Ambev S.A. (ABEV) Q3 2012 Earnings Report, Transcript and Summary

Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's Third 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 Q3 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 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, and good afternoon to all. Thank you for attending our 2012 third quarter earnings results call. As usual, I'll kick things off by giving you an overview of our results for the third quarter and then João will discuss in more details the performance of each of our business units. And to close, I will be back with a summary of our financial figures before we go to Q&A. So let's get going. Our consolidated EBITDA performance improved considerably in the third quarter, jumping 19.2% organically to a little over BRL 2.8 billion. Consolidated EBITDA margin expanded 170 basis points, arriving at 47.3%. Looking at each of our divisions. We delivered 23.1% EBITDA growth in Brazil with 220 basis points of EBITDA margin expansion, which is 51.2% in the quarter, and net revenues were up 17.8%, with volume growth of 0.2%. In LAS, we were back to double-digit EBITDA growth despite volume decline of 2.3%, delivering 20.9% of organic EBITDA improvement and EBITDA margin expansion of 70 basis points. Net revenue grew 18.7% in the region. Canada also witnessed an industry driven decline in volumes, 0.9% organic to be precise, but still managed to deliver positive EBITDA for the quarter, growing 0.2% with an EBITDA margin of 47 -- 45.7%. And finally, HILA-ex continued on its steady path of growing EBITDA and contributed BRL 66.8 million to our overall EBITDA performance. Normalized profit for the quarter reached over BRL 2.5 billion. João, over to you. João Castro Neves: Thanks, Nelson, and good morning, and good afternoon everyone. Third quarter was a challenging and exciting quarter at the same time. Challenging because some of the headwinds we have seen throughout this year, such as tax and sluggish economy in some of the countries we operate. In a way, they remain -- continue in the same manner. But it was also an exciting quarter, because our team showed resilience, perseverance and disciplined execution, and therefore found ways to deliver in what I would characterize an outstanding result by leveraging an optimal price mix strategy capable of translating into positive EBITDA results. Let's dive right into each of our business units beginning with Beer Brazil, which had an EBITDA growth of 22%, which since 2009 is second only to the fourth quarter last year when we benefited from the easy comparison related to imported cans. Beer Brazil bottles were up 0.2% and market share was down sequentially around 30 basis points, averaging 68.5% for the quarter, which means industry grew by about 1.8%. We believe these results are mostly to do with our decision to time our price increases differently than past practice. As we mentioned in our press release, a substantial portion of our increase in price to retail actually ended up happening in the third quarter, which was much sooner than last year and obviously had a favorable impact on our net revenues performance, which grew 18.5%. Since the Brazilian federal government announced on the eve of the excise tax increase to postpone part of such increase to April 2013, we have already announced certain price reductions to capture a lower-tax growth as the intent all along was to pass through to consumers whatever incremental taxes there may be. For the quarter was not just about oil price. This result would not have been possible without the strength of our liquid and packaging mix and the successful implementation of our main commercial strategies. First, innovation volume continues to expand considerably and still represent more than 10% of our volumes, led by Skol 360 and Antarctica Sub Zero, which keep delivering a larger area of consumers, different functional and emotional benefits, while adding more flexibility to our price strategy around the country. Second, since early 2011, the accelerated growth of our premium volume has proven to be an important source for improving our price mix. And in the third quarter, it was no different. Our premium brands grow volumes more than 19%, led by Budweiser, which celebrated its one year anniversary since we launched it in Rio and São Paulo last year. And we believe that since then we are building a solid foundation for Budweiser to become the leading international premium brand in the country. In terms of distribution, for instance, Budweiser has been sold since the beginning of the year in major cities throughout the country where its numeric distribution has doubled since then. From a consumer standpoint, the brand has steadily increased its level of awareness and preference among Brazilian consumers, great results so far. But we think even greater times are coming. Third, in North and Northeast, we focused on excluding our commercial strategy behind increasing Brahma with consumers in the region by leveraging our soccer platform with initiatives such as launching decorated cans of 9 local soccer teams in the region. Growing Brahma is key for us to continue closing our market share gaps in the region, which is what we have managed to accomplish year-to-date and in the past 2 years. The other highlight for the region was definitely the arrival of the 300-millimeter returnable glass bottle and the start-up of 2 packaging lines for such presentation in 2 of our northeastern breweries, which bring us to our fourth top commercial strategy, returnables. The main driver behind our returnable bottle performance in the quarter was our push behind reintroducing returnable glass bottles into the off-premise channel, with the 1 litter and 300-milliliter returnable glass bottles being placed either outside supermarkets in the greater number of pit stops we have been operating or making them -- or making their way inside key accounts or small formats supermarkets. Through September, over 50% of key account stores in the region where the 300 ml bottle has been launched and were already working with said presentation, which is a remarkable improvement. When we consider that in the beginning of this year, this figure was below 5%. And as this strategy gains ground, the more we improve our pricing flexibility. And most important of all, the more we deliver to consumers new and more affordable pack sizes for different needs and occasions. Turning now to cost. Our COGS per hectoliter was up 12.8%, hit by higher barley and aluminum, higher depreciation of our industrial assets, and negative packaging mix, given the greater rate of one weekend in the quarter. Year-to-date though, COGS per hectoliter is up only 5.2%. As for expenses, SG&A rose 20.5% mainly as a consequence of higher accruals for variable compensation as compared to last year, part of which is explained by a tough comparison, giving low bonus accruals in the third quarter of 2011. Commercial spend and distribution cost also grew but at the lower rate. Growth in our sales and marketing spend is consistent with our plan for the year, whereas our incremental production capacity for such presentations had a favorable impact on distribution cost. All in all, for Brazil Beer, we deliver normalized EBITDA growth of 22% and EBITDA margin expansion by 150 basis points, giving us 50 basis points of expansion for the year. Moving on now to Brazil carbonated soft drinks and non-alcoholic noncarbonated drinks, which had a second outstanding quarter this year and delivered the strongest performance in at least the last 4 years. Volume grew 0.4% and market share was down 40 basis point, because in addition to the impact from pricing, as already mentioned in my comments on Brazil Beer, we're also up against a very tough comparison volume and market share-wise due to the Pepsi 2 for the Price of 1 promotion carry out in September of last year. In any event, year-to-date, our market share remains flat at the record level set in 2011. Our 3-pronged commercial strategy built around first, reinforcing our presence in the single serve; second, pack price for multi-serve; and third, expanding ways of returnable packaging, continue to show consistent improvements in the quarter. On the brand side, Guaraná Antarctica volume and share growth is explained among other things by the arrival of 1 liter returnable glass bottle to the Northeast, with a packaging line that went live in our new Pernambuco facility. Distribution cover for this presentation more than doubled since January. Similarly, Fusion energy drink also benefited from a significant increasing penetration since the beginning of the year. Finally, CSD&NANC also received a helping hand from [indiscernible] our lemon, orange and grape flavor soft drinks, which deliver great results, thanks to the success of execution of our promotion for these 3 brands during the quarter in many parts of the country. In terms of pricing, net revenues per hectoliter improved 13.9%, thanks to the timing of our price increase, which followed a similar trend of what we saw in beer and also increase weight of direct distribution. As for cost of goods sold, we saw a rise in our numbers as anticipated in our second quarter call. COGS per hectoliter grew 9.3% because they face a tough comparison against Q3 2011, which enjoyed a 2.4% decline versus third quarter 2010 because of currency gains in favor of sugar hedges at that time. Net-net, COGS per hectoliter has grown 4.9% for the year so far. SG&A grew much less than the second quarter, but was still up by 18.8% with general inflation, higher direct distribution and higher variable compensation accrual being the main factors as was the case in beer. As a result, EBITDA for Brazil carbonated soft drinks and Non-alcoholic noncarbonated drinks increased 28.8%, while EBITDA margin expands 570 basis points, which translated to an EBITDA margin expansion of 200 basis points for the year. Though there is still much to be done this year and beyond, I would really like to stress that so far, it has been a truly great year for this division, combining the maintenance of our record market share levels of 2011 with a much better price and EBITDA performance. Let's now move on to our international operations, starting with HILA-ex division. Normalized EBITDA totaled BRL 66.8 million with an EBITDA margin of 16.7%, which has an enormous improvement, thanks mostly to the consolidation of Cervecería Nacional Dominicana's results, but is still below the levels of our other business units. Therefore, we believe there's still plenty of room for growing that business in a profitable manner. By the way, a quick update on the integration. In the quarter, we already began capturing synergies through initiatives, such as the integration of direct distribution centers and the sales team; implementation of CVB and leveraging on the [indiscernible] for CND procurement efforts. On the revenue side, we have been very disciplined so as to achieve a better profitability overall while maintaining or enhancing the brand health indicators of our local jewels like Presidente, which is among the best beer brands we have ever had in our portfolio. Latin American South. Total volumes were 2.3% with beer volumes remaining flat and CSD volumes decline by 5.9% This volume performance results mainly from the Argentinean environment, which has yet to improve. And from a fiscal comparison on the CSD&NANC side given different time of promotion activities year-over-year. Nevertheless, thanks to our strong market share performance in most markets and our pricing initiatives across the region, we're able to deliver net revenues per hectoliter growth of 21.5% overall, 19.9% in beer and 22.9% in CSD&NANC. On the brand side, Stella Artois in our recent innovation launch, give us [indiscernible] night. But in CSD&NANC, we are pleased to see H2OH! Limonetto perform extremely well. COGS and SG&A for the region grew 13.8% and 23.2%, respectively, mainly impacted by the inflationary pressures in Argentina. Despite this sustaining cost pressure, Latin American South EBITDA grew 20.9%, with gross margin of 220 basis points and EBITDA margin expansion of 70 basis points. Wrapping up with Canada, where Labatt volume declined by 0.9%, largely driven by a weaker industry. According to our estimates, the Canadian beer industry declined by 1.2% versus third quarter 2011, mainly driven by poorer weather across the country. Meanwhile, net revenue per hectoliter increased by 1%. Our innovation have continued to deliver strong results and help us offset historical seasonality in the market share during the summer, which has been stable in the quarter and has been gravitating around 40.7% for quite some time now. Also Bud Light which continues to show market share growth in Brazil that is evolving very positively. COGS per hectoliter increased by 1.2% due to higher commodity cost as well as shift in mix towards one weekends. SG&A, on the other hand, decreased by 5.2% largely due to the timing of marketing investments in previous quarter, as we mentioned earlier this year. The net result was an increase of EBITDA of 0.2%, while a flat EBITDA margin of 45.7%. Before handing back the call to Nelson, I'd like to briefly provide an update on our expectations for the full year results following our third quarter performance as we approach the critical months of November and December. Our expectations for volumes and cost of goods sold per hectoliter growth for the year in Brazil have not changed. Accordingly, beer volumes in Brazil should resume growth, with a better balance between volume and price as compared to last year, while COGS per hectoliter should grow below inflation. Net revenue per hectoliter, however, improved significantly in the third quarter, which has caused us to update our guidance for the year to high-single-digit growth, which is in line with what we have delivered in the first 9 months of 2012. As far as skeptics is concerned, we have reiterated our commitment of investing up to BRL 2.5 billion in Brazil for the year. We believe that the changes promoted by the Brazilian Federal Government, in connection with the excise tax increase, creates a better environment for investment close to this level. So to finish off, some of you may remember that on the second quarter call, I said we had done our homework since June and that it was time to execute. Well, our third quarter results show off that we are off to a good start, but there's still a lot of hard work to be done if we want to deliver a strong finish for the year. That's the goal we have before us and that our team, myself included, will pursue as we're determined as ever. Nelson, over to you. Nelson José Jamel: Thank you, João. I will now cover the main items between the normalized EBIT of more than BRL 3.3 billion and profit of little over BRL 2.5 billion as set forth on Page 3 of our release. Net finance results were amounted to BRL 144 million, which is BRL 38 million worse than the third quarter of last year. The main cause behind this change was the noncash accretion expense of approximately BRL 63 million in connection with the put option associated with our investment in the Dominican Republic. The effective tax rate for the quarter reduced to 15.2% as a consequence of higher tax benefits, such as interest on capital and other tax adjustments that help to offset a higher taxable basis generated by higher EBITDA performance. Through September 30, the effective tax rate was 17.3% versus the 21.8% of last year and for the full year, we expect to be between 20% and 22% before a lower effective tax rate than what we had last year. Finally, we ended up the quarter with a net cash position of approximately BRL 2.1 billion, which does not yet account for additional dividends and now you'll see [indiscernible] of roughly BRL 1.7 billion, which took place as from October 15. Approximately BRL 5.5 billion have been distributed to shareholders to date as dividends and IOC. So that's it, and Maureen, could you now remind us about the procedures for Q&A, so that we can take some questions, please?

[Operator Instructions] Our first question is Alan Alanis from JPMorgan. Alan Alanis - JP Morgan Chase & Co, Research Division: The question I have is regarding the SG&A growth is 20% that we have during the quarter. How much -- I know you clarify that a lot of it is accrual for variable compensation, but could you give us a bit more color regarding how much of this increase in SG&A is, a, regarding higher direct distribution on one side, and, b, more regarding your initiatives such as Nosso Bar, the pit stops and the micro events? And if you could also give us some color in terms of how much of these initiatives, 3 last initiatives, can be expenses that are more discretionary in the sense that he can come in and out any given quarter depending on numerous factors? Or how much we should use in our model a more this new kind of level of SG&A going forward? That would be the question. Nelson José Jamel: Okay, Alan. Well, thank you. This is Nelson. I'll start mentioning, of course, about SG&A. You already touched on the key elements of the 20% growth we had this quarter, which was the variable compensation accrual and kind of a tough comp so if we look at this growth more than half of it was driven by variable compensation, so that's what's the main element. But every time we talk about SG&A and figures on our longer term like you -- that point in your question, I think if you go back and I kind of refer to that equation that you talked about, which is we normally should see SG&A growing pretty much in line. If you place 1 or 2 points depending how fast we move direct distribution and also impact of the volume growth, let's say, between 30% or 40% of our volume growth, it will, in a way or another, affect our commercial and affect our SG&A. So that's even with this new initiative that we have in place such as Nosso Bar, pit stops and micro events, I'd say the question is not going to change fundamentally. Even because part of the investment associated these new initiatives is CapEx-related, more SG&A. So unlike the micro events, media events we buy, they are -- we have CapEx around that and not SG&A. But again, back to the equation, we always also said that you never be bound by the algorithm given -- I mean, if we have good ideas or if we want to invest behind the new initiatives, we are going to do it, right? So that's, in a way, what happened this year. So I'm not going to give you algorithm because of different elements that are affecting our SG&A. So in a nutshell, we will talk about the different factors in Q1, Q2 and now in Q3, but I think it's fair to say that this year, if one would apply the algorithm we should get go to something like a high-single-digit performance for 2012. And remember, that last year, our SG&A grew only 3% to 4%. So we have a tough comp for this year. But again, if you proceed to the algorithm instead of the high-single-digit, let's say, between 8 and 9 if you're combining inflation plus volume-driven impact and also direct distribution, you're going to be beyond that, and that's going to be pretty much as a consequence of, first of all, increased sales and marketing investments especially to support the sort of a price increase that we have taken. So we're putting the marketplace a real price growth, and a lot of this has to do with the excise tax too but again, we have to make sure we give proper support to our brands given this extra price we put. Also, distribution cost, they are going to be higher than what the algorithm would describe, and that's because of the direct distribution but mainly because we started to accelerate some of the innovation rollout and primarily 300-milliliter glass bottle as we had mentioned in previous quarters. And we have also some incremental variable compensation accruals if you compare versus last year. So I think maybe, the number to think of is, we are going to grow for the year definitely less than what we have grown year-to-date, which was in Brazil around 16%, but more than the high single that the algorithm would imply. So we're going to be somewhere between these 2 numbers as a consequence of the things I just described. Alan Alanis - JP Morgan Chase & Co, Research Division: No, that's very useful and makes sense given the record high gross margins these last 12-months that you have and it seems that the timing is right. If I may ask a quick follow-up just regarding, if you could give some comments regarding market share both in beer and soft drinks in Brazil going forward. What are your expectations in terms of market share? That would be all. João Castro Neves: Alan, this is João. As you have seen in the past few years, I mean if we take 2009, 2010, we grew more than 5 points from low to high and an average around 2.6 getting above 71%. We have said in the past that we always would like to be between 67%, 69% but of course if we can go above that on a profitable manner, of course, why not. We are around 68.5% so we are, let's say, well above still the 67% to 69%. I think the commercial or, let's say, the economic pressure, be it economy or be it taxes, they are on everyone. Therefore , I think, we can consider to fluctuate within this band of 67% to 69% looking for the optimal price mix strategy. So that's sort of an outlook if we think about share. I mean of course, we always like to reach what we call our scenario 3, which is grow our EBITDA within what we want, growing share or otherwise, looking for the best balance possible. I think for soft drinks, it's not different in the sense that in the past, we were fluctuating between 17% and 18%. We have finally broken getting to a point in time last year above 19% in a specific quarter. Therefore, I mean, we actually have been gaining share for more than 18 months, which sort of plateaued in this quarter. But I see potential for going somewhat further. So if we were to have some sort of range, which never talked about the thinking that we could be between 17% and 19%, which means above our historical trends, I would consider to be possible as where we are year-to-date and much better share or in line with last year but much better than historical, which the best result in the last 3 years. So that sort of what I would be looking at or targeting for the foreseeable future.

Our next question is from Lore Serra, Morgan Stanley.

João, I wonder if I could ask about a little bit pricing in the quarter. And you explaining in the press release that some of it was because of the timing of the price increases, but I wonder if you could just give us a sense of kind of as you enter the fourth quarter, 2 things. As you enter the fourth quarter and you're up against a year ago when had a price increase and maybe you've rolled back a few things. How much are the consumer level prices do you think up year-on-year in the fourth quarter? And then the second question is, traditionally you break prices and there's been a catch-up in terms of VAT and margins in the system. How quickly do you expect that to catch up? And then I guess -- maybe there's 3 questions here. Big price increase, how do you feel about can the consumer take it, Antarctica is growing, which traditionally has been lower price. I don't know if that's saying the consumer is a little bit resisting your volumes or aren't strong but it's a big price increase. So maybe I should have led with this question but consumer competition, how is it taking the pricing? João Castro Neves: All right. So I think I've got 3 or 4 questions within the same one. I'll see if I can tackle them all. I think first from a mathematical standpoint, I think what we said is what you call in the reported money, the HSD, the high-single digit. We are up around 9% for the year, and we said HSD or high-single digits for the year. So I think from there, you'll pretty much can get there we're going to be in the fourth quarter. I mean, there's so much mathematic information in there to be able to forecast what fourth quarter we expect. But I think, as you said, the more important part to it is how consumers are reacting to it. I think twofold. I think we view good both in terms of the short term, as well as the medium or long term. I mean on short term is what we're facing as we are talking to you. And I think a little bit more towards 2013, we have good impression about everything that is happening in the Brazilian market economic environment in terms of the pick-up that we're starting to see in the fourth quarter. And we also think that most of the things that the Brazilian Federal Government is doing, all the measures to stimulate the economy, that they should help the economy on 2013. Minimum wage will not be as strong as this year, but will be a real growth of 2.7%, which is still quite a bit, so bringing more money into the economy. The Brazil major plan with a lot of infrastructure projects, as well as the reduction of interest rates. I think the combination of all those things, with the Confederation Cup in 2013 and the World Cup in 2014, give us room to be sort of exercising the options towards this optimal price mix growth. Of course, if we need, we have gone up a little bit. We can always roll prices back down, which we haven't felt the need yet. I mean, if we feel so, we will do that. I think there are other things that we don't talk a lot about, but probably are also helping our outlook going forward on top of the consumer environment risks, which is a positive right now, positive going forward. But also when we look at substitutes, important to mention that the SICOBE or the control system for beverages, then for the Brazilian government for beer, soft drinks, now is also fully implemented in what the government believes is where it should be for the cachaca, for spirits, so they are already catching like 80% and when you look at so other alcoholic substitutes, price have gone up, way above inflation and above what beer has done, because I mean they feel the pressure of having the tax controls in place, which is also a pro for us. And the additional controls that we believe, the states were also put in place so in case there are any other tax opportunities, whether potentially some evasion that is going on, we think the controls will be get tighter and tighter, as we move on in the next 2 to 3 years, and this will also make a big difference for us.

And what about the issue of kind of how much of the rest of the chain will adjust to the price increase you've had? Will it be on a shorter timetable than it's been in the past? Nelson José Jamel: Yes, I think because the increasing taxes are impacting all the players at the same time, on a "heavy manner." And everyone is also facing, these are the same cost pressures, or even greater than what we view. Our impressions from the public available information, suggest that some of them have already taken pricing as well, maybe on a faster speed than the average. But I prefer not to further speculate on what other competitors are doing.

No, I'm sorry I'm talking about VAT and sort of retailer margins, things like that, adjusting to the price increase? Nelson José Jamel: Every time you move the price, actually the first thing that happens, usually on a very short term, you gain some margin, okay? So that's not being very different. But I think the difference, this time around, from all stakeholders or other competitors, retailers, anyone, this has been sort of announced 4 months ago. So because it was announced 4 months ago, I think everyone was ready to the October 1 date. Therefore, pretty much you saw a lot of stakeholders acting upon it right away. I'm talking everyone, but when you ask about VAT. VAT hasn't really changed a lot. I mean, they have their sort of, whether yearly, quarterly, semester, depending on the state-by-state calendar, that has -- doesn't change a lot on a year-on-year basis. So VAT continues to move in the same manner that it has moved in the past. So this actual movement has not made any significant change on VAT. The only difference that it will read with the expected calendar, the price increases as we move forward. There's always a delay, which is sort of a positive if you think about it.

Our next question is from Bob Ford, Merrill Lynch.

I was hoping that you might be able to discuss the initial pricing, the market response and the availability of the 300 mL presentation, not just in the Northeast but in the trade as a whole, please? João Castro Neves: Bob, thanks. I think, first, regarding the initial reaction's a little bit along the lines of Lore's question. So I think from -- I think, actually -- I think what I was trying to convey is that the response was positive, given that we saw what we just said, most stakeholders moving along and the consumer sentiment, it's a positive one given that as I guess it was announced from different analysts, I mean, everybody was expecting the economy to pick up in the fourth quarter. We see that happening. So I actually think that we are sort of lucky that a price increase is coming at the best moment from a GDP pick up.

João, excuse me, João. I wasn't talking about the price increases. My understanding is that you're putting in a 300 mL presentation at a substantially lower price, right? So I'm talking about the initial pricing of your 300 mL, which I think is a very... João Castro Neves: I understood your question. I was going to get there, because when you understand the overall price strategy, the 300 mL has a very important part to it, which is -- you are -- we are able, as we've been able, actually, more and more, in the past 4 years to have sort of a price increase. But continue to have affordable presentations to consumer. So with that, shoots a little bit our price strategy. I think the 300 mL has already grown a lot this year, but we expected a lot of growth in 2013, in 2014 and in 2015. I think we will not reach up a plateau for the 300 mL before the end of 2014. I mean, we'll probably be doubling it, more than doubling it, for next year and probably another significant growth in 2014 and then should start to stabilize after that. It continues to be a very important strategy for us, because it allows us to have a better pricing umbrella, but at the end have an affordable presentation for consumers. We have new lines, of course, I mean, we continue to have a lot of new lines. Many of them, as planned, coming in the fourth quarter. And we already have rollout for other regions depending where it is in 2013 and some more in 2014. So still a lot to be done, already helping us a lot. As I mentioned, in the beginning of the speech, being very well accepted, we are totally focusing it on the off trade, on the pit stock or the small formats and we are still far away from the sort of coverage that we deem appropriate for it.

João, where are you putting it in price relative to a competitor's can or kind of the mainstream can like you said Brahma, Kaiser and Nova Schin? João Castro Neves: Okay. I mean, it will depend on -- it's slightly different from market to market. I mean we try to price to perfection in different regions, okay? But I think the beauty to it is, in some place we continue to have -- when we promote over special occasions, be holidays or be together with the key account chains, we can have the liquid for BRL 0.99 and with the bottle at BRL 1.49. So if you take -- even when taking at BRL 1.49, it's competitive against cans of the competitors. And when we take [indiscernible], totally competitive. So introducing it into the market, I would say that in many places we're still introducing it, because I mean, consumers are buying. We're selling many times basket, so that people can take home. There are other areas where you can see it at BRL 1.19 and then with the BRL 0.50 for the bottle at BRL 1.69, but net-net, we consider it to be very competitive and as every other project that, I think, Alan mentioned the beginning, not so bad, big stuff the micro events. They all have very strong, very, very strong NPV positive project and it's not margin dilutive because of the returnability. Even at those price points, the penny on the can you're against has an even better margin per hectoliter.

Our next question is Gustavo Oliveira, UBS.

I have a question. I would like to understand a little bit your strategy, or your understanding on why you need the price reductions now in the fourth quarter? Is it something tactical just to recover a little bit of a share loss from competitors are not falling? And I understand from your response in some of your previous questions is that, perhaps, you don't need to do that across the board. It's going to be more like on some tactical regions or perhaps in some channels? I'd like a little bit more color on what's the strategy in the short term and how you would implement it, whether you're going to be some real price reductions or are you going to go by more with like some sort of promotions? João Castro Neves: Gustavo, so I guess, first, to put in perspective, the commercial pricing strategy continues to be the same, which is price, price to consumer, in line with inflation plus any new tax increase. So that continues to be in place. So when we understand that and we have prepared all of our prices for pass-through of the full [ph] and given that -- part of it was rolled back, we wanted to give a part of it back. But of course, as we implement it, we implement in a very surgical manner. So there are places, areas, cities, brands, so the rollout is a smart rollout. It's where we need -- pushing the brand or the package, or the combination of brand, pack and region, where we deem appropriate. So you'll find some places, actions with the liter, [ph] so what we call the 400 mL for free. In some areas, you are seeing some actions on the one way. So there is not one single silver bullet. I think there's a smart way to roll back, some that we didn't expect that will come sort of. You know, it came in at the last minute. So that combination is a smart way to give back part of what we -- what was given back and in line with our strategy of putting prices in line with inflation plus the tax increase.

When -- still a follow-up on that same question. When you think then about the first quarter, because then you're going to have the price increases again -- the tax increases in April, would you have to reverse it in the short term to a point that would be a little bit confusing to your channels? Or is it something that is manageable, or you won't have to raise prices again in the first quarter? Just to understand the short-term dynamics a little bit better. João Castro Neves: I think it's too early to again, to the details of 2013. I think if I was to refer back to some of the things I said, I think, we continue to have more pricing flexibility than we had in the past, either giving the pack price strategy and the different brand strategy that we have. Now combined also with the SOCIBE being implemented for different beverages. So net-net, I feel that we are entering 2013 in a better pricing environment than we saw in the beginning of the last 2 years.

Okay. I have then 2 more like -- a little bit of just some data-driven questions. If you could give an idea of your effective tax rate for 2013? And the last question would be also in terms of your tax increases in soft drinks. If there is any room for negotiations with the government and for a process similar to what you achieved in the beer industry? And if you achieve that, if there is room even for that to be retroactively to the fourth, the beginning of the fourth quarter? Nelson José Jamel: Okay, Gustavo this is Nelson. I'll just first tackle the effective tax rate. We had quite a good quarter in that, and -- but we know that it's tricky to look at effective tax rates on a quarterly basis. First off on a yearly basis, I think it's easy to understand the drivers there. So in -- perhaps what we just said and then we should expect to be busy between 20% and 22%, so that's going to be below last year's level. We are not giving any guidance for 2013 yet, but it's reasonable to assume, we always referred to this is that, as our bonus before taxes grew and all the tax initiatives we have are pretty much flattish, it's reasonable to assume that over time, this growth is marginally taxed, at the nominal corporate tax rate is around 32%, 33% for Ambev as a whole. So the trend is also of a slight increase over time. The good news is that this year is going to be the lowest year. But again, I'm not giving any specific guidance for 2013. We prefer to stick to that -- to the short term at this stage, Okay.

Okay. Nelson José Jamel: And sorry, João is going to take the second part of your question. João Castro Neves: Gustavo, regarding soft drinks, and I mean, of course, we are positive towards the constructive dialogue that we have had with the Federal Government. I mean, since both [indiscernible] has been created and since [indiscernible] has been working closely with [indiscernible] the both associations to which we are part of, in beer and in soft drinks, I think we've been able to try to get closer to an optimal balance between tax collection, volume growth and, of course, to help creation and CapEx investment. The decree that was first published on May 30 has been already renewed 2 times. I think you have to remember that the first time around that was republished, affected positively the soft drinks industry. The second was the beer. And we continue to be at the table with the government trying to find even a better balance than -- we are in a better balance than we were given both reviews of the decree. We think there is room to continue this dialogue and try to show the government that other things can be done. I don't think -- we're not going to see anything that's going to be retroactive, but I do see the possibility of a better environment than the one that we have right now for soft drinks.

Our next question is Alex Robarts from Citi.

Just want to go back to the price environment in Brazil Beer. I mean clearly, the rate hike, the magnitude of the increase in prices and the stickiness are kind of the critical issues here going forward. And I'm still not getting the sense and I appreciate this is a little bit strategic for you guys, but somehow I'm getting the sense to the extent that we've seen your competition kind of lag or fall immediately and -- if you could kind of give us a sense of -- did these guys, did your main competitors in Brazil Beer move as you expected that they would, kind of faster or slower? Any type of color would be very helpful to understand this. And I guess, just the second thing is really on Argentina. I appreciate the industry, you're still not where you'd like it to be. You talked about kind of hitting all-time record beer market share last quarter with the industry declining kind of mid-to-single digits. Can you tell us, sequentially, how has that Argentine beer industry fared versus 2Q? And the final thing is just a quick one on the Dominican Republic. You talked about $190 million, I'm sorry, dollars, right, in EBITDA from the May 2012 to May 2013. Is that kind of a number that you're still comfortable with? João Castro Neves: Right, Alex. Thanks for the question. I think starting from the end, we are committed to, at least, beat the $190 million. I mean, we're working hard towards that goal. So a lot has been going on. We have many projects, most of them have been -- I mean, all of them have started, some of them have already finalized. We have a very close follow-up, the team that is running it's a very, very senior one. And we're actually very happy with the way things are progressing in the Dominican Republic, and Central America, overall. So point number one. Point number two, I think in Argentina, we have one of our strongest franchise, a very good team with a lot of experience in the beer business, but also in the macro Argentinean environment, and I feel that we are ready for whatever situation that may come, whether it's pickup, whether it's a slow deceleration or even a faster deceleration, I think we're ready for it. One of the ways to show that, along your question is, what's happened to the market share? So we have any in this tough environment than with some strong pricing increase, we continue to beat our -- not just our share targets but results of the previous year, whether in the quarter or whether in the year-to-date. So that's also very positive despite a slow growth to declining industry. So of course, the outlook is not great but combination of a strong team, strong brands and a lot of experience facing that type of macroeconomic environment I think that we're ready for any of the 3 scenarios, maintaining stable, picking up or decelerating. Regarding Brazil, as we said, I mean tough to speculate on what other companies are doing. But important to remember, this has been announced 4 months ago, the increase in tax impact all the players. Actually, in some case, would impact our competitors even slightly more than it does for us, on average. Everyone is facing the new dollar level, which impacts, of course, the variable costs. But I mean, the public information suggests that some of them have been taking pricing. So that's positive news and the ones that have the disclosed information to the market have been talking about the same thing. So I mean that's as far as I can go.

Our next question is Felipe Cruz, Itau BBA. Felipe Cruz - Itaú Corretora de Valores S.A., Research Division: I have 2 questions. The first one would be if you could give us a breakdown, out of the price growth here in Brazil, how much comes from higher list price, distribution, packaging, mix and premium and these other improvements in average prices? And the second one, if you could give more detail on how much premium brands accounts for your current sales mix, you say that it is growing by 19% year-to-date? And how that has been evolving in the last years and how do you expect it to evolve in the next couple of years? João Castro Neves: Felipe, I mean, I see that -- given the first one, of course, we don't broke them down in a lot of details, but in terms of direction, it's bigger in part form from pricing, of course. And second, but a distant second, is premium, which we've been saying that we were at around 4%, about a year ago, and saying that we thought we could double in 3 or 4 years. It has been moving up very fast. We're already at around 5.9%, so that's very positive. So that's also helping. So that's, I think, the second lever. And the third lever, but also distant to the premium, is with our distribution. So that's sort of the direction. Pricing, big time. Second, distant, is premium, but growing fast in terms of our mix, and then third, direct distribution. What was exactly the second part of your question? Felipe Cruz - Itaú Corretora de Valores S.A., Research Division: No, you already answered the second part, is this 4% a year ago of premium brands accounting for your sales mix and a 5.9% right now. And do you still expect it to go to 8% in next 2 to 3 years or do you expect given that is it's growing in a faster pace than you expected to be a little bit above this 8% that you expected previously? João Castro Neves: It's too early to tell. I think, rather keep the good news growing close to 20%. A lot should be done. I think as we improve also our route to market, the more we get closer to what we think is the optimal route to market, I think better news regarding that route will come, and if we feel we should be talking about the greater number, then doubling from 4% to 8% in 3 or 4 years, we will update you on that.

Our next question is Lauren Torres, HSBC.

I understand you're not or not ready or timely to talk about 2013 yet. But you've always talked about this goal or target for more balanced volume and pricing growth in Brazil. And I was just curious off of any visibility that you have now with respect to how the consumer is trending, GDP growth, you mentioned the minimum wage, if you can get back to this mid-single-digit volume growth? And with that said, knowing any visibility that you have now on commodities or the excise tax increase next year, will pricing have to be above that? Meaning that you won't issue that more balanced of volume pricing the 2013? And like I said, very general comments is what I'm asking about. Nelson José Jamel: Okay, Lauren, it's Nelson here. Let me start on the outlook focus. As you know, we're going to come back to this precise guidance for next year. We think is a little bit too early to provide specific numbers around it but, of course, as our hedging policies, probably can know by all of you, I mean having had this put forward on that rolling 12-month basis, because we assume for next year, we're going to have, of course, a negative impact from currency given the real devaluation is on the course of 2012. But on the other hand, I think, the good part is that an important amount of it will be mitigated by lower commodity costs. So we're not ready to commit or to give any specific guidance. But the rationale is we have -- we're going to see this sort of impact. I think regarding top line, I think very useful to know that we have a write off line by the government become the less version of the decree increases over time, over 6 years, right, in which we're not going to have any big impact in any single year. It's going to have an escalation of the so-called multiplier in a way that it will not going to face any major real increase in any given year. It will be more -- movements, so rather than what we saw for it in the first version of the decree, so also this gives us, ourselves some confidence that we'll be able to manage price without having to take any bigger price increase or any big real growth price increases as part of our strategy already mentioned by João. João Castro Neves: Yes, I mean, I think Nelson covered most of it and I think consumer environment getting better. Our mix, from a supply standpoint, getting better. We're also working on a better route to market to deliver all this sort of new and added complexity. I mean we already in the third or fourth year, so I think we've been getting better, year-on-year. When I look at this, I mean DLC coming down, although there are a lot more innovation, continues to be the same sort of learning from our own whether lessons or mistakes or -- therefore, overall positive and if I were to summarize, I mean, we have a lot of new commercial initiatives that we quickly mentioned here, Nosso Bar, Pit Stop, micro events. I think all those things are also thought of not just for the returnable presentation growth but also to bring people more and more to the on-premise market, which is the type of situation that Brazilian consumers like. We will work very hard to make their experience, at the point of sale, even a better one, per [indiscernible] or much more fun with the micro event. I think this, as we look towards 2013, 2014, the event that is going to happen in Brazil, is I think I going to be a very good one. They will get very well along and then hope to get that even better consumer environment than the one we're already seeing.

Great. Now that's helpful. And if I could also ask on your CapEx spend. You obviously didn't have to pull back on that as a result of any tax changes. So just curious, year-to-date, how you're trending, where the spend is going, if it's sufficiently covering your plans and, I don't know, if looking forward, there's more room to increase that number? João Castro Neves: Yes, sure, I mean we maintain our CapEx. There's nothing to do with any concession or anything. I mean it's just we continue to need the added capacity given the -- whether 300 mL, even the 1 liter returnable because everywhere we launch, it's a super big hit and we have only entry plans so there's a lot to be done. So we still have a lot of very good ideas and the level of CapEx investment that we mentioned for the year seems to be the right one for the year. And in due time, we'll talk about whatever the next level for next year.

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: Thank you. Thank you, Maureen, and thank you, everybody for attending the call. I think it was a good opportunity to discuss with you, guys not only our year-to-date results and the great results we've had in this quarter our strong expectations for the year end closing and also for the future. So I'll look forward to speaking with you guys again next year. Thank you. Bye-bye.

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