Good morning, everyone, and welcome to Coca-Cola FEMSA Second Quarter 2013 Earnings Conference Call. As a reminder, today's conference is being recorded. [Operator Instructions] During this conference call, management may discuss certain forward-looking statements concerning Coca-Cola FEMSA's future performance and should be considered as good faith estimates made by the company. These forward-looking statements reflect management's expectations and are based upon currently available data. Actual results may be subject to future events and uncertainties, which are 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 thank you for joining us today, as always. In the midst of continued currency volatility and a soft environment for consumers across many of our operations, our people employ their skills and knowledge to enforce our market trade execution and deploy our wide diverse portfolio to generate healthy currency neutral top and bottom line growth. Once again, our balanced geographic footprint built over the past decade yield positive results for our company and our shareholders. Although our reported results show relatively flat top line growth in our reporting currency, resulting from depreciation of the Mexican peso combined with the depreciation of the currencies in every other operation, our company delivered organic currency neutral revenue growth of 13%, together with a solid operating income margin expansion of 120 basis points. Our reported total revenues reached more than MXN 36 billion in the second quarter, including the non-comparable effect of 1 month of results from Grupo Fomento Queretano, which diverse operations was integrated into our Mexican franchise in May of last year, and 1 month of results from the recently merged Grupo Yoli, which bottling operations were integrated into…

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

Héctor, I was hoping you could talk a bit more about your short-term outlook for Mexico. I guess I'm just trying to bridge the gap. Comments by Arca yesterday seemed to be rather positive with respect to the consumer environment. They talked about the weakness being transitory, and they do expect to see a recovery in the second half. So can you just give us your impressions about how you think trends should look? And I guess another comment they made is they do think the environment is fine and they can take pricing in the third quarter in Mexico. So I know you operate in different parts of the country, but can you just talk about your outlook and how do you think things will progress as the rest of the year flows through? Héctor Treviño Gutiérrez: It's an important question and recognizing that we have difference in the territories, as you pointed out, let me give you some flavor for what we see going forward. First, I think that the pricing environment we are facing, in my opinion, a tougher, competitive environment. Pepsi-Cola has been aggressively pricing down some of their products. We are seeing price gaps that are as large -- or the largest we have ever seen versus Pepsi-Cola. So we -- our vision of the second half of the year is that we will continue our strategy to price according to inflation. It will be very difficult to go above inflation in this environment because, as I say, the price gaps that we are facing with -- especially with Pepsi, are as large as we have ever seen. I don't know if Pepsi-Cola will stay with those prices for a longer period of time. It's for them to determine that. But we'll continue, as we…

And we will take our next question from Antonio Gonzalez with Credit Suisse. Antonio Gonzalez - Crédit Suisse AG, Research Division: I just want to ask 2 quick questions. First, on the results that you account for under the equity method, you have a positive result this quarter. And I was just wondering whether the Philippines by itself is net income positive already? Or it's just a combination of the Philippines and Jugos del Valle and the rest of the subsidiaries that you consolidate here? And the second question is on D&A expenses. I think they were lower this quarter as a percentage of sales, and I think that's different from the trend we've been seeing the last year and the first quarter of 2013 as well. And I think that is particularly true for Mexico, that depreciation and amortization are lower as a percentage of sales relative to last year. Could you give us some color on that, please? Héctor Treviño Gutiérrez: Antonio, the first part of your question, on the equity method, because of the IFRS, now we are accounting that as part of the operating income, and the numbers you will see there is a combination of the Philippines, Jugos del Valle and some of the other JVs that we have like Matte Leao, et cetera. In the case of Mexico's Jugos del Valle and the Philippines, because remember that the Philippines is owned by Coca-Cola FEMSA, which is the holding company for everything since Coke FEMSA is based in Mexico, it consolidates its numbers with the Mexican operation. So that's the [indiscernible] party because of the Philippines and -- but again, because 51% is owned by Coke FEMSA, and Coke FEMSA is domiciled in Mexico, it consolidates under the Mexican and Central America subsidiary. So you…

And we will now go to Lore Serra with Morgan Stanley.

I guess I wanted to ask a question in Mexico, maybe 2 questions. One is that you've done a great job on the gross margin, and we see it come through really nicely, but the OpEx seems to be actually up slightly despite -- I guess, we thought that you would start to see some synergy gains from -- or the full effect of the synergy gains from all the acquisitions that you've made in Mexico. So could you give some flavor of kind of are you getting those synergy gains and they're just being offset by something else? And then I just wanted to ask, I mean, if we look at the first half of the year, you've got margin expansion of about 200 basis points. Do you think you can maintain that pace into the second half of the year? Or with your comments earlier about raw materials, would you expect that to be lower in the second half of the year? I guess part of that question depends on the first part of the question I just asked. So that would be really helpful, please. Héctor Treviño Gutiérrez: Yes. I think that -- in the first question from Lauren -- what I was trying to address is we are benefiting this first part of the year, the first half, the first 2 quarters, by lower raw material prices as we compare those prices to the first half of 2012. What we are seeing is that, assuming that prices stay stable, we will not have such a large gap versus last year because some of the prices of the raw materials started to decline in the third and fourth quarter of last year. So on that front, we'll continue to see some improvements versus last year but not a large expansion on the margin. On the first part of your question, we are starting to see some of the onetime expenses related to Yoli. Remember that we started to integrate Yoli in June. And similar to what we did with the other franchises, we bought through a period where we start to have some onetime expenses, mainly capital restructure, labor restructuring and facility restructure. We still have some of the last onetime expenses related to FOQUE, and that -- my expectation is that as we continue with that, we will see a better trend on those line items. But that's basically the effect of what I wanted to share with you. The environment for raw materials is not going to be as benign the second part of the year. That's our expectation. We still have a nice comparison. And then as we finish up with some of these integration processes, we should be -- have the full impact of the synergies of these franchises.

Sorry, but I thought -- if I remember correctly, you had restructuring expenses last year as well in the second quarter. Right? So are the expenses higher than they were in the second quarter in terms of restructuring expenses? Or maybe just to ask another way, do you strip out restructuring? How -- are the operating expenses falling as a percentage of sales? Héctor Treviño Gutiérrez: What I was referring, Lore, we had last year, we have this year. This year is lower than last year. We have a few more marketing expenses as we are -- as mentioning -- as I mentioned in my speech, investing the [indiscernible] of our approach. So speaking about Mexico especially, the margin and expenses have increased versus last year, and this is part of all the campaign and part of the reaction to the competition environment that I've described with Pepsi-Cola, et cetera, and that is what is accounting for some of these. As I -- what I was saying is, when you look at some of the indicators in terms of headcount, in terms of salaries as percentage of revenue, et cetera, once you take out all these more than you -- extrodinary expenses, not in the sense that they are not present every year, but we think there are more under the control of the managers, all of those in every country. We have efficiencies to report. We have some additional marketing expenses. Sometimes we have some additional restructuring expenses, although I have to grant that this year restructuring expenses are lower than what we had last year.

And we will now go to Alan Alanis with JPMorgan. Alan Alanis - JP Morgan Chase & Co, Research Division: I have a few questions, the first one is more of an accounting technical question and I think it expands on what Antonio asked before. So if I'm understanding correctly, you own 51% of the Philippines, but you do not consolidate it but you're putting the operating income of the Philippines inside the operating income of Mexico. That is what's happening, correct, in terms of disclosure? And that's allowed by IFRS in terms of getting the operating income of such a situation like Philippines and your minority positions in the joint ventures of Matte Leao and Jugos del Valle as operating income as well. Correct, Héctor? That's how the numbers are being presented? Hello? Héctor Treviño Gutiérrez: Alan -- yes, Alan. I was just looking for the PMS [ph] to give you exactly the line where we have it. Do you see a line that says Share of the Profit, Loss of Associates and Joint Ventures Accountable? That number, which is -- if you look at Mexico, Mexico has our 51% participation of the equity method. 51% of the net income of the Philippines is whatever percent we have of Jugos del Valle -- I don't remember the precise percent, but it's close to -- around probably 30%? 26% of Jugos del Valle -- similar percentage of Santa Clara and 50% of Estrella Azul. Those lines is not -- that is an option that IFRS is providing with an -- is -- we are obliged to do it like that under IFRS. Since Coca-Cola FEMSA, the holding company, owns these participations and Coke FEMSA consolidates the domicile of Coca-Cola in Mexico. Coke FEMSA reports to -- Coke FEMSA, as a…

And we will now go to Karla Miranda with GBM.

Héctor, I have a couple of questions. First of all, a follow-on on Brazil. I know that you just gave a wide explanation on your interest in Brazil in the long term. But actually I wanted to see if you could give us some color of what should we expect for Brazil for the second half of the year. I know that actually nobody expected a rough -- that rough first half of the year, so -- and it seems difficult that the situation is going to pick up during the second half. Maybe if I'm not mistaken, you were aiming for a positive performance in volume terms in Brazil and it seems quite difficult. And second of all, I was wondering if given the volatility that has been taking place due to the changes in the FX, is there a possibility that you're going to hedge your FX needs for the rest of the year, maybe some going into 2014? Héctor Treviño Gutiérrez: Yes, I see that, in general, the environment -- the main changes that we could do with respect to the second half of the year is the strategies that I were describing of 2 areas. One is the 2-liter returnable PET, and the other alternative is the single-serve magic prices that I just described. If these 2 strategies start to have traction in the marketplace, then we might end up with volumes that are either slightly negative versus last year or even flat to last year. That's helped us in some of the strategies in Brazil, and I think that we will see an improvement in the volume trends in the second half. With respect to volatility, as you corrected from the real [ph], the exchange rate has moved dramatically in a very short period of…

And we will now go to José Yordán with Deutsche Bank. José J. Yordán - Deutsche Bank AG, Research Division: I just had a quick question about a previous question on the depreciation and amortization charges because even when you take into account the offset of the equity income, your depreciation and amortization still would have fallen by more than 50%. I know you mentioned some asset write-downs, and maybe that's what the -- that's the source of this. But if you could kind of give us some color there? And more importantly, if you can let us know if it's a 1-quarter adjustment, and later on, it's going to go back to normal so to speak? Or what the new normalized level of D&A or amortization, specifically, in the coming quarters would be? And then my main question was, this time last year, you were saying you were worried about corn. That's obviously turned around quite a bit, as you must be feeling giddy about corn for the second half of the year and especially for next year's contracting season, et cetera. I mean, right now what's your view of what your corn syrup prices will be for next year versus what they are this year? Héctor Treviño Gutiérrez: Yes, José, you're right. I mean, when you adjust for this equity method, still the amortization would be a lower amount. Basically, in some of the previous years, I mentioned that we made did very high investments in SAP and not in our systems. That amortization number is -- we still have some remaining of that, but it's a much lower number now. And that's the -- what explains what you're discussing on in the first part of the question. With respect to high fructose, we basically have the rest…

And we will take our next question from Fernando Ferreira with Bank of America Merrill Lynch.

I had a question regarding your competitive environment in Brazil and Mexico, if you could guide us or tell us a little bit how your market share has evolved in both Mexico and in Brazil? And then, I just had a follow-up on the Philippines. Héctor Treviño Gutiérrez: Market share wise, we have very stable market share in all of our territories, very few exceptions. We have lost a few basis points in Mexico, in colas, in CSDs. In Brazil, we have lost a few basis points in -- also in CSDs. We have gained market share in most of the other categories, in juices, in sport drinks. We have increased very importantly our market share in most of the markets. We have a couple of markets within Mexico where PowerAde is the #1 sport drink. We are certainly #1 in the traditional play, not still yet on supermarkets, with respect to the sport drinks. But in general, the movements in market share are very, very small, with the exception of the non-carbonated drinks where we have increased. And as I mentioned, we've lost a few points in market share in CSDs in Mexico and a few points in CSDs in Brazil. The rest of the markets in CSDs are pretty much flat. And I understand that you have another question for the Philippines, Fernando?

Yes. Your comments on turning Philippines already, I mean, already net income positive are pretty encouraging. Do you -- can you share some more color on that front? Do you think that's sustainable or not, you should still see more volatility? Or can we expect this equity income line to continue to be positive along the same magnitude going forward? Héctor Treviño Gutiérrez: I think that -- to be really honest, what I -- we have -- we just embarked on the Philippines 5 months ago. We started with [indiscernible]. One of the -- remember that I mentioned 3 pillars. One has to do with supply chain, which is totally manageable by us. It's internal. And there, we will see some efficiencies, some better quality for our products. The 2 other important pillars are very much related to market. And the reaction of the consumer and our clients, which are the store owners. One is the portfolio, which is this single-serve presentation of 200 milliliters. The other is the Kasalo or the 750-milliliter returnable bottle. Those, we have encouraging signs in where we are selling. As a matter of fact, the 300 milliliters, we are selling everything we produced, and we are in the process of ordering 2 additional lines because we are out of capacity and we cannot take the products to the rest of the country [indiscernible] in terms of tremendous success. Obviously, it's also affecting [indiscernible] the use and because of that [indiscernible] continues to [indiscernible] volume as a way of improving the supply chain. The other is the route to market, which is also -- are not dependent on the reaction of the wholesalers and the store owners. My gut reaction is that answering your question is that we still -- we will still see volatility, but I think that the trends are very positive and very encouraging. I think that I would not be surprised if the Philippines stays on the positive side of net income for the rest of the year, although we might have some little surprises. But my gut feeling is that it is positive from here on, on the net income level. But again, it will depend a lot on the success especially of those 2 pillars that are more market related and not 100% under our control because it has to do with the reaction of the consumer to the portfolio, our competitors as they react to that and the wholesalers and store owners to the new route-to-market initiatives.

And if we continue to see that positive trend going forward, I mean, when do you think we -- you might be able to open up or to break some more for -- some more data for the Philippines? You think, still this year or probably next year to give us a little bit more color on that front? Héctor Treviño Gutiérrez: Yes. I feel that, in general, we are pretty much restricted by the -- because we are not consolidating this operation. When we buy the remaining 49%, when we emphasize this call option, we do it and we'd own 100% of that, and we'll have full disclosure as and a third to see area [ph] of Coke FEMSA. In the meantime, I think that our objective is to give you a flavor of the success on these initiatives that are important so that you might get a flavor of how successful that we are not in the Philippines, and that will be our main objective for now. It's -- for us, it's impossible to do a full disclosure either for a subsidiary or for a division until we exercise the -- until we consolidate the numbers. But it's in our top of mind that we should keep investors and analysts aware of our progress in the Philippines as we advance on that, especially on this initiative that we are developing, okay?

And we will now take our next question from Luca Cipiccia with Goldman Sachs.

Just 2 very quick follow-up if I may. The first is if you could maybe share some of the short-term trends as you mentioned earlier about volumes in Mexico that they seem to have improved or -- a little bit in July? I don't know if you could give a similar feedback from -- for the other countries. And secondly, on the acquisition front, on the consolidation front in Brazil, I was also curious to understand a little better if proximity and contiguity in this process will be -- may be a bigger factor for your choices? Or should opportunities come up, how much of that play will play a role given that the country seems to be -- starting to get split more clearly between the 3 larger classes or the larger operators. So maybe if you have any comment on that that would be great. Héctor Treviño Gutiérrez: Yes. I think that with respect to your first questions, questions regarding the trends, we are seeing better trends in July in all of our operations. Its -- everything is increasing so far during July. It's a little bit tricky sometimes because we still have 1 week to go, and sometimes the last week plays a little bit tricky roads normally to the positive because as they close among the operators want to hit the target, et cetera. We have slightly negative trends in Central America that is less than 1% in carbonated drinks. The rest of the markets and the rest of the categories are moving well in the direction.

A positive volume [ph] including in Brazil? I'm sorry. Héctor Treviño Gutiérrez: Including in Brazil, yes. Including in Brazil, starting -- we are seeing some so far and maybe I don't have to give [indiscernible]. Water has a little negative trend during this month, but very importantly, sparkling soft drinks has a very positive trend in Brazil. The overall -- from my perspective, the overall view that I have for the second half is positive volume trends. With respect to consolidation in Brazil, I think that proximity will play a very important role because the country is huge in area and space and distances. And I've seen that you saw very clearly that in our announcement with Fluminense, we announced a very important synergy number as a percentage of the EBITDA of the business that we're acquiring. It was not as, I mean, the case [ph], for example, where Andina that is trying in a territory that is farther away in distance. So proximity plays a very, very important role in the consolidation in the future. If something like that happens in the future, I mean, as I mentioned, you need the willingness of someone to sell and someone to buy in this process. And as I mentioned, we'll certainly look for opportunities if they are present in the future. But the other half of the equation is we need to go. But the question about proximity, I think that Brazil, of any of the countries in Latin Americas as being the largest in distances, fortunately is very important.

And we will take our last question from Alex Robarts with Citi.

Let me just start with 2 quick ones and then 1 on Colombia. Look, Philippines, we're seeing you guys get to a positive net income a little sooner than at least we had thought, and does this change the time frame for you to contemplate buying the Coke stake? Could we see you buying this Coke stake as early as next year? Secondly, in Brazil, any comment around July in these demonstrations, vis-à-vis volume, not material, material, in between? That would be helpful. Question on Colombia though really is, look, first half, we've seen a 7.5% increase in volume. It's your third-biggest market. Margins have not been there and contracted. Wondering how do you see second half, vis-à-vis the margin in Colombia, versus the first half in terms of magnitude of contraction. And to the extent that this tax reform there that we're actually seeing hitting certain consumer categories, mostly on the food side, but could you talk a little bit also and include that tax reform in the answer? Héctor Treviño Gutiérrez: Yes, Alex, let me start with -- with respect to the call that we've had in the Philippines, we haven't really moved to this -- to the time frame where we would start thinking about exercising the call. Obviously, there's always value on the optionality of that, and I think that we should always take advantage of that. So I would not be surprised. My initial reaction is that we should wait until the end of the field to exercise that call. We are not in a rush to do it right now. As we've mentioned, Philippines is a transformation story. We need to fully convert that into a positive story and then think about that consolidation of the other 49%. In Brazil, we mentioned that during…

Fair enough. So no change there. But just to understand, any kind of color on the tax reform in the country? Or I mean, maybe it's just a net neutral for you guys. I mean, is that -- could that be the case? Héctor Treviño Gutiérrez: Are you referring to the tax reform in Mexico?

No, in Colombia, the changes that happened this year in Colombia. Héctor Treviño Gutiérrez: No, sorry, I was confused on that question. The tax reform, we are neutral on that. You know that we are building a new production plant that will help us with our tax structure in Colombia because this is a tax-free zone where we have some incentives in the tax front once we finish that production plant. The plans for this new plant are being delayed a little bit because of a lot of, I guess, red tape processes with water rights and wastewater treatment processes with some of the government areas. But we are finding a lot of support from the government authorities because they like us to invest that amount of money in Colombia and create all of these new jobs in Colombia. So we are just going through all the paperwork that is there to finalize the -- to be able to finalize the plant. We probably have a 2- or 3-month delay on that process, and that plant should be ready by the end of next year. But once we finalize that plant, we'll start to have some tax breaks because of being in a tax-free zone would help us on that front.

Okay. So no real impact in terms of the consumer and the environment on, I mean, there's some salary, payroll tax changes in a lot of categories of CCATS and VAT increases. But okay, so you're saying in that regard, the consumer environment, no real impact from the tax reform issues. Is that right? Héctor Treviño Gutiérrez: Yes. The current -- the operations in Colombia's current growth, to my attention, anything regarding the new tax that is affecting the consumer in Colombia. So it's neutral.

That concludes today's question-and-answer session. Mr. Treviño, at this time, we'll turn the conference back to you for any additional or closing remarks. Héctor Treviño Gutiérrez: Thank you for your interest in Coca-Cola FEMSA, and as always, José and his team are available to answer any questions that you may have. Thank you.

That concludes today's conference. We thank you for your participation. You may now disconnect.