Fomento Economico Mexicano SAB de CV (FMX) 2004 Q4 法說會逐字稿

Good day, everyone, and welcome to FEMSA's fourth-quarter and full-year 2004 earnings results conference call. As a reminder, today's call is being reported and all 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 including 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 offers, solicitation, or sale would be unlawful prior to registration under the securities laws of such jurisdictions. At this time I will turn the call over to Mr. Federico Reyes, FEMSA's Chief Financial Officer. Please go ahead, sir.

Thank you. Good afternoon, ladies and gentlemen, and welcome to our discussion of FEMSA's fourth-quarter and full-year 2004 results. Our fourth quarter was an interesting one and a fitting way to finish an eventful year. In order to provide you with more information and context to better understand our Company's performance I have the pleasure of having quite a team with me on this call.

To discuss our performance in the year we have Jorge Louis Ramos and Javier Astaburuaga, co-CEOs of FEMSA Cerveza; and Gerardo Estrada, CFO of FEMSA Cerveza. Also joining us on the call are Hector Trevino, CFO of Coca-Cola FEMSA; Juan Fonseca, head of FEMSA's Corporate Finance; and Alan Alanis, from FEMSA's Investor Relations. Jorge Luis and Javier will be leaving for a flight in the next 45 minutes, so I will be brief in my remarks.

2004 marked FEMSA's 10th consecutive year of operating income growth, up to 8.7% for the year. All of our corporations, soft drinks, beer, and Oxxo stores, contributed positively to this growth. More and more we are consistently advancing on the execution of strategy of each business. At the same time we are also making progress in the development of shared services structure and other synergies that should lead to a stronger bebas company with increased capacity for the creation of value going forward.

Let's move on to our operations. At Coca-Cola FEMSA, our focus on aligning the new territories to our first class operational standards continues to show improvement. In Mexico, we continue to focus on marketplace execution and building our brand portfolio through new package alternatives and targeted strategies to serve our customers better than before.

The gradually improving result of these initiatives are basically in CSD sales volume growth for the quarter of 1.8% and a sequential improvement of 1.3% in the others price per unit case. This was driven by improvements in package and mix in the multiserve segment and in (indiscernible) and volume in single serve presentation.

Our operating margin in Mexico increased 120 basis points to 21.8% of total revenues during the quarter primarily due to a favorable shift in our mix from refined sugar to standard sugar and reduced operating expenses. While there is still much work to be done, we are quickly seeing the benefits of our initiatives and continue to raise our expectations.

Outside of Mexico we are once again pleased with the results from our soft drinks operations. Most countries posted solid volume growth, and during the fourth quarter one of every three dollars of KOF's consolidated operating income came from operations outside of Mexico, improving the diversification profile of Coca-Cola FEMSA. Many of you listened to Hector on Coca-Cola FEMSA's conference call earlier today. If you were not able to participate you can access a replay of their webcast for additional detail on Coca-Cola FEMSA's results.

FEMSA Comercio delivered a stellar fourth quarter to cap off a very solid 2004. We must note there’s one correction to our press release in the number of new stores opened during the quarter, which were 207, not 279 as originally indicated. The total for the full year does not change. You can download the amended press release from our website. With 668 new stores added during the year, there are now almost 3,500 Oxxo's across Mexico.

But the growth is not only coming for new stores. Same-store sales grew by 9.6% during the quarter and 8.7% for the year as a result of a strong category management and improved promotional activity with our main supplier partners. Additionally, Oxxo continues to play a useful role in the growth and market penetration strategy of our beer operations, now representing approximately 7% of our total domestic beer volumes.

With approximately 2 million bays in section (ph) Oxxo has a tremendous opportunity to increasingly leverage its brand, technology, and people in order to provide the products and services that our customers want and need. We are working to improve our fast food offering and enhance our direct distribution while at the same time rapidly growing our store base. These investments are long-term in nature and will add to profitability in future years.

FEMSA Cerveza also had a remarkable year, and in a moment I will turn the call over to Javier so that he can talk about some of the events and achievements of 2004. As mentioned before, the results of FEMSA Cerveza now include our glass bottle and aluminum can operation, and we have included in our press release 8 quarters of adjusted numbers for full comparability.

Finally let me update you on the subject of our $500 million upcoming equity offering, which I know is of general interest. We are currently updating the business and financial information that we file with the SEC with full 2004 numbers; and we expect to be in a position to file our 2004 Form 20-F at the end of March. This information will then become an integral part of our prospectus. We cannot say when the agency's comment process will be complete, but as soon as it is we will proceed with our offering. Now let me turn it to Javier Astaburuaga.

Good evening, everyone. As Federico mentioned, 2004 was a year of intense activity for FEMSA Cerveza. The tools and capabilities we have built in recent years helped us start deploying for the first time a portfolio strategy that begins to differentiate price by brand and location, not just by packaging as in the past.

During the first half of the year, we experienced significant volume growth in a moderate growth industry environment, while the second half marked a period of intense competition where the rest of the industry grew slightly faster than us. Anyway, when the dust had settled, however, 2004 was a year in which the Mexican beer industry as a whole grew both in volume and profitability. We were able to increase our domestic beer volumes ahead of the industry in a profitable way, growing operating income by 5.7% and expanding operating margin by 50 basis points.

We were also able during the year to make great strides on the innovation front. During the year we introduced more new SKUs than ever before, based on a brand packaging market basis such as our successful Sol Brava expansion and the 1.25 liter returnable bottle which now we're rolling out all central Mexico as well as the renewed brand image of Tecate and Tecate Light, including the introduction of returnable glass packaging in several markets for these two brands.

As of the beginning of the year and looking ahead, we anticipate a more stable pricing environment in Mexico which should allow the industry to continue to grow profitably. We believe some of the new dynamics that FEMSA Cerveza has been introducing into the marketplace in recent years will prove to be a solid and positive foundation for the evolution of the industry and specifically for our Company.

Regarding our beer exports, the 120-day transition period for moving our U.S. brands over to Heineken USA ended in the fourth quarter; and as of January 1, Heineken USA assumed full responsibility for the marketing, sales, and distribution of our brands. I am pleased to report that we were able to deliver robust volume growth of 13% for the year and 7% during the fourth quarter in our export volumes. There was some inventory buildup in the 9 months leading up to the handover of the brands, anyway, within permitted contractual levels with Labatt USA; and we expect this inventory to work its way through the channel during the first quarter of 2005. We handed Heineken USA a healthy brand portfolio, and the new partnership is moving along very much as planned.

All in, we're very pleased with out 2004 results and we will continue with our strategy of profitable innovation and disciplined execution to best serve our consumers and customers. With that, we can now turn to your questions. Operator, can you start passing along the first question please?

(OPERATOR INSTRUCTIONS) Joaquin Lopez with Deutsche Bank.

Good afternoon, gentlemen. I wanted to ask you if you could isolate the impact of the increased marketing spend related to losses and relaunches of Tecate, Tecate Light, and the other presentations, as well as the one-off related to the merchandising purchase from Labatt USA.

Yes, this is Javier Astaburuaga. Just giving you a very general direction, with the two components put together on the fourth quarter, the figure comes to basically half of the increase from the marketing spend on the fourth quarter, incremental, relates to basically the phenomena that we described in the press release.

From the beginning of the year we had planned to have the new packaging on both Tecate and Tecate Light, and we were shooting also for September to start the rollout of the Coors Light brand in Mexico. Even though we had been in test markets for the Sol Brava expansion brand during the summer, really the rollout of both the brand and the new packaging on the 1.25 were originally planned for late third quarter and full fourth quarter.

So half of the incremental spending in the fourth quarter basically relates to things such as brand programs which were already included in the original 2004 business plan.

Would it be fair to say that excluding the impact of these, let's say, one-offs, that the EBIT margin contraction would have been much slower? Or in fact there would've been no margin contraction whatsoever?

I guess the first statement reflects better what it would be in the figures. So a lower contraction of the margin is what you should have been expecting. But anyway as I told you, most of the spending was already put into the business plan. It was just a matter of putting it in the quarter in which we were all ready to launch the redesigned brands and to start the rollout of both Coors Light, Sol Brava 1.25.

Would it be fair to say that, given the fact that last year was a record year in terms of new product launches, that marketing related to this kind of activity should come down to normal levels in 2005?

I think that what you're going to see is that our 2005 program still is very aggressive in terms of rolling out SKUs by market. When we talk about launches, we do not mean we are creating new products all over the place. It is a combination of redesigning, repositioning existing product lines, extending some product lines such as Sol with its Sol Brava, and then bringing to the marketplace new packaging such as the 1.25.

But all in all what you'll see is we are still going to be very active in the marketplace in the first semester of 2005, supporting the new introductions such as the ones that I already mentioned. We are not anticipating a decrease in the support level that we think is the appropriate one for the brand positioning or repositioning of some of the portfolio.

As I said in the beginning, we are now starting to use some of the capabilities and tools we have been implementing in the past to support a portfolio strategy that aims to target specific brands to specific consumer segments; and that, for sure, we think is going to take resources and time for us to be successful in doing so. So I don't anticipate a decrease in the level of spending in marketing in 2005. But, yes, there is going to be a change in the way we allocate those resources during the first semester compared to the second semester if you look at 2004 and then look ahead into 2005.

Thank you, just finally would it be fair to say then that we should not expect any significant margin expansion throughout the first half of the year?

I would rather not talk about margin expansion because that has a lot to do with how the industry evolves during the first semester. I am sure you all know that Modelo has just recently announced a price increase; and we're looking very carefully at that.

So instead of talking about the margin expansion in the first semester, I will tell you that we are right on track on our business plan in terms of, again, putting all the efforts and resources behind the brands in the marketplace, and managing accordingly, looking in a much more important way the trend going forward and first-second semester perspective more than on a quarter-to-quarter basis.

Thank you very much.

Jose Yordan with UBS.

Good afternoon. I had a couple of questions. One was if you could elaborate a little more on the increase that the press release said was to ERP-related expenses. Is that basically from distribution centers that come online and start amortizing the cost of the system? Or is it something else?

And a related question is basically, presumably you have a bunch of consultants still running around the Company, and eventually when the project is over they will be leaving. If you can give us an update as to what the schedule for that is, and what the savings quote unquote is from those consultants.

Yes, Jose. The first one is the increase is basically related to two concepts, as you anticipated. One is that when the project was in its initial phase, namely, design, parametrization, and pilot tests, a number of those resources were capitalized to be amortized on a short-term period, something like 4 years.

So once we started to roll out the solution, the technological solution -- but not only that, but the whole working system philosophy, roles, responsibilities, and new organization, which is basically what the ERP goes together with -- then we started to amortize. But also we started to incur in a higher level of expense, related precisely to the rollout, to an increased number of units. So that is exactly what is driving the cost up in the last year.

To the second question, our program goes all the way to the first quarter of 2006. So we're going to be full speed ahead in 2005 to try to finalize most -- almost totally -- the volume which is sold directly by the Company. And we're going to -- then leaving just a selected number of third-party distributors to go into this kind of infrastructure for the beginning of 2005. So the bulk of the people which are working on projects such as these are going to start to be fading out of these projects, let's say, beginning mid 2006.

Okay, thanks a lot.

Carlos Laboy, Bear Stearns.

I was hoping you could give us more color on the price activity that you saw in on October and November. Specifically, where did it start? How did it unfold? How did you respond? Whether you felt that your new tools for dealing in the marketplace gave you advantage or not in responding to that? And whether you think a flare up like this could happen again in 2005?

Secondly I was hoping you could us some more detail on Heineken in the U.S. and how the Mexican brands are being positioned; maybe some more color on incremental sales force penetration, marketing programs, etc. And how this is shaping up to be a better go-to-market model for you than what you had before.

This is Jorge Luis Ramos, and I'm going to be answering your first question, Carlos. Regarding the pricing activities in October and November, for sure those were the months where the competition was more fierce. During those days our pricing and other promotional market actions were implemented in a defensive way. We did not heavily discount in Modelo's strongholds, and we were careful to implement specific pricing discounts and our promotional strategies in a selective manner. By selective manner we mean specific SKUs, mainly second and third brands and in some specific channels.

We were, for sure, noting that our prices declined comparing our fourth quarter with third quarter. But we were more concerned for keeping a better environment in terms of recovering prices in the near future. That was our perspective during the last quarter of this year. At this point in time we already know that Modelo first decided during December and beginning this new year '05 quoting (ph) their discounts; and after that they recently announced a price increase. This happened just the middle of last week.

Once that happened we already started gathering information across the country, and we have noticed that Modelo has already started making a brand differentiation strategy. In that sense we have noticed that their leading brands they're making some price adjustments, around 10%. But at the same time they are reducing the prices of their second and third brands. So I will say at this point in time that we are trying to analyze their strategy. We also are having our plans to adjust our prices in line with the inflation expectations.

On the second front, on the Heineken front, as I mentioned we had a strong growth on the 2004; 13% shipment, 10% depletions. The 10% definitely were influenced by the very strong initial part of the year, which we grew about 15%. But anyway depletions for the fourth quarter were in the range of 4%.

So what we are trying to make sure is that we minimize the (indiscernible) necessary consequences of a transition, looking at the way imported brands of a magnitude of the FEMSA brand or even smaller have suffered in the past. We are very pleased with the way we ended 2004.

So what we are now doing with the Heineken USA is, knowing that Heineken USA is a company that has been used to managing basically their own brands, a couple of them only, for the last 60 years in the U.S. at least, what we are very, very focused is in implementing the working programs that we work on the last 120 days of 2004. We think we are still managing in a good way, even though we are suffering some of the natural consequences again of a transition.

What we're focusing a lot is on three things. We're focusing a lot on distribution, not giving away an inch of the distribution we have gained all over the U.S.; but trying to reinforce as fast as we can distribution in the northern states of the United States, northern and eastern part of the United States.

We are also working hand to hand with the national account groups of Heineken USA, which from learnings (ph) we have had in the past is the group that suffers the most, due to the fact that that is the first component that the previous importer, in this case Labatt USA, starts to lose a little bit, because negotiations with these kinds of channels really take 4 to 6 months in advance to be negotiated.

And the third one, we're carefully monitoring the competitive pricing environment in which the used (ph) market has turned out to be in the last 2 to 3 months, basically to what we see in RA (ph) Anheuser-Busch new pricing activity; and that is basically on our Tecate brand because, as you know well, that is the reference price that we look at when we manage pricing on Tecate.

So all in all I think we have almost everybody on board. We still have some organizational gaps to be filled with the Heineken USA. But the main key people that needed to be built into the Company are already in; and we are now starting to rolling out the incremental marketing resources that we have put forward into 2005, taking advantage of the new economic structure of the way we operate with Heineken USA. So we're trying to, again, put some incremental dollars into 2005 to try to smooth out a transition period which, for sure, is very, very critical for any brand that goes from one quarter (ph) to another.

Thank you.

Lore Serra with Morgan Stanley.

Yes, I have a couple questions. Let me ask them one at a time. In terms of the beer pricing environment, I understand that Modelo just made these actions last week and you’re studying them. But I guess the question I have for you is last year is a year where we saw the industry grow, but not at an exceptionally high pace. Probably we saw industry growth that was around 3% or little under that; and pricing did not quite keep up with inflation, given the activity at the end of the year.

So as you think about 2005, what gives you confidence that you can take pricing with inflation and not have an adverse consequence in the market?

(indiscernible) what companies (technical difficulty) that it's better to offer retailers and consumers a better offer in terms of new packaging and new place of pricing. Let me try to phrase again my ideas.

First of all I would say that since '03 our Company has been started branding our products in a different way. We established a price (indiscernible), a sector, and after that we started moving for a different way of executing this strategy (inaudible).

After these movements we are sure that our competitor interpreted this as maybe a way of making a very aggressive (inaudible) against them. But once we noticed what they have done in the end of last year and beginning this year, with their announcement of new prices, we noticed that they are also doing some kind of price architecture.

I would say that this is good for an industry like our Mexican beer industry (inaudible) enough room to increase our consumption per capita. I would say that we have competing (ph) demographics; and at the same time it is very obvious that in recent times we have not been very active in terms of innovation. Right now, we're introducing new liquids, new SKUs, new multipackagings, and all this we think is going to be helping the improvement of our industry.

Okay. In terms of the cost environment, could you just run through what you are expecting for your major raw materials? Could you tell us about any important plans in terms of efficiency gains? You mentioned the issue about the ERP expenses lessening; but that sounded like that was more of a 2006 issue.

Javier Astaburuaga again. We still do have productivity programs at the brewery. We have made tremendous progress in terms of cost reductions, not only in terms of productivity but utilizing best our capacity and managing our suppliers on a cost containment effort.

I think 2005 -- and we were very successful I think in 2004, even though there were a number of pressures on the cost of the business. But I think 2005 is going to present a challenge on the commodities side. We're looking at price pressures on a number of both packaging and raw materials, which are going to be impacting our cost structure in 2005. All those are already included in our plans for 2005; and we have a number of programs to try to contain mostly all the effects, but not all of the effects on the, let's say, production or brewing side of the business.

On the commercial side of the business, I think we have now a structure that allows to implement some of the differentiated strategies at point-of-sale that we were looking at 3 or 4 years ago, in which we started to think about a system as one that we now have; and we are not looking at, let's say, big efficiencies on the commercial side in 2005.

We do feel that in order to make progress we have to commit to a certain working system; and we have now implemented the one that we decided 3 or 4 years ago. We think we have some room for flexibility and for reductions going forward, but not in 2005. We think that 2005 is still a year in which we need to consolidate what we are working on. We need to keep making progress on the differentiations side. We think we have tremendous opportunities in terms of segmenting not only now channels, SKUs, brands, packaging, locations, etc., but also to start differentiating commercial practices with different channels -- which we haven't touched that in the past, to tell you the truth.

So all in all our philosophy during 2005 is to have the appropriate cost containment programs, to take advantage of a reasonable pricing environment, and to deepen our efforts in terms of building competencies and capabilities in the organization to gain on effectiveness, not basically working that much in efficiency.

Just lastly, I know that you do not want to talk about the specifics of the Heineken economics and I understand that. But I wonder if you could help us understand as, if we think about 2005 as a whole, whether we should think about 2005 as an investment year for FEMSA and we should expect less profitability coming from exports. Or if you think the economics for 2005 should be neutral to what you have seen in the last couple of years.

No, let me try to clarify as much as I can. The new economics structure of Heineken allows us to put more people, more money behind the brand, and bring more EBIT to the bottom line of the business, effectively 2005, and I would say, in an important way, in the three fronts that I already mentioned.

So we're very pleased with not only with the partner, but with the economics structure that we negotiated, because it provides to have a much more strength behind the brands and at the same time more profitability for FEMSA Cerveza on its export operations.

Thank you.

Dan Kwiatkowski with Schroders.

Two questions. One is on your CapEx for 2005. What does that look like? And when do you think you're going to be facing capacity issues in the brewing?

Dan, this is Juan. Let me take the first question. For CapEx for '05, what you should expect is, as Hector mentioned this morning for Coke FEMSA, the number you should put into your model is 200 million. If you consider FEMSA Cerveza plus Empaques for '05, the number should be 350, in the ballpark of 350. And 154 Oxxo give you a total of 700 million for the group.

Great; and the capacity issues?

On the beer side we don't see the need to start building a new plant at least in the next 3 to 4 years. It depends a lot on the behavior of the industry and our performance. But we have the ability in the next 3 to 4 years to work on just breaking bottlenecks and utilizing best our capacity through supply chain management.

Great. Second question is, could you give us the net debt breakdown per division? Or give it to us on a Cerveza and Empaques basis?

(indiscernible) we stopped doing that, because the reality -- if you exclude Coke FEMSA -- the rest of the units, which we own 100%, the net debt for each of the units has nothing to do -- it is not specific to the need of the business. It is more related to the correct fiscal planning and allocation of resources. So we feel that it is not meaningful really to provide you with what is the net debt level for each of the units, because of these reasons.

Okay, thank you.

Alex Robarts with Santander.

First, just one clarification. Just kind of understanding the consultant idea related to ERP in the beer assets, are you saying that I guess they will stay until mid '06; and that you were saying that the program goes until mid '06. Is that the program for the consultants, or is that kind of the ERP program? Maybe just a clarification there.

It is both things. The program which involves a certain role of the consultants working with the Company pretty much ends in first to second quarter of 2006.

But the ERP, you continue to expect to be fully implemented by the middle of this year. Is that correct?

No. What we have stated to you is that the direct volume that we distribute will be complete basically by 2005; but there are some parts of the third-party distributors' volume which will be covered in 2006.

Got you, okay. Just kind of thinking here, obviously a unique or similar to the situation that you were last year; where you have this price increase by your competition. And as you -- obviously I appreciate you can't really talk about what you're going through in your own mind. But just as you think about it in terms of just market share versus margin and profitability, you obviously can really control that, it seems to me, by the timing at which you would follow this, or how selectively you would do it.

First of all can you give us a little bit of color of what you might pursue? Obviously you want to do both at the same time. But if you had to favor one or the other. And is there any sense of timing? Are we going to know when you might move? Or is really going to be something that we are just going to have to pick up for ourselves, based on our own market research and such?

This is Jorge Luis again. I would say that we are oriented to have a market approach but in a profitable way. In that sense, we, our management team, are committed with our Company for a long-term view. In that sense we are balancing our profitability goals, and also our competitive position, and also to take care of our bank's (ph) equity. So in that sense I would like to be clear in that. We will be balancing all these three sides of the business in our common (ph) positions.

So you're not going to be necessarily favoring market share; and you would stand by what you have kind of told us of a 10 to 20 basis point average market share annually kind of gain expectation?

We don't see that scenario.

You do not?

Alex, this is Federico. I think it is a very tough question to anticipate what is going to be the evolution of market share in the future. I think the main message that we will try to convey is that we are looking for growth and we are looking for profit. Maybe the combination is going to produce an increase in market share. Yes; hopefully so.

But my point -- I think the main point is that we will not be looking for market share only just for the sake of obtaining it. It has to be balanced, the growth of the industry, growth of the business, and profitability. So market share will be the consequence of doing the right things in the market.

Okay, fair enough. This is really the last, more of a strategic question. Interestingly here, as you start '05, you have completed the spinout, well, the whole Interbrew transaction. As Hector said, today he feels that he can finally say, look, we've completed the integration of Panamco.

Any thoughts now as you guys look out in the next few years as to the whole total beverage Company model? Is that -- this is something that you are more convinced by now that you have finished these two transactions, less convinced by, or is it really something still that you are analyzing?

Alex, we are a beverage company. For historical reasons we have been viewing these two at entities of separate entities for a number of reasons. The Coca-Cola FEMSA has a differential holding date; and we are very respectful of that.

We are, as we have stated, we have been looking into the advantages of integrating ourselves as much as possible. This is going to change depending on the location, depending on the country, depending on the timing, and it is going to depend on many, many things. Again we are a beverage company and we want to be defined as -- we want to be perceived as a beverage company.

We will been looking for synergies between the two businesses; yes, we will, with respecting again the different interests of our shareholders and trying to be very fair and very arms-length in everything that we do. But at the same time we would not like to lose opportunities to increase value for all of our shareholders.

So the model is valid, yes. We will be looking to improve our efficiencies through a common vision, yes. But will be doing this according to how we see fit, again, for country, for market, for -- depending on the timing.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Robert Ford with Merrill Lynch.

My first question had to do with respect to your go-to-market and revenue management strategies. What I think I'm hearing is that regardless of what happened in the second half of the year, it appears as if your go-to-market strategies and your revenue management strategies won't change. If anything, your competitor appears as if they are looking more like you in that regard. Is that correct?

Yes, we think so.

As I try to understand your incremental volume, can you give me a sense of what is happening in terms of your light pack or your light assortments? I realize you have got new packages. But if you could break out light from new product, whether it is Sol Brava 1.25 or other new packages, just to give us a sense of how you're growing your incremental volumes and what proportion is coming for pre-existing packages and what is coming from some of these new and light alternatives.

I don't have the specific numbers with me right now. For sure, the light category is growing at a faster pace than the regular liquids here in Mexico. Also in terms of Sol Brava as Javier mentioned before, we are right now in the middle of the rollout; so we don't have enough information to give you at this point in time. But I will say that we are moving ahead according to our plans and at a good pace. I would say that the product has been accepted by the retailers and the consumer of the Central and Western area of Mexico.

Any sense of how the sell-through rates are developing? And can you give us a sense of the future of the 1.25? Are we just going to see it in Brava? I think I heard you say you are rolling it out in other flavors. How do you position a Cahuama (ph)? Do you go to market with a Cahuama and a 1.25 or will we see Cahuama slowly be withdrawn?

We are using this new presentation as an extension of Sol, taking care of the franchise of the brand. But right now it's the fastest-growing brand in Mexico. In that sense our position at this point in time is just to offer these new presentations for the new liquid that is called Sol Brava.

Jorge Luis, sell-through rates on some of these new products and packages, do you have any sense of how it is developing?

Could you repeat the question about what are you asking there?

I am asking on sell-through; because you can get a big bang when you put it into the trade; but how is it when you're restocking?

So is it moving to the (indiscernible) consumer, or are we just putting it in the shelves of the retailers? Sell-through. (multiple speakers) Only for Sol Brava, or for our new products, Bob?

New products in general, new packages, Sol Brava, the 1.25, just to get a sense of how it is selling.

We have established a set of indicators for each specific plata (ph) where the product has been launched. We establish goals for the products to be available at a specific number of retailers. After that we are watching if the product is repurchased. At this point in time we have noticed that we are moving at a good pace. The product has been accepted.

We have to recognize that we made some kind of a product sampling at some supermarkets, and also in some match events, so that we have in those areas where the product has been launched. So (indiscernible) in some specific areas where we have sponsorships, we have had the opportunity to offer the consumers some sampling of this new liquid.

Thank you very much.

Jose Yordan UBS.

I have just a quick question or clarification on your paragraph on pricing in the press release, where you say that compared to the third quarter domestic real price per hectoliter was down 2.8% and only 1% in nominal terms. Obviously the number should be larger. But the way I calculated versus the third-quarter press release, the two numbers should be 4 and 6; what am I missing?

Jose, this is Gerardo. Maybe what you're missing is using the annex that we include in the press release. Because of the consolidation of the packaging businesses into FEMSA Cerveza, there were some sales that now have to be in the consolidation process to be eliminated. So the new sales line is different. So that was the reason we included page 13 and we recalculated the prices.

In the 13 is quarter by quarter; in the 14 is cumulative to third quarter. So in that you can see that the reduction is 2.8%; and comparing 1.8% inflation in the quarter, it is equivalent to have a reduction of 1% nominal terms the fourth quarter against the third one.

I guess I thought the elimination really would be on the cost, because the bottles are cost to the beer company. Why is the elimination from the revenue line? I guess I will read that and then take it off line.

In the basics, (ph) we mentioned that there are some sales that we do to the -- we post (ph) it normally. But maybe Alan can explain with more detail to you.

Yes, we can take this call off-line, Jose.

Okay.

I will point you to the paragraph of the press release where we're explaining that. Thank you very much.

Joaquin Lopez with Deutsche Bank.

Just a follow-up in terms of Oxxo. The profitability you achieved during the fourth quarter was definitely impressive. Should we take that as a benchmark of what can be achieved down the road on a full-year basis? I would not say 2005, but maybe a couple years down the road?

Certainly not in the short term, Joaquin. This is Juan. You have to remember that December is by design is -- the fourth quarter is a quarter that is very heavy on promotional activity. We are doing more with our main supplier partners that has to do with -- you know, when you walk by an Oxxo, you'll see a banner on top with some promotion that changes periodically. There's other things that we can do with the partners. Again, once you have 3,500 stores, you look for different ways to increase your profit stream.

You should expect the margins to continue to expand but it is more of a medium-term proposition. So yes, that's -- the numbers for the fourth quarter is something that we're shooting for, but certainly not in the next couple years.

Thank you.

At this time there appear to be no further questions in our queue. I will turn the call back to you, Mr. Reyes, for any closing remarks you may have.

Thank you very much for joining us. We will keep working to increase the value for our shareholders, and thank you again. Bye.

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