Good morning, everyone and welcome to the Coca-Cola FEMSA Fourth Quarter and Full Year 2019 Conference Call. As a reminder, today's conference is being recorded. And participants are in a listen-only mode.

At the request of the company, we will open the conference up for questions and answers after the presentation.During this conference call management may discuss certain forward-looking statements concerning Coca-Cola FEMSA's, future performance, and should be considered as good-faith estimates made by the company.

These forward-looking statements reflect management's expectations and are based on 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.

John Santa Maria, Coca-Cola FEMSA's Chief Executive Officer. Please go ahead, Mr. Santa Maria..

Thank you. Good morning, everyone and thank you for joining us to discuss our fourth quarter and full year 2019 results. Constantino Spas, our Chief Financial Officer; and Jorge Collazo, our Head of Investor Relations are with me today.Our 2019 results reflect a year of profound transformation and capability building.

These initiatives played a significant role in our ability to deliver positive full year results in the face of stronger-than-expected currency headwinds, challenging operating environments while also absorbing more than MXN 1 billion of extraordinary charges due to the transformation and functionalization of our operations throughout Coca-Cola FEMSA.Our focus on innovation and affordability coupled with the revenue management initiatives, strengthened our competitive position and allowed us to deliver consistent top line growth.

During the year, we achieved significant benchmarks. For example, we surpassed one billion unit cases in Brazil where we improved beer.

We achieved 100 million unit cases in Guatemala and generated more than 20 billion transactions throughout all of our organization.Moreover, our Mexico, Brazil and Guatemala operations were each awarded first place in point-of-sale execution by the Coca-Cola Company.

These results reflect our relentless focus on ensuring that each of our customers were served with the excellence across all our territories.Finally, as part of our disciplined approach to capital allocation, we have decided to increase our dividend by 37% compared to previous year.I'll now move on to discuss our fourth quarter results.

Our top line grew 3.1% driven mainly by volume growth in Brazil, Central America and Colombia coupled with pricing initiatives across our operations. These factors are partially offset by unfavorable currency translations for most of our operating currencies.

On a comparable basis our top line would have increased 10%.Our operating income decline of 13.2% during the quarter was driven mainly by our temporary decision to suspend tax credits in Brazil related to the concentrate purchases from the Manaus Free Trade Zone.

This decline also resulted from higher concentrate costs in Mexico, an increase in our dollarized raw materials driven by the depreciation of most of our operating currencies and higher operating expenses.

These factors were partially offset by stable sweetener environment and declining PET costs.Below the operating line other non-operating expenses constituted an impairment of MXN 948 million in our Estrella Azul dairy joint venture in Panama. Impairment also drove a higher effective tax rate during the quarter.

Consequently, our controlling net income for the fourth quarter decreased as compared with the previous year which included the results of the Philippines as a discontinued operation.As previously mentioned in Brazil, we are taking a conservative approach with regard to tax credits on concentrate.

As a result, we have temporarily decided to suspend such tax credit. This decision affects our conservative profile – pardon me, this decision reflects our conservative profile and comes after conducting a thorough analysis.As dynamic as the tax lines are in Brazil, we may use the tax benefits – credits in the future.

Finally, the decision -- this decision and the extraneous factors that were recognized during the third quarter of 2019, create a challenging comparison, base for Brazil profitability, in 2020.We fully expect to mitigate these pressures, through cost and expense controls. We are encouraged by our industry's opportunities, for 2020 and beyond.

We continued to transform our operations, to create new competitive advantages, while capitalizing on leaner, more agile organization.We entered to one, ensure category expansion and affordability. Two, leverage our digital initiatives. And three, improve our return on invested capital.

We will expand on the commercial and supply chain initiatives.Regarding commercial, we are developing omnichannel capabilities, strengthening our customer connections.

So far, we have seen encouraging results from our workshop business pilots, in Mexico and Brazil, as well as our web-based pilots, in Brazil and Argentina.With regards to supply chain, we have created a demand-driven customer-centric vision that is based on, on operating excellence, quality safety, and environmental care.

We have improved our service levels and forecast accuracy, resulting in savings of more than $50 million, during 2019.Importantly, the strategies are only part of our effort to create, an end-to-end digital ecosystem that enables cost transformation.

As we enter 2020, we are rolling out a set of strategies designed to capture long-term growth opportunities, while successfully navigating short-term dynamics, across our markets.In Mexico, we aim to continue expanding consumer affordability and immediate consumption, by capitalizing on successful rollout of our 235 mL returnable glass bottle at the Magic Price Point of MXN0.05 price point.

And by reinforcing, our Magic Price Point, aimed at MXN20, MXN25 and MXN30 price point.We intend to continue, strengthening our competitive position in our flavored sparkling category, by leveraging our successful expansion around new PET flavors, across all the new PET brands, coupled with the launch of a new bottle, the universal bottle, which will allow us to fill the product of choice and the category of choice.During the quarter, we launched Topo Chico in Mexico, producing an encouraging share and volume performance versus our plan.

While Coca-Cola Coffee and Coca-Cola Energy are gaining market share, especially in modern trade channels.In Brazil, our volume grew 7.5% half of which was driven by share gains.

For 2020, we continue to expect positive performance by leveraging our returnable presentations, the continuous growth of Coca-Cola, Sin Azúcar and our ability to granularly segment our consumers.In addition, we will keep expanding our first-mover advantage in digital channels, as well as our omnichannel capabilities.

In Colombia, we focused on fundamentals building strong foundations to return to profitable growth.We are increasing product availability and point-of-sale execution, focusing on capturing our potential in juice and water, and driving operational efficiencies.

Importantly, we continued to adapt to our continuous challenging environment.We have proof points of what works and as such, we are expanding affordability in Colas and flavors while improving the profitability, in our water and juice portfolio.

These initiatives coupled with our relentless consumer focus, will remain key drivers in achieving top line growth, during 2020.Moving on to Central America, In Guatemala, we are gaining share and increasing our cooler coverage.

In Costa Rica, we are reducing our cost to serve by reorganizing our route to market systems, while in Nicaragua and Panama we are increasing the availability of returnable presentations, allowing us to improve our competitive position.2019 also marked the seamless consolidation of our operations, in Guatemala and Uruguay.

We were able to achieve greater-than-expected synergies and improved volumes and margins, in both territories, driven by increased production efficiencies, a strengthened portfolio, and route-to-market initiatives. In consolidation to-date savings from these acquisitions have reached more than the $25 million mark.

As we announced on October 31, the tribunal in charge of the arbitration regarding Heineken distribution in Brazil, ruled in favor of the Coca-Cola system, confirming that the distribution agreement shall continue in full force and in effect until March 2022.Consistent with our disciplined approach to capital allocation and commitment to generating shareholder value our Board of Directors agreed to propose to the Annual Shareholder Meeting an ordinary dividend of MXN4.86 per unit.

This proposal represents an increase of 37% versus the previous year, reflecting the strength of our free cash flow generation and our confidence in Coca-Cola FEMSA's solid financial position.As we have previously discussed, we performed a deep and thorough analysis of our company's capital allocation strategy, cash flow generation, and leverage profile.

We are encouraged to continue to be in the position that allows us to return excess cash to our shareholders without compromising any of our company's financial position or flexibility to pursue future acquisitions.

We continue to position our company as a resilient disciplined and committed business platform that enables us to consistently deliver economic environmental and social value for our stakeholders.With that, I will ask Constantino to take over the conversation..

one, the higher concentrate costs in Brazil related to the reduction of tax credits on concentrate, coupled with our temporary decision to suspend such tax credits; top line decline in Argentina that we already mentioned; and the depreciation of the average exchange rate of most of our operating currencies, mainly the Argentine peso as applied to our U.S.

dollar-denominated raw material costs.Finally, our restructuring costs related to our fuel for growth efficiency program.

Excluding Argentina and the currency translation effects, our comparable operating cash flow would have increased 10.7% leading to an operating capital margin contraction of approximately 60 basis points.Moving on to the financial results for 2019.

Our financing expenses net recorded a reduction of 13.6%, resulting from a decline in interest expense net driven mainly by debt reduction during the year.In addition, our foreign exchange loss increased by 19%, while our market value loss on financial instruments declined by 8% as compared with the previous year.

These factors resulted in a 12.6% reduction in our comprehensive financial results for 2019.Finally, I will provide you with an update of our successful debt refinancing strategies. To start 2020, we successfully issued debt in the U.S. and Mexican markets.

First, in January, we issued $1.25 billion of senior notes due 2030.These notes were priced at U.S. Treasury plus 100 basis points at a coupon of 2.75%, lower than Mexico's most recent sovereign issues, highlighting Cola-Cola FEMSA's financial discipline and strong credit profile.

The net proceeds from this issuance were used to repurchase and redeem our senior notes due on 2023 and for general corporate purposes.Second, in February, we issued two tranches of Mexican peso-denominated bonds or certificados bursátiles in the Mexican market for an aggregate amount of MXN3 billion for eight years bearing an annual fixed interest rate of 7.35% and certificados bursátiles for an aggregate amount of approximately MXN 1.5 billion for 5.5 years bearing a variable interest rate of TIIE plus eight basis points.As a result of these successful transactions, we managed to extend the average life of our debt from seven to approximately 10 years while also reducing our average interest rate from 8.3% to 7.4%.And with that, I will now hand the call back over to John for his final remarks.

Thank you very much..

Thank you, Constantino.

Consistent with our clear strategic priorities I am confident that the strides we took during 2019 to create a leaner, more agile organization will enable us to continue to win in the market, optimize our value chain, and capitalize on our renewed commitment to creating shareholder value through our disciplined capital approach and solid financial position.Thank you for your interest in our call and for your continued trust and support.

Operator, we'd like to open up the call for questions..

Thank you. [Operator Instructions] We'll go first to Antonio Gonzales with Credit Suisse..

Good morning John and Constantino. Thank you for taking my questions. I just had two quick if I may.

First one on your dividend increase, right? Congrats I get most of the -- investors have been asking for this for some time already, but I just wanted to ask if you can give us a little bit of context on how do you come up with the optimal dividend policy? Is there a payout ratio that you're shooting for? Or are you comparing with your I guess global peers, bottlers in other regions and trying to get to a similar dividend yield? How should we think going forward about the dividend distributions? So, that's first question.And secondly, I just wanted to ask if you can elaborate on the write-off in Panama? Was there anything specific to the business that after a number of years, obviously, with you guys operating Estrella Azul didn't work out as you were expecting? And any read-through perhaps for your dairy businesses in other countries? Thank you..

Thank you, Antonio. On your question on the dividends.

We ran a very thorough analysis not only looking at different variables such as payout ratios, but also as you mentioned understanding where we were compared to other peers in the industry, other Mexican corporates, and all different kinds of variables.At the same time, we also looked at our future cash flow generation and also potential strategic opportunities that we might have in the future which we definitely are not compromising at all.

And based on that we have recommended this level of dividends for the company.I mean although we don't -- we do not have a stated dividend policy. According to our analysis and projections, we have the capacity to pay the dividend at this level without compromising our position or capability to pursue acquisition opportunities.

So, we will continue and our recommendation is that we will continue to have dividends at this ratio going forward. So, that's a little bit on the dividend side. I don't know if that answers your question provides clarity..

It does. It does. Thanks..

And then on the case of Estrella Azul in Panama, although this is a small operation for us in a JV in a sector that we are constantly learning from, but definitely does not come without any challenges.

This is a business that we have been reviewing constantly over the years and it does have some challenges for us in terms of refrigeration -- refrigerated route-to-market due to the configuration of the portfolio.

And based on that, I think it has been a great operation to learn from and to bring these learnings to other dairy operations that we have in other markets, which are much larger scale. But at the same time it has its challenges and struggles that we continue to evaluate every day. I don't know John if you want to expand on this particular one..

No, I think, we recognize that the business doesn't have the potential that we once thought. The scale that this business generates in Panama or the milk generates in Panama is not necessarily the correct fit. And we started off reconstructing an asset that was very old to turning it around.

And in the meantime what we found is a clear shift in the [indiscernible] fresh milk to UHT milk. And so that scales our possibility to have the dominant market share in what was thought to be the primary category for us.

So I think what we need to do is just sit back and understand that this is a different business, we have different drivers and we made the mistakes..

All right. Thank you very much John and Constantino..

Thank you..

We'll go next to Benjamin Theurer with Barclays..

Yeah. Hi. Good morning. John, Constantino thanks for taking my question. Just on Mexico. So clearly you stated essentially flat volume growth, but fairly strong pricing.

So I was wondering if you could elaborate a little bit on the headwinds you've been seeing within COGS and SG&A, which ultimately resulted in operating income not growing as much as top-line despite having had very successful pricing strategies implemented in Mexico?And what is your expectation for 2020 considering that there is call it a muted expectation for economic growth? So how do you think about volume for 2020 and pricing in Mexico and your potential to continue doing what you've been doing on the pricing strategies and around the way of affordability which you highlighted in your prepared remarks? And then I have one quick follow-up.

Hello? You guys there? John? Constantino? Operator is there an issue with their line..

The line is still connected..

And the line of the company because I can't hear them..

Their line is open. You may be on mute. Please unmute yourself..

I'm not on mute..

Please standby. You're back in..

Hello? Sorry, we had a communication glitch in here so I'm returning to Benjamin's question. Benjamin, I'll going to recap.

We saw resilient – sorry?.

Did you hear the question coming did my question came through?.

Yes..

Okay..

So as I was saying, we saw resilient Mexico business, despite all the uncertainties and the stagnant economic performance. I was also mentioning you that there's important differences between the regions within Mexico where we operate.

The south, where we believe there is an important retention going forward, continues to be weak with economic indicators lagging in states like Jalisco, Chiapas, Yucatan and Guerrero.However, we have good growth expectations of these territories going forward.

As you mentioned, we definitely directed our efforts to affordability price and affordability strategies, which allows us to drive consumer base growth. Consumers are seeking affordable solutions for their needs.This particularly allowed our top line to have a strong growth of 8.1% during the fourth quarter and consistently at 8.3% during the year.

Brand Coca-Cola, which is very important, grew 1.6% versus previous year, which is very good.

And we had a positive mix in Q4 versus previous year, benefiting the mix results and reversing all the unfavorable trends that we have.So it is important to mention that amongst all the strategies that we implemented in the year, we also had a restructuring a very deep restructuring of the Mexican operation that included a lot of severances, of which we would capture the benefits of that restructuring initiative going forward in 2020.And at the same time, I would like to mention that we have for the past three years been taking pricing above inflation, significant pricing above inflation.

We're going to be more moderate this year. Our pricing due to the economic situation in Mexico and through our revenue management analysis will be much more in line with inflation.

And that combined with the affordability plays and the returnable solutions that we have put forward to the consumer, we believe are going to be very positive and start to gain traction volume-wise in this particular market.There is one particular initiative around the flavor category, flavor sparkling category, which is key for us going forward, which is the introduction of a universal returnable bottle.

This means that you will have the versatility to interchange different flavors and the Coca-Cola brand in one bottle on the multi-serve presentations, which definitely reduces the barrier of entry for the consumer and for the retail in this particular packaging, which is key through guarantee affordability and this will definitely allow us to grow further in the sparkling CSD category.

So – and the flavor CSD category.So I think that that is critical for us going forward and we believe we're going to start to regain our traction volume-wise in Mexico, understanding that we'll still see as you all know an economic growth that's going to be quite low going forward in this particular market.On the commodity side and the raw material side, we see a stable environment, which is going to be favorable for us compared to the past.

And that will allow us to protect our margins going forward.

I don't know if this Benjamin answers your question thoroughly?.

That is perfect. And then just one quick one on Brazil. The tax benefits for what you've basically purchased out of Manaus.

Can you quantify the impact in like real terms or dollar terms, just to give an idea because we've seen it obviously, it's a huge impact in the fourth quarter and you said that's going to be a significant headwind in the coming three quarters on a comparable basis.

So could you quantify the amount?.

Yeah, I can say that the impact is approximately 380 basis points at the EBITDA level in Brazil compared to the same quarter of the previous year, where we managed to have inventories at 20% of tax credit rate, right? So this is all about comparables.

It's very, very complex calculations.For the full year, the impact on profitability was about 160 basis points at the EBITDA level for Brazil compared to the previous year. And going forward, as we have mentioned it's going to be a challenging environment.

We continue -- if we continue with this conservative approach and as John mentioned in his remarks, this is a temporary decision that we have taken.If we continue with this conservative approach going forward, it would be approximately 100 basis points of EBITDA level compared to 2019, if we take the most conservative stance and we hope for it throughout the year.

However, once more this is a temporary decision that we have made based on our judgment and analysis. And at the same time what we want is the operation to focus exclusively on operating, the business and getting the business with biggest potential without thinking about the tax complexities of the Brazilian business and environment.

I don't know if that provides some guidance for you..

That's perfect. Thank you very much..

Good.

Other questions?.

Yes. We'll go next to Felipe Ucros with Scotiabank..

Yes. Good morning and thanks for taking the questions. I had a very quick one.

One of my other questions about Mexico was asked, but I wanted to see if you guys had any updates on the pilots that you were conducting with alcoholic beverages in Brazil?.

Sure. Our pilots continue. I mean, so far as a pilot by nature is designed, it's all about providing us with learnings on how to deal with an integrated beverage platform. And so far these pilots are going according to plan. As we have stated before these are limited to some regions or some cities as of today.

And so far we're doing significant progress along these lines..

Great to hear.

And any chance if you can give us any detail on what type of alcoholic beverages you're experimenting with?.

Yeah. We're experimenting and we have stated it before we were experimenting with spirits.

I would say mainstream portfolio of spirits in different types of SKUs not only regular 750 amount type of bottles, but also small packages with -- in different categories within the spirit industry, which have a higher affinity to our commercial platform and the type of outlets that we regularly call today with our non-alcoholic and beer portfolio currently.

So in some of these outlets we're calling beer customers with a fully integrated beverage platform that spans from spirits all the way to non-alcoholic beverages..

Okay. Great to hear.

And any focus on channels? Are you doing this primarily in the traditional channel? Or is it across channels?.

Well, we're running pilots across different channels evidently mainly traditional trades and also on on-premise channels..

Great. That's fantastic..

And with different profiles, right? So we're more mainstream and also we're thinking about calling on some premium outlets too which is a very different portfolio going forward.

But as I said these are pilots and we're fine-tuning our value proposition and a route-to-market proposal in order to optimize this type of value propositions for customers and consumers..

Great. Thanks for all the color..

Thank you very much..

We'll go next to Fernando Ferreira with Bank of America..

Hi. Good morning, everyone. And thanks for taking my questions. My first one is related to cost.

And if you can comment about your – I mean about your cost outlook this year in all the regions and mainly about the potential increase again on concentrate prices in Mexico? And also if you can share an update regarding your hedges?.

Okay. As you know, we're still in a period of concentrate price increases in Mexico that started in July 2017 it was agreed for three years with gradual increase that ends in June 2020.

So, as we approach the end of this adjustment period, we continue – we have ongoing conversations with the Coca-Cola Company in order to assess different variables, the status of the business and the implications regarding concentrate prices for Mexico.So on that specific question that is the status and the outlook.

In terms of other costs and variable costs on materials we have a very stable raw material outlook for the year. PET sugar and other materials seem to be in a very stable environment going forward. In terms of hedges, we have Mexico already covered at 60% Brazil around 20%.

As you understand that the Brazilian real has been under a lot of pressure right now and we believe there's a possibility for an appreciation in Brazil. So we're taking a much more conservative stance in terms of hedges for Brazil.

Colombia we're around 50% between 40% and 50% Argentina in the low 30%.In Uruguay, we've hedged around 50% of our needs going forward. Back in general terms I don't know, if you have any other questions or this is good enough to provide you guidance..

Thank you so much. I just have one more question very quickly. Regarding the new labeling in Mexico, I was wondering, if you have any update regarding the limits of the warning so far? And when do you think it will be implemented? Thank you..

I think it's too early to assess the impacts. The labeling law has not been published yet. And as such there is no official date for implementation. We don't expect the full implementation of this during 2020.

And as it has always been the case with Coca-Cola FEMSA, we are committed and in favor of clear labeling that provides our consumers with information to make their consumption decisions based on their lifestyle, the needs and we will be observant on what happens and very close to the dynamic around the labeling law.

I don't know, John, if you want to complement regarding that..

I think that's accurate. And I also believe that the food and beverage industry, they're getting together to put in injunctions on bottles as they call it over here to impugn the process of how it was taken how the decisions were arrived at.

So I think we're going to see a little bit of litigiousness going on for some period of time making it a little bit murky and that would extend the time. So expect to have a legal period and that makes it a little bit more uncertain. It will also bode well for expanding the timing of such label incoming..

Okay. Great. Thank you..

Thank you..

We'll go next to Luca Cipiccia with Goldman Sachs..

Hi. Good morning, John, Constantino. Thanks for taking the question. I'll start with a follow-up on the comments about the labeling.

I guess, can you give us some perspective on how you think this type of measure may impact the industry, the product mix, your portfolio approach? I guess, by now there are a lot of, I would say, probably case studies globally in terms of the sensitivity and elasticity to both excise tax measures or sugar taxes or labeling in this case.

So assuming that that will come how realistically should we think about the impact on portfolio mix profitability? That would be my question. And then I have a quick follow-up on Brazil if I may..

Thank you for your question. I mean, I think that there's -- our thinking is there's definitely going to be continued pressure and continued different initiatives proposed on labeling and regulations on the industry.

That is the nature of our industry today and the dynamic environment that we face.It's very difficult to have a point of view industry-wide and on every market as every market behaves differently right now.

What I would say we've mentioned it in the past is the fact that we have as a system and in particular Coca-Cola FEMSA a lot of breadth and depth in our portfolio in terms of SKU lineup and packaging capabilities that allow us to have an architecture of packs that can address and mitigate impacts of labeling initiatives such as these.And at the same time with the Coca-Cola Company, we also have an important capability of reformulation and new product development that also can mitigate and confront some of these headwinds that we might face with the new nutritional regulations.Having said that, what we've seen in the past is also that other categories, other beverage categories that have been positioned differently versus CSDs in markets where the regulations have been applied have suffered much more than the categories where we currently participate and that is also factual.

And I guess everyone has the data and the understanding of that.So once more it is the nature of the industry. It's decided on the times that we have today and are in front of us. We have breadth and depth in portfolio both on packaging and on reformulation capabilities.

And I think that we are a system that is extremely concerned of always providing the best options for consumers and in line with consumer trends and not only the regulatory trends. And we work very hard in that regard.

So based on all of these elements, I think that we're very well equipped to face any regulatory and labeling changes that we might confront in the future.John, I don't know if you have anything to add?.

No, I think the other thing is where we've seen this more so on the Chilean side, the impact of such labeling on the sparkling business on the Coca-Cola products has been pretty minor, okay, as compared to other categories, which is more dairy yogurts et cetera, which had the perception of being healthy.

And then all of a sudden, it was flagged by the consumer on the package at the shelf and making them think about that price.So I think it's one of these things where we're already perceived in things [ph] and somehow with a high level of sugar with something that is to be careful about putting a stamp on there saying that be careful because Coke has a lot of sugar, I don't think it's going to make a lot of difference.

And it has been shown up that way in other countries..

I guess, there's no surprise there. That's interesting. Just a quick maybe comment on Brazil. We keep seeing some very healthy contribution from the beer business from the Heineken portfolio generally. Obviously, we've been through interesting couple of years with that relationship.

And I wonder if you can share any comments on how given that now there's been a resolution, given that there is some visibility, how do you think that will play out for the next two years? And whether there's still some degree of dialogue on whether the final solution is the one that the calendar would suggest? Or -- because again looking from the outside, looking from the data and from the volume, it seems to be working pretty well for both parties.

So I can still get my head around on what's the upside here of separating or breaking something that's working well?.

We're married until 2022. No there really isn't anything else you can say about that right now. It's -- the court has defined that. We have to fulfill the obligation on both sides. And the one thing I would add is that, we would like and we will continue to search for a beer solution and beer -- within Brazil beyond that period.

It's going to be critical for our strategy and whether with Heineken or with somebody else or some other type of players, we will be looking to continue servicing the beer market after 2022..

John -- and I would complement John's comments that results speak for themselves. The value of the integrated platform that we have in Brazil is there as you have mentioned. The facts are there.

And the fact that this particular relationship as it is defined today has now an expiration date or common expiration date based on the arbitration has not affected our focus and our performance driving the category and you have seen that and the brands. And you have seen that on Heineken's reports. So, I'm not going to elaborate more than that.

And we could look at Heineken's reports and call and refer to that to see our performance. We will definitely continue to focus and serve our customers and consumers like we know how to do in Brazil..

Just real quick, assuming that you find another beer partner, you would be -- is it reasonable to assume that you would add that on before the expiration? Or do they have to happen in sequence I would assume to smoothen that transition? So, let's take as hypothesis that you do find another partner.

Realistically, you may distribute both in -- at the same time for a while.

Is that a reasonable assumption?.

You're getting hypothetical on this one. Now, Luca this is -- as you know this is an open process with Heineken. So, we have to maintain confidentiality. And in that sense, we definitely cannot and don't want to speculate about a potential plan B or follow-up on this particular work stream..

Understood. Thank you..

Sorry, we cannot elaborate more on that..

No, no, I understand. Thank you..

We'll go next to Miguel Tortolero with GBM..

Hi, good morning, John, Constantino and Jorge. Thanks for the space. The first one is a very quick one regarding Brazil. I mean, it's been already several quarters of strong volume growth over there.

Would you say that the momentum is there to continue? Or should we expect some kind of normalization? Or in other words, how much more room do you see for this pace of growth going forward? And the second one on the EP.

Probably, I didn't catch it well, but could you share what is a conservative scenario that you're assuming for the 100 basis points contraction you mentioned? Is it a scenario where the fiscal incentive goes down to 4%? Thank you..

Miguel, I think what has been extraordinary about our Brazilian business is that, 50% of what we're showing out there and showing as volume gains is coming out of share gains. Okay? And the share gains that were coming -- that's driving are coming from say 90% of the categories that we participate in.

And so, it's a combination of having the right portfolio, the right pricing architecture and the right channel distribution systems in place that we started off on late 2018 went through this most of 2019 and we're building upon the knowledge to make sure that that happens again in 2020.And I would also add Miguel that, we're experimenting even further with very high end relative market systems that would even further put some more gasoline behind these initiatives.

So, we started thinking about I think in order to see a business watching or other type of initiatives that Brazil is testing and we continue to see strong growth within this -- within the range that we have delivered this year. The second question Miguel on....

Miguel, what our conservative stance is we're assuming zero IPI tax credits for the time being as a management decision for the business in Brazil. And we'll continue to evaluate this day-to-day. And we might change our point of view in the future. But for the time being we're assuming that stance..

That is very clear. Thank you, very much..

At this time, there are no further questions..

If there are no other questions, I'm going to hand it over to John for his final remarks. Thank you in closing..

Well, thank you for your confidence and interest in Cola-Cola FEMSA. As always, our team is available to answer any of your remaining questions. I appreciate you having the time with us this morning and we will see you soon. Goodbye..

This does conclude today's conference. We thank you for your participation..