Good morning, everyone, and welcome to the Coca-Cola FEMSA's First Quarter 2014 Conference Call. As a reminder, today's conference is being recorded. [Operator Instructions] During this conference call, management may discuss certain forward-looking statements concerning Coca-Cola FEMSA's future performance and should be considered as good-faith estimates made by the company. These forward-looking statements reflect management's expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance. At this time, I 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. During the quarter, our balanced geographic franchise profile, the strength of our beverage portfolio and the brand equity of Brand Coca-Cola, combined with our revenue management initiatives, enabled us to deliver organic currency-neutral revenue growth of 20% for the quarter. Our company delivered these results in the face of structural changes and a difficult consumer environment, mainly in Mexico and Brazil, coupled with currency volatility across our markets. Our organic gross profit margin expanded 130 basis points during the first quarter. Lower sweetener and PET prices in most of our territories were partially offset by the negative effect of the currency devaluation in our South America division and Mexico, as applied to our U.S. dollar-denominated input costs. Our organic EBITDA margin expanded 120 basis points, despite continued higher labor and freight cost, especially across our South American division. Despite this challenging environment, as we have done throughout the years, we continue investing in the marketplace, reinforcing our returnable packaging base and improving our pricing of textures [ph] to connect with consumers every day across our territories. Of particular note, as of…

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

Just wanted to ask a bit about the impact and the effects that you've seen based on the pricing actions you've taken to cover the excise tax. I guess, in some respects, the behavior of the consumer is maybe a bit better than you expected going into the year with respect to the volume decline. Just curious to get your impression on that. And seeing that we're going to see some increased pricing come through from -- at least on the first quarter, I was just wondering if you think there'll be additional consumer reaction or it's generally been accepted. And I guess, if I can just make that question broader on Brazil, because I guess today we're hearing more about excise tax and taxes being increased in Brazil on beverages, so just curious to get your general sense on the ability to take pricing in a soft consumer market. And how do you deal with that if the consumer still is soft and maybe your pricing actions remain limited going forward? Héctor Treviño Gutiérrez: Lauren, let me start with Mexico. As you pointed out, the -- in general, the 4.4% reduction in volumes that we have for the company in Mexico is a little bit below the estimate that we have and that we shared with you at the end of last year when we said we were expecting 6% to 7% declines in volumes. The first quarter in that sense has been a bit better. It's important to highlight that when you look at the SKUs that were affected with the tax, so those were affected in a larger percent of reduction, closer to 6%. And as I've mentioned during this introduction, [indiscernible] presentations like Coca-Cola Zero growing 14%, still from a very low base. In general, the…

Sure. And just quickly, did you mention what the size of the tax increase that you took at the end of March was? Héctor Treviño Gutiérrez: Oh, the tax increase in March? It's around 3% to 4% in Mexico. It's -- the algorithm was on the whole portfolio.

We'll take our next question from Lore Serra with Morgan Stanley.

Great. Well, let me ask 2 questions. Let me just ask sort of a follow-up to the question that you just addressed. I mean, it seems like, at least, initially, the volume as we've talked about hasn't been quite as bad in Mexico as maybe as feared, and you seem confident in Brazil. And I understand some of that is because of what you're doing in terms of the returnability and the affordable magic price points. But I guess if we contrast that with Colombia, your volumes are growing but maybe not as proportional to the pricing that you've taken. I don't know if you'd agree with that statement. So I guess, are the different experiences you're having in Mexico, Brazil and Colombia making you think that the elasticity of the category is less than you thought maybe on the upside and on the downside? And then the second question I wanted to ask was just an update on Venezuela. I appreciate that you're now using the CCAD 1 rate and that it will move. I know there's a lot of uncertainty what -- where that rate goes. But I wondered if you could talk about kind of how confident you are. I mean, in the last quarter, you mentioned that you're still getting the access to the raw materials at the fixed rate, whether that's still the case, whether you see that rate going to another rate and how you kind of see that playing out over the course of the year. Those 2 questions would be really helpful, please. Héctor Treviño Gutiérrez: I think that, in general, I think that our elasticity is low, I mean, and I expressed that when we were discussing the -- Spaipa and the potential tax in Mexico last year. And if you…

We'll take our next question from Karla Miranda with GBM.

Héctor, I was wondering if you can give us more color about working capital going forward. It seems that you made a great job during the quarter regarding the declines in receivables and inventory. But I was wondering if this is sustainable going forward or which one is the level at which -- in which should we expect the working capital going forward? Héctor Treviño Gutiérrez: Yes, I think that, in general, we have been -- the same way that I've been stressing during this conference call that we are focusing a lot on controlling expenses and SG&A. We have an effort for the last 2 years or this 1.5 years of monitoring and trying to control working capital in an appropriate manner. It's not that it was out of control, but I think that it's important that as we grow to additional operations, especially in these mergers and acquisitions that we were doing in the previous years, that we have -- that we establish the best practices with respect to inventories, account receivables, the way we collect and return our dollars, et cetera. And then it is the same is true for CapEx. We believe that we have a very important discipline that we monitor centrally, and that we monitor every month, and the operator of every country has to review all his working capital needs, his CapEx needs and everything that has to do with cost and expenses with corporate offices. I think that what you are seeing is basically the result of the last 1.5 years or the last 2 years working very close with the operators on that front, Karla. And what you see now is fairly a good level of working capital going forward. The only caveat that I have for this is in the numbers for South America, Venezuela, even the fact that we did not receive a lot of -- at the pace we like the authorization to pay raw materials, our account payables in Venezuela [indiscernible] an outlier down there. But that's the only caveat that I will have for this comment on the working capital. But in general, I think that the discipline that we have implemented over the last 2 years is bringing fruits now for our organization.

We'll take our next question from Luca Cipiccia with Goldman Sachs.

I have 2, one about Mexico and the second one on Brazil. On Mexico, assuming that the volume performance has in fact been better than what feared in the first quarter, maybe I was hoping you could share some color on what has surprised you the most in terms of what you expected earlier in terms of reaction, consumer reaction or whether it's channel, whether it's [indiscernible] packaging or has that really been across the board that the performance was somewhat better than what you anticipated even though it's still declining. And secondly, on Brazil, maybe if you can give us an update on the synergies after Spaipa [indiscernible] last year. Just to understand if it's realistic to assume that with the volume recovery that we've seen so far with the World Cup around the corner, these past few months haven't necessarily been the most appropriate to try to look or extract additional synergies or that maybe we will see a stronger focus on that in the later part of the year. That would be my second question. Héctor Treviño Gutiérrez: Yes, I think that -- I think that, in general, I can say in Mexico that -- as you say, we are probably doing a little bit better than what was here [ph]. My concern, again, is that given that we have a price increase at the end of March that the first quarter was a little bit positively influenced by various rate [ph] of some inventory buildup. But in general, I think that the positive surprise is that the consumer loves our brand, so Brand Coca-Cola is doing very well. We are not doing as well as some other flavors. I was surprised at the effect of returnables, especially the 500-milliliter, which is at a market price point…

And if I can just quickly follow up, just want to understand, is there any initiative that, for instance, given the World Cup, given the emphasis on volume in the first part of the year, was July put on hold until later on after this initial period or of this more volume recovery period is over? I think that's what I was trying to understand on the synergies on the integration, something that from a cost maybe perspective will accelerate after the World Cup simply because now top line is probably better, a more important priority? Héctor Treviño Gutiérrez: Yes, I think that -- I mean, in general, we have -- as I mentioned for Mexico, we have renewed again or we are trying to reorganize our operation in a more efficient manner. We have done -- we have put some restructurings, and we have some expenses related to the [indiscernible] payments. We are focusing, as you said, a lot on top line, no question about it, because we believe that the issue with Brazil is to grow volumes is the way to grow the business importantly. It's not by saving a few pennies in expenses that you're really going to turn around that to really grow that business more. It's really growing the top line. So there is focus on that. There is focus on the World Cup, and there are expenses related to all the execution of the marketing campaigns and promotional activities that we have around this period of time. So in general, you're right that the second part of the year should be good in terms of not having those additional expenses related to the FIFA World Cup. But in general, I said that we have very good expectations for this year for Brazil since our marketing process, and we are counting with our operation there to have a good performance this year.

And we'll take our next question from José Yordán with Deutsche Bank. José J. Yordán - Deutsche Bank AG, Research Division: Just wanted to follow up on Lore's question on Venezuela. Looking at your recent annual report where you break this out, I was a bit shocked to see that margins are actually down over the last couple of years there. Slightly down, let's say to 11% EBIT margin. Because, I mean, if you're buying 1/3 of your COGS at a 0 inflation even in nominal terms and you're raising prices in line with inflation, give or take, one would expect a big increase in margins there, unless the other costs are significantly higher than local inflation. So I was just -- any color you can give us on how each of the different input costs and labor, et cetera, play into this and how you plan to manage the Venezuela P&L going forward, what can we expect in terms of margins? I realize that it gets increasingly difficult to do so, but any color you can give us on that would be great. Héctor Treviño Gutiérrez: You bring a good point. In Venezuela, I think that we need to be very careful with Venezuela in the sense that it's a very, very difficult environment to work. And the pressure that we have, and that's why [indiscernible] reflection of this, what you say is expected improvements in margins has to do with the fact that even though we get dollars at the 6 30 exchange rate, prices for raw materials in dollars have increased importantly because the suppliers are very afraid of moving product into the country. And everything that has to do with local raw materials is crazy. That, I mean, the price movement that we see are very…

We'll take our next question from Alexander Robarts with Citi.

Let me turn to Mexico. Two things there, please. First is jug, and I know it's not the main category for you in Mexico. It's almost 20%, though, of volume. And a little surprised see that, I guess, it's down, given that it's not subject to taxes, I mean, down 2% volume in the quarter, and kind of went back and saw that, really, this is, I guess, the third quarter in a row that we've seen it down. And I recall you -- you talking about your efforts to optimize the routes with the new acquisitions in Mexico. And could it be that you're still involved in this process, and that's why we're seeing jug volumes down in this first quarter in Mexico? And when can we perhaps think about seeing growth and margin enhancements there, if you could talk about that as we look out for the rest of the year? That's the first question. Héctor Treviño Gutiérrez: Let me -- bottled water itself, is -- I guess it's important that we review this. Bottled water, you have seen for many quarters a reduction in the volumes as a way of optimizing the profitability of that business. And we have moved away from some of the practices of the past of moving bottled water for very long distance. So in way, bottled water has transformed to what is comparative to a very local business where you're not positioned in a specific city or a specific region. It's very difficult to send profitably water to a long distance. So we downsized it a little bit, the business for that, so we have been doing that for many, many quarters. The second stage of this is that we used the home delivery trucks of bottled water to reach directly to the consumer. We are starting to move -- we're targeting a very positive movement, which is taking all the products directly to the house. So in that sense, what you have seen in the last 2 quarters and would affect the bottled water is more the consumer buying the other products from our truck, other products meaning Coca-Cola and soft drinks and juices instead of water, and that's why the water volumes, we are seeing some reductions in the water volume. As you say, it had the important number in terms of unique cases is not that important in the profitability front. It's a business that is every day as we have downsized the size of -- downsized the business. It's a little bit more profitable at this stage, but it's not as profitable as soft drinks as you can imagine or juices or other products. So I think that the second part to the equation is positive in the sense that the company [indiscernible] is selling other products and selling probably a bit less bottled water.

So as we think in the second half with the easier comps, given what you said, might that be then the time to think about growth? Or it's still too early to call, I mean, at this point? Héctor Treviño Gutiérrez: I think it's too early to call at this point in the [indiscernible]. I think that now a level that we feel comfortable with the profitability of the bottled water, and different from what it was 1.5 years, 2 years ago, and it's important also to remind everyone that in that specific market, there is a lot of informal competition that has erupted in most of the comps, in most of the territories. So it's a market that we -- it's a category that we monitor very closely, and that obviously we're going to continue selling the amount of water that is necessary to maintain a profitable water business. If we need to downsize it a little bit more, we'll do it. But there is a lot of informal so-called [indiscernible] for the people that buy and informally fill out these jugs -- in little jugs [ph].

Okay, very helpful. And just the second was more of a question/clarification on your comment about 2Q in Mexico, and definitely appreciate you being open and forthcoming with us on giving us kind of your feeling for the quarter and -- or how it would shape up in volumes in Mexico. And I understood you to say that you kind of thought or you're thinking now that the volume drops in Mexico in the 2Q could end up being similar to where we've seen it in the first quarter. And I guess it's -- I mean, I'm assuming that's what you were saying, and so when I thought about ... [Technical Difficulty]

Pardon the interruption, please stand by. Héctor Treviño Gutiérrez: Somehow we lost the connection. Sorry about that interruption. You were saying about the second quarter, and then we lost the connection.

Sorry about that. Good. Yes, listen, just to finish the question. I appreciated your comments, and you seemed to characterize your feeling now about 2Q in terms of Mexican volumes being similar to what they were in the first quarter. And if I understood that right, I mean, I guess I would have thought that there would have been some marginal improvement in the sense that maybe volumes would not be as impacted in the second quarter than in the first quarter. And as I sensed during the first quarter, you had a little bit of a less of a drop in March than January. And obviously, there's elements around the timing of your pricing and you've mentioned an inventory effect, and I guess there is also an Easter effect. But is it -- I mean, are you being conservative when you suggest that, in fact, that the volumes might be similar to the first quarter? Or is it really just the fact that you're just not seeing the consumer adjusting to it, as you mentioned, kind of its reduced disposable income disposition and such? Héctor Treviño Gutiérrez: Yes, Alex. I mean, it's obviously -- we don't have a crystal ball to predict exactly what's going to happen, but let me -- my personal feeling is that, as you said, and as -- we were guiding at the end of last year somewhere around 6% to 7% volume drop. The number for the first quarter is 4.4%. I think that it's important to highlight that the SKUs that were affected by the tax are being affected more and these were influenced [ph] more in the 16.5% [ph]. We have, as I mentioned, juices and nectars dropping double digit, and we have other products that are growing. So at the end…

That concludes today's question-and-answer session. Mr. Treviño, at this time, I will 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, Alfredo, Roland and the team will be available for any remaining questions that you may have. Thank you, all. Goodbye.

That concludes today's conference. We thank you for your participation.