycling programs. Thanks to this collaborative effort, in 2017, ECOCE collected 57% of the total PET waste in Mexico. Furthermore, we are leaders in PET bottle-to-bottle recycling in Latin America. In Mexico, in 2005, we joined efforts to operate the first Food Grade PET Recycling Plant in Latin America, called IMER (Industria Mexicana de Reciclaje). In 2017, this plant recycled 12,415 tons of PET. Overall, in 2017, we utilized a total of almost 59,202 tons of recycled and renewable materials in our plants in Argentina, Brazil, Central America, Colombia, and Mexico. As a result of these efforts, we have used more than 209,448 tons of recycled PET since 2010. Consequently, we have consid- erably reduced the amount of virgin materials we use in producing our packages, while lowering our plants’ energy consumption. Aligning our efforts with The Coca-Cola Company, we embrace their global goal of helping to collect and recycle the equivalent of 100% of our packaging by 2030 through the “World Without Waste” initiative. TAKING THE INITIATIVE We are involved with multiple recycling projects with our stake- holders. For example, Misión Pla- neta has collected 1,046 tons of post-consumption PET in Costa Rica. In 2017, this program boast- ed around 30,000 participants. Similarly, in Mexico, 170,000 children and young people par- ticipated in the Yo Sí Reciclo initiative, designed to promote a culture of recycling. Through this initiative, 400 tons of PET were collected and with the program ECOCE at schools we collected 512 Tons of PET. INT EG RAT ED REPORT 2017 | 43 INT EG RAT ED REPORT 2017 | OPERATING MODEL TRANSFORMATION SAFETY We view and understand safety as a principle action and key pillar for our business. Consequently, we are committed to promoting a Safety Culture—valued for im- proving the welfare of our employees, business partners, contractors, and their families, together with the com- munities where we operate. OUR 2020 GOAL • TO REACH a Lost Time Injury Rate (LTIR) of 0.5 per 100 employees and a Total Incident Rate (TIR) of 1.5. To this end, we have designed a four pillar Safety Strategy: COCA-COLA FEMSA SAFETY STRATEGY TRANSFORMING THE SAFETY CULTURE MANAGING KEY RISKS FOCUSING ON CRITICAL ACTIVITIES PROFESSIONALIZATION OF SAFETY We aim to achieve zero work-related injuries and illness- es among our employees, contractors, and communities by ensuring the safety of our workplace through mini- mizing safety risks, eliminating incidents that could arise in our work centers, and developing safety capabilities across our organization. Importantly, our manufacturing sites achieved our 2020 goal of a LTIR of less than 0.5 during 2017, realizing a 43% reduc- tion year over year. Our distribution sites accomplished a 27% reduction versus 2016, while 50% of our manufacturing plants and 20% of our distribution centers reached our goal of zero work-related injuries throughout the year. Based on a thorough diagnosis and analysis of the best practices of companies that are leaders in safety, this strategy opens the door for us to transform our safety cul- ture through strong leadership, communication, recogni- tion, training, consulting, and risk management initiatives geared to our employees and their families. As a result of these initiatives, we reported a LTIR of 1.17 in 2017, representing a 28% decrease compared to 2016 and a 65% reduction compared to 2014. They also contrib- uted to a 29% reduction in our Lost Time Injury Severity Rate (LTISR), from 37.78 in 2016 to 26.97 in 2017. We also achieved a 2.33 Total Incident Rate, representing a 24% reduction versus 2016. In 2017, we implemented multiple initiatives to promote and ensure the safety of our employees and their fam- ilies. From Alignment & Leadership Construction to Culti- vate Safety Knowledge, we developed and implemented processes, programs, and technologies that enabled us to manage more effectively the critical activities of our “Top 5 Initiative” and “Key Risks Standardization” across our production and distribution facilities. We also continued to carry out the “KOF Cultural Transfor- mation Program” that we began last year, aligning the mod- el and the plan for each country. Through this transforma- tional journey, we address our people’s beliefs about safety and manage their behavioral consequences across each of 44 In 2017 we invested more than US$27 million in Industrial Safety Programs and in technical adaptations at our working facilities analyze, and identify the measures required to reduce the number of injuries resulting from our operations. For 2017, we made progress by reporting the total num- ber of fatalities that fall within and without our compa- ny’s responsibility. This data includes our manufacturing, distribution, and trading operations that impact both our employees and our communities. Compared to 2016, we reduced these total fatalities by 45%. Additionally, we decreased the number of fatalities for which our company is accountable from 10 to 8, with none occurring inside our manufacturing facilities. While this is positive progress, the loss of any individual associated with our operations is unacceptable, so we continue to work hard to achieve our goal of zero injuries and fatalities. Fatalities imputable to the company 2013 2014 2015 2016 11 14 14 10 2017 8 Lost time injury rate (LTIR) 2013 3.86 2014 3.41 2015 2.56 2016 1.62 2017 1.17 Lost workdays from injury rate (LTISR) 2013 76.15 2014 75.83 2015 54.03 2016 37.78 2017 26.97 our 10 operations. Among our actions, we are carrying out safety culture diagnoses, leadership sessions for our top and middle management, and cultural transformation deploy- ment, while developing our KOF Responsibility Model and Risk Management and Leadership Program. At the end of 2017, we designed our School of Safety, which we will launch at the beginning of 2018. This three-year, 12 technical module program is focused on providing techni- cal, functional, and leadership skills to the people who are in charge of the Safety and QSE function throughout our operations. When they complete this program, these safety professionals will earn our School of Safety certification. To prevent and drastically reduce our injuries and road incidents rates, while protecting the physical integrity of our fleet, we continued to develop and introduce innovative technologies to help us to reduce crashes on the road. These technologies include the installation of telemetry systems in our fleets, which enable us to monitor and improve the behavior and performance of our drivers; devices to ensure safe reverse maneuvers; and the development of competencies through simula- tors and virtual reality tools that enable us to accelerate learning processes and develop positive driving capabili- ties. Additionally, we developed a road safety policy and program together with a road safety expert, which we will implement throughout all of our operations in 2018. Through these and other measures, we reported a Crash Rate of 23.14 in 2017, representing a 46% decrease com- pared to 2016. We also won the National Road Safety Award in different countries. At Coca-Cola FEMSA, we firmly believe that all accidents can be avoided. Accordingly, we continually research, INT EG RAT ED REPORT 2017 | 45 OPERATING MODEL TRANSFORMATION COMMUNITY DEVELOPMENT To build closer bonds with our neighboring communi- ties, we encourage continuous dialogue and interaction. By collecting and analyzing available data and approach- ing them to address their particular needs and concerns, we can develop and deploy activities that result in bene- fits for both our company and our communities. To this end, we strive to build trust and secure the commitment of all involved parties—ensuring we maintain our social license to operate. Ultimately, our social license not only enables us to con- solidate positive relationships with our communities, but also contributes to our ability to serve the market while better identifying key opportunities to collaborate with our neighbors. OUR 2020 GOAL • TO PUT IN PLACE a Community Relations Plan throughout 100% of our key work centers by 2020. COMMUNITY RELATIONS’ MANAGEMENT MODEL To create a community relations vision that we can put it into practice in a standardized and systematic manner, we developed a management model that includes five sequential steps—which are the foundation of our Model for Addressing Risks and Relations with the Community (MARRCO). COMMUNITY Identify the impact of the business strategy on the community. BUSINESS Identifying the impact and influence of a community in achieving business goals, considering community risks. OPPORTUNITIES Finding opportunities to collaborate with the community to improve their living conditions. ENGAGEMENT Achieve positive engagement with the communities to ensure the continuity of the operation and improve life quality. DIALOGUE COMMITMENT COLLABORATION TRUST 1 2 3 AGREE AND ACT Listen to and build with the community to set commitments and execute mutually beneficial activities and programs. LEARN AND IMPROVE Strengthen the capabilities and develop abilities by identifying areas for improvement, best practices, and knowledge exchange. ASSESS AND MEASURE Impact levels of the community engagement activities and programs, and of the plan’s progress. 5 4 46 IDENTIFY AND UNDERSTAND Objectives, capabilities, priorities, needs, resources, and commitments of the business towards the community. ANALYZE AND PLAN The risks and opportunities for designing community engagement activities and programs. During 2017, we implemented MARRCO in 18 work centers achieving an 18% progress in our goal only for this year. From 2016 to date, we have implemented MARRCO in 37 work centers, including plants and distribution centers, representing 45% of our manufacturing facilities. Based on MARCCO methodology, these work centers are designing a community engagement plan to immediately implement a series of measures, including mitigation activities to reduce our operational footprint and community programs aligned with local needs and risks. In turn, this will help us to ensure our positive coexistence and our busi- ness’ permanence at those locations. MARRCO LOCATIONS COUNTRY OR REGION Mexico Central America Argentina Brazil Colombia WORK CENTER Altamira Coatepec Cuatitlan Cuernavaca Ixtacomitan Lagos de Moreno Los Reyes San Juan del Rio Toluca Calle Blancos (CR) Coronado (CR) Guatemala (GU) Managua (NI) Estrella Azul (PTY) Panama (Plant & DC) Alcorta Montegrande Bauru Campo Grande Itabirito Jundiai Jurubatuba Mega Parral Maringa Marilia (Plant & DC) Santos Sumare Bogota Calera / Manantial Cali Medellin Tocancipa Philippines Immus Parañaque SOCIAL PROGRAMS AND INITIATIVES At Coca-Cola FEMSA, we have built positive relationships with our communities by carrying out different social pro- grams and initiatives in order to improve local living condi- tions from the moment we begin our operations. Recog- nizing the diversity of our countries and communities, we develop enriching activities aligned with their local needs. In 2017, we carried out 59 community development programs and social initiatives, along with 34 local environmental impact measures. As a result, we benefited more than 420,000 people across the 10 countries where we operate. In 2017 we invested US$5.8 million in infrastructure and supported services. Among our many different activities, our exemplary social programs and initiatives in these countries include: • PHILIPPINES 5BY20 PROGRAM: Sari-Sari Store Training and Access to Resources (STAR), we work with The Coca-Cola Company to build an environment in which women in the retail mom-and-pop sector are economically empowered. COORDINATES FOR LIFE PROGRAM: Devel- oped by FEMSA, we continued to implement this program to help develop decision-making capabilities and complement school education with experiences outside the classroom. • BRAZIL COCA-COLA COLETIVO: In collaboration with the Coca-Cola System, this program prepares young people for the labor market through professional training courses focused on their particular needs. • ARGENTINA CANTEROS ALCORTA PROGRAM: We rehabili- tated the boulevard in front of our Alcorta plant by installing sports poles. INT EG RAT ED REPORT 2017 | 47 CULTURAL evol ution 48 CULTURAL evol ution Through our continuous evolution, we are creating a strong, unified corporate culture, founded on the cornerstones of leadership, talent, and innovation. Together, we share a passion for excellence— embracing diversity across our increasingly multicultural operations. To guide our cultural evolution, we have defined three main aspirations: INVESTING US$28.2 million in our cultural evolution initiatives programs. CONNECTED AND INSPIRING LEADERSHIP OUR TALENT IS KEY INSIDE - OUT PERSPECTIVE AND INNOVATION A highly-motivated organization, inspired by leaders who reward and recognize people, and promote collaboration at all levels. A solid talent management culture based on a transparent performance evaluation and on strengthening career growth paths. An open mentality and awareness at all levels of the organization that fosters the maximum impact on capabilities and the innovation process. INT EG RAT ED REPORT 2017 | INT EG RAT ED REPORT 2017 | 4949 ETHICS AND VALUES Our ethics and values permeate our corporate cul- ture—encompassing all of the activities that we carry out within and outside of our company. ETHICS We continually look to enhance our reputation as a re- sponsible, sustainable company to help attract and retain employees, consumers, suppliers, and investors, while fostering positive relationships with our communities. With that in mind, we respect the human rights of every one of the stakeholders with whom we interact. We adhere to and comply with The Coca-Cola Company’s Human Rights Policy throughout all of our operations, ensuring our sup- pliers’ adherence as well. In 2017, we assessed 30% of our plants’ impact on human rights, as part of our continuous process to review the compliance of a certain percentage of our work centers year in and year out.1 Aligned with the Universal Declaration on Human Rights and the United Nations Guiding Principles on Business and Human Rights, this policy centers on 12 main components with which we aim to comply: respect for human rights; community and stakehold- er engagement; diversity and inclusion; freedom of association and collective bargaining; workplace health and safety; workplace security; forced labor and human trafficking; child labor; work hours, wages, and bene- fits; land rights and water resources; healthy habits; and guidance and reporting for employees. Additionally, we provide guidelines for the way in which we operate and act in our operations, which are includ- ed in the Coca-Cola FEMSA Business Code of Ethics. This Code addresses our company’s position in terms of our relationship with our clients, suppliers, competitors, authorities, and communities. It also addresses corrup- tion, advertising and marketing, workplace health and safety, conflicts of interest, and information security. Every year, all of our employees affirm their commit- ment to abide by our Code of Ethics. To promote a culture of legality among our employ- ees—while striving to ensure our company plays an exemplary role in creating a better society—we devel- oped and deployed a sensitivity campaign on integrity and legality to which we are encouraged to adhere as Coca-Cola FEMSA employees and citizens. 1 19 of our working centers were assessed. CULTURAL EVOLUTION VALUES Our values comprise the essence of our culture: they express who we are, how we behave, and what we believe. We live by these values every day. The five values that reflect who we are as a company: > • We enjoy a PASSION FOR CUSTOMER SERVICE, aim- ing to achieve their pref- erence through innovative solutions. > • We promote the RESPECT AND INTEGRAL DEVELOP- MENT of our team mem- bers in order for them to gain better opportunities for economic, professional, and social growth. > • We ACT HONESTLY AND RESPONSIBLY, ADHERING TO OUR ETHICS PRINCI- PLES, with an awareness of the impact of our actions and decisions. We use cau- tion in our behavior and in the way we use company resources. > • We CONTRIBUTE TO THE POSITIVE TRANSFORMA- TION OF OUR COMMU- NITIES by simultaneously creating economic, social, and environmental value. > • We REQUIRE LOYALTY AND CONFIDENCE to strengthen the bonds that unite us. Just as a bicycle chain creates movement and offers stability, trust gives us the confidence and certainty to walk with a firm step. 50 In the case of non-compliance with our policies and to avoid practices that go against our respect for human rights, including child labor, forced labor or free association, our employees and suppliers can make confidential and anonymous reports through our DILO System by telephone, email or instant messaging. Our Human Resources division handles, follows up, and resolves all of these reports. Managed by our Global Compliance division, we also offer The Coca-Cola Company’s EthicsLine, a global online and telephone information reporting service that is avail- able throughout the Coca-Cola System. Our DILO System classifies reports into three areas: • HUMAN RESOURCES: Abuse of authority, sexual harassment, discrimination, work environment, health and safety, and environmental stewardship, among others. • OPERATIONS: Non-compliance with policies, contracts, laws, and regulations, fraud, complaints from clients or suppliers, and conflicts of interest, among other issues affecting our operations’ efficiency. • FINANCIAL INFORMATION: Fictitious operations, distortion of accounting books, unfulfilled revelations, and use of confidential information, among others. In 2017, we received a total of 1,106 reports of which 82% were closed within the year. Of these reports, none were related to child labor, forced labor or freedom of association. Additionally, we reduced our average attention days for addressing reports from 190 to 50 days—within the international benchmark. Reports PER STATUS 912 194 Open Closed PER ISSUE 81% Human Resources 17% Operations 2% Financial information ORGANIZATIONAL HEALTH As a growing multicultural corporation with 101,682 employees across 10 countries, it is critical for us to understand what matters most to them. Aligned with our three main aspirations, in 2017, we launched our fourth annual Organizational Health (OHI) survey to measure our progress across nine strategic dimensions and 37 key practices. Based on feedback from over 21,000 employees, representing 87% of par- ticipation rate, we registered a five-point increase in our overall organizational health from our baseline survey in 2014, coupled with a one-point gain year over year. To further ensure our employees’ growth in a positive, respectful, and equal workplace environment, we also conducted a “Organizational Climate Survey” every two years at our work centers. In 2017, we assessed all of our company; with a 90.4% employee participation rate, we maintained our employee satisfaction score compared to the prior survey. OHI SURVEY RESULTS 85 Direction +1 76 Accountability +1 80 External Orientation +1 +2 +1 82 Leadership 79 Coordination and Control +1 +2 82 Innovation & Learning 65 Motivation 89 Capabilities +0 +2 75 Work Environment INT EG RAT ED REPORT 2017 | 51 CULTURAL EVOLUTION INSPIRATIONAL LEADERSHIP We encourage inspiring leaders—who reward and recog- nize our people while fostering collaboration across all levels of our company. To foster our vision of inspirational leadership, while addressing the challenges we face every day, we aim to develop 10 key attitudes or attributes among our organi- zation’s current and future leaders: In 2017, we designed and built “KOF Accelerated Leaders Program (ALP)”; an integral leadership development model intended to accelerate our leadership pipeline in light of our organization’s global and local needs. At this point, the School will comprise two accelerated 10-month leadership programs for our managers and directors: • KOF ALP FOR MANAGERS enables our managers to develop and practice core leadership competencies that focus on effectively leading and managing people in their daily operations; fully understand our business strategy and translate it into tangible results; and drive innovation, diversity, and inclusion, while empowering themselves and others to act like an owner. • KOF ALP FOR DIRECTORS program en- ables our directors to develop high-performance teams; drive innovation, diversity, and inclusion; operate as adaptive leaders within our organi- zation, equipped to lead and manage positive, impactful change; and fully understand our busi- ness strategy and translate it into tangible results. Furthermore, we promote an open and innovative mind- set throughout our organization by deploying current and future leaders into stretch roles to accelerate their and our company’s growth. To date, we have approxi- mately 45 executives employed in countries other than their country of birth, allowing them to assume new roles, responsibilities, and capabilities as part of our effort to drive innovation across our corporation. 18,649 New hires 52 KOF LEADER ATTITUDE BE IN LOVE When you love what you do, things flow in a different way. Be in love with KOF and its brands. BE AGGRESSIVE Always be the best at everything you do, with passion and conviction. BE AWARE You must always be aware of the challenges in our surroundings, our industry, and of the KOF indicators. BE BOLD Dare to do things in a different way. Accept a challenge and take calculated risks. BE PERSISTENT Things are not always going to be what you want them to be the first time around. Try to learn from mistakes and learning experiences, try again. BE TOGETHER Work with your team. Establish synergies based on the value and advantages of complementarity. BE ON TIME Foresee the needs and respond in a timely manner. BE FIRST Remember: act before circumstances and the surroundings. Innovate, surprise our competitors. BE A REALIST Set challenging but realistic goals for yourself always raise the bar. BE PROUD When you are proud of your own and your team’s accomplishments you establish the norm. Be an example and be proud of being KOF. 54.8% vacancies filled with internal candidates KOF PEOPLE SERVICES: INNOVATIVE HUMAN RESOURCES MANAGEMENT Technology, coupled with strate- gy, is invaluable when it comes to establishing a connection with our employees, especially across our multinational, multicultural orga- nization. To strengthen this con- nection, our KOF People Services platform (KPS) will bring together in a single site all of our Human Resources (HR) services and ben- efits. KPS will not only enable our employees to self-manage their HR services from their office comput- er, but also allow our employees to access some of these services on their mobile devices. Acting as a 24/7 HR office, we expect to start the deployment of KPS in Mexico at the beginning of 2018. TALENT MANAGEMENT AND DEVELOPMENT We continue to strengthen our talent management culture—rooted in transparent performance evaluation and reinforced growth paths. With this in mind, all of our employees enjoy individual Development Plans that strengthen their leadership, functional, and technical capabilities. To identify what training is best suited for our employees, we analyze their needs through regular performance and career development reviews. Afterwards, we design a per- sonalized learning approach that includes critical work experiences, collaborative feedback, mentoring, and coaching, as well as synchronous and asynchronous training. In 2017, 20,466 of our employees received a regular Performance Evaluation and personal feedback, 88% of this process is managed with our official Criti- cal Factors Methodology process done through online platform as well as manually. We are further developing future leaders by designing and communicating clear career paths, providing our executives with the tools, guidelines, and information to discuss them in their two-way Vertical Reviews, along with new self-development tools to enable them to work on their priorities. Among our integrated initiatives, we are opening up the results of our 9-Box Performance-Potential Matrix for directors and man- agers and strategic and tactical leaders to promote transparency and to enable our people to manage their own career development through a career map and plan designed for each and every one of them. Additionally, FEMSA University offers an array of on- line courses and functional materials that focus on strengthening our people’s key business capabilities. With an investment of approximately US$476 thousand in FEMSA University, where we have more than 5,000 different resources such as: events, courses, videos and diverse online materials. Training hours PER LEVEL 62% Administrative staff 36% Unionized 2% Directors and managers PER ISSUE 42% Health and safety 37% Technical expertise 12% Development plans Ethics and 6% human rights Sustainability Languages 1% 1% IN 2017, WE INVESTED US$12.7 MILLION IN EMPLOYEE TRAINING INITIATIVES, ACCOUNTING FOR 3.4 MILLION OF TOTAL TRAINING HOURS OR 44 AVERAGE HOURS PER PERSON INT EG RAT ED REPORT 2017 | 53 CULTURAL EVOLUTION ORGANIZATIONAL EFFECTIVENESS, COMPENSATION AND BENEFITS To create a positive workplace environment, we recog- nize the direct relationship between our organizational effectiveness and our employees’ access to the neces- sary resources to live healthy, fulfilling lives. COMPENSATION & BENEFITS Our people have a compensation and benefits scheme that recognizes their effort commitment to their jobs and their contribution to creating value for our company—re- sulting from their effort and commitment to their jobs. At all levels of our organization, we ensure that our employees’ remuneration is competitive and that their conditions are equal for both men and women. To this end, we make sure that the salaries of direct employees in entry-level positions are on average 5.9 times higher than the corresponding minimum wage in each country. Additionally, based on studies performed by international consulting firms that enable us to make comparisons between countries, we can determine that 17.5% of our employees are receiving an integrated salary that is greater than or equal to the market median. We also carry out performance evaluations through our Goal Management program, which helps us to monitor employees’ contribution to the goals and objectives of our business. At the same time, it allows us to identify candidates for certain types of compensation, as well as to recognize team achievement, detect areas for improvement, and boost teamwork. 1.5% Average monthly turnover At Coca-Cola FEMSA, we offer benefits that are above what is stipulated by law in the countries in which we operate. Among others, these benefits include life insurance for our administrative staff, health insurance, and short- and long-term management incentives. We offer those employees who are about to become parents maternity or paternity leave based on local legislation. Last year, we began the first stage of a program to monitor the percentage of our employees who return to their job after having asked for a leave of absence—with positive results. We comply with all the rights and obligations stipulated by law, exceeding the conditions and benefits required in each of the countries where we operate, which cover more than a half of our workers. These contracts are reviewed and agreed with all our union representa- tives, respecting the established validity times, as well as complying with all the notice periods and estab- lished notifications. As of December 31, 2017, approx- imately 63.9% of our employees, most of whom were employed in Mexico, were members of labor unions. We had 298 separate collective bargaining agreements with 164 labor unions. In general, we have a good relationship with the labor unions throughout our op- erations; nonetheless we operate in complex environ- ments, such as Venezuela, Argentina and Philippines. Personnel per gender Personnel per age range 89% Male 11% Female 52% 27% 21% 18 - 34 35 - 44 45+ 54 INCLUSION & DIVERSITY At Coca-Cola FEMSA, we are committed to fostering a culture of inclusion and diversity—promoting respect and equal opportunities across our organization. By recognizing that our differences make us stronger, we positively impact our business, our community, and our overall work environment. Our overall strategy is founded on the conviction that we can leverage our diversity to drive innovation and business success. To this end, we defined a three-year strategic plan to become a more inclusive and diverse organization, beginning with building and developing inclusive behavior among our leaders; focusing on gen- der diversity to enable us to drive different perspectives in our processes and capabilities; and a multi-genera- tion strategy that will prepare our organization for the next generation of employees. Through inclusion and diversity, we connect and foster our organizational growth and transformation. From when we first develop a position through the talent attraction process, we consider the inclusion of people with different profiles, capabilities, interests, and aptitudes essential to forming whole, comprehensive teams—where our diversity offers an opportunity to stimulate innovation, enrich our work environment, and understand the needs of our consumers from different points of view. Consistent with our Code of Ethics, we promote equal opportunities, do not tolerate discrimination, and re- spect the human rights of all of the people at all of our work centers and across all of our interactions inside and outside of our company. Through our Inclusion and Diversity Networks, we promote a culture of respect, within our work centers. These six networks design and deploy campaigns, programs, and activities across our organization. GENDER EQUITY Working on the elimination of gender barriers in the workplace. PEOPLE WITH DISABILITIES Sensitize employees to the inclusion of people with disabilities at work and recognize the talent that people with disabilities can bring to our organization. MOMS AND DADS A support group for parents and a cultural differences interaction space to encourage our company’s commitment to our employees and their families. MULTIGENERATION Breaking the barriers of generational differences to encourage collaboration among our employees. KOFRIENDS Create awareness about LGBTQ+ of issues, respect for individual preferences, campaign against homophobia and transphobia. MULTICULTURALISM Breaking the barriers of cultural differences to encourage collaboration among our employees. INT EG RAT ED REPORT 2017 | 55 CULTURAL EVOLUTION SOCIAL DEVELOPMENT We value our talent, and we know that our business’ sustainability begins with the comprehensive social de- velopment of our employees and their families. Accord- ingly, we offer them the tools and opportunities required for their personal and professional growth. PROMOTING A PROPER WORK/LIFE BALANCE In 2017, we invested US$8.5 million in programs pro- moting the proper balance between work and family, improving our employees’ wellbeing and quality of life. Aligned with the FEMSA Social Development System, we foster our employees’ social development, focusing on seven dimensions: We offer differentiated workday frameworks—from home office to flex time for our employees. This benefit is granted according to the inherent requirements of the job and the program’s global deployment. • LABOR: We strive for our employees to achieve excellent performance in their work and personal environments. OUR 2020 GOAL • EDUCATION: We promote the continuous development of our intellectual and cultural heritage. • HEALTH: We value and encourage physical and emotional health, as well as preventive habits. • VALUES: We understand those human values that turn individuals into better people, and we internalize them. • ECONOMY: We promote the protection and development of our employees and their families’ wealth based on their present and future needs. • FAMILY: We encourage an affectionate, forma- tive, and strongly integrated family nucleus. • SOCIAL AND ENVIRONMENT: We are committed to the common good, respect the law, and care for the environment. • TO GENERATE 1 million hours of volunteer work. Ultimately, our aim is to provide our employees and their families with the opportunity to offer their time and talent for the benefit of our society. To this end, we offer the KOF Volunteers program. In 2017, 57,000 participants, including our employees and their families, devoted 307,034 hours to approximately 1,400 volun- teer initiatives, supported by an investment of more than US$187,000. By 2020, our goal is to achieve 1 million hours of volunteer work, and through 2016, we made 68.1% of accumulated progress toward our objective. To improve our employees and their families’ quality of life, we carry out programs across seven dimensions of the FEMSA Social Development System. One of our most noteworthy activities is Family Day, in which 38,818 people participated in Brazil, Colombia, and Mexico. Through our KOF Vacations program, more than 2,108 of our employees’ children in Argentina, Central Amer- ica, Mexico, and Venezuela participated in recreational, cultural, and education activities aimed at strengthen- ing their values, environmental stewardship, and social commitment. Furthermore, our comprehensive Healthy Life program encourages healthy habits in our Mexico operation. Through this program, we benefit our employees and their families with doctor’s visits, healthy menus, activity pauses, and other initiatives to encourage and celebrate physical activity. 56 General illness index per 100 associates Lost days due to general illness index per 100 associates 2013 93.7 2014 101.2 2015 85.5 2016 78.9 2017 73.2 2013 503.8 2014 599.1 2015 595.3 2016 522.5 2017 523.2 OCCUPATIONAL HEALTH At Coca-Cola FEMSA, the health and wellbeing of our employees is a priority and an organizational policy. We know that healthy workers with a quality of work life make for productive employees, who are committed to our organization. Through our Occupational Health Management Sys- tem, we work to ensure that our employees enjoy optimal biopsychosocial health, with primary health care services in their workplace; all framed in a culture of prevention and self-care health promotion, which positively impacts their families. In 2017, we invested a total of US$7 million in our health and hygiene programs in the workplace throughout the 10 countries where we operate. The objective of these programs is to avoid the incidence of occupational diseases or work-related injuries, foster the best conditions in our work environments, and OUR 2020 GOAL • ZERO FATALITIES from work-related diseases. • REDUCE BY 20% the general illness absentee rate vs 2010. ensure compliance with health standards in our work- place. We also guarantee alignment with the World Health Organization (WHO) and the International Labor Organization’s (ILO) guidelines and recommended international standards. Moreover, we have strengthened our health structure. To this end, we have expanded our medical depart- ment—increasing the number of doctors, nurses, and other health professionals in our operations—and we have increased our investment in the construction of medical services, the purchase of equipment, and the budget for supplies and medicines. Similarly, we have carried out frequent days of health and integral wel- fare promotion in our offices, distribution centers, and plants, as well as days of early disease detection and care programs for diabetes, hypertension, and cardio- vascular risk. One of our fundamental objectives is the prevention of common diseases and injuries, together with a reduc- tion in the number of employees with disabilities due to various types of pathologies and a reduction in absen- teeism due to general illnesses (lost days). Compared to 2016, we managed to reduce our cases of illness by 7% across the 10 countries where we operate—thanks to our medical approach and our health personnel’s treatment of ill employees. INT EG RAT ED REPORT 2017 | 57 Interview WITH OUR CFO HÉCTOR TREVIÑO GUTIÉRREZ, OUR CHIEF FINANCIAL OFFICER, REFLECTS ON OUR POSITIVE PERFORMANCE OVER A CHALLENGING YEAR. HE DISCUSSES OUR ADAPTABILITY TO CHANGING MARKET DYNAMICS, KEY MILESTONES, DISCIPLINED APPROACH TO CAPITAL ALLOCATION, AND CAPACITY TO SATISFY CONSUMERS’ DIVERSE LIFESTYLES WITH A VARIETY OF BEVERAGE CHOICES. Q) Hi, Héctor. First off, could you briefly re- view your company’s results for 2017? A) Yes. We delivered positive comparable1 top- and bottom-line results in the face of a challenging consum- er, macroeconomic, and raw material environment. For the year, our comparable sales volume and transactions reached 3.7 billion unit cases and 25.1 billion transac- tions, respectively. Our total revenues grew 3.6% to Ps. 190.9 billion. Our operating income rose 6.2% to Ps. 25.2 billion. Our operating cash flow increased 5.9% to Ps. 36.8 billion, and our net controlling interest income increased 34.7%, resulting in earnings per share of Ps. 6.15 (Ps. 61.49 per ADS). As announced, as of December 31, 2017, we changed the accounting method for our Venezuela operation to Fair Value. Coca-Cola FEMSA de Venezuela will continue operating in this country to satisfy our Venezuelan con- sumers’ beverage needs in the face of an exceptionally challenging environment. We also made two dividend payments for a total amount of over Ps. 6.9 billion (or Ps. 3.35 per share), underscor- ing our company’s commitment to shareholder return. Q) Can you give us a feel for the factors that enabled Coca-Cola FEMSA to produce posi- tive results in the face of a challenging year? A) Our positive performance highlights our ability to adapt to complex market environments. For example, we promptly rolled out affordability initiatives across our operations, enabling us to gain or maintain market share across key markets. Underscoring our flexibility to adjust 1 Excluding the effects of: mergers, acquisitions, and divestitures; exchange rate movements; and hyperinflationary economies such as Venezuela; and including the results of Coca-Cola FEMSA Philip- pines, Inc., as if the consolidation had taken place at the beginning of first-quarter 2016. 58 Q) With your consolidation of this operation, could you offer us an update of your turn- around efforts in the Philippines? A) Beginning in February 2017—the fourth anniversary of the acquisition—we began consolidating the financial re- sults of our Philippines operation. Moreover, since January 25, 2017, we control Coca-Cola FEMSA Philippines with all of the decisions relating to the day-to-day operation and management of our Philippines’s business, including its annual normal operations plan, approved by a majority of its board of directors without requiring the affirmative vote of any director appointed by The Coca-Cola Company. As I noted last year, our successful turnaround in the Phil- ippines is based on three pillars: portfolio, route to market, and supply chain. Consistent with our two-part portfolio strategy, in 2017, we continued to expand our popular single-serve PET presentations, launching our 200-ml presentation at the magic price point of PHP8 to develop our product mix in the Visayas and Mindanao regions. We also strengthened our competitive position in returnable glass bottles through our rollout of an 8-ounce entry pack at the magic price point of PHP7 in Cebu, General Santos, and Cotabato. Through our portfolio strategy, brand Co- ca-Cola’s volume grew 6% for the year. We continued to adapt our route to market to better serve our customers and consumers. Offering a balanced approach to the market, we directly serve our larger customers through our pre-sale distribution platform, while deploying a dedicated sales force for our wholesal- ers to capture greater value from this important channel. Furthermore, we continually strengthen our supply chain by transferring best practices from our worldwide oper- ations. Through our enhanced supply-chain capabilities, we achieved savings of US$15 million in 2017. As a result of our efforts, we generated compound annual volume growth of 6% over the past three years. Addition- ally, we delivered the highest operating cash flow in a 10-year period. Capital expenditures billion Mexican Ps. 3 . 1 1 5 . 1 1 . 4 2 1 . 6 4 1 2014 2015 2015 2017 INT EG RAT ED REPORT 2017 | 59 to diverse conditions, our Brazilian, Central American, Colombian, Mexican, and Philippine operations were able to bolster their performance thanks to their de- ployment of our centers of excellence’ (CoEs) commer- cial, supply chain, and manufacturing transformational initiatives. Already, these initiatives enabled improved point-of-sale execution, better route planning, and oper- ating expense savings, mitigating margin pressures while generating incremental transaction, revenue, and share of sales growth. Q) Can you walk through your company’s most important milestones in 2017? A) Looking back, we achieved several important mile- stones. After a very unfavorable environment over the past few years, our Brazilian operation enjoyed a turn- around—with improving volume growth and profitability driven by our team’s exceptional execution. Indeed, our team is the proud champion of the Brazil Execution Cup 2017, awarded annually for the best overall execution among the country’s Coca-Cola bottling system. Among other key indicators, this award recognizes our effective point-of-sale portfolio, commercial and promotional activity, price compliance, and cooler placement. Another important milestone is our Brazilian opera- tion’s smooth integration of Vonpar’s franchise territory. Through our team’s efforts, we continue capturing syn- ergies at the EBITDA level over our targeted R$65 million expected for an 18 to 24 month period. Beyond these synergies, we successfully cross-fertilized our talent and best practices. Notably, we capitalized on Vonpar’s route- to-market model and considerably improved Vonpar’s market execution—highlighted by the deployment of our KOFmmercial Digital Platform. A further milestone is our accelerated transformation from a traditional soft drink company to a multi-category ready-to-drink beverages leader. Together with our part- ner The Coca-Cola Company, we’re reformulating our beverage portfolio to offer our consumers a wider array of choices—from zero- or low-calorie sparkling beverages to innovative new waters, teas, juices, energy drinks, and dairy products. With the acquisition and integration of AdeS, we’re expanding aggressively into the rapidly grow- ing plant-based nutrition category. As the leading plant- based beverage brand in Latin America, AdeS comple- ments our still beverage portfolio, offering our consumers a broader array of nutritious, delicious choices. Finally, in Guatemala, we successfully rolled out our pre- sale route-to-market model—an agile, more efficient way to serve the market and capture additional value. Q) Héctor, could you update us on the steps you’re taking to strengthen your capital structure and financial flexibility? A) In 2017, we took proactive steps to strengthen our capital structure and foster our financial flexibil- ity. Consistent with our mandate to deleverage our company’s balance sheet, we early redeemed and partially refinanced 55.5% of our outstanding US$1.0 billion in U.S. dollar-denominated 2.375% senior notes due November 2018, using the proceeds from our issuance of two tranches of five- and 10-year Mexi- can peso-denominated bonds in the Mexican market. Hence, we’re well positioned to redeem the remain- ing 45.5% of our U.S. dollar-denominated notes with- out the necessity of accessing the Mexican capital market in an election year. Moreover, consistent with our commitment to mini- mize our exposure to foreign currency denominated debt, we swapped U.S. dollar-denominated bonds into Brazilian real-denominated debt to finance our Vonpar acquisition. Thanks to our actions, we bol- stered our balance sheet, improved our debt maturity profile, and enhanced our financial flexibility. Q) Could you also talk a bit about your approach to capital allocation? A) We maintain a disciplined approach to capital alloca- tion, optimizing our maintenance, growth, and strategic capital expenditures (CAPEX) to maximize our return on invested capital and deliver sustainable profitable growth for our shareholders. Accordingly, our mergers and ac- quisitions strategy employs a thorough valuation process to ensure potential opportunities produce a significant return for our shareholders. Similarly, when it comes to CAPEX and working capital, we ensure that each new truck, cooler or bottling line offers an attractive return on invested capital for our shareholders. Importantly, our CoEs offer opportunities to operate with a leaner cost structure through better asset management. As a result of our manufacturing initiatives, we increased overall plant efficiency by more than six percent over the past three years—equal to approximately US$250 million of production capacity or avoided CAPEX. 60 Q) Looking forward, how well are you pre- pared to cope with the challenges that you anticipate for the upcoming year? A) After a challenging year, we’re well positioned to navigate the headwinds we will face over the coming year—from political events and currency volatility to ever-changing consumer trends. To counter uncertain- ty, our company enjoys the proven ability to adapt to complex consumer environments—highlighted by our capacity to rollout affordable entry packs or returnable presentations at the right price for our consumers in markets such as Argentina, Brazil, and Colombia. More- over, our innovation enables us to continue building a winning multi-category portfolio, including an expanding array of non-caloric and caloric sparkling beverages, juices, teas, waters, dairy, and plant-based products to satisfy consumers’ diverse choices and lifestyles. Through our CoEs, we’re creating a sustainable compet- itive advantage—underscored by our cost leadership. By developing our critical commercial, supply chain, and manufacturing capabilities, they generate operating effi- ciencies and savings, drive innovation, and foster talent development across our organization. Our powerful an- alytics platform is only beginning to capture new market opportunities through our advanced understanding of consumer behavior. Looking ahead, our financial and operating discipline, passionate team of professionals, transformational initiatives, and adaptability to changing market dynamics will enable us to capture long-term growth opportunities in the non-alcoholic, ready-to-drink beverage industry, while creating sustainable value for our shareholders. Interview WITH OUR CAO JOSÉ RAMÓN MARTÍNEZ, OUR CORPORATE AFFAIRS OFFICER, DISCUSSES OUR INTEGRATED SUSTAINABILITY STRATEGY. AMONG OTHER TOPICS, HE TALKS ABOUT OUR MAIN SUSTAINABILITY ACHIEVEMENTS, SUSTAINABLE PROCUREMENT, ENVIRONMENTAL STEWARDSHIP, PROMOTION OF HEALTHY HABITS, AND STRENGTHENING OUR LOCAL COMMUNITIES. Q) What would you say were Coca-Cola FEMSA’s main sustainability achievements during 2017? A) During the year, we invested US$82.3 million, and we achieved great progress in each of our action areas. Among our results, during 2017 we generated 307,034 volunteering hours with 57,000 participants—including our employees and their families; more than 1.6 mil- lion people participated in our healthy habits initiatives, reaching 3.1 million over the past three years; replen- ished 100% of the water used to produce our beverag- es in our Mexico, Brazil, Central America, and Colom- bia operations; and covered 38% of our global power needs with clean energy, reaching 57% in Mexico and 100% in Brazil. For the fifth consecutive year, Coca-Cola FEMSA was one of eleven corporations in the beverage industry at global level selected for the Dow Jones Sustainability Emerging Markets Index. We can proudly say that we are the only beverage company in Latin America chosen for this group of regional sustainability leaders. Q) Can you describe how Coca-Cola FEMSA promotes healthy habits across its communities? A) As leaders in the beverage industry, we are aware of consumer trends and purchasing habits, and we are pro- actively building a winning product portfolio, covering 12 different categories with a diverse array of presentations to satisfy our consumers’ diverse lifestyles. Notably, 41% of our multi-category portfolio is comprised of low- to zero-calorie brands. Moreover, our product labels include easy-to-ac- cess nutritional information, so our consumers can make responsible choices regarding their nutrition and hydration needs—consistent with their lifestyles. INT EG RAT ED REPORT 2017 | 61 Additionally, we foster healthy habits in our communi- ties through regional initiatives such as the Latin Amer- ican Commitment for a Healthy Future. Through this multi-sector coalition with the Healthy Weight Commit- ment Foundation, we are collaborating with Discovery Education to promote nutrition and physical activity in schools across Mexico, Colombia, and Brazil. We further promote healthy habits in our communities through a wide range of local initiatives. In alliance with FEMSA Foundation, The Coca-Cola Company, The Coca-Cola Foundation, and local partners, we conduct a number of programs and initiatives, including Ponte al 100 in Mexico, Un Plato, Una Sonrisa in Nicaragua, Praça da Cidadania in Brazil, Ludonutrición in Colom- bia, Sustainable Gardening in Argentina, Campaña de Colores and Hora de Moverse in Central America, and Red de Entrenadores Comunitarios in Venezuela, among others. Q) How is Coca-Cola FEMSA integrating its sus- tainability strategy throughout its value chain? A) Through our comprehensive sustainable sourcing strategy, we integrated our commitment to economic, social, and environmental value generation across our value chain. For strategic categories, we work to im- plement The Coca-Cola Company’s Supplier Guiding Principles. For the rest of the categories, we ensure ad- herence to FEMSA’s Supplier Guiding Principles, aligning our suppliers’ practices and processes with our core values—from environmental care to respect for human rights in the workplace. We also encourage our suppliers’ sustainable develop- ment, providing them with tools to build solid relation- ships founded on shared value creation. Over the past 4 years, we have helped 1,281 suppliers through our Sustainable Sourcing Program in Mexico, Central Amer- ica, and Brazil, achieving positive results and stories of value creation. 62 Q) Can you describe your strategy to pro- mote the responsible use of water? A) Our comprehensive sustainable water strategy is founded on efficient water management, water access and sanitation, and replenishment in our communities. We have made significant progress towards our target- ed water efficiency ratio of 1.5 liters of water per liter of beverage produced by 2020, achieving 1.65 liters of water per liter of beverage produced—a 16% increase in our water use ratio from our 2010 baseline. Consistent with our long-term water conservation strat- egy, through FEMSA Foundation, we are part of the Latin America Water Funds Alliance, comprised of the Inter-American Development Bank, the Nature Con- servancy, and the Global Environment Facility. Thus far, we’ve made great progress. By year-end 2017, we had 21 water funds in operation in Brazil, Colombia, Costa Rica, and Guatemala, and we will soon launch a water fund in Mexico that will positively impact our operations. We are also part of The Coca-Cola Company’s commitment to return to the environment the same amount of water we use to produce our beverages. Aligned with this commit- ment, we replenished 100% of the water used to produce our beverages in Brazil, Central America, Colombia, and Mexico—achieving a 100% water-neutral portfolio in these operations. Q) Can you describe Coca-Cola FEMSA´s approach to climate change adaptation and mitigation? A) At Coca-Cola FEMSA, we are aware of the challenges that climate change presents in the communities we serve, and we want to ensure we’re part of the solution. By 2020, our goal is to reduce by 20% the carbon foot- print of our value chain, focusing our efforts on three action areas: 1) Identifying and measuring our carbon footprint; 2) Efficiently using energy; and 3) Integrating our use of clean energy sources. We proactively participate in initiatives to measure and reduce our carbon footprint. For five years, we’ve volun- tarily reported our carbon emissions to CDP (formerly the Carbon Disclosure Project). We are also part of the United Nations’ Business Alliance for Water and Climate Change, a platform through which we communicate our initiatives and contribute our efforts with other stakeholders. Energy efficiency is a top priority. In 2017, we increased our energy efficiency in our bottling facilities’ by 22% from our 2010 baseline, achieving an average of 4.49 liters of beverage produced per megajoule of energy consumed. Simultaneously, we reduce our greenhouse gas emission, reaching 13.63 grams of CO2(eq) per liter of beverage produced in 2017, achieving an improve- ment of 35% considering our base year of 2010. We further integrate clean and renewable sources of energy and technology to reduce our carbon emis- sions—contributing to climate change mitigation. In the markets where clean energy sources are available, we are capitalizing on synergies with strategic suppliers, reducing the carbon footprint of our manufacturing op- erations. Globally, our bottling plants’ utilization of clean energy grew to 38% of our total electricity consumption, with clean energy covering 57% and 100% of our power needs in Mexico and Brazil. Q) Can you let us know more about your PET recycling projects? A) Recently, The Coca-Cola Company announced its “World without Waste” initiative, with a global goal to help collect and recycle the equivalent of 100% of its packaging by 2030. As the largest bottler within the Coca-Cola system, we fully support and embrace this program, which is aligned with our commitment to eco- nomic, social, and environmental value generation. For more than 15 years, we have played an instrumental strategic role in collecting and recycling PET bottles, especially in Mexico—where we installed the first food grade PET recycling facility in Latin America, IMER. Since 2002, in collaboration with Mexico’s Coca-Cola bottling system, we joined the country’s plastics industry and leaders from other industries to create Ecology and Cor- porate Commitment (ECOCE), a nonprofit organization dedicated to encouraging a culture of recycling. Today, these investments are paying off. In 2017, Mexico collected 57% percent of the PET plastic—making it the leading country globally. Additionally, in collaboration with The Coca-Cola Com- pany, we continuously design and develop innovative packaging, ensuring high quality while caring for the en- vironment. Over the past seven years, we’ve used lighter weight components to save more than 18,000 tons of plastic, including more than 21% of the recycled PET we use globally in our packaging. Q) Can you please offer more details about Coca-Cola FEMSA´s approach to community development? A) In coordination with FEMSA, we are currently im- plementing a methodology to guide our relationships with the communities we enjoy the privilege to serve. Our MARRCO methodology was developed internally to approach our communities in an open and responsible way, listening to their needs and addressing them proac- tively, comprehensively, and collaboratively. Under this approach, we are developing programs and initiatives for the benefit of each community according to their needs— thereby building positive relationships to maintain our so- cial license to operate. At the close of this report, we had implemented MARRCO in 37 of our work centers, includ- ing plants and distribution centers. This represents 45% of our manufacturing facilities throughout our operations, and we will continue until we achieve 100% completion in our relevant facilities. Q) What can you tell us about upcoming sustainability challenges and the steps Coca-Cola FEMSA will take to meet them? A) For our company, sustainability is a continuous process of simultaneous economic, social, and environ- mental value generation. Accordingly, we will continue to further integrate sustainability into our business strat- egy. Indeed, this year’s integrated report underscores the synergies we are creating and the progress we are achieving. Over the short term, we will focus our efforts on reach- ing or exceeding our 2020 sustainability goals. We will focus our main investments and initiatives to achieving these goals—which make material contributions to our business sustainability. Over the long term, as we announced for the first time in 2016, we will continue to align our strategy with the United Nations Sustainable Development Goals (UN SDGs). Specifically, we have identified seven out of the 17 goals, where—given the nature of our business—we can make a significant contribution. Through our inte- grated annual reports, we will carry on communicating our progress and contribution to these UN SDGs: zero hunger; good health and wellbeing; clean water and sanitation; affordable and clean energy; industry inno- vation and infrastructure; decent work and economic growth; and responsible consumption and production. INT EG RAT ED REPORT 2017 | 63 FINANCIAL summary Millions of Mexican pesos and U.S. dollars as of December 31, 2017 (except per share and headcount data). INCOME STATEMENT Total revenues Cost of goods solds Gross profit Operative expenses Other expenses, net Comprehensive financing result Income before income taxes and share of the profit or of associates and joint ventures accounted for using the equity method Income taxes Share of the profit of associates and joint ventures accounted for using the equity method, net of taxes Consolidated net income 5 Equity holders of the parent Non-controlling interest net income RATIOS TO REVENUES (%) Gross margin Net income margin CASH FLOW Operative cash flow Capital expenditures 6 Total cash, cash equivalents BALANCE SHEET Current assets Investment in shares Property, plant and equipment, net Intangible assets, net Deferred charges and other assets, net Total Assets Liabilities Short-term bank loans and notes payable Interest payable Other current liabilities Long-term bank loans and notes payable Other long-term liabilities Total Liabilities Equity Non-controlling interest in consolidated subsidiaries Equity attributable to equity holders of the parent FINANCIAL RATIOS (%) Current Leverage Capitalization Coverage DATA PER SHARE Book Value 7 Income tributable to the holders of the parent 5,8 Dividends paid 9 Headcount 10 U.S. (*) 2017 3,4 2016 2 2015 2014 2013 1 10,376 5,708 4,668 3,305 1,459 269 203,780 112,094 91,686 64,910 28,661 5,276 177,718 98,056 79,662 55,462 3,812 6,080 152,360 80,330 72,030 48,284 1,748 7,273 147,298 78,916 68,382 46,850 158 6,422 156,011 83,076 72,935 51,315 623 3,773 (365) 232 (7,161) 4,554 14,308 3,928 14,725 4,551 14,952 3,861 17,224 5,731 3 (594) (652) 58 60 (11,654) (12,802) 1,148 147 10,527 10,070 457 155 10,329 10,235 94 (125) 10,966 10,542 424 45.0 (5.7) 45.0 (5.7) 44.8 5.9 47.3 6.8 46.4 7.4 289 11,782 11,543 239 46.7 7.6 1,692 744 956 33,236 14,612 18,767 32,446 12,391 10,476 23,202 11,484 15,989 24,406 11,313 12,958 22,097 11,703 15,306 2,834 639 3,861 6,326 887 14,547 55,657 12,540 75,827 124,243 17,410 285,677 620 25 2,188 3,625 924 7,382 7,165 924 6,241 12,171 487 42,936 71,189 18,184 144,968 140,710 18,141 122,568 45,453 22,357 65,288 123,964 22,194 279,256 3,052 520 36,296 85,857 24,298 150,023 129,233 7,096 122,137 42,232 17,873 50,532 90,754 8,858 210,249 3,470 411 26,599 63,260 7,774 101,514 108,735 3,986 104,749 38,128 17,326 50,527 97,024 9,361 212,366 1,206 371 26,826 64,821 9,024 102,248 110,118 4,401 105,717 1.00 1.03 0.39 4.20 1.00 1.03 0.39 4.20 1.14 1.16 0.41 4.80 1.39 0.93 0.39 3.92 1.34 0.93 0.38 4.72 43,231 16,767 51,785 98,974 5,908 216,665 3,586 324 28,488 56,875 10,239 99,512 117,153 4,042 113,111 1.33 0.85 0.35 8.22 2.971 (0.312) 0.171 101,682 58.343 (6.121) 3.35 101,682 58.920 4.858 3.350 85,140 50.532 4.937 3.090 83,712 50.999 5.086 2.900 83,371 54.566 5.614 2.870 84,922 1 Information considers full-year of KOF’s territories and seven months of Grupo Yoli, S.A de C.V. (Grupo YOLI), four months of Companhia Fluminense de Refrigerantes (Compañía Flumin- ense) and two months of SPAIPA S.A. Industria Brasileira de Bebidas (SPAIPA) 2 Information considers full-year of KOF’s territories and one month of Vonpar Refrescos, S.A. (“Vonpar”). 3 Income statement information considers full-year of KOF’s territories, eleven months of Coca Cola FEMSA Philippines and full-year of Coca Cola FEMSA Venezuela. 4 Balance sheet information does not include Coca Cola FEMSA Venezuela’s balance due to deconsolidation as of December 31, 2017. Venezuela balance is included as investement in shares as of December 31, 2017. 5 As of December 31, 2017, the Company changed the method for reporting Coca-Cola FEMSA de Venezuela to Fair Value. Due to this change, a recorded foreign currency translation charge in equity has been reclassified as a non-cash one-time item to the other non-operative expenses line of the Income Statement in accordance with IFRS. 6 Includes investments in property, plant and equipment, refrigeration equipment and returnable bottles and cases, net of disposals of property, plant and equipment. 7 Based on 2,100.83 million ordinary shares as of December 31, 2017, and 2,072.92 million ordinary shares as of December 31,2016, 2015, 2014 and 2013. 8 Computed based on the weighted average number of shares outstanding during the periods presented: 2,091.35 million on 2017 and 2,072.92 million on 2016, 2015, 2014 and 2,056.20 million on 2013. 9 Dividends paid during the year based on the prior year’s net income, using 2,072.92 million oustanding ordinary shares for paid on 2017, 2016, 2015, 2014 and 2,030.54 million oustanding ordinary shares for paid on 2013. 10 Includes third-party. Including Coca Cola FEMSA Philippines as of 2017. * Exchange rate as of December 31st, 2017, Ps 19.6395 per U.S. dollar, solely for the convenience of the reader. To consult the annual report of the audit committee together with Independent auditors’ report and the detail of our Financial Statements and Notes please visit the online version of the report at www.coca-colafemsa.com 64 MANAGEMENT’S DISCUSSION AND analysis RESULTS FROM OUR OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2017 COMPARED TO THE YEAR ENDED DECEMBER 31, 2016. Coca-Cola FEMSA’s underlying financial and operating performance in 2017 as compared to 2016 was affected by the following factors: (1) the ongoing integration of mergers, acquisitions, and divestitures com- pleted in recent years; (2) translation effects from fluctuations in exchange rates; (3) our results in territories that are considered hyperinflationary economies (as of December 31, 2017, our only operation that was considered a hyperinflationary economy is Venezuela); and (4) the results of Coca-Cola FEMSA Philippines, Inc. as it was consolidated in February 2017. To translate the full-year 2017 reported results of Venezuela, we used the exchange rate of 22,793.30 bolivars per U.S. dollar, as compared to 673.76 bolivars per U.S. dollar used to translate our 2016 reported results. In addition, the average depreciation of currencies used in our main operations during 2017, as compared to 2016, was: Argentine Peso 12.1%, Mexican Peso 1.5% and Philippine Peso 6.1%. Moreover, the average appreciation of currencies used in our main operations during 2017, as compared to 2016, was: Colombian Peso 3.4% and Brazilian Real 8.5%. CONSOLIDATED RESULTS Total Revenues Our reported consolidated total revenues increased 14.7% to Ps. 203,780 million in 2017, including the re- sults of the Vonpar acquisition in Brazil and the consolidation of our operation in the Philippines beginning in February 2017. Total revenues were also driven by price increases aligned with or above inflation in key territories, supported by the positive translation effect resulting from the appreciation of the Brazilian Real and the Colombian Peso, despite the depreciation of the Argentine Peso, the Philippine Peso, and the Ven- ezuelan Bolivar; all as compared to the Mexican Peso. On a comparable1 basis, total revenues would have grown 3.6%, driven by growth in our average price per unit case across most of our operations, volume growth in the Philippines, and flat volume performance in Mexico and Central America, which was partially offset by volume declines in South America. Total reported sales volume increased 16.1% to 3,870.6 million unit cases in 2017 as compared to 2016. On a comparable basis total volume would have declined 1.5% in 2017 as compared to 2016. On the same basis our sparkling beverage portfolio’s volume declined 1.7%, driven by contractions across most of our operations, which was partially offset by growth in the Philippines. Our brand Coca-Cola portfolio’s volume declined 1.4%, while our flavors portfolio declined 2.6%. Our still beverage category’s comparable volume de- clined 2.6%; growth in Mexico, Argentina, and a flat performance in Central America were offset by contrac- tions in Brazil, Colombia, and the Philippines. Our personal water portfolio’s comparable volume increased 0.9%, driven mainly by growth in Mexico, Central America, and the Philippines, partially offset by contractions in South America. Our bulk water portfolio’s volume, on a comparable basis declined 0.7%; growth in Argenti- na, Brazil, and the Philippines were offset by a flat volume in Mexico and a decline in Colombia. Our reported number of transactions increased 30.9% to 25,875.3 million in 2017 as compared to 2016. On a comparable basis, our number of transactions would have declined 1.4% in 2017 as compared to 2016. On the same basis, our sparkling beverage portfolio’s transactions declined 1.5%, driven by contractions across most of our operations, partially offset by growth in Argentina and the Philippines. On a comparable basis, our brand Coca-Cola portfolio’s transactions declined 0.5%; growth in Argentina and the Philippines, coupled with a flat performance in Brazil, was offset by declines in the rest of our operations. Our flavors portfolio’s comparable transactions declined 4.3%, driven by contractions across most of our operations, offset by growth in Argentina and a flat performance in the Philippines. Our still beverage category’s com- parable transactions decreased 2.1%; growth in Mexico, Argentina, and the Philippines was mainly offset by a decline in Colombia. Our water transactions in a comparable basis, including bulk water, remained flat, driven by growth in Mexico and the Philippines, offset by declines in the rest of our operations. 1 Excluding the effects of: mergers, acquisitions, and divestitures; exchange rate movements; and hyperinflationary economies such as Venezuela; and including the results of Coca-Cola FEMSA Philippines, Inc., as if the consolidation had taken place at the beginning of first-quarter 2016. INT EG RAT ED REPORT 2017 | 65 MANAGEMENT’S DISCUSSION AND ANALYSIS Gross Profit Our reported gross profit increased 15.1% to Ps. 91,686 million in 2017, with a gross margin expansion of 20 basis points to 45.0%. On a comparable basis gross profit would have grown 6.1%. Our pricing initiatives, coupled with our currency and raw material hedging strategies, offset higher sweetener and concentrate prices in Mexico and the depreciation in the average exchange rate of the Mexican Peso, the Argentine Peso, and the Philippine Peso as applied to U.S dollar-denominated raw material costs. The components of cost of goods sold include raw materials (principally concentrate, sweeteners, and packaging materials), depreciation costs attributable to our production facilities, wages and other employ- ment costs associated with the labor force employed at our production facilities, and certain overhead costs. Concentrate prices are determined as a percentage of the retail price of our products in local curren- cies, net of applicable taxes. Packaging materials, mainly PET and aluminum, and HFCS, used as a sweeten- er in some countries, are denominated in U.S. dollars. Administrative and Selling Expenses Administrative and selling expenses in absolute terms increased 17% in 2017 as compared to 2016. As a per- centage of total revenues, these expenses increased 70 basis points to 31.9% in 2017 as compared to 2016, due mainly to an increase in labor costs, freight, diesel, and gasoline, among other expenses, partially offset by an operative foreign exchange gain. In 2017, we continued investing across our territories to support marketplace execution, increase our cooler coverage, and bolster our returnable presentation base. During 2017, the other operative expenses recorded an expense of Ps. 503 million, due mainly to the con- solidation of Coca-Cola FEMSA Philippines, Inc., and a provision related to a settlement agreement reached in Colombia with the Water and Sewerage Company of Bogotá. These effects were partially offset by an operative foreign exchange gain. The reported share of the profits of associates and joint ventures line recorded a loss of Ps. 98 million in 2017, compared to a gain of Ps. 43 million recorded in 2016. This is due to (i) the consolidation of Co- ca-Cola FEMSA Philippines, Inc., which is no longer included in the equity method as of February 2017; (ii) a loss in our dairy joint venture in Panama and a loss in our joint venture of Jugos del Valle; and (iii) gains in our joint ventures in Brazil. Comprehensive Financing Result The term “comprehensive financing result” refers to the combined financial effects of net interest expens- es, net financial foreign exchange gains or losses, and net gains or losses on monetary position from the hyperinflationary countries in which we operate. Net financial foreign exchange gains or losses represent the impact of changes in foreign-exchange rates on financial assets or liabilities denominated in currencies other than local currencies, and gains or losses resulting from derivative financial instruments. A financial foreign exchange loss arises if a liability is denominated in a foreign currency that appreciates relative to the local currency between the date the liability is incurred or the beginning of the period, whichever comes first, and the date it is repaid or the end of the period, whichever comes first, as the appreciation of the foreign currency results in an increase in the amount of local currency, which must be exchanged to repay the specified amount of the foreign currency liability. Our reported comprehensive financing result in 2017 recorded an expense of Ps. 5,276 million compared to an expense of Ps. 6,080 million in 2016. During 2017, we recorded an interest expense of Ps. 8,809 million compared to Ps. 7,471 million in 2016. This increase was driven by: (i) the interest rate increase from swapping U.S. dollar-denominated debt to Brazilian Real and Mexican Peso-denominated debt, as part of our strategy to eliminate our U.S. dollar net debt exposure; (ii) additional debt related to the acquisition of Vonpar; (iii) the average exchange rate appre- ciation of the Brazilian Real compared to the Mexican Peso as applied to our existing Brazilian Real-denom- inated interest expense; and (iv) the interest rate increase in Mexico. These effects were partially offset by the decrease of interest rates in Brazil and the reduction of debt in Argentina. In addition, in 2017, we recorded a foreign exchange gain of Ps. 810 million as compared to a loss of Ps. 1,792 million in 2016, which resulted from the depreciation of the Mexican peso as applied to our U.S. dol- lar-denominated net debt position. During 2017, we recorded a gain on monetary position in inflationary subsidiaries of Ps. 1,591 million as compared to Ps. 2,417 million during 2016 related to our operation in Venezuela. Market value on financial instruments recorded a gain of Ps. 246 million due to the annual decrease of long-term interest rates in Brazil as applied to our floating rate cross-currency swaps. 66 Income Taxes During 2017, reported income tax was Ps. 4,554 million as compared to Ps. 3,928 million in 2016. Controlling Interest Net Income We reported a consolidated controlling interest loss of Ps. 12,802 million in 2017 as compared to net income of Ps. 10,070 million in 2016. This loss resulted from the change in the accounting method for our Venezuela operation, which resulted in the reclassification of an accumulated non-cash equity item as a one-time charge to the other non-operative expenses line of the Income Statement in accordance with IFRS standards. On a comparable basis, net income grew 34.7% to Ps. 12,859 million during 2017, resulting in comparable earnings per share (EPS) of Ps. 6.15 (Ps. 61.49 per ADS). CONSOLIDATED RESULTS FROM OPERATIONS BY REPORTING SEGMENT Mexico and Central America Total Revenues Total revenues from our Mexico and Central America division increased 5.8% to Ps. 92,643 million in 2017. Excluding the effect of currency fluctuations, total revenues from our Mexico and Central America division would have increased 5.8%, driven by flat volume performance in the division and average price increases in Mexico. Total sales volume decreased 0.4% to 2,017.9 million unit cases in 2017 as compared to 2016. Our spar- kling beverage category’s volume declined 0.9%, driven by a 1.4% decline in brand Coca-Cola, partially offset by positive performance in flavors. Our performance in brand Coca-Cola was driven mainly by a 1.3% decline in Mexico, while our positive performance in flavors was driven by Mexico. Our still bever- age category’s volume grew 3.8%, driven by growth in Mexico and Central America. Our personal water portfolio’s volume increased 2.6%, as Mexico and Central America enjoyed a positive performance. Our bulk water portfolio’s volume declined 0.7% with contraction for the division. Total transactions in the division declined 1.3% to 11,231.7 million in 2017 as compared to 2016. Our sparkling beverage portfolio’s transactions contracted 1.6%, driven mainly by a 1.9% decline in brand Coca-Cola in the division. In flavors, our division’s flat performance was driven by even performance in Mexico, partially offset by a decline in Central America. Our still beverage category’s transactions re- mained flat for the division, driven by growth in Mexico, offset by a decline in Central America. Our water transactions, including bulk water, increased 0.3%, driven mainly by flat performance in the division. Gross Profit Our gross profit increased 3.5% to Ps. 45,106 million in 2017 as compared to 2016, and reported gross margin contracted 110 basis points to 48.7% in 2017. Excluding the effect of currency fluctuations, gross profit would have grown 3.5% in 2017. Lower PET prices in the division were offset by higher prices of concentrate and sugar, combined with our currency hedging strategy and the depreciation of the aver- age exchange rate of the Mexican peso as applied to our U.S. dollar-denominated raw material costs. Administrative and Selling Expenses Administrative and selling expenses as a percentage of total revenues increased 60 basis points to 33.2% in 2017 as compared with the same period in 2016. Reported administrative and selling expenses in absolute terms increased 7.6% as compared to 2016. INT EG RAT ED REPORT 2017 | INT EG RAT ED REPORT 2017 | 6767 MANAGEMENT’S DISCUSSION AND ANALYSIS South America (excluding Venezuela) Total Revenues Total revenues from our South America division, excluding Venezuela, increased 15.6% to Ps. 86,608 million in 2017 as compared to 2016, driven mainly by average price per unit case growth across our territories, the consolidation of Vonpar in Brazil, and positive translation effects due to the appreciation of the Brazil- ian Real and the Colombian Peso as referenced to the Mexican Peso. Revenues of beer accounted for Ps. 12,608 million. On a comparable basis, total revenues would have increased 1.5%, driven by average price per unit case increases in local currencies in each of our operations. Total sales volume in our South America division, excluding Venezuela, increased 6.1% to 1,236 million unit cases in 2017 as compared to 2016, resulting from a volume contraction in all of our South American operations and the inclusion of Vonpar. On a comparable basis, sales volume decreased 6.1% in 2017 as compared to 2016, resulting from a volume contraction in all of our South American operations. On the same basis, our sparkling beverage category’s volume declined 5.3%, driven by a 3.7% contraction in brand Coca-Cola and its extensions and a 10.2% decline in flavors. Brand Coca-Cola and its extensions underper- formed in Argentina, Brazil, and Colombia, while our decline in flavors was driven mainly by Colombia. On the same basis, our still beverage category’s volume declined 10.4%, with contractions in Argentina, Brazil, and Colombia. Our personal water category’s comparable volume decreased 7.7%, with contractions in Argentina, Brazil, and Colombia. Our bulk water’s comparable volume declined 11.1%, driven by a decline in Colombia, partially offset by growth in Argentina and Brazil. The total number of transactions for the South America division, excluding Venezuela, increased 4.0% to 7,924.1 million. On a comparable basis, total transactions decreased 6.2%. On the same basis, our sparkling beverage portfolio’s transactions decreased 4.6%, driven by a 1.2% contraction in brand Coca-Cola and its extensions and a 14.3% decline in flavors. Our performance in brand Coca-Cola was driven by growth in Argentina and Brazil offset by a contraction in Colombia. However, flavors’ negative performance was driv- en by declines in Brazil and Colombia, partially offset by growth in Argentina. On the same basis, our still beverage category’s transactions decreased 13.7%; growth in Argentina was offset by a decline in Colombia and flat performance in Brazil. Our water comparable transactions, including bulk water, decreased 10.8%, driven by a contraction in the division. Gross Profit Gross profit, excluding Venezuela, reached Ps. 37,756 million, an increase of 23.5% in 2017 as compared to 2016, with a 280 basis point margin expansion to 43.6%, including the consolidation of Vonpar in Brazil. On a comparable basis, gross profit would have grown 9.2% during the year. This figure is explained by lower PET and sweetener prices and the appreciation of the Brazilian Real and the Colombian Peso as applied to U.S. dollar-denominated raw material costs, which offset higher aluminum prices and the depreciation of the average exchange rate of the Argentine Peso as applied to U.S. dollar-denominated raw material costs. Administrative and Selling Expenses Administrative and selling expenses, excluding Venezuela, as a percentage of total revenues decreased 10 basis points to 29.4% in 2017 as compared to 2016. Excluding Venezuela, administrative and selling expenses, in absolute terms increased 15.1% as compared to 2016, driven mainly by the consolidation of Vonpar in Brazil. 68 Venezuela Total Revenues Total revenues in Venezuela decreased 78.8% to Ps. 4,005 million in 2017 as compared to 2016, driven by a volume decline and the negative translation effect resulting from the devaluation of the Venezuelan Bolivar as compared to the Mexican Peso. These effects were partially offset by average price per unit case increase. Total sales volume decreased 55.1% to 64.2 million unit cases in 2017 as compared to 143.1 million unit cases in 2016. The total number of transactions for our Venezuela operation decreased 42.9% to 441.0 million. Gross Profit Gross profit in Venezuela was Ps. 645 million in 2017, a decrease of 90.6% as compared to 2016. Administrative and Selling Expenses Administrative and selling expenses as a percentage of total revenues were 47.2% in 2017 as compared to 2016. Reported administrative and selling expenses in absolute terms decreased 67.7% as compared to 2016. Asia (The Philippines) The consolidation of our operation in the Philippines began in February 2017. Thus, we reported results for 11 months in 2017 for this operation. Total Revenues Total revenues for the Philippines were Ps. 20,524 million in 2017. Total sales volume was 552.4 million unit cases in 2017. Our sparkling beverage category represented 79% of our volume, with brand Coca-Cola and its extensions representing 50% and flavors 29%. Our still bever- age category represented 10% of our volume. Our water portfolio’s volume represented 11%, with 4.5% in personal water and 6.2% in bulk water. Total transactions were 6,278.5 million in 2017. Our sparkling beverage category represented 88% of our transac- tions. Our still beverage and water categories represented 7% and 5% of our transactions, respectively. Gross Profit Our gross profit was Ps. 8,178 million in 2017, and reported gross margin reached 39.8%. This figure re- flected lower sweetener and PET prices and the depreciation of the Philippine Peso as applied to our U.S. dollar-denominated raw material costs. Administrative and Selling Expenses Administrative and selling expenses as a percentage of total revenues were 33.4% in 2017. INT EG RAT ED REPORT 2017 | INT EG RAT ED REPORT 2017 | 6969 CORPORATE GOVERNANCE BOARD PRACTICES Finance and Planning Committee The Finance and Planning Committee works with management to set our annual and long-term strategic and financial plans and monitors adherence to these plans. It is responsible for setting our optimal capital structure and recommends the appropriate level of borrowing as well as the issuance of securities. Financial risk management is another responsibility of the Finance and Planning Committee. Ricardo Guajardo Touché is the chairman of the Finance and Planning Committee. The other members include: Federico Reyes García, Charles Brent Hastie, Enrique F. Senior Hernández and Miguel Eduardo Padilla Silva. The secretary non-member of the Finance and Planning Committee is Héctor Treviño Gutiérrez, our Chief Financial Officer. Audit Committee The Audit Committee is responsible for reviewing the accuracy and integrity of quarterly and annual financial statements in accordance with accounting, internal control and auditing requirements. The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent auditor, who reports directly to the Audit Committee; the internal auditing function also reports to the Audit Committee. The Audit Committee has implemented procedures for receiving, retaining and addressing complaints regarding accounting, internal control and auditing matters, including the submission of confidential, anonymous complaints from employees regarding questionable accounting or auditing matters. To carry out its duties, the Audit Committee may hire independent counsel and other advisors. As necessary, we compensate the independent auditor and any outside advisor hired by the Audit Committee and provide funding for ordinary administrative expenses incurred by the Audit Committee in the course of its duties. José Manuel Canal Hernando is the chairman of the Audit Committee and the “audit committee financial expert”. Pursuant to the Mexican Securities Market Law, the chairman of the Audit Committee is elected at our shareholders meeting. The other members are: Alfonso González Migoya, Charles H. McTier, Francisco Zambrano Rodríguez and Ernesto Cruz Velázquez de León. Each member of the Audit Committee is an independent director, as required by the Mexican Securities Market Law and applicable New York Stock Exchange listing standards. The secretary non-member of the Audit Committee is José González Ornelas, vice-president of FEMSA’s internal corporate control department. Corporate Practices Committee The Corporate Practices Committee, which consists exclusively of independent directors, is responsible for preventing or reducing the risk of performing operations that could damage the value of our company or that benefit a particular group of shareholders. The committee may call a shareholders meeting and include matters on the agenda for that meeting that it deems appropriate, approve policies on related party transactions, approve the compensation plan of the chief executive officer and relevant officers, and support our board of directors in the elaboration of related reports. The chairman of the Corporate Practices Committee is Daniel Javier Servitje Montull. Pursuant to the Mexican Securities Market Law, the chairman of the Corporate Practices Committee is elected at our shareholders meeting. The other members include: Jaime A. El Koury, Luis Rubio Freidberg and Luis A. Nicolau Gutiérrez. The secretary non-member of the Corporate Practices Committee is Raymundo Yutani Vela. Audit Committee Financial Expert Our shareholders and our board of directors have designated José Manuel Canal Hernando, an independent director as required by the Mexican Securities Market Law and applicable New York Stock Exchange listing standards, as an “audit committee financial expert”. 70 EXECUTIVE OFFICERS AND PARTICIPATION IN THE SUSTAINABILITY STRATEGY DIRECTORS Directors Appointed by Series A Shareholders Directors Appointed by Series D Shareholders John Santa Maria Otazua Chief Executive Officer 22 years as an Officer Supervise and ensure that the Strategic Sustainability Framework is implemented in Coca-Cola FEMSA, aligning business priorities to fulfill the purpose of creating economic, social, and environmental value. José Antonio Fernández Carbajal Executive Chairman of the board of directors of FEMSA and Executive Chairman of the board of directors of Coca-Cola FEMSA 25 years as a Board Member Alternate: Eva María Garza Lagüera Gonda Héctor Treviño Gutiérrez Chief Financial and Administrative Officer 24 year as an Officer Responsible for Finance, Legal, and Sustainable Sourcing. Eduardo Guillermo Hernández Peña Strategic Planning Officer 3 years as an Officer Responsible for integrating the Strategic Sustainability Framework in the Business Strategy Tanya Avellán Pinoargote Information Technology and Commercial Officer 6 years as an Officer Responsible for integrating the Strategic Sustainability Framework in the Business Strategy Raymundo Yutani Vela Human Resources Officer 4 years as an Officer Responsible for the Our People Pillar Alejandro Duncan Ancira* Supply Chain and Engineering Officer 23 years as an Officer Responsible for the Our Planet Pillar José Ramón de Jesús Martínez Alonso Corporate Affairs Officer 4 years as an Officer Responsible for the Strategic Sustainability Framework and the Our Community Pillar Xiemar Zarazúa López Chief Operating Officer – Mexico 1 year as an Officer Supervise and ensure that the Strategic Sustainability Framework is implemented in the country. Ian Marcel Craig García Chief Operating Officer – Brazil 7 years as an Officer Supervise and ensure that the Strategic Sustainability Framework is implemented in the country. Rafael Suárez Olaguibel Chief Operating Officer – Latin America 23 years as an Officer Supervise and ensure that the Strategic Sustainability Framework is implemented in the region. Washington Fabricio Ponce García Chief Operating Officer – Philippines 2 years as an Officer Supervise and ensure that the Strategic Sustainability Framework is implemented in the country. Stanislas Pierre Marie Auber New Businesses Officer 1 year as an Officer Responsible for implementing the Strategic Sustainability Framework in the New Business division Carlos Salazar Lomelín Chief Executive Officer of FEMSA 18 years as a Board Member Alternate: Max Michel González Miguel Eduardo Padilla Silva Chief Financial and Corporate Officer of FEMSA 2 years as a Board Member Alternate: Francisco José Calderón Rojas Javier Gerardo Astaburuaga Sanjines Vice-President of Corporate Development of FEMSA 12 years as a Board Member Alternate: Mariana Garza Lagüera Gonda Federico Reyes García Independent consultant 26 years as a Board Member Alternate: Alejandro Bailleres Gual John Anthony Santa Maria Otazua Chief Executive Officer of Coca-Cola FEMSA 4 years as a Board Member Alternate: Héctor Treviño Gutiérrez Paulina Garza Lagüera Gonda Private Investor 9 years as a Board Member Alternate: Alfonso Garza Garza Ricardo Guajardo Touché Chairman of the board of directors, SOLFI, S.A. 25 years as a Board Member Alternate: Daniel Alberto Rodríguez Cofré Alfonso González Migoya1 Chairman of the board of directors of Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (Volaris) 12 years as a Board Member Alternate: Ernesto Cruz Velázquez de León Enrique F. Senior Hernández 1 Managing Director of Allen & Company, LLC. 14 years as a Board Member Alternate: Herbert A. Allen III Luis Rubio Freidberg1 President of Centro de Investigación para el Desarrollo, A.C. (CIDAC) 4 years as a Board Member Alternate: Jaime A. El Koury Daniel Javier Servitje Montull1 Chief Executive Officer and Chairman of the board of directors of Bimbo 20 years as a Board Member Alternate: Sergio Deschamps Ebergenyi José Luis Cutrale1 Chief Executive Officer of Sucrocítrico Cutrale, Ltda. 14 years as a Board Member Alternate: José Luis Cutrale, Jr José Octavio Reyes Lagunes Retired 2 years as a Board Member Alternate: T. Robin Rodgers Moore Charles Brent Hastie Senior Vice President and Chief Financial and Supply Chain Officer of Coca-Cola North America 1 year as a Board Member Alternate: Sunil Ghatnekar Charles H. McTier 1 Retired 20 years as a Board Member Brian Smith President of The Coca-Cola Company Europe, Middle East and Africa Group 1 year as a Board Member Alternate: Gloria Bowden Bárbara Garza Lagüera Gonda Private investor and President of the acquisitions committee of Colección FEMSA 19 years as a Board Member Directors Appointed by Series L Shareholders Herman Harris Fleishman Cahn1 President of Grupo Tampico, S.A. de C.V. 6 years as a Board Member Alternate: Robert Alan Fleishman Cahn José Manuel Canal Hernando1 Independent consultant 15 years as a Board Member Alternate: Luis Alfonso Nicolau Gutiérrez Francisco Zambrano Rodríguez1 Chief Executive Officer of Grupo Verterrak, S.A.P.I. de C.V. and Vice Chairman of the board of directors of Desarrollo Inmobiliario y de Valores, S.A. de C.V. (DIV). 15 years as a Board Member Secretary Carlos Eduardo Aldrete Ancira General Counsel, FEMSA 25 years as Secretary Alternate: Carlos Luis Díaz Sáenz 1 Independent * Rafael Ramos Casas was appointed as Supply Chain and Engineering Officer succeeding Alejandro Duncan Ancira, effective January 1, 2018. We recognize and thank Mr. Duncan for his valuable contributions to the company for more than 20 years. INT EG RAT ED REPORT 2017 | INT EG RAT ED REPORT 2017 | 7171 SHAREHOLDERS AND ANALYST information KOF New York Stock Exchange Quarterly Stock Information U.S. Dollars per ADS Quarter Ended Dec-29 $ Sep-29 Jun-30 Mar-31 $ U.S. Dollars per ADS Quarter Ended Dec-31 Sep-30 Jun-30 Mar-31 High 77.46 90.90 85.16 73.39 High 81.65 82.61 87.29 83.13 KOF L Mexican Stock Exchange Quarterly Stock Information $ Mexican pesos per share Quarter Ended Dec-29 Sep-29 Jun-30 Mar-31 High 141.07 159.67 154.81 139.84 Mexican pesos per share Quarter Ended Dec-31 $ High 151.68 Sep-30 Jun-30 Mar-31 152.92 152.09 143.56 $ $ $ $ $ $ Low 67.05 75.85 71.73 59.91 Low 62.17 71.03 76.95 64.48 $ Low 127.22 137.88 134.53 128.33 $ Low 127.92 139.13 142.89 116.91 2017 Close 69.62 77.13 84.67 62.02 2016 Close 63.54 78.58 82.96 83.05 2017 Close 136.95 140.71 153.77 134.48 2016 Close 131.37 147.39 151.63 143.56 INVESTOR RELATIONS María Dyla Castro Varela Jorge Alejandro Collazo Pereda Tania Lizeth Ramírez Silva @ kofmxinves@kof.com.mx SUSTAINABILITY Luis Darío Ochoa Rodríguez Aurea del Carmen Patiño Garza Ana Laura Elizondo Quintanilla Mariana Gomezgil Gabriel @ sostenibilidad@kof.com.mx CORPORATE COMMUNICATION Juan Carlos Cortés Trejo Coca-Cola FEMSA, S.A.B. de C.V. Mario Pani N° 100 Col. Santa Fe Cuajimalpa 05348, Mexico City, México Phone: (5255) 1519 5000 Web: www.coca-colafemsa.com Legal Counsel of the Company Carlos L. Díaz Sáenz Marío Pani N° 100 Col. Santa Fe Cuajimalpa 05348, Mexico City, México Phone: (5255) 1519 5000 Independent Accountants Mancera, S.C. A member firm of Ernst & Young Global Antara Polanco Av. Ejército Nacional Torre Paseo 843-B Piso 4 Colonia Granada 11520 Mexico City, México Phone:(5255) 5283 1400 Stock Exchange Information Coca-Cola FEMSA’s common stock is traded on the Bolsa Mexicana de Valores, (the Mexican Stock Exchange) under the symbol KOF L and on the New York Stock Exchange, Inc. (NYSE) under the symbol KOF. Transfer Agent and Registrar Bank of New York 101 Barclay Street 22W New York, New York 10286, U.S.A 72 INTEGRATED transform Guided by our clear strategy, we’re accelerating our company’s integrated transformation. To consolidate our position as a multi- category global beverage leader, we are building a winning portfolio of beverages, transforming our operational capabilities, inspiring a cultural evolution, and embedding sustainability throughout our business to create economic, social, and environmental value for all of our stakeholders. . x m m o c . i n g i s : N G I S E D ABOUT OUR INTEGRATED REPORT From our headquarters in Mexico City, we present our first Integrated Report 2017 edition. Developed by the guidelines of the International Integrated Reporting Council (IIRC) and in accordance with the GRI (Global Reporting Initiative) Standards: Core option. Similarly reporting the indicators of the Sector Supplement for Food Processing Companies of the same guide in its G4 version. Furthermore, this Report complements our Communications on Progress (COP) to the United Nations Global Compact included by FEMSA in its 2017 report. The information contained corresponds to the period from January 1st to December 31st, 2017. It includes data from all the countries where Coca-Cola FEMSA, S.A.B. of C.V. has operations or a majority share. Its operations encompass franchise territories in Mexico, Brazil, Colombia, Argentina, and Guatemala and, nationwide, in the Philippines, Venezuela, Nicaragua, Costa Rica, and Panama. Héctor Treviño Gutiérrez Chief Financial Officer José Ramón Martínez Alonso Corporate Affairs Officer Stock listing information: Mexican Stock Exchange, Ticker: KOFL | NYSE (ADR), Ticker: KOF | Ratio of KOF L to KOF = 10:1 Coca-Cola FEMSA, S.A.B. de C.V. is the largest franchise bottler in the world by sales volume. The company produces and distributes trademark beverages of The Coca-Cola Company, offering a wide portfolio of 169 brands to more than 381 million consumers daily. With over 100 thousand employees, the company markets and sells approximately 4 billion unit cases through 2.8 million points of sale a year. Operating 64 manufacturing plants and 324 distribution centers, Coca-Cola FEMSA is committed to generating economic, social, and environmental value for all of its stakeholders across the value chain. The company is a member of the Dow Jones Sustainability Emerging Markets Index, Dow Jones Sustainability MILA Pacific Alliance Index, FTSE4Good Emerging Index, and the Mexican Stock Exchange’s IPC and Social Responsibility and Sustainability Indices, among others. Its operations encompass franchise territories in Mexico, Brazil, Colombia, Argentina, and Guatemala and, nationwide, in the Philippines, Venezuela, Nicaragua, Costa Rica, and Panama. For more information, please visit www.coca-colafemsa.com. C O C A - C O L A F E M S A I N T E G R A T E D R E P O R T 2 0 1 7 I n t e g r a t e d T R A N S F O R M A T O N I COCA-COLA FEMSA INTEGRATED REPORT 2017 Integrated TRANSFORMATION COCA-COLA FEMSA INTEGRATED REPORT 2017 www.coca-colafemsa.com 

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