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Coca-Cola Femsa Shs Sponsored American Deposit Receipt Repr 10 Shs -L-Â (KOF -0.45%)
Q4Â 2018 Earnings Conference Call
Feb. 26, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good morning, everyone and welcome to Coca-Cola FEMSA's Fourth Quarter and Full Year 2018 Conference. As a reminder, today's conference is being recorded and all participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions and answers after the presentation. During this conference call, management may discuss certain forward-looking statements concerning Coca-Cola FEMSA's future performance and should be considered as good faith estimates made by the Company.
These forward-looking statements reflect management's expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance. And now at this time, I would like to turn the call over to Mr. John Santa Maria, Coca-Cola FEMSA's Chief Executive Officer. Please go ahead, sir.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Good morning, everyone. Thank you for joining us to discuss our fourth quarter 2018 results. Constantino Spas, Hector Trevino and Maria Dyla Castro are all with us today. We completed a historic year for our company as we celebrated the 25th anniversary of Coca-Cola FEMSA's incorporation and stock exchange listing. At the time of its IPO in September 1993, our company was valued at MXN1 billion. Today, our Company is valued at almost MXN13 billion, 13 times its original market value for an annual total return to shareholders of over 19.2%.
In 1994, we took our first step abroad with the acquisition of Coca-Cola Buenos Aires in Argentina. In 2003 we see the leadership position of the beverage industry with the transformational acquisition of Panamco, expanding our presence to nine of Latin America's most important markets and multiplying our volumes six times.
From 2008 to 2016, we strengthened our company's leadership position in Brazil. With the acquisition and integration of four significant franchises that expanded our presence to more than 50% of the Coca-Cola system countrywide. Correspondingly, we bolstered our footprint in Mexico through our merger and integration of four bottling franchises from 2011 to 2013.
Moreover, we remain at the forefront of the total beverage portfolio evolution. First, our joint acquisition of Jugos del Valle in 2007 captured the potential of a powerful brand that is now one of the Coca-Cola system's a $1 billion brands. Second, we established a partnership with (inaudible) in Brazil to develop a broad portfolio of stills beverages. Third, we began our journey into the value added dairy category through our joint ventures in -- with Estrella Azul in Panama, Santa Clara in Mexico and Verde Campo in Brazil. More recently, we entered a new plant-based beverage category with our joint acquisition of AdeS in 2017. Finally in 2018 we integrated two franchises in Guatemala and expanded our geographic footprint to Uruguay to continue capitalizing on strategic long-term value creation opportunities for Coca-Cola FEMSA.
Over the past 25 years, we have reinvested more than MXN20 billion in our business with MXN11.4 billion in accretive mergers and acquisitions and joined the privilege of integrating great bobbing franchises, traditional families and great collaborators into this Coca-Cola FEMSA -- new Coca-Cola FEMSA business.
Our entrepreneurial spirit and passion for customers and consumers have always powder our drive to innovate through the integration of transformative practices that have been followed by bottlers around the world, from revenue growth management to segmented point of sale execution and end-to-end supply chain integration. Now we are taking our continuous evolution even further setting a new frontier with cutting-edge digital technology tailored to create a new competitive advantage based on our demand driven Coca-Cola FEMSA commercial digital platform, advanced market analytics and cost digital distribution platforms, integrated -- which integrate revolutionary capabilities to set the new standards for the way we serve our markets and consumers.
Focused on our clear strategy, we finished the year of continued transformation and growth. After a successful (inaudible) fiber turnaround of the Philippines operation, we sold our 51% stake in Coca-Cola FEMSA Philippines as the best course of action for our company's shareholders. Looking forward, we will continually evaluate geographic and category opportunities maintaining our disciplined approach to capital allocation to maximize our shareholders returns.
With that in mind, 2018 was a year of restructuring and transformation marked by first, the deconsolidation of our Venezuelan operation at the end of 2017. Secondly, the sale of the stake of the Philippines at the end of 2018. Thirdly, the integration of three new franchises in Guatemala and Uruguay; and fourth, the adoption of hyperinflationary accounting in Argentina. Moreover, in the face of a complex volatile macroeconomic environment in some of our markets, we put Coca-Cola FEMSA on an extremely solid financial foundation. We not only reduced our net leverage position, but also affirmed our credit ratings by Moody's and Standard and Poor's.
We reported solid comparable topline growth of close to 6% for 2018. Our revenue management initiatives backed by analytics and deployed in an agile and assertive way, directly in each point of sale allowed us to create comparable volumes 1.2% -- and growth of 1.2%, while prices were ahead of or in line with inflation in most of our operations. Our comparable operating income increased 5.5% compared to last year as lower sweetener costs, a favorable currency hedging position in South America and operating expenses, expense efficiencies were offset by higher PET prices among our operations.
Our comparable operating cash flow was flat year-over-year. Consequently, our net controlling interest income was MXN5.541 billion for earnings per share of MXN2.64 per share. Additionally, we reported quarterly earnings per share of MXN1.38 for our continuing operations as we consider the Philippines business a discontinued operation. Finally, I would like to thank Hector after more than 25 years as our Chief Financial Officer and a distinguished career of more than 37 years at FEMSA, for his collaboration and his friendship.
Hector decided to retire effective December 31, 2018. Over the years, Hector let our company's profitable growth through his strategic vision, unwavering financial discipline and unmatched work effect. Hector's leaving a lasting legacy for Constantino to build on. And many, many friendships -- deep freindships at Coca-Cola FEMSA and the Coca-Cola Company.
With that, let me turn this call over to Hector.
Hector Trevino -- Former Chief Financial Officer
Thank you, John and good morning, everyone. For me and for our company, it has been a very impressive 25 years Journey. Throughout this journey, we sustain our company's strong capital structure and financial flexibility, maintain our disciplined approach to capital allocation while capitalizing on our operational excellence to smoothly and successfully integrating new territories and various 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. Coca-Cola FEMSA cross through a successful grown -- growth story and I am thankful for all the people with whom I interacted, they play an important part in my career. And with that, I would hand the call over to Constantino.
Constantino Spas -- Chief Financial and Administrative Officer
Thank you, Hector and good morning, everyone. I'm very honored to have the opportunity to continue with the legacy that Hector has built for this organization. Hector is not only a phenomenal CFO, but also a great -- mentor and friend and has been very helpful for me and my transition into Coca-Cola FEMSA. I would like to share my five key priorities as I take the role.
Number one, ensure we maintain our solid financial foundation and a disciplined approach to capital allocation in order to continuously improve our return over invested capital. Number two, continue evolving the finance function with a business partner mindset working collaboratively with our operations and other functions to ensure that they're fully equipped to drive our top and bottom line results and maximize shareholder value. Third, guarantee that we continue attracting and developing our talent base in the finance function. Number four, continuing with our approach of transparency, fair disclosure and continuous communication with our stakeholders. And finally, support John and the senior leadership team in our continuous journey of cultural transformation reinforcing our DNA elements.
Number one, our obsessive focus on customers and consumers. Number two, our operational excellence focus. Three, continue creating owners' mentality across everyone who works at Coca-Cola FEMSA. Number four, putting people first in every decision we make. And finally, agile decision making and agile organization as something that is very critical in a volatile uncertain complex a environment that we face.
Turning to our operational and financial highlights. It is important to note that several factors affected the comparability of our year-over-year results for the fourth quarter. Number one, as previously announced, due to the change in the reporting method, the result of Coca-Cola FEMSA Venezuela are no longer included in our consolidated financial statements. As of January 1, 2018.
Number two, volume and financial results of our recently acquired territories in Guatemala and Uruguay were consolidated as of May 1 and July 1 2018 respectively. Third, on August 16, 2018, we announced to exercise a put option to sell our 51% stake in the Coca-Cola FEMSA Philippines to the Coca-Cola Company. That transaction closed on December 13, 2018. Therefore, according to IFRS 5, the Philippines operation is presented as a discontinued operation as of January 1, 2018. And our consolidated financial statements we represented as if the Philippines had been discontinued from the beginning of 2017. Consequently, our Company's consolidated financial results are not comparable to the financial statements published in 2017.
Number 4, as of July 1, 2018, our Argentina operation was reported as a hyperinflationary subsidiary. This means that we have to reexpress the results of any given month in real terms to the end of the reporting period. Thus the results of our Argentina operation in October and November were reexpressed in real terms as of December 31. Also we have to use the end of period exchange rate to translate the reported results of our Argentina operation to Mexican pesos.
To better describe our business performance, for certain information, we present comparable figures. Excluding the effects of; one, mergers and acquisitions; two, translations effects resulting from exchange rate movements; three, the results of Argentina, because this operation has become hyperinflationary; and Number four, the results of Venezuela in 2017 as it had been deconsolidated.
Guided by our clear strategy, we navigated a very complex environment to deliver positive comparable results this year. Our comparable sales volume increased 0.9% to 972 million unit cases, with transactions growing 1.4%. Comparable total revenues grew 7.8% to MXN50.2 billion. Comparable operating income grew 4.3% to MXN7.3 billion and comparable operating cash flow grew 4.1% to MXN10.2 billion.
Now I would like to briefly discuss each of our operations' highlights for the quarter. In Mexico, we maintained a healthy market share delivering revenue growth of 4.4% in the face of macroeconomic uncertainty and currency volatility. Our Mexico operations volume declined 0.9% as we experienced worse than expected weather conditions in November and December. Moreover, we increased prices in November, affecting our volume for the month, but proactively preparing us for the beginning of this year 2019.
Also our portfolio mix impacted our average price for the quarter as multi-serve and returnable presentations increased their share of our portfolio mix. With regard to profitability, our pricing aligned with inflation, currency hedging, declining sweetener prices and expense control strategies coupled with our digital initiatives, partially mitigated higher PET and concentrate prices. Beginning July 1, 2018, the price of concentrate increased another 1% of revenues for the next 12 months.
Moving south into Central America. We leverage 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, our successful pre-sale model roll-out in Guatemala and focus on execution, enabled us to achieve double-digit volume growth and improve our market share in such a competitive market.
Increased prices across our four operations drove mid single-digit organic revenue growth despite an organic volume decline of 3.5%. Our Costa Rica and Panama operations reported low single-digit volume contraction while Nicaragua continued its low double digit contraction. Despite softening consumer dynamics resulting for a -- from a disruptive sociopolitical environment, our Nicaraguan operators have been able to contain the volume contraction.
However, including our recent acquisitions in Guatemala, we reported 27% volume growth for the region. Guatemala continues to perform positively with low-single digit organic volume growth, and in our new franchises, we're capturing synergies through portfolio alignment mainly on the still beverage category. As we started implementing order portfolio and we launched our 2-liter multi-serve returnable PET presentation, which has been working very well in the market.
For the quarter, where lower sweetener prices and expense control strategies were offset by higher PET prices and depreciation of the average exchange rate of the Costa Rican Colon and Nicaraguan Cordoba as applied to our US denominated raw material costs.
Moving on to South America. Emerging from a tough macroeconomic environment in Brazil, we delivered consistent volume growth for the year. Leveraging upon our affordability strategy, our portfolio is very well positioned to satisfy Brazil's recovering consumer environment. We continue the positive volume trend in Brazil marked by a fifth consecutive quarter of volume growth as volume grew 4.5% for the quarter with transactions outperforming volumes.
Our Cola's water and still beverage categories, volume outperformed for the quarter, thanks to our focus on execution and our digital capabilities which enabled us to launch more than 100 innovations in the back end of 2018, which is a great achievement for the team and an important reconfiguration of our portfolio in the market. Although we increased prices during the quarter to proactively prepare us for the first half of 2019, our price mix benefited from the performance of our single-serve presentations.
However, in Mexican pesos, our revenues were affected by a negative currency translation. Led by our affordability strategy, we improved our volumes in the face of Colombia's challenging gradually recovering consumer environment. For the quarter, we generated 3.1% volume growth with high single-digit growth from our colas portfolio. Thanks to the performance of our returnable 2-liter PET presentation which has achieved double-digit growth.
We also improved the water and still beverage category performance with a personal water portfolio having double-digit growth and our launch of Del Valle Frutal improving our share in these categories. However, after Colombia's very positive performance for 2018, we're operating under a very different environment this year. Starting last January, Colombia's fiscal reform changed the way VAT is applied to sugar beverages and beer, from a mono-Phase to a multi-phase scheme. This impacts all of the product chain from our distributors to our final consumers.
While it is too early to tell to confirm the impact of our -- on our volumes, we expect negative performance for the coming year. Accordingly, we're reassessing our current business model to ensure we have a sustainable profitable operation. Confronting Argentina's tough macroeconomic environment and marked by hyperinflation and deep currency devaluation, our volume declined 27% for the quarter due to a tough year-over-year comparability.
At the year earlier, period marked -- the earlier year period marked the last quarter of a positive currency environment. Nonetheless, we were able to increase our prices ahead of inflation, increasing prices by 59% on a local currency basis. However, due to a negative translation effect, our revenues that were reported, declined 47 -- 45%.
Moving forward, we're much better prepared than ever 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. With respect to Uruguay, which we integrated in 2018, our integration process is proceeding according to plan. We're countering the region's difficult macroeconomic environment through synergies and long-term structural efficiencies. We're also improving our market share, particularly in the flavored sparkling beverage segments. For the fourth quarter, we reported sales volume of 13.3 million unit cases. Like Argentina, this operation's portfolio enjoys a higher mix of low and no sugar beverages reaching 67% this quarter.
In our South America division, favorable sweetener and aluminum prices coupled with a positive currency hedging and expense control strategy enabled our operations to partially partially offset the higher PET prices, and the depreciation of local currencies as applied to our unhedged U.S. dollar denominated raw material cost, which impacted the division's profitability for the fourth quarter.
In Venezuela, we continuously adjust our business model to serve our consumers and clients in a very tough and difficult environment to operating.
Finally, as a result of the continuous analysis of our investments in joint ventures, as of December 13 -- December 31, sorry, 2018, we realized an impairment of our investment in Estrella Azul, our dairy joint venture with the Coca-Cola Company in Panama. The outcome of this analysis let us to register an impairment of MXN432 million. Both Coca-Cola FEMSA and the Coca-Cola Company are fully committed to continue focusing on this operation in a very profitable way. Now with regard to our financial results for 2018. We reduced our total debt by MXN1.6 billion compared with year-end 2017. This reduction resulted mainly from the payment of $445 million for Yankee bond due in 2018, which was partially offset by the new bank loans in Mexico and Uruguay. Additionally, our weighted average cost of debt for the quarter was 8.2% including the effect of debt swapped to Brazilian reals and Mexican pesos. This year-over-year increase was due mainly to our fixed exposure to Brazilian reals denominated debt and the effect of the increase of the TIIE rate on our bilateral loans in Mexican Pesos.
As we receive the proceeds for the sale of our 51% stake in the Philippines in December, our net leverage ratio ended at 1.61 times. Our comprehensive financial resort results recorded an expense of MXN2.1 billion resulting from two main factors. First, a foreign exchange loss in our U.S. dollar denominated cash exposure as the Mexican peso appreciated in December. And two, in the loss or gain on monetary position line. In 2017, we reported a gain for Venezuela, whereas in 2018, we reported a minor gain for our Argentina operation.
As we are reporting our Argentine operation as a hyperinflationary subsidiary, we were required to reexpress the results for October and November in real terms as of December 2018, as we use the end of period exchange rate to translate the results to Mexican pesos. Accordingly, we recorded a monetary position gain in inflationary subsidiaries of MXN59 million as compared to a gain of MXN460 million in 2017, driven by our Venezuela operation.
During the quarter, we reported income tax as a percentage of income before taxes of 30%. This result was driven mainly by the increase in the relative weight of Brazil's profits in our consolidated results, which have a higher tax rate. Finally, as we announced on January 31, 2019 and subject to the approval of Mexican National Banking and Securities Commission, we propose to our shareholders a stock split and the issuance of Series B shares to be listed together with Series L shares in the form of units to allow our company to increase its capacity to issue new equity, which maybe used as consideration in future share-based acquisitions as well as for general corporate purposes.
We will continue to maintain our disciplined approach to capital allocation and we're confident that the listing of Series L shares and Series B shares in the form of units will help unlock value for shareholders and position Coca-Cola FEMSA for new growth opportunities in the future. Obtaining the commission's authorization, we will announce the record date and exchange date for all holders of Series L shares and the conversion date for our holders of ADSs. We expect that the announcement will happen during the first quarter of 2019.
And with that, I'll hand the call back over to John for his final remarks. Thank you very much.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Thank you. (Technical Difficulty) our leadership talent, starting this year, we are pleased to report the following organizational changes. Fabricio Ponce, former Chief Operating Officer in the Philippines, is our new Chief Operating Officer for our Mexico operation. Prior to his assignment in the Philippines, Fabricio served as the head of our Colombian operations, Managing Director of our Central American operations, Managing Director of Argentina and Brazil and Colombian operations and Strategic Planning, Director of our Latin American operations during his 30 year career with Coca-Cola FEMSA, and now it is coming back from Philippines to start applying what we learned over there to the Mexican market.
Xiemar Zarazua, former Chief Operating Officer in Mexico, is our new Strategic Planning and New Business Officer. Prior to joining our company, Xiemar served for more than 30 years in the Coca-Cola Company. His different positions included, Chief Executive Officer of the Brazil business unit from 2008 to 2016 and Chief Executive Officer of the Latin America business unit from 2006 to 2008. He also served in different areas in Mexico and Central America.
At Coca-Cola FEMSA, we are committed to continuing our legacy of entrepreneurship, innovation and operational excellence, strengthening our capabilities to become a bigger, better and bolder bottling company to achieve our joint vision of beverages for life and generating economic, social and environmental value for all our stakeholders.
In closing, we continue to focus on becoming a total beverage leader in our current and future geographies, continuously pursuing sustainable profitable growth and enhancing our capabilities to remain as a beer market developer in the Coca-Cola system.
Operator, I would like to open the call to questions. Thank you.
Questions and Answers:
Operator
(Operator Instructions) And we'll first hear from Fernando Olvera of Bank of America Merrill Lynch.
Fernando Olvera -- Bank of America Merrill Lynch -- Analyst
Hi, good morning, everyone. Thanks for the call. I have a couple of questions which are related to Brazil. I mean regarding volume, you registered a really very solid volume growth this quarter, and I think the strongest quarterly growth of the year. So can you elaborate more on what was behind such growth and how does your market share behave during the quarter? Also -- how should we think about consumption this year and what is your outlook on volume grow this year? That's all. Thanks.
Constantino Spas -- Chief Financial and Administrative Officer
Thank you, Fernando. This is Constantino. Well, yeah, certainly, Brazil had another positive quarter. We continue to be very encouraged by the positive performance. We have in Brazil. It's the fifth consecutive quarter of volume growth. As you mentioned, volume growth increased 4.5%. Overall weather helped significantly, especially during December. In addition to that, as I mentioned, we have a very successful implementation of affordability initiatives, additions to the portfolio. As I said during the year, we did around 100 launches in Brazil across all categories.
And honestly, there is a huge focus on execution at the point-of-sale by the team and also we have been driven by some digital initiatives across our omni-channel strategy. Our market share remained steady, we're gaining some traction in market share both in CSDs, especially in Colas. But also in juices and nectars and water as well as isotonic and energy drinks. Overall, we're seeing a very, very positive beginning of the year. The outlook in terms of macroeconomics and consumer optimism in Brazil is starting to pick up again. So, we hope we continue with this trend and momentum in Brazil. Thank you.
Fernando Olvera -- Bank of America Merrill Lynch -- Analyst
Great. Thanks.
Operator
Next we'll hear from Benjamin Theurer of Barclays.
Benjamin M. Theurer -- Barclays Bank PLC -- Analyst
Yeah, good morning everyone and thank you very much for taking my question. So two questions, actually, one on the outlook in Mexico. What do you expect -- how do you feel about the consumer environment demand scenario and obviously the fact that you had obviously a little bit of cost pressure from the concentrate, what's your pricing strategy looking into 2019 on the Mexican market? That would be my first question.
Hector Trevino -- Former Chief Financial Officer
Yeah. Thank you. It's Constantino again. Well, overall, we're seeing positive trend as we start 2019. We have done very -- been very effective in price management above inflation. I mean we're leveraging -- we're significantly leveraging our analytics platform for the last couple of years, which, as time goes by, becomes more robust and more accurate and allows us to be much more effective, not only on pricing and developing a pricing architecture, but at the same time on being more efficient in the allocation of discounts and promotions across our different channels. So that has been and will continue to be a driver for our performance in Mexico next year coupled with significant improvements in our execution at the point-of-sale. On top of that, we're seeing a resilient consumer. It's gradually recovering confidence. January, we saw positive volumes, the start of the year, which is good, taking us in the right path, although we had some weakness at the end of 2018. But January was pretty positive. And at the same time, weather has been favorable for us throughout the beginning of the year.
Our portfolio affordability is increasing. We are working very hard behind our returnable portfolio and our NCB portfolio also continues to gain traction. On the profitability side, as you mentioned, we're seeing more stable raw materials environments, sugar and PET prices significantly which were hard last year, coupled with a significant amount of productivity initiatives to protect our bottom line in Mexico. So I think that probably provides you a little bit of an outlook of what we are seeing for the Mexican market.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Hi, this is John. I just think complementing on that -- just complementing on that, I think what we're seeing also is the fact that we will have increased government spending. So the short-term consumption pattern for Mexico on a consumer business, specifically in our territories is going to be very favorable.
Constantino Spas -- Chief Financial and Administrative Officer
Yes.
Benjamin M. Theurer -- Barclays Bank PLC -- Analyst
Okay. And with that, do you expect also transactions to somehow pickup? Because that has been somewhat weakish especially in the fourth quarter, but if we take a look transactions throughout the year, were slightly negative 2018 versus 2017? So I assume you're expecting a little bit of a recovery there as well. Because what we're basically seeing was no volume growth throughout the year with some minor transaction and everything came from price. So the question is that transaction with less volume, what can drive top line growth in 2019?
John Anthony Santa Maria Otazua -- Chief Executive Officer
Right. Good question. I think one of the things that we -- we're going to start focusing on more, much more heavily this year in Mexico is single serve. Single serve in an affordable way and single-serve returnables, I think, we have a good lesson from the Philippines that we can bring into Mexico where we can go into having very affordable entry price points, OK, in a very significant manner in many markets in Mexico that requires it. So between what we're doing in revenue growth management on multi-serve along with the focus on retaking single serve, I do think, we'll have enhanced transaction growth and revenue growth behind our Mexican operation.
Benjamin M. Theurer -- Barclays Bank PLC -- Analyst
Okay. Perfect. And then just one last question. This is really just more of an accounting one. On the filing, you've submitted that the Mexican Stock Exchange, you basically reported at MXN51.8 billion in revenues to press release throughout the whole report states MXN50.2 billion. What's the difference of that 3%, because it literally runs throughout the whole income statement. Just your quick clarification. So which number should we actually use?
Constantino Spas -- Chief Financial and Administrative Officer
Benjamin, we had a problem with the platform...
Benjamin M. Theurer -- Barclays Bank PLC -- Analyst
Hello?
Operator
And just a moment. (Technical Difficulty) And you may proceed.
Constantino Spas -- Chief Financial and Administrative Officer
Benjamin, I don't know...
Benjamin M. Theurer -- Barclays Bank PLC -- Analyst
Yes.
Constantino Spas -- Chief Financial and Administrative Officer
What you've heard until we got cut off. But again just to reiterate we have...
Benjamin M. Theurer -- Barclays Bank PLC -- Analyst
(inaudible) last one and then it got cut off. That was the last word, plus...
Constantino Spas -- Chief Financial and Administrative Officer
Yes we had -- as we were loading the data to the Mexican Stock Exchange platform last night, we had very, a lot of difficulties putting that data onto the platform. And the correct data to focus on is the press release data.
Benjamin M. Theurer -- Barclays Bank PLC -- Analyst
Okay.
Constantino Spas -- Chief Financial and Administrative Officer
We'll be correcting the data on the Mexican Stock Exchange during the course of the morning.
Benjamin M. Theurer -- Barclays Bank PLC -- Analyst
Okay. Perfect. That was all. Thank you very much and I'll pass it on. Thanks.
Constantino Spas -- Chief Financial and Administrative Officer
Thank you.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Thank you.
Operator
Next we'll hear from Lucas Ferreira of JPMorgan.
Lucas Ferreira -- JPMorgan -- Analyst
Hi. First of all, I'd like to say, actually see, for Hector too, have a good look in his this new position actually, new phase of his life. And my first question is actually on the Colombia, if you guys can comment on the outlook for volumes, how this first month has been and especially considering this change in the VAT charge, if this -- if volumes have been coming
above expectations? And what are the sort of impact that we should expect for volumes in the first quarter and for 2019?
And my second question is regarding cost. So if you guys can comment on the cost trends for the year, if you already foresee some improvements in PET in the first half of the year and also the other main cost lines, if we should expect already a better year in terms of front costs per hectoliter sold. And if we should see some improvements in margins on the back of that? Thank you very much.
Operator
Next question from Alan Alanis of UBS.
Alan Alanis -- UBS -- Analyst
I'll be very happy to ask my question, but I don't know if they are on the line. John, are you on the line?
Operator
Just a moment.
Alan Alanis -- UBS -- Analyst
Thank you so much. I think they have to reply to Lucas' question first -- questions first and then we'll go afterwards.
Operator
Please hold the line while I reconnect our presenters.
Yes, one moment please.
(Technical Difficulty)
John Anthony Santa Maria Otazua -- Chief Executive Officer
Hello?
Operator
You may proceed.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Okay, thank you. Hello. Lucas? Hello, Lucas. Next question.
Operator
And we're on Alan.
Alan Alanis -- UBS -- Analyst
Yes, I will -- I mean, I'll ask my question but I guess we can circle back afterwards to Lucas. Sorry...
Operator
Yeah, we'll go back. We can go back to Lucas.
Alan Alanis -- UBS -- Analyst
Sure. I'm just trying to be a gentleman here. Well, first of all, Hector, congratulations. I mean as a former boss mentor, I mean you've always been a great example, and I certainly wish you the best at this new stage, you will be missed.
John, Constatino, my first question has to do with the criteria for transactions in M&A post the approval of this split. How does it, how does it change the criteria, if you could just update us on your thinking now that you will be able to issue more shares for M&A? And that would be the first question and then I have a follow-up more regarding, what, I can -- you can put it on the table right away. It has to do with the role of beer in your portfolio in Brazil. If our numbers are correct, we saw very strong revenue growth for the beer category in your results in the fourth quarter. I think that -- given that Heineken said that there was -- that they reported low mid single-digit in the fourth quarter, it indicates that you had a lot of pricing in beer in Brazil. And I just want to see if you can confirm that. And what is the overall role of beer in Brazil? And if you can give us any update in terms of the arbitration that is going on with Heineken that will be highly appreciated. Those will be my two questions.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Well let me tackle the last question first. First of all as you know, we're in the middle of a -- I know everybody wants to know about beer in Brazil. But as you -- as you're aware, we're in the middle of an arbitration process. So there is very little we can say about it until the arbitration process finalizes which we expect it to happen between the first half of the year or maybe the beginning of the third quarter. So just for those purposes, I'm not going to comment around our perspective on beer going forward in Brazil, and I hope you understand that, that particular --
Alan Alanis -- UBS -- Analyst
I do.
Constantino Spas -- Chief Financial and Administrative Officer
And in terms of performance, you're right. The beer category is going to -- in very positive momentum for us in our region or in the area of influence where operates in Brazil, I guess, Heineken has reported some of those numbers. And I would rather have the guidance from the Heineken relief and conversation that occurred a couple of years ago -- a couple of months -- weeks ago, sorry. But overall, we're seeing strong growth. The brands Heineken and brand Amstel have very good momentum. And this particular element is something that we're seeing consistently happening in the market for a while and we foresee it happening, so the premium segment of the beer category should continue strengthening from our perspective in the Brazilian market. So that's all I'd like to comment around beer. And I think the Heineken release has a significant information that can provide you guidance in that regard.
On the M&A piece and the stock split, as you know, the changes that we announced just aim to give us flexibility on our capital structure by increasing our capacity to issue equity that maybe used in -- as a consideration in future share-based on mergers arrival acquisitions. However, there is no project or initiative or target in mind that drove that decision. It has been something in the making for a while.
Actually I have Hector on my side who has been the architect of this particular initiative, and I'll ask him if he wants to comment beyond that. But there is no change in our focus on M&A. As you know, we have been historically known by being very disciplined on our capital allocation and we'll do the investments that are right for our company and our shareholders at the proper value and at the proper time and the mechanism that we put behind those transactions is defined at the moment, we see that the target and the initiative unfolding. I don't know Hector wants to comment something on the stock split to give you a little bit more guidance.
Alan Alanis -- UBS -- Analyst
Thank you.
Hector Trevino -- Former Chief Financial Officer
Good morning. As Constantino mentioned, this has been in the making for many years actually. Since the Vonpar acquisition, we started to define this need. And if you remember, we had this convertible that was issued with respect to that acquisition and that requires this structure to be in place. It took a lot of time, because we were looking for -- and in conversation with the authorities, so that we can have a single unit trading as opposed to having Series B and Series L with a split trading that, in our opinion, will create some liquidity and issue -- pricing problem for us. So we finally got the authorization at the end of last year. We were caught with the Christmas break and the change in the government and finally, we got final approval in January. But as Constantino said, it's basically talking of what we'll develop and plan for quite basically for 3 -- 2.5 years. The Series B shares would now have some volume rise which I think that is very good for our -- for our shareholders and investors in this (inaudible).
John Anthony Santa Maria Otazua -- Chief Executive Officer
Alan, this is John. I think as you go through these three acquisitions of Coca-Cola FEMSA, sometimes you use the large component of debt and sometimes you use the -- a large component of equity, but always trying to maintain our ratios within region. And some -- and what we have here is incremental flexibility, OK, to make sure that as we see opportunities when they come up and sometimes are not necessarily projectable that we have the financial strength and flexibility to do something that is reasonable and conservative for our shareholders. Assuming that we did whatever transaction we have going forward is accretive. And I think this allows us a broader spectrum to go out there and feel comfortable that we're in a great financial position and also in great capital position to continue down the path of doing further transactions.
Alan Alanis -- UBS -- Analyst
Got it. That's very useful. Thank you so much.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Thank you, Alan.
Constantino Spas -- Chief Financial and Administrative Officer
Thank you, Alan.
Operator
And Lucas, your line is reopen, you may pose your question again at this time.
Lucas Ferreira -- JPMorgan -- Analyst
I think you, I'm not sure if you issue listen to the questions, but the first one was related to the elasticity in Colombia, if this is coming better than expected. What sort of impact you guys are expecting the volumes for the first quarter and full year? If you can comment at least versus your expectations, initial expectations. And the second question was regarding the costs, wanted to know and what part of the the curve we are in terms of pressures, especially from PET which I think should be to remain the one of the lines pressuring your costs. So can we expect already better cost base in the quarters to come, and what about the full year 2019. Thank you.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Lucas how are you? Regarding Colombia, obviously the elimination of the tax benefit that we had in and our plant is a very, very large impact for us. And to change our short-term strategy of want to going out there and restructuring our Colombian operation in a lot of different fronts. The first one was pricing, which we took up immediately in January, we took up over 6% pricing. Secondly, we had a resize, beginning to resize our operation, we've taken out 200 people in Colombia, basically staff people to resize that operation. Thirdly, we're looking at redeveloping our route to market, plus our supply chain distribution network, because all of our benefits were stuck in the (inaudible) plant and we're looking to we reallocate those to the different plants that we have.
So I think the first four to five, six months in Colombia are going to be very focused on restructuring to make sure that we're facing the environment in the correct manner. in sizing our company to that manner. What we think about elasticity is we've taken up the prices and we're better than what we thought. So, we have -- at the 6% rate, we're not looking, we're not seeing the same type of elasticity as we had before in the VAT was taken across the whole country couple of years ago. So we're much better off than what we thought. And we're encouraged by what we're seeing in terms of savings. And obviously, it's a very challenging year for Colombia, but I think we're on the right track with the right portfolio and with the right management as well.
Constantino Spas -- Chief Financial and Administrative Officer
Now, Lucas -- and around -- and to your other questions regarding raw materials, PET and sugar, we are seeing a better curve going forward in 2019 compared to 2018 . So overall, our outlook in that particular element inline in our P&L should be more favorable this year than in the previous year.
Lucas Ferreira -- JPMorgan -- Analyst
Thank you very much.
Operator
And next we'll hear from Antonio Gonzalez of Credit Suisse.
Antonio Gonzalez -- Credit Suisse -- Analyst
Hi. Good morning, everyone. Thank you for taking my question. First, similarly, thank you for everything Hector and congrats on a truly remarkable career and Constantino, best of luck on this new role. I have two questions. The first one on dividend, you mentioned in today's press release that the Board has proposed the dividend of MXN3.54 per share, which is 5.7% growth versus last year. And obviously there has been a debate recently up there, you exited from the Philippines on whether you could substantially increase the payout. On the other hand, obviously, flexibility on the macro side in Mexico, I guess, has diminished significantly. So I just wanted to pick your brains as to what is the latest thinking with respect to the payout policy? Do you think we will remain at similar levels for the next couple of years or do you actually see a room for a substantial increase, and if so, in which time frame? And then secondly, I just wanted to ask very quickly, what triggers -- is there any specific events that triggered their write-off in Panama and is there any long-term learning here that would extrapolate your diary ventures elsewhere or is it more of a specific situation? Thank you so much.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Thank you. Thank you, Antonio. Let me address the dividend issue first, we are taking back our dividend policy to about for the 2019 year in payout to the -- to about 20, 21% those was historically. We would have increased dividends further, but we wanted to -- but we want to make sure that we have the cash on hand to pay off a $500 million Yankee bond that comes due in February, OK, of 2020. Okay?
So we didn't see any economic benefit of going out there and borrowing to report -- to go out there and do a such a short-term transaction to bring down the Yankee. So we wanted to keep that cash on hand. So going forward, once we're over that hump, we do have a possibility of increasing the dividend policy going forward for Coca-Cola FEMSA and that would be our objective.
However, we also would be very constrained -- we're very concerned with how market conditions continue to evolve and what we want to make sure that we have enough financial flexibility and strength on our balance sheet to be able to ensure that whatever future dividends that we're going to go out there and increase are sustainable. Secondly, in terms of the write-off of the Panama operation, the Panama operation is the first real foray into value-added dairy that we had. And I think what we've had is a lot of delays on the plant, the law in terms of up -- bring up the plant into a -- and respect, this was neither a remake nor a greenfield or around we have a what we saw a brownfield that we're just making the plant within -- a new plant within the existing plant. So that, if you have ever remodeled your home, is a very difficult situation.
So we've encountered delays and we are also learning a heck of a lot more about how to manage dairies. Because this is really the first time when we've gone into cold and value-added dairies with yogurts, OK, ice creams. So it's been a very large learning process that we don't have anywhere else, OK? In Mexico, we are basically all UHT, or even in Brazil where it is chilled, but it is on a separate basis. So I think it's a very specific thing to Panama that you really cannot go out there and project any place to us. Now that being said, we just came back from Panama couple of days ago, and I'm very encouraged to see exactly how the project is coming along, the momentum is gaining and how the -- our production platform is coming on stream nicely.
Antonio Gonzalez -- Credit Suisse -- Analyst
Gracias.
John Anthony Santa Maria Otazua -- Chief Executive Officer
You're welcome.
Operator
And before we take our next caller, I would like to remind you to please limit yourself to one question and one follow-up question, allowing others a chance to ask a question. Next we will hear from Carlos Laboy of HSBC.
Carlos Laboy -- HSBC -- Analyst
Hector, congratulations and thank you for 25 years of forthright honesty and straight shooting which has been I think very helpful for everybody. John, the catalog of achievements that you listed at the start of the call, we all get it, it's what makes you maybe the most valuable bottler Coke's ever had anywhere in the world, almost 25 years for driving next frontier execution. But it all makes for a really great eulogy, if you can exceed your cost of capital on a sustained basis. When you look at the pressures you're facing in Brazil and you look at the pressures that you're facing with non-core profitability with the marketing maybe of effectiveness at driving growth for your core brand. Can you exceed your cost of capital without these things getting fixed? And the follow-up to that then is, you said that you're going to evaluate geographic and category opportunities, but you're also increasing the dividend, so are you willing to consider geographic opportunities for asset sales, not just for purchases, if you're staring at situations where you can't get from your partner what you need for exceeding your cost of capital?
John Anthony Santa Maria Otazua -- Chief Executive Officer
Hello?
Carlos Laboy -- HSBC -- Analyst
Yes.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Carlos, a couple of things. Yes, over the last couple of years, we've had a series of -- we've had a series of years where we are not making our cost -- we are making or slightly under the cost of capital for Coca-Cola FEMSA, and I think that's a true reflection of the market in terms of how we've gotten the value Coca-Cola FEMSA. We get -- it's just not been increasing shareholder value. Now there is a couple of reasons for that and I think there's the valuations, there is incremental cost for raw materials, and yes, importantly, there has been also incidence increases that had also been affecting us to the tune over the last three, four years of about $154 million, that continued to give us headwinds.
There has been consumer headwinds and there's been tax headwinds as well. So I think overall, being close to cost to capital has not been bad, but it is not what we need, OK? The issue is how do we go out there and continue to grow cost, achieve our cost of capital, couple of things. First, in the general picture, we need to go out there and amplify our portfolio. Well, firstly, we need to just to get our CSD portfolio back on track and I think it was very encouraging to see during 2018, that Coca-Cola brand, Coca-Cola grew almost 2%, OK, in terms of volume. And I think we've put also a lot more revenue into the Coca-Cola system by growing both revenues and volume and transaction fees over the brand Coca-Cola.
And secondly, we need to go out there and fix on our non-carb business or make it not fixed. I would say let's make it more profitable. Okay? Right now, where we are, it is growing, but it's not nearly as profitable as our growth business, but it is as I would argue is marginal to the whole process. So -- or to the whole structure, so the more we go out there and grow, the more margin we do enhance. Now when we bring down the Coca-Cola -- the non-carb business, it is what non-carb business, you want to talk about.
Because within the non-carb business, there's a series of large business -- of businesses that are very profitable, energy, key, low...
Constantino Spas -- Chief Financial and Administrative Officer
Isotonic.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Isotonics. And one, we have to start, I think getting better returns on just basic juices and nectars. And there's two ways of doing that. One is going out there, getting better formulations, OK? And secondly, there is also case is going up and doing a better portfolio by premiumizing it. And I think Brazil as the last time you were down there, you saw how we premiumize the juice -- the juice portfolio, making sure that we're going out there with higher premium category glass products and they're doing very well and there is a lot of margin involved in that.
So I think from that end, we're starting to advance on the portfolio and getting it much more accretive for our Coca-Cola FEMSA -- Coca-Cola FEMSA shareholders. Secondly, I think it's in water. In water, we have to go out there and figure out exactly what we just did in juices in terms of developing a portfolio of premium brands, OK, to be able to really develop the brands and to make sure that we have enhanced profitability over what we have today. Today, in most most countries, we play with a core brand which is CL in some places, Crystal in Brazil, that tries to play gamma across premium value and four mainstream. And what we need to do is go out there and develop those brands differently.
We need -- we've just launched Smartwater in Brazil, we've launched Smartwater in Argentina in the Mississippian basis. But those are the type of initiatives we need to continue to develop fully and aggressively to make sure that, that portfolio becomes as profitable as carbonated soft drinks. And in carbonated soft drinks, and I just said this on another question, we need to refocus on engaging on transactions on single serves. And I think there we can do that by going back into glass and returnables, OK, in a way that I think our competitors can't, OK, both in Brazil and Mexico and elsewhere. So I think there is a good story let's say that we're well poised to be able to go out and increase our profitability and our margins to cover our cost of capital and grow at the same time.
We turn to Brazil, you're saying whether Brazil -- beer is something that we need to do and we don't need to do. Obviously, we can't comment on the existing arbitration but the world is moving toward more and more integrated platforms. And Brazil is an example, I think there's other countries that are also examples. And I think it's more compelling in Brazil than any place itself, and for us it would be very important for us to be able to have a beer solution in Brazil. I don't know if that covers all your questions, Carlos?
Carlos Laboy -- HSBC -- Analyst
Yes. The final question is that you had mentioned that you're going to continue to evaluate geographic and category opportunities, but everyone assumes that, that means that you're going to consider more asset sales, but more asset purchase but what you've done mostly recently is sales, the Philippines. Or do you look at your existing portfolio of territories to sort out well, maybe there's something in here that we shouldn't have.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Sure. Let me be clear about this, I mean the thing with the Philippines was a very specific transaction structure for the Philippines and Asia and the way it was set up the deal was set up, and that's what we negotiated at the time is that we'll go out there and we are putting the call. And we had to go out and exercise the call to be able to further acquire territories and in Asia. And given what's happened in the Philippines with the tax on sugar, we couldn't find a way that make whole of the prices that we had in the original transaction. And so, therefore we instead of going out and modifying the whole transaction, but we -- what we landed up doing was just putting it back to the company. That philosophy is not in Coke FEMSA's DNA, OK? We're not going -- we're not asset sellers, OK? I don't have it in vision to go out there and sell assets at this point, any pesos. And later on from -- in the Philippines, we just went out there and acquired two franchises in Guatemala and one in Uruguay, that I would say, gives you the pace of where we want to go in the future. We will continue to look at opportunities both on a category basis and a territory basis, Carlos, OK? Again just making sure that we're not going out there and destroying shareholder value.
Carlos Laboy -- HSBC -- Analyst
Thank you.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Well.
Operator
Next we'll hear from Alex Robarts of Citi.
Alex Robarts -- Citigroup -- Analyst
Yes, hi everybody. Thank you. And I did want to start out by saying to Hector, thank you very much for the financial stewardship through the years. And I hope the best in your well-deserved retirement. Two questions from my side. One on the operating deleverage in South America. And then the second on non-carbs. I guess we kind of came into the quarter thinking about lower sugar in South America, but then higher PET. But what seem to kind of really explain or at least impact a lot of the deleverage, right, you show us comparatively 12% top line in South America, growth in the quarter with 2% EBITDA growth and that difference seems to kind of go to the, what you call the raw material hedge, the unfavorable hedge there, could you give us some more color as to what specifically was behind that raw material unfavorable hedge? Was it a particular input, was it several? And might we expect some relief in this seasonally strong summer here in the first quarter or might that continue to be unfavorable? So, that's the first question.
The second one relates to non-carbs and interesting trend, you talked about it with us in the fall in New York when you came up. And now with the full year numbers, we can kind of see how those non-carb volumes fall. Then when you look at Mexico and Brazil, it's kind of a tale of two cities, flat non-carb volume growth in Mexico last year and I guess the kind of the impact there is bulk water coming down. The question is, is that going to continue to be a focus for you or is that something that you want deemphasized and should we continue that for -- to see that decline?
The other side is Brazil where your mid-teen non-carb growth. A lot of it is stills also waters, but it strikes me that it's 20% of the volume of non-carbs in Mexico. And so does M&A become something that you would look at this year in non-carbs in Brazil to kind of perhaps more right size that kind of growing piece of your volume? And the final piece on the non-carbs last week Coca-Cola Company talks about in the conference that new products accounted for about 17% volume growth last year.
How does -- how do you think about just generally new products and the impact it can have on your growth this year. Would it be like Coke's number of mid-teens? Thanks very much. A lot of kind of sub questions, but I appreciate the time.
John Anthony Santa Maria Otazua -- Chief Executive Officer
And Alex, Let me (inaudible) try to take the last ones first and then I'll let Hector or Constantino, talk about the hedging question that you asked. I think, let me talk a little bit about bulk water, because bulk water is a good place to start on this conversation. We do have a very large bulk water business in Mexico, OK? And that is -- it's profitable, but it's not necessarily as profitable as we'd like it to be, and we've been working on maintaining or growing our profitability on primarily the 19, 20 liter jug business. And there what you'll be seeing and what we're going to be emphasizing is obtaining better margins on that business. In light of the sacrificing volume, what we'd like to do is continue to price up, OK, and continue to gain better margins, and obviously also become much more efficient in our operation that we have and there -- and I would say the focus of this would probably be more Southwest of Mexico and then we have at any place else.
So the 20 liter jug business in Mexico is a big deal and the profitability on bulk water 5-liter business is also something you're going to be looking at to make sure that we have the proper returns on that business. So, that's something we'll focus on in both Mexico, Colombia is also an issue with that in terms of the 5 liter and 6 liter bottle, 6 liter bag business and how do we start making our profitability a little bit better on those packs.
On the non-carb business in Brazil, as you said -- and I think one of the things to understand is we restructured that whole business in a big way. Other than 100 SKUs that we launched, the majority of those are non-carbs and we're basically going toward two things. First is competing -- first is putting ourselves in a competitive situation in our plants with cold-fill products, which were coming out of Lao(ph)and now and we're resourcing them out of Jundiai, OK? And that transition from the Lao(ph)plant to the Jundiai plant is giving us at least -- giving us an advantage to compete in low cold-fill juices that is really the bottom part of the market. And that will allow us at the same token to be able to increase prices, OK, on the core leader Tetra juices and vectors, OK, which we were sacrificing before just to be able to maintain margins. And also the increase in all the glass and hot fill capability is in terms of premium products that we're doing is also leading to better profitability. And we should start seeing that continue to grow, but profitably sell in Brazil over the first six months to seven months of the year.
So I think where we are -- and in Mexico, what we're looking at is better formulations, better cost structures and we have enormous opportunity to make these better both in Mexico and Brazil. So I think that the focus is the right one. And we're encouraged to see that we will be able to go out and increase our profitability and non-carbs, OK? And bulk water businesses. Constantino, do you want to take a look at the hedges?
Constantino Spas -- Chief Financial and Administrative Officer
Sure. If I understand your question, what you're asking was the biggest impact in South America regarding the cost for the quarter. But I would tell you is that PET was the main driver in across all markets, particularly in Brazil and Argentina. We had significant price increases in dollar terms in Brazil, almost 30% increases in PET costs in Brazil. Part of that was unhedged, but if you couple that with devaluation in Brazil, there was a significant impact for us in that particular operation that considering the size of Brazil in our South American region that has a -- an important impact for us. We also had some some labor cost increases in a couple of markets, Argentina and Brazil. And that explains most of the impact in cost that we had in the fourth quarter for Brazil. I don't know if that tackles your question?
Alex Robarts -- Citigroup -- Analyst
I guess, sorry, Constantino, specifically the raw material hedge -- I mean, which you talk about in the press release, was there -- it was the hedged -- it was the dollar hedged price for certain raw materials, correct? And that is something that will roll...
Constantino Spas -- Chief Financial and Administrative Officer
Yes.
Alex Robarts -- Citigroup -- Analyst
Okay, and the question is, will that roll off, is that going to continue into the first quarter? The question was, sorry, on the actual hedge. Yeah.
Constantino Spas -- Chief Financial and Administrative Officer
Yes, actually we have a very -- say, very disciplined approach toward hedging both on currency and on raw materials. I don't know if you're aware of our routine. But we have monthly routine with every single operation and probably CRM process. We redefine -- and we define bands and coverage levels for our critical raw materials, sugar, PET, aluminum, et cetera. And we also look at the coverage from our currencies, especially in such a volatile environment. So yes, the question is, yes, it will continue. It's part of cost disciplined approach on the operation management and a way in which the finance function supports on our operations. So yes, it will continue. I reiterate that answer for you.
Operator
Luca Cipiccia of Goldman Sachs.
Luca Cipiccia -- Goldman Sachs -- Analyst
Hi, good morning, thanks for the time and taking my question, Hector, congratulations and best wishes. Just two follow-ups from my side. One, I think in your introduction remarks, you made some reference on the investments you're making on digital capabilities, and I was hoping maybe you could qualify a little bit better some of this or little bit more rather some of this initiatives, how relevant are they for your operation, for your partners and also how are these being rolled out across markets? Are you starting from Mexico and then implementing them across the board or is this -- I'm just trying to get a sense of how relevant are much of a step change, how much of the incremental benefit there could be from some of this measure that you made reference to? That's the first question.
And then secondly on the portfolio and on the dairy strategy, also in light of your comments on Panama, do you think the system overall in dairy, would -- could benefit from a more organic strategies across -- strategy across market or in other words, do you think that there would be a rationale for a Jugos del Valle type of structure or transaction or addition given that the execution and the portfolio itself can appear not entirely consistent across all markets, the dairy presence is stronger in certain markets, weaker in other, and in some, there isn't any, both of your franchises and other franchise. So I don't know if you have any comment on that I'd be interested in hearing your views. Thank you.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Sure. On the digital front, first thing is that what we've done in digital, it has a lot of components to it. And they have a commercial component, it has a manufacturing distribution component and it has also an administrative and back office component or SaaS component. Let me just take you through what I think is probably the most valuable piece, which is the cost commercial component.
There, what we've put out is a digital platform that starts with the analytics database, OK, for -- and let me just use Mexico as an example for the detail. But it goes out there in has -- per account, we have about 7,000 pieces of information and we have all the detail on 800,000 accounts that we have in Mexico. And with few analytics and we also have -- this is not going to do the -- that model as well as purchase structure -- consumer purchase structures, it gives us the insight as to how to go out there and manage down to the point of sale and making sure that we have the right pricing structure, the right packaging structure, OK? And now we're also getting into the right demand structure.
But all those analytics connect to our marketing department, and the marketing department goes right into the sales department and we have immediate work orders for each one of our point of sale with independent of or would be customized promotions for them and we have the ability to send out these work orders on a weekly basis, and the feedback that we're getting obviously is weekly and we understand exactly what we're executing, how we're executing and what is working for us and not.
We have the capability of launching in Mexico, 5 million consumer, customer initiatives on a monthly basis and getting that information back. And obviously that's a lot of data and a lot of change management. Well, what has it given us? It's given us first place execution in Mexico, Brazil and Argentina, OK? An incremental execution right now in Colombia. We've rolled out this platform in our traditional trade throughout all our countries, OK? The marketing platform, the analytics have rolled out in Mexico and Colombia, and they will be rolling out in Brazil this year as well, OK?
And we've postponed Argentina given the hyperinflationary situation that we confront over there. So that's going to be postponed so we get a more stable economic environment. What's it given us besides better execution, it's given us better price realization. We'd be now able to take pricing above inflation, OK? In these countries. And it's also given us a better return on discount. And so our ROI on promotions have increased in Mexico of by 9 points and in Colombia by about 5 points.
So giving us real pricing power and is getting to be more effective. Now the second implication important to all this is that when we have all this information, we're starting to look at it as a forecasting tool and we've put together an artificial intelligence space, so we can go out and predict demand, OK, from all the points of sale going forward. And we are testing this right now in the Mexico in one of our warehouses and we're getting up to 5 points of better accuracy on demand prediction and demand sensing, which will allow us to become a much more efficient supply chain overall.
And so all that is done by outlook by the way. So as we gain more experience, we'll be going through this and opening it up into Mexico in a bigger way and then rolling it out through all the country. So if you look at the commercial platform, we've rolled it out in terms of the SAP Handheld and marketing analytics piece -- I mean the -- not the marketing analytics piece, but the handheld to all our countries in the analytics are following this year.
Now the second big bucket that we have that goes along with this is how do we become much more intertwined and digitized with our supply chain. So we've implemented what we have in Mexico on a JDA platform, which is a logistics platform throughout all of our countries already, and it's centralized in Mexico and that's been providing us with about $25 million worth of savings, OK?
We've put also digital distributors -- we have all our routes in Mexico, are now on -- are digitized. We know exactly where they are, how they can deliver. In Brazil, all of our routes and all of our trades are digitized, and we're looking to roll that out into other places as well. I think there is an enormous amount of value that we're creating there and obviously we'll continue to be leading forward in terms of the Coca-Cola system. The other question you had was on the portfolio strategy on milk or dairy.
Luca Cipiccia -- Goldman Sachs -- Analyst
Yeah.
John Anthony Santa Maria Otazua -- Chief Executive Officer
And if there is other acquisitions -- potential acquisitions out there that could make sense, yes, we'd take a look at it, OK? And depending on the values that we think we can create for our shareholders, we go out there and pursue it. I think there are a lot of synergies to be had with those categories, but there are also significant differences that you have to understand which we're understanding in Panama, which is called and also the short shelf life products that are totally different business than what we have in Coca-Cola. But they are something that we'd be looking at continuously.
Luca Cipiccia -- Goldman Sachs -- Analyst
Hector, just thank you very much for the answer for the details, it's very interesting, just on the dairy just to the angle of my question was also across the categories, typically you have brands and brands or products that work across geographies, there is a little bit of an exception where every country has got its own in a sense. So is that something that you see should change, could change, or does it make sense to do it that way?
John Anthony Santa Maria Otazua -- Chief Executive Officer
No, I don't think it makes a lot of sense to go out there and try to leverage dairy from one country with another unless its UHT, OK? Milk is a very regional business. And so I don't think necessarily we have a large strategy going forward on that end. I do think we have brands like AdeS that goes out there and plays in that space. But on the feed base, that is expandable and which we are expanding. OK? But dairy is more of a local business in the local -- with local credentials.
Operator
And our final question for today will come from Alvaro Garcia of BTG.
Alvaro Garcia -- Banco BTG Pactual -- Analyst
Hi, thanks for the call. Most of my questions have been answered. Maybe you could provide a road map. So on the capital allocation front, we think of the MXN700 million you received from the Philippines, perhaps you could provide a road map sort of including the Yankee bond up in February next year of how much debt you expect to pay down over the next 12 months to 18 months? Thank you.
Constantino Spas -- Chief Financial and Administrative Officer
Yes, Hi, this is Constantino. Basically we've analyzed the proceeds of that transaction that we did it in the Philippines and very straightforward, our intent is to use the the cash that we received to take our debt, continue our deleveraging path. And most importantly, I think that in February of next year 2020, we have a Yankee bond that is due and we'll be using the proceeds of that transaction to continue lowering our net debt ratio, which is quite healthy right now at 1.6. So that gives us a very flexible profile balance sheet going forward. So the answer is yes, we'll use the proceeds to continue deleveraging and pay our debt.
Alvaro Garcia -- Banco BTG Pactual -- Analyst
Apart from that, is it fair to assume that this year, maybe we'll see a $200 million in some pay down of debt just sort to get to that $700 million or is that Yankee bond really the only thing you have on your target.
Hector Trevino -- Former Chief Financial Officer
We already used part of the proceed to repay some of the bilateral loans that we have...
John Anthony Santa Maria Otazua -- Chief Executive Officer
Correct.
Hector Trevino -- Former Chief Financial Officer
That were related to the Uruguay and Guatemala acquisition. So that's basically that with that being the $200 million plus it was $500 million (inaudible) $240 million(ph). (Multiple Speakers) that we have in February 2020, that will basically cover $700 million. And as John and Constantino were explaining, the Board of Directors that we have yesterday, this decision was that to hold to give $500 million and wait given the good coupon that we have on bad (inaudible) versus the seniority of it impacting that -- both the sources. On the secure manner, the negative carries basically zero and the decision was to keep this tight on the $1 million on cash given the volatility we were seeing in the markets and just wait for 2020 and do that so we pay it.
Alvaro Garcia -- Banco BTG Pactual -- Analyst
Perfect. That's very, very clear. All the best, Hector. All the best going forward.
Constantino Spas -- Chief Financial and Administrative Officer
Hope you guys treat me as well as you treat Hector.
Hector Trevino -- Former Chief Financial Officer
(Inaudible)
Operator
And that does conclude the question-and-answer session. I'll turn the conference back over to our presenters for any additional or closing comments.
John Anthony Santa Maria Otazua -- Chief Executive Officer
Thank you all for being here today and I'd just like to take the opportunity again the Bank Hector for such a remarkable career and being such a great collaborator, friend and leader of the Coca-Cola FEMSA, and now only the Coca-Cola FEMSA company, but also a Coca-Cola Company. And also just a great trend. And I trust him and Maria they're going to have a lot of good times going forward, but will always be counting on his advice and closeness as we go forward. And to you all on the line thank you for your confidence and interest in Coca-Cola FEMSA if there are interesting times. But I'm sure that will be coming out very positively during this very challenging 2019. And our team is always available to answer questions you might (inaudible) on our team, and hope to talk to you very soon. Thank you very much for being with us today.
Operator
That does conclude today's conference. Thank you all for your participation, you may now disconnect.
Duration: 88 minutes
Call participants:
John Anthony Santa Maria Otazua -- Chief Executive Officer
Hector Trevino -- Former Chief Financial Officer
Constantino Spas -- Chief Financial and Administrative Officer
Fernando Olvera -- Bank of America Merrill Lynch -- Analyst
Benjamin M. Theurer -- Barclays Bank PLC -- Analyst
Lucas Ferreira -- JPMorgan -- Analyst
Alan Alanis -- UBS -- Analyst
Antonio Gonzalez -- Credit Suisse -- Analyst
Carlos Laboy -- HSBC -- Analyst
Alex Robarts -- Citigroup -- Analyst
Luca Cipiccia -- Goldman Sachs -- Analyst
Alvaro Garcia -- Banco BTG Pactual -- Analyst
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