Javier Gerardo Astaburuaga Sanjinés - Chief Financial & Strategic Development Officer and Corporate Vice President Juan Fonseca -.

Robert E. Ford Aguilar - BofA Merrill Lynch, Research Division Antonio Gonzalez - Crédit Suisse AG, Research Division Alan Alanis - UBS Investment Bank, Research Division Alexander Robarts - Citigroup Inc, Research Division Andrea F. Teixeira - JP Morgan Chase & Co, Research Division Luca Cipiccia - Goldman Sachs Group Inc., Research Division José J.

Yordán - Deutsche Bank AG, Research Division.

Good morning, and welcome, everyone, to FEMSA's Third Quarter 2014 Earnings Results Conference Call. [Operator Instructions] During this conference call, management may discuss certain forward-looking statements concerning FEMSA's future performance and should be considered as good faith estimates made by the company.

These forward-looking statements reflect management expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance. At this time, I would now like to turn the conference over to Javier Astaburuaga, FEMSA's Chief Financial Officer.

Please go ahead, sir..

Thank you, and good morning, everyone. Welcome to FEMSA's Third Quarter 2014 Results Conference Call. Juan Fonseca from FEMSA and Alfredo Fernandez from Coke are with us today as well.

As we usually do in our calls, we will focus on the consolidated figures for FEMSA and on the results of FEMSA Comercio, as many of you probably had the opportunity to participate in Coca-Cola FEMSA's conference call on Wednesday.

And since you have likely seen our detailed results, we'll use this opportunity to share some of what we see as highlights and main trends in our business. As you know, given our growth presence in Mexico and the fact that our consumer base cuts across segments and across geographies, we're usually seen as a good bellwether for the Mexican consumer.

In that capacity, our third quarter data still does not provide enough evidence for the size of the improvement in consumer dynamics. The consumer is still having to allocate his or her reduced disposable income across categories and making decisions of where to maintain consumption or to trade down or where even to reduce or eliminate a purchase.

We are all still feeling the pressure from increased taxation and slow economic growth. And we must remember that some of the new excise taxes impacted our businesses directly as in the case of soft drinks and some indirectly as with calorie-dense products sold in our stores, in addition to the higher VAT levels across the key border regions.

So our performance should be analyzed keeping that in mind. Having said that, our results in Mexico are encouraging. At FEMSA Comercio, we saw a modest improvement in same-store sales growth in spite of a lingering pressure from the telephony category, particularly relative to industry growth as well as healthy profitability.

At Coca-Cola FEMSA, we continued to implement pricing and packaging strategies that drove revenues and partially offset the negative pressure from the new taxes, together with a generally benign raw material environment and our continued emphasis on efficiency and cost containment.

In terms of the macroeconomic environment in our main markets, conditions remained sluggish still for the most part. In Mexico, we continued to see encouraging indicators like growing manufacturing activity and remittances. However, GDP growth is still low, and inflation has picked up recently.

In Brazil, the main concerns continued to be low GDP growth and consumer sentiment as well as this combined with stubborn inflation. With challenging conditions in Venezuela and Argentina, Colombia stands out as the one key market that has shown healthy GDP growth. And now moving on to our consolidated results.

During the third quarter, total revenues increased 13% and income from operations increased 16%. On an organic basis, excluding the integration of the beverage operations of Fluminense and Spaipa as well as the restaurant operations of Doña Tota, total revenues increased by 8% and income from operations increased 11%.

For the third quarter, the line label participation in Heineken results represents FEMSA's 20% participation in Heineken's third quarter net income, which was reported on Wednesday and we are using the average exchange rate for the euro during the third quarter.

Our net income for the quarter increased 10%, mainly as a result of the growth in our income from operations, combined with the lower income tax rate that compensated higher financial expenses related to bonds issued recently by Coca-Cola FEMSA.

And in terms of our cash position, during the third quarter, we went from having a consolidated net debt position of MXN 39 billion at the end of June to now a net debt position of just under MXN 36 billion at the end of September, reflecting cash generation at both our core businesses. Moving now to discuss our operations mainly with FEMSA Comercio.

We opened 199 -- 191 new stores during the third quarter. This number is in line with the comparable figure for 2013. And if we look at the first 9 months of the year, we're on track to deliver more than 1,100 net openings this year as we anticipated.

Revenues increased 13% during the quarter, and on an organic basis, excluding the acquisition of Doña Tota, they increased 12%. Same-store sales were up 3.1%. And when we break the number down, we see that the increase was driven by our average ticket while traffic contracted slightly.

These trends are directionally consistent with what we have seen for some time now, where the sustained declining telephony continues to pressure profit. For the third quarter, gross margin expanded 90 basis points. And let me spend a minute on this.

During the summer, we saw certain key suppliers materially increase their marketing programs and promotional activities, with the corresponding commercial income accrued to us. We believe the timing of some of this activity was brought forward by our suppliers, as these resources will normally have been deployed later in the year.

This sits well with our long-term efforts to smoothen the quarter of commercial income throughout the year as opposed to having a very steep pickup in the fourth quarter. As we stand today, 9 months into the year, we are showing a healthy gross margin expansion of 40 basis points.

During the third quarter, certain expenses increased slightly ahead of revenues, driven by the strong growth in new stores, the continued rollout of new initiatives as well as the integration of Doña Tota. In spite of this, operating margin expanded by 30 basis points.

So as we stand today, a couple of months from wrapping up the year, we are a little bit more optimistic after what was, by all accounts, an encouraging quarter for FEMSA Comercio. We do not see anything major happening between now and the end of the year, so we will probably finish 2014 more or less in line with the current trends.

But as I said before, we are more optimistic about 2015, in light, hopefully, of a better outlook for economic growth in Mexico and once the disruptive new taxes and related price increases are in the base. Moving on briefly to Coca-Cola FEMSA. Total revenues grew 11%, and organically, they increased almost 3% during the third quarter.

As you know, in Mexico, price increases were taken during the first half of the year in order to offset the new excise tax as well as inflation.

Volumes were already stable in the third quarter, as it seems that consumers have adjusted their budget to adapt to this new tax, which is encouraging evidence of the strength of our brand and the skill of our operators.

The combination of these with pricing and a mild raw material environment allowed our colleagues to slightly improve profitability in Mexico. Meanwhile, in South America, we again saw a challenging operational environment in several markets such as Brazil and Argentina.

Putting all together, consolidated income from operations of Coca-Cola FEMSA increased 15% and 8% on an organic basis. If you were unable to participate in Coke FEMSA's conference call on Wednesday, you can access a replay of their webcast for additional details on the results.

And so while we are in the final stretch of a complicated year, we recognize that every year brings a combination of challenges and opportunities. But I think that I speak for many of my colleagues when I say that 2014 has had more challenges than opportunities.

And yet we are on track to deliver annual results that are better than what we expected a year ago when we were putting together our budgets. So our colleagues are doing a tremendous job this year as they tend to do, and things are looking a bit better now.

And as we approach the finish line for this year, there are reasons to be optimistic as the outlook for 2015 looks more promising, particularly in Mexico, and hopefully with a better balance of challenges and opportunities. And so with that, we can now open the call for your questions.

Operator, please?.

[Operator Instructions] And your first question comes from the line of Robert Ford with Bank of America..

Javier, I was hoping you could expand a little bit on the third quarter gross margin improvement, particularly as you mentioned in light of the impact of telephony, which was margin-enhancing as well as both traffic-enhancing, if I'm not mistaken.

Are you seeing -- anecdotally, it feels like we're seeing promotions grow generally, and I'm not convinced that this is simply just a pulling forward of some of that calendar.

Could you comment a little bit on exclusivity agreements or the interest in exclusivity agreements, slotting fees and maybe the promotional calendar as it looks to you right now for the end of year, please?.

Sure, Bob. As I've said in the opening remarks, we saw an increase in the promotional activity in a number of categories, and that's at least partially explaining the expansion of the gross margin of the quarter.

I think that if you look at the accumulated 9 months, it's a much better figure to look at when looking at the trend for the year, as I said as well.

And again, we are -- if you mean by the exclusivity concept, the decision that we took and the process we're implementing in expanding the number of stores that now carry a full line of carbonated soft drinks and noncarbonated as well from different suppliers in Mexico.

That is also helping in the short term, a little bit on the margin expansion because of the mix of products now being, let's say, wider and richer. But I wouldn't say that, that's necessarily driving the performance on the quarter.

It's much more driven by, again, both commercial and promotional activity by a number of suppliers in some categories, which I would say were a little bit more skewed to the -- towards the end of the year than some others. So that's basically the explanation that I can provide on that..

And is there any change in your mix with respect to the -- I'm sorry, Juan, with respect to prepared or [ph]....

I was going to say that I think suppliers, when you have a channel or a retailer that is growing a little bit better than others or better than most, I think they tend to increase the allocation of resources that go to that particular supplier, and I think that may be a play here as well..

Okay. Now that's helpful.

And is there anything different in terms of the mix, in terms of prepared food versus the shelf stable stuff? Or is there any categories in particular which represented disproportionate share of that margin improvement?.

No, not that much. That category is not necessarily moving the needle yet, but it's making progress. But still, the size of it within the whole mix, it doesn't really allow, really, to create a big impact on the full numbers of the company, Bob..

And your next question is from Antonio Gonzalez from Crédit Suisse..

Javier and Juan, just a quick follow-up on the previous question. Do you think the fourth quarter then is going to see some sort of moderation in the gross margin? And then I wanted to ask very quickly 2 things first.

Can you give us a little bit more color on why CapEx is down at the OXXO level roughly 6%? I don't know if you're lapping any particular initiative from last year that was nonrecurring and whether -- because, obviously, the store openings has not declined and whether you're seeing a trend for the last 9 months as a more sustainable trend going forward.

Or should it pick up again? And then just finally, I wanted to ask whether you can give us any sense, at least qualitatively, on a same-store sales breakdown.

Have you seen the categories that have had higher excise taxes this year significantly underperform the other categories or if it's pretty much an impact that you saw across the board throughout the year in terms of same-store sales per category?.

Sure. Sure, Antonio. Good morning. First, on the first one, as I explained, looking at the full first 9 months, it's a much better way to look at kind of how the business is trending.

And just to keep everybody in mind, remembering fourth quarter of 2013 being a very, very strong quarter because of a number of reasons but partially because of the way, again, the promotional calendar was developed through that year.

If you remember, we grew more than 20% and expanded more than 100 basis points margins in the fourth quarter last year. So we're going to have a very challenging base for this quarter in which we are currently operating. So that will be my comment on your first question. On the second one, 6% down, you're right.

I would say there's not really a fundamental change in the structure or the magnitude of the CapEx program. We're going to be, I would say, pretty much in line with the numbers we anticipated at the beginning of the year, maybe slightly down.

So I wouldn't expect nor a major change on the upside or on the downside compared to the amount of CapEx that we said we're going to be investing in 2014 in FEMSA Comercio. And in the third question, there's definitely a higher impact in those categories which are heavily impacted by the taxes.

The carbonated soft drinks category particularly has shown a very, very strong resiliency. Some others have suffered more. But even though we are seeing, let's say, declines in a number of categories, the decline is more -- is higher in those categories, which were impacted by taxes.

And somehow, those taxes were transferred to consumers through pricing. So that's pretty much what we're seeing happening, Antonio..

And your next question comes from Alan Alanis from UBS..

Quick question. Why is the ticket still growing at a slower pace than inflation, Javier? And if you can also give us an update on the Saldazo, the banking accounts that you've been opening at the OXXO, and if it has had any impact on the numbers. And the third and last question would be any update on the integration of pharmacies.

And how are you planning on integrating the pharmacies business into the overall OXXO chain?.

Sure. Alan, good talking to you. On the first one, I think it has a lot to do with -- in some categories, we're seeing some trading down. That's one explanation, not necessarily the largest one. And the second part, we are also -- as we keep on expanding the number of stores, particularly in some cities, we're seeing also people going.

And again, you are looking at the national average traffic numbers and the national ticket. So we have very different phenomenas in different cities, in cities in which we have a very high density compared now with the U.S. with around 1 store per 2,000, 2,500 consumers.

We're looking people that are going more frequently to the stores, and that reduces the average ticket. And if you look at the numbers, we are not necessarily on the ticket significantly below inflation. So all in all, I would say those are the main drivers we're seeing on the average ticket numbers.

And I think I've already said that traffic is more impacted by these phenomena of minutes of the airtime now being more cheaper and people not having to go to the store to recharge their phones as frequently as they did in the past.

And on the last question, on the integration of pharma, and I will let Juan talk to you a little bit more about Saldazo, but in the integration of pharma, we are still very happy with our efforts.

I think 2015 is going to be a critical year, in the sense that we will be finalizing and start to redeploy what we call our operating business model, supported by a strong backbone on the IT platform that we are working very hard to put together.

We will also be working and keep on fine-tuning the value proposition that we have been testing during the year, testing different sizes and different layouts and offerings. And we are very, very enthusiastic about results so far.

And as well, we will start facing this dilemma of continually having banners based on the regional change we have been buying or trying to start develop a transition period into kind of a either 1 multi-banner or at least a banner that really communicates in a much better way to consumers what our value proposition is all about.

So we have a lot of things ahead of us. As we've said in the past, we will continue also to look at growing the business through a combination of both inorganic and organic strategy. And we feel very good about the way we have been able to both acquire and integrate these businesses.

And people are making a lot of progress in bringing some of the strength that also has around processes, culture, purchases, of course, and management processes to deal with the operations. So all in all, I would say that we are -- and we're investing a lot behind people and infrastructure also as well.

So we are, I would say that, preparing this business for a number of hopefully high growth and good profitability years to come, Alan..

Got it. That's clear..

This is Juan. On the subject of Saldazo, just to give you an update, I think it continues to be an unqualified success in terms of the metrics that we can track at this point. In other words, the number of plastic that have been rolled out, we are off to 1 million plastics. So consistent with the 100....

And how many months, Juan?.

10 months. So that's 100,000 per month. Yes, I know, it's a remarkable number. And I think also the percentage of people that have the plastic that are actively using it is something like twice as high as the industry norm. So remembering that this is, for the most part -- this is the first banking relationship for most of the users of this product.

So in a way, this is kind of uncharted territory. I guess we also need to kind of temper our expectations, in the sense that this is supposed to be -- I mean, one of the largest benefits that we expect to get from this is in the form of data.

And obviously, we're getting troves of data, and it takes a while to develop the capabilities, to mine it and to convert it into bundles and promotions and things that you can really monetize. As you know, there are a few fees, and there are some, but we don't make a lot of money from fees from the product.

It's really about kind of generating the traffic, the loyalty and then the data, and then you can really monetize this by tailoring promotional activity to your particular consumer. So again, I think off to a great start. The numbers are pretty remarkable, and we don't see any slowdown yet. So we expect the numbers to get significantly bigger..

Good. 1 million banking accounts in 10 months..

Your next question comes from the line of Alex Robarts from Citi..

Two questions, really. Wanted to start out with traffic at OXXO. And it relates to this idea of the new normal level of traffic growth. And I guess you've made -- you've given us a heads-up about fourth quarter, which is a valid point.

And so if we assume that traffic is similar to recent quarter levels, you'd basically complete 8 consecutive quarters with flat to minus 1 traffic growth. Now the previous 7, 8 quarters, you were running traffic between 2.5% and 5%.

So I guess as we think about 2015, and I think it's safe to assume that you'll have a benefit of lapping year 1 with fiscal reform, and secondly, you're expecting more traction from the banking services, but do you think we could contemplate it? And what do you have in your kind of -- in your budget for next year is a range of traffic? And do you think it's fair to assume that we get back up into low single digits next year? So that's question one.

And then question 2 was just on cash deployment. If you could comment a little bit on some of the ideas that you've been contemplating, cost, share buyback, acquisitions in the pharma, that would be great..

Sure, Alex. Of the traffic, you're absolutely right. If you look at the past performance, it's been a very tough 2013 and '14.

But if you just do the math quickly as well, just looking at the gap between the pace at which the economy was growing before 2013 and the barely 1 point something average of these 2 couple of years, I think you will find in that gap a big part of the explanation of how the performance in general of retail and particularly in us, which we continue to outnumber the industry.

I think you will find a lot there. Soft mix of the consumer is here, and it's been here for a long time, basically, all past year and this one. Hopefully, what we're seeing is a signal of a much better future. It is very hard to put numbers going forward on traffic.

What we note and we have to do is to continue evolving our value proposition to fine-tune our promotional activities, to communicate better with consumers.

So we are able to hopefully capture more of their consumer needs, and we're better at satisfying those than anybody else in the retail landscape in Mexico, which is evidently a moving target, because all retailers are basically trying to do the same. So that will be my comment on the traffic performance going backwards and going forward.

And regarding the capital redeployment, I would say that nothing has changed on what we've been communicating in the past, in the sense that we are constantly and actively looking for opportunities. I've already mentioned that looking at a pharmacy space is something that we will continue to do.

In timing, we continue to feeling good about what's going on in pharmacy in Mexico. Of course, as we are doing now with OXXO, there will be a timing which we will most likely look outside of Mexico as well. Same thing with the fast food we're starting here in Mexico.

But the intention in the medium, long term is hopefully to complement through a number of banners and hopefully looking outside through some other geographies.

I've already said in the past also that we are interested and, I would say, enthusiastic as well in some -- in finding some opportunities around our logistic business, which is a very, very small business, by any means, looking at Coca-Cola FEMSA and FEMSA Comercio, but that it's also a business in which we have already a very nice footprint, a very good line of services and that we think we can find some opportunities to continue to grow both organically and inorganically.

And in that regard, you know that we've made an acquisition last year in Brazil, which is going tremendously well. And so I would say that we will continue to look at opportunities in the Coca-Cola FEMSA space throughout the region, and we will keep on monitoring very, very closely the developments of the U.S.A. refranchising process as well.

As we've said in the past, that's a market which is very close to us, and that might fit well to our capabilities. And it will be just a function of what The Coca-Cola Company decides on how to move on that refranchising process.

So I think we have a number of potential opportunities that, as I said, we will continue to look very actively and proactively in order to try to, again, find opportunities to redeploy some of the capital we have at hand and to use the financial flexibility that we now have as a company..

Alex, I'd like to add one thing on the traffic question. I think we cannot say enough about the impact over time of telephony to complement what Javier said. I mean, if you look at the time series, if you look before 2013, there were a number of years where our numbers were significantly aided by telephony.

There were -- the big telcos were providing these -- electronic top-ups became commonplace and smaller and smaller increments and people could just come into the store and do MXN 20 and MXN 30 and MXN 50 top-ups. It clearly made the numbers look very, very good, and it helped us a lot. And now I think we are in the opposite of that.

I mean, as the prices of the minutes have come down and the consumers have continued to move into more of a data as opposed to voice usage, and this is pushing them into more postpaid plans as opposed to prepaid, which used to be the norm, so right now, our numbers are looking worse than they really would be without telephony.

So if we could strip out telephony off of the last 4 or 5 years of data, which of course internally we can, you would see less of a sine wave, if you will, of how the traffic has performed. So this question or when you talk about a new normal, I don't think the numbers today represent the new normal.

I think telephony -- the negative drag on our numbers is increasingly lower because it's a smaller base and it's a smaller percentage. So we're not out of that impact yet, but as you correctly pointed out, I mean, financial services, we're now in the uptrend on those.

I mean, I mentioned the million plastics that we've rolled out, and now we are taking deposits from minority customers. And so that's clearly still in a very positive part of the sine wave. There may be a time when that becomes less important and then something else will become important.

So just to, again, highlight the impact of telephony and the fact that it is making our numbers look worse than they otherwise would..

Got it. Now that's very helpful indeed. But just to kind of clarify, I noticed in your laundry list of cash deployment options that the KOF shares were not mentioned.

But is it safe to assume that, that is one of the several initiatives, I mean, buying back some KOF shares? Does that remain still in that kind of general list of potential opportunities? Sorry..

Yes, it does. It's been on the list and it still is on the list. And I think it will continue to be in the list of potential usage of cash from the FEMSA perspective, Alex..

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

Just what -- I mean, I was curious with Javier's comments on the U.S. refranchising. I guess, I mean, The Coca-Cola Company, over time, they have been very vocal about the way they might take on, and I wanted to see what would be the conditions that would make you interested.

I mean, I hear a lot the -- obviously, some pushback on the fountain business and also some separation of production and distribution.

And if that decision would be more of a lack of opportunities in Lat Am, given that a lot has been done already or if you can kind of like walk us through a -- the rationale or ways that would make this attractive for you, I would appreciate it..

Sure, Andrea. First, on the relative attractiveness of the U.S. against any thinking Lat Am, I would say that we will look at any opportunity on its own merits. I would say that, of course, every opportunity is different.

I mean, sometimes, the attractiveness of a potential opportunity is more related to an easier integration or a more business-as-usual kind of modeling. But sometimes, it's mostly driven by potential value creation going forward, which sometimes has a lot to do more with turnarounds maybe, such as one in the Philippines, for example.

The case in the U.S., I would say that the main element that we will be looking is a clear alignment with The Coca-Cola Company in the objectives that are being pursued and in the relationship model that will be established and the scope of the activities that The Coca-Cola Company would look for a bottler to perform in the U.S.

And I think that's still something which is being refined by the company.

So we will -- I would say more than anything else, we'll be interested in finding opportunities in which we have a clear alignment with The Coca-Cola Company, our partner, and in which we think and they also believe that we can bring value to the table based on what we know how to do well.

So I would say those will be the guiding principles of any exploration that we might do or not going forward on the U.S. potential opportunity, Andrea..

Okay.

But you're still looking at Lat Am?.

Of course. Of course. We live and breathe here every single day, and we know the place. And we think we can bring a lot of value to the table through a number of our colleagues in the system in Latin America. And we will continue to pursue any opportunities that make sense in Latin America..

Yes. So -- and one last thing about the margins. And I appreciate your comments when you said, obviously, the fourth quarter of last year had a tremendous job, a tremendous expansion on the gross margin. So now you have a tougher comp.

But is there really anything that has changed most recently? Let's say, we've been hearing from the CEOs of the other companies, that there has been a down-trading happening. I shouldn't say a down-trading happening. I shouldn't say down-trade but like a shift into private labels. And obviously, you benefit from that on the margin front.

So some of these, when you see negotiation of supplies, is some of that also that your mix going to more private labels and then therefore, there is still a little bit more room going forward or that's wishful thinking? If you can help us like try to estimate..

Sure. No, I wouldn't to say -- there might be some other retail formats that have been experienced in that, but it is not necessarily the case in our business. What I've said also in some other question, a little bit of down-trading. We've seen that a little bit in some categories.

But I would say that general trend is more skewed to either less frequency of purchase for smaller sizes, and I think suppliers have been good in reacting precisely to that. So some cases, we've seen basically people looking to keep pricing but make packages a little bit smaller.

And I think that's, I would say, the more common trend we were seeing at least in our stores, not necessarily the one that some other retailers are seeing in terms of down-trading into private label offerings, Andrea..

I think I will also add. I mean, if you look at some of the important categories like snacks and beverages, also has a number of different alternatives with different price points. So there is the possibility that you move from one brand to another without getting necessarily to the private label, which is normally the lowest price point of all.

But for the most part, as Javier said, this has had to do with other people's products..

Yes, no, absolutely.

You would see that in your ticket, if that would be like too much of a big movement, right?.

Right..

But it doesn't seem it is. But I appreciate your comments..

And your next question comes from the line of Luca Cipiccia from Goldman Sachs..

I have a quick follow-up on the capital allocation discussion. Just to understand, given what was mentioned about Coke FEMSA, what was mentioned about the refranchise in the U.S.

and the debate, just how should we frame that in relation to the Heineken lookup coming up next year, in the sense that should we assume that on this front, everything, anything may be pending until there is clarity or there is a decision on how that situation may resolve? So that's my first question.

And the second is, assuming that you may liberate once or different stages a significant capital firepower, with the comment that you made and with the type of trends that we see in Mexico, would you rather reinvest or reallocate that capital to participate more broadly in Mexico or rather, you will see more of a -- you will continue to see more of a preference to put that capital to play outside of Mexico?.

Lucas, yes. On the first one, we're still maintaining our position that we need and we will continue to look at our investment in Heineken by its own merits. As you well pointed out, the lockup will basically extinguish itself fully by April next year, where it has started to extinguish gradually since a number of months.

And that is just -- I would say I think that was built into the contract when we made that transaction, that we knew what's going to happen. And we're basically now in the middle of it and very close to the finish or the expiration of the lockup.

So we don't tend to say to connect necessarily decisions regarding a potential continuation or divestment of the Heineken shares in connection, strictly, with potential business opportunities.

We have said that we have the obligation, and we will continue to comply with that obligation to look at the perspectives of that investment by its own merits and, of course, to continue looking for opportunities, which we might find more or not more attractive than continue being a long-term investor in Heineken, which is the way we tend to still look up to ourselves.

So that's on the first one.

And on the second one, if you look at the profile of the company, we have got to, I would say, get to a point in which the profile of the companies, I would say, are well-diversified in terms of industries and geographies, if you take into account the whole, let's say, market value of the company by its different components.

We have a nice split between carbonated soft drinks, retail and beer. And if you look at that from the geographical point of view, we're now exposed to a little bit less than the value of the company coming from Mexico and the rest coming from both South America and the rest of the world through our Heineken investment.

So in that regard, I think the profile looks good, depending on, again, what you do in terms of how you're going to fund growth, if through the balance sheet or through the potential partial or total divestment of some of the assets we now have.

Again, that question will come in the sense of where would we like to invest more, if in Mexico or someplace else. In that regard, I think that we are very knowledgeable. We feel good about having a profile, which is much more inclined to grow emerging markets. This is our turf. We know how to deal with things and run businesses here.

But also, we are, I would say, a company which by definition is, I would say, expanding on different business characteristics. And so we will continue to look at opportunities. And when I mentioned the U.S.

through the eyes of a potential refranchising process of a Coca-Cola bottling system there, that's only 1 example at which we can maybe look north and look for potential opportunities in the U.S. And I would say that still, the Americas as a place is our first priority.

But as we've said in the past as well, we didn't go to Philippines almost a couple of years ago to basically stay there. We think the Philippines offers us a very, very big window to the rest of Asia.

If you look at the model that we have been following in some of the countries in Latin America after we have expanding the Coca-Cola FEMSA operations, then retail has come a little bit behind with OXXO particularly in Colombia but also FEMSA Logistica.

And our commercial refrigeration operations also have now presence in 3 different countries in South America. And we think that also Asia offers a lot of opportunities for us, I would say, in the proper time and when we are feeling good about being ready to tap those opportunities going forward.

So we don't have, I would say, a strict view that we don't want to invest anymore in Mexico. I would say that the perspectives for the country with a number of reforms that have been done in the past 18 months are very, very good. We feel good about this.

And I think it will be a function of where the opportunities presents as opposed necessarily to what we would like exactly to do and follow a very strict game plan in terms of capital allocation from a geographic standpoint of view. So that will be my comment, Luca..

And our last question comes from José Yordán from Deutsche Bank..

Javier, in the last conference call, you were, I think, among the most cautious or, let's say, negative on the current economic or the current operating environment of all the CFOs that we heard in the conference calls. And you were somewhat prophetic at the time, I guess.

The -- what we're hearing this time around is much more doom from your competitors and a bit of a change in enthusiasm from you. And I guess I was more curious to explore kind of where that stems from, if it's really from the new macro data you've gotten in the last 3 months or internal things that you see sort of a light at the end of the tunnel.

Any color you can give us here in terms of where the business is going would be great..

Sure, José. I reflect a lot on the -- what has happened in the past couple of years in Mexico. And again, I'm not bringing to the picture what's going on with the oil price these days still, because I hope that things will get back not necessarily to the way they were before but not necessarily stay at the level at which they are today.

But I think that a number of things for the long term in Mexico have been done in the very right way. But still, in the short term, there was a lot of pain to be dealt with, particular from the consumer standpoint of view. I think that it took all of us, both suppliers and retailers in Mexico, to adapt to these new phenomena.

We were, most of the time, thinking, "Well, things are going to improve, and the things were not improving as fast as we were expecting in the past." I didn't try really to be negative on the last call. As you said well, I tried to be cautious. I think things, as I said in my opening remarks, now has improved a little bit.

But again, we have a tough quarter because we have a very, very successful third -- fourth quarter last year. So we're going to have to compete, in a way, to -- with that set of numbers we put up there at the end of last year.

But looking into 2015, hopefully, I would say some of the phenomenas that created the sluggishness in the economy and the consumer sentiment, we start to leave them behind. And some of the things that the government has put a lot of effort in putting in place start to work and pay off for, in general, all Mexicans.

And if you just look again at the phenomenas on the construction sector and the impact of the taxes and, I would say, a number of things that we experienced through the last 1.5 years, I'm a little bit optimistic into 2015 in general.

But again, for me, being a little bit optimistic is already a compliment because as you know me, I tend to be more on the cautious side most of the time. And I'm not -- I don't think that's a bad thing when you have the role that you have in this company as I do.

So hopefully, I don't sound neither too optimistic or pessimistic, but hopefully, I can explain myself well in the sense of how I feel. Hopefully, 2015 is a much better year than the last 2, this and '13..

José, this is Juan. I would add one thing. I think of all the consumer companies that you talked to, very few, maybe none, were directly exposed to the tax changes at the beginning of the year. I mean, I've said this a thousand times.

If you look at, obviously, Coke FEMSA but also the 50%-ish mix of the sales of OXXO that are exposed to the beverage or the calorie-dense taxes and the VAT in the border where maybe 20% of OXXO's revenues, consumers in that region also having to account for the higher VAT and everything that they buy, so I think part of what also happened in the second quarter is we were really in the middle of this year, where we were facing this adversity in every front.

And now we are basically 2 months away from having all these be part of the base. So obviously, being optimistic, just because you're going to have easier comps, is not necessarily the highest quality growth that you can get, but it's growth, right? And so at the end of the day, we will lap a very hard first half of the year.

And just like it was probably tougher for us than anybody else this year, we'll probably get a bit of a break better than other folks next year just because of the change in the comp base..

Sure, sure. And the reason -- I mean, the reason I asked is that in some other retail conference calls, we heard some people begin to say recovery in mid-2015 as opposed to earlier in the year. So there seems to a tendency to push back the recovery.

But I get it that you were punched harder and that perhaps you're starting to feel like it's still a gradual recovery, like you mentioned several times in the last call. But as you've been through the worst and that from now on, it's an upward pass. So very, very clear on both answers..

Thank you, José..

Thank you. And thank you, all, for your participation today. Have a great rest of the week and see you next time. Bye..

Bye..

Ladies and gentlemen, if you wish to replay the webcast for this call, you may do so at FEMSA's Investor Relations webcast -- website. This concludes our conference for today. Thank you for your participation. Have a nice day..