Ambev SA (ABEV) 2009 Q1 法說會逐字稿

Good afternoon and thank you for waiting. We would like to welcome everyone to AmBev's First Quarter 2009 Results 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 and all participants will be in listen-only mode during the Company's presentation. After AmBev's remarks are completed, there will be a question-and-answer section. At that time, further instructions will be given. (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 1996. Forward-looking statements are based on the beliefs and assumptions of AmBev's management and on information currently available to the Company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry 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 conference over to Mr. Nelson Jamel, CFO and Investor Relations Officer. Mr. Jamel, you may begin your conference.

Thank you, Dorothy and good morning, everyone. I am pleased to be with you today to discuss our 2009 first quarter results. Before I start, I'd just would like to remind, as usual, that perceptivity change discussed during this call are against in nature. And effective this quarter, AmBev has adopted IFRS as its new reporting basis.

For purpose of discuss now performance underlying trends in our business, we have also decided to present the key performance lines in our statement of operations on a normalized base. Normalized figures exclude relevant items that are not recurring in nature. In an example in our first quarter results is the gain recognized in connection with the perpetual licensing of the Labatt branded beer in the US. As some of our figures are non-GAAP figures, however, we continue to disclose our consolidated net income, EPS, EBIT, and EBITDA on a fully reported base.

As usual, I'll start the call by sharing a brief overview of the quarter. And then, Joao will provide you an overview of our results in Brazil, US, Quinsa, and Canada and (inaudible) by providing more specifics regarding the first quarter financials.

Turning to the results, during the first quarter, our consolidated EBITDA reached more than BRL2.5 billion, which represents a 16.3% increase when compared to the first quarter of 2008 and was driven by strong results in our Brazilian beer and Quinsa business with Brazil soft drinks delivering a good quarter and Canada delivering growth on a very high comparison for first quarter 2008.

Brazil EBITDA increased by 17.3% supported by beer volume growth of 7.6% and CSD & Nanc volume growth of 12.6%. Joao will provide you with more detail of the key drivers in a few minutes. Our EBITDA margin in Brazil increased 290 basis points, benefited from good volume growth, good performance on pricing and cost management, and low comps from Q1 2008.

In US, we lost BRL29 million compared to BRL60 million in first quarter 2008 as our volumes declined 9.7% in the period. Our Quinsa operations delivered strong results with EBITDA growing 22.8% despite flattish volumes for the region in the period. In Canada, despite first quarter volume decline of 2.7% EBITDA increased by 3.5% as a result of good top line performance and fixed cost savings.

Normalized net income totaled BRL1.4 billion in the quarter, which was 13.9% higher than last year. Normalized earnings per share increased by 13.5% in the quarter. I'll comment fully on net income at the end of this call.

I'll now hand over to Joao (inaudible) a little different the result of each of our operations. Joao?

Thank you, Nelson. And good morning, everyone. Let me start by discussing our performance in beer Brazil. Great volume performance in the first quarter were driven by growth in consumer disposable income and more favorable weather and Carnival calendar, as well as pricing in line with inflation.

Disposable income growth was supported by a 6% minimum wage increase in real terms and food inflation deceleration, which delivered consumer purchasing power growth in real terms for the first time in six quarters. According to Nielsen, our market share reached 67.1% in the period with a 70 basis point decline for first quarter 2008. However, we are pleased that our mark-to-market share was 67.2%, which is already 20 basis points higher than March 2008.

As mentioned in our fourth quarter conference call, we started to implement our price increases for the summer during the fourth quarter. And as a result, we will have 80 basis points of share through (inaudible) '09. Since that, we have recognized 20 basis points of share, which compared to previous periods of share performance after price increases is one of the best market share evolutions we have.

In addition, we have observed a more rational behavior in the industry. And some of our peers have started or completely followed our price increase. We remain committed to try to optimize profitability while also improve our market share. And we're pleased with the performance of our 2008 and 2009 innovation, which represent new ways of connecting with our consumers and enhance our brand's presence while maintaining our profitability.

Our beer net revenues per hectroliter in Brazil grew 2.7% when compared to last year. But when you exclude revenues from malt and by product, beer net revenues per hectoliter actually grew 3.5%. This increase reflects our price increase at the end of last year, which is partially offset by excise tax increase, which became effective January 1st.

Our beer cost of goods sold per hectoliter declined 5.9% in first quarter when compared to last year as a benefit from currency hedges, our efficiency projects, higher fixed cost absorption, as well as ending comps from consumption of more expensive imported malt in first quarter 2008.

Beer SG&A, excluding the D&A, grew by 5.5% in the period. This increase is a result of higher volumes, general inflation, carryover impact from our increased (inaudible) last year and investments to support our innovations, which was partly also offset by fixed cost savings in the period. Normalized beer EBITDA finished the quarter 18% higher than in Q1 2008 with EBITDA margins expanding 370 basis points when compared to last year.

(inaudible). We had a strong performance in volumes (inaudible) growth in market share gains in the period. Our market share reached 18.1% for the quarter, which is 40 basis points higher than last year. We're also pleased with our market share performance as it reached 18.4% in March 2009, which is 120 basis points higher than March 2008. We continue to be very excited and see plenty of opportunities in CSD business, both from a market share as well as profitability perspective.

CSD and Nanc net revenues per hectoliter grew 2.7% as a result of (inaudible) selective markets partly offset by (inaudible) increase in (inaudible) and package mints. We'll continue to track in ones of pricing for closure. Soft drinks cost of goods sold by hectoliter sell by 0.5% despite very low comparisons from first quarter 2008 as our currency hedge gains and lower PET prices offset higher sugar price.

SG&A expenses, excluding depreciation and amortization, increased by 39.5% in the quarter due to very low comparisons for first quarter 2008, higher volumes, and timing of marketing investments to support our brand's innovation. CSD delivered good EBITDA results, 13.5% higher than last year with EBITDA margin contraction by 6 basis points to 46.2%.

Turning briefly HILA-ex, we continue to face challenge in the region with EBITDA loss of BRL38.9 million for the quarter, driven by significant industry decline in the beer industry in some of our key markets. Beer volumes declined 25.6% in the period as a result of significant industry decline across the region, while CSD and Nanc volumes were up 3.2% due to strong performance in Peru and Dominican Republic.

Moving onto Quinsa and our operation in the south of Latin America, we are very pleased with our EBITDA growth in the quarter in spite of the industry slowdowns from the region. In Argentina, both our beer and soft drinks units are suffering important contraction in consumption. We have been able to deliver an EBITDA growth of 22.8% and a margin expansion of 60 basis points. This growth was based on higher market share, revenue management initiatives, and strong discipline in cost and expense.

Overall volume growth was 0.4% with beer volumes increased 0.7% and soft drinks declined 0.1%. Net revenues per hectoliter grew organically, both in beer and soft drinks as a result of price increases (inaudible) introduced in line with inflation throughout the region during the last 12 months as well as focused revenue management due to good performance of innovations introduced last year, efficiency trends spend management, and strong performances from our premium brands fundamentally in Argentina and Bolivia.

We recently did some strategic moves to strengthen our position in the region. We took control over the Pepsi franchise in Bolivia. And we've added the Budweiser brand to our portfolio in Paraguay. I'm very confident that these steps will add better to our business by consolidating our top line and actually also achieving cost synergies.

Our COGS and SG&A expenses were negatively affected by increasing labor, transportation, and some raw materials during the year. Nevertheless, (inaudible) savings through ZBB, our procurement center, and all the process respect implemented have been effective at minimizing the impact. We also benefited from currency hedging, especially the standing our conflict of devaluations that already affected the region. We have been able to overcome basic deceleration within the region so far with all of our efforts aimed at keeping our EBITDA growth. We expect a tough year with an industry contraction throughout the south mainly and Argentina.

Now, let's turn to our results in Canada. I'm very pleased that our Canadian strategy continues to drive results forward, delivering a 3.5% increase in EBITDA versus last year. This was achieved in spite of estimated 1.5% decline in industry volume in light of general economic turmoil throughout the country.

(inaudible) throughout the last five quarters, the top line has been a significant bright spot for Labatt. We continue to lead the pricing in Canada, boasting a 2.9% increase in domestic net revenues per hectoliter in the first quarter. This growth stood by strong price increased implemented late last year and early this year as well as a structured approach to revenue maximization due to our commercial access program.

In the quarter, we grew the combined market share of our focus brands, Bud, Bud Light, (inaudible) family by 160 basis points. (inaudible) Canadian markets. However, due to industry decline in the segments and provinces where we have higher market share, our overall market share declined by 10 basis points in the quarter.

Our dream has consistently been to grow EBITDA and market share by focusing on a few and big things. We remain committed to disciplined revenue management, give our support of our focus brands, and product innovation. As an example, in February, we launched (inaudible) light, an expansion of Alexander Keith's family of fine beers. (inaudible) tradition of its market brand leader in the domestic premium side. In line with our strong cost management culture, we were able to reduce the fixed cost associated with cost. Still, this was not enough to upset the increase in raw material pricing appreciation (inaudible).

In the first quarter 2009, commodity prices resulted in increase of 11.2% in cost per hectoliter. Nowhere is our ability to manage down fixed costs better highlighted than in cash SG&A, where we saw decline of 2.2% versus last year. The ZBB minds that, a new ownership culture within our business continued to improve our new efficiency and better ways of operating. This has allowed us to continue to reduce our fixed costs while impacting the quality -- without, of course, impacting the quality of our products communicated consumers and the level of service to our customers.

We're very pleased with the financial performance of Labatt this quarter. We have launched an initiative (inaudible) and executing the plan we communicated would shape 2009. This is focused investment on our key brands, disciplined revenue management, smart [debt] programs, an obsessive execution, which we continue to support our dream of growing profit and market share.

(inaudible) business, first quarter 2009 was a perfect start of what we believe still can be a challenging year. Normalized EBITDA grew by 16.2% this past week, despite slowdown across many of our markets other than Brazil due to our discipline in pricing, focus on ZBB and (inaudible) initiatives.

Despite the positive first quarter of 2009, the outlook of 2009 still brings lots of resurgences. This year's probably marked the most difficult ever as far as forecasting growth. We're seeing the balance being negatively impacted by current global economic slowdown in some of the markets we operate in, although Brazil, which represents [57%] of our volumes (inaudible) market year to date (inaudible) volume growth year over year due to (inaudible) macroeconomic scenario in (inaudible) 2008.

(inaudible) 2009, we have prepared ourselves for more (inaudible) focus on innovation and (inaudible) initiatives to support our profitability for the rest of the year. As I have stated before, I'm even more optimistic about the resilience of the beverage industry than about other industries. I also believe that we have the right teams, brands, plan, and resources to support our profitability in 2009 and beyond.

I would like to go back to Nelson. Nelson?

Thank you, Joao. (inaudible) I'd like (inaudible) EBIT of BRL2.226 billion and a net income of BRL1.613 billion as disclosed on page four of our release. Nonrecurring items above EBIT (inaudible) BRL217.4 million in the period, mainly due to gains in connect with the perpetual licensing of Labatt branded beer for consumption in the US amounting to BRL237.2 million. Our net financial expense reached BRL325 million, an increase of 17% when compared to BRL277 million in Q1 last year. This increase primarily as result of high interest expense in our debt and high (inaudible) cost of our hedging.

Our effective tax rate in the period was 22.9% compared to [21%] last year. This increase is mainly a result of incremental growth in our pre-tax earnings when compared to first quarter 2008 (inaudible) tax rate. The net debt increased to BRL6.4 billion at the end of March compared to BRL7.4 billion at the end of December, due to an increase in our cash position by around BRL1 billion in the period. In April, we paid promissory notes from Banco do Brazil (inaudible) BRL1.7 billion.

(inaudible) 2009, (inaudible) an additional BRL265 million of (inaudible) 2009. Our operational cash flow as generated in the first quarter totaled BRL1.6 billion, which is 85% higher than Q1 2008. Operating cash flow generation will continue to be one of our focused areas for 2009.

As I have mentioned before, regarding the use of cash in 2009, we continue to prioritize the maximum amount of (inaudible) capital policy. And despite an interest downward trends of current interest rate, we are likely to repay the debt maturing in 2009 within current spread levels while pursuing more effective financing alternatives. We remain committed to maintaining our track record of proactively managing our capital structure and returning the remaining excess cash to our shareholders.

I will now hand back to Dorothy to open up for questions. Dorothy?

Thank you. (Operator Instructions).

Your first question comes from the line of Robert Ford from Merrill Lynch.

Hey, good day, everybody. And congratulations on the quarter. I wanted to focus on perhaps one of the tougher areas, right, Canada. And if you perhaps, Joao, comment a little more broadly with respect to the outlook for Canada. Both you and Molson appear to be losing share. I was curious as where you see that share going and how you're responding to that. And then, if you could also comment somewhat on the outlook for -- it's my understanding that you have a task compare in the first half. And I was wondering to what extent that's expected to ease in the second half of the year, please.

Okay, Ro. If I understood correctly, I think there were three quick questions (inaudible) together, Canada outlook, Canada pricing, and Canada cost of goods sold, right, for the year. I'll say that the first quarter, as I said -- and we are starting with the quarter that despite the volume decline, we're able to deliver EBITDA growth.

In terms of outlook in terms of volume, first, you know we're not disclosing guidance. And it's actually very difficult to know where the industry is going. So, we remain focused in the (inaudible) control. I think first what we have been able to show if you look at the last five quarters but more specific in the last two quarters is ability to grow.

Year against year, we grew around [3.5] announced this quarter and another [2.1], about 2 the last quarter, two quarters of important growth, which I think leads to at least for the moment the conclusion that the industry as a whole is behaving more rationally than in the past. Certainly, there's been more discomfort the last two quarters when compared to the years before that many people expect or that many people have gone through.

We have seen changes to that. But of course, if there are changes, we would respond. So -- but again, always remember that our objective there is to be able to grow EBITDA and share at the same time, which we also think is a feasible objective for 2009.

In terms of cost, it of course will impact the [digital] perspective for Canada. I would say that this is probably the worst quarter, given that we have a very tough comparison against the last year, where specifically in January we had a very good quarter cost wise. So, we don't think the first quarter's a reflection of what (inaudible) I think that the easier comps and a better situation cost wise, which of course will also help us to achieve this objective of EBITDA and share.

Joao, what do you think is taking share right now in Canada? Is it (inaudible)? Is it some of the discounters? And how do you respond to that without getting --?

Yes. (inaudible). Yes, okay, Robert. Well, I think we're seeing two things. And first, what we said in the beginning was that we're being affected by the channel -- not by the channel -- by the different regions where we have higher market share. We lost -- the market has actually declined more in those regions so that most of the exploration comes from that.

But since that you have seen both as well as Molson losing share, what we see in the very short term is a higher level of discounts on [craft] beers. And these craft beers took some of that small share that we saw at the loss. So it's a combination mostly from a market industry decline in the regions where we have higher market share and (inaudible) specifically both from us and the competition or Molson from (inaudible) which are discounting slightly higher than they used to.

And these are craft beers that are typically priced at a premium to the mainstream. Is that correct?

Yes, that's correct. They have been actually trying to develop or testing in our opinion different price points below what used to be a premium price on domestic beer.

Great. Thank you very much.

Yes. Thank you.

Thank you. Your next question comes from the line of Lore Serra from Morgan Stanley.

Yes, good morning. I was having trouble hearing you. So, I hope this isn't repetitive. But I was hoping you could expand a bit more on the policies on shareholder distributions. And you mentioned that you made some debt repayments in April. But what I'd like to understand is last year, you paid about BRL3 billion I think in total dividends, including interest on capital. With the increase you have in the cash flow, which was impressive in the first quarter, should we think about that number being stable in '09? Or should we think about it possibly going up?

Hi, Lore. It's Nelson here. Let me take your question about how the use of cash. Last year, indeed, that's the amount we paid, like BRL3 billion, include the interest on capital. And it was aligned with our tradition we have been managing proactively our capital structure in '08 to maximize the return to the shareholders, right?

So, what we see this year, as we said before, it all starts with our (inaudible) starts with our cash flow generation. And as I said before, when you make our forecast and outlook for the balance of the year, we expect something between BRL4 billion and BRL6 billion of operational cash flow to be generated.

But let me start to discuss the use of this cash, which we have a couple of options, right? The first one, which also really driven before is to maximize the payout to the increase on capital. So, we already have in 2009 in January BRL206 million and are going to have another BRL206 million paid in May. And (inaudible) maximum possible IOC amount (inaudible) to pay out (inaudible) benefit.

I think it's important to highlight that the IOC tax benefit will lead to an optimal or lower up more leverage for our capital structure. So, looking at the debt we have (inaudible) almost BRL3 billion maturing (inaudible) a little bit more than half of this so far for the balance of the year. We have the remaining -- looking at the spread levels that we see today, we are likely to retire the remaining part, which you will see happen in July the most (inaudible) the balance of the rest of the year.

Once we do that, of course, we are pursuing a more effective financial alternative, like BNBS line for our cap exposure. So, that's (inaudible). And then, as we still remain cautious with the market conditions for the balance of the year and (inaudible) future, we have decided to keep the cash for awhile and maintain certain flexibility and I think it's best to have a better view. But first of all, the size of the remaining debt (inaudible). So, we aren't giving any guidance on specific numbers.

But it could lead, for instance, to something like the BRL3 billion debt that we have to pay and then the remaining expense cash to be distributed first of all (inaudible) capital. And then the remaining cash that was the actual final decision could lead to something like the number that we (inaudible). It all depends on how (inaudible) between BRL4 billion or BRL6 billion. I know it's a wide range. But that's how cautious we remain with the outlook for 2009.

Thanks. That's very helpful. And just on a related financial note, we've seen a lot of volatility recently in both commodities and in the currency, in the real. Should we assume that AmBev continues to hedge sort of on a 12-month forward basis on a consistent basis into 2010 at this point?

Yes. We remain committed to our policy. And you know, we talked a lot about the policy we have (inaudible) 12 months on a normal basis that we implement our hedge. We have certain flexibility (inaudible) to two months ahead or two months before. So we can't, of course, adjust, given the volatility that we see in the market. But (inaudible) purpose is to hedge is to have a stable and predictable outlook in terms of our expenditure, so both in terms of (inaudible) hedge, such as aluminum, sugar, volume so that what we do and have it for the balance of the year. And already part of 2010, in line with our (inaudible).

Thank you.

Thank you. Your next question comes from the line of Jose Yordan from Deutsche Bank.

Good morning. I wanted to expand a little bit on the hedging question. [Felipe Duchal] yesterday on his conference call basically confirmed that cost of goods per hectoliter for AmBev would be going up in the low single digits for 2009. So that seems to be in line with what I was thinking. But again, in 2010, from your previous answer, it seems like you have had to place some hedges at a pretty high cost and at a pretty high level of the real so far this year, given that we're in the fifth month.

But in general, did you wait until the last possible minute to begin those? Or have you done it consistently throughout the year? And then just on a related question, you mentioned your hedges in Argentina. If you could review what your hedging policy is there and if it's different from Brazil and how long and perhaps at what rate are we hedged in Argentina for the next year or however long you're hedged? That would be helpful.

Okay. Let me take part of this question. And Nelson can also jump in. Starting from the second part of your question on the hedges for -- let's take, for example, like (inaudible) and what we did last year. What we implemented the last couple of years is for (inaudible) the other countries also. We have implemented the same policy that we developed three, four years ago to Brazil.

Therefore, keeping with the policy, as Nelson just said, (inaudible) minus two (inaudible) in Paraguay and Bolivia. What you see is that if you look at the bills (inaudible) last year or the (inaudible) in Paraguay or the (inaudible), you'll see that something similar to what happened in Brazil happened in also those countries. So, those currencies started at 100 in the beginning of '08. And some of them came down to like 75. So, we actually were able to take very good currencies quote-unquote given that decline on those currencies.

And then, you actually have the same spike as you find in Brazil in the last quarter of last year. We don't disclose the hedge on a country-by-country basis. But you can just grasp the currency (inaudible) of those three countries for last year (inaudible) had a valley, an important valley. And despite (inaudible) as it was in Brazil. So we have very good (inaudible) currency hedges in place and those benefit (inaudible). In Brazil, it's the same thing. Okay.

So, I understand (inaudible) [minus 5.9] (inaudible), minus 5.9 has two components. One is that (inaudible) last year (inaudible) higher. But the cost that is related to the benefit of the currency of the dollar (inaudible) will remain quote-unquote stable for the year, given that (inaudible) basis. There was nothing like you have mentioned that we have to give more at the end of the year, no, not at all. So, you have a spread benefit across the business.

And also to add on that, I think I understood on the question about -- you were trying to confirm if we're consistent with our policy of maintain 12 months per hedge forward. And we are. So of course, for 2010, I think you know that the average rate for our dollar exposure in 2009 is 1.88, which places the current rate in the market at 2.15, now down to 2.10, 2.08. That's what we saw yesterday.

So, what we have -- and again, we are consistent with the policy. Therefore, these rates are the rates that we are looking for 2010. And of course, we also see the commodities going down even further. And we see PET going down by 36%, corn going down by 18%. Those are even commodities that fluctuate (inaudible) already have this benefit in 2009.

We also (inaudible) that we are able to hedge, they are going down. And therefore, we're going to see the benefits (inaudible) 2010. So it'll be a net impact of all that. And at the end, consistent (inaudible) keep our costs (inaudible) try to be here. And that's what we have in terms of our view for the months to come.

So just to get it straight, you will definitely -- your cost per hectoliter in Brazil will still be below inflation for '09 but kind of in the back. Are you saying that for 2010, given the decline in the dollar price of commodities that when it all averages out you will still be below inflation for 2010 or you anticipate? Or is it fair to assume a little bit higher, somewhere in the 5% to 6% range for the aggregate cost per hectoliter in 2010?

I think it's too early to (inaudible) as we have (inaudible) they're fluctuating. So we see (inaudible). But I mean, we are too early in the year (inaudible) and we still have an important exposure for 2010 not hedged. So it's difficult to predict that. And of course, (inaudible) is negative. But as I said, (inaudible) and we can expect to (inaudible) but (inaudible) in 2010.

Great. Thanks a lot.

(Operator Instructions).

Your next question comes from the line of Alan Alanis from J.P. Morgan.

Hi, good day, everyone. I have a couple of questions, one regarding Canada. What are the synergies you have seen between Anheuser-Busch and Labatt? And how should we think about those going forward? And if you could remind us what are the general characteristics of the agreement that you have for selling Bud Light and Budweiser. I understand that those are the number one brand for beer in Canada and the ones that are growing the most. And the second question has to do with general CapEx. And how should we think about CapEx drivers for the full year '09?

Okay, Alan. Let me take the first part of Canada. And then I will pass on to Nelson to talk about the CapEx. Okay. I think about Canada there are two parts to your question. I think the first one, we have seen a lot of benefits from this greater relationship with AB. And I would say that for the most part in terms of synergies, (inaudible) purchasing rights, purchasing services, different things that we can centralize. So actually this will -- it's started already helping us in the cost of goods sold part. And actually, I'm sure it will also help us in the expense part. So those are very good news for the broad Canada operation.

In terms of the agreement, really nothing changed. This is an agreement that -- it was an agreement for 99 years. I think we are probably in the ninth years. I believe so. We already have nine years going with Anheuser-Busch. I think that we also mentioned in the past, which has not changed. This has allowed us now to have the number one beer brand in the country and also fast-growing brand -- number one beer in the country Budweiser, and a fast-growing brand with Bud Light.

The good thing is that we do demand a certain premium to our other mainstream domestic brands, which even after royalties we have a very good [markup], which sometimes is not the case for when you have a royalty or a licensed brand. So actually, we were -- we have been happy with the agreement since we started in 2004. And we are happy that we can benefit from the scale, given that Canada (inaudible) in the same region. So those are the good news from the relationship.

And the payment of those royalties are reflected of cost, correct?

(inaudible).

Yes, and (inaudible) excellent D&A management and cash D&A, the reduction in (inaudible) D&A about how much do you think it's because of the synergies with Anheuser-Busch?

Well, first, the reason I mentioned (inaudible) reflects royalty, and that's true that when you have a license (inaudible) same or very similar (inaudible). And when you talk about (inaudible) what I started to say was that I think we are ready -- and my point has been it's faster to reflect efficiency in the cost (inaudible) on a spot rate is automatic.

So that is already happening as we speak. I would say that the decline on the first quarter is still much more, given the sort of mindset, that I think always amazes us (inaudible) last four, five years in Canada as well as give now even example internally (inaudible) that those guys are really doing a good job. So I would say that (inaudible) much more a mindset that has been developed there. Then already the benefits from the relationship of scale that we now have with AB, and I think those benefits we will still see going forward.

Good. Thank you. That was useful. And regarding CapEx, Nelson?

Yes, so, Alan, what we saw in the first quarter, our CapEx was BRL154 million. But on that as a whole (inaudible) in the first quarter 2008. And that's consistent with what I indicated before that, again, cash just wasn't everything for us. And we are selective on the investments that we do. So we are making investments that pave the possible growth for the future but also being very focused on the returns of investments, the approval process.

So last year, remember in 2008, our total CapEx was something like BRL2 billion. And then 2007, it was BRL1.6 billion. So our view for this year, 2009, that we should get closer to the level of 2007 that you could also see this happening in the first quarter numbers.

Okay. That was very useful. Thank you very much.

Welcome.

Thank you. Your next question comes from the line of Celso Sanchez from Citi.

Hi, good morning. I guess first of all, could you talk a little bit -- and I'm not sure if I missed something earlier. It's been a bit tough to hear. But on the Canadian side, Quebec specifically, can you talk a little bit about the competitive dynamics there and also the processes of retail trade and what role that can have and what role you can have on influencing that from a price stability or price discipline standpoint?

Okay. Yes, we mentioned that a little bit earlier, Celso. What we said that we are -- I think we're going through a much more rational moment in Canada than we were maybe a year ago. I think (inaudible) showing that on a (inaudible) basis when you look at our (inaudible) last quarter. And also in this quarter, those were the best I think we had (inaudible) Canada. So we've actually been able to do this at the same time that (inaudible) given what was developed in the last few years also in terms of trade spend management.

We're having a good combination of (inaudible) per hectoliter and (inaudible) which sometimes will affect also the net (inaudible) per hectoliter. So that combination led us to EBITDA growth and share gain last year. And we think that combination could also lead us to that for 2009.

Of course, again, I think the prices -- at the same time, it helps making both industry in several regions where we operate, makes the other competitors (inaudible) increased activity in terms of promotion based through trade spend or some other way, we will respond because we want to be able to do both things. But actually, we are actually happy with the sort of quote-unquote rationale (inaudible) especially in the last couple of quarters.

Okay. Sorry. (inaudible) I guess I caught part of that before. But that seemed to be more of a general comment on Canada. I was wondering if you could be a little bit more specific about the issues you face in Quebec since it's obviously a different structure of market.

We don't really want to discuss the (inaudible) dynamic on a province-by-province basis. I mean, you've seen what we disclosed in terms of agreement with the different customers. Those things have remained in place for the most part. But I guess this is as much detail as want to (inaudible).

Okay. Thanks. And then if I could just pop a strategic question, obviously, the situation in the US with the Pepsi system, the potential consolidation of the two big bottlers in the US by PepsiCo, if that deal happens, we wonder if PVG's operations in Mexico might be of interest to you. Can you comment on your thoughts on Mexico on either beer or soft drink and how you think about that market now if it's any different from the interest you expressed very clearly in the past?

I mean, I'm going to make a very general comment (inaudible) in the sense that I think we have said in the past that, of course, given that we think we understand Latin America very well and that Mexico is a very important market, of course, that is a market that we would like to operate. So that's the, like I said, the general comment.

I don't see the Pepsi transaction at this point changing our perception of (inaudible) competitive scenario, whether they are thinking about engaging with anyone and anything or the dynamic that could be changed by the (inaudible) potential acquisition. I don't think (inaudible) changes in any way our nearby interest in the Mexico market. We continue to -- we consider (inaudible) a very interesting one. But we don't see in the near term any chances of us entering that market.

Okay. Thank you.

Thank you.

Thank you. Your next question -- (Operator Instructions).

You next question comes from the line of Lore Serra from Morgan Stanley.

Excuse me. Thanks. I just would love to hear your thoughts a bit more on the outlook for the Brazilian beer market through the balance of the year. I know you mentioned in the opening comments that there's no certainty and the year might be tough. But you also talked about the resiliency of the market for '09. I wonder if you could talk about what kind of trends you think you might have this year, the role maybe that innovation could play, some of the things you've done recently. I'd be interested in your perspective.

Okay. Sorry. I think what I said [in my] comment, it is positive (inaudible). Of course, we're very happy with the sort of industry resilience and actually much more resilient than industry growth that we saw in the first quarter. As we said, this was a lot due to the weather, to the late Carnival. And so I think that we have control. So I mean, if the good weather remains, I think it's (inaudible) to us that one of the potentials (inaudible) the crisis could hit Brazil, I think unemployment would be one of them. (inaudible).

Right now, I think the world is changing from pessimistic to maybe caution (inaudible) going from this pessimistic scenario to a more cautiously neutral (inaudible) I think this will be positive for Brazil. I mean, of course, Brazil, I think what we're seeing is that Brazil is not going to have so much exposure to the credit crunch [story. I think we're solid] (inaudible) out there. I think the level of exports in Brazil are also not too high. That also allows the country to be more resilient. And that's the reasons why we are actually more excited about Brazil than we were.

Okay. Thanks.

Okay.

Thank you. Your next question comes from the line of Lauren Torres from Hong King-Shanghai.

Good morning. A question as a follow up on Brazil -- I was just curious if you could be a bit more specific with respect to channels. I know you had a good quarter based on weather and what not. But are you seeing more off-premise versus on-premise consumption? Is that the case? Or obviously just the weather on-premise consumption trends are still well or doing well. The same thing with categories -- are you seeing trading down or some of the higher price points still doing well for you?

And I guess just on a more general sense, I was curious to find out looking at the growth rates we saw in the first quarter any -- I know you're not giving guidance here -- but any sense of how stable those growth rates could be as we think about the rest of the year.

(inaudible) first question (inaudible) as I said, I think, again, Brazil and Canada (inaudible) innovation, as we said, both in terms of liters and packaging. It surely (inaudible) our innovations work. (inaudible) healthy the sort of behavior the Brazilian beer market has given us so far. So we are happy with the very early results of our innovation and production. But again, it's early in production.

In terms of trading down, we haven't seen really a trade down that could be expected that we have seen actually in other markets (inaudible) Brazil (inaudible) going forward.

In terms of channel, it is true that one thing that is happening that has been happening slightly also before this world crisis that the [off-trade] channel has been (inaudible) that sometimes we see [during the] crisis (inaudible) bigger shopping occasions fewer times than going on an everyday purchase, either on the on-trade or a very small off-trade, so no trading now but definitely a higher growth, slightly higher growth in the off channel than in the on-trade.

And I'm not sure if you want to touch upon April, but any sense -- or what you saw in April, was it similar to what you saw in the first quarter in Brazil?

Yes, we are not really touching upon April. I think what we are seeing in Brazil more specifically than in the other markets, I think the good sign we have here is that we've been able to implement our price increase. So it's basically (inaudible) in the market. Prices are sticking. And volumes are resilient. So no specific on April. But I think the combination of pricing sticking and volumes resilient is -- I think is good news for us.

And last question, I guess there was maybe a hint out there that there's potential for further tax increases in Brazil. Is there any current you have on that front?

Yes, actually, we think there was a lot of hype in the same way that there was last year in the sense that people talked a lot about the excise tax increase during '08. But the excise increase really happened January 1st of 2009. So actually, the industry's still digesting that tax increase. Right now, as I said, volumes are stable or growing actually.

Although we had a price increase and a tax increase, we've been able to offset that tax increase for the most part so that we're also currently satisfied with that. And we think -- we've been out there talking to (inaudible) because that is always something that keeps us awake at night. (inaudible) very close (inaudible) that a further tax increase could impact the industry volumes. It will also impact the tax collection. So that combination is a negative for everybody. So we don't want that to happen.

And the last point -- I think something that has been also happening for the Brazilian government, they have done a very good job in terms of bringing tax evaders into taxpayers. And they actually are able to grow the tax base, the tax collection, not just by increasing the tax, but also by bringing those guys into the system. They actually have revamped the system that they had in place with an even better one. So I think that will also help them continue to increase the tax collection by bringing those new tax evaders into the tax system. So that's also (inaudible) I think for us, for the industry, and as (inaudible).

Okay. Thank you.

Thank you.

Thank you. Your next question comes from the line of Julia Rizzo from Banco Itau.

Hi, good morning. I have just one question actually on Quinsa. I would like to know if the results could be sustainable mainly on the beer side. I saw like the volumes decelerating. But actually the margins are high. Can you comment a little bit your perspective for the remaining of the year?

Yes, well, we -- I think the Latin American soft market and as we said in the opening comments, specifically (inaudible) our markets that we have seen (inaudible) not already the (inaudible) in the quarter, but our markets that [we work], when we look as a whole, we were able to fully offset that with everything and then with pricing, with cost, with expenses. I think we're going to be able to continue to deliver EBITDA growth. But I think it would be too much to expect that same sort of growth that we delivered in the first quarter. I mean, we delivered above 20% EBITDA growth with volumes being flat.

So again, difficult to forecast volumes going forward and say volumes recover. I think the same growth can be where it is or higher. If volumes continue to be flat, we will continue to [press] our revenue management, cost control, and hedge help as we said in expense control to the level that will allow us to keep EBITDA growing, not necessarily the same levels that they're growing right now.

Okay. Thank you very much.

Okay. Thank you.

Ladies and gentlemen, we have reached the allotted time for questions. I will turn it back over to Mr. Jamel for closing remarks.

Thank you, Dorothy. And thank you, everybody, for (inaudible) and the questions. And that's it for today, so wish you a very good day. Thank you. Bye, bye.

See you next quarter.

Ladies and gentlemen, this concludes today's conference call. You may disconnect your line at this time.