Ambev S.A. (ABEV) Q2 2012 Earnings Report, Transcript and Summary

Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's Second Quarter 2012 Results Conference Call. Today with us, we have Mr. João Castro Neves, CEO for Ambev; and Mr. Nelson Jamel, CFO and Investor Relations officer. We would like to inform you that this event is being recorded. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward-looking statements. 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 Q2 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. Nelson José Jamel: Thank you, Maureen. Good afternoon, everyone, and thank you for joining our 2012 second quarter results conference call. As usual, I'll begin by sharing with you some highlights of our second quarter performance and then João will take over to probe in greater detail the operational results of our Brazil, HILA-ex, Latin America South and Canada business units. And before we take your questions, I'll wrap up things up with a summary of our financial figures. So let's get started. In the second quarter, our consolidated business performance improved, growing 9.3% organically and reaching almost BRL 3 billion. Consolidated EBITDA margin was 43.6%. If we take a look at our divisional performance, Brazil delivered double-digit EBITDA growth of 12.2% organically with EBITDA margin of 47.8%. Net revenues increased 11.5%, thanks to a 3.9% volume growth and 7.4% net revenue per hectoliter EBITDA growth. Latin America South EBITDA rose 7.8% and EBITDA margin was 38.1% with volumes declining 0.9% for net revenues, 15% higher than the second quarter of 2011. Canada saw a 2.1% decline in EBITDA combined with an EBITDA margin of 41.1%. Organic volumes were 0.3% lower than Q2 while net revenues grew 2.2%, thanks to a 2.4% increase in net revenue per hectoliter. And as for HILA-ex, which seems to me, also includes as a scope, the results of Cervecería Nacional Dominicana as we'll discuss later on this call. Our team delivered positive EBITDA of BRL 37.2 million. Our normalized profit for the second quarter reached nearly BRL 2 billion, a 6.6% improvement versus same period last year. Normalized EPS grew 6.1%. I'll now hand it over to João so he can talk, walk you through our financial performance and comments on the outlook for the remainder of the year. João? João Castro Neves: Thank you, Jamel, and good afternoon, everyone. Looking back at the second quarter, this was a quarter in which a myriad of questions surfaced around the short-term strength of the Brazilian economy and the state of the consumer, the possible headwinds arising from the announced increase in federal excise tax in Brazil for this year and beyond, as well as the concerns about the Argentinian economy. I will come back to each of those topics later as they are surely important to understand the quarter's performance as was the prospects for our business going forward. But I want to begin by saying that our team held its ground and managed to answer with a better overall performance than the first quarter, and here's why. First, we were able to improve our top line performance by increasing the Ambev consolidated net revenue, 10.4%, with 3.9% volume growth and 7.4% net revenue per hectoliter growth in Brazil, being the main highlights. Second, our COGS per hectoliter grew below inflation once more at 3.4% versus the second quarter of 2011, driven mostly by very limited growth of our growth out of Brazil, only 0.8%. And third, our HILA-ex division began a whole new chapter, performance-wise, given the closing of our strategic alliance in the Caribbean. It delivered positive EBITDA results of $37.2 million. That said, we experienced volume decline in Latin America South and Canada, albeit less than 1%, and SG&A spend ended up being 18.7% higher than the Q2, in part because of the timing of bonus accrual in Brazil, higher distribution costs also in Brazil and as well as in Latin America South, but also because of higher sales and marketing spend in Canada and LAS, which we feel was the right thing to do with those 2 markets to support our innovation platform for the moment being. In the end, we delivered 9.3% EBITDA growth, which we view as a good result, all things considered. So let's take a closer look at each of our business units, starting with Beer Brazil. Volumes rose 2.8%, which was nearly in line with the industry growth, giving us an average of 68.8% for the second quarter. Our main focus was to make steady progress on the action plans for our 4 commercial priorities, namely: innovation, premium, the north and the northeast, as well as the PET price strategy with returnables. Our own innovation, our volumes expanded significantly, mainly due to the cycling growth of Antarctica Sub Zero, as well as the Skol 360º, and distribution for these brands increased during the course of last year. Meanwhile, volumes for our premium brands grew approximately 16% in the quarter led by our domestic premium brand Original in Stella Artois, as well as Budweiser from our international brewer portfolio. Budweiser, by the way, continues to gain ground in the country through increased distribution. And during Q2 2012, we gave an extra push by launching our first major TV and digital ad campaign for the brand with Anderson Silva, the Brazilian mixed martial arts fighter; and Steven Segal. The campaign was recognized by advertising agency as the second biggest digital campaign in the world at that time with 11.4 million viewers on the YouTube in 8 days, which was also the third most viewed video for Brazil on YouTube ever. There's still a long way to go, but they're set sides with results this far. As for Bohemia, the leading premium brand in Brazil during the second quarter, we reopened the Bohemia brewery in the city of Petropolis in the state of Rio de Janeiro. The brewer will produce line extension of the Bohemia family in longneck bottles in certain limited edition Bohemia brew master creation. More importantly, the brewery is now home to a complete brewing experience, open for visitation, one of the large and more complete in the world, in order to celebrate beer heritage. Since the Sumerians and beer culture stays to Brazil, getting back to Bohemia's launch in 1863 at the very same time. The brewery is a must visit for anyone coming to Brazil and is also an important pillar for imputing [ph] the beer category image. Turning to the north and northeast strategy. As you know, these 2 regions, I've been on top of our agenda for a while now. In the second quarter, our volumes there grew more than 3x faster than the rest of the country with further market share gains. Events were launching an important volume drivers for us with strong brand activation for Skol [indiscernible] during the summer's role for striptease in the northeast, as well as a first-time sponsorship of the [indiscernible] festival in the state of [indiscernible]. We launched the limited-edition Skol decorated can just for the festival, even changing the brand color code for the first time to honor the cultural heritage of the event. The best running performance in the region came from Brahma, which we believe is beginning to benefit from certain of our initiatives for the brand in the region, such as what we call our sucker platform. Accordingly, we have established partnership with 9 local teams in the region instead of fans page on Facebook in order to find new ways to constantly and consistently engage with the fan base, enabling us to build more and more loyalty over time. As for packed price strategy with focus on returnables, volumes for our returnable packs in Q2 2012 grew ahead of our one-way presentations for mainly 2 reasons: first, we cycle last year rollout and increased distribution of the 1 liter glass bottle; and second, we continue increasing distribution of the 300-milliliter returnable glass bottle in the southeast, as well as beginning to take it beyond this region. This strategy has been also supported by the launch of a TV ad campaign to remind consumers that returnables are making their way back to supermarkets, giving them their favorite vents at more attractive price points for different needs or occasions. With respect to net revenues, following a first quarter mark by tough comps, higher tax and changes to our promotional calendar, our net revenues per hectoliter actually increased 7.2% this time around. A relevant portion of this performance is explained by the carryover from last year, a price increase in the fourth quarter, as well as a scaling back on promotional activity from Q1 2012 and cycling of the federal excise tax increase from April of last year. But we also benefit from increased rates of direct distribution, as through ours, the premiumization of our mix. Moving on to the cost side. Our cost per hectoliter in Brazil Beer grew 3.4%, mainly as a consequence of higher depreciation of our investor assets while the products of execution of our hedging policy was currency gains partially offsetting pressure coming from malt. On other hand, SG&A rose 18% against a very tough comp in Q2 2011, which actually decreased 1.2% at the time. A few comments here. First, the spiking of the main expenses primarily results from the fact that in the second quarter of 2012, there were lower accruals comparable compensation. Second, our distribution expenses were higher, given volume growth, greater weight of direct distribution and general inflation, particularly weights. And third, as you may remember, our sales and marketing investments were higher in the first quarter of 2012 because of desire to concentrate more spending at the beginning of the year due to the Carnival strategy. As a result, our commercial spend increased considerably less in Q2. When you add a roll-up, our Brazil Beer normalized EBITDA improved by growing 9.5% with 110 basis points of gross margin expansion, but 30 bps of EBITDA margin contraction. Turning to Brazil. Soft drinks and non-alcoholic, non-carbonated beverage, which had an outstanding quarter, our volumes were 6.9% better than Q2 2011 while market share, according to Nielsen, was stable at 17.8%. Guaraná Antarctica showed impressive performance during the quarter, volume-wise, and in terms of market share. I believe, Guaraná Antarctica's performance illustrate well what we've been trying to accomplish with Brazil soft drinks business. For a more strategic point of view: first, we continue to reinforce our presence in more profitable single-serve packaging to 237-milliliter PT bottle and the 350-milliliter can. Second, our packed price strategy for multi-served packages, ranging from the 1 liter to the 3.3 half cap to working; and third, we further developed our return packaging, returnable packaging, by continuing to grow the 1 liter glass bottle. On the innovation front, Antarctica citrus [ph] has been delivering promising results. Fusion energy drink has increased distribution in general and can be found in major Brazilian cities around the country, in both the on and the off-trade. And in late May, we launched in São Paulo, our 0-calorie, grape-flavored, H2OH! fruit [ph], which joins the orange and the citrus flavor launch this year with major success. On the pricing side, net revenues per hectoliter delivered 10.9% growth against the same period last year, driven mainly by the carryover of all price increase of late last year and also favored by an easier comparison with the second quarter of 2011 when federal excise taxes went up. Our COGS per hectoliter as anticipated during last quarter's call declined considerably by 6.9%, thanks to gain in currency hedging and lower raw materials and packaging costs overall. We do not expect to repeat this type of performance during the second half of the year, so one should expect COGS per hectoliter to increase going forward, but our guidance of growing COGS per hectoliter in Brazil, meaning soft drinks and beer below inflation still stands. SG&A, excluding depreciation and amortization, escalated by 53%. In this case, we had an even tougher SG&A comparison than in Brazil Beer. As in the second quarter of last year, we saw a decline of 16.6%. In addition to the privilege mentioned, local comparison base due to the timing of bonus, we also had a different phasing of commercial spend, which generate inflation and greater distribution costs driven by labor-related expenses and more volume growth had a relevant impact as well. But all in all, our Brazil shift in EBITDA rose 26.5% with expansion in EBITDA margin of 300 basis points, giving us 48.7% for the quarter. Now let's talk about our new and improved HILA-ex division. As Nelson pointed out earlier, in May, we closed a strategic alliance with the Leon family, controlling shareholders of Cervecería Nacional Dominicana, or simply CND, and now own approximately 51% of the company. So the next 4 quarters, we will present synergy results together with the performance of our subsidiary called AmbevDominicana in the scope column of our HILA-ex division, while organic variations, we will only include the other countries. Our focus during the second quarter was in kicking off and begin full speed implementation of our integration plan for both companies. The integration plan has been detailed with a series of top line and bottom line opportunities duly mapped, and the team is committed to delivering our guidance of generating by May 2013 approximately $190 million of EBITDA from combined operations. Our partnership with the Leon family has surely started off on the right foot. I believe that in the next quarter, I will be able to begin sharing some more detailed figures. Heading now to Latin America South. This was the first quarter of a single EBITDA growth since the second quarter of 2012. EBITDA was up 7.8% while our EBITDA margin for the quarter was 38.1%. During the second quarter, we experienced volume loss in Argentina, Bolivia, Paraguay, mainly driven by a decline in the industry, in each of these countries, which in turn is explained by a slowdown in economic activity altogether. This was definitely the main blow to our business as beer volume decreased 1.7%. The good news is that if we zoom in on Argentina, for instance, which is our largest operation in the region, we grew 70 basis points of market share, reaching an all-time high average of 77.7 for the quarter, with Quilmes, Stella Artois and Brahma, our top 3 brands in the country all delivering positive market share performance. Moreover, we remain active in the marketplace when it comes to innovation with the launch in May of a domestic premium brand called Quilmes 1890, which the year of the brewery foundation and a new 1 liter returnable glass bottle for Quilmes Cristal in its line expansion, which has a more modern outlook and feel to it. Also, net revenues per hectoliter for beer grew 15% organically as a result of price increase to keep up with inflation, also helped by the continued increase rate of premium, notably Stella Artois in our portfolio. With respect to CSD, NANC top line results in the region, spike of market contractions in Argentina, our volumes improved by 0.3%, driven by market share growth in the country, and H2OH!, Paso de los Toros and Twister volume performance. Net revenue for per hectoliter grew 19.8% mostly due to price increase to keep up with inflation. For total Latin American South net revenues per hectoliter was 16% above the second quarter of last year. Turning to cost. During the second quarter, Latin America South COGS per hectoliter grew 15.6%, with relevant cost pressure coming mainly from higher costs related to malt, aluminum and bottles, as well as labor. Increased -- increasing wage impacting distribution costs were yet again among the main causes for further pressure at SG&A along with the different phasing in related to our sales and marketing expense to support our innovation launches in the quarter, for example. SG&A grew 27.1% for Latin American South in the second quarter. Looking ahead, though we continue to expect a tougher macroeconomic environment to remain a reality, especially in Argentina and Paraguay, we still believe we can deliver double-digit EBITDA growth for the year. So let's finish with Canada. The second quarter delivered performance in line with our expectations. Total volumes declined 0.3% but with domestic volumes increased 0.2% and net revenue per hectoliter grew at 2.4% while SG&A increased by 6.7%, largely driven by higher marketing investment behind our innovation launches and Budweiser hockey programming. COGS per hectoliter decreased by 1 versus last year, driven by psyching of depreciated assets of certain escalations from commodities. The net result was the declining EBITDA of 2.1 versus Q2 2011 while maintaining growth of 1.1% year-to-date. Talking about our top line performance in a bit more detail. The Canadian beer industry was stable as compared to the same period last year, showing an improved -- versus the trend over the previous year. We lost 20 bps market share in the quarter last year, but Bud Light continues to deliver strong market share performance and Budweiser brand helps continues its positive evolution. Innovation continues to be one of our top line levers as we strike to keep -- as we strive to keep striking the right balance of price in market share to further increase profitability. During this quarter, we launched Alexander Keith's Cider in Ontario along with Michelob Ultra and Bud Light Lime Mojito nationally, all of which had positive initial results. Before turning it over to Nelson, I would like to go back to my opening remarks around the Brazilian economy and the federal excise tax increase and share with you how they impact our outlook for the second half of the year. We still expect beer volume in Brazil to resume growth for the full year with a better balance between volume and price as compared to 2011. The Brazilian Federal Government continues to take measures to stimulate the Brazilian economy, which gives us some degree of confidence that such measures will eventually begin changing our macroeconomic environment for the better during in the second half of the year. Besides, our confidence in the medium and long-term prospects for the Brazilian economy remains unaffected. In the cold beverage industry, 2 throws. Its industry associations have continued to seek a reversal of the announced tax increase in some shape or form. Though at this stage, no assurance can be given if they will succeed. If the industry does not exceed, the more likely outcome is a real increase in consumer price followed by semi effect on volume. Our intent will be to minimize volume and share loss, leveraging the stronger portfolio we have nowadays, not only in terms of brands but also liquid as in packages, not to mention our sales execution capabilities. Yes, it will be anything but easy, but this is the challenge we have to overcome in order to have at least a good year. We have done our homework since June and now it's time to execute. Back to you, Nelson. Nelson José Jamel: Thank you, João. A standard part of the call, I would walk you through the main items between our normalized EBIT of BRL 4.25 billion and profit of close to BRL 2 billion as you can find on Page 3 of our release. Turning to special items, we had an expense of BRL 26.8 million during the second quarter, nearly all of which relates to fees and expense incurred with respect to the signing and closing of our strategic alliance of the Caribbean with CND. Our net finance results were a measurable BRL 168 million, BRL 143 million worse than the second quarter of 2011. The main quality behind this variation is the impact of the real devaluation on certain intercompany transactions in a rating realized at foreign exchange translation losses on intercompany favors and loans. This impact, however, is a common set by the foreign exchange translation gains on offshore companies that are registered in equity. Our effective tax rate was 16.8% for the quarter against 16.2% in Q2 2011. Included tax benefits comes from great interest on capital payments were more than offset by a higher taxable base. Keep in mind that we face a very difficult comp in this regard because last year, we benefited from certain one-time tax credit, as you may recall. Year-to-date, our effective tax rate is 18.5% compared to 19.5% last year. And finally, we entered the second quarter with a net cash position of about BRL 1 billion, no more than $3.1 billion since December 31, 2011, which is entirely consistent before we go and returned to the average levels we have prior to end of last year. Approximately BRL 3.8 billion has been distributed to shareholders through July 2012, as dividends, any addition on capital, which is about BRL 2 billion more than last year during the same period. Back to João, for a quick announcement about our leadership change in Canada and Latin America South. João Castro Neves: Thanks, Jamel. After nearly 3 years leading our Canada team, Bary Benun will be moving to China effectively January 1, 2013, to become BU President of AB InBev in that country. The new BU President for Labatt will be Carlos Lisboa, who currently heads our operations for Bolivia, Paraguay, Chile and Uruguay in Latin America South. Lisboa takes to Canada over 19 years of experience at Lambert [ph], the majority of which in marketing-related roles where he was responsible for Skol marketing strategy for 2001 to 2004 and later, served as Ambev's marketing VP for 2005 until 2010. I would like to congratulate both on their appointments, thank them for the contributions to-date and wish them the best of success in their new roles. With that, let's now take your questions. Maureen?

[Operator Instructions] Our first question is from Lore Serra, Morgan Stanley.

Can I ask, just to clarify, the guidance you've given of price, at least above, or at least with inflation, as well as volumes better than last year, is the underlying assumption there that the excise tax for October goes through? I understand you're still fighting it but, or discussing it, but is the assumption in that guidance that it goes through in October? João Castro Neves: Yes, definitely.

Okay. And can you give us a sense of how you see -- I mean, I guess the improvement in revenue per hectoliter this year had to do with the fact that taxation was a bit less or earlier front-end loaded this year, and the pricing stock? And your market share looked solid but down a little bit. Can you talk about any market dynamics that you need to think about as you think about that second-half pricing environment and that guidance? I guess I'm a little bit surprised that you're taking the guidance up in terms of the pricing outlook given the trends we're seeing in terms of volumes and share. João Castro Neves: Sure. Lore, this is João. We continue to feel very confident about the commercial strategy. I think first, I mean, as I mentioned in the opening statement, I think the combination of liquid innovation with the Sub Zero and 360, give us -- continue to give us tooth to fight in different regions of the country. Then of course the packed pricing strategy with more returnable bottles, now being able to grow from 3 plants by the end of the year. We have 7 plants able to produce 300 ml, so that combination of liquid and packed price strategy being more widely available continues to give us a lot of confidence in the commercial strategy from that standpoint. On top of that, we now have newly and enhanced trade programs such as the -- also the sucker platform that I also mentioned in the opening statement, which has proved to be, together with the digital strategy, a great way to connect with our consumers. That combination of commercial flexibility from liquid and packaging, as well as in trade as our marketing strategy, also connecting consumers, we feel that we continue to build new options as well as exercising them as we go along. On top of that, premiumization continues to work, having the 4 brands, the 2 domestic, Original and Budweiser, Original and Bohemia, but also Budweiser and Stella International, growing sometimes 3 to 4x or 5x ahead of the average, gives us also better tools to fight as a premiumization of the net sales per hectoliter, that also helped, coupled with direct distribution. When you put this whole thing together and giving the 68.8% share that we have, which is still the second or third best for the second quarter in the last 9 or 10 years, we feel that we can go into the second half, having a lot of tools and actions to be taken regarding competition, which seems to be also fighting their own fights in terms of profitability, but also to face the tax increase. What we wanted to do really in the first half, especially since April or May, when we knew about the tax increase, was to get ready for October. I think what is yet to be seen is what exactly will be the impact on volumes for the fourth quarter of this tax increase. I think this is the part on which, of course, we have the demand model to help us see where it is. We feel confident on the guidance that we have of having growth resume as we saw in the first, as well as in the second quarter. We'll see that also in the third quarter, but we have to see what will be the effects on the volumes of the fourth quarter.

Great. Well, I mean, that's really helpful color. But I guess what I'm not understanding is, since the second quarter, I mean I'm sorry, the first quarter was released, you had the excise tax announced. So that's changed -- I mean, a lot of what you talked about was there already. So what's changed that your pricing outlook is more favorable now than it was when you announced the first quarter. Is it that the market environment is more favorable than you thought? I'm just not understanding why the guidance changed in light of the fact that taxation went up? João Castro Neves: Okay. I think the -- in line to the at least, let's say, the subtle change, was really to show our confidence. The reason I started really to highlight it once again, the commercial strategy, that we should have a combination of sales execution strategy, the marketing strategy, together with the premiumization of the portfolio, with direct distribution, that whole combination make us feel that we can now, not just at least, not just in line, but to be at least above right inflation. So really, it's really the comp. It's not the one silver bullet that made the difference, but the whole combination as we see what's coming in terms of tax increase, but also how the market has also reacted for the pricing environment of whatever happened this year so far. That combination of internal, commercial, strategy, as well as how the market has responded so far this year. We feel we can make that subtle change.

The next question is Robert Ford from Bank of America Merrill Lynch.

I had a question with respect to just your existing business today. What percent of the business in the last 12 months is only cans for you? And that's just Brazil in terms of volume. Nelson José Jamel: Some are soft. Cans are the same, Bob.

Yes, what percentage of Brazilian beers is going out in cans today? João Castro Neves: We don't open that in detail. But mainly, I mean it has been, for the past 2 years, we're talking about 1/3, 2/3 on average, okay? From the early 2000 until let's say, late 2009, every year can grow a little bit. That's a little bit of talking, 20 bps, 30 bps. In 2009, when we launched it, the strong returnable strategy, that has -- the growth has first diminished. Actually, the participation decreased, okay? So I think that's the detail. So 1/3, 2/3 on average, we had from 2000, 2008 growing and then 2009, starting to flattish and 2010, 2011, starting to decrease.

Great. That's very helpful. And then, when -- we were very impressed with the pricing in CSDs, particularly given the big push in returnables, a lot more multi-serves. Can you comment a little bit about how you're getting the pricing in soft drinks and the outlook that you have, given -- or the bigger tax increases in CSDs particularly for some of your rivals? João Castro Neves: Sure. Well, I think a couple of things are happening in CSD. And to be quite honest, we're really harvesting some of the things we have seeded during the last 2, 3 years. I think we mentioned that while we learned a lot from the packed price in CSD through beer, we also have learned a lot from beer into CSD on flavor innovation and innovation as a whole. So we launched it in the first quarter of last year, 5 important CSDs in terms of the 1 liter returnable, of course, in the pack price. The 237 was a big push in the last 18 to 24 months, now being one of the most important SKUs that we have. So we have a very profitable single-serve packs here, which gives you greater net revenues per hectoliter growth, more than compensating let's say, for the eventual potentially last on the not just pack there under 1 liter, which gives you greater share position. Combined with that, I mentioned the citrus flavor, the energy drink, also a new package for Gatorade, that combo and coupling the CSD programs, many times, working better with the beer programs from an execution standpoint, give us a much better situation at the marketplace against our competitors, be it their main competitor, but I think also the other brands. I think Coke had, had a lot of success in the past taking share over from the big brands. That's also happening now also for Ambev. So this quarter, I think, is the first time we're able to show this great combination of volume and price on a very strong manner now that they had not shown that before. And I think also, the market is feeling the pressure from the tax increase that will come later on the year and I think the whole market is protecting the profitability going forward, either for 2012, but I think this will certainly have an impact on 2013 and beyond, which from a profitability standpoint, I think is good news. Not that I like the tax increase but I think will force the market to adjust in terms of its pricing strategy.

Next question is José Yordán, Deutsche Bank. José J. Yordán - Deutsche Bank AG, Research Division: I wanted to ask about Argentina because you're saying in the release that the soft drink industry was also down. But it's not really borne out by the numbers, because I'm sure as you look at the Coca-Cola, other results out of Argentina have been much better than what's happening in the beer. And so if you can help me understand what's happening there, it sounds like you're gaining share in Argentina soft drinks -- sorry, like you're losing share in Argentina soft drinks and you're also gaining share in beer, because if you saw from the CCU numbers, even when you exclude their lack of shipments of Budweiser to Paraguay, their volumes are -- were still down about 7% and it sounds like, even though we don't have the disclosure, it sounds like your Argentina volumes were not down anywhere near that 7%. So any color on Argentina would help? João Castro Neves: Sure. José, this is João. You are right. I mean, this is -- as you know, let me first tell you a small disclaimer that you know, but I think it's always good to remind people from time to time. The news and coverage numbers that we use for our -- for any country, most of the countries where we are. It's new semi, not in some countries, it's CCR. In the other countries, that are not -- that are -- a few others, providers when using is not in place. Their coverage goes anywhere from 55% to 75%, sometimes increasing, sometimes decreasing. And in the markets where we have our competition numbers open to the manner we have, when we feel there is a big discrepancy, of course, we go back to them, to try to understand, and you are right. This quarter is a quarter on, in some cases, there's a big discrepancy, especially in Argentina, when you look beer as against our main competitor and also soft drinks when you include [indiscernible]. But to be quite honest, that's also true for soft drinks Brazil, where also there was a big discrepancy where our share, you shown us flat but we are growing more than our main competitor, okay? If we look at the difference between Argentina and Ambev, it's, when you say CSD volume, and not total volume, because you always have this small discrepancy when sometimes people are adding flavored water or not. It's not that big. It's a 7.6% against a 6.5%. If you want to win, you look on a region by regional basis because Argentina has one region. In fact, it has another region, so you are right. There are discrepancies, but I think the direction is the right one, which means our commercial strategy in Argentina, in any Chilean [ph] beer working very well. I mean, you're seeing our results for the quarter or for the year doing both very well from a market standpoint. And in CSD, after a few quarters where we had a let's say, a tougher comparison. Although it's also tough in this quarter, I think the launch of Twister during the last year, as well as strength in some of the things we're doing with Paso de los Toros and H2OH!, we're now getting very close from a volume perspective against our competitors. So we -- I feel that we are on the right track despite we're not satisfied at all with the let's say, the EBITDA results of the quarter. We feel that we will have a good year from a Latin America South perspective, and this quarter does not reflect what we hope for the year on an EBITDA basis. Volume is -- it is where it is. We will recover the profitability, but we are pretty confident on the share front, both in beer and in soft drinks going forward. José J. Yordán - Deutsche Bank AG, Research Division: And if I can just follow up real quick. You sound like into the third quarter and the July numbers do not appear to be either stabilizing or getting a little better or less negative than what happened in the second quarter. Is that right, directionally? Is that statement correct or no? João Castro Neves: No, no. I don't think I said that. I think what I think is -- I think what I tried to portray was more our -- in another manner, talking along this year, on this balance between volume and price for Brazil, coming from a certain macro condition, I think the macro conditions of Argentina and the other countries, in Latin American South are slightly different, not totally but slightly different from Brazil. What I was trying to convey, we also use our market position to have the right balance, also between volume and end price. I think what's good in the United, in the specifically is, the very strong market share position we have conquered in the last few quarters, which again, gives us a better base from which to take decisions on the third and the fourth.

Your next question is from Pedro Leduc, JPMorgan. Pedro Leduc - JP Morgan Chase & Co, Research Division: This is Pedro Leduc representing Alan Alanis, who came from JPMorgan. And our question is specifically regarding the 17% total SG&A rise seen in Beer Brazil, which is basically almost twice as fast at the top line growth base. And you do mention that it's related to bonus payments and increased distribution expenses. But could you please elaborate a little more on each of these 2 drivers and then, as well as provide us some guidance of what we should see here for this line for the remaining of the year? Nelson José Jamel: Sure. Pedro, this is Nelson here. So as we try to let you know in our release, and I'll try to give some more Column B, but the first points, the important point we highlight that we had a very tough comp ice in Q2 2011, our SG&A, actually it was down versus 2010. While for the full year last year, it grew mid-single digits. So it was really a tough comp. And the many facts for this was the timing of bonus accruals and reported also in the release last year that, that was the main reason. But we also had, to start with, we also had some incremental sales in marketing expenses at high-single digit growth in the quarter to support our commercial initiative, and that was particularly the case for CSD in this quarter, and not really for beer. It was just because they also grew double-digit, and that was impacted in first place, by volume growth, a higher rate of direct distribution, some increase of wages, primarily because truck drivers and helpers, our linkage to minimum wage, which grew 14% this year. We also comment on that in the beginning of the year in the first quarter results announcement. And as well as to a certain extent, product shipping costs that from one end are benefiting. For now, we're improving footprint, particularly in the northeast and north regions, but on the other side are impacted by the rollout of our innovations such as Budweiser, which we opened to major cities throughout the country but it's still produced in one single location and mainly our returnable glass bottles, 200 milliliter, with an important let's say, commercial initiative for this year, which at this stage is only produced in 3 plants. But by year-end, we're going to have another 4 plants, so in total 7 plants with this product being produced. So that's your whiz in a way will just cost you with, throughout the year as implement our CapEx plan. So in a nutshell let's say, with logistic costs growth getting smaller whizzing in connection to CapEx spend and also considering a more normalized bonus accrual let's say, for the year to go, overall SG&A growth in the second half should for sure, help with the different stronger EBITDA performance. I think that's the view there.

The next question is from Lauren Torres, HSBC.

You already touched upon this, I think, on several occasions, but the whole idea of getting this more balanced top line growth this year, I was just curious, obviously, you'll hit that target relative to what you did last year, but when you made that comment in earlier this year, and I guess I'm focusing on Brazil, did you expect volume growth to potentially pace faster than it has looking for more of a recovery than we've seen or did you just take more pricing opportunities, which impacted volume because they were there to take? João Castro Neves: Lauren, if I understood correctly your question, you were asking, compared to what we said in the beginning of the year, you were expecting more volume than price, is that what you're -- was that the question?

Well, I was just wondering if you were initially guiding to more balanced volume and pricing growth, as far as getting them more even, rather than more heavily weighted to pricing growth? João Castro Neves: Yes, okay. Well, right now, I mean, more of a coincidence, but if you look at the combination of the Brazil and to Brazilian business, when the year-to-date is like a 4.4% growth in price and a 4.4% growth in volume. So this sounds pretty balanced, right? I think what we are trying to say is that when we said the balance, a more balanced approach than last year in the beginning of the year, we were not considering the sort of tax increase that was announced later in May, right? So with the announcement of the tax increase and our desire to protect our profitability, we have changed it again slightly on the pricing front, right, by saying, in line to at least, this, I think shows somewhat of a balance, which will be still more balanced than last year, but with some more color on the pricing side and on the volume in order to pass on the tax increase to price. I mean, it's a subtle thing, but a very important question and very important to understand what I'm trying to convey. So far, it was very balanced. Tax increase was announced in May from now until the end of the year. Pricing will take a somewhat more important role than it did in the first half.

Sure. So can I infer from that, that the consumer in Brazil, as far as what you were expecting, as far as firming up from what we saw last year, is on track? And those types of growth rates, just coming from the consumer environment, is improving? João Castro Neves: Yes, no doubt. I think when we look at our volumes in both beer and soft drinks, it's true. I think when we look more now in terms of what people expect in terms of consensus of GDP growth, there is an acceleration expected for the third quarter. And especially for the fourth quarter, I think the difference from other consumer goods is that our fourth quarter will be impacted -- will be positively impacted for this GDP growth that will most certainly come in the fourth quarter, but will be negatively impacted by the tax, our price increase given that and therefore, it's somewhat tow in volume.

The next question is from Alex Robarts, Citi.

The question relates really to this focus on the north and northeast and clearly, the volume growth in the region for both beer and soft drinks, having outsized impact on the overall volume growth in the country. You talk about that growth being 3x the national average. I just wanted to get a sense there. I mean, is that a kind of 3x certain pockets of the region? Or is it really for the north and northeast region as a whole? But really, more specifically, are we looking at kind of stable, this level of outsized growth, is it stable? Is it decelerating? João Castro Neves: No, no. It is high, Alex. This is João. Thanks for the question. I mean, when I look today at our decision a few years back to focus on that region of the country, I think it was a very good one because we changed our footprint. We did new launches. We're getting closer to consumer. And when we mean 3x, it's really 3x. I mean, it's -- if the country's growing 3, it's growing 9. I mean, it's as simple as that. It's happening for both beer and soft drinks and it's happening in both the near and in the north, okay? So a good thing, we were there in the market several times this year and we continue to be the market being firm and a lot of potential going forward. We continue to be happy with the decision and happy with the volume results on a quarter-by-quarter basis.

Okay, okay. No, I mean, the second part of that question was just, so with this growth outlook, do you feel that the production footprint is right-sized, kind of with the kind of 12-month, 18-month view? And as we think about this region vis-a-vis, the profitability in the country, I guess, is it fair for us to assume that probably because of the low-density population or maybe lower pricing, that the margin from this beverage business in this part of the country is lower than your national average, but that, that gap is narrowing, and at some point, it gets too close to the national level? I mean, how should we think about this region as it becomes more of a meaningful impact on your kind of national profitability level? That would be great to hear your comments on that. João Castro Neves: Sure. Well, I think there's 2 sides to the question. I start with the first one. In the last 2.5 years, the CapEx investment was "disproportional" to the nano. So let's say that nano is -- I'm just going to give numerical examples, they're not exact numbers, okay. But let's say if nano was 18% or 20% of our volumes, the CapEx that we did in the -- the last one I hear was 35, okay so we almost doubled the participation on the CapEx investment in relation to what is the current volume because we didn't have the right footprint, and of course, because this is growing 3x faster than the rest of the region at one point in time, which we're getting closer to as we speak. We will not need to expand 2x the percentage of the CapEx in that region. We're not there yet, so we still have some disproportion, going forward will not be as disproportional as it was in the past. So if this was 35 in the last 2.5 years, probably next year, it would be 26, 27. And then maybe 1 or 2 years down the road, this would go to the average of the rest of the country. So that's the first part of the question. Still some to do, but a lot has been done already, which is, I think is good news because it gives us flexibility and also means that we're getting closer to our footprint, and it is today. Of course, when you launch a new product, as you do, for your new premium brands, you may want to do more footprint capacity also, to be able to respond to those. But for whatever we have today, we're getting closer. From a profitability, let's say EBITDA standpoint, it changes. There are times -- well, first of all, let me say, first of all, it's not significantly different, although it's different but it's not significantly. And from time to time, this gap has been closing, okay? So the gap was wider back in 2009. It is less today. And therefore at some point in time, it could get closer. But I think here, it's good to have the option to balance, because sometimes you may want to have a profitability that could be, from a per hectoliter standpoint, slightly lower but more than compensated from the volumes standpoint, which gives a much greater absolute EBITDA growth. So that's the balance also that we keep an eye between the per hectoliter basis but also on the total, not to be making the wrong decisions. And so far, I think we've been making the right decisions, and results are showing that.

The next question is from Gustavo Oliveira, UBS.

I have 2 questions. The first one, in the India [ph] call, you mentioned that you already have 500 pit stop stores. I'm mentioning the most important supermarket chains and hypermarket chains in the country. Could you please give an idea of -- at what stage of your rollout you are in the stores? And also, what is the incremental contribution that you're seeing in these stores that you're adding the pit stop stores to your total sales in that store? And if you already have a view on the project, why this is -- the returnability is increasing and substantially in these pit stop stores? Or whether you're having a negative impact in the higher inventory that you usually have to carry because of that? That's the first question. João Castro Neves: Okay. Gustavo, a very good question. And of course, you asked a lot of a competitor's sensitive information that we'll be not able to give it out. But I mean, the number of pit stops are increasing every month. We're actually very happy with the results and that's why we keep increasing. I think we are probably 25% of where we can get, in terms of number of stores covered by that. So it's a long way to go, very positive results from volume growth picking up, returnables growing. So I would say very positive overall. That's why we continue to be working very hard. It's a reality already. It's not the pilot anymore because I mean, if you're growing 500 stores. So it's a matter of really implementation and executing, accelerating the speed because I mean, the results are very positive. You mentioned you had a second question?

The second question is related a lot about the bonus accrual and how was the impact that actually, they're having in the quarter. You mentioned that the logistics costs, they went up. There was a double-digit growth in the quarter. I was trying to understand, when we project the numbers for the second half or the bonus accrual, we're actually going to be below average to compensate for the probably above average accrual in the first half that's more -- I think, I did the question then, the magnitude of the impact in the second quarter and whether the normalization would be actually below the average in the second half? Nelson José Jamel: Gustavo, it's Nelson here. I mean, regarding bonus accrual, it's a function of how it performs versus our own targets, our budgets. And so it may have quite a different range in terms of accruals on a quarter-by-quarter basis, even for the full year, depending on how we finish the year. And as you know, a SKU forward is a very important one. So many times it makes a difference in terms of how it performs versus our budget. But I think the key takeaway for you is that if you think of let's say, additive costs, it should grow single digits, right? I mean, there is no reason that you start off inflation environment and all the productivity and efficiency initiatives we had in place. I mean, we shouldn't see a double-digit item in cost growth. So that's more or less say, on controlled expense. And regarding our logistics, that's the one that's really growing double digits but should get better as we get to the second semester based on the CapEx investments we are doing and also will depend on volume multiple. It's like we're the strong correlation, the stronger sort of volume, the struggle will be, it's just a mixed logistics and also some of the commercial expense we have. So at this stage, let's say, bonus, we should have a lower accrual in the second semester, all the rest equal. But again, it also depends on how we achieve, how we perform the solid targets. And logistically, it's not the only important one here that you had to look at and should get better.

The next question is from Gabriel Lima, Barclays.

Just initially, I want to confirm what something John said under opening remarks. Cost per hectoliter going to the second half should increase year-on-year but still below inflation for the full year, is that correct? Nelson José Jamel: Yes, Gabriel. This is Nelson. Yes, that's correct. I mean, we are keeping our guidance that for the full year, we're going to have COGS in Brazil for both beer and soft drinks below inflation. Q2 was our best quarter, for instance, in terms of our currency hedge. When you compare year-over-year. That was the major upsize we will get for most of the commodities. It was also the best quarter, so especially soft drinks, as you may have noticed. So in the end of the day, we should have COGS positive growing above what we saw in Q2, but if you have in the year below inflation as we guided since the beginning of the year.

Okay, okay, that's clear enough. And just a follow-up, you guys talked about government incentives and going to the second half. So I just wanted to better understand how you expect your specific consumer are responding to those incentives, mainly in write-offs, the consumer leverage that your main peers, consumer peers have been recently mentioned? And also, if you could touch a little bit on weather conditions, at least here into the southeast. There has been a very warm weather, so just wanted to understand if you're seeing this sort of country and if you're benefiting to that, in light also the economic conditions in there? João Castro Neves: Okay. The reason for mentioning a good customer environment that it varies, of course, from industry to industry. But if you think that we have pretty much the same pricing conditions of last year, volume is strongly much better. So that's one of the ways we look into to look at distributor. But to answer or how or to say this. Weather, to be quite honest, has been very volatile. I mean, we have had some great weeks that look wetter but down the week after, it's so-so. So I mean pretty much on average in terms of weather. If we look at the second quarter, in particular, temperature was 0.5 degrees higher on average but rain was 3% higher. So almost like compensating the other. But it hasn't been bad, but it hasn't been specifically great. So it's been more on the neutral side. Therefore, not being to talk so much to explain either a spike or a slow down.

Good. Just a quick one, effective tax rate, do you have a guidance for the full year? Nelson José Jamel: Look, I mean I do have a specific guidance right? I mean, what we consistently have is an effective tax rate that is lower in, of course, then the corporate tax rate, given the benefits from which is on capital, gross amortization and all the rest. I mean, the outlook we think is going to be slightly below like last year's rates, which was 2.4. Although again, we may fair enough quarterly base, we had an easy comp in Q1. This one was a little bit tougher. But for the balance of this shall be in line or slightly better than last year, no major surprise there.

Our final question will be from Alexandre Miguel from Itau. Alexandre Miguel - Itaú Corretora de Valores S.A., Research Division: Just 2 quick questions, I just wanted to get more color on your strategy to keep, on soft drinks, to keep the profitability or share heading towards the end of the year, given that you'll probably have a disadvantage in terms of impact on the taxation. So if you plan really to past roll the prices and keep margins or maybe use beer to get back some of the margins lost in the soft drinks, how we think about your strategy for soft drinks in this, given the recurring scenario of potential high taxes? João Castro Neves: Okay. I mean, our idea and approach is straightforward for both beer and soft drinks. Our idea is, once it's certain, the tax increase, I mean, which we're considering certain, but are working to try to revert some of that, showing that we don't think this is the best win-win approach for both the industry and the government. Of course, in any projection, we're assuming what is in there is what's going to happen. Our idea, as we mention is to pass on the tax increase to prices for both beer and soft drinks. Of course in beer, we are the leader and so our decision is taken. In soft drinks, we are not, so our idea is to do that. And we will do that but, of course, as the market leader, if we read somewhat later, if we don't see that happening, we may have to change. But our idea for both business is definitely to pass tax into the prices. Alexandre Miguel - Itaú Corretora de Valores S.A., Research Division: Okay. And just a follow-up on the beer related to the same subject. Do you plan maybe, to start increasing prices gradually before or maybe similar to what some players are doing in the soft drinks markets for beers since you are the leader? Or are you still waiting for October? João Castro Neves: So I don't know if you are referring to comments in other conference calls from some of the soft drinks players, but I think when you look year-to-date, both businesses have had not so different price increase. So I actually I don't see much difference between the 2 right now and we're not planning to do anything right now in advance. Alexandre Miguel - Itaú Corretora de Valores S.A., Research Division: Okay, perfect. Final question on Argentina. Are you anyhow concerned about the effects controls or how it has impacted so far? Anything in your operations, maybe condition of raw materials, or maybe pay back of dividends, if you're concerned of this side effect to your operations so far? João Castro Neves: Yes. I think, Miguel, well, this question is obviously concerning, has been following the developments closely, right? I mean, today, to have not experienced any material impact on our day-to-day operations. If we were, I mean, as a result of tax and effects regulation control, we have a very low level of imports. And actually, we are a net exporter in Argentina, so given our multi-facilities in the country, we'd export most towards the countries in South America, mainly Brazil. The biggest challenge indeed has been to obtain from a bottom line approval to repatriate funds by a dividend. This has become increasingly more difficult in recent months but at this stage, so far, we haven't had major issues of debt.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Nelson Jamel for any closing remarks. Nelson José Jamel: Okay. Thank you, all, for joining to this call and I look forward to speaking to you guys again on October 31 to talk about our results for the second semester. Thank you very much. Bye-bye.

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