Coca-Cola Femsa SAB de CV (KOF) 2007 Q1 法說會逐字稿

Good morning, everyone, and welcome to Coca-Cola FEMSA's first quarter 2007 earnings result conference call. As a reminder, today's conference is being recorded. (OPERATOR INSTRUCTIONS).

During this conference call, management may discuss certain forward-looking statements concerning Coca-Cola FEMSA's future performance and should be considered as good faith estimates made by the Company. These forward-looking statements reflect management expectations and are based upon currently available data. Actual results are subject to future events and uncertainties which can materially impact the Company's actual performance.

At this time, I would now like to turn the conference over to Mr. Hector Trevino, Coca-Cola FEMSA's Chief Financial Officer. Please go ahead, Mr. Trevino.

Good morning, everyone. Thank you for joining us today. Our quarterly results clearly display the strength of our geographically diversified portfolio, our ability to execute across Latin America and the upside potential of our market territories. Double-digit increases in operating income in the majority of our markets more than offset the decline in Mexico, generating more than 8% EBITDA growth for the quarter in real terms. As we have noted before, our geographic diversification plays a major role in our Company's ability to achieve sustainable value for our stakeholders.

Our total sales volume grew more than 7% from the first quarter of 2006, thanks to double-digit growth in Central America, Colombia, Venezuela and Argentina, as well as single-digit growth in Brazil and Mexico. Our carbonated soft drink volume growth was driven mainly by brand Coca-Cola, which accounted for close to 80% of our incremental volume in the quarter. The momentum of brand Coca-Cola, combined with the successful launch of Coca-Cola Zero in Mexico, Argentina and, most recently, Brazil were important growth drivers.

After only three months in the market, Coca-Cola Zero has reached more than 1.5% of our total carbonated soft drinks as volume and, more importantly, has attracted new consumers in the cola category. Additionally, we continue to produce strong growth in the non-carbonated beverage segment across our franchise territories, with our total volume up more than 45% year over year. Our juice-based products in Central America and Brazil, combined with the strong performance of Nestea in Venezuela, continue significantly to this growth.

During the quarter, our consolidated revenues rose 9.2% in real terms to approximately MXN15 billion, equivalent to $1.4 billion. Our consolidated operating income reached MXN2.3 billion, approximately $206 million, up 10.8%. And our consolidated EBITDA reached MXN3 billion, or $270 million, resulting in a solid EBITDA margin of 19.9%. During the quarter, our majority net income increased 18.2%, resulting in earnings per share of MXN0.62, or equivalent to $0.56 per share.

Our gross profit increased 6.9% in the first quarter of 2007. However, our gross margin decreased 100 basis points as a result of higher cost per unit case in all of our territories. Our high revenues and the operating leverage achieved during the quarter more than offset higher sweetener costs, primarily in Mexico, resulting in an operating margin improvement of 20 basis points.

Now let's talk about our operations. Following the trend of the past four quarters, our Central America operations delivered strong top line results, posting 13% volume growth (inaudible) 6.9% growth in the same period of 2006. Better execution across the region, coupled with a focus on single-serve presentations drove our growth for the quarter. Brand Coca-Cola contributed half of our incremental volume in the region with well balanced growth in the single- and multi-serve presentations. The performance of our flavored carbonated soft drinks was also an important driver of our growth, thanks to improved execution and strengthened product performance. We continue posting strong results in the non-carbonated beverage segment, driven by Hi-C, which volume grew over 50% in the first quarter. The bottom line performance of our Central American territories was remarkable in the quarter. As a result of our strong top line growth and improved operating leverage, the region posts more than 45% increase in operating income for the first quarter, contributing 20% of our consolidated incremental operating income for the period.

Our Argentine operation's volume grew 20% for the first quarter. Brand Coca-Cola was the main driver of our incremental volume, accounting for over 75% of our growth, including the recent introduction of Coca-Cola Zero. The non-carbonated beverage segment, excluding bottled water, accounted for more than 10% of our incremental volumes, led by Dasani, our flavored water brand. This segment represented more than 3% of our total volumes in Argentina, growing more than 50% in the first quarter. During the quarter, we continued facing cost pressures across the value chain, from increased labor costs to higher sweetener and freight costs.

Moving on to Venezuela, we posted 20% growth in sales volume for the first quarter. Brand Coca-Cola was our main growth driver, contributing about 80% of our Venezuelan operation's incremental volume. Flavored carbonated soft drinks, led by Frescolita, also posted strong growth in the quarter. The operation's incremental volumes were driven by our focused SKU portfolio, which allows us to increase our marketing and sales initiatives with greater precision. In the non-carbonated beverage segment, we continue to post healthy growth, led by Nestea, which has topped previous volumes by almost sevenfold over the past two years. Due to its top line growth, SKU portfolio rationalization and other efficiency-driven initiatives, our Venezuela operation was able to increase its profitability significantly compared to a very small base in the first quarter of 2006.

Our Colombian operations posted 13% CSD volume growth in the quarter. Improvement in the Colombian economy, combined with our better execution, drove increased sales of our core brands in both the cola and flavor segments. Growth of brand Coca-Cola continued to outperform the rest of our carbonated soft drink portfolio, delivering 65% of our incremental volumes in the quarter, supported by our more multi-segmentation strategy. Moreover, thanks to our innovative pipeline of products and presentations, flavored carbonated soft drinks also posted double-digit growth for the quarter, driven by the Crush brand. In the water segment, our volume of single-serve presentations continued expanding, with almost 15% growth in the quarter. This growth results from our multi-segmentation of the market and our introduction of the packages to capture new consumption location. With all of the work that we have performed over the past few years to strengthen our portfolio approach and packages, along with our more detailed market execution, we are much better positioned to capture opportunities in the growing Colombian soft drink industry.

On the profitability front, we continue realizing the benefits of our multi-segmentation strategy, with a strong 20% top line growth in the quarter. Our strong volume growth and an 8% increase in our average price per unit case drove this growth. At the operating income level, we continue delivering strong results, our sixth consecutive quarter of double-digit growth. We almost doubled our operating income compared with the same period of 2006, expanding our margins by 600 basis points to 16.4%.

Our Mexican operations posted 2.3% margin growth, citing an 8% growth for the first quarter of last year, driven by the strength of our Coca-Cola brand carbonated soft drinks. Volumes of brand Coca-Cola increased 4.5% for the first quarter, including the January launch of Coca-Cola Zero, which contributed close to 50% of this volume growth. Coke Zero is drawing new consumers to the carbonated soft drinks category, targeting mainly single-serve consumption locations. This launch has further strengthened brand Coca-Cola by not only fostering the growth of the carbonated soft drink category but also helping us to gain share of market and revenues in our Mexican (inaudible). Our water single-serve portfolio continued to gain strength in the market, posting a strong 12.6% margin growth, due to our focus on improving execution at the point of sale. In the non-carb category, consistent with our strategy of building a complete integrated beverage portfolio, we have introduced new beverage options since the end of 2005, including a no-calorie, flavored water under the Ciel brand umbrella, in both sparkling and still versions, which have contributed importantly to our non-carb's performance since the time of the launch. And new packaging presentations for Powerade, including a no-calorie version, driving more than 35% growth.

In the first quarter, our Mexican operation's revenue increased 0.6%. Our volume growth more than compensated for year over year decline in our average price per unit case of 1.7%. Less than half of this decline was driven by lower carbonated soft drink price. The rest was driven by incremental single-server water and jug water volumes, which carry lower average price per unit case. On a sequential basis, average carbonated soft drink pricing is improving. During the quarter, our weighted average price for brand Coca-Cola remained almost flat in real terms year over year. A more stable competitive environment for multi-serve presentations, primarily (inaudible) Mexico, combined with a 2.5% nominal price increase implemented at the end of March, should help us to build on these positive trends.

On the profitability front, our gross margin declined 200 basis points, or 3.8%, mainly as a result of higher sweetener cost. In Mexico, our sweetener cost increased by more than 20% year over year, while our PET bottle cost declined by approximately 7% year over year. Despite our improved operating leverage with operating expenses declining as a percent of total sales by 20 basis points for the quarter, our operating income declined 10.7%, due to the negative impact of our high average cost per unit case.

In Mexico, we expect to continue facing sweetener cost pressures the rest of the year. We are working on several top line and cost control initiatives to help mitigate the bottom line impact of this adverse cost environment. Despite the circumstances, Mexico remains our most profitable market, with a solid and sustainable cash flow generation.

Our Brazilian operations continue delivering sustainable, solid top and bottom line results, reaching an EBITDA margin of 19.2% for the quarter. Excluding beer, our volumes rose 7% in the first quarter, mainly driven by the strong growth of brand Coca-Cola. Several initiatives implemented over the past year fostered a strong 15% volume growth of our cola-flavored carbonated soft drink brands. In the non-carbonated beverage segments, we continue to provide our consumers with an array of different beverage alternatives. During the first quarter, we introduced Aquarius, a no-calorie, clear, flavored water brand. This rollout, together with the improvement in the execution of Minute Maid Mais and the introduction of new flavors, resulted in more than 90% growth in the non-carbonated segment for the quarter. Approximately a year ago, we resumed the sales functions of (inaudible). Over the course of the year, we have worked to build brand equity for the brands and to leverage our proven expertise executed in multi-segmented pricing strategies. For the first quarter of 2007, our Brazilian operation's revenue increased 10%, excluding beer, as a result of increased sales volume and better average prices per unit case. Well balanced growth between single- and multi-serve presentations, combined with price increases implemented by the end of 2006, contributed to the 2.7% improvement in our average price per unit case.

On the profitability front, we posted 16.1% growth in operating income, achieving a record operating and EBITDA margins of 17% and 19%, respectively, for the first quarter. During the quarter, we received some benefit from lower sweetener cost, which declined by approximately 10% year over year.

Now let's talk about our financial performance during the quarter. In March 2007, we took advantage of the low interest rate environment and our strong investment-grade credit rating to successfully issue the equivalent of $270 million in Mexican peso-denominated bonds in the Mexican market at a rate of tier minus 6 basis points. This issuance was oversubscribed by more than three times, underscoring investors' confidence in our Company. A portion of this issuance was used to pay down the equivalent of $170 million of Mexican peso-equivalent bonds that matured on April 20 and the rest to finance the acquisition of Jugos del Valle once we receive clearance from the applicable regulatory authorities.

We believe that we have the right portfolio in many ways, including different business lines across the various industries, a wide array of popular (inaudible) and presentations and geographically diverse market territories with different complementary seasons to support our solid, sustainable results, despite raw material cost pressure and changes in competitive dynamics. Beyond the ample opportunities for growth in our (inaudible) territories, we also have the resources, the experience and the process to continue expanding our geographic position.

With this, I would like to open the call for any questions that you may have.

(OPERATOR INSTRUCTIONS). And your first question comes from the line of Robert Ford with Merrill Lynch. Please proceed.

I wanted to make an observation. I don't want to waste my question, but, just FYI, in the historical comparisons, the cogs go up 10 BPs from what was reported last year, the SG&A is down 10 BPs. I'm not really sure if you're restating the extended [quota] life that you did, but it's not consistent with the changes in the historical. Maybe we can go over that offline. But I was curious as to who was bidding on (inaudible) back in Argentina. And, in a theoretical kind of context, how would that be integrated into the system, both from an operational perspective as well as from an equity ownership perspective, if the system were to get involved in an asset like that in a country like Argentina?

With respect to the first question, there is one change in the accounting regulation in Mexico regarding how we register the profit sharing. I'm not sure if that's precisely what you were referring to with your first question. I will ask [Rafael] to check on your observation and then get back to you. But, basically, up to 2006, the profit sharing that you have to share with the workers in Mexico, 10% of the profits, was recorded in the tax line. Now, it's been moved up into other expenses.

Hector, I'm looking at the Mexican (inaudible) financial statement. It says [spoken in Spanish]. So, in the Mexican financial statements, it appears as if you're still recognizing a PTU. But I don't know if you've changed it for the press release but not in the way you've filed, because I understand that the requirement doesn't take place until May. So I don't know if there's inconsistency there. That would be consistent with what you're saying.

I think that that's what we're-- (inaudible) because we have to restate those 2006 to make it comparable. But, again, I'll ask Rafael just to double check and be sure that that's the precise number.

With respect to Argentina, I think that everyone knows, at some point in time, we were looking at the assets that were being sold by [Quinze]. It was basically a plant and some brands that they were selling in the Argentine territories. We looked at that from the perspective of distributing a beer product in Argentina, and FEMSA Cerveza was looking from the perspective of acquiring those assets over there. I know that there was a press article in Buenos Aires, basically saying that-- with a very dramatic type of (inaudible) - "Coke FEMSA acquires (inaudible) in Argentina." That's totally false. We have not-- we have kept conversations with them, obviously as a normal potential commercial partner with a big brand in Argentina when you have in front of you a competitor that is integrated with beer and soft drinks. We have looked at some alternatives. But I don't know where this article came from, and that's basically the story. We were involved in analyzing the assets of Quinze when they were selling that, and we have had some conversations, basically for potential commercial arrangement with (inaudible) to do something together in Argentina in terms of us distributing their products and things like that.

Hector, my real question is - in the hypothetical event of an acquisition of this type, would it follow the pattern that's being established with the acquisitions of Leao Junior in Brazil or Jugos del Valle in Mexico and Brazil? Would it be something where the entire system, including the concentrate company, gets involved in terms of equity ownership? And, then, in order to ensure that there's proper follow through in terms of point of sale execution and everybody plays a role in terms of the brand building, that other bottlers too are integrated in the capital structure? Or is this--? Is there an exception for this segment of alcoholic beverages that results in a different outcome?

Bob, I think that, in general, the understanding that we have with the Coca-Cola Company is that if we were to do a transaction similar to Leao Junior or Jugos del Valle or something like that in the non-carbonated segment, the answer is yes. We will follow the same pattern that you have seen. We have not discussed with the Coca-Cola Company anything related to alcoholic beverages.

Okay. Great. Thank you very much, Hector.

Your next question comes from the line of Andrea Teixeira with JP Morgan. Please proceed.

Actually, just in terms of your comments regarding Jumex coming to Colombia, I know you face the Jumex recently. It isn't the case in Mexico so much right now as opposed to [red collar], but I would say the pricing there is like $3 per case, and you have in Mexico $2.5. And you took pricing also recently in Colombia. How do you see yourself positioning against a new competitor. That would be my first question. Thank you.

Andrea, one strategy that we have followed in other areas where Jumex has entered; for example, in Costa Rica. We are working, basically, with the same strategy in Colombia - to start preparing our portfolio products with different packages so that we cover a wider array of price points; and, also, even though it may sound strange, it's to start increasing the prices so that when-- (inaudible) competitor in this case, in Colombia, Postobon (inaudible), and it has followed some of the price increases that we have made. When (inaudible) to the market, they basically take that as a reference to where they price their products. So we believe that it has been a successful strategy in other areas. To anticipate the entrance by increasing the (inaudible) prices, our experience is that (inaudible) enters with a higher price than otherwise they would have if they were the same prices from the past. I think that that has worked for us in the past. Our view is that the entrance has been delayed by some construction and license problems that they have had in Colombia, so we are now expecting that probably in July. I think that we are prepared with a very solid portfolio of products and pricing architecture in Colombia.

Okay. Great. One last question regarding [spoken in Spanish]. The comparison against revenues of Brazil ex-beer last year, I think, was also something restated, because we had calculated the 9%, unless-- if I calculate the pricing times the volume, I can see the 9% growth. But the value here that we see in the press release perhaps doesn't show much of a growth. I just want to make sure it is-- you know, just something wrong with the numbers or with the notes in the press release.

Okay, Andrea. Why don't we go over that offline?

That would be great.

And we will try and find that one too.

But, in general, you had-- in revenues, you had high single-digit growth in Brazil, ex-beer.

That's correct.

Perfect. Thank you.

Your next question comes from the line of Alex Robarts with Santander. Please proceed.

I guess my question would really want to focus on Mexico. I'm interested to see how you describe the margin pressure - the gross margin pressure on sweetener. I guess what I'm wondering-- you don't mention the concentrate price hike that has started in Mexico this year, this higher than normal price hike in that concentrate price. I'm wondering - was that a factor here? And, to the extent that if we kind of think about the gross margin contraction, would it be similar to the impact or the pressure that we saw with sweetener or not? I guess, kind of the general idea here-- I mean, we have a sense of the trends in sweetener. Do you think that there's a chance that we get to have positive EBITDA growth in Mexico this year? I guess we're coming here-- this is the third quarter, as I can see, that we've had year on year EBITDA contraction in real terms. I'm just wondering how you're looking out generally then for the rest of the year. Thanks.

Yes. You are right. We didn't mention the price increase on concentrate. But, as you correctly-- as you are pointing out correctly, we started with a new price for concentrate formula that was announced a year ago in January. We probably focus much more on the sweetener cost because it's something that has increased and has impacted a lot of our results. The effect that we have-- when you look at the financial statement of Mexico isolated, basically, the reduction that you have in EBIT is basically of the same size that we have for increase in sweetener cost in Mexico. But, on the other hand, we have a little bit more volume. We have some production in PET, etcetera. That's why there's been-- those positive effects were basically compensated or reduced by the increase in concentrate. We do have the effect of the (inaudible) increase. It's probably, I would say, between-- of the size of the impact for sweeteners, it's probably around 20% to 25% of that increase - of the increase in sweetener. So it's an important impact that we have, and we probably should have mentioned this as (inaudible) that impacted our results.

Going forward, I think that our estimate is that volumes over the second part of the year will be able to recuperate part of the lost ground. As we are measuring the results of this quarter versus our budget for the year and how we are performing, we are certainly below our budget during this first quarter. We believe that the price increases that we implemented at the end of the third quarter that were late according to our budget because of all the press noise and political pressure that you saw throughout the end of the year and beginning of this year with a potential tax on soft drinks and then all the noise that was created with the high cost of corn and the effect that that had on tortillas and the inflationary pressure that was being reflected in the markets in Mexico-- basically created the elements for us to strategically decide to postpone the price increases for a little bit behind what we were anticipating in the first quarter. So we basically increased towards the end of the third quarter-- excuse me-- at the end of the third month of the first quarter. It was the end of March. And I believe that that will start creating some positive trends for the next three quarters. Some of the competitors followed these increases. Pepsi increased the price of the two-liter presentation that they have. Big Cola also increased the price of the [3.2] liters. Jarritos and (inaudible) cola stayed with the same prices. So we were widening a little bit the gap versus that competitor. But, obviously, when you have a very tight control on some of the expenses and you see how the line-- our SG&A line is basically flat compared to last year in real terms. If we continue to have pressure as an industry on some of these raw materials, the reasonable way to proceed is to start moving a little bit the prices. I think that we are-- the positive thing that I see during this quarter is that, for the first time, we are seeing some positive trends on that front. My feeling is that the Mexico team is working to recuperate the lost ground versus their budget that they had during the first quarter and that they will (inaudible) in the second half of the year. I'm not sure that the second quarter will necessarily reflect that recuperation. But I feel that for third and fourth quarter, we are going to post a little bit better results. I think that, if I have to summarize the results for Mexico, I think that we have very stable numbers, basically, in every line. And we have some growth in volume. We have-- when you isolate the effect especially of jug water, that has a substantially low price compared to soft drinks, and you know that we are pushing a lot for jug water now-- but just isolate that. Prices for CSDs are pretty stable in real terms. You have a very stable SG&A line. The only thing that is moving a little bit our numbers is the effect of sweeteners.

When you compare to other Mexican bottlers, including competitors and including (inaudible), obviously, you know that we were working under the umbrella of an injunction that allowed us to use a substantial portion of high fructose last year. That's precisely the sweetener that is increasing the most, because of the reference to the corn prices. So we are looking to start to move away from high fructose and start using more raw sugar. We have lowered the importance of high fructose in our mix. But the same that we were the bottler that was benefitting the most of high fructose prices in the past, we are being hurt the most during this quarter because precisely this effect.

So I think that, in general, I should comment that we will recuperate part of this toward the second half of the year. And, again, I feel very optimistic in the sense that most of the lines in our P&L are pretty much under control, except the raw material effect. You are right when you are pointing out the effect of increased concentrate. That clearly also affected our numbers.

Okay. Thank you.

Your next question comes from the line of [Reynaldo Santana] with Deutsche Bank. Please proceed.

On Mexico as well, do you plan to introduce jug water in the Valley of Mexico and what channels and if you see a relevant impact this year in terms of revenue per case and volume growth? Thank you.

Reynaldo, yes, we are doing some pilot testing in the Valley of Mexico. The idea that we have is that if we are successful with those testing, it's an area that we probably should pursue. The idea is to work basically with home delivery of jug water at a very attractive price, attractive meaning for the company. It's not a discount water. It's basically charging for the service of delivering to homes - home delivery. And, again, some of the experiments that we are doing around that is what happens if you carry some Minute Maid juices or some Coca-Cola products together with that truck that is visiting the household. It's in a test stage. Probably by the second half of the year we will start taking some decisions if we will introduce this (inaudible) specific areas of the city. It's not a cheap product. Basically, the price point is around MXN28 per jug. When you have an array of products that go all the way from-- if you take your empty jug to what is called [Aqua Central], they charge all the way from MXN7 to MXN20, and then you have to [compete with more former competitors] that sell MXN18 to 20%. And you have the mayor of Mexico City announcing some (inaudible) that they will do in some of the poorer areas of the city where they will introduce jugs at MXN3.5. I don't know if they will be able to work that appropriately, but that's-- what I'm trying to say is it's not jug water 100% of the city to 100% of the points of sale. It's a very targeted experiment that we feel that, if we are successful, it would be a very good stream of profit for the Company because of the good pricing and basically charging for the service.

If we continue to introduce or grow jug water as we have, basically, in some of the southeast regions of the country, that will continue to impact our average price per unit case. Just to give you an idea, if we get a price per unit case of one of these jug waters, you are basically speaking about MXN4 or MXN5 per unit case, which is substantially lower than the MXN28 or MXN29 or, sometimes, MXN30 per unit case that we have on soft drinks. That would clearly-- would reflect the pricing as we look at the average price per unit case of the Company. Obviously, with the architecture that I mentioned about charging MXN28 per jug, etcetera, it's a good-- when I say that is a good profit-- obviously, that low price per unit case carries also a very low cost per unit case.

Thank you very much.

(OPERATOR INSTRUCTIONS). The next question comes from the line of Lore Serra with Morgan Stanley. Please proceed.

That was really helpful. I just wanted to ask a couple of quick follow-up questions on Mexico, if I could. You mentioned the price increase that you took and that most of your competitors have followed, except for Jarritos and-- And we also saw some weakness in the quarter in terms of the flavor volumes; actually, for the last couple of quarters. So I guess I'm wondering - do you feel confident that you can stick this price increase, or do you think that, if you don't see some movement on sort of the lower end flavors, that you will have to sort of discount back some of the pricing?

Lore, I think that, in the cola segment, I feel very confident that prices are sticking. In the flavor segment, obviously, that's an area that is contracting in size with all the activity around colas, with (inaudible) cola on behalf of Jarritos or the pricing that Pepsi Cola is doing in colas and the activity with Coca-Cola (inaudible) along with that. So, when you look at the total pie of the products, the percentage of cola flavors is increasing. So, on the flavor front, you know that we work with some of the multi-flavor strategies in some of the lower disposable income areas. We use Mundet in the Valley of Mexico. We use Fanta multi-flavor in some of the other territories where Mundet is not well known. We have increased the price, importantly, of those presentations because we felt that we had very low prices on the multi-flavor presentations. We have been suffering on flavor volumes. We do have a contraction in flavors. I don't remember exactly the percentage, but when you look at the different categories that we have, every single category is growing but flavors. So we need to play it a little bit by ear going forward with respect to the prices of flavors, Lore.

Okay. Also, in terms of Mexico, you mentioned a couple times on the call the raw material pressures in Mexico. As you look past the first quarter, is the raw material pressure pretty fully baked into first quarter in terms of your cost of sweetener and, obviously, your cost of concentrated? It is? Or, as you look at the coming sort of three quarters or four quarters, do you expect to see higher or more pressure on any part of the sort of raw material chain-- I guess I'm talking a bit more here in Mexico, but we could broaden it out-- than what we see in the first quarter?

I think, Lore, that, in general, the pressure, and we have different-- we go to different countries, the percentage increases. It's different. And we have the case, for example, in Brazil, where actually prices are coming down for some of the sweeteners. But, speaking specifically about Mexico, the main impact was over the end of the fourth quarter or beginning of this year. Basically, what we have since January for the first quarter is, in my perception, the full impact of the pressure on sweeteners. We will have, starting 2008, another step increase in concentrates, as you are all aware. We have three years where concentrate will be increasing step by step. But, if I understand your question correctly, my feeling is that the first quarter has the full impact of the sweetener cost, and we are not anticipating additional increases at this moment on second and third quarter.

Yes, that's perfect. That's exactly what I was asking. And then, just briefly, on Brazil, you had a pretty good gross margin performance, given that you had talked in your last conference call how you still have some raw material issues. How do you think about the pricing environment over 2007, given that we should see sort of contained raw material costs, I think, or more contained in that market, both in terms of sugar and PET?

Lore, in Brazil, the right answer would be that it would be a function of the mix and how we continue or not to improve our single-serve penetration. I think that in addition to capturing or bringing attention to the cola category with Coca-Cola Zero, the fact that we are basically launching single-serve presentations in that is also helping in the countries where we have launched Coke Zero with a pricing equation. So I don't see a lot of pricing activity in Brazil. I don't think we are-- we are not increasing prices per presentation. We are not reducing, and we are not going into pricing wars either. So it would be a little bit more-- if we continue with the trend where we sell more of our core products and less of our value protection brands, it will help the pricing. It's according to how the mix is moving going forward.

Perfect. Thank you.

At this time, we have no more questions in queue. I would now like to turn the call over to Mr. Hector Trevino for closing remarks.

Well, thank you very much for your time that you gave to us this morning. We'll be in touch.

Thank you for attending today's conference. This concludes the presentation. You may now disconnect, and have a great day.