Coca-Cola Femsa SAB de CV (KOF) 2007 Q3 法說會逐字稿

Good afternoon, everyone, and welcome to Coca-Cola FEMSA's third quarter 2007 earnings results conference call. As a reminder, today's conference is being recorded, 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 concerning Coca-Cola FEMSA's future performance and should be considered as good, safe estimates made by the Company. These forward-looking statements reflect management expectations and are based upon current 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 CFO. Please go ahead, Mr. Trevino.

Good afternoon, everyone. Thank you for joining us today. Our operations generated a strong result for the third quarter of 2007. We achieved double-digit operating income growth on a consolidated basis for the third consecutive quarter.

Increases in operating income in the majority of our markets produced 11.5% consolidated operating growth for the quarter in real terms. Our total revenues increased 6%, driven by close to 5% growth in our consolidated volume and a 1.1% increase in our consolidated average price per unit case.

This quarter and going forward, we will refer to volumes of carbonated soft drinks as sparkling beverages and to volumes of non-carbonated beverages as still beverages. For the quarter, we produced 4.2% consolidated volume growth in the sparking beverage segment, while our total still beverage volumes were up more than 9% year-over-year.

POWERade in Mexico and Central America, juice-based products in Central America, Brazil and Argentina, Aquarius Fresh in Brazil and the continued strong performance of Nestea in Venezuela contributed significantly to this growth.

Our operations outside of Mexico are delivering an important part of our profitable growth. Our balanced, diversified portfolio of products and presentations, as well as our successful local market initiatives are providing us with more balanced cash flow generation.

Colombia, Venezuela and Brazil accounted for more than 80% of our operating income growth, compared with the third quarter of 2006. For the quarter, our consolidated revenues reached close to MXN17 billion, more than $1.5 billion.

Our consolidated operating income increased 11.5%, to MXN2.8 billion, approximately $260 million. Our consolidated EBITDA reached almost MXN3.6 billion, or approximately $327 million, resulting in a solid EBITDA margin of 21.5%.

Our majority net income increased 4.8%, resulting in earnings per share of MXN1.02 per share, or the equivalent of $0.94. Now let's talk about our operations.

Central America, our Central American operations achieved top-line results of MXN1.1 billion, approximately $100 million, posting a slight decline of 0.3%. Our volume growth partially offset lower average price per unit case, despite a difficult comparison to our strong performance last year and adverse weather conditions. Our volume growth expanded 3.4%, compared with the third quarter of 2006.

The Coca-Cola brand accounted for more than 20% of our incremental volumes, and the flavors sparkling beverage segment contributed almost 35% of our incremental volumes. We continued to post strong results in the still beverage segment, fueled by POWERade and Hi-C, which volumes grew more than [15%] and 18%, respectively, during the third quarter. Our ability to grow Hi-C volumes six-fold over the last eight quarters reinforces the strength of our beverage model to the available market categories.

Our growth this quarter was driven mainly by multi-serve presentations, which carry a lower average price per unit case. This was the main reason for the 4% decline in the average price per unit case. Despite our comparably high growth last year and a decline in the average price per unit case, we were able to deliver gross profit growth of 1% and a gross margin expansion of 60 basis points, reaching 47% in the third quarter of 2007. This resulted from the operating leverage achieved through lower sweetener costs.

On the profitability front, the region's operating income declined 9.5%, mainly due to higher labor costs resulting from the fact that we have increased the variable compensation provision in our Central American operations. Currently, we are evaluating several revenue management strategies to increase our profitability by improving our average price per unit case.

Our Argentine operations volume grew 4.9% for the third quarter. Coca-Cola Zero and our core flavors sparkling beverage brands more than compensated for the volume decline in our value protection brand, Tai. As a result, we grew our sparkling beverage volume 4.5%, compared with 13% growth in the same period of 2006.

In the still beverage segment, excluding bottled water, the strong performance of the juice-based brand Cepita drove almost 80% of our volume growth in this category. Consequently, this segment accounted for more than 3% of our Argentine operations total sales volume, compared to 1% in the third quarter of 2006.

A favorable shift in our product mix, driven by the growth of our core brands, combined with a decline in our low-price value-protection brands, resulted in better pricing per unit case for the quarter. Our double-digit top-line growth was offset by higher sweetener costs and labor costs.

Moving to Venezuela, we achieved 8% growth in sales volume for the third quarter. Our focus on our core products, combined with our redefined portfolio, helped to fuel growth of more than 10% in sparkling beverage for the quarter. Flavor sparkling beverage accounted for more than 60% of the growth in that category, and the Coca-Cola brand accounted for the balance.

Strong consumer dynamics, combined with our improvements to the value chain, higher operating efficiencies and revenue management initiatives delivered powerful results. Despite raw material scarcity and higher labor and freight costs, we continue to supply the market with a greater volume of our core products, supported by our SKU rationalization strategies.

Consequently, our Venezuela operations accounted strong results, including almost threefold growth in operating income compared with a small base in the third quarter of 2006.

After posting double-digit top-line growth over the last four quarters, our Colombian operation is now starting to face high comparisons, moderating its year-over-year growth. Higher average price per unit case more than offset a slight decline in volumes. As a result, our Colombian operation posted a 1.6% increase in revenues, reaching MXN1.7 billion for the third quarter of 2007.

Brand Coca-Cola continued to outperform the rest of our sparkling beverage portfolio, and with growth in the bottled water segment partially offset a decline in the flavored sparkling beverage segment.

Colombia is one of our most consistently growing markets, posting double-digit operating income growth for a two-year period now. We grew our operating income for the third quarter by 38%, and we expand our operating margin by 540 basis points to 21%, mainly driven by a 15% appreciation of the Colombian peso applied to our dollar-denominated raw materials, lower sweetener cost, and combine that with a stable operating structure. This quarter, we reported our Colombian operations highest EBITDA margin ever, reaching slightly more than 25%.

Now let's move to Mexico, our largest cash flow generator. After four quarters, our Mexican operations have returned to the path of growth and profitability. Our volume growth has started to translate into higher operating income. This quarter, our Mexican operations delivered almost 5% volume growth, which compensated for lower average price per unit case due to the growth of our bulk water business, which, as you know, carries lower price per unit case.

In the third quarter, our Mexican operations increased revenues by more than 3%. Our portfolio continues to show the strength of brand Coca-Cola in Mexico. Volume for this brand grew almost 5%, representing almost 60% of incremental volumes in the third quarter.

Our single-serve bottled water presentations recorded double-digit volume growth during the quarter, consistent with our strategy to aggressively expand the category. We are competing more aggressively in this category, seeking higher market share by improving our execution at the point of sale and increasing coverage in our territories.

In the third quarter, bottled water posted double-digit volume growth and represented more than 35% of our incremental volumes, mainly due to a strong performance in our territories located in the Gulf of Mexico region.

In the still beverage segment, we continued to post strong results. For example, Nestea and POWERade grew more than 90% and 65%, respectively. The average price per unit case of our sparkling beverage improved year-over-year, recording a slight price increase in real terms, mainly as a result of tactical price movements and growth in brand Coca-Cola in longer [turnover] packages, which carry higher prices per unit case.

As we anticipated, the pricing environment in Mexico is stabilizing. This has led us out evaluate our near-term revenue management opportunities across our franchise territories. On the gross profit front, a decrease in [rates and] prices compensated for an increase in sweetener costs and concentrate prices. Consequently, our gross margin expanded by 10 basis points, remaining the highest of all of our operations. Our operating income increased 3.4% to MXN1.7 billion, or approximately $158 million.

This is the first quarter with operating income growth after one year. We are optimistic in our ability to increase top line through our multi-segmentation and revenue management strategies, combined with our growth captured in novelty beverage portfolio that should translate into profitability.

Our Brazilian operations report important top-line growth and double-digit bottom-line growth. This quarter, the main drivers of our results were lower sweetener cost, combined with a higher sales volume and improved procurement practices.

Excluding beer, our volume rose 7.7% during the third quarter, with Coca-Cola brand accounting for 80% of this volume, mainly driven by the successful performance of Coca-Cola Zero. This quarter, on a combined basis, our volumes of Coca-Cola Zero and Coca-Cola Light have increased almost 50% versus the third quarter of 2006.

The still beverage segment, excluding bottled water, expanded almost 70%, mainly driven from the introduction of Aquarius Fresh.

Moving onto beer, as I mentioned in our previous conference call, we have continued our efforts to build brand equity and recapture customers in the markets. Launched this year, Sol Shot, a 250-ml glass presentation of our Sol beer has not only captured new customers, but also exemplified our constant product innovation in our beer portfolio.

For the third quarter of 2007, our Brazilian operations revenue increased more than 7%, excluding beer, as a result of our sales volume growth. On the profitability front, we posted 22% growth in operating income, mainly due to the lower price of sweeteners and better procurement negotiations on PET prices.

We also achieved a 17% EBITDA margin for the quarter, an improvement of 170 basis points year-over-year. Now let me talk finally about our financial performance for the quarter.

During the quarter, we paid down approximately $72 million of debt. Our cash position at the end of the quarter was MXN8.1 billion, approximately $748 million. This will allow us to cover our share to buy Jugos del Valle next month and the acquisition of a REMIL franchise in the state of Minas Gerais in Brazil at the beginning of next year.

As of September 30, our net debt to EBITDA coverage was below 1%, highlighting the strength of our balance sheet. As shown by the performance of the first nine months of the year, our consistent operations outside of Mexico continued generating the majority of our consolidated growth, and now Mexico is recovering its profitability.

As you already know, on October 10, in Mexico, we launched the public tender offer to buy the shares of Jugos del Valle. This offer extends through the first days of November. After that, we expect to take control of the company and integrate Jugos del Valle in our portfolio of products.

This transaction will considerably increase our footprint in the fast-growing segment of still beverages. As soon as possible after we have taken control of the Company, we will invite the rest of the Coca-Cola bottlers to take part in this joint venture together with the Coca-Cola Company.

With these comments, now I would like to open the call for any questions that you might have.

(OPERATOR INSTRUCTIONS)

And you first question comes from the line of Robert Ford with Merrill Lynch. Please proceed.

Good day, everybody. Hector, congratulations on the quarter. I was curious, with respect to Colombia, what percentage of the decline in cost of goods sold is coming from depreciation and what makes up the balance of that decline?

Let me check on that number, I don't know exactly what is the percentage of depreciation. One effect that is, as I mentioned during in this introduction in Colombia that is important is that some of the raw materials are priced in dollars. And the Colombian peso and the same applies to a certain extent to the Brazilian real have been strengthening their -- they are very strong versus the dollar. So we have benefit during these last quarters or during this last year in Colombia and Brazil because of this translation effect on raw materials.

Let me go back to that number and check, and maybe Alfredo can answer that.

That would be great. And with respect to sweetener in Mexico, spot markets right now down over 30%. What do you anticipate will be your decline in sweetener cost in the fourth quarter in Mexico, specifically? What do you anticipate going into 2008?

And your next question comes from Lore Serra with Morgan Stanley. Please proceed.

I haven't answered that question. Sorry, Bob. Sweetener cost in Mexico. One difference that we have with some of the rest of the bottlers is that remember that we have been using high fructose in some of our products. High fructose is still being used importantly. I'd say somewhere 40% of our mix. And high fructose, when you compare that sweetener versus the importance versus the level, the price that high fructose had last year, we are still at a higher level than last year. But it still is a very competitive level versus the raw sugar and the refined sugar.

So although we have been seeing some reduction in the cost of cane sugar and we are using a little bit more of that, we are still cycling a very good effect that we have last year of a very low price on high fructose.

So in our case, Bob, I would not expect a significant reduction as you might be seeing in some of the other Mexican bottlers, because of, again, the reliance that we have on high fructose and the volatility that we have experienced in corn prices now.

With respect to the cane sugar, we are seeing that reduction that you mentioned, and we are clearly shifting as profit or as convenient to use a better mix of cane sugar or high fructose, depending how those two sweeteners behave in the market, no?

And your next question, sir, comes from the line of Lore Serra. Please proceed, ma'am.

Good afternoon, Hector. Staying in Mexico for a second, I wanted to understand, this is the second quarter in a row where we've seen good revenue growth from Mexico, but the operating expenses have grown in line with revenue growth. And you mentioned in the last quarter conference call that you thought you'd get positive operating leverage.

So can you talk a little bit about why that didn't happen this quarter and your outlook going forward? Thanks.

Yes, Lore, good afternoon. We have -- I think that in some of the variables that we have control in Mexico, we are having very good control, specifically speaking about the SG&A. We have a little bump in marketing expenses because of all the Coca-Cola Zero introductions and some of the promotional campaigns that we are carrying presently as we have received some negative press because of the use of cyclamates in the formula.

But more importantly, Lore, I think that we have some one-time events that our auditors have requested us to record in a different way, some of what we call here -- in the Spanish, it's called the prima vacacionales, the extra payment that you do to the workers for the vacation. There is an extra payment that takes there -- at the anniversary of every worker in the Company.

We were recording that as we were paying those extra fringe benefits to each worker, and the auditors requested us to change that so that we register the amount that have been -- that we owe to the worker but has not been paid, that has been accumulated because the worker has been working with us.

That is creating basically a one-time effect during this year that my estimate is probably around $5 million to $6 million that next year we will not have. That's an extraordinary event that we have.

We have a couple of other things that have increased which are not -- which are outside of our control, which are some of the insurance prices for health insurance that we have with our workers, and also freight expenses have increased.

So what is happening in some of the markets and you see a little bit of that in each of the countries, Lore -- not only in Mexico -- is that some of the specific inflation that we have in some of the services or materials that we receive from suppliers, outside suppliers, that specific inflation is being a little bit higher than what we have -- what you see in the country as the reported inflation.

So I'll say that the main basic things that we have in the SG&A line in Mexico is a little bit more of marketing because of Coca-Cola Zero, a little bit more freight expenses because of increases in rate. That's a more permanent thing unless we are able to negotiate some of the other stuff. The insurance policy for jobs and health insurance and the thing with the fringe benefits for the workers. That is basically a reserve that the auditors are asking us to have, as opposed to registering the expenses as it's happening.

And I hope that that clarifies a little bit the situation with this, Lore.

Yes, thanks.

(OPERATOR INSTRUCTIONS)

And your next question comes from the line of Andrea Teixeira. Please proceed.

Hi, good afternoon, everybody. Actually, I just wanted to see if you can elaborate on the price environment. I understand that you increased price on the PBG, too, and there is the likelihood that we had other of the brands also increasing prices. If you can comment specifically on the big brands, how you feel are the competitive environments in the fourth quarter and '08? Thank you. In Mexico, specifically, thank you.

Yes, Andrea, good afternoon. Yes, you are right, and we referred this to a more stable competitive environment in Mexico. What's been happening is that as we have received the same that some of the other competitors, a little more pressure on some of the raw materials, we saw the PBG increasing their prices on the multi-serve presentations in flavors. And because of that we immediately adjusted our multi-serve presentations for flavors also to raise it to the same level, basically moving from MXN13 to MXN14 in the 2.5-liter presentation.

And last week we took the decision to increase some of the single-serve presentations for brand Coca-Cola. The market has not yet reacted to that, but we feel that it is appropriate, given some of the inflationary pressure that we have received, as I explained, in some of the raw materials and services from the different industries.

So I think that, in general, we feel confident that this price increase that we are doing, that we will be able to live with that. So we are seeing a more stable pricing environment in Mexico, specifically, to your question.

Okay, great, thank you very much.

And your next question comes from the line of Alex Roberts with Santander. Please proceed.

Hi, good afternoon, everybody. I guess I want to go back to the raw materials. As you see the oil price the way that it's been and I can appreciate that there's been an increase in some of the PET capacity around the world, but how are you guys looking at your PET price kind of in the first six months of 2008?

I've seen some reports talk about maybe a 10%, 5% increase expected in Brazil in general in the industry. Mexico, I've seen some news as well. And I guess related to that, on the raw materials front, we haven't talked about concentrate prices in Mexico. And I just wanted to confirm some earlier guidance that you had given us, that, in fact, starting in January we'll have another I guess it's about a $20 million increase in that Mexican concentrate price. If you could comment on that? Thank you.

Yes, Alex, good afternoon. Let me talk in general to some of the raw material environment that we are seeing. We have -- obviously with the volatility on the oil prices, we have started to see some increases in the costs that we have for the future acquisition of PET bottles or resin. There's no doubt about it that as oil prices are at these levels, that starts to influence some of the PET prices.

For example, in Mexico, if we look at specifically at the third quarter, the cost per bottle that we have is down versus the previous year somewhere in the area of around 10% on PET prices. On the other hand, we have sweetener, as I mentioned earlier, especially high fructose, increasing importantly versus last year. And that in the total mix of our different sweeteners is creating a somewhere around 10%, 11% increase in the sweetener costs for us in Mexico.

So there is a lower volatility on that, Alex. We have explained in the past that the only markets where we can really hedge some of this volatility is in the sweetener case in Brazil because contract number 11 is a perfect hedge versus the prices that we have in Brazil.

We are doing some of that activity. In Brazil, we have very low cost of sweetener. We are basically at -- I think that the international prices are at around 10% per pound, and we are analyzing the possibility of taking some of the hedging activity in Brazil.

So the environment going forward, I see a lot of volatility. This is difficult to predict because, obviously, oil prices will influence PET cost, or the cost of the resin. And sweeteners, I think that, in general, we are seeing a better environment for the industry and for us this quarter and the following quarters. That will have a very important positive impact for our Company. But in general, I do see a lot of volatility going forward.

With respect to concentrate, yes, we have the second stage of this increase in the incidence for next year, and it is probably similar to that number that you mentioned, around $20 million. We have mentioned that the Coca-Cola Company is also contributing a little bit more resources to that, to the marketing effects. So probably the net effect for us will probably be around the, I'd say, $17 million to $18 million, as opposed to the $20 million.

And I think that's what I can say right now with respect to the environment with raw materials. I don't know if I answered your questions.

Yes, yes you did. Thank you.

And your next question comes from the line of Sohail Ahmer with Lusight Research. Please proceed.

Good afternoon. My question was really with regards to -- I'm trying to understand that from what I read, there has been -- you experienced higher sugar prices in Mexico and Argentina, and everywhere else it seems that you have experienced lower sugar prices. So I'm just hoping if you can elaborate on the dynamics in terms of the cost of sugar you are seeing in the region and explain somewhat the differences between these increases and reductions in sugar prices.

Yes, you are right. What you have read is correct. In Mexico and Argentina, we have experienced some increases in the sweetener costs, mainly as a result of the fact that those are the two places where we use a substantial amount of high fructose, and it's very linked to the corn prices and that you know that all these commodities have increased importantly in prices.

The areas where we are using basically cane sugar, we are having reductions in prices, with the exception of Venezuela, that because of the scarcity effect and the fact that it's very difficult to import that raw material into the country there is an element of scarcity that is causing a slight increase in sweeteners, basically around 1% increase in our case.

It's important also to point out that Argentina, even with the increase -- with the important increase in the cost of sweetener because of the high fructose -- continues to be one of the lowest costs that we have for sweeteners in the nine countries that we have.

The lowest price that you can imagine is now Brazil because as a reflection of the international prices for sugar, but it's basically at the same level that we have for Argentina in terms of the high fructose. So even though Argentina is suffering a lot versus last year, it continues to be at a very, very attractive level in terms of the sweetener cost. And that has to do also with all the favorable agricultural environment in Argentina for some of these grains.

The difficult area, obviously, is when you go to countries like Mexico, where we pay close to two, 2.5 times the cost of international prices, and which you have increases in an already large price, that's what creates a little bit more tension, no? And that's basically the idea with respect to the sweetener environment in our operations.

(OPERATOR INSTRUCTIONS)

And now sir you have a follow-up question from the line of Robert Ford. Please proceed.

Thank you. Hector, I wanted to ask what you anticipated in terms of the impact from the change in Mexican GAAP away from inflation-adjusted accounting.

Yes, Bob. What I anticipated is that it's not going to be a mess, but it's close to a mess, in terms of explaining through all the numbers. Let me try to -- I was preparing to present this next quarter because that's going into effect on next year.

Basically, the idea is that accounting regulations are now calling for countries that have in a three years period less than 26% accumulated inflation will no longer apply inflationary accounting. So, in other words, five of the nine countries will go to non-inflationary accounting, and therefore, all the numbers will be presented in nominal terms.

The first year, let me use it as an example, Mexico, because that's obviously an important country for us. Mexico in 2008, we will have to present all the financial information in nominal pesos. 2007 will continue to be presented in year-end pesos, and then going forward, every time we compare the years will be nominal pesos of one year versus nominal pesos of the previous year. I'd say similar to U.S. GAAP, no?

The countries where we continue to have inflationary accounting will be Nicaragua and Costa Rica and Venezuela and Argentina. So we'll have a mix, four countries reporting inflationary accounting, five countries in non-inflationary accounting, and probably really we have to do a better job trying to explain some of this with our communications.

The tricky part here is that if a country goes above this 26% accumulated inflation in three years, then we have to go back to inflationary accounting and to restate the years that this country reported under non-inflationary accounting. So it's a little tricky, Bob, and I think that we will need a bit of patience from you guys to work with us what we try to explain the information as we will start presenting that first quarter of next year.

It's okay. I think I've gotten accustomed to the volatility in terms of the restatement of historical periods. And it makes perfect sense, which is kind of scary to me. But your cash and your debt, that's primarily held in Mexico, right? So for the most part the repomo, I suspect, will go away. Is that correct?

Yes, the repomo will go away, basically.

And, Hector, will all your periods be expressed next year in end-of-2007 pesos? So the March quarter, the June quarter, everything will comp against a year-end 2007 constant currency number for the prior year? I mean, at least for Mexico and the numbers that will be in nominal terms, or whatever you want to call nominal. They'll be frozen in time, with the exception of the countries that are not.

The way it will work is, for example, let's place ourselves in the first quarter 2008 Mexico. We would be reporting the numbers for the first quarter 2008 in nominal pesos, and the comparison versus last year would be the numbers that we reported, which are stated in constant pesos 2007, no? So we have that problem in the first year because we will not be comparing exactly the same pesos, no?

Right.

And your next question comes from the line of Celso Sanchez with Citi. Please proceed.

Hi, sorry. Just to follow up on that last question and clarify, when you report in the first quarter of '08, the first quarter '07 number will be reported in March '07 pesos or December '07 pesos, just to be clear?

Yes, Celso, again, let me clarify that. First quarter Mexico 2008 in nominal pesos and first quarter 2007 will be in December 2000 pesos -- December '07 pesos.

That actually wasn't my question, but thank you for the clarification.

My question really relates to Brazil and this REMIL, and as I understand it, that's something that you should be taking over or becoming directly involved with starting in early next year. And if you could just confirm that timing?

And also, in the interim and given that it's a partner's territory, you've always had a chance to look quite closely at things, can you give us a sense of what your priorities might be and what kind of timeframe you have for working on certain things, whether it's just execution initially? If it's coverage of beverages beyond just sparkling and what opportunities there might be with the beer business, as you see it?

Yes, Celso, the timing is as we expressed, that time is we are basically shooting for January 2nd for us taking over that operation. We are in the process of due diligence, and I'd say basically that we were 80% there. We are working on documentation. And right now we have a very positive view on this because of the things that we are seeing. It's a well-run operation. They have improved importantly the profitability over there.

We might end up with a positive surprise if the EBITDA figures are a little bit better than what we anticipated by year-end 2007. And in terms of the priorities, I think that it has to do with the execution of the soft drink business, but also very importantly to start looking at the other categories.

Remember that Brazil for us is the first operation where we really have a multi-category operation. We sell beer. We sell juices. We sell water. We sell some mixed products that are being manufactured by other companies, but we sell -- it's Coca-Cola brand products. So I think that we'll really need to go and try to execute all the multi-segmentation, multi-categories that we are developing in Brazil.

I think that's one of the positive twists about this acquisition is also that it gives us this additional footprint geographically. That also will start probably helping us in understanding some of the other areas outside of Sao Paulo and obviously putting us in better perspective for potential acquisitions around those territories in the future, no? Territories that maybe were too far away from us if we were just stationary in Sao Paulo.

So we are very positive about that. The team is already starting to work in knowing the people that are working there. So that when January 2nd comes, we have a very good idea of the team of management and the management team and the commercial area teams, and we'll have a better idea in terms of a business plan and budgets as we get closer to year end.

And Jugos del Valle products in REMIL's territory, would you say they under-index versus the national market share for Jugos del Valle?

Yes. Yes, definitely. The Jugos del Valle presence goes to some of the large cities, but it's basically Sao Paulo where you'll find the majority of Jugos del Valle, and we are very excited about the opportunities in still beverages in these other regions.

And is that something that can be leveraged by you from day one, or do you have to wait for the resolution with any participation in Jugos del Valle by the other bottlers?

No, no, we will divert that from day one. Once we finish this tender offer, which in theory would pay on November 8th -- that's when the 20 business days expires for this tender offer -- we take control of the operation in Brazil.

The idea is that we will integrate with Sucos Mais, that is already working, and from day one we will start pushing the Jugos del Valle products. The only resolution that is pending is the antitrust resolution in Brazil. That in Mexico and Brazil, the antitrust authorities, you can close the transaction and then you are going to have one year to comment on the transaction.

So we don't have to wait for any resolution in the field so far, and in our opinion, it's all the documentation price with CADE, which is the antitrust authorities in Brazil are finding in the process. And also we are just waiting for their opinion, and that opinion, we might see that early 2008. That's what we are expecting there, the resolution.

Thank you very much.

And your next question is a follow-up question from the line of Sohail Ahmer. Please proceed.

Yes, just actually on the same topic of sugar and high fructose, I'm just curious as to if you have the flexibility to change the mix in Argentina and Mexico in terms of if you're in favor of sugar away from HFCS and to what extent you can do that?

And secondly, just related to your marketing expenses, I'm curious, are all marketing expenses expensed, or do you capitalize some of them into your intangibles?

Yes, we do have some flexibility to use a different mix of sweeteners. In areas like in Argentina, high fructose continues to be the cheapest alternative for us, and that's why we are using that. But in Argentina, we have much more flexibility than we have in Mexico. In Mexico, because of the space of our production plans, et cetera, high fructose is a more efficient product in terms of how you handle the high fructose in plants. It's in liquid state. You just have some steel tanks and pipes to connect to all the production facilities.

In terms of the sugar, then you start receiving different ways, but it's basically in 50-kilo sacks of sugar, although there is now what is called this mega-sack that has 500 kilos that is also handled in some of our production facilities.

And when you use sugar, then you have to use a filtration process that in Mexico, basically, it prevents us from going 100% sugar because we will need to do some investment in all the processing of the sugar before the production capacity, before the bottling of the soft drink operation.

So, in Argentina, we can go very close to 100% sugar or 100% high fructose, it doesn't matter that much. In Mexico, we can still achieve the mix that we have, but not to 100% sugar. But we probably can increase sugar by another 20% or 30% from the level that we have.

With respect to the marketing expenses, we have spent all the marketing expenses -- we anticipate more or less what is the expense that we anticipate in the year. So we basically do a provision month by month so that we have a more stable number during the year. But all the marketing expenses are spent in the year.

Thank you all for joining in today's conference. This concludes the presentation. You may now disconnect and have a wonderful day.