Fomento Economico Mexicano SAB de CV (FMX) 2004 Q1 法說會逐字稿

Good afternoon and welcome ladies and gentlemen to FEMSA's first quarter earnings conference call. At this time I would like to inform you that this conference is being recorded and that all participants are in a listen only mode. At the request of the company we will open the conference up for question and answers after the presentation.

During this conference call management may discuss certain forward-looking statements concerning FEMSA's future performance and should be considered as good faith estimates made by the company. These forward-looking statements reflect management 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.

I will now turn the conference over to Mr. Federico Reyes. Please go ahead sir.

Good afternoon ladies and gentlemen and welcome to our discussion of FEMSA's first quarter results. On the call today are Hector Trevino, Chief Financial Officer of Coca-Cola FEMSA, Gerardo Estrada, Chief Financial Officer of FEMSA Cerveza and Juan Fonseca, Head of FEMSA Corporate Finance.

By this time most of you have likely read our earnings release so I'll try not to repeat what is there. My prepared remark will be brief focusing on what we believe to be the most important achievements and areas of focus in the first quarter moving out into the rest of 2004. We also want to hear what is on your minds and spend a greater amount of time answering your questions.

With that being said let's move on to the results.

First of all I am pleased to report that this was a positive quarter with good news coming from every one of our operations. At Coca-Cola FEMSA we continue aligning the territories acquired last May for our first class operation and standard. At the same time we are adjusting our price, brand, packaging and channel strategies in order to promote a more profitable sales volume in the increasingly competitive environments where we operate. Particularly in Mexico despite aggressive pricing strategies from our main competitors, we see signs of improvement. For instance, we were able to increase our comparable soft drink sales volume by 3.7% with most of the incremental volume coming from brand Coca-Cola. In addition, towards the end of the first quarter we saw more pricing and cost instability in Mexico, therefore allowing for a noticeable improvement in our EBITDA margins indicating that we are on track in our strategies.

Building on the integration initiatives at the start of last May, we will continue focusing on achieving profitable growth throughout 2004.

If you would like to hear more details about the Coca-Cola FEMSA first quarter results I invite you to listen to a replay of the conference call which took place earlier today.

At FEMSA Cerveza, our focus pursued a profitable growth yielding promising results. Both favorable demand and improved execution were important factors contributing to the massive volume growth of 5.8% during the quarter.

Additionally, our discipline towards improving the profitability of our operations resulted in a 200 basis point increase in our operating margin. Where we were encouraged by this positive trend we recognized a balanced volume growth must go along with improved revenues and profitability and that these must be consistent over time

As you might have noticed in our earnings release, the domestic revenue per hectoliter decreased by 1.1% during the quarter. The favorable impact of a 5% nominal average price increase implemented in February only partially offset inflation for the period. However, positive sales volume growth continued during the month of March after the implementation of the price increase.

As we continue to grow our Beer operations, including our revenue per hectoliter, will remain a key area of focus for us. We have worked diligently with this year's price increase and continue making progress towards the development of full revenue management capabilities.

Our goal is to balance volume growth but increase revenue per hectoliter and overall margin expansion.

At FEMSA Comercio we continued to break records in the first quarter of 2004. We grew our revenues by 27% during the quarter. Our operations include 620 more Oxxo stores than we had at the end of the first quarter of 2003, 99 of which were opened during the first quarter of 2004.

Our aggressive selling space expansion combined with enhanced category management capabilities are the key drivers for the robust 10% increase in same store sales. It is important to note our rapid selling space growth has been achieved with improvements in profitability. FEMSA Comercio registered an operating margin expansion of 60 basis points to 3.5% during the quarter.

We believe that scale is typical to success in this industry. Oxxo is now about half the size of most major Mexican retailers based on revenues and we are leveraging our investments in technology, distribution and personnel to further strengthen the business model. We will keep investing in this strategic asset as it continues to provide invaluable support to our core beverage operations.

Finally, most of you are aware that a Court proceeding regarding our relationship with Interbrew began last week in New York. While we realize that there is a great interest in discussing this topic, because of the related litigation there is really nothing that we can discuss on that topic at this time. Information will be available as determined by the legal proceedings.

With that can we now turn to your questions. Operator, we can turn to the questions now please.

The question and answer session will begin at this time. [Operator instructions].

Our first question comes from Dovia Singleton(ph.). Please state your question.

Yes I have a question. The first one would be related to revenues per hectoliter. Can you give us the comparable number excluding Six for the first quarter?

Yes, it's in the annex of the press release on page 12 is a decrease of 1.1% in real terms. That means that the average growth in nominal terms grew 3.1%.

Year-over-year I just would like to see if we can have an idea of the first quarter?

The first quarter [indiscernible] the fourth quarter.

The fourth quarter. Quarter four. Could you really explain how you moved from the first to the second, from the fourth to the first?

I think we can probably follow up on that one offline because we don't have that right here.

No problem, I will give you a call later. Just another question. Can you just give me an idea why Cerveza's net debt increased so much and the second question would be really is this still related to the pricing issue? I was most surprised at the pricing because we thought the revenue management would start to use more aggressively those already in the first quarter in terms of segmentation and so on. So can you just give us an update about where you stand with your systems with ERP, with the rollout of pricing differentiation and so on? Thank you.

I will talk to the last question. As we informed you in the conference call of the fourth quarter 2003 we initiated the implementation on a differentiated unity by brand and presentation, price increases during the whole month of February. By the end February we finished the price increases which is an average of 5%. Even though we do not have all the year fully implemented across the country, at this time we have implemented in areas that represent 51% of our direct volume.

Obviously we are applying certain criteria or ideas, in the differentiating prices even though we really do not have the year already sold. But as we mentioned in the past, what we are expecting is that the success of those strategies, the probability to have better results in the ERP places is much higher than where we do not have it.

For the [indiscernible] displaying we increased 5% in nominal terms. If you consider that that happened in let's say half of that quarter, the average increase would be 2.5% and in this way the nominal average increase together it was 3.5%. So that shows you that we are using different criteria in different places and different presentations and different graphs. So for us, that's the start of a better implementation of revenue management. The result will depend on our ability to sell the idea to the market and the market volumes will stay in better prices going for different brands.

For instance if I can just ask something else, of this 51% of volume is it possible to say for instance that 10% of this 51% was brand? I don't know we can find already for most of the market place clearly different prices for the brands. Do you have like a number out of this 51% -- in which market the percentage of volume that you see different prices already?

51% is the number of places where we already have implemented ERP. The 100% -- and this is 51% of our direct volume. That means that we have not implemented yet ERP with third party distributors, okay. But we in the implementation in the month of February, we did implement price differentiation across the country regardless we had or not ERP already installed.

Thank you. If I can just go through the first question which was related to the net debt at FEMSA Cerveza.

If you compare to March last year, we are maintaining more or less the level for March sales in our Group. Even though we paid a high amount of dividend, the size of the contractual dividend paid, which is 30% of net income. We did pay a special dividend last year and even though we maintained the level of debt. Comparing that with December you have to consider that because of the seasonality of our portion of inventories and raw materials and also the seasonality of payment of taxes, that makes the level of debt increases from December to March. But that level will decrease. Saying that, the comparison we are not expecting that those levels of decrease.

Okay. Thank you very much.

You're welcome.

Our next question comes from Robert Ford. Please state your question.

Hi everybody. First question was with respect to any pricing action if you've taken one in the United States on various core businesses?

No, not at this time. We did have an increase in the average price, but it's more related to the mix and specifically to increased prices. We are expecting this year prices happening with depletion and naturally later in the year we will be able to decide the amounts. We are expecting to deliver not big amounts.

Okay and Gerardo what is the proportion of sales currently going through your Six pack and your Oxxo stores at this point?

The proportion of Cerveza sales going through Oxxo?

The combination of Oxxo and Cerveza please?

Our control business and Oxxo. 8% is Oxxo. The total amount is more related to 8.6%. It is not something that I can give you. It has not been a big change let's say from the last quarter. I do not have the specific number.

High single digits. It is an 8% or 9% and we will follow up Bob.

Okay, thank you. And then the last question was you continue to grow your non-returnables as a proportion of the total mix in this. Given what that led to in terms of the impact on profitability for the CSD business and opening up the door for competition, can you say anything that will make you a little bit more comfortable with your packaging, strategy and mix and perhaps expand on this packaging strategy? And then talk a little bit more about what your channel mix strategy is and how Oxxo plays a role into that as well please?

The change in the mix is not the result of let's say of change in the strategy. This is basically the result of our idea of implementing differentiation by channel, by location and also differentiation in certain brands recognizing the sales premium in those brands -- of premium against the rest of the brands.

What we are looking at, also we have mentioned that the result of our portfolio that we did last year all across different markets, we have been let's say increasing the complexity of our portfolio. That means as a result we are selling a little bit more of non-returnables. But non-returnables are profitable because the ratios and the specific channels that we are selling, we have been able to do it in a more profitable way without jeopardizing let's say the control of our industry.

Also playing the role, which is a very strategic role, is a very good way to certainly implement strategies in the promotions, certain events, situations. It is much easier to do with a chain of that size and also now with more actual coverage countrywide as it has now also compared to let's say three years ago.

And do you have any plans to fold in the remainder of the regional operations into Oxxo?

Could you repeat the question please?

My understanding is there still are chains outside Six that are not part of Oxxo. Is that correct, or is that the entirety of the--?

In fact there were some Sixes that remain in FEMSA Cerveza. Those were more kind of the small format. More related to beer and liquids and they are remaining because this is more strategic to bring them into FEMSA Cerveza. The reason to [send] the Sixes is that they were more likely to be transformed in Oxxo format and managing the kind of Oxxo format inside of FEMSA Cerveza showing that we do not have the ability to operate that kind of format and also were kind of a distraction for our people. So we are concentrating more our people to the selling of beer or managing stores that have already closed to the beer approach. But not rectify the portfolio, the Oxxo formatting plan.

I think it is just a suitability issue Bob. The stores that we judge suitable to be converted are in this package that you read about. So you shouldn't expect additional moves of this type.

Great. Thank you very much.

You're welcome.

Our next question comes from Jose Yordan. Please state your question.

Hi, good afternoon. When looking at your export expansion of 33% and I understand some of that is inventory building, but the SPR increase of 15% is still pretty impressive. I would just ask in your estimation how much do you feel that was due to the Corona price increase on January 1st in the US and maybe how should we look at the rest of the year in terms of your expectations for volume growth in the US, especially in light of the current litigation? I guess in the unlikely -- that the second part of that question is, in the likely event that you pull out of Lusa(ph.) how much volume do you think will be lost in any transition? Will there be any type of short-term volume impact that we should expect, or is it fair to expect a seamless transition or not?

First of all it is very difficult to tell you exactly how much of the increase was due to the price increase of Corona. Immediately it does help. We are aware we are growing more than themselves. The expectation is part of the increase is also related, as you remember, our agreement with Lusa last year by the second quarter in order to accept, to allow the production of the brand into Lusa's core portfolio, we never said certain performance criteria and ways of focusing in our brands and certain amounts to be spent in the marketing our brand.

You can see that the third quarter and this first quarter shows high numbers. If I recall correctly, by the end of the third quarter they were in Pesos and that quarter was about 9%. In the fourth quarter of last year we saw a small increase. Mainly 3% of that was related to the comparison of the inventory loading in the fourth quarter of 2002.

So if you take out that part of inventory loading, we could say that volume increased in the fourth quarter 2003 was in the high single digits also.

Now inventory loading that we are [indiscernible] is more lets say related to the level of inventory depletion shown in the first quarter of 2003 because of the increase in the kind of inventory loading by the end of 2003. It is a kind of a playing with numbers. But anyhow we can say yes, we have had a good performance. It is a lot related to the agreement that we have with Luca in terms of focusing and doing what we have been telling them that should be the way to manage our brands in the space.

As far as transition, I don't think that we can talk much about it because that is something that is going on. So far we continue related to Luca and Luca has the contract and has to comply with the agreement that has been devised in the middle of last year.

So these performances clauses that are behind the volume increases, when does this portion of the contract expire? Everything else being equal, when we would expect to see more normalized volumes?

Basically the agreement calls for dedicating more money to our brands and to give the right focus to our brands. That is not something that we will get for a short period of time. What we are showing it is having improvement. I guess last year this was in the first quarter. In the second quarter of last year we did not have that amount to spend and that kind of focus.

If they continue doing what is in the agreement we expect that we should continue outperforming, but not by these amounts, or that Lusa are performing.

I guess my question is this contract goes for, I forget if it is 12 months or 18 months before it comes up for renewal?

It is for 18 months before it is next renewed.

Okay.

It is the rest of the year.

Great. Thanks.

You're welcome.

Our next question comes from Carlos Laboy. Please state your question.

Good afternoon. I am going to take a stab at the taboo subject of legal. Maybe if we adhere to issues of public record it is easier to comment. In Court this past week it was revealed that you almost struck a deal to exit the Interbrew relationship in February 2004 before the end of the deal was announced. In its testimony Interbrew indicated that the price you were going to pay to exit was not the same as what you would receive if a change of control clause was in effect. So again, just from what is already a matter of public record, did we understand Interbrew correctly? Did the handshake agreement for the 30% stake of Cerveza attempt to price the 30% stake at about what a change of control clause might have given you?

There is various [controversy] regarding the -- The mechanics of the original contract called for a valuation and nobody ever did that. So I mean for somebody say that it is the same value now, that's just guess work. Again I don't know if it I could say that it was closer than that really. I mean it depends on whether you are saying of a framework of 30%.

Okay. Let me ask you on a related question. The issue also came up that Interbrew's unwillingness to give you a non-compete agreement was a deal breaker for the first deal. With all of the tools of the trade that you have in place now with this whole restructuring--?

Carlos.

Yes.

Let me just add, I think that one of the statements that was totally misperceived, or misstated, that was one of the points in discussion, but it was not the key point.

The non-compete?

No, no, I mean it is a standard that at any time somebody is considering leaving a shareholding position, then there is some agreement of that sort and that's it. But if that is really close to what reality might require, I mean that's another completely different thing.

Again, my only point is that was not really the key point. I mean let me put it like this, it was one of the outstanding points but it was not the one that brought the conversation to a halt.

From an operating standpoint, maybe you can help me with it this way. With all the new tools in the trade that you have in place for going to market after having done all this work at Cerveza, and given all the changes that we've seen in the Mexican beer industry over the years, how have the barriers of entry changed do you think in the Mexican beer industry in recent years? Is it harder? Is it easier? Are there new barriers that weren't there before, or are you seeing certain barriers beaten down?

No I think the structure situation you know that very well. I guess one of the key points in our perception is that every quarter or every year however you want to view it, both Mexican players are getting to more stronger players and more powerful players. The idea that the Mexican resembles some of the Latin American markets I don't think that is a very accurate statement. I think that anybody trying to enter a market like Mexico is going to be facing a very powerful combination of companies. I mean Modelo and ourselves we think that we have developed I would say both where if we had done brands I am sure that Modelo has done also. We both have very good marketing strategies. The strategies we're evolving. We have an input in brand equity in our products and they have been evolving the way we are doing business and the better that we are at those skills, then the tougher it is going to be for anybody to take business out of our market.

So the structural framework is basically the same. I don't think that anything has changed. Consumers keep seeing the core presentation that we use to show our customers. That has its own implication that you know all of you know [indiscernible]. The Mexican market is going to change dramatically. I mean it is in the way to the structure. We don't adhere to that statement. But anyhow we are not putting our trust in that situation, not changing now. At least in our company you know we have been working almost four years changing the way we do business. I mean we believe very key competitors and we also have the needs of our customers much better. I think personally we have much different competitors than the ones we were three or four years ago.

So competition yes might be there, but we feel that everyday we are better prepared to face it in a successful manner.

Thank you.

I'm sorry for the long winded speech.

No, it was perfect. Thank you.

Our next question comes from Alex Robarts. Please state your question.

Yes, hi. Just to perhaps go on more into the strategic issues here and I guess you might not be able to answer all these questions. Federico could you share with us a little bit then what might have been some of the other, if the non-compete clause was really something that was one of the conditions, obviously there is a lot of speculation out that and I guess there will continue to be. But maybe you could share with us what was some of the reasons, or maybe the other considerations that just were not necessarily agreed upon in this discussion?

I'm afraid I could spend a long time going over those, but I'm not sure they will be very interesting or productive. When you are in discussion with somebody, it is possible to [indiscernible] and then the environment changes, or the selling conditions change and then you just have to reanalyze servicing. I am not sure the same work of reference that we have last year when we were in discussions is still valid, if it is still there. So again I don't think that this is the right framework. The valuations are different. The situation is different. The parties are different. I'm not going to tell you we wouldn't like to go back to scratch, but we have to reanalyze servicing.

Sure. Well how about just taking it in a little bit of a different angle then. How does this discussion and the current situation you find yourself in at all impact the global thinking that you have been talking about for the last couple of years in your business model, in your total beverage company? It seems to me that selling the control of the beer assets is something that is probably not likely in the short-term. That's my own opinion. But you've talked on and off in these conference calls over the couple of years about the idea of being a total beverage company. Maybe does this change a little bit the way that we as analyst should think about how you look at that business model?

The way we are being, this is the possibility that we might unwind our relationship with the one that is there. It probably might be the right thing to do for everybody. But I don't this changes our view of the market. The markets have their own inertia and we will be adjusting our models around it to whatever the market needs in each country. Sure we have said that in the past. I don't think that we can change that now.

How will that be effected? I mean it is very complicated. Again there are many alternatives. Again the basic underlying principle is the one that I am mentioning. We will be moving the way we do business according to what the market requires. This is the basic principle that we want to follow. If that requires going through these various approaches well fine, we will do it. If it doesn't, then we will stay the way we are. We are not committed to the situation by itself. We are committed to something, which is about reacting in the way the market requires in the way we need to serve our customers better.

Just kind of a last bit here is this the next step? I mean is there kind of some dates that you can share with us or kind of some basic, not necessarily legal next step, but what would be the next kind of things to expect as the strategic issue and discussions with Interbrew over the short-term? Or maybe there is no?

It is very tough for me to anticipate that at this point sorry.

Okay. No listen that's fair. Fair enough. Just kind of unrelated, anywhere you could share with us on the Six, I mean how much those stores were actually sold to Oxxo for? Is that a number that you can share with us?

It was not a big amount. It is less than $4m, the total amount for the 319 stores. They are small stores Alex, but with the possibility to reconverting the Oxxo format.

Okay.

But has a complexity of being not only selling all the kind of products, not only beer and liquids. So it is currently in order to supply different things, all that kind of thing. All of them were in [indiscernible]. So we were not selling the real estate. We were just selling the store and together with a leasing contract.

Okay and any update on the folks that you're talking to in the North vis-à-vis the distribution in that separate chain of convenience stores there.

No news yet.

Okay. Thank you.

You're welcome.

As a reminder should you have a question please press star '1' at this time. Our next question comes from Lore Serra. Please state your question.

Good afternoon. I wanted to ask a question about the trend you saw in the quarter. I guess the 10% number at Oxxo was very impressive as was the volume growth that you saw in Cerveza. I wonder if you could give us any sense of how balanced that growth was, was regionally within Mexico?

I shall tell you that it was not as balanced as it was in the fourth quarter of 2003. It was I shall say higher in the North and the South and lower in the Center.

What do you attribute that to?

Lore, this quarter was really with a lot of noise. You see a decrease of the 2% of our competitor. Almost 1% will increase price. With they announcing the price increase and starting the price increase in the beginning of January is certainly [indiscernible]. A big amount of our gain in market share was due to this offloading of them, their inventories by the end of the year and also that price differentiation for let's say one and a half months of the fourth quarter.

What I can tell you is that in the last part of the quarter - let's say March - we had an increase. Let's say 30% of the volume increase of the quarter was obtained in the third month of the quarter where we already finished. We haven't finished that implementation of price increases.

So we do not know what was the amount of the increase in volume. We have read that they were positive in the third month of the quarter. So I cannot tell you how much was the industry and how was the performance of our competitors.

The signs of improvement of economy are not as strong to say that our industry is back. So we cannot tell you. Even for us it is a little bit difficult to read what happened specifically in the third quarter. We are positive that our performance, our implementation had a good part in our performance. Not only the price increases but very difficult to read what are the specific reasons.

Okay. Is there any generalization in terms of Oxxo, where Oxxo saw greater growth regionally?

No, it's pretty evenly spread Lore.

Okay. I guess I had another question for Gerardo. We did not see a big increase in the non-cash amortization this quarter. It increased year-over-year but it hasn't increased that much from where it has been in the last couple of quarters. On this conference call you've sort of cautioned that we might see a big increase in those expenses this year from the systems amortization. Have they not impacted the first quarter, or is there some reason -- I guess I'm just trying to understand if the increases you were envisioning were mostly in the first quarter, or if we should see those costs go up in the subsequent part of 2004?

We have anticipated the increases to 20m Peso for the quarter Lore. As you can see the equity method participation in the ledger say it is improving, producing the loss. So also is the non-cash. So it is very [indiscernible].

Also the other part that of what happened is as you recall last year we started implementing the review, or let's say applying the new rules of the [indiscernible]. We are doing the provisions of non-core and let's say better from customers. What we shall see is some more steady let's say indicator of those non-cash as we go along as well as the increase of the amortization of the ERP.

Okay and I guess my last question, I guess following the pricing trends is made more complicated this quarter by the reclassification of Six and also by the uncertainty of exactly how during the quarter the price increase was felt. But I guess in general given even moving more to non-returnables and given that the price increase was 5%, the 1% decrease year-on-year seems a little bit more than I would have guessed. I'm wondering if there is any signs of more sort of pricing activity that you're seeing in the market by yourselves our Modelo.

Pricing in terms of the price increases were [reimbursed]?

Yes, or just promotional activity etc.

I shall say that if you think in terms of inflation for the last 12 months it was 4.23% or something like that. Having a reduction of 1.1% in real terms in fact takes you to 3.1% average increase of the nominal average price. Considering that the 5% was on half of the quarter, we were expecting an average nominal increase of 2.5%. So from 2.5% to 3.1% I can tell you that it is explained basically in the change of mix and the change a little bit. Basically related to a change of mix.

Okay, thanks.

Our next question comes from Bruno Grancar(ph.). Please state your question.

Yes hello. I had a question regarding the Oxxo chain. I was wondering where you think the upper limits on the growth of the chain are one, and two, with the impact of the accelerated growth of Extra is on the profitability of future stores?

The theoretical potention for growth in regards to improving that, I mean I remember talking about probably 5,000 a few years ago. But the way they have expanded the concept, they really have expanded the way they service our customers and these improvements and everything, we believe that it is surely at the 10,000 level.

The Extra, we don't see that as really a way of reducing, affecting any perceptibility of our business. I mean it is definitely an alternative for the consumer. It doesn't necessarily have to be expressing the reduction of profitability.

I think one thing Bruno, you have to remember that Oxxo in many respects are Mom and Pops. They're large, clean, well stocked Mom and Pops. That is I think the way you should think about them. There are points in Monterrey where you can stand in a corner and you can see three or four Oxxos from where you stand. I think the Oxxo folks have really polished their model and become very, very good at selecting the locations so that you can have a lot of Oxxos. Monterrey they have been opening Oxxos in Monterrey for 10 years and they continue to do that. I think that goes to Federico's point of you know having 10,000 Oxxos in Mexico.

Okay. Thank you. My next question is if you look at the data that you disclose in terms of same stores sales growth and you compare that self-service stores, self-service metered square, there is something that just doesn't add up. I get similar self-service stores and similar self-service meter square. Approximately for the past five years it is if anything declining on self-serve meter square. You had these very positive numbers on same store sales growth. How are you calculating that? What am I not understanding?

I think we should probably go over the calculation offline and see where that discrepancy comes because the format of the store hasn't changed that much and you shouldn't see a discrepancy. So we'd be happy to look at that with you offline. I don't think we have the numbers right now to be able to talk about that during the call.

Okay. Thank you.

Sure.

The next question comes from Celso Sanchez. Please state your question.

Hi, good afternoon. Actually it's kind of related to the ERP process, or accounting process in both Comercio and Cerveza. Just to understand a little, make sure first of all I have my facts straight. The percent of direct distribution that was covered by the ERP process at the end of 2003 was something like 36% right. So you increased it from 36% to 51% of your direct distribution over the course of the first quarter, is that correct?

That is correct.

Okay. So I would have thought then that the ERP rollout you would have increased as in expenses again a bit higher perhaps than you actually did because of that. Is there something that I'm missing, or is that going to come in the second quarter instead because it happened at the very end of the quarter? Or is the first quarter number of that and then growth recently representative of the kind of rollout that the 36%-51% would imply?

There is nothing that I can recall that will affect or hurt any increase. Having said that, the [wind up] does relate to that and so that could hurt us. Maybe what I shall tell you, that the percentage of increase in let's say as a percentage of Comercio Cerveza ERP we continue. Maybe I shall say that it will be more [indiscernible] than 1% of coverage of that volume. The reason is that the [feeling] that we are implementing in the cases where we had higher volumes now in the future we will have more serious. That will represent less volume. So the percentage of volume coverage will be a little bit more effective. But as the Coca-Cola Company increases, the trend shouldn't be that different from the increase that you saw in this first quarter.

Okay. Thanks. Then on the Comercio side, the ERP one of the things you mentioned was that there was some expenses that were no longer able to capitalized and that were written off. Does that suggest then that they were one off expenses and therefore the admin expense level going forward would be potentially a little lower and therefore profitability slightly higher?

I think what you're seeing here Celso is it is a similar situation to what you have in Cerveza where because they are now beginning to use the systems they are required to expense, are supposed to capitalize and amortize some of these investments. I think from an overall margin perspective you should be able to expect stable to growing margins.

Okay. So the explanation that I read on Comercio where it says net amortization as well as expenses. So the net amortization suggests that it is still rolling out ERP in some places? I'm sorry, you're still adding onto the base of the module and then when it is rolled out is when you get expenses that are no longer capitalized. Is that correct?

I think as of right now we should be expensing and no longer capitalizing in investments.

Okay. Okay. Thank you.

As a final reminder should you have a question please press star '1' at this time. Mr. Reyes we have no more questions in queue.

Well we thank everybody for joining us in this conference call. Have a good afternoon.

Good afternoon everybody.

Ladies and gentlemen, if you wish to access the replay for this call you may do so by dialing 1800 428 6051 or 973 709 2089 with an ID number of 351720. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.