Ambev SA (ABEV) 2011 Q4 法說會逐字稿

Good morning and thank you for waiting. We would like to welcome everyone to AmBev's Fourth Quarter and Full Year 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 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 session. At that time, further instructions will be given. (Operator Instructions).

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities 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 the general economic conditions, industry conditions and other operating factors could also affect the future results of AmBev and could cause results to differ materially from those expressed in such forward-looking statements.

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

Thank you, [Valerie]. Good morning, good afternoon everyone and welcome to our 2011 fourth quarter and full year results. Before we get started, I would like to remind you that as usual the percentage changes discussed during this call are both for organic and normalized in nature. Normalized figures refer to performance management before special items, which are either income or expenses which do not occur regularly as part of AmBev's normal activities.

As normalized figures are known GAAP measures, we disclosed our consolidated profit, EPS, EBIT and EBITDA on a full reported basis in our earnings release. I'll begin the call by giving a brief overview of our results and then Joao will take over and walk you through the main performance highlights for Brazil, HILA-Ex, Quinsa and Canada. I wrap up by providing more detail on our financials. So, let's get started.

During the fourth quarter our consolidated EBITDA was around BRL4.5 billion, which corresponded to a 21.4% organic growth versus the fourth quarter of 2010. And margins expanded for 440 bps to 53.8%.

If we focus on our three main divisions, Brazil EBITDA grew 23.3% organically in the quarter, driven by a 9.5% revenue growth with EBITDA margin increasing by 650 basis points to 57.7%. Latin America South delivered revenue growth of 26.2% and EBITDA growth of 28.6% and followed by total beer volumes remain slightly down but domestic beer volumes were up 0.7% in the quarter. And EBITDA decreased by 4.6%, but mainly driven by marketing spend phasing.

Normalized profits totaled approximately BRL3 billion in the quarter, a 14.8% increase against the same period last year while normalized EPS increased 14.3% in the quarter. I'll come back with more on profit at the end of the call. Let me hand you over to Joao now to go over in more detail the results of each of our operations. Joao?

Thank you, Nelson and good afternoon everyone. I'd like to start by thanking our team for another year of outstanding efforts and actually great results, our people made it happen once again by reading early on the tough volume outlook, reacting quickly and executing our revised plan with remarkable discipline.

We're very proud of having deliver 14.8% EBITDA growth for the year with 310 basis points of EBITDA margin expansion, despite some significant challenge in terms of industry volumes, particularly in Brazil. And the fourth quarter was instrumental towards achieving these results, giving us a strong finish for the year. So, let's take a closer look at the fourth quarter results.

Diving deeper into Brazil, fourth quarter beer volumes grew 0.9%, driven by some industry growth and a 69.1% average market share. Though we lost 70 basis points of market share in the quarter, our 2011 average market share was the second highest average market share over the last 10 years and we are very pleased with the fact we achieved this result coupled with strong brand health indicators improvement.

Our beer net revenue per hectoliter in Brazil grew by 9.7% in the quarter, mainly as a result of price increase as well as higher weight of direct distribution in the more favorable brand mix as premium brands are growing above average. This was partially offset by higher taxes both excise and VAT.

Our innovations continue to grow in volume and market share with the roll outs of Antarctica Sub-Zero, Skol 360 leading the way yet again. In premium, Stella Artois deliver another quarter of accelerated growth above 200%, while Budweiser continued to exceed expectations by gaining share in both the on-trade and the off-trade. Better rollout to other major cities in Brazil continues as we speak and will remain as one of our priorities for 2012.

Now, moving on to our costs of goods sold, Brazil beer COGS per hectoliter was actually down by 1.6% in the quarter due to currency gain and as anticipated in our third quarter earnings call, the easy comps with the fourth quarter 2010 which was impacted by imported cans, main headwinds were higher raw materials and packaging costs.

Our beer SG&A grew by 3.7% in the fourth quarter because of general inflation and higher distribution expenses. Partially offset by the phasing of commercial expenses in cost saving initiatives.

I would also like to note that our investment capacity continued to contribute to a lower growth rate of logistics cost. This should also be the case for 2012 as our new capacity ramps up to benchmark productivity levels. As a result, we deliver normalized beer EBITDA growth of 27.2% in the quarter with EBITDA margin expanding by 760 basis points organically.

Moving on to Brazil, CSD, volumes decreased by 0.7% in the quarter, our market share gains of 20 basis points were not sufficient to offset the contraction in the industry, but we still finished with our all time high market share for the year of 18% and our main brands with record brand health performance which are very important achievement for us. This result motivate us even further to continue investing initiatives like our one liter returnable glass bottle for Guarana Antarctica and the new Pepsi, [for this year] campaign.

Our net revenues per hectoliter increased 3.9% in the quarterly, mainly driven by price increases, which were partially offset by increasing taxes. Costs of goods sold per hectoliter increased by 4.4% versus fourth quarter 2010 as a result of higher sugar and PET resin costs which were partially offset by currency gains. SG&A excluding depreciation amortization grew by 2.1% in the quarter, mainly due to general inflation and higher logistics costs, which were partially offset by phasing of commercial expenses and cost saving initiatives.

All in all, we deliver a 4.9% EBITDA growth for CSD and NANC Brazil in the quarter. Delivering 9 basis points margin expansions to end 2011 with EBITDA margin of 48.6% for the year. which reflects 120 basis margin expansion against 2010.

Turning to HILA-Ex, we believe that our strategy in the region remains on track. Volumes grew by 3.5% in the quarter through a combination of industry growth and continued market share gains in countries for example like Dominican Republic with Brahma Light.

Net revenue per hectoliter increased by 14.5% due to price increases and we achieve positive 20 -- positive BRL12 million EBITDA in the fourth quarter, which increased by BRL1.5 million organically.

Moving out to Latin America and South, we achieve a 28.6% EBITDA growth as a result of volume performance and revenue management. Beer market share grew in the region because of our strong support for mainstream and premium brands, but also due to health innovation pipeline.

During 2011 we launched in Argentina Quilmes Bajo Cero, the non alcoholic Quilmes Lieber and the new 355 glass bottle. In Bolivia, we launched Pacena Black, and in Paraguay Bud 66. Beer volumes grew 2.2% in the period and net revenues per hectoliter grew 22% organically as a result of price increases to keep up with inflation and an efficient rate spend management aimed at maximizing our top line.

The premium segment continued growing while our brands gained market share. Stella Artois performance keeps being an important source for volume and profitability growth in Argentina. Our soft drinks business increased its volume by 1.7% due to some market growth but also influenced by the Twister brand launched in Argentina which has continued to perform well in the fast growing non carbonated flavor water segment.

Net revenue per hectoliter grew 28.5%, mainly due to price increases to keep up with inflation but also to partially offset the severe cost pressures coming mainly from commodities, labor and transportation. All in all, we delivered double digit EBITDA growth in Latin America and South in both beer soft drinks while EBITDA margin at 45.9% for the year.

Turning to Canada, Labatt finished the year with a favorable performance versus 2010 in terms of pricing and domestic volumes, building positive momentums in 2012, which should also benefit from a continued positive trend in industry volumes which increased approximately 0.5% versus fourth quarter 2010. Additionally, in 2011 Labatt and Budweiser reaffirmed their position as the market leader in the leading brand in Canada respectively.

Net revenues per hectoliter increase organically by 2% and even though EBITDA decreased by 4.6% mainly due to phasing of the continued investment behind our focused brands. Our EBITDA margin for the year expanded 40 basis points, reaching 41.5% and our EBITDA grew 0.3% versus 2010.

We continue to invest heavily behind Budweiser and [Oaken] as we -- as well as in our other focus brands, which overall continue to show positive brand health and share performance. COGS per hectoliter increased by 1.8% versus last year driven by increased costs and commodities such as aluminum and barley partially offset by currency.

In SG&A excluding depreciation and amortization increased by 8.2% in the first quarter due to our increased investments in marketing as we anticipated in the third quarter.

Looking ahead, we will continue to work on maximizing our market share and profitability equating in Canada. We will continue to seek revenue managing opportunities in selected markets to offset inflationary impacts to our cost while we continue to work on our focused brand campaigns as well as on innovation to strengthen our positive momentum in brand health.

Before handing back to Nelson, I want to briefly comment on our outlook for 2012. We remain confident about the prospects for the industry in Brazil and have seen a pickup in volumes in the first quarter which should increase low to mid single digits compared to first quarter 2011. We had a good carnival, thanks to our consumer promotions and sponsorships in other brand activation initiatives in cities like [Pacific Oleander], Salvador and of course Rio.

We will continue pursuing the promising top line opportunities in the north and northeast. We will keep bringing innovation to the market by rolling out past innovations to new regions or by bringing new ideas to connect with consumers and we will maintain our focus on accelerating premium growth with our domestic and international portfolio.

On the revenue side, we expect net liters per hectoliter to grow in line with inflation for the year but we will face a tough comp in the first quarter, because the first quarter of 2011 had the highest growth last year. Therefore net revenue per hectoliter growth in the first quarter 2012 should be below the average for the year.

And on the cost side, our cost per hectoliter in Brazil should grow below inflation due to a combination of our hedging policy, delivering gains on currency and our [practice] initiatives helping offset pressures in commodities like aluminum barley and sugar. Back to you Nelson.

Thank you Joao. In this final part, I'd like to walk you through the main items between the normalized EBIT of approximately BRL4.1 billion and profit of about BRL3 billion as disclosed on page four of our release.

Our net finance results were BRL91 million negative, which is BRL15.6 million worse than Q4 2010. Interest income and gains on derivative transactions were more than offset by losses in non derivative instruments, due to the real devaluation in the quarter and expenses in connection with the prepayment of our 2013 bonds.

Our effective tax rate in the quarter was 23.5% compared to Q4 2010 rate of 17.9%, these increased results from a tough comparison with the fourth quarter 2010 which had some extraordinary tax provision reversals. The effective tax rate for the year was 22.4% versus 21.5% in 2010. Since higher interest on capital benefits in income and sales tax benefits only partially offset our higher profit before tax.

Last but not least, we ended the year with a net cash position of approximately BRL4.2 billion compared to BRL207 million of net cash at the end of 2010. And in February we announced the BRL2.5 billion in dividends in the IOC to be paid starting in April 10th.

Going forward, we expect to go back to the leverage levels we were between the end of 2010 and September 2011 by returning cash to shareholders through increasing payout levels as the one I just mentioned, as well as holding an adequate liquidity in light of a continually volatile financial environment while having the ability to meet our investment plans for the future.

Accordingly, we are prepared to continue investing up to BRL2.5 billion in CapEx to further grow our business in Brazil, but such investment is contingent upon the maintenance of current volume growth outlook which depends, among other things, and to a larger extent on federal size tax remaining at the current levels.

I'm going to hand back to Valerie for Q&A. Valeria, please.

At this time, we would like to begin our question-and-answer session. (Operator Instructions). Our first question comes from Robert Ford of Bank of America/Merrill Lynch.

Hey, good day everybody. Congratulations on the quarter. When you look at the big increase in the organic EBITDA margin for Brazilian beer, you're up 760 basis points. Can you outline the various sources of contribution for us and when you expect to lap some of those initiatives which led to the gains and I'm sure it's not just -- it's mix, it's packaging, it's price, it's the new brewery, it's the cans and everything else. And then, can you comment a little bit in terms of your ability to sustain and maybe improve upon those levels of profitability in 2012 please?

Hi, Bob. This is Joao. I will start by the second part of your question, which I think is an easier one to provide, which is yes, we do think that we can continue to expand margin. If we believe we can have in 2012 net sales per hectoliter in line with inflation and cogs go in inflation and potentially SG&A bill inflation are even in line. That should lead to margin expansion. I think every now and then we get this question whether we have reached the plateau and I think we always say that we believe that going some more is possible and I think fourth quarter helped to look at this.

I think it's probably much more -- it's fair to look more at the margin expansion at the year than at the quarter, but of course, even if you look at the year, it's at 240 basis points growth which is still quite significant.

I think what explains -- to be quite honest, it's a combination of every line in the P&L. I think we mention in the initial speech that we saw early on a tough year on volume. Okay? We sit today in a very different place that we sat a year ago when we sat in the same conference call, that Brazilian governor was taking measures to slow down the economy and now they are actually taking measures to pump up the economy. We thought that the measures that were being taken at that moment were going to affect -- were already affecting our volumes and we thought would affect the volume, let's say for the year.

So early on, we devised a plan which was a plan to slow the down economy, to slow down -- I mean a plan to slow down the growth of our expenses as well as the growth of our costs, so we looked for more productivity gains.

The good thing, is in our combination of experience, some luck in being competent, the plan worked very, very well. We had the best SG&A performance, probably in the past five years and we can name a few things, but things as using [deductions] better, things like bringing more visibility to certain business units.

So they knew exactly where they could twist here, twist there, or tighten up the belt here or there. And that's what I have happen earlier on. That combined with a price increase that we mentioned in the beginning of the year that we wanted to use this year as a year sort of to harvest what we built in 2009 and 2010.

I think at the end what we feel proud about is that we had two good years of volumes helping us, giving us a tailwind and then we have the year off volumes giving us headwind and we early on read that and took advantages of the things we actually built in 2009 and '10.

So when you have the capacity or the capability to increase price s, which more than offsets let's say a volume decline, and then tighten the belt on your verbal costs, but mainly tighten the belt on your SG&A the combination is really what you saw. So it's really not just logistics costs but it is pretty much a decline when you compare to inflation or to the SG&A model that we had, almost every line in our SG&A gave us good results. To be quite honest the same thing to the verbal cost piece.

So that whole combination explains the margin expansion and we think we can continue to deliver that. Not to the same extent we -- we never promised that, right? But reading early on the year, if we see this year as our year with volume helping us and we see that we have good ideas as we had in 2009 and '10 and that you have the room to heavily invest behind those ideas, we will do so even if that means growing margin a little bit less but defending more the growth of the EBITDA.

That's great, Joao. And there was some suggestion that there was a non recurring component in terms of marketing spend. And then if you could just touch on where your mix is today in terms of premium. For a long time, despite all the innovation, you were stuck at about a 5% premium or super premium mix. I was curious as to where that is. And then, where are you today in terms of return ability? I know there's been a lot of innovation in terms of returnable packaging. That's contributing to margin and I was curious as to where you are and where you might think that might go.

Sure, I'm in. Bob, I mean those are two very good questions and at the heart of our strategy for 2012, among other things, but they are certainly two of the top four, top five initiatives. I think first, as mentioned before here, during 2009 and '10 we really want to rebuke the franchise to a certain extent and we focus a lot on our mainstream brands, increased heavily the market investments behind Skol, Brahma Antarctica and that, as we know, really really paid off.

And then, by doing that, automatically shut off -- left the premium to the sideline for some time. We promise in the beginning of last year that we would focus more in premium this year as we did. We mentioned in the beginning some of the good result of Stella and Budweiser. So I would say that we had a much better second half premium wise, and positioned really to start benefitting in 2012, recovering what we lost let's say in terms of percentage -- if percentage is a benchmark.

In terms of percent of the total volume, and I think 2012, '13, and '14 we should see continued growth of the premium segment. There should benefit from that pick up in volumes, becoming --becoming revenues per hectoliter because now we finally really have complete portfolio. We knew we should get to that portfolio at a certain extent by having Bohemia and Orginial at our domestic juice and then having Bud and Stella as international -- as international juice.

Now that is completed in order to have the capacity we can really try to be aggressive in both fronts. So it's not about forgetting the mainstream and focusing on premium, but doing both things. And when you talk about mainstream, I think the good link with the second part of your question which is the growth of returnable bottles. We focus a lot on that in 2011 with actually very good results, both in terms of market share and both in terms of shifting the mix towards a little bit more on what we want.

So in the -- on the on-trade we pretty much gain share in the returnables in our channels, but I think more important than that is seeing the growth for returnables in the off trade. So I don't want to get into too much details, I think those are more private information. But I think that combination of the shift toward returnables. As we wanted, it happened.

Growing shares we wanted, it happened in growing the RGB in the off trade it happened. So all the -- let's say the main objectives we had during 2011 were achieved and we have really prepared to continue that to a certain extent into 2012 and we'll continue to help our mainstream business.

That's very helpful. Thank you.

Thank you.

And the next question comes from Alan Alanis of JPMorgan.

Thank you so much and congratulations also for the quarter. I have a couple of questions, the first one regarding the brand portfolio for Joao and then I have a follow-up on working capital for Nelson. Joao, could you -- how much of -- is Bud and Stella right now of your total portfolio? Then because we [Burrito] talked earlier about 200% growth of Stella in Brazil from a very low base, and you had the roll out of Budweiser.

So what I want to understand is the level of cannibalization that we're seeing from the international super premium brand, and you just mentioned in the previous question that you want to keep Bohemia and Original also there as your top domestic premium brands. What's the price differential on an index basis between this Stella and Bud versus Original and Bohemia and how do you envision this portfolio going forward?

Okay, okay, Alan, very good question. Because the bases were very, very small you grew very, very big numbers. We have had Stella since 2005 but it was not really until this year that we really focused significantly on this. The sales team, especially on the off trade did a great job.

One of the main initiatives we had there was really having champion material to place Stella in the right manner with the right price in the off trade. So the majority of our focus was there and you saw this growth of above 200%. Stella is and will continue to be within our portfolio with the highest index. We're talking here something like -- between [180%, 175% to 200%] okay, in terms of price position. Okay?

And then, Bud started as an international premium. It is at between -- it could be anywhere between [130%, 140%], okay? And we'll have positioned it more as an international coup while Stella is more of the sophistication and therefore you see the price differentiation.

You see Bohemia very close to Bud. So it would depend slightly on a market by market basis, but it could be sometimes at 130%, also [135%]. So it's not too far from that, it could be slightly below, sometimes but close enough. And Original also around the same number.

You have to bear in mind that Original is a brand that is much more on the on-trade, okay. Bohemia is in both channels, okay, Stella and -- is mainly on the off trade, okay. And Bud starting to be in both. Giving the package mix we have. So when you look at the percentage, you have to take that into consideration.

So with that and having you know our three brands between Antarctica Brahma, Skol between [100% and 110%], now we really have all the different segments, populated which a great thing for us, with different value based brand proposition, whether you know local juice, international juice, international sophistication, but also with different price position.

Cannibalization, because of that -- because of the right value based bran proposition, and also the price position, it's very, very little to be quite honest. So the percentage of Bud and Stella in our volume is still very low, and the cannibalization on a relative basis, even lower. Because of the work we did during a year and a half, is well paying off now.

Okay, and but all of these four brands, how much do they represent of your total portfolio and where do you see that going, with all the --?

As we said, in the past, premium was about 5%, then during 2009 and 2010, it declined to 4%, okay? We -- it's not that we stated this as a goal, but I think we should double this in the next three to five years.

Okay.

Okay, and I think that's a fair expectation.

Okay. That's a great objective. Okay, thank you. And my last question has to do with working capital, tremendous improvements in working capital. A lot of that improvement is coming from payables. I'm seeing yes, some improvement in receivables, which is remarkable, considering the increase in supermarkets in Brazil and so on. So yes, that's remarkable.

But the big job is you're going in from payables -- seeing here my numbers around 90 days to maybe 120 days. The question specifically is this a new normal or can we still expect overall improvements in working capital for the next year or two?

Okay Alan, this is Nelson. Well indeed we -- we have you know right, we have been focusing on working capital improvement as a whole and for a couple of years now and since 2009 it became a negative working capital right? So that wasn't achievement to have been even pushing further and as you mentioned, we are happy that in 2011 it was not only a matter of payable, although it was indeed the major contributor to the improvement we got, but we also got an improvement into accounts receivable management, inventory, labor and optimization, so we really evolved in the whole working capital management 2011.

Of course the low hanging fruits are there anymore, but we still see opportunities for let's say some improvement over time. What was also in our favor, particularly with payables, was the failure to have again another year of record CapEx and since you're talking about let's say the mix of purchase, if you will, was more towards equipment and machinery where we have a longer terms of supply so that helped a little bit and may change over time.

From that we could have let's say some negative impact, but overall the positive -- we had this positive trend and as Joao mentioned, for instance, you auction as a tool that we have been using more and more to improve price of what we buy, right, but we're also having significant improvement in terms of payment terms through these two. So all that, again, are tools that are helping us to continue improving, so we are confident we can still deliver improvement over time.

Excellent, that's very useful. Congrats again. Thanks.

Thank you very much, Alan.

The next question comes from Lore Serra of Morgan Stanley.

Good morning and thanks for taking the questions and congrats as well. Joao, I wanted to ask you two questions on pricing, one is a more general and then one is a more specific. On pricing, it's obviously difficult to sometimes read through on your numbers because Burrito talked about 25% of your pricing being distribution and premium mix changes, which seems like a lot to me, but if we look at consumer pricing, it looks like consumer pricing is up at a 15% level, which is obviously influenced by the excise taxes last year.

And obviously is at a high level compared with historical which have really trended in line with that inflation level. So, I wondered if you could give us your sense of kind of how you feel about pricing right now. If you think about it versus minimum wages, you get your arms around it, but with the volume weakness last year and I know some of it was weather, how do you feel about industry pricing levels?

And then, the more specific question is if we look at the fourth quarter, we see your pricing up subsequently 12%, and once again, there is a level that we can't get into from looking from the outside in, but that looks even bigger than what you did in the fourth quarter '10, right? So it looks like you've taken a very big price increase, maybe larger than what you did over the past year. And wanted to get your perspective on why do much pricing, given the cost environment that you just said was pretty good.

And then, I guess a third question, even more specifically. In the last couple of years you've tended to have a price -- your revenue per hectoliter has been higher in the first quarter versus the fourth quarter level. I'm not sure if that's the impact of sort of the full phasing in of the price increase, but with your talking about pricing being less than your full year in 2012, does that mean that won't happen because the price increase was put through earlier this year? So I guess those are three separate questions but they're all on the same theme anyway.

Okay, yes. I saw your report this morning Lore and I think it's very fair and one of the most important questions given that price has a huge impact on our P&L of course, but also in terms of market growth. We have not changed our long term pricing strategy where we have stated for the past 10 years that we want prices to be in line with inflation and when we say that, we also take taxes in consideration. So of course if tax have huge movements, we have to reflect that into the pricing strategy. The reason, historically, we said that is because we think this is an ideal point between defending profitability, but also not hurting the market volume that we wanted to see grow, okay.

Having said that, in their four --and we actually in our press release mentioned that we want that to continue to happen and actually mentioned that for the year we should consider net sales per hectoliter in line with inflation.

2011 was a bit different than the average, in terms of external factors, as you mentioned in your question, we had the IPI, we had the very important actually IPI increase -- one of the highest in the last 16 years. And we went to defend and show that when things like that happen, we will act upon them. So I think this is probably -- if not the most important, a very important element on why you saw the numbers that you saw in the -- during 2011.

I think the second one we also mentioned during the year that we want to change a little bit the dynamics, and by that I'm calling also the contribution margin of one way and returnables and how the market was playing this change from one side to the other. So by that, what we did is we had a higher than average one way price increase during 2011.

So the combination of defending from an IPI increase as well as defending, let's say, or wanting to achieve a specific point in terms of one ways 2011 was as you mentioned, also above the average. We do not see the need to do this during 2012. So there is no big shift in terms of one way in cans, in terms of pricing as one point and then well -- and then taxes, it will depend on what happens.

So if there is greater taxes, then it may mean more pricing. If it's less, then we will not need to have prices moving slightly above the inflation or the historical level. So, no change, but I think what's great to see in 2011 is that we were able to offset an important tax movement and we were also able to change the dynamics in the direction that we wanted while maintaining what I think is a very healthy market share.

So again, as I said in a previous question, that sort of give us the confidence to be able to --whether performing in good and bad years, but also being able to play a prices with more certainty than we did in the past.

Okay, and could you just comment on the price increase you've take this year? Like I said, 12% sequentially looks like it sets you up for more than inflation for this year and I understand the taxes can get in the way. But if you could take about kind of that price increase, why so large, kind of how it's been absorbed both in the market and in terms of a competition and just understanding kind of why the first quarter then is going to be weak if the front line pricing was so high in the fourth quarter.

Sure, sure. Well, I think what we mentioned in the release that the first quarter of last year was the highest of the year and provides you a -- provides us a very tough comp. You may remember that the IPI increase came in the first days of April, which is the beginning of the second quarter which has an effect in those comps. So is the highest comp one of the reasons is the timing of the -- when the excise on the federal tax went up.

I think, more important than that -- or the other part of your questions is how has the market react, both in terms of volume and in terms of competition. I think is more good news than bad news. We had -- the last three months of last year were tough in our analysis, they were tougher more due to the weather than from any price movement.

And then in this first quarter, we are seeing a volume recovery -- we also mentioned that we expected low to mid single digits which means a recovery from the levels that you saw in the fourth quarter, which shows that the market from a volume perspective in a way accepted this price increase which is not to this -- to this level that we saw when we looked to the volume in the fourth quarter versus what we were seeing for the first quarter.

Also, the -- I think a good thing is that the sequential share loss after this price increase is also positive one and which touches the second part of your questions, which is how competition is reacting, competition is reacting positively, we see people drink faster than average to the usual average in terms of price increase. So very good condition actually -- good combination from volume, low to mid singles and competition falling on a faster base than we saw in the average.

Great, thanks. And just quickly for Nelson. Seeing the BRL4 billion reais of cash on the balance sheet or net cash was a lot and obviously you've committed the dividend out BRL2.5 billion of that in April, but is there some reason why AmBev -- it seems like the business is stronger than it's ever been. Is there some reason why strategically you're targeting this debt free balance sheet which I guess is implicit in your comments about returning to leverage earlier in the year?

No, there is -- hi Lore. There is no big change on what we think should be the right level of leverage for the Company to be carrying forward. As a matter of fact, as you said, the picture, if you will take in December with this BRL4 billion -- or about BRL4 billion net cash position doesn't take into account the BRL2.5 billion, we obviously announced it after that.

But this timing of announcement of payout is mainly linked to the optimal let's say timing (inaudible) interest on capital payments aiming at maximizing the fiscal benefits. So in the case of the end of 2011, there was not advantage for us from a tax collection perspective to have it, let's say, somehow slip it in 2012. But as we try to reinforce in the release and also during the opening statements here, that there is no change ethically is not the case. We should pursue the sort of a net debt position that we pretty much reported between the end of 2010 and the third quarter of 2011.

Perfect, thank you very much.

Welcome.

The next question comes from Lauren Torres of HSBC.

Hi, everyone. My question I guess is just a general follow up to some of the comments you've already made with respect to the competitive environment. Joao did you -- you mentioned that the competitor is or the competitors are being more rationale I guess this year versus last year. So is it fair to assume for us that some of the market share losses that you had last year could be regained this year, knowing that your competitors are following through on pricing faster this year than they did last year?

Hi, Lauren. I saw you had some of those questions also in the ABI call in. I think the point here that's maybe worth documenting or adding to this, now we have not just the Heineken as a competitor here in Brazil, which is a listed competitor, but we also now have [Keating] and now Keating also has a public listed company -- decided to put out guidance for Brazil.

Keating guidance was for them to grow volumes by 3% and net sales by 9%, okay. I think that shows -- I cannot give you a more explicit answer in terms of -- this is what one of our competitors are saying they wanted to do in Brazil. I think that shows the industry wanting to look for a more sustainable profitable industry which is positive. Again, having those two international competitors and one of giving that sort of guidance, I think that's good news for the Brazilian beer industry in terms of its health.

In terms of market share guidance, one, we don't give and I think second, is too early there's so many things yet to be played in the marketplace, but as we said, we are optimistic or cautiously optimistic just by our nature.

But the good thing, once again is we have our brands at their best positioning we ever had. We have enacted on the mix during the year. We finally have capacity in place, we have the premium brands now better positioned with their VBB, the value based brand propositions done. And we have a good competitor situation. We will work during this year to make the industry as healthy as possible. Of course a lot of it -- it's not about us, it's about weather, it's about the government. But again, the government is saying that they want to see the economy growing. If that's all -- if all of this is the case, then I think is a positive outlook for us and for the industry.

Okay. And also, with respect to the consumer, you're giving some first quarter volume guidance, I guess. Just how do we think about the year, obviously with the minimum wage increase I guess coming into effect in February, maybe we'll see more of a follow through later in the year, so I was just curious as you think about growth rates accelerating this year, is it more of that mid single digit and can you beat that? How do you think about -- maybe this year or maybe that's just even a longer term question about returning to healthier growth rates than we saw a year ago?

Yes, we way we're looking to this is we had very, very strong growth in 2009, 2010 in terms of volume, maybe not so much in terms of price, but the combination was very healthy for the EBITDA. Then we had -- very, very, very low volumes if you want, but higher prices in 2011 but again, very very good for the EBITDA.

So we were able to navigate during those different situations. I think what we want to achieve in 2012 and we will not going to give any guidance in terms of volume is a more balanced situation between volume and price. If we can get that volume balanced between what happened in 2009 and 2010, and 2011, I think this is a good place to be.

Great, okay thank you.

Thank you so much.

The next question comes from Thiago Duarte of BTG Pactual.

Hi, good morning. Thanks for taking my question. The first question is on depreciation. T he depreciation was down in the quarter versus the previous quarters and then the same quarter last year despite all the investments. So I wonder what's the big change here that we would be my first quarter.

Hi, Thiago. This Nelson here. So basically we introduced the change at the end of 2010 regarding depreciation rates and changing the useful life of our assets and we are treating part of this even when we -- even though we release, we show that part of this decrease was from [early link] to this change and we are treating this as scope change, if you will, that explain majority of the decrease in the depreciation, let's say, expense.

The other thing is that part of the -- an important part of the CapEx that we did in the course of 2011 actually is already, let's say accounted for as CapEx but we haven't really started to depreciate all of them. So if you take an example depend [on Boca brewery], the depreciation impact was not really reflected in 2011.

So, there is this time lag effect, if you will, and we should see some catch up of depreciation more as 2012 unfolds and that debt is going to be more let's say -- may sound like counter intuitive the 2011 result, but you see that in the course of 2012, you should see this pick up.

Great, that's very clear. And my second question is back to pricing. It was discussed during [ADI's] conference call that there's something to do also with the increase of direct distribution and has a positive effect on rev per hectoliter. So, if you could outline a little bit more what has changed and what has been the strategy here.

Thiago, not a big change, nothing different really from the past. What was mentioned it was -- about 75% of what you saw in terms of growth was related to price and then the other 25% was a mix of changing the mix and increasing direct distriution.

We started the strategy of direct distribution 12 years ago and in the beginning we had a big jump and now we have -- we continue to have small increases and every time we shift from a wholesaler to other extrabution, there is a pick up in the revenue per hectoliter. That's basically it. I think this 75%, 25%, 80%, 20%, it's a good effort to forecast in general has been sort of a norm and this quarter wasn't too different from the average.

That's great. Thank you.

Okay, thank you so much.

The next question comes from Gustavo Oliveira of UBS.

Hi Nelson and Joao, congratulation for the results. It's just a question on the innovation pipeline. Now that you have -- it seems that you have a very, very strong and relatively new portfolio, when you think -- or do you think that you need to continue to invest a lot more in innovation for 2012 or you want to see some of these brands or some of these innovations to mature and why are you still rolling it out. Perhaps it's like more of a one year, two, three year time horizon question. How you're thinking about the innovation pipeline?

Yes, very good question Gustavo. You know I think is twofold. Even when we are not launching something new, doesn't mean we're not investing in building a new pipeline right? So, we are investing and researching a lot in bringing new products, new trade programs, new liquids, new package to the marketplace.

Many times we will pilot them or we will test time in -- sometimes we'll just test them in consumer research. Sometimes we'll test them in a specific city or small --in a small area and which doesn't mean heavy investment from a marketing and commercial standpoint. So that we need to have so to have a healthy pipeline for the next three to five years.

I think given that we launched a lot of things, such as Budweiser, such as the 300 ML that's really just starting, we need those things to work and I'm talking here in terms of beer. So in beer, continue to increase the pipeline but really doing well in the things we launched in sort of the second half or during the year which was 300 ML, Bud and this sort of relaunch of Stella, if you want.

And then, in CSD, we mentioned in the same quarter -- first quarter of last year, a lot of launches, we had mentioned five new products in the beginning of last year. We continued to nurture them. We have new things on the pipeline but I think in 2012 will be a lot to stabilize and to grow what we launched during 2011, which that on itself can bring us a lot of good news during 2012. So, due the pipeline in the left, in the background, and getting the things launched during 2011 to have the best result possible.

Okay, thank you.

The next question comes from Alexandre Miguel of Itau BBA.

Hi, good afternoon Joao and Nelson. My first question is also -- is related to the competition environment in Brazil, you mentioned that the past years we had strong pricing and including the 4Q and the Company has been following that. So my question would be, if you expect maybe the local players, including the international companies also to be more aggressive in terms of marketing and maybe this could inflate marketing expenses for the whole industry, is that a base case you work with maybe throughout the year?

I think the base case, in terms of competition, the first part of what we said is just sort of the competitor environment and for whatever reason competition adhering more to what's going on in the marketplace. I think from a market investment standpoint we have three strong competitors in Brazil, which we respect, and I think they are trying to do their piece.

Heineken focusing a lot on their premium brand, Schincariol defending their territory a lot in north and north east. Petropolis doing the same and trying to grow their business in -- mainly in the southeast and now trying to go into some new areas so not necessarily we will see that. Actually the marketing investments have grown in every year, in the past few years. Usually it grows more in years of world cup and then it grows more sort of in line with inflation during the other years.

There is an Olympic this year which will play a role overall. So I see competitors defending their piece and usually the market investments in years like this, more moving in line with deflation than anything much different from that.

Okay, and just a follow up for the market in the short term, Joao. Do you think that the -- maybe the recent weakness -- not weakness, but January and February being maybe les optimistic than the industry expected is somewhat related with the price increase implemented in the end of the years, which maybe was a little bit high and then affected volumes in the beginning of the year.

I'm just saying that by -- because by looking at the production for January and February, it seems that the whole industries have flat or maybe just slightly down. So I was wondering if that's the reflect of any -- of the price move of last year or any other reason that you could mention for the two -- the first two months of these years regarding industry performance.

Yes, as we said in the beginning of the call, we expected volumes should be between low to mid single digits. Therefore, that already takes in consideration the production numbers that were released for January. January we had this year, actually believe it or not, colder weather, which I know everybody knows that, but also more rain than we actually had last year.

So in January we had more rain, it was colder and the minimum wage had not kicked in yet because it was only paid in the beginning of February or the very end of January. And then you saw a pick up during carnival. So February has this comp which is in favor of February. But we do believe in this low to mid single digit, which doesn't let's say talk in a way or it doesn't reflect what the production volume was in January. So that's what we're expecting for the first quarter and then, if that happens, it is a positive pick up from any quarter you saw during last year.

Okay, final question for Nelson, on the income tax is can you give us a guidance maybe of -- or a direction more or less of where you expect income tax rate for 2012? And also on the last quarter of 2011 we saw that cash taxes was actually close to zero and we were wondering why that happened and if it tends to be some recurrence on that given the investments you've been made in increasing capacity in Brazil.

Yes, sure. So to start with your question, let me split into two. Regarding the provision for income tax and our P&L, as we always said, we don't give a specific guidance but of course, know that we start from that corporate rate around 33% and there are a couple of elements including the IOC payments, which of course we try to maximize because of its fiscal benefit to bring it down to the sort of level between 21% and 22% we have today.

But over time, as the profit before tax grows, the delta is taxed of course at the 32% rate and therefore the long term trend, if you will, will be always of some increase and of course is our challenge to get -- to contain that and minimize the effective tax rate. Again, there is no specific guidance for 2012, but the general trend is pretty much what we saw in the previous years as well.

Regarding cash taxes, then on a quarter-by-quarter basis there is a [complex difference] place so normally, the quarter where we have the highest payment in the years is Q1 as it have to make the adjustment of IRS and there is somehow an element of fiscal incentive that you play around the different quarters. So the best way to look at both the effective tax rate but also the cash tax is you will need on a full year basis because this quarterly swing sometimes may distort a little bit the analysis.

Okay, perfect thank you Nelson, thank you Joao.

Thank you.

Thank you, Alexandre.

At this time, I'm showing no further questions and I would like to turn the conference back over to Mr. Nelson Jamel for any closing remarks.

Okay, thank you very -- that was it for today, guys. Thanks a lot for your questions, your presence, have you all a good day and looking forward to meeting you on April 30th. Thank you, bye bye.

Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect and have a great rest of the day.