Ambev SA (ABEV) 2009 Q4 法說會逐字稿

Good afternoon and thank you for waiting. We would like to welcome everyone to AmBev's 4Q and Full-Year 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 a listen-only mode during the company's presentation. After AmBev's remarks are completed, there will be a question and answer session.

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 and 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.

Okay. Thank you, BJ, and good afternoon, everyone. I am pleased to be with you today to discuss our 2009 Fourth Quarter Results. Before I start, I just would like to remind you that as usual, the [proximity] change discussed during this call are both organic and normalized in nature.

Normalized figures refers to performance measures before special items. Special items are either income or expense, which do not occur regularly as part of the normal activities of the company. As normalized figures are non-GAAP measures, we disclose our consolidated net income, EPS, EBIT and EBITDA on a fully reported basis on our earnings release.

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

Turning to the results, during the fourth quarter, our consolidated EBITDA was close to BRL3 billion, which represents a 9.1% organic increase when compared to the fourth quarter of 2008. Our EBITDA for the full year, reaches close to BRL10.4 billion, which represents an organic increase of 12.3% versus last year, while our margins expanded 50 basis points to 44.7%.

Exclude impact of variable compensation accrued during the year, EBITDA grew 16.5% and margins by 220 basis points year-over-year. Our Brazil EBITDA increased by 11% in the quarter, supported by a 11.6% volume growth and by a 5.9% revenue [proactury] to growth.

With EBITDA margin decreasing by 310 basis points to 47.6%, driven by greater market investments, which will support our brands and our innovations as well as by higher accruals for variable compensation in the period, as we have mentioned in our previous calls.

Our 2009 Brazil EBITDA increased by 12.2% on organic terms and our EBITDA margin remains flat at 48.8%. Joao will provide you with details of the key drivers in a few minutes. In HILA-Ex, we delivered an active EBITDA of BRL21.6 million in the quarter and registered organic growth of BRL70.8 million versus last year.

For the full year, HILA-Ex EBITDA was negative BRL58.4 million, reported an organic decrease of BRL44.3 million as a result of improvement in our top-line cost structure, despite weak industry in most of the countries where we operate.

Our Quinsa operations have once again delivered strong results with EBITDA growing 13.3% during the quarter, despite volume decline across the region in the period. For the full year, Quinsa grew EBITDA by 21.4%, despite of continued weak industry and negative volumes for the year.

In Canada, volumes declined by 5.6% for the quarter and by 1.2% in the year. Our EBITDA declined by 11.1% in the quarter and remained almost flat for the full year, with margins declining 250 basis points and 80 basis points respectively.

Canada had a tough year due to domestic [industry] decline, market share loss, higher variable costs and higher sales and SME expenses due to one time expense. Normalized net income reached BRL1.8 billion in the quarter, which was 2.6% higher than last year and was BRL5 point -- close to BRL5.8 billion for the full year, with 11.8% growth.

Normalized EPS increased by 2.2% in the quarter and by 11.4% for the full year. I'll 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 deeper into the results of each of our operations. Joao?

Thank you, Nelson. Good morning -- good afternoon to everyone. Let me start by discussing our consolidated performance for the quarter and the whole year. During the fourth quarter, our normalized consolidated EBITDA totaled BRL3 billion, which represents a 9.1% organic increase.

Industry performance across the market remained unchanged from last quarter trends and consolidated volumes delivered solid growth of 6.1% in the period and this was mainly driven, once again, by our Brazilian operations.

We were able to deliver on our goals of growing both EBITDA and operating cash flow. Our expense in '09 EBITDA reached BRL10.4 billion, which represents an organic growth of 12.3% year-over-year, while we deliver cash flow operations of BRL8.7 billion, which is a 23.7% increase versus 2008.

These results were driven by innovation and productivity, which I have said since the beginning of the year would be our areas of focus in a very challenging year for our industry in several markets. Now talking a little bit more about Brazil, the positive macroeconomic environment continues to support the good performance of our industry here.

And our focus on innovations continue to deliver very good results in terms of market share. Our normalized Brazil EBITDA for 2009 increased organically by 12.2% with slight margins, despite higher accruals for variable compensation, as we mentioned in all our previous calls, negatively impacting our year-over-year growth.

Excluding our accruals for variable compensation, our Brazil cash SG&A would have increased 27.7% and 16.5% in the fourth quarter and the full year respectively, while our Brazil EBITDA for the same period would have increased 16.4% and 17% respectively.

Moving to Brazil, the positive trend in the market continues as a result of two main factors. The first is a better than expected macroeconomic scenario, where disposable income and employment levels continue to improve.

The second factor is weather, which despite a lot of rain in the fourth quarter, we were a few points of degrees hotter in general, about close to one point, and in cities like Rio and San Paulo, we had above two points and above one point of Celsius degrees hotter in those two cities.

We have taken advantage of this improved scenario, as we continue to seriously invest behind our brands and behind innovations we introduce in the marketplace to satisfy our consumer needs. The -- having said that, Brazil beer volumes grew 12.1% in the quarter and by 9.9% for the full year 2009.

As of December, our market share reached 69.6% and for the quarter, it stood at 70%, which is 206 basis points, 2.6 percentage points, higher than last year. 2009 was an important year for us in terms of market share in Brazil, as we achieved strong results and we did it in the right way, by improving every single brand's health performance indicators.

Our ability to understand and connect with our consumers in order to satisfy their needs continues to be a fundamental reason in driving the investments behind our brands and to guarantee our medium and long-term growth.

Talking about some of the innovations, Antarctica Sub-Zero roll out to other states in Brazil continues to deliver important results, as well as the roll out of our one-liter returnable glass bottle to new regions in Brazil.

In our -- in addition, our 269 slim can Brahma Fresh in the Northeast, our renewed image of Bohemia and Bohemia Oaken, and to a lesser extent, our 300 returnable glass bottle, continue to be very important contributors to our results.

Our beer net revenues per hectoliter in Brazil increased this quarter, 6.1% as a result of a earlier increase in prices before the summer season when compared to last year. For the full year 2009, we were able to increase our beer net revenues per hectoliter by 2.4% as our price increases during the period were partially offset by tax increases, which were ahead of inflation and to a lesser extent, packaging mix.

Now talking about our COGS, Brazil beer COGS per hectoliter was up by 4.8% in the quarter as we were negatively impacted by higher packaging costs this quarter. However, our COGS per hectoliter for the full year decreased by almost 3% to 2.9% as we were able to more than offset general inflation due to better currency and commodities hedge as well as our productivity initiatives, which were performed throughout the year.

Beer SG&A, excluding D&A, depreciation and amortization, grew by 40.2% in the period and 26.2% for the whole year as a result of volume growth, general inflation, incremental investments to support our innovations, the impacts of channel mix as well as the mentioned higher accruals for variable compensation.

Higher SG&A in the quarter versus the annual average is [a] specific. It's explained by a specific marketing and sales investments as we prepare for the summer season. Normalized beer business finished the quarter with a growth of 11.5% versus last year and EBITDA margin that declined close to 300 points, 320 points.

For the full year, we managed to grow our beer EBITDA by 10.9% organically and reached a margin of 48.8%. Our soft drinks business in Brazil also performed very well over the period, delivering a 10.3% volume growth in the quarter.

For the full year, volumes increased by 8.1% as a result of improved macroeconomic and industry conditions on top of an increase in market share of 70 basis points, standing at 17.8% in December '09. Net revenues per hectoliter grew 3.8% organically in the quarter.

And 3.5% in the year, as we continue to be impacted by price increases in certain regions and as in beer, partially offset by higher taxes. COGS per hectoliter, contrary to past quarters, increased organically by 3.7% as a result of currency and sugar hedges. For the full year, we managed to reduce our COGS by 3.1% on a hectoliter basis by means of productivity initiatives, better dollar rates, hedge gains in dollar price for non-hedged commodities such as corn and PET.

SG&A, excluding the depreciation and amortization, increased by 36.1% in the period and 19.8% in the year as a result of general inflation, volume growth, higher accruals for variable compensation and market investments. Our EBITDA continued to grow, increasing by 8.4% in the quarter and reaching BRL383 million in this quarter.

With full year 2009 organic growth reaching double digits at 18.6%, with a margin expansion of 280 basis points. Turning now to HILA-Ex, our volumes this quarter increased by 11% as a result of very good performance in Peru, Venezuela and Republica Dominica, the Dominican Republic.

For the full year, though, volumes decreased by 0.4, 0.4%, as a result of the weak industry performance in most of the countries we operate. Despite these conditions, we reached our highest market share in the Dominican Republic, meanwhile in Venezuela, the re-launch of Zulia was an important step to improve our market share and our profitability in the country.

And finally, in Peru, we continued to grow as a result of our focus on brand initiatives and production efficiencies. Despite still negative, HILA-Ex EBITDA improved by BRL17 million, almost BRL18 million in this quarter and by BRL44.3 million for the full year as our teams in HILA-EX, continued to make important progress towards our long-term goals in each country across the region.

Moving on now to Quinsa [and] our operations in the south of Latin America, we have been able to maintain a double digit EBITDA growth in the quarter, in spite of the industry contractions observed throughout the region. Our volumes also suffered due to poor weather conditions and tough comparables with 2008.

We overcame our volume's difficult contests with the revenue management initiatives, cost discipline and the strong support to our mainstream brands. In Argentina, we strengthened our [QMist] brand leadership through strong communication and innovation.

We have also refreshed Pacena's image in Bolivia and Pilsen's in Paraguay, bringing Bud in Paraguay to our portfolio has also proven to be a very important source of revenue as we reposition the brand to the premium segment. We achieved an EBITDA growth of 13.3% and a margin expansion of 110 basis points.

Both our quarter in year-to-date figures represent all time records in terms of EBITDA and EBITDA margin. That said, we faced an industry decline all over the region. This quarter, our volumes were down 6.5% with Argentina soft drinks operation suffering most of the industry contractions.

We also implemented some revenue initiatives by the end of the year, aimed at improving our margins in the future that (inaudible) affected our December volumes. Net revenues per hectoliter grew organically, both in beer and soft drinks as a result of price increases to (inaudible) -- introduced in line with inflation and focused initiatives in terms of trade spend and revenue management.

We are also successful exploiting the premium movement within the Quinsa countries. We still have to add (inaudible) gaining share [and] preference in the region, positively affecting our overall margins and helping to develop the category. Further our efforts to reduce costs and expenses compensated the negative impact of higher labor and transportation costs.

We're benefiting from lower prices in some commodities, such as PET preform, plastic caps and aluminum cans. Also effective currency hedges and the continuous search for savings through the BB and other best practices implemented. In addition, we are already achieving important synergies in Bolivia with the Pepsi franchise acquisition.

Finally, even though the recession within the region continued to affect our volumes during the quarter, our team is successfully protecting our business through top-line maximization and cost rationalization. The challenge for the next year remains tough, however we are confident on the strength of our team and our brands in order to continue growing in a profitable way.

Turning now to Canada, as we anticipated in our last call, the fourth quarter was a tough quarter for Labatt, as a result of a more difficult competitive environment and higher market share comps versus the fourth quarter in 2008. Accordingly, the fourth quarter was characterized by, one, a decline in beer industry volume.

Two, a significant competitive activity across Canada and, third, higher investments behind our brands, which resulted in an 11.1% decline in EBITDA. Labatt lost 1.2% of that market share in the quarter, driven by the decline of our core segment brands, Labatt Blue and Kokanee, which have continued to suffer as a result of the continuous growth of the super-premium in the Coors Light segments, along with the increased promotional activity in the mainstream brands.

Market share loss combined with a 1.9% industry decline resulted in a volume drop of 5.6% in the quarter versus the previous years -- over the previous year. Total volume in 2009 declined by 1.2%, as the industry also contracted by 0.3% and our market share was 40 basis points lower year-over-year.

Despite difficult market share conditions and following the growth seen in the Coors Light segment, we still managed to meet our consumer needs as we continued to grow Bud Light faster than any other major brand in the country. Also, Bud Light Lime was our most successful launch since the introduction of the twist-off cap 20 years ago.

Also our local premium brand, Alexander Keith, was re-launched to compete more effectively against the growing [draft] segment. The import segment declined due to the recession, but still up to us, share of the segment remains stable and holding prices, which is not true for our competitors. It continues to improve its brand health indicators.

We were able to maintain our net revenues per hectoliter growth, ahead of inflation, posting an increase of 3.1% in the quarter and of 3.5% for the year. This result was supported by volume growth in the super-premium segment, resulting from the launch of Bud Light Lime and the price increases taken in the course of 2009.

COGS per hectoliter in the quarter increased by 4.6% versus last year, decelerating from previous -- prior period's growth rates. Most of this increase is explained by a higher depreciation resulting from a one-time fixed asset adjustment. Our cash COGS per hectoliter remained nearly flat to last year as a result of internal production efficiencies.

COGS per hectoliter for the full year increased by 7.6% as a result of higher import costs, higher aluminum and the dollar hedge rates as well as the high industrial depreciation. SG&A, excluding depreciation, was up by 11.5% in the quarter and stayed almost flat for the full year 2009.

The increase in the quarter is explained by the phasing of some sales and marketing investments and some one-time expenses, while for the full year, we were able to fund these investments with internal production and administrative efficiencies. Overall, EBITDA declined, as I said, 11.1% in the quarter and remained almost flat for the full year.

Excluding gains from a one-time sale of assets in 2008, Labatt organic EBITDA grew -- growth was 2.4% versus last year. Despite the adverse market conditions, we are definitely not satisfied with the share loss experienced in the second half of the year. As we look into 2010, we are determined to resume our growth path in a profitable way.

We have confidence in the strength of our Canadian team, in the commercial plans as well as the cost management initiatives we have in place for achieving our two priorities of regaining some market share and maintaining the profitability. Going back to the overall AmBev business, I wanted to wrap up by saying I'm pleased with our performance this year.

Our normalized EBITDA continues growing at double digits at 12.3% in a year of a significant increase in taxes in Brazil and during which most of our countries face industry declines versus last year. We have achieved these results following and according to our cost connect to win approach, which is the language we speak and practice.

We focus on maintaining world-class efficiency, which drives every part of our production, supply, planning, sales cycle and which helps in turning non-working money into working money. By realize these savings, we have been able to invest more in connecting with the consumers and winning that preference among the marketplace in a profitable way.

All these achievements are the result of the commitment and the quality of our people, who are our main assets and who have constant drive to over perform the industry, with outstanding execution despite challenge conditions in many of the markets where we operate. Our results in 2009 show we are on the right direction.

So looking towards 2010, our priorities do not differ much from 2009. Productivity and innovation will remain on top of the list as we strongly believe both are key to guarantee our growth and our profitability in the medium and in the long term. Now I would like to go back to Nelson.

Thank you, Joao. This final section, I would like to guide you through the main lines between the normalized EBIT of BRL2.658 billion and the net income of BRL1.8 billion as disclosed on page three of our press release. Our net financial expense reached BRL165 million, which is 50.2% lower than last year.

This explained by lower net interest expense as a result mainly of the retirement of certain debts that matured during the year and was not renewed, which were offset by losses on derivative instruments, which related to the results of our ongoing hedging policy.

Our effective tax rate in the period was 29.1% compared to 19.9% last year. The main reason for this increase are some hedge expenses that are non-deductible, higher deferred tax liabilities, it was a higher earnings before tax, which is taxable at the full nominal rates. Our full year 2009 effective tax rate was 26.9% compared to 28% -- 21.8% last year.

Our operating cash flow generation in the fourth quarter reached BRL3.3 billion, which is around 14.2% better the fourth quarter of 2008. For 2009, we generated BRL8.7 billion in cash from operations, a 23.6% increase versus 2008.

And we are able to achieve all that while growing our profitability and invest in our brand and innovations, as evidenced by our market share and brand health indicators in our key markets. Our net debt decreased to BRL3.2 billion at the end of December compared to BRL7.4 billion at the end of December 2008, as we decided not to refinance debt, given market conditions early in the year.

During the fourth quarter, we paid BRL1.8 billion in dividends and BRL0.5 billion in interest and loan capital. That said, our total pay out for 2009 reached a total of BRL3.6 billion, which is about 20% higher than the 2008 levels. Finally, we will continue to pursue opportunities to improve our working capital, while investing to increase capacity and meet demands.

Per the announcement we made this month, CapEx of Brazil should reach between BRL1.3 billion to BRL1.5 billion and in the absence of any additional tax burden, to respond to potential for the industry growth during 2010, these investments may reach up to BRL2 billion. I will now hand back to the Operator and open it up for questions. Please, BJ.

Thank you, sir. We will now begin the question and answer session. (Operator Instructions). Our first question comes from Lauren Torres from HSB -- HSBC. Please go ahead.

Yes. Hi, everyone. Actually I have two questions. First question is on CapEx guidance. I know you've mentioned that -- that increased investment is basically focused on increases on production capacity. Just curious if that is solely where the increase is coming from or there's something else behind that number?

And then secondly, just a further clarification on how we should think about your costs and expenses this year? I know last year, costs per hectoliter were below inflation and you had some unusual items impacting your operating expenses. So basically, for this year should we expect the reverse where some of your cost pressures would be a bit higher, but some of the unusual operating expense items will go away?

Yes. Sure. Hi, Lauren. This is Nelson. Well, let me pick up the -- your question. First with regards to the CapEx guidance, I mean, what we have been basically saying is that the good momentum that you see here, especially in Brazil, in terms of industry volume growth, which is primarily due to positive macroeconomics and in particular disposable income growth in real terms, we see this as a positive and continuous trend.

So when we started to prepare for 2010, in terms of our CapEx budget, we started with a number that was around BRL1.3 billion and as we moved in the whole process, right now, considering that the industry may grow even further, in the absence of another -- or any tax burden increases, if FX size, for instance, stayed at the level where they are and also consider -- all the other elements that drive the industry growth, we do believe that we may need to invest as -- up to BRL2 billion to meet demand.

This investment is, of course, the BRL2 billion, is not only owned -- CapEx is not only on capacity increase. So we will be investing in lines, we will build new plants, but also have to invest in new bottles, coolers. So all that come together is a consequence of the volume increase.

But the bulk of the increment investment is on capacity and we are really planning to have at least three new plants up and running by the second half of this year that we can definitely prepare for the volume expectation for next summer and this investment will be done across the country, so in different regions.

That's primarily what is driving this -- was behind the guidance that we are giving so far. In terms of the cost of goods sold and expense, indeed we have -- we have different trends for 2010. So I would split, in terms of our cost per hectoliter while 2009 we're really positively impacted by both our currency hedges and also the commodities hedges for the ones we can hedge.

And also for the non-hedgeable commodities, like PET and corn, where we saw a positive -- a positive trend and deceleration, a decrease versus 2008, which especially for the first three quarters of the year, led us to even a negative. So a decline on our COGS per hectoliter year-over-year for 2010, primarily because of the hedge rates that were (inaudible) for this year.

We should have an impact, which is going to make -- is going to lead to an increase in our COGS per hectoliter, so we had fixed our dollar rate for 2010 around US$199, versus the implied US$188 we had in 2009. So this is going to put a little bit of a pressure in our cost per hectoliter in 2010.

Commodities should continue to help us in the (inaudible) we are going to have better rates or better prices than what we had in 2009, with the exception of sugar. Sugar is going to really put pressure on our CSD COGS and we have an indicated a disparity stage that it would put pressure on our -- on the business margins and could lead to some margin contraction.

So let's say the net impact of higher dollar rates, net of the positive commodities [had], except for sugar. And also the continued search for better productivity -- higher productivity, better efficiency and so on, also with the positive impact of volume growth, diluting the fixed costs, we do expect COGS, especially, to grow, mainly because of the dollar rates, as I said. But to grow at a rate that is closer or, let's say, long-term goal of growing at or below inflation, that's what we can expect for 2010 at this stage.

On the other hand, at the SG&A level, we will have easier comps, if you will, in terms of (inaudible) compensation, which was a very tough comps this year in the course of 2009 versus the previous year. And we should kind of go back to that algorithm that we used to talk -- the equation about SG&A growing in line with inflation plus some increased linkage with the volume growth, or the turnover growth.

Plus one or two points, additional points, that can depend on the evolution of our direct distribution, mix, general mix and so on. But again, as we have already insisted in the previous calls, we will not be -- be bound by any limitation related to this algorithm. So the point is, if you had -- if we had, when we see, good ideas, we have important innovation approach that you want to invest behind, we will do it, of course.

Always looking at the bottom line, so the top line growth should more than pay off the additional investment. I think it's important to emphasize, given the World Cup and other activities planned for 2010, we should face a little bit of a tough comp, especially in the first semester, so SG&A, especially with regards to marketing sales investments, we should have a little bit of a tough comp.

But overall, I can -- we can also anticipate opposite from the cost per hectoliter [outward] can anticipate SG&A growing at a lower level in 2010, mainly because of the situation heading into 2009 in terms of variable compensation.

And if I could just quickly follow-up on your comment with respect to consumer demand and how volume trends have worked well for you over the last year, and how we think about that for this year, do you think we'll see comparable growth rates, be it for the industry or for you in Brazil, particularly in beer this year?

Hello, Lauren. This is Joao. I think we're -- if I compare the mood of beginning 2010 against 2009, I mean, when I think we said we started in cash (inaudible) cash at a pessimistic -- moderate pessimist, and we moved from a moderate optimistic and that's where we stay.

I think if we look at the macroeconomic environment that is in place, it's a better one in terms of, of course, GDP growth, than it was last year. And in terms of consumption per capita that is affected by the growth in -- let's say revenue per capita. It's pretty much the same, okay? It's not much higher than what it was last year when we take, for example, the minimum wage increases as well as the food inflation.

So if there is no new news in terms of food inflation, there is no run on commodity price or something like that, because the revenue, on a per capita basis, is already they are. The minimum wage was already increased in line with last year. So if we take those two macroeconomic indicators, or those three macroeconomic indicators, I would say that the macro is a positive one.

Along the same lines of 2009 with maybe, of course, better outlook for the GDP, which not necessarily affect our business. So I would say we continue with this moderate optimistic view, given those macroeconomic indicators.

That's helpful. Thank you.

Yes.

Thank you. Our next question comes from Robert Ford from Bank of America-Merrill Lynch. Please go ahead.

Thanks. Good day everybody, and congratulations, Joao, on the tremendous performance in Brazil. My question had to do with Canada. Could you expand a little bit with respect to the dynamics that you saw in the fourth quarter competitively in Canada. Perhaps a little bit on what you're seeing to date.

And as you look at try to take this business back to its prior shares profitably, can you give us a sense of how to do that and whether or not you see this industry returning over the very short term back to a more rational dynamic?

Yes. Bob, well thank you for the comments. Of course we are not pleased with volumes and the profit decline in the fourth quarter. So we will take the necessary actions to revert this trend. You know that there is some volatility in this marketplace. This year was the worst year in terms of the industry that we can remember.

This decline was the first decline in a very long time. Therefore we have to face that. We don't think the sort of decline that we faced in '09, we will continue 2010. So we are seeing -- we have a view that the macro for 2010 should be better than '09, but we haven't seen, let's say, this trend that you saw in the fourth quarter turning around, okay?

In terms of either macro or share. So we have a tough job ahead, which is to recover our share on a profitable way to return it to the levels that we were operating in 2008. How are we going to do that? I mean, it's a little bit of more of the same that maybe we haven't done fully in 2009, which is to use our knowledge in field execution.

Which is to use our research that is now in place for a couple of years, which is the Thomas research, of continuing to put money behind of innovation, such as the Bud Light Lime, such as also, as I mentioned in the initial speech, about the Alexander Keith working in the craft segment.

Not to forget the potential of also Bud Light. So we're going to have to find the means internally, which were actually not there. I mean, the cost of goods sold were really not good or poor, given different situations. So we didn't really have a lot of places to fund the initiatives, which I don't think will be the case in 2010.

So we're going to have to fund the initiatives from within and I think we do have the combination of a good execution in the sales area as well as a good pipeline of innovations to put in the marketplace.

So that combination of innovation and execution as well as bringing some more money from within, that I cannot go into a lot of details, will help us having the means to invest behind the good ideas that I do -- I know we do have in the pipeline to revert the situation of, especially, the last couple of quarters.

Okay. Great. If I could just ask one other question and that is in the fourth quarter, it appeared to us, anyway, that one of the reasons why you had stepped up the marketing spend was to support the price increases going into year-end. Given the volume and the share dynamics, my sense is that you've got to be fairly pleased with that outcome.

I was curious, as you look at pricing in the market right now, what is the outlook for additional adjustments to reference prices and do you think you're going to have to maintain this level of CapEx, irrespective of -- not CapEx, of marketing support, irrespective of the World Cup to kind of -- to maintain healthier volume performance?

I assume you shifted gears to Brazil, right?

Yes, I'm sorry. That was all about Brazil.

Okay. Just checking. It's a really a combination, Bob. When you look at the SG&A, I mean, first of all, of course we are pleased by the results of share that we disclosed, about the results of preference, that we don't disclose, and as well, about the results in pricing.

I think what we said in the beginning of the year, which continues to hold true, but not necessarily at the same level is if we had the good ideas, which I thought we had and fortunately, and given good work, proved the right. Because if we had good ideas, we would invest behind those good ideas more than the usual.

So that I'm not totally locked by a specific way of operating in the sense of course, we continue to operate, executing good ideas, spending the least possible, but we thought we had very, very good and powerful ideas in hand and we pushed them hard.

This year, there was a combination of factors that, it probably seem more than it really is, which is the combination of those market investments coupled with the bonus accruals that were, of course, higher than the average as well, compared with a year that was a bad year with no bonus.

That combination made our SG&A look, in terms of growth, much higher than the usual and also much higher than what we expect. So I don't think we will need the same sort of growth that we needed during 2009.

We also have to remember that given what we did in 2009, we have in a way changed the level of investment in this market and now we also have somewhat more size and scale and ideas to invest behind them. But I don't foresee that in terms of percentage growth, we will need to continue with that sort of percentage growth.

In the first half, of course, the comps will be difficult, quote, unquote, in terms of our SG&A because there is the World Cup in the second quarter. So we are investing more heavily in the first and in the second quarter to support what we think will be a very strong World Cup and we'll execute and manage that we haven't executed in the past.

So I also think we have, let's say, below the line or trade marketing very important activities for the World Cup and we will put money behind them. So in terms of quarter-over-quarter, the first and the second will be a little steeper, but not in the levels of growth that you saw necessarily in the -- in 2009.

But again, if we once again have good ideas, we will continue to execute those ideas on a heavy manner. I would also say, Bob, that just to take advantage of your question, what we are also seeing in the marketplace, as you know, Brazil is -- it could be one of the most competitive markets we operate and where our competitors have learned to mimic or to copy what we do in some sort of fast pace.

So what we're seeing in this first quarter in Brazil is enhanced activity, enhanced competitive scenario activity, with competitors stepping up their marketing investments and try to bring new news in the marketplace in the same way we did in 2009.

What I can tell you is we're not -- we're not going to sit and wait. We're going to fight to maintain the trend we developed in 2009. But I think it's just a way of saying that 2010 will be a very active and challenging year in that sense.

Thank you. (Operator Instructions). Our next question comes from Alan Alanis from JPMorgan. Please go ahead.

Thank you and congratulations, Joao, Jamel, for the results. My question has to do with the balance sheet. What is your target net debt to EBITDA for the end of 2010 and 2011?

Hi, Alan. It's Nelson here. Well, first of all, thanks for your comments.

You're welcome.

The use of cash is something that we have been discussing in the course of 2009, I mean, during the calls and what we saw was a clear decline on our financial [lab] with in terms [of our] net debt to EBITDA for instance. Although we don't have a target, any specific target we specifically follow.

We always try to maximize the value to our shareholders by means of managing our capital structure in a proactive way. What we can say at this stage, especially considering that in 2009 we have kind of a, not a typical year.

We saw a lot of uncertainty and volatility in the marketplace, we focus on [return debt] to first semester and we resumed our pay-out through dividend interest on capital in the course of the year. What we can say for 2010, at this stage, first of all, we believe it's too early to provide any specific guidance.

Only thing we can talk about is, and by way (inaudible) saw we made an announcement last Monday and we already started to pay out dividends, interest on capital, for -- that will be [implied] over the 2010 results in the amount of roughly BRL1 billion.

And at this stage, this is -- I mean, we cannot speculate on any other decision that in the end of the day will be taken by the Board and as we move along the year.

I hear you. But if my -- I mean, if I'm seeing here the numbers right, I mean you could basically double the amount of dividends in 2010 and remain your current 0.3 times net debt to EBITDA constant. Do you, I guess another way of asking the question is, do you envision yourself to be net cash in the future?

Yes, as I told you, we have in a way, a kind of a good [promise], a strong cash flow generation at this stage. But in our case, in terms of our cash flow and any [cash flow] decision, will be based by the Board, of course, based on the minimum recommendation, but at this stage, we cannot announce any decision with regards to capital structure since it's still to be discussed with the Board.

Okay. I hear you. Thank you so much.

You're welcome.

Thank you. Our next question comes from Lore Serra from Morgan Stanley. Please go ahead.

Good morning, good afternoon and congrats as well on a very strong 2009. I wanted to ask one question in Brazil and one in Quinta, so I'll do it separately. In Brazil, I wondered if you could just address two things.

You took the price increase earlier than usual, so I'm wondering if you think that your fourth quarter revenue per hectoliter in Brazil, about BRL162.5 per hectoliter is a reasonable level for 2010. On one hand, I don't know if you know for sure whether or your tax increases -- or you will face federal tax increases this year?

I don't know if that's been decided and also I don't know how your mix is going to evolve. So that's one question. And then I -- I wondered if you could just expand upon your comments earlier on the sort of changing competitive environment into the beginning of the year please?

Sure. Thanks, Lore. Okay. In terms of pricing, I think what's fair to say, and maybe completing what I said before, is we have moved prices slightly early than in previous years. The price are sticking, so I think those are good news. Some of our competitors, such as Itaipava, have followed most of our price increases.

Others, like [Skin], not necessarily, they have come maybe half of what we did. Maybe there is more to come, we don't know. And FEMSA changed their strategy for some reason and, as you probably saw in their results, I mean they were increasing price along the year and then they -- they declined again in the fourth quarter.

And haven't really moved price, so I think they are probably debating between the equation of volume share and prices. But maybe given the situation overall in the marketplace, we haven't seen any need to come back in pricings, given the current situation. Depending on how they behave, there could be some changes to that, but I feel somewhat positive to the current scenario.

What would be a (inaudible) there is no, necessarily, further need to -- or a need to decrease the price, then the remaining question is the move on federal taxes. We have been in talks with the government, not just us, AmBev, but also as an industry. We have got together with the Coke, with Skin, [Skin-Carel], with FEMSA and we have made a proposal.

We have presented, let's say, a proposal to the government, given that we see a positive situation for everyone where there could be job creation, major investments for most of the players and the chain. And as well, given the volume growth, a bigger tax collection. So that combination could be a win-win to both the government and the industry.

And the counterpart to that is major investment, job creation and the maintenance of the current tax level. If there is a maintenance of the current tax level in the federal tax, the level of the BRL162 or BRL161, BRL160, whatever, is a feasible one. Have just to remember, as we talked in the previous quarters this year, that the state taxes continue to grow.

Okay? Which has happened for the past many, many years, moving, in generally, in line with inflation. So I think with that sort of information, you can have a good idea of what's going to happen with price in Brazil. We haven't, let's say, signed any agreement.

Therefore the federal tax could still move, but it will not move in the first quarter. We're -- we are, I would say, have a positive view on the second quarter and if we have something firm from the government standpoint, we will probably announce, as [any] industry.

In the meantime, it's probably more them checking whether what we're saying will happen. They always have the right to make a change whenever they want. I think if they see that what we're saying is solid, they will see the benefits of the proposal for everyone.

Okay. That helps. Can you just talk a little bit about the changing competitive environment you're seeing in Brazil at the beginning of the year.

Yes. The changes -- the sort of changes that we like in the sense is a fair competition in the marketplace, which is people launching new brands, for one thing. People increasing, somewhat, their share of voice in the short term, without, let's say, a decline or a use -- abnormal use of discounts and promotions, which would have -- which would mean us needing to change our price policy or price execution in the marketplace.

That's basically it. So I think I owe a lot to the new brand. [Seance] is coming back, not with Heineken, much more announcing things than necessarily doing things. Okay? They are launching imports, but this is very, very small. So I would say FEMSA right now is more imports, which is -- it's not a major event.

It's Skin with a new brand and much more money behind share of voice in general. And Itaipava continuing to grow their share of voice as they have done in the past few years. That's the sort of increased activity that I am referring to. And we have been continuing to roll out the innovations of '09.

And we have some new good stuff in the pipeline that we -- some of them already in the marketplace, like the roll out of Sub-Zero in Rio and other things that will come in the course of the year.

Great. And if I could just move to Canada for a second -- not Canada, I'm sorry, Quinsa for a second. You faced very high SG&A inflations, really throughout the year, on no volume growth. And I guess that a lot of the margin increases come from tighter COGS.

And I guess I'm not so sure that's going to continue into '010 as some of these hedges roll off. I don't know if that's fair or not. So as you look at Quinsa for 2010, is it fair to think there's some risk that you'll face margin contraction in 2010? Or is there some way you can contain that SG&A better if volumes don't come back?

Yes. Well, good question. We're not giving, really, as you know, guidance in terms of EBITDA margin. What I can tell, which I think it will address somewhat the question, is I think in Quinsa, we continue to have very strong brands in both -- in terms of both share and preference, which allow us to continue to have our revenue to grow in terms of price.

At least in line with inflation. I think that comps, in terms of volume, will be positive at a point in time. When we move to COGS, I think that the hedges in place, if you look at the last 12 months of currencies, will give you an idea of what sort of changes you may face and I don't think they are troublesome, okay?

I think what could be troublesome, to a certain extent, which would generally affect more 2011 than 2010, is if there was a major devaluation on the Argentinian peso, which as you saw, I mean, it basically hasn't moved a lot in the past few months. Probably below inflation. So if you have one of your main drivers of COGS devaluing below inflation, that is pretty helpful.

Of course you already have the hedging in place for '010. A major devaluation could just have a major distraction, quote, unquote in the marketplace. In terms of SG&A management, I think we look at the crisis in the first half, so we were waiting to see how bad the crisis was going to be in the first half of 2010 and we moved back, in the second half of 2010, with higher investments in the marketplace.

I think this year, in Quinsa, we have the same objectives that we have in Brazil that -- which is if we have good ideas, we can increase it more. But otherwise, I would say it's business as usual and the levels of '09 were more than enough, as we mentioned, to maintain, or in some case to gain, market share levels.

So we are happy with the sort of share levels that we have in Quinsa. So I don't see, on the top of my head, looking at what just happened with the P&L, necessarily a margin contraction for no reason.

Okay. Thank you.

Yes.

Thank you. Our next question comes from Trevor Stirling from Sanford Bernstein. Please go ahead.

Good afternoon. Two questions please, both related to phasing. The first one relating to the phasing of COGS across the year. You mentioned that COGS related to beer are supposed to be in line with inflation across the year, but I presume given the FX hedges, that's likely to be inflation -- I'm sorry, COGS increases well ahead of inflation in the first half and COGS increases in the low inflation in the second half?

The second thing relating to the phasing of volumes. Would I be right in thinking that in the first quarter, you're going to face some headwinds from the poor weather and the timing of Carnival? But then the second quarter, with the World Cup, that should act as a tailwind?

Yes. Hi, Trevor. This is Nelson here. Well, let me start with the question about the COGS and you are absolutely right. I mean, there is -- there will be an important phasing impact in the course of 2010. So for the full year, we expect to be in line with inflation.

There will be some pressure in Q1 and Q2 and then we should have a better results, or more favorable results, in Q3 and particularly Q4 2010. So I'm not providing any guidance, specifically, it's by quarter, but you are right in the sense that especially in Q1 and mainly Q2.

We have a tougher comps in terms of qualitative hedging, a strategy we do have and we know about the curves on commodities and dollars, how they impacted in the recent times the Brazilian cost structure. The second question -- sorry, the second part of your question was the phasing of?

Of volumes. That's in the first quarter, given the poor weather, there is some headwind from that. There'll be headwinds from the Carnival being slightly earlier this year than last year, but then once you get into Q2, there should be a tailwind coming from the impact of the World Cup.

Yes. I think the straight answer to this, Trevor, is in the first half, we grew around seven points, 7% above the year before. In the second half, we grew around 12%. So of course the -- we had much higher share. As I said in the initial comments, 260 basis points in the fourth quarter to be more exact. So we have easier comps in the first half and on top of that, World Cup and tougher comps in the second half, because I grew 12%, a combination of maybe a stronger market, but also much higher share.

Okay. Thank you very much, Joao.

Yes.

Thank you. Our next question comes from Sean Glickenhaus from Citigroup Investment Research. Please go ahead.

Hi, good afternoon, just one question on Labatt and one on Quinsa. On Canada, you mentioned that because of the better COGS outlook, there could be potential for more investment in marketing. Should we then be thinking about the EBITDA margins flattish for the year for 2010?

Again, Shawn, as I said during the presentation, we really not giving any guidance, any specifics, on the EBITDA margins. I think with the information we talked about, we can somewhat predict, but not giving you any more details in terms of the sort of increase or decrease of EBITDA margins.

Okay. I'm shifting over to Quinsa then, you mentioned the potential for volume growth and obviously we have the easy comps. But are there specific steps that are more top line specific that you've been taking or are looking to take that will help that?

Yes. No doubt. I think we -- the crisis was, of course, much steeper in the Quinsa countries, as they were in the HILA-Ex countries than they were in Brazil. Therefore we were -- we had to be probably more cautious in terms of our marketing investments, sales investments.

I have no doubt that as those markets recover, and it's still not clear whether this will be a first half, second half type of situation. I mean, I don't think it's totally clear where the world economy's really running, although people are more positive, we're not necessarily so positive, which is going to be the first half is going to be tough, second half is going to be much better for sure.

I think as this -- as this recovery comes into place and to give us the necessary means to continue to overinvest in the marketplace, we have good ideas, some of them we saw in Brazil, working in the -- in 2009.

We already made a lot of revenue management initiatives, a better control of our trade spend, which is -- which gave us the means to continue to invest important amounts and heavily on the marketing, but I think the contraction in '09 really didn't help the market overall.

So I think the potential increase in the marketplace that we're intending to expect, combined with the innovation pipeline that we will have, will certainly -- will certainly help. But I won't get into the details of the innovations we having [here], but as the year progress, I'll make sure that we mention some of them here in the conference call.

Great. Good to hear. Thank you.

Our next question comes from Jose Yordan from Deutsche Bank Securities. Please go ahead.

Good morning, Joao and everyone. My question was -- one of my questions was answered already. The second one was about, if you can give us an update on all the antitrust cases that you had last year.

Especially the one about the proprietary bottles and how that might impact your CapEx plans this year as well as the ones regarding the loyalty programs, et cetera? How is that progressing and what's -- and what are the potential liabilities, if any, that's still attached to that?

Okay, I think there really haven't been material developments on any of those subjects to date, okay? I mean, as you saw -- the major news on the [Toconchico] program was that we have gained the injunction, right, to stop the process, it will be probably a lengthy one, before we have any news, okay.

The final was in July and the overrules of that was about 30 to 40 days after that. So in August. So after August, no really new news as both parties presenting the cases to the judge. This is probably more of a couple of years sort of decision rather than a quick one.

In terms of the proprietary bottles, we are in both houses, quote, unquote at the SDA level and at the [cata] level discussing. There are two cases, the 630 ml returnable bottle as well as the one liter bottle. They are in different stages of the process. But again, still some time to have a significant news on this.

It took -- we have a view that this may be judged during 2009, but again, this is early -- I'm sorry, during 2010. But we really don't control and I think the past experience is that some cases will take months, we haven't had experience of a few months, but months, and some of them, years.

Since the liter has been less than a year, it's still within the normal time span and the 630 ml, which is a little bit more time, it will more probably be judged during 2010. The [liter] has yet to be seen. I don't think -- and well, therefore, related to your question of CapEx, right now we have -- we are considering that we'll continue to work business as usual with the bottles, therefore we are normally investing in our bottles inventory.

Great. Thanks a lot.

Okay.

Thank you. Our next question is a follow-up from Robert Ford from Bank of America-Merrill Lynch. Please go ahead.

Mr. Ford?

Hey. Yes, I'm here. Sorry about that. I had a follow-up question with respect to your facilities in Chile. I understand that there was some structural damage to your competitor there and I was wondering how your [assets] came out of the earthquake.

Well, it's a -- really a tragedy. It's a tough, tough situation, fortunately, and from what I read also about CCO, I think both of us -- neither of us have lost any personnel, any people who have been working, as much as we can, with the government to help everyone that -- to the extent we can.

In terms of the business operation, we have a small operation, of course, at [Sisu]. Fortunately, we haven't really suffered at all at our plant, which is close to -- very close to Santiago and the [Grande] Santiago. Some depots had their warehouses with some breakage, but totally within the expectations.

But the whole situation overall we are planning, as I understand also, Sisu, that part of the production for the next couple of months, part of it may have to come from imported. So we have the plans in place to continue to use our facility, but as well, we're planning exports from, if needed, from Argentina, if needed from some of the other countries we have in the region to maintain the course of business.

It is yet too early to say how this will affect volumes. Before we've been focusing a lot on making sure that the production sites in Chile, in the imports from the different countries we have in the region will have the necessary means to supply to that marketplace.

Out of curiosity, is there any way you can assess what the impact will be to distribution? Because there's quite a bit of infrastructure damage, there's been distribution center disruptions and looting. And I was wondering -- I was curious as to the impact it may have had on your distribution infrastructure.

Yes, no, the only really issue in terms of distribution is we have several depots across the countries. The one in the south was damaged. So if you compare that to the overall infrastructure that we have, I would say, and given the situation in the country, I would say it's a minor damage overall.

But we are already working to reestablish that operation there. But it was the only operation that was really affected -- affective -- affected. It was that operation in the south of the country.

Great. Thank you very much.

Thank you, Bob.

Thank you. Our next question comes from Lore Serra from Morgan Stanley. Please go ahead.

Yes. Thanks for taking the follow-up. I just -- can you hear me?

Yes. Loud and clear.

Okay. I'm getting an echo. I just want to go back to Canada for a second. It seems like the competition has got a bit more innovation into '010 maybe than we've seen in the last couple of years. They also say that Coors Light is the number one beer in Canada.

I don't know if you agree with that, I guess having overtaken Bud and they seem to have some effective new advertising behind their core brand. I mean, as you face the beginning of '010, I -- you said it's going to be difficult, but is it really just about pricing or is it possible that you're playing defense on innovation in that market?

Yes, Lore, to be quite honest, I've never seen any number that has shown that Coors Light is now the number one, so to the extent I know, I don't agree, given that the numbers, I'm familiar, I saw on a monthly manner.

In terms of innovation, I think we had, probably, the -- as I said in my speech, the best innovation we had in a long time and also the market had seen in the same way, which was Bud Light Lime. We had had and still have very high expectations for that, so I think this year will be the first full year with Bud Light Lime. So I don't totally agree that we're going to have.

There were other launches that we had, as we mentioned, with Alexander Keith, which I mean, we're seeing more on the crafted segment and moving in the -- will follow that. But again I think in a way the crisis took us, therefore we had much more investments on the second half than in the first half.

So I'm not saying that the first half crisis in a way, maybe we didn't move as fast, not saying that, but again, we were back in business fully in case that was the case and I think we're going to combine more investments behind the ideas we already started in '09, such as Bud Light Lime, Alexander Keith.

We also launched another brand, which is called Blue Igloo. So that also have helped. And we continue to use all the research we have in place to make sure that we're not just investing behind any ideas, but behind the good ones. I think the tough start in the first half, driven by the market saving share evolution will be there, but it should improve in the second half of the year.

Thank you.

Thank you.

Thank you. This concludes the question and answer session for today. I'll now turn the call back over to Mr. Nelson Jamel for any final remarks.

Okay. Thank you very much BJ and thank you everybody for the session today. Thank you everyone and good afternoon.

Thank you. The conference has now concluded. Thank you for attending today's presentation, you may disconnect your lines at this time and have a great day.