Fomento Economico Mexicano SAB de CV (FMX) 2001 Q1 法說會逐字稿

Thank-you for waiting participants. The conference is now open with the FEMSA first quarter earnings call. During this conference call, management may discuss certain forward-looking statements concerning FEMSA's future performance and should be considered as good faith estimates by the company. These forward-looking statements reflect management expectations and are based upon the currently available data. Actual results are subject to future events and uncertainties which could materially impact the company's actual performance. For your information this conference call is being recorded for playback. I will now turn the lines over to your speaker, Mr. Federico Reyes, vice president of Planning and Finance. Go ahead Sir.

Good morning ladies and gentlemen and thank-you for joining us in our explanation of FEMSA's first quarter results. With me this morning is Sergio Saenz, CFO of FEMSA Cerveza, and now for this occasion, Hector Trevino, CFO of Coca-Cola FEMSA will also be available. I will first make some comments about the macro-economic environment, as is the custom. The operating results we reported yesterday for the first quarter should be as always considered along with the performance of the economy in the corresponding period. The Mexican economy, given its close trade relationship to the United States, evidenced some clear signs of slowdown as many industries recorded a cut in the export and domestic production rates. Even though consumption indicators such as retail sales, employment, and income per capita continued to post growth, this is notably reduced from the growth experienced in the first quarter of last year reflecting a downward trend in some consumer confidence indicators. On a regional basis, it is interesting to note that the central region of the country is displaying the highest sustained activity as measured by retail sales, and Mexico City, in particular grew above such regional basis. It is very important to note, however, that even though private consumption is expected to grow approximately by half of what it increased in the first quarter of last year, literally all of this expansion is derived from non-durable consumer goods, which should record a 7.4% growth. FEMSA's markets obviously fall within this category. The evidence that non-durable consumption has remained strong while durable goods sales have slowed down dramatically, does not guarantee that this behavior could be sustainable in the upcoming quarters. However, to the extent that personal disposable income does not become damaged by high inflation or unemployment, FEMSA'S growth expectation for this year should remain moderately stable. Our internal economic outlook has been adjusted to the following levels. GDP growth of approximately 3%, end of year inflation of 8.3%, and end of year exchange rate of approximately Ps. 10.1 per US dollar. Let us review now the performance of our main subsidiaries for the first quarter of 2001, FEMSA Cerveza. Our domestic sales volume posted a very healthy growth rate of almost 13% in part reflecting a very favorable comparison against the first quarter of last year where our sales in the first quarter were affected from the inventory loading which took place in the fourth quarter of 1999 in anticipation of the price increase implemented in January of 2000. With respect to regional growth rates, the central and the northern regions of the country displayed the strongest growth rate, the central outperforming the north. We attribute such strong rates of central regions to the following reasons. First, it was the last region where FEMSA Cerveza implemented the price increase, and it took place until the month of April 2. Second, the center observed a very favorable climate throughout the quarter, with substantially lower precipitation rates as compared to the historical [_______________] rates. And third, the region continues to benefit from improvement in income per capita and economic growth. Management attributes the lower growth in the sales volume recorded by the northern regions relative to the center to a deceleration of economic growth in connection with the slowdown of the US economy. In terms of pricing, our indicators show that the beer price per hectoliter is below last year as the increase was implemented gradually for the first quarter. The average revenue per hectoliter [has created] a net domestic sales over volume sold which includes revenues from the sale of related products and revenue recorded by FEMSA Cerveza on retails is stable at Ps. 797 per hectoliter. Our objective was to raise prices enough to guarantee that the beer price per hectoliter will remain relatively stable compared to year 2001. The can presentation increased significantly above all other presentations by 33%, in part reflecting a very favorable comparison to the first quarter of last year. The sales of the can presentation in the first quarter of last year were particularly affected by the same inventory loading that we have commented in anticipation of the price increase implemented in January 2000. In turn, last year's price increase raised the absolute pricing levels of presentation that has always been sold at a premium to the glass returnable presentation also affecting demand for beer in the can presentation. This year we decided to decrease slightly the relative pricing of the can and the one-way glass presentation versus returnable glass to stimulate the demand for one-way products, which are higher margin products. The can and non-returnable glass bottle presentation represented approximately 22% of FEMSA Cerveza's domestic sales volume still below the levels of 1994. With respect to the growth and stability as you saw, we were able to improve our gross margin by 1 percentage point as a result of strong volume growth, the favorable effect of a strong peso-dollar exchange rate on dollar denominated cost and by favorable raw material cost environment. The variable costs increased in line with volume growth, but the fixed cost and freight increased at a lower rate than revenues thus effectively contributing to a margin expansion for the quarter. Operating expenses increased by 15%, where administrative expenses recorded a 26.7 increase and the selling expenses a 11.7 increase. Increase in administrative expenses reflect the fact that the commercial marketing and public relations structure that are currently in operations were not fully staffed in the first quarter of last year. Furthermore, the expenses associated with implementation staff for the presale processes are recorded as administrative expense. Selling expenses are in line with our 2001 budget, and as we have said in the past, our goal is to increase these expenses in line with revenues. Therefore, in order to finance the marketing and consumer activation programs, we have to reassign resources away from what we call channel related expenses into activation. Implementation of the strategic plan for 2001 is on track and according to budget. Alfredo Martinez Urdal and his team are encouraged by the results obtained so far. The company has invested time and resources in developing and implementing extensive measurement systems and processes to track the performance of the programs which are critical for the review and assessment of results. We are particularly pleased with the response from the FEMSA Cerveza organization and the motivation and enthusiasm with which the company has embraced the new strategies. Good result will ultimately depend on the execution of an integral strategy by highly motivated organization. FEMSA Cerveza is not currently revising its projected volume growth, target range of 3 to 5% until we have set the second quarter performance which will potentially face a difficult comparison against 2000 as the demand will be influenced by the recent price increases. For Coca-Cola FEMSA, as customary, we encourage you to listen to the recorded conference call of Coke FEMSA that happened earlier this morning. For a more detailed discussion on the operating performance, which reflects the most important achievements of their current strategy. To briefly summarize the first quarter results, Coke FEMSA net sales grew 4.4%, but their operating income increased six fold to an outstanding 27.3% [_______________] an operating margin expansion of 340 basis points. Bottling growth for both the Mexican and the Argentine operations was leveraged on the expansion of the product portfolio with several new products and presentations being launched throughout the quarter aimed at capturing new consumers and reinforcing our core brands. The Mexican operations also observed an improvement in the revenue per unit case which was offset by the decline in others prices in Buenos Aires. While we are concerned about the recent economic developments in Argentina, we are convinced that we have put the right measure in place by adjusting our operations to compete in the downturn market. Our entire strategy in Argentina right now is to focus on attaining profitable growth by combating forcefully the private label brands and by continuing with our cost and expense reduction programs. FEMSA Comercio recorded a net sales growth of almost 22% in the first quarter and operating income growth of 12%, while revenues for the Oxxo chain in particular increased by 20% and operating income increased by 23% for the first quarter. It is important to clarify that the results of FEMSA Comercio [now] consolidate the results from Oxxo, Bara, and the e-commerce initiatives launched last year. As a result FEMSA Comercio's operating income may be diluted going forward until the new businesses start generating a sustainable income stream. The operating loss posted by the Bara and e-commerce initiatives amounted to approximately $1 million. FEMSA's retail operations in fact responded to the economic slowdown experienced in the northern regions of the country. This phenomena affected the average traffic per store and resulted in flat same-store sales growth. Additionally, sales comparatives were weakened by the large number of new stores opened in the fourth quarter of 2000, which have not yet achieved maturity status. Management, however, has already factored these components into the growth prospects of the Oxxo chain and is confident that the expansion will not be adversely affected. In fact, Oxxo is on track with the preparation for the construction and operation of more than 200 stores this year. While FEMSA Empaques recorded good results for the first quarter, we've remained cautious for the outlooks of the domestic packaging industry for 2000. We are downgrading expectations for the business performance for the year 2001 given increased competition and high uncertainty facing the beverage cans business. In particular, FEMSA Empaques management is concerned at the current levels of overcapacity of the Mexican beverage cans industry may result in further price reductions and lower volumes. Here to date, the management believes that FEMSA Empaques beverage cans volumes will decline up to 2% in 2001, and industry prices could continue to adjust downward which along with a persistently overvalued exchange rate, the scenario could result in a decline in the profitability in this line of business as compared to the year 2000. With respect to the glass bottle business, we also remain with a cautionary outlook although we sustain our volume growth expectations of approximately 10% driven primarily by increased demand from FEMSA Cerveza and third-party clients. Our plastic and commercial refrigeration operations and our crown cap operations should perform relatively well in 2001, the first one as a result of the cold drink programs of the beverage operation and the second one reflecting the great success it has had in its export markets. [_______________] has recently approved FEMSA Empaques as the sole supplier for crown caps, adding to the long list of high quality export clients. The revision of growth expectations for FEMSA Empaques [_______________] based on the assumptions stated above, will result in net sales growth of approximately 1.5% and operating income growth between 5 to 7% for full year 2001. Finally, on a consolidated basis, FEMSA's revenues increased by 8.5% and operating income increased by almost 20% for the first quarter of 2001. Consolidated net debt amounted to 469 million and consolidated capex was 124 million for the period. With this, I end up these comments, and we can go onto your questions.

For those of you who have a question please press *1 on your touch-tone phones, and your questions will be answered in the order they are received. Please keep in mind if you are using a speakerphone, you will need to pick up your handset while pressing *1 to register in the question and answer lineup. If at any time your question has been answered, please press *2 on your touch-tone phone to remove yourself from the question and answer lineup. Once again, please press *1 if you have a question. Gentlemen, our first question comes from Alexander Robarts. Please proceed with your question, Sir.

Yes, hi. The first question is in beer. I looked back at some of the other releases. I didn't really see mentions of what you talk about in this press release, which is the acquisition of some of these third party distributors, and I'm wondering how much was spend on these. What is the current kind of split right now between the third party and wholly owned? And what's the motivation with this? It seems that there could be some other places to spend the cash. Maybe you could kind of highlight a little bit what you believe to be is the strategic significance of these acquisitions.

Good morning. This is Sergio Saenz. We have, in the past, made a few comments in this regard, and essentially what we have said is that in our relationship with third-party distributors, there are some cases where second or third generation of a third-party distributor will come into place, and they decide they're not interested in the business. There are also some cases where performance is not what we expected. It's not in line with what we've said. We have a continuous program of supporting and revising performance with our third-party distributors. This period, in particular, the one from March 2000 to March 2001, we acquired approximately 17 more third-party distributors, that includes a large one in Oaxaca. That represented approximately 2.4% of our total sales. That is a continuous program. It will continue to happen. We've also given third-party distribution to a few others, essentially to about five new third-party distributors. In essence, the net effect is about 2.4%, and we have been 70 plus direct distribution versus 30 minus third-party distributorship. That is now affected during this period by about 2.4% I just mentioned.

Okay, so the total amount as a percentage of distribution, how much is now third party?

Right now this will take you to 72.5 to 73%, an increment of 2.4.

Okay, and the total amount you think maybe in the last 12 months spent on this roughly.

Total amount spent, probably the most significant was the operation in Oaxaca but in essence you're talking probably, a round figure will be 150 to 200 million pesos.

Just a followup please on the beer exports. Interested to see that number come out the way it did little bit under what we were thinking, wondering what was the reason for that. It seems a little bit on the low side, given what we understand the import segment is doing in the United States right now. And you talked about a 10 to 15% estimate for the year in beer exports. Is that still something that you're sticking with?

I would say that up to February, the number that you saw in export was the same 6 or 7% increase. Also up to February our depletions were in the order of 13 to 15%. During the month of March, there was a decline experienced by the beer market in the US and that ended up with what we have on exports today. Our depletions are still ahead, but only probably 1% ahead of what you're seeing there. So there was an adjustment in the market in March that it was also experienced by the other companies except for probably Modelo which reports shipments rather than sales. In our case, the difference between depletions and sales reported is essentially an adjustment of inventories, that we've also been reducing inventories in our operations [_______________].

Okay, and the range still stands at 10 to 15 for the year.

We still think that we can reach that 10 to 15 for the year. Yes sir.

Okay, thank-you.

Thank-you Mr. Roberts. Gentlemen, our next question comes from Maria Karahalis from Goldman Sachs.

Thank-you. A question with respect to FEMSA Cerveza, and my question is it is very clear that the operating margin held year on year in the first quarter, there seems to be reasonable deterioration in the EBITDA margin, if I have got it right, about a 130 basis points. Can you comment a little bit on what was driving that trend, please? Thank-you.

Maria would you restate your question or just do that again. Did we lose her?

One moment, Sir. Ma'am, please press * 1 to reenter the question and answer lineup. Go ahead ma'am.

Hello, can you hear me now?

Yes, Maria.

Yes, would you like me to repeat the question?

Yes please. I am sorry.

No, not at all. My question is the operating margin seemed to have held up quite nicely in FEMSA Cerveza at 10.1%. Having said that, there seemed to be a reasonable deterioration in the EBITDA margin, approximately 130 basis points, if I have got that right. Can you comment a little bit on what factors drove that divergence and specifically what was going on in the noncash items?

Yes. Essentially what we had going on there in that comparison related to the reserve that we had for uncollectable accounts. That reserve was affected significantly both in the first quarter of last year and fourth quarter if you remember our presentation. We are continuing with our policies of creating a reserve, but since we made a significant charge to that reserve in both the first and fourth quarters of 2000, we started this year with building up a new reserve [_______________] of the difference there from the EBITDA of the prior year to this year.

Okay, in which case is the current level of depreciation and noncash charges a good indication of where that level should be on a quarterly basis going forward?

Yes, I think it is a good indication, Maria.

And does it incorporate the stepped up capex required by FEMSA Cerveza or anticipated.

Does it incorporate the what?

The stepped up spending. I gather the capex budget for FEMSA Cerveza was stepped up.

Yes.

Okay, and if I could ask one other question with respect to the consolidated results. When I looked at the presentation for prior year results and the margin on a consolidated basis, it was a different number than what we saw last year. I am wondering if there has been reclassifications, any of them that are important that we should be aware of for example in that quarter a year ago, the margin was 20.9% where it came in this year versus the 20.5% which was indicated in the press release yesterday.

That's our margin on EBITDA you are talking about?

The margin on EBITDA, it just seems that the presentation of last year's results were actually lower than they were when they were reported a year ago.

And you are referring to FEMSA Cerveza, Maria?

No, actually the consolidated results. Well if it sounds like it's reasonably technical perhaps I should follow, I didn't mean to set you off on that. We can follow up on that afterwards if you like.

Yeah, okay.

Okay.

Yeah, we'll give you an answer via.

And just to be specific, if the FEMSA consolidated margin, it shows as 20.5% for last year in the first quarter, and in last year's press release, it was 20.9 which would have shown it to be flat with this year.

We don't have the answer now. We'll to get back to you.

No problem. Thank-you.

Yes, Sir. Our next question comes from Lore Serra. Please proceed with your question ma'am.

Thank-you. I've got two questions, both on the beer side. Now that Modelo is reporting shipments, and you're reporting sales, it's hard to compare the data, and I wonder if you could give us any guidance in terms of what you think the level of, or just any guidance on market share in the quarter? And secondly. in terms of the presale, you referenced in the presentation that some of those costs are going to the administrative area, and I would have thought more of those will be going into the selling expenses. So can you just explain to us when you are booking the presale where exactly it's going into your income statement and how much of the presale effort that you are going to put in place this year is reflected in the first quarter?

Sure. In reference to market share, Lore, I would say that if you look at the numbers for the quarter, there may have been a very small gain for us. I will invite you to look at it on a longer term. We are looking at four months rolling [_______________] December we are still behind with what we had in December. I think definitely if you look at the quarter, we have a small gain. That means that is something that we have achieved permanently. I think we need to look at, at least four months rolling, and we recover as we had promised, I think, some of the market share, but we need to keep looking at a longer term in order to be able to say that there has been a permanent improvement there. On presale, what we are saying is that all the execution of the presale has been very favorable. All of that is in the selling expenses. Now, we have a good number of teams all over the country implementing presale, training people, installing systems, installing measurement systems. All that group of people which is not going to be permanent also he will be doing that for probably this year and next year as we continue our presale system, that group of people is in the administrative expenses.

Okay. Understood. Okay. And if I could just follow up with one other question on the consolidated basis. FEMSA's net debt increased a bit in the quarter, but Coca-Cola FEMSA's decreased pretty, markedly. Are you expecting that to continue or should we see some stabilization i.e., the fact that excluding non-Coke FEMSA, your net debt has been increasing or increased in the quarter?

Mr. Reyes do you want me to answer that?

Yeah.

Okay. What basically, I think we are getting to the levels that you should see some stabilization, Lore. I will share with you briefly the net debt numbers as of March of 2001. And for FEMSA Cerveza, we have $234 million of net debt, FEMSA Empaques had $117 million, Comercio $37 million, Coke FEMSA $36 million. Between Logistica and Amoxxo, they had [_______________] cash of $13 million, and we had debt at the holding company of 110 and cash of 53. So I think you should see some stabilization on the net debt unless we do some prepayment of the holding company debt this year.

Great. Thank-you.

Thank you ma'am. Gentlemen, our next question comes from [_______________] of the Montgomery Assets. Go ahead, Sir.

I don't have any question.

Okay Sir. Thank-you. Participants, please press *1 to register in the question and answer lineup, and if at any time your question has been answered, please press *2. Mr. Marco Vera has a question, gentlemen.

Hi, good morning. I have a couple of questions. Firstly, on the presale. Can you share some more details as to where you have rolled out or where you are in terms of rolling out this new program or what regions you are concentrating in first?

Marco.

Yes.

Let me try to give you an answer. I won't be as specific as you'll probably like as that is the part of our strategy that we'll like to keep in-house as much as possible. I will remind you that our objective is to have 50% sales in presales by the end of the year. We are on track. We have now close to probably 20%, and it's all over the country, in different places. If you don't mind, I'll prefer not to share the specifics of what cities and what areas we were implementing.

That would be fine. And secondly, my question on Oxxo is, how does Oxxo plan to react in terms of product offering, selling space [_______________] promotional activity, type to a probable economic slowdown as your [_______________] sales rates continues to slow down.

Right now, we have, as we mentioned, we have not seen reduction in the activity not so because of reduced purchasing power of the consumer. Right now, it has been mainly for other reasons, but Oxxo has a very flexible strategy in a way as you remember we have different formats for different locations, so we have, Oxxo has a way to adjust the product mix very fast and to be able to react with a different mix, probably with products that are less expensive. So, we are not very much concerned. They already have developed some of those scenarios, and they will be ready to begin putting them as soon as they begin seeing this being a very concrete effect. But we are not much concerned about the profitability might be effected substantially. We think that we have the tools to react.

Okay, so at this point, you don't see yourself having to revise the selling space plan [_______________] anytime soon.

No.

Okay. Thank-you.

Thank-you Sir. Gentlemen, we have another question from Mrs. Alyce Andrews. Please proceed with your question Ma'am.

Yes, in the press release under the Cerveza section, you mentioned that the expenses associated with the presale implementation will be comparable to last year until the fourth quarter of 2001. Can you remind me what you expect for the fourth quarter in relation to those expenses?

Well, what we are saying there is essentially that the staffing of the different areas of presale included the marketing and the result of a school that we had for commercial purposes will be comparable on the fourth quarter. These first three quarters you will see differences essentially on administrative expenses. You will see growth that they will be less significant as we progress and start comparing to the fact that during the year, we started to staff the marketing area somewhere in May very likely and very heavily on the third quarter, and that's essentially what we are referring to. I don't know if that is the information you needed.

The fourth quarter of this year will be more comparable with the fourth quarter of last year.

Yes.

Okay, thanks.

Thank-you Mrs. Andrews. Our next question comes from Mr. Carlos Laboy.

Hi, actually this is [_______________] from Bear, Stearns. I was wondering if perhaps you could shed some light on the inventory trends in the beer division. If you happen to have any sort of, on hand, any sort of the number of inventory days for this quarter or for last quarter. Maybe, we could go through that.

I don't have that with me if you are talking about Cerveza, I assume.

Yes, at the beer division.

I don't have the, we would have to do that exercise and bring it over and send it to you and the rest of the investors as far as the impact on inventory. I can tell you, read out numbers right now that there has been in our commercial practices, changes that have essentially are making us more efficient on the use of inventory and also on accounts receivable. We can post the note and send it to all the parties within a day.

[Feel the] overall trend is positive?

Yes.

Okay, thank-you.

Thank-you Mr. Laboy. Our next question comes from Reinaldo Santana. Please proceed with your question.

Yes, good morning. Well, my first question is do you have the breakdown of the beer volume sales by region since you mentioned the difference between the central and northern regions in Mexico, and my second question has already been answered. Thank-you.

I can give you some ranges essentially where we can tell you that the central region had growths of 18 to 20%, the northern region had growth of 10 to 14%, and the southern region it had a growth of 4 to 8%.

Thank-you very much.

You are welcome.

Thank-you Sir. Our next question comes from Maria Karahalis.

My question has already been answered. Thank-you.

Thank-you. Once again participants, please press *1 to register in the question and answer lineup. If at any time your question has been answered, please press *2 to remove yourself from the question and answer lineup. Please keep in your mind if you are using a speakerphone, you will need to pick up your handset and press *1. Our next question comes from Jose Yordan of UBS Warburg.

Hi, good morning. I have a couple of questions. One is, you had mentioned in past press releases that you had been buying back shares, and that you were considering canceling of those shares. If you can give us an update on how many shares have been bought back and whether in fact they will be canceled and retired whatever. And then the second question was, you also mentioned in the last press release that you had been considering certain options on restructuring the company and so forth, that you had taken to the board, but lately there has been lot of hype, I guess, in the market on what seems to be a cry for an imminent breakup of FEMSA, and I'd be interested in any comments you can make on that.

Okay, talking about your first question, we discontinued the share repurchase program some months ago. So I guess the last number that we reported is still valid. We have not decided yet if we are going to reactivate that program or not yet, but we definitely will be canceling those shares. On your second question, I am very sorry, but I really have nothing new to report on that front.

Okay, thanks.

Thank-you Sir. Our next question comes from Pablo Zuanic of JP Morgan.

Yes, good morning. Questions for Sergio. First of all, Sergio, in terms of emphasis on one-way packaging, could you give us a sense of a target for cans within say 2 years in terms of the sales mix.

I would say, Pablo, that in our best year in history, in 1994, we had 24% of our sales in cans, and I think that would probably be a good benchmark to achieve. I'm not sure if it will happen in two years, probably three.

Okay, thanks. And then two followup questions. Now that Modelo is starting operations [_______________] 5 million hectoliters particularly going to the North at the time of economic slowdown, are you seeing Modelo becoming more aggressive in the North or no changes really?

No, they have been very aggressive. I don't know that at this moment. I could say that they are being more aggressive than they have been in the past.

Okay, thanks. And then if you don't mind, the last question a technical. Coming back to that other noncash charges number, just one quick comment. Your number for noncash nominal in the first quarter release in 2000 was 253, and now your real number for 2001 first quarter is 236, so you might want to check that number, but my question is really, of the 221 million, how much is actually provision for doubtful accounts.

I don't have the breakdown of what is the provision for doubtful accounts, but on what you pointed out on the EBITDA of 2000, there is a change there, and that essentially is related to the reclassification of charges that we had. If you remember, in the past, we talked that in the amortization portion, we had all the things, you used to ask us about exclusives, and we have said we had all the things. One of the other things that we had there was a long-term contract with Televisa that we were amortizing. The reclassification happened essentially because that long-term contract finished in 2000, and it shouldn't be at the end of the year as amortization, it should have sent to anticipated payments, and essentially, if you need more detail, we will provide that, but that is the issue on reclassification.

I see, I understand. Okay. Thank-you.

Let me, Pablo, let me just say that on the other issue of what is uncollectable accounts, our policy is 100% of anything that is owed to us for more than 60 days.

Okay. Thank-you very much.

Let me just address one more point, [Maria], this reclassification that we just talked about answers your question in terms of the EBITDA of the consolidated, so it's basically coming from beer, but we can followup.

Thank-you Mr. Zuanic.

Yeah, that's fine. Thank-you.

Our next question comes from Celso Sanchez of ING Barings.

Hi, good morning. My question, and I missed actually a good part of the beginning of the call, so I apologize if this has been asked, but my question regards [Cerveza revision] and in two parts really. One is, are the pricing initiatives effectively done for the year, or is it conceivable that other selective channel specific or package specific pricing could happen over the course of the year depending on how the economy goes?. That would be the first question.

I would say, Celso, that our pricing initiatives have all been completed by April 15, not by March 31, and by April 15, they were all completed. Now, you have a good point on your question as far as with changes in the economy, would we contemplate adjustments. I would say that any further adjustments will be contemplated if the economy would have an upturn. At this moment, it's not probably likely or not in the one-year horizon that we have looked at, so I think we're finished for the year. There may be [perhaps in any year from us] and from our competitor, promotions on one packaging or one presentation or another. That may happen as it has in the past, but again our pricing initiatives are, I think, completed for the year.

Okay, thanks, and then just a sort of vague question is can you give us a sense of some of these marketing initiatives that you still have planned `for the rest of the year. Obviously the ones in the first quarter were extremely successful. Are there, can you share with us some detail or timing as to other, you know, perhaps more quarters we can expect other big events like these.

You can definitely expect other big events for the year. They are all program, and some of them being implemented as we speak. I think what you'll see us doing is trying to put together as we have done for the first quarter an integral plan which includes initiatives of this type plus the presale, plus the refrigeration, and the other things that we have shared with you. I will, if you'll excuse me, will not enter into what are the other big events that we have planned for the year. You will see during the next months, I would only say the roll-out of the new Casablanca Companions in northeastern Mexico, and the idea is I insist on having an integral program and programs right one after the other throughout the year, trying to make a complete effort that will essentially move the market for higher demand.

So is it fair to say that the infrastructure internally is in place to execute these programs? It's just a matter of when you effectively scheduled them. Are you sure about that point yet, or is there still some infrastructure issues to deal with to roll these out successfully?

No. I think that it is correct to say that the infrastructure is in place, and now you'll see the roll-out of the programs and the execution.

Great, thank-you.

You're welcome.

Thank-you Mr. Sanchez. Our next question comes from Henry [_______________]. Please proceed.

Hello gentlemen. I have a question regarding your beer volumes expectations for the full year, and after a 12.7% growth in the domestic market in Q1, the 3 to 5% growth for the full year seems conservative. If it were to be 3%, you're basically implying close to flat volume for the next 5 months on a year-to-year basis. I wonder if you can make it [_______________].

Can you hear me Henry?

Yes.

Okay. Good. Let me try and give you an answer on that. You have a good point. At 12.7%, it seems to imply flat growth for the year. We had said in our presentation by Federico Reyes that we will not look at changing the expectations until we see the development and results of the second quarter. We're concerned of what seems to be a slowdown in the economy. We have top comparisons for the second quarter. We would like to wait until we have results for second quarter before we change our proposal or direction that we had given you. We believe at this time, that volume will still grow for the industry, about 4% in the year in the first quarter as pointed out, showing the impact of the loading that took place in the fourth quarter of 1999 in effect of the first quarter of 2000. It's showing that comparison, and after the second quarter, we can conclude that that 4% of the industry is still valid. We may have act to our expectations, the impact of the first quarter. We would not do it now until we have the results of the second quarter.

Thank-you.

You're welcome.

Thank-you Mr. [_______________]. Our next call comes from Alexander Robarts.

Hi, just a followup. I know that Hector is with you guys. I was wondering if you could give us an idea of how soft-drink volumes in Mexico and Argentina have evolved, or what you are seeing really here in April.

Do you want to take that, Hector?

He has disconnected.

Sorry. Mr. Trevino has disconnected, so we are reconnecting his line.

Thank-you.

Mr. Robarts, could you [re-enter] that question, Sir?

I just wanted to get an idea of really how the soft-drink volumes have fared in April in Argentina and Mexico so far.

Yes. Alex. Good morning. In Mexico, we continue basically with the same trends that we showed you in the first quarter with volumes between 5 to 7%, slightly better than what we presented in the first quarter. In Argentina, volumes are at a very tight level because of our [major] comparison versus April of that year and the [_______________] our meetings during the month of April.

I'm sorry. Meetings, did you say?

Meetings, yes.

Yeah. Okay. Thank-you.

Thank-you.

Thank-you Mr. Robarts. Our next question comes from Mr. Mauro Zepeda.

Yeah, and my question is what's your position in the future at the end of quarter?

Could you repeat the question please?

Yeah. Your position in future at the end of the quarter?

Do you have the numbers Maria Elena?

Well, we basically, as we reported in the fourth quarter, we have neutralized our forward contract exposure.

Yeah.

And the cost of that amounted to about $3 million.

Okay.

The only position that we have left is a hedge in pesos argentinos for $100 million or a 100 million Argentine pesos, and the average cost of that, I believe, was 1.07.

Okay. Thanks.

Thank-you. Our next question comes from Adriana Neriga.

Yes. Hello. My question is regarding your division. I understand that during the first quarter, one of your strategies were, you placed refrigerators in anticipation of the summer holiday, and I don't know if you can talk a little more with us about this strategy, the results as of today, and the conditions under which these products which were placed in the market?

Yes, let me give you some ideas. We have placed, as we seek approximately 20,000 new refrigerators in a plan that will take us to 40,000 by July, and we have a complete program there with measurements that can tell you in each [city] how many refrigerators? How was the installation? What problems they faced? What are they doing as far as improving the situation of a particular retailer? We are extremely pleased with the results. We would not share details, but only to tell you that in some cases, that's giving us an edge with the competition. In some cases, it has even helped us to get new customers.

The question, did you focus in any specific area in Mexico?

Did we what?

Focus in any specific area in central or in the north part of Mexico?

We focused all over Mexico in all regions. Our timing on what regions went on first before others is related to how the summer breaks into Mexico rather than any other thing.

And did you place the refrigerators only with your products also?

Yes, of course. They are refrigerators exclusively for our products. There cannot be any other products. It's only on exclusive retailers, and since it's 0 degrees, or -2 to 0 degrees, you cannot have milk or soft drinks or anything there because they will freeze.

Yes, I am [_______________]. When you place refrigerators, the refrigerators were full with your products also?

Yes, yes. They were.

Okay, thank-you.

You are welcome.

Thank-you Ma'am. Our next question is from Celso Sanchez of ING Barings.

Hi Sarge. It's a quick followup for Maria Elena. I want to clarify, I understand the unwinding of the fourth Mexican peso contracts, but are there not still option contracts, should the peso weaken substantially or have those been unwound as well or sold as well?

Again, yes Celso. I have remitted to our fourth quarter press release where everything holds. So, we did report it. I don't have the fourth quarter press release with me, but we did report our exposure on option contracts.

Right and that still stands?

That still stands.

Right. Okay. Thanks. I just wanted to clarify. Thank-you.

Yes.

Thank you Mr. Sanchez. Our next question comes from Maria Jose Garcia.

Yes, thank-you. Hello Federico. I have a question. As of your internet strategies for FEMSA Comercio, what kind of initiatives could we expect to see at the point of sale, and I wonder if we might see kiosk at the Oxxo stores operating as a café internet or something like that?

We already have some of those. They are the, I think, we have those kiosks in about 20 Oxxo's. We are testing to see if the concept works, and how if it's really profitable and convenient. Right now, we are in the testing stage, and we have not taken any decisions to expand it substantially, but it's already in place, but testing.

Okay. Thank-you. And there is also another question for Hector Trevino. In [Coke's] conference call, we heard about market share, performance of colas and flavors. Can you give us the specific market share data for colas in each territory? 0057:17 HECTOR TREVINO: Good morning Maria Jose. The situation that we have right now with market share numbers is that in the past, the Coca-Cola company and PepsiCo used to exchange information regarding volumes for each region, and that flow of information stopped at the end of last year. So, we don't have a specific number for market share so far, [but we are] in the process of developing our alternative source. We are going to use [_______________], but we are in the process of refining all those database. I have a feeling as [I was present] in the conference call is that we increased our market share in colas in the Valley of Mexico and the South East. In Argentina, colas, [_______________] will remain basically flat to what we have, and in the case of flavors, we increased our share of flavors in Mexico City. [_______________] small reduction in the South East of Mexico, and we have a gradual increase in Buenos Aires because of [_______________], but we don't have any specific number. This is basically our feeling, and we are in the process, as I said, of refining our database and the alternative source of market share information so that we can share that with you in the future.

Okay, thank-you, Hector. And do you have nearby, your [less] numbers as of the end of year 2002 or the South East metropolitan area and Argentina?

Yes. Give me one second. We have that in, I think it's better, Maria, if you check it in the annual report that we have so that I don't give you a wrong number, but in the annual report we reported the various numbers [_______________] that we have.

Okay, because I was looking at the annual report, and there I found the numbers for the total market share of beverage as a whole?

[_______________] the breakdown between flavors and Coca-Cola?

Yeah. Excuse me?

The latest information we have is what is in the annual report, and we don't have a breakdown of the [flow of] information as of the end of June of last year. So, the numbers that we have in the annual report is the latest numbers we have, and they are aggregate for the whole of industry [_______________] in Mexico. I am having numbers here, its 65 for the Valley of Mexico and 64 for Argentina, as a percentage of the total carbonated soft drink industry.

Okay. Thank-you very much.

Thank-you Mrs. Garcia. At this time, gentlemen, there are no further questions on the lines.

Okay. Well. Thank-you very much for joining us and we will have another of this conference call in three months from now. Thank-you very much.