Earnings Call: Q1 2019

Apr 26, 2019

Earnings release

Good day everyone and welcome to the ARCA Continental Conference Call. All lines have been placed on mute to prevent any background noise. Please note that this call is being recorded. After the speakers' remarks, there will be a question and answer session and instructions will be given at that time. For opening remarks and introductions I would now like to turn the conference over to Melanie Carpenter of iAdvise Corporate Communications. Ma'am please go ahead. Thanks Katie. Good morning everyone and thanks for joining the senior management team of Arca Continental to review the results for the 2019. The earnings release went out this morning and it's available on the website at arcacontal.com in the Investor Relations section. There's also a webcast of this event for you to listen live and via replay. It's now my pleasure to introduce our speakers. Joining us from Monterrey is the CEO, Mr. Arturo Gutierrez the Chief Financial Officer, Mr. Emilio Marcos and Mr. Jose Borda, the Chief Commercial and Digital Officer as well as the Investor Relations team. There are going to be some forward looking statements today, so we ask that you please refer to the disclaimer and the conditions surrounding these statements in the earnings release. And with that, I'm going to turn the call over to the CEO, Mr. Arturo Gutierrez, to begin the presentation. So please go ahead, Arturo. Thank you, Melanie, and good morning, everyone. We appreciate you joining us for an update on our first quarter performance. Let me begin by saying that I'm pleased to report positive momentum for the start of 2019. Our strategies and solid execution enabled us to once again capture value share and delivered solid financial performance despite weaker consumer sentiment facing certain of our operations. Total consolidated volume declined 1.9% in the quarter, reaching five eleven million unit cases, while total consolidated sales rose 2.2% to MXN 36,900,000,000.0. Regarding profitability, our results were rewarding. Consolidated EBITDA in the quarter rose 6.1, reaching MXN 6,300,000,000.0, expanding EBITDA margin to 17%. Our commercial capabilities fueled by modern digital platforms, our operating discipline combined with our tight control of expenses allowed us to expand EBITDA margin. We are on track to deliver more than $45,000,000 in productivity savings this year, enabling us to fund our growth investments while covering cost inflation and driving margin expansion. Once again, our balanced geographic footprint, our strong company culture based on common principles across businesses, Our high performing team contributed to the positive results. Now let's review the performance and highlights across our operations, starting with Mexico. Our beverage business in Mexico faced a challenging start of the year. Total volume declined slightly in the first quarter, down 0.7% due to unseasonably adverse weather conditions and heavy rains across most of our territories and due to a calendar effect as Holy Week shifted from March to April. There was also an impact resulting from the 50, day work stoppage or Matamoros plant as well as other labor disputes across the maquilador industry in that city, which negatively affected the local economy. Among the highlights of the quarter, jug water volume grew 5.5% driven by the modern trade. Topochico mineral water delivered a solid 7.8% volume growth, consolidating its leadership position in the Northern and Western territories. Our business in Mexico delivered its fifteenth consecutive quarter of net revenue growth, up 6.8% to reach ARP 14,300,000,000.0. Average price per case in Mexico, not including jug water, rose 8.8%, reaching ARP 61.02. At the profit level, EBITDA increased 6.5% to ARP 2,800,000,000.0, representing a margin of 20%, flat compared to last year. We recognize digitization as a key element of our growth strategy, and we are defining data driven business models with a clear road map to develop new capabilities in analytics. We kicked off collaboration projects with the data science department at the Technologico de Monterrey and the Capstone project at MIT. Despite the headwinds in the first quarter, we remain confident of the resilience of our flagship market in Mexico. We're optimistic that volume in Mexico will gradually improve in the following months as we head into our high season. In South America, our total volume was down 2.4% in the quarter as a result of declining volume in Argentina and Ecuador, which was partially offset by growth in Peru. Total revenues were down 6.4% in the quarter, reaching MXN 9,500,000,000.0 as we doubled down on execution and a disciplined implementation of a price back channel strategy, while driving affordability by expanding the mix of returnable presentations. EBITDA declined 0.7% to MXN 2,100,000,000.0 for the quarter, representing a margin of 22% for an expansion of 130 basis points. We are confident that our revenue initiatives, the expansion of our portfolio as well as product innovation and reformulation will enable us to sustain value share growth while expanding profitability. In Ecuador, volume was down 4.4% in the first quarter, cycling solid double digit growth from last year. Despite the macroeconomic uncertainty, we continue gaining value share due to pricing and package initiatives to optimize revenue. We're also driving innovation by offering more low and no calorie options. We're capitalizing on the success of the new Fanta formula and of Bassani Sensations, a new flavored water that was launched to expand our sparkling beverage portfolio. Tony Corp, our value added dairy business in Ecuador, jointly owned with the Coca Cola Company posted a low single digit sales decline in the first quarter. We have been able to sustain market leadership and capture additional value share across Toni Corp's core categories. This quarter, we launched new products in the yogurt, oatmeal and ice cream categories with great results. Shifting gears to our business in Argentina, volume of the quarter declined 17.8% cycling a strong 5.2 growth from the same quarter in 2018. Currency devaluation, runaway inflation and high interest rates negatively affected consumer spending. Despite the sharp slowdown in the economy, we gained value share. Our sparkling categories grew 0.1%, power rate 2.8% and personal water increased 3.2%. We continue refining our price back architecture to hit key price points as consumers' purchasing power decreased during economic contraction. At the same time, we placed a strong focus on cost optimization. This quarter, we started distributing our new two liter returnable standard format, which allows affordability while reducing our overall production cost. Moving over to Peru, the economy in this core market started 2019 on a positive note. Total volume in the quarter grew 5.4%, confirming the solid momentum. Growth was driven by COLIS and personal water up fourteen point eight percent and seven point nine percent, respectively, and by the launch of our new low sodium water brand, Benedictino. Total revenues increased 9% in the quarter as we continue gaining value share driven by growth in sports drinks, juices and nectars. We have kept investing in market focused initiatives, bolstering our returnable base. This quarter, we expanded the introduction of returnable packaging and increased cooler coverage by installing 3,000 cold drink units. Most importantly, EBITDA grew 20%, reaching a margin of 2625.6% and expansion of two forty basis points. Our Peruvian beverage operation delivered these solid top and bottom line results in the quarter, driven by execution and revenue management, while capturing additional efficiencies across the supply chain. Moving over to our beverage operation in The United States, volume in the quarter declined 4.3% due to several factors, particularly unseasonable weather in February across our territories, one less delivery day and the shift of the Easter holiday from March to April. Despite these challenges, Coca Cola Southwest delivered its eighth consecutive quarter of net revenue growth, up 1.4%. Once again, we captured value share gains in sparkling beverages and solidify our market leadership. We grew share in tea, sparkling water and sports drinks, where Body Armor has played a strategic role. Pricing continues to be one of the main drivers for revenue growth in line with our full year organic revenue guidance to be at or above consumer inflation. Price mix grew 6% in first quarter, delivered mainly by true rate of 4.6% that was achieved by the carryover of last year's increase and from price adjustments in our local markets made at the 2019. The remaining 1.4 came from growth in transaction packages and body armor. EBITDA increased 11% to $68,000,000 representing a margin of 10.8% with an expansion of 93 basis points. We also continued to accelerate deployment of our ACT commercial model to achieve best in class execution. During the quarter, we rolled out the new Picture of Success tool and assigned over 480,000 action items targeted to better execute on key service metrics such as visit completion, strike rate and coolers in the strike zone. Notably, we accelerated the introduction of cold direct equipment before the peak season. In the first three months of this year, we placed over 10,000 new coolers. The beginning of 2019 was very intense in terms of marketing activities and new product launches. We maintained momentum for Diet Coke following last year's recast by introducing two new flavors. Also in the quarter, we introduced Coca Cola Orange Vanilla. This is the first new Coca Cola flavor launched in ten years. Furthermore, we continue enhancing our hydration platform through the launch of two new versions of our premium smart water brand. To close our beverage operations in The U. S, I'm pleased to report that we are on track to achieve $90,000,000 in synergies. Our 2019 target incorporates a number of initiatives for additional $20,000,000 as our centralized procurement efforts, plastic pallets, lead can and vending projects have outperformed our original expectations. More importantly, we are laying a foundation to ensure savings and efficiencies from our upcoming new manufacturing distribution facility in Houston, Texas, where we continue to make significant progress on construction. We are on track to open the facility in the 2020. To wrap up our operations review, let's move now to our Food and Snacks business. Y Snacks in The U. S. Delivered mid single digit revenue growth in the quarter while expanding value share confirming a sequential recovery. Growth was driven by the potato chip category as Deep River continued expanding product coverage, thanks to improved distribution in New York City and Western Massachusetts. Additionally, Deep River renewed a key distribution agreement to service over 200 restaurants and retail boutiques in airports across North America. Furthermore, Carolina Country Snacks continued its strong pace by expanding coverage in over 1,200 new stores in the value chain. Turning now to Vocados in Mexico, we delivered solid high single digit sales growth in the first quarter, driven by growth in Frispas, which is a highly successful extruded chips brand. Lastly, in Alexa and Ecuador posted a low single digit sales decline in the first quarter. We continued solidifying the leadership in the plantain chips category while capturing new international markets. And with that, I will now turn the call over to Emilio to give you further details on our financial performance. Please go ahead, Emilio. Thank you, Arturo, and thanks, everyone, for being on the call. We appreciate you're taking the time today to review our financial performance for the first three months of the year. The first quarter was characterized by positive revenue growth due to an effective price mix strategy, partially offset by a weak performance in volume. Despite some raw material increases such as PET, our disciplined operating expense controls resulted in improved profitability to our business. Before going into numbers, to better reflect the results of our U. S. Operation, as of this quarter, we are reverting to the methodology previously used, which recorded sales outside of our territory net to their cost under the other income and expenses line. This decision is driven by two factors. The first is that the results of these sales are immaterial to our EBITDA and the second is that their dependency on the needs of other U. S. Bottlers. In addition to this change, we have been reviewing some of the best practices of earnings releases. And from this quarter onward, we're including additional information such as the segment notes also found in our Mexican Stock Exchange filing. We're also including an Excel file on our website to facilitate access to ARCA Continentai's financial information. Moving on to the quarterly figures. The growth in consolidated revenue of 2.2% was mainly due to a favorable pricemix of 8.8% in Mexico and 6% in The U. S. However, as Arturo previously mentioned, our revenue performance was partially offset by our volume results. Cost of sales reached MXN 21,200,000,000.0 for an increase of 1.4%, primarily driven by the MXN $2.00 3,000,000 PET price increase and to a lesser extent by the MXN thirteen point five million aluminum price impact in The United States. These effects contributed to the dilution in contribution margin of 80 basis points. EBITDA growth for the quarter was 6.1%, reaching MXN 6,300,000,000.0. This represents an EBITDA margin increase of 60 basis points at the consolidated level. Excluding the benefit from the adoption of the IFRS 16 accounting standards, EBITDA grew 4% and had a margin improvement of 30 basis points. Our net income increased to MXN 1,700,000,000.0 from MXN 1,300,000,000.0 in 2018, representing a 28.2% growth year over year at a 4.5% margin. This was driven by an improvement in our comprehensive cost of financing, which is due to last year's monetary position loss. On April 4, we announced an estimated CapEx investment of MXN 13,000,000,000 throughout 2019, mainly allocated to capture synergies in our U. S. Operation and to enhance innovation in our production, distribution and execution capabilities in the countries we serve. This investment represents around 7.5% of our full year estimated revenue, which is above ARCA Continental's historic average. This is attributed to the capital required for the new Houston facility. On the same date, a dividend of MXN 2.3 per share, totaling MXN 4,100,000,000.0 was approved at our Annual Shareholders Meeting with a payout ratio of 47% above our historical average. This dividend was paid out on April 16. We ended the 2019 with a cash position of COP 17,000,000,000 and a debt of COP 55,400,000,000.0, resulting in a 1.39 net debt to EBITDA ratio without IFRS 16 effects. Our revenue growth initiatives strategies and operations savings plan led to our twenty nineteen first quarter positive results. With this, we have set the foundation to protect our profitability as we stabilize volume in all the countries where we operate. And with that, I'll turn it back to Arturo. Thank you, Emilio. Before concluding my prepared remarks, I would like to highlight some of the important progress we are making in the area of sustainable packaging. For many decades, the Coca Cola system has done a lot of work in recycling. We have made most of our packaging fully recyclable and invested in r and d around reusing plastic. At our we are fully committed to supporting Coca Cola's World Without Waste global initiative. Our Petstar plant in Mexico is a testament to this commitment. In 2018, Petstar recycled over 3,100,000,000 bottles and produced more than 51,000 tons of food grade recycled PET resin. To close, I would like to add that we are keenly aware that today's turbulent economic landscape is likely to extend through this year. As such, our 2019 strategic priorities are clear. We will remain focused on driving shareholder value through long term profitable growth while maintaining a rigorous discipline in costs and expenses. I would like to reiterate that we have a solid institutional foundation, a world class management team focused on value creation, a long lasting relationship of mutual trust with our customers, and an integrated corporate culture across our operations. These are the core pillars that will enable profitable growth in 2019 and in the years to come. Thank you for your continued support. I would like to open the call for questions. Operator, we are ready for questions please. Thank you, sir. At this time, we'll open the floor for questions. If at any time you would like to remove yourself from the questioning queue, please press 2. As a reminder, due to high interest and time, please limit yourself to one question. Again, please press 1 if you would like to ask a question. Thank you. Our first question will come from Allen Elenis with UBS. Thank you so much. Thanks, Arturo and Emilio for taking my question and congrats. My question has to do with pricing and both in Mexico and in The United States. I understand the Easter calendar effect, the comments that you did in weather and one less day. But even taking into account those elements, if my calculations are right, you increased prices in The United States in U. S. Dollars by almost 5.5% and in Mexico in pesos by high single digits around 8%. Could you speak a bit about what the pricing strategy in these two territories? It seems that it's a bit aggressive relative to the local inflation of which of these two countries. That will be the question. Yes. Thank you, Alan. Good to talk to you. And well, yes, the prices that you have for the first quarter are right. Actually, they're maybe even a little higher in the case of Mexico, our price. Average price increased 9.3% in the first quarter. In The US, our price increase is about 6%. It's a combination of the rate, which is, let's say, the nominal price increase, which was 4.6%, and then a positive change in mix that in in the case of Latin America, usually mix works the other way. In The US, with the growth of categories like, you know, like, body armor and and monster, mix helps you to increase average price. So in both cases, certainly, that price is above projected inflation for the year, which in The US would be maybe slightly over 2%. In Mexico, we're estimating inflation to be below 5%. For the the if you talk about the strategy for the year, it remains the same. Our strategy is to be above inflation, at or above inflation, and that, you know, that works for every market where we operate. The way the the if you look at the price curves in 2018 and how the timing of the prices were implemented in the second half of last year, that gives you a, let's say, a bigger area between the two curves in the 2019. So it tends to even out a little bit so that at the end of the year, we'll get at least to our target for the year. So so, certainly, the the first half of the year looks better in terms of the price comparison. And but we have a very clear plan for the remainder of the year. In in Mexico, we have actually increased prices in April 15. But, you know, we do this selectively. It's not like a, you know, across the board prices like in the past. This is based on a very robust process. I think that is what is most important about about pricing strategy, and and that is what makes it really sustainable. At the same time, we also focus on optimizing discounts and promotions. If you look at that, and those are numbers that we normally don't talk about, but they have been improving, over time based on, know, again, on a more robust process, and that contributes to have a better average price. So in the case of the of The US, you know, same thing. We we've had some price increases in the in the local market. We look at the end of the year, you have a price that would be above inflation. And that, what we've discussed with The U. S. System. As you know, in The U. S. System, we have to have a national discussion of our pricing, is that we are looking to improve margins and at the same time to create this positive cycle that you've seen some of the Latin American markets where you have a more profitable business and then you continue to invest in the market. And The US market certainly requires a lot of investment and especially in capabilities and route to market and that comes from a more effective and as you would say maybe aggressive price strategy, but we believe that it's prudent and it's based on a very robust process. Got it. That's very clear and very useful. But just to make sure that I heard correctly, so you increased prices again in April 15 after the quarter ended, correct? Yes. Those are small increases. They're very And again, prices are for particular packages and then you increase prices in a segmented way across regions as well. So the complexity that you see in our portfolio also translates into the complexity that we have in our RGM process. So that's the way it works. And it's got that's the way it's going to work out for the future. So that's why we need to be, I think, more effective and focused on enhancing our capabilities with respect to these types of processes of our company. Perfect. Understood. Thank you so much. The other important part there is that we balance that with the share of market. I mean, you make sure that these prices and one of the ways that you know that it's effective is that you've been able to maintain or even improve share at the same time that you improve margin. That's the best of all worlds. Is that true also the market share comment, is that also true for The U. S, Arturo? Yes. Got it. Congrats. Excellent. Thank you, Alan. Thank you. Bye. Thank you. Our next question comes from Lucas Ferreira with JPMorgan. Hi gentlemen. My first question is super simple actually. Wanted to make sure these margin growth numbers we see for The U. S. Specific are comparable given the IFRS 16 effect. So just wanted to understand how that 120,000,000 impact on the consolidated EBITDA sort of distribute within the regions? And then my second question is, apart from the pricing in The U. S, if you guys can comment a little bit on the other lines that drove these margins up, sort of the synergies you guys have been working on capturing, efficiency costs and also, yes, cost of your remaining raw materials, just to understand how much of that is really on the top line and on the other lines? Thank you. Thank you, Lucas. Well, I'm going to let Emilio go into the details of this particular point. I just kind of say in general that the two questions are connected because margins in The U. S. Have improved. There are some different effects that you can identify there. Synergies is very important, especially if you consider our revenue management strategy as a synergy, which we do. And that has a significant impact on margin improvement for the first quarter if you compare that to last year. Declining volume has negative effect there. But as we've said, volume in the first quarter of The U. S. From our perspective is something that is really an anomaly within the performance of the of the year all in all. We've had a, you know, a few effects that, you know, can can be easily explained and that have now been reverted in the first part of the second quarter. And this is very important for all that although volume has impacted our results in The U. S, at this date, which is close to the April, we're close to flat in volumes year to date in The US when we had a decline of 4%. So really, the shift in the in the Easter holiday is very relevant. And also, you know, the the weather explanation, which is something that works, for shorter periods of time. After a longer period of time, it also tends to even out. So those are positive and negative effects. Surgeries are also contributing positively there. And I'm just going to mention, there is certainly one negative effect that we still have, which is the raw material impact because aluminum prices and PET prices, this first quarter of the year still have a negative comparison with last year. And we believe that, you know, as the year goes by, that also is going to change, but we do have that impact in the first quarter of the year. But I'll I'll turn it over to Amibio if you want to, add some details to those concepts. Sure. Thank you, Luca, for your question. Yes, as you can see in the report, in our U. S. Region, we have a margin expansion of 114 basis points, including the benefits from IFRS 16. But without that IFRS 16, we're still growing our margin 84 basis points, comparable basis, 84 basis points. Well, as Arturo has mentioned, this expansion is mainly due to a very good pricing on the quarter and the positive effect of our synergy plan that it's as we have planned during the year and compensate the negative impact of from our volume decline and the raw material prices that also Arturo just mentioned about PET, aluminum and transportation basically. And since we're continuing emphasizing on our synergy initiatives and along with the pricing strategy that we have for this year and also more favorable raw material outlook that we have for the year, our expectation for margins improvement for the rest of the year, we still see some improvement in U. S. For the rest of the year on margins. Especially if you take into account that we have a significant impact from volume, which as I told you, this has already started to change in the second quarter very quickly, and that would be like 190 points just from volume. And then this raw material negative impact, those headwinds that also are going to change second part of the year or starting in the second quarter, that would be also maybe close to 90%. So if consider that, margins look very healthy. IFRS does have a positive impact, but it's really minor as compared to the two effects that I mentioned. That was super, super helpful. Thank you very much. Congrats on the results. Just if I may have a very quick follow-up. Given these volumes, I suppose, would be the sort of a low point of the cycle there for the year, given seasonality, given the effects you guys mentioned, what sort of capacity utilization you guys currently have in The U. S. Operations? Excuse me. Could you repeat the question at the end, Luca? Yeah. What's the capacity utilization you guys have in The US right now in the first quarter? You mean of our facilities? Yes. Yes. Well, you know, we have a complex production system because we don't necessarily produce all that we are selling. In fact, most of the growth categories are not manufactured within our system. And our own production capacity is being restructured with the construction of the new facility for SSD in Houston. So that is going to change. So there is no concern there with respect of utilization capacity. That's pretty stable, would say. But in terms of volume, we as you said, we increased we expect to increase volume in the second quarter. And then that should stabilize for the rest of the year. So we are still expecting a volume growth between probably flat and 1% for the whole year, which was our original guidance. Okay. Thank you very much. Congrats. Thank you. Next question comes from Alex Robarts with Citigroup. Hi everybody. Thanks for taking the question. So yes, I guess I wanted to go back to The United States as well. And first just to clarify, the 84 basis points that you're saying is the pro form a apples to apples margin expansion in The U. S. Without IFRS 16. Is this also just to clarify adjusting for the change in the agency volume accounting. So I just wanted to clarify that. But the real kind of the main USA question has two bits. We've seen some of the Mexican consumer in The US, you know, not really get price increases and so so far this year. And And I know you guys were looking at the foodservice and on premise channel. Can you tell us how the price increasing the price increase stickiness was going on with that particular increase and how you're looking at the prospect for another increase with your big box supermarket clients later in the year. And then the second piece of The U. S. Question is on aluminum. And and and we've talked about the the the trend kind of still not being stable year on year. How are you seeing it in the short term vis a vis the year on year cost of aluminum? Do we get some relief in the second quarter or second half? Do we get stabilization in the second quarter or second half? So if you could comment on those, that would be great. Thanks so much. Yes. For sure, Alex. Good to talk to you. Let me address first pricing in The U. S. Maybe Emilio can jump in with respect to the first technical part of the question, and then we'll go to aluminum. Prices in The U. S, as we've said, we have a plan. Most of the of the increase you've seen in this first quarter was a carryover from last year. So if you if you think about stickiness, that this price was increase was already implemented a few months ago, and it was very successful. It was very successful in terms of how it was accepted by by customers and how also had a little effect on volume and and how we learned that this is one of the discussions we have that elasticity in these categories are is many times much lower than people might expect. So that worked really well, and we're actually just seeing the comparison of the carryover. So this is the same strategy that we're going to follow for the rest of the year. And we have a very clear business plan. And again, since we need to discuss this as a system, the plan is already set for what we're gonna do for the remainder of the year and the price increases that we have from the national retail sales perspective, and then how we adjust in our local markets just to ensure our price coherency with the with the system as a whole. So we're actually now discussing prices for 2020, and that that is how the system works. So so I think we've been successful because, again, we have, I think, stronger processes that support, you know, the the price increases. And we we maybe need to improve in some aspects, I would say, mostly in segmentation. And this is one of the things that we've tried to introduce to the conversation in The US. And we know that, you know, it requires a lot of persuasion with customers, but we have a better segmentation and pricing in Mexico than in The US, even with the same, you know, retailers that we we all know, the largest customers. And and, you know, it's obvious that the the brand has different presence and different equity in in in different regions within the country. So we we need to move further further there, and and we're not there yet. But, on the other hand, we do have a better process for, making the the prices being, accepted by, by retailers. So that that's worked really well. Even we've had, you know, even the the whole industry following the price increases, which is also an additional factor of success, I would say, when we implement those. That has happened. So let me just turn it over to Emilio because you had a question about margins and agency. And then I'll take your question on aluminum. Sure. Thank you, Alex. It's important to have clarity on this issue. The 84 basis points increase on margins are on comparable basis. We're not considering sales of agency in this comparison. So it's apples to apples. So the eighty four percent eighty four basis points are basically without that consideration and without IFRS 16. And now let me move into the aluminum situation in The U. S, Alex. As as you know, the aluminum price is composed by two separate factors, which is the the price of the metal itself, which is called the LME, and then the Midwest premium, which is this logistics component. And that has been that increased after the tariffs were imposed in The U. S. To imported aluminum. And that has created really the distortion in price for us in the last almost twelve months. So this is another quarter where we've seen a negative comparison in the price of aluminum, especially with respect to the Midwest premium pricing. So the situation that we have right now is that we've hedged 80% of our aluminum consumption for 2019, and that is at a lower price than our aluminum price for 2018. So so so that is a very positive thing. At the same time, you know, we we continue to see high prices for the high, you know, levels of the Midwest premium above $400 per ton when that used to be at the, let's say, dollars 200 per ton level approximately in 2017 and and before. So that, you know, might tend to be solved. Depends on the free trade agreements and conversations among the governments of North America might have an effect. But for the time being, we're we're in a better position for aluminum for this year based on our hedging of the LME prices. Thanks so much. That was really clear. But just to clarify one last thing. So do you think that in the short term, there is a prospect to be stable year on year with the LME plus MWP components of the aluminum cost? Yes. We expect the full year 2019 to be below 2018. That is not shown in the first quarter where we're basically flat. Although in the first quarter, we have a lower LME that is less than $2,000, actually, but a higher Midwest premium for the first quarter. So for the remainder of the year, we we see things improving. So at the end of the day, we're we're gonna have a lower aluminum overall price even with the Midwest premium above 400. So so if the Midwest premium is, you know, is situation is resolved for by other means, then that would be even better. But we're not discounting that at this point. That's very clear. Thanks a lot. Okay. Thank you, Alex. Thank you. Our next question comes from Carlos Laboy with HSBC. Yes. Good afternoon, everyone. Was hoping you could expand on your non carbon economics in The US, how that's evolving? And specifically, you seem to have a couple of really good winners going on in the non carb space in The U. S. Right now. Body Armor, you mentioned that one. Perhaps you can expand on that a little bit. Carlos, yes, good to talk to you. Well, as you know, the steel's categories in The U. S. As in many of our markets are an important source for growth. So that they might still be sometimes a smaller portion of the mix, but they are an important portion of the growth in our markets. In the case of The US, even if then if you consider, you know, the mix of revenues there, they become much more relevant, especially monster and now body armor. So the situation with with these categories is that that, as you know, the economics are different. And if if just if you just look at margins, you you might not be as excited with the SPERCs because margins certainly tend to be smaller than in some of the sparkling categories. But if we look at gross profit per case, which is something that is very important to identify in each of these categories, things look much better. Like in the case of body armor, I think margins might might not be, again, you know, very high, but the profit per case is at least comparable with our sparkling categories. So that is very important when we look only at margin perspective of the business and because that might not reflect the overall impact on our return on assets, especially considering that many times we're not investing at the same level that we might be investing in some of the sparkling categories. So this is an analysis that we continue to do. We believe we have some opportunity in some categories you know, that are not as positive as the, let's say, the body armor analysis probably. And we still have, you know, conversations going on to see how we should be aligning better to, you know, create the the, you know, the the the right incentives, I would say, for the whole system, for the company and for us, and many times for a third party, which might be, you know, the owner of the brand to promote growth of this category. So this is an ongoing conversation. But obviously, the margin perspective is not the only point of view. It's mostly about contribution on a dollar basis per case. And that in the case of body armor, which is a category that's been growing significantly and gaining share in the in the sports ring space, I think it's it's very respectable. What what makes body armor work for you? Because it first of all, it it captures the space that is that is new for us. I mean, it's a it's a subsegment of sports drinks that is, you know, it's it's additional volume. Second, it's a strong brand. No doubt about that. And and that it also adds to the to the profitability of our overall business without cannibalizing more profitable categories. So I think it makes sense to us within the perspective of the overall portfolio. You. Our next question comes from Antonio Gonzalez with Credit Suisse. Hi, good morning, Emilio and Arturo. Thank you for taking my question. Just had a quick one on The U. S. Margins again. If I see your guidance for synergies for 2019, you're talking about $20,000,000 incremental, right, on top of what you've captured already in order to get to the $90,000,000 long term target. And if I just take as a base last twelve months revenues, we're talking about roughly 60 to 70 bps margin accretion, right? Yet this quarter your EBITDA margin is growing above that number, right, even after adjusting for IFRS as Emilio has described and so forth, with volumes down 4%. So I was just wondering if you can guide us. What do you think the margin improvement is going to be on a full year basis? Do you think the level that we're seeing in The U. S. Specifically in the first quarter is sustainable, especially as volumes improve for the remainder of the year? Maybe these are things unrelated to synergies that you've been mentioning already throughout the call, your raw material outlook and so forth. But I was just wondering what magnitude of margin improvement should we be expecting in The U. S. Operations? Yes. Thank you, Antonio. And I'll let Emilio provide some detail on that. But let me tell you just conceptually what happens with margins. And as I said before, there are many factors that are playing into the margin variations for the first quarter. If you look at the first quarter, a big part of the improvement in margin would be our pricing, which is really good. And I think it's sustainable. But as I explained also before, the area between the two curves of pricing tends to be smaller as the year progresses. On the other hand, some things might improve in the rest of the year, which is volume and maybe some of the raw material headwinds that we've had before. So kind of those concepts are going to be having a different effect in the remaining quarters of the year. So we definitely see margin improvement, but you just cannot project the same pricing situation and consider growth in volume with a similar scenario. I mean, pricing comparison will be different for the second half of the year. We believe volume would be better. We also believe, as I told Alex, aluminum comparison will be better. So there are a number of things that play out. And synergies will be also coming into play. Synergies for the first quarter probably explain 80 points or so of increase in margin. So if you think about that, certainly, our perspective is to continue increasing margin. But there's another effect that we have to take into account. And this effect only works at a margin explanation level, not at the EBITDA level, which is the change in mix. What I was talking about with Carlos a minute ago and how this category is going contribute to the EBITDA undoubtedly, because if you think about Body Armor, the contribution per case is higher than Coke cans. But on the other hand, the margin is eroded if we sell more Body Armor as compared to Coke cans. So if you think about growth in EBITDA, which at the end is what counts, you will see an improvement based on this growth of skills categories. But if you think about EBITDA margin, there would be an erosion there. So it gets quite complicated. Just want to put out there all the concepts that come into play for purposes of the margin. At the end of the day, what counts is a return on invested capital where the important factor there is the incremental EBITDA of the business. So I don't know, Emilio, if you want to add to that. Well, as you know, this quarter is the quarter with basically the lowest margin. So we see a full year an improvement of margins based on the synergies, but also the impact on the mix that Arturo also mentioned, we should be seeing an improvement in margins and up to maybe 50 basis points for the full year compared to 2018 without IFRS and all that. All right. That's very helpful. Thank you, guys. Thank you, Tony. Thank you. At this time, I would now like to turn the call over to Arturo Gutierrez for closing remarks. Thank you. And as always, we appreciate your interest in Narca Continental. Please reach out to our Investor Relations team for any questions you may have, and have a great day. Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.