Good morning, everyone, and welcome to Coca-Cola FEMSA's Second 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. In the second quarter, our company delivered 14% revenue growth based on our operators' ability to navigate through consumer environments through a balanced combination of volume and price growth, depending on the conditions of each of our markets. Excluding the recently integrated territories, revenues grew 3%. The strength of our returnable packaging portfolio enabled us to continue connecting with cost-conscious consumers across our franchise territories. This is especially true in Mexico, where consumption remains affected by the new tax environment as well as bad weather conditions. As in the first quarter, lower PET and sweetener prices in most of our territories were partially offset by the other depreciation of the currencies in our South America division and Mexico. Consequently, our organic growth margin expanded 80 basis points. Operating expenses in most of our territories decreased as a percentage of revenues despite market pressures, such as higher labor and freight costs, especially across our South America division. In addition to our market net investment, our system's sponsorship of the 2014 FIFA World Cup enabled us to strengthen the brand activity of Coca-Cola while continuing to…

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

My first question would be related to Mexico. Just wanted to understand a little bit better your pricing strategy year-to-date. It seems that you've increased prices by more than your peers and competitors. So I just would like you to comment on this and if you're planning any additional promotional activities or maybe discounting during the second half in order to revamp volumes or not really. Héctor Treviño Gutiérrez: Fernando, yes, in Mexico, in general, I'll say that with the new excise tax that started at the end of the year, we basically increased prices to try to compensate for that. We worked a big chunks of compensating for that float [ph], the inflation that we anticipate for the year. With the last price increase that we -- at the end of last quarter, we are now -- a new model [ph] of inflation, basically around 5% in nominal terms without taking into consideration the effect of the tax increases. A matter of fact, we are around 5% nominal trend versus last year. What I can say about the competition is that we are seeing, obviously, a lot of activity, as everyone is adjusting to this new tax environment. For other competitors, the impact of the tax was a bit larger, as you know, it was at 1 peso per liter. So if you got a lower price per liter, the impact was a bit larger proportionately. And that's why during this first 6 months of the year, there has been and there still is some adjustments to the pricing architecture of our competitors. Right now, what we feel is that we have the right prices. It's where we want to be at this part of the year. And most likely, we will stay with that. But I mean, depending on how our competitors will move going forward, we might need to revisit this strategy. But we feel that we finally got to a -- to the price point and the pricing architecture that we feel comfortable with the guidance that we have given here for the year, which is try to be equal to inflation or a little bit ahead of inflation on a yearly basis, and that's where we are right now.

That's pretty clear. And my second question would be on South America. Do you expect the same sort of margin expansion you saw in Q2, or should we expect the same sort of margin expansion for the second half? Or asking in a different way, the reduction in SG&A we saw, I mean, how sustainable is that for the remainder of the year? Héctor Treviño Gutiérrez: South America, for us, it's a bit tricky because, obviously, we have volatile activity there in those numbers because of Venezuela. In general, what I can say is -- and when we review, mark it by country by country. Brazil, the quarter was tough because we have volume growth, as I mentioned, around 2%. Most of the volume was coming from categories or SKUs that are less profitable than the -- than single-serve Coca-Cola [indiscernible]. So we are seeing growth in beer. We are seeing growth in noncarbonated drinks, and we're seeing growth in water, and we're seeing growth, strangely enough, during the World Cup, where you see an explosion of [indiscernible] in the last presentations. So Brazil, if we look at Brazil, we are seeing stable margins, and we have not seen an expansion in margins. In Colombia and in Argentina, let me go by one. Colombia, with this plan, Colombia reduced price a couple of years ago. We adjusted prices and by -- when I say adjusted price, meaning lowered prices with the Magic Price Points of COP 2,000 on price points of Columbian pesos was the presentation that I mentioned. And with that, we are seeing a very important growth, which is very well in tune with the strategy that we have for plan Colombia, which is basically create a -- we try to create a market per capita consumption in…

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

Hector, I have a follow-on on Brazil. It seems like you've mentioned in your opening remarks that the environment in Brazil is still really challenging. Can you give us a little more detail on what happened during the quarter because I was -- we were expecting a higher increase because of the FIFA World Cup? And what should we expect in terms of volumes for the rest of the year? Héctor Treviño Gutiérrez: Karla, Brazil is -- let me start. First, everything that I'm going to say margins is organic because, obviously, we closed [indiscernible] in spite of the numbers would show up at a very large growth. But organically, what are we seeing? We are seeing a consumer that is kind of shy, is not necessarily there. We believe it has to do with the economic environment with the kind of consumer that has a lot of debt that is cutting bad consumer expenses. The FIFA World Cup, we had a very good organization and a very good number of tourists, and it was like -- the estimate is like 600,000 visitors going to Brazil to -- for the -- joining in the space of this tournament. The number of visitors that were in the franchised areas, people that couldn't go into stadiums was close to 1 million people that visited the franchised areas. And very strangely, what we saw is a very large consumption of beer and very large consumption of soft drinks in the large practices. Our view is that people were buying the large presentations to do like a cookout in their home or like a grill in their home, and we saw a lot of these. When we look at some of the numbers, we saw a pickup in the number of meat and charcoal…

And we'll go next to Antonio Gonzalez with Crédit Suisse. Antonio Gonzalez - Crédit Suisse AG, Research Division: I just have a quick follow-up on Venezuela and then a question on Colombia. First on -- we saw, obviously, MXN 400 million charge in terms of below the EBITDA line in monetary expenses in, I guess, coming mostly from Venezuela. So I just wanted to ask, we also saw a provision being recognized by the Coca-Cola Company, I guess, as a result of these new regulations in Venezuela, which is limiting profit margins. And I wanted to ask -- my understanding is that this, too, might be different reasons to have a charge in your Venezuelan operations, and I just wanted to ask if you foresee any provision to be recognized in the future in your Venezuelan operations just like the Coca-Cola company biz. And I understand, obviously, that the profitability of the Coca-Cola Company and the bottlers is very different, but I just wanted to hear your thoughts on that. And also, going back to the description that you gave of the margins of the Venezuelan operation, can you just give us a sense of how much pricing in local currency has increased versus, probably, wages, just to get a better understanding of these mismatch that you were referring to earlier? And I would just have a quick question on Colombia. Héctor Treviño Gutiérrez: Yes, so let me start with Venezuela. First, the numbers that you see in the press release on Page 8 would refer to the loss in monetary position. That basically is a number that is -- obviously, that's one of the reasons we are missing the targets on the net income level or the EPS level. This is basically this MXN 400 million charge that has…

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

This is Jeronimo De Guzman filling in for Lore. I had a question on your -- when we were looking at your statements, the D&A and other noncash charges seems pretty high in the quarter. So I just wanted to understand what were the main drivers of that increase? Héctor Treviño Gutiérrez: Jeronimo, you're referring to the [indiscernible] number as well as evaluation and amortization and other relative noncash charges in [indiscernible]. That number -- I want to answer the question because I think it's important to clarify. That number is basically a reflection of 2 things: One, is that in spite, and let me start with a margin [ph] of impact. In Venezuela, despite having this year up to a [indiscernible] base, $110 million -- that is of the official exchange rate of VEF 6.3 as the official exchange rate for raw materials. We recognize during this quarter that we have $110 million of accounts payables that we know that we'll never get an official -- we'll never get authorization from the Central Bank because these are imports that we did. It was -- we were -- in order to avoid stopping production so we went outside of the importation protocol to be able to have access to the controlled dollars. These are dollars that, excluding raw materials that were imported 1 year or 1.5 years ago. So [indiscernible] we are in the process of trying to buy this $10 million at the so-called SICAD II, which is now trading around VEF 50 per $1. So if you apply this VEF 50 per $1 versus VEF 6.3 that we have in our books on these accounts payable, that's basically a reflection of a foreign exchange movement that is a nontax thing because it is in our balance. The other…

Yes, yes. Just a couple of follow-ups here, so on the Philippines, just given that the rollbacks, I assume, you continue to see the impact of that and of the logistics issues. Should we expect that the losses will continue in the next few quarters? Héctor Treviño Gutiérrez: I think that my expectation is that -- it's a tough question, Jeronimo, with the pen [ph] and the competition and what it has to do with this price rollback. My expectation is that little by little, we will be compensating that with the success of brand Coca-Cola in the one-way presentations, and that this 8-ounce presentation will -- are already doing so much strategies. For example, in America, we're going to describe this. We are -- remember that we launched this presentation called Mismo, which is a 300-milliliter one-way vp package in the Greater Manila Area at PHP 10. That presentation, we are moving that to PHP 12 in order to improve the profitability. And we are introducing a 250-milliliter just to keep the market price point at PHP 10. In the area where we face a lot of competition, with this combination or these 2 packages, I think that we will rely less and less on the 8-ounce returnable glass bottle. And little by little, we will improve the margins for the company. This transportation and logistics will probably take a little longer. I will expect this additional cost to be here for the rest of this year until we adjust our logistics and supply chain to this new environment as of these new regulations with respect to the restriction of the so-called truck ban in the Philippines.

Okay, makes sense. And then on Venezuela and what you mentioned, just wanted to ask, one, the fact that you had to purchase some of these raw materials at MXN 50 or at the SICAD II rate, isn't that really a cash impact because you are really buying them at that higher FX rate? And then the second question related to Venezuela is also, I know it's still a small mountain compared to $120 million that they had to purchase outside of the official FX rate, but do you foresee continuing as you go to rely on getting dollars outside of SICAD II just because you're getting too many delays on the approvals from CADIVI? Héctor Treviño Gutiérrez: Yes, your first question, the MXN 50 1-liter, that corresponds to some raw materials that we purchased and used basically 1 year ago, and we have an accounts payable that has not been paid. So for our BMN [ph] 1.5 years ago, 1 year ago, we used the MXN 6.30 cost. And now we have this accounts payable that we disclosed that amount to our auditors. And being an FX movement on an account payable that as of this moment we have not fully paid because we are in the process of, as you might know, this account due [indiscernible], also a lot of availability from one sector from the other, and I said I guess was -- so we combine all these very small amounts, as little by little we are compensating for that. At the end of the day at some point in time, we'll use that cash separately. But as we disclosed then, we are the auditors because of the IFRS on being an account payable and the FX on an account payable, it is very [indiscernible] as a noncash item. With respect to the -- we should just -- I understand the second part of your question, if we should be using the MXN 10.60 as the current -- as the exchange rate to convert all other numbers into Mexican pesos. We have disclosed that a lot also with the auditors and with other companies that are power plays in Venezuela. Obviously, everyone -- there were a lot of rumors that the 3 systems are going to convert into, for example, based on FX, but we are not seeing anything like that still. So the number that -- the official number that we have to use is the SICAD rate. whether SICAD I or both, which is VEF 10.6. And that's the -- the number is what we are converting [indiscernible] moving to adjust our P&L and our balance sheet in the future. And we'll do that, and we will display the number when and if that happens.

Yes. I guess the question was more since you did have this instance where you did have to buy some raw materials at the -- outside of the official FX rate. Do you foresee this happening more and more if you're having more delays in getting access to the official dollars? Héctor Treviño Gutiérrez: Sorry, I misunderstood your question. As a matter of fact, the delivery of [indiscernible] FX indiscernible] versus last year. And basically, all of the requests for this year, most of that I'll say that 90% of the raw material requested we have asked. We have received authorization from the authorities. So on that front, I'm not seeing any specific problem right now.

We'll take our next question from José Yordan with Deutsche Bank. José J. Yordán - Deutsche Bank AG, Research Division: Hector, I guess my question was partially answered. I had the same questions that Jeronimo was just talking about. But -- so I guess the conclusion here is that this payable when you're done paying it, it will become a cash item. And I was just wondering how does that get sort of reclassified in the next quarter when it's no longer a noncash charge? And if you can give us what the actual amount of this particular item was? And then just a more general question, I mean, I can see that you're saying you're sequentially gaining market share, and I think a lot of that comes from the fact that the B brands, especially Big Cola and others are collapsing or they're down 20% or so, if I remember correctly from Big Cola in the first quarter. But your Coke versus Pepsi market share is really falling, and I was just wondering what your thoughts, what your operators were thinking about that, and whether that was a sustainable share by the competition? Or is this something that they think is more a 2014 issue related to the reaction to the new taxes, et cetera? Héctor Treviño Gutiérrez: Let me answer your cash flow item in the first question. With respect to this movement is -- again, just on -- and just to be clear, we have to buy some raw materials outside of the normal protocol to be able to have access to the sustaining [ph]. That happened earlier in [indiscernible] more than 1 year ago. And therefore, not to stop production without basically some caps and some labels that we needed to buy. And we welcomed 2000…

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

Just a quick follow-up on Brazil if I may. Just to understand, when you -- when we consider the World Cup event, just clarify, was it -- did you think, would you say it was a net positive or a net negative in terms of volume? So in other words, when we look at the volume growth that you delivered in the quarter, how did it progress along the different months? And specifically for this event, was it below, in line or above your expectations? And the comment that you made over the competitive environment, again, did it reflect more bigger pressure during the World Cup or so in the last month of the quarter on commercial execution, on certain specific item or was more broad-based on pricing, so we should continue to expect that for the rest of the year? Héctor Treviño Gutiérrez: Luca, no, in general, I'll say that I think that volume-wise and in terms of this presence of the brand and the sponsors of the brand to the consumer is very positive. I think that the FIFA World Cup events, I think that in terms of the logistics and how -- and the sponsors that the World Cup creates in the series where we have events, it was a negative effect because, for example, in Sao Paulo or Belo Horizonte, whenever Brazil was playing [indiscernible] workers, and in some cases, if Brazil was playing in Belo Horizonte, it was a holiday for the whole states of Brazil [ph]. So we had a number of days that we couldn't work because of this holiday decree. And when we were working, we were confronting a lot of traffic and problems in the logistics and not reaching the point of sale. I think that it was, in general, it was good because of the big event, the presence of the brand, the impact that we brought. From the competition point of view, we saw a very, very aggressive [indiscernible] in the pricing front during the month of the World Cup, during the end of June and beginning of July, basically with Page 3 and Page 2 campaign, which is a huge discount. So from that space, it was a tough environment during the World Cup. We've seen that that's basically gone now, and we will expect normal activity starting now.

Okay. But if I was to -- if you were to comment on the bottom just for April and May compared to the rest of the quarter, was it -- did June bring an incremental positive contribution, or it's not worth making a distinction? Héctor Treviño Gutiérrez: It's a very similar trend. It's low single-digit growth in April and May for us.

We'll take our next question from Alex Robards with Citi.

So I just want to start by going back to this what you're calling operative noncash charges in the quarter. I mean, as I look at this, I get the impression that the magnitude of the incremental noncash charge is roughly MXN 700 million year-on-year. And is that in the ballpark? And my guess, whether these are operative or not is outside of the scope of this call, but I'm just trying to do some of these numbers here around this $10 million raw purchased materials in Venezuela. And I'm not -- you say it's the biggest piece of these -- of the increase in the noncash charge, but I'm wondering if you could give us a sense exactly kind of how much was the noncash charge related to the $10 million purchase of raw materials in Venezuela? And I mean, do you expect us to see -- or can we expect to see more of this potential increase in noncash charge in the rest of the year? So that's kind of the first question, please. That'd be great. Héctor Treviño Gutiérrez: The first -- that effect with respect to Venezuela, which is this $10 million account payable that we had registered 6.3, and we now recognize during this quarter at 50, is basically big numbers, a 44 difference in mature rate times 10 is MXN 440 million impact, onetime impact during this quarter. That will explain more than half of this 6 -- 786. The other impact has to do with the fact that 1 year ago, we have roughly a 10 million equity cost because of the Philippines during the second quarter. And now we have a $700 million loss because in negative participation that we have in the Philippines. With those 2 numbers, you have basically the color, the full impact of this line. The first one, the difference in Venezuela is a onetime event going forward. Depending on the number of the Philippines, we will register whatever is the -- on the Mexican pesos, the impact of the Philippine operation.

Okay, okay. That's very helpful indeed. So I guess, just the 2 operating questions I had, one on Brazil and one on Philippines. The Coca-Cola Company says in their release that the macroeconomic environment deteriorated in second quarter. And I'm wondering if you could kind of help us understand from your beverage consumer point of view, what are the kind of things that you're seeing this deterioration expressed in? I mean, is it just kind of spending? Is it incremental taxes? What -- I mean, how would you qualify the Coca-Cola consumer as having deteriorated or at least the economic environment? And do you think we can see and -- or do you think the conditions are set such that it doesn't continue to deteriorate in the second half? Or do you feel like there's some stabilization here that we can look forward to? And then the tag on here, sorry, is just when we have this beverage tax hike in 5 weeks, I know you alluded to kind of taking some -- passing on some price ahead of that, but specifically, what are you expecting on this beverage tax increase for soft drinks in 5 weeks, and what might be the magnitude that you'd seek to pass on? So that's kind of -- and then I have one last one on the Philippines. Héctor Treviño Gutiérrez: Great. What we're seeing, Alex, in Brazil is a consumer that is not spending a lot of money. Our belief is that they took on some debt in previous years, and now they are not spending as much. There's no doubt that inflation on basically staples has been high in Brazil. And [indiscernible] is on the high side of the estimate that the government wants it on the 6% or 6.5%. So because…

Okay. So how many points have you passed through in terms of related to taxes this year or price in Brazil, roughly? I mean, can you give us a sense of that so far this year? Héctor Treviño Gutiérrez: Well, I don't have any specific answer for that, other than the fact -- is your question is how many points of -- we have increased the prices because of the tax -- the new taxes. I hope in the recurring taxes this -- in my recollection is that the last time the taxes were increased were 1 year ago or 1.5 years ago. So we have not adjusted taxes -- we have not passed any new tax to the consumer [indiscernible] this year.

Okay, all right. Fair enough. Fair enough. And the last thing, on the Philippines, I mean, we have a decline in the volumes, and I appreciate your commentary in the press release and such. The -- mean going forward, looking in the second half, do you think that we get back up to volume growth in the Philippines? The -- I guess there was a typhoon that hit this month. Is this something that we should be concerned about? And when we think about cost, CapEx, I understand you try to funnel back cash flow from that operation into CapEx. Are you using or supplementing that CapEx investment from what's -- from a kind of cost -- proper cost non-Philippines? That would be helpful. And if you could remind us what the CapEx is in the Philippines for this year? Héctor Treviño Gutiérrez: Yes, Alex, let me -- first to answer this. The book trends in the Philippines, I think that is, even though we have a small reduction in volume, basically, there's a 1% reduction in volumes in the quarter. I think it's important to notice that -- for me to let you know that as we have been increasing this rollout of the move out to market prices that we have, we are seeing very different trends in the different parts of the country. For example, in GMA, in, Manila, where we have fully implemented the [indiscernible] strategy, our volumes moved 4.1%. It's not the same as in North and South Luzon, where we were down 5% because we have not still done this rollout of our go-to market. So the -- for us, the encouraging thing is that this strategy that we're trying to develop, which is no SKUs or supporting structure, a new route to market,…

And we'll take our last question today from Pedro Leduc with JPMorgan. Pedro Leduc - JP Morgan Chase & Co, Research Division: And regarding to Mexico in specific in regards to volume performance, sparkling beverages organic, almost down 8% year-over-year. I understand there's a weather component there, but it was substantially below what the Coca-Cola Company recorded there for the quarter. So we were wondering if it was more specifically because you took pricing. But again, you took pricing at the end of June. So how are you seeing this volume performance play out now in July as I understand weather conditions are a little bit better, and in reflection also to your price increase, and what your outlook is for the remainder of the year here in Mexico in regards to volumes, please? Héctor Treviño Gutiérrez: I think that, Pedro, the numbers that we have for mostly are the correct ones. We are basically between 7% and 8% down, which is pretty much in the ballpark for you that I mentioned at the beginning -- at the end of last year of the potential impact of the tax. If they were to increase prices 15% to 16%, we expect volumes to come down 7%, 8%. We are pretty much there. First quarter was a little bit better than that. I think that all the competitors are adjusting, as I mentioned, the pricing strategy. The Coca-Cola Company uses different periods because they report on -- not on a monthly basis, but they have a different sequence for the way they compute the volumes. And I don't know if that's clearly some differences. And also, sometimes they'll register the number of the standard units or gallons of concentrate that they send rather than the number of unit cases. But the number…

And that does conclude our Q&A session for today. I'd like to turn the call back to Héctor Treviño for any closing remarks. Héctor Treviño Gutiérrez: Thank you for your interest in the company. And as always, the team will be ready to answer more questions that you might have. And thanks very much for the support.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation.