Good morning, everyone, and welcome to Coca-Cola FEMSA's Third Quarter 2014 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 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 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. Thank you for joining us this morning to discuss our third quarter results. In the quarter, despite the continued soft consumer environment, we delivered our 11% revenue growth based on the resilience of our portfolio in Mexico and Argentina, ongoing growth in Columbia and Central America and revenue management initiatives across our territories. Excluding the recently integrated territories in Brazil, total revenues grew 3%. Our wide array of turnover participations, our ability to offer packages as attractive and affordable prices points for our consumers and the experience of brand Coca-Cola continued to generate increased transactions across our territories, as has been the case this year. Lower PET and sweetener prices in most of our territories were partially offset by the average depreciation of the currencies in most of our operations. Consequently, our organic growth margin expanded 90 basis points. Despite higher labor and trade costs, especially across the South America division, operating expenses remained under control across our operations and have decreased as a percentage of revenues in most of them. For the quarter, our organic EBITDA margin expanded 150 basis points, highlighting our company's ability to deliver profitable results in the…

[Operator Instructions] And we'll take our first caller, Antonio Gonzalez from Crédit Suisse. Antonio Gonzalez - Crédit Suisse AG, Research Division: Two quick questions. First on Mexico. Obviously, with volumes being very close to flat or flat by the third quarter, I guess, a sequential improvement relative to the beginning of the year has been above our expectations, and I would presume yours as well. So I just wanted to ask, looking into 2015, you've made comments in previous conference calls regarding how you would not expect the full impact of the excise tax in 2014 to be recovered in 2015. Would these results change your view regarding those previous comments? That's my first question. And then secondly, very quickly on Brazil. My understanding is that, in 2013, you lost a huge portion of the profitability there. And obviously, we are seeing in South America, already this quarter, huge market expansion. So I just wanted to ask whether you can give us a little bit more color on what are the initiatives, specifically, in Brazil that are driving these margin improvements? And if you can help us maybe quantify a little bit how much of the profitability that was lost in 2013, might be recovered in the next 12 or 18 months? Héctor Treviño Gutiérrez: Starting with Mexico. I think that one important element to consider here, especially, during this quarter, with respect to the volume performance, is the fact that in September of last year 2013, we were hit by 2 hurricanes in the area [Indiscernible]. That significantly impacted that specific territories close to bad weather conditions that we have because of the rain in most of the country. So when you look at the volumes for Mexico, even though we are kind of flat versus last year, it's…

Next, we'll take our question from Pedro Leduc from JPMorgan. Pedro Leduc - JP Morgan Chase & Co, Research Division: [indiscernible] from JPMorgan. It would be also regarding to Mexico and specifically, Mexico and Central America. We saw SG&A percentage of sales falling slightly of 40 basis points year-over-year this quarter after having risen substantially in the first semester of this year. So this was a source of margin gains now for first this year. And so, we are wondering what drove this higher efficiency. We already mentioned some headcounts reduction in the call, but if there's more to come, and we expect this to be a source of margin improvement also in the fourth and then in 2015, please? Héctor Treviño Gutiérrez: Generally, just working, I mean, we have been discussing probably for 2 or 3 years now that a lot of the focus [indiscernible] was in better controlling SG&A. I think that's [indiscernible] reduction. There is a little bit of effect of the noncomparability of [indiscernible] at the beginning of the year, but this quarter is fully comparable. So at the end of the day, it's just getting a better grasp on the SG&A cost. We have changed the organization even with -- our sales organization, we did configure from 4 -- from 5 different sales zones to 3, so we're reducing the headcount also in some of the -- of their sales organization without, obviously, losing the contact with the consumer. And I think that all those efforts are now paying off now, and that's basically the explanation for the better performance of SG&A. Pedro Leduc - JP Morgan Chase & Co, Research Division: Okay, okay. So [indiscernible] to have it continuing at growing below sales in the near future then. Héctor Treviño Gutiérrez: That would be…

And up next, we have Luca Cipiccia from Goldman Sachs.

I have 2 quick follow-ups. One on Mexico on the still beverage category performance. We've seen the decline continuing throughout the year. And I was curious to understand now, after 9 months since the price increases from the highest taxes, how do you see that category develop going forward? And is it really a function of affordability or is this something else that we should consider? And what do you think how it would play out for next year? And secondly, going back to LatAm, Brazil and Colombia, where on the one end, we understand there have been price increases in Brazil, there is a strong focus in improving affordability in Columbia, I wanted to understand if you could comment on how the market share dynamic have also been affected by these 2 strategies for their respective markets. Héctor Treviño Gutiérrez: Let me start with Mexico on the stills. First of all, the stills, even though are -- some of them are juices, we are affected by the excise tax. Remember that as long as you have just 1 gram of sugar -- added sugar in the Coke, then you have to face the impact that was introduced in Mexico at the end of the year. So -- and usually, most of the users are, let's say, 100% users in Mexico and other countries, they need to balance the formulas. We need to add some sugar, very little sometimes, but there is -- the 5% make a distinction of the amount of sugar. It's just, if you add sugar, you have to pay the MXN 1 per liter. In Mexico, we have been struggling a little bit with our competitors because, especially cool mix in the case of personal-sized juices, the dealer increased the price to the consumers. They didn't…

And up next, our question will be from Lore Serra from Morgan Stanley.

I guess, I just wanted to ask very quickly on Philippines. The loss seemed to have widened there, but you seem to be making progress in a number of initiatives to improve the franchise. If you could just give us a sense of what's driving those operating losses, that would be really helpful, please. Héctor Treviño Gutiérrez: Let me go into the Philippines. I think that good news in the Philippines is that for several quarters in the past, part of the explanation for the good performance had to do with volume and pricing coming back. We had this effect of brand Coca-Cola growing, but Pop Cola is reducing significantly in size. It was part of the strategy that to focus in just 1 Cola, which should be brand Coca-Cola. So Pop Cola will stay with very little volumes in areas where there's a lot of competition or maybe at some point in the future, we'll just discontinue the brand. But for many quarters, the story was volume and price declines. This quarter, volume and prices, price and mix is performing well. The issue, which is, and I see that's good news, and then we go a little bit into those 2 areas. One, I think that the fact that we have more than 2,000 resellers now attending the operational channel in the Greater Manila Area, we've seen a lot of progress in terms of market share, in terms of growth of brand Coca-Cola, in terms of growth of all the categories because we have a better service and better coverage of the operational channel. During the last 2 or 3 quarters, we were facing with these roadblock of prices from our competitors. We also rolled down some of the prices. We have gone away from that now, we have…

And our next question will come from Jim Watson with HSBC.

I wanted to talk about the shift to returnables a little bit. As you touched on before, you mentioned the opening plants in Brazil and Columbia that will specialize or allow you to do more returnables, and we've seen a big uptick in Mexico. My questions are we've always seen returnables relevant during a downturn. Is this equally as relevant during a recovery and has there been a shift in your kind of internal strategy with respect to the importance of returnables in your portfolio? Héctor Treviño Gutiérrez: I think that returnables have always played a role in difficult environments and my own view is that we are going through a difficult environment, especially in Argentina. We have a consumer in Brazil, we have the impact in Mexico, so we basically used the returnable process a way of presenting to our consumers and as an affordable loss and tried to have the same profitability on the presentations that are one-way presentation and I think that we are very good at that. We have seen times, for example in Argentina, that where right now it's around 19% is the importance that [indiscernible] in Argentina. But the use of [indiscernible] going through very difficult times, it was as high as [indiscernible] 33%, 34%. In Mexico now, we are around 38%, which is very high to what we have seen in the past. But given the circumstances of the new tax, we think that has been a tremendous force behind the -- that we are seeing in our products, especially for example in Mexico, the 500-milliliter returnable glass presentation has grown very important. It's a presentation that is for in-house consumption. So we are, in a way, providing the consumer with this alternative that they have many years ago of going to the…

And just to clarify, so the change in returnables is a lot more to do with the consumer. Is there anything on the back end as you are introducing a new plant that is changing the economics, especially on the production side of returnables for you? Héctor Treviño Gutiérrez: It's totally consumer-driven. Returnables, as you can imagine, are more complex in their handling because we need to bring back the bottles to the plant. The transportation cost is also a little bit larger for this. It is a way of providing the affordability for the consumer. If the consumer is heard, then returnables you will see, I mean, for us the alternative will be to lower the prices of PET to be close to our competitors. So as always, you will find a side job that is important and the same presentation with our competitors, but we have a returnable presentation that is similar in price to our competitors that will help us compete better. It's totally consumer-driven, not much of our strategy and production line.

And our next question will come from Alexander Robarts from Citi.

Two questions from our side. First on sweeteners and second on share. On sweeteners, I mean, the operating leverage at Mexico particularly has reflected this very good level that you fixed in this year for your fructose and sugar. Prior calls suggest that you've got 8% to 10% lower average sweetener cost this year versus 2013 in Mexico. When we look out towards next year, I understand that right now is where you're looking and kind of negotiating with your suppliers for -- to set the prices for next year. How are you looking at the potential for sweetener cost relief next year versus this year? And is it safe to assume that you could perhaps bump up the percentage in high fructose? It seems that there is perhaps some supply issues in sugar when we think about next year that could make the price relatively more interesting for the high fructose component of your sweetener. And kind of a tag on here, just congratulations on the Coca-Cola Life rollout and you talked about Stevia. Where does Stevia fit just from your cost standpoint versus high fructose and sugar? So that's the first question. Héctor Treviño Gutiérrez: I think that, in general, or what I can say with sweeteners. We use either a high fructose or sugar and there are limitations to the amount of high fructose that we can use because of formulation or because of the capacities that we have in some of the production facilities. But in general, those are the sweeteners that we use and then, you have all these sweeteners for the diet -- the light colas and zero colas which are artificial sweeteners. We have lower cost of sweeteners this year. There, you are correct. It's currently 7% to 8% on that level, what…

Right. Okay, now listen, that's very helpful. The question on Stevia, so I was just on a per unit basis, is it typically -- like how does it compare to the other 2 sweetener cost on per unit basis? Héctor Treviño Gutiérrez: On a per unit basis, it's similar to sugar. And in that case, Coca-Cola has all the formulation, and we are sourcing so far because it's very small in volumes. We are sourcing that from the Coca-Cola Company and similar to the sweetener cost that we have in the regular Coca-Cola.

Okay, got it. Very helpful. And the second and last question had to do with share in the sense, the Coke results from yesterday remind us that kind of we think about your top markets, Mexico and Brazil, we should also be thinking about your share in terms of the nonalcoholic, ready-to-drink market as a whole. And as we think about your 2 big markets, Brazil and Mexico, how do you see the CSD share of nonalcoholic evolving over the next couple of years? And any color about the challenges and opportunities that this could bring us? So kind of more of a big picture question on beverage industry. That would be great. Héctor Treviño Gutiérrez: Okay, Alex. That's a good question. In general, what we are seeing on the trends we are seeing, you see usually [indiscernible], you see growth in CSDs, you see growth in water. [indiscernible] business and carbonated nonalcoholic beverage segment. And normally, you see growth in juices and some other food products also at a faster pace than CSD. So in general, you will see a small erosion on CSD's market share if you look at the total nonalcoholic ready-to-drink folks. There are so much actions, for example in Mexico this quarter, we saw kind of flattish volumes in Mexico for CSDs, with a very strong effort and we're trying to compensate for tax impact and we saw a reduction in juices and nectars, which is not normal, but juices and nectars were also affected by that, so other time, we saw important growth in Powerade. Teas, are also being affected in Mexico. In other countries like Argentina and Brazil are growing very importantly. These are also impacted by the tax in Mexico and I think it might have been [indiscernible] similar to juices and nectars at a price point that is not that competitive with CSDs and that's why the consumer is also moving a little closely. It's difficult to give a general answer, it would change country by country but in general knowledge, the trend is that CSDs will grow, will continue to grow and we will see other categories growing a little bit faster than CSDs.

And our next question will come from Fernando Ferreira from Bank of America Merrill Lynch P10.

I have 2 questions. First one on Venezuela. Can you share with us what was the percentage of sales and EBITDA that it represented this quarter? And also, how do you feel about the need to eventually have to move to a weaker effects there going forward? That will be my first question. Héctor Treviño Gutiérrez: In Venezuela, similar to what we have on the previous quarter, Venezuela represents around 7% of our volume, total company. And it represents around 17% to 18% of our EBITDA for revenues. For this specific quarter, we are basically using a VEF 12 per dollar exchange rate versus the VEF 6.30 that we used last year. My opinion is that Venezuela didn't have the same impact that in some of the previous quarters where we are seeing a lot of growth in the profitability. So when you look at incremental profits from Venezuela this quarter, it's basically the same kind that we had before. Why? because we are increasing local currency close to 100% the numbers and we use basically an exchange rate that is also 100% higher. So In terms of growth for this quarter, not as much as what we saw in other previous quarter. That's the level where it was represented. It's 7% of the volume, around 17% to 18% of the profits on a consolidated basis.

Sure. And then my second question is regarding the plan that Coca-Cola announced yesterday that they want to accelerate the refranchising in the U.S. Is that a model that might interest you, the one that they have announced for the refranchising there? Héctor Treviño Gutiérrez: The U.S., I mean, what we have been commenting is still correct. I think the U.S. is a different markets from what we have in Latin America. If and when we are invited, we'll certainly take a look at that. We feel there are interesting points in the U.S. market. There are some difficulties in the U.S. market, that are very different from what we see in Latin America or Asia. And if that becomes available, we will certainly take a look at the opportunity in the U.S. and see what can we have in value versus the price that we will need to pay for those territories if they are available for us.

Sure. But my understanding is that the separation between the production and distribution is not something that would attract you. Is that correct? Héctor Treviño Gutiérrez: Yes, there has been a lot of, I guess, indications that production will be centralized. We do not fully understand to what extent is that going to be all over the U.S. and Canada or that that be some different territories. And as I said, we need to understand the whole picture of an opportunity in the U.S. market where [indiscernible] that presented to us. If you would like, in our opinion, it's much better if we have the production because we think that we are very good at organizing the whole value chain from suppliers all the way to getting the product to retailers. If at the end of the day, the proposal is different, and we will be buying finished product and delivering this. It's a different model that we need to analyze at that time.

And our next question will come from Berenice Muñoz from Barclays. Berenice Muñoz - Barclays Capital, Research Division: As you know, all my questions were already responded.

The next question will come from José Yordán, Deutsche Bank. José J. Yordán - Deutsche Bank AG, Research Division: My questions were mostly answered as well. I just want a clarification about your answer of flat sweetener cost for Mexico next year. Given the big decline in corn year-on-year, it would seem that, that would go in your favor. So the reason for you're saying that there's going to be flat cost, is it only the adverse move in the Mexican exchange rate? Or is it that you -- as you mentioned that you think there will not be -- you'll not be allowed to import anymore fructose to make a difference in your mix? And, I guess, I'd like to see your view on what the Mexican sugar price will do because that's the last of the factors at play here. Héctor Treviño Gutiérrez: No, my comment is in a way to be conservative in this sense. We are using more or less 60% high fructose in Mexico. High fructose is certainly, in our opinion, we have lower prices than what we have in 2014, and we have already locked in a portion of that at 3% to 5% below what we have in 2014. The big question is if we [indiscernible] cash, if we are not going to be able to bring this fructose into Mexico or not. And then there is the other -- even if we stay with 60% fructose, then there is the other 40% in sugar, which we don't know exactly what is going to happen with the price. We think that all in all, we'll have in a conservative way, flattish prices for sweeteners. There is a chance that we can import 60% of high fructose, we'll have lower prices than 2014. That's for sure, and you are correct in pointing out that the prices of corn, we have an opportunity for Mexico.

And it appears there are no further questions at this time, Mr. Treviño. I'd like to turn the conference back over to you for any additional remarks. Héctor Treviño Gutiérrez: Well, thank you for your interest in Coca-Cola FEMSA. And as always, Alfredo, Roland and the team will be available to answer any remaining questions that you may have. Thank you.

This does conclude today's conference. Thank you for your participation. competitors because, especially cool mix in the case of personal-sized juices, they didn't increased the price to the consumers.