Good morning, everyone, and welcome to the Coca-Cola FEMSA's Fourth Quarter 2016 Conference Call. As a reminder, today's conference is being recorded. [Operator Instructions] . During the conference call, management may discuss certain forward-looking statements concerning Coca-Cola FEMSA's future performance and should be considered as a 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 good afternoon, and thank you for joining us to discuss our Fourth Quarter 2016 results. In the fourth quarter of 2016, we continue to deliver solid top line results, supported by our price flexibility, our point-of-sale execution and market share gains across most of our countries. Our transactions continue to outperform our volumes in Mexico despite of a difficult comparable with the previous year. This performance was offset by a contraction in transactions and volumes in South America, driven by a difficult consumer and macroeconomic environment. However, we were able to increase our average price per unit case ahead of inflation in most of our markets, achieving higher revenues versus previous year. Additionally, our hedging strategies let us mitigate pressures coming from currency volatility and increasing raw material prices, mainly sugar. For the quarter, our consolidated reported revenues increased more than 20% and operating income increased 7.8%. These figures include 1 month of the recently acquired territory of Vonpar in Brazil. During the same period, the consolidated comparable revenues rose 3.7%, driven mainly by price increases in Mexico and Argentina, while the comparable operating income declined…

[Operator Instructions] And we'll take our first question from Lauren Torres with UBS.

Héctor, I know on many occasions, we keep hearing about this pricing flexibility and just curious as you're thinking about your markets. For 2017, it seems like a lot of the macro and currency headwinds are still working against you. So is this still kind of like your biggest lever to pull, I guess? I mean, is there room for, again, pricing above inflation? I assume, if you hold market share, you'll withstand some volume losses. I'm just trying to get the volume price mix algorithm right for this year, because it looks like -- so we are heading into another challenging year in several markets. So how do you think about using that pricing option as kind of really -- kind of keep you whole and to keep margins as whole as possible? Héctor Treviño Gutiérrez: Yes. I think that we have said in previous conference calls, the pricing, it's a very important lever. It's not the only lever that we will use going forward in terms of trying to continue to deliver value to our shareholders. But as I have mentioned, I believe that this time around, probably for the last 2 or 3 quarters -- and we have mentioned this on those conference calls -- we have had an aligning with the Coca-Cola Company that volume is important, but it's more important -- the value equation and pricing also plays a very important role. In other words the Coca-Cola Company is aligned with our view that we should use the pricing lever also to try to get a better profitability out of this equation. And we are starting to have dialogues of [indiscernible] of the category, et cetera. That is why you see this movement to smaller SKUs, higher prices, et cetera. In every operation, and I…

Great. That's very clear. If I could sneak in one other question, Héctor. The Coca-Cola company keeps updating us on moving forward quickly with the refranchising. So I'm not sure if there is much you could say or will say at this point, but any update on your front with respect to U.S. interests? Héctor Treviño Gutiérrez: Yes. Well, as most of you know, we're always looking for acquisition opportunities, I'll say it's part of the DNA of Coca-Cola FEMSA. As I mentioned, I guess, certainly in the previous conference calls and some of the meetings that I have had with some of you, the Coca-Cola Company has mentioned and has basically presented a plan to us that is divided in 3 stages. The first stage is to fully understand how the Coke U.S. system operates, with respect basically to borrowing and coordination with the rest of the bottlers. The second stage is basically to -- for us to perform evaluation process and try to reach an agreement and sign, what, a nonbinding letter of intent. And then we would reach that agreement, start the first stage, which is perform a due diligence and prepare final recommendation and close. The Coca-Cola Company has explained that they would like to finish that third stage by the end of this year. But we're still in the second stage with this process. That's a big moment and basically, we don't have nothing additional to share at this point in time.

And moving on we'll take our next question from Antonio Gonzalez with Crédit Suisse.

Just have two quick ones on Brazil; the first is, apologies if I missed this during the prepared remarks, can you give us a little bit more color on what was the organic volume trend in Brazil excluding the Vonpar acquisition? And how do you see volumes progressing in Brazil throughout the rest of 2017? And secondly, I don't know if you will be -- I understand, if you are not able to comment a lot at this point, but after the consolidation in the beer industry in Brazil, Heineken and Kirin just announced, I understand that they are still figuring out how they will reshuffle distribution, et cetera. But I just wanted to see if you can comment on what the capacity that you would have eventually to absorb incremental beer volumes, if that's a solution that Heineken brings to the table? Do you just have the physical capacity to distribute more beer? And can you just remind us, big picture, what are the margins that you are making in that distribution business and whether you would be keen on increasing your exposure to beer in Brazil at the moment? Héctor Treviño Gutiérrez: Antonia, let me start with Brazil. When you exclude this month of Vonpar, basically, volumes for the quarter declined around 18% in Brazil. It was very tough quarter. For the full year, we have seen a decline around 9% on an apples-to-apples basis without Vonpar. And start -- the first part of the year, we are seeing still negative volume for a much lower number, probably in the mid-single-digit decline as opposed to the very high double-digit that was in the quarter. My perspective in Brazil is that we'll have and I have experienced that and I continue to believe in this thesis, is that we'll…

And moving on we'll take our next question from Luca Cipiccia with Goldman Sachs.

I wanted to follow up on Brazil, not to sort of overstress that market. But I'm curious, the level of tolerance on this volume decline because as you mentioned earlier, it was 18% in the quarter, but at the same time, you are seem to be willing to do pricing well above inflation, inflation has been moving back could be maybe a time to recuperate volume. So let's say, going forward, how much are you, how much -- how advanced are you in the level of pricing that you think you should have? And how should we model this gap between volume and prices? Is this really been a step change in how willing you may be to do pricing and tolerate even this large sort of volume declines? Also considering how you are thinking about scaling the operations, you have the integration of Vonpar. You've been since the long-term, I guess, set up for Brazil, maybe more consolidation to come. So just maybe for us, contextualize this double-digit volume decline. I would assume some of that is expectable given the price increases that you've been doing. So just maybe some direction on that part will be helpful? Héctor Treviño Gutiérrez: Luca, yes. I think that -- I mean, again, if -- as I mentioned in the first question it's a difficult balance that we do together with our operators locally and we receive a lot of feedback. We check up also a lot with the Coca-Cola Company [indiscernible] fact that we have done a big push for returnables in Brazil have helped us to sustain this pricing activities that we have seen in Brazil. I agree with you. Inflation is coming down very fast. Our expectation is that we would continue to increase prices ahead -- slightly above inflation…

How much do you think -- how much do you think the breadth of the portfolio in Brazil could also sort of amplifies these volume swings. In other words, you think if your portfolio was wider in the current consumer environment you may have been able to sort of compensate a bit better between still, sparkling, other categories. Maybe -- and how should we think about that going forward for Brazil specifically? Héctor Treviño Gutiérrez: No. I think that we have a wide enough portfolio now that, I mean, basically for the last year, 1.5 years since we started to push for the [indiscernible] presentation. We do not have a strategic launchings of different sizes or different flavors. I mean, there are the normal activities that we have. I think that this 18% reduction in volumes is basically a reflection of the difficult environment that the consumer is facing in this territories. As a matter of fact, when we read the market share numbers that we did in Brazil, we are basically increasing in every category, every single category that we have except in the sport drinks. The rest of the categories, we're increasing market share which signals to us that it is more macroeconomic environment, a consumer that is hurt kind of situations rather than us being affected because of lack of portfolio opportunities.

[Operator Instructions] And we'll take our next question from Carlos Laboy with HSBC.

Héctor, what proportion of your Brazil earnings might be beer now? And does the language of the beer agreement hold any risk for you that Heineken could take all of its beer brands away when that distribution agreement expires? Or is there some kind of a renewal option that's up to you? Héctor Treviño Gutiérrez: Carlos, a big -- a proportion of the earnings sometimes is kind of difficult to estimate because you have to assume some fixed cost absorption. But on a marginal basis, assuming that you cannot construct [ph] any other cost structure of -- or assuming that beer is totally marginal, let's put it that way, it will represent between 12% to 15% of our earnings. In theory, if we were not to have that beer operation, we could reduce some of our expenses on the fixed costs structure. Now, you can adjust that or start to -- and you would not need to change the structure if you are delivering -- if you are not delivering the [indiscernible] approach. The agreement that we have has an [indiscernible] that works both ways and for us until 2020. In theory, each of the 2 parties can cancel that agreement and we need the 2 parties to agree to renew the agreement. It's not totally on our hands. I think that the conversations that we are having with Heineken and as I mentioned, the Coca-Cola Company are moving that direction. And then as I mentioned, we believe that is good for the 3 parties, the Coca-Cola Company, for us and for Heineken. I think, again that the popularity or the way we execute in the marketplace on the REITs that we have in so many stores is also good for Heineken. I think that it would be difficult to replicate for them, but for that certainly is an alternative that they can also explore. I think that these negotiations [indiscernible] is going to be important to shape up the relationship with Heineken in the future. So I hope that we can reach an agreement on this one.

Also on the execution side in Brazil, Héctor, could you expect -- could you comment on your execution scores, on your price compliance scores? Looks like there were some big improvements there in Brazil, specifically. Héctor Treviño Gutiérrez: Yes. Execution: It's a very important focus of our strategy in Brazil. At some point in time, we were at the very bottom of the table of the scores that the Coca-Cola Company reviews with all the bottlers or the information we shares with all of the bottlers in terms of execution. And we have improved significantly the latest that we have is that we are now the second bottler with those scores that are mentioned by the Coca-Cola Company. And just to clarify, Carlos, in this -- when I was referring to the beer importance, we think the Brazil operation, when I was saying somewhere between 12% to 15%, I'm referring to the fee that we receive compared to our revenues. The profitability should be lower than that. Let me do some analysis on that and I'll get back to you.

And moving on, we'll take our next question from Alex Robarts with Citigroup.

Sorry to go back to Brazil, but I do have one more on Brazil and then a second question on Columbia. So I appreciate the transparency around the volumes in the fourth quarter and the comments that you're making about recovery this year and how you see it. But I guess, I'd be interested to know 2016 was probably a multi-decade-trough-year for not just the category but frankly, for other fast moving consumer goods companies. When you think about what happened during the year in terms of your channel mix, I'd be interested to know kind of modern versus traditional. We've seen a big growth right, in the cash and carry. To the extent that that's shifted during the year, could you comment as to what is your split kind of at -- what was your split at year-end, traditional versus modern channel in Brazil and how that changed in the course of the year? And when we think about this year, can you perhaps, work at that channel mix to help the margin recovery in the second half? In other words, is your view that the second half will be better namely a comp -- an easier comp rationale or are there some other things that you think can happen in the second half that get the volumes and the category back on track to a growth path. So that's the first question. Héctor Treviño Gutiérrez: Alex, if I understood your question correctly, let me answer about Brazil. Channels, we have seen an increase in the so-called atacados [ph] and the modern trades. And clearly, this is a reflection of the consumer trying to look for against more affordable options for the shopping activity. That has hurt a little bit the margin or the pricing [indiscernible] the margin of…

Okay, yes. I mean, if you can't care the actual split in Brazil between modern and the traditional channel, would it be fair that there was, in fact, a channel mix shift? And that in the course of the year, the modern channel gained in the channel mix, is that fair? Héctor Treviño Gutiérrez: Yes. More or less, the recollections I have on this and it's very close to real, I'm sure, it's somewhere around 64%, 36%. 64% in the traditional and 36% in modern. So basically 2/3 and 1/3. And what I don't remember exactly is where we were a couple of years ago when modern trade was lower. So both streams have increased, it's important. But let me do some research on this and I'll get back to you. But the picture that we have at end of the year is more or less 2/3 traditional trade and 1/3 modern trade.

And moving on, we'll take our next question from Pedro Leduc with JP Morgan and Chase.

We're changing countries a bit, Argentina and Colombia and also weak volumes at the end of the year, but would like to hear your thoughts on how you envision this '17, especially in Argentina. It seems to be some more elevated hopes and then Columbia, if they need more pricing there and if you think it's more accommodated by now, even though there's tax increase in these countries. So just your outlook for these 2 countries and how you're seeing the year start over there, that would be great. Héctor Treviño Gutiérrez: Pedro, let me start with Columbia. Columbia, we are seeing, given this increase in the value-added tax that we're seeing, we are starting the year kind of on a slow note, but with a very tough comp because the first quarter of last year was very good in terms of volume. But in addition to that tough comparison, we have the feature of the tax. I think that financially, we are better prepared in Columbia because we increased prices importantly towards the end of the year. As I mentioned in one of the questions, we were increasing close to 3x the level of inflation that we have in Columbia around the full year. But still, we are at lower pricing in real-time versus before we start in the so-called plan Columbia where prices were reduced in the price war with our competitors. So I'm seeing that a more benign environment with respect to pricing but the volumes in our expectation will grow low single-digits for the year. And on the profitability front, it's important to understand that Columbia has been confronting some one-time effects of charges in 2016. There was an issue where a judicial process that was started even before we acquired Panamco, that was lost in…

Okay. That's very helpful. And still in Argentina, the salary increases you mentioned were for yourself or that you're seeing in the overall market? Just for us to get a sense on how margins will fare. Héctor Treviño Gutiérrez: No. I was referring to overall market, but our salary increases were pretty much in line with the overall market.

And moving on, we'll take our next question from Luis Miranda with Santander.

A question changing now to the Philippines. You mentioned the 2% growth and pricing below inflation. I thought you could give us some color in terms of the profitability during the year. And what could we expect in terms of -- what should we expect in the strategy and profitability in the Philippines in 2017? Héctor Treviño Gutiérrez: Luis, in the Philippines, we are following the strategy of trying to maintain prices. We have low inflation economics. I mean, it's basically around 5%. So we are with this idea that we would like to see better consumption patterns still the per capita are very, very low. So we are maintaining prices in nominal terms. That basically means that we are having some reductions in [indiscernible]. We are changing some of the packaging sizes for us to maintain some price points but reduce the size of the package. For example in this Mismo which started at 300-milliliter PET one way presentation. In some areas, we are having in 250-milliliter PET presentation as opposed to the 300 and maintaining the price, the same price that we have in the 300. So all-in-all, at the end of the day, if prices in the Philippines have been slightly below inflation and assume a strategy to try to increase per capita and then later on, moving the prices. Remember that we have 2 very strong competitors and the market is basically divided in 3 equal parts. We have been gaining share in some of the areas so we feel comfortable with our strategy. At the end of the day, we feel we are improving substantially in profitability from negative operating income levels that we have when we acquired to positive numbers. But still, those numbers compared to the rest of the operations. We will start seeing those numbers as we start to consolidate Philippines in February. But in general, the number that we have for 2016 was a low single-digit EBIT margin, basically around 3%. We are seeing improvements in that but maybe increasing 100 basis points or 150 basis points for next year. So in Philippines, it's a story of a very important sizeable market. We sell close to 580 million unit cases, 570 million unit cases for last year. So it's an important market in terms of size, with very poor consumers where prices are low, per capitas are low. And the strategy is to foster consumption per capita and start bringing some pricing ability in the future, not at this moment. We need to first work on this per capita. And so clearly in the direction our operators have there is to start looking for opportunities to continue to impact very low margin that we have in that operation. Okay?

And moving on, we'll take our last question from José Yordán with Deutsche Bank. José Yordán: Quick question on Venezuela, right. We had been talking about 170 million unit cases for the year, and that fell short by almost 20 million obviously, with a 40% EBITDA margin, you could almost say, who cares, if there was that shortfall? But I guess, I would just want some color as to what your operating plan is for Venezuela for this year. How many cases can you sell of non-sugar product, if there's going to be any change in the supply of sugar to allow you to start ramping up regular product, again? And I guess, while this is not necessarily up to you, how long do you think this margin can continue? I assume that as long as the currency, the FX rate doesn't change and inflation keeps going at 100-plus a year, the dollar price of the product can continue to grow significantly. But just any color on how you see Venezuela unfolding this year, although, I know it's a difficult -- very difficult projection to make. Héctor Treviño Gutiérrez: Let me give you flavor in Venezuela. Venezuela is a market that as you say, we were selling close to 240 million unit cases in the past. We were assuring for somewhere around 170 million, we reached basically 143 million. We are seeing volumes still declining. The name of the game in Venezuela for us is how to survive with the operations that we have, try to maintain the optionality that we have in this operation. At the end of the day, it's a market that we think that loves the brand, but the consumer is very, very poor now. Prices of everything has been increasing substantially. You can argue that…

And that concludes today's question-and-answer session. Mr. Treviño, at this time, I would turn the conference back over to you for any additional or closing remarks. Héctor Treviño Gutiérrez: Well, thank you, everyone, for doing this with Coca-Cola FEMSA. And as always, our team and myself are available to whenever you visit Mexico or to answer any questions or remaining questions you may have. Thank you.

Once again, this does conclude today's conference. Thank you for your participation. You may now disconnect.