Ambev S.A. (ABEV) Q3 2013 Earnings Report, Transcript and Summary

Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's Third 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 available to the company. They involve both risks and 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 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 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: Thanks, Maureen. Hello, everyone, and thank you for joining our 2013 Third Quarter Earnings Conference Call. I will give an overview of the quarter, João will then walk through our results in Brazil, and I'll return to cover our international operations and financial performance before moving to Q&A. So let's get started. In a nutshell, in the third quarter we managed to deliver improved year-over-year EBITDA performance despite the challenged industry conditions in many markets with operational average in a strong EBITDA margin expansion. Accordingly, after 2.3% of EBITDA growth year-over-year in Q1 from a consolidated basis, 6.8 growth -- 6.8% growth in Q2, in the third quarter we delivered 9.4% EBITDA growth as compared to same period in 2012. Meanwhile, net revenues increased 4% versus Q3 2012 and the quarter was also marked by 250 basis points of EBITDA margin expansion helped by [indiscernible] EBITDA growth year-over-year at a lower pace, cash, SG&A improving considerably and actually declining 0.5% and continued good performance in our operating income line giving us operational leverage in the quarter and for the year-to-date. Such improved performance resulted from better results in each of our divisions as compared to the first half of the year. In Brazil, EBITDA was up 8% with net revenues growing 1.5% in EBITDA margin expenditures, 130 basis points. Latin America South delivered 20.3% of EBITDA growth while net revenue increased 14.8% and EBITDA margin extended 190 basis points. Canada's EBITDA grew 0.6%, while net revenues declined 0.4% with an EBITDA margin expansion of 30 basis points. And as for HILA-ex, it delivered 37.5% EBITDA growth, 7.7% net revenue growth and a 630 basis points of EBITDA margin expansion. João, over to you. João Mauricio Giffoni de Castro Neves: Thanks, Nelson. And good day, everyone. During the second quarter, [indiscernible] mentioned that we were not underestimating the many challenges that lie ahead, but that we remain confident in our people, our brands, our plan and our ability to execute it, as we strive to deliver improved EBITDA performance in the second half of the year. Our third quarter performance shows 2 things. First, there is no question that the industry remains challenging in the short term, particularly in Brazil. And second, despite the third quarter performance, EBITDA growth improved because all other operation indicators were better than the first half of the year. For this to happen, the ability of our team to react quickly and execute the revised plan that we share was decisive once again. Of course, we're not happy with a 5% bottom decline in our Beer Brazil business for the quarter. We continue to follow the market very, very closely and have focused a lot on our commercial initiatives that work best in this type of environment. But in our experience, whenever the volume tailwind is not there, what makes the difference is our management ability to offset volume softness by focusing even more on the remaining levers of the business to still deliver good EBITDA growth. On this front, I think we actually did okay as EBITDA grew more year-over-year as compared to the first half, delivering operational leverage to flat SG&A in a better COGS which will add EBITDA margin strong expression once again. But as you can imagine, in the fourth quarter, we will have to do a better job yet again and I will come back to this later. Another important event during the quarter was the Brazilian federal government decision not to further increase excise tax in 2013. One thing I would like to highlight is that in our view, said decision is perhaps indicative of the federal government openness to finding an alternative path that does not further increase the tax burden of the cold beverage industry while still growing their tax revenues. Though the plan to increase for 2014 remains in place, we believe that the cold beverage industry will continue to work together with the federal government with the intent of creating a scenario that combines greater potential volume for volume growth, greater potential for volume growth, further investments and with less pressure inflation, while still growing tax revenues. So it's a win-win proposition for all. So let's quickly run through the highlights for Brazil. Brazil Beer business delivered EBITDA growth of 7.3% with net revenue per hectoliter of 6% against the toughest comp of the year. While COGS per hectoliter was 8.5%, well below the average of the first half. Cash SG&A declined 0.1%, which is fully consistent with our guidance for the year. As a result, EBITDA margin expanded 330 basis points and reached 54.2 margin. In terms of volume, we estimate that the Brazilian Beer industry declined 4.3% in the quarter. We continue to witness a weak economy in the pressured consumer while weather was not particularly helpful either. On the macro side, though clearly improving, food inflation continues to grow year-over-year ahead of the inflation, while real growth in disposable income continues to increase by less than last year's term. Moreover, during the quarter, we also lacked the volume uplift from the FIFA Confederations Cup. Market share averaged 68% in the quarter which corresponds to a sequential decline of 10 basis points and continues to be well within historical range of 67% to 69%. Year-over-year, our average market share for the quarter was 50 basis points lower than Q3 2012 as we're still facing tough comp. Net revenue per hectoliters remain strong. As I'm sure you will remember that last year we delivered an 18.3% of net revenue per hectoliter in the third quarter. So this was a very difficult comp. However, thanks to a combination of pricing, premium volume still growing well ahead of the industry in the wake of the retribution increasing further, we managed to deliver 6% growth. And despite a tough environment, our commercial initiatives all made progress. Innovation, nearly doubled in volumes again with the 550 aluminum can continuing strong, but also Brahma 0.0, our nonalcoholic line extension for the brand, which was launched in the second quarter, also resonating very well with the consumer and already becoming a very short-term leading alcoholic brand in the marketplace. Premium, which in the quarter got close to 7% of our total mix, mainly thanks to another quarter of growth of Budweiser and Stella Artois. Returnables which continue to enable us to be more competitive and deliver to consumers more affordable presentations, particularly in the off-premise channel thanks to the successful re-introduction of the 1-liter and the 200 -- and now into supermarkets, both large and small formats. North and northeast expansion were we posted another quarter of market share gains, thanks to the accelerated growth of the 300-milliliter returnable glass bottle and our continued focus behind Brahma and the soccer platform. Now let's shift gears to cost and expenses. COGS per hectoliter grew 8.5%, which is well below what we saw in the first half of the year. Our commodity hedges helped offset a greater portion of the headwinds stemming from current hedges, the product mix and the investor depreciation. Cash SG&A, on the other hand, actually declined 0.1%, which was an important accomplishment as we strive to protect the probability of the business while not compromising our commercial strategy for this year and the next. The sources of such improved performance were threefold. First, the nonworking money cost-saving initiatives. As we mentioned during our Q1 call, we quickly adapt our brand for the year, to among other things, make sure we got tougher on the expense side. During the third quarter, we began to see more clear the impact of such initiatives because in the second quarter, savings, we were somewhat overshadowed by the higher level of sales and marketing expense given the FIFA Confederations Cup. Second, commercials spend going up to a lower pace as compared to the first half. Part of the lower growth rate is phasing related given the higher concentration of sales and marketing in the second quarter. However, it is important to emphasize that we did not refrain from investing behind our commercial initiative in brands, quite the contrary. For instance, in terms of innovation, late in the quarter we announced the launch of Skol Beats Extreme, our line extension of Skol Beats, which is part of our plan to further to reunite the market and be more competitive in the [indiscernible] location. And in terms of brand equity, we have continued to focus on growing our share of lights. And in the third quarter, we also launched the Skol design aluminum bottle focused on the young, innovative and aspirational attributes of our brand. We believe that initiatives such as these are important to maintain brand health indicators at a very strong level, which continues to be the case. And third, SG&A also benefited from lower variable compensation accrual as compared to last year. Other operating income delivered another quarter of strong growth, increasing BRL 143 million, stating the long-term tax incentives given the higher level of capital expenditures in recent years continue to help performance considerably. Though, during the quarter that was an additional one off force of impact from gain associated with certain legal proceedings. Let's now turn to Brazil softdrinks and nonalcoholic, noncarbonated drinks. Following a very difficult second quarter, results for the Brazil CSD and NANC bounced back nicely. We delivered an 11.3 EBITDA growth, with EBITDA margin expanding 290 basis points to 53.9%. The top line grew 5.4% with solid net revenue per hectoliters growth of 7.6%, which was more than enough to compensate the 2% volume decline in the quarter. Volumes were still impacted by the same challenging environment as beer. On the commercial side, the pack price strategy, our package innovation and the continuation of our biggest ever brand promotion for Guarana Antarctica continue to deliver great results in terms of volume, market share and brand equity. By the way, it was a very special quarter for Guarana Antarctica's market share, which gives us a good reason to celebrate. During the quarter, Guarana Antarctica hit its all-time high market share of 10% of the total CSD market and it continues to be the clear leader in the guarana flavor category. The brand is as healthy as ever, innovations are working, execution in the marketplace has been extremely consistent, so congrats to the whole team. In terms of COGS, COGS per hectoliter grew 10%. We no longer face the very tough comp of Q2 while sugar hedge got better as expected allowing us to offset a greater portion of the currency hedge headwinds. So for this year, COGS per hectoliters grew 14.1% and we continue to expect high-teens growth for the full year. As for expenses, SG&A declined 14.8% benefiting from our nonworking money-COGS-saving initiatives, phasing of commercial spend and lower variable composition accruals. Before calling Nelson back, I would like to quickly remind everyone of our updated outlook for 2013. And then I will wrap up with a few words. As mentioned in the release, we now believe that volumes for the Brazilian beer industry for the full year should be at the lower end of the flat to low single-digit decline range. Other than that, our guidance for the net revenue per hectoliter, COGS per hectoliter, cash SG&A and CapEx for Brazil in the full year all stand. So to wrap things up. Yes, 2013 is definitely proving to be the toughest year of the last 2 years and volume should remain unpressured in the short term. On the other hand, we believe that our third quarter results are also clear evidence that we are on the right track to deliver the improved EBITDA performance in the second half we are aiming for. We have a lot to look forward to in 2014. But we have not yet turned the page on 2013. There is still one very important chapter to go. The most important one. We have been put to task quarter after quarter this year, so Q4 should be no different. But our teams is certainly ready to face these challenges head-on. Every day will count. As for 2014, we'll be able to share more details during our Q4 and fiscal year 2013 conference call early next year. But that said, we believe that the maintenance of our BRL 3 billion record level of CapEx in Brazil, despite the short volume picture, clearly shows how excited and committed we are about next year. Nelson? Nelson José Jamel: Thank you, João. Results for HILA-ex keep getting better and better. EBITDA included 37.5%, liquid EBITDA margin of 32.2%, which represent an expansion of 630 basis points year-over-year, not to mention the sequential improvement. The top line grew 10.7% with 10.9% net revenue per hectoliter growth, more than offsetting the 0.2% decline in volumes, pressured primarily by a tougher industry in the Dominican Republic. Meanwhile, COGS per hectoliter rose 10.1%, while cash SG&A actually declined 10.5%. There is definitely too much more to be done, but we have seen quarter after quarter that our plan of growth [indiscernible] division. First, in the Dominican Republic, a market of about 3.5 million hectoliters. We continue to capture synergies from the integration of Cervecería Nacional Dominicana and we see a lot of room to keep growing the beer category through innovations and premiumization. Second, the Caribbean Islands comprised of 25 countries, excluding Cuba and Puerto Rico, that combined have a market of nearly 3 million hectoliters, should be an important source of incremental EBITDA going forward as we are still in the very early stage of increasing our presence through Presidente, Corona, Budweiser and Stella Artois. And third, in Guatemala, a market compared in size with the Dominican Republic, we have managed to deliver consistent volume and market share growth, both of which reached new heights during the quarter. In terms of Latin America South and Canada, also delivered improvement performance as compared to the first half. Latin America South, we achieved a 20.3% EBITDA growth in the quarter with an EBITDA margin expansion of 190 bps. Volumes declined 0.3% for the region, mostly impacted by industry. Though volumes in Chile actually grew 0.4%, thanks to an easier comp and good performance in terms of premium, innovation and market share. Net revenue per hectoliter, on the other hand, grew 15.1% overall, 17% in beer and 12.7% in CSD and NANC. As for [indiscernible] expense, COGS and SG&A, excluded depreciation and amortization, grew 13.5% and 7.8%, respectively. Mainly impacted by inflationary pressure in Argentina. In Canada, the business improved organically by 0.6% versus a year ago with EBITDA margin expanding 30 basis points as the 2.2% growth net revenue per hectoliter, and lower COGS per hectoliter growth as compared to the first half of the year, more than offset the industry driven 2.2% of volume decline, while still making the necessary investments behind innovation launch of Bud Light, Bud Light Lime-a-Rita in December and Budweiser Crown in August. Our light portfolio continue to deliver strong results in share volume driven by Bud Light, Michelob Ultra, in innovation in the form of Bud Light Platinum and Bud Lime Lime-a-Rita. Likewise, we have seen both the size of the Budweiser family on the strength of innovation in the third quarter 2013 with the launch of Budweiser Crown. As a result, market share remained in line with the previous quarter at 14.2%, also showing an improvement in trends relative to the first half. Now I would like to move to the main item between the normalized EBIT of 3.6 -- BRL 3.7 billion and profit of about BRL 2.3 billion for the quarter. Net finance results were [indiscernible] BRL 496.1 million. Interest income was high, mainly due to a net cash position in the quarter while our interest expense continued to be impacted by the non-cash accretion expense relating to the [indiscernible] option regarding investment in Cervecería Nacional Dominicana. The most relevant impact, however, came from loss from nonderivative instruments which are only partially offset by growth year-over-year results in terms of losses on derivative instruments. Our effective tax rate totaled 36.7%. We face a very tough comp in the quarter because during third quarter 2012, our effective tax rate had been only 15.2%. In addition, the higher tax expense for the quarter resulted primarily for the fact that we did not make any additional capital payments in the quarter [indiscernible] the impact of a new law tax measure in Argentina in late September which has required us to accrue expenses with respect to a 10% withholding tax on earnings generated by our subsidiaries in the country. Turning to cash flows. Cash generated from operations improved 7.4% in the quarter and reached almost BRL 4.7 billion. Moreover, during the quarter, we invested approximately BRL 1 billion of CapEx and paid approximately BRL 2 billion in dividends in late September. EBITDA as a net cash position of about BRL 2.4 billion to the end of the quarter, which is down from BRL 6.3 billion in December 31. Year-to-date, we have paid out roughly BRL 7.1 billion, which compares to BRL 3.8 billion in September 2012, before a relevant increase in our payouts. Before heading back to the operator for Q&A, a few words on the proposed share plan restructure. On October 30, 2013, Ambev S.A. [indiscernible] CVM, its registration as a public company. As discussed in the past, we will now move to list Ambev S.A. common shares and respectively the assets on the BM&FBovespa and the New York Stock Exchange, which will take place about mid-November. Finally, as we mentioned in our release, the operation and financial information contained herein and discussion today refer to Companhia de Bebidas das Américas, Ambev [indiscernible], Ambev S.A. That said, for full transparency, we have also filed with the CVM and submitted to the SEC Ambev S.A.'s quarterly financial information for the period ended September 30, 2013, where all details, all the operational and financial performance, as well as the balance sheet can be found. This corporate restructure represents a very important step for the company and should create value for shareholders, thanks to improved corporate governance standards, more liquidity for our shares, a steeper [ph], cleaner corporate structure and the greater flexibility to manage our capital structure onwards, all of which remain. Maureen, can you remind everyone to proceed for Q&A, please?

[Operator Instructions] Our first question is Antonio Gonzalez, Credit Suisse. Antonio Gonzalez - Crédit Suisse AG, Research Division: Actually I just have 2 quick questions. First, on the share merger, could you please just confirm for us that the increase in the capital reserve and the capital stock accounts relative, comparing Ambev S.A. versus Ambev affiliates today is roughly the increase -- the combined increase in those accounts is roughly BRL 90 billion? And also, if you can give us any update on the appointment of the 2 independent board members? That's my first question. And then just secondly, very rapidly, is there any color that you can share maybe on the evolution throughout the quarter of volume trends in Beer Brazil? I recall last conference call you mentioned that July started better than the second quarter and then I guess as the quarter progressed, we saw some weakness. So maybe you could just share how the quarter evolved and, obviously, taking into account October data from SICOBE is on the rather weak side. Is there any comment that you can make to reconcile those October numbers from SICOBE with your maintained guidance for full year 2013? I understand there's not a perfect correlation there, but just to hear any update you might have would be really helpful. Nelson José Jamel: Sure, Antonio. This is Nelson. I'll start talking about the service structuring. And then João will take the question on volumes. So as we announced it last quarter, an important milestone for us because the registration confirmation from CVM. And as a result, we expect the company should be listed around mid-November. And after that, there will be a couple of steps that we still have to follow, right? So after the listing, we'll be able to call for the shareholder meeting in which we will going to have the appointment of the independent board members. Later on, we also have the -- we're going to take the steps that we announce with regards to the certification for corporate structure in terms of the retention of a number of companies and all that. So it was an important milestone. It's not over. And in due time, we're going to be able to provide peer guidance [indiscernible] as I said, for the shareholders meeting to discuss with new board members and so on and so forth. Regarding the financial information, as we said, we filed not only companies with [indiscernible] Ambev, but also Ambev S.A. so there you have all the details on our balance sheet, on our financial operational performance for Ambev S.A. as part of our -- of course, we're not give full transparency of the market and everything that's going on. And in there you'll see an increase in terms of capital and capital reserves around the number you mentioned as well as all the other detailed information that you might require to analyze the numbers, right? I'll turn to João to comment on volume trends and how it relates to our full year guidance. João Mauricio Giffoni de Castro Neves: Antonio, this is João. Well, regarding SICOBE, and I think we mentioned a few times SICOBE represents the production volumes in other sales, so not really the best proxy to look at the performance in the short run. We mentioned in Q1, volume performance is primarily impacted by strong deceleration in March. But in Q2, we saw improvements month after month, with June benefiting from further -- thanks to the Confederation Cup which was not, of course, present in Q3. Q3 is more impacted by the macro, weather, pricing. So fair to say that it's better than March, that's the situation, but still challenging. We did refer to a better beginning of July back when we met. Therefore, of course, August and September were worse than the initial trends. Therefore, I think you heard us saying that we expect to be in the lower end for the Brazilian Beer industry of our guidance, which I think gives an indication of what we expect for Q4 and the year.

Our next question is Fernando Ferreira, Bank of America.

I had 2 questions. The first one would be on the tax rate. I just wanted to understand how much this new provision in Argentina impacted your effective tax rate, and I assume this will be a recurring factor going forward. And then related to the same question, you guys stopped paying -- you'll see you're right and expect now that you will start paying again after the approved transaction. So I just wanted to confirm that. That will be my first question. Nelson José Jamel: Okay. Fernando, this is Nelson. So regarding our effective tax rate, what we had in Q3 was we had in fact of a new law that was passed in Argentina, pursuant to which we're going to have from now on a 10% withholding tax on earnings generated within the country. And the fact that we have to recognize in Q3 not only the 10% over the -- only generated in the quarter, but also for all the retained earnings and the [indiscernible] pay dividends in the country made it, of course, a bigger impact. So as disclosed in our press release, there was a BRL 135 million accrued expense, but most of it refers to previous quarters' results, so retained earnings. Before, if you think of the impacts moving forward, of course, how about the last [indiscernible] 135 [ph] because these are months refer to one generation, I think, early 2012, which have not been distributed so far. So it was an accrued expense without a cash impact because it will come over time and it was a much bigger impact then what one could expect for the following quarters, right? Regarding now you'll see, as you know, you'll see is the most efficient way to return tax to shareholders. But had we declared, [indiscernible] Q3 and that was also the trend in Q2, what we've [indiscernible] EBITDA would have generated a tax law carryforward, which will not be used. It's going forward because of the standing restructuring, corporate restructuring that we have. So that's the reason why we did not declare it neither in Q2 nor in Q3. But this should be resumed as it concludes the corporate restructuring and that is where the sort of guidance we can give at this stage.

And then I had a second question, more strategic one, related to Brazil. We've continued to see a more focus on pricing and price mix over the last 2 years. So my question would be what's your view as the consumer is able to take much more pricing for beer going forward, and do you think the -- what about this -- the elasticity of demand now. Do you think that has changed after the price increases or not really? Nelson José Jamel: I think João has mentioned that we always trying to get to the right balance between price and volume. Okay. And you're right, I mean, when you look at 2011, 2012, indeed a new price was there, but volume was still healthy. As we went into 2013, we talked about this in the first quarter, that was the worst quarter we ever had with a minus 7, minus 8 type of declining industry in our own business. And we replan the commercial strategy for the year with a better Q2, and I'm not happy with what happened to the Q3. And I think we're going through a phase where I think we have a chance of being able to get a more balanced price and volume equation which with more volume and that's price going forward. I mean, that's something that we want to have a better balance going forward and I think 2014, given the macro environment, given the World Cup, as you can imagine, I mean, as I said in the speech, I mean, we continue to be very positive on 2014 and that's why we have the CapEx. From a macro standpoint, the macro is better than what it was in the beginning of the year. That continues to improve. Federal government with the agenda of keeping inflation under control, stimulating investment, demographics continues to be in our favor. And in terms of beer, I mean, the consumption per capita, although increased a lot in the last 4, 5 years, we still have a lot to do. Premiumization went from 4.5 to 7 already, which shows that we could increase and still can walk further. Brands continue to be an excellent place and we still have opportunities. I think last but not least, for that equation to close, I mean, in 2014, we will continue to work as an industry to this constricted dialogue, which we have been building with the federal government with the intent of showing, once again to the authorities, that the lower tax burden on the industry, the greater the potential for further growth and for the investment, which will give us less pressure on inflation and still grow impacts revenue. So if we can make that work, as we did, as we will do, let's say, for the fourth quarter, I think that's an additional positive for striking the balance moving forward, the better -- a better balance going forward between price and environment. So I think macro and micro will be there in 2014 for us to strike a better balance for the consumer, for the government and for the company.

Our next question is Lore Serra, Morgan Stanley.

I wanted to go back a little bit and touch upon some of the themes that have been asked already, but I'm just trying to understand the transition into the third quarter and kind of what that means for the pricing and competitive environment. So you are likely, I suppose, in the midst of taking pricing in September ahead of the news on the excise taxes and, obviously, the positive news there gives you a lot of flexibility. But can you comment on as you're trying to take pricing up and the volumes are so weak, particularly for some of your competitors because we've seen some reporting. What's your level of confidence on 2 things? One is that you can sort of land a normal price increase into the year end as you typically do? And then second, that the competitors who are following this, as opposed it's always tough to know what competitors will follow, you always have that lag, but with competitors down as much as 8% and you sort of wonder whether or not they will kind of say, look, we just can't take as much pricing and you see a less disciplined market than we've seen year-to-date. So if you could comment on those 2 things, I'd really appreciate it. Nelson José Jamel: Sure, Lore, it's Nelson. Thanks a lot for the question. I think we probably read the same reports from 2 of the list of competitors in Brazil and then one talking about high single-digit decline and the other one talking about minus 70 or 70% decline in EBIT [ph], I mean, that's not -- that's a tough combination. So I think actually we report pressure both ways, I mean, different pressure by the volume and by the results, right? So that, I think, that combination will have its effect and I cannot comment upon other competitor's strategy than just reading the same facts that you are. I think that just confirms what we've been saying that the entire industry is pressured by FX commodities and the macro headwinds. So you have to choose in a way between volume and EBITDA. You have to try to do that. I think we, as I said in the speech, I think we -- given the tough situation, we very quickly came back to the cost initiatives, but also the replanning of the commercial initiatives. And it's a -- we're in a better place, let's say, looking in the 7% to 9% EBITDA growth, with a minus 5% going to the third and now going to the fourth. And having, as an industry, work with the government to find the more tax increase whatsoever for October 1 onwards. So that's the first part of your question, talking about reactions out there, giving the facts that are not public from the 3 companies that are listed. In terms of volume going forward and your pricing going forward, not just about competition but ours. I mean price increase, as you know, has been keeping in line with our historical practice of keeping it on average around inflation with the appropriate practice of taxes whenever needed. Price increases are implemented over a period of weeks. So it's not like Day 1 across the board. It's different for region, different for packaging, per channel. Very target more now than ever. And, therefore, without going into too much detail for competitive reasons, I think it's fair to say that the price increase this year was around the same time of last year, which is consistent of our historical practice of taking price in the back half of the year. Regarding the price strategy going forward, I will not comment a lot for the competitive reasons, but as I mentioned, our expectations for the year considered to be net revenue per hectoliter, in Brazil, to grow high single-digits. I mean, the good news is for taxes seems there will be no further federal tax increase in 2013. No [indiscernible] pressure is necessary, which translates into lower price increases to consumer over time, so the over time we're now talking is early next Q4. But that together with the other question, I think, we go forward with the potential better situation, the further we can postpone further price increases and also given that we do believe in a better macro for next year. And as you mentioned in the question, I think we are now in a better flexible position than we were before.

[indiscernible] sure, like, as you look into next year -- I am not asking about the fourth quarter because it's too tight, right? But as you think about what's happened this year and you think about the category and the competition and the environment, and you think about your policy of pricing with inflation. Is there any reason to think that some of that has changed as you look into 2014, in terms of what you're seeing right now? Nelson José Jamel: Well, what I try to answer in the first part of the question, and I do appreciate you trying to fine-tune this. I think a couple of things. What I'd like to say, if I think first, competition in the -- the industry is less competition is pressured by everything, not just us. And given the results you just mentioned, it seems like other people may be even more pressured than we are. Okay, from [indiscernible] results. So that's point number one. I think second, so let's say, positive. I think the macro, the World Cup, the election, of these goal for industry, for us, for industry, price in line with inflation, if we can do that next year, I think that's a super positive versus '11, '12 and '13, where prices went above inflation because of taxes. So if this so-called sweet spot that we're reaching for the fourth quarter and things will move on, people are always talking about the multiplier for April 1, that's already a sweet spot further than just the fourth quarter. So with competition, our industry is still under pressure from external factors such it affects commodity. Second, with the macro being positive. And third, with the open insured by the federal government to discuss a better balance. If that combined, leads to pricing in line with inflation, that will be the first time in 3.5 years. So I think that would, for sure, help volumes in 2014.

And if I could just ask a quick financial question to Jamel. The financial expenses keep rising from a lot of these gains from nonderivative instruments that are particularly large. Can you just give us -- I don't know if there's a simple explanation why they were so high this quarter? Nelson José Jamel: Sure, Lore. We -- what we have impacting this quarter results are losses that are mainly related to FX, and yes, they're connected to exposure, each generated a [indiscernible] corporate transactions that have a lot of confidence abroad. And also our cash management policy. So as long as we have, let's say, volatility in the financial markets, that's the sort of result we can have. But it was particularly more relevant this quarter. Some of it is linked to other than the corporate transaction, so there is no economical loss. At the end of the day,. you have the negative impact on our financial results, but there is a counterpart in our equity. But because of FX opportunities [ph] in separate places, so -- and also part of it is that real loss in connection to our cash management policy.

Our next question is from Lauren Torres from HSBC.

Curious to get your thoughts, I'm not sure if you're able to answer this question, but your thoughts on the excise tax looking into next year. It seems like a lot of your comments with respect to the environment are still rather cautious. And I was curious if you think there's a possibility that some of this excise tax will be withheld next year, and that can actually work as a benefit for you, if that does occur? João Mauricio Giffoni de Castro Neves: Sure. Let me try to give a little bit more details on what we said previously on the speech. I mean, further excise taxes did went up on April 1. They did not at all on October 1, which is great news, as we said, because in respect of FAS rule to consumers, it will not be required. We cannot speak, of course, for the whole industry as a whole here, but we welcome a lot to the federal government decision, because it's indicative that they are open to find this alternative stuff that I'm referring to. There is a possibility of a win-win without further increase of the tax burden for the industry, which brings long [ph] and brings investment, brings less pressure for inflation. So without the crystal ball, I think we can refer to things that already happened, okay, so fact. Fact is that 2010, there were no tax increase whatsoever, so there is another year where that happened, but [indiscernible] here, right. Last year, there was normal supplier in October. This year there was normal supplier and no tax table, showing them there is room to talk, right. So government is open to talk, they want to fix the economy, they want to fix the industry, want to get to a better place. So I cannot guarantee anything, of course, but I mean, we've been doing this for now, 4 or 5 years. And we had some wins, we had some losses, and we will work every day in order to -- for this to continue going forward and find this win-win situation for everyone, consumers, government, the company. And as I said, it did happen before.

Okay, that helps. And can you also just address the SG&A reduction in the quarter. You mentioned that the commercial spend was lower than what you had in the first half. I was just curious if you could talk about that a little bit more. And as we think about next year, if there's room to improve on that SG&A line, and kind of what those improvements could be? Nelson José Jamel: Nelson here. Yes, we mentioned that our expectation for the year is to have SG&A growing the inflation which, of course, would imply in a much better performance in the second half versus what we showed in the first half. And, actually, whether [indiscernible] with the results we showed today. I see part of it has lesser merits between quotes, if you will, because we knew that we're front loading part of the marketing investment. And so one of a facing issue with the investment behind what seems a consideration cut. So it's a kind of a natural improvement. But on the other hand, as you once said, I mean, since the beginning of the year, we saw a very tough year ahead of us. And we went back to all the detailed analysis of the featured cost in the seclusion basis cost. Then we took actions that in the course of the second and maybe the third quarter we could see the benefits. So we expect much to come in Q4. And as we move into 2014, is that, we think, it's too a little bit early to give any sort of guidance there. But we, of course, did that again not only have the full year impact of the things we are realizing along the way this year, but also to pursue new alternatives. I mean, as you know, we always mention [indiscernible] in the cost of operation, redesigning profits, have been increased and has continued to increase the impacts of the procurement scene in terms of increasing corporates and aligning purchase, revenue a lot on e-auctions. So all that is in the pipeline. Again, there is no silver bullet. As you know, we have been in this journey for a long time. But we are confident that we can control average and improve operational average by managing our costs in an even more efficient way.

Okay. And if I could just last -- I guess, any visibility or any comments on commodities for next year, particularly, grains, if you're seeing anything different? Nelson José Jamel: We also think it's a bit early to talk about 2014, let's say, sort of guidance for commodities and effect. I mean you know our hedging policy in place, so we have it locked, most of it. And that's not going to be a surprise to anyone when we announce by year-end that they want to have a year-over-year negative impact coming from current. But at the same time, come watch that indeed much better than what they were, let's say, 12 months ago. So the net impact we're going to see probably a less negative impact than what we saw this year. But we'll come back with what is split guidance as we close the year.

Our next question is Alan Alanis, JPMorgan. Alan Alanis - JP Morgan Chase & Co, Research Division: Two questions. The first one has to do with this per capita consumption in the premiumization process we're seeing in beer in Brazil. I mean, moving from 4.5% to 7% of total mix in the superpremium category, that's a huge increase in terms of that category, clearly, more than double-digit solid in each of the years. How do we reconcile that such accelerated growth within the context of volume -- total industry volume decline? And that's, I guess, the first question. And the second question regarding -- I understand the excitement of continue growing per capita consumption, but we're already seeing levels, particularly, in the south and southeast of Brazil, where the level of per capita consumption is resembled with levels of United States. I mean, are we seeing -- is it right to think that in the south and southeast, it's just mainly a process of premiumization and that's why you're seeing the double-digit growth in superpremium brands, and in the north and the northeast is where the main opportunities will rise in terms of per capita consumption? Or there's more going on into these trends? João Mauricio Giffoni de Castro Neves: I'm Joao, and a very good question. I think the easier part of the answer is that, of course, I mean, we're still an emerging nation. We are still somewhat borders. There's a lot of more per capita income that I think this country will get in the next 10, 15 years. So I think it's a positive outlook. So I think that's the easy part. I'm sure you're talking more about the next 12 to 24 months. So talking about the long term, I see no doubts about it. Actually, when you run regressions off past 5 to 10 years, trying to understand that, and we now have that sort of data, big data type of analysis on a region-per-region basis, it's quite interesting to see that there are curbs and which are almost like step changes, okay? So the step changes that -- probably, one step change that we saw was, let's say, from the 2007, 2008 time to the 2010, 2011 we saw a big increase. And either people -- a with combination of people coming from cheaper alcohol into beer, better price points and then you see some stability for a while, okay. But then you'll see another step change, and the step change could be twofold, right? One is the next level of per capita income jumping in and helping the overall consumption. And the second is, let's say, people that were making x and now make y, and that makes them a little bit less price sensitive, okay? So you're starting to have Brazil, of all this, Belgium and India type of things that people use to use this time in the past. But yet people that are really less price sensitive that are more of the high-end consumer. So they are able to continue to increase their baskets of consensus within beer, okay? And, of course, we have activated more and made more available our own domestic premium, our own international premium brands. So the combination of the activation, okay, and the per capita income of those consumers that are less price sensitive, brought us from 4.55 to the 7 that we see today. So moving along the lines that we said, we thought we could be around 8, 2 years from now. It seems that maybe we'd be able to go to 10, so that -- the good thing is that we have the perfect product mix, the perfect brand portfolio. We should go after those consumers. But because Brazil's, that combination of let's say, Belgium and India, and we still have the working group, more pressure by the affordability. And that's why we continue to think now it's more of the and rather than the or. So we do have a very strong pack price initiative with the 300 that is definitely not everywhere, with the 1 liter that is in more places. Having more cans with the 500 and the 50 that we launched, those will be more available. With the Nosso back, which can go to the poor neighborhoods and bring a better experience. Now the twofold strategy of having the perfect mix for premium, but also the perfect mix for the consumers that are more pressured, I think, will lead us to this better place. I do think we will live in this stupid country for a while before we get to the more developed nations. Being now very present on the development will help us to learn a lot of the things that are happening there and bring some of the new news, sometimes sooner, sometimes later, as we have a good reading of the situation and with big data type of analysis, we have more and more in those statistical views combined with the overall strategy and quality quant analysis to get us to the right point or the right mix or the right amount as we did with the Brahma 0,0%, which we are selling everything we have. So Brahma 0,0%, non-alcoholic for the past 3 months, it was really like 40%, 50%, because the right proposition was not there. It was not in place. We just launched Skol Beats Extreme, which we think put it out occasion, super -- type of superpremium situation. We also have now a better mix. So we are combined both things. I mean, I think, the fact that we invested those CapEx that we did in the past 2, 3 years, now gives us flexibility that we didn't have before pretty much across the nation, across Brazil, to do this. [indiscernible], for example, our premium very important. In the nice parts of the top 10 series when we think maybe about the affordable piece. So I think better -- really better -- much better footprint today and much better mix today than we had a few years ago to face that situation. Alan Alanis - JP Morgan Chase & Co, Research Division: That's very clear. If I may, another question just for Jamel, I think more on the technical side. This line called Other Income, moved from 3% to 4% of revenues, Jamel. I mean, growing slightly from 2009 to 2012, and now it represents 6% of revenues, and it has been accelerating, how should we think of this Other Income for the next quarters in 2014? Should we -- yes, that's the question. Nelson José Jamel: So, clear, Alan. Mr. Alanis, I just said it has been growing for a while now. I think we mentioned that in the last call. And the key driver behind this evolution which, if we look see 2008, is around the BRL 100 million, BRL 120 million a year. The key drivers for this evolution are the higher growth in grants with interest state with these long-term tax incentives, other contracts as of the high-level capital expenditure investments in Brazil. The similar move to CapEx in Brazil from the historical BRL 3 billion to BRL 2.5 billion, previous record in this year. We are heading to a new record of a BRL 3 billion of CapEx in Brazil. This is driving the improvement, in light of the consequence of this sort of incentives, which are not tailored for us, right. They are in the law, and they are there, by the way, for the long term. In fact, all those incentives, you asked about how should we think for the next quarter or next year, those incentives are 8 to 10 years incentives. So as long as we continue to grow volumes from now and deliver it on the investments we have in the pipeline, these will continue to grow. Particularly this quarter, though, there was a specific gain associated, more like a one loss gain, associated with certain legal procedures -- proceeds where we were -- we had the conclusion. And we obtained these gains, so these gains explain pretty much the growth in the net of the operating income from BRL 34 million to BRL 134 million. So there's a sort of BRL 100 million, which is one off in this quarter. Most of the results comes from the [indiscernible] as disclosed in our press release.

Our next question is Alex Robarts from Citi.

Two questions. Going back to more of the short-term situation here with you guys. First question on operations, second on a nonoperating item. But I appreciate the wording that you're using, the short-term environment remains challenging, and we have had some macro trends improving recently, but it seems in the shorter term, we've seen a little bit more irrational competitive behavior. You're kind of guiding now to an industry decline in beer Brazil towards the low end, kind of minus 3%. And we have a very difficult comp year, probably one of your toughest year-on-year in the fourth quarter. And just trying to understand here, and all the visibility is low, but can you help us kind of get a sense of you've been talking all year about pack price, RGB, one issue; second, the premium segment; third, the north to northeast. Which one of these 3 things seems to really be working better than the other? Are they all working the same? And how should we think about the effectiveness of these initiatives that you've been kind of working on all year as we've come into this being in the critical fourth quarter period with visibility very low? And if the answer could also kind of touch on this idea of -- to the extent that you seem to be straitjacketed by this idea that SG&A can't grow beyond inflation. And that means no growth for SG&A in the fourth quarter. I mean, you have a volume capital-intensive business. Might it make sense to kind of increase the SG&A in this fourth quarter? So that's kind of the first question. And then I have a nonoperating one as my second one. João Mauricio Giffoni de Castro Neves: This is Joao. So trying to review our situation in the short term. Okay, so, first, I think that I'm -- referring to here works for the cold beverage industry, so I'm talking beer and softdrinks. Both industry are pretty much declining the same year-to-date, for beers, minus 3.5%, year-to-date for softdrinks, minus 2.8%, so pretty close. What I said, just to make sure, that everyone is pressure, cannot speculate on the other's behavior, but because of that pressure, I actually see it from what you're seeing. I'm not sure you said the irrational reaction, but because everybody is pressured, it seems more rational here than not, right? I mean, there's price competition in the marketplace, everyone has their special initiatives. But as we look at our price guidance, I mean, we're reaffirming that. So we're reaffirming that, and we are within our market share range, and so forth and so on. I think the reading from that standpoint already is positive. But, I mean, given that volume declines are bigger than people expected. We, of course, react very quickly without taking shortcuts to the [indiscernible] So we're very close to one of the high establisher of wines [ph] that we have, which shows that we're committed of putting money behind our brands, to grow the profits, to grow the top prestige, to grow the consideration, and we're actually very happy with the results. Also, we had a lot of innovation. We haven't postponed anything. We're full force. Turn on the TV, turn on the social media, you'll see the brands all around. But the nonworking money, I mean, if we can produce the same volume or spend the same amount of money in, overall, at this glance, even more lines with less volume, that's the type of response we have to bring you to the table, to help our promotional initiatives. So be as lean possible from the nonworking on the operational -- from the operation standpoint distribution to everything else, so to put money back behind the promotional initiatives to have the wind spinning in the right direction, as we mentioned in the other questions. So quick response, everybody pressured, overall, the combination for the top line is not where we'd like, but the EBITDA is -- it's keep improving on a quarter-by-quarter basis. And as we said, we are working towards and believe we will deliver a better second half than the first half. With the increasing share of price with the percentage number like given that, of course, competition's got me in the second quarter. There were more expenses towards that because of that specific event. Giving the strategy, the other 4 pillars that we mentioned, right, with reactions [ph], that's what we like to share in terms of what are we doing. But we'd like to go into more detail than this in terms of what's working. We said we're happy with the nano, we're happy with the RGB, we're very happy with the premium, and we're happy with the innovation, without going into specifics which one we're happy with. I think I mentioned on the premium, the 7%. I think I mentioned on innovation doubling the volume. I mentioned in the nano debt, we know we are increasing the share and for the RGB piece, we continue to increase the presence of RGB in the off trade. So, I mean, all of those initiatives are hitting its objectives. Of course, that's not enough. It has not been enough to offset the volume decline. So we know we don't stop there, and we continue to look for other things that can further compensate this. But those are some of the things that so we can share some, we rather work on as a strategic and things that can bring a better result for next year.

Yes, I mean, I guess, I see the folks in that when I talk about the competition, scurrying to get the key volume footprint here ahead of the World Cup, and it seems to me what you're saying is that you would be okay to sustain, I guess, 70 basis points was the market share loss in the third quarter in beer. But you'd be okay to lose more share in the fourth quarter at the expense of hitting this guidance with flat or below inflation SG&A for the year, is that a safe statement? João Mauricio Giffoni de Castro Neves: No, not sure exactly what you meant. So I'd rather give you my view on this, right? Okay. So, I mean, we always look at market share, in conjunction with volume pricing, because our primary challenge in terms of our top line is to strike the appropriate balance between volume, price, mix and market share. We believe that despite the 5% volume decline, we are averaging 68% in the third quarter, which nearly flat versus the second quarter and well within the 67% to 69%, while delivering the 6% net revenues per hectoliter, with the growth of [indiscernible]. That's as much our role, and not for anything regarding that I would be happy, which I would not be, by further losing market share in the fourth quarter, right? I mean, that doesn't make any sense, okay? So what makes sense is I'm happy to be well within the 67% to 69% and 68% and the fact that we're nearly flat versus the second quarter with the price increase that we mentioned that happened during the third quarter, right target, we didn't expect it and delivering the 6%. That's what I believe.

Got you. Okay, and fair enough. And the nonoperating question is really on a tax question. I mean, this kind of foreign subsidiary offshore tax, right, I guess, there's a deadline as you know in a couple of weeks, kind of to declare, maybe come forth to the government's tax amnesty proposal. As I understand, Ambev's liability here is roughly BRL 2.6 billion. You haven't made a provision. I guess, your lawyers were saying it's a, I think, a possible claim or negative outcome. How are you thinking about this? Or will you go ahead and participate in the government tax amnesty program regarding offshore profit and then kind of engaging from payment and provisions? Or do you feel like the legal strategy right now? Not to participate and kind of go and adjudicate this in the court? Nelson José Jamel: Alex, it's Nelson. I think you mentioned probably right. We have an exposure in September 30 of possible BRL 2.7 billion and all the related details of the exposure is part of our disclosing both financial and public filings. And as you also mentioned, we have made no provision based on the opinion of our legal costs. I mean, we're just doing in the absence of those courts, and even in case, we will not prevail, the [indiscernible] to litigate the matter in the judicial courts as we believe that our position is very strong, and it should prevail. Remember that we already had a second set what ruled in favor and brought the original exposure down to BRL 2.7 billion. And referring to the federal tax amnesty program, which is being administered by the federal government, we were able to take that decision, the publication, await final publication of the final terms and conditions of the policies ascribed and the appropriate course of action. But given the strength of our legal case, of course, we wait to see what are the specific terms coming up. But at this stage, of course, no position can be safe.

Our final question will be Gustavo Oliveira, UBS.

I have a question regarding the overall capacity to utilization that you may have and also the system knowing that volumes are going down and everyone have been adding capacity. It seems that the market is expecting [indiscernible], given by the affinitive [ph] et cetera. But could you put yourself in a situation where the value brand's performing very poorly next year and you also -- because you don't have price, you have such a high capacity in July, which should lead it to like a very pressured prices, and therefore, your premium volumes may not be able to offset all that, and therefore, you won't be -- you won't have any operating leverage next year. It seems that when we look at your impressive results in 2013, part of it is coming from the premiumization strategies and the premiumization volume that's been accelerated. But do you foresee a scenario like that? Or you're very comfortable in your capacity utilization, in your value brands, not only yours, but the industry capacity utilization churning out? That's my question. Nelson José Jamel: Let's see if I understand your question. I'm assuming that you're calling value the mainstream, right, I mean, would already [indiscernible].

Not only you, but I mentioned that most of your competitors -- especially your competitors have been adding a lot of their mainstream brands. But I did tell you have a very strong premium portfolio. Would it affect your business? Nelson José Jamel: Well, let me give you my view. I mean, what's -- I think pricing has been driven much more by cost pressure and cost pressure, I would include dollar and tax, but also state and federal taxes. I think price comes from 2 places. Comes from disposable income, of course, from consumers. I mean, that's the ultimate pressure. But I mean, people also look at what's happening from an inside cost perspective which has been very strong, right, in this last 12 to 18 months. I think we will be, in both cases, in a better situation in 2014, actually. I think the macro will be better, I think the macro and the micro, both things will be better. I think there will be less pressure from both the internal cost pressures on a delta year-over-year type of a situation. And therefore, sometimes, the capacity monetization could be unaffected. I don't think it is this year, and I don't think it will be next year, okay? So, I mean, actually, I thought the question was more coming from how do we feel about the capacity utilization, what I mentioned, what I answered previously that I think we are going forward with a better footprint we ever had. So I think the capacity utilization is more a positive than a negative, because we're getting closer of being able to sell every type of portfolio that we would like to across the country rather than the opposite. So I like the fact that we have that. I think, second, we've been working a lot in this past 3, 4 years to have a better line efficiency, because I mean, when we went from selling maybe -- just [indiscernible] I think 2 SKUs, 600 ML, a bottle is 350 ML aluminum cans. And now we have everything. 1 liter, 600, 300, 269, 473, 350, 250, 550. And when you turn yourself into this multi-package operator, of course, the line efficiency in the beginning is pressured. And now, through many different projects we run and being focused a lot on turnover, being focused on maintenance, being focused on getting the right model, the right beer point every line and the owners having the tools to better operate their machines, we have been increasing line efficiency a lot month after month and operating 18 months. So the combination of investment and the combination of a much better run efficiency, gives the flexibility to be in a much better situation from a commercial standpoint, but, actually, also from a cost standpoint, because very quickly we can adapt, because the line efficiency gives you so much more room to operate that you can very quickly rightsize if needed or not add additional full-time employees to face more volume. So I think we will actually go onwards 2014, both from a commercial standpoint and a better situation that we were in 2013. So I think it's more of an asset than a liability.

This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Nelson Jamel for any closing remarks. Nelson José Jamel: Thank you, all, again, for joining today's call. And we're looking forward to speaking with you again on our Q4 and full year 2013 call. We're going to have the opportunity to discuss with you guys our performance on what to expect to be an even stronger finish of the year. Thank you very much, and bye-bye.

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