Coca-Cola FEMSA, S.A.B. de C.V. (KOF) Q1 2012 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the Coca-Cola FEMSA First Quarter Earnings Event Conference Call. As a reminder, today's conference is being recorded. [Operator Instructions] During this conference call, management may discuss certain forward-looking statements concerning Coca-Cola FEMSA's future performance 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. At this time, I would now turn the conference over to Mr. Héctor Treviño, Coca-Cola FEMSA's CFO. Please go ahead, Mr. Treviño. Héctor Treviño Gutiérrez: Good morning, everyone, and thank you for joining us today. As you may remember, on March 29 of this year, we released our 2011 financial information under International Financial Reporting Standards, or IFRS, to provide our investors and analysts with a comparable base ahead of reporting our 2012 results, which we will represent under IFRS. Our team has already spent time with most of you discussing the major impact of the adoption of IFRS. Accordingly, I will focus this conference call on discussing our results and operational trends. In the face of our continued challenged cost environment and tough weather conditions, especially in our Brazilian and Colombian franchise territories, our operators delivered double-digit top and bottom line growth in both of our divisions. During the first quarter of 2012, we are integrating the results of Grupo Tampico and Grupo CIMSA in our Mexican operations. Their performance contribute positively to our Mexico and Central America division and on our consolidated results. In addition to the integration of these territories, the main drivers of our company's performance continue to be the execution skills of our operators, our strategy of selective price increases implemented over the past several months and our multi-category beverage portfolio, once again led by brand Coca-Cola, our extensive flavored sparkling beverage portfolio and our growing array of still beverages. In the first quarter, our reported consolidated revenues reached more than MXN 33 billion, up 30% from the first quarter of 2011. Organically, excluding the integration of newly merged territories in Mexico, our consolidated total revenues grew 22% for the quarter. This increase was driven by average price per unit case growth in every operation and volume growth mainly in Venezuela, Mexico and Argentina. Our consolidated sales volume grew 16%, including our newly merged territories in Mexico. Organically, our volumes grew 5%, mainly supported by the performance of brand Coca-Cola in Mexico, Argentina, Venezuela and Central America, combined with the performance of our strong portfolio flavored sparkling beverages brands such as Hit in Venezuela and Fanta in Brazil. Additionally, our still beverage category volumes grew 13% (sic) [14%]. This growth mainly resulted from our recently launched fresh brand orangeade in Venezuela, the performance of the Hi-C orangeade and the Cepita juice brand in Argentina and a strong brand equity of the Jugos del Valle line of business in Mexico and Brazil. Our bottled water portfolio registered low single-digit volume growth. During the quarter, higher PET cost in Brazil and Venezuela, the increased cost of high fructose in Mexico and Argentina and higher sugar cost in Venezuela and Central America, combined with the average depreciation of our main operation's local currency as applied to our U.S. dollar-denominated raw material cost, accounted for the majority of the pressure in our gross profit. Consequently, our consolidated gross margin declined 30 basis points to 45.6% (sic) [45.3%] in the first quarter. Our consolidated operating income grew 13% to MXN 4.3 billion in the first quarter. Organic operating income growth, excluded the integration of the newly merged territories in Mexico, was 8%. During the quarter, we continued to experience higher labor costs in Venezuela and Brazil and increased labor and freight costs in Argentina. We've continued to invest in marketing to reinforce our execution and foster our returnable packaging base, and we've registered additional expenses related to the development of information systems and commercial capabilities in connection with the implementation of our commercial models. For the quarter, our consolidated net controlling interest income grew close to 20% to MXN 2.6 billion. Now I will expand on the performance of our operations. In the first quarter, as reported, our Mexico and Central America division recorded close to 24% volume growth, selling more than 412 million unit cases of beverages. Organically, excluding the integration of the newly merged territories in Mexico, the division's volume grew 3%. As reported, our Mexican operation's volume grew more than 26%, including 70 million unit cases contributed by our newly merged territories. Organically, our volume in Mexico grew 3%. This increase mainly resulted from 5% growth in brand Coca-Cola, driven by the performance of our single-serve and returnable multi-serve presentations, as well as a 3% growth of the still beverage category, supported by the Jugos del Valle line of products, which leveraged the success of our Valle Frut orangeade brand. In Central America, we saw 9% volume growth here in the first quarter. This increase was driven mainly by brand Coca-Cola, which grew 11%, combined with double-digit volume growth in the still beverage category, supported by our recently incorporated Estrella Azul portfolio. Our multi-segmentation strategy and strong execution of the point of sale supported a 4% increase in our average price per unit case in the division during the first quarter. As a result, our division's reported total revenues grew 30%, reaching MXN 14.5 billion. Organically, excluding the integration of the newly merged territories, the division's total revenue grew approximately 11%. With regard to our profitability, higher sweetener costs across the division, mainly driven by fructose in Mexico, combined with the average depreciation of the Mexican peso as applied to our U.S. dollar-denominated raw material costs, put pressure on our gross margin, which was 46.9% as compared to 47.9% in the first quarter of last year. Our operating income increased 13% to MXN 1.9 billion. During the quarter, we continued to invest in our market-based execution, as it's critical for our company to reinforce our full year progress, especially during the first quarter, in order to provide our consumers with our wide portfolio of beverages throughout the year. Additionally, we registered expenses related to the development of information systems and commercial capabilities in connection with the implementation of our commercial models. Our Mexico and Central America division continued to deliver positive results for the quarter. Our strategy of selective price increases continues to build on the brand equity of our products, especially brand Coca-Cola, where we have enabled to grow single-serve consumption, contributing to a healthier price mix. Within the sparkling beverage category, we continued to benefit from the investment we have made in returnable presentations, which once again contributed significantly to our sales volume for the quarter. In our still beverage portfolio, our Valle Frut orangeade volume in Mexico continued to grow, reaffirming its brand equity among our consumers. Moreover, in Panama, we continued to incorporate the Estrella Azul line of products in our RED trucks. With regard to our new territories in Mexico, we are well on track to meet our previously established integration plan, and we are currently incurring the costs and investments to capture the MXN 800 million of net synergies we outlined for you at the end of 2011. These investments and expenses, which we identified during the first stage of the integration process, include the launch of [indiscernible] brand in our Northeast and CIMSA territories and the costs related to restructuring the distribution and manufacturing network. We expect to close the merger with Grupo Fomento Queretan shortly and begin incorporating results during the second quarter. We look forward to a more stable cost environment for the remainder of 2012. Sugar prices in Mexico have been coming down sequentially, and we are starting to benefit from our stake in Grupo PIASA, one of the largest and most efficient sugar mills in Mexico. And we have locked in prices for most of our fructose consumption needs. Together, these factors will provide a more stable sweetener outlook for the rest of 2012. Moreover, with regard to PET, we have seen a more moderate pricing environment, which we believe will remain in place for the rest of the year. We are confident that our operators' abilities and discipline will continue to deliver positive results for our company. Now, let's talk about our South America division. Our South America division's total sales volume grew more than 6% in the first quarter, reaching more than 290 million unit cases. This increase was driven by volume growth in Venezuela, Argentina and Colombia. In Argentina, we continued to see strong volume growth momentum. Every beverage category grew, underscoring a solid consumer environment. Sparkling beverages grew 10%, driven by 11% volume growth of brand Coca-Cola and a 5% growth in flavored sparkling beverage. Still beverages continued to perform strongly, growing more than 40%, building on our launch of Hi-C orangeade during the first quarter of 2011 and continuing to generate volume from the Cepita juice brand. Aquarius flavored water contributed significantly to the 12% volume growth of our water portfolio. In our Colombia franchise territory, volume increased 3%, despite tough weather conditions experienced during the first part of the quarter. The sparkling beverage category, supported by a 3% growth of brand Coca-Cola and the performance of Quatro and Sprite in the flavored sparkling beverages, grew 4%. The still beverage category grew 1%, while our water portfolio remained flat as compared with the first quarter of last year. In Venezuela, in addition to facing a low year-over-year comparison resulting from the strike during the first quarter of 2011, we continued to see a recovery in volume growth as exemplified by an increase of more than 27% for the quarter. In the sparkling beverage category, our volume grew 23%, driven by our flavored sparkling beverage brands and 11% growth in brand Coca-Cola. Our still beverage volume more than tripled as a result of the launch of our fresh orangeade, which has been very well received among our consumers in that country. Our operators will continue to evaluate different portfolio alternatives for our consumers and reinforce our execution in the marketplace, anticipating the long-term growth prospects of the Venezuelan market. Our volumes in our Brazilian franchise territories remain flat as compared to 2011. We faced tough weather conditions in the first half of the quarter but experienced a nice recovery in volumes in the second half, resulting from more favorable weather and our operators' execution at the point of sale. In the still beverage category, our volume grew 9%, driven by the Jugos del Valle line of business and PowerAde. Our water portfolio volumes grew 6%, and our flavored sparkling beverage volume grew 6% as well, supported mainly by the Fanta brand. In the first quarter of 2012, our South America division's reported total revenues grew more than 29% to MXN 19 billion as a result of double-digit revenue growth in Venezuela, Argentina and Colombia and high single-digit revenue growth in Brazil. Excluding beer, which accounted for MXN 981 million, our reported total revenues reached MXN 18 billion. Our strategy of selective price increases implemented over the past several months accounted for close to 80% of our incremental revenues. Lower sweetener costs in Brazil and Colombia offset PET cost pressures in Brazil and Venezuela as well as the average devaluation of our main operation's local currencies as applied to our U.S. dollar-denominated raw material costs. As a result, our gross margin expanded 30 basis points to 44.1% for the first quarter of 2012. Our South American division's operating income grew 13% to MXN 2.4 billion. Operating expenses were affected by higher labor costs in Venezuela and Brazil, higher labor and freight costs in Argentina and increased marketing investment across the divisions to continue reinforcing our point-of-sale execution. Our South America division delivered solid top line results in the first quarter of 2012 despite bad weather conditions in Brazil and Colombia. Brand Coca-Cola remains an important driver of our incremental volume growth, complemented by our portfolio of strong local flavored sparkling beverage brands. In our water category, we shall advance our commitment to sustainability by replicating our Mexican operation's Eco-Flex packaging alternative in Colombia and Brazil, engaging the environmentally-friendly consumer with very good results. Still beverages' continuous innovation is a hallmark of our company as we capture volume and value opportunities with our del Valle fresh and Hi-C orangeade in Venezuela and Argentina, respectively. Furthermore, we continue improving our execution capabilities and reinforcing our availability of returnable packaging to complement our already wide portfolio of beverages. As we face the rest of the year, we see international sugar prices coming down sequentially, benefiting our Brazilian and Colombian operations among others. With regard to PET prices for our operations, we maintain a stable outlook for the remaining of the year. Now allow me to briefly walk you through our financial performance for the quarter. This quarter, our company continued to deliver solid cash flow from a geographically balanced portfolio of territories, providing us with a continued financial flexibility to meet our debt maturities, as exemplified by the Certificados Bursátiles that we paid down in the amount of MXN 3 billion during the quarter. As of March 31, 2012, we had a cash balance of MXN 11.4 billion, and our total debt was MXN 18.3 billion. The strength of our balance sheet and our financial flexibility is evidenced by our net-debt-to-EBITDA ratio of 0.3x and our EBITDA-to-net-interest ratio of 19.2x. We continue to build on our financial flexibility. With this in mind, we continue to invest in the future of our company while increasing the cash we return to our shareholders in the form of dividends. Specifically, our shareholders have approved the payment of a dividend in the amount of MXN 2.77 per share to be paid as of May 30, 2012. Consistent with the information we shared with you in February, our financial and operational relation teams have started to take a closer look at the Coca-Cola Company's Philippines franchise territory. We remain confident that the skills we have developed through the years in Latin America, the depth of our beverage offering and our commitment to continuous innovation, not only in packaging and point-of-sale execution but also in commercial models and new lines of business, will allow us to pursue relevant growth opportunities for our company and to continue delivering increased value for you, our shareholders. Thank you, as always, for your continued trust and support. And now, I would like to open up the call for any questions that you may have.

[Operator Instructions] Our first question comes from the line of Karla Miranda of GBM.

Héctor, I was wondering if you could give us more color regarding the operating expenses in South America. You've seen a while now since you've been pressured by higher labor costs in Venezuela and Brazil. And I wanted to have a little more sense of how long is this negative impact going to be present. Héctor Treviño Gutiérrez: In general, I'd say that the main pressure we have has to do with Venezuela and Argentina. In Brazil, I think that we have basically commented over the last few quarters that we are in the process of adjusting our SG&A to more, let me call it, reasonable levels and starting to benefit from top line growth. And I think that in that front in Brazil, I'm happy to say that we have been reducing our workforce in an appropriate manner. And we will -- I hope that we'll start to see some of these savings in the coming quarters. In the case of Argentina and Venezuela, we do have -- and every year it's a little bit the same story -- important pressures on salaries because basically of the political and macroeconomic environment on those countries. Let me refer to each of those. In Argentina, even though we have inflations at the level of around -- official inflation of around 8%, 9%, every year over the last 2 or 3 years, we have increased salaries in excess of 20%. That certainly has been putting pressure on some of the margins that we have in that country. Having said that, we have been very successful in adapting the Argentine operation to improve efficiency. Basically, we have increased the number of cases that we are selling by each person in the territories by adopting and innovating on new technologies. We have a workhouse in Argentina, which is the largest we have in the entire operation. That is basically -- we're very close to 100% automatization. So that has helped a lot on that front. And when you look at the results for Argentina, with some prices that we have been able to pass to the consumer and these efficiencies that I've just described, the results are very good for Argentina, even though obviously, part of that price and efficiencies is taken or consumed by these salary increases. The same is true for some freight expenses in Argentina. Argentina, after a year that was kind of soft in terms of growth last year, we were achieving very important growth levels this quarter. My concern -- personal concern is a little bit with the macroeconomic, political environment going forward, even though the announcements that had been made in the country, and my concern is what implications that will have on our industry. In the case of Venezuela, it's important to remind everyone that we had a strike during January of last year, when our operations were closed basically for a month, 26 days. And as a result of that strike and to solve that strike, the industry went through a very important salary increase. So when you analyze labor cost in Venezuela, you have increases in excess of 35%, close to 40%, which are important numbers. So even though we have good numbers, again because last year, we had a month that we were out of business in one of the main workhouses. Volume-wise we have good numbers and we have good numbers in terms of pricing. Part of that is, again, absorbed by these salary increases. And therefore, we have not been fully taking advantage of the important top line growth in Venezuela. So in summary, my area of concern in South America is Venezuela and Argentina because of what I've just explained. I think that we have positive movements in Brazil because of the efforts that we have been describing over the last 2 or 3 quarters that are taking place there. And Colombia, I think that we have a positive environment.

And our next question comes from the line of Alan Alanis of JPMorgan.

My question has to do with earnings per share during the quarter. I mean, if I'm doing the numbers here right, basically your earnings per share are growing around 10% to 11%. But this is largely driven by an FX -- by a currency gain, Héctor, that you're getting on your debt of around MXN 200 million. If we isolate that FX gain, it seems that your earnings per share were pretty flat, maybe slightly down. But my question would be, does this mean that the acquisition that you've made in Mexico so far have not been accretive so far? And if that is the case, then the next question will be -- and I think you will get this question a lot -- is regarding the SG&A in Mexico. This surge in SG&A in Mexico, what explains it more specifically regarding marketing and how do you expect it seeing going forward, Héctor? Héctor Treviño Gutiérrez: In general, I'd say that we basically integrated Tampico in October of last year and CIMSA starting in December. So as you can imagine, and we explained that in both of those cases, we are expecting net synergies of around MXN 300 million each for a total of MXN 600 million. [indiscernible] will bring another MXN 200 million of net synergies. But as we explained during the announcement of the acquisition, we expect those synergies to be basically accomplished during an 18-to-24-month period. So right now, Alan, this first quarter is a tough quarter for the results of the company because basically we have most of the cost of the integration reflected also during this quarter. Under the new international accounting rules that we are applying, we have to take all these expenses as they happen, and that's basically what we have been reflecting in our numbers. So with these dimensions, what I want to transmit is we are well in line, even I'll venture to say, to exceed some of the synergies that we announced. We are working very well with that. We have already reduced the workforce in Mexico with not a single complaint because in Coke FEMSA we believe in treating all people with a lot of respect, so you have not heard a single complaint from our union. And we have already reduced close to 500 million people in the integration process, which is extremely fast for any integration process that you see around as you start digging around the other companies in the industry. So we are moving very fast on that, but we are reflecting all these expenses in our P&L. So in a way, Alan, although I'm not a big fan of hockey sticks graphs, in this case, due to we have that situation where you carry the burden of all the expenses for the integration and calling people and closing facilities, et cetera. And then you start reaping all the benefits of that integration, which -- the message I want to transmit is that we are very well ahead of the curve in that, and we will start benefiting from those savings in the later part of the year. With respect to the income -- to the net income per share numbers, basically that's a reflection of that, with the number of shares because of CIMSA and Tampico. And we do have an additional net income and revenue and everything that Tampico and CIMSA brought. But again, all these expenses take us to basically to having a result that we are expecting to see improvements in the second part of the year. Precisely because of that, we decided to open up the information, and I hope you noticed now that we have now, let me use, kind of organic growth, excluding all of the M&A transactions, which we thought was going to be helpful for everyone to start on this -- to understand what are the trends of the original business. So if we exclude the acquisition, Alan, and you look at Mexico and Central America, you basically will find that we have 3-something volume growth. We have good pricing. We have little bit better revenues. We do have an impact on, as we said -- especially in Mexico with high fructose and some of the sweeter costs. That impacted our numbers during the quarter basically between MXN 100 million and MXN 120 million just because of additional costs compared to last year on sweeteners and some other raw materials that were denominated in dollars. And we do have a little bit more of marketing that we have disclosed also in the past with the integration of the Pepsi system into a single bottler in Mexico. And the new management that is in place, we're seeing a little bit more activity in the marketplace. And we, together with the Coca-Cola Company, decided to protect [indiscernible] available market on -- and market share by investing in coolers and returnable bottles and cases, which are again a little bit of the activation in the marketplace that is improving. Marketing is not -- the excess [ph] marketing is not that large of an amount. I'd say that is probably something around MXN 30 million. But when you normally use our marketing expenses, it's a little bit ahead of the 4%, that you are probably around 3.7%, 3.8% for the full year. So we do have -- I'll say that when you look at Mexico and Central America, excluding the effect of the M&A activities, you have a top line that is growing, you have additional pressure on raw materials, you have some additional expenses related to marketing. I think that in Mexico and Central America, we have important SG&A control on those expenses. We have a bit of expense related to the market, to systems, to all the software that we have with SAP. You have some licensing fees and because of the migration to MISAP [ph] from the old R/3 system that we have, there are some expenses that we are amortizing. Those expenses happened probably 12, 18 months ago. But in general, that's the general picture now. I think that the important element here is that as we have been moving towards new categories and new geographies, we have diluted a little bit of our profitability when it's measured as margins, operating margins or EBITDA margins, because these new categories, and new geographies, normally those carry a little bit lower profitability than our Mexican operations. And the challenge for our management is to bring all these profitability on the new categories and new geographies to the level that we have in Mexico. And if we can accomplish that, Alan, with the kind of top line growth that we have, I think it will bring important growth for our bottom line in the future.

And our next question comes from the line of Lore Serra of Morgan Stanley.

I wanted to ask a little bit about pricing in Mexico and Brazil. If I look at Mexico and I look at excluding the M&A effects -- Mexico and Central America, the revenue per case is up 7%, which is the highest I think I can remember it being so. I wondered if you could just comment on that kind of pricing in light of what you're talking about with Pepsi and in light of kind of the margin pressure you're seeing. It's kind of odd to see that much pricing when you're seeing that much margin pressure. And then in the case of Brazil, I wonder if you could comment on how you see the affordability of your brands. I was in Brazil recently. And just top line, it's just like a sticker shock in terms of how expensive a 2-liter bottle of Coke is. And I just wonder how you feel about pricing power in Brazil and whether you can roll out returnables quick enough to continue to have the kind of pricing flexibility in that market you want. Héctor Treviño Gutiérrez: Yes, I think that -- let me start with Mexico and Central America. We basically have increased the prices of most of our products, especially in these territories, in Mexico. It's again, we have disclosed a little bit of this in some of the other conference calls. When you have such a large pressure for the whole industry on raw materials, then that's the bad news. The good news is that most of your competitors are also receiving the same pressure and some of them are moving. We have commented that, for example, Jarritos moved from the MXN 10 magic price a few months ago, and they stay -- I don't remember, but it was probably 5 or 6 years -- with that price. I know that we have a lot of inflation environment in Mexico, but very well very tough to compete when the prices were not being moved, and especially when at some point in times, or some periods of time, Pepsi Cola was pricing their products closer to Jarritos and to [indiscernible]. So we have increased prices, as you said. In November, if I remember correctly, in November of last year, we increased most of the prices for all of our products in Mexico. In Central America we had some pricing activity, except Guatemala. Jarritos have recently announced to their workforce that they are increasing prices. And at the end of the day, Lore, this is caused by all the pressure we have been receiving as industry on PET and sugar. So it doesn't worry me a lot because when you look at the pricing of each of the 9 countries that we have now, Mexico -- even though you might not believe this -- Mexico is the lowest price per case that we have in the whole 9 countries because of the different macroeconomic environments and everything. It was not the case a few years ago, and I think that Mexico has some potential to continue doing the pricing activity. In the case of Brazil, everything is so expensive that on relative terms, we're not concerned with the numbers. I'm sure that you were there. The hotels are expensive. Salaries for our guys is expensive. And it's a very expensive economy. So far, I think that from a competition point of view, I'm not concerned with the pricing structure that we have in Brazil. We have been successful with the returnable presentations that bring some affordability for our consumer, and those presentations have been growing importantly. So in general, I feel confident that because of the cost pressures that we have in sugar and PET that we have been able to pass along some of this pricing to the consumer and we are okay from a relative pricing to our competitors. As always, with prices that are in excess of our competitors but with price gaps that we can maintain because of the strength of our brands.

And our next question comes from the line of Antonio Gonzalez of Crédit Suisse.

I wanted to ask first, a question on the difference that you're showing between EBITDA growth and EBIT growth. I think you're showing a very big difference both in Mexico and Central America as well in the South America division. I understand that last year, you had some important investments in coolers that increased your depreciation and amortization expense and made operating income to grow less than EBITDA. But I think the difference is widening significantly in South America. It's also showing up in Mexico. So I wanted to know if you can give us a sense as to why your depreciation and amortization expense is coming up so much in both markets. Is there anything else in addition to these cooler investment that you had over the last 12 months or so that explains this? Héctor Treviño Gutiérrez: Yes, certainly, the closing agreement that we have been placing in the marketplace, this is one of the strategies, especially in Mexico that I described in anticipation of the entrance of a single Pepsi Cola bottler in Mexico, and that has already created some pressure on the -- as part of the depreciation and amortization. Obviously, having Tampico and CIMSA also, when you look at the absolute number, that is being impacted by it. But if you look at the column where we are maintaining the organic growth, that's basically the -- that's isolating the M&A activity. Another area for that is impacting some of these depreciation and amortization is the investment we have been doing in bottles and cases. We are firm believers, as you have seen in the past in the important role that the returnables play in the Latin American markets or in markets where you've got to compete with or to maintain important price gaps with the competitors. So we have been investing in that presentation also. There are some other issues that are more related to, for example, to South America. For example, in Columbia, we are launching a 1.25 liter returnable presentation. So you have to do all the investment in bottles and cases for that, that basically brings like a peak in CapEx then you'll start amortizing. The same is true for the new territories, which is the [indiscernible] which is a presentation that sells very well in a very classic proprietary brand package that -- so there are some [indiscernible] in the new territories in CIMSA and Tampico [indiscernible] But I'll say that in general, it has to do with bottles and cases, with coolers. And remember that also 1.5 year ago, we did a very important investment in production lines that we finalized, basically installing all of these lines between a year and 1.5 year ago. We bought those lines during the crisis at very attractive prices. We installed 2 production lines in Mexico, 2 new lines in Brazil. So in every country where we were close to running into capacity constraints, we did important investments in production lines. But that will explain basically under depreciation and amortization effect.

Oh, I see. And if I may, just a quick follow-up on Argentina. Are you facing any problems in terms of import restrictions and so forth? And secondly, can you talk a little bit about the pricing environment? Especially, have you seen any difference between your pricing ability between the supermarkets and the traditional channel? And do think there's any important distortions taking place there? Héctor Treviño Gutiérrez: Yes. As I said a few minutes ago, Argentina is going through in my opinion, through a tougher political macroeconomic environment. We have been receiving some, if you will, "unofficial" pressure on the use of foreign exchange. So we think that -- and so far, we have not had a problem of acquiring raw materials, et cetera, that are imported. But my concern is if the country continues to suffer from the availability of dollars, we might, in the future, face some restrictions on products from imported products. If you look at some of the macroeconomic numbers that have been published, if I remember correctly, they have between $40 billion and $50 billion in reserves, but last year around $25 billion of reserves were reduced. So basically they have like 2 years at that rate of using dollars. I think that part of that had to do with investments leaving the country. And that might well be the case in the future, Antonio, that we might face on restrictions, on availability, on FX, to buy some other raw materials. From the point of view of our business, the quarter, this first quarter and the last quarter of 2011, they were very, very good in terms of profitability because volumes were growing importantly and we have had some price flexibility, especially as you said, in the traditional trade. In general, there is some non-official price control, if you will in the sense that some of the most important, and let me use the word "popular" presentations or presentations that are like family-sized presentations, et cetera, well, basically when it's sold through the supermarkets it is difficult to move their prices there because of the different relations between the modern trade and pressures from the unions and the authorities. So there are some pricing opportunities in the single-serve presentations in the traditional trade, not so much on the family sizes and supermarkets.

And our next question comes from the line of Gustavo Oliveira of UBS.

My question is essentially that, if you could share with us some of your thoughts on the process and what you're seeing on the ground from the Philippines. Héctor Treviño Gutiérrez: Basically, I thought that because of the strange hour we are doing the conference that most of you will understand that I was traveling. And as I mentioned in the previous conference call, the process basically that we have is 12-month exclusivity agreement with the Coca-Cola Company, and I expressed last conference call that, that had to do with the fact that this being the peak season in the Philippines, we were going to start our analysis and due diligence process in the month of May. So I basically arrived for the first time, yesterday, to the Philippines and will stay here for a few more days. We have an important team of experts from Coca-Cola FEMSA in different fields, ranging from people doing financial analysis for the evaluation process to people doing a little bit more of the operational analysis to understand and really do a very thorough analysis of doing the right evaluation process in here. So we are basically just starting, Gustavo. This is the market today. I see a lot of opportunities. I think that the Philippine market is a market very similar to what we have seen in Latin America, and what it has to do with the fragmentation of the retail market. The so-called sari-saris, which are similar to our focus in Mexico, the small mom-and-pops, is a very important area of the business here. So that's the fragmentation of the retail system, I think, that we know very well how to handle. There are issues with the portfolio approach. There are issues with the SKUs. And most importantly, there are issues with respect to the route to market and how the bottlers [indiscernible] all the sales effort and the delivery efforts to these sari-saris. So I think that -- what I can say is that, so far even though we have been here for -- this is our second day, I am enthusiastic about the fact that we see opportunities and, obviously, there will be many challenges because this is a different culture, a different region, a very different time zone, as you can imagine. But I think that we do have, in my opinion, we do have the skills to do a good job here. The idea is that if everything works, as I'm anticipating with this team, we would probably need 3 or 4 weeks of analysis on this. And it probably will take another, I don't know, 6 to 8 weeks of negotiation with the Coca-Cola Company. And therefore, if everything works very well, I'll see something, a potential announcement for the third quarter in terms of agreeing or not to a transaction here in the Philippines.

And our next question comes from the line of Margaret Kalvar of Harding Loevner.

I was just wondering. You talk often about the strength of brand Coke amidst the other segments of volumes in your mix. Overall, and if you could break down between the Mexico/Central America and South America would be even better, how much of your sparkling sales are brand Coke? And what is your current breakdown overall on still and sparkling? Héctor Treviño Gutiérrez: I think that in general -- let me give you some rough numbers. And obviously, as I'm not in my office, I don't have maybe the precise numbers, and at least we can follow up with some of this more precise information. But in general, around 80% of our volumes are carbonated drinks. And I'll say around 20% is water and juices and nectars. And out of those 80% of carbonated drinks, in general, I'd say, that -- and it varies market-by-market -- but a good approximation for Latin America is that around 80% is colas. So colas plays a very, very important role in our operations in Latin America. It's not the same market-by-market. And I was surprised here in the Philippines, for example, that colas -- I think that there's a lot of room for improvement of brand Coca-Cola in the Philippines because the other brands that are -- it's not as important as we have seen this in Latin America. There are some markets, for example, in Colombia, where we have total domination on the cola market, with 90-plus market share but where we have a lot of opportunities with flavors because our competitor is very strong on flavors and they have a dominant position on that. In other areas like in Mexico, we have the strong positions in none of those. But in general, I'd say, Margaret, that 80% of our volume is carbonated drinks, and around 80% of that is colas. They're more or less big numbers.

Okay. That's all -- all the colas is brand Coke? Héctor Treviño Gutiérrez: It's all the colas, but brand Coke is the most important one. I mean, Coca-Cola Light and Coke Zero are not very important in our market. [indiscernible]

There are no further questions. I would now like to turn the call back over to Mr. Héctor Treviño for closing remarks. Héctor Treviño Gutiérrez: Well, thank you for your interest in our company. And obviously, as always, Jose and Cristine will be available to answer any more questions with more detail and improve a little bit on some of these data that I shared with you. Thank you for your attention.

Ladies and gentleman, that concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.