Earning Release

Companhia de Bebidas das Americas (NYSE:ABV)While net sales were in line with our estimate in 2Q 09, operating margin was below our expectations, reflecting higher-than-anticipated Selling, General & Administrative (SG&A) and Depreciation & Amortisation (D&A) expenses, as a percentage of revenues. However, adjusted1 net margin was above our expectation due to lower-than-expected net finance and tax expenses during the quarter. In light of mixed 2Q 09 results and current price levels, we maintain our HOLD rating for the common stock. We will reassess our target price and rating in our 2Q 09 update report. Base on the mixed 2Q 09 results and our expectation of a significant negative currency impact on the ADR of our 6-24 months investment horizon2, we upgrade our ADR rating from a SELL to a HOLD. We will reassess the ADR rating for AmBev in our 2Q 09 update report.

New Valuations

GlaxoSmithKline PLC (NYSE:GSK) The emerging market contributed 10.4% while new products contributed 9.5% to revenues in 2Q 09. These factors are expected to partially offset the decline in revenue growth due to the introduction of generics in the US market. However, we maintain our positive outlook for Glaxo's revenue growth, supported by its strategy to expand in emerging markets and increase its new products sales. Revenues are expected to continue growing robustly driven by Advair, Vaccines, Valtrex, Avodart and new product launches in multiple regions. Going forward, the US business is expected to benefit from the launch of Cervarix (Cervical cancer) in the US and Arzerra (a treatment for patients suffering from chronic lymphocytic leukemia who do not respond to current available treatments). The company has secured orders from 16 countries for 195 million doses of vaccines for H1N1, which Glaxo is currently in the process of developing, which is also expected to augment revenues over the medium term. Relenza sales increased to US$99 mn in 2Q 09, compared to just US$5 mn in 2Q 08. Glaxo also plans to increase annual production of its inhalable anti-viral flu treatment; Relenza, by threefold to 190 million doses by the end of FY 2009. We believe vaccine sales will add to the top-line, which is being corroded by generics of some of the company's top products. The company is aggressively seeking to acquire companies focusing on vaccines and other pharmaceuticals in Emerging markets. Glaxo announced a strategic alliance with Dr. Reddy's Laboratories (Dr.Reddy's) to market quality branded pharmaceuticals manufactured by Dr. Reddy's in countries such as Africa, the Middle-East, Asia-Pacific and Latin America in June 2009. We believe the new acquisitions of Stiefel Laboratories Inc., the agreement with Pfizer Inc. and alliance with Dr.Reddy's will support the company's net profit growth, going forward. Late stage products such as Horizon (COPD), Avodart (prostrate cancer), Cervarix (cervical cancer, US), MenHibrix(Meningitis, US), Arzerra (cancer) and Benlysta (lupus) are expected to augment the top-line while increasing Selling, General and Administrative (SG&A) expenses in lieu of advertising costs, going forward. We continue to anticipate higher Research and Development (R&D) expenses, associated with 30 products in advanced stages of development and higher SG&A expenses associated with a focus on increasing the company's penetration in Japan and emerging markets. We also anticipate a continued decline in margins, associated with increase in the proportion of relatively low margin vaccine sales and higher sales in emerging markets. In light of the above mentioned factors, we continue to hold a positive outlook for the common stock.

Vivo Participações S.A. (NYSE:VIV) Despite an increase in net-additions over the past four quarters it is interesting to note that Vivo witnessed declining market share over the same period due to stiff competition in the Brazilian wireless market. However, considering the company's strong presence in the region and the increasing wireless penetration rate, we do not foresee a dramatic change in Vivo's market position in Brazil. ARPU growth is expected to remain muted, going forward due to attractive tariff plans (to remain competitive) partially offset by increased Minutes of Usage (MoU) due to traffic migration from fixed-mobile to mobile-mobile resulting from increasing penetration. However, with non-SMS revenue being 52% of the overall Data and Value Added Services (VAS), growth in WAP services and broadband usage is expected drive top-line. An increase in Fistel fee (Telecommunications Inspection Fee), due to increasing subscriber-base and increased selling expenses (due to increased sales commission and publicity & advertising expenses to attract and retain customers) is expected to have a negative impact on Vivo's profitability. However, increasing sales of SIM cards is expected to dilute handset subsidy costs (as subscribers are recorded in the books without a corresponding revenue accruing from handset sales) while loyalty and customer retention expenses will remain high in light of stiff competition. Furthermore, with traffic growth expected to remain in the stable-to-decline mode (as Vivo is losing market share) infrastructure investment (capex) for FY 2009 is slightly on the lower end of management guidance while a significant increase in operating cash flow will guard the balance sheet from being stretched further. We advise investors to remain on the side lines as near term weakness persist and we are downbeat on any positive cues, at least for the next quarter.

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