Good morning, everyone. Welcome to Coca-Cola FEMSA's Fourth 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'll 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 this morning to discuss our fourth quarter and full year results. As you saw in our earnings release this morning, there is a critical change in the exchange rate that we have used so far to translate our Venezuela operations results into Mexican pesos. Given the increased uncertainty and lack of liquidity of U.S. dollars in Venezuela and to more accurately reflect the continuation of this operation towards consolidated financial statements, we have decided to use the previously denominated SICAD II exchange rate to translate these operations fourth quarter and full year 2014 results. As per the last official option of this mechanism at the end of 2014, the rate is effectively VEF 50 per U.S. dollars. Consequently, Venezuela's contribution to our consolidated result is now considerably lower. After these adjustment, Venezuela represents 7% of our consolidated volume and 6% of both our consolidated revenues and the operating cash flow. We would like to underscore that Coca-Cola FEMSA remains fully committed to continue producing, selling and distributing the highest quality products for our Venezuelan consumers that they enjoy daily throughout the country. For the fourth quarter, as…

[Operator Instructions] We'll take our first question from Antonio Gonzalez with Crédit Suisse.

Two quick ones on Venezuela and then 1 -- also a quick on Brazil. First, what is the rate going forward that you expect in Venezuela? Because I just wanted to know if your auditors would allow you to use SICAD II in 2015 since in 2015, the rate is no longer available and it has now been merged into this so-called SIMADI rate. The second thing is until when do you think you will have access to the VEF 6.30 rate to import your raw materials in Venezuela? And just finally on Brazil, do you have any comments, maybe very difficult to quantify, but any big picture comments on what you think would happen to the operations in Brazil in case of electricity and water rationing across the board specifically if the mom-and-pops have any disruption because they ran out of water or electricity? Héctor Treviño Gutiérrez: Let me start -- am going in the order of your questions. With respect to the rate, as you can imagine, we have long and very lengthy and difficult discussions with our auditors, the auditing committee, the finance committee and finally, yesterday with the Board of Directors. We've decided to use the VEF 50 rate, as you correctly pointed out, that was available as of December 31, with the idea of trying to better reflect what the numbers of Venezuela would be [ph] Coca-Cola FEMSA. As of February 15, SICAD II, VEF 50 per dollar is no longer an official rate. We saw that when they were merging SICAD 1 and SICAD II, they wouldn't -- we thought that they would go for another, maybe it was one to reflect better, and now they are [indiscernible] who use for companies to translate financial statements. Unfortunately, the only rate remaining was SICAD I…

And next, we'll go to Jeronimo De Guzman with Morgan Stanley.

So my first question, I just wanted you to ask about Mexico. How are you seeing the country at the start of the year now that you're lapping the excise tax increases? Are you seeing any changes in the consumption? And also how are you seeing the competitive environment, given that you mentioned that it has been more aggressive -- it was more aggressive last year? Héctor Treviño Gutiérrez: Good morning, Jeronimo. I think that from my perspective, the very good deals in Mexico is that even in this very complicated environment of a 15% price increase during the -- to pass along the tax increase to soft drinks, we were able to deliver volume declines that were lower than what I was anticipating at the beginning of the year. Remember that I mentioned 5% to 7% on soft drinks. We ended up our foreign accounts 4.6% decline in soft drinks. We were able to pass -- in addition to the tax, we were able to pass inflation to -- as a price increase to the consumer. And therefore, you see the important improvements in profitability of -- and the margins of the company. At the end of the day, we ended up for the full year with an EBITDA growing 4%, 5% in the Mexico operations, which I think is a tremendous, tremendous achievement for our operation. For the beginning of this year, we are seeing some interesting trends. Very good January. Very, very good January. Obviously, nothing as difficult a January as last year, which was not the same in every part of the territory. And it's important to note for you to remember that, the different -- that we changed prices to the consumer at different base in the different territories and different -- more so, that's are operations in Mexico. February is a little bit softer. It's very similar to what we -- a little better than what we have last year, but not the same kind of growth that we saw here in January. So February, we haven't finished the month, but that's basically the trend that we are seeing. So it's a little bit surprising because we are seeing some other industries with good performance at the beginning of the year even the retails, the so-called [indiscernible] indexes that they support are showing good trends. I think that the positive for Mexico is the fact that the U.S. is starting or is showing strong signals for growth. So that's positive -- that will be positive for Mexico. We have a lot of issues where the -- still the political and the security environment that we have in Mexico. But I think that everything included, January was a very good month. So it's a little bit better than last year, but not as high growth as we saw during January.

And you're able to take pricing more or less in line with inflation for the year? Héctor Treviño Gutiérrez: Yes, yes. We are still shooting for that. I can tell you that for this year, what we are seeing in January and as of the end of the last fourth full quarter, we are 1 -- there are 1 or 2 borders. We are one of those in Mexico that are increasing market share in spite of increasing prices.

Okay. And another question I had was related to the -- your growth or your inorganic growth. I mean, starting maybe with the Philippines. It seems like you've made some good progress on the volume on growing the top line and the go-to-market strategy. I wanted to see kind of where you stand right now in terms of the margin, kind of when you think you can focus more on increasing that profitability and where you are in terms of evaluating other opportunities in Asia? And then, I guess, related to that, and I know it's a long question, just given that Coca-Cola company has given more details about Bottler refranchising in the U.S., I wanted to see if you have any thoughts on -- any new thoughts on whether you would be interested in this market, given the economics that they've shared. Héctor Treviño Gutiérrez: All right. Let me start with the Philippines, Jeronimo. I think that what we have accomplished in the Philippines is important in the sense that the strategies as we described with respect to portfolio and go-to-market are starting to work for us. And that's why we are seeing important growth, especially in the areas where we have deployed the go-to-market initiatives. You see very important growth in terms of volume, quality index for our produce, out of stocks, capacity utilization, all those indicators that have to do with supply chain network improvement. And as you can imagine, as we have focused a lot on one way presentations, we are shifting little by little, the niche approach and one way, now we're presenting around 40% to 42% of our niche when they were more around 30% a couple of years ago. Having said that, we are now, as of the end of last year and…

Let's go to Andrea Teixeira with JPMorgan.

I mean, the first question that I had was about volume which you were able to respond. And I guess, I mean, on the pricing front, I just want to reconcile the first question. Reconcile when you said you took pricing. If you can give us like a sort of magnitude that you -- the pricing that you took and if you saw a little bit more leaning of your main competitor doing the same. And the second point is about raw material because I think we haven't discussed that in the call yet. For the outlook and its impact on margins. I mean, we heard some other bottlers that they can try to mitigate the peso devaluation with more HFCS but I'm assuming you've done most of it from conversations before and from the call before and -- but I wonder if the lower PET and if you have some way of maneuvering that to keep your margins flattish or otherwise. Héctor Treviño Gutiérrez: Let me clarify and maybe just to be very clear about the pricing index. We felt that these prices during the past year and we have moved our -- as we focus more and more on transactions and trying to move to single serve presentations, we are moving a little bit more of the mix of our products to packages that have a better pricing formula. In January, we have not increased prices of the individual packagings, but we have -- when you look at the equation of volume divided -- revenue divided by volume, the total price per unit case is increasing just to be very clear with that. Our idea is to move pricing with inflation. And obviously, we need to look at the correct time during the year, when to do that.…

Great. And in Brazil, would be the same, Héctor? I mean, they also look for pricing, you think, like given the strong -- I mean, given the very hot weather there, that you're able to pass on some of the pressures on the real, even though as you mentioned, like you don't -- it's only on 70% of your dollar COGS. Do you think that you can find a way to press on price increases there that are linked to inflation or it's still quite competitive? You've done so well, I mean, just from a volume standpoint, sequentially being able to pass on the price increase, especially in the summer. Héctor Treviño Gutiérrez: It's a tough question in Brazilian real, but certainly our expectation is to continue moving with inflation [indiscernible] the expectation for inflation is moving, the target is moving every day. It's difficult to grasp, so I agree with, and in different economies on a number for inflation, but we have made in our business plan, the idea of increasing prices with inflation. Remember that in Brazil, we are focusing a lot on the so-called magic indiscernible] prices. BRL 1, BRL 2, BRL 3 and BRL 4 for different presentations and they will turn our 2 liters now in Brazil. The formula has been a little bit different than Mexico. When you look at the other price per unit case, it's sluggish and some months, we'll see them a bit down, so it's more an effect of the link [ph] because we are again, introducing this and the return of our presentation is gaining a lot of traction in Brazil. So within the different presentations, the idea that we have is to pass along these price increases. Remember that we have a new production plan that we expect to have efficiency from that, both in transportation and in efficiency adjusting in the cost of producing our products, because it's a much more modern production facility. So all in all, I think that we would be able to continue with our magic price points and fostering the 2-liter returnable presentation and increasing that penetration. The competitor [indiscernible] in past especially [indiscernible] cost and we would need to check the competitive environment continuously just to see if we can pass along these prices but our expectation... [Audio Gap] ...yes, do we pass along this inflation to the consumers in the form of price increases in every product.

And if I may, one last question, Héctor, on Venezuela. I know you've, in the first question, you elaborated a lot, but just on -- I mean, I think the concern now is like a transaction impact of the FX, right? How far in advance you're still buying on a monthly basis at 6.3? Do you see -- I mean, obviously, in a way, a risk of not being able to source with the dollars. I know you printed in your press release saying you're still buying at 6.3, but that's like on a monthly basis, right? I mean, you're being been able to buy your raw materials at this currency? There is any systemic issue there like... Héctor Treviño Gutiérrez: No. I think at -- yes, I think, Andrea, that in our P&L, the majority of the raw materials, it registered at 6.3. When we don't receive an authorization from the Central Bank to import a specific product for whatever reason, all -- and the majority of the cases is more with the spare parts. We need to buy at a much higher rate and we've registered that right in our P&L, so a very small portion of our P&L is affected by higher rates and sometimes it's close to 170. As we mentioned, we are still receiving authorizations from the central bank to import these raw materials at the same forex rate which is 6.30. The risk, what is the risk? The risk is that our product the different risk. One is that the central bank says now the same forex rates is 12 or 20 or whatever and we would have to register these new rates in our cost structure. Another risk is that they say, "You, Coca-Cola FEMSA, you would no longer have access to the…

Next, we'll go to Gabriel Lima with Bradesco.

My question is also related to Venezuela. It's a quick one actually. Just a follow-up in the first question. I just wanted to make sure of how much cash position you are currently holding in the country, Héctor. And if the changes implemented in the currency exchange system recently in February, right, changed, by any means, your ability to cash out money from the country. Héctor Treviño Gutiérrez: Before moving to 50 bolivars per dollar, the cash balances were close to $800 million. At 50, it is more or less around $200 million. That's what we have right now in our balance sheet, yes, in the balance sheet that we reported today. So it's $[indiscernible]. We have, for several years, a request for dollars or dividends to the central bank that has never been granted. If we find a way of buying dollars in this marginal market and for what is the current [indiscernible] in this money market, we will certainly buy some dollars and pay those dividends that have been there for several years. I think that right now, only that we need to be sure that we have enough bolivars to run our operations properly in Venezuela, but we think that we have more than enough right now.

Okay, I see. So if you had the option, you would cash it out at 1 70, right? But you're not executing that, that's pretty much what you're saying? Héctor Treviño Gutiérrez: Yes, I think that -- and we certainly [indiscernible] the 1 70 market is moving. As I mentioned, we put 3 different bids to buy $0.5 million at that market and we were assigned fewer dollars. So we're doing that in order to have some cash balance just in case we need emergency spare parts or something like that. But yes, we would value [ph] that. As we mentioned for all these previous quarters, we have acquired some real estate also in Venezuela as a way of hedging our position [indiscernible] bolivars because we have organic -- a lot of bolivars in Venezuela and just with inflation around 80% or 90%, cash balances will lose value, will be worth 1/2 after 1 year. So we have been buying some, earlier, a couple of years ago, we bought our offices. And last quarter or the last 3 or 4 months, we bought a couple of workhouses that were important for us for our operations. It's also a way of hedging part of that position that we have. And obviously, when you go to buy a real estate property in Venezuela, everyone is using the 1 70 as a reference to price these properties in bolivars, yes? Okay?

Okay, no, that's clear. And I just want to make sure of another thing you mentioned in the call. So you're using -- we're going to be using VEF 50 per USD in 2015, but there is nothing on the table yet of what currency is going to be used going forward, right? Héctor Treviño Gutiérrez: Yes. That's basically what we discussed with our Board directors and with our auditors and the auditing committee in the last week basically, to continue using the [indiscernible]

Now we'll go to Alex Robarts with Citi.

I wanted to go back to Brazil and really, it's 2 questions. First of all, on pricing, kind of telling us definitely the goal was to try to get to inflation this year in Brazil. Can you talk a little bit about just this tax that we've seen? It's now formal. It's law. It's starting in May in Brazil on cold beverages. Can you comment a little bit on what you might need, if any, to pass on to the consumer starting in May in terms of price, that would be great. The second question is back on the cost and expense structure. You've made it pretty clear that we'll have some currency-related issues on the raw materials, but if we look x raw materials, I guess I see the partivity gains from the Minas plant coming through. I see the synergies from the 2 acquisitions, but I also understand that on the concentrate price, if it's not up for renewal this year, the negotiations on Brazilian currency trade, if I understand it correctly, are beginning. So if you could try to just talk about those non-raw material elements of the cost structure in Brazil and how we should think about that going forward. Héctor Treviño Gutiérrez: Let me start with the pricing part in Brazil. Our objective in our business plan is to have prices move with inflation. We only [indiscernible] deliver what [indiscernible] the real versus dollar rate evolves during the year because that has an impact on our cost structure, but we've seen that what I described with the work [ph] impact is coming down and sugar price is stable or down versus the previous year. We've seen that we would have a stable general raw material prices in Brazil. So assuming that, that's part of the…

And now we'll go to José Yordán with Deutsche Bank. José Yordán: Most of my questions were -- my main questions were answered, but just a follow-up on the concentrate in Mexico. Obviously, we're coming up on the 10-year anniversary of the very contentious negotiations back in '06, if I'm not mistaken. How are you guys going to be approaching that this year? Is the conversation going to be preempted or brought up ahead of time? Or has Coke indicated that given the difficulty in the markets, et cetera and the margin pressure that, that it's just off the table and maybe indefinitely? So any color you can you give us on that would be great. And then just a more technical question. On Venezuela, you have given us -- every year in the annual report, you've given us a breakdown of Venezuela operating P&L because it was, I guess, deemed as relevant or material by the auditors. Will that still be the case for the 2014 annual report or not? Héctor Treviño Gutiérrez: Let us start with the concentrate piece. We have, in 2017, is the 10-year anniversary of this, of the increase that we have in Mexico. We are having some conversations as industry with the Coca-Cola Company just to start trying to find a way of doing something that is a win-win situation. We understand the need of the Coca-Cola Company to also increase their profits, but they also understand that we are going to -- 2014 was a very difficult year because of the tax for the industry in Mexico. So I think that all in all, we have a good dialogue, nothing complete yet. And what I want to say is that our idea is that we should find a win-win situation where we can find ways to get increased profits from the marketplace and not from 1 company to the other. So with respect to Venezuela, we will continue to present in the annual report. I mean, you look at the notes of every quarter that what we present to the board [ph] [indiscernible] we do have -- we open some of it main lines of the channel [ph] and the balance sheet for Venezuela and then we will continue to do that because I think it's important for everyone to have a very clear idea for how to compare once -- now that we've changed the group to 50. One of the things that we are debating [indiscernible] we should present probably with some clarity, not only in the segment section of the notes, but just bring it to the front of it of the press release and to do some comparisons rather to be liquid [ph] to have a better understanding of the Venezuelan situation.

And now we'll go to Martha Shelton with Itaú.

It's regarding Mexico. I'm just curious to know how much leaner your Mexico operations can become. Is there any room for additional SG&A efficiencies, given how well you've done throughout 2014? Héctor Treviño Gutiérrez: 2014 was -- given the circumstances again about the tax and all the impact that we're expecting, we've reduced substantially the workforce. And then basically, we reduced 1,400 people from our workforce [indiscernible] 2014. We are going into a second phase of what we call effectiveness and efficiency application. That's basically the idea of reducing layers and increasing expanse of control in all the organization. We expect that this will bring about some additional savings. It's still very difficult to quantify that and we are -- we will be executing this country-by-country [indiscernible] 2015. The idea is to focus our organization in 2 centers of excellence. In Commercial where we have people that -- because I think that -- we think that this is one of the top priorities for companies or everything that has to do with commercial practices and supply chain. Because we think that in order to compete in this market, we need to be very efficient. So we are focusing and we are reorganizing our structure using these 2 pillars. So for example, in the past, a person that was in charge of sales, they will be in charge of making sure that the product was arriving on time to the warehouse, in charge of the maintenance of the trucks and the forklifts as well as in charge of selling products in the streets. Now sales personnel will only be in charge of selling and having contact with our clients and our consumers. And supply chains will be in charge of everything else and through service level agreements with their people, have the product that is needed on time, et cetera. That implies some changes in the organization that we think will have some important efficiency for us. Again, the idea is to be more effective and to be more efficient both in our organization and in the marketplace. Obviously, at the same time, we have a group of people that is thinking in everything that has to do with IP innovation. And how can we use technology, especially mobile technology to improve or to potentialize our sales personnel in the streets. And then we have handheld computers with every person but these computers are kind of old. Not all of them are connected in real-time. So we're analyzing what we can do in terms of improving our sales force capabilities basically in the market, which I think that we'll also have at the end the day, bring some efficiency to our PNS.

And you're unable to quantify that what I understand unable at this point to quantify the effects of this delayering process? Héctor Treviño Gutiérrez: Yes. Right now, it's still too early. It's something that will be evolving during 2015.

At this time, we have no further time for questions. I'll would turn it back over to Mr. Treviño for any additional or closing remarks. Héctor Treviño Gutiérrez: Well, thank you for your interest in Coca-Cola FEMSA. And as always, we are open for any additional questions you might have. Thank you.

That does conclude today's conference. We thank everyone again for your participation.