Ambev SA (ABEV) 2010 Q4 法說會逐字稿

Good afternoon, and thank you for waiting. We would like to welcome everyone to Ambev's Fourth Quarter 2010 Results Conference Call. Today with us, we have Mr. Joao 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. (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.

Okay. Thank you, Maureen, and good afternoon, everyone. I'm pleased to be with you today to discuss our 2010 fourth quarter results.

Before I start, I would just like to remind you that, as usual, the percentage changes discussed during this call are both organic and normalized in nature. Normalized figures refer to performance measures before special items. Special items are either income or expenses 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 profit, EPS, EBIT, and EBITDA on a fully reported basis in our earnings release.

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, HILA-ex, Latin America South, and Canada. I'll close by providing more specifics regarding the fourth quarter and full year financials.

Moving to the results during the fourth quarter, our consolidated EBITDA was close to BRL3.82 billion, which represents a 19.5% organic increase when compared to the fourth quarter of 2009, while our margins expanded 310 basis points to 51.3%.

Our Brazil EBIT increased by 18.5% in the quarter, supported by a 3.6% volume growth and by a 9.3% revenue per hectoliter growth, with EBITDA margin increasing by 220 basis points to 53.6%, driven mainly by price increases in the period, partially offset by higher packaging and sugar costs and SG&A growth, primarily due to higher logistics costs.

In HILA-ex, we delivered a positive EBITDA of BRL12 million in the quarter, already excluding Venezuela results as a consequence of a transaction completion with Cerveceria Regional, and registered an organic growth of BRL20.2 million versus the same period thanks to a better performance across the region.

Our Latin America South operation delivered 21.7% EBITDA growth during the quarter, with a 25.7% EBITDA growth in the beer business, with volumes up 5%, while soft drinks volumes were down 1.3%, despite market share gains. And EBITDA was down 0.5% due to higher input costs, mainly sugar, and a higher SG&A.

In Canada, volumes decreased by 5.3% in the quarter due to both industry decline and market share loss year over year, which is pretty much stable for three consecutive quarters at this stage but is still below Q4 2009, while our EBITDA increased by 15.8%, with margins increasing by 830 basis points due to an effective cost management.

Normalized profit reached BRL2.6 billion in the quarter, which was 47.8% higher than last year, and normalized earnings per share increased by 46.8% in the quarter. I'll comment further on profit at the end of this call.

I will now hand it over to Joao as he starts to look a little deeper (inaudible) the results of each of our operations.

Good afternoon, everyone.

Starting with industry trends in our main operations, we saw in Canada the same softness of previous quarter, while, in Argentina, the industry recovery started in Q3 has grown a bit further.

In Brazil, the strong beer industry growth from previous quarter has decelerated mainly due to a tougher comparison against the fourth quarter of 2009 and the price increases implemented in the market. As a consequence, our beer volume growth was 3.4% in the quarter, also impacted by a 20-bps share loss year on year as a result of our price increase for the summer, which widened the price gap to competitors. Our market share in Q4 2010 for beer Brazil was 69.8%, which took the full-year average market share to 70.1%, which is the all-time high market share for one full year since Ambev was created and 140 basis points above 2009 average. As a result, our volume for the year grew 10.7%.

Our beer net revenues per hectoliter in Brazil increased by 10.5% this quarter as a result of price increases in line with inflation and implemented earlier in the quarter versus 2009. On top of that, we also increased our direct distribution participation and were able to deliver a strong top line growth supported by our innovations and brand-building initiatives. For example, both our liquid and package innovations continue to deliver a solid performance. Skol 360, a new liquid, and the 250-ml one-way bottle are examples of recent launches that added to our innovation portfolio, which also includes our one-liter bottle as well as Antarctica Sub Zero, among others, and made it even more relevant for our top line growth.

The brand health indicators increased as much as our market share. All mainstream brands gained preference, and we also achieved our all-time high score for the total portfolio.

Now, talking about our COGS, Brazil beer COGS per hectoliter was up by 6.8% in the quarter, as we were negatively affected by higher packaging costs, including the impact of imported cans, as was previously stated, which shall impact our first quarter 2011 results but not the remainder of the year.

Beer SG&A, excluding depreciation and amortization, grew by 7.7% in the period as a result of volume growth, general inflation, and higher logistics costs, which, however, reflected a lower expense than during the first nine months of 2010, as we have successfully executed our challenging capacity increase plans, which should help us in our results in 2011 regarding logistics. In addition, although not ideal yet, we now have a better industrial footprint in the north and northeast regions of the country.

Overall, normalized beer EBITDA for Brazil finished the quarter with 18% growth versus the same period last year, and EBITDA margin expanded by 150 basis points.

For 2011, innovation will continue to be top of the list to deliver sustainable and profitable top line growth. We also plan to increase our focus in the premium segment, while maintaining or enhancing our execution for the mainstream.

Moving to soft drinks and non-alcoholic, non-carbonated segment, our volumes in Brazil delivered a 4% growth in the quarter as a result of industry conditions, while we kept our share almost flat, standing at 17.5% as an average for the quarter.

Coming from very tough previous quarters, we were able to deliver double-digit EBITDA growth, as we had gross margin expansion, despite the negative cost environment for raw materials and also improved our SG&A expenses. Our EBITDA posted in the quarter a 20.7% growth with an EBITDA margin expansion of 570 basis points.

Net revenues per hectoliter in this segment grew 3.8% in the quarter, as we continued to be impacted by price increases below inflation.

COGS per hectoliter increased organically by 2% as a result of our sugar rises, PET resin, packaging mix, partially offset by better our currency hedges and product mix.

SG&A, excluding depreciation and amortization, decreased by 20.8% in the period, mainly as a result of lower bonus accrued and marketing investments phasing.

For 2011, we continue to see opportunities in our CSD business, despite the commodity pricing environment and the challenging competitive landscape. We will focus even more on innovation, such as our recently launched energetic drink, Fusion, which was a result of a comprehensive study to deliver a winning proposition for this new segment we are now entering into.

Turning to HILA-ex, volumes increased by 0.5% in the period as a result of a flat industry for the region, while, in the Dominican Republic, we reached our all-time high market share.

HILA-ex EBITDA was positive BRL12 million, mainly as a result of our exclusion of our Venezuela operations after the deal with Regional and also better performance across the region, in particular, and an easier comparison with fourth quarter 2009 on marketing investments.

Moving on to our operations in Latin America South, we achieved a 21.7% EBITDA growth. We are enjoying industry growth in most of our beer operations, including Argentina, where the market starts to recover. We are also gaining market share as a result of strong support to our mainstream brands and innovation. In Argentina, Quilmes continued to improve its brand health indicators and launch a new brand campaign. In Paraguay, we launched (inaudible), a new one-liter bottle for Brahma, and a Brahma wide mouth. In Bolivia, we continued complementing our [Pasea] brand well-known attributes related to tradition and heritage with a younger and more modern image.

Premium continues to be a source of volume growth and profitability for us, as Stella Artois in the local premium kept growing in the region, over-performing their direct competitors and further developing the category. We complement the support through our brands with effective revenue management initiatives. We focus on market execution with actions aimed at maximizing our sales prices in line with inflation and optimizing our trade spend.

In terms of costs and expenses, we are experiencing higher costs of labor and inflation. We are also suffering important increase in soft drinks raw material, mainly juices, sugar, and PET performance. We are introducing initiatives to achieve savings and industrial efficiencies that will partially offset these higher costs. This quarter, our soft drinks operation still shows an EBITDA contraction, but we already see important improvements compared to the preceding quarters.

Now, moving to Canada, Labatt continued its third quarter 2010 momentum, delivering an EBITDA increase of 15.8% over fourth quarter 2009, as lower volumes were again compensated for by a significantly lower cost base.

Volumes were down 5.3% versus fourth quarter 2009, which was a similar decline to that reported in the previous two quarters. However, export volumes represented a large proportion of the decline, offsetting an improvement in the domestic share trends. Although we still lost 80 basis points of share versus fourth quarter 2009, there are two key points to make. The first is that Labatt has delivered a stable share level over the last three quarters, establishing a foundation for the share price profitability equation onwards. The second is that our big, bad brands of Budweiser, Bud Light, and Stella remained on a growth trajectory in 2010, matching overall gains in both brand health and share.

Talking about revenue per hectoliter, Labatt delivered a flat performance versus year ago in a somewhat more stable pricing environment, while COGS per hectoliter declined by 12.5% in the fourth quarter as we continued to cycle significantly lower commodity hedges and efficiency improvements across our supply network. We also continued to see the positive benefit of closing the Hamilton brewery in April of this year.

SG&A, excluding depreciation, declined by 20.7% in the quarter due to lower volumes, marketing expenses, phasing in a lower variable compensation accrual versus last year.

Overall, we experienced several top line headwinds in 2010. These include the declining Canadian beer industry volumes and a heightened pricing environment, which impacts our ability to grow net sales per hectoliter while putting significant pressure on our market share position.

In the back half of the year, however, we were able to set a foundation for 2011 by stabilizing our market share position while maintaining our cost discipline to ensure we deliver full-year EBITDA growth versus 2009. We continue to be very confident in the strength of our Canadian team and have built a 2011 plan focused on delivering top line growth.

Going back to the overall Ambev business, I wanted to wrap up by saying we are pleased with our full-year consolidated results, as we delivered a 6.7% total volume growth, a 7.8% beer volume increase, a double-digit top line growth, and even a slight margin expansion of 10 basis points, despite significant one-time hits in our P&L, such as the impact of imported cans and the higher logistics costs we face in Brazil, which should not occur in the same extent as we look in 2011.

Additionally, I want to highlight that, in Brazil, we kept the strong top line growth with an all-time high market share. And, last, we also delivered solid EBITDA growth and strengthened even further our brands, as we are continuing to lead the way in the premium segment.

In Canada, despite the difficult top line environment, we were able to react through an effective cost management to finish the year at positive EBITDA growth.

And, finally, in HILA-ex, we posted a positive EBITDA in the fourth quarter following the deal we announced in Venezuela and remain on track to deliver our long-term strategy in the region.

This does not mean we do not have our challenges. It's much the other way. Competition is tough in all of our markets, and 2011 started with a soft industry, particularly in Brazil, impacted by heavy rains, which will translate in volume growth deceleration in Q1. From our end, we will continue investing behind our brands and exploring the opportunities through innovation and execution in the marketplace while pursuing further productivity gains to invest behind our cost-connect-win strategy and deliver sustainable, long-term growth.

Finally, I would like to thank the great people of our Company, who are our major assets, for our 2010 results and say that I am confident, with all of them, we will be able to continue delivering strong results in 2011.

Now I would like to go back to Nelson.

In this final section, I would like to guide you through the main items between the normalized EBIT of BRL3.3 billion and the profit of BRL2.65 billion, as disclosed on page 3 of our release.

Our net finance results were BRL75.4 million negative, which is BRL89.4 million better than last year. This is explained by lower net interest expense as a result of lower debt and higher cash and equivalents, as well as better results on derivatives relating to our ongoing hedge policy. In the full year, our net finance results improved by BRL663 million.

Our effective tax rate in the period was 17.9%, compared to 29.1% last year. The main reason for this result was an increase in the income tax incentives and a one-time reversal in Canada, which helped our full-year effective tax rate to reach 21.5%.

Our net debt decreased to negative BRL207 million at the end of the year, compared to BRL3.1 billion at the end of December 2009, while we paid BRL4 billion in dividends and additional capital during Q4 2010. Our total payout for 2010 reached a total of BRL5 billion, which is about 40% higher than 2009 levels.

Cash generated from operations in the year totaled BRL11.6 billion, which is 9.9% higher than 2009 as a result of better operational results and our focus on improving working capital, while we remained committed to our CapEx plan, particularly in Brazil. And, as we see further investment opportunity in the country, we are ready to invest up to BRL2.5 billion CapEx in Brazil during 2011.

I'll now hand back to the operator and open up for questions. Maureen, please?

(Operator instructions). Bob Ford, Merrill Lynch.

Guys, congratulations on the quarter. I think it was extraordinary and very surprising. But, given the stock price reaction today, I suspect that there's some concern with what you said, Joao, in terms of kind of a soft start to early 2011. And I know there's bad weather. But can you comment a little bit in terms of how you see consumers accepting the price increase right now and whether or not there's any sign that competitors are following at this point? One would think that they would, given all the input inflation that they're seeing.

I think the outlook for 2011, to the extent that I can comment, I think there are some pros and some cons. To begin with, a clear pro for 2011 is the low unemployment figure that you have right now, the lowest we ever had in Brazil. If we are to look at a con, and I'm talking macro first before talking about rains or anything like that, we're seeing this year minimum wage at BRL5.45, which is a flat -- it's in line with inflation. There's no real income increase, which you can see as a con or a neutral point.

True at the same time that that means a 7.5% real increase for 2012. I think there are some measures being taken by the government to try to cool down the economy. Some people say that 7.5% was too big of a GDP to be sustainable, and the government's trying to cool down to maybe the 4% or the 4.5% of the road. And you have to take some measures to do that.

So I think there's a combination of some positives and some negatives in the short term with a positive medium-term outlook, which is the 7.5% going forward. So that's more the macro piece.

When we look at our situation, I think the most important point, where to start -- and I think we start talking about that in the last quarter -- is we are at one of our very best positions, talking about the commercial situation in beer Brazil. We reached our all-time high market share for the year. We also reached many months during the year our all-time market share -- but not just that; also our preference also reached many months the all-time high preference also for the year.

We had an important price increase, as we mentioned in the speech. And the fact that we build those options -- the options means that we can sit and wait for a bit longer when we compare to our competitors. They have to follow somewhat. There is a pattern in the past few years that will take a few months before they completely follow. Carnival may be a point, where maybe after Carnival we have a better idea or an exact idea, to be honest. The pattern that existed in the past that continues to exist is a follow -- a higher follow sooner for returnables and a softer or slower follow for one-ways. I think going forward, after Carnival, people are going to start feeling the pressure that you just mentioned about commodities, about inflation. So we could see people coming up closer rather than later. But, again, yet to be seen.

I think the good thing is that we are sitting at a healthy and a good market share position after a price increase. We will continue, as you know, to balance share and price. The good thing about that is that, when you are -- when you face a price increase and you start it at 70X, you can wait for a longer period of time and therefore defend profitability for a longer period of time.

So that's where we see the situation today. Competitors have followed somewhat, not to the full extent. I think another month, we'll be clear how far they will go and how far we want to go waiting or reacting if we feel appropriate at a certain point in time.

Joao, I've got to believe that you didn't have that in place in the entire trade for the entire quarter. I was curious if you could give us a number when you add up mix, vertical integration, maybe some of the packaging strategies that you have in place.

And then, if you could, also address some of the price -- the tax adjustments that are about to take place with respect to the top line taxes, please.

Let me start by the second, and then maybe we'll clarify the first part but I'll answer also.

But, to the second part, as you know, the Company pays about BRL10 billion or BRL11 billion in overall taxes, which is two-thirds state taxes and one-third federal taxes. These state taxes continue to move in line with price movements. That's the trend for the past X years. Forever it has been like that. And the federal tax is a discussion between the industry and the government. It has usually been like that in the past. This discussion with the government has actually just started, so we don't really have a view. We are sitting with the government. The industry is sitting with the government as we speak to find out where this will end. So there's not a lot more we can say.

I think one thing we can say is it's a different moment. When we sat down with the government last year, it was a moment where growth and jobs and everything were more important. They are always important, but they were more important. So the government sought the proposal that was sort of put together with the whole industry and the government about not moving federal tax at all. That's what happened last year, so we had no movement at all. It's normal to expect something in the sense that there is no room for a zero tax increase.

But, again, no decision on any tax update as of today, so there's nothing we can say. As soon as this conversation or this situation ends, we will update this.

And, having the first part of your question, our prices have pretty much moved in line with inflation. What you see above that is a combination of some price movements that were taken earlier in the quarter, so that makes the comparison easier I'd say against the fourth quarter of 2009. Direct distribution has grown, and mix was more stable than in the past but also had an impact. So price is in line pretty much with inflation, at least for the last quarter of the year.

And, Joao, just to clarify the one tax issue. Right now, the debate is only the reference price for the IPI. Right? They're not discussing any change in methodology or an actual increase in the effective rate. It's just the reference price on which that rate is applied. Is that correct?

Legislation was changed two years ago, in the beginning of 2009. So I don't think legislation will change. But the discussions are overall tax increase. That's as much as I can say, the overall tax increase. We don't see changes in the law, if that was your question.

Yes. I guess the new law gives the federal government a lot of leeway in terms of timing and magnitude. Right? And I think that --

I think, at the end, this is -- This conversation or this negotiation has to take into account the overall view or desire of both sides. We are very confident, let's say, in the medium term we see most of the actions taken so far by the government as trying to find the right way to cool down the economy but watching a medium-term growth. I think, as anyone sees the 7.5% income growth -- real income growth for next year, I think they're trying to build a bridge, a sustainable bridge for this to happen.

From our end, as you saw also in Nelson's closing remarks, he mentioned about our appetite to invest BRL2.5 billion. This will be -- If that happens, it will be the biggest CapEx investment, bigger than last year. This year, we're talking about close to BRL2 billion, so this would go up to BRL2.5 billion, which would partially help 2011, especially in the north/northeast, but also prepare 2012. So, if we got up to this will depend also on many things, but the appetite is there to invest in the medium term.

That's very helpful. Thank you very much.

Lore Serra, Morgan Stanley.

Just one quick thing, and then I wanted to ask on the operations. And I don't want to turn this into an accounting discussion. But I guess you changed the rate of amortization of your PP&E that changed your depreciation in the quarter pretty dramatically. Can you just quickly outline what other accounting changes were made in the quarter, please?

In fact, when we issued our release, we tried to be more precise and tried to isolate some things that we treated as a scope change. So, therefore, the organic growth translates more of the underlying, real performance. There were mainly three elements that we treated as a scope change; again, to provide a better understanding of the underlying performance of the Company.

The first one has to do with the impact of a review of the useful life of certain items of our PP&E in Brazil, and there was a change in the expected uses of some of these assets. So, of course, the effect of these changes generated a natural depreciation expense, which we treated as a scope change in both our COGS and our SG&A. This will, of course, decrease depreciation, but, at the same time, you'll have a tax benefit in terms of our bottom line. The net impact was a result of this update on the useful life of some PP&E items in Brazil, as I said.

The second one impacted our line other operating income. It's about the net present value adjustment of our long-term fiscal incentives, which have implied interest rates that are way below the market interest rate. So they are subsidized by the government as part of the fiscal incentives granted.

And the third one, which affects the SG&A line, the cash SG&A, is the impact of actuarial net gains on pension funds expense due to assumption changes. And that was around BRL71 million.

So these three lines are the main changes we tried to highlight in order to provide a better understanding of the organic performance. And, I agree, there are many for a single quarter, but we thought it was important to give this type of visibility and disclosure.

Okay. Thanks. And just back to the operations, when you talked about the first quarter outlook looking weak, you said particularly in Brazil. I'm wondering if that's a generalized comment and whether you can give us a sense of why this being weak implies a negative number in the first quarter.

And, in terms of a little bit more color on the pricing, I think it was said in the ABI call that you moved one-ways more. I guess that means you took more pricing, I guess, in the supermarket channel, which would imply you have a lot of flexibility to move that around if competitors don't follow. Is that the right way to think about the pricing environment for the next -- I don't know -- month or two until you understand what the medium-term dynamic is?

What was the first part of the question regarding the other markets in the first quarter?

If I understood what you said, Joao, I think you said the first quarter outlook is not so strong, particularly in Brazil. I'm wondering whether or not that implies that the volume softness is outside of Brazil as well as within Brazil.

Okay. We mentioned just Brazil. We saw the heavy rain, let's put it this way -- the issue is much more concentrating in Brazil. The impact of the price increase is probably bigger in Brazil than in the rest. And, also, the comps for Brazil are tougher than the rest. We saw softness in other markets in the last couple of years, so actually think that they are easier comps for all of our other operations. The comment was much more specific about Brazil. Let's say the rest have actually more going for them then the other way around.

Regarding the comment on the ABI call, which was a correct comment, of course, it's that -- let me try to clarify because your question is a very important one. It's not that we increase one-ways more. It's just that, on average, lately -- lately in the past like three or four years, the increase in one-ways started always in the same level. But then it didn't stick as much as the price in returnables. So, this time, given our share situation and all the mix that we have now more favorable than we had in the past, allow us to put a price that maybe was in line or maybe a bit higher. But the point is the price is there.

You were absolutely right when you said we do have more flexibility. It means pricing returnables were in line or better than in the past -- that are better or in line with the past. And it's sticking, and the prices follow. It's coming but on a faster pace. In one-ways, the price was in line or a bit above, but mostly in line, but we are maintaining that. We're maintaining that. We will maintain for a while. We've been maintaining already for a while because we have that option. In the past, we were at maybe a little bit more pressure on the share than we are now, so we had to give part of that back sooner. We're not giving that back, not as of now. And then, if we needed to do that later, it's the easier part to recover. It's a much more elastic segment, and the brands are really healthy, so we can easily get back the share if we want.

I think two points also to clarify. We are seeing, really, volume growth deceleration. We're not talking about a decline. It's growth deceleration, just to clarify. That's it. I think that's a very important question. That's what's happening. Again, it's a good thing in the sense of having the options to wait and see where this will end.

Great. And, if I could just -- one last one. Typically, at the end of the year, you've given some outlook on costs for the coming year. I know that you talked about having favorable hedges, et cetera. But is there any general commentary you can give us on the outlook for costs? We saw an almost 7% increase in the beer COGS per hectoliter in the fourth quarter, when you're already getting the benefit of some hedges. I know that you still had the impact of the imported cans in the quarter. But anything on an outlook view you could give us on costs, particularly in the Brazilian beer business, would be helpful. Thanks.

The type of outlook we are giving or the sort of direction we are giving is that, as you know, we have this long-term goal of growing COGS per hectoliter at or below inflation. I think, in 2011, we will able to stick to that. We are saying we have on the currency side, on the side for next year, because, in 2010, the implied effective rate in our COGS was BRL1.92 per dollar. And, given our hedging policy, we already have our view on 2011. We expect an implied rate -- FX hedge rate of BRL1.72. That's going to be an important upside.

On the other hand, there is indeed an increase on the commodity side, which is, as you see. The major commodity impact to our COGS. They have grown the last 12 months an important amount, about 40% on average. Of course, this is going to be for the rest of 2011 less of an impact because we have this hedging strategy. We started to hedge way before, and we have a lower impact.

But, in the end, the net effect of everything -- we believe our COGS per hectoliter could be at inflation in 2011 or slightly below.

Thank you very much.

Jose Yordan, Deutsche Bank Securities.

My question relates to -- There's a lot of comments on bonus accruals in the press release. Given that this was a record year, I was surprised to see that. I thought that basically only happened on Wall Street when you have record years and down bonuses. Any color you can give us on that?

And then I just wanted to follow up on Lore's question about the other operating income on your reassessment of the present value of fiscal incentives. I just wanted to double check that that is a cash increase that you have going forward.

Starting with your first question about bonus accrual, the fact is, in 2010, we were pleased with the results. We think they were very good results. Our bonus accrual is also consistent with that. We had also an important bonus accrual. The only reason we highlighted this point is that, although they are high, one of the highest bonus accruals we ever had, they are lower than in 2009. And the reason for that is that the bonus accrual has a direct correlation with the expectation and the target achievements we had in any given year.

And, just to put in context, while in the beginning of 2009, just after the decline that affected the whole world by the end of 2008, there were a lot of uncertainties, and you had let's say maybe lower expectations about 2009. Therefore we set targets that were let's say somehow aligned with these expectations. And, in the end, we managed to grow our business much more than expected. So there was really an overachievement, especially during the second half of the year. When we started the year, we didn't expect for [interest] to grow. Just to give an example, beer volumes -- 12% year over year in Q3 and Q4 2009. So there was really an outstanding, I would say, result in 2009, especially when you compare to the expectations.

So, for 2010, already knowing everything that happened in 2009 and much higher expectations for the year, we had somehow a more stretched target, which was, again, aligned with the expectations for that new moment, and, therefore, we had less of an overachievement. So that's the reason why bonus accrual is lower than in 2009. But, again, it's still an important amount and one of the highest bonus accruals we ever had in the Company.

So that's the reason. I hope it clarifies your question.

Yes. Very clear.

The second point about the scope we took with regard to the other operating line, there, we're talking about just the net present value of these long-term fiscal incentives. Perhaps what we do have that is a different source of government grants, and some of them -- they are based on the following methodology or model let's say. We have the tax to pay, the indirect tax to be paid, VAT primarily. Instead of paying it on a recurring basis, we get incentive to pay it, let's say, ten years later, and this amount would be corrected, if you will. Sometimes they've added inflation, or it's just very attractive interest rates. So they are really below market rates. So this is more a mark-to-market adjustment of this very, in a way, cheap financing, if you will, vis-a-vis the market rates. And the fall is just a noncash impact.

In terms of cash, what effect is going to happen? We are going to pay this tax -- this, primarily, VAT tax we have to pay, according to the agreement we have with different states over time.

All right. Thank you very much.

Lauren Torres, HSBC.

My question is regarding investment spend; I guess, thinking about it by territory and by brand in Brazil. It's interesting. This morning, InBev did talk about, obviously, the potential in the north and northeast. Just curious about how you're thinking about directing the spend this year to that market and to that area and if you could keep up with the potential growth that I think we're going to see.

And then also, too, they talked about investing behind mainstream but also focusing more on the high end. Just curious to get your thoughts about how you're breaking up your spend there and developing maybe more of those high-end brands this year.

It's a very good point. We actually have in Brazil now -- Brazil was a country that, in the last couple of years, as you know -- and not many countries that happened. Actually, all the different social classes grew. So we've been talking here a lot about class C and D and how much it has grown and how much we had 30 million people coming from D to C in the past four or five years, and we're going to have another 30 million coming from D to C again in the next four or five years.

But, to be honest, also A and B are also becoming wealthier. So we actually have a positive double whammer for us going forward, which is we can grow -- take advantage and having strategies to take advantage of the growth of class C, and that's one sort of strategy, and also to benefit from this growth also of A and B.

How do I connect this with your question? I think, first, in the last couple of years, we worked much more on beer mainstream -- Skol, Brahma, Antarctica. We gave a lot of focus on that by launching different liquids and different packages. We saw the results of a lot of growth in that marketplace, and a lot of this was much more geared to C and D.

I think the positive challenge going forward is that -- how do we maintain -- that part of the franchise is strong -- and taking advantage of C and D in the northeast/north is a great example. It's an area where we have a lower average market share. We see the preference of our brands growing. We are building -- We built new capacity and are building newer capacity already. We already announced a brand-new plant, our newest plant and biggest, new plant in Pernambuco, a state in the northeast of Brazil. So we are putting our money where our mouth is. We're saying we want to grow there. We need the capacity already built. We have a better footprint but not ideal. We'll get better as the time comes by so that the investment will not just be a marketing investment. We also need the capacity and the flexibility to launch in the north/northeast the same thing we launched in the south/southeast so that we can continue to see the growth we already saw but maybe even further. I'm not talking about 2011, this year. I'm talking about the outlook.

But I think now the challenge is maintaining that but also winning stronger in other categories, such as the premium. We have already a good premium portfolio with Bohemia and Original, which are the bulk of our premium volume. But we have Stella that we already launched five years ago on its best momentum, growing as it never did. And we will launch Bud at some point this year. This portfolio of two local jewels and then two international brands with two different positionings -- we're going to have a very strong premium portfolio, and I think we can take full advantage of this as time comes by. So the challenge will be execution of this.

How can we maintain the good execution on beer mainstream and take advantage of the premium portfolio, of course, combining added complexity? So we are fine-tuning, I think, the good execution we have at the point of sale by different channels, which will be able to really implement this strategy at its full extent.

And may I ask? Heineken's made a point to say that, coming into Brazil, they're going to focus on the Heineken brand and trading up the Brazilian consumer. Are you seeing more evidence of that, or does that threaten your position at all?

Yes. We are definitely seeing more of that. I think they've been doing a good, consistent job. I think Heineken is also at one of its best positions in the past -- Heineken has been in Brazil maybe for 30 years. It was a good brand maybe 20 or 25 years from now, back then. And then it declined -- maybe lost 70% of its volume. And now that they brought the company here -- they were already doing a better job, and now they're more focused on that.

I think there are two things that's going to happen. One is it's tough to buy a company that maybe 95% of the company is in one brand, and maybe 5% is with the other brand that they are saying that they are going to invest behind. So I think they will do a good job in Heineken. I think that will actually be good for everyone. The premium segment should -- Usually growth, when so many people do different things at the same time -- and we have Stella as a great brand to compete against Heineken in that particular part of the premium segment. So I think this will potentially be one of those situations that is a win/win for both. But, potentially, if they do that, there may be an opportunity for us.

What is going to happen with the other 95% of the volume currently, which is the Kaiser brand? Would that open another opportunity for us? Maybe. So we'll be watching both segments -- how to take advantage, potentially, of a lack of focus on Kaiser and, at the same time, fight in the marketplace in the premium segment, which I think will be a good fight, but I actually think it's going to be a good one for both of us, just because the A and B segment is growing quite a bit.

Okay. Thank you.

Alan Alanis, J.P. Morgan.

I have a couple of questions; one regarding CapEx. This level of up to BRL2.5 billion, clearly it's a higher percentage of sales than you've had historically -- significantly. We thought that last year was, 2010, was going to be an exception. Could you clarify, Joao or Nelson, how much of this CapEx is going to manufacturing and how much is going to other? What would that other be, please?

I would say that BRL2.5 billion against the BRL2 billion is an important increase. Of course, the biggest increase was going from BRL1 billion to BRL2 billion. But, also, we had two years in a row of 10%. Of course, that was also, I would say, unexpected if we were to sit down two years ago. And we see the outlook. When you do a CapEx like that, you do, in part, for the year, but you also do, in part, for the next four years -- or for X years, if you want. We see a lot of good things happening in Brazil in the next three to four years, so we feel comfortable about increasing once more the level. And we've been saying that we have the appetite to go up to -- if we think we need to fine-tune this, we will. But we see the potential to grow.

We don't fully open how much goes to A or to B. What I can tell you is that, from -- if we compare the percentage of 2011 against the percentage of 2010, we are increasing even further the part that relates to industrial capacity. So, out of the BRL2.5 billion, the percentage that goes to manufacturing directly is an even bigger one than the one piece that was in 2010.

Got it. That's certainly useful. But, after 2011, what would be the right way of thinking regarding CapEx? If you could express it as a percentage of sales or in another metric, what type of reference would you give, Joao?

It's hard to give a reference. I think what we said maybe a couple of years ago or a couple of quarters, if you want -- We said, look, we continue to be paranoid and fanatic about maintaining the cost base as lean as possible. But we also said that, if we found good ideas, good innovation, good pipeline, we would invest behind them. If it took money for us to attack in the north/northeast by increasing the logistics cost, if it took us X millions to import 4 million hectoliter of cans, we would do all of that.

So, to make a long story short, I think that CapEx is a little bit the same way. If we continue to see Brazil booming, if we think that the 7.5% GDP will have a big impact in 2012 and then that maybe GDP will grow again significantly in 2011 and '12, then that will need us to put more money behind CapEx, we will do so. We want to play on the attack and having the means to play aggressively. Without having capacity and, especially, without having the flexibility to play this different game with innovation, we will not be really putting our money where our mouth is.

So I would say that, in the short term, the BRL2.5 billion makes sense after two years of important growth and Brazil looking good for the next three or four. It's tough to give you one. It will depend a lot on the continuation of this outlook. Okay?

Got it. I understand. In that same line of thinking, you gave out BRL5 billion of dividends in 2010. You're going to generate -- You're going to have operating leverage because you're growing now more strongly via prices and via volumes. It would be expected that your free cash flow will again increase in 2011. How do you envision your capital structure to evolve in the short and medium term?

Okay. Let me finish, maybe, the first question because it goes together with the second. And then I'll let Nelson take on the capital structure.

This positive problem on continuing to generate more cash also gives us much more flexibility to invest behind good projects. We were just running the number as we were speaking. I'd say we went from a percentage of between 7% and 8% to 10%, which may be -- of sales for CapEx.

Correct.

(Inaudible) may be a lot or not. Generating so much free cash flow and having so many good projects internally gives us the confidence to move from 8% to 10%. If we feel because the macro is not there or because the pipeline is diminishing for whatever reason, we can always bring that back easily. But, again, the very good free cash flow generation gave us also a lot of room to operate the CapEx on a more aggressive manner.

Just to finish the first part of the question. I give it on to Nelson.

I think, in terms of our 2011 outlook, we're not giving any specific guidance and certainly not talking about a number for 2011 in terms of total payout. But the fact is we have been consistently increasing our payout. We did it in 2010, 40% above 2009. We just announced another BRL1.1 billion as we talk about the capital structure, like you mentioned. We still finished the year in a slightly net cash position which as we said before, is not our goal at all.

Talking about the future, I think it's fair to assume that the sort of behavior we had in the last couple of years will be the natural scenario -- the base-case scenario for 2011. So I think then we want to be consistent also with that for 2011 in terms of payout strategy and use of cash.

In other words, you basically would feel comfortable remaining in a zero net debt position for the foreseeable future?

Yes. We don't see any major upside today in increasing our leverage at this stage, and we do see more of an opportunity of holding a little bit more of cash for a while, like we have been doing for a time. And, again, the total payout -- the trend will be to grow, like you said, given the outlook for 2011.

Got it. Okay. Thanks so much.

Gustavo Oliveira, UBS.

I have two questions. The first one is -- We're beginning to see some logistics improvements, and that's flowing through your EBITDA margin. Can you also already say whether you have your logistics optimized or if you're going to continue to see improvements in logistics going forward towards 2011?

As we said in the opening statement, in the speech, we invested in additional capacity during 2010. So the added capacity will already help us in 2011; again, not ideal. There's more things to do to get logistics to an even better place. So we'll see. We'll see some benefits already in 2011.

What we saw in the fourth quarter results -- it's not even close to be maximized. You would say so. It's kind of a ramp up, early stages of these logistics benefits.

No. Very early. I would say that we saw very little in the -- from a logistics standpoint, we saw very little in the fourth quarter. I think what we can expect is a better one from 2011.

Okay. The second question is related to your innovations and your premium existing strategy. First, on your innovation pipeline, do you think you have a very strong innovation pipeline without considering your premium existing strategy for 2011, and, therefore, your CapEx is as high as the BRL2.5 billion? How do you see that?

Yes. I see that the BRL2.5 billion -- If we go up to BRL2.5 billion, the BRL2.5 billion will help us a lot and give us the flexibility to play aggressively on the innovation pipeline that we have for the next couple of years, excluding, as you said, the premium. But the CapEx also do help us also for the premium. The CapEx is not just for the beer mainstream. The CapEx is for the combination of the beer mainstream -- We need that because we have a lot of good ideas in house. We also need for the premium because we want to go to other areas.

But we also have investments for CSD. We've talked a little about CSD. We have just launched a few new things also for CSD. We want to bet a bit more on innovation also for CSD and go into new segments, as we just said also on the speech.

In the CSD business, are you considering to increase your returnable presentation volumes? Is that the [diamonds] we're going to follow?

We're definitely analyzing it. It's a possibility. I would not rule that out.

Okay. But that's not necessarily why your CSD CapEx is growing. Right? There are other things (inaudible).

We don't open it up by segment, but the increase will help us. Let's say, if we say that we have in Brazil three segments, just brokering beer mainstream, premium, and CSD -- if I were to break like this, the CapEx that we are talking about will help us in all the three segments.

Okay. My last question is on your premium existing strategy. Our understanding is that Grupo Modelo is also negotiating, I imagine, with you and with other possible partners in Brazil to bring parts of their beers into Brazil. I mentioned that the outcome of the negotiations should be known by the market relatively soon. Do you think that that will delayer would that have any implications to the launch of the Budweiser? Would you postpone until you see a decision on the negotiations with Modelo? How are we thinking about it?

I cannot comment on any negotiation. What I can say is that we feel that the right timing -- We postponed the launch from last year to this year, basically, because we were out of capacity, and so it didn't make sense to launch that during 2010. So we took advantage to just better fine-tune the proposition we have at hand. And we'll launch that during the second semester when we feel that everything in terms of capacity will be where we want it to be. We don't see anything delaying that.

Okay. Thank you very much.

Luis Miranda, Santander.

On Canada, you were mentioning -- last quarter, you were mentioning about the rebalancing of the promotional read. And, now, you comment on the stable market share you have been able to sustain. I don't know if you could give us some color on the outlook for 2011 in terms of the trend for margins.

And a follow-up on the expansion programs. You mentioned that the BRL2.5 billion would go a little bit higher on the industrial capacity. Could we expect, similar to last year, maybe a 10% to 15% increase in capacity and also targeted -- highly skewed to the north/northeast? Thank you.

Starting just to stay in the same theme, already in 2010, the average of the industrial piece that went -- the average of the CapEx that went into industrial, the average that went to the north/northeast, was higher than the participation on the volume that those two regions have. And, definitely, that will continue even more in 2011, just because the most important investment is the new plant in Pernambuco. Just by that, it will take an important piece.

Regarding Canada, indeed we saw, definitely in Q4 -- I'd say the most positive point was the cost management side or the cost side, where we saw margin expansion. But, even in the top line, we had already for the third quarter in a row more of a stable market share; as we said, still below previous year -- below Q4 2009 -- but a more stable market share. And net revenue per hectoliter was flat, which is not great, one could say. But this is better than what we had before.

So I think we finally got to a balance which was since the beginning of our objective between share and profitability. But the major challenge remains on developing top line. We are confident we have the right plans in place to grow this top line based on field execution and brand-building. But the market is very competitive. This top line growth also depends on the overall pricing environment, so it's always difficult to predict. But we are confident, as I said, that we have the right plans to do it this time, already starting on a more stable foundation in terms of share and price and with our financials, let's say, protected by the good cost management evolution we got there.

Okay. Thank you.

This does conclude our question and answer session. I would like to turn the conference back over to Mr. Nelson Jamel for any closing remarks.

Thank you very much, Maureen. Thank you, everybody, for your attendance today. We are very happy with 2010 results and also excited for 2011. Hope to talk to you guys soon. Bye-bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.