Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's Second Quarter 2013 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 everyone 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 the 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 2012 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, sir. Nelson José Jamel: Thank you, Mike. Good day to all and thanks for attending our 2013 second quarter earnings conference call. I will kick off with…

[Operator Instructions] The first question we have comes from Fernando Ferreira of Bank of America Merrill Lynch.

I had a question regarding the price to consumer, right? It seems to be a very important initiative for you guys in Beer Brazil and it seems a little overlooked. At this quarter, we saw CPI for beer decelerating marginally in Brazil while you were still able to grow revenues per hectoliter. So I just like to understand how advanced you are in this strategy, how has been the response and the adherence to this strategy and how important it is. And just -- and then I had a follow-up regarding the SG&A guidance that you have. Aren't you concerned that the market slowdown in the second half can impact your sales volumes for the year? João Mauricio Giffoni de Castro Neves: Fernando, this is João. Of course, I think, as you mentioned in your question, it's a very important point and maybe the one that make us really motivated for the second half. I think being able to deliver pretty much the same growth despite at the same level for hectoliter with a much better volume is what makes us believe that the plan has worked well for the second quarter. I mean, much better situation to have a 10%, let's say, "10% and a basically flat volume," comparing with the 8% and a minus 8%, right? So that combination, much better price is taking -- volume is taking share. It's taking. And with the positive momentum, so even better if you want build a case, which give us even more room to maneuver. So I feel very confident that everything that we laid out in terms of pack price, smart promotions to bring back our consumer, let's say, to not just to the franchise, but also to the overall market, are yielding very good results. Then we enter…

Perfect. João and Jamel, if I may, just a follow-up on what you commented, João, regarding your confidence for the second half. Can you share with us some high-level comments on what you saw in July? João Mauricio Giffoni de Castro Neves: Yes, I mean, what I was trying to imply, I mean, we never give the full disclosures that we are seeing a positive -- definitely a positive trend, okay, during July. We continue to see a gradual improvement in line with our expectation for the year. And it's good, both in beer and soft drinks.

Next, we have Gustavo Oliveira of UBS.

I want to understand a bit better the initiatives on the soft drinks side, because, clearly, the initiatives for the Confederations Cup in the beer side of the business generated very positive results, and you mentioned the 300,000 incremental hectoliters. What would have been and how you judge the success of the initiatives in the soft drink side of the business? What would have been the volume without the spending and investments in sales and marketing investments in the quarter? João Mauricio Giffoni de Castro Neves: Okay, Gustavo. I mean, very good question. I mean, of course, the low point of the second quarter was CSD. If you look at the net revenue on Brazil Beer for the first quarter, it was basically 0, okay? So beer went from 0 to 9%, okay? If you look at soft drinks, it went from 6.5% to 5%. So okay, it was a decline. But let's say, it's a much closer situation than the 0 to 9% that you find here. So most of the trouble that you had in soft drinks came below that. You had a top line that was somewhat close where you have cost that got worse. And then you have an SG&A that got much worse, okay? In the cost side, it was the toughest comp of the year. We were also impacted by the higher currency hedges. We continued to have an impact for the October 2002 tax change. And as for the SG&A, the main impact was the phasing of sales and marketing in Guaraná, it's also a sponsor of the Brazilian national soccer team, and we decide to make full use of it. And on top of that, [indiscernible] one that came through to visit [ph] the market that we had that it's the biggest…

I understand it very clear. Just one quick follow-up on the same subject. I remember that you launched the Guaraná returnable bottle, the 1-liter returnable bottle, like a few years back. And do you think that you also need to roll it out to deploy the same package to the Pepsi brand? And it's something that would help you in the overall result or your... João Mauricio Giffoni de Castro Neves: Yes, we -- yes, it's a very good question. I mean, we've been looking at this not for a while. We wanted to do first with Guaraná because it was the right thing to do, to start that to the first one [ph], we started with 1 plant, went for a second plant, went now for the third plant. There are 2 regions of Brazil, mainly, that we would consider, but it's one of the possibilities either for the remainder of the year or for 2014. It's neither ruled out or approved. It's something in the pipeline that when we think we have the right economics for it, we'll consider to go ahead.

The next question we have comes from Lauren Torres of HSBC.

My question relates to your commodity and currency hedges. As we know, in the quarter, the commodity hedges were a tailwind, while the currencies were a headwind. And I guess you did mention that the currency headwind will continue in the second half. So I was hoping if you just could provide some more color about the impact of those things, and how we should think about the impact on the second half. Nelson José Jamel: Sure, Lauren, Nelson here. I think you already touched on pretty much what is happening, right? I mean, of course, we have a very tough impacts from currency, which was already fully reflecting in Q2, and that should continue to be the case for the coming quarters. While in terms of commodities, we didn't have a tailwind in Q1. We already had it in Q2, but it's going to get better for most of the commodities. So if you think of sugar, for instance, which, in this quarter, was still -- definitely, it was up -- positive to our costs in soft drinks for the coming quarters. It will not become much better. So that's why, at a certain point in time -- I think João already referred to the fact that we had the toughest comp in soft drinks this quarter, this Q2. The same when you look into aluminum, which was already a positive in Q2. It's going to get even better in Q2 -- in Q3, sorry, and further better down the road in Q4. So we will start to see this upside from commodity getting better quarter-for-quarter, while, if you will, the currency hedge negative impact is about fully priced in Q2.

Okay, that's helpful. And if I could also ask, I know you don't give explicit margin guidance, but as you mentioned that you expect your EBITDA to improve, but we've seen margins decline in the first half. Do you mean that we'll just see less of a decline in the second half? I know you're cycling some tougher comps, I guess, on the margin front, so should we expect margins still to be down for the year? João Mauricio Giffoni de Castro Neves: I think, as you said, I don't give specific guidance for the year. But if you add the business, right, I mean, for instance, SG&A, we already, I mean, made it clear that what happened year-to-date on the -- which drove margin contraction so far is not going to be the case for the second half because it's expected end of the year in line with inflation. So I would say we had the big impact of SG&A in the first semester regarding the SG&A, which is not going to be the case for the remainder of the year, so then it's a matter of, I mean making your overall forecast around. And also in terms of COGS, as I'm going to start to face some positive or even more positive impact from commodity hedges for the coming quarters, that we will also, in a way, prove our gross margin. So the key question is, how much of a volume impact we're going to have for the year? The better or the bigger it is, if you look at our full year guidance, from flattish to a low single-digit decline, of course, the closer we get to the flattish, the better will be our margin. So it's a matter of adding the pieces, but with few comps that either second semester, we're going to have a better EBITDA growth, if you will, than what we had so far in the year.

Next, we have José Yordán of Deutsche Bank. José J. Yordán - Deutsche Bank AG, Research Division: I just had a question about a comment that Brito made in the ABI conference call. He mentioned that, obviously, very upbeat about the Modelo acquisition, et cetera, and mentioned that the Corona brand could be in Brazil very soon or pretty soon. I forgot how he phrased it. But he didn't elaborate on that. But I was under the impression that because you guys are already have Stella and Bud, it's not clear when and how Corona will enter the portfolio there. So any -- has there been a change of plan there? I would love to hear any updates. And then just a follow-up to the hedging question because -- I mean, you've known your hedge for this year for a while, but as you build the hedges for next year, are we looking into another repeat of the revenue per hectoliter -- sorry, the COGS per hectoliter growth in Brazil in double digits or will it be somewhere south of that? And any sort of ideas you could give us there would be great, as well. João Mauricio Giffoni de Castro Neves: I'll start with the premium portion. I would start by saying that I've never been as excited about the premium as I am today, right? I think we came along way, both from a marketing standpoint and also from a sales standpoint. I mean we spent the previous years developing a lot in the mainstream and so we have a much stronger franchise in the mainstream. And then we had the time to go from mainstream, and not mainstream or premium, but mainstream and premium. So now we have the mainstream solid with the lot of options in…

Next, we have Lore Serra of Morgan Stanley.

I wanted to ask a little bit, a bit about kind of the revenue trends in the first quarter. You mentioned a bunch of things on mix. But I guess, given your comment on cans in the supermarket channel, I'm guessing that means that, on balance, your one way mix grew in the quarter and toward the off-premise channel. So I know it's tricky to compare quarters because of all the data, but what was the offset that gave you the better revenue per hectoliter in the second quarter sequentially if you were having more 1 liter, more 300 ml, more cans, which were all lower presentations? Is it premium? Is it topping our pricing? Is there something else? And then just thinking about, in general, about the upcoming, sort of, timing for pricing -- I know you can't comment on specifics, I'm sure, but same, any kind of color you can give us in terms of how you're thinking about the environment, sort of, looking into that sort of September, October time line? That would be really helpful. João Mauricio Giffoni de Castro Neves: Lore, this is João, I guess very important question for a few reasons. I think, first, the Confederations Cup, as the World Cup will be, the country a little bit goes through like a period like carnival. A lot of people in the streets, a lot of celebration and it's carnival, as the Confederations Cup was, is a moment of the year. It's skewed towards disposable packages, as the can is. So in events or in stadiums or in different situations like that, that happens. So there is a higher mix much more related to that sort of situation than as of a trend. Of course, that helps the matrix per hectoliter, okay? And it's…

Okay. And any thoughts on, kind of, the environment for pricing as you head into the second half of the year? João Mauricio Giffoni de Castro Neves: Sure. I mean that's also quite important. We feel after what happened in the second quarter -- and I mentioned at the beginning, we had the 8 [ph] on price [indiscernible] and now the 10 [ph] on price with a 0 volume and a good start of July, and with a much better momentum -- or a very good momentum in terms of market share. We go into the third and fourth quarter feeling good about it. Pricing is peaking, volume is peaking, share is peaking. The pressure that is out there in terms of FX, commodities, [indiscernible], is for everybody. So let me help explain. You cannot speculate in what competitors do or don't do, but we entered the first half from a pricing environment feeling much better than we were just a couple of months ago. And not just that. We feel much better overall, because as we said, we'll finish the year. And therefore, start 2012 on a much leaner structure with the right structure, not just to deliver the guidance on the SG&A on the second half but entering with a very good structure wise on 2014 with the right footprint, because, I mean, we're going to be with a great capacity footprint and ready for our volume, a much better volume situation in 2014, with greener portfolio, much stronger, and the promise our brand and a very good situation as the last report that we did with 1,000 consumers. So I think it's very good situation going to the second half. And if we do the right thing as we plan to do also from a cost structure base, I think we'll finish the year on a high note and start with the right foot on 2014.

Okay. And then last question, we saw again a big increase in that other operating income in the quarter and I -- do you thinking those are mostly tax incentives? But I think in the first quarter, you said there were going to -- there were some onetime stuff in there, but it seems to have kept up at the same level in the second quarter. So I just like to understand better exactly what's driving that? What's the sort of stability of the numbers? And then also just in terms of reaching your internal goals, I mean it's really giving you a lot of tailwind, right? I mean when you think about the goals for the organization in terms of growth for the year or for employees, is this something that's part of the equation? Because I would think that in a way, you could be -- you could think about something that is not really related to operations, per se, or what a place can control. We need a direction, whether it's there or not. So I'd love to understand how you're thinking about that line. João Mauricio Giffoni de Castro Neves: Sure. I think there might be a sort of a misunderstanding of this, Lore. Maybe we haven't spent enough time explaining this. But this is a totally operational -- total operation. I mean this is totally related to volume and investments, right? I mean if I have no volume growth, there is no government grants. It will be 0. There is no investment. There's no government grants. So the greater the capacity, the greater the volume, the greater the grants, right? So I mean this is -- those are contracts that will last and have a time span for the next 8 to [indiscernible], right? This has existed now for many, many years, and we have increased that steadily, right? I think that what you see in terms of difference is that you had easy comps on Q1 and Q2. But if you think about the absolute level, the number was like 272 in the first quarter, 241, for example, Brazil Beer in the second half. I mean that's the sort of level that should consume [ph]. I mean, because it's totally operational and totally related with the investments that we have made in the Northeast. And the investments that were already announced and disclosed for South and Southeast, such as the [indiscernible] plant in Paraná. So maybe there's some sort of segment. Totally operational, has been here forever and ever. But the overall number has increased because capacity is greater, investments are greater, and maybe the number became a bit -- a bigger one. Totally related with the ongoing negotiations with the government and totally part of the EBITDA in the target, particularly since the third quarter last year, this has maybe shown a gap bigger then and maybe caught the attention of you.

Well, right. Well, it's not proportional to volume, right? Because it was up 80% and the volumes weren't. So what we're seeing is the current run rate of around 300 a quarter, I guess I'm looking at Latin America North, that's the right run rate, kind of, on a quarterly basis? João Mauricio Giffoni de Castro Neves: Yes, that's right. I think it's more important to look at the absolute figure than the percentage increase. That's why I was referring to 370 x million [ph], 240 x million [ph]. Even if you look at Brazil overall, it's 327 [ph], 304 [ph]. So I mean, the overall number, I think, is a good reference and not necessarily the growth, because the growth depending on the comps that you have, can add on this a little bit. Nelson José Jamel: Yes. I think here, regarding the comps, Lore, if you look into our quarterly results last year, already as of Q3, we started to see an important growth in this line. And this is not by coincidence, because we had the unprecedented CapEx in the previous years, particularly the [indiscernible], I think, is a good example in which in the course of 2012, we saw the volume ramping up, investment was made. I mean, it's a big investment we did. So as João said, we're stuck at operational, we can do better than volume. So our volume started to grow in the Northeast. We started to see an increase, of course, accelerated with big win fields [ph] in the second quarter of last year -- for the second half of last year and, therefore, we're going to have real tougher comps in the following quarters because it's going to -- it was already there in Q3 and Q4 in a way last year. João Mauricio Giffoni de Castro Neves: It is recurring. There wasn't -- there is [indiscernible] recourse at a one-off gain. Again, the quarter saw it for 8 to 10 years. And as part of our way of doing business in Brazil, I've foreseen the law and hence -- and you're right, we have intensified our CapEx, but this sort of [indiscernible], they exist for ages now.

No, no, I understand it. I'm just trying to understand how to forecast them. So you're saying that we should see them grow there at the sort of right steady state level, but they'll grow over the course of this year as volumes go up; that's how we should think about it. You're sure at the right run rate but [indiscernible]. João Mauricio Giffoni de Castro Neves: [indiscernible] Forecast, I think [indiscernible]. You'll see it was already a bigger contribution from this line. The forecast market [indiscernible] into the second half. We have to look into the [indiscernible].

Next we have Sambuddha Ray of JPMorgan. We will proceed to our next question, which is Alex Robarts of Citi.

And I guess, sorry, I have to go back to this other operating income. That was one of my questions. The other one was on SG&A. So just -- I mean, this operating income, basically, doubles, and that delta, basically, explains your growth in EBITDA in Brazil. And I'm not sure I understood your answer just now. So what you're saying is that, when -- as the volumes increase sequentially in the Northeast, you have a -- you can take these government grants and book them as other operating income. And so what we should be thinking about for third and fourth quarter, if we assume that in the Northeast, sequential volume will increase, that the BRL 300 million that we get will increase in the next quarters. If you could kind of just clarify that, that would be helpful. So that's my first question. João Mauricio Giffoni de Castro Neves: Okay, let me try to address this question. And so to start with, when I look at your -- let's take the second quarter results, right, including this large operating income line. Government grants or this concept [ph], this will -- they are an important amount of the line, but they're not the only components, right? You can see there on the press release. I talked about a BRL 220 million -- BRL 228 million, to be more precise, out of BRL 300 million. So it gets above -- or just around, let's say, 70 or 2/3 of the line. So that's the first remarks. A lot of things also affect our operating income -- or expense. And -- but above it the grant, the point is, as part of the -- as a result of the investment we do particularly in Northeast can also happen in the Southeast…

It's just that line item, right, basically doubles almost, and for the first half of the year, that line item basically explains your whole growth, I mean, in Brazil. João Mauricio Giffoni de Castro Neves: That's why we said, don't look at the percentage growth and think about the overall number for the year, and look about what was the absolute figure for the first quarters. And that will probably help you forecast the year. Nelson José Jamel: Again, since the other operating income line is not only about government grants, it may have some swings on a quarterly basis. And I think we even tried to highlight that [indiscernible] press release in Q1. I mentioned that during the call of last quarter, either one or the other, that half of the growth we had in Q1 was kind of a one-off, right? But the other half was consistent with the growing trends that we -- João just referred to. So I think it's better to look on a full year basis rather than a quarterly, because on a quarterly basis, we have some one-offs, positive or negative, that we always mix up a little bit the analysis. If you can take a longer period of time, it's easier to understand the trend.

No. Fair enough, guys, I can follow-up offline, as well. Just that was definitely a surprise for us, that doubling of that line item. But look, the second question really just on the SG&A. This was a surprise, the spiking, and I guess how you've explained it is that you've got the commercial piece to that in the second quarter, as well as the distribution-related piece. And I guess when I think about it, for the first half in Brazil, you are up 13% in the cash SG&A. To get to the guidance, right, you're basically saying for the full year, you're going to have no growth in the second half, which leads you full year around 6.5%, which is inflated. But so -- I mean, I appreciate the 60-40 breakdown that you gave us earlier in the call. But so is that the right way to think about it? So you kind of going into the second half of the year with this market condition, thinking there will be no growth, right, over your second half last year's SG&A; is that what you're saying? João Mauricio Giffoni de Castro Neves: That's exactly what we are saying, different words but again, that's exactly how we should look at it. And I think it's important to go back to the element that drove the growth so far, right? So as we said, we are in the first half growing 13% in the SG&A total in Brazil. But when you're looking in absolute figures, more than 2/3 of it is sales and marketing, and there is a big phasing component in it, as I previously mentioned. Instead of -- which was the case last year, right? Kind of a half, half, 50-50 allocation between the first half and second half. This year, we said we concentrate in front-load investments to fully leverage and fully benefit from the events coming up, the Confederations Cup, also to earlier in the year launch the products we had in our pipeline for this year. So we're going to have more like a 60-40 rather than a 50-50 in terms of parsing the market allocation between semesters. So this is going to be a big savings for the second semester. And we're also going to work on the overhead parts, right, like we normally do. We already did [indiscernible] structure for the new, let's say, [indiscernible] during the course of Q2, so you can fully benefit from the rightsizing of from, let's say, more coherent structure vis–à–vis the evolution of the business for the remainder of the year. So we're going to fully benefit also on the overhead side from things we did in the course of Q2. But when you put all that into numbers, it boils down to a flattish SG&A the second semester, so that it can deliver the full year guidance.

Got it. And you talked about overhead, you talked about commercial. On the distribution, which you talked about as one of the drivers of the SG&A in the second quarter. Is that -- just to execute your revised plan, is that distribution involved? And I'm talking more about beer not on soft drink. But is that the rollout? Did you increase direct distribution in beer in the quarter? Or was that kind of distribution-related spike in expenses kind of related to this activation kind of initiative that you did? If you could give us some color on that, that would be great, too. João Mauricio Giffoni de Castro Neves: No. For sure, part of the increase in distribution, particularly, was driven by our -- by a higher percentage of direct distribution on our total volume. So that has a positive impact in our net revenue. But there is also a negative impact in SG&A. That's why when you look at the EBITDA level, we control it and, of course, check this accretive growth, which is the case, right.

So 61% in beer; is that where you are now? João Mauricio Giffoni de Castro Neves: No, no. We are not talking about [indiscernible] on a quarterly basis, Alex. But it had been growing marginally. Of course, the biggest increase happened in the previous years, right? But we are today total, in fact, around 65%, but we don't open this on a quarterly basis. We'll just talk about the average full year number.

The next question we have comes from Robert Ottenstein of ISI.

As you look at your distribution and manufacturing footprint, given all the different changes in your geographic emphasis more to the North, Northeast, and the kind of volumes that you are looking to have next year, how close are you to having an optimal distribution footprint with the distribution centers, I think, you put on, and how close are you in terms of having an optimal manufacturing footprint? João Mauricio Giffoni de Castro Neves: Yes. I would say I referred to that a minute ago, Robert, if you want. From a plant standpoint, I would say that we will start off in the best situation ever in terms of plant footprint. Distribution footprint, it's always ongoing and has a smaller impact than the plant footprint, so very close to ideal. Ideal is also somewhat of a moving target but very, very close to it and, as well as in terms of distribution, has a smaller impact. And it's also a moving target, given that you're always increasing direct distribution and, therefore, redesigning the perfect footprint there, too. So very happy with the fact that we're getting there. And therefore, being able to have a smaller impact in terms of variable logistics cost, given that we'll start having returnables everywhere, different size of cans everywhere, more of the premium liquids closer to everywhere, so we start off on a really much better situation when we end this year, beginning the next year. But again, moving target because we have already announced 2 new plants, one that will be ready somewhat in the first half of next year and then the other one towards the beginning of the last year -- or the beginning of the order, which is 2015.

Great. And if I heard you right, it sounds that the competitive activity in Brazil remains rational. You're gaining share. It just sounds like there's not too much discounting from the competition. How would you characterize things in Argentina and Canada on the competitive front? João Mauricio Giffoni de Castro Neves: Yes. You heard me right. I said the total -- all the pressure that we have is the pressure that's not only on us. It was a pressure on the industry, so that's true for Brazil. I would say if much more, that situation is even further than this in Argentina. So -- and it's a tough environment, hits everyone. I would say that we are always -- given our scale in Argentina, we're always much more prepared to face adverse effect in Argentina than in other -- in any other markets. Our strong operation continue to deliver very solid numbers and ready for the situation. And gaining share, which shows now -- for many years now, that's just another way to qualify. I think the final ability to show that scale is helping you and execution is helping you is when you get a combination of price and share, which is the case in Argentina now for many years, many quarters in a row. In terms of Canada, we are seeing -- it's a different market environment, also tough. You have the 70-plus, closer to 80% share. In Argentina, you have the 70; 68 in Brazil; and you have the 40-ish in Canada. Canada, a little bit different because you had a slight decline in terms of share. With the price, pretty good, I mean for the environment. The one in Argentina, we had price and share. While in Brazil, we have price and share. In Canada, for the quarter, you had price but didn't have the share, although, a very small decline. But the industry was tougher, right? You saw the decline of close to 3.4% in Canada, which is a tough market contraction when you look at the last 8 quarters. So that's a -- it's a tougher, the toughest one and when you look back 8 quarters.

At this time, we will go ahead and conclude our question-and-answer session. I will now like to turn the floor back over to Mr. Nelson Jamel for any closing remarks. Sir? Nelson José Jamel: Okay. Mike, thank you, and thanks to everyone for attending today's call, and thanks for your questions. And we speak with you again on October 31, where I'd expect you have enjoyed more of the positive trends and positive results we have seen in Q2. See you there. Bye bye.

And we thank you, sir, and to the rest of the management team, for your time. The conference call is now concluded. We thank you, all, for attending today's presentation. At this time, you may disconnect your lines. Thank you, and have a great day, everyone.