One Step Ahead
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ONE STEP AHEAD 2018 INTEGRATED ANNUAL REPORT INFORME ANUAL 2018 ABOUT THIS REPORT [102-12, 102-50, 102-54] This document constitutes an Integrated Report about Arca Continental’s performance and main achievements during 2018, as well as the progress the company has made in the framework of its development strategy and in the creation of social, environmental, and economic value, for both the mid- and long-term. We have included events and data about every one of the company’s countries and operations, unless otherwise specified. The report covers the period between January 1st and December 31st, 2018. This technical report responds to several of the company’s methodologies, indexes, and commitments, such as the Principles of the United Nations Global Compact, the Sustainability Index of the Mexican Stock Exchange, FTSE4Good, and MSCI. The report has been prepared employing the <IR> Framework and in accordance with the GRI Standards, Core option. Our great interest in establishing a constructive dialogue with the people around us responds to the fact that we are convinced that the synergy between the private sector, communities, and the authorities will be the main driver behind sustainable development. This document constitutes our main communication tool on our annual performance, and its goal is to invite our stakeholders to establish a dialogue with us. We appreciate any comments you wish to share with us. CONTENT 3 Integrated Report 4 Company Operations 5 Organizational Culture 6 Company Profile 8 Message from the Chairman of the Board and the CEO 14 Sustainability Strategy 20 Innovation and Leadership 32 Generating Shared Value 44 Continuous Improvement and Operational Excellence 46 Environmental Leadership 64 Investing in Development 74 Profitability and Competitiveness 76 Comprehensive Development of our Associates 90 Corporate Governance 96 Ethical Development 100 Risk Management 104 Awards and Recognitions 105 Strategic Alliances 107 Consolidated Financial Statements 197 GRI Content Index The currency exchange rate from MXN to USD used in this 200 Verification Letter Integrated Report is stated in the Financial Statements 204 Contact Information section. Closing rate: $19.66. Average rate: $19.21 Integrated Report This is Arca Continental’s first Integrated Report; it was developed in adherence to the <IR> Framework. Our goal is to show how our actions contribute to creating a certain degree of economic, social, and/or environmental value for the mid- and long-term. For example, refurbishing a public space offers clear social benefits, such as lowering local crime and improving the social fabric. However, if we add an urban reforestation and waste management program to this space, we would also generate environmental value. And, finally, if we support the development of the local economy by offering training and support to retailers in the area, we would also generate economic value. The following diagram shows the way in which, with some of our projects, we can have a positive effect on the generation of these three values simultaneously with different magnitudes. GENERATE SOCIAL VALUE PHILANTROPY AND DONATIONS SOCIAL WATER HEALTHY AND ACTIVE REPLENISHMENT LIFESTYLES PROJECTS PUBLIC SPACE VALUE CHAIN REHABILITATION DEVELOPMENT MITIGATION OF THE ENVIRONMENTAL PROFITABILITY AND FOOTPRINT CIRCULAR OPERATION MARGINS ECONOMY GENERATE GENERATE ENVIRONMENTAL EFFICIENCY IN THE ECONOMIC VALUE USE OF RESOURCES VALUE Arca Continental’s strategy is aimed at generating long-term shared value. As part of our continuous improvement process, we strive for our daily operations to not be limited by a specific timeframe. The Sustainability and risk management action plans, as many others, are completely embedded in the company’s general strategy in order to assure our stakeholders that Arca Continental will continue its operation tomorrow, and that it will do so even better than it does today. The structure of this Integrated Report reflects our generation of social, environmental, and economic value. However, we have not structured this information as sections or chapters within the report because each program makes a contribution, to a different extent, by generating value in all three aspects. 2018 INTEGRATED ANNUAL REPORT 3 Company Operations [102-2] COMPLEMENTARY BEVERAGES BUSINESSES OTHERS SNACKS AND * * SWEETS * * * * * * *Associate Company Peru United States 10% Ecuador REVENUES 35% 7% 5% Argentina 5% MXN 159 billion Snacks & Other Businesses Mexico 38% 4 ARCA CONTINENTAL Organizational Culture [102-16] VISION MISSION To be leaders in beverages and To generate maximum value for our snack food consumption for every customers, associates, communities, occasion in all the markets in and shareholders, satisfying our which we participate, focusing on consumers’ expectations at all times profitability and sustainability. and with excellence. • Customer-centricity and a vocation for service OUR • Integrity based on respect and justice VALUES • Comprehensive human capital development • Sustainability and social responsibility CULTURAL PRINCIPLES In 2018, Arca Continental launched the company’s cultural principles, which are the pillars behind our goals, thus ensuring that we remain loyal to our essence as a socially responsible company. FOCUS ON TRANSPARENCY CHANGE AND RESULTS- CUSTOMER- OUR ASSOCIATES INNOVATION ORIENTED CENTRICITY 2018 INTEGRATED ANNUAL REPORT 5 Company Profile [102-1, 102-2, 102-3, 102-4, 102-5, 102-6, 102-7, 102-10] Arca Continental S.A.B. de C.V. produces, distributes, and markets non-alcoholic beverages under The Coca-Cola Company brand, as well as salty snacks under the Bokados brand in Mexico, INALECSA in Ecuador, and Wise and Deep River in the United States. The Corporate Headquarters are located in the city of Monterrey, in the state of Nuevo León, in Mexico. With an outstanding history spanning more than 93 years, Arca Continental is the second-largest Coca-Cola bottler in Latin America and one of the top bottlers in the world. Through its Coca-Cola franchise, the company serves more than 123 million people in the Northern and Western regions in Mexico, as well as in Ecuador, Peru, in the Northern region of Argentina, and in the Southwestern United States. Arca Continental is listed on the Mexican Stock Exchange under the ticker symbol “AC”. [102-7] VOLUME: 2,220 MILLION UNIT CASES TOTAL REVENUE: MXN 158,952 MILLION [102-7, 201-1] DIRECT ECONOMIC VALUE GENERATED MILLIONS OF MEXICAN PESOS MILLIONS OF U.S. DOLLARS Net Sales $155,653.00 $8,102.71 Financial Products $3,616.90 $188.28 Asset Sales $187.62 $9.77 Total $159,457.52 $8,300.76 [102-7, 201-3] ECONOMIC VALUE DISTRIBUTED MILLIONS OF MEXICAN PESOS MILLIONS OF U.S. DOLLARS Cost of Sales $89,712 $4,670.06 Operating Expenses, including Salaries and $50,813 $2,645.1 Social Benefits Taxes $3,860 $200.93 Dividends $3,948 $205.54 Interest $7,730 $402.40 Community Investment $112.89 $5.91 Total $156,175.89 $8,129.94 6 ARCA CONTINENTAL UNITED STATES 9,628 ASSOCIATES 100% 12 PRODUCTION PLANTS OF OUR BEVERAGE PRODUCTION 52 DISTRIBUTION CENTERS CENTERS ARE CERTIFIED IN INNOCUOUSNESS, QUALITY, AND HYGIENE. ECUADOR ARGENTINA 9,376 ASSOCIATES 2,348 ASSOCIATES 6 PRODUCTION PLANTS 3 PRODUCTION PLANTS 70 DISTRIBUTION CENTERS 25 DISTRIBUTION CENTERS MEXICO 36,062 ASSOCIATES 23 PRODUCTION PLANTS 160 DISTRIBUTION CENTERS * * PERU 5,158 ASSOCIATES * 6 PRODUCTION PLANTS 72 DISTRIBUTION CENTERS * * * *Associate Company 2018 INTEGRATED ANNUAL REPORT 7 Message from the Chairman of the Board and the CEO [102-14, 102-15] In 2018, Arca Continental made progress toward full implementation of our mission, geared at generating the maximum value possible in every market and business we serve. We are always determined to go one step further in terms of our operational, financial, environmental, and social performance. In a year of political and macroeconomic Our operations in Argentina were chosen to challenges, thanks to the professionalism of this represent the Latin American bottling system in great company’s more than 61,000 associates, we the Candler Cup, which recognizes bottlers who were able to show excellent performance results have previously won the Execution Cup in their and specific achievements in different areas of the own region and who have shown outstanding organization in each of the countries we serve. performance and marked improvements in global commercial metrics. Additionally, Mexico We focused our efforts in the U.S. to the full Beverage’s participation in the Legacy Cup of its integration of Coca-Cola Southwest Beverages to business unit was outstanding. Arca Continental and best practices homologation. The McAllen Plant, in Texas, earned the President’s Noteworthy results in terms of sustainability Award for Quality Excellence as the best among and social responsibility include Arca more than 65 production centers in the United Continental’s inclusion for the third consecutive States, while ACT Model implementation, aimed year on the FTSE4Good Sustainability Index of at improving commercial execution, was key to the London Stock Exchange. Arca Continental CCSWB winning the 2018 edition of the Market also continues to be among the top companies Street Challenge Cup. in the Sustainability Index of the Mexican Stock Exchange. Founded on these sustained efforts aimed at always being one step ahead of every challenge, we closed 2018 with a 14% increase in Total Consolidated Revenues, for MXN 158,952 million, an EBITDA of MXN 27,466 million, +14% a 5.7% growth