Coca-Cola FEMSA, S.A.B. de C.V. (KOF) Q4 2012 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the Coca-Cola FEMSA's Fourth Quarter 2012 Earnings 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, and should be considered of 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 will now turn the conference over to Mr. Héctor Treviño, Coca-Cola FEMSA's Chief Financial Officer. Please go ahead, Mr. Treviño. Héctor Treviño Gutiérrez: Good morning, everyone. And thank you for joining us, as always. Building on a strong third quarter and in line with our expectations for the second half of 2012, our operators delivered solid double-digit top and bottom line growth and margin expansion in both divisions for the fourth quarter, compensating for a tough start to the year and provisioned full year EBITDA margin expansion. During the fourth quarter of 2012, we continued to integrate the results of Grupo CIMSA and FOQUE in our Mexican operations, as Grupo Tampico's results are now fully comparable. Their performance contributed positively to our Mexico and Central America divisions and our consolidated results. Organically, the main drivers of our performance for the year were our operator's ability to leverage our new commercial model, execute at the point of sale and implement selective price increases to capture our industry's value potentials, as well as the strength of our multi-category beverage portfolio led by the continued popularity of brand Coca-Cola and innovation in our still beverage and water categories. In the fourth quarter, our reported consolidated revenues were close to MXN 40 billion, up 10% from last year, despite negative translation effects resulting from the devaluation of the Brazilian real and the Argentine peso, in combination with the stronger Mexican peso. Organically, excluding the non-comparable effect of Grupo CIMSA and FOQUE in Mexico, our consolidated total revenues grew 6% for the quarter. On a currency-neutral basis and excluding the non-comparable effect of the new franchises in Mexico, total revenues grew 14%, driven by top line growth in every country of our balanced portfolio. These currency-neutral revenue growth were driven by volume growth in Mexico, Colombia, Brazil, Venezuela and Central America, and average price per unit case growth in almost every operation. Our consolidated sales volume grew 11%. Organically, excluding the non-comparable effects of the new franchises in Mexico, our volumes grew 4%. On the same basis, our sparkling beverage portfolio grew 3%, driven by the strong performance of brand Coca-Cola, highlighted by 17% growth in Venezuela and 4% growth in Mexico and Colombia. As in previous quarters, our relative [ph] orangeade category contribute considerably to the 14% volume growth of the still beverage category, complemented by PowerAde and the recent rollout of Fuze Tea. Specifically, in Mexico, Valle Frut generated 12% growth, while PowerAde grew 31% and Fuze Tea continued to grow significantly over the previous brand of tea. In Venezuela, del Valle Fresh orangeade grew 150% and contribute more than half of the incremental total volume of that country. In addition, our single-serve water portfolio grew 22%, reflecting volume growth in every country. This increase was supported mainly by the performance of Brisa in Colombia, the launch of Bon Aqua in Argentina and the incremental volume growth of Ciel in Mexico and Crystal in Brazil. As these increases compensated for a volume decline in our bulk water portfolio. In the fourth quarter, lower PET prices and sugar cost in most of our territories more than compensated for the average depreciation of the Brazilian real and the Argentine peso, as applied to our U.S. dollar-denominated raw material cost. Consequently, our consolidated gross margin expanded 160 basis points, 47.2%. Our consolidated operating income grew 30% to MXN 7.2 billion in the fourth quarter. Organically, our operating income grew 26%. We continue to experience higher labor cost in Venezuela and Brazil, combined with increased labor and freight cost in Argentina. In Mexico and Colombia, we continue to invest in the marketplace, as in previous quarters, we continue to register expenses related to the development of information systems and commercial capabilities, in connection with the implementation of our commercial models and the development of new lines of business and categories. Our operating income margin expanded 260 basis points, and more importantly, our organic operating income margin expanded 290 basis points. For the quarter, our consolidated net controlling interest income grew 35%, reaching MXN 4.3 billion. Now I will elaborate on the performance of each division. In the fourth quarter, our Mexico and Central America divisions reported volume grew 16%, reaching 476 million unit cases. As reported, our Mexican franchises volume grew 17%, including the non-comparable effect of 51 million unit cases from Grupo CIMSA and FOQUE. Organically, our volume in Mexico grew 4% through successful building on a 4% organic volume growth during the fourth quarter of last year. Our increased volume was led by 4% growth of brand Coca-Cola, in which our 500-milliliter returnable glass presentation grew more than 50%, contributing significantly to an improvement in returnable single-serve consumption. Our flavored sparkling beverage category continued to yield positive results, growing 2%, once again led by the Sidral Mundet brand and the rest of our core flavored sparkling beverages. The still beverage category grew 11%, mainly driven by 12% growth of Valle Frut orangeade which is now our third largest brand in Mexico, ending close to 50 million unit cases a year in all of our territories across the country. In addition, PowerAde grew 31% and Fuze Tea continued to deliver incremental volume growth, growing 20% over the previous brand. Thanks to consumer preference and a portfolio of 15 different presentations in Mexico. Our water portfolio, excluding bulk water, grew 6%. These increases compensated for a 4% volume decline in our bulk water portfolio as we continue to work to increase the profitability and efficiency of our jar water business. In Central America, our volume grew 5%, building on 6% growth in the fourth quarter of 2011. This increase was driven mainly by 4% growth in our sparkling beverage category, led by a 3% improvement in Coca-Cola -- in brand Coca-Cola and a 5% increase in flavored sparkling beverages. The still beverage category grew 14%, supported by the inclusion of the Del Prado in our portfolio and the continued success of Fuze Tea and PowerAde, which grew 60% and 23%, respectively, our water portfolio grew 15%. Our divisions' reported total revenues grew 19%, reaching MXN 17 billion. Organically, the divisions' total revenues grew 7%. On the same basis, our average price per unit case increased 4% during the quarter, selective price increases implemented in our territories over the past several months more than offset a negative translation effect resulting from a stronger Mexican peso. For the fourth quarter, our profitability benefited from lower sweetener and PET prices, coupled with the appreciation of the average exchange rate of the Mexican peso. As a result, our reported gross margin gained 360 basis points to 49.1%, while our organic gross margin expanded 390 basis points. Our operating income increased 33% from MXN 3.2 billion. During the quarter, we continued to book certain restructuring charges related to the integration of the new franchises in Mexico. Organically, our operating expenses increased as a result of continuing investments in the marketplace to reinforce our point-of-sale execution, and as in previous quarter, investment related to the development of information system and commercial capabilities to support our commercial models, and investments related to the development of new lines of business and categories. Nevertheless, our reported operating margin expanded 200 basis points and our organic operating margin expanded 260 basis points. In our Mexico and Central America divisions, our operators delivered strong results throughout the year. In the final 2 quarters, the division made up for a tough start of the year despite the expenses related to the integration of our new franchises in Mexico. Our benchmark commercial model, which we have already rolled out in our new territories, our passion for marketplaces execution and innovation and our talented team of operators were the key drivers of these results. Looking ahead, we'll take a positive view in 2013. Our operator's ability to selectively increase prices across our portfolio to allow us to grow our average price per unit case in line with inflations. Our portfolio initiatives, particularly our focus on returnability and single-serve consumptions is simplified by the recent launch of Sidral Mundet in the 2.5-liter returnable presentations, and the extended coverage of the 500-milliliter returnable glass bottle for brand Coca-Cola will certainly contribute to our volume growth. We anticipate a benign sweetener price scenario going through the year. Through our participation in Piazza and contract with suppliers, we have locked in most of our sweetener consumption needs for the year. PET prices are expected to remain flat during the year, furthermore the synergies from our mergers in Mexico will start contributing to increase profitability. Altogether, these factors will allow our Mexico and Central America division to generate margin expansion in 2013. As for the recently announced merger agreement with Grupo Yoli, we are making progress on the confirmatory divisions process and we are confident that we will close the transaction during the second quarter of 2013. Now let's talk about our South America division. Our South American division's total sales volume grew 4%, reaching 334 million unit cases in the fourth quarter. This increase was driven by volume growth in Colombia, Venezuela and Brazil, which compensated for a 2% volume decline in Argentina. In our Colombian franchise territories, volume was up 10%, building on a 3% growth in the fourth quarter of 2011. Sparkling beverages grew 8%, as a result of a 20% increase in flavored sparkling beverages, and 4% growth in brand Coca-Cola. The positive performance of our flavored sparkling beverage portfolio resulted from the successful launch of Fanta in 3 different flavors and our IPO presentation during the third quarter and the performance of Quarto, which grew 42% in the fourth quarter. With regard to brand Coca-Cola, our twofold strategy to reinforce single-serve consumption and to increase affordable, returnable presentations yield positive results with our entry-level, $250 milliliter one-way presentation, selling almost 4x more than last year, and our 1.25-liter returnable glass package growing 22%. Our Brisa water brand brought a 20% increase in its category, including bulk water. Together, del Valle fresh orangeade, which grew 9%, and Fuze Tea which grew 37% over the previous tea brand, draw 11% growth in the still beverage category. In Venezuela, we delivered 7% volume growth in the quarter. Brand Coca-Cola delivered very positive results, growing 17% supported by the recent launch of a 355-millimeter and 1-liter package, and consumers' preference for this brand. This increase compensated for a decline in flavored sparkling beverages. Driven by innovation, our still beverage category accounted for a significant part of this operation's incremental volume growth. The success of our del Valle Fresh orangeade among consumers, led the brand to grow 150%. Fuze Tea also contribute to this category, growing 12% on top of the previous brand. Our water category grew 28% in the quarter. The initial rollout of our value-driven commerce model in Venezuela has yield very encouraging results by reinforcing our market place execution and, especially, our cooler coverage through the placement of 20,000 aging [ph]and new coolers on 2012, we have driven significant top line growth from our clients. In Brazil, our volume grew 2% as compared with the fourth quarter of 2011. Our sparkling beverage category grew 2%. This increase was supported by 12% growth in Fanta, a 27% increase in Schweppes and incremental volume growth of [indiscernible], all of which enabled our local operations to achieve leadership of the flavored sparkling beverage category. Additionally, we recorded a 2% growth in brand Coca-Cola. Our water portfolio volume grew 12%, driven by the Crystal brand. In still beverage categories, our volume grew 4%, driven by the Jugos del Valle line of business. In Argentina, on top of 10% volume growth in the fourth quarter 2011, we experienced very tough weather conditions for most of the quarter, consequently, our volumes in this country declined 2%. During the quarter, we launched the Bon Aqua water brand with very good results, reaching almost 1 million unit cases in less than 2 months. In the fourth quarter, our South America divisions reported total revenues grew 5% to MXN 22.7 billion. This increase resulted from revenue growth in every operation, despite a negative translation effect resulting from the devaluation of the Brazilian real and Argentine pesos. On a currency-neutral basis, our divisions' total revenues grew 18%, mainly supported by selective price increases implemented over the past several months across our franchise territories. Lower sugar and PET costs across the division more than offset the average devaluation of the Brazilian real and the Argentine peso as applied to our U.S. dollar-denominated raw material cost. This result in a 20-basis point expansion of our gross margin, reaching 45.8% for the fourth quarter of 2012. Before discussing our divisions' operating income, I would like to remind you that during the fourth quarter of 2011, we've registered a write-off of certain non-productive assets, including production equipment, coolers, forklifts and returnable bottles and cases. At the time, our results were reported under Mexican financial reporting standards, and these write-off were booked below operating income in the other expenses net line. As a result of our migration to International Financial Reporting Standards, these write-off operating items is registered above operating income as part of the other operating expenses net line. Our South America division's operating income grew 27%, reaching MXN 4 billion. Operating expenses were affected by higher labor cost in Venezuela and Brazil, and higher labor and freight costs in Argentina. Our South America division operating margin expanded 310 basis points, reaching 17.8%. We continue to focus on single-serve consumption and affordability to returnable presentations to foster our sparkling beverage growth. Innovation has proven to be a very valuable tool to drive growth in the still beverage category, and we'll continue to yield positive results building on the Jugos del Valle platform. As we face 2013, we are confident that our operator will continue to take advantage of our value-driven commercial model, capture pricing opportunities and a richer volume mix. The implementation of this model has allowed us to identify opportunities to increase per capita consumption for our beverages in this franchise territory, and our seasoned operators have already laid the groundwork with which to capture these opportunities. In Brazil, we are refining our brand price package segmentation per channel. In Colombia, we continue to work on our portfolio to offer our consumers affordable presentations. In Argentina, we are launching a strong competitive water brand and expanding single-serve presentations for our sparkling beverages. And in Venezuela, we have introduced affordable presentations for sparkling beverages and expect continued success from our still beverage platform. For the year, we see international sugar prices remaining flat, our Brazilian and Colombian operations have hedged the majority of their sugar consumption needs for the year. Additionally, PET prices should also remain stable for the rest of the year. As many of you may know, on February 13 of this year, the Venezuelan government announced a devaluation of the bolivar. The exchange rate moved from 4.3 bolivars per dollar to 6.3 bolivars per dollar. This devaluation will have an effect on our U.S. dollar-denominated raw material and our results for these operations when translated into Mexican pesos for consolidation purposes. However, we will continue to adopt our operations to the dynamics of the market in order to achieve our planned results in Venezuela. In every country of our geographically balanced portfolio, we continue to concentrate on our value-driven commercial model and the focus that our operators place on point-of-sale execution, fostering single-serve consumption, extending the coverage of affordable returnable packages and betting on innovation. With regard to our Philippines operation, we've recently announced the successful closing of the transaction with our partner, The Coca-Cola Company at the end of January. Our company is confident that the skills and capabilities that we shall develop in Latin America will allow us to capture top line opportunities and achieve important efficiencies over a near- to long-term horizon. Yesterday, our Board of Directors agreed to propose a dividend of MXN 5,950 million to our shareholders. This proposed amount represents a dividend of approximately MXN 2.90 per share, and will be paid in 2 installments during May and November of this year. This proposed amount represents a dividend per share of approximately MXN 1.45 for the first installment, computed on the basis of 2,030 million shares, and a dividend per share of approximately MXN 1.45 for the second installment, computed on the basis of 2,073 million shares, which include the 42.4 million shares to be issued to the shareholders of Grupo Yoli, assuming the merger is approved by the authorities. Thank you, as always, for your continued trust and support. And now, I would like to open the call for any questions that you may have.

[Operator Instructions] Your first question comes from the line of Lauren Torres.

My question is a bit more strategic in nature. Coke FEMSA has come through a lot of changes just over the last 2 or 3 years with respect to consolidating the bottlers in Mexico, and now entering the Philippines. So, Héctor, I was just hoping you could just talk a bit about your bench strengths, directing investment spend. Now how should we think about how you'll be spending time and money, I guess developing this market? It seems like there's a lot to be done, particularly in the Philippines, but also with respect to consolidating Mexico. What's the timeline -- once again, how are you thinking about spending levels? I don't know if The Coca-Cola Company obviously comes into that discussion too, but if you could just round that out a bit, that'd be helpful. Héctor Treviño Gutiérrez: Let me start with Mexico. I think that one of the, I'd say, amazing events for the last -- for this past year, for 2012, is that our operations in Mexico have been able to integrate 3 different operations, and we are looking to do the fourth when we close Yoli without any problem. We separated the Northeast territory with one manager that we have in the Southeast because of the distances and the logistics and all of that. And both CIMSA and Queretano were basically integrated to the same operating subs [ph] that we have. We have been able to reduce the headcount of the operations importantly. And I think that the most important fact here in Mexico is that we have been able to integrate those operations without any union issue, without any problem in terms of the operations of these new territories. We are little by little improving the profitability to the levels that we were anticipating in our valuation. We have been able to relocate some production lines to better work with the supply chain in terms of distribution centers, so I think that in Mexico, as you might imagine, if we -- before this integration, we were close to 50% of the volume of Mexico, and I use the word "digesting" these new territories was not a problem. And I'm sure that doing the same with Grupo Yoli, will be done very easily. The Philippines obviously is a different story. There is a different timezone, the distance is complex. We are finding out that -- we knew but we are realizing more in our expenses that traveling to the Philippines is complicated in time and in the cost of travel expenses. We are basically -- you know that we sent 4 people since August of last year to be there. Part of this because of the starting to understand the market, but also very importantly, because of the family-related things like schools and things like that. So these 4 guys, one that is the head of the Philippines, one that is in charge of planning and finance, one that is in charge of the human resources and transformation of the Philippines to the -- to our -- to the culture and the integration of the 2 cultures, and one that is the expert on commercial practices. Those 4 guys are now being helped by approximately 30 guys that are on the field, that are assigned on a part-time basis in what we call training cells, which basically refers to our most talented professionals in some of the areas, and you know that the 3 pillars of the -- our strategy in Philippines is portfolio, route to market and supply chain. So on those 3 areas, we have these 30 experts, training people in the Philippines, and in the next 2 weeks, we'll have -- I still don’t know the amount of people, but I suspect that's somewhere -- a number similar to 20 or 30 Filipinos coming into Mexico, who'll be trained for a period of 3 to 6 months. The idea of these training cells is to cross fertilize the capabilities of both organizations, understand what are they doing very well in the Philippines, and if we are doing something better in terms of the capabilities in Latin America, we'll train our Filipino workers with these new capabilities, and for them to go back to the operations and start replicating these processes in Philippines. Obviously, we have never faced a similar transformation in the past, integrating -- probably Panamco because of the size in 2003 was similar in the challenge, but in this case, it's the culture and the timezone and the traveling expenses, the traveling time. But we are confident that working on these 3 pillars, again, portfolio, route to market and supply chain, that we'll find opportunities to improve the operations. No question about it, Lauren, it's going to be a challenge transformation -- or challenging change from what the Philippines represents, but we feel confident that we have the talent and strength. One factor that I also like to mention is that, for several years now, our Board of Directors has approved a budget in the level basically around -- lets' say around $10 million a year in training people and having some excess bench strength, precisely in preparation for these opportunities. When I say they have approved this $10 million is that those $10 million that are reflected in our P&L for purposes of compensating the executives, is like a waiver from the results of that it will not affect the performance -- the performance metrics for executives. So we have had several years of that budget being approved precisely in terms of preparing this bench strength. So I don't know if I answered your question.

Okay. Yes. I guess the only follow-up is just to be clear on the structure of the deal that you have, in the Philippines, with The Coca-Cola Company, that -- those expenses, what you just mentioned, is more or less shared? Héctor Treviño Gutiérrez: Yes. Right now, as you know, we own 51% and they own 49%. And that we're only splitting those proportions while they are shareholders in the company. Once we exercise the call, assuming that we do that in the future, then we will be responsible for 100% of all of these expenses and CapEx and everything in the Philippines.

Your next question comes from the line of Lore Serra.

I guess I wanted to ask a couple things. Let me start in Venezuela. Héctor, a couple questions. I mean, if you could give us any sense of what your returnable mix is in Venezuela, and with the new efforts you're making, kind of how you're seeing that or how you're hoping to see that mix evolve? And if you can help us think through sort of how to think about what this means for the operation. In 2010, you guys did a really good job despite the turmoil in Venezuela, with a lot of the pricing, and I think you had some raw materials with yield exchange rates. Some -- if we think forward to at this time, do you have any raw materials with yield exchange rate? Do you see any risks that you'll be able to kind of contain or continue to be in the kind of pricing environment in Venezuela that you've been? And that would be my first question. Héctor Treviño Gutiérrez: Let me talk -- I think that, obviously, our focus is to try to do something similar to 2010. Obviously, our management team focus in what can we do with pricing and what can we do with this returnability process [ph]. Some of the facts that I think are important for you to know is -- or that you have read in the press, there is some scarcity of raw materials in Venezuela. So moving to returnable presentations in glass also help us in that front because as you can expect, when some of this countries -- where you have limitation on the reliability of dollars, importing some of the raw materials has caused problems in the past and there have been so much scarce. And so far we haven't stopped our production or our sales effort because of that. But a few months ago, there was very little CO2 available in the country, but we were able to work around that. But we will find some shortages in sugar or high fructose. We are starting to use high fructose because precisely some of the scarcity of sugar, et cetera. The idea here, Lore, if you ask me in that nutshell, is the devaluation, it's around 46%, it's basically the impact that will have -- impact on our cost of goods sold, everything that is dollarized has that impact. Our challenge is how can we improve our top line in bolivars, at a pace close to that 46%. As you said, the returnables right now represent around 8%. It's very difficult for me to give you a number of where that is going to reach, but we'd like to see that growing because of the affordability, and as I said, because returnable glass bottles keep some pressure out of the PET or cans which are dollarized raw materials, and with all the logistic problems related to that. So we'd like to increase that. Right now, basically, most of that returnable presentations are single-serve, probably we'll like to do something in multi-serves also. So you will see more strategies focusing in that direction. Where that number is going to reach? It's very difficult for me to predict right now but we will supply everything that is demanded on that front. If we are able to increase, let's say, mid-single digits, our volumes, or high single digits, and if we are able to price similar to the inflation, I think that will be very close to have a top line growing around 35%, 40%, 42%, and that's I think the challenge that our team has in Venezuela, how to be able to pass some of the effect that we'll have on the costs to revenues.

Do your operators see any risk to being able to put through the kind of pricing that you're talking about? Héctor Treviño Gutiérrez: Not so far, Lore. So far there is no regulation with respect to that. There is a lot of volatility in the marketplace right now because as soon as a country announces a depreciation of their currency, you immediately start seeing a lot of price movements even in raw materials. Now, Lore, and obviously, we need to try to cope with that.

Okay. And then just moving to Brazil for a second now, can you give any outlook there in terms of how you see your raw materials? I mean Ambev was talking about high-teens pressure in COGS. Now -- I mean they have a different hedging strategy. But is there anything you could tell us? I mean you're facing a very good environment in, I kind of think, most of your markets, right? Is there any -- except for Venezuela, obviously. Is there anything you're seeing in Brazil that would suggest that you're seeing that kind of pressure that Ambev was talking about this morning? Héctor Treviño Gutiérrez: Yes. I think that, from our perspective, I think that probably one of the differences has to do with aluminum. For us, as you know very well, sweeteners and PET are very important raw materials. We have expressed in the past that we do some hedging especially in Brazil and Colombia where sweeteners are very closely -- correlated to international prices. What we have done is to hedge those prices when the -- when our operators feel comfortable with the price of the raw material or the cost of their raw material. In general, I'd say that what we have been doing -- and this is a very simple strategy, Lore, and maybe you can argue that we are leaving some money on the table because prices right now are lower than -- the spot prices are lower than the hedges that we have. But as long as we can hedge our cost of raw materials below what we have the previous year, in a way we are avoiding having to move the prices of our products to the consumer. I don't know if I'm explaining myself. So when you have raw materials that are as important as sugar and PET, and you already have a price structure in the marketplace, and you can hedge those prices below what it cost the previous year, you would not have to increase prices to compensate for the volatility of those raw materials. So basically, that's where we have been moving. As I said, spot prices on sugar are lower today of what we have in our contracts for Brazil and Colombia, but we feel very confident in saying that obviously we don't know the future of the prices of sweeteners the rest of the year. But we are certain that we have hedged below the cost of what we have on 2012. And I've seen that, that gives us, when we have the price gap differential of our products versus our competitors, the fact that we can have those hedges give us some comfort that at least we don’t have the pressure to move our prices because of the volatility of raw materials. In the case of Ambev, I think that they are pretty much affected by aluminum can -- aluminum that, in our case, not that important but I'm not that familiar.

Okay. No, that's fine. That's fine. And just last question, quickly, I mean, in the press releases you talked about how much in Mexico or in Central America came from price versus volume. And it seemed like less came from price this quarter, a lot less than what happened in the third quarter. I just wanted to confirm that, and maybe it's just rounding in the numbers, but are you seeing any change in the pricing environment in Mexico? Héctor Treviño Gutiérrez: Yes. Lore, your appreciation is correct. I think that, in -- during the fourth quarter, we are lapping important increases over the previous year. And this quarter, volume was an important element. As always we continue to look for opportunities through some price segmentation and continue to increase prices. You know that we have always been on top of the pricing formulas, and we'll continue to look for opportunities, but this quarter we benefited from volume performance rather than pricing, especially on those territories.

Your next question comes from Alexandre Miguel. Alexandre Miguel - Itaú Corretora de Valores S.A., Research Division: So my question is related -- just to -- a follow-up on the raw material trend. You mentioned that you have hedged your needs for Brazil and Colombia. And just to make sure, you hedged already all your needs for the full year? That -- was that the case? And then you indicated costs would be below last year. Is that the case or you're still are somewhat exposed to the spot market? Héctor Treviño Gutiérrez: For Brazil and Colombia, I'll say that basically we are -- we have hedged around 75%, probably a little bit more than that, around -- between 75% and 80% of our needs for 2013. So we still have some exposure, say, between 20% and 25% of our needs in Brazil and Colombia. In Mexico, we do have some, these are not -- in Mexico, as you know, the prices are -- are not correlated to the financial markets, so we have agreed with some of the suppliers but the number is much lower because we do like -- for the next 3 months, we have agreed on some pricing on sugar. In the case of high fructose which are international suppliers, we have an amount that is slightly higher. Alexandre Miguel - Itaú Corretora de Valores S.A., Research Division: Okay. And in Mexico, can you comment a bit on the trend for the sugar price? Do you think we could see the same declines we are seeing in the spot markets internationally for the Mexican market? Or you think that the decline will be softer because the market is more controlled? Héctor Treviño Gutiérrez: In general, my expectation is that it's going to be softer because it’s a market that is more controlled. And it usually lacks a little bit the decline that you see in the international markets. But certainly the prices have been coming down in Mexico as well. Alexandre Miguel - Itaú Corretora de Valores S.A., Research Division: Okay. And about synergies, your target of MXN 900 million, can you comment on how much you have achieved by the end of 2012? Just for us to have a sense of what's left for '13 and onwards? Héctor Treviño Gutiérrez: Yes, Alex. So far, the synergies -- I mean we have the same number, MXN 900 million. We are basically -- I'd say that for this year, we are around MXN 300 million of those MXN 900 million. I'd expect most of that to come in the following year. In -- during -- in the following meaning 2013, sorry I was discussing 2012. Yes, so for 2012, around MXN 300 million, and I expect the next, around MXN 600 million, to be achieved -- additional MXN 600 million to be achieved in 2013. And then we have to add the Yoli synergies. We announced around 140 and we're -- as you know, we're-- the Yoli process was a little bit different in the sense that we are finalizing a more profound due diligence process as we speak. And once we finalize that, we can share with you if that synergy's -- the numbers, the correct one, or if we should increase or decrease a little bit that number. Okay? Alexandre Miguel - Itaú Corretora de Valores S.A., Research Division: Yes. Perfect. Just to clarify a bit on the expense that you said was related to the restructuring of the companies acquired. Do you expect that expense in some of that or all of that, to continue in the following quarters? Or that, I think, around MXN 200 million of expenses that should be phased out going forward? Héctor Treviño Gutiérrez: Yes. I think that -- I don't know exactly the number, what I remember is that we have reduced the headcount by around 1,500 employees. Severance payment during 2012, I don't remember exactly the number but, Patrick can share that with you, but it's the most important element of this one-time expense. We will have some still during 2013, and especially once we finalize the integration of Yoli, we certainly -- we'll give that number. But of all the onetime expenses, there are some related to the fees that were paid to bankers and lawyers, something like that, but the most important element has to do with severance of -- in the restructuring.

And your next question comes from the line of Karla Miranda.

Héctor, I was wondering if you could give us a little more color of what should we expect in terms of margins for the South America division? I know that you're going to be working in Venezuela in order to offset the negative impact of the devaluation. And all the efforts been doing -- that you've been doing in Venezuela, in Colombia and Brazil, what should we look in for the end of the year? Héctor Treviño Gutiérrez: Karla, in general, I'll say that the environment for South America for next year will call for a small reduction in margins. What are the main elements there? We have an aggressive plan in Colombia to foster affordability of the products. We believe that we owe to all of our shareholders to have a better performance in Colombia, and for that, we need to increase per capita consumption in Colombia. We have discussed this in -- during several conferences, so we have a specific plan where we are spending in marketing, we are launching new presentations, we are launching returnable presentations to bring affordability. And that, the whole mix of that, you heard me in the previous conference call saying that 2013, for Colombia, is going to be a transformation year where we will spend some in the marketplace with the idea and the hope that in the following years we'll have better per capita. We have the impact of Venezuela that as you correctly pointed out, we are counting on our operators to compensate for the additional cost of raw materials that are dollarized and the impact of some of the cost of raw materials and salaries and everything. Argentina, I think that Argentina should have a good year. So far, during the beginning of the year, the weather has not been helping with volumes. In Argentina we reflected -- it was reflected also in the fourth quarter, but the pricing equation [indiscernible], Bon Aqua, water line that we have a lot of faith, it's -- and I think an important element for you to know there is that it's a coordinated effort with The Coca-Cola Company and Andina to work in that presentation and in that specific back -- in that specific brand. So Argentina should have good performance. Brazil, we will be also -- we don't do anything with prices. We'll certainly be negatively impacted, we need to work on that. What are the main elements in Brazil? We have change on taxes in Brazil, similar to excise taxes that -- the impact during 2013, if we don't do anything, I mean, everything is staying similar in terms of pricing and cost, and et cetera, we'll have -- that sole impact on taxes will be between $60 million to $70 million in our P&L. Obviously, [indiscernible] Venezuela where operators have all the challenge to reverse that trend. We have issues like the drivers of what -- the so-called lay [ph] motoristas. The hours of operation of transportation in Sao Paulo are pretty much limited so that will call for additional cost. So in general, I'll say that Brazil should have flat margins or just slightly negative margins. All in all, I think that South America will have a small contraction, I think that Mexico will have some expansion of margin, so on a consolidated basis, I'm expecting to see flat margins.

Great. That was really helpful. And additionally, I was hoping if you can give us some sense of the CapEx for this year? Including all the investments you're planning to do in the Philippines.

[Operator Instructions] Your next question comes from the line of... Héctor Treviño Gutiérrez: Okay. Let me just answer that question, please, operator, and then we'll go with the following. CapEx for 2013, I'm looking at a -- somewhere around $800 million. I'll say that's slightly above the number that we presented -- the official number for 2013 -- 2012, excuse me, that we're around $750 million, mainly because of the 2 production plants, one in Brazil and one in Colombia that -- which -- we have started the one in Brazil, we would like to finish that by the end of the year. Colombia is a little bit behind schedule because of some authorization paperwork, but we are expecting that to be done. The Philippines, we mentioned that the CapEx for this year should be somewhere around $100 million to $120 million, that's in addition to this $800 million that I mentioned. Obviously, as I said in the previous question, that is going to be split -- the idea is to be funded by the Philippines operation alone, and in case some additional [indiscernible] should be contributed to the Philippines is going to be done in the 51:49 ownership that we share with The Coca-Cola Company. Operator we can follow up with the next question, please.

All right, your next question comes from Fernando Ferreira.

I just had a question on the Philippines operation, if we can expect some contribution already this year, in 2013, on the equity income line? Or you expect that mostly towards 2014 and beyond? Héctor Treviño Gutiérrez: I think that it's still too early to know, but I'll expect that this year would be more neutral, and then to expect some positive numbers for 2014. We just closed the transaction basically 1 month and 1 day ago. And even though we have some of the guys working there since August, we are starting with some of the strategies focusing on these 3 fronts that I mentioned, portfolio, route to market and supply-chain. The idea is to start collecting some of the so-called low-hanging fruits as soon as possible. That probably will have to be done more in the supply-chain, the other 2, route to market and portfolio are more transformative. Volumes during January were quite low, and I think that it has to do with a lot of inventory build up before the closing in December. February is looking better, with flat numbers compared to volume versus last year, but in terms of profitability, still very difficult to predict something, Fernando, but my expectation is that this year we're going to be more neutral and then 2014 we should be expecting some contribution to our numbers.

Ladies and gentlemen, your next question comes from Alex Robarts.

I guess for my question, I'd like to go back to Mexico on the volume kind of price outlook for this year. Just -- you basically had more price than volume last year, do you think that as you look out into this year, that kind of the ratio will continue? How are you seeing the volume trends right now, still versus sparkling? And related to this, the jug water, if I understood the press release, in Mexico, it is in a decreasing-year-on-year mode. I assume, if that's true, that's related to some of this restructuring that you're doing with the new territories. Could you give us a sense of when you might start to complete that process of where jug volumes, which is about almost 20% of your volume in Mexico, when that segment starts to get some positive growth? Héctor Treviño Gutiérrez: Yes, Alex. Volume and pricing. I think that, in general, Mexico, we will continue to have in total -- and I'll go into a second, into segmentation by categories. But in total, growing mid-single digits volume and keeping prices with inflation should be our target for this year. When you look at the sparkling drinks, in general, my expectation is that volumes should be growing low- to mid-single digits. Noncarbonated drinks in excess of 10%, double digits but more in the 10% to 12% range. And jug water in single-serve presentation is a difficult market, very competitive, we have good quarters and we have bad quarters, but in general I'd expect to have mid-single digits to low-double digits in water in single-serve presentations. Jug water, this is the fifth quarter that we have a decrease in volume. And that has to do with the strategy of converting that jug water business into a more profitable unit for us. Right now, we have got prices for a jug of water, in Mexican pesos, of around MXN 28 to MXN 30. When some of the re-fillers that are quite informal but that are pricing the marketplace, are selling at MXN 10 to MXN 12, so we have a tremendous price gap. That price gap has been built little by little in -- on purpose because we have to have a profitable jug water business, but remember a lot of that is distribute to the home or to the offices. I think that the positive trend on jug water is that as we are visiting households and offices, we are able also to bring new products into the scene. Before these routes were 100% dedicated to jug quarters, now we are offering softdrinks, we are offering juices, and at some point in time, if everything goes fine, I think that we will able to -- to be able to sell some value-added dairy resource on those routes. So it's important that those -- that these routes are profitable in their operation. In the past, not long ago, we were selling jugs of water at MXN 20, so we have increased volumes close to 50%, the price of our jug of water of Ciel brand. And that's the main cause Alex of why jug water has had 5 quarters of consecutive decline in volumes. It's totally on purpose to convert that business into a more profitable unit for us.

Right. And so the mid-single to low-single kind of guidance for jug water this year, that's a full-year number, right? I mean that's what you expect to book for the year? Or that's a rate that you expect to reach or achieve at some point this year? Héctor Treviño Gutiérrez: Yes. Alex, I think that on a total portfolio basis, look for, on an organic basis, to have a low to mid single-digit number volume growth, this is a good number for Mexico for 2013.

Your next question comes from [indiscernible].

This is [indiscernible] is here with me. Question on the competitive environment. I mean, we've seen this -- the Pepsi system starting to operate as a single entity very recently. Have you seen any change in that competitive environment in Mexico? And what do you anticipate? And let me tell you where the question is coming from, I think that the Pepsi system is going to focus a lot on, other than the Pepsi brand but also on the noncarbonated where they have some leading brands. Is there a risk, Héctor, that you might have to accelerate SG&A in the next year or next few years in order to contain these changes in the competitive environment, particularly for noncarbonated softdrinks? That will be the first question. Héctor Treviño Gutiérrez: Yes, Alan [ph]. Yes, you are referring to Mexico, obviously, and yes, they have been a bit more active in the marketplace, especially in key accounts. Whoever visits Mexico City have seen the Chapultepec Park now with the big Pepsi sign. For many years it was a Coca-Cola property. Some cinemas are also being moved, some restaurants and things like that. Honestly, at the end of the day, we haven't seen any movement on the market share and the numbers, a slight reduction on a very dominant position that we have in market share in colas, but very, very slight. I think that in the traditional trade, we have continued to see our operators working very well. They are starting to do some activities in the operation of sales [ph] but not important so far. I think that the point to highlight is that they are doing a lot of restructuring in their organization still. We have increased, very importantly, the -- our market share in isotonics where they have a very dominant brand, and where they strike a lot of their profits for the Pepsi system. And in there, we are doing tremendous in routes on isotonics. The last reading that I have is that we have hit 35% share on isotonics, that means PowerAde versus Gatorade. 35% shares in our territories in Mexico, from basically low teens before. So I think that obviously it's a very competitive market, and we are very watchful of these strategies they are following. It's -- sometimes you just kind of mind what -- how they are going to get a return for the prices they are paying for these properties but I assume that it's part of their marketing expenses, it's in the -- the top dollars they are paying for these things, it's going to be difficult to get a return on that. But I understand their strategy, they are building, little by little, the brand. I don't see an increase on our marketing expenses. I mean, you know that somewhere around 3.5%, 4% of our revenue is a good number. Last year, for the full year was around 3.5% for Mexico. But at the beginning of the year, we mentioned that we increased some of our marketing expenses, mainly in returnability and cooler placement that have to do with the preparation to their integration. And I think that, in general, I'd say that the market share numbers, as I mentioned, a slight reduction in a very dominant position that we have in colas. A very important in-growth that we have done in our isotonic with PowerAde, in flavors, we are increasing slightly market shares also. So nothing to worry so far in -- on this front. Alan Alanis - JP Morgan Chase & Co, Research Division: Got it. And changing completely, moving to Brazil, this is my last question. And it's more of a strategic -- I mean, strategic question, I guess. Coca-Cola reconfirmed last Friday that these 3 bottlers in the north of Brazil are merging, Jereissati [ph], Renosa and Guararapes. Any chance that you would be interested in participating in that -- in the creation of that Brazil -- or how would you -- how are you thinking about the consolidation in Brazil both in terms of those 3 particular bottlers and potentially, the rest of the bottlers in Brazil? What would that trigger in -- that you can share with us, of course? Héctor Treviño Gutiérrez: I think that basically, that north -- northeast integration, is basically the whole north of Brazil. At the end of the day [ph], it's a huge area. It's a -- I think that they have been -- they have commented on that for many months or years. I think that is positive for the system that they are doing that integration. I -- it's very early to know if that will create a similar effect to what's happened in Mexico, but once Arca and Contal merged, then everyone was looking for -- to reviewing their own strategy. I think that in Brazil, given the size of the country, it's important that you -- in fact we focus on the areas that are more synergetic in terms of the logistics and in terms of capacity and distribution centers, because the country is huge in the area. But it's -- that's basically what I think -- what I can say. I mean, we certainly are open towards other possibilities. With respect to your first question, I mean, can we do something with the north? I think that I can't currently envision us joining forces with them and having a very small participation there. I think that our G&A and our talent, I think, calls for us managing the operations, and in fact, some point in time we can do something with them. In the future we're, as I mentioned, we are far in distance, far away. But depending on how the consolidation of Brazil is happening, if that happens in the future, maybe at some point in time we will be closer to that area, in terms of distance.

Your next question comes from Marco Martinez [ph].

I was wondering if you could give more color about the great performance in the working capital figure at the end of the last year. In particular, we see that the suppliers figure increased importantly. Could you give more details about this? That will be very helpful. Héctor Treviño Gutiérrez: Yes, Marco. I think that, in general, that the movement that you are seeing has to do more with the integration of some of the new territories, that we are seeing the suppliers number going up. We always are very watchful of our cash flow needs and our working capital, but we -- once we have the integrations fully done, we shouldn't be seeing that kind of changes in the working capital.

I would now like to turn the call back over to Mr. Héctor Treviño for final remarks. Héctor Treviño Gutiérrez: Well thank you for your interest in our company. As always, Jose and his team are available to answer any remaining questions you may have today, and we hope to see you visit us in the future. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect.