Good morning, everyone, and welcome to Coca Cola FEMSA's Third Quarter 2015 conference call. As a reminder, today's conference is being recorded and all participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions-and-answers after the presentation. 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. Hector Trevino, Coca Cola FEMSA's Chief Financial Officer. Please go ahead, Mr. Trevino.

Good morning, everyone, and thank you for joining us to discuss our quarterly results. Once again our Company delivered strong operating results for the quarter, growing our comparable revenues and EBITDA by more than 10% and 21% respectively, while expanding our consolidated margins by close to 200 basis points. Our operators were able to deliver this solid set of results despite the challenging consumer and inflationary environments in Brazil and Venezuela and ongoing currency volatility in the region. Our relentless focus on point of sale execution and our ability to connect with our consumers with innovative packaging at the right price for each consumption occasion continues to drive positive transaction performance across most of our markets. This quarter we generated close to 6.5 billion total transactions across our 10 markets with solid growth in sparkling beverage transactions, highlighting more than 2% in Mexico, 3% in Colombia and Argentina, and more than 8% in the Philippines. Importantly, every operation continued to maintain or improve market share in the sparkling beverage category. Moreover, Mexico and Argentina continued to gain share in such relevant categories as juices and sport drinks. We also saw encouraging sequential market share gains in the noncarbonated beverage category in Brazil. Combined with our ability to implement local pricing initiatives, our current hedging strategy and a relatively favorable raw material price environment enabled us to expand gross margins in Mexico, Brazil, Colombia, and Argentina despite strong currency headwinds. This, coupled with our tight control of expenses, further allowed us to expand our EBITDA margins in most of our operations. In Mexico, where we are experiencing a more evident consumer recovery fueled by increased remittances and improving employment data, we delivered 10% revenue growth on the back of a sequential improvement in volumes and transactions with close to 3%, together…

[Operator Instructions] Our first question is from Carlos Laboy with HSBC.

Hector can you give us more granularity on what you think maybe your consolidated EBIT might look like if you used the Argentine black market exchange rate? And then, on a separate question, can you expand on the top operating initiatives that you've got in place to improve your Brazil execution as you start looking into 2016?

In Argentina, we have been -- let me put it this way. We have been very careful to monitor the relative performance of Argentina versus the other operations and also to continue checking how much Argentina represents of the total profits of our operations. I'll give you an example and maybe that can help you understand -- that can help me answer to your question, Carlos. Right now Argentina is around 7% of our volume on a consolidated basis. And if I look at the EBITDA reported by Argentina on our consolidated numbers, it's around 8%. So, we think it's pretty much in line and it's very far away from what Venezuela used to represent a year ago or a year and half ago in our numbers. If we move with assuming that the black market is around 15 Argentine pesos to the dollar, which is the last time I checked that, that would imply that around a 3% contraction on the consolidated EBITDA number. And Argentina, instead of representing 8% of the total EBITDA, would be somewhere around 5% or 6% if we use the black market to convert. We believe that probably as everyone that with a new administration coming very soon there will be some adjustments on that front. We have been very active in paying dividends for Argentina up to probably August of last year when we -- when that was allowed. And after that, we have been using our cash -- the cash flow generation, the currency that we have, the local currency we have, to pre-acquire or pre-purchase some production equipment and coolers and assets basically as a way of protecting the value of that currency in anticipation of any potential movement on the FX. With respect to your second question in Brazil, I…

Our next question comes from Fernando Ferreira with Bank of America/Merrill Lynch.

Hector, I had two questions, if I may, first one regarding margins in South America. When we look excluding Venezuela, right, they had a very good expansion this quarter. But, you mentioned that this was partially related to lower PET, sweeteners, and also the hedging, right, the hedging that you did. So, just wanted to have a sense what do you foresee the impacts to your costs and margins in South America once those hedges roll over, right? Can you maintain that similar margin level? And then, the second question, just wanted to get a progress some comments regarding the progress in the Philippines, right? It appears that you're advancing very well in your plan, but it still appears that the division is at a loss. So, just wanted to get a sense if you feel that you can reach breakeven profit earlier than what you were expecting before? Thank you.

Yes, I think that when you look at and the same is true for Mexico and Central America. But again, what we are seeing in terms of raw materials is we saw a reduction in prices for a good portion of this year. We have started to see some price increases on the raw materials, and when I say price increases, meaning in dollar terms. Low single digit price increases, basically nothing to worry about, I think. Especially with respect to sweeteners, we have seen some increase. But, during this year, we have because of the volatility of FX, we have been, I guess, benefitted by the fact that we were because we have this active hedging strategy where we basically look ahead up to 12 months in advance. As we were doing this hedging strategy, we were able to lock in regular FX regular exchange rates as compared to the spot market during these first nine months. We continue to have business strategy going forward, and we are actually starting to hedge basically 12 months in advance for a portion of our needs. We believe that, I mean in general, we are still with good levels. For example, for the fourth quarter in Mexico, Brazil, Colombia, we have close to 70% of our needs already hedged at attractive levels. But, certainly for 2016 the prices at which we are doing some of these hedges will not be as attractive compared to the spot market because, as you get closer as you get more stable FX movements, the hedging strategy would not give you such a large gap as we have experienced during this first nine months. Having said that, I think that what we are looking to do with this hedging strategy is not so much improving our margins,…

Our next question is from Jeronimo de Guzman with Morgan Stanley.

I wanted to follow-up on the margin question just to get a little bit more detail. I mean you mentioned that the hedges will now be less favorable going forward and you could have some increases in the raw material prices in dollars or small increases. So, given this, do you still think going forward and into 2016 you can protect margins? And if so, what are some of the tools you can have to protect those margins?

I think that -- in general, I think that we have been very active. As you see in our numbers that we have been very active in the pricing front of our products. We have discussed this during many quarters. We like to protect the profitability of the business. And obviously, as in any consumer market, you have to balance how much you take in prices and how much you sacrifice in volumes, et cetera. I think that, given the recoveries that we are seeing in some of the markets and in Mexico that we are seeing little by little a more important recovery of the consumer, we have been able to achieve both basically this quarter, to increase volumes and prices importantly. Most of the pricing that was taking place during this quarter had to do with the fact that we were suffering a lot on the FX, because of the FX volatility, and the cost of raw materials are on the rise. So, we were very active. We had conversations with the Coca-Cola Company, and they understood that we -- and we think that our competitors are on the same page. As you see the exchange rate moving and having some of these raw materials, an important portion of the raw materials dollarized or dollar denominated, you need to start moving prices to compensate or to maintain your profitability. All in all, I'll give you an example. Probably in Mexico, for example, if we see what is the mark-to-market of these hedges that we have, it was probably somewhere around $5 million. But, the increase in the cost of raw materials that we have that were not covered was a slightly higher amount. So, in other words, we would have had double the impact of these FX movements if we had not had those hedges. But, because of protecting the profitability, we were able to increase prices and important pricing. And we believe that what we are seeing in the market is that the competitors are also moving some of the prices. Different timings, and some competitors are staying in certain presentations, but we move where we see it's feasible to, again, price to balance our performance, looking at the profitability in the short term but also looking at our staying power in the long term, meaning basically the levels of market share that we need to preserve, et cetera. So, with that, I think that then I'll give you an answer to this is certainly looking for efficiencies in cost, looking for efficiencies in expenses in our SG&A, as we have expressed in the past and as you see in these numbers, and ultimately looking at the pricing levers that we have also with the consumer. Okay?

And then, maybe a follow up here on Brazil specifically, I mean, how do you think about the pricing lever there, just kind of given how weak the environment is and what you mentioned about your focus on affordability and maybe also kind of the competitive environment? I mean, do you think you can keep protecting margins through pricing, or is there anything else you can do? And maybe you could give us an update on how much savings you could get from the move to the new plant in 2016 -- well, that you already moved it to, but the savings you can achieve next year from that?

Jeronimo, Brazil is more of a -- let me go a step back in Brazil this quarter. You see basically a 5% reduction in real terms in prices. Basically that means that, if we have inflation of around 9% to 10%, we were able to increase prices in nominal terms around 4%, 5%. So, we are lagging, we are behind inflation in Brazil in that respect. The main issue in Brazil is that, if you lower the price of your products, the trade will not pass along this price to the consumer. So, what you see, this is the result of a change in the mix of the products and an increase in the returnability that we are seeing in Brazil. So, again, it's not so much that we were lowering prices of some of these SKUs. It's the fact that, as we introduce and we focus more on returnable products to bring this affordable package to the consumer, our end result of the pricing formula is a price mix that is not increasing at the same of inflation. But, as I was explaining in some of -- in one of the previous questions, moving prices from BRL1 to BRL1.5 is a 25% increase in that specific package. If we lower the contents from 355 in a can to a slim can with 310, we are in a way increasing prices per unit case. That's why we focus a lot on transactions and the interaction we have with the consumer. And if we can sell 310 in a slim can at BRL3, it will be better than selling a 355 at BRL3 to the same consumer, because we have a slightly better margin on that. So, price compliance in some of the large cities Sao Paulo makes it very difficult to move prices in Brazil and to try to adjust prices in Brazil. Some of in some cases, some of the store owners start to increase prices as they see pressure from the macroeconomic situation there, even without us moving these prices, so that's why focusing on price compliance is very important in Brazil. But, again, Jeronimo, no question about it, if we feel pressure because of the FX movement that we experience in Brazil, we will try to pass that along to the consumer, similar to what we do when we pay our taxes or any other additional cost to our structure. Okay?

And just a quick question on Venezuela, we've seen some companies move towards deconsolidating their Venezuelan operations. Is that something that you guys are considering, or will you keep it this way for the time being?

Yes, that's a good question, Jeronimo. Let me tell where we are. We have seen some other companies like PepsiCo, Energizer, and P&G deconsolidating. What we have been discussing with our auditing committee, and we had that meeting yesterday, and with our auditors is that the companies that have been deconsolidating are basically they operate under US GAAP. And under US GAAP, you don't have availability of dollars to operate. It's a good enough reason to deconsolidate. Under the IFRS rules or the international rules, international GAAP that we use, that's not enough reason to deconsolidate. And that's the value that we have had with the [indiscernible] we are certainly analyzing that just as a way of looking at the different alternatives. [indiscernible] review of that. Okay?

Our next question comes from Lauren Torres with UBS.

Hector, I was curious to just get your impressions and thoughts about investment plans or even expansion plans. With Arca's recent announcement to acquire Lindley, and Coke Glass even talking more about maybe speeding up the refranchising in the US, once again curious to get your thoughts on Coke FEMSA's I don't know if it's urgency or need to expand, if that's more internal or organic, or you're still quite prone to looking outside of your current markets and that's maybe where the more exciting part of the story is. Once again, just your impressions on that would be great. Thank you.

I think that the way we think of this is, in our planning situation, we need to focus a lot on growing organically. And for that, we have very, very clear strategies with respect to protecting our CSD predominance going in to or improving the performance of new categories like dairies and juices where we see a lot of opportunities for growth. But, on that we understand that the profit pool even in 2020 is going to be huge on CSD's compared to the other categories. So, that's why we focus a lot on the internal execution and costs, and we grow organically. Separate from that, we look at these alternatives growing on a territorial basis, and we are always looking at these opportunities. We have opportunities. We have discussed in the past that in Latin America there are very few pieces, assuming that you have Arca and [indiscernible] and Coca-Cola FEMSA remaining as independent bottlers. And you have worldwide you have a small piece in Guatemala. You have a few -- one other bottler in Chile. So, there are a few pieces in Latin America and Mexico and Brazil. There are certainly five or -- well, in Mexico we have four or five independents, in Brazil six or seven independent bottlers, and that's it in Latin America. We have always taken a very disciplined valuation approach to these opportunities. And we think that we should continue doing that in that fashion. Outside of Latin America, it's important for everyone to remind that we have a call on the 49% -- a call option on the 49% that we do not own in the Philippines. And assuming that that will continue with this performance that is improving little by little, pretty soon we feel confident that we have understood and…

If I could…

Yes.

Yes. I was just going to say, as a follow up to that, Hector, then, with Coke now talking about a more asset light model and forming this new system, does the language and what has happened at Coke with its bottlers and distributors in the U.S. present now to you a more attractive option in the U.S., if that does become available?

I think that is -- I'll say that is slightly more attractive. I don't think that it changes necessarily attractiveness, because for me, Lauren, we need to understand, again, the full impact of something like that, including prices at which we would be buying territories, who is going to set prices for key accounts, which we don't have any idea still on something like that, what the relationship with fountain would be, et cetera. So, those are the big questions. I think that moving production assets to the bottlers is positive in my perception of this. But the big questions are still there.

Our next question is from Miguel Mayorga with GBM.

I understand, however, you have recorded some extraordinary expenses among South America. I would appreciate if you could quantify them and tell us until when should we expect it? Thank you.

We have some extraordinary expenses in South America and in Mexico and Central America related to -- I think that a couple of quarters or three quarters ago, we described this strategy that we internally called E2, which is calling for efficiency and effectiveness in the organization. And that basically implied for us reducing -- it's a downsize of the organization into a much more effective and efficient organization, including levels and GAAP spans of control. And because of that, we have been recording some extraordinary expenses that are nonrecurring that have to do basically with intended payments. And that's basically what is reflected there.

Okay. And could you give us an idea how much have they represented and how this could help your margins for 2016?

If I remember correctly, Miguel, it's somewhere around MXN250 million, probably a little bit more than that [indiscernible]. And we will not have anything like that next year. It's just for 2015 extraordinary expense, around MXN250 million, MXN270 million, okay? That is over the course of the full year, and we are trying to -- not to have a lot of variations within quarters, so we basically have one quarter of that in each quarter. Thank you.

Our next question comes from Luca Cipiccia with Goldman Sachs.

It's about two follows ups, one on pricing in Mexico, which was quite strong in the quarter. And I understand the need to pass on the FX impact. But also, arguably last year prices went up double digit, volumes were very resilient, elasticity was low, and the consumer was weak. Now we're seeing a recovery in the consumer in Mexico. Your pricing has also been quite strong, quite high. So, my question is more related -- are you realizing or are you in a view now that the pricing power is stronger than maybe what you expected? And the question is more in relation to pricing going forward, leaving aside FX now that the consumer is stronger. That was the -- that would be the first question, and then I have a quick follow up on consolidation, if I may.

I think that one has to be very careful with this -- with the pricing variable because, as I tried to express in a previous question, it's a difficult balance between volume/market share and the profit that you can derive from pricing in the very short term. So, it's a difficult balance that we think that we are very good at and that we understand very well. Let me give you some of the facts. In most of the territories, what we have experienced is, and you have heard in the past, is we are trying always to maintain prices with inflation, at least with inflation so that we don't lose price -- that we don't reduce our prices in real terms. We have markets like Brazil where this quarter we were not able to maintain prices with inflation because of the mix change and all of that. Having said that, places like Mexico, last year we had a huge tax that basically implied that the industry increased prices between 15% to 18%, 20%, depending on the price that each producer has. But, everyone moved -- the whole industry moved at the same time. So, it's difficult to extrapolate that the elasticity is similar to what we saw last year, because the whole industry was moving at the same time because of the tax. This time around we have been very careful of trying to improve the prices according to with inflation but in every country, as we have seen, some internal inflation, meaning our cost of raw materials inflation, going a little bit ahead because of the FX. We are trying to protect those margins. We believe that the competitors are suffering the same in terms of the costs of raw materials, and therefore expecting that the competitors will also move. So, my feeling is in general, Luca, we have price gaps that are very important versus Pepsi and are even higher versus RC -- or excuse me, of Red Cola in Mexico and Big Cola here in Mexico. And again, Mexico City is the place where you have a convergence of all the competitors that exist in the country. Everyone is here. You don't find that in other areas where we operate, like Guanajuato, Veracruz, or Chiapas where we have a little bit more flexibility. So, those price gaps are high. We believe that our strategy should be to try to maintain prices with inflation. If we see some cost in our P&L getting out of line, we would like to see first if we can fix the cost. And if not, for example, during the last six months with the FX volatility that we have seen, we will pass those price increases to the consumer and try to manage this formula of maintaining the staying power of our brands in the long term and the volumes and market share versus the price and the cost impact that we might have in the short term. Okay?

And then secondly, on consolidation, just not to go back to what may or may not happen, but I was curious to ask, given there seems to be transaction or a wave of consolidation that may come back in the region, my question was how do you think anything has changed when it comes to simply more of a rationalization of the territories in terms of assets reallocation or asset swaps between the bottlers where it makes sense? Is this potentially an environment or an evolution for the system, that this may be, say, more likely than when the previous sort of wave of consolidation, if I put it that way, happened? Has anything changed? Is there anything that maybe you can share in your views in terms of how asset reallocations rather than outright acquisition may play a role as well in the region?

Luca, I think that you bring a point that is very interesting. And we certainly have looked at this in the past. We have not discussed with our peers officially or any other than in a social meeting. But, I think that at some point in time it would make sense to start changing some territories if that will bring efficiency to the parties that are exchanging territories. And you might end up with a territory that is very far away and that is closer to someone else, and you can exchange that for another piece. That's a possibility. We are not we do not have that in the radar screens right now, but we have looked at that internally as a way of thinking about potential efficiency in the future. I don't think that we are very close are not close by any means on that in the short or medium term, but that's certainly a possibility that we should be open to consider together with people like Arca or Andina in the future.

The next question is from Andrea Teixeira with JPMorgan.

Hector, one of the things that was surprising in the quarter was the low level of SG&A in the basically the low level of SG&A in Mexico. I mean, it's the lowest level in the past two years, even obviously against last year's high comp, but even against 2013. Is that something that you believe is sustainable? So, what should we be looking at, continue to be saving some of that SG&A, or next year as you sponsor the Olympics? And I know of course the games are not going to be played where you have the territories in Sao Paulo, but in general what how should we see marketing spend in 2016? And if you can, elaborate a little bit more on the mix pack in Mexico. I mean, I see that obviously you've published the 7.5%. How much of that on a comparable basis is price increases? Thank you.

I think that probably for the last, I don't know year and a half or probably two years or a couple of years ago I mentioned that the following quarters we were going to focus a lot on controlling our SG&A. I think that the strategy that I described was called E2, having a more effective and efficient organization. It's helping in that process. Obviously that's a painful process because we have to reduce the size of the organization, but I think that we are seeing part of that. We have always been very careful with our marketing expenses. It's a line of our P&L that is discussed a lot together with the Coca Cola Company. There is a lot of, I guess, creative tension in that [Indiscernible] where you have the Coca Cola Company bringing a lot of initiatives with respect to the program from new launches or new advertisement or new activities in the marketplace, and you have our operators looking at alternatives of using a lot of the trade activity that we do in terms of promotions to the trade that also converge into this marketing expense. So, in general, marketing expenses somewhere around 4% that we are running is a good number. Some years we are a little bit below that. Some years, like when we have the World Cup, Soccer World Cup or Olympics, you see a little bit higher numbers like that. Different countries have different levels of activity also. But, as a rule of thumb, somewhere around 4% marketing expense in our P&L is something that you could see here. It is important for you to remember also that we are moving into what we call these centers of excellence. We have -- in the corporate headquarters now we have centralized the experts…

Our next question comes from Alex Robarts with Citi.

I wanted to stick to Mexico, please, and just get your impression and read on how the Mexican consumer is and how is the industry in your territory as we think about it today but also in the near future. I mean, arguably we can see this quarter will probably be looked at as the turning point somehow. You've got back up to this double digit growth in your top line in Mexico, a step up versus the first half, clearly and arguably the best top line growth since fiscal reform began seven quarters ago. I mean, are we back? Is the -- do you feel like this is where -- this is the kind of growth rates that we should be seeing going forward as far as keeping a double digit top line outlook? Is it sustainable? And do you feel like the recovery now is fully complete? So, more of a kind of a big picture macro question, please.

Yes, I think that you are describing this correctly. I mean we have been with these reforms for a couple of years, and we have not seen the growths that were supposed to happen. And we were used to this starting a year with 3.5 GDP growth and then a year with 1.7 or something like that, after revisions and revisions of GDP growth. I think that the Mexican economy has still a lot of challenges, but we are at the same time seeing better macro news in terms of salaries, in terms of remittances, in terms of how some other industries are growing. We are seeing some results from like Walmex same store sales numbers being good, and Liverpool and things like that. We have different areas or different Mexicos. I have expressed my concern with some of the areas like the southeast, where we are improving a lot security issues, but we are still having some issues like in the State of Durango and the whole Acapulco franchise where we are seeing a lot of turmoil, social turmoil that is making life not very easy for us to work in those specific areas. When you look at the number of events from something -- a warehouse to robbing a truck or something like that, the number is coming down importantly, but it's still there. It's hard. So, that's what I'd like basically to say, Alex, is that within Mexico you have regions that are having different kind of growth because of the macroeconomic -- the microeconomic environment or the macro environment in this specific area. I think that in our business plan processes for next year we are pushing back on the operators, because you will always -- for the operators they present a nice budget but they always like to keep like a safety net there to cover potential noise in the future. But, the pushback has to do precisely to what you are saying. It's we are expecting and we are reviewing GDP growth for Mexico to the upside for 2016. We use basically different economies in the different countries where we operate. And the first number that we got for 2016 says the GDP was somewhere around 1.7%, 1.8%. And we are increasing the number of economies, but the economies that we are using are increasing that number. And certainly, we feel confident that the numbers are improving in Mexico to start seeing a better performance in the consumer staples segment.

I mean, I guess that's pretty clear. But, the split between price and volume, I mean, do you feel in Mexico that it should continue to skew in the next, let's say, few quarters toward price, I mean, or do you think that volumes have a chance to get back up into mid single digit if we think about Mexico over the next quarter or two?

My expectation is that we will see better performance volume wise because of what I described, the price gaps that we have, unless we have some additional movements with the FX. But, we are not seeing that right now. We will -- my expectation is that we will have better performance volume wise than price wise and, again, trying to maintain prices with inflation, Alex.

I guess, look, the second and last question relates to margin in the comparable South American division. When I kind of see the leverage that you got in the operative cash flow margin, it seemed like you said earlier that in Brazil it was flattish margins. I wasn't quite sure about your comment about Colombia, but Argentina seemed to have really an important step up in profitability. And I'm not sure if it's safe to conclude that that was kind of the major profit or the main profit driver of South America ex-Venezuela. If that is the case, was it, is it some -- has there been some changes as far as how you've gone to approach OpEx or on the cost structure? I mean, if you could talk to that margin expansion in the ex-Venezuela South American division, how much -- was this really from margin TM, that'd be very helpful. Thank you.

Yes, Alex. This quarter basically we have the EBITDA margin in Brazil after a lot of work, and I think the guys did a tremendous job because of the very difficult macro environment they were able to improve the margin by 10 basis points basically in Brazil. Colombia was kind of flattish, slightly below, mainly because we were -- last year we were still investing very heavily on what we call Plan Colombia. It was a plan that we had for three years that we are still working with that plan but not as heavy as we were doing last year. And I think that we have very positive results in Colombia. We have, as I mentioned, 12 quarters of positive growth in volumes. Basically from 2012 to 2015 we have been growing at higher than 6% on a CAGR basis in Colombia. That was the main objective of the Colombian plan, to increase per capita consumption in Colombia. Remember we lowered prices to increase per capita, and we started to get traction on the volume. This specific quarter, I think that the good news in Colombia is that top line was growing volume and prices, and that was holding on very well. The difficult part is that last year, because of the Plan Colombia, a lot of the marketing expenses that we were expending that year were also supported by the Coca Cola Company with some extraordinary expenses that we don't have this year some extraordinary support on marketing that we have with the Coca Cola Company as we worked together looking for this Plan Colombia. So, this year it's a more normalized marketing expense level, but it's higher than what we had last year. And basically the third quarter of last year was the end of that extraordinary support from the Coca Cola Company. So, in the fourth quarter we will not have this difficult comparison. And then, excluding Venezuela obviously, as you said, Argentina had very good performance, because we were able to increase prices in a high single digit number and we were able to increase excuse me, to increase volume in a high single digit number, and we were able to increase prices also. So, that gave us very well very high top line growth. That should come down on the way to EBITDA in Argentina. Okay?

But, if I'm doing my math right sorry. I'm sorry, go ahead.

So, going forward, what I think is as I was mentioning, I see a difficult environment in Brazil, but also maintaining margins and trying to improve, as I think that with an extraordinary effort we were able to do it this quarter. I think that we will have improving margins in Colombia. And depending on how the adjustments in the Argentine economy are done with the new administration, the objective in Argentina is to continue with the margins that we have. Maybe we will see the margin expansion that we are seeing this year in Argentina because, again, there could be the foreign exchange or whatever, that will have an impact on raw materials. But, the objective is to maintain margins that we have in Argentina, I mean, reaching the 22% what we call decency, being in the 30% EBITDA margin.

For sure, and a 20% margin in Argentina is very impressive. But, I mean, if we think about 120 basis points of comparative margin expansion, right, with flat margins in Brazil and Colombia, then there was a massive expansion, right, in Argentina. And I guess what you're saying is that it really was it was top line driven in Argentina as opposed to any changes in the dynamics of cost and OpEx. I mean, is that a fair way of concluding that?

Well, I'll say that it had to a lot with top line because, for example I mean, I'll give you some figures. Last year our market share in Paraguay was around 18%. Now we have 30% market share. That obviously implies a massive grow in volumes in that brand. We have very good volume in Aquarius and the flavored water products that we have there. Its price is growing like crazy in Argentina. So, we have tremendous top line growth, a lot of cost control, and we have a very large margin expansion in Argentina. It's close to 500 basis points expansion, from 15% to 20% in EBITDA margin expansion in Argentina. The challenge is managing categories to maintain that 20% that we call as the level of decency in our organization.

Our final question today comes from Antonio Gonzalez with Credit Suisse.

Hector two quick ones. The first one, on low calorie products in Mexico, can you give us any color on how much they are of the mix today? Have they increased or not since fiscal reform was implemented? How are you positioning pricing low calorie versus full calorie, and do you see an opportunity in case this reduction in the tax rate for Mexico for low calorie products materializes for the next year? And second question, dairy in Brazil. My understanding is that the Coca Cola Company, together with the bottlers, are entering the dairy segment in Brazil. Is there any comment that you can share there after the experiences you've seen in Panama and Mexico? And I guess bigger picture, how do you evaluate your presence in the dairy segment? Do you think you aspire to be number one, number two, number three player in this segment very long term as you are in all of the other segments that you participate, or that's not an aspiration in the medium to long term? Thanks so much.

In Mexico, if we take Coke Light and Coke Zero, the mix that we have is very similar to what we had last year. What's happened, you remember, is that we increased the price of Coca-Cola Light together with the calorie products because of the premium-ness that we'd like to preserve in Coca-Cola Light. So, Coca-Cola Light is not benefitted from not passing the effect of the taxes. And in this case it was not a tax. It was margin for us. But, the strategy was to maintain the premium level. And because of that Coca-Cola Light should not be priced below red Coca-Cola or regular Coca-Cola. Coke Zero we maintained with the prices before the tax, albeit the impact of the tax, and Coke Zero started to increase in the mix. But, after one year or year and a half, basically we are -- or basically two years, we are more or less at the same levels, very close to 3%, of our mix. The new tax that is being discussed in Congress and the Senate actually today basically calls for a reduction to 50% of the tax on those beverages that have 5 grams of sugar per 100 milliliters or less. So, just as a reminder, if you have no sugar, it's sugar tax. If you have -- even if you have one gram of sugar, you pay MXN1.00 per liter. So, the idea which I think goes -- bodes very well with the intention of the government is to promote the industry to start developing products that follow into that category of lowering the tax. Right now the only presentation that we have that will follow on this new tax structure, if that tax structure is approved in the Senate, is Coca-Cola Light, the green Coca-Cola that has the mix of sugar and stevia, which is less than -- I mean it's less than 0.5 percentage point of our mix. It's like 0.2%, so it's nothing. So, right now, even if we have this new tax, it will be totally neutral for us. I think that the positive news is that it will incentivize the industry, not only us but [Foreign Language] and the juice companies and everyone, to look for new formulations to be able to have products in that bracket of a lower tax. I think that a lot of this work is in the hands of the Coca-Cola Company. First we need to see if this new tax initiative passes. But, assuming that it goes on, the Coca-Cola Company, as you perfectly well know, is responsible for all the formulations. And I'm sure that they will immediately start looking at a way of bringing to the consumer a product that has a lower calorie content and obviously lower taxes. The following question in Brazil is they...

Sorry to interrupt.

Yes.

Coke Light is how much of the mix, Hector?

Coke Light the new formula, the one that is green -- Coca-Cola Light and Coca-Cola Silver, it's probably around 3% of our mix, the two of them together. Coca-Cola Light, the green one, remember the one that was launched that has sugar and stevia, it's less than 0.5 percentage point. It's like 0.2% of our mix.

Right, and Zero and Light together are 3%, correct?

Yes.

Got it. Got it.

Well done.

Thanks.

Okay? Then it's in Brazil. Well, the experience we have in Panama that was the first contact that we have dairies. And remember that we did that three years ago. We said that it was also kind of a learning process for us. We learned that what we've done in Panama, even though we have a very important brand, the production facilities were so old and so complicated, so complex, that we have been struggling to bring this operation into profitability. This year we are finally getting to breakeven levels, so that's good news. We probably need to do some additional investments in capacity so that we have total efficiency in terms of launching new products and new categories. The hypothesis that we have is that, for us, the attractiveness of the dairy market has to do with the value-added dairies where we see some presentations that have very good profitability. And I'll give you an example. Santa Clara in Mexico selling ice cream is very profitable. Selling what we call flavored milk, like this chocolate flavor or strawberry flavored milk, is very profitable, even higher than selling soft drinks. So, when you have opportunities to grow those categories or those specific items, it's attractive. Obviously, to have the credentials on the milk -- the full milk category, dairy category, you also have to have fluid, the normal -- the common milk, which has a very low margin. And it's -- but we are learning little by little and, as we grow into more specialized milks like the 2% or skim milk and lactose-free, we are finding ways of finding niches where we see better profitability than, say, selling fresh flavor milk. In Brazil, and just to finalize, Mexico is growing, as you know, very importantly, 30%, 40% volume wise every quarter over their very-very small base. In Brazil, we have been obviously analyzing this also as attractively for the future, because when we look at where to find attractiveness in the industry versus our ability to win in the category because of our strength in the marketplace, there are segments where you say I am not interested in this, but there are segments that you see obviously a potential of your ability to win being important, and also having some good profitability in those categories. And certainly dairy and value-added dairies are there in the opportunities that we need to analyze. The Brazilian market is very-very fragmented, so I will not say that we are close to doing a transaction in Brazil. But, certainly we will be analyzing those possibilities together with the Coca-Cola Company and the rest of the bottlers. Again, it's very-very fragmented. You don't have huge players there in place, but it's there in the radar screens of every one of the bottlers in Brazil and the Coca-Cola Company in Brazil. And we certainly need to take a look at this opportunity.

That does complete our question-and-answer session. And I'd like to turn the call back over to Hector Trevino for any closing comments.

Thank you for your interest in Coca-Cola FEMSA. And as always, the team is available to answer any of your remaining questions or any clarification. Thank you.

This does conclude today's conference. We appreciate your participation.