Good morning everyone and welcome to Coca-Cola FEMSA's First Quarter 2019 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. John Santa Maria, Chief Executive Officer of FEMSA Coca-Cola.

Thank you. Good morning everyone and thank you for joining us to discuss our first quarter 2019 results. Constantino Spas, our CFO; and Maria Dyla our Director of Corporate Investor Relations are with us here today. I'm pleased with our company's positive results to start the year despite currency volatility and uncertain economic conditions that affected our financial performance. In New Mexico and Central America, we reported healthy top and bottom-line growth as we continue to leverage on our state-of-the-art analytics capability. Our South America division's performance was driven mainly by a 9.1% volume growth in Brazil where we continue to gain share across categories, thanks to our robust portfolio and relentless point-of-sale execution. To protect our profitability, we continue implementing mitigation actions to navigate very complicated situations in Colombia and Argentina as well. We recorded topline growth of close to 5% for the first quarter of 2019 while our comparable revenues grew 10%. This growth was driven by prices ahead of inflation in most of our operations, excellent revenue management, and very agile and compelling point-of-sale execution. However, these positive factors were partially offset by unfavorable currency translation effects from all of our operating currencies, which represented the largest headwind of the quarter to our financial statement. Our operating income declined slightly less than 1%, 0.9%, while our comparable operating income increased by more than 9%. Our recorded operating income decline was driven mainly by higher PET prices, higher concentrate costs, and operating expenses and the depreciation in most of our operating currencies as it applies to our U.S. dollar-denominated raw material cost which was partially offset by sugar sweetener saving primarily in Mexico. Our operating cash grew 4.6%, while our comparable operating cash flows increased by more than 11% year-on-year. Consequently, our controlling net income increased by more…

Good morning. Let me begin by saying that the comparability of our financial and operating results for the first quarter of 2019 as compared to the same period of 2018 was affected by four main factors. Number one, volumes and financial results of our recently acquired territories in Guatemala and Uruguay were consolidated as of May 1 and July 1, 2018 respectively. On December 15, 2018, we completed the sale of our Philippines operation. Therefore according to IFRS 5, the Philippines operations is presented as a discontinued operation as of January 1, 2018. In a consolidated financial statement, we re-present it. Consequently, the company's consolidated financial results were not comparable to a consolidated financial statement published in the first quarter of 2018. Third, as of July 1, 2018, our Argentina operation was reported as a hyperinflationary subsidiary. This means that we have to re-express the results of any given month in real term through the end of the reporting period. Thus, the results of our Argentina operation in January and February re-expressed in real terms as of March 31. Also, we have to use the end-of-period exchange rate to translate the reported results of our Argentina operations to Mexican pesos. Fourth, starting January 1, 2019, we adopted the new standard of IFRS 16 leases which introduces a unique accounting lease model for tenants. The main impacts of the new standard are derived from the recognition of lease arrangement as rights of use and liability to make such statement. In addition, the linear operating lease expense is replaced by depreciation expense for the right to use the asset and an interest expense for the lease liability that will be recognized at present value. The Mexico, Brazil and Colombia operations are the most significantly affected by our adoption of the new standard.…

Thanks, Constantino. Finally, 2019 is a year with challenges and opportunities ahead. From Mexico to Brazil and Argentina we face different economic and social environments that encourage us to look beyond each day to adjust our portfolio, explore new categories and identify new packages to satisfy our consumers and clients needs. After this quarter's results, we feel positive to see how we started encouraged about what we can do for the rest of the year. We are clearly focused on our strategic vision of becoming a total global beverage leader while delivering sustainable and profitable growth and expansion. We continue concentrating on our three objectives of growing our sparkling category and looking to improving the profitability of our still beverage category and our water category, increasing the efficiency of our operating models and reinvesting these efficiencies in stages to enable a sustainable -- to enable the sustained profitable growth of our business. Thank you for your continued trust and support. Operator, we'd like to open up the call for questions now.

[Operator Instructions] We'll take our first question from Fernando Ferreira of Bank of America.

Hi. Good morning, everyone and thanks for taking my question. I have two if I may. My first question is related to Brazil. And you reported an outstanding volume growth. So I was wondering if you can comment on your outlook on consumption in the country? And also I know it's the first quarter of the year, but does these result changes in some way your volume outlook for the year? And what should we expect for in this case for the remaining of the year? That's my first question. And the second one is related to innovation. Coca-Cola Company mentions several times the word innovation on its conference call. So given this new approach how do you expect this to -- in your case how do you expect this to evolve maybe in the next five years? And if you can give us an idea of how much new launches represent of your sales and if there is any significant difference by country. Thank you so much.

Hi, Fernando. Thanks for your questions. This is Constantino. In Brazil, as you mentioned, we're very encouraged by the results that we have seen. The positive performance is mainly driven by our relentless focus on point-of-sale execution. Our analytical capabilities in Brazil in order to segment the market and provide targeted initiatives in Brazil by point of sale continue to improve and we're starting to see the impact of that. At the same time, as we mentioned, we have done a pretty -- we believe we have done a very good job at redefining our portfolio both on CSDs and NCBs. As we mentioned in our last call last year we launched about 100 SKUs in Brazil and this is starting to pay-off in the market. And at the same time within our CSD category, we have developed a very strong affordability initiatives in the portfolio that are allowing us to capture consumption from the market. So we expect and continue that to be present during 2019. Good weather has also been a favorable element in our beginning of the year. And our expectation is that although this is very difficult to predict if weather should continue to be benign in the upcoming months that would be a positive element going forward. But to summarize, I think, it's a matter of much improved execution in the points of sale and at service levels adding customers on one hand; and on the other hand, we have developed a very strong portfolio that's suited for Brazilian dynamics. At the same time, we do not ignore the fact that there is optimism in Brazil right now and that consumption overall is starting to improve in different categories. So that is definitely something of great value for us now going forward. On the innovation…

No. I think you ask Fernando there were some targets that we had for innovation going forward. I don't think, we're -- we have a number yet, but we do see increased innovation coming from the Coca-Cola Company at an accelerated basis. Those are encouraging to us, and something that we're rolling -- we're trying to roll very fast with the Coca-Cola Company. A couple of things that Constantino, I would add to Constantino's comments. The fact that we continue to progress very fast through the integration of AdeS, the translation of Unilever to the Coca-Cola system and we're starting to leverage up with the AdeS and the Ciel plant category across not only where we have operations, but exporting it as well into Central America and place where the brands that weren't available before. And we're starting to see that now in Colombia and Costa Rica and we're starting to use those brands and starting to build those brands as we go forward. So I think on that category, there is a lot of work to be done and a lot of upside, especially since we have an upside from dairy in that area as a source of volume, regulation for us. And I think again, going forward one thing that is hard to quantify at this point and something that we're beginning to discuss with the Coca-Cola Company is what do we with coffee and now we entry into Costa in terms of having to go out there and play that out through Latin America. So those are very preliminary discussions of the things that we did in the last -- in the next four years, five years as we discussed.

Okay. Thanks so much for your answers.

Thank you Fernando.

Thank you Fernando.

[Operator Instructions] And Benjamin Theurer from Barclays.

Very good morning. And thank you for very much for taking my questions. Actually it's kind of related and a follow-up question on what Fernando was asking about Brazil. So in the last conference call if I remember right, you mentioned that the impact on the concentrate taxes in Brazil, you were quantifying them at roughly MXN400 million to MXN500 million. Now considering the healthy performance in terms of transaction volume in the first quarter, is that a number you will have to revise on the upside just because of such a significant volume growth particularly in the CSD categories, what I've seen? Or is it still somehow in the range and within your expectations? That will be my question.

Benjamin, very straightforward, it continues to be in the same range of our expectations. We're not revising that particular figure right now, but we continue to assess the impact as we move along during the year. And we continue to implement initiatives if necessary to adapt to a new situation and environment.

Okay. So just to understand. You basically booked that as part of costs right? And then as a result that's why gross profit is basically under pressure, correct? Just, my understand.

Yes. That's correct.

Okay. That's it. Well, congratulations on the rest of it. Thanks.

Thank you, Benjamin.

Our next question is from Luis Miranda with Santander.

Hi, Maria and John. Good morning. And thanks for taking my questions. Just -- it's regarding Mexico. And if you could give us some color, we saw fairly [indiscernible] to 10% price increase year-over-year. I was wondering how much is this benefit by the sales mix? And how is the performance of returnables? And the other one is out of these almost 2% volume decline, 1.9, can you give us some color how much could that be explained by the Easter holidays? Thanks very much.

Yes. Let me answer the second part of your question first. To be very clear, our volume performance in Mexico was impacted during March 7.4% in terms of contraction mainly by softer consumer environment. I mean, we're seeing that -- when you look at that figures and others retailers, we saw a softer March than what everyone expected. So I think that's the general element across consumption in the Mexican environment. Definitely, the calendar shift of Semana Santa Easter holidays was one important factor. And the price increases that we did at the beginning of the month would definitely affected our volumes. So it's a combination of those three factors that generated that contraction in March in our Mexican operation. However, I mean, we see that the consumer remains resilient looking for affordability. And we're placing a lot of emphasis on our affordability strategy in Mexico. So this connects with your first question. I mean, our CSD multi-serve returnables are growing 5.1% during the quarter versus previous year, which shows that the strategy at least in my point of view is addressing the elements that we want to address. And the focus for the rest of the year is to boost our single-serve presentations by driving strong initiatives in the upcoming months that will benefit our mix going forward. Does that answer your question Luis?

No, yes, that was very clear. Thank you.

And we'll hear from Scotiabank, we have Felipe Ucros.

Yes. Good morning, everyone, and thanks to the space for questions. I wanted to focus a little bit on Coca-Cola Sin Azúcar. You mentioned you had great performance, particularly in Brazil and Argentina this quarter. And obviously, it has become a more important element in the portfolio as time has gone by. So I was hoping you could give us a little more details on how important it is in terms of weight within the portfolio and within sales? How fast it's growing in the different regions? And maybe also give us an idea of how the profitability of the product compares to the rest of the portfolio? Because obviously you get rid of some of the sugar cost; but as I understand concentrate may also be more expensive in this product, and in some countries you may also get some benefits from reduced taxes. So maybe if you could discuss a little of -- about the balance of that equation? Thank you.

Thank you. Just to begin with the most macro element of your question, I mean Coca-Cola Sin Azúcar is still a very small part of our portfolio, mix although growing quite fast in almost all geographies as we mentioned. I think Brazil is the highlight of that growth right now. But if we look at our total non-caloric mix, it's around 5% of total colas. So it's still quite small in that regard. In terms of the drivers behind the growth of the particular brand that were talking about Coca-Cola Sin Azúcar, it's mainly driven by targeted initiatives in with the target groups, consumer target groups that we've identified as the main drivers of consumption in non-caloric categories. Also a significant data toolkit of initiatives and promotions at the point of sales that also is driving growth behind that. And some initiatives that are targeted to a company's food occasions in some of the markets. So that's -- it's a suite of solutions behind the Coca-Cola Sin Azúcar that are driving the growth. Regarding profitability, it depends a lot on the geography and the sweetener costs that we have in each of the market. As an example, in Brazil, sugar remains very competitive in terms of cost. So there's not really a significant advantage in profitability for Coca-Cola Sin Azúcar. However in other markets, where we have higher sweetener costs, it is. In Mexico, just to give you an idea, 2% of Coca-Cola Sin Azúcar is the mix. In Argentina, it's 15%. And in Brazil, it has grown all the way to 8%. So it varies across geographies. But we continue to be very optimistic around the growth of the brand, and the fact that the consumer is starting to appreciate our non-caloric solutions for our portfolio in the market.

Great. Thanks a lot.

Does that answer your question?

Yes, yes. Thanks a lot for the color.

Just let me add one last thing on it. I think in a lot of different markets, we're also putting in pricing and packaging alternatives to expand the brand. In some places we're going into returnable multi-serves, for example in Brazil, which we didn't have before. That's giving us a lot more boost in terms of where we are. But we're also putting together pricing and pack strategy that allows for a differential either in package or in price, in a lot of different markets to really drive trial and continue to drive trial. So we're seeing a very positive link between trial packaging and adoption of the brand going forward. So that's what's driving this in all different markets.

Our next call is with Lucas Ferreira of JPMorgan.

Hi, gentlemen. Thanks for the question. My first one is also on Brazil, wanted to ask you about the competitive environment. You mentioned great execution as being one of the main factors behind your market share expansion. I'm wondering how do you see the competitive environment in Brazil. As I mentioned before, on the consumer side, we're definitely seeing more optimism in the consumers that has been reflected in increased demand activity in many categories. And that is definitely a tailwind for us going forward in Brazil. On the cost side, we're not seeing -- I mean, we're seeing stable cost. Sugar prices in our key markets we believe will remain quite stable in the upcoming months for the rest of this year and the pressure that we have on PET should yield and we see more stable prices by the end of the year. So in that particular regarding COGS, we think we have a pretty stable outlook going forward unless any factor -- unexpected factor kicks in that we have not foreseen. I don't know John, if you want to comment on Brazil.

Look I think some of the things are very encouraging as we've seen consistent growth over many quarters and it's volume driven and transaction driven and we have a strong portfolio. And throughout that period of time and even during I think it was March that we took some -- beginning of this quarter or late March, we took some pricing and we continued to see continued volume momentum not affected by pricing. So the price realization that we're getting in Brazil is within the expectation of a recovering market and I think something that will continue. The question going forward is I think is not so much if we're going to take much more pricing. The issue is going to be can we maintain the volume growth. And I think some of the numbers that you're seeing and that we're just reporting, we'll probably see on the back end of the market as we lap high numbers continued growth, but at a declining rate. So I think the first half of the year is going to be exceptionally strong and then coming down to a more normalized level of growth. But very encouraging here is that the revenue line is a very solid revenue line and it looks like it's sustainable. And within the marketplace we're seeing less, less I would say deeper discounting than we've seen before. So that's also an encouraging sign.

Thank you very much.

And with Goldman Sachs, we'll hear from Luca Cipiccia.

Good morning. Thanks for taking my question. It's a follow-up I think you've partially already answered. But I was hoping you could explain the relative performance that maybe you are showing in Brazil compared to the rest of the system of Coca-Cola aggregate numbers. It seems quite visible and quite remarkable in this quarter, but also it's been a while. Maybe just the logic of that explains the gap or the fact that you are outpacing it seems to me from the numbers the rest of the system from a product perspective. And then same question smaller market. But if you can remind us why in Argentina instead it seems that whenever there is a significant sort of macro volatility, it multiply your results and your volume is greater; and comparatively your decline seems to be greater. Maybe if you could just share some comments on these two relative trends that would be great.

Sure, Luca. Thank you. I think a couple of things. First, in Brazil, we have -- in the sparkling segment, we have a very deep portfolio and we have a very, very large portfolio of returnables. And I think you can compare that versus other bottlers in Brazil we have a disproportionate amount of returnables than the rest of the Brazil players; and one that we continue to build on the multiserve side very aggressively. And like I said, we're looking not only to grow Coca-Cola rough pack, but also to get it into Coca-Cola Sin Azúcar. And so we're leading the pack on that. We're continuing to invest very aggressively on that. Second is on the noncarbonated side. We talked about this before. We had 100 launches last year. We re-redesigned our whole portfolio. And that's something that we've done as the leading bottler in Brazil. And I think the rest of the bottlers in the system are following that lead aggressively, but there's probably a timing gap difference there, but we have done that. There's other things that I think we're doing that are more endemic to Coca-Cola FEMSA. First, we're continuing -- I think first and what's very importantly is in cold drink equipment. Compared to the history in Brazil, the last three years in Brazil, we've been putting in very strong initiatives on cold drink and it's been playing out for us. So I think it's also just we ensure looking at the business that we're in. We'll continuing to go out and -- putting out more and more capabilities to execute in the marketplace along all the channels and upfront report. And the third piece is I think on the digital piece and that digital piece has many components, but the first piece is the…

Very clear. Thank you. Absolutely. Very clear, very informative. Thanks.

And we move to our next question that is Leandro Fontanesi with Bradesco.

Hi. Good morning. I have two questions, please. The first one is, I understand that Heineken has launched a new carbonated drink brand in Brazil, including colas and lemon and some flavors that might compete with some of your products today or in the future. So, if you could just share one of your thoughts -- some of your thoughts on that. And the second question, I know you commented about the IPI tax in Manaus, but just to be clear there was, if I'm not mistaken some ruling by the Supreme Court in Brazil today allowing these credits to be used by beverage companies. I don't know if that changes anything for you in this benefit going forward. If you could also provide some color on that? Thank you.

Thank you. I think the launch of a carbonated soft drink by Heineken or whomever at this point is something that we see continuously in the marketplace. This is -- either we do this -- we see this either because of whether it is a house brand by retailers or because there's -- it's just general affordability. This is something that Brazil is faced with new entrants that exists at low values and this is something for Brazil that is not new. So, I say -- when I looked at it and saw it's something that is I think recurring normal and something that -- I think they're probably doing the right thing for their portfolio, but it's not necessarily either I think something that we have a tremendous amount of concern about, but something we'll keep our eye on. And so I think it's something more than anything else to revitalize what they had in their portfolio already of their carbonated beverages. Secondly, I think -- you talked about the ruling on the credit and I think you're talking about the Nokia case. I think it looks very favorable. It's a very, very -- it's a landmark case and the impact that it will have for us is we're eliminating any past contingencies that may be out there. And going forward, I think the tax implications and the tax rules that are in place today are the ones that we're looking for and it just basically has the effect of -- but you won't see any potential contingent liabilities in Brazil. And I think in that sense we're looking at it and it is very favorable response.

Got it. Just a follow-up on that. Do you have an idea what will be the benefit around 2020 onwards, or is it still to be defined?

We are still …

The 4% …

… I mean, we need to understand the ruling more. It just happened a few hours ago, 24 hours ago, I think or less. So we need to understand it better with our team in order to provide an outlook and an interpretation for that going forward. So for now, I would say the status quo as we've stated in the past. I would not like to renounce myself in any -- on any forward outlook from that particular element until we have all the understanding of the implications of the ruling. So we can follow on that …

Thank you very much.

… later on or in the next call, if that's okay for you.

Sure. Thank you.

From UBS, we'll hear from Alan Alanis.

Thanks so much for taking question. Also regarding Brazil operations, you reported like a 5% in pesos. And if my numbers right and please correct me if they're not, this translates into like a 19% growth in revenues in Brazil. Well, first of all, congratulations for that. That's an amazing number. But I wanted to know given the numbers that you show on beer and in soft drinks it seems that beer grew much faster around 30% growth in revenue of beer and around 14% in revenues growth in soft drinks. So the question is, why are we seeing such a much faster growth in beer in Brazil relative to soft drinks?

Well, thank you for the question. As we said in the last call, I think, we need to be respectful of Heineken's trading update that they did recently a couple of days ago. I would not go beyond the explanations that they've given. As they stated in their trading update, the beer portfolio for Heineken has been growing double-digits across all Brazil and across their portfolio. We don't represent all Brazil and all of their portfolio, and we're pretty much in line with the growth figures. And what I would say is that we're seeing a very solid development and performance of the premium brands in the portfolio, in the case of the Heineken brand as well as also the mainstream proposal under the Amstel brand in Brazil. So I think the consumers are appreciating two very strong and solid brands in the portfolio that is performing well, that have been handled very well by the brand owners and that is an interesting dynamic that is occurring right now in the Brazilian market that's driving very good growth in that particular segment, which is translating also in important market share gains for them, but I would refer to the Heineken team to give you more details on that particular one. But, yes, you will see a very solid growth and performance behind the brand.

But anything from the categories themselves -- I mean because this is something that has been going on for years now that we've been seeing basically beer volumes performing better or declining less during the recession and now growing faster than soft drinks. Anything particular in the categories that we should be aware, irrespectively of this quarterly results?

I think it's -- as you mentioned, it's a sustained trend. I think that the -- in the particular case of beer, when you look at pure malt value propositions, they're being very well received by the consumer. And in the case of our portfolio, as I mentioned before, the Heineken brand and the Amstel brand are parts of that very strong consumer trend which is a particular dynamic within the beer category. We're fortunate enough to be playing in that space.

Got it.

John, do you want to elaborate on that a little more?

No, I think, again, I think, one of the things that we do see is, that we have a much broader consumer different -- in terms of different categories that we play in, definitely. It goes from water towards the tonics to juices so the day parts are different. There's a lot of different reasons to get into that. I do think when you start looking at this, is that there is a clear trend of gaining share in beer that we've been able to sustain over the last six quarters that continues within the premium segment, which makes it even much more revenue effective, if you want to look at it like that. And so, the number that you're talking about are correct, in terms of revenue growth. And when you start looking at where we're gaining share in beer, it is in the more premium segment than it is in the basic segment. But -- so that's driving the growth. And so, the consumer over there is shifting towards -- more and more towards the premium segment. And so, like, when we talk about, revenue is one thing, when we talk about transactions it's another thing. We've been looking at growing transactions in our base business; it grows very fast, okay. Also -- I mean, when you start looking at transactions growth over there, it's been significant. Again, and if you're comparing, it is a market leader that has dominant or very, very significant position like Coca-Cola, versus brands that have enough -- that have a lot of headwind for growth in their different dynamics.

Got it. Thank you. And a quick follow-up on another topic, just pure soft drinks. The question is, in terms of the pricing that you take, both in your -- and it's related to a question that I think Luca was asking before, but also now applied to Mexico. I mean is there a difference in the pricing actions that you take in Argentina relative to the rest of the system? And the same question for Mexico? I mean, in other words, is the change in performance of volumes relative to the rest of the system explained at all by a different pricing strategy, both in Mexico and in Argentina relative to the other bottlers?

Yes. I think it's a very accurate question and a very accurate observation, Alan. We have been much more aggressive in Argentina than other bottlers in terms of taking pricing.

Okay.

And we've been ahead of the curve on pricing than the rest of the bottlers. And so -- and for different dynamic reasons, because inflations are different and economics are different in different places. And secondly, in Mexico, we are also probably not in lockstep with rest of the bottlers. We are closer, but there is difference in timings and we're probably a little bit ahead.

Got it. That’s very useful, John. Thank you so much.

You're welcome.

From HSBC we'll hear from Carlos Laboy.

Thanks. Good morning everyone. The comparable growth algorithm for Mexico, Central America division of minus 2% volume, plus 7% revenue, plus 12 EBIT, it's impressive. How much of that revenue is revenue growth? How much of it is REIT? How much of it is mix? How much of it is different -- better management of trade discounts, would be one question? And then related to that, this -- it’s a sustained focused on price increases, which seems to be a break with historic philosophy in Atlanta, is this -- it is likely to go on for quite some time here. And how important is it, John, for you to have this strategy to meet your ROIC and your organic growth challenge?

Hey, Carlos, how are you? Listen, I have become very encouraged to see what we're doing on pricing. Yes, we are pricing up ahead of inflation. And we've done so over the last couple of years. Now that has and what we've seen so far has been pretty much price and rate, okay? And due to that fact we've been doing a lot of revenue growth management models. And -- but we're seeing -- because of the analytics that we have in place, being able to get better returns on our invested dollar at trade. So it's -- I think it's a little bit of more targeted pricing. Primarily, this year it's been more looking at multi-serves to make sure that we continue to make -- have relative pricing between a curve [ph] of packages that makes sense to the consumer. And I think -- and putting it in your term, its more rate than it would be mix. The second thing is, we've see enormous amount of progress where we've put out revenue growth management tools in terms of being able to lower discounts, okay, and become very effective in terms of managing discounts in the -- in both Mexico and Colombia. And that has been part of the driver also doing enough to realize higher pricing. But the focus going forward is necessarily going out there and just setting higher rate, we've really like to do from here and always looking at any office riving more on the issue of mix, okay? And focusing more on single-serve packages on a profitable basis and putting that together, as we go forward, and I think that's the next step that we have work on, as a team to able to continue to drive revenue growth. So, and I think there's…

That's very helpful. Thank you.

Yeah. Thank you.

We'll next hear from Alex Robarts with Citi.

Yeah. Hi. Good morning everybody. Thanks for taking my questions. So, it's really first about Colombia. And then second about non-carb. So you told us last quarter that, you've executed some restructuring measures in Colombia to respond to the VAT changes and such. And we see kind of a tough first quarter here with volumes down about 9% I guess? But can you give us an update on how the rightsizing of your footprint is going there specifically in response to these changes at the VAT? And maybe in the answer if you could give us a sense of how you've seen the competitive activity in the first quarter. I mean, I guess, this is the first time your main competitor postal bond is going to market with a beer. And I wonder if that's changing the dynamics at the points of sale and the receptivity of your products. So that's kind of the first question. And just the second one is really taking advantage of John being with us here on the call. You mentioned a few things around the non-carbonated beverage strategy as you think about it with new category concession. And I guess the question is this, and Atlanta has talked about reaching certain goals on the global Coke volume level as far as where they like to see non-carbs be and get to as a percentage of total volumes. The LatAm bottlers skew below that and there's, several structural reasons for that. But as you think about your non-carb strategy over the medium-term, how much is the nonorganic component really a piece of that? Or you're really just kind of thinking about it from an organic growth standpoint? You mentioned in the fall in New York when you were here that M&A is something that you look at in the non-carb space maybe even Brazil. Your balance sheet you have some debt capacity obviously from the Philippine proceeds. But so just wondering if you could comment on M&A and the non-carb outlook? Thanks very much.

Alex this is Constantino. I'll take your first question then refer to John. Having John here will be very important to answer your second question. In the case of Colombia as we mentioned, we are focused mainly Alex on five key pillars of the strategy. First pricing, we've done some important pricing in redefining our pricing architecture across our portfolio in order to mitigate some of the impacts that we're facing for the new environment. That's already in place. Secondly, very tight cost and expense control. As John mentioned, we have taken some very tough measures that is always very painful, in terms of reducing our headcounts in Colombia in order to right-size the organization and that's already in place. Third, we've done some very deep SKU rationalization and we continue to look at that. And that is also connected to our fourth element which is our restructuring and redefining of a route to market in Colombia. As you probably know, Colombia is really a mix of very different realities. It's not the same to operate in highly dense urban configurations like Bogota. There are many secondary and third and small cities in Colombia and what we're doing right now is redefining our route to market per type of market right now. We've done some important redefinitions for example in Cali and we're extremely optimistic with the results that we're seeing there. So behind that we have a very agnostic look at the way we deploy our route to market in Colombia. And that is allowing us to redefine the way we do it much more efficiently and effectively in the market. And at the end of the day this has been basically a very deep process of redefining and redeveloping our route to market and supply chain to improve our efficiency across the operation. So it's an ongoing process in that regard. But we're very optimistic of the results that we're seeing. In some of the things, we're experimenting some very innovative ways of going to market or in some cases, redeploying basic and fundamentals of this particular business that we have changed for other objectives. I mean it's important to call out that Colombia has very low drop sizes in the traditional channel and that requires being extremely efficient with the route to market. And our traditional way of going to some of these channels with a red truck is not necessarily the best way to serve them right now in this -- in a very adverse environment that we're facing. So it's a combination of those four different pillars that we're implementing right now. And as I mentioned, it's a continuous process and we hope to have more stability and clarity on this particular one in the upcoming month. By the end of this year, I think we'll have a fully embedded new business model in Colombia, adapted to the new environment. With that I'll flip it over to John for your second question.

I think just corresponding to the first question, we have had a big pending issue in delivering results in Colombia. There's no doubt about it. But I am also at the same time as we you speak about that we're very excited about where we are because we have an exceptional asset base. We have good bass and the only way we're going to get out of this is by growing. And I think, the fundamentals that I see on this team is just a go-forward approach and our execution is all starting to give results. I'm very optimistic that the solution in Colombia is going to be relatively fast, okay and also the level of collaboration that we have with the Coca-Cola Company in fantastic. So I think both of those issues are going to present in Colombia. On non-carbs, your question was, will we grow organically or not? I think first of all, we see a lot of opportunity to continue to rationalize our SKUs portfolio in non-carbs, focus on profitability, really start with focusing on what we would call our real gasoline type of SKUs, which are our fuel and continue to grow through innovation in [indiscernible] is one of these type of product, continue to look and explore and continue to do that organically. We have the balance sheet to be able to do any kind of organic -- inorganic acquisition at this point. Between the debt capacity and the equity capacity that we have, we're probably between -- we're closer over $5 billion worth of capacity. But I would say that those are really bolt-ons, okay and regional players more than kind of obviously that we'd look at, at this point in time. It only make sense, if we do it. And we're always looking…

Very helpful. Thanks a lot. That was very great. Thanks.

Thank you.

And it appears there are no further questions at this time. Mr. Santa Maria, I'd like to turn the conference back to you for any additional or closing remarks.

Well, I'd just like to thank everybody for accompanying us today and your interest in Coca-Cola FEMSA. And as always, our team is available to answer any of our remaining questions as we continue to plow through the information. And I think we're satisfied and I'm satisfied how this review started off and I'm very positive that the balance of the year that's good for us. So thank you very much for accompanying us and we'll be talking in a couple of more months.

This concludes today's conference. Thank you for your participation. You may now disconnect.