Ambev SA (ABEV) 2011 Q3 法說會逐字稿

Good afternoon, and thank you for waiting. We would like to welcome everyone to Ambev's Third Quarter 2011 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. (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 2011 third quarter results.

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

Turning to the results, during the third quarter, our consolidated EBITDA was close to BRL3 billion, which represents a 13.5% organic increase when compared to the third quarter of 2010, while our margins expanded 110 basis points to 46.3%.

Our Brazil EBITDA increased by 13.3% in the quarter, supported by a 9.9% revenue growth and EBITDA margin increasing by 150 basis points to 49%.

Our Latin America South operations delivered during the quarter volume growth of 2.3% while growing EBITDA by almost 25%.

In Canada, beer volumes were almost flat, and our margins increased by 190 basis points, mainly due to lower costs year over year. As a result, our EBITDA increased by 6.2%.

Normalized profit reached BRL1.65 billion in the quarter, which was 9.5% lower than last year same period, and normalized earnings per share declined by 9.9% in the quarter.

I'll comment further on profits at the end of this call.

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

Good morning, and good afternoon, everyone.

Starting with the industry evolution in Brazil, even facing a tough comparison against the third quarter of 2010, the beer industry volume growth has improved.

In the other businesses, HILA-ex and Latin American South, the industry was also positive, driven mainly by economic recovery, while our Canadian industry is still recovering at the lower pace.

Going deeper into Brazil, our beer volume growth was 1.7% in the quarter, impacted by a better industry and a 69.6% average market share in the third quarter, which is our second-best-ever market share for the beer business, and it represents a 150 basis point increase since the beginning of the year. Our beer net revenues per hectoliter in Brazil increased by 8.4% this quarter, mainly as a result of price increase and a higher rate of direct distribution, of course, partially offset by higher taxes, mainly the excise federal one.

Our innovations are sequentially increasing their share and helping to drive both market share and brand preference gains. Today, they represent already more than 10% of our total sales, and we are pleased with the performance of Antarctica Sub Zero and Skol 360. Both liquids have helped the mother brand to rejuvenate by bringing them new attributes.

We also introduced a new Brahma can in Sao Paulo, the Copaco. The Copaco has a removable lid, which provides a much larger than normal opening and is designed to give the consumer the experience of drinking from a glass but with the convenience of a can.

We'll keep our focus in the premium beer. Stella Artois is now growing at a rate of more than 200% in 2011, driven by significant growth in brand equity and better execution.

We also launched Budweiser, in four presentations, initially -- the 600-ml returnable glass bottle, the 12-ounce longneck bottle, the aluminum bottle, and the 350-ml cans. Bud sales in the first two months have exceeded expectations, and, although they will not be significant for 2011 results, we expect Bud to play an important role going forward to help the segment to grow ahead of the mainstream beers.

We keep investing in capacity expansion and flexibility for our plants in order to guarantee our nationwide rollout for some of our innovations.

Now, talking about our cost of goods sold, Brazil beer cost of goods sold per hectoliter was up by 4.1% in the quarter, as we were negatively affected by higher packaging and raw material costs, partially offset by better currency hedges and an easier comparison due to the imported aluminum cans in 2010.

Beer SG&A, excluding depreciation and amortization, increased by 6% in the period as a result of higher distribution and marketing expenses, as well as general inflation, partially offset by our cost initiatives and lower admin expenses.

Our capacity expansion year to date has already reduced the extra impact of these logistics costs, and we expect the new Pernambuco brewery, which just started operating, to help even more our results in the fourth quarter.

Normalized beer EBITDA finished the quarter with a 14.8% growth versus same period last year, and EBITDA margin expanded by almost 200 basis points.

Moving to CSD and nonalcoholic, non-carbonated business, our volumes in Brazil delivered a 6.4% growth in the quarter as a result of industry consolidation and industry conditions and 70 basis points of market share gains as a result of strong investments behind our brands and the new, returnable, glass bottle from (inaudible). Net revenues per hectoliter is back to positive growth of 1.3% in the quarter as a result of price increase, which was partially offset by excise tax increase and a negative mix.

Cost of goods sold per hectoliter decreased organically by 2.4% due to better currency hedges and, particularly, better sugar hedges for this quarter, partially offset by higher packaging costs.

SG&A, excluding depreciation and amortization, increased by 15.6% in the period, mainly as a result of phasing of commercial investments and higher logistics costs, partially offset by lower administrative expenses and cost initiatives.

We were able to deliver a 6.1% EBITDA growth, driven by a 7.7% revenue growth, partially offset by a 70 basis points margin contraction.

Turning to HILA-ex, volume increased strongly, by 12.6%, in the period, mainly as a result of industry recovery in the region and market share gains in some countries. However, we delivered negative organic EBITDA growth of BRL6.2 million, mainly because of higher logistics costs and general inflation.

Moving on to Latin American South, we achieved a 24.7% EBITDA growth as a result of strong revenue management and volume performance. We are enjoying market growth, mainly in Argentina and Chile.

Our market share has remained stable in the region, and we continue to focus on the strong support to our mainstream brands and innovations in the beer business. As examples, we launched nationwide Quilmes Bajo Cero and the nonalcoholic variety, Quilmes Liber. We also launched Brahma wide mouth in Argentina and Pacena Black in Bolivia, among others. We heavily supported our main brands in the region through strong communication and a robust innovation pipeline.

Our beer net revenues per hectoliter grew as a result of price increase in line with inflation and effective trade spend management aimed at maximizing our top line.

The premium segment continues growing, with Stella Artois' strong performance being an important source for volume and profitability growth in Argentina.

Our soft drinks business increased its volume by 1.7% due to a slight market growth but also influenced by the Twister brand launched in Argentina, a non-carbonated, flavored water.

Price increases were introduced in the industry to offset severe cost pressure. We will continue focusing on revenue management initiatives and innovations to keep recovering our margins.

In terms of costs and expenses, we continue to experience higher cost of raw materials, labor, and inflation. We are suffering increases in beer commodities and packaging materials. Cost increase in soft drinks include sugar, PET, juices, and others. We keep working hard on implementing cost-cutting initiatives to overcome these cost pressures and maintain our margins.

In spite of this cost pressure, we have been able to deliver double-digit EBITDA growth in Latin American South in both beer and soft drinks as a result of strong revenue performance and continuous effort to achieve high efficiency levels.

In summary, LAS once more delivered solid EBITDA growth and strengthened further our brands as we continue to lead away in the premium segment while strongly supporting our mainstream brands.

Turning now to Canada, Labatt had a strong third quarter with 1.7% growth in net revenue and 6.2% growth in EBITDA versus third quarter of 2010, mainly as a result of better industry performance, pricing strategy, and strong fixed-cost management. The Canadian beer industry was roughly flat versus third quarter of 2010, continuing the trend showed in the second quarter.

We continued to invest behind Budweiser and hockey, Canada's most popular sport, as well as in the new marketing campaigns for Bud Light and (inaudible), all of which are showing promising results. We have also increased our efforts behind our value brands to get our fair share of the segment. The increased brand health and positive share momentum generated by these campaigns, plus our disciplined price strategy, have allowed us to increase our net revenue per hectoliter by 1.8% versus third quarter 2010.

COGS decreased by 2.9% versus last year, while SG&A, excluding depreciation, decreased by 2.7% in the quarter due to the timing of our marketing investments and savings in distribution.

Looking forward, we continue to work on maximizing our market share and profitability (inaudible) in Canada. We will also look for opportunity to increase price across selected markets to offset any impact from the current inflationary environment in Canada while continuing to execute against our new, focused brand campaigns and Budweiser/hockey to strengthen our positive momentum in brand health and market share.

Moving back to the overall business, I want to wrap up by saying we are pleased with our consolidated results to date. We prepared ourselves for a tough year volume-wise and were able to take advantage of better industry performance this quarter. Through pricing strategy and cost management initiatives, among others, we delivered a 13.5% EBITDA growth this quarter.

Looking into the different businesses, in Brazil beer, we expect to deliver the best margin expansion for 2011 in the fourth quarter, as we have an easier comp due to the highest impact of 2010 imported cans and logistics costs in the same period of last year.

In soft drinks, we will focus on top line growth through our innovation rollouts to improve our market position while working on revenue management to protect our profitability.

Last, we again delivered solid EBITDA growth and strengthened ever further our brands, as well as continued to lead the way in the premium segment, as well as investing in our mainstream beers.

In Canada, industry volume trend has improved, and we will keep investing further in our focus brands to drive top line growth and pursuing further cost-savings opportunities.

Finally, in HILA-ex, we continued to grow volumes ahead of the industry and remain on track to deliver our long-term strategy in the region.

Finally, I want to thank our people, our most valuable asset. Their ownership culture and sense of urgency were key in delivering these results year to date.

Now I would like to go back to Nelson.

In this final section, I'd like to guide you through the main items between the normalized EBIT of BRL2.6 billion and profits of BRL1.65 billion, as disclosed on page 3 of our release.

Our net finance results were BRL306 million negative, which is BRL354 million worse than last year. This is mainly explained due to unrealized foreign exchange translation losses on intercompany payables and loans following the real depreciation. This impact is economically offset by the foreign exchange translation gains from offshore companies reporting in dollars and in Canadian dollars that are registered directly into shareholders' equity.

Our effective tax rate in Q3 2011 was 26.7%, compared to Q3 2010 rates of 22%. This increase was due to a difficult comparison with third quarter 2010 because of one-off tax benefits we had last year. The year-to-date decrease in the effective tax rate is mainly due to an increase in tax incentives and other tax adjustments. We expect to deliver an effective tax rate for the full year pretty much in line with last year.

Our net cash position was about BRL1.3 billion in the third quarter, compared to a net cash position of BRL200 million at the end of December 2010. And, during the third quarter of 2011, we announced BRL2.35 billion in dividends and interest on capital to be paid on November 18.

Finally, we remain committed to our CapEx plan, particularly in Brazil, where we invested BRL2.1 billion year to date, as we do see it critical to seize the growth opportunity in the beer industry moving forward.

I will now hand it back to the operator and open up for questions. Maureen, could you, please, help us?

(Operator instructions). Alan Alanis, JPMorgan.

Congratulations for the results. I have a couple of questions. The first one is more of a technical question regarding these FX losses. Could you give us a little bit more color regarding the nature and the amount of these intercompany payables? I assume they are with ABI. After you do that, if you could remind us the comparative economics of the import brands of ABI in Brazil, which, as you mentioned, 200% growth in Stella Artois and Budweiser ahead of plan -- how does the profitability of these brands compare with your local brands? What's the agreement that you have there with AVI? That would be my first question, and I have one follow-up after that.

Well, first of all, with regard to the FX losses, we only talk here, of course, about intercompany transactions within ABI -- sorry -- within Ambev but with ABI, as you mentioned. So, within Ambev, we have pretty much exposures in our intercompany transactions with Canada and Argentina and also, in dollar terms within companies in the Group. So, in that sense, the total amount of these company transactions were equivalent to around $1 billion in terms of exposure. This exposure breakdown is pretty much around 10% to pesos Argentine, 40% to Canadian dollars, and 50% in dollars, which is related to our malting plants, where the functional currency is dollar.

So, if you think of a normal FX rate variation, these wouldn't be significant in our results. So, just for you to have an idea of the materiality we are talking about, if you take BRL0.10 per dollar FX rate change a year, which would be around 5% if you consider it either devaluation or depreciation, this is implying less than BRL25 million of noncash financial result impact in the quarter.

The problem is, in Q3, because of the extreme volatility we had in the financial markets, we had BRL0.30 per dollar, which is around 20% real depreciation just in three months. So that's what explains this impact on our financial results, which, again, is a noncash impact as the negative impact in our financial results is offset. There is -- it's totally linked to an equivalent impact, which is taken directly to our balance sheet, [ICTA] on our shareholders' equity.

Okay.

On the second part of your question, as I said, it doesn't refer to anything in terms of our transactions with ABI. But it's specifically on the import brands we have, like Stella Artois and, now, Budweiser, of course, where they had more of a premium positioning, so we have a higher price to consumer. But, for us, premium position is not only about premium price but also premium (inaudible) and premium EBITDA contribution. So the EBITDA contribution of these brands into our bottom line is higher than what we get with our mainstream, local, owned brands.

That's very clear. Very useful.

One last follow-up, more for Joao. I don't know, Joao, if you saw a report we put out recently regarding the cans versus glass growth of beer consumption in Brazil. We've talked with different industry participants, and everybody seems to agree that the vast majority of the beer consumption in Brazil in the last five years has been coming more via cans rather than glass. What are the strategic implications for your business going forward? I know you are addressing this and also gaining share in cans via the innovation. But it would be interesting to listen to your thoughts in terms of how do you see the Brazilian beer industry evolving, specifically from a packaging standpoint.

Sure. Yes. Of course, indeed, we saw the report. I think, in terms of direction, it's, of course, correct. I think the intensity doesn't necessarily reflect the intensity of our own numbers. Of course, we have the best mix of the industry. But we know of some of the other players -- we have a view that, especially, the one that was sold now has more of a returnable mix rather than a one-way mix. And then the other two are much more geared towards cans.

I think there's been a direction to this, not, again, to the intensity that the report reflects, in our own opinion. But, given that we agree with the direction, we decided to focus a lot in the past few years in making the returnable presentation more accessible to our consumers. So you are seeing this with the liter. You are seeing some of this, in a way, with the pit stops in the off trade so that we can give the consumer that goes to the off trade the chance again to go back to returnables.

One thing that helps us in some manner, and you are very familiar with this example, is Coke has also been doing this now for eight years in the soft drinks, putting back in the marketplace the one-liter, the 1.25-liter, the PRBs. So you are seeing a growth, initially, especially in the off trade, one to four checkouts. But then you're starting to see some of that also in the off trade, five-plus checkouts.

By doing that, I think, during 2011, the slope of the curve has changed, for sure, for Ambev but because Ambev is an important participation in the mix of the industry. It has also changed the slope towards a more healthy curve, if you want, for the next few years. So our goal with the liter is to provide consumers [which] we think they want, and we are seeing that in other beverage occasions. We think that's happening. The trends are there. And, to a certain extent, we can impact that shift by offering them in occasions and in price points what we think may be more convenient for them.

That's very clear. Thank you so much, and congratulations again.

Jose Yordan, Deutsche Bank.

My question is about your second-to-last statement in your comments in your press release. You're basically saying that your EBITDA growth in the fourth quarter is going to be, year on year, even better than during the third quarter. I guess, looking at last year's fourth quarter, the volume comment is understandable. You have much easier comps. But, in terms of your SG&A last year, it had been down year on year, et cetera. So, are we -- ? Is this -- ? How comfortable are you with making the statement at this point? And is it based on a price increase which we haven't really heard confirmation of when and by how much you raised prices in October or whether you waited until -- you're going to wait until Christmas, et cetera. Any color on how you're going to achieve this, given the, essentially, tough SG&A comparison that you have versus last year? That would be helpful.

Let me start the answer, and then I think Joao can also add on this.

On everything that we control, of course, it's much easier to make a forecast. For sure, you already mentioned the fact that we have an easier comp with regards to volumes, since last year, for the full year, we grew more than 10% our beer volumes, for instance. In the last quarter, we just grew between -- around 3.5%.

And, on top of that, as we mentioned, there are two important elements. One is the easy comp you have on COGS because of, mainly, the impact of the imported cans we had last year. For you to have an idea, around 75% of the negative impact of the imported cans we had in 2010 was in Q4. So that's, of course, something that we know is an easy comp. So we have full control of that, so that's going to be an important driver for the EBITDA growth, as well as the fact that our logistics costs had increased last year. And we still show this, especially in the first half of this year. It's getting better quarter after quarter. In Q3, it was already better. Now, in Q4, we know it's also going to be better, given all the footprint enhancements that we have in our current scenario.

These are two things that are under control. So it's cost-related, internal side, easy comps. That's the first thing that gives us the confidence to go -- to have a better result than the one we already had in Q3. And, by the way, it's not different from what we have been kind of guiding since the beginning of the year. Even when you think of our COGS per hectoliter indications, we said COGS per hectoliter would be in line with inflation for the full year. You know that, in the first half, we are growing high, single digits. So, of course, for the balance, it has to be much lower that we stick to our guidance.

I think that's more the cost side. I think Joao can comment on the top line about what gives us confidence on the Q4 results.

To be quite honest, I think Jamel covered most of it. I think we have a lot of things, quote-unquote, coming against us fourth quarter last year, such as the logistics cost, the imported cans on the (inaudible) under pressure, volume deceleration also in the fourth quarter. So it was a combined bag of issues, expected, but, in a way, they made the comps easier.

So, I guess, we also mentioned at the end of the (technical difficulties).

Joao, you got cut off right before you were going to tell us how much you were increasing prices and when in the upcoming weeks.

That's an amusing comment, Jose. Okay. I was about to say this, but then I changed my mind. So, luckily, the call was cut off, given that I had some more time to think about this.

I was just saying that everything was sort of against, and now everything is sort of in favor. And I was about to say that, also, at the end of the first half, we mentioned that we expected a better second half. We had the best quarter of the year in the third quarter. And we expect to continue to be that way because all the cost inputs from [VAC to a VLC] standpoint are coming better. Plants are coming to fruition as the fourth quarter starts. And the volume has -- in the third quarter, that has picked up. Some of that trend should -- we hope that to be in place. If just the volume continues to be there, even in the same type that we saw, even that everything else is better off -- just by maintaining that, we should be in a much better position. And that's why we said we feel that, both in terms of EBITDA growth and margin expansion, especially, we should be okay in the fourth quarter.

Okay. Great. And, if I can have a quick follow-up, I saw a Bloomberg article recently saying that you prepaid your 8.75% notes due 2013. Any plans to refinance those, or you're just taking that all together with cash and leaving the balance sheet as is for now?

Indeed, that's one step as part of our overall capital structure management. You see that, in Q3 and Q2, our gross debt was pretty much flat. For Q4, we expect something like this because, of course, the same way we are prepaying this debt, these notes you mentioned, we are also having new funds that we are raising; for instance, [BNDF] loans, to support our CapEx investments. So, pretty much, we expect gross debt to stay pretty much where it is by the end of this quarter as well.

Great. Thanks a lot.

Celso Sanchez, Citi.

First is a historic question, actually. Can you remind us when in 2010 in the fourth quarter you started raising prices and when you wrapped that up? I remember it was very early, unusually early. And I can't remember if it was all wrapped up kind of by the first week of October or what. Can you remind us of that, please?

We don't like to get into the specific dates in too much detail. But, in general, we move prices in the fourth quarter. It's true that it was slightly sooner last year. And one of the reasons to be slightly sooner -- you remember that, during 2009 and 2010, we were pretty much for the whole time very close to capacity. One of the reasons for anticipating it a little bit was somewhat due to the capacity. We also had postponed launch of some new packages and new brands. Because of that, you focus on what we already had.

And, given that we don't have that issue any longer, we went back to the more traditional movement during the fourth quarter. So it's happening as we speak. It's different pack by pack and region by region. But it's happening during the fourth quarter, in line with all long-term strategy of being in line with inflation, to find the right mix between per capita growth and maintaining the sort of profitability that we aim to look for.

Right. But this is a historical question and not really a current question. My understanding was that last year was done as much as a month to a month and a half earlier. Is that a fair assumption or not, just so I can have a sense of comparability.

I think the historic level -- I hope I answered the question. Therefore, we maintained the historical behavior of being consistent with price in line with inflation during the fourth quarter. And you are right. It's, I would say, more towards a month than a month and a half, as you mentioned.

That's fine. That's helpful. It really just helps context in some other revenue drivers.

On the soft drink side, if I could ask another question, you had mentioned, I think, over the -- early part of the year, the assumption was COGS per hectoliter for Brazil beverages roughly in line with inflation, along with the long-term goals, with Brazil beer slightly better and soft drinks slightly worse than in line with inflation. And then, I think, you revised that, maybe in the last quarter or a few months ago, with soft drinks doing a little bit better and, therefore, in line with inflation. I was pleasantly surprised with this quarter's COGS per hectoliter. Should we be thinking maybe now about, even, an upside risk or benefit that COGS per hectoliter for soft drinks could also be below inflation for the year along with beer? Is that possible? Or is there something I'm missing for the fourth quarter in terms of comparability.

I think you properly picked up the evolution of our expectation of the COGS per hectoliter for soft drinks. At the beginning of the year, we did -- we had a more conservative view, especially because, in soft drinks, as you know, we have less of an ability to hedge our exposures in commodities, particularly in PET, which we're not able to hedge, different from beer, where we pretty much hedge important things like malt, aluminum for the aluminum cans, and dollars. In CSD, we have less of a predictability in this way.

So what we saw in the course of the year, especially in PET resin is that the commodity price was going down (inaudible) to benefit from that, particularly in Q3. That's the only element we had to watch out that we had even hedges on sugar -- we had -- if you look into the commodity curve, we had a window there for sugar price way down somewhere in Q3 last year. And, of course, we took advantage of that. And, given our hedging policy, locked even sugar at lower prices than the previous year. So we had this one-time benefit in sugar hedges, which is not going to be the case in Q4.

So we should have for the full year CSD -- for sure in Q4 we should have COGS without the same benefit we had in Q3. But, again, when you take everything year to date, it could add up to something slightly below inflation in soft drinks and the overall Brazil COGS growing in line with inflation.

Okay. Within soft drinks, can you give us -- dimensionalize for us maybe the returnability impact on COGS; i.e., the lower expenses potentially associated with returnable bottles. What percent of your volumes now are returnables in soft drinks?

It's still small. It is not taking a big impact in our COGS. What really drives the impact there is, of course, dollar, currency, PET, and sugar. And, of course, we have always an upside when we have a quarter of higher volumes, where we dilute some of the fixed costs, and the other way around in a period where seasonality doesn't help us. The returnable mix impact is still very, very small in soft drinks.

Okay. Thank you very much.

Lauren Torres, HSBC.

My question relates to what you expect or how you're thinking about industry growth in Brazil for beer, I guess, next year, as you always -- have been mentioning that the minimum wage increase and talking about opportunities in the north and northeast of Brazil. Just curious. Cycling some easier comps looking into next year but also looking at your growth rates in 2010, I'm curious how you're thinking about, either for you or the industry, what type of growth should we expect to see flow through.

And, similarly, on the pricing side, I know you're not specific about your pricing initiatives. But how do we think about your actions this year? Should we expect anything next year with respect to tax increase or something that's going to affect that volume/price mix?

First of all, I'll just mention that we like to state most of our beliefs and whatever sort of guidance we give as we progress towards the end of the year in the announcement of the fourth quarter results. So I'll be a little bit open on the specifics, given our guiding policy.

So, for the extent I can mention, I think, from the pricing standpoint and the prices standpoint, there's always a very important lever. I think 2011 was a very good year in terms of showing that we can make choices. We went for more growth from a volume perspective and then, maybe, somewhat less price but, in both cases, achieving important or significant EBITDA growth. And 2011 was somewhat the opposite, where pricing discipline and pricing initiatives as well as cost management was the main lever in terms of top line growth.

I think an overall comment, potentially, 2012 has everything to be a good mix of price management, maybe not 2010, maybe not 2011, so maybe somewhere in the middle. And the same thing goes for volume. One thing, of course, will talk to the next.

What should be a potential positive addition to this is the growth of the premium segment, which we didn't focus so much during 2009 and 2010. That combination of us not focusing but, also, the consumer with less disposable money in their pockets -- they were looking for different situations. We are seeing that change towards 2012, which is in line with our own internal objectives of growing the premium segment. So, if we can have a more balanced price and volume equation for 2012 and add on top of that this premium focus based on a very strong premium strategy -- and we are seeing some of those results already in the third. We'll most probably see it in the fourth quarter, get us excited with the perspectives for 2012.

That's pricing, a little bit of volume. You actually mentioned some of the things that make us motivated for the future. In the short term -- I'm talking about 2012 and not -- Olympics and the World Cup and things like this. We see our strategy in the northeast/north, the (inaudible) region, the (inaudible) strategy, working. I mean gaining share, volume growing above average. Some of the programs in terms of liquid innovation, package innovation, but also new news in terms of events and trade programs. There's a nice combination that is working for us in the northeast/north region.

That will continue, for sure, for 2012. That, combined with the overall impact of the minimum wage increase, put us on a chance of having a good momentum back in 2012 in terms of volume, which, again, may give us good options for us to exercise now not from a micro perspective but from a macro perspective, from an external to internal situation.

So that's sort of as candid and as open that I can be about pricing and volume perspective, given our guiding policy.

That's helpful. Also, if I could just ask -- InBev actually made a comment this morning or answered a question with respect to the Budweiser launch in Brazil and how it's going. Just curious to get your read on that and expectations for carrying that through next year.

I think Brito mentioned some of the very early impression, which we can only, really, give the early impression in terms of the volume and the reordering that was mentioned.

From our end, the perspective is, as from Alan's questions, premium brands will mean premium (inaudible), and that's already happening in the marketplace. So we are happy with the results. It took us more than a year or year and a half to put the brand in the marketplace. It was work. We localize or tropicalize, if you want, our value-based brand approach to Brazil. With the great times coming, we're saying just slightly change because great times are coming to Brazil in terms of World Cup, in terms of Olympics. It's a good way to position.

Very good test and initial acceptance in terms of the liquid. We were the first ones to simultaneously launch in Brazil also the new, visual brand identity, which is much more modern and appeals a lot in the Brazilian consumer research. So very good link with the consumers from a liquid standpoint. We saw that in the research and are seeing that in the marketplace.

From an emotional standpoint, yet to be seen, but the initial reactions were positive. So I think it was a good thing that we took the right time to arrive to the position. And the good thing is, now, it gives us a very strong portfolio from the premium perspective with Original, Bohemia, Stella, and Bud. We feel very good about that combination with different positionings, not really overlapping too much. So we're excited about the current situation, the current volume but, even more, what we think it can do to us during 2012.

And the national launch? That's fourth quarter or first quarter?

It has been -- We have been already growing. We started in Sao Paulo and Rio and, since the beginning of the fourth quarter, which is the beginning of October, we have also started growing to the main capitals of Brazil.

Okay. Great. Thank you.

Antonio Gonzalez, Credit Suisse.

First, I wanted to ask -- today, during ABI's conference call, there were some comments on cash allocation, maybe looking into next year as ABI reaches their leverage targets. Those comments were in the order of ideas of trying to prioritize maybe whether they would first give dividends or share buybacks or emphasizing to any kind of further M&A. Could you perhaps help us understand, at the Ambev level, if you can prioritize maybe those cash allocation decisions similarly?

Secondly, I have a question on soft drinks, which I'll make next.

In terms of our use of cash, of course, our priority is always to invest in good business opportunity, and we have been doing this. I think the best example is what we have been doing in terms of increasing capacity and increasing CapEx in Brazil.

But, of course, even after that, we have been generating a strong free cash flow, which we have been consistently paying out. If we look into the last years, it's a very consistent track record of dividend yields around pretty much the same level, between 5% and 5.5%. [Then I'm including here], which is our primary source of returning cash to shareholders, which is the interest on capital. Given it's a tax advantage here in Brazil, that's what we're going to always do first and prioritize to the limit.

On top of that, we normally complement with dividends. According to our bylaws, we always pay, minimum, 35% of our net profit. Of course, we have been doing much more than this. This pretty much is the sort of behavior we have been -- how we have been tackling our excess cash, if you will. Of course, this (inaudible) for the future, but we don't expect any change for that moving on.

Okay. That's useful. Thanks. Secondly, I was wondering if you could help us understand a little bit the dynamics of the market share gains that you've posted on soft drinks in Brazil recently. Perhaps if you help us understand how much on a per-channel basis these gains are coming from -- I understand the introduction of returnable bottles has been very important, and it's mostly focused on the modern trade. So, perhaps, if you can help us understand if you're also seeing these kind of gains in the traditional channel, that would be very helpful.

I think what we said in the beginning of the year is, given that we had what we think was a successful strategy in implementing innovation, putting into the marketplace the healthy pipeline of innovation that we had, both in terms of liquid innovation and package innovation, learning a lot, also, from what we saw in other markets but, also, even in Brazil in the soft drinks scenario, either from ourselves or from competitors, we're able to reflect that in the beer strategy on a successful manner. Growth in 2009 and 2010, options in 2011.

We thought it was time for us to sort of also put in the marketplace a healthy pipeline that we're developing soft drinks to make -- to change our position in the game so that we could be not just -- we have more options in terms of exercising our market position.

In order to do that, we thought it was important to develop a combination of also liquids and packaging innovations. We mentioned about the introduction of Guarana 1-liter bottle in the beginning of the year, but we also mentioned about the new fruit H2OH that we launched, about the [citrus] product that we launched, about Fusion. We put a lot of new products in the marketplace. We're very, very happy with some of them, and they are an important part of the game here. And, also, the revamp also, if you want, or the right, new (inaudible) position also for the Pepsi brand.

So the results so far -- you are right. As you start those launches, the off trade has a much more important place in the soft drinks segment than in the beer segment. This is more than 50% of the market, so any launch has to be successful in that segment to last. You are seeing the liter returnable in some of the cities. It starts to focus in the beginning always in the off trade but more on the one to four checkouts, very successful.

So I would say most of the things we did, they were able -- the combination of Guarana 1-liter having reached its all-time share overall but, especially, in the Guarana segment not just because of the liter bottle, but we have reached all the best preference and brand health indicators for Guarana Antarctica brand ever we saw. So that combination of a much healthier, much younger brand being supported by new packaging and, then, the overall portfolio being supported by new brands -- that was a very powerful combination that worked for us in the third quarter both in terms of share, which was, in a way, one of the main initiatives or one of the main strategies for 2011, but protecting the profitability. That's sort of the combination.

We think there is more to do, even in the off trade, even before focusing on the trading on the route. We actually are doing slightly better. We had an objective of also growing on the on trade. We actually reached that objective sooner than we expected. But we think there's a lot more to do on the off trade and continue to change but at a lower pace the situation in traditional and on the on trade.

Thank you very much.

Gabriel Lima, Barclays Capital.

My question is regarding the Pernambuco plant. Basically, how is it doing? In the ABI release, they mentioned some delays in the startup due to some heavy rains. Can you confirm that?

Yes. Indeed, we had some delay on the go-live of the plant. The fact is we lost pretty much one month or a little bit more than this according to original plan. But the good news is that we already started the production (inaudible) during the ramp-up period, which is always a period where we have low productivity, less volume coming out of the line.

But it's an important step for us, thinking of what Joao just mentioned in terms of our focus in the north and northeast region. There, we have been pretty much increasing capacity in four plants, an important fact that we did in the last 18 months, plus this brand-new brewery in Pernambuco. We are really, I would say, equipped to deliver on our plan moving on.

Okay. Can you confirm when you started the plant -- to operate the Pernambuco plant?

Beginning this month.

Also, they mentioned some extra SG&A expenses due to the delay. Can you also confirm that and maybe give us some color on the amount of it, the extent of it?

We have an impact, of course, due to the delay, but it's going to be one of the most important plants for us in our footprint and, of course, given the (inaudible) already for a while about this hitting Brazil. Our footprint was not yet optimal to cope with (inaudible) north and northeast regions. We incurred actual logistics costs. That was still the case in Q3, it's fair to say.

Of course, it has been worse in the past. If you look into our SG&A and the way we have been reporting this on a quarterly basis, we have been always saying that we expect to have a much better footprint that we -- especially from this fourth quarter onwards. But it was better than Q3. I think we're going to be, I would say, close to an ideal situation as we start 2012. But, in the end, it meant some extra costs in our SG&A.

The good news is that we have been working also on all the levers that we have at our hands. And we took an important approach to our fixed costs right in the beginning of the year when we saw a soft industry, top line not growing as fast as we wanted. I think (inaudible) and, I think, have been successful in this. We took the right cost-reduction measures, and, therefore, we have SG&A totally under control and saw margin expansion in this quarter. I think it was even above the market expectation, given everything that's going on.

Okay. Very clear. And, regarding, lastly, the tax benefits by investing in the regions, is it fair to assume that we could expect a lower ETR going forward because of the launch of the new plant, or you already benefited by the plant, even though you haven't started -- before starting to operate it?

We have -- Every time we invest in this region, we always discuss and can get fiscal benefits, be it on the VAT level, be it on some income tax incentives in the region. So, of course, as we invest -- as we have been investing more in this region, this, of course, will flow into our effective tax rate. And that's why, for instance, it has been indicated that, for the full year, we should have an effective tax rate around 21% or 22% against our weighted average corporate tax rate of 32% or 33%. That's also part of the equation; of course, in the end, also, the benefit of the interest on capital payment that I mentioned and other tax benefits.

Sure, Nelson. I get that. But, by the fact that you are starting to operate the plant just this month, does that -- would make any change in our tax benefits in the region or not? It's just a matter of the fact that you're investing in the region? You see what I mean?

No change. There was a very small delay, and there is no impact from -- on the overall number.

Okay. Thank you.

Gustavo Oliveira, UBS.

I have, first, a question on the beer growth in the third quarter. Were you actually positively surprised about the growth we saw in the industry in the third quarter, knowing that, in the second quarter, actually, the industry growth was pretty weak, and your volumes in the second quarter were very weak. Most of the Brazilian consumer companies are reporting weak growth in the third quarter or a deceleration. Were you positively surprised to see that? Within that same question, what has been the trend in growth month over month in the third quarter? Were you seeing an acceleration or a deceleration in growth?

I guess what happened this year and has happened in other years -- we usually feel -- one of the first ones to feel the pressure of, let's say, some sort of slowdown in the economy. So I think we mentioned in the first quarter -- we were one of the first companies to mention that volumes were slowing. Everyone was surprised. And then you saw in the second and in the third a lot of other sectors in the industry also slowing down. So, usually, we are the first ones to feel that there is a slowdown, but we're also usually the first ones to feel that there is a pickup. So I think that's why you saw us maybe with a tougher -- from a volume perspective, it was a tougher situation the first quarter and then getting better as we progress toward the third.

I think, when you look at the Central Bank strategy of the interest rate cuts, I think it was a combination of a global economy slowdown worries but also trying to once again give some momentum to the Brazilian economy. And we started to [saw] that already in the third quarter. I think that's basically it.

So the growth trajectory actually is accelerating during the quarter. Right?

We are not mentioning anything about the fourth quarter in specific but just trying to give you a trend. We saw the slowdown before everybody else, and then we're seeing this pickup maybe before some other sectors.

Okay. Within that context, you mentioned that you had CapEx of BRL2.5 billion for Brazil in 2011. You already invested BRL2.1 billion. Do you think that you would anticipate CapEx from 2012 into the fourth quarter already and, therefore, your CapEx -- your actual CapEx is going to be higher than your original guidance? Or does it make sense to do that? Most of your CapEx for the year (inaudible) -- you don't have to accelerate CapEx in the fourth quarter?

As we said, it was important for us to -- in the case of our CapEx to make the investment as early as possible in the course of the year so that we can get ready for Q4, when it really counts. It's very difficult for us to speed up investments in Q4 because have our breweries fully focused on production to deliver the volume required in Q4. Given seasonality, it's a stronger quarter for us. So far, we are pretty much tracking or trailing in line with the plans for the BRL2.5 billion full year.

Okay. And the last question, again, back to the Brazilian soft drinks business. If, in the fourth quarter, if I understood well from the previous questions -- in the fourth quarter, the COGS per hectoliter is going to be a little bit heavier than it was in the third quarter. And, in the third quarter, you didn't have any operating leverage. Should we expect another margin contraction in the fourth quarter on the EBITDA level? And, perhaps, if you could help us understand also in the third quarter why you didn't have operating leverage.

In the third quarter -- you mention right the operational leverage. The main reason in the third quarter why we saw the margin contraction was mainly because of SG&A growth, and that was, part of it, linked to the volume growth. But the main reason was phasing of our commercial investments. If you see our SG&A in Q3, it increased around 15%. But, in Q2, it was down by 16% -- SG&A cash. The major reason why we saw in Q3 a margin contraction was very good gross profit or gross margin expansion but some tough comps in terms of phasing of (inaudible) investment. If you look year to date, that effect, of course, is (inaudible).

For Q4, we should have, as I said, a worse performance in terms of gross margin expansion because COGS per hectoliter should grow instead of the decline we had. But then we should have SG&A more into a normal level. So, although I'm not giving you any specific guidance on margins or Q4 numbers, I think the overall trends we saw year to date -- (inaudible) saw year to date in soft drinks should remain for the balance of the year.

Okay. It's very clear. Thank you.

Back to you, Maureen.

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

Before Nelson closes, I'd just like to mention -- to take the opportunity to announce that Francisco Sa will be our new zone president for Latin American South. This will be effective January 1, 2012. Francisco is currently zone president for ABI at central and eastern Europe and will be coming back to Ambev, replacing [Bernardo], who will take another role.

Therefore, I'd like to thank Bernardo for his great contribution to Ambev and welcome Francisco back to Ambev in this new role.

Okay. Thank you, you all. I think we've -- (inaudible) finally close our call here. I really thank you, guys, for your questions and attendance today. Looking forward to talk to you guys at the beginning next year. Thank you. Bye-bye.

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