Fomento Economico Mexicano SAB de CV (FMX) 2004 Q2 法說會逐字稿

Good afternoon and welcome ladies and gentlemen, to FEMSA's second quarter earnings conference call. At this time, I would like to inform you that this conference is being recorded, and that our participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions 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.

Furthermore, the statements made in this conference call do not constitute an offer to sell, or the solicitation of an offer to buy any securities. There shall be no sale of any securities in any jurisdiction in which such offer, solicitation or sale would be unlawful, prior to registration under the Securities laws of such jurisdiction.

I will now turn the conference over to Mr. Federico Reyes, FEMSA's CFO. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and welcome to our discussion of FEMSA's second quarter results. On the call today are Gerardo Estrada, CFO of FEMSA Cerveza, Hector Treviño, CFO of Coca-Cola FEMSA, 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's there. My remarks will be brief, focusing on what we believe to be the most-important achievements and areas of focus during the second quarter of 2004.

As in the first quarter call, we will try to spend a greater amount of time answering your questions. With that being said, let's talk about the quarter. This first quarter was an exciting one for us. We made meaningful progress toward our long-term strategic objectives, and are very enthusiastic about the accomplishments made since our last call. To briefly recap, in May, we announced the purchase of 30 percent of FEMSA Cerveza. Additionally, in June, we announced a commercial agreement with Heineken, for the import, marketing and distribution of our beers in the US -- as well as an agreement to be the official importer and distributor of Coors Light in Mexico. We strongly believe these agreements will continue toward the strengthening of our business platform going forward.

Now, moving on the operating and financial information. We are very pleased with the results achieved at FEMSA Cerveza. Despite a challenging market environment, with a typical weather conditions, our beer operations had another excellent showing, following the solid numbers reported during the first quarter. We achieved an increase of 3.8 percent in total beer volumes, with 2.5 percent growth in the domestic market and 16.8 percent growth in exports.

In terms of pricing, it's worth mentioning that the average 5 percent nominal price increase implemented during February varied per brand, per presentation and in some regions, even per point of sale, and has translated into a real increase in domestic revenues per hectoliter of 0.7 percent.

Although it's still early to talk about the results of revenue management, I can say that we are very confident about the initial success of these initiatives of our beer operations. As of June 30th, our implementation of ERP was at the 60 percent of total direct domestic volume. While there is still much work to do, I would like to highlight that FEMSA Cerveza has already achieved several quarters of profitable market share, stability or growth.

Our discipline towards improving the profitability of our operations resulted in a 170 basis point increase in FEMSA Cerveza's operating margin. We acknowledge the importance of balancing in volume and revenue growth with improved profitability. Going forward, we remain committed to maintaining, and gradually strengthening our market position in a profitable and sustainable way.

Now let me say a few words about our soft drink operations.

At Coca-Cola FEMSA, we continue aligning the territories acquired last year to our first-class operational standards. In Mexico, we definitely felt the impact of a very competitive CSD market, as well as higher costs. But similar to the first quarter, we continue to focus on strengthening our execution in the marketplace and building our brand portfolio through new package alternatives and targeted strategies.

Outside of Mexico, we continue to see gradual improvement in all of our markets, with the strongest performance coming from Brazil, Argentina and Venezuela.

Despite a challenging quarter in the Mexican market, it is also important to mention the noticeable improvement in Coca-Cola FEMSA's consolidated EBITDA margin, which reached 21 percent during the quarter -- up 50 basis points from the first quarter. While modest, this represents the first sequential margin improvement since the acquisition of the new territories, and it's an important indicator that we are on track with our strategies.

If you'd like to hear more details about the Coca-Cola FEMSA second quarter results, I invite you to listen to a replay of their webcast, which took place this morning.

At FEMSA Comercio, top line results were driven by an expansion in the number of stores, as well as same-store sales growth. Total revenues increased by 19.5 percent during the quarter, due to the larger scale of operations -- which included 687 more convenience stores than we had at the end of the second quarter of 2003, 189 of which were added during the second quarter. Same-store sales growth was a healthy 5.8 percent.

During the quarter, we accelerated investment in our business model, in order to improve our competitive position and financial results for the long-term. Our efforts to expand our platform not only include opening new stores, but also improving our existing store base to better leverage our recognized brand, technology and people. The expenses related to these activities put some pressure on Comercio's profitability for the quarter, but we will expect this pressure to be temporary and short-term.

All in all, we are very pleased with our second-quarter results.

We would also like to take this opportunity to reflect on where we are today, in terms of our overall strategy. Back in the year 2000, we decided to embark on a strategic course that meant we would need to change some fundamental components of the business model for our core beer operation. This required significant changes in the mindset of our people, in the culture of our company and in the tools and the methods that we use to carry out our business.

While we are still not where we want to be, we believe our results are beginning to indicate that the strategic decisions were the right ones, as our results are starting to show. We are becoming a formidable competitor in the beverage world, as our business platform continues to grow in strength.

Finally, let me update you on FEMSA's extraordinary shareholder's meeting that took place yesterday. At that meeting, the majority of our shareholders representing both BD and B units approved the issuance of shares that would bring an estimated $500-550 millon dollars to FEMSA, in order to repay bridge financing that will be used to repurchase the 30 percent stake of FEMSA Cerveza, currently owned by Interbrew.

While this equity offering is subject to the approval of the relevant regulatory authorities in Mexico and the US, as well as the closing of the Interbrew-AmBev transaction and our own transaction with Interbrew, we expect to complete the offering toward the end of September.

We would like to stress once again our belief that keeping a strong balance sheet and the flexibility that comes with it is the best financial strategy, as we strive to continue on the path of profitable growth and sustainable creation of value under any market conditions.

With that, we can now turn to your questions.

Thank you, sir. The question-and-answer session will begin at this time. If you're using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star-1 on your pushbutton telephone. If you wish to withdraw your question, please press star-2. Your question will be taken in the order it is received. Please stand by for your first question.

The first question comes from Tobias Stingelin with JP Morgan. Please state your question.

Yes. Thank you very much. Congratulations on the results. I would like to ask a couple questions. When do we expect we should be able to really see the positive impact of revenue management? You just said it's too early to see revenues or price impact. Perhaps it's not been going up so much as expected. I would like to have an idea if you can share with us any type of idea on when you should be able to see higher revenues per hectoliter because of revenue management.

Thank you, Tobias. This is Gerardo. As we mentioned in the conference call of the first quarter, we decided to implement the price differentiation all across the country. We had expectations that in the market where we already installed ERP we would be able to obtain better results.

We think that with the different things that we have been doing in our portfolio and the price differentiation that we're doing, that we're seeing some part of the benefits. Certainly, quarter-by-quarter, we will be obtaining better results with the use of our tools.

Do you think that it could be continued to invest on the job site, let's say toward the second half of the year? Or maybe next year?

I think that some of the results are already showing. As we are able to better use the tools and to have the full, complete portfolio that will allow us to better use the revenue management, that will be shown in the results in the next quarter.

If I may make just another question. How do you think your competitors lost market share for the second quarter, if they decide to be more aggressive on the pricing front? What would be the company's reaction? Or can you provide us any type of a date about what you see in the market? All the trade right now, in terms of the pricing strategy -- your pricing strategy -- if everything is okay and everything's find. Major changes?

We cannot anticipate whether they do it. But what I can tell you is that specifically the tool or the tools that we are implementing now are specifically the way of being able to work in the competitive market without having to have an ample reaction as we had to do in the past.

So is it safe to assume, for instance, that they might have lowered the prices in some specific regions, where they are losing market share, and you might be able to react in these specific locations by lowering prices? But on average, because of revenue management in other regions, you have been able to compensate that?

Yes. We will have the tools to have the right reaction in the right place at the right prices. The right brand.

Okay. Thanks. But this is not the case, right now. So we cannot talk about the major change in the competitive environment, right now.

Okay. But we have said that the change is based on that. And having a very good profitability to both companies.

Okay. Thank you.

You're welcome.

Thank you. Our next question comes from Alex Robarts with Santander. Please state your question.

Yes. Hi. Just to help and understand a little bit more the revenue per hectoliter trend, here in Mexico. I guess just looking at the number here and given what we saw in the first quarter, it looks like you've gotten an increase of about 1.4 percent off the first quarter. And at the same time, you've had an interesting shift toward the non-returnables, which typically carry I guess a higher average selling price.

I'm just wondering if there's something going on vis-à-vis channel or package or maybe even some discounting that would -- that kind of seems to be impacting that revenue per hectoliter number domestic amount. I guess I just had quite a bit higher estimate for the quarter. So is there some color you could give us on maybe what's going on with that?

Alex, let me just try to clarify. What we have had in the revenues per hectoliter in this quarter -- the increases is in real terms of 0.7 percent. If you consider that the inflation in the last 12 months is 4.3 percent, that solved the 5 percent nominal terms price increase average that we had announced, and we have told you since last quarter that that was our increase.

If you see the figure for the whole semester, you had a negative 0.1 cumulative that is a reflection that we increased the prices doing the month of February. So that's the reason that in the real terms, we have not caught up with the 4.3 percent of inflation. But we can tell that it's the average for the semester is 4.2. But as you can see in the first quarter, the average in nominal terms is 5 percent. Which is a big average.

I'm sorry, Gerardo. I was talking versus first quarter, as opposed to the prior-year period.

Okay.

And the increase is about 1 percent, or just over 1 percent. And I would've thought that with the full quarter of the price increase, somehow that would've been a higher increase in the revenue per hectoliter versus first quarter.

Yes. But the first quarter, you already have part of the increase. And also, the inflation is changing the effect. But as you can see, the total against the semester, you can see there is a sheet of 80 basis points in real terms, less inflation. But the increase that you are seeing is the increase in real terms. Okay? And also is an effect of the mix.

Which is the non-returnables?

It's not only non-returnables. You remember that the average price is the average of markets where we are dominant, and we have higher prices, and markets where we have a lower average price. So it's a big average, nationwide, what you're seeing. So it's a way that the average is conformed that is also part of the mix. It's not only the mix of SKUs, but it's also the mix of the different markets. The roles have been different from market to market.

Okay. And just kind of looking out in the balance of the year -- do you think that there's going to be further growth in that revenue per hectoliter in the second half versus the first half? Or basically, are we at the level where you think you might be until next year's price increase?

We already did that -- the price increase. And we are not anticipating any additional price increase. Maybe some tactical where the market is giving us the opportunity to increase. But basically, we already increased our prices.

Okay. Fair enough. And just to understand, you give this to us sometimes. But the breakdown of the growth in the quarter -- by regions. You typically give us a sense there. Is there some color you could provide, and frankly, where you think you've actually managed to get? What regions, specifically, you felt you were outperforming the competition in getting market share?

Well, I can tell you out of the 153 basis points of gain in the market share relative to June, our estimation is that 1/3 of that is due to the lag in the timing of the price increase. Another 1/3 of that was due to geographical effect. That part is considered to be better economies in our strongholds, and also the weather is helping us in the sense that in our strongholds, the weather was favorable and in the strongholds of our competitor it was not that good.

So there is a combination. Several things are helping. Things are being put together and working well. Even weather is helping us.

I'm sorry -- is weather then the last 1/3? Or is that part of the second 1/3?

It's part of the second third. The geographical effect. One third is explained by the delay of prices. One third is geographical -- which includes both better economies in our state and better weather in our state. The other third is just competitive effect.

Competitive effect. And just finally quickly, is it fair to assume that really with this deal with Interbrew and the divorce and such, that packaging can be merged into the beer assets? Is that something that is being considered for this year?

We will be putting that issue to the board in the next board meeting. There is a probability that we might do that. When we will do it, we have not made a decision. Again, we are assuming that we will be able to close the Interbrew transaction in late August. So, I don't know, we have not made a decision, but definitely, that is something that we'll be contemplating.

And just to understand it conceptually -- the lower-margin packaging business would come into the beer business. But would it be safe to say that you have some cost synergies, I guess, with headcount and such? I mean, would there be some synergies that could be achieved conceptually, bringing in the packaging asset?

I think it's basically just the objective. It will be to kind of normal reporting to the one that most of the large industry players have throughout the world. I mean in which their own packaging operations are built into the financial statements of their beer operations. That's basically it. I mean there is nothing else that should be expected out of that. It's...

Okay. Thanks,

Another point, Alex, is that the average deal in the margin is lower in the packaging division. You have to consider that a big percentage of the sales from packaging are done to the brewery, and the margin of packaging is not eliminated. So you are adding EBIT and you are adding just a small part of the sales.

Okay. Good. That's helpful. Thanks.

When we do it, we will be very clear in pointing out. I mean -- in traditions, right information. So that the right comparisons can be made.

Okay. Thank you.

Thank you. Our next question comes from Joaquín López with Deutsche Bank. Please state your question.

Joaquín López: Hi, gentlemen. I wanted to ask you on the market share gains -- you already mentioned that a third of that is due to the lag in the timing of the pricing increase, and the other third is due to regional differences. But in the other third -- are you gaining physical coverage, as far as points of sale, that are turning into mixed points of sale from exclusivity? Or is it direct aggressive attacks, using non-returnables? I mean what kind of factors do you attribute against you in the last third that you mentioned?

There are a lot of things being done through all the different markets. Okay? We have not changed our policies about the exclusives. We are continuing to do business as usual. The only big difference is that now we have better tools to perform in the market, to identify our opportunities and taking advantage of the right moment, at the right prices, with the right brand.

So it's a very, very complex... It will be very simplistic to try to just tell that it's based on exclusives or based on... There are a lot of things being done through all the different markets.

What I can certify is that there's not a change in the exclusivity policies being applied in any single market.

Joaquín López: Thank you, Gerardo. I understand that you are not changing the way you relate with your exclusive sellers. My question was more related to where other points of sales that were formerly or Modelo Exclusives are now turning into mixed points of sale. If you had seen any movement away from the exclusivity practices from your competitor.

As we have said in the past, there are a lot of retailers in several regions, where in fact they are now exclusive from our competitors. It was in a certain way exclusive by lack of presence of ourselves. So there have been certain retailers that have been mixed, just because we have the ability now to reach them. But also, we are improving our portfolio, and our portfolio certainly has helped us to reach some of those customers.

Joaquín López: Perfect, Gerardo. I just wanted to also confirm one number with you guys. In terms of the price -- the average revenue per hectoliter on a year-to-date basis. My numbers give me an increase in nominal terms of about 4.3 percent. Is that correct?

The numbers that I just preformed -- as you can see, the real price increase -- doing the right comparison with the eliminating and the six stores -- the one that we are showing in the annex -- that shows you a 0.7 percent in real terms price -- average price per hectoliter. That...

Joaquín López: That's on a year-over-year basis, versus second quarter '03. I'm meaning versus the end of December. Before you implemented the price increase at the beginning of this year. Meaning comparing December 31st 2003 versus June 30th 2004. The number I get is 4.3 percent nominal. Is that correct?

I'm not so sure that you have the right comparison against December. Let me check the numbers. I do not have here with me the average price of December. We will need to eliminate the six stores effects in the numbers of December. I don't know if you have already done that.

Joaquín López: Yes. I actually used a spreadsheet that is in your website. That already eliminates the 6-effect for all of the quarters last year.

I think we can follow up, Joaquín, and...

Joaquín López: Sounds good.

...go through the calculations. That'd be more fruitful.

Our next question comes from Robert Ford with Merrill Lynch. Please state your question.

Hey. Hello everybody. With respect to the Oxxo spike in expansion and doubling down in terms of the administrative restructuring -- can you tell me with respect to the reference to the Capex -- could you break that out and tell me if that's going to be a recurrent source of Capex? If the store basis runs are rapidly beginning to age and you need to spend more, or...? Or was it something that was overlooked in earlier periods?

No, I think it's a combination of several things, Bob. Yes, there is the fact that we are refurbishing some of our stores. But there is also the fact that the investments in technology in the similar way to what happened with the European Cerveza -- that's having to flow through the income statement. And now we're using those systems in some of the cities. Remember that when we start using the systems, we have to just expend that.

We've also made some -- I mean, the growth in itself has signified for Oxxo the hiring of some better, higher-compensated executives. So it's really a combination of a number of things. We don't expect this to be the level, going forward. This is something that we see as short-term. So you shouldn't take that as a guide for your model, I don't think.

So how much of this is a one-off thing?

Let me again -- I think we can go over it and see if we can come up with a number. But at this point, it really is a combination of several things. There's also, as we mentioned in the press release, investments being made in the perishables -- small perishable offerings in some of the stores. And then, just the sheer growth of the chain -- the opening of the new stores.

We can certainly follow up, Bob, and try to break out a number that we can isolate as the one-off.

Thank you.

Thank you. Our next question comes from Lore Serra with Morgan Stanley. Please state your question.

Yes. I guess I'm going to go back and just sort of ask a clarification on a question I was asked earlier. Your competitor reported last week I guess a 200 basis point increase in pricing and real terms. And your increase is less than half that level. Yet if I understood you correctly, you're growing more in your weakness of dominance where presumably your pricing is higher. And we're seeing the mixed shift in terms of the non-returnables. So should we assume that's sort of on a broader basis? The gap between you and your competitors rising, in terms of market pricing?

At least that's what the numbers are showing in the income statement. It's that in real terms, the price increase was higher. Yes.

Okay. Okay. Thank you.

You're welcome.

Thank you. Our next question comes from Dan Kwiatkowski with Schuller's. Please state your question.

Your working capital ratios seemed to improve year-on-year. But it's like you had basically the same working capital, but on more sales. Do you think you'll be able to maintain those working capital ratios for the full year? And secondly, do you expect to cash inflow or outflow from working capital this year?

Working capital is seasonal, as you know. June is normally the month with the highest inventory level. In December, we have the high season, and increasing in Brazil. What we have been doing in managing our working capital is that we maintain not only quarter-by-quarter, but our commercial policies have been implemented, and are being followed. With the new system, we are able to have a better following up of our different working capital items.

For the full year, do you expect to cash inflow or outflow from working capital movement?

We will state an inflow.

Inflow? Okay. Thank you very much.

Thank you. Our next question comes from José Yordán with UBS. Please state your question.

José J. Yordán: Hi. Good afternoon. I just wanted to follow up on the question that was raised by Alex and then Lore. Would you say that you're considering that you had a one month lag and you had time to examine the Model of other price increase in the market? Would you say that you implemented an equal price increase to theirs, and then a couple of months later began to roll back some of it or discount? Or would you say your price increase implemented a month after Modelo was purposely done at a small discount to what Modelo did from the get-go of the price increase?

What I can tell you is that this year the price increase was totally different than what we have done in the past. What we have heard is that as an average they increase prices 5 percent. Sometimes they said 6, sometimes they said 5. What we can tell you is that as an average, we increase 5 percent, but that means that we're in certain places increasing up to 7 or 8 percent, and in some cases we increase only 3 percent. It all depends. Market-by-market, SKU-by-SKU, and as you know, even we have now price differentiation by brand.

So it will be very difficult to tell you certainly that there are certain price differentiations between our competitors and ourselves -- which always have been there. Not only this year. That is the case also for Modelo selling in our stronghold. They sell with an important price difference. Now we are doing the same in their strongholds. Now our pricelist is really much more complicated. We are talking about now thousands and thousands of pricelists. As in the past, we used to have less than 20 or something like that.

José J. Yordán: But certainly you would know whether -- even though it's differentiated by channel and by region and everything -- whether there had to be in many of those areas -- where the initial price increase had to be scaled back or not. I mean, what would be the percentage of price increases in the different areas and channels? Were there any that were just rolled back? Toned down? Whatever you want to call it.

We have not skimmed back any price increase. As we have told you, now we have the opportunity to use different prices in different brands. And so we are able to react in certain retailers or certain places with a different brand, with a competitive price. But we are not scaling down, let's say, the mainstream brand, the region and even we have certain price, now, premiums in other brands. We are not just scaling the most important.

If we have, let's say, a competitor attack, we have another tool to react with a different brand, trying to compensate the attack. That's specifically the benefit of having the tool that we have now in place. And we are performing with that.

José J. Yordán: So is it possible that because nobody knows for sure what the average price increase for Modelo was, that it just happened to be a little lower, and as a result, you may be getting some market share as a result of that?

What we can tell you and you can see in the numbers is that our price increase is 5 percent in nominal terms -- 0.7 percent in real terms. And our profitability is improving.

José J. Yordán: Okay.

So that's what we're... certainly the way that we're operating in the market. Part of that is the way that we're doing the pricing. Part of that is the way that we are being able to access the different retailers. What I can tell you is that we're playing the game in the market in a different way than we used to do it in the past. And that's the combination of a lot of things -- it's the one that's giving us the market share gain. And we recognize also that there were certain weather effects that are also helping us in this case.

The bad weather effects were against us. And now, even weather is helping.

José J. Yordán Okay. Great. Thanks a lot.

Thank you. Our next question comes again from Alex Robarts with Santander. Please state your question.

Just a quick follow-up on the primary offering. I wanted to kind of clarify this. In other words, you guys came out first saying the 500 million would be the number, and that 260 would be the limit at which the controlling families would perhaps take out. Then kind of subsequent to that, it seemed like people you'd been talking to, and such, that there could've been a consideration to perhaps lower that amount of kind of 500 to perhaps a lower number. I guess today, I just kind of sensed that actually the range of the total primary offerings had been increased by 10 percent -- or at least at the upper limit. I mean what was the thinking by increasing that upper limit -- and again, is 260 still the limit that you're talking about implicitly here, with the controlling families?

I don't think we are increasing these. Maybe it's some miscommunication or a misperception. But originally, we have said that we were going to go to levels of between 500-650. And out of the higher number, 260 was the corresponding part of the shares that are traded in Mexico. Well, not traded, the B units that are only traded in the Mexican stock exchange.

That was the amount that our controlling shareholders were willing to put. But that was assuming that we were going to go to 650. We have changed, actually. I would characterize it the other way, Alex. We have reduced the expected level of funding that we will be doing through an equity offering. Rather than also looking for 650 - 500, we are saying now that it's going to be between 550 and 500. So we have a specific number in mind. Yes. We will be... 500 is a kind of the number that fits with the rest of our scheme. But you know, it's very tough to predict exactly the amount of funding that we'll be getting, given the changes in the market price of our share.

So we will be basically trying to stay. The objective of the company will be trying to stay in that range. Not to go above 550. But depending on market conditions, we might stay with 500.

Okay. I guess I just didn't get it. I didn't focus on the 650 as a prior number. And the timing, Federico? Is that something still kind of a third-quarter idea? Is that?

Yes. Let me just speak a little bit to that. Even if we were to stay at 500, again, our controlling shareholders would be able to put their share. I mean there is no intention of them increasing their participation unless there were some openings that the market might make available. But that's not the present intention.

Right now, our latest estimate is that we might be able to close our transaction last week of August. So if that is the case, the I mean our scale still contemplates us going to the market during the month of September. Expecting to de pricing around the 20 - 25, and closing a few days after.

Okay. Great. Thank you.

The next question comes again from Joaquín López of Deutsche Bank. Please state your question.

Joaquín López: Hi, guys. Sorry -- just one more thing on the pricing. I don't mean to bang on a dead horse. According to very quick observations, I get that the increase in revenue per hectoliter between the end of December of last year and the end of June of this year for Modelo and you guys is very similar. It's 4.3 percent for you, 4.5 percent for Modelo. I just want to make sure that this simplistic calculation is in line with what you're seeing. I mean, there seems to be concerns that you're discounting and buying share. And I just don't believe that you have this addressed concern with the answers you have provided us. And I think that if you believe that you're not buying share, you should probably give us more indications that this is the case.

Okay. We are totally sure that we are not buying shares. We are not discounting in order to gain share. That's what we have said. It's not our intention. Our intention is to recover market share, but not deteriorating the profitability of the industry.

Certainly, the difference between the price increases in the past is that normally, we were increasing the same percent all across the nation. Now, we have different price increases by channel, by SKU, by brand, etcetera. The price differences that are in the market have been always there. We have not been... In our stronghold we have always sold at a higher price than Modelo's brand in our stronghold. We have been always selling at prices lower than Modelo in their strongholds. In that, there is no change in the practices. It's a matter that we have been more effectively applying different prices in the right places at the right brands. And being able to obtain through the revenue management obtaining the average price increase of 5 percent in nominal terms.

Let me add something, Joaquín. Gerardo was stating, and you know it's the practice of the industry that on the regions, when each of the companies is not dominant, you have a lower pricing. I mean that's the structure of the industry for many, many years. If any of the competitors were to sell more in the regions in which the other party dominates, it would look like you are discounting. But you are not really discounting. Maybe you are just increasing your volume. But that doesn't mean that you are discounting from your normal pricing practice. Am I explaining myself?

Joaquín López: No, I understand. No, I just wanted to make sure. Because the numbers I have jive with what you're saying. I just was under the impression that the perception over the call was not clear enough. But now it is, I think. Thank you.

You're welcome.

Thank you. The next question comes from Marco Vera with Deutsche Ixe. Please state your question.

Yes. Hi, guys. Recently you were stating some interest in Keiser in Brazil, potentially down the line. I just wanted to ask you if I could fairly assume that FEMSA at this point will not be a part of EM Molson's plans for takeover bid of Molson.

It's a question that I had really not thought about, Marco. Anyway, Marco, putting that to us. I mean, you were asking me to either confirm or deny that we are part of that?

Well, if possible. I guess it's somewhat of an unfair question. But if there really is no interest, I guess the Company would say, "That is definitely not where we are right known in the beer exclusivity."

Let me just define FEMSA's position. We are interested observers of what is happening, there. And that's it. We have not one inch more than that. But I have to say that we are interested observers.

Absolutely. I understand.

Okay.

Thank you.

The next question comes again from Lore Serra with Morgan Stanley. Please state your question.

Yes. Just a quick question. In terms of a favorable tax ruling, could you just clarify when you expect to receive the cash associated with that ruling?

Hector Treviño: Yes, Lore. This is Hector. We believe that since we -- every time you have a situation like that, it's really painful for the authorities to delay a little the payment, because the interest rate that you offer is very high. So we are estimating that probably next month we will be receiving that money. No?

Terrific. Thank you.

Hector Treviño: Thank you.

Once again, ladies and gentlemen, if you do have a question, please press star-1 on your pushbutton telephone at this time. If there are no further questions, I will turn the conference back to Mr. Reyes to conclude.

I want to thank everyone for joining us. We're happy to share this call and information with you. If there are any doubts, Juan Fonseca and Alan Alanis would be happy to talk to you. Thank you very much.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 1.800.428.6051 or 973.709.2089 with an ID number of 366653. This concludes our conference for today. Thank you all for participating, and have a nice day. All parties may now disconnect.