Coca-Cola FEMSA(KOF) - 2018 Q4 - Annual Report

Financial Performance - Total revenues for 2018 reached Ps.182,342 million, with a gross profit of Ps.83,938 million, representing a gross margin of 46.0%[97] - Mexico and Central America contributed Ps.100,162 million to total revenues, accounting for 54.9% of the total, with a gross profit margin of 57.4%[97] - South America generated Ps.82,180 million in revenues, making up 45.1% of total revenues, with a gross profit margin of 42.6%[97] - Total sales volume for 2018 was 3,321.8 million unit cases, a growth of 0.1% compared to 2017[139] - In Mexico, sales volume increased by 2.3% to 2,065.0 million unit cases, while transactions decreased by 0.4%[139] - Central America saw a significant sales volume growth of 24.2%, reaching 214.7 million unit cases in 2018[139] - In Brazil, sales volume growth was 2.9%, with sparkling beverages growing by 1.2% and still beverages by 18.2%[140] Economic and Political Factors - Argentina's cumulative inflation exceeded 100% over the three years prior to July 1, 2018, categorizing it as a hyperinflationary economy, which may adversely affect financial results[86] - Political and social events in operating countries may adversely impact business operations and financial condition[90] - The company selectively hedges its exposure to the U.S. dollar, with significant currency fluctuations potentially impacting financial condition and results[89] - Depreciation of local currencies against the U.S. dollar increases costs for raw materials and debt obligations, negatively affecting financial results[87] Market and Product Strategy - The company aims to accelerate revenue growth through new product categories, with 34.6% of brands being low- or non-caloric beverages as of December 31, 2018[129] - The company plans to continue its expansion through organic growth and strategic joint ventures, mergers, and acquisitions[128] - The company has implemented a multi-segmentation strategy to tailor product offerings based on consumption occasions and competitive environments[149] - The company faces competition from local Pepsi bottlers and "B brands," with significant market presence in various territories[163] Distribution and Operations - As of December 31, 2018, the company operated 201 distribution centers in Mexico and Central America and 74 in South America, serving 1,045,780 and 852,091 retailers respectively[150] - The company utilizes multiple sales and distribution models, including pre-sale systems and hybrid distribution systems, to enhance efficiency[152] - The company continuously evaluates its distribution model to adapt to local market dynamics and improve efficiency[151] - The average annual utilization of bottling facilities in Mexico was 63%, with peak month utilization reaching 78%[246] Sustainability and Environmental Management - The company has committed to sustainability, focusing on people, communities, and the planet as part of its business strategy[127] - In 2018, 50.0% of the company's total energy requirements were obtained from clean energy sources[206] - The company recycled 95% of the total waste generated in 2018[206] - The company aims to improve its overall water use ratio to 1.5 liters of water per liter of beverage produced by 2020, having used 1.59 liters in 2018[197] Taxation and Regulatory Environment - The excise tax on beverages with added sugar in Mexico increased from Ps.1.00 to Ps.1.17 per liter as of January 1, 2018[189] - In Argentina, the income tax rate was reduced from 35.0% to 30.0% for 2018 and 2019, and then to 25.0% for subsequent years[193] - The average production tax in Brazil is approximately 4.2% and the average sales tax is approximately 12.3% over net sales[197] Corporate Structure and Ownership - The Coca-Cola Company indirectly owned 27.8% of the capital stock, representing 32.9% with full voting rights[124] - The company held a 36.4% equity interest in PIASA and a 2.7% equity interest in Beta San Miguel as of April 5, 2019[177] - The company has four bottler agreements in Mexico, two in Brazil, and various agreements in other countries, with several up for renewal between 2023 and 2028[239] Compliance and Legal Matters - The Colombian government has implemented regulations addressing money laundering and anti-bribery, requiring companies to comply with internal policies[229] - In December 2017, Argentina enacted Law No. 27,401, introducing corporate criminal liability for corruption and bribery[227] - The Brazilian government enacted Law No. 13,467 in July 2017, significantly changing labor regulations, including extending the workday from 8 to 12 hours[224]