Ambev SA (ABEV) 2014 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 2014 results conference call. Today with us we have Mr. Bernardo Paiva, CEO for Ambev, and Mr. Nelson Jamel, CFO and Investor Relations Officer.

We would like to inform you that this event is being recorded, and all participants will be in listen-only mode during the Company's presentation. After Ambev's remarks are completed, there will be a question-and-answer section. At that time, further instruction will be given. (Operator Instructions).

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the Company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.

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

I would 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 2013 or full-year 2013 results. Normalized figures refer to the 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.

Thank you, Gary. Hello, everyone, and thank you for joining our 2014 fourth quarter earnings conference call. As you know, we now have Bernardo Paiva here, our new CEO, for his first earnings announcement. But before turning to him, I will guide you through our operation and financial performance highlights.

So, let's begin with our consolidated results. Our top line accelerated in the fourth quarter and grew 11.5%, leading to a strong 10.9 percentage revenue growth in the full year. Our EBITDA was up 7.6% in the quarter and 7.5% in the full year. Our EBITDA margin was 48%, down 160 basis points, mostly driven by one-time gains reported in 2013.

Looking at our divisional performance and starting with Brazil, you remember that, in our last call, we shared our view that we're not satisfied with our performance in the third quarter. But, one, we do not see the quarter's results as indicative of future like performance, and, two, we were sticking to our plan as we're confident it was the right one to accelerate our results in 2014 and to prepare ourselves for 2015 onwards.

Indeed, we saw our top line was accelerated to 10.4% in the quarter and 10.6% in the full year, reaching the upper end of our regional guidance for high single to low double digits growth.

Brazil beer delivered strong 11.5 percentage revenue growth in the quarter, driven by a solid 9.8% net revenue per hectoliter growth due to our revenue management strategy, the benefit of premium mix increase, and the increased weight of direct distribution; and a 1.5% volume growth driven by market share gains and industry expansion after a compression in the third quarter.

In the full year, Brazil beer top line was up 11.2%, with a good balance between volume and net revenue per hectoliter growth at 4.7% and 6.2%, respectively.

Brazil CSD and NANC delivered a 4.9% net revenue growth in the quarter and 7.7% in 2014. Our volumes were down 1.7% in Q4, driven by a flattish industry and a market share decline, while, the full year, we delivered at 1.4% of volume growth supported by our all-time high market share of 18.8% in 2014.

Our Brazil COGS per hectoliter was up 11% in the quarter, with a significant impact from depreciation that was up 31%, driven by our recent investments in Brazil, while our cash COGS per hectoliter was up 8.6% due to unfavorable currency hedges and packaging mix, partially offset by our commodities hedges and procurement savings.

While our packaging mix continued to impact our COGS, this was the lowest impact we had in the year when compared to the first three quarters. On the other hand, we had a higher impact from our currency hedges while commodities hedges did not help as much as in the first nine months.

In the full year, our COGS per hectoliter grew 9.1% in line with our guidance, as when excluding the packaging mix impact, mainly concentrated during the second and third quarter, it actually grew mid-single digits.

Brazil SG&A was up 16.5% in the quarter, driven by higher year-over-year sales and marketing expense, although 15% lower on a sequential basis; higher distribution costs, mainly driven by the increased weight of direct distribution; higher depreciation up 45% in the quarter; partially offset by lower administrative expenses.

In the full year and in line with our guidance, sales and marketing direct distribution expense were up double digits, and admin expense grew mid-single digits, below Brazil inflation. Our SG&A was up 13.7% and our cash SG&A 12.9%.

After a 5% decline in the third quarter, our EBITDA reaccelerated to 5.4% growth in the fourth. We had a hard comparable base this quarter, as we recorded a BRL300 million one-time gain last year related to the recovery of restricted funds. Otherwise, our EBITDA would have grown a strong 12.8% with an EBITDA margin expansion of 130 basis points.

In the full year, our EBITDA was up 5.3% in Brazil with an EBITDA margin of 52.2%, or a 260 basis points decline, mostly explained by the one-time gains recorded in 2013.

Moving to HILA-Ex, our operations in Central America and the Caribbean, we continued to deliver strong performance in the last quarter of the year. Following a trend of double-digit EBITDA growth in the first nine months of the year, the fourth quarter was no exception. And we managed to increase our top line by 17.5% and our EBITDA by 26.8% with almost 300 bps of EBITDA margin expansion.

We grew our top line across all countries where we operate in the region with a strong combination from volumes as we continued to expand our market share in the total alcohol beverage industry in the Dominican Republic and to increase our beer market share in Guatemala.

Our plan for the region remains on track as we finish another year with a strong operation and financial performance. Our top line was up 14.5%, and our EBITDA grew 22.1% with a solid margin expansion.

In the Latin American South, our volumes declined 2.9%, mostly driven by the softer consumer environment arising from Argentina coupled with the poor weather. Despite that, we managed to increase our net revenues, EBITDA in the region by 18.7% and 14.6%, respectively.

In the full year, we were able to maintain our volumes fairly stable with a strong performance in Chile and Bolivia, mainly offset by a challenging scenario in Argentina.

Innovation continues to play an important role in capturing volume opportunities in different consumption occasions. During 2014, we had many different additions to our portfolio. We had innovations as Quilmes Night, H2OH Limoneto, H2OH [Meloncello], special editions during the 2014 FIFA World Cup, and more recently, we introduced to the market our Mixxtail Mojito, a ready-to-drink liquid, totally new, in order to capture other opportunities that we find in the alcoholic beverage industry.

It's not new that we have been continuously facing high inflationary price in Argentina throughout the year, which adversely impacts our labor-related costs and expensing in the region.

In the full year, our COGS per hectoliter increased 18.7%, while our cash SG&A grew 18.6%. Regardless of the tough macroeconomic scenario, we maintain a strong focus in pursuing a strong top line growth, strengthening our brands in the region, and also protecting our profitability. In the end, we managed to grow our EBITDA 17.5% in 2014 with stable margins in the full year.

Turning now to Canada, the (inaudible) in the country returned to the positive territory during the quarter, mostly driven by warmer temperatures in the last months of the year. Our reported volumes were up 14 -- 4.6% in Q4, mainly due to the addition of Corona and Modello brands to our portfolio in Canada.

We increased our market share in the full year, expanding our leadership position as the best-selling brewer in Canada. Our focus brands continue to lead the way, with Bud Light growing market share in Canada for the 19th consecutive year and Budweiser also growing market share to expand its position as the number one brand in Canada. Corona and Stella Artois also both grew market share in the full-year 2014, expanding our leadership position in the import segment.

Along the year, we clearly enhanced our EBITDA performance quarter over quarter as we implemented our revenue management initiatives. We're committed to drive premium brands and leverage our strong cost-efficient capabilities to improve our COGS and SG&A. Our EBITDA grew 3.1% in the fourth quarter, while our EBITDA margin expanded 80 basis points.

Now, let me walk you through the main items between the normalized EBIT of around BRL6.1 billion and normalized profits over BRL4.7 billion for the quarter.

Our net financial results were a negative BRL587.5 million in the quarter. Our performance was impacted by high expenses related to derivative instruments, while we continue to be impacted by the noncash accretion expense related to the put option in the Cerveceria Nacional Dominicana. Besides, we also had a one-time noncash expense related to the fair value adjustment of this option.

Our effective tax rate for the quarter ended up being 14.9%, resulting in the full-year effective tax rate of 14% compared to 17.9% from last year, as we benefited from a higher interest on capital payout in 2014.

In 2014, our normalized net profit came at BRL12.5 billion, 8.9% versus 2013, driven by a stronger EBIT, better financial results, and a lower effective tax rate.

During the year, we had BRL4.5 billion total CapEx, of which BRL3.1 billion invested in Brazil. This figure came above our original estimate of below BRL2.8 billion as we started to accelerate expenditures on direct distribution to anticipate the Ponta Grossa plant investments and some innovation [as of] commercial CapEx, such as coolers to take advantage to the -- of the returns expected on these investments even earlier.

We generated roughly BRL18.8 billion of cash from operations in 2014, a 7.5% increase over 2013, mainly as a result of strong operational performance and better working capital management.

During 2014, we returned close to BRL12 billion through dividends and interest on capital to shareholders, our biggest annual cash payout.

Still in December 2014, we announced the two additional interest on capital payments, totaling BRL3.5 billion that were full paid during January 2015.

We have also just announced a buyback program totaling BRL850 million that's expected to be fully executed in 2015.

Finally, we finished the year with a net cash position of BRL7.7 billion, down from BRL8.9 billion at the end of 2013 and not yet accounting for the distributions announced in December 2014.

Going forward, we continue to pursue the opportunity -- the appropriate balance of reinvesting in the growth of the basis, be it organic through investments, mainly Brazil, or through targeted M&A while maintaining a focused level of liquidity and returning the excess cash to shareholders.

I'll now turn to Bernardo, as he'll give more color on our strategy and execution in Brazil and our perspective for 2015. Bernardo, welcome, and over to you.

Thanks, Jamel. Hello, everyone. During this first opportunity to talk to you, I would like to spend a little bit more time introducing myself and share with you what I expect, not only for 2015, but to the years to come.

First of all, it's great to be back after almost eight years away from here in Brazil. I'd like to thank my partner and friend Joao for the great job done in the last year. I'm sure he's listening to our call. So, Joao, I wish you all the best in your new challenge. I'm sure you'll deliver big.

It's a huge responsibility to lead Ambev for what we've achieved here and also for what we expect to achieve. We always dream big. And right now, guys, it's not different.

I've been in Ambev for 24 years in sales, marketing, supply, finance. But, in the last eight years, I've been outside Brazil running Labatt, LAS, as Chief Sales Officer of InBev, having the opportunity to see firsthand the different trends along very different cultures and realities.

Brazil has definitely changed a lot during this time, but the structural growth drivers remain the same, especially when I compare it for the realities I've seen. First, demographics in Brazil are still very positive. Legal drinking age people in Brazil has grown in the last 10 years. When we check the next five years, it will grow 1.5%.

Second, Brazil is a country of disparities. We know that, in places like North and Northeast, for instance, that concentrate almost 40% of the Brazilian people with less than 20% of the Brazilian GDP, and has a beer per capita consumption well below 50 liters. This structural growth opportunity was eclipsed by other factors in the last years, especially real tax increase since 2011, driving the inflation to consumers to double-digit levels and significantly impacting volumes.

It was great to see volumes recover in 2014, even when adjusted by the one-time benefit of 2014 FIFA World Cup and to have a new tax model approved by the government this January, a simpler, more predictable system and one that will allow tax revenues to grow with no material impact to beer inflation, neither volumes in the years to come, in other words, good for the government and good for the industry. With that, we'll be able to focus even more in the growth opportunities we see in Brazil.

And that's where I believe we can make a huge difference going forward. Given the structural drivers I just mentioned, there is a strong volume there ahead of us potentially. But, we do see significant volume opportunities on top of that. In the last couple years, we have started to use deep consumer insights to enhance the strategy that we have, targeting the total share of alcohol beverage rather than just focusing on beer occasions only.

We have always talked about share of throat and the opportunities beyond beer market share. But, now, we have actually 25 (inaudible) that both plan to go after those opportunities. And they are big.

Within this process, we have identified several growth platforms based on the consumer needs and consumption occasions, a truly consumer-centric approach evaluating behaviors, tastes, and preference.

Based on this, we now have a clear view of, one, that you have to keep winning on today's beer typical occasions, and you do it; two, that -- two, what to do to start winning on occasions that were not relevant or were not even present. This framework will guide us to enhance our commercial strategy to capture volume opportunities not even tapped today.

This is a long-term plan (inaudible). But, the good news is that we have already started. You just have to take a look in 2014. We talked a lot about building momentum last year. And it was great to see not only the 4.7% volume growth, but the evolution of our execution in different fronts.

During the 2014 FIFA World Cup, had the opportunity to deliver a truly 360 activation. We had outstanding visibility on TV and other media, while engagement with our brands through social media increased 133%, with Twitter and Instagram forwards more than tripling during the event.

And at the same time, people were celebrating with their loved brands in stadiums, fan [fests], in bar with friends, in home with family. These are great experiences that they will bring forward their whole lives.

Along with this strong Brahma activation during the World Cup with the soccer, and Brahma is the brand that supports soccer here, Budweiser was great, was a game changer for this brand. The brand gained 500 basis points of market share in the premium segment during the event and retained most of them since the World Cup, reaching the leadership of the segment in some months.

We have continued to improve our (inaudible) execution in the premium segment with a dedicated sales force, market, and logistic team focused on the premium high end, including crafts. Premium grew 20% in 2014, with [Original], Stella Artois, and Budweiser growing double digits.

It already represents 8% of our volumes. And we are confident it will continue to grow well ahead of the industry.

Innovations, amazing, we start to capture volume opportunities in occasions where our share of throat was historically been low. Brahma 0.0% became one of the most successful launches in our history. Launched in 2013, it's by far the leading brand in the nonalcoholic beer market and already represents 1% of our total beer volumes.

In the second half of the year, we launched Skol [with fans], a totally new liquid with 8% alcohol content (inaudible) for the night out occasion. And within CSD, Guarana Antarctica outperformed the industry again, while Pepsi also gained market share this year, driven by a strong marketing execution and a successful implementation of our returnable bottle strategy.

We had in 2014 a (inaudible) with 18.8%, while our NANC portfolio continued to grow even faster than CSD.

With that in mind, when you look at 2015, the macroeconomic environment continues to be challenged. But, we actually made very --

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-- even through digital platforms.

The new Skol [summer-long] campaign is a great example. And the brand metrics and performance have significantly improved since its launch. At the same time, affordability remained high and [main right -- and mains right] in our agenda. Our winning package initiatives, many through returnables, and our revenue management strategy will be a strong tool in competitive advantage in the current environment.

Second, we have a robust game plan to continue to lead fast-growing premium segment. Original, [Bohem], and Stella Artois, Budweiser continue to gain way in our total beer volumes, and Corona is coming and is a great addition as well as the Waels brand, a partnership with one of the best craft beers in Brazil we announced two weeks ago.

Third, we continue to target share of throat opportunities through innovations and tailored execution models to support these initiatives. Skol [big fans] activation during Carnival in Brazil was amazing. That shows the big potential of share of throat that we have here. And this is just the beginning. Our pipeline remains full and strong.

Fourth, as we leverage the understanding of the consumer needs, we're able to enhance our strategy in different --

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-- in the trade for a truly experiential activation. In [the home], we'll focus the consumer (inaudible) at home, a new frontier for us, while making and doing a significant better shopping experience in the [off-street] channel.

I often got asked if this new approach means lower margins. It is an important question. And the answer is no for some important reason --

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-- below the line will actually come from the rebalance to our current investments.

Two, most of the consumer occasions where beer relevance is very small and very low represents not only a volume opportunity but a higher net revenue per [hect] opportunities as well, offsetting any additional cost or expense related.

And three, being an increasing part of our culture, our DNA will keep looking for cost management opportunities.

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-- volume perspective, maybe in 2015, both more importantly on a three- to five-year basis, and secondly, maybe on CapEx, as you pursue these strategies, trying to get share of throat, how much of the CapEx of the total CapEx will be shifting away from industrial into commercial investments? I don't know if you can mention probably in 2015, for instance, if the flat CapEx year on year is coming mostly due to a (inaudible) in commercial CapEx and what specific initiatives you can share that you're doing in that front. Thank you so much.

Okay. I think that, Antonio, thanks for the question. I think, for the further volume, as I said before, we made a study two years ago. We had this study, a lot about that. We have the volumes. We have the size of the opportunity that we'll have there. And I think that we can capture there with malt-based liquids and a special execution in the channels, occasions that we have.

Very hard to disclosure that for you. I think we will not do it. But, what I could say that there are -- a very relevant volume there. There's something does not capture from one day to another day. But, if the right products, the right liquids, and the right business model to capture there, I'm sure that we can do it.

And I think Skol Senses, it's a pretty good example. And if you were here in Brazil or someone that knows Brazil a little bit better, Carnival would just -- would see -- many, many [fronts] was Skol and Skol Sense and (inaudible) Skol Sense.

So, because the need state that the consumer have is different than the -- for a lager beer, and the volume was pretty good. So, just saying that the opportunities are there, and I think they're big. Disclose that to you, we cannot do it. So, Jamel can comment on the CapEx a little bit.

Sure. Hi, Antonio. Thanks for the question. As you notice, we guided for 2015 CapEx up to the similar levels of 2014. But, you are right. You have a point in the sense that we have been significantly reducing the part of the CapEx that is, let's say, purely CapEx driven. Of course, it's not over.

So, for instance, we're going to have this year the opening of our new brewery in Parana in Ponta Grossa. It's going to be one of our important breweries in Brazil. But, no doubt that this reduction will happen in terms of the pure capacity driven CapEx.

And then when you move, the flipside of it is that, for sure, you're going to be investing more in what we call the consumer or commercial type of CapEx. Here, we include the coolers, where we see opportunity to increase our coverage in an important way materially in the marketplace.

We also include here all the investments we are doing in terms of direct distribution, which has grown last year and since last year on a faster pace, particularly in Q4. So, there is indeed a shift in terms of the quality or the mix of the CapEx. But, what we are guiding for, even for competitive reasons, is on the total CapEx level.

Sure. That's helpful. And on the commercial side, is it going to be both I guess CapEx and OpEx as well that you will be executing in 2015?

Yes, you have a component of -- for sure, you're going to also have a guidance on SG&A that we mentioned. That's going to be below inflation. But, we think SG&A, we always focus on improving efficiency, more productive, reducing what we call no working money, right, or focus on the fixed cost so we can free up money and resource to continue to invest behind our brands. And that includes, of course, innovation and this broader framework that Bernardo just explained.

And I think, just to add, Antonio, we have been studying a lot as a team to be more effective in terms of investments, not only from above-the-line media to below-the-line activation in the trade. That's why I said that some people ask me, okay, those things that you do, the share of throat agenda that we need to maintain our core business as well, this will imply more OpEx or more investment or what I always say that to have opportunities in the cost side and have opportunities in the -- to be more efficient in the investments we have been doing.

So, no, we don't see kind of significant grow in terms of OpEx. We can reshuffle money from investments that maybe are not so -- that efficient today but could be better later. So, that's that, the answer.

Perfect. Thank you so much. And good luck, again, Bernardo.

Thank you, Antonio.

Fernando Ferreira, B of A Merrill Lynch.

Hi. It's Fernando Ferreira here. Thanks for taking my question, and welcome, Bernardo. I appreciate the comments regarding the long-term opportunity but just wanted to talk a little bit more about 2015.

We know that volumes will have the tough comps, right, especially in the first half of the year. So, just wanted to know from you what's the innovation pipeline that you're preparing for this year to try to sustain volume growth in 2015.

Yes, so, thanks for the question. So, as we always said, our goal is always to grow top line. And this is in line with our guidance, as I said. And the thing about beer volumes in 2015, the fundamentals are there. Brazil, the demographics are helping us, premium grow. Innovations I'll comment later.

The macro environment does not help us, but you don't see a significant headwind at this point. So, we don't see a significant macro impact in our volume. You see a similar macro environment impacting in the volumes that we had in the second half of 2014.

World Cup will be a headwind and all that. So, how to compensate that, this headwind of World Cup. Yes, we have innovation, not only innovation with new things, but improving the way we do things with our core business. So, when you have at our 360 activation campaign, sales and marketing, what we're saying, that can use the same money in a much better way because we can connect the mass of the brand that you put above the line in the digital product form and in the trade.

And they are pleased that we have in the volume that's on measure that [you tax that] are much higher. So, elevating the core and do it better, it's a opportunity, and then we implement. So, this is on the way to offset this headwind of World Cup.

And then you have the innovation, carry over innovation that we've done last year. So, and you have 0.0%. You have Sense. And you have more to come. I would say that have at least two new things that will enter in the market this year that are relevant.

So, at that point of time, that's what I can talk to you. Okay, Fernando?

Okay.

Thank you, Fernando.

Andrea Teixeira, JPMorgan.

Hi, hello. Thanks for taking my questions. So, and thanks for the remarks. My question is on the 2015 guidance, so just on the impacts of the package and mix in the COGS and SG&A. As I understand it, obviously, we have some easy comps on the -- I would say on the packaging side for more consumption on premise. And I appreciate that you've done -- and I think Bernardo has mentioned consumption in bars.

And I was just wondering what's behind fairly conservative top line growth since we see mid-single digits to high. If you're in the -- below the range, it's quite conservative, given that you have some premium effect going on and premium market share being rolled over into 2015.

So, if you can help us reconcile a little bit of that, if -- how much you're expecting mix to be a headwind. I would expect it to be a tailwind. Thank you.

Okay. Hi, Andrea. It's Nelson. Let me start with the question on COGS and mix. Actually, we talked about this in 2014 that we had a sort of an extraordinary impact from a mix perspective during the 2014 FIFA World Cup.

If we would exclude this negative packaging mix impact driven by the event, actually, our COGS would have grown mid-single digits, in line with our net revenue (inaudible) our margins have been flat or even slightly up, right?

Of course, there is a [modest] trend. I think you have a point in terms of our one way growing faster than RGB. And we have talked about this many times. This is not new. We don't see that a structural trend that could put our gross margins at risk because we have all the initiatives in place to offset that. And we have been doing this along the way.

If you look at five years ago, RGB represented around 65% of our mix. Right now, it's around 60%, returnable glass bottles. And our gross margins along the way, they were pretty much flat during this time, some years with [as more expected], some years with a small compression, depending on [somehow] such events.

Of course, for 2015, we're going to -- we already guided for 2015 and explicitly talked about our currency hedges. So, we're going to have an implied FX in our COGS for 2015 around 2.31, which of course is better than the spot rate. So, we are protected for the year and have a very good visibility. So, we feel very confident about the impact, the outlook for COGS. And as I said, it already accounts for the expected impact of mix changes year over year.

Hi, Andrea. How are you? Good to talk to you again. So, talk about top line, the guidance, I think that, first of all, what you said, in terms of the macro that you expect for 2015, you being in line of 2014 second half. So, let's say that you get the numbers will be around flat with the second half last year.

And then, yes, you have the premium mix. You have innovation coming, but also have this headwind of World Cup. So, I'm just saying that mid-high single digits, I think that's a fair one at this point. So, all those issues that I just told you. So, that's that.

Okay. And on the SG&A, just on the advertising side, is there any saving that we could -- those savings are -- I'm assuming you're going to be reinvesting those in the new innovation and initiatives, correct?

Andrea, I think, similar to what Bernardo just said on the top line, when we're going to have, let's say, the headwind from the World Cup, which by itself helped our volumes around 1.7%, so if we take last year top line growth without the World Cup impact, it would have been high single. So, that's the sort of a comparison you could make in the top line level in terms of the hard comp.

When you go to the SG&A, it's the other way around. That's why we are guiding to an SG&A growth for next year lower than our top line growth because you're going to have some easy comps in terms of expenses. And regardless of the investment that we want to do and will do for the future, we still believe that SG&A will grow at a lower level than our top line in 2015.

Yes, and linked for the efficiency that you just said, if the SG&A is below inflation, then you find the ways to invest in the top line, and will not only 2015 but the future, we'll do it. You can bring the efficiency to the bottom line, or we can bring to opportunity that you see in the marketplace as well.

Thank you very much. Fair enough.

Thank you, Andrea.

Thiago Duarte, BTG.

Thank you very much. Good afternoon, Bernardo, Nelson, and everyone. My question goes back to the guidance on the COGS. I wanted to understand actually how conservative you'd say you are on it because I understand that the currency hedge signals a 5%, 5.5% increase year over year.

But, when you combine with the fact that I believe your material costs have dropped in US dollar terms plus the easier comparison base from 2014 mix, given that you don't have the World Cup this year, my first sense is that you could deliver at least at the lower end of the guidance or even lower than that.

So, it would be nice to hear your thoughts on it and other components that you see driving the cost in Brazil this year.

And a second question, which might actually help me understand the first one, is I understand that you no longer breakdown the expectations for volume and pricing in your revenue growth guidance for the year. But -- and I know you already spoke on a very high level about volume trends this year, but would be nice to understand how you see that balance that was very balanced between price and volume in 2014, how you see that moving to 2015. Thank you very much.

Hi, Thiago. Thanks for your questions. This is Nelson. Let me start with the COGS point. Indeed, when we put our guidance for 2015, we took into account pretty much the moving parts like you kind of described.

In fact, we have a lower or less of a negative impact in terms of our -- of currency valuation because from 2.20 roughly to 2.30, 2.31, that's around a 5% on the (inaudible) basis, right, if you look for the dollar-denominated parts.

But, of course, there is inflation on the remaining of our COGS, which is on an upwards trend, average inflation. We have considered, of course, the impact of commodities in dollar terms. And actually, they are less of a benefit this year. We have some commodities that are actually at a higher price than what they were last year, given the timing of the implementation of our hedged strategy. So, we're normally one year in advance of the -- one year later, sorry, of the spot price.

So, we took all that into account. And you have such a guidance. And at this stage, we don't feel we are ready to indicate that we should be at a lower or upper end of the guidance. The guidance has arranged. And that's the one that the -- expect to be within.

Regarding top line, I'll ask Bernardo to comment on our views for 2015.

Hi, Thiago. Thanks for the question. I think that, as I commented before, the basis now, the strong foundation that you have -- that we have the macro, the comments as well, the headwind of the World Cup. But, all in all, we have a different ways to see that and to pursue the balanced top line growth that we need.

So, at this point, it's very hard to say that will be more mixed, more volume, more price, knowing that we have a very clear guidance of price that we price [in line in fluctuation] plus tax.

So, that's why we decided for now to guide on only the net revenue growth. And more important than that, as we discussed in the speech here and before, we continue to feel confident in our growth plan that we have a solid top line and EBITDA growth into 2015 despite the economic environment and the macro in Brazil.

Okay. Thank you.

Thank you.

Alex Robarts, Citi.

Yes, hi. Thanks, everybody. Going back to the share of throat idea, and your language in the outlook really suggests that you see significant volume opportunity here with the beer category vis-a-vis the other alcoholic categories. And I'm just wondering, to the extent that that can be driven by the premium segment.

And so, the question really is, you've talked about a 20% growth rate in that part of your portfolio last year. Obviously, the Cup was very important behind that. And we understand that, today, the premium part of the portfolio is growing double digit in sales in Brazil.

And as we think about this particular year being almost 10% of your portfolio, how do we think about the growth that might come from, let's say, the full year of the Corona brand, the growth that might come from craft? You launched Bela Rosa very recently and made an acquisition in Minas. Can craft grow to be, as we've seen in the United States, to kind of 10% of the industry over time?

And do we get finally some trading down from these more expensive alcoholic categories, spirits and wine, into the beer category? Is that part of your thinking when you talk about the volume opportunity and share of throat? So, sorry, kind of various pieces to the general question on share of throat opportunities. Thanks very much.

Thanks, Alex. Good to talk to you again. So, talking about premium, for sure, we continue to grow ahead of the industry, not only in 2015, but in the years to come. So, it's the first thing.

I think that the near beer opportunities I would say, the share of throat opportunities, they come with a better margin, yes. And they will help us to grow ahead of the industry this year and the next -- in the next years. And yes, based on all the studies that we have, their opportunity is as big as I said before. And we have the plans, the business model, how to operate there and get the liquids, malt-based liquids to [attach] to tackle those need states that people have.

So, yes, I think that our share of throat [in terms of] the near beer products that we launch will help us, premium, Bud, Stella, and Original, and so on, so forth, the brands that you know.

The other question that you said, it's craft. And I always say to people that, before I think about craft, the liquid, it's important to understand a consumer need state, why people drink craft in many, many countries, and then what, based on the experience that we have in other countries, we say, look, we can't tackle those need states with the current and great portfolio that we have, not only the domestic premium brands that we have, but international premium that we have as well.

Having said that, yes, we'll try to make some deals with some important crafts here in Brazil. We've done with Waels, great. [Buena variance], we'll have a road here as well. But, I don't think that the crafts in Brazil will be 10% of the volume that is in US. We've always said that this movement in US started in the 1980s and have 25 years or 30 years of that. And here, they are just starting. And we know much better how to handle those need states that people have.

So, I think that we can do with the current portfolio of the new brands that we'll launch and including some craft beers here and there.

The -- sorry, yes, no, that was clear. On the Corona piece, though, is it fair just to think about that as more of a tactical rollout this year as opposed to a full-on national rollout? If you could just -- it was the last piece of the premium question.

Yes. Sorry about that. It was many, many questions, Alex. I think this brand is amazing. So, we will seed this brand in the right way. We will not go above the line campaigns. We'll go below the line. We'll bring experiential activations for this brand. We'll put this brand not everywhere. So, we'll seed this brand and have good volumes for this year.

But, the key success factor of this brand this year is not the volume. It's the way that we'll launch and how people will desire to have this brand. So, Corona is not a beer. It's a way of life (inaudible) people like the brand. And then it's really amazing. And then we'll do the right things for the brand here, and you sell good volume. But, again, the most important thing, we really think that this brand could be great. It's a premium, very good margins, and you do it in the right way.

Got it. Okay. Thanks a lot.

Jose Yordan, Deutsche Bank.

Hey, good morning, Bernardo and Nelson. I was going to ask the question about share of throat, but I think I'll pass.

There's been no discussion about the impact of potential water and electric rationing in Brazil. And I realize most of your plants are probably self-sufficient in that. But, have you in your SG&A guidance budgeted for the possibility that there'll be production interruptions in some plants and that you may have to truck beer from long distances to get around this potential crisis, or are you basically going on the premise that it won't impact you at all?

Hi, Jose. Nelson. Thanks for your question. Indeed, this is a hot topic, water, energy, potential risk and crisis in Brazil. But, it's not something new, right? And we have been working on this for a while.

Specifically, in terms of water, what we anticipate is that -- and of course, we look into different scenarios and more optimistic and more pessimistic. And in all of them, we don't see any reasonable risk of product shortage. So, we believe we'll be able to fulfill demand in any circumstance.

Of course, the worse the scenario becomes, there is more of a risk of some additional logistic cost because we have the footprint that this is more concentrated in the Southeast. So, we have the opportunity to, of course, move product back and forth if needed.

There will be, of course, some additional cost, but nothing at this state that we could anticipate to be material at this point or as much as something that would change our guidance. We think we could accommodate with the current guidance, given the scenario that we have run so far. And again, we have looked at different sort of scenarios.

And in terms of electricity, your -- you have generation everywhere from the last crisis that I think you had invested in generation capability.

No, we did. A good portion of our energy used in our plants is already cogenerated. We have been not only reducing consumption year over year with new technologies and energy efficient programs, but have also been investing in our own capacity since 2001.

From a cost perspective, we believe that that could be even lower, even in the worst scenario, given the fact that energy represents only 3% of our cost of goods sold. And more than 7 -- 5% of what we consume is either cogenerated or hedged through long-term contracts. So, from a cost impact, we don't anticipate any major impact in our P&L.

And, Jose, good to talk to you again after many years. And just to add that is that, [to that end], we have been working in this company our DNA of our culture with excellence for many, many years. So, to be more efficient is not only a cost thing, but really moments like that to be ready to any crisis. So, that's what's happening. So, our efficiency in terms of water, in terms of energy, in terms of how to deal with that, that's pretty good. And they're not pretty good now, have been building this in the last 20 years. So, I think that we can handle this crisis in the right way.

Great. Sounds good. Look forward to seeing -- .

--Thank you.

Bye.

Luca Cipiccia, Goldman Sachs.

Thank you. The pronunciation was correct. Good afternoon, Nelson. Good afternoon, Bernardo. I was hoping you could spend a bit of time to move the conversation along on the nonalcoholic beverages as well, just to understand both for 2015, but more broadly as well, looking ahead. How do you see that playing out in your strategy, in your vision on the discussion on the share of throat?

And as well, on the capital deployment opportunities, you announced a new buyback today. I was wondering whether you see opportunities maybe in that space to deploy some of the excess capital that keeps piling up. And if I can [broad] maybe this topic, again, capital allocation, cash deployment, maybe if you could share some light on how you see that, how should we think about that under your new tenure, that would be very helpful.

Hi, Luca. Thanks for your question. I think that the CSD, I just comment more about beer because we like to focus on this message in the first call. But, all the concepts that I said in terms of the business, the fundamentals are valid for CSD as well, including the growth strategy that we'll have.

So, first of all, [I think] the core, so we are continuing to do that. Guarana Antarctica is doing pretty, pretty well. Pepsi grew as well. And then we just launched Guarana Antarctica Black. It's an amazing innovation in our core business. So, it's aligned [solidly] the core. And then yes, we'll go for premium brands with Marco, a creative brand that we have here, not only in the soft drinks business, but you have all the portfolio that we've got with Pepsi, the energy drinks as well that can bring in this premium acceleration as well.

So, this year, we invest big so we'll connect with our brands with people in general in a much more relevant way. We'll be the sponsor of Rock in Rio, just one example. And when I talk about that, not only sponsoring this festival, but applying (inaudible) sales and marketing, integrating campaign above the line to below the line digital. [We think that that could be] applied for soft drinks as well.

And again, innovations will help us in the core, in the premium, like the Hello that's a flavored water brand that we will launch is doing pretty, pretty well. So, affordability, again, that's the same part of the strategy that I said before [that became a] core business, part of soft drinks as well. So, the 1-liter returnable bottle is doing pretty, pretty, pretty good.

So, I would say that it's important business for us. We'll continue to invest on that. And the same concept of growth platforms that I mentioned before will be applied in that for the soft drink business.

And -- but, do you see opportunities to expand the portfolio as well? Is that something that maybe come more relevant going forward, whether it's acquisition or new categories?

Yes, as we see, so, Hello, it's an example, a new launch. Acquisitions are other things. We'll not talk about that. But, I think that, as we talked in the year, the same is valid here. We see opportunities to improve and enhance our portfolio.

And hi, Luca. This is Nelson to take the second part of your question in terms of capital allocation. I think, first of all, we had another year of very strong cash flow generation and continue to improve our working capital management, which as you know, we are in a negative position.

So, the payables outstanding are bigger than the inventories and accounts receivable. So, the more you sell, the more generate cash. And with this sort of cash we generate, of course, the thinking process remains the same.

First, we want to reinvest in the organic growth of the business. I think, after everything we just talked about today, we have a lot of -- plenty of opportunities to invest and with great returns. So, that's priority number one.

Of course, we consider as well some very selected and targeted nonorganic growth opportunities, of course, more difficult to predict time and if and when M&A transaction could occur. But, I think it's looking to the last time we did something in this area that we -- was relevant was the CND. Cerveceria Nacional Dominicana deal in 2012 is a good example of a very targeted acquisition and, by the way, has already delivered a lot of value, and we get a lot of value from the amazing performance the guys are delivering there in Dominican Republic.

And finally, even after all that, as we continue to have what we call this excess cash return to shareholders, IOC will continue to be the priority, again, no change in this area, given the tax deductibility. And the remainder should be paid out between dividends and/or share buybacks. Actually, we have a minimum dividend that are above -- that are at a higher level today, a minimum 40% of our net profit. And we just announced a share buyback program.

So, it all fits into our total payout strategy that, as you know, have an increasing payout consistently, given the strong results. And it all starts with the strong cash flow generation that I just talked about. And you continue to see it going forward.

Okay. Thank you. Thank you very much.

You're welcome.

Robert Ottenstein, Evercore.

Thank you very much. And congratulations, Bernardo, on the new position. Can you talk a little bit perhaps about Canada? There's a lot of things going on there. You've got Corona now. SAB Miller is going to come into Canada in April with Miller brands, probably Miller Light. And you have the trend from returnable glass bottles to cans. So, perhaps maybe you can kind of just talk about Canada big picture, your strategy, how Corona changes things, and how you're going to deal with these different challenges.

Yes, Robert. Thanks for the question. I have been close to Canada as well the last four years. And I think that, again, the same concept that -- the same growth platforms that I discussed here, they are very well applied for Canada as well.

And you think about core business (inaudible) the core business, that's what I've been doing with Bud Light for many, many years. So, Bud Light is -- has been growing share on the 19th consecutive year. And Budweiser is a very, very strong brand there as well.

And talk about accelerate premium and really grow premium with beer and with the near beer innovations, exactly the same. The portfolio that we have there is pretty, pretty strong. Corona, for sure, will help a lot. [I was very close] of the launch [here]. The guys hand over the brand. It was pretty, pretty good job, in the right way. And I think that Corona will bring to us for sure good deals.

But, not only Corona, you see Stella Artois, it's a strong brand there. We'll have the domestic premium. That's strong as well. And then it's not only the brands. We are implementing the same things and same business mindset in terms of how to operate the premium brands, so with sales and marketing, and do it in a different way above the line, lots of experiential below the line, so applied to Canada as well.

And I think that Canada last year was a good year. We have a market share above the previous year. And what I see, it's much more stronger brands that have now a portfolio of brands that we had before. Corona helped us, but not only the brands that have been nurturing in the last many, many years, I think this -- all this job is paying back. And I really think that Canada could perform pretty well in 2015 as well. Jamel, have a comment?

Yes, I think the -- just to add to this point, I think, when you look into the performance in Canada, it's also important to remind yourself that we just took over Corona since March, right? We didn't have the brand for the full year. And of course, during the handover transition, of course, it took us a while so that we could really get started.

So, clearly, we had in the second half of the year in Canada the performance that we expect for the brand, for the business as a whole. And we saw this growing and getting better along the year. So, we get in 2015 in a very positive trend.

And then get to the question of SAB Miller. Quite frankly, I have been dealing with SAB Miller entering our markets in many, many markets. I think [has been going] pretty, pretty well. So, we work hard, and we respect them, but no concerns. We'll play in the right way.

And then just on the trend to one way into cans and what impact that may have on your cost structure.

Well, we don't see no relevant impact in our cost structure today in Canada when you look into our -- we don't provide a specific guidance for COGS in Canada. But, when we look into the business, we remain confident that, when you look all together, mix change, but also premium growth, high-end segment becoming even more relevant, and especially the brand activation that we have been -- or the [program] that had been implemented in the market, we feel very confident about the business model, the business growth going forward.

Terrific. Thank you very much.

Thank you.

Gabriel Lima, Bradesco.

Thank you. Bernardo, can you -- coming back to Brazil beer, more -- my question is pretty much in line with (inaudible) but if you could share more details with this share of throat plan, I think it's really interesting you guys are looking at this now.

But, I understood your comments that you expect consumers trading from spirits and wine to premium beer. And I guess that's pretty much what happened in Argentina in the past years. But, do you also see share of throat opportunity in the mainstream (inaudible)? Do you expect to gain market share from Cachaca or to cheap spirits in the Northeast because I think that's quite interesting, given that Brazil is after all considered a country of soccer and beer, right?

And when we look at beer consumption, it's been gaining share, a lot of share in the past years from Cachaca. I think beer represents now 90% of total volumes in terms of alcohol. So, just wanted to understand if you also see further market share gains from these cheap spirits and if you have quantified this plan on top of the 1.5% demographic opportunity you mentioned, if you have quantified this share of throat opportunity. Thanks.

Thank you. Thanks a lot, Gabriel. I think -- so, I think that -- the studies that we've done and the solutions that we are bringing to the table address the full share of throat opportunity. We always say human beings have same need states. How to fulfill those need states could be different according to the culture that they have, according to how affordable that specific product is.

So, having said that, yes, it's not only with innovation if a near beer product (inaudible) it's the one that we'll address the share of throat opportunity. Our core brands will play a role. Our affordability plans linked to (inaudible) the core thing that I mentioned to you will play a role as well.

So, embedded in this opportunity, yes, we have embedded opportunity. We'll not talk about specific -- one specific liquid. But, what I can say that, yes, we saw opportunities in many, many kind of, I would say, levels of out of pocket or disposable income that people would have because they have same need states, and then we can address those need states in different ways with the full portfolio.

That's why you always say that it's -- at the end of the day, it's a portfolio game. If you have a portfolio, a strong one with very strong brands and in your core business, and then you can build the beer business on top of that. And that's what we're doing with the premium, the near beer occasions to address all need states and all volume opportunities in the beverage alcohol landscape.

Okay. Okay. Just this one -- if I could just make one quick follow up on the tax benefits, you're getting more than BRL1 billion now, right, in tax benefits. And I suppose that most of it is linked to the Northeast. And I just want to know if you had any restrictions regarding distributing those benefits into dividends.

Hi, Gabriel. It's Nelson. Well, we also had a strong finish, a good performance in terms of government grants in Q4, as you might have noticed.

Of course, this is linked to the CapEx that we did in 2014, which was also BRL3.1 billion in which we had the new plants included, like a new plant in Minas Gerais, also expansions on plants that we opened up recently. So, if we go to our P&L book, of course, it's not a new (inaudible) but has been increasing more just in capacity and lines. So, it all kicks in and gives us an advantage.

The more we have volumes concentrated and growing in plants that have such grants is better for us. We continue to see this as an interesting upside for 2015 and going forward.

And that's primarily the reason why this line grew, and important to say there's no one-off. This is -- these are long-term contracts. And we continue to see them helping our performance going on.

And no restriction to distribute it, right?

Yes, there are some specific rules in terms of distribution. And we have to create some reserves, which by the way are linked to the investments we did. But, it doesn't change the potential, the full potential that we have for payouts and distribution (inaudible) the corporate restructure we did in 2013. We have plenty of room to increase our payout.

Got it. Thanks, Nelson. Thank you, Bernardo.

Thanks. I think that, for the final message here, I think I see really great growth opportunities ahead of us. Our long-term plan, it's a long-term plan, but the 2015 plan as well are -- both of them bold plans and strong plans. And we have a great team here, a great team for more than 25 years delivering hard and delivering big in good moments, in the bad moments as well. It's a part of our DNA. So, I'm pretty confident, 100% confident that we'll continue to deliver big and will deliver in 2015 as well. So, that's my final message.

Thank you, Bernardo. Thanks, everybody, for joining us today as well. I apologize if any question could not be picked up, but of course, we are available to follow up, myself, Marino, IR team after the call. And once again, great to talk to you today. Thanks for your question, and looking forward to speaking with you again on our 2015 first quarter earnings conference call on May 6th. So, thank you. Bye, bye.

Thank you. Bye, bye.

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