Ambev SA (ABEV) 2012 Q1 法說會逐字稿

Good morning and thank you for waiting. We would like to welcome everyone to AmBev's first-quarter 2012 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. (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 initiatives, 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, sir.

Thank you, Mike. Good afternoon, everyone, and welcome to our 2012 first-quarter results.

Before getting started, I would just like to remind everyone that, as usual, percentage changes discussed during this call today are both organic and normalized in nature, and unless otherwise stated, percentage changes refer to comparisons with Q1 2011 results.

Normalized figures refer to performance measures before special items, which are either income or expensed as not to occur regularly as part of AmBev's normal activities.

As [a lot of] figures are non-GAAP measures, we disclose our consolidated profits, EPS, EBIT, and EBITDA on a fully-reported basis in our earnings release.

I will kick things off with a short overview of our results for the quarter, and then I will turn it over to Joao who will cover the main performance highlights for our Brazil, HILA-Ex, Quinsa, and Canada business units. I will close by [introducing] our financials in a bit more details. So let's begin.

During the first quarter, our consolidated EBIT reached approximately BRL3.4 billion, which corresponded to an 8.8% organic growth against the first quarter of last year. Consolidated EBITDA margin was 46.9%.

If we break these results down by our three main divisions, Brazil EBITDA grew 5.9% organically with volumes up 4.8%, net revenue as growing 6.8%, and EBITDA margin 50.4%. LAS EBITDA included 22.1%, while volumes grew 3.2% and net revenues increased 23.8%, leading to an EBITDA margin of 47.3%.

As for Labatt, it beat the group by 7%, mainly driven by volume growth of 4.9% and a 5.4% improvement in net revenues, giving us an EBITDA margin of 34.1%.

Normalized profits total around BRL2.35 billion for the quarter, which represented an increase of 12.3%, while normalized earnings per share increased 11.8%.

I would now like to turn it over to Joao so he can give you some more color on the performance of each of our operations, as well as on the outlook for Brazil. Joao?

Thanks, Nelson, and good afternoon, everyone.

This first quarter brought us high single-digit net revenue and EBITDA growth. Where?

First, we delivered volume growth at the upper end of the low to mid single-digit guidance mentioned on our March 8 release, led by the 4.8% growth in Brazil.

Second, revenues grew ahead of volumes, helped by LAS in Canada, while in Brazil, as anticipated, net revenue (inaudible) grew below the average for the year.

Third, on the cost side, COGS per hectoliter grew below inflation, thanks mainly to Brazil, growing only 2.2 (sic - see Press Release), and as for our SG&A growth of 10.5% on a consolidated basis, the timing of our sales and marketing investment strategy for Brazil has a relevant impact.

And fourth, our international operations did well with continued double-digit EBITDA growth in LAS and good news out of Canada overall.

Zooming into our business units today, I would like to begin with HILA-Ex for a change. I believe they have earned it. As you may recall, in mid-April we announced our strategic alliance with the Leon family, the former controlling shareholders of Cerveceria Nacional Dominicana, also known as CND, to create the leading beverage opening in the Caribbean.

The combined business will have an approximate 37% market share in the beer and CSD markets combined for the Caribbean and roughly 42% market share for beer in the Caribbean. Presidente is a great brand with fantastic brand health indicators in the Dominican Republic, growing presence across the Caribbean, and potential to expand even further abroad, especially in the United States.

AmBev will hold approximately 51% of CND following the acquisition of a 41.76% stake in CND owned by the Leon family and an additional 9.5% in CND to be acquired from Heineken.

The Leon family will remain as shareholders, playing a key role in integrating and subsequently growing the Company business by leveraging our management expertise with their regional know-how. We are thrilled about the strategic alliance and the value-creation opportunities it will generate. We believe it fits perfectly in our long-term strategy for the region and gives us unparalleled scale to continue expanding the Caribbean and Central America as we did back in 2002 in the Southern Cone of Latin America.

Meanwhile, topline kept improving in our existing HILA-Ex operations with [weather] performing 4.7% better due to industry growth and market-share gains in some of our beer operations, coupled with a 10.6% of net revenue per hectoliter growth due to pricing.

Now shifting gears to beer Brazil, overall this quarter was about how best to leverage our better industry through our commercial strategy, making the most out of Carnival season while sticking to our long-term priorities of innovation, premium, North and Northeast, [and with] Carnival's, and I believe that on balance we did okay, especially if one factors in the higher taxes that ate into our net revenue per hectoliter performance.

Volumes were up 4% due to a better industry and a 70 basis point of market-share gains year on year.

First and foremost, there was Carnival. This year, we decided to deliver a special Carnival for our brands and our consumers. Our plan involved a different prioritization of commercial expenses on a quarter-by-quarter basis with higher sales and marketing investments in the first quarter of 2012 to, for example, sponsor new events, such as the Salvador Carnival, in addition to our longstanding sponsorships of the Recife, Olinda, and Rio street Carnival.

Second, changing our promotional calendar to enable us to take advantage of the positive industry momentum around Carnival.

And third, creating new ways to connect with consumers by either using digital media to engage them in our roster of fan activation initiatives throughout the country or by launching specific consumer target promotions, such as Skol [falia], which took a group of Skol consumers to our sponsored Carnival events in Recife, Olinda, Salvador, or [brent] in Rio. We firmly believe that by providing consumers with unique and memorable life experiences with their favorite brands will contribute a lot towards maintaining and/or improving brand health indicators in the long term.

And the plan was executed flawlessly, thanks to our team. They did a great job indeed.

In addition, our first-quarter volume was supported by sustained positive momentum for innovations such as Antarctica Sub Zero and Skol 360 in the liquid front, which still have room to expand in promising growth of our international premiums, but in Stella Artois [duo], but, by the way, can already be found in the major cities in the North, Northeast, and Midwest of the country.

In terms of packaging innovation, the one-liter returnable glass bottle did great through a combination of cycling the escalating volumes of 2011 and increased distribution throughout the country.

We are in the early stages of taking the 300-milliliter returnable glass bottle to selected markets, delivering our high-quality preferred brands at attractive price points to the Brazilian consumer, particularly in the off-trade channel. Net revenues per hectoliter grew only 2.1, although increased prices to [repay them] mostly in line with inflation year over year.

First, we faced a tough comparison with Q1 2011, which saw net revenues per hectoliter grow 11.7%.

Second, we decided to change our promotional calendar as part of our Carnival strategy, to which I have already alluded.

And third, we also got hit by higher tax accordingly when we compared year over year. At the federal level, we were obviously impacted by the excise tax increase of April 2011, as previously mentioned, and at the state level, where our overall tax burden increased at a greater rate.

Turning to COGS expenses. Brazil beer COGS per hectoliter declined by 0.5 in the quarter, thanks to currency gains from the implementation of our hedging policy and mainly due to the easy comps with the first-quarter 2011, which was still impacted by imported cans.

Beer SG&A, excluding depreciation and amortization, increased by 10.3%. Three main drivers were behind this growth. First, general inflation; second, the [privatization] of higher commercial expenses during Carnival; and third, better logistics costs, which result primarily from a combination of higher volume and more direct distribution. As a result, normalized beer EBITDA increased 6.4% in the quarter with gross margin expanding 70 basis points and EBITDA margin expanding by 10 basis points organically.

Now let's move to Brazil soft drinks and nonalcoholic noncarbonated business. Here, too, we benefited from a better industry and also market-share gains. Volumes grew 7.4%, and we improved our market-share performance by 40 basis points. Top performer was the Guarana Antarctica one-liter returnable glass bottle, which continued its growth trajectory by solidly defining its presence in the markets where it was launched last year and starting to venture into new markets in Brazil during first quarter.

We were also satisfied with the performance of Pepsi, which did well mainly in the south of the country. Net revenues per hectoliter performance improved by 2.7% with higher federal excise and state [VT] taxes offsetting our price increase, as was the case in the year.

COGS per hectoliter, however, had really tough comps versus the first quarter of 2011, growing by 12.9% mainly because of higher sugar and PET resin costs, which were partially offset by gains due to currency hedging.

On the other hand, SG&A, excluding depreciation and amortization, increased by 6.3% due to general inflation and higher logistics costs impacted by 7.4% of volume growth.

CSD and Nanc Brazil EBITDA grew 2.8% with an EBITDA margin of 42.3%.

Turning now to Latin America itself. We delivered good topline performance in beer with volumes growing 2.8%, while net revenues per hectoliter grew 17.7%. In Argentina, Quilmes and Stella Artois gained market share in a growing industry.

Regarding Stella Artois in particular, its strong performance remained as an important source for volume, as well as profitability growth, in the premium segment that continues growing. Similarly, the [cheum] market presented very strong growth with a [hecto] brand continuing to gain market share. Our strategy remains unchanged throughout the region -- strong communication and support for our mainstream premium brands, supported by strong innovation pipeline.

Latin America and south CSD and NANC business increased its volume by 3.8% due to the industry growth, but also driven by market-share growth in CSD, sports drinks, and flavored waters. The Twist, or noncarbonated flavored water, has continued to perform well, delivering another quarter of volume growth and market-share gains.

Net revenue per hectoliter grew 26.7%, mainly due to price increases to keep up with inflation, but also to partially offset the severe cost pressures coming mainly from labor and transportation costs, as well as commodities such as sugar and PET resin. Nevertheless, we were still able to deliver double-digit EBITDA growth in Latin America and South in both beer and soft drinks with EBITD margin at 47.3% for the region.

And finally, Canada. Labatt delivered a great topline performance to start 2012 with a 5.4% growth in net revenues, driving a 7% improvement in EBITDA. Performance was driven through strong pricing evolution and volume growth of 1.9% with domestic volume increases by 3.6% and stable market share.

The Canadian beer industry increased approximately [3.2%], [cycling] to its 2011 performance in continued improving trends seen in the fourth quarter, which were favorable weather conditions, some recovery in the domestic economy.

Our leading brands in the country, Bud and Bud Light, maintained their positive momentum as we continue to invest heavily behind Budweiser and hockey with [relative teen] programs, while Bud Light delivered a very strong performance with growth in our regions.

On the cost side, COGS per hectoliter decreased by 2.6%, driven by lower industrial depreciation and better currency hedges. And SG&A, excluding depreciation, increased by 2.7% in the quarter given increased spending in sales and marketing.

Looking ahead, as we enter the key summer selling period, we will be keeping -- we will keep investing in high-level brands and working in better ways to connect with consumers by, among other things, bringing new and exciting news to the marketplace.

Before handing it back to Nelson, I would like to update you on our outlook for the year in Brazil. We believe higher disposable income should help volumes grow in 2012 versus last year into a more balanced volume and price equation when compared to the past few years.

As usual, many challenges lie ahead. [And rented] risks to our business remain out there, but in our view the fundamental opportunities, such as per capita consumption to develop our premium brands in the North and Northeast, should be there for the taking.

Perhaps one of the most important things to keep in mind is that management has to be ready to navigate in better times or through more turbulent waters, which is what I believe we have been able to demonstrate in the last couple of years. Over to you, Nelson.

Thanks, Joao. In this final portion, I will go through the main items between normalized [assets] of about BRL3 billion and profits close to BRL2.3 billion as disclosed on page 3 of our release.

Net finance results were BRL60 million negative, which is BRL14.5 million worse than Q1 2011.

Greater interest income and lower interest expense were more than offset by loss in derivative and other [hedging] instruments, as well as higher taxes on financial transactions.

The effective tax rate was 19.8%, compared to 22.2% in the first quarter of 2011.

And finally, our net cash position reached around BRL4.3 billion, compared to BRL4.2 billion of net cash at the end of 2011. However, this picture did not include the BRL2.5 billion in dividends and interest on capital paid starting on April 10 and the additional BRL2.3 billion that should be paid in the second quarter in connection with a strategic alliance in the Caribbean, which should start bringing us back to the leverage levels we were prior to December 2011 when we achieved the current level in the net cash position.

We will now take some questions. Mike, can you help us, please?

(Operator Instructions). Lore Serra, Morgan Stanley.

Good morning and thanks for taking the question. Joao, there's a lot of things going on in price per hectoliter, and I just wondered if you could help clarify a couple of things. One is that typically we've seen your price per hectoliter in Brazil beer go down sequentially in the second quarter, and I guess if I look at it over the years, it's usually been a couple of points. But last year, it was more pronounced. So as you get into the second quarter, should we think about not having an impact from state tax resets, i.e., a more [label] pricing sequentially?

Yes, Lore, I think this could be the best way to look into the pricing sequentially. Of course, when you look on a year-on-year -- I think there was a lot of confusion. When you look on a year-on-year basis, the biggest impact is, of course, the IPI or the federal taxes because it was taken in April.

When you look on a sequential basis, that's where VAT had an impact in that potentially has on earlier surveys and things like that. So we continue to say that for the year, we will be in line with inflation, and all things being equal, we could have a better sequential basis going into Q3 than on the other years because of this anticipation for the first quarter.

Okay, and then on a mix basis, I know you don't want to talk too specifically, but should we see a headwind for mix as you push -- put more efforts behind the one-liter and 330-milliliter?

As you said, we're not going to give a lot of news on this, on detail, but I think we continue to be in a country, when I talk about Brazil beer, where we see all the different social classes getting more income, okay, so there is opportunity for us, both in the premium and, I think, the more affordable presentations.

And I think we are in a unique position to take advantage of our premium portfolio now really being complete with [Originale], Bohemia, and now Budweiser and Stella, but also being able to compete also on more affordable presentations with the one-liter and the 300ml. So in a way, this really led us to be excited about really having a good portfolio, liquid-wise, packaging-wise, to take advantage of any opportunities that arise.

The consequence will be mixed when you look at (inaudible), depending on which one is growing faster, okay, and how the mix will play out in the different channels. So that's why it's difficult, really, to model exactly how things will be, but when you look on a net net, just to finalize on the point we started, we feel very comfortable with the net revenues per hectoliter in line with inflation, all things being equal, and on our potential better sequential basis for Q2.

Great, and then, just very quickly on the distribution of expenses in Brazil, per the ABI disclosure they're rising higher than volumes. Is that -- I mean, I know it's both because of more volumes and more direct -- I'm sorry, more volumes and some higher costs, but is it more related to the volume impact or cost of transports going up in a more important way?

It's really a global one. We're not explaining exactly which one. You have to remember, one, of course, at the same time that would benefit from a 14% minimum wage growth or a BRL7.5. This also impacts helpers and drivers in the transportation. Those are the ones actually more impacted by minimum wage growth. So labor is definitely a point.

Overall inflation, when you talk about fuel it's important -- volume is important, but we cannot forget the mix innovation because as you're starting to have, let's say, Budweiser in selected cities throughout the country, as you have the 300ml going to other places and we continue to expand innovation -- remember that we took innovation from very little to very high digits in terms of our total volume. And the footprint continues to adapt to that.

As we continue to be successful in the innovation strategy, because you always start producing them in one location and then you replicate in other regions of the country, it takes some time. There is a delay until you take full advantage of the new footprint that is coming with the new enhancements that have taken place in the last 18 months.

Perfect. Thanks very much.

Lauren Torres, HSBC.

Hi, everyone. My question relates to some of the margin pressure we saw in the quarter. You were specific about where you're seeing that from, whether it be in soft drinks in Brazil or beer in Latin America South. I was just curious if some of these pressures, particularly in the first quarter, were more than you were expecting, and then, just how should we think about the remainder of the year? A return to better margins and some of these cost pressures getting a bit better as we trend through the year?

I think as we both heard this morning, I think when you look at Brazil beer in particular, we didn't see so much of that pressure if we look at EBITDA margin growing on a comparable basis, right? And we had more of a hit on [sesvee].

If we were to give an announcement on the overall, I would say that if we put together the guidance of net revenues per hectoliters being in line with inflation and cost of goods sold being below inflation, I think that combination on the gross margin, it's a positive one. So we would see if we are able to deliver that, we are able to see gross margin expansion.

And I think when you look in the lines between gross margin and EBITDA, many times there is a choice that you will be making. I mean, there is, of course, the overhead in the distribution expenses, but there is also the sales and marketing. We feel that the pressure from sales and marketing in the first quarter, there is a component of phasing due to the strategy of taking full advantage of the Carnival.

You have to remember how important is Carnival to Brazil and how that really fits the Northeast/North region strategy. Some of our competitors have built their brand health in the past 10, 11 years around those, and we have the opportunity to take one of the most important events in Brazil, which is Salvador Carnival, where we didn't have a doubt for a second that we want to have that back.

Of course, that has an impact in the short term, especially in the quarter. It will yield a return in the long term. We have already seen, in the past two years, very good momentum from brand health indicators, very good momentum for market share, very good momentum for per capita growth, so the [nella] strategy, the Northeast/North strategy is actually contributing above the average in all of those three indicators that I just mentioned.

In this quarter, specifically, it has -- it paid its part given the Carnival its strategy. So I would say that the combination of gross margin and then all those things that I mentioned in terms of SG&A, you can do the math, and I think it can be positive.

And Lauren, it's Nelson. Just to complement what Joao just said, I think on the SG&A side it's crystal clear the choice we took in terms of the sales and marketing spend.

But on the gross margin impact and particularly the COGS outlook we give, as we said we remain very committed and offered our guidance of a full-year COGS per hectoliter below inflation. I think what we saw in Q1 was, in light of our expectation, as part of the plan, and at the same time we have a combination of declining costs per hectoliter in Beer Brazil that was made because of the easy comps versus in quarter [camps] we had last year still in the first quarter and also better currency hedges.

While for soft drinks, mainly because of sugar and PET, so commodity related, we had a particularly tough comp in Q1, but again, that was part of the plan. So for the rest of the year, with the predictability we have and the visibility we have, also given our hedging strategy, we are comfortable that we should have an improvement in CSD year over year, right, going down to low single-digit growth instead of double digit like we had in the first quarter, while in beer, it should not be negative like it was this year as you're going to have some less favorable, if you will, aluminum, barley, and FX hedges, so less everything in Q1.

There are still favorable [lessors] than in Q1 for the four which should have a total, let's say, below inflation growth as a COGS spread to 2011.

Okay, that's really helpful. And then, if I could ask just one other question, you talk about those balance, volume and pricing growth, this year, but we're obviously hearing about potential for a further tax increase on beverages, so I assume if that happens, I don't know if you could comment on that, and if it does, then that balance kind of goes away for this year. Is that the case?

Well, the balance between volume and pricing, it's something that we want. We think it's -- we have always tried to navigate in that manner.

We were more skewed towards volume in 2009-2010. We were more skewed towards price in 2011, and we want to be somewhere between the two.

You're right. Definitely the size of the increase that it comes will have an impact on our decision. If it's something that we can continue to find for what we think is the right balance and what actually we think is better for everyone, including the [garbin] when we look at the long-term rates because then we invest more. If it comes, then we will, first, protect our profitability.

I mean, I'm very sad that we moved price in line with inflation, plus the tax passthrough. And second, if that happens there will probably be an impact of volumes, and if that is the case, given our demand plan and the ability we have to very quickly define what is the right footprint given the new pricing strategy, we will revise our CapEx for the full year.

Okay, all right. Thank you.

Jose Yordan, Deutsche Bank.

Hi. Good morning, everyone. My question is really a follow-up to what you were just talking about in terms of hedges. You are saying that aluminum and barley hedges get tougher for beer in Brazil later this year, but presumably the FX part of it becomes easier, especially if you went ahead and went a little beyond your limit last August and you hedged the real at the 150, 160 level.

But I guess any color you can give us, as well, into what you have done so far for hedging 2013, even though we're almost halfway through the year, because I guess the FX hedges are getting much tougher there and you are not getting the relief as you have gotten in the past couple of years on the dollar price of the raw materials. So, any color you can give us as to how we should start thinking about 2013 and into the second half of this year, that would be great.

Hi, Jose. It's Nelson here. Starting for 2012, as we said, for the year we are going to have -- we have better currency hedges and they have no right to have everything [locked] for 2012 already.

We will get some better quarters, or if not so better, but in general, we are going to see -- we are going to have these upsides at the COGS level. But on the other hand, commodities. These are aluminum, sugar, barley, of course, they were hedged to higher levels than what we had in 2011, so the [net] we are hopeful that you give us the ability to deliver COGS [pressure], typical inflation, also when you account for productivity improvement, and all that we have as part of our G&A, right? So we are very comfortable with that.

Regarding 2013, I think -- well, it's kind of too early to give any sort of guidance. Of course, the hedging strategy remains the same, so we're not deviating from that. You know it very well, and that should probably help you in terms of a forecast, but we are not giving any specific guidance for 2013 yet.

Alan Alanis, JPMorgan.

Hi, thank you for taking my call. It has to do regarding dividends, the dividend policy, and the amount of leverage that you feel optimal now that you have announced the acquisition of the Dominican Republic and going forward. Should we expect any -- what kind of change, if any, we should be expecting on the dividend payouts now?

Hi, Alan. Well, as we said, we had a kind of unusual, if you will, net cash position this December, last year. Of course, we [bartered] one last (inaudible) cash position right now, but that was clearly associated with some of the movements we had and particularly with the acquisition in the Caribbean.

Of course, we couldn't comment on that at that time, plus -- because it was not concluded. It was still in the negotiation process.

But now it's out there, and we signed with CND. The whole idea was, of course, to close the operation, and as I said, with the dividend payment we just had early April, we should go back to the level of net [debt attributed] that we were, let's say, prior to December 2011 or until September 2011 [requel], which is the sort of acquisition we probably should see moving forward, at least -- I mean, consistent with what we had in the last three to four years, right?

Got it. So basically, returning to that level of net debt to EBITDA, but at the same time is it fair to say that you -- that we will continue to see the excess free cash flow be on that level [the week] to be given back to shareholders, your dividend, as you have been doing it for quite a while now?

Exactly, yes. That's what I meant, and we -- of course, in terms of use of cash, after, let's say, investing behind the good opportunities we have, be it through CapEx and also, I mean, looking at your other investment opportunities, we will always have, given the structure of the free cash flow that we have, we will always have an important destination in terms of payout and we always maximize interest on capital for the tax reasons and complements the total payout, given the sort of free cash flow [unit] rate.

So I'll say no change versus what we were primarily doing or have been doing at least for the last three to four years. We just speculate on, let's say, future quarters here regarding timing or specific amounts, but on a -- as a base case, we should see something similar to what we saw in the previous year.

Then, as I said, because of the acquisition in the Caribbean, we cannot deviate from that for pretty much three or four months.

Got it. And sorry, I'm joining a little bit late the call, I don't know if you already mentioned this or answered this question, but have you talked about labor costs in Brazil going forward? I mean, an issue not only of 2012 with the minimum-wage increase of 14%, but if we're looking to 2013 and 2014, we're likely to get, what, minimum-wage increases in the very high single digits, maybe again double digits, or high single digits, let's put it this way.

Do you feel that the consumer in Brazil can take the necessary pricing for -- in order to offset that increased labor cost going forward? More of a long-term question, not only for the next quarter, but for the full-year 2012 through 2014, please.

Let me start saying that for this year in particular, given the minimum wage, and we just mentioned some minutes ago about the impact on our SG&A, particularly in transportation costs where we have the drivers and the helpers, let's say, more tied to the sort of minimum-wage salary, and [four Gs] has an impact in our logistic costs.

And you know that this increase follows a formula, right, and since we had a high GDP growth two years ago, that was 7.5%, that could -- that had a strong impact in 2012.

If we look forward, I mean, it's kind of easy to [monitor], if you will, that GDP going back to 4% or 5%, that should -- which is already an interesting growth, right, that should ease in terms of an extended pressure coming from the minimum wage, which is only for part of our labor force, right? That's also important to mention.

If you think of payroll, it's not the number one or two item in our total cost and expense view, which might expose it to commodities and less to labor. We are not that labor intensive.

So that said, we do not expect major pressures on our financials, and our first [reckoning] will always be to try to look for more, let's say, opportunities in terms of productivity and efficiency, and then only as a last measure, if you will, to see what we can offset via prices. So that as Joao concerned, I mean, as part of our, let's say, outlook here.

Thank you so much. Appreciate it.

Alexandre Miguel, Itau BBA.

The first question will be related to taxes. I know it's tough to give any more visibility here in the case, but I was just wondering what's your base-case scenario for taxation? Do you expect an increase this year, or it will be only a yearly update of the reference price, or you think there's also under discussion an increase in the tax burden for the beverage industry overall? Just to get a better picture of what's going on, if you can share with us, that would be my first question.

As we said before, this new excise tax regime was implemented in 2009. It's possible that excise tax rise every year.

With respect to 2012, we will not speculate on the [reporting]. It's very difficult to read exactly what's going to happen, so I think what we can say is what I said before, earlier -- a little bit earlier in the call is that we'll pass it through, whatever it is, to consumers. As a result, there could be an impact on volumes and, as always, in the level of investments.

We hope that we see a number that makes sense so that we can -- we'd rather see the business expand and invest more and create jobs and everything. But if it's not the case, if for the year we need to take some more, we will adjust our plans accordingly.

Okay, thank you. So my other question would be more related to working capital. We saw a reversal in terms of working capital gains, many [importations], and other payables compared to the gains you showed in the fourth quarter of last year. So if you can answer more -- a little more details if this new, let's say, trend tends to be a better proxy in terms of payables turnover for these accounts, or just discuss in more details of what happened with -- I think it was BRL1.9 billion in high working capital needs in the first quarter.

Yes, that's true. I mean, as far -- if you look at the evolution of our working capital and the impact on our operational cash flow, there was a decrease at first -- [mainly] payables. That was around BRL1 billion, so instead of [taking] BRL1.1 billion, we had more of a BRL2 billion net impact of working capital in Q1, particularly in payables so the Delta was BRL1 billion.

And this impact was mainly due to two things. I mean, there was a higher concentration of CapEx-related payments, which, as you know, they have a longer term and before they hit our cash flow in Q1 this year as opposed to Q4 in 2011. They had a high concentration -- high [advantage] than before, higher concentration of CapEx payments with longer term because there was this carryover towards Q1.

And finally, there was an important impact of our latest barley harvest and the [corporate] chase, which [provide] in payments made primarily in early 2012, rather than late 2011. You have to bear in mind that we buy and pay pretty much in a short period of time our full-year needs in terms of raw materials, in terms of barley, during approximately two to three months, and this time around it was more skewed towards 2012.

So, the bottom line is that most of these downsides we have in Q1 is the opposite of the upside we saw in Q4, and now, let's say, that we are more back to a normal level moving forward.

Okay, perfect. If I may, just one additional question on Latin America South. Just wonder if you can give us some color on what you expect for volume's growth going forward, given any potential macro risks? I think many in Argentina expect economic deceleration in 2012. Should we expect maybe a deceleration in beer and soft drinks growth volumes for the region for the next quarters?

Very difficult to anticipate any changes, to be quite honest. You saw the results of the first quarter. They were very good. So we have not seen any changes to the current domestic consumption levels, given this, I guess, instability that you are referring to.

So we don't have any news in terms of update from what could happen from change in the macroeconomic [center]. That, to be quite honest, has not changed for the beverage industry so far.

Okay, perfect. Thank you.

Gabriel Lima, Barclays Capital.

Thank you, good morning, good afternoon. My question is related to effective tax rate. I know it's down from 22% to 20% year on year. I want to know if it's related to the set-up of the Pernambuco plant or if it's related to any issue -- Nelson, you mentioned some tax on derivatives during the quarter.

So, just want to know if this is one-off, or going forward if we should see the effective tax rate going down year on year?

Yes, well, it did -- the effective tax rate was down versus last year, so Q1 2012 versus Q1 2011, and it was -- part of it was explained by a higher benefit from interest-only shareholders, that which was the tax benefit we get from beer, and that could be slightly better than last year, indeed.

But there are also -- let's say, other than just limited to income tax, which are directly linked to the incentives we got from the [big fashions] we do. So we are right in [especially] invest in the North or the Northeast. There are some income tax incentives that impact how our effective tax rate.

So we saw a sort of -- well, it has an upside in this quarter. It's alway different (inaudible), only on a quarterly basis because there's some shifts from quarter to Northern and some easy comps if you take the effective tax rate on a quarterly basis, and (inaudible) some ups and down because of some one-offs. But let's say, the outlook for the year is indeed to be at least slightly below last year's rate.

Bear in mind, last year was around 22.4%, so we should be below that, slightly below that, but that made vary on a quarterly basis. For instance, we have a tough comp in Q2 because of some of the one-offs we had last year.

But, again, for the year, which I prefer always to talk about effective tax rate on a 12-month basis, we indeed could be suddenly better because of the -- mainly because of the incentives related to the CapEx we have been doing.

Okay, very interesting. And can you give us some updates on the Pernambuco plant and utilization and how everything is going on there? Thank you.

Sure. Well, as we would expect, we see the volume ramp up, efficiency growing, so it's becoming a very important moment for us.

I mean, you know our focus on the North and Northeast, and this footprint improvement -- not only Pernambuco, but all the investments we did in the region last year. We had important expansion in four other plants we have in the region. It's given us the flexibility to continue growing this region because the region that is growing above the national average.

We still have market-share opportunity for the national average as well, although we have been closing this gap, so we are very excited about the opportunity to LAT beer, and again, footprint improvement is a key element and Pernambuco plays an important role. This has, I think, become the second biggest plant in our entire footprint.

Yes, I got it. Your effective tax rate, your tax rate benefit linked to the sales you have, and then all the sorts of investments you've made?

Well, it's triggered by the investments, but it's proportionally to the profits we get in the region, right? So as we grow in the region, of course profits will grow, with incentive should grow together.

That's exactly my point. Thank you.

Thiago Duarte, BTG Pactual.

Hi, good afternoon, everybody. My first question is on the market-share gain in the beer division in Brazil, which was pretty impressive, 70 basis points. So I just wonder if you could provide some more color on what drove this gain in terms of regions or brands, or even how the premium segment affected this on a consolidated basis. Thank you.

It's much more related to the mainstream business, given just the size. As you know, the premium segment, it's a small segment, so to get that sort of a market-share gain, it will be always 90%-plus -- if it happens right now, in the next two quarters, given the size.

What I think is interesting to say is that we are seeing most of our competitors to follow the price increases on a faster base for whatever reason, and any time that happens, given the good job done by the sales team in terms of executing well, that execution at the up trade and down trade channels, as well as the brand health indicators that actually continue to be at very high levels, any time you decrease on a faster pace the discount that our brands have to our competitors' brand, you will see us diminishing the gap between our market share and our preference levels, and that is exactly what happened in this quarter.

Okay, great, and just coming back to that COGS over hectoliter discussion that we had in the previous questions. So just wondering if you could provide some color, how you see that going throughout this year. I understand that you're keeping your guidance of lower than inflation costs per hectoliter growth, but I was just wondering how you see that evolving the second, third, and fourth quarter of the year because if you look at how sugar prices or other commodity prices were a year ago, I was just wondering if that could affect the second quarter in a negative way, even considering the FX rate. Just wanted to see how you see that curve evolving throughout the year.

Yes. Hi, it's Nelson here. We had a very good visibility on our COGS outlook, given the hedging strategy, right?

I mean, it's bigger. The predictability, I would say, has been getting clearer because we have hedged for aluminum, for barley, for dollar, of course, and we will see also given the easy comps we had primarily in the beginning of last year that in the year we should see costs per hectoliter, as I said, instead of going down half a point that we saw this quarter, it should grow as the year progresses and also given the sort of commodities curve that we had in the market last year.

Why soft drinks? Because the timing of the three, mainly sugar, had. These two have a short, let's say, three to four months of visibility. But knowing what we know for sugar hedges, we should see the other way around. [Wine] and beer (inaudible) grow more along the year, and soft drinks, it should go down.

We had, for instance, a particularly tough comp in Q1, but then you are going to have easy comps in Q2, and that had to do with the timing of the hedges that were made. So for instance, we already expect CSD costs per hectoliter to be -- right now, it's a double [gee]. Its growth, right, is ahead of Q1, but for the half year, we already expect it to be pretty much at mid single digits, given the Q2 easy comp you have.

At this time, we'll go ahead and conclude our question-and-answer session. I would now like to turn the floor back to Mr. Nelson Jamel for his closing remarks. Sir?

Thank you, Mike, and thanks, everybody, for the questions and attention today, and we will talk soon, so see you next call. Thank you and bye-bye.

And we thank you, sir, and to the rest of management, for your time. The conference call is now concluded. We thank you all for attending. At this time, you may disconnect your lines. Thank you. Have a good day.