Coca Cola Femsa S.A.B. de C.V. Annual Report 2018

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FY2018 Annual Report · Coca Cola Femsa S.A.B. de C.V.

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COCA-COLA

INTEGRATED
REPORT

CLARITY

CONSISTENCY

COMMITMENT

COCA-COLA
FEMSA

INTEGRATED REPORT

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2018FEMSA20182018FEMSA

COCA-COLA
FEMSA

+3.3billion

unit cases

35%of the brands in

our portfolio are low- or
no- sugar beverages.

L16978 FORRO INGLES COCA.indd 2

Stock listing information: Mexican Stock Exchange, Ticker: KOFL | NYSE (ADR), Ticker: KOF | Ratio of KOF L to KOF = 10:1

131leading

brands

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3/1/19 17:21

Coca-Cola FEMSA, S.A.B. de C.V. is the largest Coca-Cola 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 131 brands close to 290 million consumers daily. With over 87 thousand employees, the company markets and sells approximately 3.3 billion unit cases through 2 million points of sale a year. Operating 48 manufacturing plants and 297 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, Guatemala, Colombia, and Argentina, and, nationwide, in Costa Rica, Nicaragua, Panama, Uruguay, and Venezuela. For further information, please visit: www.coca-colafemsa.com
Our CLARITY,
CONSISTENCY,
and COMMITMENT
set us apart

These attributes underscore our clarity of vision, mission, and

strategy; our consistent focus on satisfying our consumers, shoppers,

and clients’ needs, building our winning portfolio, transforming and

empowering our operations to foster agility across our organization,

carrying on our consumer and client-centric cultural evolution,

and continuing our disciplined approach to capital allocation; and our

unwavering commitment to generate sustainable economic, social,

and environmental value for all of our stakeholders.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018José Antonio Fernández Carbajal

John Santa Maria Otazua

+2million

points of sale

Dear Fellow
Stakeholders

We celebrated the 25th anniversary of our company’s
incorporation and stock exchange listing—an
entrepreneurial story of consistent growth,
innovation, and value creation.

L16978 INTERIORES INGLES COCA.indd 2

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+2million

points of sale

Operating cash flow
billion Mexican Ps.

2
.
1
3

5
5
3

3
6
3

5
5
3

2015

2016

2017*

2018

Operating cash flow = operating income + depreciation
+ amortization & other operative non-cash charges

Consistent with our disciplined approach
to capital allocation—focused on driving
shareholder returns—and the recent
evolution of the Philippines’ business
outlook, our Board of Directors concluded
that exercising our put option and selling our
51% stake in Coca-Cola FEMSA Philippines,
Inc., represented the best course of action
for our company’s stakeholders. This very
difficult decision came after a successful
five-year turnaround of this operation.

We continued to capitalize on strategic,
long-term synergetic opportunities
through the acquisitions of the ABASA,
Los Volcanes, and MONRESA franchises
in Guatemala and Uruguay, serving an
additional 14.6 million people.
Looking forward, we will continually
evaluate geographical and category
opportunities, maintaining our disciplined
approach to capital allocation to maximize
shareholder returns.

Clear Integrated Value
Creation Model

Our consumers and clients are at the
center of everything we do. Accordingly,
we’re building a winning portfolio for each
market—marked by 237 launches this
year. Capitalizing on brand Coca-Cola,
we’re leveraging our sparkling beverage
category’s growth through an affordable
mix of returnable and convenient, smaller
presentations at magic price points for
our consumers. We’re also driving our
low- or no-sugar portfolio ahead of
consumer trends, nearly doubling our
low- or no-sugar offering in Mexico.

+182billion pesos

in total revenues

W e’ve grown from a

Mexico-based bottler
to a multinational,
multi-category beverage
leader, serving

290 million people and 2 million points of
sale through 48 plants and 297 distribution
centers across 10 countries. We’ve
re-invested over US$20 billion in our
business, including US$11.4 billion in
accretive mergers and acquisitions.

Our entrepreneurial spirit and passion for
our consumers and clients powered our
drive for growth and innovation. Leading
the way, we served the market through our
transformative practices—from revenue
growth management to segmented point-
of-sale execution, to cold drink equipment
placement, and end-to-end supply
chain integration.

Impressively, our company multiplied the
original value of our business by almost
13 times—from US$1 billion at our IPO to
US$12.8 billion today—delivering an annual
total shareholder return of over 19.2%
since 1993.

Serving

290million

people

Our company

“

multiplied the
original value of
our business by
almost 13 times—
from US$1 billion
at our IPO to
US$12.8 billion
today.”

* 2017 financial information is re-presented as if the Philippines had been discontinued from February 2017, date of the consolidation of said operation.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018
We used

21%of recycled materials

in our PET packaging,
staying on track to
achieve our 2020
goal of 25%

With our launch of SmartWater in Brazil
and Argentina, we’re establishing a
consistent leadership position in water,
amplifying our premium, mainstream,
and value water portfolio.

We’re selectively improving our competitive
position in the still beverage category,
exemplified by our redesigned Brazilian
juice portfolio. We’re accelerating our dairy
category’s growth through Santa Clara,
while consolidating our position in the
plant-based beverage category under
AdeS—expanding our portfolio with the
launch of almond and coconut beverages.

Also we’re accelerating our digitally driven
business transformation. Our vision is
to deploy a demand-driven end-to-end
integrated supply chain platform, utilizing
advanced analytics, big data, and artificial
intelligence to granularly serve our clients
and consumers. We further look to capture
the analytical insights we gain from our
comprehensive sales and marketing
platform to design tailored business models
that maximize and capture customer value
creation for each segment.

Consistent with our consumer and
client-centric cultural evolution, we defined
KOF DNA—core beliefs and behaviors
that we aspire to live daily. KOF DNA will
enable us to better work together to achieve
our business results, while becoming a
total beverage leader aligned with our
consumers’ tastes and lifestyles.

We’re responsibly addressing environmental
and social challenges across our operations’
value chain. Aligned with The Coca-Cola
Company’s “World Without Waste” global
initiative, we used 21% of recycled materials
in our PET packaging, on track to achieve
our 2020 goal of 25%. We also covered
50% of our manufacturing operations’
power needs with clean energy; improved
our overall water use ratio by 19% over the
past 8 years to 1.59 liters of water per liter
of beverage produced; and surpassed our
2020 goal of benefiting 5 million people
through our healthy habits initiatives.

“

We’re accelerating our digitally driven business
transformation. Our vision is to deploy a demand-driven
end-to-end integrated supply chain platform, utilizing
advanced analytics, big data, and artificial intelligence to
granularly serve our clients and consumers.”

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Consistent Transformation:
Operating Highlights

Guided by our clear strategy, we navigated
a complex environment to deliver positive
comparable1 results this year. Our comparable
sales volume increased 1.3% to 3.09 billion
unit cases, with transactions growing
1.4% to 18.4 billion. Comparable total
revenues grew 5.9% to Ps. 168.6 billion.
Comparable operating income grew 0.9%
to Ps. 23.0 billion. Comparable operating
cash flow grew 3.8% to Ps. 32.8 billion.
Importantly, our reported net controlling
interest income reached Ps. 13.9 billion for
earnings per share of Ps. 6.62 (Ps. 66.21
per ADS).

In Mexico, we maintained market
share, delivering positive top-line results
in the face of macroeconomic uncertainty
and currency volatility. With regard to
profitability, our pricing, currency
hedging, and cost and expense control
strategies—coupled with our digital
initiatives—mitigated significant raw
material cost pressures.

In Central America, we leveraged our
portfolio of affordable presentations to
continue our turnaround in Costa Rica
and Guatemala, while improving Panama’s
top-line growth. The consolidation of new
territories and our successful pre-sale model
rollout enabled us to achieve outstanding
volume growth in Guatemala.

Emerging from a tough macroeconomic
environment in Brazil, we delivered
consistent volume growth for the year.

Leveraging our affordability strategy,
our portfolio is well positioned to satisfy
Brazil’s recovering consumer environment.
Our digital capabilities, along with favorable
sugar costs and attractively hedged prices,
produced profitability improvements for
the year.

Led by our affordability strategy,
we improved our volumes in the face of
Colombia’s challenging, gradually recovering
consumer environment. Confronting
Argentina’s tough macroeconomic
environment marked by hyperinflation,
we are much better prepared for this
market’s challenges thanks to our growing
mix of affordable packages and no-sugar
beverages, digital initiatives, currency
hedging, and cost and expense controls.
In Venezuela, we continually adjust our
business model to serve our consumers
and clients.

Moving forward, we will focus on seven
strategic priorities: leverage sparkling
beverage growth through affordability;
establish a consistent leadership position in
water; selectively improve our competitive
position in still beverages; drive our low- or
no-sugar footprint; develop tailored
business models for customer segments;
accelerate our digitally driven business
transformation; and create a more
collaborative, consumer and
client-centric culture.

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 continue
to capitalize long-
term synergetic
opportunities
through the
acquisitions
of the ABASA,
Los Volcanes,
and MONRESA
franchises in
Guatemala and
Uruguay.”

We’ve
re-invested over

US$20billion in

our business

José Antonio Fernández Carbajal

John Santa Maria Otazua

Chairman of the Board

Chief Executive Officer

1 Excluding the effects of: mergers, acquisitions, and divestitures; exchange rate movements; and hyperinflationary economies such as Argentina and Venezuela;
and presenting Coca-Cola FEMSA Philippines, Inc., as a discontinued operation as of January 1, 2018, and the consolidated income statements are re-presented
as if the Philippines had been discontinued from February 2017, date of the consolidation of said operation.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018
1. Acquire first Coca-Cola

franchise for the Valley
of Mexico and southeast
Mexico (1979)

5. Build and begin

operations at Toluca
plant in Mexico (1994)

3. Complete first

international acquisition
of Coca-Cola Buenos
Aires, Argentina (1994)

2. Initial public offering

and listing in the NYSE
and the Mexican Stock
Exchange; Appoint
Alfredo Martinez Urdal
CEO (1993)

4. Develop Right

Execution Daily (RED)
and segmented
customer execution

6. Introduce

innovative pre-sale
system and handheld
devices in Mexico and
Argentina (1997)

7. Appoint Carlos Salazar

Lomelín CEO of Coca-Cola
FEMSA (2000)

9. Establish first Latin

American bottle-to-bottle
PET recycling facility with
ALPLA and The Coca-Cola
Company (2004)

10. Diversify portfolio

with joint acquisition of
Jugos del Valle in Mexico
and Brazil (2007)

8. Seize regional

leadership position
with multinational
acquisition of
PANAMCO (2003)

12. Enter value-added

dairy category with joint
acquisition of Estrella Azul
in Panama (2011)

11. Expand still beverage

portfolio through joint
acquisition of Leão Alimentos
in Brazil (2010)

13. Deploy innovative

revenue growth
management to foster
customer value creation

L16978 INTERIORES INGLES COCA.indd 6

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25. Expand

multinational footprint
to 10 Latin American
countries through
acquisition of MONRESA
in Uruguay (2018)

24. Develop

Guatemalan market
position with acquisition
of ABASA and
Los Volcanes (2018)

23.Enter

plant-based beverage
category through joint
multinational acquisition
of AdeS (2017)

22. Integrate

cutting-edge centers of
excellence and launch next
generation KOFmmercial
Digital Platform (2016)

21. Inaugurate state-of-the-art

manufacturing facilities in Itabirito,
Brazil, and Tocancipa, Colombia
(2015)

20. Fortify value-added

dairy category with joint
acquisition of Verde Campo
in Brazil (2015)

19. Appoint

John Santa Maria
Otazua CEO of
Coca-Cola FEMSA
(2014)

17. Bolster Brazilian

market leadership with
integration of REMIL
(2008), Fluminense,
Spaipa (2013), and
Vonpar (2016)

18. Operate in the

Philippines (2013–2018),
transform market and
operation infrastructure to
achieve unmatched results

14. Bolster value-added

dairy category through joint
acquisition of Santa Clara in
Mexico (2012)

15. Strengthen Mexican

market leadership with
integration of Grupo
Tampico, FOQUE, CIMSA,
and YOLI (2011–2013)

L16978 INTERIORES INGLES COCA.indd 7

16. Join Dow Jones

Sustainability Emerging
Markets and BMV IPC Market,
and Sustainability Indices
(2011–2012)

3/4/19 16:15

COCA-COLA FEMSA n INTEGRATED REPORT 2018
Our
Footprint

Central America

2
2

1
1

Mexico

5
3

Colombia

6
4

Venezuela

Brazil

7
6

Uruguay

Argentina

Population
served
(millions)

74.6

32.9

45.5

31.8

88.8

3.5

12.4

Points
of sale

864,638

181,142

376,042

156,267

403,059

25,360

47,630

289.6

2,054,138

Plants

Distribution
centers

145

297

1
Mexico

2
Central America

3
Colombia

4
Venezuela

5
Brazil

6
Uruguay

7
Argentina

Total

Total Volume*
million unit cases

3,322

● Mexico: 1,850
● Central America: 215
● Colombia: 271
● Brazil: 787
● Uruguay: 23
● Argentina: 175

Transactions*
million unit cases

19,726

● Mexico: 9,728
● Central America: 1,779
● Colombia: 2,060
● Brazil: 5,125
● Uruguay: 112
● Argentina: 920

Volume*

Transactions*

Product mix by package*
% of volume of sparkling beverages

Sparkling
Beverages

2,589

16,068

Water &
Bulk Water

518

1,690

Still
Beverages

214

1,968

4
6

6
3

6
5

4
4

5
6

5
3

2
8

8
1

6
7

4
2

4
7

6
2

Returnable

Non-returnable

Product mix by size*
% of volume of sparkling beverages

6
6

4
3

2
5

8
4

1
7

9
2

7
7

3
2

2
8

8
1

0
8

0
2

Single - serve

Multi - serve

Product mix by category (% of volume of total beverages)

Sparkling

Water1

Bulk Water2

Mexico

Central America

Colombia

Brazil

Uruguay

Argentina

72.9%

85.0%

76.5%

87.5%

91.6%

80.4%

5.6%

5.2%

9.8%

6.0%

6.9%

9.9%

15.0%

0.2%

7.2%

0.9%

0.0%

2.6%

Still

6.5%

9.6%

6.5%

5.6%

1.5%

7.1%

1 Excludes still bottled water in presentations of 5.0 Lt. or larger. Includes flavored water.

2 Bulk water - still water in presentations of 5.0 Lt. or larger. Includes flavored water.

*As of December 31, 2017, as a non-consolidated operation, Venezuela is reported as an investment in shares.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018
Financial
Highlights

Our clear and compelling strategy, consistency in our search for
innovation and commitment to our strong principles allow us to
create shareholder value over the short and long term.

Millions of Mexican pesos and U.S. dollars as of December 31, 2018 (except volume and per share data).
Results Under International Financial Reporting Standards.

(US$) 20181

(Ps.) 2018

(Ps.) 20172

% Change

Sales Volume (million unit cases)

3,321.8

3,318.2

0.1%

Total Revenues

9,287

182,342

183,256

-0.5%

Income from Operations

1,257

24,673

24,996

-1.3%

Controlling Interest Net Income3

708

13,911

-12,802

Total Assets

13,435

263,787

285,677

Long-Term Bank Loans and Notes Payable

3,575

70,201

71,189

Controlling Interest

6,363

124,943

122,569

-7.7%

-1.4%

1.9%

Capital Expenditures

564

11,069

12,917

-14.3%

Book value per share4

3.03

59.47

58.34

1.9%

1 U.S. dollar figures are converted from Mexican pesos using the exchange rate for Mexican pesos published by the U.S. Federal. Reserve Board on December 31,

2018, which exchange rate was Ps. 19.64 to U.S.$1.00.

2 2017 Income statement information is re-presented as if the Philippines had been discontinued from February 2017, date of the consolidation of said operation.

3 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.

4 Based on 2,100.83 million outstanding ordinary shares in 2017 and 2018.

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Sales Volume

million unit cases1

Total Revenues

billion Mexican Ps.

6
3
4
3

4
3
3
3

8
1
3
3

2
2
3
3

7
7
7
1

3
3
8
1

3
2
8
1

4
2
5
1

2015

2016

2017*

20182

2015

2016

2017*

20182

Income from Operations

billion Mexican Ps.

Dividend per Share

Mexican Ps.

6
2
2

9
3
2

0
5
2

7
4
2

9
0
3

5
3
3

2015

2016

2017*

20182

2015

2016

2017

2018

1 Unit case is a unit of measurement that equals 24 eight-ounce servings of finished beverage.

2 As of December 31, 2017, as a non-consolidated operation, Venezuela is reported as an investment in shares.
* 2017 is represented without the Philippines.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018Strategic
Framework

Our Integrated Strategy is oriented to generate value for all of
our stakeholders considering our priorities, capitals, and risks.

TOTAL BEVERAGE LEADER
with SUSTAINABLE and
PROFITABLE GROWTH

Categories

Geographies

Winning Portfolio
Buildup

Operating Model
Transformation

● Leverage sparkling
beverage growth
through affordability.
● Consistent leadership
position in water.

● Selectively improve our
competitive position
in still beverages.
● Drive our low- and
no-sugar footprint.

● Accelerate digitally
driven business
transformation.
● Develop tailored

business models for
customer segment.
● Address proactively

growing environmental
challenges.

SUSTAINABILITY

Cultural
Evolution

● Create a more
collaborative,
consumer and
client-centric
culture:
New KOF DNA.

CHOICES FOR
EVERY LIFESTYLE

SUSTAINABLE
COMMUNITIES
& ENVIRONMENT

PROFESSIONAL
DEVELOPMENT AND
WORKPLACE RIGHTS

DISCIPLINED CAPITAL
ALLOCATION

STRATEGIC MERGERS
& ACQUISITIONS

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Capitals
& Company engagement

Human

Natural

Social and Relationship

Our people and the way they work
together are our company’s most
valuable assets. Accordingly, we
encourage the comprehensive
professional and personal
development of our people, while
creating an inclusive, diverse, and
safe work environment. Through
our continuous talent management
and development, we promote trust,
transparency, and teamwork, prepare
our next generation of leaders,
advance meritocracy, recognize and
celebrate our teams’ success, while
providing them with honest, regular
feedback. In this way, we look to
attract, retain, and develop the best
multicultural talent to ensure our
sustainable success.

Financial

Our financial and operating discipline,
strong capital structure and financial
flexibility, powerful brands and
distribution system, transformational
digital initiatives, and adaptability to
changing market dynamics enable
us to capture organic and inorganic
growth opportunities in our industry,
while creating sustainable value for
our investors.

Our business is committed to the
responsible use of our natural
resources. As the main ingredient in
our beverages, our comprehensive
water strategy focuses 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 protect the environment.
We also work to increase energy
efficiency across our value chain,
while integrating clean and renewable
energy to reduce our carbon
emissions. Aligned with The Coca-
Cola Company’s “World Without
Waste” global initiative, we continue
to focus on comprehensive and
responsible waste management,
increase our use of recycled materials
in our packaging, and participate in
schemes and models that support
post-consumption collection
and recycling.

Manufactured

Through our highly experienced
team of specialists, we operate 48
bottling plants and 297 distribution
centers across 10 countries, deliver
approximately 3.3 billion unit cases
of beverages through a primary and
secondary fleet of 12,641 trucks to
2 million points of sale and serve a
population of 290 million people
annually.

Our communities and other
stakeholders are key enablers of our
business success. Accordingly, we
are committed to creating economic,
environmental, and social value by
encouraging dialogue and continuous
interaction 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.

Intelectual

We are accelerating our digitally
driven business transformation
throughout our value chain—
designing and deploying a
demand-driven end-to-end
strategy encompassing our digital
manufacturing, distribution and
logistics, and commercial models. We
are further capturing the insights from
our powerful analytical platform to
develop tailored business models.
By building our critical capabilities,
we are creating a stronger, more agile,
and flexible organization to drive our
competitiveness, proactively address
industry challenges, capitalize on
market opportunities, and foster
intellectual development across
our organization.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018Comprehensive
Risk Management

Main risk

Potential impacts

Key mitigation actions

Strategic shareholder
relationships
Our business depends on our relationship
with The Coca-Cola Company and
FEMSA, and changes in this relationship
may adversely affect us.

Consumer
preferences
Changes in consumer preferences,
purchase drivers, and consumption
habits might reduce demand for some
of our products.

Coca-Cola
trademarks
Coca-Cola’s brand reputation or
brand violations could adversely
affect our business.

Competition
Our competition could adversely affect
our business, financial performance,
and results of operations.

• Termination of the bottler agreements
• Actions contrary to the interests of
our shareholders other than The
Coca-Cola Company and FEMSA

• 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

• Reduction in the demand for

our products

• Transform into a total beverage company
aligned with consumers’ changing tastes
and lifestyles

• Build a winning total portfolio of products

and presentations

• Drive our low- and no-sugar portfolio ahead

of consumer trends
• Promote healthy habits

• Damage to Coca-Cola’s
trademark reputation

• Maintain the reputation and intellectual
property rights of Coca-Cola trademarks

• Changes in consumer preferences
• Lower pricing by our competitors

• 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 service, and innovative products

• Identify, stimulate, and satisfy

consumer 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 possible, anticipate
mitigation measures

• Map regulatory risks and proposals of

changes to regulations that directly affect
our operation or financial condition
• Advocacy work to provide advice on

legislators’ proposed regulatory changes

• Comply with applicable laws and regulations

and comply with workplace rights policy

Cyber attacks
Service interruption, misappropriation
of data or breaches of security could
adversely affect our business.

• Financial loss
• Interruption of operations
• Unauthorized disclosure of material

confidential information

Economic, political
and social conditions
Adverse economic conditions, political
and social events in the countries where
we operate and elsewhere, and changes
in governmental policies may adversely
affect our business, financial condition,
results of operations, and prospects.

• Affect and reduce consumer

per capita income, which could
result in decreased consumer
purchasing power

• Lower demand for our products,

lower real pricing of our products or
a shift to lower margin products
• Negatively affect our company

and materially affect our financial
condition, results of operations,
and prospects

Regulations
Taxes and changes in regulations in
the regions where we operate could
adversely affect our business.

• Increase in operating and

compliance costs

• Restrictions imposed on

our operations

Legal proceedings
Unfavorable results of legal proceedings
could adversely impact our business.

• Investigations and proceedings
on tax, consumer protection,
environmental, and labor matters

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Our company is present in different countries and regions. 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, register, assess, prevent and/or mitigate risks.

Main risk

Potential impacts

Key mitigation actions

Acquisitions
Inability to successfully integrate
acquisitions or achieve expected
synergies could adversely affect
our operations.

• Difficulties and unforeseen liabilities
or additional costs in restructuring
and integrating bottling operations

• Integrate acquired or merged businesses’
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 adversely affect our
financial condition and results.

• Financial loss
• Increase cost of some raw materials
• Adversely affect our results,
financial condition, and cash
flows in future periods

• Closely monitor developments that may

affect exchanges rates

• Hedge our exposure to the U.S. dollar with
respect to certain local currencies, our U.S.
dollar-denominated debt obligations, and the
purchase of certain U.S. dollar-denominated
raw materials

Climate change
Unfavorable weather conditions 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

• Support and comply with climate change
measures for adaptation and mitigation
• Identify and reduce our environmental
footprint through efficient use of water,
energy, and materials

Social media
Negative or inaccurate information
on social media could adversely
affect our reputation.

Water
Water shortages or failure to maintain
our current water concessions could
adversely affect our business.

• Damage to Coca-Cola’s trademark
reputation without affording us an
opportunity for correction

• Effective brand protection
• Proactive external communication

• Water supply may be insufficient to
meet our future production needs

• Efficient water usage
• Execute water conservation and

• Water supply may be adversely

replenishment projects

affected due to shortages or changes
in governmental regulations or
environmental changes

• Water concessions or contracts may

be terminated or not renewed

• 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 Inputs,
Regulatory Risks, and Legal Risks for
each of our bottling plants

• Implement a water risk assessment
methodology and work plans that
contemplate aspects such as climate
change, resilience to hydrological stress,
media and social vulnerabilities, as well as
regulations and production volumes for each
of our bottling plants

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.

• Increase in our cost of goods sold
• Shortage or insufficient availability
of raw materials may adversely
affect our capacity to ensure
production continuity

• Implement measures to mitigate the negative

effect of product pricing on our margins,
such as derivative instruments

• Proactively address risk of supply on our

value chain

• Adjustments to our product portfolio

• Strictly comply with our Supplier

according to availability

Guiding Principles

• Strategically adjust our product portfolio to
enable us to minimize the impact of certain
operating disruptions

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COCA-COLA FEMSA n INTEGRATED REPORT 2018
Sustainability
Strategy

Materiality Study
In 2012, we carried out a materiality analysis, identifying best
practices globally, interviewing key executives, dialogues
with representatives of external stakeholders executives,
sustainability experts and employees. Through this exercise
we identified the material issues that impact our business.

The material issues for our business include the following:

• They are those in which Coca-Cola FEMSA may

generate greater value.

• They are issues in which we have a sufficient degree of

maturity that allow us to be agents of change.

• Previous investments have been made in these areas.
• They have elements that may be converted into a

competitive advantage and that allow us to stand out
in the market.

• They are important to our stakeholders and we have
identified that for some of them we may join efforts to
create positive changes.

Strategic Sustainability Framework
The Sustainability Strategy provides us with the guidelines to
achieve our mission to positively transform the communities
where we operate, supported by our Ethics and Values.

2020
Goals

Our 2020 Goals for each pillar of the Sustainability Strategy
guide us to measure our progress.

OUR COMMUNITY

OUR PLANET

OUR PEOPLE

Healthy Lifestyles

Water

• Benefit 5 million people with our
nutrition and physical activation
programs and initiatives.

Community Development

• Have Social License programs in
100% of our priority plants and
distribution centers.

•

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.

Waste and recycling

•

Integrate 25% of recycled or
renewable materials in our
PET packaging.

• Recycle at least 90% of our waste in
every one of our bottling plants.

Energy

• Supply 85% of the energy used in

manufacturing in Mexico with clean
energy sources.

• Reduce by 20% the carbon footprint

of our value chain vs 2010

Comprehensive
Development

• Generate 1 million hours of

volunteer work.

• Achieve a Lost Time Incident Rate
(LTIR) of 0.5 per 100 associates.

• Reduce by 20% the general illness

absentee rate vs 2010.

• Zero fatalities from

work-related diseases.

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Sustainable
Development Goals

We are committed to contribute to the United Nations Sustainable
Development Goals. Many of our initiatives contribute to the
17 objectives with specific actions, however, we are convinced that
through our strategic framework and initiatives we can have a larger
impact in the following nine.

Several of our projects are focused on
Healthy Habits for Our Community, such as
the Latin American Commitment for a Healthy
Future that we recently launched and the
social programs from FEMSA Foundation.

We are committed to promoting healthy
habits. This way, we have already
accomplished our 2020 goal to benefit 5
million people with our nutrition and physical
activation programs. In addition, we offer a
portfolio of total beverages, and we carry
out responsible marketing strategies for
our products.

Our production processes ensure the
efficient use of water, as well as correct
wastewater treatment. We are committed to
return to nature and to the communities all
the water used to produce our beverages.

Our 2020 goal is to supply 85% of the energy
we use in manufacturing in Mexico with clean
sources, and we continue to introduce clean
energy in all countries where we operate
reaching a 50% share of clean energy for our
manufacturing needs.

We look for economic growth through the
efficient use of resources, by promoting a
work environment that offers comprehensive
development, by creating jobs in emerging
markets, and by applying our sustainable
sourcing principles.

We work on innovative processes in the industry,
aiming to develop local suppliers and to improve
our environmental performance, which is why our
2020 goal is to reduce our carbon footprint by
20% across our value chain.

We communicate our sustainability results
annually through our Integrated Report, and
have established goals to ensure a responsible
consumption of raw materials, to achieve greater
efficiencies, and to encourage recycling.

We collaborate with other companies,
government and NGOs to clean water bodies
to reduce water pollution through volunteer
cleanup activities.

We recognize that complex challenges in
an ever-changing, complex context require
coming up with innovative solutions that can
only be achieved and put into action together.
We embrace this reality and partner with other
companies, government, NGOs and other
institutions to maximize our impact.

“

In line with our sustainability

strategy, we contribute to the
United Nations Sustainable
Development Goals.”

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COCA-COLA FEMSA n INTEGRATED REPORT 2018
237

launches in
12 categories
in 2018

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COCA-COLA FEMSA n INTEGRATED REPORT 2018

Winning
Portfolio Buildup

Aligned with our Strategic Framework, we are
consolidating a leading total beverage portfolio with
options for every consumer taste and lifestyle, 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.

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Consistent Continuing consumer-centric innovation
To satisfy our Brazilian consumers’ varying tastes, we launched Coca-Cola Plus
Café Espresso in our sleek 220-ml mini can. Featuring great espresso taste, less
sugar, and more caffeine for consumers on the go, this enhanced Coke is already
a big hit. We also launched our first “all natural” sparkling beverage brand
YAS. This niche brand, with juice, and with no preservatives or other additives,
is already attracting interest from trendsetters at upscale supermarkets and
on-premise locations. We further launched refreshing Del Valle Coconut
water, along with mango and maracuya-flavored coconut water in single-serve
presentations. Through these innovative launches, we deliver premium beverage
options to quench the thirsts of our high-end consumers.

+45%

of the launches in our
portfolio are low- or
no-sugar beverages

“

The most
important thing for
the modern trade
channel is our
superior coverage
of consumer
interaction points
within any particular
supermarket.”

Satisfying consumers’ local tastes
Catering to our Mexican consumers’ local
preferences, we launched multiple new
flavors of our iconic Mundet sparkling
beverage brand, featuring tantalizing
sangria, tangerine, and apple-peach in our
2-liter multi-serve PET presentation. As
we broadened our portfolio to meet local
demand, we doubled this brand’s volume
year over year, while reinvigorating the
Mundet brand among our consumers.

Delivering exemplary execution
To better serve our consumers and clients,
we continue to enhance our point-of-sale
execution. For example, in Mexico we
increased our ICE score in the modern trade
channel by 5.2 percentage points for the
year—leading the way for the entire
Coca-Cola system across the country.
Among other indicators, our ICE score
measures the efficiency and effectiveness of
our point-of-sale portfolio, commercial
and promotional activity, price communication,
and cooler placement. Most important for the
modern trade channel is our superior coverage
of consumer
interaction points
within any particular
supermarket,
including the right
promotions, the
right products, and
the right prices to
activate consumer
demand.

TOTAL BEVERAGE
LEADERSHIP

C onsistent with our consumers

and clients’ evolving preferences
and practices, we are
consolidating a winning total
beverage portfolio, offering a

growing array of low- or no-sugar sparkling
beverages, refreshing juices, nectars, and
fruit-based beverages, hydrating purified,
sparkling, and flavored water, revitalizing
coffee, teas, sports, and energy drinks, and
wholesome dairy and plant-based protein
products. Leading the way, we fortify and
amplify our total beverage portfolio of
consumer-centric brands in line with their
changing tastes and buying habits.

CONSISTENT FOCUS
ON CONSUMER
SATISFACTION
Our consumers and customers
are at the center of everything we
do. By deeply understanding our
consumers and shoppers,
we act faster than our
competitors to adapt our
portfolio to satisfy
their evolving
needs through
exemplary
product
innovation
and flawless
point-of-sale
execution.

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Consistent Winning Portfolio Buildup
RENEW SPARKLING BEVERAGE
CATEGORY THROUGH AFFORDABILITY
Throughout the year, we revitalized our sparkling beverage
growth through our focus on affordability. To this end, we
continued to satisfy our cost-conscious consumers through
our strong platform of affordable, returnable packaging
alternatives at the right price points.

Bolstering Brazil’s
transactions
Through our affordability strategy,
our Brazilian operation’s transactions
outperformed our volume growth for
the second consecutive year in both
convenient single-serve packages and
multi-serve returnable presentations.
To intensify our connection with cost-
conscious consumers, we significantly
expanded coverage of the two pillars
of our Magic Price Points strategy,
our affordable single-serve 200-ml
PET presentation and 220-ml mini-
can, capturing 72% and 37% growth
in transactions, respectively, for the
year. On top of these convenient,
smaller packages, we considerably
increased the coverage, as well as
the innovative packaging, of our
2-liter multi-serve PET presentation.
In addition to extending the coverage
of this presentation, we launched duo-
and four-packs of our core Coca-Cola
and Fanta brand sparkling beverages
of this popular family-size returnable
presentation. As a result of our efforts,
we grew the volume of this affordable
package by over 13%, while significantly
expanding its share of sales.

Adapting to Argentina’s
consumer environment
In the face of an adverse
macroeconomic environment, we
focused on expanding the coverage
of our affordable single-serve 220-ml
mini-can—along with our 2-liter multi-
serve returnable PET presentation—
capturing transactions at Magic
Price Points for our cost-conscious
consumers. Consequently, we
improved our competitive portfolio’s
coverage by 8% for the year, while
significantly gaining share of sales at
the low socioeconomic level.

Capitalizing on brand
Coca-Cola in Mexico
We extended coverage of our
3-liter multi-serve returnable PET
presentation of Coca-Cola for our
consumers to enjoy. Specifically,
we launched this attractive
value proposition in our central
and southern territories, while
strengthening our position in the
Valley of Mexico. Consequently, we
not only increased the volume of this
popular family-size package by 17%
year over year, but also gained market
share in this important category.

Growing consumer base
across Colombia, Guatemala
& Costa Rica
Our affordable, returnable packages
enabled us to increase our consumer
base and achieve important volume
growth across our Colombian,
Guatemalan, and Costa Rican
markets. In Colombia, we expanded
the coverage of our 2-liter multi-serve
returnable PET presentation, enabling
us to achieve more than 72% volume
growth for this popular package
year over year. In Guatemala, we
recently launched our 2-liter multi-
serve returnable PET presentation
in the recently acquired ABASA and
Los Volcanes territories, contributing
to our almost 11% volume growth in
returnable packages for the year in
Guatemala. Similarly, in Costa Rica,
we achieved more than 16% volume
growth in our affordable, returnable
presentations year over year.

“

We are consolidating a winning total

beverage portfolio, offering a growing array of
low- or no-sugar sparkling beverages, refreshing
juices, nectars, and fruit-based beverages,
hydrating purified, sparkling, and flavored water,
revitalizing coffee, teas, sports, and energy
drinks, and wholesome dairy and plant-based
protein products.”

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COCA-COLA FEMSA n INTEGRATED REPORT 2018IMPROVE COMPETITIVE POSITION
IN STILL BEVERAGE CATEGORY
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.

Offering refreshing mix of
juice-based beverages
We continue to fulfill Brazilian
consumers’ growing demand for
refreshing juice-based beverages
through our popular Del Valle Fresh
brand. Utilizing our cold-fill
platform, we successfully
launched Del Valle Fresh
Orange and Lemon
juice-based drinks,
achieving sales of
more than 1 million
unit cases a month
while rapidly gaining
market share in this
growing category.
Additionally, in
the premium juice
segment, we
launched Del Valle
Origens, a 100%
apple and grape
juice in 1.5-liter glass
bottles. Thanks
to our bi-modal
juice strategy, we
grew more than
20% driven by the
affordable and
premium juice
segments, year
over year.

Re-energizing FUZE Tea
for Mexico’s consumers
In 2018, we continued to build on
our prior year’s successful re-launch
of FUZE Tea, a fusion of green
and black tea with refreshing fruit
flavors, across all of our Mexico
sales channels. Enabled by our
point-of-sale execution and product
innovation—marked by our recently
launched lychee fruit flavored tea—
we expanded our share of sales in
the tea category year over year.

Rolling out invigorating
mix of Del Valle brand
beverages
To compete in Colombia’s mid-juice
segment, we recently launched
Del Valle Fruit guava, mango, and
tangerine/pineapple in our
200-ml single-serve one-way,
350-ml single-serve returnable PET,
and 500-ml PET presentations.
With this launch, we entered the
country’s largest juice segment.
Moreover, we reinforced our
position in Central America’s
growing juice-based beverage
category with our re-launch of
Del Valle Fresh in Guatemala
and our launch of Del Valle Fresh
apple in Nicaragua.

We achieved volume
growth by

25%

in Energy category
in Brazil

“

We increased
volume growth by
7.3% year over year
in stills category in
Mexico.”

Generating
MONSTER growth
To quench active consumers’ thirst
for energy drinks, we reinforced our
distribution of Monster energy drink
across our franchise territories in
Brazil. Monster is proving to be one
of the fastest growing, most attractive
energy drinks for consumers in the
country. Together with our Burn brand
energy drink, we began to surpass the
sales volume of the country’s market
leader—an important milestone—and
achieved 25% volume growth while
significantly increasing our share
of sales for the year in the energy
category. Additionally, we recently
began distribution of our Monster
energy drink in Argentina, becoming
the top brand in this category across
our franchise territory.

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Consistent Winning Portfolio Buildup
ACCELERATE GROWTH IN
NEW CATEGORIES
In 2018, we continued to accelerate our growth across the
dairy category. Under our joint venture with The Coca-Cola
Company, we capitalized on the new state-of-the-art dairy
plant in Lagos de Moreno, Mexico—close to milk supply—
to meet growing consumer demand for our portfolio of
wholesome Santa Clara brand UHT white milk, flavored
milk, yogurt, and ice cream products. Among our innovative
products, we launched our new line of Beyond Kids ice
cream flavored strawberry, chocolate, and chocolate-mint
UHT milk with great success. Thanks to our expanded client
coverage, marketplace execution, and product innovation,
we accelerated our volume growth by 27% year over year
across the modern and traditional trade channels, while
positioning Santa Clara as the second largest brand in both
the UHT white and flavored milk categories throughout the
traditional trade channel.

Through our joint venture with The Coca-Cola Company in
Brazil, we switched to an all-natural platform for our premium
Verde Campo dairy brand. Already, this innovative new
platform—which features no preservatives and no added
sugar—boasted 30% volume growth among the country’s
most demanding consumers in a high potential
market category.

We multiplied
our volume of
AdeS by

2xyear over year

Consolidating position
in the plant-based
beverage category
After we closed the acquisition of
Unilever’s AdeS plant-based beverage
business with our partner The
Coca-Cola Company last year, we
consolidated this new brand in our key
Argentina, Brazil, and Mexico markets,
while re-launching AdeS in Colombia
this year. Among our initiatives,
we refreshed AdeS brand
image, enhanced its client
coverage and execution, and
expanded its portfolio with
our launch of almond and
coconut dairy-alternative
beverages for our
consumers’ enjoyment.
Thanks to our efforts,
we extended AdeS’
footprint across our
customer network
and increased our
share of the plant-
based beverage
category, particularly
the fast-growing
seed-based beverage
segment.

“

Thanks to our expanded client
coverage, marketplace execution,
and product innovation, we
accelerated our volume growth in
Santa Clara by 27% year over year
across the modern and traditional
trade channels.”

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COCA-COLA FEMSA n INTEGRATED REPORT 2018

DEVELOP WATER
PORTFOLIO
We continue to develop our innovative
portfolio of still, sparkling, and flavored
bottled water to rehydrate our consumers
throughout their day.

Reinforcing leadership
position in Panama
In Panama, we reinforced our leadership
position in the water category.
To complement our personal water
portfolio, we launched Dasani Fruit in our
600-ml PET presentation, coupled with
Dasani mainstream water in our 355-ml
PET presentation. Thanks to these and other
initiatives, we increased our share of
sales substantially across the personal
water category.

4.8%

volume growth in
our personal water category
year over year

Executing a three-tier strategy across
Argentina and Colombia
In Argentina and Colombia, we implemented a three-tier
strategy to differentiate our brands and better compete
in the value, mainstream, and premium water segments.
In Colombia’s value segment, we leveraged our Tai brand
personal water through a new route-to-market to serve
the country’s mom-and-pop customers. In Colombia’s
mainstream segment, we continue to leverage our Brisa
brand and we re-launched our Manatial brand water in
the premium segment. In addition, in Argentina’s premium
segment, we recently launched SmartWater. Overall, we
achieved total personal water volume growth, excluding
jug water, of more than 14% in Colombia, and we generated
water volume growth of over 9% in Argentina.

Deploying a robust 360o plan in Mexico
Through our 360o strategic plan in Mexico, we strengthened our personal
water portfolio while becoming a more robust player in this big beverage
category. In the natural water segment, we achieved a major turnaround in
our performance, significantly expanding our market share this year. In the
flavored water segment, we generated
steady volume and market share
growth throughout the year as we
expanded our portfolio with the

launch of attractive new flavors,
including strawberry, coconut-
raspberry, and pineapple-
cucumber. In the mineral
water segment, we achieved
5.5% volume growth driven
by 45% volume growth of
our iconic blue glass bottle
of Ciel mineral water for
Mexico’s on-premise and
modern trade channels.
Overall, in the Valley of
Mexico, we expanded our
personal water volume by
9% and significantly improved
our market share year over year.

Taking a three-tier approach in Brazil

Consistent with our water strategy, we undertook a three-tier approach
during the year. In the mainstream water segment, we focused on
expanding the coverage of our Crystal brand 500-ml PET single-serve and
1.5-liter PET multi-serve presentations across the traditional and modern
trade channels, respectively. In the upper mainstream flavored water
segment, we built on our successful launch of naturally flavored Crystal
sparkling water in personal 310-ml cans and 510-ml PET bottles, featuring
lime, tangerine with lemongrass, and berry flavors. In the premium water
segment, we recently launched SmartWater. Thanks to these initiatives, we
achieved more than 13% volume growth, while significantly expanding our
share of sales for the year.

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Consistent Winning Portfolio Buildup

HEALTHY HABITS
As leaders in the beverage industry, we continue to meet the
changing lifestyles of our consumers and the communities
we serve. We are taking specific, meaningful actions, driving
the development of our low- or no-sugar portfolio across
our markets ahead of consumer demand. We also strive to
promote healthy habits in our communities through multi-
sector coalitions and local initiatives focused on fostering
healthy habits, proper nutrition, and physical activity.

Successfully rebranding Coca-Cola
Sem Açúcar in Brazil
After we rebranded Coca-Cola Sem Açúcar in August, our sales
of this increasingly popular consumer choice grew dramatically
across our Brazilian franchise territories. Driven by a
combination of coverage, affordable convenient and multi-serve
packaging, and a compelling digital campaign of influencers,
we generated accelerating volume growth of almost 10% year
over year, marked by double-digit volume growth in the fourth
quarter of 2018.

Building on growth of Coca-Cola Sin
Azúcares in Argentina
Building on the growth of Coca-Cola Sin Azúcares, we
launched this popular brand in our 1.5-liter and 2-liter
PET presentations across our Argentine territory. We
also complemented this brand’s growth with our launch
of our core Fanta and Sprite sparkling beverage brands
without sugar in our 220-ml mini cans. By year-end 2018,
our no-sugar offering reached 34% of our total sparkling
beverage mix—the highest of our international
franchise territories.

26%

of our colas portfolio
mix is low- and
no-sugar in Mexico

DRIVE NO-SUGAR FOOTPRINT
AHEAD OF CONSUMER TRENDS
We drive development of our no-sugar portfolio of
beverages to satisfy and stimulate demand for our
products ahead of consumer trends.

Consolidating launch of Coca-Cola
Sin Azúcar in Mexico
In 2018, we consolidated the successful launch of one of our
fastest growing sparkling beverage brands, Coca-Cola Sin
Azúcar, across our Mexican territories. Coca-Cola Sin Azúcar
offers consumers a no-sugar alternative for
one of the world’s most beloved brands.
Launched throughout our Mexican sales
channels, we achieved double-digit volume
growth, while steadily gaining market share
throughout the year. Correspondingly, we
carried out a major rollout of our original
Coca-Cola recipe with less sugar in our
family-size one-way presentations. Thanks
to these and other initiatives, we nearly
doubled our no- and low-sugar offering to
26% of our total Coca-Cola portfolio mix,
from 14% in 2017.

“

With Coca-Cola Sin Azúcar
launched throughout our Mexican
sales channels, we achieved
double-digit volume growth, while
steadily gaining market share
throughout the year.”

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COCA-COLA FEMSA n INTEGRATED REPORT 2018

RESPONSIBLE MARKETING
At Coca-Cola FEMSA, our clients and consumers are at the center of our decisions
and actions. Accordingly, transparency, fact-based information, and a high sense of
responsibility are the guiding principles for our marketing practices.

INFORMED NUTRITIONAL DECISIONS

To enable our consumers to make
informed choices across every one
of our operations, our up-front product
labels include clear, easy-to-find nutritional
content information, including the
nutrients, fats, sugar, and sodium in each
of our products. Our nutritional labeling
strategy is based on recommended
Dietary Daily Allowance Guidelines
and on applicable regulations in each
country. Given our geographic position
in 10 countries, we understand that each

population is different, with its own needs
and habits. Therefore, we fully endorse
and comply with each of our countries’
existing legal framework, as long as this
framework clearly provides science-based
information to our consumers. When
regulatory changes arise, we are always
willing to take part in such changes,
providing our expertise as a system in
order to ensure that our consumers are
provided high-quality information.

RESPONSIBLE MARKETING

As part of our commitment to
the wellbeing of our consumers,
our advertising adheres to The
Coca-Cola Company’s Responsible

Marketing Policy and Global School
Beverage Guidelines. For example,
as part of The Coca-Cola Company’s
Responsible Marketing Policy, we

HIGHEST QUALITY

diligently follow and enforce our policy
not to target advertising of any products
to children under the age of 12. We
also push the industry to advertise
responsibly, ensuring commercial-free
classrooms. In this and other ways, we
underscore our devotion to the healthy
habits of our consumers.

Our production processes fulfill

the highest quality standards;
our ingredients comply with each of our
operations’ local regulations and with the
standards of other regulatory agencies,

including CODEX, FDA, JECFA, and EFSA.
Our processes are permanently performed
in state-of-the-art bottling facilities within the
global beverage industry, guaranteeing only
the best quality products for our consumers.

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 third consecutive year, we participated as a strategic
partner in the Latin American Commitment for a Healthy
Future, a multi-sector coalition with the Healthy Weight
Commitment 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.
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, benefiting more than 2.6 million
people over the past three years.

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Consistent Winning Portfolio Buildup
FOSTERING HEALTHY HABITS IN
OUR COMMUNITIES
We seek to encourage healthy habits in our communities through
local programs focused on nutrition and physical activity.

Among our goals, we aim to benefit 5 million people through our
healthy habits and nutrition programs from 2015 to 2020. At the end
of 2018, we exceeded our goal with approximately 6.15 million people
benefiting from our programs over the past four years.

Coca-Cola FEMSA Surpasses
Healthy Habits 2020 Goal
To achieve this goal, over the past 10 years,
we have made strategic social investments
in projects—with a strong education
component—focused on fostering healthy
habits in our communities.

Total beneficiaries
million

0
3

5
1
.
6

5
0

0
.
1

6
.
1

2015

2016

2017

2018

Total

Local initiatives

MEXICO
Along with the Coca-Cola
System and other partners,
we collaborate in the Ponte al
100 program—designed to generate
healthy habits in elementary school
students, while providing metabolic
index measurement of different health
indicators for a large portion of the
population. Thanks to this program,
we have positively improved the
wellbeing of our communities.

VENEZUELA
The goal of Coca-Cola
FEMSA’s Red de

Entrenadores is to develop
leaders who encourage communal
living, inclusion, and gender equality
through sports. The instructors
received theoretical and practical
training based on the Sports for
Development methodology to
promote peaceful, harmonious
coexistence in their communities.

CENTRAL AMERICA
We support Campaña de
Colores, a network that
promotes nutrition and healthy

habits at 65 elementary schools in
Costa Rica, Guatemala, Nicaragua,
and Panama, by educating children
about nutrition, hygiene, and positive
physical activity habits. This project
is carried out in collaboration with
the American Nicaraguan Foundation
(ANF) and Glasswing International.

BRAZIL
We improve our communities’
quality of life through Praça

da Cidadania. This initiative
provides access to public services—
including tests for breast cancer,
diabetes, and hypertension—while
building a network of upgraded
community health, nutrition, and
physical activity programs.

COLOMBIA
Vive Bailando. This social
intervention model focuses

on teenagers, using dance

classes as a transformative healthy
lifestyles tool that provides a positive,
sustainable impact on their behavior,
leadership, family unit, and ability to
change surroundings that have been
affected by violence.

NICARAGUA
Partnering with The
Coca-Cola Company, we

offer the Un Plato, Una
Sonrisa program to contribute to
academic performance, promote
balanced eating habits, and maintain
nutritional wellbeing by supplying daily
meals throughout the school year.

CENTRAL AMERICA
We contribute to the physical
activity of children, teenagers,
and adults through their participation
in the Hora de Moverse initiative,
which promotes teacher training and
donates sports equipment.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018

Operating

model transformation

50%

of our global bottling
operations´ energy
requirements come
from clean sources

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COCA-COLA FEMSA n INTEGRATED REPORT 2018

Operating
model transformation

Consistent with our strategic framework, we continue to transform
our operating models to achieve more competitive advantages
creating the next generation of strategic capabilities in order
to strengthen our value chain. We are further reinforcing our
relationships with the communities with which we interact,
contributing to our ability to serve the marketplace while enhancing
our social license to operate. Overall, this is enabling us to become
a fitter organization with the ability to adapt to ever-changing
environments and generate sustainable growth.

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Consistent Sustainable operations
At Coca-Cola FEMSA, we ensure sustainability is fully embedded throughout
our day-to-day business operations. As a driver behind our strategic
business decisions, our operations are firmly committed to generating
sustainable economic, social, and environmental value.

Digitally Driven Operating Models

INGREDIENTS
We work with our suppliers to have the best
raw materials, sweeteners and packaging
materials. And we are committed to efficient
water use and conservation.

MANUFACTURING
Enabled by our Digital Manufacturing
Platform 2.0 we produce high-quality
beverages in our facilities.

DISTRIBUTION
CENTER
Our automated warehouses
are where we integrate
pre-sale with secondary
distribution processes.

PRIMARY
DISTRIBUTION
We ship beverages to our
297 distribution centers.

PRE-SALE
Powered by our Sales Force Automation
platform we serve our clients.

SECONDARY
DISTRIBUTION
Once an order is placed we use
our Digital Distribution Platform
to develop tailored, optimal
Route-To-Market operation.

COLD DRINK EQUIPMENT
With more than 2 million units of
cold drink equipment placed in the
market, we offer our consumers
refreshing ready to drink beverages.

POINTS OF SALE
We reach 2 million points with
targeted commercial initiatives and
we use Market Analytics to maximize
our value offer for each client.

CONSUMPTION
We serve more than 290 million
people offering out a total portfolio
with 12 beverage categories with
choices for every life style.

RECYCLING
We encourage and help consumers to
reduce, properly dispose and recycle all
packages from our beverages.

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Consistent Operating Model TransformationACCELERATE DIGITALLY DRIVEN
BUSINESS TRANSFORMATION

W e are accelerating our digitally driven business

transformation throughout our value chain—developing
and deploying a demand-driven, end-to-end strategy,
encompassing our digital manufacturing, distribution, and
commercial models. As a result, we are creating a stronger,

more agile, and flexible organization, enabled with the right capabilities to
drive our competitiveness, proactively address evolving industry challenges,
and capitalize on arising market opportunities.

Our commercial strategy aims to create and satisfy consumer demand for
our products whenever, wherever, and however they want them. Through
a deep understanding of our shoppers and consumers, our demand-driven
KOFmmercial Digital Platform (KDP) is devoted to serving our clients and
consumers across the traditional trade, modern trade, aggregators, and
direct-to-consumer channels. This platform is based on three main pillars:

1. Advanced analytics for revenue transformation

2. Dynamic initiative management and

3. Shopper, consumer, and client engagement

Built on advanced descriptive, predictive,
and prescriptive analytics, our comprehensive
KDP platform enables the development of
the right operating models—coupled
with the creation of next-generation
capabilities—for our four main
sales channels.

Deep market understanding
through analytics in Mexico
and Colombia
During 2018, we fully deployed our
marketing and sales analytical capabilities
in Mexico and Colombia. Based on internal
and external data, we redefined our pricing
strategy, optimized the effectiveness of
our trade promotion spending—yielding an
incremental improvement in our return on
investment—and designed and deployed
segmented customer initiatives based on
shoppers’ insights. Through our dynamic
initiative management, we communicated
these initiatives to our sales force team’s
mobile, hand-held Sales Force Automation
(SFA) devices.

Artificial intelligence in Mexico
With Victoria, our machine learning
prescriptive analytical engine, we will
considerably improve the accuracy of our
demand forecasting thanks to our capacity
to continuously learn what’s happening
in our markets from a variety of different
sources. In Mexico, where Victoria has
been learning about the market for over
six months, we are already improving our
demand forecast accuracy by 5% over
our current tools. Through Victoria’s high
accuracy demand forecast, we will open up
numerous opportunities to not only drive per
capita demand, but also plan supply based
on demand, generating significant inventory
and transport savings.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018

Dynamic Initiative Management
in Mexico, Brazil, Colombia,
and Argentina
We fully deployed our Dynamic Initiative
Management (DIM) capabilities, utilizing
our next-generation Customer Relationship
Management (CRM) platform, across Mexico,
Brazil, Colombia, and Argentina in 2018. With
DIM, every month we identify, prioritize, and
communicate more than 5 million targeted
customer initiatives in Mexico, almost 2
million in Brazil, nearly 300 thousand in
Colombia, and approximately 275 thousand in
Argentina to our sales force in the traditional
sales channel. Importantly, we measure the
effectiveness of our initiatives every week
and, thereby, accelerate our ability to react to
market opportunities from a month to three
days. Consequently, we enable 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.

Sales Force Automation
across eight countries
By year-end 2018, we completed the rollout
of our Sales Force Automation (SFA) solution
in eight countries, covering 7,600 pre-sale
routes. This user-centric mobile 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°
customer data.

Modern trade
transformation in Brazil
We developed and deployed a best-in-class
operating model to serve Brazil’s modern
trade channel. This new model features
end-to-end analytics, end-to-end client
collaboration, and Omni-modal point-of-sale
execution. Achieving historic market share,
this model enabled us to reach more than
70% of the modern trade channel in São
Paulo, Brazil.

Moreover, we continued the deployment of our Digital Distribution platform.
This platform not only offers improved customer satisfaction, but also
delivers increased resource optimization and enhanced driver safety. We
also completed the implementation of our KOF Logistics Services’ (KLS)
Supply Chain Planning model in all of our operations. Through this end-to-
end supply chain model, we enhance our customer service, while optimizing
our costs and capital allocation, through: 1) standardized strategic,
tactical, and operating processes; 2) cutting-edge technological tools; and
3) enhanced centralized organizational capabilities. We further continued
to benefit from warehouse optimization, particularly our implementation of
voice picking technology. Importantly, we collaborated with our Commercial
Center of Excellence to define our new Secondary Distribution Evolution
Strategy, an end-to-end distribution model designed to enable flexibility
and satisfy customer service needs.

Furthermore, we transformed and merged the core elements of our
modular Manufacturing Management Model into our end-to-end Digital
Manufacturing 2.0 platform. This end-to-end platform is currently comprised
of our Manufacturing Execution System (MES), Statistical Process Control
(SPC), Centralized Plant Maintenance Planning, and Advanced Analytics,
including data science, process modeling, and failure prediction. Through
our MES + SPC platform, we digitalize all of our manufacturing processes to
enable better-informed decision-making, enhanced efficiency, and improved
productivity. Moreover, our Centralized Plant Maintenance Planning model
consolidates our manufacturing plants’ maintenance planning and budgeting
at the country level. Beyond the design and development of our digital
manufacturing platform, we continued the implementation of our Plant
Operating Model in a total of 69 bottling lines by year-end 2018—achieving
increased efficiency of 2% year over year.

We communicate

˜7.5

million targeted customer
initiatives per month

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Consistent Operating Model Transformation
We increased

2%our operating efficiency

year over year

Digital distribution in Mexico and Brazil
We finished the deployment of our Digital Distribution
platform, including our web-based app, mobile delivery
devices, and vehicle telemetry equipment, across our
Mexican and Brazilian operations’ secondary distribution
fleet—reaching 4,500 and 2,500 routes, respectively. Among
its many benefits, we enjoy the capability to identify and
correct operational and service deviations in our distribution
route execution versus our route plan. This equipment also
enables us to analyze our route performance patterns in
order to identify an optimal combination of variables to
improve our route planning process.

“

We finished the deployment of

our Digital Distribution platform,
including our web-based app, mobile
delivery devices, and vehicle telemetry
equipment, across our Mexican
and Brazilian operations’ secondary
distribution fleet.”

Successful rollout of KOF Logistics
Services (KLS)
After Mexico and Colombia last year, we completed the
implementation of our KLS Supply Chain Planning model
across all of our plants, distribution centers, and long-haul
distribution fleet in Argentina, Central America, and Brazil
during 2018. We also provided more than 200 planners
on our logistics team with over 10,000 hours of training.
As a result of this model, we have already generated
production, warehousing, and transportation cost savings
of over US$15 million across these operations.

Warehouse optimization in Brazil,
Colombia, and Mexico
We continued to capitalize on warehouse optimization,
leveraging our implementation of voice picking technology
at our three main distribution centers in Brazil, Mexico, and
Colombia. With this tool, we improve the efficiency and
accuracy of our product picking and loading processes.
We also deployed our truckload optimizer at 80% of our
distribution centers in Brazil. Through these initiatives,
we optimize our storage, handling, and labor costs
while minimizing our delivery trucks’ time spent at our
distribution centers.

MES + SPC Platform Across Mexico,
Brazil, Colombia and Argentina
We deployed our full MES + SPC platform across all of our
manufacturing processes in Mexico, Brazil, Colombia and
Argentina. In 2018, we also deployed our MES platform’s
real-time monitoring of our utilities process—covering all
aspects of our plant’s power needs—in 13 of our bottling
plants across 4 countries, while implementing SPC in 45
bottling plants throughout our operations.

Centralized Plant Maintenance
Planning throughout five countries
We fully implemented Centralized Plant Maintenance
Planning throughout our 40 bottling plants in Mexico,
Brazil, Colombia, Argentina, and Venezuela.
This innovative model improves our operating efficiency
by reducing downtime.

COCA-COLA FEMSA n INTEGRATED REPORT 2018
Advanced Manufacturing Analytics in Mexico
We leveraged Advanced Analytics to improve the
performance of various manufacturing facilities. For
example, at our bottling plant in Villahermosa, Mexico,
we employed an advanced analytical tool to significantly
reduce scuffing and, increase life of returnable PET bottles.
Moreover, at our wastewater treatment plant in Apizaco,
Mexico, we designed and deployed an advanced analytical
methodology that controls multiple parameters to reduce
substantially this facility’s energy consumption.

DEVELOP TAILORED
ROUTE-TO-MARKET MODELS
We look to capture the analytical insights we gain from
our comprehensive KDP platform to develop and deploy
tailored direct and indirect route-to-market (RTM) models
that maximize and capture customer value creation, while
optimizing our cost to serve. Utilizing our advanced analytics
capabilities, we will build trust-based partnerships with our
clients, identify new ways to reach our customers, shoppers,
and consumers, and digitalize our route-to-market process.

“

In Mexico, we employed
an advanced analytical tool to
significantly reduce scuffing and,
increase life of returnable
PET bottles.”

Route to market 3.0 in Colombia and Mexico
In all of our Colombian and more than half of our Mexican
operations, we have deployed our market-driven RTM 3.0
to serve the needs of our strategic customer segments
across the traditional sales channel. Through this model,
we allocate the appropriate resources—from the sales
personnel who interact with our clients, to the frequency of
their visits, to the quantity of our targeted initiatives, to our
level of marketing support—in order to capture the most
value from each client segment, large and small.

Direct home delivery in Mexico
Through “Coca-Cola en tu Hogar,” we successfully converted
a third of our jug water routes to direct home delivery routes,
offering those households our full portfolio of products from
the convenience of their own homes. Consequently, we
not only expanded the coverage of our portfolio, but also
increased the productivity and profitability of those routes,
while continuously improving the way we serve the market.

Mobile technology in Brazil
In Brazil, we implemented mobile technology such as the
WhatsApp mobile communications model to complement
our high-volume customers’ daily visits with related
messages, including targeted initiatives. Our mobile apps
focused heavily on recurring service orders, and through
our collaboration with Rappi and iFood, we designed cross-
category combinations, particularly ready-to-eat meals to
promote and sample new products. We also developed a
Credit Policy tailored to suit the needs of our low-volume
customers, who receive face-to-face visits every 15 days, to
expand their inventories and reduce their risk of stock outs.

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Consistent Operating Model Transformation

Pre-sale platform in Guatemala
We fully implemented our pre-sale platform in Guatemala.
This platform enables our sales people to focus on
stimulating and satisfying customer demand prior to delivery
and to serve our clients’ needs better by loading their
desired mix of products on our trucks. Through our pre-sale
system, our sales people provide additional merchandizing
and promotional services during their regular customer
visits and, thereby, enhance our picture of success, while
improving our product sales and profitability.

KOF Global Business Services: enabling
our strategy
KOF Global Business Services model is designed to
better support and enable our company’s global and local
strategy. Consistent with our business strategy, objectives,
guidelines, and requisite accounting and financial results,
three specialized entities we established in the Finance area,
our Corporate Experts team, KOF Financial Services (KFS),
and Region/Country Finance team who work collaboratively
to give on-field support focused on providing the rules of
engagement and financial services to serve our internal and
external clients and ensure our strategic objectives. Through
our Transformation Framework, we enable an efficient,
technology-supported, and harmonious Administrative &
Financial (A&F) Service Model.

Moreover, with the implementation of KOF People Services
in our Mexico operation and corporate headquarters, we
have consolidated human resources services, including
updating personal data, payroll, talent platform, requests for
letters, vacations, savings and benefits, and paid and unpaid
leaves, for all of our workplaces through kiosks and a mobile
app, promoting self-service at all organizational levels.

“

KOF Global Business Services
model is designed to better support
and enable our company’s global
and local strategy.”

TECHNOLOGY
IT model enables service
model & ensures support for
the requirements of internal
and external clients

VALUE & COMPLIANCE
Value and Compliance model
allows visibility by monitoring
and reporting value generation
& compliance including
corrective actions

L16978 INTERIORES INGLES COCA.indd 35

TRANSFORMATION FRAMEWORK

Treasury
& Finance

Corporate
Controllership

Financial
Planning

Legal

KFS

Tax

PROCESSES &
SERVICES
Processes & Services model
enables integration and
coordination among AF areas
and with other areas
in the company
(Centers of Excellence)

ORGANIZATION &
RELATIONSHIP
Government model
defines roles, goals and
interrelationships for entities
which are involved in the
service model

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COCA-COLA FEMSA n INTEGRATED REPORT 2018PROACTIVELY ADDRESSING
ENVIRONMENTAL CHALLENGES
At Coca-Cola FEMSA, we embrace a holistic approach to
sustainable development by ensuring sustainability is fully
embedded throughout our day-to-day business operations.
To this end, we strategically, efficiently, and responsibly
address our operations’ environmental and social challenges
across our value chain—from clean energy to responsible
waste management, community development, and safety.

Clean energy in our operations
We strive for energy efficiency across our value chain. We
further integrate clean and renewable sources of energy
and technologies to reduce our carbon emissions—thus
contributing to climate change mitigation.

Consequently, our operations’ energy consumption focuses
on a comprehensive strategy that encompasses our
manufacturing operations. 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
our manufacturing in Mexico from
clean sources.

“

At Coca-Cola FEMSA, we
embrace a holistic approach by
ensuring sustainability is fully
embedded throughout our day-to-day
business operations.”

Clean Energy
% of energy from clean sources

9
0
0

0
9
0
0
1
0

9
2
0
0

8
3

0
0

0
5

0
0

2014

2015

2016

2017

2018

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Consistent Operating Model Transformation
Manufacturing energy efficiency
& emissions reduction
Our aim is to improve the energy efficiency of our
manufacturing operations, while simultaneously reducing
our greenhouse gas emissions. To this end, we managed to
increase our energy efficiency by 33% from 2010 to 2018.

To improve our plants’ energy efficiency, we have
implemented multiple strategic initiatives:

•

• Energy Training. We provide annual energy training to all of
our energy managers in every division, as well as all of the
operators of each of our plants.
Energy Assessments. We conduct annual energy
assessments to support our operations, including 18
assessments in Argentina, Brazil, Central America,
Colombia, and Mexico this year.
Steam Standard. We focus on the utilization of steam
produced in our plants to reduce consumption, ensure safe
use, recover steam condensate, and increase the life of
our assets.

•

• Top 20 Energy Efficiency Strategies. We implement key

energy efficiency strategies to minimize each of our plants’
energy consumption.

From 2010 through 2018, we achieved a 40% decrease in
our manufacturing operations CO2(eq) emissions, reaching
11.62 grams of CO2(eq) per liter of beverage produced in 2018.

Efficiency in greenhouse gas
emissions in manufacturing
grams of CO2(eq) per liter of beverage

9
8
1

0
0

1
.
8
1

0
0
0
0

2
5
1

0
0

6
3
1

0
0

6
.
1
1
0
0

2014

2015

2016

2017

2018

Emissions in manufacturing
thousand of tons of C02(eq)

232.5

● Scope 1: 118.3 thousand tCO2e
● Scope 2: 114.2 thousand tCO2e
Total: 232.5 thousand tCO2e

Energy efficiency
liters of beverage produced per Mega Joule consumed

9
0
4
0
0

0
2
4
0
0
0
0

8
3
4

0
0

9
4
4

2
9
4

2014

2015

2016

2017

2018

Science based targets initiative:
transition to the low-carbon economy
Coca-Cola FEMSA joined over 500 international companies
in the Science Based Targets initiative, which aims to
mobilize companies to set science-based greenhouse gas
emissions targets and boost their competitive advantage in
the transition to the low-carbon economy. The initiative is a
collaboration between CDP (formerly the Carbon Disclosure
Project), the United Nations Global Compact, World
Resources Institute, the World Wide Fund for Nature, and
one of the We Mean Business Coalition commitments.

We have reduced

40%

our Carbon emissions
from 2010 through 2018

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COCA-COLA FEMSA n INTEGRATED REPORT 2018
By 2020, we look to satisfy 85% of our Mexican
manufacturing operations’ energy requirements with clean
energy. By year-end 2018, we achieved 51.5% coverage
of our Mexican bottling operations’ power needs. Overall,
we accomplished 50% coverage of our global bottling
operations’ energy requirements, up more than fivefold
from 9% in 2014. We use clean sources of energy for our
manufacturing operations in Mexico, Brazil, Colombia,
Argentina, and Panama.

For the year, we reduced our energy consumption by 10%,
resulting in the following total savings:

US$5.62 million – total energy savings

• US$4.27 million – energy efficiency
• US$1.35 million – clean energy

WATER SUSTAINABILITY
Water is an essential ingredient in the production of our
beverages. Consequently, we are committed to ensuring the
efficient use and conservation of this natural resource for the
benefit of our company, our communities, 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

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.

From 2010 through 2018, we decreased our absolute
water consumption by 19%—representing savings of
more than 7.25 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 improve our water use ratio to 1.5 liters of
water per liter of beverage produced by 2020. For 2018, we
achieved 1.59 liters of water per liter of beverage produced—
an 19% improvement in our water use ratio from our 2010
baseline. Moreover, our water efficiency initiatives and
projects generated savings of US$1.38 million in 2018.

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.

“

50% of our operations electric
power comes from clean sources,
in Mexico, Brazil, Colombia,
Argentina, and Panama.”

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Consistent Operating Model Transformation

Efficiency in water use
liters of water per liter of beverage produced

9
7
.
1

7
7
.
1

2
7
.
1

5
6
.
1

9
5
.
1

Water consumption
billions of liters

7
7
3

0
.
1
2

5
7
3

2
.
1
2
0
0

0
6
3

9
0
2

4
3
3

3
0
2

8
.
1
3

0
0
2

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

Beverage produced Total water use

“

100% of the water we discharge
from our manufacturing operations is
sent to wastewater treatment plants,
which ensure sufficient quality to foster
aquatic life.”

Facilitating access to safe water and
sanitation in our communities
In collaboration with the FEMSA Foundation, we carry
out projects designed to improve communities’ quality 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.

Water replenishment and conservation
Aligned with the United Nations’ Sustainable Development
Goals, we recognize that water is an important and essential
natural resource. Accordingly, we join efforts to provide
access to potable and affordable water, as well as to protect
and recover water-related ecosystems.

We are committed to returning the water we use in our
processes by replenishing and conserving watersheds to
ensure water balance in the communities where we interact.
To this end, our goal is to reduce our water consumption and
to return to the environment and our communities the same
amount of water used 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 Brazil, Central America,
Colombia, and Mexico.

In light of the substantial scope, importance, and complexity
of water conservation and replenishment, we work to
strengthen water funds and conserve water basins
through sustainable initiatives involving partnerships
with several stakeholders. For example, through the Latin
American Water Funds Alliance—comprised of the Nature
Conservancy, the FEMSA Foundation, the Inter-American
Development Bank (IDB), and the Global 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 socioeconomic
development.

To date, the Alliance has developed 24 water funds. Of
these funds, five are in countries where we operate—Brazil,
Colombia, Costa Rica, Guatemala, and Mexico. As a result
of this partnership, the Alliance has worked to directly
benefiting 8,600 people in areas near the water basins
through job creation and capabilities training since the
projects began.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018WASTE & RECYCLING
At Coca-Cola FEMSA, we strive to mitigate the
environmental impact of our operations’ processes.
Over the past years, we have led the way in the promotion
of a culture of waste management throughout all of our
operations and our value chain, focusing on the following
strategic priorities:

To this end, our goal is to incorporate 25% recycled
material into all of our PET packages by 2020. In 2018, we
successfully integrated close to 21% of recycled resin into
the production of all of our PET presentations. Notably,
we provide our consumers and clients with a water bottle
made of 100% recycled resin for all of our one-way PET
presentations of Ciel brand water in Mexico.

Consistent with our efficient resource management and
optimization of our packaging materials, we continued
to deploy a wide-ranging light-weighting strategy for our
operations’ PET presentations and caps. We also launched
a new initiative to reduce the size of our labels without
sacrificing the nutritional information that we provide to our
consumers.

Thanks to our light-weighting initiatives, we have saved more
than 25 thousand tons of PET resin since 2011. In addition,
through our efficient resource management and packaging
optimization, we generated savings of approximately
US$14.6 million in 2018.

Post-consumption collection & recycling
By joining efforts, we multiply the effects of our actions.
Accordingly, we partner with communities, authorities, and
NGOs on different initiatives to raise awareness of post-
consumer waste management, carry out collection and
recycling programs within our communities, and educate and
inform consumers on the proper disposal and handling of the
waste generated from our products, including water body
litter prevention, debris collection, and beach cleanups.

For over 16 years, we have collaborated with other food
and beverage companies through ECOCE, a Mexican
civil association that promotes the collection of waste,
the creation of a national market for recycling, and the
development of recycling programs. Thanks to this
collaborative effort, in 2018, ECOCE collected 58% of the
total PET waste in Mexico.

Furthermore, we are leaders in PET bottle-to-bottle recycling
in Latin America. In 2005, we joined efforts in Mexico to
operate the first Food Grade PET Recycling Plant in Latin
America, called IMER (Industria Mexicana de Reciclaje or
Mexican Recycling Industry). In 2018, this plant, recycled
11,422 tons of PET.

Overall, in 2018, we utilized a total of almost 63,853 tons of
recycled materials in our plants in Argentina, Brazil, Central
America, Colombia, and Mexico. As a result of these efforts,
we have used more than 273,000 tons of recycled PET
since 2010.

KOF Waste Management Strategy

● Comprehensive and responsible post-industrial

waste management

● Post-consumption collection

● Efficient design and integration of recycled materials in

our packaging

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.

Innovative packaging development
Within the beverage industry, our product packaging is
mainly comprised of PET, glass, and aluminum, which
preparation and post-consumption handling can impact
the environment and communities. Accordingly, we are
committed to efficiently using our packaging materials,
redesigning our packaging’s components to achieve
100% recyclability and include recycled resin.

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Consistent Operating Model Transformation
PET packaging materials
% recycled materials in our PET packaging

1
0
.
1
0
.
1
1
0
1

.
.

6
6
4
4
0
1
1
0
0
0

8
8
9
.
9
1
1

0
0

2
2
.
1
.
2
1
2

0
0

8
8
0
2
0
2

0
0

2014

2015

2016

2017

2018

Post-Industrial operating
waste management
In 2018, 17 of our bottling plants in Mexico certified as
Zero Waste. Designed for our Mexico operations, this
initiative establishes specific measures to improve waste
management, disposal, and repurposing—resulting in
improved 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 2018, 93% of our
plants successfully achieved this goal. Importantly, in
Mexico, our plants recycled 100% of the waste generated
in our production processes. Overall, we recycled 95% or
approximately 134,000 tons of manufacturing
waste generated.

Currently, 17 of our plants in Mexico have obtained Clean
Industry certification from the Federal Environmental
Protection Agency (PROFEPA). Moreover, in 2018, 36 of
our distribution centers in Mexico received air quality
certifications from PROFEPA, the State of Mexico’s
Environmental Agency, Mexico City’s Secretary of the
Environment (SEDEMA). These and other recognitions
confirm our commitment to the environment and
overall sustainability.

To this end, we diligently work to ensure our processes
comply with the highest national and international standards
and with all applicable laws, avoiding sanctions and fines
pertaining to environmental issues, while reaffirming
our commitment to efficient operational processes,
environmental performance, and competitiveness.

In 2018, 17 of our bottling plants

in Mexico certified as Zero Waste.”

“

“World Without Waste” global initiative
Aligning our efforts with The Coca-Cola Company, we
embrace their “World Without Waste” global initiative’s
2030 vision:

• To make all consumer packaging 100% recyclable

• To create packaging that is at least 50% recycled material

• To collect and recycle the equivalent of 100%

of our packaging

• To educate and inform consumers what, how,

and where to recycle our packaging

The new plastics economy
This year, we signed onto The New Plastics Economy Global
Commitment. Led by the Ellen MacArthur Foundation with
support from the World Wide Fund for Nature, the World
Economic Forum, and The Consumer Goods Forum, among
others, the Global Commitment mobilizes the public and
private sectors to achieve its vision for a circular economy
for plastic.

Waste efficiency
grams of waste per liter of beverage produced

0
9

2
8

3
8

5
7

0
7

2014

2015

2016

2017

2018

Waste recycling

% of waste recycled of the

total waste generated

5
3
9
0
0

0
4
0
9
0
0
0

4
3
9
0
0

4
4
9
0
0

1
.
5
9

0
0

2014

2015

2016

2017

2018

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COCA-COLA FEMSA n INTEGRATED REPORT 2018

SAFETY COMMITMENT
We view and understand safety as a principle action and key
pillar of our business. Consequently, we are committed to
inspiring a safety culture—valued for improving the welfare
of our employees, business partners, contractors, and their
families, together with the communities where we operate.

OUR 2020 GOAL

To reach a Lost Time Incident Rate
(LTIR)1 of 0.5 per 100 employees and
a Total Incident Rate (TIR)2 of 1.5.

Overall, we aim to achieve zero work-related injuries
and illnesses among our employees, contractors, and
communities by ensuring the safety of our workplace
through minimizing safety risks, eliminating incidents that
could arise in our work centers, and developing safety
capabilities across our organization. Until we achieve our
vision of zero incidents, we accelerated the annual reduction
of our incident rates to 10% and the achievement of
world-class indicators aligned with our 2020 safety goals.

To this end, we established KOF Safety Council,
representing the 10 countries where we operate, to define a
transformational safety strategy and initiatives for our entire
company. In 2018, the Council validated and complemented
our four-pillar Safety Strategy.

SAFETY APPROACH

TRANSFORM
our Safety Culture

MANAGE
Key Risks

FOCUS ON
Top 5 Activities

PROFESSIONALIZE
the Safety Function

Technology & Safety Digitalization

Lean Safety Management System based on Maturity Level
(Culture + Process + Risks + Capabilities + Practices)

1 (# Accidents x 200,000)/Hours Worked.

2 (# Total Reportable Incidents x 200,000)/Hours Worked. The factor of 200,000 is obtained from the estimated hours worked by 100 employees over 50 weeks at

40 hours per week. This factor allows for a comparison of the indicators as a proportionate rate.

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Consistent Operating Model TransformationManage key risks
We recognize that some of our business activities can
be dangerous and, consequently, can cause damage to
our people, facilities, and business if we do not manage
them properly. Therefore, we have established prevention
measures and standards to ensure that safety is a top
priority, improve our processes, and define ways to manage
key risks in a standardized, systematic manner—ensuring
that our employees, contractors, and third parties do not
experience incidents during their work activities.

Focus on critical activities
During 2018, we developed and implemented processes,
programs, and digital technologies that enabled us to
manage more effectively the critical activities of our Top
Five Initiative and Key Risks Standardization across our
production and distribution facilities.

World-class safety function
We launched the first stage of our School of Safety at the
beginning of 2018. This three-year, 12 technical module
program is initially focused on providing the leadership,
technical, and functional skills to the professionals who are
in charge of our Safety functions, so they become multipliers
of knowledge throughout our organization. Our business
units’ training programs include our Colombia operation’s
Truck Safety School induction and our Brazil and Mexico
operations’ Drivers School.

As a result of our strategic initiatives, we reported a Lost
Time Incident Rate (LTIR) of 1.07 in 2018, a 12% decrease
compared with 2017 and a 69% reduction compared with
2014. They also contributed to a 16% reduction in our Lost
Time Incident Severity Rate (LTISR), from 26.97 in 2017 to
22.68 in 2018. We further achieved a Total Incident Rate (TIR)
of 1.81, a 22% decrease versus 2017.

Lost Time Incident Rate (LTIR)

2
6
.
1

0
2
.
1

7
0
.
1

2016

2017

2018

Total Incident Rate (TIR)

6
0
3

3
3
2

1
8
.
1

2016

2017

2018

Transform our safety culture
We continued our KOF Safety Cultural Transformation
program that we started two years ago, aligning the
model and the plan for each operation. Through this
transformational journey, we inspire a culture of safety by
addressing our people’s beliefs about safety and managing
their behavioral consequences across our organization.
During 2018, we connected more than 35,000 employees
and 200 work centers by forming 150 cultural committees,
carrying out more than 500 activities, and conducting more
than 50 leadership workshops.

12%reduction of our

Lost Time Incident Rate
year over year

“

During 2018, we developed and
implemented processes, programs,
and digital technologies that enabled
us to manage more effectively the
critical activities.”

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COCA-COLA FEMSA n INTEGRATED REPORT 2018Safety technology & digitalization
As part of our Safety Strategy and Digital Supply Chain
Strategy, we installed telemetry systems in our Mexican
and Brazilian operations’ fleets to monitor and improve the
behavior and performance of our drivers. We also included
devices to ensure safe reverse maneuvers for 100% of our
secondary distribution fleet across Mexico. We further
fostered the development of competencies through road
simulators and virtual reality tools in our Mexico and Brazil
operations that enable us to accelerate learning processes
and develop positive driving capabilities.

We have been implementing our companywide Road Safety
Standard throughout the course of 2018. Based on three
key elements—People, Organization, and Vehicles—this
standard has significantly improved our road safety by
reducing the number of accidents within our organization.
To support this road safety strategy, our business units
have developed innovative initiatives that have accelerated
our positive performance in this critical area, focused on
developing our drivers’ capabilities and organizational
processes while implementing monitoring and risk
management technology.

Last year, we deployed mandatory safety specifications 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 driving habits, and
onboard driver training devices.

During 2018, we implemented these mandatory safety
specifications for 230 new delivery trucks that we
bought in Mexico.

Digital behavior-based safety in Brazil
In 2018, our Brazilian team developed an app for Behavior-
Based Safety Programs to help directors and leadership
teams identify, track and follow up on actions that might
pose a safety opportunity in their operations, allowing them
to create a safety culture based on prevention and
risk mitigation.

OUR 2020 GOAL

To achieve a 50% crash rate
reduction from our 2016 baseline.

In 2018, we achieved a

60%

crash rate reduction from our
2016 baseline and accomplished
our 2020 goal

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Consistent Operating Model TransformationCommitment to zero accidents
At Coca-Cola FEMSA, we firmly believe that all accidents
are preventable. Accordingly, we continually research,
analyze, and identify the measures required to reduce the
number of injuries resulting from our operations.

For 2018, we reduced our total fatalities by 29%. This
data includes our manufacturing, distribution, and
trading operations that impact both our employees and
our communities. Importantly, 95% of our operations
did not have fatalities; however, the remaining 5% is still
an unacceptable number. Although we made positive
progress to decrease the number of fatalities for which
our company is accountable to six from nine last year, 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
With legal responsability

4
1

0
1

2015

2016

2017

2018

SUSTAINABLE MOBILITY
Through our Sustainable Mobility strategy, we aim to reduce
the impact of our fleet—including our primary and secondary
distribution trucks—and to position ourselves as the industry
leader in Latin America in terms of vehicle efficiency,
environmental stewardship, and safety.

We are executing route optimization strategies to maximize
our overall vehicle efficiency. With the complete rollout
of our KOF Digital Distribution platform in Mexico and
Brazil, we have installed telemetry equipment on 100%
our secondary distribution fleet. 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. Thanks to our telemetry equipment, we
also significantly reduced our fuel consumption by more than
1.2 million liters for the year.

“ We have installed telemetry

equipment on 100% of our
secondary distribution fleet in
Mexico and Brazil.”

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COCA-COLA FEMSA n INTEGRATED REPORT 2018Environmental excellence
In recognition of our CO2e emissions reduction, we earned
the Environmental Excellence Award from Mexico’s
Federal Agency of Environmental Protection (PROFEPA).
Moreover, for voluntary efforts to reduce our vehicles’
emissions, we earned the Clean Transportation Award from
Mexico’s ministries of Environment and Natural Resources
(SEMARNAT) and Communications and Transportation (SCT)
for the eighth consecutive year.

Moreover, with our deployment of dynamic routing across
our secondary distribution fleet in Brazil, Colombia, and
Argentina, we enjoy the flexibility to plan our vehicles’ routes
every day, thereby optimizing our available fleet resources
and our distances traveled to serve our customers.

Additionally, we leveraged our secondary fleet substitution
program in Mexico and Brazil, where we maintain our largest
volume of delivery trucks. Over the past three years, we
have substituted more than 600 trucks with vehicles that
meet higher emission standards. Thanks to this program,
we not only significantly reduce our fuel consumption,
emissions, and maintenance costs, but also reinforce
our commitment to eco-efficiency with local
environmental authorities.

In the Valley of Mexico, we continued to work closely with
local governmental authorities to earn certification for 1,400
of our trucks under the self-regulation program. Pursuant
to this voluntary program, 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
allow us to continually operate our complete secondary
distribution fleet every day—fostering our social license
to operate.

“

With our deployment of dynamic

routing across our secondary
distribution fleet in Brazil, Colombia,
and Argentina, we enjoy the flexibility
to plan our vehicles’ routes every day.”

SHARED OPPORTUNITY WITH
OUR COMMUNITIES
We work closely with our communities to strengthen and
consolidate positive relationships with our communities;
identifying and developing shared opportunities for our
company and communities’ sustainable development.

Sustainable Sourcing
At Coca-Cola FEMSA, we work with our suppliers to reduce
the environmental and social impacts generated by our
commercial interactions and thus improve the conditions of
our supply chain. In this way, we not only minimize negative
impacts, but also raise standards in key business areas,
increase labor efficiency, preserve environmental capital,
and reduce risks and costs for all those involved throughout
the value chain.

As part of our company’s sustainable sourcing mandate,
in conjunction with our defined strategic initiatives,

each supplier cooperates to minimize their social and
environmental risks over which we have no direct control
and which cause impacts throughout our supply chain on a
daily basis. The general guidelines that we use to make this
happen are:

1. The Coca-Cola Company’s (TCCC) Supplier

Guiding Principles focus on strategic input categories
and include areas such as Human Rights Policies,
Environmental Protection, and Labor Rights. Through
audits that ensure compliance with these standards, TCCC
authorizes its bottlers to work with approved suppliers.

2. Sustainable Agriculture Guiding Principles
Established by TCCC, they include the same areas as
the previous principles, but are adapted to suppliers of
agricultural raw materials.

3. FEMSA’s Supplier Guiding Principles

We apply these principles to mitigate social risks of suppliers
for categories that are different from those of the strategic
inputs and are relevant to the value chain.

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Consistent Operating Model Transformation

ETHICS AND VALUES

Legal compliance
Fiscal integrity
Anti-corruption
Money laundering
Fair competition
Conflicts of interest
Privacy and intellectual property
Human rights

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

FEMSA
SUPPLIER
GUIDING
PRINCIPLES

ENVIRONMENT

Impact and enviromental compliance

COMMUNITY

Community development

These principles reflect the standards that guide our daily
activities to ensure we provide responsible workplaces
that protect human rights and comply with environmental
laws. Founded on these principles, we follow a
comprehensive five-step Sustainable Sourcing Strategy:

1. Prioritization of categories

2. Sustainable purchases

3. Assessment

4. Capabilities Development

5. Recognition

Prioritization
Year after year, our company uses a proprietary tool to
determine which suppliers from the countries that we have
evaluated are candidates for a risk mitigation process.
Suppliers are prioritized by taking into account factors such
as expenditure, environmental, social, and ethical impacts
for each product category, dependability, brand association,
and operational criticality. After this analysis, a list of
suppliers that must enter the evaluation process
is generated.

“

At Coca-Cola FEMSA, we work

with our suppliers to reduce the
environmental and social impacts
generated by our commercial
interactions and thus improve the
conditions of our value chain.”

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COCA-COLA FEMSA n INTEGRATED REPORT 2018
Sustainable purchases
Through this step, we include FEMSA’s Supplier Guiding
Principles in our supplier contracts and requests for
information, give general guidelines for assessment
procedures, and provide training for sourcing and
purchasing employees.

Assessment
At Coca-Cola FEMSA, we assess our suppliers continuously
through our Sustainable Sourcing System, ensuring that
they are aligned with our company’s operating principles
and values. Carried out online, this assessment focuses
on four main areas: Social/Labor Rights; Environment;
Ethics and Values; and Community. To ensure the process’
transparency, a third party reviews and verifies the
information, and we then provide feedback and create
action plans to encourage supplier development, ethics, and
sustainability. All of our suppliers with low scores are audited
at their facilities and evaluated periodically to encourage
their continuous improvement. This year, we conducted 400
supplier evaluations based on FEMSA’s Supplier Guiding
Principles, performing these evaluations for the first time in
Argentina and Panama. Since 2015, we have carried out
1,471 evaluations under these principles.

Suppliers assessed under
The Coca-Cola Company guiding principles

COUNTRY

2015

2016

Mexico

Costa Rica

Guatemala

Nicaragua

Panama

Argentina

Brazil

Colombia

Venezuela

Total

107

126

2017

2018

102

197

141

Since 2015,
we have carried out

1,471

evaluations under FEMSA’s
Supplier Guiding Principles

Consistent with this strategy, The Coca-Cola Company
assesses and ensures compliance with its guiding principles
and sustainability standards for specific categories of strategic
suppliers; we only work with suppliers approved by TCCC in
those categories. In 2018, TCCC carried out 141 evaluations of
suppliers aligned with their supplier guidelines.

Suppliers assessed under
FEMSA guiding principles

COUNTRY

2015

2016

2017

Mexico

Costa Rica

Guatemala

Nicaragua

Brazil

Panama

Argentina

Total

100

–

198

120

–

245

106

–

2018

172

130

402

539

400

In addition to these assessments, Coca-Cola FEMSA is one
of the few companies that promoted the application of these
assessments to our Tier 2 suppliers or the suppliers of our
suppliers. Currently, our strategic suppliers are applying the
same risk assessment and mitigation mechanisms within
their own value chain. This ensures that the knowledge and
the drive for greater sustainability not only remains within
our circle of influence, but also extends to all of those who
participate in supplying our raw materials, inputs,
and services.

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Consistent Operating Model Transformation
Capabilities development
To strengthen our suppliers’ business capabilities, we
provide them with access to training and growth initiatives
on topics such as finance, marketing, and human resources,
among others. We also support their growth and build their
business skills, improve their companies, and develop high
quality products aligned with our principles and values.

In collaboration with the Mexican Center for Competitiveness
(Centro Mexicano de Competitividad), we carry out a
Comprehensive Supplier Development Program for
strategically selected small- and medium-sized enterprises
(SMEs) to improve their business capabilities. Through this
program, we collaborate with suppliers to not only improve
their sustainable competitiveness, but also forge stronger

relationships with our company and other large companies.
In 2018, 50 suppliers participated in the program, training a
total of 231 suppliers from Mexico and Costa Rica over the
past three years.

Recognition
The good performance of our suppliers on sustainability
issues is very important. Accordingly, we recognize all of
those suppliers that incorporate sustainability into their own
business’s DNA not only as a requirement for doing business
with Coca-Cola FEMSA, but also as a competitive advantage
and a means to become socially responsible. In Brazil, we
conduct the Premium Suppliers program through which we
recognize suppliers in the following categories:

SUPPLIER CATEGORIES

Raw material

Industrial

Logistics

Marketing

Services

Community development
To develop stronger relationships with our immediate
communities, we encourage continuous dialogue and
interaction. By systematically analyzing their particular
needs, we design and deploy activities that benefit both our
communities and our company. In this way, we seek to build
trust and ensure the commitment of all parties involved—
maintaining our social license to operate.

This not only enables us to consolidate positive relationships
with our communities, but also contributes to our ability
to serve the market while 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.

“

To develop stronger

relationships with our immediate
communities, we encourage
continuous dialogue and
interaction.”

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COCA-COLA FEMSA n INTEGRATED REPORT 2018
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).

ANALYZE AND PLAN
The risks and opportunities for
designing community engagement
activities and programs.

AGREE AND ACT
Listen to and build with the community
to set commitments
and execute mutually beneficial
activities and programs.

ASSESS AND MEASURE
Impact levels of the community
engagement activities and
programs, and of the
plan’s progress.

IDENTIFY AND UNDERSTAND
Objectives, capabilities, priorities,
needs, resources, and commitments
of the business towards the
community.

DIALOGUE
COMMITMENT
COLLABORATION
TRUST

LEARN AND IMPROVE
Strengthen the capabilities and
develop abilities by identifying
areas for improvement, best
practices, and knowledge
exchange.

BUSINESS
Identifying the impact and influence of a
community in achieving business goals,
considering community risks.

ENGAGEMENT
Achieve positive
engagement with the
communities to ensure the
continuity of the operation
and improve life quality.

COMMUNITY
Identify the impact of the business
strategy on the community.

OPPORTUNITIES
Finding opportunities to collaborate
with the community to improve their
living conditions.

During 2018, we implemented MARRCO in 20 work centers.
From 2016 to date, we have implemented MARRCO in 48
work centers, including plants and distribution centers,
representing 77% of our manufacturing facilities.

Based on MARRCO 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 business’
permanence at those locations.

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Consistent Operating Model TransformationCOUNTRY
OR REGION

MARRCO locations

WORK CENTER

DISTRIBUTION
CENTERS

MANUFACTURING
FACILITIES

Mexico (15)

–

Argentina (4)

Mega, Parral

Brazil (12)

Blumenau,
Jurubatuba, Santos,
Sumaré, Marilia

Colombia (10)

Girardot, Monteria,
Valledupar

Costa Rica (2)

Guatemala (1)

Nicaragua (1)

–

Altamira, Coatepec,
Cuatitlán, Cuernava-
ca, Ixtacomitán,
Lagos de Moreno,
Reyes, Morelos,
Puebla, Querétaro,
San Juan del Río,
Tabasco, Tamaulipas,
Toluca, Veracruz

Alcorta, Monte
Grande

Campo Grande,
Itabirito, Jundiaí,
Marilia Planta,
Maringá, Porto
Alegre, Antonio
Carlos

Barranquilla, Bogotá,
Bucaramanga,
Calera, Cali, Medellín,
Tocancipá

Calle Blancos,
Coronado

Guatemala

Managua

Panama (3)

Panama CEDIS

Estrella Azul, Panama

US$3.0

million invested to foster
community development and local
environment impacts

Social programs and initiatives
At Coca-Cola FEMSA, we have built positive relationships
with our communities by carrying out different social
programs and initiatives in order to improve local living
conditions from the moment we begin our operations.
Recognizing the diversity of our countries and communities,
we develop enriching activities aligned with their
local needs.

In 2018, we carried out 179 community development
interventions, to benefit our communities across the
10 countries where we operate.

Among our many different activities, our exemplary social
programs and initiatives in these countries include:

BRAZIL
Edital Idéias para um Mundo Melhor
The project took place in Maringá, Itabirito, Marília,
Jundiaí, Sumaré and Porto Alegre. A public call
for proposals from social organizations that
want to receive support or sponsorship for their
project, which should be linked to the pillars of
our sustainability strategy of healthy lifestyle,
environment and community development. The
pre-selected projects are invited to present at our
facilities in the presence of a committee composed
of several employees in leadership positions who
jointly choose the winning project.

ARGENTINA
Canteros Alcorta Program
We rehabilitated the boulevard in front of our
Alcorta plant by installing sports facilities.

COSTA RICA
Female Empowerment Project
With the participation of female entrepreneurs
and neighbors from Calle Blancos, we carry out
financial practices workshops to benefit their
small businesses.

MEXICO
Vive Tu Parque
These parks feature an outdoor gym, sports
facilities, drinking fountains, children’s games,
and lights.

URUGUAY
ANIMA
We receive students so they can complete their
educational process performing the tasks agreed with
ANIMA teachers for their development and learning.
In turn, they receive an established remuneration and
a subsequent evaluation of their performance.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018

We invested

US$24.2 million

in our people

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Cultural
evolution

Our cultural evolution is a consistent multi-year journey.
Through this journey, we look to empower our people to
lead our growth and transformation in the face of an
ever-challenging environment, enabling them to work in the
same direction to achieve our business results; achieve and
enhance our position as the best total beverage leader;
and live our core beliefs and behaviors each and every day.

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Consistent CLEAR MISSION, VISION, AND VALUES

Our mission, vision, and values embody the essence of our

company. They enable our behavior, express our integrity,
and reflect our respect for human dignity—enhancing our
organization’s culture to achieve our sustainable
business strategy.

Mission
Our mission is to satisfy our beverage consumers with excellence.

Vision
Our vision is to become the best total global beverage leader, generating
sustainable economic, social, and environmental value by managing
innovative, winning business models with the best employees in the world.

Values
Our values are key to ensuring our behavior every day. They express who
we are and what we believe, while underscoring our integrity.

Organizational Values

Personal Values

Customer Focus
We always look to improve our
clients’ experience and value
proposition.

Integrity and Respect
We generate, inspire, and cultivate
confidence in our people and
their work.

Commitment to Excellence
We focus on continuous improvement
to achieve excellence and
generate value.

Sense of Responsibility
We are committed and measured; we
recognize and take accountability for
our actions.

Aptitude and Willingness
to Collaborate
We develop the best teams and
coordinate our efforts to enable our
clients through systemic thinking.

Simplicity and Service Attitude
We do not perceive ourselves as
superior to others—always willing to
collaborate and to serve.

Spirit of Innovation
We constantly question the
status quo to positively transform
our business model.

Passion for Learning
We are constantly searching for new
learning and challenges to develop
our skills in a dynamic environment.

People first
Our people and the way they work together
are our company’s most valuable assets.
Accordingly, we invested US$24.2 million
in our people over the course of the year,
including social development and volunteer
activities, training initiatives, and occupational
health programs.

“

We created an

accelerated development
program tailored to
managers and directors
in all countries in which
we operate.”

KOF accelerated
leaders program
To establish a pipeline of available leadership
talent, we created an accelerated development
program tailored to managers and directors
in all of the countries in which we operate. We
established strategic alliances with multiple
academic institutions—including Tecnológico
de Monterrey, IPADE Business School, EF
Mexico, and Lee Hecht Harrison—and we
created an app to help carry out the program’s
virtual classes for participants from all of our
countries. Through this program, 41 managers
and 18 directors totaled 7,449 and 2,682 hours
of training, respectively.

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Consistent Cultural Evolution

EMPOWER OUR PEOPLE TO LEAD
OUR TRANSFORMATION
Our passion for continuous evolution has enabled us to build a history
of great achievements that is reflected in our healthy growth over the
past decade.

In 2018, we invested
US$10.8 million in employee
training initiatives.”

“

To empower our people to lead our growth and transformation in the face
of an ever-changing industry environment, we defined KOF DNA—a set of
beliefs and behaviors that we aspire to live and breathe on a
day-to-day basis.

Building on our cornerstones of leadership, talent development, and
innovation, our KOF DNA will enable us to not only accelerate our cultural
evolution, but also achieve our strategic vision of becoming the best total
beverage leader in our industry.

Recognizing that our people co-create our culture and share responsibility
for our company’s transformation, KOF DNA is comprised of five
key elements.

OPERATIONAL
EXCELLENCE

We strive for
excellence in
everything
we do

KOF DNA

OBSESSIVE FOCUS
ON CONSUMER
& CLIENT

PEOPLE
FIRST

We value our
people and work
as one KOF

Our consumers and
clients are at the center of
everything we do

AGILE DECISION
MAKERS

We are action oriented,
making fast and
assertive decisions

OWNERS
MENTALITY

We think and act like
owners, with focus
on results

Our cultural evolution is a multi-year journey, and we will know that we
have triumphed when all of our employees:

1. Work in the same direction to achieve our business results

2. Maintain and enhance our position as the best total global

beverage leader in our industry

3. Live our DNA at all times each and every day

5 million

hours of training

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COCA-COLA FEMSA n INTEGRATED REPORT 2018

TALENT MANAGEMENT AND DEVELOPMENT
“People First” is a key element of our company’s DNA. We comprehensively
manage, attract, develop, and motivate our people effectively, preparing the
next generation of leaders today.

Succession & Mobility
During the year, we undertook actions to continue developing a “talent
mindset” within our organization, in which our leaders’ role is essential to
establishing constant employee feedback and enabling them to achieve
their full potential.

Under our 9-Box Performance-Potential Methodology, more than
5,150 employees from executive, senior, and middle management, as well as
individual contributors, were evaluated throughout our operations in order to
identify and take actions to develop our talent pipeline within our company.
On average, approximately 30% of these employees are considered high
potential talent, with 80% of them enjoying a clear career track that will
contribute to our talent pipeline at different organizational levels.

Our succession process continues with a differentiated professional
offering that supports the appropriate allocation of resources for each type
of talent. This is translated into actions such as accelerated development
programs for current and future managerial talent, constant monitoring of
our compensation and benefits scheme, and compliance with our employee
mobility game plan. Consequently, internal personnel covered 78% of our
company’s director and managerial moves, reaching 78% at our middle
management level. Of these moves, 65.7% constitute promotions across all
of our organizational levels.

78%

of our company’s director
and managerial moves were
filled by internal candidates

Career Paths
Considering our employees’ feedback
in several organizational surveys, we
understand the need to provide them with
more information to boost their career
within our organization by communicating
clear career paths. Through professional
development dialogues, we seek to
empower our employees to advance their
own careers, while enabling our leaders to
effectively guide their people’s growth. With
shared responsibility between both leaders
and associates, they agree on specific self-
development actions based on the 70:20:10
model for learning and development.

“

We undertook actions
to continue developing a
“talent mindset” within our
organization, in which our
leaders’ role is essential
to establishing constant
employee feedback and
enabling them to achieve
their full potential.”

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Consistent Cultural Evolution
FEMSA University
We reviewed and established guidelines to improve the quality of online
registration for courses and functional materials available on FEMSA
University’s platform. We also trained new administrators about the
functionalities of this online learning platform—consolidating our community
of 120 administrators—an increase of 21% versus the previous year. As a
result of the increased development of virtual initiatives, the platform’s use
grew by 38% year over year.

COMPENSATION AND BENEFITS
Our people’s compensation and benefits scheme recognizes their effort and
commitment to their jobs, along with their contribution to creating value for
our company.

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 ensure the competitiveness of our benefit packages in all of our
operations, consistent with our talent acquisition and retention strategy,
performance-based bonus practices for middle management were reviewed
against the market in countries without benefits. Moreover, to ensure our
management team’s competitive compensation and to prevent a loss of
talent in recovering economies, an analysis was developed together with
Mercer, a world leader in the health and benefits marketplace.

Moreover, we make sure that the salaries of direct employees in
entry-level positions are on average 5.18 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 15.6% of our
employees are receiving an integrated salary that is greater than or equal to
the market average.

We comply with all labor rights and obligations stipulated by law,
surpassing the conditions and benefits established in the laws of each of
the countries where we operate. Our collective bargaining agreements
cover approximately 58% of our workers. These labor contracts are
reviewed and agreed on with all our union representatives, respecting the
established validity times, as well as complying with all notification periods.
As of December 31, 2018, we had 191 separate collective bargaining
agreements with 105 workers’ unions. In general, we have good relations
with the unions in all our operations; however, we operate in complex
environments, such as Argentina and Nicaragua.

Training hours

PER LEVEL
● Administrative staff: 43%
● Operations staff: 54%
● Directors and managers: 2%
● Third Parties: 1%

PER TOPIC
● Health and safety: 32%
● Technical expertise: 43%
● Ethics and human rights: 1%
● Languages : 1%
● Others: 24%

“

Our people’s

compensation and benefits
scheme recognizes their
effort and commitment to
their jobs, along with their
contribution to creating
value for our company.”

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COCA-COLA FEMSA n INTEGRATED REPORT 2018

INCLUSION AND DIVERSITY
At Coca-Cola FEMSA, we are committed to fostering a culture of inclusion
and diversity—promoting mutual respect across our organization. We
recognize that our differences make us stronger, more competitive, and
better able to adapt to an ever-changing global environment. Together, we
create an inclusive, diverse, safe work experience for all of our people.

Inclusion & Diversity Strategy
We listen to our people on issues of disability, gender equality, sexual
orientation, culture, and generational diversity. With their insights in mind,
we established our comprehensive Inclusion & Diversity Strategy, based on
three pillars:

1. Encourage inclusive leadership behavior throughout

our organization
Promote access to opportunities, eliminate unconscious prejudices, and
develop leaders who understand the importance of an inclusive organization.

2. Build an inclusive and diverse portfolio of talent

Develop a diverse portfolio of talent for succession planning and future key
talent positions, as well as an inclusive talent acquisition and retention strategy
that respects the complexity of our business and our markets.

3. Generate an inclusive and flexible work environment

Continue to create an inclusive workplace environment that recognizes
and respects our people’s differences and reinforces and captures our
employees’ commitment.

HRC Equidad MX Certification
For the first time, we achieved Equidad MX
certification from the Human Rights Campaign
(HRC) Foundation. After last year’s official
launch of HRC Equidad MX, we were selected
for their list of top-rated employers and
earned “Best Place to Work for LGBT
Inclusion” certification.

Bloomberg
gender-equality index
Coca-Cola FEMSA is proud to be a member
of the Bloomberg 2019 Gender-Equality
Index (GEI). A twofold achievement, the GEI
recognizes companies around the world
for their commitment to both workplace
equality and transparency.

Inclusion & Diversity Networks
Consistent with our strategy, our six Inclusion and Diversity Networks design and deploy campaigns, programs, and activities
that promote a culture of respect across our organization.

Gender
Equality
Work on the
elimination
of gender
barriers in the
workplace

Moms
& Dads
A support group
for parents and
an interaction
space to
encourage
our company’s
commitment to
our employees
and their families

Multi-generation
Breaking the
barriers of
generational
differences
to encourage
collaboration
among our
employees

LGBT+
Create
awareness
about LGBTQ+
issues,
respect for
individual
preferences,
campaign
against
homophobia
and
transphobia

Multicultural
Break down
the barriers
of cultural
differences
to encourage
collaboration
among our
employees

Disabeled
People
Sensitize
employees to
the inclusion
of people with
disabilities
at work and
recognize their
talent and value
added to our
organization

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Consistent Cultural Evolution

Flexible Schedules & Benefits
We take care to encourage a good work/life balance for our employees.
To this end, we promote the use of flexible benefits, including:

• Extended maternity leave
• Paternity leave
• Flexible schedules
• Personal days
• Permission for family losses, marriages, and birthday celebrations
• Home office
• Casual dress codes

SOCIAL DEVELOPMENT
We promote the development and quality of life of our employees through a
model of integral well-being, that positively influences their environment.

Social Development Strategy
To this end, during 2018, we refocused our Social Development Strategy,
concentrating on five dimensions:

• Health: We promote healthy physical and bio-psychosocial lifestyles

for our employees.

• Social Relationships: We encourage satisfactory relationships in
harmony with the environment and community through employee
volunteering activities.

• Economy: We work to build and protect our employees’ family assets and

promote a culture of savings.

• Educational: We look to improve our employees’ school levels, increase

their knowledge and skills, and foster their cultural, creative, and
technological development.

• Labor: We are committed to our employees’ excellence on the job

and within their organizational environment while developing a sense
of belonging.

Personnel per gender

● Male: 90%
● Female: 10%

Personnel per age range

● 18 - 34: 54%
● 35 - 44: 30%
● 45 - 59: 15%
● 60+: 1%

Promoting social development
In 2018, we invested US$3.7 million in
programs promoting the proper balance
between work and family, improving our
employees’ wellbeing and quality of life.

“

At Coca-Cola FEMSA,

we are committed to
fostering a culture of
inclusion and diversity—
promoting mutual respect
across our organization.”

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KOF Volunteers Program
We encourage the development of our employees and
their families as responsible citizens, committed to their
community, society, and environment. Through the KOF
Volunteers program, we promote initiatives that enable
us to beneficially impact the quality of life and wellbeing
of the communities where we operate, strengthening
our relationships with them, while positively affecting our
corporate position and reputation.

In 2018, we had 91,143 participants, including our
employees and their families, who devoted 395,773 hours
to approximately 1,400 volunteer initiatives, supported
by an investment of more than US$255,000. By year-end
2018, we made 39.5% progress toward our 2020 goal of
1 million hours of volunteer work.

Our overall volunteer activity is committed to six
different causes:

Community
Development

Environment

Natural
Disasters

Health

Education

Human
Rights

OUR 2020 GOAL

To generate 1 million hours of volunteer work

OCCUPATIONAL HEALTH
At Coca-Cola FEMSA, we look to promote an
improved quality of work life for all of our employees
across our organization.

“

In 2018, we had 91,143

participants, including our employees
and their families, who devoted
395,773 hours to approximately
1,400 volunteer initiatives.”

Occupational Health Management System
Our Occupational Health Management System establishes
the vision, strategy, objectives, elements, and activities
through which we improve the quality of work life for our
employees across our company’s work centers and strategic
business units. Complying with our legal, ethical, scientific,
and organizational framework, this system encompasses our
health processes and programs that we apply according
to applicable risk matrices, local legislation, and
operational needs.

OUR 2020 GOAL

Zero fatalities from
work-related diseases

Reduce by 20% our general illness
absentee rate compared to 2020

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Consistent Cultural Evolution

Health & Wellbeing Policies
At Coca-Cola FEMSA, our Corporate Occupational Health
area is responsible for proposing relevant revisions and
updates to our three Health and Wellbeing Policies:

• Occupational Health
• Personnel with Healthy Habits
• Healthy Culture

As well as this annual corporate review, which is sent for
approval to our Director of Social and Labor Development
and Global Director of Human Resources, our company’s
internal audit area will later review these policies for
dissemination and implementation across our operations.

General Illness Index
General Illness Index
per 100 associates
per 100 associates

2
0
7
4

3
2

0
4

2017

2018

Lost days due to General Illness Index
per 100 associates

3
9
4

5
7
4

2017

2018

14.5%

reduction of our
General Illness Index

Employee Support Program
In 2018, we launched our Employee Support Program.
This emotional containment service is designed to assist our
employees and their families to resolve situations that may
generate emotional disturbances such as stress, anxiety,
and depression, among others, which may affect their
development in either their daily life or their
work environment.

This program is part of our Comprehensive Welfare Strategy
to reduce psychosocial risk factors inside and outside of
work through the attention and advice of psychologists
and other health professionals according to the different
situations that affect our employees.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018
Interview
with our former
CFO

After more than 25 years as our
Chief Financial Officer and a
distinguished career of more than
37 years at FEMSA, Héctor Treviño
Gutiérrez decided to retire effective
December 31, 2018. Over the years,
Héctor led our company’s profitable
growth through his strategic vision,
unwavering financial discipline, and
unmatched work ethic.

Looking back on our company’s 25th anniversary, Héctor
reflects on our achievements and opportunities. He also
discusses our operating highlights, the sale of our majority
stake in Coca-Cola FEMSA Philippines, our M&A strategy,
and our steps to strengthen our capital structure and
financial flexibility, while maximizing shareholder return.

? Hi, Héctor. 2018 marks the 25th anniversary
of Coca-Cola FEMSA. As its CFO over the course
of these 25 years, could you summarize the
company’s achievements?

A For me and for our company, this marks a very impressive
25-year journey. Beginning in 1993, two landmark events
took place when FEMSA and The Coca-Cola Company
incorporated Coca-Cola FEMSA and, subsequently, began
trading the new company’s shares on the New York Stock
Exchange (NYSE) and the Mexican Bolsa (BMV). At the time
of its IPO, Coca-Cola FEMSA was valued at US$1 billion.

We took our first step abroad with the acquisition of
Coca-Cola’s bottling franchise in Buenos Aires, Argentina,
in 1994. Our initial entry into South America offered an
important opportunity to rebuild our entire business
model, while developing Right Execution Daily (RED) and
segmented execution to maximize our operations’ potential.

In 2003, we seized a leadership position in the beverage
industry with our watershed acquisition of Panamco.
This acquisition enabled us to become the world’s second
largest Coca-Cola bottler, expanding our presence to serve
174 million consumers across nine of Latin America’s most
important markets—multiplying our volume six times.

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From 2008 through 2016, we strengthened our company’s
leadership position in Brazil with our acquisition and
integration of four significant franchises: REMIL, Fluminense,
Spaipa, and Vonpar. These transactions underscored the
long-term strategic importance of the Brazilian market,
increasing our presence to more than 50% of the Coca-Cola
system countrywide.

Mexico, our largest operation, delivered positive results in
the face of a tough macroeconomic environment, exchange
rate volatility, and election year uncertainty. By leveraging
our pricing, currency hedging, productivity, and digital
initiatives, we continued to increase our pricing ahead of
inflation, driving our top-line growth while mitigating raw
material cost and currency volatility.

Correspondingly, we bolstered our foremost footprint in
Mexico through our merger of four important family-owned
bottling franchises—Grupo Tampico, FOQUE, CIMSA, and
YOLI—from 2011 through 2013. Moreover, through our joint
venture with The Coca-Cola Company, we operated in the
Philippines from 2013 to 2018. As a result of our turnaround
strategy, we transformed the Philippine market and the
operation’s infrastructure to achieve unmatched results.

Overall, our Central America operations’ positive
performance was backed by our affordability strategy,
coupled with the newly acquired ABASA and Los Volcanes
territories in Guatemala. We significantly improved our
profitability with the implementation of our pre-sale system in
Guatemala. We also continued our turnaround in Costa Rica,
while improving our profitability in Panama and confronting a
challenging sociopolitical environment in Nicaragua.

We remained at the forefront of the industry’s evolution,
transforming into a multi-category beverage company with a
series of joint ventures with The Coca-Cola Company.
First, in 2007, our joint acquisition of Jugos Del Valle
unlocked the potential of a powerful brand of fruit juices and
beverages. Second, we established a joint partnership with
Matte Leão, a Brazilian infusion and tea brand. Third, we
embraced the value-added dairy category through our joint
ventures with Estrella Azul in Panama, Santa Clara in Mexico,
and Verde Campo in Brazil. Recently, we entered a new
plant-based beverage category with our joint acquisition of
AdeS in 2017.

Throughout this journey, we sustained our company’s strong
capital structure and financial flexibility, maintaining our
disciplined approach to capital allocation while capitalizing
on our operational excellence to smoothly integrate new
territories and beverage categories into our company.
Consequently, we are now the largest non-alcoholic
beverage company in Latin America—creating value for our
shareholders by multiplying the original value of Coca-Cola
FEMSA by 13 times.

? Can you walk through the highlights of the
company’s operations in Mexico, Central America,
and South America for the year?

A Guided by our clear strategic framework, we delivered
solid results in a complex consumer, macroeconomic,
and raw material environment. For the year, our reported
sales volume remained flat at 3.3 billion unit cases, with
transactions growing 0.7% to 19.7 billion. Total revenues
decreased 0.5% to Ps. 182.3 billion. Operating income
declined 1.3% to Ps. 24.7 billion. Operating cash flow declined
2.3% to Ps. 35.4 billion. Our net controlling interest income
reached Ps. 13.9 billion, resulting in earnings per share of
Ps. 6.62 (Ps. 66.21 per ADS), and net controlling interest
income from continued operations reached Ps. 10.9 billion,
resulting in earnings per share of Ps. 5.21 (Ps. 52.05 per ADS).

Our second largest operation —Brazil—delivered consistent
volume growth throughout the year, capitalizing on
our affordability strategy. Our Brazilian operation also
generated improved profitability thanks to our point-of-sale
execution, digital commercial and distribution capabilities,
and favorable sugar prices. Our diversified portfolio is well
positioned to address the country’s gradually recovering
consumer and macroeconomic environment.

In Colombia, our operation continued to gain traction in a
challenging competitive environment. We achieved modest
volume growth most of the year thanks to our affordability
strategy, achieving notable growth in our returnable
colas portfolio.

Finally, in Argentina, we faced a very challenging
macroeconomic environment marked by hyperinflation,
substantial currency devaluation, and a deteriorating
consumer environment. Nonetheless, our operation’s
management of the variables within its control—from our
affordable portfolio to our pricing and currency hedging
initiatives and cost and expense controls—prepare us
better than ever to confront these challenges and
protect our profitability.

According to International Reporting Standards, we adopted
hyperinflationary accounting for our Argentina operation as
of July 1, 2018. Consequently, we began to report our results
for any given month in real terms to the end of the actual
reporting period. We are also required to use the exchange
rate at the end of the actual reporting period to translate the
reported results of our Argentina operation to Mexican pesos.

Notably, the adoption of hyperinflationary accounting
means that our company’s reported results for our Argentina
operation are not comparable to previous years. Therefore,
to provide our investors with a more useful representation
of our company’s performance, we provide “comparable”
results that exclude the results of hyperinflationary
subsidiaries, among other effects.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018? Could you briefly discuss the company’s
decision to exercise its put option and sell its
majority stake in Coca-Cola FEMSA Philippines,
Inc.? Also, how does the company plan to use the
resources from the sale of that asset?

A We enjoyed the opportunity to operate in the Philippines
for over five years, leading an efficient turnaround of that
operation. As part of our acquisition of a 51% stake in
Coca-Cola FEMSA Philippines, Inc., on January 25, 2013, our
company obtained a put option to sell back to The Coca-Cola
Company no less than all of our shares at a price determined
according to an agreed formula, which could not exceed the
aggregate enterprise value of the original purchase.

Given the change of conditions for the Philippines’ business
outlook—marked by the introduction of an excise tax that
considerably disrupted the market—and our disciplined
approach to capital allocation—focused on driving
shareholder returns—our Board of Directors concluded that
exercising our put option represented the best course of
action for our shareholders.

important volume growth—particularly within our cola
portfolio—across our Colombian, Guatemalan, and Costa
Rican markets. Moreover, consistent with our efficient
resource management and packaging optimization, we
continued to deploy a wide-ranging light-weighting strategy
for our operations’ PET presentations and caps. We further
integrated a greater percentage of recycled material into our
PET packages.

? Could you further update us on the steps taken
to strengthen the company’s capital structure
and financial flexibility, while maximizing
shareholder return?

A As I noted earlier, consistent with our mandate to
deleverage our company’s balance sheet, we plan to
primarily use the proceeds from the sale of our company’s
51% stake in Coca-Cola FEMSA Philippines to repay debt
and further strengthen our company’s financial position.
Moreover, consistent with our commitment to minimize our
exposure to foreign currency denominated debt, our net
debt holds zero exposure to U.S. dollars.

Through our actions, we bolstered our balance sheet,
improved our debt maturity profile, and enhanced
our financial flexibility. Thanks to our commitment to
operating efficiency, leverage metrics, and disciplined
risk management, both Moody’s and Standard and Poor’s
(“S&P”) affirmed their credit ratings on our company and
revised their outlook from negative to stable, reflecting our
strong liquidity and satisfactory credit metrics.

Furthermore, we made two dividend payments for a
total amount of over Ps. 7.0 billion (or Ps. 3.35 per share),
underscoring our company’s commitment to
shareholder return.

CFO Transition

Effective January 1, 2019, the Board of Directors
elected Constantino Spas to serve as CFO for
Coca-Cola FEMSA. Before joining the company
as Strategic Planning Officer on January 1, 2018,
Constantino accumulated more than 25 years of
experience in the food and beverage sector, with
a demonstrated track record in companies such as
Grupo Mavesa and Empresas Polar in Venezuela;
Kraft Foods, SABMiller in Latin America; and
Bacardi in Mexico and Latin America.

On December 13, 2018, we closed the transaction to sell our
company’s 51% stake in Coca-Cola FEMSA Philippines, Inc.,
for an aggregate amount of US$715 million. Our company
plans to use the proceeds from this transaction for debt
repayment and general corporate purposes.

? Could you update us on the company’s
recent acquisitions of ABASA and Los Volcanes
in Guatemala and MONRESA in Uruguay?

A Our company’s recent acquisitions of ABASA, Los
Volcanes, and MONRESA are a testament to our positive
relationship with The Coca-Cola Company. Previously
operated by The Coca-Cola Company, these three important
franchise territories expand our company’s geographic
footprint to 10 countries across Latin America. Consolidated
on May 1, 2018, ABASA serves the northwest region of
Guatemala, while Los Volcanes serves the country’s
southwest region, enabling us to develop this market
through portfolio standardization and cost savings initiatives.
Consolidated on July 1, 2018, MONRESA serves all of the
territory of Uruguay; its proximity to our Argentina operation
will allow us to capture important synergies.

? Could you also talk a bit about the steps
the company took to improve the profitability
of its portfolio?

A Among our strategic portfolio initiatives, we continued
to reduce the sugar content of our sparkling beverages
to satisfy our consumers’ lifestyles while improving the
productivity and profitability of our winning product
portfolio. We also satisfied our cost-conscious consumers’
growing demand through our portfolio of affordable,
returnable packaging alternatives at the right price points.
For example, our affordable, returnable presentations
enabled us to increase our consumer base and achieve

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Interview
with our
CAO

José Ramón Martínez, Corporate
Affairs Officer, discusses our
integrated sustainability strategy.
Among other topics, he talks
about our main sustainability
achievements, sustainable
sourcing, environmental
stewardship, promotion of healthy
habits, and strengthening our
local communities.

? What would you say were Coca-Cola FEMSA’s
main sustainability achievements during 2018?

A During 2018, we made good progress on our sustainability
strategy aligned with Coca-Cola FEMSA´s strategic framework.
As you may know, our 2020 goal is to supply 85% of our
Mexican manufacturing operations’ energy requirements with
clean energy. For the year, we achieved significant progress
towards this goal, using clean energy to cover 51.5% of our
Mexican manufacturing plants’ energy needs. Moreover, we
increased our use of clean energy for our bottling plants in
Panama, Colombia, Brazil, and Argentina, accomplishing
50% coverage of our total manufacturing operations’ power
needs through clean sources of energy.

Importantly, thanks to the collaboration of all of our
operations, we surpassed our 2020 goal of benefiting
5 million people through our healthy habits and nutrition
programs. Among our noteworthy initiatives, I would like to
highlight the contribution of the Latin American Commitment
for a Healthy Future regional initiative, together with
local initiatives such as Ponte al 100 in Mexico, Praça da
Cidadania in Brazil, La hora de Moverse in Central America,
and Vive Bailando in Colombia, among others.

This year, we also joined The Coca-Cola Company’s
commitment to create a “World Without Waste,” a
comprehensive global strategy designed to manage waste in
more efficient way by improving the design of our packaging,
increasing post-consumption collection, and promoting
a culture of recycling in our communities. Aligned with
this effort, we signed The New Plastics Economy Global
Commitment, led by the Ellen MacArthur Foundation in
collaboration with United Nations Environment.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018? How would you describe Coca-Cola FEMSA’s
integration of its sustainability strategy into its
business priorities?

? Could you please elaborate on how Coca-Cola
FEMSA supports The Coca-Cola Company’s
“World Without Waste” global initiative?

A At Coca-Cola FEMSA, we integrate sustainability into
our day-to-day operations as a key driver of our business
decisions. This enables us to guarantee our company’s long-
term development and continuity, foster the wellbeing of our
communities, and take care of the environment, fulfilling our
mission to simultaneously generate economic, social, and
environmental value for all of our stakeholders. Aligned with
our integrated sustainability strategy, our strategic framework
calls for building a Winning Portfolio that provides consumers
choices to satisfy their changing tastes and lifestyles, focuses
on moderation, provides clear nutritional information, and
advocates responsible marketing. Through our Operating
Model Transformation, we recognize and proactively address
the impacts of our operations by means of our comprehensive
water management, energy efficiency, waste and recycling,
sustainable mobility, safety, community development, and
sustainable sourcing strategies. Consistent with our Cultural
Evolution, we focus on creating a culture that empowers our
people to face upcoming challenges, protect human and
labor rights, promote inclusion and diversity, and manage and
develop tomorrow’s leaders today.

? Could you please elaborate on Coca-Cola
FEMSA’s commitment to empower consumers
to make informed decisions through responsible
marketing?

A Essential to our company’s DNA, we obsessively focus
on providing excellent service to our consumers and
clients. Accordingly, transparency, fact-based information,
and a high sense of responsibility form the guiding
principles for our marketing practices. Given our company’s
position in 10 countries, our nutritional labeling strategy
recognizes that each population is different, with its own
needs and habits; therefore, we fully endorse and comply
with each of our countries’ existing legal framework, as
long as this framework clearly provides science-based
information to our consumers. When regulatory changes
arise, we are always willing to take part in such changes,
providing our expertise as a system in order to ensure that
our consumers are provided with high-quality information.
Additionally, our production processes fulfill the highest
standards, and our ingredients comply with each of our
operations’ local regulations and with the standards of
other regulatory agencies.

A Since 2002, we have collaborated with other food
and beverage companies through ECOCE, a Mexican
Civil Association that promotes the collection of waste,
the creation of a national market for recycling, and the
development of recycling programs. We are leaders in
PET bottle-to-bottle recycling in Latin America. In 2005,
we joined efforts in Mexico to operate the first Food
Grade PET Recycling Plant in Latin America, called IMER
(or the Mexican Recycling Industry in English). Through
these ongoing efforts—together with our leadership in the
use of recycled resin in our packages and our focus on
recyclable packaging—we are pleased to join forces with
The Coca-Cola Company through the “World Without Waste”
initiative to multiply our impacts across the territories we
enjoy the privilege to serve in Latin America for the benefit
of our communities and to fulfill our 2030 vision.

? What is Coca-Cola FEMSA’s strategic approach
to water resource management?

Water is a key resource for our communities and our
operations; therefore, we are committed to the efficient use
of this natural resource in our bottling operations
—returning to the environment and our communities the
same amount of water used in our beverages. From 2010
through 2018, we significantly improved our water use ratio
by 19% to reach 1.59 liters of water per liter of beverage
produced, representing savings of more than 7.25 billion
liters. Importantly, we currently give back to the environment
more than 100% of the water we use in the production of our
beverages in Brazil, Colombia, Mexico, and Central America.

Consistent with our commitment to water replenishment and
conservation, in collaboration with the FEMSA Foundation,
we carry out projects designed to improve communities’
quality of life by helping to provide them with safe water,
improved sanitation, and hygiene education. We further
work to strengthen water funds and conserve water basins
through sustainable initiatives involving partnerships with
several stakeholders. Through the Latin American Water
Funds Alliance—comprised of the Nature Conservancy, the
FEMSA Foundation, the Inter-American Development Bank
(IDB), and the Global 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 socioeconomic development.

“

Thanks to the collaboration of all of our

operations, we surpassed our 2020 goal
of benefiting 5 million people through our
healthy habits and nutrition programs.”

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? Since strong communities make for strong
businesses, what is Coca-Cola FEMSA’s take on
community engagement and development?

? How would you say Coca-Cola FEMSA
addressed a challenging, complex social and
economic environment this year?

2018 presented complex social and economic challenges
in Latin America, triggered by factors such as presidential
elections in our Mexican, Brazilian, Colombian, and
Costa Rican markets and hyperinflation in Argentina and
Venezuela. At Coca-Cola FEMSA, we have full confidence in
the region in which we have grown for more than 25 years.
Underscoring our commitment to the region, we invested
over US$420 million to acquire The Coca-Cola Company’s
ABASA and Los Volcanes franchises in Guatemala and
MONRESA franchise in Uruguay.

We are firmly committed to serve our markets with
excellence and to grow our operations. We are prepared
better than ever to face these challenging environments
powered by our drive to innovate, winning product portfolio,
superior point-of-sale execution, unparalleled distribution
network, unmatched cold drink equipment placement,
and demand-driven KOFmmercial Digital Platform built on
advanced analytics.

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). Based on MARRCO, our 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 not only ensure our positive coexistence and our
business’ permanence at those locations, but also reaffirm
our social license to operate.

“

We are leaders in PET bottle-
to-bottle recycling in Latin America.
Together with our leadership in
the use of recycled resin in our
packages and focus on recyclability,
we are pleased to join forces with
The Coca-Cola Company to multiply
our impacts.”

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COCA-COLA FEMSA n INTEGRATED REPORT 2018Financial
Summary

Amounts expresed in millions of U.S. dollars and Mexican pesos, except data per share and headcount.

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

Net income (loss) after tax from discontinued operations
Consolidated net income

Equity holders of the parent for continuing operations
Equity holders of the parent for discontinued operations
Non-controlling interest net income for continuing operations
Non-controlling interest net income for discontinued operations

RATIOS TO REVENUES (%)

Gross margin
Net income margin

CASH FLOW
Operative cash flow
Capital expenditures7
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 Value8
Loss (income) attributable to the holders of the parent 9
Dividends paid10

Headcount11

U.S.*

20184,5,6

20172,3,4

20161

2015

2014

9,287
5,012
4,275
2,950
96
354

875

268

(12)

171
766
557
152
39
20

46.0
8.3

1,806
564
1,208

2,928
536
3,155
5,949
866
13,435

591
25
1,702
3,575
832
6,725
6,710
347
6,363

1.26
1.00
0.41
5.41

3.029
0.265
0.173
87,958

182,342
98,404
83,938
57,924
1,881
6,943

17,190

5,260

(226)

3,366
15,070
10,936
2,975
768
391

46.0
8.3

35,456
11,069
23,727

57,490
10,518
61,942
116,804
17,033
263,787

11,604
497
33,423
70,201
16,312
132,037
131,750
6,807
124,943

1.26
1.00
0.41
5.40

59.473
5.206
3.350
87,958

183,256
99,748
83,508
58,044
31,357
5,362

(11,255)

4,184

3,725
(11,654)
(16,058)
3,256
679
469

45.6
(6.4)

36,292
12,917
18,767

55,657
12,540
75,827
124,243
17,410
285,677

12,171
487
42,936
71,189
18,184
144,967
140,710
18,141
122,569

1.00
1.03
0.39
4.54

58.343
(7.678)
3.350
85,116

177,718
98,056
79,662
55,462
3,812
6,080

14,308

3,928

147

—
10,527
10,070
—
457
—

44.8
5.9

32,446
12,391
10,476

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

1.14
1.16
0.41
4.80

58.920
4.858
3.350
85,140

152,360
80,330
72,030
48,284
1,748
7,273

14,725

4,551

155

—
10,329
10,235
—
94
—

47.3
6.8

23,202
11,484
15,989

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

1.39
0.93
0.39
3.92

50.532
4.937
3.090
83,712

147,298
78,916
68,382
46,850
158
6,422

14,952

3,861

(125)

—
10,966
10,542
—
424
—

46.4
7.4

24,406
11,313
12,958

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

1.34
0.93
0.38
4.72

50.999
5.086
2.900
83,371

1 Information considers full-year of KOF’s territories and one month of Vonpar Refrescos, S.A. (“Vonpar”).
2 Income statement information considers full-year of KOF’s territories and full-year of Coca Cola FEMSA Venezuela.
3 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 investment
in shares as of December 31, 2017.
4 KOF Philippines has been classified as a discontinued operation in our profit and loss statement for the years ended December 31, 2017 and 2018.
5 Income statement information includes 8 months of the financial results for Abasa and Los Volcanes in Guatemala.
6 Income statement information includes six months in the financial results for Uruguay.
7 Includes investments in property, plant and equipment, refrigeration equipment and returnable bottles and cases, net of disposals of property, plant and equipment.
8 Based on 2,100.83 million ordinary shares as of December 31, 2018 and 2017, and 2,072.92 million ordinary shares as of December 31, 2016, 2015 and 2014.
9 Computed based on the weighted average number of shares outstanding during the periods presented: 2,100.83 million for 2018, 2,091.35 million on 2017 and 2,072.92 million on 2016, 2015 and 2014.
10 Dividends paid during the year based on the prior year’s net income, using 2,100.83 millions outstanding ordinary shares for 2018 and 2,072.92 million oustanding ordinary shares for paid on
2017, 2016, 2015 and 2014.
11 Includes third-party and for 2017 excludes 16,566 employees for our discontinued operation in Phillipines.
*Exchange rate as of December 31st, 2018, Ps 19.64 per U.S. dollar, solely for the convenience of the reader according to the federal USA reserve.
To consult the annual report of the audit commitee 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

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Management’s
Discussion and Analysis

Results from our operations for the year ended December 31, 2018 compared to the year ended December 31, 2017.

Coca-Cola FEMSA’s underlying financial and operating performance in 2018 as compared to 2017 was affected by the
following factors: (1) the ongoing integration of mergers, acquisitions, and divestitures: acquisitions made in Guatemala and
Uruguay as of May and July 2018, respectively; (2) translation effects from fluctuations in exchange rates; (3) our results in
territories that are considered hyperinflationary economies (as of December 31, 2018, Argentina and Venezuela are considered
hyperinflationary economies); (4) the deconsolidation of Venezuela, as of December 31, 2017 and (5) the presentation of
Coca-Cola FEMSA Philippines, Inc. as a discontinued operation as of January 1, 2018 and the re-presentation of the financial
statements as if said operation was discontinued from February 2017. To translate the full year 2018 reported results of
Argentina, we used the exchange rate of 37.70 Argentine Pesos, per U.S. dollar. In addition, the average depreciation
of currencies used in our main operations during 2018, as compared to 2017, was: Brazilian Real 14.5%, Colombian Peso 0.2%,
Mexican Peso 1.6% and Uruguayan Peso 7.2%.

Consolidated Results
Total Revenues
Our reported consolidated total revenues decreased 0.5%
to Ps. 182,342 million in 2018, including the results of our
acquisitions in Guatemala and Uruguay. Total revenues
were also driven by price increases aligned with or above
inflation in key territories, despite the depreciation of the
Argentine Peso, the Brazilian Real, and the Colombian Peso,
all as compared to the Mexican Peso; the deconsolidation
of Coca-Cola FEMSA de Venezuela as of December 31,
2017 and the reporting of Argentina as a hyperinflationary
subsidiary. On a comparable1 basis, total revenues would
have grown 5.9%, driven by growth in our average price per
unit case in most of our operations, volume growth in Brazil,
Central America and Colombia and flat volume
performance in Mexico.

Total reported sales volume remained flat at 3,321.8 million
unit cases in 2018 as compared to 2017. On a comparable
basis total volume would have increased 1.3% in 2018
as compared to 2017. On the same basis our sparkling
beverage portfolio’s volume increased 1.0%, driven by
growth across all of our operations. Our brand Coca-Cola
portfolio’s volume increased 2.8%, while our flavors portfolio
declined 5.6%. Our still beverage category’s comparable
volume increased 5.8%; driven by growth in Brazil, Central
America, and Mexico partially offset by a contraction in
Colombia. Our personal water portfolio’s comparable volume
increased 7.2%, driven by growth in Brazil, Colombia, and
Mexico, partially offset by a contraction in Central America.
Our bulk water portfolio’s volume, on a comparable basis
declined 2.6%; growth in Brazil, Central America, and
Colombia was offset by a decline in Mexico.

Our reported number of transactions increased 0.7%
to 19,725.7 million in 2018 as compared to 2017. On a
comparable basis, our number of transactions would have
increased 1.4% in 2018 as compared to 2017. On the same
basis, our sparkling beverage portfolio’s transactions
remained flat, driven by a contraction in Mexico, partially
offset by flat performance in Colombia and growth in Brazil
and Central America. On a comparable basis, our brand
Coca-Cola portfolio’s transactions increased 1.9%; growth
in Brazil, Central America and Colombia, was partially offset
by a decline in Mexico. Our flavors portfolio’s comparable
transactions declined 5.3%, driven by contractions across
our operations. Our still beverage category’s comparable
transactions increased 4.0%; growth in Brazil, and Mexico
was partially offset by a decline in Central America and in
Colombia. Our water transactions in a comparable basis,
including bulk water, increased 8.2%, driven by growth in
Brazil, Colombia, and Mexico, partially offset by a decline in
Central America.

Gross Profit
Our reported gross profit increased 0.5% to Ps. 83,938 million
in 2018, with a gross margin expansion of 40 basis points
to 46.0%. On a comparable basis gross profit would have
grown 5.5%. Our pricing initiatives, coupled with lower
sweetener prices in most of our operations, were offset
by higher PET costs across most of our operations,
higher concentrate costs in Mexico, and the depreciation
in the average exchange rate of all our operating
currencies as applied to our U.S. dollar-denominated
raw material costs.

1 Excluding the effects of: mergers, acquisitions, and divestitures; exchange rate movements; and hyperinflationary economies such as Argentina and Venezuela; and
presenting Coca-Cola FEMSA Philippines, Inc., as a discontinued operation as of January 1, 2018, and the consolidated income statements presented are re-presented
as if the Philippines had been discontinued from February 2017, date of the consolidation of said operation. As a result, the Asia Division is no longer reported.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018
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 employment 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 currencies, net of applicable taxes.
Packaging materials, mainly PET and aluminum, and HFCS,
used as a sweetener in some countries, are denominated
in U.S. dollars.

Administrative and Selling Expenses
Administrative and selling expenses in absolute terms
remained flat in 2018 as compared to 2017. As a percentage
of total revenues, these expenses increased 10 basis
points to 31.8% in 2018 as compared to 2017, due mainly
to an increase in labor costs and freight, among other
expenses, partially offset by an operative foreign exchange
gain. In 2018, we continued investing across our territories
to support marketplace execution, increase our cooler
coverage, and bolster our returnable presentation base.

During 2018, the other expenses, net, recorded an expense
of Ps. 1,881 million, due mainly to provisions related to
contingencies in Brazil and Colombia, coupled with an
impairment to the investment in our dairy joint venture
Estrella Azul, in Panama. This is compared to an expense of
Ps. 31,357 during 2017, driven mainly by a one-time non-cash
charge related to the deconsolidation of Venezuela.

The reported share of the profits of associates and joint
ventures line recorded a loss of Ps. 226 million in 2018,
compared to a gain of Ps. 60 million recorded in 2017. This is
due to a loss in our dairy joint venture in Panama and a loss
in our joint venture of Jugos del Valle partially offset by gains
in our joint ventures in Brazil.

Comprehensive Financing Result
The term “comprehensive financing result” refers to the
combined financial effects of net interest expenses, 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 2018
recorded an expense of Ps. 6,943 million compared
to an expense of Ps. 5,362 million in 2017.

During 2018, we recorded an interest expense, net, of
Ps. 6,564 million compared to Ps. 7,987 million in 2017.
This decrease was driven by the decline of short-term
interest rates in Brazil; the average exchange rate
depreciation of the Brazilian Real compared to the Mexican
Peso as applied to existing Brazilian Real-denominated
interest expense; and the reduction of debt in Argentina,
Brazil, and Colombia. However, these factors were partially
offset by: (i) financing of Ps. 10,100 million for the acquisition
of our new territories in Guatemala and Uruguay; and (ii)
an interest rate increase in Mexico.

In addition, in 2018, we recorded a foreign exchange loss
of Ps. 277 million as compared to a gain of Ps. 788 million
in 2017, which resulted from the depreciation of the Mexican
Peso as applied to our U.S. dollar-denominated cash position
that included the income of US$ 715 million related to the
sale of our stake in Coca-Cola FEMSA Philippines, Inc.

Due to the deconsolidation of Coca-Cola FEMSA de
Venezuela, no monetary position in hyperinflationary
subsidiaries was recorded in the first six months of 2018.
Nevertheless, with the reporting of Argentina as of July 1,
2018, a gain of Ps. 212 million was recorded in monetary
position in hyperinflationary subsidiaries for the second
semester of 2018, compared to a gain of Ps. 1,591 million
related to Venezuela in the full year 2017.

Market value on financial instruments recorded a loss of
Ps. 314 million, compared to a gain of Ps. 246 million in 2017,
due to the decrease in long-term interest rates in Brazil as
applied to our fixed rate cross-currency swaps,
during the period.

Income Taxes
During 2018, reported income tax as a percentage
of income before taxes was 31.0%.

Controlling Interest Net Income
We reported a net controlling interest income of Ps. 13,910
million in 2018 as compared to net loss of Ps. 12,802 million
in 2017, which included a one-time non-cash charge related
to the deconsolidation of Venezuela. Our net controlling
interest income from continued operations was Ps. 10,936
million in 2018.

Consolidated Results from Operations
by Reporting Segment

Mexico and Central America

Total Revenues
Total revenues from our Mexico and Central America
division increased 8.1% to Ps. 100,162 million in 2018. On a
comparable basis1, total revenues from our Mexico & Central

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America division would have increased 5.2%, driven by
flat volume performance in the division and average price
increases in Mexico.

Total sales volume increased 2.3% to 2,065.0 million unit
cases in 2018 as compared to 2017. On a comparable basis
sales volumes increased 0.5%. On the same basis, our
sparkling beverage category’s volume increased 0.5%,
driven by growth in brand Coca-Cola and its extensions,
partially offset by a decline in flavors. Our performance in
brand Coca-Cola and its extensions was driven mainly by
flat performance in Mexico, while our negative performance
in flavors was driven by Central America. Our still beverage
category’s volume grew 6.9%, driven by growth in Mexico
and Central America. Our personal water portfolio’s volume
increased 3.9%, driven by positive performance in Mexico.
Our bulk water portfolio’s volume declined 3.5% driven
by Mexico.

Total transactions in the division increased 2.5% to
11,507.5 million in 2018 as compared to 2017. On a
comparable basis transactions remained flat for the division.
On the same basis, our sparkling beverage portfolio’s
transactions contracted 1.1%, driven by a 0.8% decline in
brand Coca-Cola and its extensions and a 2.0% decline in
flavors. Our still beverage category’s transactions increased
3.2% for the division, driven by growth in Mexico, offset by a
decline in Central America. Our water transactions,
including bulk water, increased 3.1% for the division.

Gross Profit
Our reported gross profit increased 6.8% to Ps. 48,162
million in 2018 as compared to 2017. On a comparable
basis, gross profit would have grown 4.0% in 2018. Our
pricing initiatives, a favorable currency hedging position and
declining sweetener costs were offset by higher PET prices,
higher concentrate costs in Mexico, and the depreciation
of the average exchange rates of the Mexican Peso, the
Guatemalan Quetzal, the Costa Rican Colon, and the
Nicaraguan Cordoba as applied to U.S. dollar-denominated
raw material costs.

Administrative and Selling Expenses
Reported administrative and selling expenses as a
percentage of total revenues increased 50 basis points to
33.7% in 2018 as compared with the same period in 2017,
driven mainly by higher freight and labor costs in Mexico.

South America

Total Revenues
Total revenues from our South America division, decreased
9.3% to Ps. 82,180 million in 2018 as compared to 2017,
driven mainly by negative translation effects due to the
depreciation of the Argentine Peso, the Brazilian Real and
the Colombian Peso as referenced to the Mexican Peso,
and the deconsolidation of Venezuela. These effects were
partially offset by volume growth in Brazil and Colombia
coupled with average price per unit case growth across our

territories and the consolidation of our new acquisition in
Uruguay. Revenues of beer accounted for Ps. 13,849 million.
On a comparable basis, total revenues would have increased
6.9%, driven by volume growth and average price per unit
case increases in local currencies across our territories.

Reported total sales volume in our South America division,
decreased 3.3% to 1,256.8 million unit cases in 2018 as
compared to 2017, resulting from growth in Brazil and
Colombia and the consolidation of our acquisition in
Uruguay, offset by volume contraction in Argentina and
the deconsolidation of Venezuela. On a comparable basis,
sales volume increased 2.8% in 2018 as compared to 2017,
resulting from volume growth in Brazil and Colombia. On
the same basis, our sparkling beverage category’s volume
increased 1.9%, driven by 6.3% growth in brand Coca-Cola
and its extensions partially offset by a 12.0% decline in
flavors. Brand Coca-Cola and its extensions grew in Brazil
and Colombia. On the same basis, our still beverage
category’s volume increased 3.4%, with expansion in
Brazil partially offset by Colombia. Our personal water
category’s comparable volume increased 12.8%, with
growth in Brazil and Colombia. Our bulk water’s
comparable volume increased 8.3%, driven by growth
in Brazil and Colombia.

The reported total number of transactions for the South
America division decreased 1.8% to 8,218.2 million. On a
comparable basis, total transactions increased 4.1%. On the
same basis, our sparkling beverage portfolio’s transactions
increased 2.7%, driven by 6.5% growth in brand Coca-Cola
and its extensions partially offset by a decline in flavors.
Our performance in brand Coca-Cola was driven by growth
in Brazil and Colombia. On the same basis, our still beverage
category’s transactions increased 5.4%; driven mainly
by growth in Brazil. Our water comparable transactions,
including bulk water, increased 14.3%, driven
by an expansion in the division.

Gross Profit
Reported gross profit reached Ps. 35,775 million, a decrease
of 6.8% in 2018 as compared to 2017, with a 110 basis point
margin expansion to 43.5%, including the consolidation of
Uruguay. On a comparable basis, gross profit would have
grown 8.0% during the year. This figure is explained by lower
sweetener prices, a favorable currency hedging position in
the division, and our pricing initiatives. These factors were
partially offset by higher PET prices, an unfavorable raw
material hedging position in Brazil, and the depreciation
of the average exchange rate of the Brazilian Real and the
Colombian Peso as applied to our U.S. dollar-denominated
raw material costs.

Administrative and Selling Expenses
Reported administrative and selling expenses, as a
percentage of total revenues decreased 60 basis points
to 29.5% in 2018 as compared to 2017, driven mainly
by operating expense efficiencies in Brazil.

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COCA-COLA FEMSA n INTEGRATED REPORT 2018
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, John Murphy, Enrique F. Senior Hernández and Miguel
Eduardo Padilla Silva. The secretary non-member of the
Finance and Planning Committee is Héctor Treviño Gutiérrez,
our former 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, such appointment
and compensation being subject to the approval of our
Board of Directors; 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 and financial expert of the Audit
Committee. 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, Victor Alberto Tiburcio Celario 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 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
Karina Awad Pérez.

Advisory Board
The Advisory’s Board main role is to advise and propose
initiatives to our board of directors through the Chief
Executive Officer. This committee is mainly comprised of
former shareholders of the various bottling businesses that
merged with us, whose experience constitute an important
contribution to our operations.

L16978 INTERIORES INGLES COCA.indd 72

3/4/19 16:17

Luis Nicolau Gutiérrez1
Partner At Ritch, Mueller, Heather y Nicolau,
S.C., Law Firm; Member of the Firm’s Executive
Committee.
1 years as a Board Member

Directors Appointed by Series D Shareholders
José Octavio Reyes Lagunes
Retired
3 year as a Board Member
Alternate: T. Robin Rodgers Moore

John Murphy
Senior Vice President and Chief Financial
Officer of The Coca-Cola Company
Recently appointed as a Board Member
Alternate: Franz Alscher

Charles H. McTier 1
Retired
21 years as a Board Member

Brian Smith
President of The Coca-Cola Company Europe,
Middle East and Africa Group.
2 years as a Board Member
Alternate: Marie D. Quintero-Johnson

Bárbara Garza Lagüera Gonda
Private Investor
20 years as a Board Member
Alternate: Maximino José Michel González

Directors Appointed by Series L Shareholders
Robert Alan Fleishman Cahn1
Chief Executive Officer of Grupo Tampico,
S.A.P.I. de C.V.
7 years as a Board Member
Alternate: Herman Harris Fleishman Cahn

José Manuel Canal Hernando1
Independent Consultant
16 years as a Board Member

Francisco Zambrano Rodríguez1
Managing Partner of FORTE
Estate Planning S.C.
16 years as a Board Member
Alternate: Sergio Deschamps Ebergenyi

Secretary

Carlos Eduardo Aldrete Ancira
General Counsel of FEMSA
26 years as Secretary
Alternate: Carlos Luis Díaz Sáenz

EXECUTIVE OFFICERS

DIRECTORS

John Santa Maria Otazua
Chief Executive Officer
23 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.

Directors Appointed by Series A
Shareholders
José Antonio Fernández Carbajal
Executive Chairman of the Board of Directors
of FEMSA and Chairman of the Board of
Directors of Coca-Cola FEMSA
26 years as a Board Member
Alternate: Eva María Garza Lagüera Gonda

Eduardo Padilla Silva
Chief Executive Officer of FEMSA
3 years as a Board Member
Alternate: Francisco José Calderón Rojas

Javier 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 Santa Maria Otazua
Chief Executive Officer of Coca-Cola FEMSA
5 years as a Board Member
Alternate: Héctor Treviño Gutiérrez

Paulina Garza Lagüera Gonda
Private Investor
10 years as a Board Member
Alternate: Alfonso Garza Garza

Ricardo Guajardo Touché
Chairman of the Board of Directors,
SOLFI, S.A. de C.V.
26 years as a Board Member
Alternate: Daniel Rodríguez Cofré

Alfonso González Migoya1
Chairman of the Board of Directors of
Controladora Vuela Compañía de Aviación,
S.A.B. de C.V. (Volaris), and Managing Partner
of Acumen Empresarial, S.A. de C.V.
13 years as a Board Member
Alternate: Ernesto Cruz Velázquez de León

Enrique F. Senior Hernández1
Managing Director of Allen & Company, LLC.
15 years as a Board Member
Alternate: Herbert Allen III

Luis Rubio Freidberg1
President of the Organization México Evalúa
5 years as a Board Member
Alternate: Jaime El Koury

Daniel Servitje Montull1
Chief Executive Officer and Chairman of the
Board of Directors of Bimbo
21 years as a Board Member
Alternate: Victor Alberto Tiburcio Celorio

José Luis Cutrale
Chairman of the Board of Directors of
Sucocítrico Cutrale, Ltda.
15 years as a Board Member
Alternate: José Luis Cutrale Jr.

Héctor Treviño Gutiérrez*
Chief Financial and Administrative Officer
25 year as an Officer
Responsible for Finance, Legal,
and Sustainable Sourcing.

Tanya Cecilia Avellan Pinoargote
Information Technology and
Commercial Officer
7 years as an Officer
Responsible for integrating the Strategic
Sustainability Framework in the
Business Strategy.

Karina Paola Awad Pérez
Human Resources Officer
1 year as an Officer
Responsible for the Our People Pillar.

José Ramón Martínez Alonso
Corporate Affairs Officer
5 years as an Officer
Responsible for the Strategic Sustainability
Framework and the Our Community Pillar.

Rafael Ramos Casas
Supply Chain and Engineering Officer
1 years as an Officer
Responsible for the Our Planet Pillar.

Constantino Spas Montesinos
Strategic Planning & New Business Officer
1 years as an Officer
Responsible for integrating the Strategic
Sustainability Framework in the
Business Strategy.

Eduardo Guillermo Hernández Peña
Chief Operating Officer - LATAM
4 years as an Officer
Supervise and ensure that the Strategic
Sustainability Framework is implemented
in the region.

Ian Marcel Craig Garcia
Chief Operating Officer - Brazil
8 years as an Officer
Supervise and ensure that the Strategic
Sustainability Framework is implemented
in the country.

Xiemar Zarazua López**
Chief Operating Officer - Mexico
2 years as an Officer
Supervise and ensure that the Strategic
Sustainability Framework is implemented
in the country.

Washington Fabricio Ponce García**
Chief Operating Officer – Philippines
3 years as an Officer
Supervise and ensure that the Strategic
Sustainability Framework is implemented
in the country.

Rafael Alberto Suárez Olaguibel
Operational Integration Officer
24 years as an Officer
Responsible for integrating the Strategic
Sustainability Framework in the
Business Strategy.

L16978 INTERIORES INGLES COCA.indd 73

1 Independent
*Constantino Spas Montesinos was appointed as Chief Financial and Administrative Officer
succeeding Héctor Treviño Gutierrez, effective January 1, 2019. We recognize and thank
Mr. Treviño for his valuable contributions to the company for more than 25 years.
**Effective January 1, 2019, Washington Fabricio Ponce García has been appointed Chief Operating
Officer for Mexico. On the same date, Xiemar Zarazua López has been appointed Strategic
Planning & New Business Officer.

3/4/19 16:17

COCA-COLA FEMSA n INTEGRATED REPORT 2018

INTEGRAL ETHICAL SYSTEM

Through our ethical culture, we manage under schemes that
must be adopted as a way of life that inspires the acts and
actions of all those who are part of the organization through
the establishment of an Ethical System.

Our ethical management is based on:

• Prevent illicit behaviors that may affect our human capital

and our heritage.

• Detect improper acts through open communication

channels.

• Respond and provide feedback to our organization to build

trust.

Therefore, our system is comprised of three fundamental
elements: the Code of Ethics, an Ethics Committee and the
whistleblowing system known as “DILO”.

Our Code of Ethics
It is the basis of our organizational culture, communicates our
values, contemplates our main behaviors, promotes good
behavior inside and outside our organization and guides
our correct decision-making based on ethical principles.
Our Code, recently updated, includes important topics such
as Human Rights, Inclusion and Diversity, Discrimination,
Violence and Harassment, Conflicts of interests, Misuse of
information and Anti-corruption.

Our Ethics Committee
It is the oversight and control body, which guarantees
compliance with the Code of Ethics and attends to the most
relevant ethical situations of the company. In each of our
territories, there is an Ethics Committee and each Committee
reports to the Corporate Ethics Committee.

Our “DILO” whistleblowing system
Complaints about noncompliance with the Code of Ethics
are received through the “DILO” complaint system, which is
managed by an external company. Employees, customers,
suppliers, third parties or anyone who enjoys a relationship
with Coca-Cola FEMSA can use the system and their
complaints can be anonymous.

A group of investigators analyzes the complaints impartially
and confidentially and, if a violation of the Code is found,
corrective measures are applied.

In 2018, we received 1,038 complaints, 84% closed at the
end of 2018. Of these complaints, none were related to child
labor, forced labor or freedom of association.

To strengthen our culture, every two years, our workers sign
a Letter of Compliance to our Code of Ethics. Its purpose
is to ensure that our employees are aware of the Code of
Ethics, understand the main acts or omissions that may be
incurred and can put at risk to our organization and that they
must report any violation of the Code that they know.

PER STATUS
● Closed: 84%
● Open: 16%

PER TOPIC
● Human Resources: 81%
● Operations: 17%
● Financial Information: 2%

L16978 INTERIORES INGLES COCA.indd 74

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Shareholders
and analyst information

Investor Relations
María Dyla Castro Varela
Jorge Alejandro Collazo Pereda
María Fernanda García Cruz
kofmxinves@kof.com.mx

Sustainability &
Corporate Communication
Juan Carlos Cortés Trejo
Carlos Valle
Pedro Eduardo Incháustegui Balcárcel
sostenibilidad@kof.com.mx

Coca-Cola FEMSA, S.A.B. de C.V.
Mario Pani N° 100
Col. Santa Fe Cuajimalpa 05348,
Ciudad de Mexico, Mexico
Phone: (5255) 1519 5000
www.coca-colafemsa.com

Legal Counsel of the Company
Carlos L. Díaz Sáenz
Mario Pani N° 100
Col. Santa Fe Cuajimalpa 05348,
Ciudad de Mexico, Mexico
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
Ciudad de Mexico, Mexico
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

KOF
New York Stock Exchange
Quarterly Stock Information

U.S. Dollars per ADS

Quarter
Ended

Dec-31

Sep-28

Jun-29

Mar-30

Quarter
Ended

Dec-29

Sep-29

Jun-30

Mar-31

$ High

64.59

63.54

69.25

78.97

U.S. Dollars per ADS

$ High

77.46

90.90

85.16

73.39

$ Low

56.99

54.98

54.72

64.79

$ Low

67.05

75.85

71.73

59.91

KOF L
Mexican Stock Exchange
Quarterly Stock Information

Mexican pesos per share

Quarter
Ended

Dec-31

Sep-28

Jun-29

Mar-30

$ High

128.25

118.62

125.21

146.21

$ Low

114.60

109.94

111.49

118.92

Mexican pesos per share

Quarter
Ended

Dec-29

Sep-29

Jun-30

Mar-31

$ High

141.07

159.67

154.81

139.84

$ Low

127.22

137.88

134.53

128.33

2018

$ Close

60.84

61.24

56.43

66.43

2017

$ Close

69.62

77.13

84.67

62.02

2018

$ Close

119.15

114.26

112.46

120.23

2017

$ Close

136.95

140.71

153.77

134.48

L16978 INTERIORES INGLES COCA.indd 75

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COCA-COLA FEMSA n INTEGRATED REPORT 2018Integrated
Report

From our headquarters in Mexico City, we present our
Integrated Report 2018 edition. Developed by the guidelines
of the International Integrated Reporting Council (IIRC) and in
accordance with the GRI (Global Reporting Initiative) Standards:
Core option. Furthermore, this Report complements our
Communications on Progress (COP) to the United Nations Global
Compact included by FEMSA in its 2018 report.

The information contained corresponds to the period from
January 1st to December 31st, 2018. It includes data from all
the countries where Coca-Cola FEMSA, S.A.B. of C.V. has
operations or a majority stake. Its operations encompass
franchise territories in Mexico, Brazil, Guatemala, Colombia, and
Argentina, and, nationwide, in Costa Rica, Nicaragua, Panama,
Uruguay, and Venezuela.

Former Chief Financial and Administrative Officer

Héctor Treviño Gutiérrez

Incoming Chief Financial and Administrative Officer

Constantino Spas Montesinos

Corporate Affairs Officer

José Ramón Martínez Alonso

L16978 INTERIORES INGLES COCA.indd 76

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About our
COCA-COLA
FEMSA

+3.3billion

unit cases

35%of the brands in

our portfolio are low- or
no- sugar beverages.

L16978 FORRO INGLES COCA.indd 2

Stock listing information: Mexican Stock Exchange, Ticker: KOFL | NYSE (ADR), Ticker: KOF | Ratio of KOF L to KOF = 10:1

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INTEGRATED
REPORT

CLARITY

CONSISTENCY

COMMITMENT

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COCA-COLA
FEMSA

INTEGRATED REPORT

www.coca-colafemsa.com

2018FEMSA20182018FEMSA