Ambev SA (ABEV) 2012 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 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 a listen-only mode during the Company's presentation. After Ambev's remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given. (Operator Instructions).

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities 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 risk, uncertainties, and assumptions, because they relate to future events and therefore depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future result of Ambev and could cause results to differ materially from those expressed in such forward-looking statements.

I would also like to remind everyone that, as usual, the percentage changes that will be discussed during today's call are both organic and normalized in nature and, unless otherwise stated, percentage changes refer to comparisons with Q4 and full-year 2011 results. Normalized figures refer to performance measures before special items, which are either income or expenses that do not occur regularly as part of Ambev's normal activities. As normalized figures are non-GAAP measures, the Company discloses the consolidated profit, EPS, EBIT, and EBITDA on a fully-reported basis in the earnings release.

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

Thank you, Mike, and hello, everyone. Thanks for attending our 2012 fourth quarter and full year earnings call. I'll start with a brief overview of our performance and, then, Joao will comment on our results by division. And, to wrap things up, I'll return to discuss our financial figures before we move to Q&A. So, let's begin.

Our fourth quarter performance gave us a strong finish for the year. Net revenues grew 13.7% in the quarter. EBITDA was up 15.7% organically. And, our normalized EBITDA margin was 54.4%, an organic expansion of 90 bps.

For the year, we delivered net revenue growth of 12.4%, EBITDA growth of 13.6%, as well as 50 bps of margin expansion, giving us 48.6% for the year.

If we focus on the highlights of our divisional performance, Brazil net revenues [improving] 14.3% in the fourth quarter, while volumes rebounding and growing 3.5%. EBITDA grew 15.8%, with EBITDA margin expanding 70 bps, to 58.4%. For the year, net revenues grew 12.7%, while EBITDA performance was 14.3% better, and EBITDA margins expanded 80 bps, to 52.6%.

Latin America South delivered 20.6% of net revenue growth in the quarter, 28% of EBITDA growth, and 310 bps of EBITDA margin expansion, which reached 53.5%. All this, [in light of] the quarter of (inaudible) that led to volume decline of 3.2%. In the year, net revenue grew 19.9%; EBITDA, 21.6%; and, EBITDA margin was 46.8%, an expansion of 60 bps.

Canada delivered 0.9% EBITDA growth in the fourth quarter, despite a 2.1% volume decline, which was mostly industry-driven. Net revenue per hectoliter meanwhile posted an improvement of 1.7%, and EBITDA margin expanded 50 bps to 44%. For the full year, despite the slight volume decline of 0.5%, EBITDA actually increased 0.7%, thanks to 1.5% net revenue growth while [we delivered] the margin EBITDA of 41.9%.

In HILA-ex, (inaudible) up its transformation of the year by delivering organic volume growth of 3.1% and BRL117.7 million of EBITDA in the quarter, with an EBITDA margin of 24.8%. EBITDA totaled BRL204.9 million in 2012, and EBITDA margin jumped to 15.3%, both of which are substantial improvements versus our historic performance.

Our normalized profits in the fourth quarter exceeded BRL3.7 billion.

Now, I'll turn it to Joao. Joao?

Thank you, Nelson, and good afternoon, everyone. I am extremely pleased with how we ended the year. To deliver double-digit EBITDA growth with margin expansion and operational average in the type of environment we face in Brazil and Latin American South is quite an accomplishment. Moreover, albeit for different reasons, 2012 was a truly remarkable year for Brazil Soft Drinks and our HILA-ex business.

We take pride in these results, especially because the ability of our people to execute the plan in the fourth quarter, which really paved the way for another year of strong results despite the uncertainties and threats surrounding us. So, I would like to congratulate and thank our team for the fourth quarter and full-year results I'm about to share with you.

Let's first take a closer look at our actual performance, starting with Beer Brazil. After very little volume growth in Q3, Beer Brazil volumes bounced back and grew 2.9% for the quarter, while net revenues per hectoliter increased a solid 10.9%, giving us top line growth of roughly 14% for the quarter.

Volumes benefitted from the industry being up an estimated 4.7%, though market share year over year continued to be under short-term pressure given our third quarter pricing activity. Sequentially, however, the good news is that we actually started recovering market share by the end of the year, which helped us reach an average of 68.5% for the full year.

For the year, both the industry and our volumes performed better than 2011, growing 3.2% and 2.5%, respectively. And, as we highlighted during the course of the year, our focus on innovation, premium brands, north and northeast, and returnables had a lot to do with this improved performance.

On the cost side, COGS per hectoliter increased 11.9% in the fourth quarter 2012. This was mostly caused by greater barley and aluminum costs, as well as higher depreciation of our industrial assets and a negative packaging mix due to greater one-way volume growth. Also, as mentioned in our press release, the different mix also impacted our full-year performance for COGS in Brazil which has rose 6.6%, slightly ahead of inflation.

In terms of expenses, SG&A excluding depreciation and amortization in the quarter were up 7%, primarily due to a decline in admin expenses tied for the most part to lower accruals for variable compensation as compared to last year but, also, thanks to distribution cost which continues to grow at a slower pace. All in all, the end product was a 16.6% EBITDA growth, with 130 bps of EBITDA margin expansion in the quarter, and 13.9% EBITDA growth, with 80 bps of EBITDA margin expansion, for 2012.

Moving along to Brazil Soft Drinks and Non-alcoholic Non-carbonated business, in the fourth quarter, volumes grew ahead of Beer at 5.1%, thanks mostly to an estimated industry growth of 3% and market share gains of 20 bps, averaging 18.1% for the quarter and for the year.

As was the case in Beer, our price increase in the third quarter contributed to solid net revenue per hectoliter growth of 9.7% for Brazil division in the fourth quarter. And, consistency in our commercial strategy has continued to pay off with our efforts around Guarana Antarctica, Pepsi, the 1-liter returnable glass bottle, and the 237-mililiter PET bottle all still working very well and very strong for us.

On the COGS side, Brazil Soft Drinks unit COGS per hectoliter grew below inflation for the quarter and for the year, 5.5% and 5.1%, respectively. In both instances, our favorable currency hedges were decisive in offsetting the commodity headwinds we face in terms of sugar and PET resin cost.

SG&A excluding depreciation and amortization increased much less than previous quarters, up only 4.9% in the fourth quarter, also benefitting from lower admin expenses.

At the end of the day, Brazil Soft Drinks EBITDA improved 11.1% in the quarter, leading to 16.4% growth for the full year. And, although EBITDA margins contracted 200 bps in the fourth quarter, for the year they still managed to expand 80 bps, to an unprecedented 49.4% margin.

Turning to HILA-ex, Jamel has already highlighted how we finished 2012 on a high note by delivering substantial improvements on our reported figures. Our integration efforts in the Dominican Republic continue to move along as planned and, in addition, I would just like to give some color on our organic value performance which has kept improving considerably, most notably in countries such as Guatemala where accelerated volume growth has driven our market share to nearly 30% in the fourth quarter 2012. There is still much to be done, but we think we are once again on the right path.

In Latin American South, the overall dynamic of the fourth quarter in terms of top line performance remained unchanged since the second quarter, in that volumes continue to suffer from a slowdown in economic activity in Argentina, while our net revenues per hectoliter continue to deliver strong results. Volumes declined 3.2% in the region, but net revenue per hectoliter grew 24.5% in the quarter, giving us 20.6% of top line growth. For the year, volumes were down 0.8%, but net revenue rose 19.9%. Equally important, our brands continue to be in good shape, with market share gains in most of the region, Argentina included.

Despite the short-term hardship in Argentina, we continue to be very active in the marketplace by adding capacity, by having even stronger communication, and therefore supporting our mainstream and premium brands, and also through innovation. For example, in the fourth quarter, we launched Quilmes Night and Stella Artois Noire, while in CSD the top performer was H2Oh! Limoneto.

Full-year COGS and SG&A for the region grew 15.6% and 21.4%, respectively, mainly impacted by inflationary pressures in Argentina.

We ended up delivering in Latin American South a 28% growth in EBITDA in the quarter, with EBITDA margin up 310 bps, to 53.5%, whereas for the year, we delivered double-digit growth of 21.6%, as per our guidance, as well as 60 bps of margin expansion to arrive at 46.8%.

As for Canada, in the fourth quarter, Labatt's volume declined by 2.1%, largely driven by a weaker industry. By our estimates, the Canadian beer industry declined by 1.9%, versus the same period in 2011, mainly driven by the impact of the hockey lockout. Our market share averaged [40.5%] in the quarter, and 40.6% for the year. Bud Light delivered another quarter of strong results, gaining market share both in the quarter and full year 2012.

Net revenues per hectoliter increased by 1.7%, as promotional activities declined and benefits from earlier price increases were realized. This performance topped off an overall better year in terms of pricing, with net revenues per hectoliter up 2% for the year.

As for COGS and expenses in the quarter, COSG per hectoliter increased by 3.3%, due to higher commodity costs and continued shift in product and packaging mix. But, SG&A decreased by 2.2%, mostly due to the timing of marketing investments behind our key programming in previous quarters, as well as a lower team sponsorship cost as a result of the shortened hockey season.

The net result was an increase in EBITDA of 0.9% in the quarter and 0.7% for the year.

In retrospect, we are encouraged by the significant progress made on some key fronts -- first, Budweiser's association with hockey and its position as the most preferred brand among young adults; second, the growth of our light segment brands in every quarter, led by Bud Light; third, the contribution of our innovations to market share and (inaudible) performance, especially Michelob Ultra, Bud Light Lime Mojito; and, fourth, the achievement of a better equilibrium between price and market share.

I'd like now to comment on our expectations for 2013. As we mention in our press release, 2013 should be another year in which we will have to deal with macroeconomic environment that has been rather difficult to predict in the year where we will face yet again higher taxes in Brazil. Though our results over the past two years should be evidence that we have managed to perform well when up against similarly challenging environments, it's equally true that 2013 should not be any easier than 2012.

We see no reason for pessimism, however. Quite the contrary. We continue to focus on delivering a combination of volume and net revenue per hectoliter growth at the right mix in terms of channel, regional, and packaging, as well as applying our usual cost management discipline.

We believe the beer industry in Brazil can grow around the same levels of 2012, since the overall environment is not materially different from what we saw during last year.

Taxes are scheduled to rise again, this time a part of it in April and a part of it in October, but in the other hand, we expect increasing minimum wage and low unemployment levels to translate once more into support of disposable income growth. Moreover, the Brazilian federal government remains in pursuit of accelerated growth rates, and we believe domestic consumption should benefit as a result.

January was actually a very strong month for the industry. But, since the industry performance in January was positively impacted by inventory building to be ready for the earlier Carnival, it's too early to treat any short-term reading as a valid proxy for the remaining of the year. Our view for 2013 is that when one looks at fundamental drivers of industry growth, pricing, disposable income, and weather, one should find good reason for the beer industry to grow around the same levels of 2012. That said, we do expect the beginning of the year to be especially challenging for the industry because of the earlier Carnival and slightly poorer weather, mainly rain.

As for our commercial strategy, the top priorities remain essentially the same, with some improvements based on what we learned during 2012. One additional reason why the execution of the sales and marketing initiatives will be key is the World Cup, which is right around the corner, not to mention the Confederations Cup which happens this year.

2013 will be the year to test and/or accelerate with scalability many of the initiatives we have in place for the actual games, but also things we believe can leave a legacy for our business. During 2012, we began sharing with you some of the concepts we have been testing, such as the micro events as well as some of the platforms that have been investing behind. For instance, Brahma's sponsorship of local soccer teams. There are many more things in store. The focused execution of our sales and marketing plan will also be decisive for net revenues per hectoliter performance, which we expect to be high single-digit for the year.

The carryover of our 2012 pricing should be helpful, but we also expect greater premium volume growth and higher direct distribution to also contribute towards this level of performance.

On the cost side, however, we will face perhaps the greatest headwind when comparing 2013 to 2012. As you know, a relevant portion of our COGS is linked to US dollar, and our hedging policy mandates that on average we remain hedged 12 months ahead. Therefore, even though our commodity hedge should generate a gain, year over year, this will be far from enough to offset the headwind resulting from the devaluation of the Brazilian real. Also, with the changes to the federal tax for soft drinks in 2012, we will face additional headwinds in that business unit.

Net, net, we expect COGS per hectoliter in Brazil to grow high single- to low double-digits for the year based on our current product mix, with COGS per hectoliter for Soft Drinks growing high teens.

And, we firmly believe that Brazil's medium- and long-term prospects remain unparalleled as the country's beer market offers growth and profitability opportunities for which we are well positioned. Of course, we must continue to execute, but the opportunities are there. And, in order to fully capture the growth that lies ahead, we have announced our intent to invest around BRL3 billion in CapEx for Brazil, most of which will be supply chain related, which is our highest ever.

First, late last year, we have already announced our plans to build greenfield breweries in the state of Minas Gerais and Parana. Second, our continued efforts behind the 300-mililiter returnable glass bottle, Budweiser, and the 1-liter returnable glass bottle for Guarana Antarctica requiring further capacity to support the type of growth we are striving for on the commercial side. And, third, we believe it's important to have the majority of our 2014 capacity requirements in place by the end of this year, as we will not have the ability to add a lot of capacity in any material way during 2014, given the World Cup.

Nelson, back to you.

Thanks, Joao. Let me now walk you through the main items between the normalized EBIT of a little over than BRL5 billion and profits of around BRL3.7 billion for the quarter, as set forth on page 5 of our press release.

Our net finance results were a negative BRL240 million. This results primarily from the BRL65 million non-cash accretion expense in connection with the put option associated with our investment in Cerveceria Nacional Dominicana, lower interest rates income due to low interest rates versus the same period in the previous year, and higher expense related to derivative instruments.

Our effective tax rate for the quarter ended up being 20.4%, which was mostly due to higher interest on [non-capital], goodwill amortization, and other tax adjustments as compared to the fourth quarter of 2011, all of which were important to offset the greater taxable basis because of our higher EBIT performance in the quarter.

Finally, we finished the year with a net cash position of approximately BRL6.2 billion. Since then, on January 21, we paid out roughly BRL3 billion in dividends and interest on capital, and an additional payment of about BRL2.1 billion is due to be paid as from March 28, as we announced yesterday morning.

Going forward, we will continue to pursue the appropriate balance of reinvesting in the growth of our business, be it organic through the BRL3 billion of CapEx in Brazil mentioned by Joao or through targeted M&A, while maintaining an appropriate level of liquidity and returning excess cash to shareholders over time.

Now, I'm going to open up for Q&A. So, Mike, can you remind folks the procedure to get to the Q&A, please?

(Operator Instructions) Lore Serra, Morgan Stanley.

Good morning, and thanks for the call. I guess I wanted to just start out, Joao, if you could give us a little bit of your perspective on the market right now, in terms of how well your pricing actions last year in September/October have been absorbed in the market? How much you see competitors following in the pricing? And, then, how you think about this year? You mentioned a number of the comments in the call, but we will see an environment this year with less increase in minimum wages. And, I think embedded in your guidance is the view that you can do, or at the consumer level, low double-digit pricing in order to meet that guidance. So, how you're thinking about that, what you're seeing, and how we should think about that for this year? That would be helpful. Thank you.

OK. Great, Lore. Thanks for the question. Actually, we feel very, very positive about the current pricing environment. We mentioned high single for the net sales per hectoliter, and double-digit for total top line. So, that's a little bit of the difference.

But, pricing momentum is very positive. I think the two reasons to feel that way, first is the fourth quarter volumes given all the pricing that we had in the third quarter which saw for the full impact in the fourth quarter and the quarter being a very good one on the volume and/or the combination. We're always looking for the right balance of price and volume. I think we had a good one, a better one, in 2012 and a very good one in the fourth quarter. Therefore, we started 2013 excited given that we accomplished what we wanted for the end of the year.

And, second, I think given that the market is becoming more and more formal, we're seeing maybe for that reason also a much greater followship. Followship is above average.

So, the combination of a strong volume in the fourth quarter; the combination of pricing is sticking; some consumer resilience, if you want; and pricing followship above average. And, therefore now, three consecutive months of either neutral or positive share gains which are putting us strongly into our desired range of 67% to 69%, but actually being above 68%. I think the whole combination of pricing and share, we have ended 2012 on certainly a good foot, which therefore puts us in a good one for the beginning of 2013.

Perfect. And, I know that you gave a lot of information in terms of your cost outlook. I guess it was a bit higher than expected in terms of the COGS pressure. Is there any concern that you have in terms of differential kind of trends versus the market, as you head into 2013? I suppose I would have guessed that the commodity part of it would have helped you more, and I just wonder what that means as you think about the market dynamics for 2013?

Sure. I actually think from a competitive marketing environment, I see overall positive. Number one, ending up the year with, let's say, the [plane] moving up; with more formality, which is true for Beer and true big-time for Soft Drinks; and, then, on top of that, everyone feeling the same pain, not just from taxes, even more from taxes, and the same one from the hedges. I see no reason, because we are very close to the average. Jamel mentioned the numbers and can get into the details of the average. But, the averages are even slightly better than what you see for being that are buying spot. So, I see people either mimicking our sort of policy or buying spot. So, the ones that are buying spot are even buying more expensive than our average hedge rates. So, I see the pressure to be equal or greater for both taxes or COGS when compared to us, competition versus us.

Thanks very much.

Just to add one point, Lore, in terms of our COGS guidance, as you mentioned and asked, I think it's important to emphasize that of course we have the biggest hit is coming from the currency devaluation as part of our hedging policy, as Joao mentioned. And, that's, again, partially offset by commodities which we were able to hedge at more favorable prices.

And, I think it's also important to distinguish what you're going to see in Beer from Soft Drinks. Let's say, Beer being 80% of our business in Brazil, we feel more comfortable about the overall evolution of our results, as we said, guiding for high single-digit net revenue. We think total Brazil could be between high single- and low double-digit. But, Beer should be more towards high single. So, we should have a sort of a, as Joao mentioned, double-digit top line growth in Beer, with gross margins therefore, given (inaudible), following the same [pattern].

When you go to Soft Drinks, because not all of the currency impact but also some changes in terms of tax credits we have on raw materials, they are going to add more of a pressure, and that's why we tried to emphasize that on this, let's say, 20% of our business, there will be more of a gross margin pressure, but it's not the case for Beer.

Thanks very much.

Bob Ford, Merrill Lynch.

Thanks, Mike. Good afternoon -- or, good day, everybody and congratulations on the quarter, guys. I guess with respect to the offsets, if I'm doing the math correctly, it seems to me that if you get a high single-digit price increase in Brazil and that if Felipe's representation on the ABI call is correct, that 60% of your COGS in Brazil are dollar-linked, then you should have no difficulty maintaining margins. Am I missing something? Or, is there greater brand investments or other things that could adversely impact the outlook?

Yes, Bob, (inaudible) the guidance we give regarding [currency], we had last year. So, at a [1.66] implied rate in our COGS and, for this year, it's going to be around 1.93. It's already locked. So, on roughly 40% of our COGS, to be more precise, would have this currency devaluation impact, which accounts for, (inaudible), at EBITDA margin level for Brazil as a whole, that could take away roughly 180 bps of our margin, that alone. (multiple speakers).

Right. But, that would be a 14% drag on 40% of COGS, for a 65% gross margin business when you blend it. It's a little bit more than that, if I'm not mistaken, just off the top of my head. It seems to me that high single-digit pricing will more than compensate for this.

Yes, for sure, for Soft Drinks. We think we're going to have more of a pressure, like I just said in the previous question to Lore, because there it could have high teens. So, that would be one of a pressure but, definitely for Beer, we are going to have much less of a pression in terms of gross margin. And, if we think in absolute terms, if we think of double-digit top line growth, we could also think of double-digit gross margin growth for Beer, if you will. That's the basic math on the guidance we are providing.

But, for Soft Drinks, again, that will be more of a pressure for us.

And, the Soft Drinks, that's primarily due to the juice component? There was a favorable treatment for some juice-based beverages, and that disappears even if you used it as a -- like, lemon and Pepsi with lemon, and that sort of thing? Is that correct?

No, in fact, the lemon in Guarana raw materials, they have an impact on the net revenue, because they have a higher excise as this benefit of having natural flavors has gone up, (inaudible) discount. What is really affecting COGS is a combination of currency, as well, but also tax credits on some concentrates and incentives that we had on raw materials that were shortened by one-third. So, that's going to drive us from the high single, to the, in fact, the high teens growth in COGS.

That's very helpful. Thank you. And, then, one last question, that is, when you look at the informal, or the [two ballenas] section of the marketplace, how much of your market share do you think you've taken from the two ballenas? And, what kind of an opportunity do they represent for you, going forward?

Hi, Bob. This is Joao. Thanks for the question. Well, I think as we look -- if we look at the last 12 to 18 months since we launched the 1-liter returnable and since the two ballenas have been more under pressure from the tax reform, I think the combination of [Siquadia] on them for the last 18 months and the changes in the tax regulation that Jamel just mentioned, combination of the juice law and the [Manoss] tax incentive, will put even additional pressure on them.

We probably already took between 50 to 100, if you want, basis points, and I think there is two, three times of that looking two, three years ahead. So, I think there's much to be done as an opportunity for our flavor brands and the cola brands we have, both Guarana, Sukita, [Southern], Pepsi, to even take more space.

If we think about it, I think we mentioned our main competitor had launched returnable glass bottles about eight years ago. We gave them a lot of space for many years. We decided to stop that. About a year and a half ago, we started, with very good results, and I think the future is bright in terms of being able to capture more share, coming ahead. So, your question is right on the target.

Great. Thank you very much.

Thank you.

Alan Alanis, J.P. Morgan.

Thank you so much. Congratulations, everyone. I think that -- well, I have a couple of questions. The first one has to do with working capital. Before putting the question, I think it's a congratulations for Jamel and his team. I think it's the sixth consecutive year that you have a working capital improvement as a percentage of sales, and I'm seeing it as a record level of 24%. So, the first question has to do, do you think, Jamel, that that kind of improvement can continue in 2013? And, then, I have a question for Joao on a different topic.

Sure. Hi, Alan. And, thanks. [Indeed, in terms of] our working capital, this is something that we have been focusing on for three or four years, now. And, of course, the low hanging fruits are not there anymore, but have been consistently improving our performance while managing our accounts receivables, inventory levels, but mainly our payables. And, I think there are still opportunities there to be captured.

We always like to think about it like with the [sake of ZDB], for instance, we have (inaudible) for more than ten years, now. And, year after year, and 2012 was no different. It was an important contributor to our results, as well. We are always learning and doing better. So, we think we can still do much better in terms of our working capital management, and that of course is adding up to our ability to keep up and generate a strong free cash flow. So, we think and are confident that can do even better in 2013, as well.

Good. That's very useful. And, then, a quick question for Joao. I think it's similar to the question that had been asked, but from a different angle and putting more emphasis on the operating expenses of the Beer business, Joao. You mentioned all this innovation about the Brahma sponsorships or the investments in the market, on top of the innovations -- the Brahma sponsorships, the media events, and obviously the move that you're doing towards premiumization. I think a lot of the questions that we as analysts are asking have to do with, or will be answered in one way or the other, with the level of operating expenses that you can maintain in 2013. So, I guess the way to frame the question is, how much more investment --? Or, how much are you going to put the accelerator on all of these events and all of this more continued innovation in 2013 in order to grow operating expenses at a pace that is similar to the past? Or, are you going to say -- look, this is a great opportunity; the World Cup is next year; I'm going to spend a little bit more on the market in anticipation of that. And, I think that will give us a lot of the answer in terms of what we should expect in terms of margins and EBITDA growth on the Beer business in Brazil.

OK. Great, Alan. Very good question. I think, first, taking from your first question to Jamel, you're right. I also have to congratulate him and his team for all they did. But, every time we do that, it just give us good ideas to stretch the target even further for 2013. So, that's one point.

And, I think, second, he is committed and his team and our team and my team, we're all committed to do the best zero-base budget planning execution ever. So, we are committed of having the best-ever for the next couple of years. Why? Well, number one because it's always good to practice what we believe in. And, second because I think the opportunities on the [non-fixed] packages, let's put it this way, especially on the commercial side, are very big.

Every time --. And, you have to remember the discipline of looking risk-return. So, if we find the mini event to be a positive project, it will mean that it will be a positive project almost for sure in 12 months. So, most of the time, the things we, from a PL&L standpoint, are investing on, they will give us a return between 1 and 1.5 years. So, if we find positive NPV projects, as we do believe the micro events are, the association between Brahma and soccer is, we will put the accelerator big-time on. If we think they are not coming with the returns that we expect, we have shown that we can answer headwinds or tailwinds very quickly. We had in 2009, 2010 very good volume years, and we adjusted very quickly and played on the aggressive, on the offense side very quickly. And, 2011 and 2012 were slower years, more pricing years than volume years, and we quickly adjust the ZDB or the commercial investments to be adequate to that while, of course, protecting our share and at the same time reaching our EBITDA targets.

So, I think being positively pressured by the combination of having to achieve [the EBIT] and the share objectives give us the right framework to look at the projects on a manner that they will be a positive return, once. I actually feel one of the best year evers in terms of the commercial initiatives that we have for 2013 and 2014. I think you mention an important point.

Right now, I think one difference when you look at 2013 for other years is that now we are almost looking on a two-year, because World Cup is now around the corner. So, a lot of the things we do now will have an impact in 2014, and we want to have the best World Cup ever, here in Brazil, and therefore we will be planning during, let's say -- the Confederation Cup is a great pilot that I think will also affect sales in a positive manner. But, more than that, we'll be able to test everything that we want for the game, which is the World Cup.

And, I think a way to tie all this is the CapEx, because we are not investing the highest amount ever in Company's history if we didn't believe in a strong 2014.

So, I think the combination of 2013 and 2014 for many things we will look at our investments both from an operating expenses, but mainly from a CapEx standpoint looking at the combination of both years.

That's a very clear answer. Thank you so, so much, Joao. Congratulations, again.

Thank you so much.

Enrique Grimaldi, BTG Pactual.

Hello, everyone. Thanks very much. My question is related to your statement in your release. And, you said that this first quarter 2013 should be challenging mainly due to an earlier Carnival and slightly poorer weather. I understand the reasons you mentioned that and the way they can impact in your first quarter, but I would just like to understand the size of these impacts? Are we talking about flat volumes in the first quarter, decreasing volumes, or just a small growth? And, also, is this problem related to the selling or the sellout of the beer, because as far as we can tell the industry had strong production levels in January? So, if you could elaborate a bit more on that, I would appreciate. Thank you.

Sure. For sure. Let's try to elaborate a little bit more on that. We had some, let's say, reports on Monday which affected the way people are looking at things. We'll not answer precisely in terms of what is the exact number for the quarter, for the obvious reasons, but what we can say, first, is that January was a very strong month for the industry. However, since January was positively impacted by the inventory building to be ready for February, which is the earlier Carnival, we cannot treat January figures as a proxy for the remainder of the year. So, it's actually the opposite from what was in the Brazilian press.

But, having said that, we expect the beginning of the year to be challenging, because of the earlier Carnival and a lot of the rains in two very important regions, mostly the southeast of Brazil. So, any time the Carnival is so soon, summer ends earlier. This will have an impact on the first quarter. It's early to say how much, but that's why we said, among all the quarters in Brazil, we expect this one to be the most difficult one.

But, again, that doesn't change our view for the year, given that the fundamental drivers of the industry -- pricing; disposable income; and, weather; and, on top of that, Confederations Cup, which is something that never happened in the country and for which we have been preparing for the past couple of years -- we believe this will change a little bit the potential perspective. So, therefore, no material changes in our view.

OK. Thank you very much.

Thank you.

Jose Yordan, Deutsche Bank.

Hi. Good morning, everyone. My first question was asked, but I wanted to also ask you about the reclassification of Peru and Ecuador into LAS. You could have done this when you exited the active management of Venezuela. You could have done it, I suppose, when you took over CND last year. And, I was just curious as to why now? And, should we be reading anything into your future strategy in Central America, which is I guess the remainder of HILA-ex, as a result of this change right now?

OK, Jose. Thanks for the question. You almost answer for me, but I'll detail a little bit. Basically, given that that acquisition was done in May, it would be very awkward to do the change during the year. You never know when an acquisition is going to be finalized.

We had thought about these changes actually for a couple of years. Many times, when I moved to Latin American South, then we thought, again, when -- not because I moved back, but because when there were changes in the [zone presence on the beer leaders] of the region, we thought about it. We didn't think it was the right timing back then. But, now that we have already one major business, and therefore a business unit, that has the potential of $200 million, $300 million, $400 million, we think it's enough to take away.

And, there are some synergies by putting Peru and Ecuador close to Chile and Bolivia. So, the synergies were there, but now we are doing a couple of things that it's the right timing to move.

And, what you mentioned is very important. We have had always high hopes for Central America and the Caribbean. Now, the hopes have transformed into something real, which is Dominican Republic with also now very good results already in Guatemala, as I mentioned in the speech, having reached 30% in the fourth quarter. So, we feel very excited.

And, we see, to be quite honest, many more opportunities in the region. So, by having a full business unit focused on the region, we think is the right thing for our Ambev business, to be focused in that manner. And, we're already seeing the benefits of having organized this now for the future.

If I can just follow up on your comment there, given that your market share is increasing quite a bit in Guatemala, are we any closer to potentially executing, I guess, the acquisition you've always hoped to achieve there? It certainly seems like we're getting closer to the point of something happening there, although I appreciate if you can't comment on that. No problem. But, any color you could give us there would be great.

Yes, Jose. You know we don't comment on any speculation on inorganic growth, but what we can tell you is that we are very focused on very strong organic growth, in Guatemala but also in the region. We see a lot of opportunities, even exports to the different islands. So, really, a lot to do. Very, very excited with the region and what we can do, either organic or inorganic. But, we cannot comment on anything that is not organic.

OK. Great. Thanks a lot.

Thank you so much.

Alex Robarts, Citi.

Thanks, and very good results and congratulations to you guys. I guess, I wanted to start off first on this -- challenging first quarter -- reference in the press release. I heard your answer just now, and I was just wondering, the first quarter of last year had a couple of things, as well. You increased your SG&A with the Carnival in the northeast, there, [and El Salvador]. And, it seems also that your hedge will be still favorable in this first quarter. Am I missing something? Or, it's seems to me that those two things would make it so that it perhaps would offset some of this rain and the inventory buildup? If you could comment a little bit more on that, that would be great, about the first quarter.

I guess the second question I had really relates to the Soft Drink. It's interesting how the industry grew slower in Brazil than Beer. And, I was hoping you could give us some color about that differential? And, specifically, on Soft Drink, is it only --? Are you only seeing share gains from the informal B brands, or not?

And, the third and final thing, obviously, we think that there's probably going to be a conclusion to the acquisition of Modelo in the coming months. And, if you could give us any color of what that might mean or any comment what that might mean for you guys, vis-a-vis brand launches or geographical reconfigurations within the structure of your Company, that would be great.

Thanks very much.

OK. Well, both Jamel and I will take some of the questions. Let me start with the last one. I think Modelo, there's very little to comment. Of course, this is more for ABI and whenever they are able to close the deal. Of course, we as operators and knowing and having run many of the Latin American countries, the Corona brand is a very good one. We have taken already in Uruguay and in Peru. We already operate the brand in those two countries, and we're happy with the results. But, it's always different when the relationship changes. We will be probably more proactive. There are many other countries in Latin America that we run and that we see the good potential for the brand. I think that's the main change that I can see, if and when the deal is closed. So, for anything besides that is more for ABI.

In terms of Soft Drinks, I think the industry in 2012 was very close, to be quite honest. What was different was our own volume, because of the share gain we had. If I'm not mistaken, the main competitor had very similar shares. So, I guess the consequence if they have similar shares and we gain a lot, we're probably taking more from everybody else, more from a macro conclusion, which was a little bit the answer on the previous question, and therefore, a lot more to do.

I think what's also interesting is of course there are the pushbacks or the already highlighted threats, especially from the COGS and tax changes in Soft Drinks, but having said that, the last quarter was very strong, and the tax changes were already in place. And, we continue to believe also in the new use, not just the 1-liter returnable bottle which is great for share and volume, but also the PET 237 that we continue to grow, like, 20%, 30%, 40%. So, very strong single-serve opportunity.

We are also very excited with what we've been able to do so far with Fusion, our own energy drinks brand. But, also, we have mentioned that we have signed an agreement with Monster. So, we believe that combination of Monster and Fusion will be a very strong competitive in that segment which we see it's growing, and we see foreseeable growth from what we're seeing in Brazil, but from seeing what happened in other markets.

And, we have also signed an agreement and will start distributing soon the Nestle water products, as we have in other countries, and we think that's also an opportunity going forward.

So, great solid business. Great new news. Guarana Antarctica brand is stronger than ever and the number one consumer brand in Facebook -- so, in social media -- above 10 million. So, we just celebrated that in the last quarter. So, it's great to have one of our brands as the number one digital brand in the country. And, the new news of Fusion, Monster, and water.

And, now, I think for the remainder of your question, Jamel will take over.

Yes. So, Alex, regarding the guidance we gave for Q1, of course it was about volume only. So, we talk about the early Carnival, more rain. That's on volume. And, that's the only guidance we're going to give.

Of course, the points you raised, they are all valid in the sense that SG&A did increase last year, because of the Carnival activities we took over, but it's already on the base. So, that's not going to create any harder for us, in terms of comparisons. So, we did it last year, and we are doing this year, as well. So, that's pretty much comparable.

And, regarding COGS, indeed, we're going to have more favorable hedges, in terms of dollar, in our COGS in Q1. But, the commodity gain in terms of hedge, they are also stronger also for the balance of the year. So, there's going to be less of a negative from currency, but less of a positive from commodities. So, we don't have major differences among quarters, in terms of our COGS outlook. And, that's how far we can go in terms of guidance at this stage.

Very helpful. Thanks. Just to clarify, the 1.93 on the hedge, does that kick in in the first quarter? Or, is it safe to assume that, given your activity, your period of 9 to 14 months, that perhaps that starts to kick in more in the second quarter?

It's going to be a ramp up. So, we're going to be of course below 1.93 in Q1. And, by year end, for instance, in Q4, it's going to be above 1.93. So, there will be -- the average is 1.93. And, it's growing in line with what we saw in the spot rates last year, as part of our hedging policy.

OK. Very good. Thank you.

You're welcome.

Lauren Torres, HSBC.

Yes. Hi, everyone. My question is on product and brand mix. This morning, InBev spoke a lot about, in Brazil in beer, focusing on domestic and international premium brands. And, I was hoping you could talk a bit more about that, with respect to skewing maybe more out of mainstream and into premium, and how directionally that's working for you? And, as we think about margins and how that helps the bottom line, just curious, if volume growth maybe isn't that dynamic, is more of the upside coming more on the value end of the equation?

Hi, Lauren. It's Joao. We mentioned a couple of quarters ago, maybe a year ago, that we thought we could double the size, or the weight, of the premium brands within the total portfolio. It used to be that many years ago it was around 5. Then, it declined to 4, with all the growth from mainstream in 2009 and 2010.

So, we went from 4 already to 6, within a year, or a year and a half. So, we're pleased with the rapid growth. And, we ended the fourth quarter even higher. Therefore, we think we are with on our way of doubling from 4 to 8, within three to four years. So, that's the first good news, with both international and domestic growing and, therefore, a trading-up from consumers.

It's very positive from the volume equation, but also it's been very positive from the total [margin] perspective, with greater margin for most parts, and, therefore, already having a positive impact, both in net turnover per hectoliter and also margin but even greater, which I think is more important at the day, on the total margin.

So, great combination of pricing and volume, and developing stronger brands along the way, giving a positive upside, current and prospective upside, on total margin for the next couple of years.

But, can I interpret that as we'd see the lift from mix becoming more substantial over time, rather than just driving pricing, absolute price increases in Brazil?

Yes, Lauren. It's Nelson, here. That's exactly the point. When we guide for instance for our high single-digit growth for top line, part of it is pure pricing, what we normally do to manage inflation. But, the upside normally comes from either direct distribution increase but strongly now from premium brands growth, as well. So, that's adding on top of inflation our net revenue.

I think it's important to add on what Joao just mentioned, and we are going so well with Budweiser, for instance, that we are going to open up for a new brewery to produce Budweiser in Brazil. That's part of the BRL3 billion CapEx that we announced. So, we moved it from in the beginning of the year, in the end of 2011, for a more southeast and south, sort of, distribution. Now, at this stage, 2013, we are already opening up for the entire country, of course focusing on the main cities, and that's why we are going to be doubling our capacity by having Budweiser and another brewery as of this year.

OK. And, if I could ask just one other question, I know you can't be specific on M&A but, obviously, with ABI going after Modelo and you having done CND, opportunities maybe in other markets outside of Brazil, for you, is there anything worth talking about, or looking at, at this point that, as we think about consolidation in other parts of Latin America, you'd be able and willing to engage in?

As I think we said in the other question, there are no comments on inorganic, but we've been, I think, [the same the acquisition], so that we continue to be very active, south of Mexico. I still think there's a lot of things to be done, but no specific comments.

OK. That's fair. Thanks.

OK. Thanks.

Robert Ottenstein, ISI.

Thank you very much. In the outlook statement, when you're talking about expecting a record year of capital expenditures, you have a little hedge in terms of -- subject to the level of federal excise taxes. Is there any particular reason for putting that in? Is there anything going on on the excise tax side that would indicate any new issues there?

No. No new news. It's something that we have always said, and we continue to say so. I think what we look for in 2013 is stability, and we believe this stability will be in place. And, given that the stability and given that we look at 2013 as a very strong year, we'd rather say that. But, we think what's out there is what's going to be.

Great. That's good news. And, the other line that I'd like a little clarification on, when you're talking about Brazil COGS for the quarter, you noted that you had a higher than expected -- it was a result of higher than anticipated mix of more expensive one-way volumes. Can you talk a little bit more about that, why it was higher than expected, what the various drivers were there?

You mean specifically for the fourth -- the comment regarding fourth quarter. Right?

Right. Right.

Well, I think the point here is what we have done in the past four years was really strengthening a lot, not just our returnable glass bottle business but also trying to enhance also the consumer experience at the bar. We see (inaudible), (inaudible) events, those are all ways for you to have even a better consumer experience. Therefore, the people go out of their place and meet their friends, as is the usual occasion in Brazil for that to happen.

I think, in especially the past four years -- that's not true for 2009 and 2010. I think 2009 and 2010, we did a good combination of RGB and one-ways. And, then in 2011 and 2012, we focused much, much more on the RGB. I think a fine tuning, a little bit of a fine tuning, on that was also true to go back to the end. So, continue to go very strong, even stronger behind the RGB and the consumption occasion at the bar.

Also, introducing more RGBs in the off trade through the Pit Stop and also now with the convenience Pit Stops, but giving some room for the one-way also to grow. That's why by just putting -- you remember that we were able to postpone the taxes from the fourth quarter to April and, then, also moving from four years to six years. We mentioned that we were going to put some of that money that was postponed back in the marketplace and, as we saw that, we saw more opportunities of the one-way to grow, and we let it happen and by that we learn how to better execute the one-way a little bit better. And, therefore, we see also opportunities in the one-way, going forward.

And, also remember that, in occasions such as World Cup and Confederations Cup, many times it's desirable and sometimes it's the law for you to sell one-way presentations, rather than glass presentations. So, for that, we are also making sure that we have the right footprint also for the one-ways, going forward.

Terrific. And, just a follow-up on that, how pleased are you with the rollout of the 300? At this point, are there any metrics around that that you can discuss?

Yes. We are seeing -- everything that we wanted to happen in 2012 happened. Well, first, in terms of total volume, if you want. So, we got to 2 million hectoliters. We got to the coverage where we want it to be. The coverage, we were looking more towards off trade than the on trade. Therefore, we have already also approved new lines in new plants in new parts of the country. So, I don't want to give too many information, because they are sensitive and confidential, but very pleased. And, it actually is one of those things that it helps you in volume, pricing, and share. And, you don't find many of these all the time. So, when you find them, you'd better execute them well and rapidly.

Terrific. Thank you very much.

Thank you. My pleasure.

Well, at this time, we will go ahead and conclude our question-and-answer session. I would now like to turn the conference back over to Mr. Nelson Jamel for any closing remarks. Sir?

All right. Thank you, Mike, and thanks everybody for joining us today. I'm looking forward to speaking with you again on April 30, and have a nice day. Thank you.

And, we thank you, sir, and also to Mr. Neves, for your time. The conference call is now concluded. At this time, you may disconnect your lines. Thank you all for joining, and have a great day.