Hector Trevino – Chief Financial and Administrative Officer.

Ian Shackleton – Nomura Carlos Boy – HSBC Lauren Torres – UBS Financials Andrea Teixeira – JP Morgan Luca Cipiccia – Goldman Sachs Jose Yordan – Deutsche Bank Alex Robarts – Citi Antonio Gonzalez – Credit Suisse Martha Shelton – Banco Itau.

Good morning, everyone, and welcome to Coca-Cola FEMSA’s First Quarter 2015 Conference Call. As a reminder, today’s conference is being recorded and all participants are in listen-only mode. At the request of the Company, we will open up the conference out 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-faith estimates made by the Company. These forward-looking statements reflect management’s 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 will now turn the conference over to Mr. Hector Trevino, Coca-Cola FEMSA’s Chief Financial Officer. Please go ahead, Mr. Trevino..

Good morning, everyone, and thank you for joining us today to discuss our first quarter results for this year. As you saw in our earnings release this morning, as of the first quarter of 2015, we have decided to use the recently created SIMADI rate to translate our Venezuelan operating results into Mexican peso.

As per the last official option of this mechanism, at the end of March 2015, the rate is effectively 193 bolivars per U.S. dollars.

Consequently, with this translation adjustment, there is reduction of Venezuela contribution to our consolidated results and this operation now represents approximately 2% of both our consolidated revenues and our operative cash flow, while continues to represent more than 7% of consolidated volumes.

And we have been for the last 12 years and in spite of the operating complexity that we have faced recently, Coca-Cola FEMSA remains fully committed to continue producing, selling and distributing the highest quality products for our Venezuelan consumers’ daily enjoyment throughout the country.

Coca-Cola FEMSA delivered strong results despite the relatively weak consumer sentiment facing certain operations and a volatile macroeconomic environment as this quarter was marked by a significant depreciation of the exchange rate of the currencies of our main operations resulting in negative translation effects that led to decline in our reported figures in Mexican pesos.

On a currency-neutral basis, and excluding Venezuela, for the first quarter we delivered close to 6% in revenues, more than 9% growth of operating cash flow and an increase of more than 13% in earnings per share.

For the quarter, the brand equity of our products coupled with our ability to generate an increasing amount of transactions with consumers and improve execution in business across our territories allow us to gain or maintain of sparkling beverages in every operation and across all the relevant categories as well.

Volume growth in Colombia, Central America, Argentina and Venezuela partially compensated for the slight volume decline in Mexico and a volume contraction in Brazil as these operation cycle are self comparable and face a decelerating consumer environment and high inflation.

Our local revenue management initiatives enable us to increase average prices per unit case ahead of inflation in most of our territories. Thus, on a currency-neutral basis, we delivered revenue growth in every operation for Brazil.

Excluding Venezuela, lower PET and sweetener prices in most of our territories in combination with our currency hedging and strategies were partially offset by the average depreciation of the currencies across our operations. Consequently, our reported gross margin expanded 40 basis points during the quarter.

Operating expenses remained under control in spite of certain restructuring charges, mainly in Mexico and Brazil, and negative operating currency fluctuation effect that resulted from the devaluation of most of our operations’ currencies as compared with the U.S. dollar.

Despite the prevailing currency volatility and the still challenging consumer environment in certain operations, our Company delivered EBITDA margin expansions of 70 basis points excluding Venezuela.

During the quarter, we continued to increase our interaction with our consumers as our strong portfolio of attractively priced one-way and returnable presentations continue to build on the strong brand equity of our portfolio, especially brand Coca-Cola and our improved point-of-sale execution.

Most of our operations, including key markets such as Mexico and Brazil transactions, helped raise volume performance by at least 1% percentage point, showcasing our Company’s ability to provide our consumers with the right brand and the right package at the right size.

Once again, our ability to tailor our portfolio offering and pricing architecture to the current consumer and macroeconomic environment along with our financial and operating discipline enable us to take a step in the right direction in every market.

In Mexico, despite of tough weather conditions, especially in March, and with a still struggling consumer, our volume was slightly below last year mostly due to a decline in bottled water and non-carbonated beverages. Not only sparkling beverages was up more than 1% and average price per case increased ahead of inflation.

More importantly, we are maintaining market share in sparkling beverages while gaining across key non-carbonated beverages such as juices, and lactose, water, ready-to-drink tea and sports drinks where we have now reached 50% market share and overall leading in our territories in this category.

Furthermore, our operations’ ability to deliver continued total expense containment coupled with tailwinds in key raw material prices and benefits of our currency hedging strategy [indiscernible] a negative margin expansion of 200 basis points for the quarter.

In Brazil, volume declined 8% while this operation cycle a very tough comparable as volume for the first quarter of 2014 grew 8% on a pro forma basis. In addition, consumer sentiment has deteriorated drastically as inflation pressures have accelerated and higher unemployment rates which continue to affect our consumer’s disposable income.

During the quarter, we gained market share in both colors and flavors on the back of our attractive single serve one way portfolio of magic prices of R$1 and R$2 and the increased covers of our affordable 2-liter returnable PET presentation of Coca-Cola, Coca-Cola Zero and Fanta, and despite of a more aggressive competitive environment.

Average PET bottle manufacture, warehousing and distribution investments and our operating discipline coupled with our proactive currency hedging strategy continue to give the efficiencies necessary to improve this operations performance as our operating cash flow margin expanded 30 basis points.

In Colombia, our portfolio and pricing architecture reconfiguration continues to deliver solid results as we register the tenth consecutive quarter of volume growth, expanded our leadership in colors and gained market share in flavors in sparkling beverages.

While maintaining affordable prices going to our consumers, we continue to execute selective revenue management initiatives to improve our local pricing. And we also further reinforced our point-of-sale execution and cooler [indiscernible] As we remain focused on containing operating expenses, we successfully maintained operative cash flow margins.

During the quarter, we started production at our new state-of-the-art production plant in Tocancipa to the north of Bogota. We are confident that this investment will bring about greater efficiencies for this operation going forward.

In Venezuela, our operators delivered 2% volume growth and gained more than 2% percentage points of market share in the sparkling beverages, despite of the continued complex operating and consumer environment.

Our local revenue management initiatives and continued increasing productivity levels allow us for an important operative cash flow margin expansion during the quarter. In Argentina, volume increased close to 4% on the back of growth in flavored sparkling beverages, water and non-carbonated beverages.

We have strengthened our competitive position by reinforcing our 2-liter returnable package for Coca-Cola and flavored CFDs, which allow our returnable presentations to gain more than 400 basis points of the mix of our sparkling beverages.

This quarter we continue to gain share in flavored sparkling beverages, water and sports drinks with covering more than double the share year-over-year to reach close to 30% of this category.

Our company’s investment in manufacturing and warehousing infrastructure to improve our operating performance especially in peak seasons, coupled with our financial and operating discipline, enable us to improve our operating cash flow margin by 250 basis points.

In Central America, our acceleration plan to trigger higher per capita consumption allow this operation to grow volumes by 6% and extend its positive performance to 16 consecutive quarters of volume growth. Costa Rica and Panama grew volumes by 2% and 3% respectively, while Guatemala grew 8% and Nicaragua 11%.

Importantly, we gained market share of colas and sparkling beverages across the region during the quarter. In the Philippines as we continue to successfully implement this continuous operational transformation, we deliver 2% volume growth overall and more importantly 14% revenue growth.

Volume of core sparkling beverages grew 9% mainly driven by the continued success of our one-way presentations as we continue to revamp this franchise portfolio to better serve our consumers in this country. The mix of one-way presentations within sparkling beverages has increased close to 4% percentage points as compared to the same period of 2014.

In the greater Manila area where we first implemented our new commercial model and portfolio, our sparkling portfolio gained more than 3% percentage points of shares and volume of core sparkling beverages increased 6% during the quarter.

We are on the right path to transform this important operation in order to capture the potential that we envision in the future of this region. I would like to share some additional relevant highlights with regard to our portfolio performance.

This quarter, we generated close to 5.8 billion transactions across our operations in 10 countries outpacing volume performance. This represents 54 million transactions with consumers everyday across markets despite of the challenging consumer environment that we faced in some operations.

Thanks to the strength of our brand portfolio, our reinforced point-of-sale execution and our innovative packaging alternatives brand Coca-Cola continued to showcase consumer preference across our markets and we recorded market share gains in Venezuela, Colombia, Central America, Mexico and the Philippines, maintain share in benchmark levels in brazil, and nearly lost 1% percentage points in Argentina.

Coke grew 6% in both Venezuela and Central America, increased 4% in Colombia and 1% in Mexico. Our flavored sparkling beverage portfolio gained share in Argentina, Venezuela, Brazil, Philippines and Colombia while maintaining shares in Central America and Mexico.

This category grew 32% in the Philippines, 10% in Colombia, 7% in Argentina, 4% in Central America and 2% in Mexico, while it declined less than 1% in Venezuela and 8% in Brazil. In the water category, we gained market share in Argentina, Venezuela and Mexico, while we saw declines in Brazil, Colombia and Central America.

Personal water grew 38% in Argentina, 6% in Columbia, 7% in Central America and 15% in the Philippines while remaining flat in Mexico and declining 4% and 2% in Brazil and Venezuela respectively.

In non-carbonated beverages, we gained market share in Mexico, Argentina and Colombia while maintaining share in Central America and Brazil and losing 1% percentage point of shares in Venezuela. Colombia’s non-carbonated beverage portfolio grew more than 20% on the back of del-Valle Fresh Orangeade, Fuze Tea and Powerade.

Argentina grew 33% mainly supported by the outstanding performance of Powerade which gained more than 15% percentage points of share this quarter. In Central America, our volume grew 10% mainly driven by the Jugos del Valle portfolio, Powerade and Hi-C. In Mexico, our non-carbonated beverage portfolio declined 8%.

Growth in del-Valle juice and the introduction of the Santa Clara portfolio partially compensated for declines in the rest of the portfolio, especially in the del-Valle fruit orangeade as we adjust this brand pricing architecture.

Not only the recent launch of Powerade Zero supported this brands continue market share gains and Powerade became the number one brand across our territories in the sports drinks category reaching 50% share of market.

In Brazil, growth of del-Valle fruit was not able to compensate for declines in the rest of the portfolio and volume decreased 13% in the category. In Venezuela, the category declined 2% as we decreased production of faster rotating SKUs in the sparkling beverage.

Finally, volume of this category in the Philippines declined mainly driven by the performance of the Powerade category. Moving on to our consolidated financial position, our strong balance sheet continues to underscore the financial strength and flexibility of our Company.

As of March 31, 2015, after adjusting for the negative translation effect resulting from the use of the SIMADI exchange rate, we had a cash balance of Ps. 13.4 billion and our total debt was Ps. 67.4 billion.

For the last 12 months ending March 2015, our operating cash flow to net interest coverage ratio was 5.5 times, and our net debt to operative cash flow ratio was 8.89 times remaining stable as compared with December 2014 and despite of the previously mentioned negative translation effect and the devaluation of the Mexican Peso as applied to our U.S.

dollar denominated net debt position. As of March 2015, at our annual shareholders’ meeting our shareholders approved the payment of a dividend in the amount of Ps. 6.4 billion or Ps. 3.09 per share.

The dividend will be paid in two installments as of May and November and represents an increase of 7% as compared with the previous year highlighting our Company’s financial flexibility and commitment to increase shareholder return.

Our comprehensive financial results for the quarter was mainly impacted by a foreign exchange loss related to the depreciation of the Mexican Peso as applied to our U.S. dollar denominated net debt position.

During the first quarter, our effective tax rate was 30.4%, lower as compared with the previous year mainly as a result of a smaller contribution from our Venezuelan subsidiary, which carries a higher effective tax rate. The reported earnings per share were Ps.

1.06 in the quarter, excluding Venezuela and, on a currency-neutral basis, earnings per share grew more than 13% and reached Ps. 1.03. At Coca-Cola FEMSA, we continuously take proactive steps to further strengthen our capital structure and financial flexibility.

Through our financial discipline, we continue reducing our net debt position, while maintaining our Company’s strong cash flow generation. And we have continued to invest in strengthening our operational infrastructure across our operations.

Further, our packaging innovation and reinforce our Company’s talent base, we have started to implement a full transformation of our Company’s operating and management model. Through this transformation, we will enhance our capacity to create a linear, more agile and flexible organization that would yield increased efficiency and effectiveness.

Going forward, our financial and operating discipline, our team’s commercial strength and our ability to adapt to the changing market dynamics of our geographically diversified portfolio franchises will enable us to capture the long-term growth opportunities that we envision in the beverage industry.

As always, thank you for your continued trust and support in Coca-Cola FEMSA and its management. We remain committed to the continued generation of sustainable economic, social and environmental value for all our stakeholders. Operator, I would like to open the call for questions. Thank you..

Thank you. [Operator Instructions] We will take our first question from Ian Shackleton from Nomura..

Yes, good morning gentlemen. I would love to drill down a little bit more into Brazil. And as you see, you had a strong comp, but obviously it looks fairly negative numbers here minus 18 sparkling, minus 13 in stills.

Can you give us some idea of what the underlying position is in Brazil in this quarter and whether you think that’s a reasonable guide for what happens for the full year?.

Good morning, Ian. Yes, I think that what is happening in Brazil, its – and let me go a little bit back in time. We have a very complicated 2013 with increases in taxes and some increases in distribution cost with the so called [indiscernible] 2014 was the year for us to recuperate a lot of that profitability that was lost during 201.

And now, we are facing a consumer that is now confronting what I believe are important reforms in the way the country is managed, with important increases in some of the tariffs, especially electricity that is hitting the consumer. Importantly, we’re seeing some deterioration in the employment numbers.

So all in all, we are seeing a very soft consumer environment in Brazil for this year. Again, because the consumer is not – the disposable income of the consumer is not going up, that’s called the contrary trend.

I think that the important element here is that because of the price points that we have been trying to achieve all the way since 2014 and because of all the price points in the R$1 and R$2 and the introduction of 2-liter returnable PET, we are much better prepared now to serve this consumer that has a weaker environment.

Going forward for the second, third and fourth quarter, I believe that we will have a better or easier comps at least on the volume side. And therefore, I think that the performance of our Company will improve. But I’d like to highlight important elements.

One is that in Brazil this is an industry trend and other beer that is growing a little bit better when we compare market share numbers, we are increasing in every category except in non-carbonated drinks, where I mentioned that we lost some market share in teas and sport drinks and water.

So I think it’s very important to highlight that even though we have a reduction in volume, we are gaining share which is a very important number for us.

And the other important element is that the organization in Brazil is capable of transforming this reduction in volumes into an increase – a slight increase in profits and margins which is also an important element that we need to consider. All in all, Ian, what I want to say is I am sure that 2015 is going to be a tough year for Brazil.

I think that we are well placed with the package – the portfolios of products that we have and because we have the right price points for those products. And I think that from a competitive point of view, we are also on the right track, while maintaining and increasing shares in the different categories.

There’s no question that 2015 is going to be a tough year for Brazil in terms of volume..

That’s very useful. I just have a quick follow-up. I think you talked about one way mix that grew, I think, 4 percentage points. I just wondered which are the key markets that was visible in.

Did you get mix improvement in all the markets?.

Generally, Ian, we have seeing one-way mix gaining traction in the Philippine market because of the brief introduction of brand Coca-Cola in small packets, what we call the Mismo presentation.

In the majority of all our markets, if my memory is correct, and I think it’s very close to that, returnables are gaining traction because of the soft environment that the consumer is facing.

So not only America, returnables are gaining traction in the Philippines, one way presentations are gaining traction because it’s where returnables have the largest penetration in the Philippine markets. So in the Philippine, we’re going in the other direction..

Very good. Thank you for that..

Thank you..

And we’ll take our next question from Carlos Boy with HSBC..

Good morning everyone. Hector, my question is really to innovation and marketing.

Can you comment on the innovation pipeline for Brazil and Mexico this year? And are there any adjustments to the marketing plans that have been made in Brazil or maybe even in Mexico to deal with the consumer situation you’re now facing?.

Carlos, good morning. Administrative Officer I think that one of the pillars that we have in our plan that we do every year has to do with innovation.

Sometimes innovation does not advance as fast as we would like mainly because we have to be very careful when you are dealing with a brand as powerful as Coca-Cola and new formulations, new flavors always takes probably a longer time than what the operators would like to have. But let me share with you some of the insights.

We have done some innovation in packaging, so last year for example we saw the $R1 and $R2, the small PET presentations being introduced and that’s a big important step in having the right price for the consumer in Brazil.

Rolling out the 2-liter returnable PET in Brazil has also been very important as a way to bring in affordability for the consumer that wants to share a drink with the family. We are offsetting for example in Coretiva instead of having 2-liter they have one and a half liter with [indiscernible] we are changing everything to 2 liters.

We are trying to work on the flavor area in Brazil because when you look at the market penetration that we have in Cola is the highest market share that we have in the 10 countries in brand Coca-Cola. So, clearly for us the opportunity is in flavors and we need to try to capture flavors from our very strong competitor which is Guarana Antarctica.

So there is innovation going in that direction.

There is innovation on the flavor water front and the non-carbonated drinks that is where you see more innovation with new flavors for teas, new presentations for juices, new or different content of juice for different drinks so we develop portfolio very low juice content to a 100% juice content and we see a lot of innovation there.

In Mexico, we are working similar to that. The latest thing was the introduction of Coca-Cola Life that I have to say has not been working as we are expecting.

It started to sell that generally a good outlook of marketing events around brand Coca-Cola, but the launching for Coca-Cola Life which is the one that sweeping [indiscernible] is not necessarily growing as we were anticipating. And the majority of the innovation in Mexico has to do again with non-carbonated drinks.

There are clearly opportunities in moving into the perception of more naturality or more natural products, moving away from diet drinks or using artificial sweeteners into using more natural sweeteners and also including juices in some of the drinks, something similar to the Pellegrino Orangeade that you see in the U.S.

So those are the areas where we are working. Again I would define a lot has to do with packaging materials and changing presentations. Some of them has to do with NCBs because that’s the area where you find more innovation in the industry as a whole and in our Company also.

And some of them has to do with moving to returnable or one-way packages depending on what we feel is needed in the field. That I will say is a good summary of what we are doing in innovation with respect products, Carlos..

Thank you..

And we’ll take our next question from Lauren Torres with UBS Financials..

Good morning. Hector, I was hoping what you did with Brazil to give us an update on the environment in Mexico.

I know for the first quarter we heard about the weather in March and I think you still use the word that is struggling, but we are hearing a lot of Mexican consumer product companies talk about the gradual recovery and seeing hints of stronger trends.

So, I am just curious to hear you are saying, I guess, opposite to Brazil you will be cycling some easier comps for the remainder of this year.

Just to get your perspective on the return to volume growth, I assume the pricing story isn’t as exciting thing to what you did last year, but just directionally curious to get your thoughts on that region and on those topics. Thank you..

Good morning, Lauren. I think that Mexico is yourselves correctly pointed out we have extremely good January, so February and March that was kind of bad because of the weather. We are having better weather in April especially in Mexico which is our biggest market, a very warm weather and May is where we have the warmest climate of the year.

Well, this time around the weather was a little bit behind – the good weather was actually [indiscernible]. But I think that Mexico the story this year has to do more with pricing. As I said in the opening remarks, we have already priced ahead of inflation for the first quarter, we are starting to move ahead again on the pricing front during April.

In general, I will say that we are moving around 80% of our SKUs for a total compound effect of around 4%. So my expectation is that volume will not grow necessarily, will be more flattish, but I think that we will have a much better pricing formula for Mexico for the rest of the year.

I think it’s important that you also – as you have read in the last two or three press releases, we are focusing a lot on understanding at a transaction level the revenue and the margin that we get for any transaction as opposed to just looking at unit cases and that’s an important element to consider going forward..

Okay, very good, thanks..

We will take our next question from Andrea Teixeira with JP Morgan..

Hi, Hector good morning. Thank you for taking my question and [indiscernible] as well.

Just following up on the previous question, I was just curious as we saw your competitor also taking pricing, if there is any – I understand of course the dynamics of the weather and all of that, but if there is any change after the good pricing and if any changes also as they expand into some more convenient stores, if you are seeing a volume dynamics across the board different or if they are pretty much homogeneous.

Thank you..

I think that one element to consider here is as there is probably not mentioned very often, but you look at the performance of last year, we ended up – we have been in the industry because of the new tax passing along a 15% price increase basically in general terms.

And in our case, our volumes were down around 5%, a little bit less than 5% for the year and I think that the same happens for the rest of the Coca-Cola bottlers and certainly for some of our competitors with probably some variation in the volume performance, but everyone increased prices to pass along this tax effect.

So one of the element that I think that we are seeing is that when you have the preference of the consumer for soft drinks as a consumer product, everyone I think that is now looking at the possibility of increasing prices knowing that they will have some elasticity, but quite an elastic effect on the demand.

And everyone is trying to capture a little bit better profitability, which I think is good for our industry.

In general, what I am seeing here and I did share some market share numbers and performance numbers for Mexico, but in general even though we are seeing sluggish volumes in Mexico basically a decline of 0.9% versus last year, we are seeing in every category market share improvement except flavors where we are losing a little bit market share, but it is less than 0.5% percentage point.

So we feel confident with our position. I think that we need again to generate transactions that generate revenues for the Company and that generate good contribution margin for us.

Our competitor is now present in option the convenience stores for several quarters, but in general if you visit one of the outside stores, you’ll see prices that are very similar to ours because options is charging them for the convenience.

When you go to supermarkets, you will a see a differential price, you will find some price differential on specific packages that are not as targeted for the convenience of the one-third of the volume options.

So I think that in general what I’d want to convey is that at least Coca-Cola FEMSA is focused as we have been focused in the past especially this quarter of this year on assuming that we have a soft consumer environment in Mexico and Brazil, what can we do with innovation in new packages, innovation in NCBs, what can we do to bring a better pricing formula or a better pricing mix for operations so that we continue to improve margins and the profitability.

And forgetting a little bit about volumes without – obviously without forgetting about volume and what market share trends implied, it was not so obviously the life line that you have to continue growing in the future.

But again I think that’s a good explanation of at least how Coca-Cola FEMSA is feeling during – is reacting in this quarter and I think that some of the industry players are also in the same track now..

Great. And in terms of Venezuela, if you can update us on the cash flow if the needs to purchase, and I understand you continue to have the support from the government you get in the FX at an attractive price. But as far as continue the operations there, can you give us an update as you did in the last quarter? That will be great..

Yes, Venezuela continues to be a as I explained – we’re in a very difficult environment in terms of having the raw materials that we need to operate in the country. Last year, we received [indiscernible] $120 million as the constant exchange rates to buy raw materials. This first quarter that number has declined significantly.

If I remember correctly, we have received $2 million or $3 million. We have been active buying some dollars at the SIMADI exchange rate but so far we have basically bought around $1.7 million at the 190 exchange rate.

And a lot of these high-lows that we have internally and with our suppliers at least how can we reduce the dependence of Venezuela from imported raw materials. So we are looking for alternatives with our suppliers to have local sourcing for the raw materials. In general what we need is around $90 million of raw materials, that’s on a yearly basis.

We are looking to lower that amount by two-thirds. For example, with the supplier of plastic caps, we are analyzing for them to buy an existing operation in Venezuela that produces caps that presently do not comply with the quality standards that we need.

But with this provider that we have and the suppliers that we have in other countries that have perfectly acceptable quality standards. And they buy that operation then we will be sourcing those caps at 100% in bolivars local.

Obviously for the suppliers again it can’t be at the end of the road is that they will have a much larger relationship with Coca-Cola franchise in other countries.

They will have to bear the main cost either buying from some of this plastic that they need or importing those plastics from the outside, but from KOF’s perspective, we will be buying in bolivars for those plastic caps in the near future or early starting January of the following year.

So all in all and the important element is trying to convert these $90 million as much as possible – $90 million of needs for raw materials in Venezuela as much possible to local currencies.

We feel that we will continue to receive dollars from the Central Bank not at the same pace that we were receiving in the past, and for us that balance is important balance that we need to maintain. We feel that Venezuela will continue to grow volumes. Last year we produced 240 million unit cases, this year probably 250 million unit cases.

We are dedicating most of the production to brand Coca-Cola because we are selling everything we produce and we are running out of capacity.

We are in a dialog with the government to increase the capacity there as long as we have certainty of the dollars to import some of our equipment and obviously to import raw materials in the future as we establish these new production capacity.

We are looking to move more into returnables which in Venezuela is very low is around 7%, the mix is the lowest mix we have for returnables. Because that will also reduce the amount of DP and plastic cups that we need.

So all in all what I said is the energy of the Chief Operating Officer that we have there and the team in the corporate that is supporting him is to try to reduce the needs of dollars for the Venezuela operation as much as possible..

That’s very helpful. I mean so to understand, Hector, you said two-thirds of the $90 million, nine-zero, basically, $60 million you’d be trying to replace with local suppliers and leaving about $30 million over the next one or two years and then leaving the $30 million I am assuming constant rates right, is what you cannot replace, obviously..

The numbers that you are saying is correct, the $90 million is everything except constant rates. Constant rates remember that we paid a portion of our price in local currencies.

So the Coca-Cola Company and we are working together with the Coca-Cola Company to see ways of either producing locally, or importing from countries that have a special treaties with Venezuela, for example, Costa Rica is one of those, where for us will be a bolivar transaction and the Coca-Cola Company because of the treaty that Venezuela has with different countries like Peru, Ecuador and Costa Rica, their dollars in those countries.

So the $90 million that I was referring that, some of that collective effect will result to $30 million, it’s just for spare parts, resins, plastic cups. Those are the main items there..

Wonderful, okay, thank you very much Hector..

Thanks..

And we’ll take our next question from Luca Cipiccia with Goldman Sachs..

Hi, Hector good morning. Thanks for taking my questions.

To follow up if possible one was on the profitability in LATAM, just to understand, you referred, you talked a lot about Brazil, I wanted to maybe get more visibility on the margin improvement or the margin that mix in the other markets or specifically how much of the improvement that we saw in the quarter compared to last year comes from Brazil and how much for the rest or not? That will be my first question.

And the second more generally on the innovation in a broader sense, we have seen Coca-Cola having tested the new universal branding, I think that’s what we call it’s a strategy in some markets, I understand that’s already up in Chile and or it’s happenings in Chile and you referred to the fact that Coke Life in Mexico somehow is not really keeping the momentum.

So I was wondering whether this is something that we will see coming as well in some of your territories, if there is any plan or any visibility on that because I would assume that’s also to somehow support the lower calories categories under the one brand sort of banner push, so any comment on that would be interesting for us as well..

Luca good morning. Let’s just start with the margins number. In general we saw expansions in the margins in every market except Colombia.

Colombia we have a slight reduction in the margins and that has to do also with whatever we have expressed for a couple of couple of years now, what we called the plan Colombia where we lower prices, we are growing volumes importantly, but still we have not been able to generate the profit margins that we anticipated in Colombia.

So the formula has been that we lower prices, we have more affordable packages for the consumer and volume has been increasing 8% per year for the last two or three years which is very good in terms of the volume performance, but now we need to adjust a little bit factor the pricing.

In Columbia we have a very small reduction in margin around 30 basis points..

Sorry to interrupt, but like assuming that the facts headwind in Columbia has been quite large, so how do you think of pricing to compensate for that now may not be an option, no, because of this?.

In general if you look at – what I was going to say is in the rest of the countries we are increasing margins including Brazil, what we are doing is what I was referring to the question that was done about Mexico [indiscernible]. We are looking at increasing the pricing of the revenue mix, what we call revenue management initiatives in every country.

In Colombia we have increased prices to compensate for the headwinds that we have in effect and we think that our competitor will move as well.

As I mentioned, we are always we have a very watchful look at the market share numbers because we like to preserve the market share numbers as a way of preserving our possibility continue growing in the future.

But we are focusing a lot on the profitability of every package and we have now tools to really do a very profound analysis of the profitability by brand, by package, by categories, by channel, et cetera. So we are looking every month and our operators are looking at presenting in the reports every month what opportunity they see in terms of pricing.

So, for example, in Colombia we have increased around 4% already the prices in the first quarter and that we hope will help us counter to some of the pressures that we have on the raw materials. We still have a tool – a strategy with the hedges that will help us in the future.

I said with the first quarter, around 60% of our FX exposure in raw materials was hedged for Mexico, Brazil and Colombia and as I explained in other conferences, we have this rolling strategy where we continue to renew hedges for raw materials as we move up further away in the year, we lower the percentage of the raw materials of the amount that is hedged.

But so far, as I mentioned, for the first quarter around 60% of the exposure to FX was covered at very good rates and that is obviously on these returns. For the second, third and fourth quarter, we have numbers that vary from 50% in the second quarter to around 30% hedges on the fourth quarter.

So all in all, Luca, I think that we are very active with our risk management area to try to either re-buy some of the raw materials in a time when we see opportunities for the prices and to cover the FX exposure on the dollar denominated raw materials.

With respect to the universal brand, I am familiar with that the date, but I don’t have a specific where they are planning to roll starting in our countries.

I know that it is in the radar screen of the operators, but I don’t have a specific date for that year and I know in the theory that was held unify under the brand Coca-Cola as an umbrella and have traction on the marketing efforts..

Very good. Thank you. Thank you Hector..

Thanks..

And we’ll take our next question [indiscernible].

Thanks for taking my question.

I wanted to go back to Brazil and I know you have already discussed it in a couple of different ways, but I just wanted to put it all together, I mean, in light of the weaker consumption environment, how are you thinking about the ability to take pricing in this kind of environment and also given what you just mentioned about the hedges being less, helping you less especially in the second half, so the FX pressures intensifying.

How do you think about the margins, do you think you could see some pressure in the margins if the consumption remains weak or do you think you can do enough pricing and do enough SG&A containment to offset the pressures?.

Good morning, Jeronimo. I think that similar to what I mentioned in Colombia and Brazil, we have already increased prices around 3.5% during the first quarter, that’s in anticipation of some of the prices that we will receive in the future. We are also doing some hedging strategies in Brazil for the dollar denominated raw materials.

In Brazil we have around 60% of our needs for the second quarter already covered. On that around 30% will be on fourth quarter.

And obviously we believe and that’s why we are pending behind the 2-liter returnable presentation, I think that that presentation will get traction with our consumer that have lower disposable income in general and that will help us to get volume with that presentation.

I think that the comparison on the second and especially third and fourth quarter will be ensuring the case of Brazil and in every country we are working with this what we call this project E2 that has to do with effecting this on efficiency in the organization.

I described briefly last quarter how we are reorganizing our commercial area and our supply chain area differences. In the past, a lot of the time we have heard of commercial was spent in understanding things that has to do with feedaway from growth what’s available from the production plant and all of that.

Now this time is going to be 100% dedicated to sales and someone is going to be responsible for the product to be present where it has to be present at the right time.

So, our expectation is that and we are having probably some extraordinary expenses related to the reduction in workforce because of this reorganization, but our expectation is that those savings will start to appear towards the end of year and certainly through 2015 as we have a more efficient and more lean organization.

I think that all of those strategies are clearly directed into facing a difficult consumer environment in Brazil that the consumer as I mentioned favored a lot of tariff increases.

The new production plant that we have in Espirito will give us also capacity to have the 2-liter returnable in that area, which is at the end the third largest city of Brazil and a lot of the key indicators in terms of line efficiency, warehouse production per liter, the productivity of the warehouse, the field rate that we have and the point of sale, the drop sites for our trucks, all of those indicators are being followed very closely so that we improve on those indicators and that will translate into better cost structure for our operations..

Okay. Thanks.

And just a follow-up there on the 2-liter returnable, can you give us a sense of how the performance has been so far since in the first quarter or more recently?.

Let me look for the number, I will give you a number in the second because it has not been growing importantly in the presentation. I will give the number later on, I don’t have here with me, but certainly the growth of returnable presentation has been for last year the growth of 2-liter returnable presentation was 26%.

So, it’s a very important element in our growth in the countries last year. Okay..

Great. Thank you very much..

And we’ll take our next question come from Jose Yordan with Deutsche Bank..

Hi, good morning. Just a couple of quick questions.

Any indication that the Venezuelan government was contemplation expanding the price control that they had on a few SKUs or is that pretty stable? And then the second question is more broader on Brazil, after a period of very heavy M&A activity, there has been nothing for a couple of years and I just love to hear your thoughts about when will the conditions be right for a further M&A activity in Brazil both from the point of view of sellers being willing to sell or Coca-Cola being more amenable to more transactions or for buyers to have the willingness, I am assuming this is never a problem, but just would want to hear your thoughts on this..

Good morning, Jose. Let me start with the Venezuela question and then will follow with Brazil M&A. In Venezuela right now the only price controls that we have had to do with water. And water is a category that the government perceives this as a necessity for population and we have price controls in that.

Other than that it’s important for you to know that we have a law that is called, let me translate, it is called the fair price law or [indiscernible] Basically what it says is that with different formulas of accounting what the government is saying, you should not have extensive margins on your products and it’s targeted more to the retail stores, the mom-and-pops and the supermarkets so that they don’t increase prices importantly, but it applies to every company.

So we need to be careful of analyzing our cost structure and the prices and then what the margin is. Of course the difficult part is what is the cost structure once you have starts to give dollar and which dollar rate, you should use for the cost structure.

But in general, I think that we are not seeing more ability in terms of controlling more of the prices because of the existence of this fair price law that that everyone has to be in compliance with that and we are obviously compliant with that.

If I move to Brazil, I think that in general what we are seeing is also the fact that the last two years in Brazil especially it has been very difficult from the macroeconomic perspective and the perception of the investors in general about the country.

For 10 years were the raw materials were increasing in price, importantly Brazil was booming and the middle class was growing importantly with all the social programs [indiscernible]. I think that we are now facing a consumer that is with more debt and moved tariffs in terms of electricity, prices and transportation, et cetera.

So I think that it was only natural that both sellers and buyers will evaluate the future of Brazil and what the prices will be for any future transaction in case there is any transaction.

So, it’s difficult to say when sellers and buyers will agree on – will concur to the same conclusion that we are facing a different Brazil to what it was two or three years ago and for the Company then I think that we will see some consolidation in Brazil because we still have probably eight independent, seven or eight independent bottlers there.

Probably the same is true for Mexico. In Mexico we have the tax increase that happened last year and everyone was kind of, also there was a lot of conversation of a potential tax until they had it in the law and you have to start paying the tax, wherein you realize that we are in a different in a different environment.

So, my feeling is that in Mexico you have four or five independent bottlers that at some point in the future, I don’t see in the short-term to be honest either in Mexico or Brazil, but at some point in time my feeling is that consolidation will be inevitable because you have an industry that is getting more complex with the number of SKUs and the number of categories that is very difficult to be a small bottler and to be able to handle all these presentations, SKUs and categories in an efficient manner.

It requires a lot of investments and then to add capacity that you will not be necessarily feeling a 100%. But at some point in time that consolidation will continue to happen in my opinion..

Alex Robarts with Citi..

Hi, and thanks. The question relates to South America.

As we kind of look closer to your operating leverage that we see in the quarter, what strikes us is the operating expenses really falling year-on-year faster than the revenues and, I mean, as we think about the margins holding up in this region, it seems that this was a key area and as we think about the distribution, the movement towards returnable that would seem to imply that you have a little bit more expenses on the distribution side and yet you are getting this strong leverage with the OpEx.

Is something happening tactically here, have you introduced some structural elements on the go-to-market aspect of the business or phasing the A&P, I guess, fuel costs are down, but if you could talk to us a little bit about what was going on with the OpEx and how are you able to really bring it down in control of the way you did?.

Yes, Alex good morning. In general, let’s say that this is the fruit of a lot of effort in terms of analyzing our cost structure of the past years and things that are related to the program that I was mentioning of splitting the commercial area and supply chain area and trying to work with less people in all in the organization.

For example, in Mexico we reviewed the headcount, around 1400 people last year, similar to that and I don’t remember the number, it was close to 700 people in Brazil. So, we have been in every country have important efforts in reducing the cost on expense. We have also tried to be more efficient with our marketing expenses.

In general, this quarter we have slightly lower marketing expenses compared to revenues to what we had last year, probably 10 basis points we have on a consolidated basis than basically the numbers 3.2 versus 2.5 this year. So, there are some efficiency of marketing, but that’s not the majority of the effort.

And at the end of the day, the effort we have been doing in having a more efficient organization, especially the commercial and sales side, similar to what we did in Mexico that we have described, we have the structure from the different sales source that we have moving into zero organization where the commercial director now has a manager to report on a state basis, as opposed to having four very big sales area that we had in Mexico before and we are implementing some of some of those things in South America also.

And I think that’s what I can share with you on what has to do a little bit of marketing and some reduction in the cost on expenses and it’s also important to remember that in case of Brazil we are also cutting some of the synergies that we announced.

We are going to say that we are going to save around $52 million from the synergies of merging of merging [indiscernible]. At the end of this year we will be – in November will be the second year-on-year [indiscernible] and by that time we should be with the full allocation of synergies reflected in our P&L..

Is it fair to say on the synergy front that if we think about the buckets in revenues and cost and SG&A that with the new franchises the bulk or the majority of these synergies are coming in the SG&A, is that a fair statement?.

I think that it’s a little bit of everywhere, it’s a little bit on the top line because we increased prices when we have price differentials, it’s a little bit in production capacity as we are using better production capacity.

But I think that at least half of that has to do with the SG&A, probably a little bit more than half of that, of the $54 million..

Okay. That’s helpful. Okay.

The last question just relates to your share performance in Brazil, it’s interesting to see how you have the tough comp in Brazil in volumes, but you have managed to get in both, as I heard it right, as I heard it, flavors as well as the colors gaining share, what has been instrumental in that share gain, has it been kind of the packaging strategy, has it been something that you have done on the pricing and is it then in innovation, if you could talk to perhaps a little bit on what’s behind the share gains in Brazil and is it something that perhaps you expect to continue in the coming quarters?.

Yes Alex. I think that the very positive news in Brazil is, remember that as I mentioned a little bit earlier, with brand Coca-Cola is the highest market share penetration that we have in the ten countries. So, it’s very difficult to move it in color, but we are moving a little bit on that front.

But the very positive news is that we are increasing close to 1% percentage point according to our readings for the quarter on flavors. And that has to do mainly with the Fanta returnable PET. We have a very, very strong competitor in Guarana Antarctica.

I think that and we saw during the quarter market shares as well growing a little bit faster and then a very strong reaction from Guarana with price promotion towards the end of the quarter.

So, even with that we were able to gain a little bit of market share close to 1% percentage points, which is clearly the positive news in Brazil given the fact in Cola we have a very high penetration.

We don’t know if this is also a reaction of the fact that Heineken is growing importantly in Brazil, if I am correct somewhere around 13% growth in volume during the quarter and I don’t know if the reaction with Guarana has to do with that but for us Heineken is a brand that we are just distributing.

But Heineken in Brazil obviously they are treated differently. Brazil is for brand Heineken, now the fourth largest country in the world after US, France, Holland and then in Brazil, it is the fourth place, it was like the eighth or tenth place a couple of years ago.

So, brand Heineken is growing importantly in a very premium segment, still with very small market share, but I think that it’s also important for us to share that with you.

So, the reaction with the pricing in Guarana I don’t know if it has to do with that fact maybe we don’t share with Fanta, a returnable kit or if it was more of a reaction to as a way of compensating for the growth of brand Heineken..

Right, you said 13% growth, I am sorry, in your territory of the brand or the Heineken portfolio, sorry?.

It’s brand Heineken in our territories..

Okay, thanks very much..

We’ll take our next question from Antonio Gonzalez with Credit Suisse..

Good morning and thank you so much for taking my question.

First on Brazil, just a quick follow-up, sorry if you addressed this already because I joined a little bit late, but my understanding is that you had a view internally that volumes for Brazil this year would be up 2% to 4%, I wanted to know if that view is maintained after the first quarter result.

And secondly on Mexico, I wanted to make a follow-up on your earlier comment about the focus on improving pricing.

Irrespective of what volume dynamics turn out to be this year, how do you think longer term of the category, we are seeing an improvement almost across the board, food products, household products, the retailers, supermarkets, department stores, everyone is talking a little bit about this mild but nevertheless it is happening a consumer recovery in Mexico.

And I wanted to ask if you are concerned a little bit that maybe the soft drink category specifically became a little bit little bit too expensive after probably 20% cumulative price increase in two years.

I understand that it’s coming from a low base when you compare revenues per unit case vis-a-vis your other Latin American countries, but I just wanted to hear your big picture thoughts on whether there might be a category issue happening with soft drinks in Mexico? Thank you..

Good morning, Antonio. Let me start with Brazil.

Yes, we are expecting kind of low single-digit volume growth for Brazil given the result of the first quarter we are still positive for we are seeing some growth for the year, not probably at the 4% level, but a little bit less than that, but we are still positive that for the year we will find a good volume growth.

Clearly this first quarter volume was lower than what we were anticipating the result of this first quarter. But assuming that the rest of the year behaves as we were anticipating, we will see growth around 2% to 3% in Brazil and that’s our expectation.

With respect to Mexico pricing, we are of the view, and I described quite of this in the call, Antonio, that our activity with respect to revenue management is very important. We have been active for many years in that front, but I think that we have to be especially keen during this period.

We are increasing prices in Mexico as we are speaking, around 4%. On top of the fact that for the first quarter we already cover inflation for the last 12 months, so we are starting to increase prices. And we think that the competitor will do the same because obviously everyone has a little bit of pressure what the raw materials as our denominator.

We are taking care of the different price points with the strategies that are very familiar to you having many different SKUs at different price points for different consumer locations and not every product being present in every store or every region. We think that we are very good at that.

So, returnable products continue to grow in Mexico, that’s a way of having a follow-on growth to our consumer, but we are trying to capture prices whenever we can, even though that might imply that we have very little growth in volume. We are careful about market share and so far in Mexico we feel very confident with the numbers.

I already stressed that the exception of flavors, in every other categories we are staying with the same market share that we have or growing and that’s basically our view on the pricing, it’s important that we will capture the cost that is being passed on to us because FX movements or because of price increases in raw materials whenever that happen.

And I think that with the strength that we have with our brands that we should be able to have very good revenue management initiatives to capture again the pricing opportunity that we see.

You are right, we have increased prices 16% last year because of the taxes and a little bit before, but at the end of the day as long as we have an affordable product for the appropriate consumption location we have the pricing for the convenience and a higher pricing in that case when you have convenience of the proximity and the one way presentations, it’s to find that balance that the consumer continues to be with us..

All right.

And just to make sure, are you still expecting to or could you share your latest thoughts on when are you expecting to recover the lost volumes from last year, is it 2015 or is going to take a couple of years?.

I think it is going to take a couple of years. I think that importantly the two big items that we learned from last year is we increased prices 16% and volumes were down less 5%, 4.8%. So message there about the inelasticity of our product in these markets in Mexico.

And the other big message is even with a 4.8% volume decline we were able to be flat on profits with all the strategies that we have been doing in terms of cost containment, passing the right price, obviously we were helped a little bit by the raw materials.

But all in all we were able to deliver flat operating income numbers in a very difficult environment where we have a tax that was impacting our prices or the price of the consumer for Panama.So, those are two learning that we need to apply going forward.

If we don’t recapture that volume, I think it’s secondary, I think we need to get the transaction, get the revenue, get the marginal contribution and the profits that we deserve from these markets..

Got it, thank you so much..

And we’ll take our next question from Martha Shelton with Banco Itau..

Thanks for the question. You mentioned that in Mexico returnable continued to grow being a shift to the modern channel from the traditional channel and also if you could comment on any shifts to one way presentation versus the multi serves. And then second to that I wanted to just clarify what you said about pricing.

So, I understand that in the first quarter pricing was 3% and you are in the process of taking pricing in Mexico now, so would the cumulative price increase be 7%, if could clarify that, I would appreciate it? Thanks. And then also an update on the Philippines would also be helpful. Thank you very much..

Good morning Martha. Let me clarify, when I said that we have recovered first quarter for inflation deflation effect, that’s has been even with some price increases that we have in the second part of last year. So, if you look from January to December we are not going to increase price to 7% when the inflation is around 3% or 3.5%.

We probably increased 4% or 5% a little bit ahead of inflation, but I think that we are capturing that extra margin ahead of inflation for this year.

With respect to the mix we are seeing returnables growing and because of returnables and the availability of returnables in traditional channel we are also seeing some growth in the price in that channel. It’s very stable in terms of the channel mix, but traditional little by little capturing this opportunity where it’s on our business based.

We ended up with more of a channel are not very popular. So, we have this affordable product for our consumers it’s more skewed towards the traditional channel that is growing in importance slightly. And I think, I don’t know if that….

Yes, and so far is there a shift to the one way versus multi-serve? Is that something that you are observing as well and then also an update on the Philippines please?.

Yes, Martha, part of the returnable was not only on multi-serves, it’s very important with the 500 milliliter plus that is growing importantly. So, in general, you are seeing a little bit more of single-serve versus multi-serves..

And that does conclude our question-and-answer session. I will turn the call back for any additional or closing remarks..

Thank you for your interest in Coca-Cola FEMSA and as always the Investor Relation team is available for review questions you may have. Thank you..

That does conclude today’s conference. Thank you for participation..