Ambev SA (ABEV) 2015 Q3 法說會逐字稿

We would like to welcome everyone to Ambev's third-quarter 2015 results conference call. Today with us we have Mr. Bernardo Paiva, CEO for Ambev and Mr. Nelson Jamel, CFO and Investor Relations Officer.

We would like to inform you that this event is being recorded (Operator Instructions). Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the Company.

They involve risks, uncertainties and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward-looking statements.

I would also like to remind everyone that, as usual, the percentage changes that will be discussed during today's call are both organic and normalized in nature and, unless otherwise stated, percentage changes refer to comparisons with Q3 2014 results.

Normalized figures refer to the performance measures before exceptional items, which are neither -- 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.

Okay. Thank you, Gary. Hello everyone and thank you for joining our 2015 third quarter earnings call. Today I'll walk you through our results and Bernardo will give his remarks at the end before moving to Q&A.

Starting with our consolidated result. As in the previous two quarters this year, in the third quarter we grew both top line and EBITDA double digits. In Q3, our net revenue was up 13.2%, driven by top line growth in all of our regions, while EBITDA was up 11.8% with an EBITDA margin of 46.5%. Year-to-date, net revenues are up 12.7% and EBITDA 15.7% with an EBITDA margin expansion of 110 basis points to 45.2%.

Brazil, while still facing adverse macroeconomic environment, we continued to focus on what we can control and volumes recovered in this quarter, which, coupled with a solid revenue management strategy, led to a 10.5% top line and 9.8% EBITDA growth, maintaining the solid performance of previous quarters in the country. Year to date, top line is up 8.8% while EBITDA is up 12.5%, with the margins up 180 basis points to 49.8%.

In beer Brazil, after the very difficult 2014 FIFA World Cup comparable base experienced in the second quarter this year, volume growth returned to positive territory growing 3.5%, driven by first, favorable weather as temperatures in Brazil hit a five-year record for the period between July and September; two, easier comps, as in the third quarter last year we had our weakest quarterly volume performance; and, three, the strong and successful implementation of our commercial initiatives, about which Bernardo will get into more details later.

Net revenue for Brazil beer was up by a solid 10%, as we continue to implement our revenue management strategy, focused on a sustainable top line growth and also benefiting from positive product mix as premium grew double digits in the quarter as well as the increased weight of direct distribution.

Moving to CSD and non-alcoholic and non-carbonated beverages, the overall challenging macroeconomic environment continued to pressure the CSD industry even more than in beer. Nonetheless, in the third quarter we maintained the all-time high CSD market share of 19.6% recorded last quarter, with both Pepsi and Guarana Antarctica brands outperforming this year.

Within energy drinks, Fusion continued to grow ahead of the industry, becoming the third-largest energy drink brand in Brazil and second in some important regions. Net revenue per hectoliter in CSD and NANC increased only by 1% mainly due to a hard comparable base due to the timing of revenue management initiatives last year.

Brazil COGS was up 10% while cash COGS grew 7.6%. On a per-hectoliter basis our cash COGS per hectoliter increased 6.6% below inflation, benefiting from significant gains in procurement savings and productivity gains along with better commodity hedges while negatively impacted by higher inflation effects and product mix mainly driven by the increased weight of premium products in beer. Gross margin was up 20 basis points to 66.9%. Year to date, our cash COGS is up 4.6%.

Cash SG&A was up 11.1% in the quarter due to higher logistic costs mainly driven by inflation and the increased weight of direct distribution in Brazil, the timing of our variable compensation accruals in admin expenses and a flattish sales and market expenses as we continued to invest behind our brands, but it still benefits from an easy comparable base given the investments done during the 2014 FIFA World Cup. Year to date, our cash SG&A in Brazil is up 8%.

Turning now to Central America and the Caribbean. We delivered another very strong quarter with EBITDA up 31.9% to BRL323m, mainly driven by double-digit volume growth in the main countries we operate in the region and further EBITDA margin expansion of 210 basis points.

In Dominican Republic, we launched Verano Presidente, our proprietary summer season platform, with more than 400 events nationwide, further enhancing the equity of the beloved Presidente brand and helping us to drive a double-digit volume increase in the country.

In Guatemala, volumes are up also by double digit, with good performance of Brahma in the mainstream and another quarter of strong volume growth of the Modelo brands. We boost top line growth as the good performance also benefited from our solid gross margin discipline expanding our EBITDA margins for another quarter.

Year to date, our EBITDA margin is up 580 basis points driving an EBITDA growth of 44.3% in local currency. In reais, our EBITDA is up more than 80%.

Our plan for the region does not change. We remain excited with the top line opportunities for organic as well as non-organic, while committed to improve our operational excellence in the region to drive EBITDA margin expansion.

In Latin America South, our EBITDA grew 24.9%, mainly driven by a net revenue growth of 28% with an EBITDA margin of 43.6%. Our beer volumes were up 5.6% in the region, with solid growth in Argentina, Chile and Paraguay. Along with industry expansion in all three countries, in Argentina, Mixxtail continued to drive incremental volumes coupled with a great performance from our premium brands, mainly Corona, Stella Artois and Patagonia.

In Chile, Corona is driving a mid-single digit market share gain in a very profitable way, along with a good performance of Becker. And in Paraguay, the 340ml returnable glass bottle of Brahma launched last year continued to grow double digits, providing affordability in a profitable way, while premium volumes more than doubled year to date.

Extending the near beer platform to other countries, we are launching Mixxtail mojito in Bolivia, Paraguay and Uruguay.

Latin America South CSD and NANC volumes were down 23.7%, mainly driven by our strategic alliance with CBC in Peru announced in July, pursuant to which Ambev Peru will focus on its beer business in the country, while CBC will be responsible for the soft drinks business. As a result, we are no longer reporting CSD volumes in Peru with no material impact at EBITDA level.

Adjusted for Peru CSD, our volumes would be down low double digits, reflecting the challenging trading conditions in the region.

In both beer and CSD and NANC net revenue per hectoliter growth was driven by a solid execution of our revenue management initiatives as we continue to face a high inflationary pressure mainly in Argentina. In beer we also benefit from the growth of premium and near beer while CSD and NANC benefited from a positive geographic mix mainly driven by the change in Peru.

COGS per hectoliter growth in LAS was driven by unfavorable currency hedges and higher inflation, mainly in Argentina, along with product mix.

Cash SG&A was also impacted by inflationary pressures in distribution and labor-related expenses and the timing of our sales and marketing expenses, mainly in beer.

Year to date, our EBITDA is up 32.9% in local currency, or 62.1% in reais, with an EBITDA margin expansion of [200] basis points. Going forward, we remain confident in our ability to deliver a solid top line growth in LAS while protecting our profitability.

Moving on to Canada. Volumes increased 1.2%, driven by another quarter of industry expansion in the country and the seventh quarter in the row of market share gains, mainly driven by Bud Light and Bud Light Apple, along with a solid performance of Corona, Stella Artois and Goose Island. Year to date, Corona Extra and Stella Artois are both delivering double-digit volume growth, leading to their highest segment growth in Canada.

We maintain our commitment for an improved balance between price and volume with our revenue management initiatives and the benefit of premium mix driving a 1.8% net revenue per hectoliter growth. Top line was up 3% in the third quarter and in the first nine months of the year 12% above last year.

With a solid financial discipline, cash COGS per hectoliter was up 0.9%, slightly below inflation, driven by procurement sales and productivity gain. Our EBITDA performance was negatively impacted by higher cash SG&As, primarily explained by higher admin expense given the timing of variable compensation accruals in the quarter. EBITDA declined 1% in the quarter, while flat year to date.

As we move forward, we remain excited with the volume opportunities of our focus brands and committed to balance net revenue per hectoliter and market share to drive profitable growth in Canada.

Now moving below EBITDA. Our net financial results were BRL96m worse than last year with our performance mainly impacted by a higher non-cash accretion expense in connection with the put associated with our investment in Dominican Republic, as higher loss on non-derivative instruments were more than offset by gains on non-derivative instruments.

Our effective tax rate for the quarter increased from 11.7% to 21.4%, driven by timing of interest on capital benefits which were BRL145m lower in the quarter and a higher withholding tax provision due to FX variation associated with un-remitted earnings from international subsidiaries, primarily Canada. Year to date, our ETR is 18.6%. As a result, our normalized profit increased 6.3% in the quarter to BRL3,087m. Year to date, our normalized profit is up 15% to -- it goes to BRL8.9m -- BRL8.9b.

We generated a total of BRL6.2b of cash from operations, a 49% increase versus last year as a result of stronger operational performance and better working capital management. In the first nine months of the year we have already generated BRL14.3b of cash from operations, a 47% increase year over year.

As for CapEx, we invested a total of BRL3.2b year to date, of which BRL2.2b in Brazil, both in line with last year's figures.

During the quarter we paid BRL2.5b in dividends and repurchased BRL380m of Ambev shares, bringing the year to date total payout figure close to BRL9.9b, or a 16% increase versus the same period last year.

I'll now turn it to Bernardo before going to Q&A. So, Bernardo.

Thanks, Jamel. Hello, everyone. You guys know that we have a big dream at Ambev. We want to be the best beverage company bringing people for a better world. To be the best we succeed with our challenging operational growth. In the first nine months of the year our teams' ability to deliver on our growth was once again put to the test as we faced tough comps and a challenging macro environment.

Nevertheless, our people continue to deliver strong result, driving a solid 20 -- 12.7% top line and 15.7% (sic - see page 2 "15.6%) EBITDA growth year to date. But the year is not over and we are not here only for 2015. While pleased with the year to date, we expect external environment to remain challenging in the short-term, particularly in Brazil. That's why I will concentrate my closing remarks on what we're doing in Brazil and why we feel confident on continuing to deliver in Brazil and in Ambev now.

Regarding top line, you know we have decided to focus on five commercial big initiatives to take us to where we want to be in, let's say, five years from now. But we have also been keen to drive a sustainable top line in the short-term, even in the current adverse environment.

First, starting to elevate the core. I have been stepping up our sales and marketing abilities, activating demand and strengthening the equity for our brands for a completely 360 approach with great above the line campaigns, on and off-trade activation, coupled with experiential events, and a strong application to digital platforms.

And results are coming. The preference of our core brands continued to trend higher among target groups driving volume growth in a profitable way. Antarctica hit the all-time high preference in Rio de Janeiro, it's most important region, and Skol was considered the most valuable brand in Latin America in 2015 by Millward Brown, BrandZ, a great result.

Innovation is also key to elevate our core brands. We have just launched Brahma Extra Lager, Braham Extra Red Lager, and Brahma Extra Weiss, core product line extensions of Brahma targeting the food and savor need space. These line extensions not only bring the food [beer] extremes to mainstream, because they are important, but they also enhance the asset of the Brahma brand.

Second, we have accelerated premium. Our premium volumes expanded double digit in the quarter. We repeat, double digit. It's a great, great result in Budweiser, Stella Artois, Corona, Original. All of those premium brands now account for 9% of our volumes. Our goal is to accelerate these and continue to lead the segment, driving volume growth and a positive price mix.

In the fastest growing international drink segment, we have been not only expanding the portfolio, but improving our sales and marketing execution for deep experiential activations such as Budweiser Mansion and Corona Sunsets.

In the domestic premium we relaunched Adriatica, a centenary super premium beer brewed in the same city it was brewed eight years ago and where Original was first brewed.

Adriatica is a beer with a great history and identity and should drive Adriatica -- Original and Serramalte in the leadership of the domestic premium, super premium segment in Brazil. That's a very, very relevant one.

Third, we are pleased with the performance of Skol Beats Senses in the near beer platform, driving not only incremental volumes, but much better margins. Thus, there is a huge opportunity for near beer in the long-term as we expand our portfolio and capture a bigger share of food. But with only year since its launch ,Skol Beats Senses already can up beat at some of the main premium brands such as Stella Artois and Bohemia. Amazing.

With that, I'm happy to announce that we will have a new flavor of Skol Beats in the shelves already next month -- this month. Talk to you now maybe in advance from our marketing guys, but we will be Skol Beats period. It's an amazing liquid, green and for sure we will like it.

Fourth, in-home occasion. We have been improving the shopper experience in the off-trade by working with the retailers. By working with the retailers in a win-win model we continue to step up the off-trade format, increasing the space of beer category in the stores and improving the assortment of our products. It's good for the retailers, good for the beer category and even better for shoppers.

Also the opportunity to expand returnables in the channel has become even more relevant in the current environment. Returnables account for almost 20% of our supermarkets' volumes this quarter and continues to grow. We are leveraging our national footprint and strong activation to lead these initiatives in all regions in Brazil, providing more affordable products when people most need that in a profitable way.

And fifth, out of home. Meeting friends in our bars, going out in night clubs, partying in restaurants, watching soccer games in sports bars, the out of home occasion is a strong part of the Brazilian culture. The bar is probably the most closest and affordable leisure activity one can have in Brazil. It's our responsibility, along with the bar owners, to make sure that the experience continues to be great. And not only that. We know that the out of home is the best occasion to really build a lot of brands in a real way.

We have a strong set of initiatives ranging from franchised business such as Nosso Bar, from our micro-events platform and innovations such as Skol Draft to boost the out of home experience. In less than one year Skol Draft has increased by more than 50% the number of bars in Brazil, bringing this amazing experience to mainstream. As it has been only six months, the opportunity is much, much bigger.

Along with our five top line initiatives that I mentioned before I have also been stepping up the efforts in operational maintenance and cost management by not only renewing the entrants in the usual tools like ZBB, zero-based budgets, but also leveraging technology to maximize efficiency in our sales, marketing, logistics and supply processes. And also, partly is the supply to improve efficiency in the whole supply chain, finding ways to minimizing impact of the higher inflation in the short term.

As a result, we now expect cash COGS in Brazil to grow mid-single digits in the full year as opposed to the mid-high single digits that we previously indicated. So our EBITDA guidance in Brazil is top line to grow mid to high single digits in the full year, cash COGS to grow mid-single digits in the full year, cash SG&A to grow below inflation in the full year, CapEx up to the 2014 levels.

In summary, guys, the same focus -- despite the focus in order to make the difference. We continue to feel 100% confident that by acting on the things, on the leverage, on the initiatives that we have under our control, we will continue to deliver strong results in beer CSD not only in Brazil, but in the full Ambev level. So -- and all of those things will be good for the short-term and will position Ambev in great shape for the long-term as well.

So thank you and now we can move for the Q&A.

(Operator Instructions). Andrea Teixeira, JP Morgan.

Thanks. Good afternoon everyone and congrats on the results. Just on the price pack, you got obviously the 10% net price in hectoliter and we all understand the premium efforts that you've been doing. But if you can separate those factors, inflation pack and premium mix, so that we feel more comfortable how you're going to be able to pass on higher FX as you roll off the hedge in 2016.

And then the second question is regarding what triggered your revision down in COGS for Brazil. Is that something that we -- with the CSD being so much more difficult now, what was the main trigger for that? Is that the above question? Is it the pricing that is leading you to believe that you can mitigate some of these effects with price pack, or is there additional plants shutdowns or additional savings that we are not aware of? Thank you.

So hi, Andrea, thanks for the questions. I mean this route you can follow. I think you asked the question about the breakdown in respect of the net revenue per hectoliter performance, then what is pricing, mix and the rest of things Bernardo can talk to that and I'll take about the COGS guidance review what is behind it, right?

Yes, correct. Thank you.

Hi Andrea. Well, basically, our pricing policy, you know, is to really first grow price in line with inflation. We had in the beginning of the year the inflation of 5%, 6%, so now it's running 9% and even more than that in Brazil. So premium mix, it's important because last year we had below 7% in terms of mix of premium and now have 9%, so that helps a lot.

And the third one is the direct distribution operations that are growing. So with that we continue to follow the policy that we always did in the past and that's basically the same thing that we continue to do in the future.

Okay. And regarding the COGS guidance review, of course, we already have nine months of the year behind us and, given the performance and we have been stepping up our efforts behind procurement savings, which actually are higher than what we anticipated, as well as productivity gains with more efficient breweries. And adjusting our structure to the volumes in that we are going through. I think there is no single policy or single element, but it's a combination of factors that have been working behind. And as you know this focus on COGS management is part our DNA.

We also have, important to mention, in the COGS guidance a quarter's impact as we start to see the mix of RGB, returnable glass bottles, growing flat and particularly in the off-premise channel, as Bernardo indicated in his speech. So all that gives us a lot of confidence that, as opposed to what we've said before in terms of COGS guidance -- for cash COGS guidance for this year, instead of being between mid and high-single in Brazil we feel confident that they're going to be at mid-single, so let's say, 4% to 6% cash COGS growth this year. All the other guidance they remain the same, like on top line, SG&A and CapEx.

Okay. Thank you both.

Thank you, Andrea.

Fernando Ferreira, Bank of America Merrill Lynch.

Thank you. Good afternoon, everyone. Thanks for the questions. I just had two questions related to your volume performance in beer Brazil. Is it possible for you to give us some indication how much the different categories perform, meaning mainstream, innovation and premium? We know that premium continues to grow well, but just wanted to get really a sense of how the different categories perform.

And then another related question. Just wanted to get your perspective on why the beer category is doing so much better than other categories in Brazil. What do you think is behind that? Is it all weather, or you think your strong activation of the category is the key factor so I just wanted to get some sense there? Thank you.

Thanks, Fernando. I will start with the last one. I think that leaders in the market, we have the responsibility to activate the demand and drive the industry as well. So we have been doing that not only of the premium, but elevating the core for all the things that I mentioned before. And, this said, weather helped us, easier comps in a sense helped us, but the implementation of those initiatives that I mentioned before are helping us as well, not only to the industry, but to the share according to the internal information and grew share in the quarter and the full year.

So, having said that, in terms of the volumes, premium is growing and we are leading the premium segment here in Brazil, great brands, and the portfolio it's really, really a good one and we are building this portfolio in the right way, really building brands for the future. Some of those brands that can really boost their volumes even more in the short-term, pulling pricing down as some people do in other countries, including here, but we don't do because we're thinking for the long-term.

So premium is growing, but the core brands are growing as well in the quarter. So it's a mix of our share gains and our responsibility as the leader in the market to activate demand and put the industry in the right spot.

And for the full year, we're back to the guidance for top line mid, high single digit. Okay?

Great. Thank you, Bernardo.

Thank you, Fernando.

Antonio Gonzalez, Credit Suisse

Hi, good morning, Jamel and Bernardo. Thanks for taking my questions. Just two quick ones. The first one, I guess, on the strategic side. I don't know if you will be able to comment. I understand if you cannot comment at all.

But what are your plans for Peru and Ecuador in light of the ABI and SABMiller transaction? Is there anything that you can comment already? Do you think you will be required to sell that asset -- or those assets?

And also, in that same line, I guess, would you be able to comment at all on whether you would be willing to sell Canada to ABI, especially if your main competitor in Canada will probably also be ABI's main competitor in the US now with full ownership of that asset? So that's the first question.

And secondly, very quickly on revenue, particularly in soft drinks. You increased 1% year on year. Jamel mentioned some timing differences explaining that. I was just wondering for the next few quarters do you see the competitive environment as being conducive to increasing prices closer to inflation maybe, or do you think you will remain below inflation given how the category has been performing recently?

Hi, Antonio. Thanks for your question. Of course, as you alluded to, there are discussions going on between ABI and SAB. Of course, the proposal is being made direct by -- made by ABI without any participation of Ambev and therefore, we have no further information to share at this stage.

Okay.

So I would pretty much go to your second question regarding the revenue per hectoliter on soft drinks. As we said, was -- there was indeed an impact of timing right on a quarter over quarter of different timings of our price decrease. But, as we do in beer, our revenue management strategy is to pass through any tax decrease plus push price to manage inflation.

And even in our press release, what we mentioned about the whole performance of the CSD division here in Brazil, one should not take this quarter as a proxy of what to expect about this business. Actually, this business, despite the softening and the softening in the industry that we know, is even more affected than the beer industry in Brazil in this tough economic scenario.

We have been, on the other hand, the same way as in beer, focused on delivery that we can control, so have been gaining share, gaining preference, working on affordability with returnable packages and innovation in this sense in terms is crucial. Our (inaudible) for instance is really double digit in 2015.

Then we have more to come soon in this area. So Guarana Black, Guarana Extra Black, a huge sector since the beginning of the year. We launched a line extension Guarana Black Zero. The same with Pepsi Zero, another launch we had this quarter. So innovation in the basic core brands accelerating, let's say, the fast-growing more profitable energy drinks segment is also big on our agenda. So we have a full brand of soft drinks.

Important to highlight, third quarter there were some one-offs and timings. I mean phasing of some of our initiatives that we did last year with no doubt we expect to deliver more in the following quarters despite the tough environment. That's how we see the soft drinks business evolving.

Right. Thank you very much, Jamel.

Welcome.

Right. Thank you.

Luca Cipiccia, Goldman Sachs.

Thanks. No, that's actually a really good result. Good morning. Thanks for taking my question. I wanted to follow up on the returnable mix in Brazil. I think, Bernardo, you said it's now 20% of total. Could you remind us what it was at the beginning of the year?

And also I think in a previous meeting you highlighted how it varies quite significantly depending on the region. And just to get an understanding on how much higher can it go, if you could give us some degree of range or whether this is higher and whether this is not and what it is. Is it just a question of rollout and coverage, or it's more structural depending on where you operate? Maybe some direction on that would be useful. Thank you.

Hi, Luca. Thanks for the question. I think that is a good example that -- how we work our culture working in Ambev. Instead of being complaining about the crisis and things like that, how we can really operate and the leverage that we control and try to change the market environment in the favor of the industry and in our favor.

So last year probably it would be around 4% in the beginning of the year and around 6%. Now it's 20% in the off-trade channel. Back into time, kind of 1996, 1995 when I worked at -- with Brahma at that time we saw a lot of returnables in the off-trade. It's great because it's great for the chains as well because they have a better margin. It's great for the people in general because it's affordable on the brands that they love and it's very good for us because it can bring affordability, making the profits that we need.

So I think that we can grow more than that. You have to have some space -- space and areas that we have more than that. We cannot recite the number to you, but the opportunity to grow is even further. I think that those kind of opportunities that the crisis gives to us and then we have to put the plans in place, believe and go for it. And we have done that and I think it's good.

And it's good because including all the impact that people say about the FX, that we always have been having this year and have some next year as well, this is the kind of package that will not be affected. So the mix will help us -- this kind of mix will help us in the share, in the industry and in the costs as well, so very bullish on this.

But I'll just say, just a follow-up. If you were to take a region where you're doing this at your best, or -- just to get an idea how high would it be? I don't know if you can share that in a relevant benchmark. Would it be in the 30s, in the 40s? How --

Yes. I would say it's average 20%. So we have regions that we are in the late -- in the early stage of implementation that have 10%. Even 5%. That's the drip portion to the agenda. But we have regions that have 40%, for instance. So that's the type of range that we have. We think this is average. Clear?

Thanks. Very clear, thanks.

Alex Robarts, Citi.

Hi, everybody. Thanks for taking my question. So it's really a non-Brazil question. You got the double-digit growth EBITDA in the quarter in Brazil. But what was interesting is over half of the operating profit coming from CAC and LAS and very heady growth rates, 65%, I guess, if you add together the growth rate with CAC and LAS.

There is currency in there, but what we were interested in is seeing the very strong price growth you got in LAS and then the double-digit volumes in CAC. And so as we think about these two regions going forward, I guess the comps get a little easier. But if you strip out the currency element could you tell us a little bit about where you think these businesses, or particularly CAC, what kind of margin level we could expect? I know at one point you gave us a market share of 42%, I think is what you have in the CAC region. Are we still there? Is it higher?

And if you could talk then in the comments that you can give us on LAS, what are you contemplating in your budget for the Argentine peso next year? And how should we think about a potential devaluation in that market? So that's the first question. And I just have a COGS question as my second one. Thanks very much.

Okay. Hi, Alex. Thanks for the question. I'll start by talking on Central America and the Caribbean. As you mentioned or referred in your question, of course, we had a gain due to currency fluctuation, right? But even in organic terms, we had a strong performance which actually was not new. I mean these have been delivering consistently quarter over quarter.

I was just highlight the strong top line performance in our key markets with double-digit volume growth across the different currencies where we know we have different market share positions. So, in the end of the day in our approach, for each market to have a clear plan. The same way Bernardo talked about the commercial platforms in Brazil we have them really a plan nailed down in our core operations, so we continuously invest behind our brands.

Presidente, for instance, in Dominican Republic, a major result during the summer season with experiential events and that helped us to drive this team's volume increase in the country.

In Guatemala, their strong performance recorded a couple of quarters as well, many thanks to the addition of the Mexican brands to our portfolio and there we are gaining share in a very relevant way. But in the end of the day we are combining all the strong top line momentum with, as you know, our focus on cost management and operational excellence, improving margins in both currencies. So we are really pleased with the performance in the region.

But moreover, you referred that our share in the region, right, was about 42%. This number is growing, but we think there is still a lot to go. Not to mention the opportunity for the industry to be further, let's say, activated and the demand activated over there. So I think Bernardo has a comment on that.

Hi ,Alex. I think the ability of having a very consistent, long-term top line initiatives, the strategy very, very clear for the full Ambev is that when you have headwinds in terms of macroeconomic scenario like in Brazil, we can overcome that. And we have some tailwinds in terms of industry really can boost the results. So that's why I always repeat to you, to everyone, we will continue to be -- we have a big dream for the long-term and we have a consistent strategy to get there that will help us in the short-term. Good industries, bad industries, but we perform anyway.

Yes, and just to complement the answer, regarding Latin America South, we are not providing any guidance or view for 2016. I think you asked about the effect for next year, the budget scenario. I'm not talking about that yet.

But, of course, there is a different scenario in terms of high inflation, so we have to take that into account as our performance there, the markets to best price and inflation for the local currency. You should see double-digit top line growth even in the higher inflationary environment in Argentina.

But more than the tradition or the application of the price policy, you will see a lot of examples of great initiatives as well behind premium brands, behind near beer. It's very incremental. So be it in Brazil, be it in Argentina, our explanation for our strong performance volume-wise has also to do with the incrementals that we are bringing with this near beer platform, not to mention the better margins, right?

So these successes expanding to other countries in the region, so we also feel confident and remain committed to drive a sustainable and profitable top line and EBITDA growth in the region.

Okay. Fair enough. I appreciate that. The second and the last one is the COGS question and this is a little bit forward-looking. As you think about setting your commodity hedge for next year together with the currency hedge -- obviously, there was a moment earlier this year when the real -- May or -- May and June or -- when the real was 3.1. And I guess it would have been a great time to think about buying the forward hedge at that point.

And I just wonder if there's any color you can give us as to where you think next year's FX dollar COGS hedge in Brazil could end up. Is it fair to assume that you've done a fair amount of that already if you can't give us more color than that?

And second, on the commodity in the dollar pricing, when you look at your inputs are you finding that there's room to get and secure some of these hedges at equal to lower rates, or is it still a mixed bag? So any thoughts around that -- those two hedges for next year would be helpful. Thanks.

Sure. I'm going to provide you with some thoughts, as you said, because at this stage I'm not providing any specific guidance for 2016. But you know our hedging policy, right? We have a rolling -- every month we are hedging our exposure for the following year for both FX and commodities. On average we have all the strong months locked.

So, as you mentioned, at the beginning of the year the terms of the FX are at a much lower level. And we're doing that. We're building our hedge for next year the same way of course of the moment we started to see the specific BRL devaluation as this started to impact our outlook for 2016.

But as I said, given the market price year to date, as well as the future prices, one should assume a negative FX impact for next year versus what we had in 2015. But that will be definitely partially offset by lower commodities pricing. Actually, we believe that the biggest benefit of the hedging strategy, which is to give us the appropriate (technical difficulty) so we are going to mitigate that action to cope with this change, right, these FX, these commodities. That's exactly what we are doing now as we purchase for 2016.

In terms of mitigating actions need to, of course, include both top line as well as COGS initiatives that will deliver the most appropriate to protect our profitability in the short-term but also paving the way profitable growth. This is not different from other occasions where we had to deal with relevant and volatile scenarios for FX and commodities and price changes. But since we are still talking about Q3 you know that we have -- as usual, we are going to provide a specific guidance for next year by the time we announce our full-year results. And that's what we can say for the time being.

Okay. Very helpful. Thank you.

Robert Ottenstein, Evercore.

Great. Thank you very much. Guys, just stepping back a little bit, there seems to be a real tremendous evolution in how you're doing business from a model a few years ago that was very simple, straightforward in the sense of your brands and primarily in three main brands with not a lot of different line extensions.

And during the last couple of years and increasingly now there's a tremendous amount of complexity that's being introduced, obviously, for a lot of good reasons. And what I'm asking is, is how you're dealing with that increased complexity in terms of the sales force, how they're dealing with that. Is there additions to the sales force, new training, different ways of segmenting the sales force and also how that's being reflected in your supply chain and your manufacturing? Thank you.

Thanks for the question, Robert. It's a very good one. As we dream big, and you know us a lot, why not to be really structured to deal with the -- more brand activation, all of the things that we are doing to drive top line growth and being more efficient. That's the dream that we are doing.

So revising the full process, assuring that we are doing this every year to simplify things, putting all the -- our IT and technology to help us on that it's very, very important. And we are doing this not only in sales, but we have been doing for many, many years within the supply as well. And going to the next level on all of those things of this application, of, as you say, our back groups the tech sales group, tech supply groups and so forth and so on. So it's evolving big time this.

And the third one engaging our team even more. So people make a difference. And you know we always talk about the dream people culture, a big dream and people make a difference. All the internal numbers that you have for Ambev in Brazil that are engaged, this is evolving big time. For instance, this year, even in the crisis that we are getting there. So it's possible really to deal with all of those new brand activations and so on more efficient and driving the top line with that.

That's why, in the base of the -- our strategy, we always focus -- I mean a niche goal here elevate the core, being in near beer, in home, out of home, there is operational excellence. This is the very, very important thing not only to assure the things that you have nowadays, our base, but to assure that in new things that you enter in the business we really enter in the right way.

Another example, a clear example. We launched Skol Beats Senses one year ago. We could launch Skol Beats Spirit six months ago. We didn't do that. We go end to end with Skol Beats Senses and are activating above the line, creating experience. These are the brands of the on-trade. And now, okay, the end of the year we go to the next one and for sure it will be a huge success as well.

So it's possible to do both and we are doing both, again, bringing the people, engaging the people and bringing the operational excellence to the next level. The challenge for the team here, okay, we operate with the excellence. We have to operate, but we need to step up even more to get our dream for the long-term, and we are doing that.

Just so far, have you further segmented the sales force and how it's managed in Brazil? And can you talk about additions to the sales force? How many -- how much has the sales force grown over the last couple of years?

Actually, the sales force it didn't grow basically including in terms of FTEs. We're able to optimize and get some savings and re-invest in the business. So we are segmenting the market much more. That's good because we can apply the process and all the technologies specifically for that channel, all the profile of the people for that channel and the training programs for that channel. So it's much more efficient not only in terms of top line, but in terms of all the programs of training and technology that we are doing.

And you have to bear in mind that there is much more than order taking. Also, you have to prospect, you have to close the deal, you have to take the order and to activate and clear that. So we understand sales much more than the simple order taking. So we can optimize the order taking and maybe take out some investment from that part and raise that. That might activate demand in the portfolio, in the bigger portfolio that we have nowadays. One way to do that is to segment the sales force.

So we have people working 24/7 basically, including at night. So we do have a sales force that -- activation group that's working at night nowadays we have in the urban centers working to two, three am. So those kind of things we are evolving big, big time and we learn with the other companies, benchmarks in Ambev and including my previous experience at [Cerevis]

Thank you very much.

Thank you, Robert.

(Operator Instructions). Carlos Laboy, HSBC.

Hello, everyone. I had two questions regarding elevating the core. The first one is whether you could expand on the benefit you're getting from line extensions, maybe focusing in on Brahma and on how these extensions are helping you elevate the core and how do you measure that benefit.

The second one relates to whether you see any kind of opportunity, if any, from refreshing the refillable mainstream packages that you've got in the marketplace. Thank you.

Hi, Carlos. Thanks for the question. I think the first one, elevating the core, is clearly the basis of our volumes, so line extensions are important since they add to the main brand -- to the modern brand, sorry. So we have the key attributes for each brand, so we will only launch things if those new line extensions will really have a good -- a positive benefit on the key attributes of those brands.

So, one example, Skol Beats Sense is good for Skol because it connects and it helps Skol connect much better with the young people. So it's good for the mother brand and good for the whole franchise in terms of volume share because it's very incremental.

Skol Ultra again is very, very important. It's something that's young and connects for a group of people that this specifically -- this specific package helps us to really grab this additional volume.

So that's the way that we do. We will never launch a line extension that will hurt -- that will not have a positive effect in the key attributes of the mother brand. So this -- and it's helping.

Brahma, another example. Brahma Extra Lager, Red Lager and so on we know that for Brahma it's very important to be really the face of the flavor mainstream beer here. People really like the flavor of Brahma, a little bit more bold flavor. And then [the Mayasa] lager, the Mayasa Red Lager the help to re-enforce the key attributes of Brahma to be a very flavor and quality. So these are the first questions.

And the second one could you remind me, Carlos?

Yes, the second one relates to when you think of elevating the core, what importance do you see and opportunity do you see for refreshing mainstream beer refillable packages? I know it's expensive and it can be risky, but it's something we haven't heard much of.

I think that we have been doing -- when we launched the one unit and new -- so it's the new pack, now the 300ml as well, so we have been investing on this. In some areas we're doing -- putting foil in the 600ml. I think that's an opportunity and we have been doing that. These are ways to elevate the core and is the best that we are doing. In the last years with the one unit 300ml continues to do -- hope to continue to do in the future.

On the second point -- and I think that's something that's a bet. It's not something for the short-term. But we agree that's a good opportunity to really make those brands more young and improve the quality perception of the pack. I think we are doing this.

As an example, I think the Skol Draft that Bernardo mentioned within his opening speech, is a great innovation in that sense, right? It's not only refillable, but moreover with Skol Draft, we are extending this draft experience which is different for consumers to a much broader base given the innovation which has, again, brings the mainstream consumer different from the traditional Brahma, Skol, Stella Artois draft. We are now reaching a much broader base with the broad position of Skol Draft. And there are examples (multiple speakers).

Yes, a very good example, Jamel.

Thank you.

Thank you, Carlos.

(Operator Instructions).

Thanks again. Also thanks for everyone to be in the call and for the questions. What I'll say for the final word since we have been talking to you guys in the last month, we have a big dream, have great people here to deliver on that. The long-term plan it's very clear. I have been repeating this in every meeting in every call. And we'll be consistent in the implementation of that.

So sometimes the macro environment will help us, sometimes will not, but I'm 100% confident that we'll deliver it anyway. And I think that this year it's a very good example and next year will be another one.

So that's the final message. That's the way that we operate here. That's based on our dream and our people and our culture that help us to move forward. Thanks a lot. Bye-bye.

Thank you. Bye-bye.

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