MANAGEMENT’S
DISCUSSION & ANALYSIS
Results for the Year Ended December 31, 2022
Compared to the Year Ended December 31, 2021
The comparability of our financial and operating performance in 2022 as compared to 2021 was affected by the following factors: (1) translation effects from fluctuations in exchange rates; (2) our results in Argentina, whose economy satisfied the conditions to be considered a hyperinflationary economy; and (3) the ongoing integration of mergers and acquisitions completed in recent years, specifically the acquisition of CVI in Brazil in January 2022. For the convenience of the reader, we have included a discussion of the financial information below on a comparable basis, excluding the translation effects from fluctuations in exchange rates and the acquisition of CVI in Brazil in January 2022. To translate the full-year results of Argentina for the years ended December 31, 2022 and 2021, we used the exchange rate at December 31, 2022 of 177.16 Argentine pesos per U.S. dollar and the exchange rate at December 31, 2021 of 102.72 Argentine pesos per U.S. dollar. The depreciation of the exchange rate of the Argentine peso at December 31, 2022, as compared to the exchange rate at December 31, 2021, was 72.5%. In addition, the average appreciation of currencies used in our main operations relative to the U.S. dollar in 2022, as compared to 2021, was 4.3% for the Brazilian real and 0.8% for the Mexican peso, and a depreciation of 13.7% for the Colombian peso relative to the U.S. dollar.
Total Revenues. Our consolidated total revenues increased by 16.4% to Ps. 226,740 million in 2022 as compared to 2021, mainly as a result of volume growth, our revenue management initiatives, and favorable price-mix effects. These factors were partially offset by a decline in beer revenues related to the transition of the beer portfolio in Brazil and unfavorable currency translation effects from most of our operating currencies into Mexican pesos. In addition, for 2021, this line included other operating revenues due to a favorable determination from the Brazilian tax authorities, which allowed the recognition of a deferred tax credit in Brazil for Ps. 254 million. See Note 24.2.1 to our consolidated financial statements. On a comparable basis, total revenues would have increased by 17.8% in 2022 as compared to 2021.
Total sales volume increased by 8.6% to 3,755.2 million unit cases in 2022 as compared to 2021, driven mainly by volume growth across all of our territories, including double-digit increases in Brazil, Colombia, Argentina, and Guatemala, coupled with solid performances in Mexico and Uruguay. On a comparable basis, total sales volume would have increased by 7.5% in 2022 as compared to 2021.
Consolidated average price per unit case increased by 10.9% to Ps. 58.75 in 2022, as compared to Ps. 52.99 in 2021, mainly as a result of favorable price-mix effects and revenue management initiatives. This was partially offset by the negative translation effect resulting from the depreciation of most of our operating currencies relative to the Mexican peso. On a comparable basis, average price per unit case would have increased 13.0% in 2022 as compared to 2021, driven by our revenue management initiatives.
Gross Profit. Our gross profit increased by 13.2% to Ps. 100,300 million in 2022 as compared to 2021, with a gross margin decrease of 130 basis points as compared to 2021 to reach 44.2% in 2022. This gross margin decrease was driven mainly by a tough comparison base due to the recognition of an extraordinary profit of Ps. 1,083 million during the second quarter of 2021, related to credits on concentrate purchased from the Manaus Free Trade Zone in Brazil, higher concentrate costs in Mexico, and higher raw material costs, mainly PET resin and sweeteners. These effects were partially offset by top-line growth and favorable raw material hedging initiatives. On a comparable basis, our gross profit would have increased by 14.6% in 2022 as compared to 2021.
The components of cost of goods sold include raw materials (principally concentrate, sweeteners, and packaging materials), depreciation costs attributable to our production facilities, wages and other labor costs associated with labor force employed at our production facilities, and certain overhead costs. Concentrate prices are determined as a percentage of the retail price of our products in local currency, net of applicable taxes. Packaging materials, mainly PET resin and aluminum, and HFCS, used as a sweetener in some countries, are denominated in U.S. dollars.
Administrative and Selling Expenses. Our administrative and selling expenses increased by 13.6% to Ps. 68,981 million in 2022 as compared to 2021. Our administrative and selling expenses as a percentage of total revenues decreased by 80 basis points to 30.4% in 2022 as compared to 2021, driven mainly by efficiencies in marketing and labor expenses, partially offset by higher fuel and maintenance expenses. In 2022, we continued investing across our territories to support marketplace execution, increase our cooler coverage, and bolster our returnable presentation base.
Other Expenses Net. We recorded other expenses net of Ps. 983 million in 2022 as compared to Ps. 807 million in 2021. This increase was mainly a result of an increase in tax contingencies in Brazil. For more information, see Notes 9 and 19 to our consolidated financial statements.
Comprehensive Financing Result. The term “comprehensive financing result” refers to the combined financial effects of net interest expenses, net financial foreign exchange gains or losses, net gains or losses on the monetary position of hyperinflationary countries where we operate, and market value gain (loss) on financial instruments. Net financial foreign exchange gains or losses represent the impact of changes in foreign exchange rates on financial assets or liabilities denominated in currencies other than local currencies, and certain gains or losses resulting from derivative financial instruments. A financial foreign exchange loss arises if a liability is denominated in a foreign currency that appreciates relative to the local currency between the date the liability is incurred and the date it is repaid, as the appreciation of the foreign currency results in an increase in the amount of local currency, which must be exchanged to repay the specified amount of the foreign currency liability.
Comprehensive financing result in 2022 recorded an expense of Ps. 4,549 million as compared to an expense of Ps. 4,219 million in 2021. This 7.8% increase was driven mainly by a foreign exchange loss of Ps. 324 million as compared to a gain of Ps. 227 million recorded during the same period of 2021, as our cash exposure in U.S. dollars was negatively impacted by the appreciation of the Mexican peso. In addition, we recognized a loss in the market value of financial instruments of Ps. 672 million, as compared to a gain of Ps. 80 million during 2021. Moreover, our interest expense increased to Ps. 6,500 million, as compared to an expense of Ps. 6,192 million in 2021, driven mainly by increases in interest rates, partially offset by the tender offer of senior notes completed during the third quarter of 2022. Finally, we recognized a lower gain in monetary position in inflationary subsidiaries, recording Ps. 536 million during 2022, as compared to a gain of Ps. 734 million during the previous year. These effects were partially offset by higher interest income of Ps. 2,411 million during 2022, as compared to a gain of Ps. 932 million recorded during 2021, as a result of an increase in interest rates.
Income Taxes. In 2022, our effective income tax rate decreased to 25.4%, as compared to our effective income tax rate of 28.9% in 2021, mainly as a result of favorable deferred tax credits. For more information, see Note 24 to our consolidated financial statements.
Share in the Profit (Loss) of Equity Accounted Investees, Net of Taxes. In 2022, we recorded a gain of Ps. 368 million in the share in the profit of equity accounted investees, net of taxes, mainly due to the results of Jugos del Valle, our associate in Mexico, as compared to a gain of Ps. 88 million registered during the previous year.
Net Income (Equity holders of the parent). We reported a net controlling interest income of Ps. 19,034 million in 2022, as compared to Ps. 15,708 million in 2021. This 21.2% increase was driven mainly by operating income growth, coupled with a decline in our effective tax rate during the year.
Total Revenues. Total revenues in our Mexico and Central America consolidated reporting segment increased by 13.1% to Ps. 131,002 million in 2022 as compared to 2021, mainly as a result of a volume increase in all of our territories, coupled with favorable price-mix effects and revenue management initiatives.
Total sales volume in our Mexico and Central America consolidated reporting segment increased by 6.3% to 2,188.4 million unit cases in 2022 as compared to 2021, as a result of a volume increase in all our territories.
Sales volume in Mexico increased by 5.5% to 1,888.9 million unit cases in 2022, as compared to 1,790.0 million unit cases in 2021, mainly as a result of solid volume performance.
Sales volume in Central America increased by 11.8% to 299.5 million unit cases in 2022, as compared to 267.8 million unit cases in 2021, mainly as a result of solid execution and a solid performance in all our territories across the region.
Gross Profit. Our gross profit in this consolidated reporting segment increased by 8.1% to Ps. 62,035 million in 2022 as compared to 2021, and gross profit margin decreased 210 basis points to 47.4% as compared to 2021. This gross margin contraction was driven mainly by an increase in raw material costs such as PET resin and sweeteners, coupled with higher concentrate costs in Mexico. These effects were partially offset by our revenue management initiatives, favorable price-mix effects, and our raw material hedging strategies.
Administrative and Selling Expenses. Administrative and selling expenses as a percentage of total revenues in this consolidated reporting segment decreased by 70 basis points to 31.2% in 2022 as compared to the same period in 2021. Administrative and selling expenses, in absolute terms, increased by 7.3% in 2022 as compared to 2021, driven mainly by an increase in variable operating expenses as a result of top-line growth.
Total Revenues. Total revenues in our South America consolidated reporting segment increased by 21.2% to Ps. 95,738 million in 2022 as compared to 2021, mainly as a result of volume growth, favorable price-mix effects, and our revenue management initiatives. These factors were partially offset by a decline in beer revenues related to the transition of our beer portfolio in Brazil, and unfavorable currency translation effects resulting from the depreciation of some of our operating currencies as compared to the Mexican peso. In addition, for 2021 this line included other operating revenue due to a favorable determination from the Brazilian tax authorities, which allowed a recognition of a deferred tax credit in Brazil for an amount of Ps. 254 million. See Note 24.2.1 to our consolidated financial statements. Total revenues for beer amounted to Ps. 5,599 million in 2022. On a comparable basis, total revenues would have increased by 24.4% in 2022 as compared to 2021.
Total sales volume in our South America consolidated reporting segment increased by 11.9% to 1,566.8 million unit cases in 2022 as compared to 2021, mainly as a result of double-digit volume growth in Brazil, Colombia, and Argentina, coupled with volume growth in Uruguay. On a comparable basis, total sales volume would have increased by 9.5% in 2022 as compared to 2021.
Sales volume in Brazil increased by 12.5% to 1,016.2 million unit cases in 2022, as compared to 903.3 million unit cases in 2021. On a comparable basis, total sales volume in Brazil would have increased by 8.8% in 2022 as compared to 2021.
Sales volume in Colombia increased by 10.8% to 330.1 million unit cases in 2022, as compared to 297.9 million unit cases in 2021.
Sales volume in Argentina increased by 11.9% to 173.9 million unit cases in 2022, as compared to 155.4 million unit cases in 2021.
Sales volume in Uruguay increased by 7.5% to 46.6 million unit cases in 2022, as compared to 43.4 million unit cases in 2021.
Gross Profit. Gross profit in this consolidated reporting segment amounted to Ps. 38,265 million, an increase of 22.5% in 2022 as compared to 2021, with a 50 basis point margin expansion to 40.0%. This increase in gross profit was driven mainly by a favorable price-mix effect, our raw material hedging strategies, and an increase in our top-line. These factors were partially offset by the depreciation of the average exchange rate of some of our operating currencies in the consolidated reporting segment as applied to our U.S. dollar-denominated raw material costs. In addition, for 2021 this line included the recognition of an extraordinary benefit of Ps. 1,083 million during the second quarter of 2021, related to credits on concentrate purchased from the Manaus Free Trade Zone in Brazil.
Administrative and Selling Expenses. Administrative and selling expenses as a percentage of total revenues in this consolidated reporting segment increased by 70 basis points to 29.4% in 2022 as compared to 2021, driven mainly by an increase in variable operating expenses as a result of our top-line growth. Administrative and selling expenses, in absolute terms, increased by 24.2% in 2022 as compared to 2021.