Arca Continental Sab De C

Good day everyone and welcome to the ARCA Continental fourth quarter 2025 conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask questions at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. In the interest of time, we ask you please limit yourself to one question. Please note this call is being recorded. I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Melanie Carpenter of IDL Advisors. Please go ahead.

Thank you, Operator. Good morning, everyone. Thanks for joining the senior management team of ARCA Continental. to review the results for the fourth quarter and full year of 2025. Their earnings release went out this morning. It's available on the company website at arcacontar.com in the investor relations section. It's now my pleasure to introduce our speakers. Joining us from Monterey is the CEO, Mr. Arturo Gutierrez, the CFO, Mr. Emilio Marcos, the Chief Planning and Strategic Capabilities Officer, Mr. Jesus Garcia, and the Chief Operating Officer, Mr. Jean-Claude Tissot. They're going to be making some forward-looking statements, and we just ask that you refer to the disclaimer and the conditions surrounding those statements in the earnings release for guidance. And with that, I'm going to go ahead and turn the call over to the CEO, Mr. Arturo Gutierrez. who's going to begin the presentation. So please go ahead, Arturo.

Thanks, Melanie. Good morning, and thank you for joining us today to review our fourth quarter and full year 2025 results. 2025 was a complex and challenging year for our business. We faced extreme weather events, operational disruptions, and a volatile macroeconomic backdrop. These factors influenced consumption patterns and weighed on traffic in several of our markets. Our teams responded with agility and discipline, delivering strong execution, sustaining profitability while continuing to invest in the long term foundations of our business. In many respects, 2025 marked a transition year. We navigated heightened volatility while staying firmly focused on what we can control. We made meaningful progress scaling digital platforms and analytics to enhance commercial capabilities, strengthening our end-to-end supply chain, and driving productivity across the organization. As a result, we closed the year with stronger fundamentals. greater operational flexibility, and improved readiness to capture opportunities as conditions normalize. We are confident in the strength of our operating model and our readiness for the period ahead. Moving on to our consolidated results, for the fourth quarter, total consolidated volume declined 0.8%, and for the full year, 2.1%. Consolidated revenues in the quarter were down 0.6%. For 2025, revenues increased 4.6%, supported by revenue management, effective portfolio mix, and strong execution across channels. Consolidated EBITDA in the fourth quarter declined 4.5%, posting a margin of 21%. Full-year consolidated EBITDA increased 3% to a record level, surpassing 50 billion pesos for the first time in the company's history. underscoring the resilience of our operating model and continued focus on profitability. Now, let's review the performance of our operations. Our beverage business in Mexico ended the year on an encouraging note, delivering a gradual and sequential volume recovery in the second half, supported by our sophisticated revenue growth management capabilities, portfolio optimization, and continued progress in returnable packaging initiatives. In the fourth quarter, unit case volume, excluding jug water, declined 3%, cycling exceptionally strong growth of 7.8% and 3.5% versus the same quarter in the prior two years. For the full year, total volume declined 3.4%, reflecting strong 2024 comps. Sparkling verages declined 2.5% in the quarter, partially offset by outstanding sequential double-digit growth in Coca-Cola Zero. This momentum was supported by expanded coverage and affordable packages, including the 450-milliliter non-returnable format. Remarkably, Coca-Cola Zero achieved a CAGR of 15.8% in the last five years. Spills increased 2.8%, led by teas, dairy, juices, and nectars, driven by sustained momentum in the modern trade channel, mainly in supermarkets. which were up 6.3%. Net sales grew 1.2% in the quarter, with average price per case, excluding junk water, up 5%. For the full year, revenues rose 1%. EBITDA in the quarter increased 5.1%, reaching a margin of 23.9%. For the full year, EBITDA declined 1.7% with a 23.4% margin, supported by disciplined expense control, operational efficiencies, proactive hedging initiatives, and favorable negotiations on key inputs. Looking ahead, we will continue to accelerate the deployment of digital capabilities to drive operational efficiency and improve visit frequency and effectiveness. Key initiatives include broader use of Tuali and the suggested order tools, along with new AI-driven inventory planning and predictive analytics to further strengthen execution. Turning to South America, total volume during the quarter and the full year were broadly flat, reflecting softer results in Ecuador and Argentina, largely offset by growth in Peru. Total revenue declined 5.6% for the quarter. while increasing 3.1% for the full year. Fourth quarter EBITDA declined 14.9%, with margins at 22.2%. On a full year basis, EBITDA increased 6.5%, reaching a margin of 19.6%. Overall, our results reflect a gradual and uneven recovery across the region, with distinct dynamics by country. Taken together, the region remains and a constructive path, characterized by modest growth, improving fundamentals, and increasing confidence in the trajectory ahead. In Peru, our operation delivered a strong finish to the year, supported by resilient demand and solid execution across channels. Total volume in the fourth quarter was up 3%, cycling strong growth over the same quarter in each of the past four years. Notably, this was the highest quarterly volume since we assumed operations in 2015. Growth was broad-based across categories, led by sparkling up 1.9%, stills 1%, and water at 10%. Core brands Coca-Cola and Inca-Cola delivered solid performance, with volumes up 2.7% and 3.1% respectively. In stills, the water segment stood out, supported by double-digit expansion in Brand San Luis. Sports and energy drinks also contributed, increasing 2.6% and 8.6% respectively. Importantly, Powerade continued to build momentum following the rollout of its new formula, further enhancing its relevance within the category. For the full year, total volume increased by 0.5%, confirming a clear sequential recovery through the second half of the year. Volume growth was also supported by targeted market-focused investments. In 2025, our team in Peru installed nearly 44,000 cold drink units, reaching our highest coverage level to date. This momentum, combined with disciplined execution, drove value share gains in non-alcoholic ready-to-drink beverages across both sparkling and still categories. Moving on to Ecuador, volume in our beverage business declined 5.4% in the quarter and 4.4% for the full year, reflecting a consumer environment that remains moderate though constructive. Despite this backdrop, we sustain a solid competitive position, delivering value share gains in both sparkling and still beverages. These results were supported by affordability initiatives, particularly the expansion of returnable packages. Notably, the mix of returnables increased by 0.3 percentage points during the year. We also continue to strengthen our portfolio through innovation with the introduction of the Flashlite brand to compete in the fast-growing rapid hydration segment. Looking ahead, we remain focused on sustaining profitability through disciplined cost management and efficiency optimization across the supply chain. Now, lastly, to Argentina. Fourth quarter volume declined 1%. while increasing 5.2% for the full year, supported by selective pricing and affordability initiatives, with recovery led by the traditional trade. Our operation navigated this environment through strong in-market execution and a continued focus on returnable packages. We also delivered value share gains. in NARTD verages, with single-serve packages gaining traction and driving a 1.1% improvement in mix during the quarter. These gains were led by remarkable performance in the energy category, highlighted by the strong momentum of Monster. In addition, our digital agenda continued to advance, with digital sales reaching 75% supported by the rollout of our proprietary B2B platform, Twily. Our beverage business in the United States delivered another year of strong financial and operating performance. In the fourth quarter, volumes grew 2.2% and transactions increased 3.5%, reflecting our focus on sustaining consumer engagement and driving interaction at the point of sale. For the full year, volume declined 1.2%. This quarter showed broad-based momentum across categories. Our low-calorie portfolio grew by 9%, with Coca-Cola Zero up 11%, Diet Coke up 2%, and Diet Zero Dr. Pepper up 10%. Still beverages increased 3.7%, driven by strong performance by Monster, Fairlife, and our water brands, supported by excellent holiday point-of-sale executions. Quarterly net sales rose 4.9%, with average price per case up 2.8%. Full-year net sales increased 3.3%. EBITDA in the quarter declined 4.3%, with a margin of 17.5%. For the year, EBITDA increased 4.2%, with a margin of 17.2%. This is the highest full-year EBITDA margin since we acquired this operation in 2017, underscoring the strength of our operational model. Finally, we are pleased with the seamless integration of our recently acquired adjacent franchise territory in Oklahoma, which commenced operations on November 1st, further strengthening our footprint and growth opportunities in the region. To conclude our review of operations, the food and snacks business delivered low single digit sales growth for the full year, demonstrating strong execution despite a high single-digit decline in the fourth quarter. Discipline pricing, portfolio optimization, and operational efficiencies continue to support profitability and strengthen the position of our food and snacks business going forward. I will now hand it over to Emilio to discuss our financial results. Please, Emilio. Thank you, Arturo.

Good morning, everyone. And thank you for joining us today to review our results. We're closing a year impacted by significant challenges, not only for our business, but also for the global economy, which has faced multiple external pressures. Consistent with our historical approach, we remain focused on the factors within our control, our execution, operating discipline, and effective management of costs and expenses. This sustained approach is reflected in our performance throughout the year. We deliver sequential volume improvement every quarter and achieve full-year growth in both revenues and EBITDA, highlighting the solid fundamentals of our operations, even in a highly complex environment. At the same time, disciplined cost and expense management enable us to maintain our EBITDA margin within the 20% range despite the headwinds we faced. These results demonstrate our ability to manage volatility while reinforcing our business fundamentals. And they confirm that even in challenging times, disciplined execution and a clear approach enable us to deliver a solid performance. Now, let me provide you with further details on our financial results. Consolidated revenues decreased 0.6% in the quarter to 64.5 billion pesos, mainly explained by the change rate effect given an exposure to a US dollar. For the full year, revenues grew 4.6% to 247.9 billion pesos, reflecting the consistent results derived from our successful RGM strategy. On a currency neutral basis, revenues rose by 5.4% in the quarter and 3.6% for a full year period. During the quarter, SG&A expenses decreased 0.3% to 20.4 billion pesos, while the SG&A to sales ratio was fairly in line with 4.24% at 31.4%, reflecting our continued commitment to operational discipline. In the fourth quarter, consolidated EBITDA was 13.5 billion pesos, a decrease of 4.5% compared to the same period of 2024. For the full year, consolidated EBITDA rose 3% to reach 50.2 billion pesos. On a currency-neutral basis, EBITDA grew 1.3% for the quarter and 1.9% for the full year. Even the margin for the fourth quarter contracted by 80 basis points to 21.8%. The contraction is explained by the high comps in the U.S. and South America region in the fourth quarter of 2024, given the factors that we have disclosed in previous calls. At the same time, profitability in our Mexico business continued to improve sequentially. with the region delivering a 90 basis points margin expansion in the quarter. For the full year, EBITDA margin was 20.2%, reflecting a 30 basis points contraction. Despite the challenging environment and volume pressure, we successfully sustained margins within the 20% range, supported by our effective hedging strategy and discipline expense control and ongoing operational initiatives to support margin stability. Now moving on to the balance sheet. As of December, cash and equivalents totaled 28.6 billion pesos, where the total debt stood at 62.3 billion pesos, resulting in a net debt to EBITDA ratio of 0.7 times, reinforcing the strength and flexibility of our balance sheet. we distributed a total dividend of 8.62 pesos per share. This reflects a payer ratio of 75% of retained earnings and a dividend yield of 4.3%, consistent with a disciplined capital allocation approach. On February 4th, we successfully completed the issuance of 9,500 million pesos in a local bond on the Mexican debt market. in two tranches, one for 6,240 pesos with a seven-year term at a fixed rate of 8.96%, and the other for 3,260 million pesos with a three-year term at a variable rate equivalent to TFONDEO plus 40 basis points. With these issuance, we improve our debt structure and profile. Looking ahead, we remain confident in our strategy, our discipline management of costs and expenses, and a strong commercial and operational capabilities position as well to navigate uncertainty and continue delivering solid results. Thank you for your continued support as we remain committed on delivering sustainable long-term value. And with that, I will turn it back to Arturo. Please, Arturo.

Thank you, Emilio. As we conclude today's call, I want to thank our exceptional team of associates. 2025 tested our execution and our team's rose to the challenge, delivering results in an environment that demanded agility, discipline, and focus. This year reinforced what differentiates our model, the importance of adaptability in navigating unstable conditions across our markets. and the operating leverage we continue to unlock to our digital capabilities. Even in a challenging year, we protected margins, stayed closely connected to customers and consumers, and continued to strengthen the fundamentals of our business. For the full year, we anticipate consolidated revenue growth in the mid single digits year over year, driven by balanced contributions from volume, pricing, and mix. We will continue implementing pricing actions to at least offset inflation across our operations, while remaining firmly committed to keeping our portfolio affordable and relevant for consumers. We plan to invest around 7% of total sales and capital expenditures with a disciplined focus on strengthening market execution, expanding and modernizing our production and distribution network, and advancing our information technology and digital agenda. Looking ahead, we entered 2026 with better visibility and a more normalized operating environment. We also see incremental upside for major brand building locations, including the FIFA World Cup. With 24 matches hosted in two of our territories, we expect to drive incremental demand and deepen consumer engagement. 2026 also marks two historic moments for our company. We celebrate 100 years of Coca-Cola in Mexico, a brand that has become deeply embedded in the country's culture. This anniversary provides a powerful opportunity to reinforce local relevance, strengthen brand affinity, deepen our connection with consumers and communities, and recognize the enduring partnership that has shaped our shared success. At the same time, Arca Continental celebrates 100 years as a Coca-Cola bottler. This milestone honors a century of driving sustainable growth, continued investment, boosting the local economy, and being a pillar for the communities where we operate. Most importantly, honoring the past is about preparing for the future. We entered 2026 with confidence and momentum. Profitability, efficiency, and disciplined growth will continue to guide our decisions. With stronger capabilities, discipline execution, and solid fundamentals in place, we are confident in our ability to perform across business cycles and deliver sustainable value creation. Thank you for joining us today. Operator, please open the lines. We will be happy to take your questions.

Thank you. And at this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. In the interest of time, we ask you limit yourself to one question. Once again, that is star and one to ask a question. We'll pause a moment to allow questions to queue. We'll take our first question from Ben Surer with Barclays. Please go ahead. Your line is open.

Good morning. Thanks for taking my question, Arturo and Emilio. And team, on Mexico, so fourth quarter profits finished fairly strong and probably a little bit stronger than what was initially expected. Could you elaborate what the drivers were towards the end of the year and how that positions you as we move into 2026, thinking broader picture around the backdrop of the adverse fixation that was put in place about a month ago, but then obviously you've called about the tailwinds from the World Cup. And then let's just hope for better weather. So just a little bit how we finished and how that sets us up for 2026. Thank you.

Yes, thank you, Ben. Good morning. We're certainly more satisfied with our fourth quarter in Mexico, especially considering that we were cycling a 7% volume increase from last year. And so we had a good result, especially – from the perspective of profitability. December was particularly very strong in the quarter where we grew volume 2.1%. And we believe this validates the recovery potential of the business in Mexico, especially as we face new challenges in 2026. From the profitability standpoint, we continue balancing the pricing and affordability scenario and promoting growth across some of the priority categories in our portfolio. If you look at the categories in Mexico, Coke Zero grew more than 18%. Stills grew volume. Pea had spectacular growth at also 18%. Energy, juices, nectars, all those categories grew volume in the quarter. So, the other thing is that we, throughout the year, we adjusted our OPEX. We We started 25 thinking that the consumer environment was going to be better than it turned out to be. So we were prepared for, you know, tailwinds throughout the year. So we had to adjust our OPEX. And at the end of the year, we were able to do that. So our margins continued to improve. And so as we face 26, We are tracking in line with expectations. We're managing the tax adjustment with our proven affordability and pricing tools. And we remain confident that we're going to be delivering healthy performance throughout the year and especially protecting profitability. So I'm going to turn it over to Jean-Claude to talk a little more about 26.

Yeah, thank you, Arturo. And to your point, we have prior experience with similar taxes, PDFs, and the use of our tools. But something that I would like to emphasize is why we had a very good fourth quarter and that is going to be the base for 2026. But the local team and the leadership from the team in Mexico is that we are going back to basics. We are strengthening our foundation while embracing the future through our digital transformation. Going back to basics, with a strong momentum, with pricing and packaging as a lever to ensure competitiveness and transactions. We are expanding returnable. We are protecting entry-level packages and managing mix with a more differentiated zero-sugar strategy. And we are embracing the future through our digital transformation that you saw through our digital capabilities and artificial intelligence tools with our B2B platform, Twally, our pricing for pilots and DPO initiative, but with an end-to-end approach with supply, with our forecasting, distribution network, and warehouse automation. We work together with the Coca-Cola Company to see the fast start in Mexico and the feedback that we received was really good. And yes, we are ready, as you're saying, for a great opportunity that we have in 2026, that is the World Cup.

Thank you very much for the clarity. Thanks. Thanks.

Thank you. Our next question comes from Ferland Mendes with JP Morgan. Please go ahead. Your line is open.

Hi, guys. Can you hear me well? Yes. Perfect. Thank you so much for taking my question. I would really appreciate if you could dig in into the guidance of next year on a country-by-country basis, obviously focusing a little bit more on Mexico, if anything has changed from your original expectations on the impact on volumes from the increased taxation and whatever extra pricing you would do for next year. a little bit more detail on a country, region-by-region basis, volume pricing outlook for next year. That would be highly appreciated.

Let me start by Mexico, as you requested. And the current environment, as you know, is that we're facing the price increase in line with what we anticipated. So we... As Shankar explained, we're going back to basics in our operation. We're focusing on our, you know, on our traditional playbook, but at the same time deploying our digital initiatives. So that will help us mitigate the impact of elasticity as we increase prices. So we've seen a constructive response from the consumer. Engagement remains very healthy across our core categories and channels. Modern trade particularly responds well to targeted promotions, and competitive pricing. And the traditional trade remains resilient, especially as it is supported by digital execution in this market. So we are reinforcing affordability through returnables, entry-level packs, strengthening our execution or metrics for execution, cooler placement, and as I said, leveraging digital tools particularly our revenue management tools, pricing and promotions, to fine-tune our decisions in the marketplace. All these actions are helping us manage the transition very effectively and at the same time maintain competitiveness. So we're confident that we're going to deliver on our guidance for Mexico. In the other markets, well, the U.S., It has its particular challenges, but we also have the opportunity to capitalize on the World Cup, which is an extraordinary event in the year. And we're focusing on improving our execution, especially focusing on transactions and growth categories and also efficiency projects that we've been deploying in the last few months, and we're going to capitalize on those as well. In Peru, it's probably our most promising market in terms of growth, of the growth potential. We have the opportunity to continue to win in the stills categories, which is a huge opportunity in Peru, as well as the Duocola strategy within Coca-Cola, which is a unique advantage that we have in that market. And if you look at just the growth in coolers, we had a historic cooler placement in Peru last year, 43,000 units. We're going to continue to do that. The coverage is still, you know, quite low as compared to Mexico. And same thing in Ecuador. Ecuador faces different challenges. It's not as favorable to the consumer environment, but we also have seen recovery in the last few months. In the case of Argentina, while Argentina is recovering, as you know, we expect lower volatility, improving consumer confidence, and I would say more predictable macro performance in 2026. We have reversed the negative trend we saw in the third quarter. The key in Argentina is to have competitive price points across key categories, focused on immediate consumption, single-serve, and very importantly, an efficiency program to protect margins. We expect margins to recover in Argentina throughout the year. So every market has its particular challenges. There are some, I would say, basics in all of our markets, which we're going to be working on, digital deployment and, you know, going back to our fundamentals or stick to our fundamentals, and things we can control. So we're confident about our guidance in each of the markets.

Thank you. If I can follow up just quickly in Mexico. So should we still expect a low single-digit declining volumes and still some additional pricing efforts throughout the year to reach at least inflation? And what about margins? Is this shift into more profitable markets? mix or higher price SKUs? Is that helping margins and changes anything when you're margin outlook for Mexico?

Yeah, well, we haven't seen anything in Mexico that would change our outlook and what we've mentioned before. And in terms of margins, we do anticipate, and this was expected, we anticipate margin pressure from, you know, tax-related volume impacts and elasticity But this will be also mitigated by volume tailwinds from major events, as Jean-Claude explained, and digital rollouts, and also the favorable comps with some unusual activity throughout 2025. So with efficiency initiatives and disciplined cost management, we're confident that we're going to be able to vector margins throughout the year.

Excellent. Thank you so much.

Thank you for that. Thank you. We will move next with Felipe Ugros with Scotiabank. Please go ahead. Your line is open.

Thanks, operator, and good morning, everyone. Thanks for the space. So first, a quick one on EAPs. Just wondering if you can comment on whether an offset has been implemented in the market and what type of volume evolution. If so, what type of volume evolution you've seen after the offset? in the beginning months of the year. And then in second place, congrats on the M&A in the U.S. Just wondering if you can talk to us a little bit about the target and how it may impact the current operation in the U.S., anything you can give us in terms of size, margins, and how things will change after this. Thank you.

Thank you, Felipe. I'll talk about Mexico, and then I'll turn it over to Chuy to talk about the M&A activity in the U.S. You know, as I said, we haven't seen anything in Mexico that would change our view on what to expect for the year. We did have some favorable weather the first part of the year, so it's hard to figure out how much of that will have an effect on what we're seeing in the market. So, again, we are approaching the situation with the same discipline and the same playbook that has proven effective in previous cycles. We have the experience of dealing with situations like this one. So I think we're able to predict better and also to execute better. What are we doing is maintaining competitiveness through the best price pack architecture for the current situation. We are protecting consumer affordability with returnable packages and very strategic price points. When this happens, you have the opportunity to kind of realign your price back curves and architecture to promote, you know, the price points and the SKUs that are more favorable. And also, we're leveraging our tools, basically pricing and promotional tools that also have proven very effective, and that is certainly an improvement as compared to, you know, 12 years ago when we faced a similar situation. So... So we do expect the volume declined, derived from the tax in 26. But there are, you know, as we've said, strong tailwinds that will be also mitigating that impact. So we haven't seen anything that would change our view in that regard. So we are going to be consistent with the playbook. And with that, I'll turn it over to Chuy.

Thank you, Arturo, and thank you, Felipe, for your question. Our most recent transaction, the acquisition of Idavel Coca-Cola bottling in Oklahoma in December of last year, reflects how we approach consolidation. Adjacent territories, clear strategic fit, and real opportunities to generate synergies. Idavel is a long-established small Coca-Cola bottler operating since 1911 with strong ties to its local community and previously owned by the Fulmer family. It is located next to our existing footprint and it does not have a production facility as it was supplied by Coca-Cola Southwest Beverage as well as other nearby bottlers. This obviously makes integration simpler and it lowers execution risk. Idavel also distributes Dr. Pepper and Monster brands, which strengthens the overall commercial opportunity with our partners. I will summarize this as, Deals like this are representative of the type of consolidation we favor. They're focused, value-accretive, and operationally aligned. So we're really excited to be serving a new set of clients and customers for Coca-Cola Southwest Beverage.

So this is the natural thing that we think will be happening in the next few years in the U.S. marketplace.

Very helpful. Thanks for those comments, guys.

Thank you, Felipe.

Thank you. We will move next with Rodrigo Alcantara with UBS. Please go ahead. Your line is open.

Hi. Thanks for taking my question. Congratulations on the results. Also to Jean-Claude for the appointment of CEO. My question is specifically in the U.S., Jean-Claude. need to understand better, I mean, precisely this playbook that is allowing you to deliver that volume growth in not necessarily such a friendly consumer environment in the southeastern region, in the south region in the U.S., right? I mean, we have all these, all these contexts, right, of the Hispanic population, nation to that we have upcoming, to the snaps, right? So you already spoke very clearly about the tailwinds, right, that could lift your bonds at the World Cup, right? But it would be nice to understand precisely the playbook that is allowing you to navigate this challenging in the U.S. That would be my question. Thank you. Thank you both, John and Arti.

Thank you, Rodrigo, for the questions. And yes, obviously, I am biased and excited to talk about U.S. performance. Yes, we had a very good year. As you know, we won the Counter-Cup in 2025. And the question is, why the good results? We have confidence in North America outlook. As you're saying, we finished with positive momentum And even though we had the challenge of some fake news during the year, but recovering volume, share, and transactions. Why? Something that we have been sharing with you that has been a priority in the U.S., the culture. The culture that we have with our frontline heroes and how we are working together with the Coca-Cola system, the Coca-Cola company, and the other borders. But also we have been implementing what we have been sharing that we are doing in the rest of our countries. A simple formula that is going back to the basics, strengthening our foundation while embracing the future through digital transformation. Going back to the basics, in the U.S. has been a focus on all three channels with a focus on solving field rate and growing transactions. And in terms of the digital transformation, has been our mycode.com implementation, that is like Tuali in Latin America. Also the tools that we are providing to our commercial teams, that they have information by store to see our execution and performance, working together with our customers, but with that end-to-end approach between supply and commercial, connecting the dots between those two areas. Then three pillars. culture, going back to the basics and the fundamentals of our business, and the digital transformation that we have been implementing together with our digital nest.

So I think that, Rodrigo, this is the U.S. for us is a story not about what we're going to do in 26, but throughout the years, it's consistent, high-quality, customer-focused execution. And that is based, as St. Claude said, on a strong culture that has been transformed. We don't talk about this metric usually, some of these meetings, but when we came to the U.S., engagement score was in the 60s. And last year, it's in the high 80s with all of our associates. So this is the culture that we're talking about. So we think that this delivers consistent results throughout the years, aside from particular things that we're going to have as you know, headwinds or tailwinds throughout 26.

Thank you, Arturo. Again, indeed, very consistent results. Congrats. Thank you. Thank you, Rodrigo. Thank you, Rodrigo.

Thank you. We will move next with Alejandro Fuchs with Itaú. Please go ahead. Your line is open.

Thank you, operator. Hola, Arturo, Emilio, Jean-Claude, Jesus. Congratulations on the results and also on the humble years of ARCA this year. Pretty impressive milestone. Just one very quick question for Emilio. I think the rest of the questions have been answered already. But for Emilio, there was a big net financial expense this quarter of almost $2 billion pesos. I wanted to see, was there anything unusual this quarter there that it's a little bit of a higher financial expense, or is this the level that we should expect, you know, going forward, especially for 2026? I think you could provide some follow-up there. That would be very helpful. Thank you.

Thank you, Alejandro. Yes, we're celebrating 100 years of being a franchise in Mexico. Thank you for your comment. Yes, well, the main variation on the net interest expense is basically two reasons. One is the increase in the financial expenses explained by a higher interest payment that we have since we have new debt in Mexico of around 15,000 million pesos associated with CAPEX and the M&A activity that we had last year. And the second one is the decrease in financial income, since interest rates were lower than last year, and also we had a lower cash position basically in Mexico and U.S. So what you're seeing on the financials is the net of expenses and income. So at the end, I think the short answer is higher debt rates. in Mexico and U.S.

Thank you. Thank you very much, Emilio. Thank you.

Thank you. We will move next with Fernando Olvera with Bank of America. Please go ahead. Your line is open.

Hi. Good morning, and thanks for taking my question. This is a flow-up regarding the acquisition in the U.S. I would like to hear your thoughts of what changed versus previous years that motivated this franchise to sell its business, and how can this cause other franchises to, again, to be motivated to sell their business in the future? Thank you.

Thank you very much. Well, you know, we don't really know exactly what motivated them. We have been having conversations – with the owners of the franchise for, you know, some months or maybe a couple of years. But I think at the end of the day, what we have to realize is that this is kind of the logical thing to happen as the business of Koch franchises becomes more a business of scale. If you think about this business throughout time, you know, probably 30, 40 years ago, owning a Coke franchise, scale was not really the name of the game, because you had a very local operation, you had kind of, obviously, a most favored nation treatment by Coca-Cola, and you didn't require the, you know, sophisticated capabilities that you require now, or you didn't have, you know, the large accounts. Now it's different, and one of the things that's changing is, particularly as we move into digital conversations with customers, that we need to have, as I said, more modern tools for a lot of the commercial core processes. It makes sense to have more scale in the operation. That's not specifically the reason in this case, but what it creates is the opportunity to share the value that will be created through consolidation. So that's why I've been arguing that, you know, consolidation is a positive thing, for everybody in the system, and Coca-Cola Company also believes that. And I think that is a trend that will continue. Exactly when that is going to happen, it's hard to predict because it depends on very personal decisions by franchise owners. But, again, I think it's the logical thing to have in the future.

Great. Thank you, Arturo. Thank you, Fernando.

Thank you. We will move next with Alvaro Garcia with BPG. Please go ahead. Your line is open.

Hi, gentlemen. Thanks for the space for questions. Two on my side. One on the cost outlook for 26. We still saw some gross margin pressure, which I think probably had to do with the U.S. this fourth quarter, but into the 26, I was wondering if maybe you can give some color on sort of key raw materials and what you're seeing. in the context of obviously a pretty important affordability strategy in Mexico. And then my second question is on snacks. You mentioned this high single-digit decline in the fourth quarter. So any sort of update on sort of how you're thinking about allocating capital to this business strategically would be helpful. Thank you very much.

Sure. Let me turn it over to Amelia. Just mentioning first that, you know, as we look at margins going forward, I mentioned – you know, the challenges and opportunities we have in our operations, particularly the case of volume in 26. We're confident about our pricing strategy. We're going to be consistent with what we've said, and especially as we improve our tools for pricing and promotions. The raw material environment, Emilio can expand on that, and a very strong focus on OPEX efficiency throughout 26. So, Emilio, please.

Thank you, Arturo, and thank you, Alberto, for your question. Well, I would like to mention that despite the macroeconomic volatility, most of our key raw material continued to show stable trends during the four quarters, and we expect that stability to continue this year. I would say that with the exception for aluminum, aluminum prices continue to rise, especially MWP component. So for that reason, we have fully hedged our LME, which is the other component of aluminum. So we have hedged 100% of our needs in Mexico and 97% of our needs in U.S. for LME. And both at a higher cost, price than last year, but lower than the current spot prices. So we are in a better position compared with the market as of today. In addition, we hedged 50% of our MWP requirements in the U.S., also above last year prices, but below the current market prices. We have also covered 90% of our fewer needs in Peru, at levels below 2025, so we are better than last year here. And 71% of high fructose needs in Mexico in line with inflation, and 43% in U.S. at the same levels of 2025. So as you can see, we are basically very well on the hedges, with the exception of aluminum, basically in U.S.

And with respect to snacks, well, the fourth quarter, we had a mixed performance in our snacks operations, some net sales declining in some markets like Mexico, U.S., and growing in Ecuador. And this reflects a varied market dynamics by country. So in some countries, we have more synergies. Your question – What's about SNAC's business? Just confirming.

Yeah, it was about sort of how you're thinking about the business longer term, sort of how you think about it.

Okay. So, yeah, we don't allocate a disproportionate amount of capital in this business, and we constantly evaluate strategic opportunities to strengthen the business and maximize volume. Let me tell you that we do regularly – assess this business in our portfolio, including the U.S. NAICS division. And this is part of our commitment to long-term growth. As I said, in some cases, we have stronger synergies as in Ecuador. In other cases, it's not, you know, not the same. And also, the business is not connected to our beverage operation. It's quite independent. So we are very flexible to our to make decisions about this business in the future.

Interesting.

Thank you very much. Thank you.

Thank you. Our next question comes from Ricardo Alves with Morgan Stanley. Please go ahead. Your line is open.

Hello, Arturo, Emilio. Thanks for the call. Thanks for the opportunity to talk to you. I want to go back to the U.S. Frontline pricing. I wanted to go into more details on revenue management, your strategy longer term on revenue management. It would be super helpful for us maybe to illustrate your strategy on ground if you can share some specific examples. Where is really the focus of the management in stuff that it's really going to move the needle? on your unit revenues? Is it opportunity on, you know, a higher value mix, you know, higher value brands? Is it more, you know, get more exposure or work better on your packaging and mix of packaging? Is smarter promotion activity now with the digital? You mentioned digital in several fronts, so I wonder if maybe this is where the there are several ways in which we are able to think about how you are tackling new opportunities to improve even more the U.S. business, but it's difficult for us to really have a grasp on what really could move the needle, what are the practical examples that you are implementing right now. So I just wanted to understand a little bit better your longer-term strategy, what could be the upside in the U.S.? Maybe it's efficiencies, right? You talked about efficiencies as well. I know that in the U.S., We talked in the past about route optimization, you know, integration of distribution centers. There's many things in my mind right now. I just wanted to get from you what is really on top of your mind to improve even further the U.S. business. Thanks for the call.

Thank you, Ricardo. I will turn it over to Jean-Claude just by saying that, yeah, you pretty much described the many opportunities that we have in the market. Revenue management pricing has been a fundamental capability, and that's been a driver for value in that operation and in every operation. As I've said, if there would be one commercial capability that we really want to get right, it's pricing and promotion. I think we're off to a very good start in the last few years. Efficiency is becoming more a priority in the U.S. as well. We're investing for making our supply chain more efficient. But I will turn it over to Jethlod to provide details.

Thank you for the question, Ricardo. And indeed, RTM has been and will continue to be critical in our strategy in the U.S. What we have done, we have been focused on increasing transactions. 2025, despite all the challenges that we had at the beginning of the year, Due to the fake news, we were able to finish the year once again growing transactions. Why do we grow transactions? It's because we have been developing a new portfolio. We have strengthened our portfolio in terms of packages, but also in terms of categories, in terms of innovation. You have seen the improvement that we have done with brands such as CorePower. But RGM is also how we are bringing our digital transformation and is the implementation of tools such as the price promotions and the copilot pricing. And pricing as well has been the alignment that we have with the Coca-Cola system, with the Coca-Cola company, the other brokers, and the customers. Then it's a combination of initiative that they are together with our execution, allowing us to grow the margins as you saw.

Thank you so much. Thank you.

Thank you.

I didn't mean to interrupt. No, no, thank you. Thank you for your question.

Thank you. We will move next with Renata Cabral with Citi. Please go ahead. The line is open.

Hi, everyone. Good morning. Thank you so much for taking my question and congrats on the results. My question is about the strategy on COVID-19. We saw an instant growth in the quarter and also if you see over the last five years, the care has been around 16%. So my question is how much we we can continue to see this trend over the Coca-Cola Zero. And if you can say for country, where do you see still a biggest opportunity to increase the portfolio? So thank you.

Yes, thank you, Renata. I think Coca-Cola Zero is probably the biggest innovation we've had in the portfolio and in the Coca-Cola system in recent years. And it's been a very, very successful product as it captures new consumers, younger consumers, and also consumers from Cook Original Taste that, you know, would prefer a show of calorie version. So this has been relevant in every market. It's been growing, as I mentioned before, it grew 18% in Mexico. It's growing in the U.S. It's actually sustaining the sparkling segment product. in the U.S. and Coca-Cola brand. So we will continue to promote Coke Zero in every market. And one example of that is that in the case of Mexico, it will take center stage in all advertising and promotions tied to the 26th FIFA World Cup. And this is a very powerful global platform that we will use to celebrate our iconic brand and showcase our commitment to offering products this no-calorie versions of our products. So you're going to see a much more relevant presence of Coke Zero in all of our marketing activity. And also, you know, it's obviously a very profitable product, so it helps to sustain our profitability as we grow into the zero-calorie segment.

Thanks so much for the call. Thanks, Renata.

Thank you. Our next question comes from Antonio Hernandez with ActingBear. Please go ahead. Your line is open.

I have a quick follow-up on the next business in Mexico and particularly in the U.S. How do you see the competitive environment and its performance being affected by consumer trends or any other . Thanks.

Antonio, just to clarify, your question is about consumer trends. competitive environment in Mexico and the U.S.?

In the snacks business.

Ah, in the snacks business. Okay. Yes, I will turn it over to Shui to make some comments about snacks. This operation now reports to Gen Club, but it was supervised by Shui last year. I can tell you that snacks, you know, had a mixed performance in the fourth quarter. that reflects different dynamics in different countries. Much more challenging, I would say, in the U.S. than in Latin America. So we've been focusing on, again, being very profitable in this business, focusing on growth categories, and also continue to invest in the brands that – are more relevant for our consumers in each of the markets. And innovation is very important in this business. So I will let you expand on that.

Thank you, Arturo, and thank you, Antonio, for your question. I think the fourth quarter reflects what happened during the year. The Bocados performance as well as the Inalexa performance was very good. Most of our challenges are in the U.S. market. I'll give you an example. In Mexico, our focus is basically on three categories, extruded snacks, tortillas, and mixes. And the products in this category, for the most part, grow double-digit. Ecuador has been facing some political and economic challenges, but at the same time, we have a very good position across channels, and we have been investing heavily primarily on product displays, and that has been very successful. As far as the U.S., we definitely see more aggressive pricing from competitors and ongoing category contraction in all segments. And we're basically continuing to strengthen our portfolio profitability through an optimized price package strategy. And we'll continue strengthening our innovation agenda, sponsorship strategies, and expanded distribution network, particularly for Deep River, in some of our key strategic accounts.

Thank you, Antonio. Thank you.

Thank you. We will move next with Carlos Laboy. Please go ahead. Your line is open.

Yes. Thank you. Good morning, everyone. My question maybe is more directly for Jean-Claude. The passion and intensity for client service that your people in the U.S. have, I mean, I haven't seen anything like that anywhere in the world. But the revenue growth management tools that they operate with, right, for volume price makes trade discount. How do you see them in terms of their stage of development? for where they need to be or where they can get to? And what's the upside that you have in terms of in 2026, 2027 for the efficiency, the capacity of these tools, given how you see your IT projects in the pipeline moving along?

Carlos, thank you for the question, and thank you also for the nice words about our culture, something that makes us super proud. Regarding our question about RGM, it's part of going back to the basics as well. As you know, we have that vision how to evolve to be a shelf replenisher, to be a market developer in the US market. And RGM is essential. We have been developing tools to grow our transactions. to expand our portfolio with single-serve packages in all the categories, not just in sparkling, the development of zero sugar, and the tools, and the digital tools, as you're saying, that we have to make sure that we connect our digital tools, such as the TPO, pricing copilot, with our supply tools as well, to ensure that, going back to the basics, we have the best fill rate. A lot of improvement working together with the Digital Nest, with Kona, but we are excited as well for what is coming. We cannot say that we are done with all our digital initiatives. We are excited about what is coming. To continue with that vision that is about culture, is about being a market developer, is about back to the basics, embracing the future through our digital transformation and all our urgent tools.

And, Carlos, I would say that the tools continue to evolve as the portfolio continues to evolve, and there's also an element of change management as we have to somehow involve our brand partners into the effort. I would say that in terms of promotional activity, there's still a lot of opportunity as we continue to refine the tools. Thank you.

That's helpful. Thank you, Carlos.

Thank you. And this concludes today's Q&A portion. I would now like to turn the conference back to Arturo Gutierrez for any additional or closing remarks.

Thank you. And thank you again for your time and your continued interest in ARCA Continental. If you have any additional questions, our investor relations team is always available. Look forward to connecting with you again in the next quarter. Have a great day.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.