Ambev SA (ABEV) 2008 Q4 法說會逐字稿

Good morning, and thank you for waiting. We would like to welcome everyone to the AmBev Fourth Quarter 2008 Earnings Conference Call. Today with us we have Mr. Joao Castro Neves, CEO for AmBev, and Mr. Nelson Jamel, CFO and Investor Relations Officer.

We would like to inform you that this event is being recorded. (Operator Instructions).

Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1995. Forward-looking statements are based on beliefs and assumptions of the AmBev management on information currently available to the Company. They involve risks, uncertainties, and assumption because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Listeners should understand that general economic conditions, energy conditions, and other operating factors could also affect the future results of AmBev and could cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the call over to Mr. Nelson Jamel, CFO and Investor Relations Officer. Mr. Jamel, you may begin your conference.

Thank you, Sheridan, and good morning, everyone. I'm Nelson Jamel, CFO of AmBev. And I'm pleased to be with you today to discuss our 2008 fourth quarter results.

Here with me today is Joao Castro Neves, CEO of AmBev. And, as you know, Joao and I are replacing Luiz Fernando and Graham, who have accepted new challenges in their careers. I'd like to take the opportunity to thank both Luiz and Graham for their contributions to AmBev.

Beginning this quarter, we have decided to simplify the format of our conference calls. Bernando Paiva and Marcio Froes have already started in their new roles as head of Quinsa and Labatt, respectively. But we believe having the two of us conducting the call will simplify the process.

I will start the call by sharing a brief overview of the quarter, and then Joao will provide you with an overview of our results in Brazil, HILA-ex, Quinsa, and North America. I'll close by providing more specifics regarding the fourth quarter financials.

Before I start, I'd just like to remind you that all numbers are in Brazilian GAAP, and that the percentage of changes given in the call are on an organic basis, unless otherwise stated.

Turning to the results, during the fourth quarter, our consolidated EBITDA reached more than BRL2.9 billion, which represents a 0.8% decline when compared to the fourth quarter of 2007 and was driven by strong results in the Brazilian soft drink and Quinsa businesses, which were offset by weaker performances in Brazil beer and HILA-ex. Our EBITDA for the full year was BRL9 billion, which represents a 4.6% organic [decrease]. While EBITDA declined by 4.6%, despite the strong quarter for our soft drink operations, beer volumes during the quarter are down 1.4%, while CSD and NANC declined by 2.2%. Joao will provide you with more details of the key drivers in a few minutes.

Our EBITDA margin in Brazil was once again pressured by lower volumes and higher costs of goods sold and SG&A in our beer business and declined 340 basis points.

Our Quinsa operations continued to deliver very strong results, with EBITDA growing 30.8% from beer volume growth of 8.8% and CSD and NANC volume growth of 5.3%.

In North America, fourth quarter volume grew by 0.5%, driven by market share growth, although EBITDA declined by 4.5% as a result of anticipated commodity cost pressures.

Before I turn to net income, I would like to highlight that we have adopted certain accounting adjustments, as required by changes to applicable Brazilian law. These adjustments totaled BRL348.4 million in expenses and were recorded in the fourth quarter to give retroactive effect to January 1, 2008. A detailed breakdown of these new accounting rules is described on page 21 of our press release and Note 2.1 in our financial statements filed with the Brazilian CVM.

Net income totaled BRL965 million in the quarter and BRL3.1 billion for the full year, which was 8.6% higher than last year. Earnings per share, excluding goodwill amortization and changes in accounting practice, as mentioned above, increased by 10.4% and 18.8% for the quarter and in the full year, respectively. I will comment further on net income at the end of this call.

I will now hand it over to Joao as we start to look a little bit deeper into the results of each of our operations.

Thank you, Nelson, and good morning, everyone. Let me start by discussing our performance in beer Brazil.

Our fourth quarter volumes were impacted by flat industry volume growth, as continued pressure in consumer spend, from food inflation and, more importantly, cold and wet weather in the main region in Brazil continued to negatively impact the (inaudible). Market share loss in the fourth quarter explained most of our beer volume decline of 1.4% in the period. After maintaining our year-to-date market share flat through the end of September, we started to implement our price increase for the summer during the fourth quarter. As a result, we have lost 40 basis points and 20 basis points of share in November and December, respectively, resulting in our market share for the fourth quarter 2008 at 67.5%, which is 100 basis points lower than last year. Our market share for the full year 2008 was also at 67.5%, which was 30 basis points lower than our average market share for 2007.

In January, we lost an additional 20 basis points of share, which is explained primarily due to channel and package mix. January is a month during which we normally move market share because of single volume shift from returnable glass bottles to cans. Given the holiday season in December and early January, we do not believe Nielsen has fully captured impacts from our price increase to date, and we could still lose some share in February.

Although it's early to determine how competitors will react to our price increases, particularly after their strategy in 2008 of not increasing prices again, we believe with the challenging economic scenario for 2009, their lack of price increases in 2008, the negative net impact from currency and commodity prices, and more scrutiny from the tax authorities towards some of our competitors could lead to a more rational pricing power in Brazil. Needless to say, we remain committed to trying to optimize profitability while improving our market share.

2008 was a year during which we showed our commitment to innovation and continued to find ways to connect with our consumers and enhance our brand presence. Our innovation is (inaudible), mainly the 630-ml bottle and the 1-liter proprietary bottle. And, now, our new 269-ml slim cans are performing well, and we expect them to be important in building consumer bonds and maintaining our profitability in the future. Initiatives such as the launch of Brahma Fresh have showed that there are still opportunities to grow share organically, both regionally and nationally in Brazil.

Our beer net revenues per hectoliter in Brazil grew 3.5% when compared to last year. This increase partially reflects our price increase, as well as an increase in the scope of our direct distribution network. Unfortunately, our net revenues per hectoliter were negatively impacted by our mix in the fourth quarter for cans, and our (inaudible) package was under pressure for most of the year.

The growth in our beer cost of goods sold per hectoliter was 6.7% in the fourth quarter when compared to last year, as continuing benefits from our currency hedges and efficiency projects partially offset higher commodities price and lower fixed cost absorption.

Beer SG&A, excluding depreciation and amortization, grew by 24.5% in the period. This increase is a result of general inflation, increase in direct distribution, investments to support our innovation, and lower efficiency of our fixed-cost structure. The lower comparison from Q4 2007 also reflects our growth in fourth quarter, as evidenced by our full-year SG&A growth of 14.9%.

Beer EBITDA finished the quarter 7.6% below fourth quarter 2007 with EBITDA margin declining 470 basis points when compared to 2007.

Turning now to Brazil soft drinks and NANC, we had a strong fourth quarter, despite volumes declining 2.2% in this period due to industry softness. Our market share reached 17.8% for the quarter, 60 basis points higher than last year. We are pleased with our market share performance throughout the year, as we were able to grow market share ahead of our main competitor. Our successful innovations continue to be the main reason behind this improvement, and we continue to see plenty of opportunity in the CSD business, both from market share and also profitability perspectives.

CSD and NANC net revenues per hectoliter grew 8.4% in this period as a result of pricing in selected markets. We will continue to track and monitor pricing opportunities very closely.

Soft drinks cost of goods sold per hectoliter fell by 4.3% in this quarter, despite lower fixed cost absorption and our hedge gains in sugar. And currency continued to benefit us.

SG&A expenses, excluding depreciation and amortization, increased by 2% in the quarter, despite easier comparisons from fourth quarter 2007, as we continued to invest behind our brands in innovation while still finding cost-saving opportunities.

CSD delivered solid EBITDA results - 22.1% higher than last year, with EBITDA margin improving by 630 basis points to 47%.

Turning briefly to HILA-ex, we continue to face challenges in the region with an EBITDA loss of BRL47.7 million for the quarter.

Beer volumes declined 20.2% in this period as a result of market share losses and industry decline, mainly in Venezuela during the quarter, while soft drinks and NANC volumes were up 22.9% due to strong performance in Peru and Dominican Republic.

Moving on to Quinsa and our operations in the south of Latin America, we are very pleased with the outstanding (inaudible) delivery, with solid growth rates in terms of volumes, revenues, and EBITDA. The fourth quarter was not an exception, as Quinsa delivered EBITDA growth of 30.8% and margin expansion of 90 basis points, reaching 48.4% in the period behind consolidated volume growth of 7.4% in the quarter. Beer volumes grew 8.8%, while soft drinks grew 5.3%.

Net revenues per hectoliter grew organically both in beer and soft drinks as a result of prices in line with inflation throughout the region during the year and focused revenue management and strong performance from our premium brands. We are pleased with the performance of our premium portfolio and our innovation across the region. Our recently launched Quilmes wide mouth, Quilmes (inaudible) in Argentina and our (inaudible) line extensions in Bolivia, just to name a few of our launches, are important examples of our innovation across the region.

Our soft drinks business has also completed a great year with strong results in the last quarter. We benefited from higher market shares in growing markets, both in Argentina and Uruguay. In Argentina, the (inaudible) brands grew within the A segment, while the A segment as a whole gained share versus the B segment.

Our costs and SG&A expenses were negatively affected in 2008 by increases in labor costs, transportation, and some raw materials during the year. Nevertheless, we have been affected by introducing the ZBB process in culture within the organization, and we also benefited from currency hedging, which worked as an important shield against devaluation in the last quarter.

I would like to use this opportunity to congratulate the team in Quinsa for the great results delivered in '08.

Turning to Labatt, the fourth quarter delivered similar results to what we saw in the third quarter, with great top line performance and market share gains being offset by significant commodity inflation. EBITDA declined 4.5% in the quarter and was flat for the year.

Top line continues to be a bright spot, showing organic net revenue per hectoliter growth of 4.1% in domestic shipment increase versus last year of 1.6%, well above industry [depletion] drop of 0.5%. We gained 15 basis points of market share, from that focus on a few big things combined with disciplined execution. We continued to improve net revenue per hectoliter and market share gains, the key format for the long-term sustainability of our business.

We are pleased to say that our brands Budweiser, Bud Light, Keith's, Stella, and Lakeport grew market share in the quarter and saw (inaudible) growth of 7.5% versus last year. Specifically, we were able to increase market share in critical brewing segments of import and import light by 2.2 percentage points and 0.7 percentage points, respectively. We are also pleased with the performance of our innovation, namely Stella Artois Legere, which has benefited from our world-class commercial (inaudible).

In closing, 2008 was a year in which we were able to maintain our EBITDA while gaining market share for the first time in 11 years, despite the industry and commodity pressures. I want to recognize the Labatt team for such an achievement.

Unfortunately, the impact of commodity inflation on our cost structure offset the growth in the top line, despite our continued efforts on ZBB and production efficiencies. Cost of goods sold per hectoliter in Canada increased by 16.3% year over year, driven by higher costs of brewing and packaging materials.

SG&A, excluding depreciation, increased 4.9% in the fourth quarter, driven by higher distribution costs. As a result, we delivered in Canada an organic EBITDA decline of 4.5%, as already mentioned.

Now going back to the overall AmBev business. 2008 was a challenging year in which we grew EBITDA by only 4.6%, which is far from the sort of results our management team is used to delivering for our shareholders.

As we look ahead to 2009, the current global financial crisis and economic slowdown effects imposes challenge for everyone, although I am more optimistic about the resilience of the beverage industry than I am about other industries. Despite all of the uncertainties for 2009, I have confidence in our management team and our ability to focus any improved performance in 2009. I believe uncertain times like this will put our brands, our people, and our management systems to the test, and I am confident they are well prepared to meet this challenge. I also have confidence we have the right plans and resources in place to improve the profitability of our business in 2009.

Now I would like to go back to Nelson Jamel.

Thank you, Joao. In this final section, I'd like to guide you through the main lines between the reported EBIT of BRL816.8 million and the net income of BRL964.5 million, as disclosed on page 16 of our release.

Other operational income and expense was a net income of BRL961.2 million in the quarter, significantly better than the expense of BRL325 million in the same period the last year. The main reasons for this improvement are the reclassification of (inaudible) amortization to SG&A, totaling BRL1.2 billion and the reversal of translation gains from foreign investments totaling BRL266.2 million, which are now recorded directly as shareholder value.

Our net financial expense reached BRL200 million, an improvement of 35% when compared to BRL307 million in Q4 last year. Such a gain was mainly related to the new accounting rules enacted in Brazil, which resulted in gains of BRL434 million. Without this adjustment, we would have a 9% higher net financial expense, mostly driven by higher interest rates in Brazil.

Our effective tax rate in the period was 31.9% compared to 30% last year. This decreased our result of nondeductible losses from subsidiaries not subject to tax in Q4 2008 compared to nontaxable gains recorded last year.

Our net debt decreased to BRL7.7 billion at the end of December compared to BRL8.6 billion at the end of September, due to an increase in our cash position by around BRL1.3 billion in the period.

During 2008, we distributed to shareholders BRL610 million by way of share buybacks and BRL2.9 billion in dividends and interest on capital. We also paid an additional BRL250 million interest on capital beginning January 30, 2009.

We believe at times like this cash is king, and our strong cash flow generation, cost, and working capital discipline and diverse geographical footprint will prove to be valuable assets in 2009. The use of cash in 2009 will depend on the changing commodity and financial environment. We prioritize paying the maximum amount of interest on capital possible, and at current interest rates, I'll act to retire the debt maturity in 2009.

We continue to focus on finding the optimal ways to return the remaining excess cash to our shareholders.

I will now hand back to Sheridan and open up for questions.

(Operator Instructions). Robert Ford, Merrill Lynch.

I had a question with respect to the ongoing operations in Brazil. I was hoping, perhaps, Joao, you could comment a little bit more extensively, particularly with respect to your hedges versus the rising input costs and whether or not you'll be able to fully offset those-- and not just in the first quarter, because I think there was an extraordinary malt expense in the first quarter last year, but over the balance of the year.

And then perhaps if you could talk a little bit more specifically about the competitive dynamics-- You said, so far-- I think the suggestion was that it's going fairly well. I know in the fourth quarter there was an issue with wage inflation. You mentioned that in the press release. I was curious as to whether or not your productivity initiatives this year and perhaps the way you're sizing the business for the outlook will more than offset that.

And I know there were some issues with the marketing spend in the fourth quarter. If you could talk a little bit more about, as you have more of a normalized comparison over the balance of the year, what you expect those investments to be like.

And there must be some read with respect to the impact of the flow meters on perhaps some of the smaller brewers that were suspected of evasion and how that might be playing out in the pricing dynamics. Thank you.

Okay, Bob, let me try to address. I think I got like six different points here.

If we start from your first point, which is the costs, I think what we've said sometime during the last year-- We discussed through the market our hedging levels for the US dollar. So, at a point in time, we said that our average for 2009 was something about 1.883 compared to something like 1.99 for all '08. So that would be a gain in terms of hedging the dollar for 2009.

You know that our policy is to do that and at the same time also hedge for the commodities. And, in the commodities part, (inaudible) the prices were coming down in the later part of the year, and we're hedging 12 months rolling. But the net effect of both is a positive one.

So, given that we have a net positive on the dollar and on the commodities, then there are the other commodities that are non-hedgeable, such as, for example, PET. In commodities like PET, we would have a double gain because we have the dollar components of the PET hedged on a better level, but PET is down, like, 20% or 25% on the current levels against the average level of 2008. So we will probably have benefits in most of the commodities, assuming that the level that is today will continue and as these prices are on the (inaudible). So that covers, let's say, the portion of the dollar hedge and the commodities hedge. In the unhedgeable commodities, we'll probably have a benefit there.

The next portion is really the inflation piece. You know the inflation has been coming down, also, in most countries where we operate. That's also true for Brazil, although what I've seen so far is Brazil is slowing down inflation maybe on a faster pace than in other countries. But, still, some of the projections we are looking at is inflation of the level of 5.5% in '08 and something like 4.5% in '09. So, again, I think in the case of cost of goods sold per hectoliter, for the most part, we should have good news when we look across the macroeconomic, plus the hedging policy that we planned. And then, as always, we always have the efficiency projects to continue to have our plants more productive than the year before.

I think you mentioned something about wage inflation also. So I think wage inflation does impact our cost of goods sold. It has also impacted the competitive dynamic. I will just finish on the cost piece instead of talking specifically about the wage inflation.

What we've been trying to do is-- I think during 2008, for the most part of the year, we were always believing that the market would get better and that the weather was going to get better. And maybe we didn't take maybe a harder approach to some situations in terms of the direct labor. So, this year, we're deciding to take a tougher approach, because we want to be really strict on the spending. And we already announced last week the closure of one of our plants. And we will take the benefits of the seasonality that is embedded in our business. During the wintertime, much less volume than in the summertime. And you will probably see some productivity gains also in that part of the year where the seasonality "helps" us. So we'll take every opportunity we have to become more productive. So I think this covers three of the points you mentioned.

When I talk about the competitive dynamics, I think the reason the team mentioned a lot during 2008-- how competitors were not following our price increases, especially in cans. So some of that was pulled back. We are seeing so far a different scenario. We are seeing the pricing is sticking. It's early on the year. It's only two months. And Carnaval was just last week. So it's too early to tell whether this will continue or not. It's true that we have a couple things going on for us, such as a different dollar level, so we know just by reading any other public company here in Brazil that (inaudible) in our business-- how the unhedged portion of the dollar does impact our competitors by not being hedged, plus the prices, plus a more strict government. We believe those three things can work in our favor. Again, it's too early to tell, but the early signs are very positive.

In terms of marketing spending, we took the decision - the right one - last year to build innovation, to fight more in the marketplace. We've always said that we always work for share and profitability. We have, let's say, our levels of share that we accept to work with. And, for that reason, we did have market share spending, especially in the fourth quarter. But I think-- As I said, I'm sure that was the right thing to do. And we're seeing some of the benefits now early in '09, given that the innovations that we put out at the end of last year, and some of them now in the beginning of this year are definitely helping the industry, our volumes, and et cetera. So that's, I think, the explanation for '08.

When I look ahead for marketing spending in '09, again, it's too early to talk about it. I already gave you my impression in terms of price. I think spending will also depend a lot on the competitive behavior. What I can say is that I will take every opportunity and every cost saving that we have to fund (inaudible) in the sales and marketing side.

And your last point regarding the flow meters-- In '08, the flow meters I already mentioned a little bit when I talked about the pricing environment. But, definitely, the government is much more-- every year more serious. It's been serious for a long time. But we knew that efforts from the government-- And I think, again, these renewed efforts on flow meters should again help to have a more rational competitive environment in Brazil for '09.

That's great. Thank you very much.

Lore Serra, Morgan Stanley.

I actually have two questions. Could you give us a sense for how much pricing you think has stuck right now, net of the excise taxes in terms, of the beer pricing? I understand your point that it may or may not be recurring.

And then, secondly, on the balance sheet, you had a large increase in your payables last year. And I think it's equivalent of-- assuming that you're paying your suppliers over about five months-- And I'm wondering if you could comment on why you've been able to stretch your payables so much, particularly in the kind of environment we're in. Thank you.

Okay, Lore, I'll take the first part, and I'll let Nelson take the second part.

In terms of pricing, I think what I can tell you is that we've been able to put on our policy, which is basically true to pass on inflation to the consumers. And that's the sort of price increase that is sticking in the marketplace right now for both the beer returnables as well as for the beer cans.

Okay, now, Nelson, if you can take on the second part--

I'm sorry, but can I just ask, though-- I mean, you also had the excise tax increase. So are you able to put enough through to get inflation on your pricing or just inflation at the consumer level?

Yes. We are putting inflation to the consumer level, as always. And I think a good portion of the excise tax will also be covered with the sort of price increase that we have in the marketplace right now.

Terrific. Thank you.

Okay, Lore, just regarding the second part of the question about the payables, as I said, cash for us, more than ever, is king. And we've been committed to continue proving our working capital and our CapEx management in order to get it to strong EBITDA and enrich the cash that one has.

So, to put it in perspective, in the last two years in the overall working capital, and payables was the key driver behind it, we had to adjust more than BRL800 million. And we still believe that opportunity should be proven to be captured. And examples of these are not only to extend payment terms, which would be at five months, like you said, but we are working on extension of payment terms. But we are also improving inventory levels and (inaudible) stricter control of our accounts receivables. So that's the focus that we have. It started already two years ago. And, more than ever, we continue to put effort behind that.

The same on CapEx. We had in 2008 an increase in our CapEx, and we had as a whole BRL2 billion of CapEx in 2008. But by putting even stricter controls in place and really taking into account (inaudible)-- Of course, we are going to make the investments that are going to help us to go through the future with profitable growth. But we see for 2009 our investments probably turning back to the levels of 2007. So, in 2008, we had BRL2 billion of CapEx, while, in 2007, we had BRL1.6 billion of CapEx affecting our cash flow. So we expect for 2009 to go back to our 2007 level or pretty much around that.

Okay. But, just to go back to the payable point, given higher financing costs in the market, you think five months to pay your suppliers without having to incur any financial costs is sustainable?

We have been working, as I said, with our suppliers in extending the payment terms without incremental costs. So the approach we take here is not about to have terms or price; we are going for both. Of course, the market dynamic is particularly different by supplier. But, as I said, this has been already for a while a strong effort and focus of the Company. So we have been succeeding on that. And I don't know maybe if you want to (inaudible).

Well, I think as Lore does the math-- The math is not exactly-- The math from the balance sheet, given there are other things there-- It's not as if we have exactly this sort of term in terms of five months.

I think just to stress one more point of some of the things that I saw the team here doing, which I think is very good, is we're able to use the same six sigma methodology of the black belt analysis to really look at our suppliers in different ways. Which are the ones that we can go and ask for maybe six months? Other times we can go for five months. Other times we can go for four months. So I think we put all that analysis that I think the marketplace has seen us doing for the top line for (inaudible). I think we are using the same methodology and working with suppliers to advance on this. I think we did advance a lot. We don't see ourselves at the five-month sort of payment terms, and that's why we think we can continue to do it, even in an environment with rising interest rates.

Thank you.

Just some points to add is that-- We also have a definite important point to have the procurement department including the coverage of the purchase negotiating, so that's part of the approach Joao mentioned about really taking it in a more precise way.

Thanks very much.

Jose Yordan, Deutsche Bank.

I have a couple questions; one about the cash back to shareholders and the other one about Canada. The first one is-- I understand you're holding cash because you have a maturity, I believe, in April of close to BRL4 billion. But, once we get through that, what's the trigger for beginning the share buyback program again? Will we get priority on what the refinancing terms are going to be there for that particular maturity soon-- or whether you're just going to pay it off in cash? Will that event be the trigger for then beginning the share buybacks?

And then the second question is about Canada. Your competitor was talking recently about competing in heavy discounting in Quebec, mostly started by the retailers and all that. But you showed some pretty good revenue per hectoliter expansion in Canada anyway. So if you could talk and give us a little more clarity about what's happening there regionally and whether you think this discounting has reached its end or whether it's likely to continue or anything in Quebec--

Let me start talking about the first point you made. Again, as I said, use of cash is important, but that can depend on the changing commodity and financial environment. And, given the uncertainties, we want to retain some flexibility and, therefore, are likely to hold more cash than normal going forward. But we remain committed to continue managing our capital structure in a way to maximize returns to shareholders.

So, consistently what we have been doing so far-- (Inaudible) low leverage, which maximizes the benefits of our (inaudible). So that's the first thing we always do. But, as I said, it's also important (inaudible), especially in the first semester. And, assuming the current financial rate that we see in the market, we are likely to retire debt.

Now, the allocation of the remaining excess cash, of course, will be decided by our board as the year progresses and they have a better view of these amounts. And, of course, we take into account interests of all shareholders. And this is likely to happen as the year progresses, as I said, and we have a better view on our real excess cash, given the debt maturity. And, of course, then they're going to decide either by resuming the share buyback or paying actual dividends or a combination of both like we have been doing so far.

Maybe Joao could pick up the question on Canada.

Yes. Regarding Canada, I think we read some of the same things you read, Jose. But, as we look in the marketplace, we're actually feeling good about what we saw in Canada. We saw some of the new prices put in place also in the last few months in Canada finally sticking. You know that, like in Brazil or like in Argentina, in Canada also (inaudible) with a model of gaining share and maintaining or improving profitability. I think that's a great job they did together with Marcio last year. And Marcio is fully committed to continue that. I think they were able to do that in '08, and the first couple months of '09 are really not showing this heavy discounting, necessarily, that we just talked about.

So it's true that has been back and forth, but our latest view on this is that the pricing is sticking, maybe for different reasons. Maybe it's that everybody sees pressure from the crisis or pressure from cash. But we actually see a little bit less level of discounting than we were seeing before.

Okay. Great. Thanks a lot.

Lauren Torres, HSBC.

Just, first, a quick follow-up on the pricing for this year in Brazil. It seems like you are pretty confident with respect to putting through pricing. I was just curious if you feel that there will be further opportunity to take additional pricing as we course through the year.

And, also, I just-- If you could talk a little bit more-- I think in your prepared comments you seem a bit more optimistic about consumer trends and the general environment in Brazil for this year. I was just curious to get your thoughts about where that optimism is coming from.

Okay. I didn't know I sounded so optimistic. Seriously, I think there are a couple of things going on for us and a couple things not necessarily going on for-- I think going on for us-- We just had-- I'm talking macro first. But when we look at the minimum wage that was actually anticipated from May to February with a real wage increase of 6%-- so the wage increase that just happened here in Brazil about a month ago. So it was 12%-- so 6% inflation, plus 6%. This is really good news. This is even more good news when combined with the lower food inflation than what I saw in 2008. That really didn't help us because the wage growth was smaller and food inflation was higher. So we're actually going to the opposite direction. 12% nominal growth in minimum wage and a food inflation that most banks are forecasting around 5% or 6% for 2009. So I think those two things are going as a positive for us.

I think as a second point, for our industry so far, but this is a big unknown, is that the weather this year started better than last year and also that the Carnaval was, again, in February instead of the end of January. That also helped. I think this kind of creates a good momentum for the beginning of the year. But we're not saying that we think this will continue to go on. It's very, very hard to predict '09. I think no one is out there trying to predict that. But, again, there are some good signs in terms of minimum wage and, for the past couple months, weather.

But, in the negative side, we think some sort of deceleration will happen that could be somewhat combined with unemployment, which should offset or partially offset the positive aspects that we have. So that's the macro piece.

When we look internally, one of the things we want to do is try, of course, to make out of this crisis an opportunity. I think we have always excelled during crisis. I think we have a good plan. I think we've been working in the past few months on innovating, both here and both-- in some of the other zones, like Latin American south and also North America. We're seeing some innovations in packaging. They're already out there. We saw some innovations in liquid; for example, in Latin America south. So I think we will continue to use that effort to also bring new news to our consumers. So I hope that that combination will try to help offset the sharp decline that may get into Brazil. We're not seeing it as hard as we saw in other markets.

But, again, it's very hard, and I don't want press on an impression that we think that consumer trends are not changing. They are changing. But so far they have been compensating for these other things that I just mentioned to you.

And do you feel that there's other opportunities for pricing this year, or you're pretty well set from your actions--?

I think we are pretty well set, given that our policy is to pass on inflation, and we don't see any upward pressure from inflation. If inflation is going anywhere, it's probably going south. And, given that you have special inflation in a good portion, like I said, from taxes, I don't see it as pressure internally, given that we also know the reason or having such a policy like that is that we know that the price increase above inflation-- They also hurt our industry, and it's not something that we want to work towards.

And, just lastly, you mentioned that in February on the beer side you did continue to lose some share. Is that what you said?

No. That's not what I said. What is said is that, in January and February, we had some good things going for us, such as the minimum wage growth that actually helped everybody. The Carnaval was at the end of the month, which helps everybody. The weather is a little bit better, which helps everybody.

And we mentioned early in the call that we lost share in December and in January, and we could expect, potentially, that in February we could lose a little bit more because that is the trend when we increase prices. We are seeing pricing sticking. We're seeing our competitors following us. Usually, they take some time, which means they take a couple of months to fully adhere to our prices. They are adhering. If they continue to adhere, we may lose a little bit more in February and then work towards recovering after that.

That helps. Thank you.

Marcel Moraes, Credit Suisse.

Just a first question about the Brazilian beer market. You have recently launched the new can product for the Skol brand. I would like just to have more color about its sales performance and how did it affect marketing expenses in Brazil, because we have seen them going up in the fourth quarter very strongly - so just to understand what is the dynamics of bringing this new product. And how does the marketing expenses behave going forward in 2009?

Okay, Marcel. Thank you for the question. It's really too early to tell. We have just launched this in the beginning of January, so we're talking about six to eight weeks ago. I would say this is within the umbrella that I just mentioned to bring new news for our consumers. I don't want to get too much on the different strategies that we have towards that particular package. But I think the first reaction is that people are enjoying it. People are seeing it as good new news. So we are happy that people are giving us some first good impressions. But it's too early to give you any details in terms of anything - volume or share or anything.

And regarding marketing spending, I think we have enough resources right now to bring this sort of new news to the marketplace. I think the total level of spending, whether this is above what I call the current resources that we have, will depend more on the competitive dynamics. Then I think we'll have a better view as the year progresses.

Yes. And what about the Nielsen market share data? I mean, you have lost, according to Nielsen, 100 basis points in the fourth quarter. But I think it's mentioned in your explanation in the beginning that Nielsen's figures could not be reflecting the recent price increases. I'm not sure if I understood you correctly. The Nielsen figures could not be reflecting the--

What I just said and I think what we've said lately is that, as we've been (inaudible) prices during the fourth quarter-- During the fourth quarter, it was really November and December, for the most part. We think that December really captures very little. The January really captures a little bit more. And the February really should capture most of the impact. The February reading will come in the next ten days. So we still think that the next reading will still capture some of the price increase we put up at the very end of last year. That's why I said that the next reading is the reading that really will give the first full impact of the price increases for the fourth quarter. That's why we said that would not be abnormal to expect a further share decline on the February reading. It's in the history of the past five or six years.

Okay. Finally, on the weather conditions for February and January, something a bit different from the fourth quarter?

Yes, especially February. I think January, if you take Sao Paulo just as a reference-- Sao Paulo was one of the wettest months we had in a long time in terms of rain. The weather, as I said, was not so cold. It was not so bad. It was just wet. But then, in February, it was really nice. I mean that was very different from what we had in the fourth quarter. Good days. Hot days. No rain. So nice weather for Carnaval time.

Okay. Thank you very much.

(Operator Instructions). Alan Alanis, JPMorgan.

I had a question regarding the SG&A, both in the quarter and for the full year; specifically, for beer in Brazil. It seems that it's been growing double digit both for the quarter and the full year. How sustainable--? I mean, what would be the outlook of that SG&A level for 2009? And, most importantly, how can we understand better what happened in 2008, especially compared to CSDs in Brazil? When we see the SG&A growth in CSDs, apparently, it was growing in the low single digits. If you could explain those differences and give us some sense of the outlook, I'd really appreciate it. Thank you.

Thanks for the question. It's a very good one. I think the first part of the question-- I think part is to look at that as an outlook for '09 and to explain '08. I think what happened in '08 is not what I expect for '09. I think the levels are-- Even if you look at past years, that's not the sort of level that we've seen in the marketplace. But, again, as we saw irrational markets and irrational players, we fight back, and that's what we did. I will give a little bit more explanation, but I don't see this going on, given the current situation in Brazil. And in our industry, in particular, I don't see that going forward. But, again, it's too early to really tell. But that's the first perception for the first couple months.

If I try to explain the '08 and the fourth quarter in particular as an outlier, of course, we always said that our SG&A first goes up in line with inflation, so at around 5.5% or 6%. Then we grew the direct distribution more than in other years. So direct distribution did have an impact in our SG&A. We don't open up exactly how many points, but it's definitely above the average in previous years. As the year progressed, (inaudible) meaning 1 or 2 points. But, this year, it was more than that.

And, finally, in the fourth quarter as we were progressing, part of our marketing budget also-- Some of it was brought from CSD to beer, which also increases the beer side. So it's really a combination of those three things - inflation, direct distribution, and higher marketing spending in the fourth quarter to fight the (inaudible) situation in the marketplace.

Okay. Do you expect more increase in direct distribution during 2009?

I would say that we expect much less than what we had in the previous years. We have already reached higher levels than were expected. I think the strategy for '09 is much more opportunistic rather than the ones we took in the last year or in the last two years. So we should see less growth of SG&A coming from that. I think the extra dollars or reais that we will spend will be to further back the sort of innovation that a little bit also impacted the fourth quarter but should impact more the '09 numbers.

Just, by the way, could you remind us how much you have in beer in Brazil under direct distribution and under third parties?

54% or 55%.

Okay. Thank you.

[Shawn Glickenhaus], Citi.

Just to follow up on the SG&A point, should we be using that algorithm then-- normalized algorithm back for 2009?

And a second one is to see if you could maybe tell a little bit about information on the new slim can that you launched with the temperature gauge. I haven't actually seen it yet, but that's my understanding.

And, finally, I wanted to confirm on the beer Brazil (inaudible)-- The price increases that you guys put through in the fourth quarter-- The understanding was that that was really to offset pressures and keep up with inflation as opposed to thinking about the tax increase yet and that we should look for something in 2009 to help offset the tax increase. But I think understood from today's call that that was not the case and that fourth quarter price increase was also taken in consideration of tax increases. So, if you could just confirm that for me, that would be great. Thank you.

Exactly. Starting from your last point, what we just said a few minutes ago is that-- What you just said is what we did in the fourth quarter. We already took into consideration. We already knew exactly how much was going to be the extra increase. So the price considered inflation and that increase.

In terms of cans, we also got an earlier question on this. And what we said is the idea is really to bring new news to consumers. And the feedback we're getting from the market-- Again, too early to talk about any figures. But very good impression from consumers regarding the cans.

And in terms of SG&A, if I understood what you said in the beginning of your question, it's if you could go back to the algorithm of the SG&A that we used before. Yes. That's what we are using. That's what I referred to, believing that the SG&A in '09 should probably look more like the '07 and '06 figures, where we've explained to the market based on what we just mentioned. That's what we think today. The SG&A will be less for '09.

Fantastic. Thank you very much.

Alex Robarts, Santander.

I wanted just to clarify one thing you were talking earlier on the SG&A, looking at the beer Brazil SG&A - the cash component. So, basically, what you're saying, on an organic basis, is that in shouldn't grow the double-digit way that I see from this 14.2%, which seems to me the beer cash SG&A for the full year. So I want to clarify that.

And the question first relates to Canada. The competition has said that it really is keen and expects next month to raise prices in Quebec after really having moved up on its whole portfolio over the last three of four months. Can we assume that Labatt or AmBev Canada has done that as well-- in other words, moved up on a majority of the portfolio in terms of pricing and intends to follow this price increase in Quebec?

And the final question is really-- In the fourth quarter, your parent company clearly acquiring Anheuser-Busch, ABI being established and you being part of this much larger, global player-- I know it's early days, but can you give us a sense of, from an AmBev perspective, what could be some of the opportunities on the cost side or revenue side in terms of synergies or things that have opened up for you as you look to work inside this larger, global beer company?

Yes. Let me try to address each of them. I think, first, on the SG&A front what I'm saying is totally in line with what you've said. We should not expect the sort of increase that you saw in '08. That's not what to expect. I mean, this is well above the sort of SG&A growth that the Company has been delivering. The way we see the trends and the way we see the world we don't think the world will move towards that sort of competitive environment and also that sort of investment level that also impacts SG&A. I think also we mentioned that we'll be looking for every single opportunity to reduce costs. We showed, and we just mentioned in the beginning, that we just closed a plant last week. And, of course, a plant has SG&A attached to it. So we'll look for every opportunity to simplify our processes where we think they could be redundant.

I think also being part of a larger group and having access to different sorts of new benchmarks also that bring-- We're always on a healthy way competing against each other in the sense of looking and learning with the colleagues. And I can try to give you some examples.

But, just to finalize, before, the SG&A, that's in line with the last question we had is we're working in line to go back to the sort of SG&A increase that we had in the past - related to inflation relative to volume growth, if there is volume growth. We said that the direct distribution growth will be smaller than the '08. Of course, you have the carryover from '08, but you should not have much growth-- new direct distribution coming in. I believe that it will be definitely below the sort of number that we saw in '08.

Regarding Canada, what I was saying is that we did find in the past two weeks some new price increases in the marketplace-- next few weeks or next few months. And we see the whole industry, including ourselves, again, moving prices up. So that's the sort of thing that we see going on right now.

In terms of further synergies with the new, enlarged corporation-- or parent company, like you said, referring to (inaudible), we see brands as a potential. But, again, I would not say that in the beginning this is our focus. I think as we are in different markets. We're talking about them operating in their key markets. We have already launched Budweiser, for example, in Dominican Republic in the last few months. We know that some of the countries that Bernando has for Quinsa also-- Bud's there. So there are opportunities also to try to take on the brands there and further grow them. So I think there is opportunities, for sure, with the Budweiser brand. It's a great brand. I think for Brazil, in particular, it's not a priority for the short term or for '09, but definitely it is for some other Latin American markets where we participate. So I think Bud for Brazil, we're talking more about the 2010 type of product than about 2009. But, again, we'll see that as the year progresses.

But, in the meantime, in terms of procurement, there, for sure, there's a lot of opportunities. We buy a lot of the same things from different suppliers, so we have the scale. That involves a learning process. Anheuser-Busch has a very important business in terms of cans. Cans are very important in Brazil. So anything we can learn from the procurement side in cans-- 80 zinc is a lot of money. So we've been working very closely with some colleagues in the Budweiser would, for example, in terms of cans. So this is the sort of opportunity that is arising and is appearing. It's not just appearing; we go after them because we know where costs are pressuring us. So we'll be looking for scale and for synergy as we speak. And having Luiz Fernando there, there's also a great help, given that he was here and knows the business here as well. So we've been working very closely to continue to benchmark, as we did when I was in Argentina and he was here and as we also continue to do as Bernando is there in Argentina. And together with Marcio, I think we've been able to gain from these very specific things. And I'm sure we'll continue to benefit from that as we go forward-- as, for example, in cans and as, for example, in brands.

Thank you very much.

Trevor Stirling, Sanford Bernstein.

Two questions, gentlemen. The first one-- In Canada, we've seen some fairly stiff increases in cost of goods sold because of raw materials, I guess, particularly in quarter three and quarter four. As you look forward into 2009, is that likely to continue for the first two quarters, or will it slow down? And, possibly, even, would it turn around at the end of the year?

And the second question is maybe a more strategic question on Brazil. Do you think you may have actually set in place a price umbrella for your competitors? Your margins are very, very strong. But, presumably, space for smaller competitors to make less money and still make reasonable money. Is there a temptation for them that, when you take the prices up, they say, You know what? I could take my prices up and get the margin, or I keep them down and go for volume. I'll just keep them down and go for volume.

Yes. Very good, Trevor. Let me start by the second part. Every time you move prices up, we are fully conscious that we could be creating an umbrella for competitors. So this is something that we work with every time, and that's why always having the objective of growing share and profitability is a hard one. It's not simple. I think we've shown for the most part of our history that's possible. I still think that's possible in '09. I think although we have big margins and we're working to grow them, I think we'll continue to grow them. We know that competitors also have their growth objectives, and we also know that competitors, particularly in '09, are under pressure also. I think leaving from a dollar at BRL1.5 and going through a dollar of BRL2.4 in reais-- This is quite the hefty increase, and definitely it will pressure the margins of competitors. So, particularly in this year, I think the combination of the dollar going against for people that are not hedged and our capability of really delivering price increase in '08 that we tried to minimize market share loss because we do a market share increase differently by region, differently by pack, and different by brand-- I think that combination will for '09 offset the risk of the price umbrella. The risk's there, and it's something that, again, we work every day to offset it. But it's the only way to really grow share and profitability at the same time. And I think in '09 that equation will work. So it should work, and we are optimistic about it.

Regarding the second part of the question, as you know, I think there are two things there in terms of costs. I think we do not expect for Canada in '09 the sort of cost per hectoliter growth that we saw in the third and fourth quarter. Actually, that's true not just for Canada; that's for most zones because, again, a good portion of the commodities are not hedged and commodities have come down substantially - between 10% and 45%, depending on which commodity you are taking. Of course, sometimes you do have some contracts that are medium term. It could be six months or ten months. So you should see a downward trend from costs per hectoliter in Canada from the current cost level. Usually, most start the second, third, or fourth quarter.

Thank you very much.

Lore Serra, Morgan Stanley.

I just wondered, Joao, if I could ask you a little bit about Quinsa and HILA in terms of your perspectives for 2009. Clearly, you left Quinsa in fantastic shape, and we can see it in the numbers for 2008. But can you comment on what you think the franchise can grow this year and if you're seeing a change in environment as you're into 2009 now?

And then, on HILA-ex, clearly this has been the sort of tough spot for AmBev for the last couple years. As you take sort of a new look at HILA-ex, do you see any easy opportunities to improve the losses? They keep widening from what we're seeing in the fourth quarter results. Thanks a lot.

Okay, Lore. Thank you. I think from Latin America as a whole-- Again, as we look at AmBev as a whole, and we don't want to get into the details on a country-by-country basis, we're seeing, again, prices overall sticking everywhere. I mentioned Canada. I mentioned Brazil. It's also true for Argentina. We are putting prices up, and pricing is sticking in terms of competition.

In terms of outlook or volume, it's very different. The resilience of the different markets are different. I think we have both in Canada and in HILA or in Quinsa, where I was-- Bernando is a fantastic guy. I think if I could, together with the team, leave a good thing for him, it's true, but I think he's a very complete guy. I think there's still a lot of opportunity that he can capture, both in sales, both in costs, both in expenses. There's still a lot of room to improve things in -ex. And I'm sure and confident that Bernando will deliver on them. I think the challenge for us there and for Bernando there is that it's very difficult to expect the sort of growth that we had there. I think Brazil, different from the rest of Latin America, has really pulled growth in '08. And, therefore, the comps are much easier. So it's different there. So I think Brazil's further resilience-- may be showing resilience now, but it didn't show that much growth anyway. I think theirs is the opposite. So I think we're going to have a tough job in terms of volume. But as I mentioned, I think the hedging policy will help us a lot. So we're very confident that the sort of EBITDA growth story that will be there is still consistent. I think there's a lot of things going on. Therefore, I think what will be the thing to watch there is the quarter and how we're going to look for ways. And we're going to look for ways to compensate any downside in the volumes that we're going to have given the tough components. So this is my comment to Quinsa. I hope they touch on your question.

Regarding HILA-ex, it's a little bit more difficult, given that, in Quinsa, as I said, we showed the results. We know where the surprises could come from. And in HILA, it has been more volatile than Quinsa in the past. I think the big issue in '08, which we still don't have a great answer for in '09, is Venezuela. Venezuela had a very tough year. We actually had a good year in the other countries. But, given the size and the importance of Venezuela, it took away the gains and the good results we had in the other four countries. So I am personally taking some of my time to work with the Venezuela team because I think, if we can find a way to fix Venezuela, we will have a much better result of HILA-ex. So, in terms of priority, my priority will be in HILA-ex really to focus on Venezuela, given the size (inaudible) and also given the fact that I think we found a good path for growth in terms of volume for stability in the other four countries. So I am working and confident that I think we will find a way to change the results of '08. But, again, it's going to be-- It's still a tough spot for us and even tougher within Venezuela.

Thanks very much, Joao.

There are no further questions at this time. I will now turn the floor back to Mr. Nelson Jamel for closing remarks.

Thank you, Sheridan, and thank you all for attending the call today. And thank you for your attention and questions. And that's it for today. So we wish you a very good day. Thank you. Bye-bye.

Thank you. Goodbye.

This concludes today's conference call. You may now disconnect.