Ambev SA (ABEV) 2016 Q1 法說會逐字稿

Good morning and thank you for waiting. We would like to welcome everyone to Ambev's first quarter 2016 results conference call. Today with us we have Mr. Bernardo Paiva, CEO for Ambev, and Mr. Ricardo Rittes, CFO and Investor Relations Officer.

We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the Company's presentation. (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 Q1 2015 results. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Ambev's normal activities.

As normalized figures are non-GAAP measures, the Company discloses the consolidated profit, EPS, EBIT, and EBITDA on a fully reported basis in the earnings release.

Now, I'll turn the conference over to Mr. Ricardo Rittes, CFO and Investor Relations Officer. Mr. Rittes, you may begin your conference.

Thanks, Kate. Hello, everyone. Thank you for joining our 2016 first quarter earnings call. I will now guide you through our operational highlights of Brazil, CAC, LAS, and Canada, including our below-the-line items and cash flow. And after that, Bernardo will give you additional color on our operations during the quarter, and we will also explain why we see our top line and EBITDA performance improving in the quarters to come. We will then move to Q&A.

Starting with our consolidated results, we had a soft start of the year, as solid results in CAC, LAS, and Canada were offset by a negative performance in Brazil, especially in beer. Top line was 2.6%, with a volume decline of 7.7% and a net revenue per hectoliter growth of 11.6% (sic - see press release, "11.1%"). EBITDA was up 1.1%, to BRL5.3 billion, with an EBITDA margin of 45.5%.

In Brazil, I would like to highlight that the first quarter results were weak, as anticipated, and that we are not changing our guidance for the full year. Top line was down 4%, and EBITDA declined 5.5% in the country, [lapping] a comparable basis of 18% growth in the first quarter of 2015. Beer volumes were the main driver for such results.

On top of the adverse macroeconomic environment, we faced a hard comparable base, mainly due to early Carnival and price increases to mitigate taxes, not only impacting an already depressed industry but also leading to unexpected market share loss in the quarter. As a consequence, beer volumes were down 10%.

Net revenues per hectoliter was up 6%, driven by our revenue management strategy, including the benefit of premium, but partially offset by the higher mix of returnable glass bottles in our total volumes. RGBs, while EBITDA margin accretive due to a significantly lower cash COGS per hectoliter, carry a relatively lower net revenue per hectoliter. With net revenues per hectoliter growth not fully offsetting volumes, beer net revenues were down 4.6%.

While negatively impacting our top line, the growth of RGBs helped us to mitigate a good part of the currency and inflation headwind, driving strong COGS performance in the quarter. Also, helped by our hedges and procurement savings, cash COGS per hectoliter was up only 2.9% in the period.

We also overperformed in SG&A, driven by low- to mid-single-digit growth of sales and marketing [and distribution] expenses and a decline in administrative expenses.

As a result, cash SG&A was flat in Brazil beer in the first quarter.

Other operating income was down, driven by top line decline and geographic production mix.

Despite our COGS and SG&A performance, Brazil beer EBITDA was down 8% in the quarter.

In Brazil CSD and NANC, the carbonated soft drinks industry continued to be pressured by a negative disposable income growth. Our volumes were down 3.8%, better than the industry performance as we estimate.

Within the energy drinks, Fusion continued to overperform, growing volumes, and became the second-largest energy drink brand in Brazil. With a net revenue per hectoliter increase of 3.7%, Brazil CSD and NANC top line was flat in the quarter. Despite that, Brazil CSD and NANC EBITDA was up 13.3% in the quarter, mainly driven by a low-single-digit increase in cash COGS and a mid-single-digit decline in cash SG&A.

Turning now to CAC, Central America and the Caribbean. We delivered another very strong quarter, with EBITDA reaching BRL379 million, coming from BRL218 million in the first quarter of 2015. This was a 28% organic increase and a 74% nominal increase. This outstanding performance was mainly driven by double-digit volume growth and solid EBITDA margin expansion of 260 basis points.

In the Dominican Republic, we further expanded Carnival Presidente, activating demand and growing top line by connecting with our consumers through relevant platforms.

In Guatemala, we continued to improve our execution with Brahva and Modelo brands, especially Corona, with a strong summer activation.

Along with strong top line, our EBITDA performance also benefited from our solid financial discipline, leveraging on both cost and expense savings, mainly in the Dominican Republic, expanding our EBITDA margins for another quarter.

Now, moving to Latin America South. Our top line was up 15.1%, and EBITDA 15.4% above that of last year. Our volumes were down 10.4%, But adjusted by the Peru CSD exit in the third quarter of 2015, this decline would have been of mid single digits, mainly due to macroeconomic conditions in Argentina which were partially offsetting by: number one, in Paraguay, we had a solid performance from mainstream to premium portfolio, mainly with Budweiser; and, number two, in Chile, along with another quarter of great performance of Corona, we benefited from the successful incorporation of Budweiser to our portfolio in the country.

Within the CSD and NANC segment in that region, while still pressured by the macroeconomic environment in Argentina, we remain very excited with the Guarana Antarctica rollout in that country. Net revenues per hectoliter increased by 28.6% in the region, explained by our solid revenue management strategy linked to inflation and premium mix.

With costs and expenses pressured by strong inflation, mainly in Argentina, and unfavorable currency movements, we continued to make use of our cost management capability and benefited from a better product mix to protect our profitability. Our EBITDA margin was up 10 basis points, to 44.9%.

Moving on to Canada. Reported volumes grew 5.8%, mainly driven by: beer industry expansion due to favorable weather and an extra selling day in the quarter; number two, solid performance of Bud Light, Corona, and Stella Artois, which each grew volumes mid to high single digits, and Goose Island IPA, which is among the fastest growing craft brands in Canada; and finally, the benefit of our strategical positions in the fast-growing craft, ready-to-drink, and cider categories, leading to the ninth quarter in a row of market share gain.

Net revenues grew 2.3% in another quarter of good balance between volume and price. Net revenues per hectoliter increased by 1.3%, mainly driven by our revenue management initiatives and the benefit of premium mix.

EBITDA was up 5.7% in local currency, benefiting mainly from our recent acquisitions, while flattish on an organic basis, negatively impacted by [currency devaluation] and high investments in sales and marketing, partially offset by lower administrative expenses and phasing of distribution costs.

Now, moving below EBITDA. Our net financial results total an expense of BRL1.2 billion in the quarter, compared to BRL500 million last year. As we already explained in detail in the last quarter, mainly due to the (inaudible) devaluation and higher interest rates, our interest expense increased in a significant way compared to one year ago. Some of these expenses are cash; some of these are non-cash and have a non-economic impact.

In the first quarter, we had, first, interest income of BRL185 million, driven by our cash balance, mainly Brazilian reais, US dollars, and Canadian dollars. This is cash.

Second, an expense of BRL360 million due to interest expenses. Of these expenses, roughly BRL160 million is a non-cash accrual related to the put option associated with our investment in the Dominican Republic. As part of the Cerveceria Nacional Dominicana deal in 2012, a put option exercisable until 2019 was issued, which may result in an acquisition by Ambev of the remaining shares of CND for a value based on an EBITDA multiple. This non-cash accrual expense increases over time as we approach 2019, as EBITDA grows, [currency] devaluates, among other factors.

Third, BRL417 million losses on derivative instruments, mainly driven by the carry cost of our FX hedges primarily linked to our COGS exposure in Brazil and Argentina. We have a disciplined hedge policy pursuant to which we are always hedging the US dollar-denominated portion of our COGS in all countries we operate, along with any other cash risk that could arise from FX and commodity movements, both in payables and receivables.

This result is permanently linked to our COGS exposure in Brazil and Argentina. And one important thing to highlight is that depending on the hedge instrument the cash impact might differ in time from the time of the expense accrual. Another important point is that, also depending on the instrument, interest rate moves can generate non-cash monthly gain or losses, which can explain the quarter volatility of this line.

Fourth, BRL245 million losses in non-derivatives, mainly due to non-cash foreign exchange translation losses on inter-Company loans, which are offset by foreign exchange translations gains on equity which have no economic impact.

Fifth, other financial expenses were higher due to a one-time cash impact on a roughly BRL200 million legal claim that became payable during the quarter.

Our effective tax rate was 10.4%, down from 24.3% last year. Along with the higher benefit from interest on capital, there were no material other tax adjustments, versus a one-time negative adjustment of approximately BRL660 million reported in the first quarter of 2015, which was related to inter-Company loans. At that time, we not only flagged these other tax adjustments as a one-off, but also highlighted that this negative impact was expected to be reverted, going forward, which holds true.

Higher financial expenses were almost fully offset by lower effective tax rates, with normalized profits being slightly down year over year, at BRL2.9 billion.

In line with the anticipated weak operational results, we also had a soft start of the year regarding cash flow generation. I will guide you through the major drivers.

Starting from a similar net profit and cash flow generation before working capital and provisions of last year, we will describe the impacts of the working capital. Given the fact that we have a negative working capital position, every time we grow our business there is a positive working capital impact, as cash generated by payables is significantly higher than that utilizing receivables and inventories.

The opposite is also true. And as a consequence of the tough quarter anticipated, we had a roughly BRL1 billion cash flow coming from receivables, but a BRL3 billion as a result of [delta in] payables.

Cash generated from our operations was BRL2.3 billion, while CapEx reached BRL707 million.

In terms of cash taxes, the normal high number for the quarter is expected to be diluted in the quarters to come, and the shorter the period we look at that line the harder it is to reconcile with the effective tax rate. As a note, in this quarter we had the lowest effective tax rate, which was 10% compared to 24% in the first quarter of last year.

In summary, similar to operational results, we see our cash flow generation accelerating in the quarters to come.

During the quarter, we completed and paid for the acquisition of Mark Anthony Group, a cash outflow of BRL1.3 billion, and paid out BRL2.1 billion of interest on capital.

Thank you very much. I will now move to Bernardo before going to Q&A.

Thank you, Ricardo. Hello, everyone.

In the first quarter, we had mixed results, with a strong performance in Brazil CSD and NANC, CAC, LAS, and Canada, and a weak performance in Brazil beer that, while anticipated, drove the soft start on a consolidated level.

So, I would like to concentrate my comments today in two topics: one, what exactly happened in Brazil beer in the first quarter; and two, why we see our performance improving in both top line and EBITDA in the following quarters.

So, starting with the topic number one, what happened in Brazil beer in the first quarter? So, first, we are facing a very challenging macroeconomic environment in Brazil. We know our industry tends to be more resilient than others. But every time we have negative disposable income growth, as we have now, the beer industry will suffer at some [length].

On top of this, we had already anticipated some temporary but important headwinds. So, second, we had a hard comparable base due to the earlier Carnival that happened in the beginning of February in 2016, compared to late February in 2015. The sooner the Carnival, the sooner the summer ends in Brazil. Historically, we've had a weaker first quarter whenever we faced an early Carnival.

Third, we also had hard comparable base on taxes. Given that the new federal tax model became effective only in the second quarter of 2015, the first quarter of 2016 will be the only year-over-year comparison on an orange-to-apple basis. VAT taxes also increased in some states.

Every time we have a tax change, industry suffer for a couple of months before stabilizing.

Fourth, on top of the already depressed industry, the fact that we had to implement an unusual -- and I repeat: unusual -- price increase to offset a high inflation and taxes led to a challenged market share dynamic in the first quarter that we expect to be short term in nature.

Moving forward, let's discuss the second topic: why we see our performance improving in the quarters to come. One thing, an important thing, I would like to stress, we are never pleased with weak results, even in a single quarter. But we don't manage this business by months or quarters. We will always, always operate the short term guided by our long-term strategy.

With that said, we had already anticipated a challenging beginning of the year in our 2016 forecast, with a plan to accelerate the following quarters. The macroeconomic scenario continues to be adverse in the country, and we expect no relief. But we have already left the hard comparable base of the first quarter, and April volumes reflected this, trending much better versus the previous months.

Along with that, we took advantage of this adverse scenario in the first quarter to accelerate top and bottom line initiatives that, while not able to offset this quarter's weakness, will play a key role in our performance, going forward. Particular emphasis is being given to our pack price strategy, with returnable glass bottles gaining weight in a material way in our total mix for the first time in many quarters.

But not only that. When looking to the evolution of all of our five commercial platforms, we feel really confident about our strategy in order to deliver 2016 while building our future.

[Within elevating the core], brand preference trended higher for another quarter, again. The positive trend of brand preference way above our market share shows the full potential of our brands and allow us to plan to fulfill this potential. In other words, we do expect to recover our market share loss in the first quarter in a disciplined and sustainable way.

Our premium volumes grew strong double digits for another quarter, with a solid performance of the full premium portfolio. Budweiser, especially, is the leader in the segment. Premium preference is high, and there is still significant opportunities to improve our performance. As a consequence, even in this environment, we see premium growing ahead of mainstream, driving positive price and (inaudible).

Within near beer, Beats family more than doubled its volumes, with the Skol Beats Spirit launch in the first quarter. Brahma 0.0 continued to lead the non-alcoholic beer segment in Brazil, growing volumes like double digits in the quarter. Near beer is already a reality in our portfolio, but the opportunity is much bigger.

By further improving our execution of Skol Beats family and Brahma 0.0 and leveraging on a solid pipeline of new liquids, we will continue to target occasions where we have a low share of (inaudible), capturing incremental volumes in a profitable way.

In the in-home occasion, RGB volumes continued to grow above 100% in supermarkets. I repeat: above 100% in supermarkets. And we want to do it in the right way, making it sustainable. It's good for consumers. It's good for the environment. And it's good for margins. This is a huge shift in consumption behavior in Brazil, with important implications for the short and long term.

[This, too, connected] with the in-home occasion, we have been accelerating our off-trade market programs in both small and big off-trade forms, improving the assortment and the mix of our products, implementing smart discounts, and rolling out CRM models.

In the out-of-home, similar to Carnival, sports, and music events execution, we have been stretching ourselves to expand our activation in key selling moments, boosting experiences such as St. John June festivals, regional parties, and the Olympic Games. These are key opportunities to activate demand and build brands.

Affordability also plays an important role in the out-of-home occasion, with the 1-liter returnable glass bottle growing volumes and mix year over year.

Along with our focus on top line, we are also taking advantage of our cost management capabilities which have helped us in the past to improve our profitability in different cycles. Significant cost savings and efficiency gains were already achieved in the first quarter, setting a lean pace for the year, and will continue -- and I repeat again -- will continue to positively impact our profitability in the quarters to come in a material way.

In summary, we continue to focus on what we can control, [living] our culture every day, and boosting initiatives to have a leaner and more agile organization. We remain confident in our initiatives to deliver solid performance in Brazil despite the weak start and the volatile scenario expected for 2016.

We have no change to our guidance in Brazil for the full year. And while Brazil represents close to two-thirds of our results, our international operations have proven to be a great asset throughout the years and will continue to do so in 2016.

Before closing, I'd like to welcome the whole team from Do Bem and tell you how excited I am with this partnership. We found a team with a big dream to [reap] the whole of Brazil with the amazing juices and teas, et cetera, in [fun and colored] boxes, addressing the growing well-being trend.

With that, we can move to the Q&A. Thanks.

(Operator Instructions) Lauren Torres, UBS.

Bernardo, not to be too short-term focused, as I know you're not that way, too, but as you use the words that April was much better as far as volume trends versus the first quarter, I was just curious to get your perspective on if that was mostly a comparison point? Or, you're seeing some of the initiatives that you put in place really take hold in April?

I guess my broad question here is when you provided us with Brazil guidance earlier this year, if kind of the components of getting to that guidance have changed? Meaning, if the environment gets tougher as we course through the year, if there's different things you need to do to get there?

I think that, basically, what you see is the plans that have been put in place after this price increase in the first quarter, things that have been working well. And then, we saw positive results in our volumes, not only due to the industry but for the recovery of the market share.

So, this is the main reason, those two things: the thing that the industry became better and the recovery of our market share that is going on, as we speak. So, that's why we had better volumes in April.

So, basically, it's that. I don't know if it's clear for you?

Clear. Like I said, I'm just trying to get a sense -- maybe even other words that you used with respect to material procurement savings and efficiency gains that came through in the first quarter and will get you leaner for the rest of the year. Was it always weighted to the first half of the year? I'm just trying to get a sense of the timing, because it seems like some of the margin contraction and pressure we saw in the first quarter may be a bit amplified and that's kind of the reason why we should expect things to trend better as we course through the year?

I think in terms of in the cost side of the business, since it was your main question, the second question, I think that, based on our values and on our culture of owners, we always try to operate in a leaner way.

And then, I think that the flip side, or one of the silver linings of this macroeconomic environment, is that you can operate better. If we operate more efficient, we can speed up new process. And with that, we expect to continue to have good results in terms of in the cost side of the business, without putting at risk our future, without any risk in terms of investment decision and marketing.

And just to remind everyone, costs for us is not a one-off thing. It's part of our daily life. And this team is a great team, and we need to go there and have a lower cost. The creativity of the team appears, and then you see great ideas and the faster implementation.

So, we expect to continue to deliver in terms of cost savings throughout the year.

Andrea Teixeira, J.P. Morgan.

Just, Bernardo, I guess Rittes, as well, the one question that I have is below the line. I understand that below the line you had a bunch of -- there is a legal, and if you can elaborate on that, on the legal expense? What it relates to, as well? Because that I understand is cash.

And also, with the Dominican Republic put option, that is also related to, obviously, the amount in dollars. But I'm just confused, because we have been having that below-the-line impact since last quarter. And I understand, like, on a sequential basis the real has appreciated, and I understand that, from Rittes' comments, that also is related to the growth in EBITDA.

So, how we can reconcile? And so, how cleaner --? I would say, related to the first question, as well, how front loaded we are seeing these expenses in your --? Through all my years, I haven't seen anything of this sort of magnitude below the line. So, I was just wondering if we can expect a little better over the course of the year? Or, this volatility should continue?

So, that's the one question. Thank you.

Well, let me go a little bit in more detail and again through, like, the net financial results. The net financial results total an expense of BRL1,171 million versus BRL481 million in the first quarter of 2015. And it was mainly due to five things.

First, interest income. Like we said, this is cash.

Second, the expense that is BRL360 million in this quarter is impacted by the BRL160 million of Dominican Republic. The way it works, this is a put option that our partners in Dominican Republic have against us. So, it will have an obligation to our part of the business. We also have a call, but this call does not impact our P&L.

This obligation that we have, the more the business grows, the more value is the business, the larger is the obligation. So, with a little bit more detail, as you requested, at any given and fixed multiple, when you look at the nominal growth of that specific region of CAC, which is 70-plus-percent, you should have a little bit of a guidance of what to expect. That's the nominal part as we report in Brazilian reais.

Third, there was a BRL470 million derivatives instruments, which is essentially the carry cost of our hedges. This is primarily linked to our COGS exposure, and we do have a disciplined hedge policy pursuant to which we are always hedging the US dollar-denominated portion of our COGS. That goes both for Brazilian reais and Argentinian pesos [alone].

Of course, that in local currency every time you have a devaluation on a year-over-year basis -- that's what we are comparing; that's why there was a devaluation year-over-year basis -- the exposure in local currency increases. And as a result of that, also the carry cost increases.

And another important point is that also depending on the instrument, interest rates moves generate non-cash monthly gains or losses. And finally, the cash impact might different in time from the expense accrual, also depending on the instrument. So, being a little more prescriptive, if you have futures, you have daily cash settlements. If yu have forwards, you have concentrated cash settlements.

Number four. There was a BRL245 million loss in non-derivatives, and this is essentially a non-cash foreign exchange translation loss due to inter-Company loans, which were offset by foreign exchange translation gains on equity, which therefore do not flow to the P&L. But nonetheless, there is no economic impact.

And fifth, there is this other financial expense that were higher due to a one-time cash impact [legal claim] that became payable this quarter.

And so, can you elaborate on the legal -- what is this legal claim?

Absolutely. So, we have --. That was a legal claim that we paid in advance during that quarter, because whenever we have an opportunity to anticipate liabilities with NPV gains, we do it. So, I think that's the extent we'll disclose to the market.

I had trouble hearing you. I'm sorry. Could you repeat that?

Absolutely. That was a legal claim that we paid in advance during that quarter. And the point is that whenever we have an opportunity to anticipate liabilities with significant NPV gains, we do it. And I think that's the extent that we're going to disclose on that specific.

Okay. And then, going back, Rittes, on the hedge, usually the hedge is supposed to be --. For example, if you're long dollars here mostly and you had this appreciation of the real on a relative basis, you would have an impact here negative below the line. But then, on the COGS, then you would have a positive impact.

So, obviously, your gross margin declined in Brazil and kind of also on a consolidated basis. So, I was wondering why we saw this mismatch? Obviously, I'm limited to what I can see in Bloomberg on the [codes]. There is always short-term some mismatch on the timing. But I was just curious if you can talk to us more in details why this happened specifically this quarter, that we couldn't see in the previous quarters and previous years?

Usually, it follows --. And if there is some deleverage on the operating leverage lower because the volumes are lower, I understand that. So, perhaps if you can tell us, okay, it could have been better, the gross margin would have been better and we have a positive impact or a tailwind from the hedges on the COGS, but that we had to give back much more below the line because the real appreciated against our long positions in dollars.

So, can you --? Is that a fair assumption?

Andrea, if you don't mind, we can get back to you in more details. Because the way we see it, our COGS performance is significantly below inflation and is in line with the guidance for the full year that we anticipate. That reflects the benefit of our hedges. That reflects also the procurement initiatives that we have. And I think we can go into more details with you, specifically.

Okay.

When I look at a year-over-year basis, I'm not understanding exactly what is the point. Because on a year-over-year basis, first quarter of 2016, there's devaluation compared to the first quarter of 2015. So, I want to go over with you later to understand exactly what (multiple speakers).

Yes, but I understand the hedge. I under the cost side. But the hedges don't have that --. I understand they're mark to market on a quarterly basis. That's why --. That's my trouble understanding. But I understand. We can talk offline.

Just to be very clear with you, just in terms of the hedging, the hedging doesn't go, the mark to market of the hedges, into the P&L, because we have hedge accounting. It only goes, specifically, the hedging of that specific portion.

So, whenever is the movement in the quarter of the FX, as we have hedge accounting, it doesn't flow to the P&L. It's on the carry cost of the hedge that flows into the P&L.

I don't know if that's clear for you? I don't know if that [was the source] of your question?

Okay. No, that's fine. We'll talk offline. Thank you.

Luca Cipiccia, Goldman Sachs.

Just one about volumes and market share. I think you made some comments how the certain segments continued to do well. Premium continued to do well. I was curious to understand whether there is a sort of a part of a strategy, as well, of maybe leaving behind sort of the low end or the more mainstream part of the market at a time where it may not be as profitable as you would like? We've seen some of your weaker competitors somewhat stabilizing after a number of quarters of negative volume growth.

So, my question is really maybe if you can qualify by segments the performance of the first quarter, as well as whether there is to some degree an intentional flexibility to lose some market share maybe in parts of the markets where you don't foresee that they're attractive at this point in time?

First of all, every volume in Brazil, it's a profitable one. You always fight to get that volume in any point of sale in any place.

I think linked to the market share, basically what happens, it's simple to explain. So, we never do price increases in the first quarter. It's not the best moment of the year to do it. And we've done that because we have state taxes, mainly, in the end of last year that was in some states and important [values]. And as a company that leads that market, we led the price increase. And every time that we lead a price increase, we lose share.

And that's basically what's happened. When you see a price increase that you have a comparable base in the previous year that you had the same price increase in the previous year, you don't see the variance in this market share. But as I said to you before, this was an unusual price increase, given to the taxes, compared to a quarter last year that we didn't increase price.

So, this is the main reason of this one-off in terms of the market share that we saw in the first quarter.

Having said that, we have a recovery plan in a sustainable way that will include the use of the pack price strategy. RGBs play an important role in that, understanding the mix of regional brands, how we can play with the portfolio of brands to really recover our market share in a faster way. And then, basically April show us that we are in the right path of that.

I think this is basically the market share that's most affected by the core business that we have here. We have a kind of company side or company here that's a premium company here. We have a P&L and everything. This premium company is growing a lot.

The volumes of premium beer is growing strong, double digits, as I said before. We are leading the way with Budweiser in the premium segment. And then, we are growing a lot. So, this is the silver lining of this moment, because the premium industry suffered less and we are leading the way on this specific segment.

And then, another legacy of this tough external scenario that we are pushing, that have seen that could help us in the future, on top of the premium, we have two important things. First, the RGB in the off-trade, just bear in mind that it's a way to bring affordability with great brands, good for the environment, good for the customer, and good for the margins. It's a big, big change in the behavior consumption and a thing that could last and will last even when the country starts to grow again.

And the second thing, all of those things of the key brand selling moments that we are putting place and stretching ourselves, we are learning more and more how to activate demand in key moments, not only during the Carnival but in other moments during the year. And then, you will see this as the year ends.

So, basically, that's it. So, in terms of the market share, that's why we said that was a one-off quarter in terms of the market share.

Okay. Very clear. Maybe just a quick one on Do Bem? Just if you can share your thoughts on how much your distribution can benefit the expansion of that brand, given we're talking about a different kind of product category, maybe something you haven't operated before? If there's any indication you can give us in terms of scale, market share, or actually benefit from incorporating such a, let's say, emerging brand into your portfolio? That could be interesting.

First, [I think to go to Do Bem,] have been studying the consumer in the mid states for some years and deeping dive in the trends. And we all that the well-being trend in growing in Brazil and will grow even more. We launched Skol Ultra and it's doing well. And this is a trend that is there.

So, I think that a portfolio of great juices and other liquids that we have there in the bank together with a great image of that brand, I think it will be a great platform for us in the future.

So, this is why we bought this specific business. So, I strong believe that this will address the mid states, some of the mid states, the well-being ones that will grow in the country.

Linked to the other question how we can reach more (inaudible) or not, I think that operational excellence is an obsession for us here. We are doubling up our focus in operating with excellence, because we know that the portfolio of brands is growing. And then, we are really focused on that. You're seeing innovating a lot, a consumer-centric Company. We are pushing this big, big, big time, but together with operational excellence to be able to operate the portfolio of brands that we have.

And we will apply this operational excellence to the portfolio of Do Bem. And then, that's why we think that this brand will grow with a great partnership that we have with the team there in Do Bem that's a very creative (inaudible) team that will help us to grow this brand in the future.

Okay. Thank you.

Rob Ottenstein, Evercore.

I just wanted to revisit the returnable glass -- the migration to returnable glasses. You mention that this is a positive for margins, that's it's profitable for you. But on a unit basis, does it increase gross profits or decrease gross profits?

Well, let me just go through a little bit the RGB impacts. We're very excited with that, going forward.

So, among other things, the cash COGS this quarter benefit from the positive mix of RGB, which Bernardo said grow more than 100% in the quarter. So, roughly, what happens is RGB carry a lower net revenue per hectoliter; so, it's a more affordable option for consumers.

But it allows also us with a much lower cash COGS for us. So, it's accretive in terms of margins, being also environmental friendly. So, it's good for the environment, it's good for the consumers, and it is good for the Company.

So, that's one of those trends in which we find a sweet spot being, like, great for the consumers, great for us, and also great for society as a whole. That's why we're so happy and somehow excited with the growth of RGB year over year.

Okay. But does it help your gross profits? Or, is that something that you're not able to (multiple speakers)?

Absolutely. That's what I said. It's accretive. Yes, it's accretive.

To absolute gross profit on a per-unit basis?

On a per-unit or per-volume basis? Because per-unit, the returnable glass bottles that we are increasing is the 200-ml bottle. So, depending on the size of the container that we're talking about, of course then you have to do a per-unit basis on one.

But one of the key elements of driving affordability is making sure that on a per-unit basis you have a less disposed value, less out of pocket.

A lower out of pocket.

On a relative basis, it's accretive. Yes, absolutely.

Okay. And then, can you talk about your relative competitive advantage in returnable glass bottles? Because if I were to think of the kind of growth that you're getting there -- and I understand why you lost market share in terms of being a price leader -- I would have thought that the tremendous growth that you're getting in returnable glass bottles would have offset a lot of that. And I guess maybe the business is just too small to do that.

But perhaps can you talk a little bit again your competitive advantage there? And to what extent that is offsetting any market share losses and will then further accrete to market share gains later in the year?

It's a very good question. I think, first, we know that basically in the operational skills that we have a proposition and the brands that we have, the RGBs will help us in the market share. By the way, it is helping this month, in April.

But in the moment that we increase price and you lead the price increase, in that specific moment that was during the first quarter, the history of all price increases that we have in our history in Ambev, we lose share in every package.

But the recovery and how you structure a pack price strategy with the brands linked shows that you can recover faster if you have a better pack price strategy. And not only faster, in a sustainable way. That's the RBGs brings to the table, as well. Because one-way cans, you can always, if you reduce prices, get share back faster, but it's not sustainable. RBG means sustainable market share growth.

Terrific. And then, just one other follow-up. As you kind of step back and look at the consumer in Brazil and disposable income and consumer confidence, all those different sorts of factors that drive demand, in your sense is it worse today than it was at the beginning of the year? Have things stabilized? How do you read the consumer at this point? And how different is it today than it was at the beginning of the year?

Robert, we are facing a diverse macroeconomic environment in Brazil, and we expect a very challenged 2016. As you know, our industry tends to be more resilient than others, but whenever there is a negative (inaudible) growth, we have an impact in our business, mainly on volumes.

That said, as we anticipated before, the first quarter presented some temporary headwinds that amplified the macroeconomic impact, and the performance we saw should not be extrapolated for the full year. We do expect our performance to improve in the quarters to come. Indeed, as Bernardo just said, April volumes already trended a lot better than the first three months of the year, and we have just confirmed our guidance for the full year.

So, I think, in summary, we focus on the things that we can control and the things that we cannot control, we live with it.

Okay. Thank you very much. Appreciate it.

Jeronimo De Guzman, Morgan Stanley.

I had a follow-up question on the RGB impact, specifically on pricing. We did see a big deceleration in the net revenue per hectoliter. You mentioned that this had to do in large part by the higher mix of returnables. But I just wanted to understand why the impact seemed so sudden, as I thought that returnables had already been increasing at a pretty fast pace in the last few quarters of the last year. So, I just wanted to understand why the impact was bigger this quarter than what we had seen?

So, let me start by saying that our strategy continues to be to increase price to the consumer in line with inflation plus any tax offset. So, that's one of the reasons behind even like the tough quarter we could anticipate.

Of course, for technical reasons, we have different price initiatives in the three regions, with different SKUs in different moments of the year. So, when you look at the short period of time, it might be at some point above inflation, some points below. But the strategy, very important to say, does not change.

Along with that, the growth in the quarter was partially offset by the increased mix of returnable glass bottles. For the first time in many quarters, RGB gained mix in a material way. RGBs, while EBITDA margin accretive, carry a relatively lower net revenue per hectoliter. So, it negatively impacts our top line.

And when you look at the comparable basis, we are lapping a year in which RGBs grew, like Bernardo just said, over 100% in supermarkets. So, total volumes of RGBs in the supermarkets in Brazil grow over 100% versus the first quarter of 2015.

Yes. I guess what I struggle with a little bit is in the fourth quarter you also had very strong growth in RGBs and you still had -- I forget what it was -- above 11%, or around 11%, revenue per hectoliter growth. So, are you saying that maybe at the beginning of the year some of the price increases were still not quite catching up to inflation, but for the full year you will still see that strategy playing out?

No, Jeronimo. What we're saying is that when you compare the net revenue per hectoliter of 6% below that of the inflation, you have a mix that's different this quarter, first quarter of 2016, in comparison to the first quarter of 2015. But even when you compare -- and that's very important to highlight -- as we are accelerating that trend, even when we compare the weight of returnable glass bottles in supermarkets, in the off-trade channel, in the quarter has increased even over the last couple of quarters. So, this trend is accelerating.

Okay. Thank you.

And for reference, the numbers that we have shared -- because we tend to share only numbers of a full year -- in 2014, the weight of returnable glass bottles in supermarkets was roughly 4%. In 2015, this number for the full year was 14.4%. And what you're seeing is that, yes, we accelerated over the course of 2015 and accelerating in this quarter.

The weight was much higher in the first quarter than in the last quarter of last year. And then, to be very candid, I think that we are catching up with the operational part of the business in the supermarkets to deal with the demand. Because simple put, great brands, called Brahma and Antarctica; nice price point; good margins for everyone; and moments like that.

And people will start to talk about not only the affordability part, but how good it is for the environment. Because you have to bear in mind that the young adults, people above 18 years old, today they are much more environmental conscience that I was to be when I was 18 years old.

So, I think it's an important initiative that not only touch affordability, but touch the environment and mindset that the young people have today.

Okay. Thank you.

Carlos Laboy, HSBC.

To stay on that subject, what is your refillable glass mix now versus a year ago?

And you can invest more in RGB than anyone else in the industry. Is this RGB strategy and its economics powerful enough to carry you above 70% market share?

We don't comment in terms of market share. But what we can comment in terms of the RGB, I think as I've said before, it's affordable, great brand behind. It's environmental; in terms of this sense, it's great.

And then, what we see, it's everyone open for business. The consumer is open for business. The customer is open for business.

So, what we are doing -- [this was the big bet of last year] -- in every quarter we are expanding the volume, expanding the mix. We are catching up to operate even better in the stores, together with the customers, to assure that the demand of this RGB it's well supplied.

So, it's important that it's the full strategy [for the] channel. So, we are adjusting as we speak, as well, the [power] packs per channel. So, the 300-ml RGB is for the off-trade. And then, the 1-liter, that's growing. That's growing. The 1-liter is doing well, bringing affordability to the on-trade channel.

So, I think that RGB it's -- again, it's an important bet, I think, that links the trends of affordability, environmental.

And then, the last time that we pushed a trend like that was in 2011. And then, we had great results of market share. So, that's why we think that it's not only the RGB. The portfolio of brands, the presence of brands, are very, very important. The premium growing ahead of the premium industry, and it's very important, as well. But RGB strategy will be key for us to deliver the market share we want in the future.

So, what is your refillable glass mix now versus about a year ago?

In terms of -- we can't talk about that, for competitive reasons, but what I can say that in our mix we see evolving a lot the mix in the off-trade. That was a channel that we didn't have. The mix of on-trade is evolving, as well, but we have RGB in on-trade; you know that. But even on-trade is evolving.

And in the off-trade, big time because from beginning of last year, almost nothing, to, I would say, in some areas 30% of our volume in the off-trade, 40%, 50%. It depends on the state, depends on the area, on the affordability issues that you have in the regions of Brazil.

So, I still see room to grow. That's what I can comment, Carlos.

Thank you.

Alex Robarts, Citigroup.

I wanted to go to Central America and the Caribbean. The one question that I have relates to volume and profitability. This was actually for us a positive surprise. It's basically approached almost 10% of the Group EBITDA in the first quarter, larger than Canada. And there seemed to be, because of the top line, a step-up in the margin.

So, I guess the question is -- it's kind of several pieces -- the 10% volume growth, is this what you're seeing in the industry? And if not, who are you sourcing market share from? The last market share number I remember from a prior conference call was, I think, in the region, 42%. Is that --? Could you revisit that number for us? Are you above that?

And kind of strategically, I guess when this SABMiller deal comes to a close -- and I know and I'm not going to ask a specific ABI question here -- but is it fair to assume that the competitive environment could actually change and soften considerably? Would that kind of accelerate the potential for market share gain in the region? And would there be any antitrust issues? To the extent that you can comment on that, that would be great. So, that's my CAC question. Thanks very much.

I think that in terms of CAC, the same platforms that we always talk to you here -- elevate the core, accelerate premium, near beer, and so on, out of home -- we are implementing there. It's the same mindset, understanding the consumer insights that we have there that -- by the way, based on the experience that we have here, that I have working in other places, the trends are very similar. Maybe the intensity of the trends are not, but in terms of the strategy it's the same that are having here.

So, having said that, industry is better. Like you see in Mexico, you see the same effect in Central America and the islands there. So, industry is helping. But we are performing above the industry.

And in terms of share of (inaudible) that we measure there, you have to bear in mind that there you not only have beer, but in DI, Dominican Republic, we have hard liquor, as well. And we are performing with beer and with hard liquor there and expanding the portfolio to the other islands.

So, I think that it's a sweet spot of a region that's growing, plus a strategy that's the same that we are implementing here in Brazil but being implemented in a place that the industry grows. So, it's a win-win, because in the end of the day we have less pressure for the industry side of the business and because the industry is helping. And then, we can accelerate and boost even more the platforms in not only the countries that we operate but in other countries or islands that are there.

So, that's basically the reasons that we are growing ahead of the industry there, and I think that we will continue to grow. Very confident that we will continue to grow in an organic way there.

So, Ricardo, any other comment?

No. I think just regarding the SABMiller transaction and [how] we cannot comment on that. This is an InBev transaction, and we have no comments on that one.

Right. But just to understand, is it fair to assume then that you've surpassed this previously released market share number of 42%? And is there a reason to believe that perhaps what you've shown, almost 300 basis points of margin expansion here, that we are operating at perhaps a higher sustainable level of profitability in the region? Or might that -- is it too early to call that?

Alex, just to highlight what you said in your question and to put things in perspective, we acquired the business in 2012. And with that, we had economies of scale in order to run a business the way we run a business, like Bernardo said, in Brazil. And the EBITDA back then, in 2012, which was like a very short time ago, the EBITDA was roughly BRL200 million. Last year, full-year results, EBITDA of roughly BRL1.2 billion. So, that's the type of growth.

So, to answer your question to the extent that we can, the business is accelerating, and we are very excited with the prospect of that business, going forward.

Got it. Thank you.

That concludes our question-and-answer session. I would like to turn the conference back over to Mr. Ricardo Rittes for final remarks.

So, I think that the final message, what you saw that the country, Brazil is two-thirds of our business here, but in Ambev what you see is that all the countries helped in the past and continue to help in the future. And linked to Brazil, specifically, I'm very confident that the strategy is right and will deliver as it delivered last year what we want.

So, (inaudible) believe of that. Platform number one that we always discuss: elevate the core. Preference of brands are up, growing quarter by quarter. So, brands are doing well. That's good. The portfolio is expanding and the brands are doing well.

The premium has more than 10% of our volumes. Volume up double digits, Budweiser leading the segment. So, good for the present, good for the future, as well.

Near beer, we create this industry. So, Beats, double-digit volumes; Brahma 0.0, the same.

In-home, RGB doubled the volumes in the off-trade, tackling these important trends of the affordability and environmental.

And the out-of-home, all of it I talked about the key selling moments what is growing out of home. We'll continue to help us, as well.

So, we remain confident that will deliver this year, again, as we've done last year.

So, thanks a lot. See you in the next call.

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