Bernardo Paiva - CEO Ricardo Rittes - CFO & IR Officer.

Luca Cipiccia - Goldman Sachs Lauren Torres - UBS Thiago Duarte - BTG Robert Ottenstein - Evercore Jeronimo de Guzman - Morgan Stanley Alex Robart - Citi Group Pedro Leduc - JP Morgan Carlos Laboy - HSBC Gabriel Lima - Bradesco.

Good morning and thank you for waiting. We would like to welcome everyone to AmBev's Third Quarter 2016 Results Conference Call. Today with us, we have Mr. Bernardo Paiva, CEO for AmBev; and Mr. Ricardo Rites CFO and Investor Relation 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. After AmBev's remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given.

[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 2015 results.

Normalized figures refer to the 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 third quarter earnings call. I will now guide you through operational highlights of Brazil, CAC, LAS, and Canada, including our below-the-line items and cash flow.

And after that, Bernardo will give you details about our performance in Brazil and how we are positioning ourselves for the quarters to come. Starting with our consolidated results. Third quarter proved to be that the toughest quarter of an already very challenging year, despite solid growth in most of the countries we operate.

Our performance in Brazil was impacted by a temporary effect of FX hedges and the weak consumers environment. Consolidated top line was up 2.3% in the quarter. With our volume decline of 3.4% more than offset by a net revenue per hectoliter growth of 5.9%. EBITDA was down 14% to BRL4 billion with an EBITDA margin of 41.5%.

Net income was up 3.6% year-to-date topline is up 2.7% EBITDA down 4% and Net income down 6.7%. In Brazil, our EBITDA was down 31.3% in the quarter, we're now disappointed with our short-term EBITDA performance. But it is very important to understand the drivers behind the numbers.

So I would start by discussing the two main reasons that explain the temporary decline of our EBITDA in Brazil. The First one, is related to cash COGs, which explains more than half of our EBITDA decline, as you know we have a hedge policy for to which we had all the facts and commodity exposure that can be hedges.

Timing will depend on the nature of the exposure, time to react and other factors, but typically, we hedge our transactional currency exposure one year in advance. Given that the material evaluation of Brazil real in the second half of 2015 is full impacting our COGs now.

During that time, Brazil real suffered closed to 60% year-over-year devaluation before peaking at BRL4.18 of the US dollar in September 2015. This is inflation our cost of sales denominated in US dollars, which represent around 40% of our COGs in Brazil.

With COG inflated due to beer, devaluation the decision to protect our profitability in the short term would have been to offset this through price. But given our hedges we know this is a temporary head wind and we will [indiscernible] in the next quarters before becoming a deflationary driver.

In summary, the high volatility of BRL experience in the second semester of 2015. When it peaked at BRL4.18 to the dollars, stamper is temporarily impacting us now. However, given the reversion of the currency to current levels off 3.2 these will be a positive for the company in the second semester of 2017.

The second reason is connected to the top line decline due to adverse macro-economic scenario in Brazil; we have seen consumer confidence improving in recent months and inflation decelerating which will be a strong positive for consumers.

But reality in the short-term; is that the real exposable income continue to decline, pressured by higher unemployment. In this environment, our top line declined by 6.6% in the quarter with net revenue practically little down 1.6%. It was driven primarily by our decision to implement our price adjustments in the fourth quarter this year.

Compare to the third quarter last year. In addition, as part of our revenue management strategy. We are using our complete portfolio facts and brands to achieve and attractive and more competitive consumer price points.

This initiative includes growing our mix of returnable glass bottles especially in supermarkets, where this format now accounts for roughly 25% of our volume. This two temporary drives effects impact on cash COGs and weak macro impact on top line, explain most of EBITDA decline in the quarter.

Now going into more detail of our operational results in Brazil. Our beer volumes were down 4.1% facing a debt comparable in the third quarter of 2015. We estimate that the beer in this volume declined by approximately 3% in the third quarter, given the challenging micro economic environment. Brazil beer top line was down 5.3%.

While our average market share in the third quarter of 2016 was down year-over-year. We deliver sequential improvement versus the second quarter of 2016. Going back to our historical market share range, and reaching the best market share level in the year.

Bernardo would expand on this topic and discuss how we are positioned ourselves for the future in the current scenario. Brazil CSD & NANC; CSD & NANC top line was down 13.8%. Decline by 8.1% in line with the industry as we estimate.

As the adverse consumer environment is temporarily driving consumers away from this to tap water and low cost powdered juices. Net revenue per hectoliter was down 6.2% due to negative mix impact of taxes and the fact that we also decided to implement our price initiatives in the fourth quarter.

Facing a tough comparable base due to the early timing of our price initiatives last year. Brazil cash COGs was at 24% while on a per hectoliter basis 30.6 as already discussed the main driver for this performance was the temporary impact of our FX hedges.

Brazil cash SG&A was up 5.8% due to number one phase of sales and marketing expenses that were more concentrated in this quarter. Mainly due to the Olympics and number two, higher distribution expenses, which were partially offset by savings in administrative expenses. As a result Brazil EBITDA was down 31.3% in the quarter.

While year-to-date, it is down 13.2%. Now moving to Central America and the Caribbean. In CAC we deliver another solid quarter, our performance in the region was mainly driven by double-digit topline growth with a good balance between volume and price. EBITDA was up 9% to BRL353 million, with EBITDA margins of 37.6%.

In the Dominican Republic, we continue to invest behind our brands connecting with our consumers and activating demand in key selling moments. Such as Carnival Presidente and Corona sense throughout the quarter. We're able to expand our presence in different consumption occasions.

Reaching the all-time high share in total alcoholic beverage space September. In Guatemala, we had another quarter of market share gains driven by strong performance, from with the brands mainly Corona.

While we still benefiting from our solid cost management discipline in the region, EBITDA performance was impacted by the timing of sales and marketing expenses in the quarter year-to-date. Our EBITDA margin is 80 basis points driving an EBITDA growth of 19.4% in organic terms. Going forward.

We continue to be extremely excited with top line in EBITDA growth potential for our region from current operations and other known organic opportunities, including Panama that will become part of COGs. Pushing us a little bit closer to our dream of $1 billion EBITDA in the region. In Latin America South.

Our top line was up 22.1% and EBITDA the 22.6% above that of last year. Our volumes however were down 1.4% as adverse market conditions specifically in Argentina, led to another quarter of volume decline in the country. Almost fully offset in these we reached record volumes in Bolivia, Paraguay and Chile. We believe.

In Bolivia, this growth was driven by RGB strategy and route to market improvements. In Paraguay, this growth was led by the successful rollout of the 240 M.L. returnable glass bottle and in Chile with a strong performance across all of our global brands in the country.

Net revenue per hectoliter increased by 23.8% in the region due to the successful implementation of our revenue management strategy linked to inflation and premium mix. Despite costs and expenses is too pressured by high inflation and in favorable of currency movements, made in Argentina.

We are able to of set the impacts for top line growth and procurement savings, delivering EBITDA margin expansion of 20 basis points to 42.8% year-to-date. Our EBITDA is up 16.2% in organic terms with an EBITDA margin expansion of 90 basis points. As we move forward we remain confident in our ability to deliver a solid top line growth to last.

While protecting our profitability over time. Despite the economic volatility in Argentina. Turning now to Canada; reported volumes group 6.5% mainly driven by strong performance of our global brands, which grew high double digits.

And the benefit from our strategic repositions with Mike's [ph] beverage brands in new streets [ph] growing solid double digits in the quarter. Including the new brands we acquired, we have achieved the highest market share in 17 years.

Organic volumes were down 1.3% with the industry negatively impacted by favorable weather which was partially offset by solid performance of Bud Light, Corona and Stella Artois. Net revenues increased by 0.1%. With net revenue practically re-growing 1.3% mainly driven by a revenue management initiatives in line with inflation.

EBITDA decline 7.4% on an organic basis negatively impacted by current evaluation and negative mix along with higher administrative expenses, year-to-date. Our EBITDA down 2.4% in local currency with an EBITDA margin compression of 130 basis points, in nominal terms however, our EBITDA is growing 14.6%.

Going forward, we remain excited with our complete portfolio, including our recent acquisitions in [indiscernible] while also committed to balance net revenue per hectoliter and in market share to deliver profitable growth. Now moving below EBITDA, our net financial results thorough net expense of BRL723 million versus BRL217 million last year.

Many items in the financial expense were; first, interest income of BRL139 million driven by our cash balance mainly in Brazilian and U.S. dollars and Canadian dollars. Second, an expense of BRL480 million due to interest expense.

Close to half of this is a non-cash accrual related to the put option associated with our investment in the Dominican Republic. As many of you remember, as part of the CND deal in 2012 A put option exercise go into 2019 was issued which may result in an acquisition by -- of the remaining shares of CND [ph].

For a value that's base on EBITDA multiple is noncash accrue expenses, increases over time as we approach 2019 as EBITDA growth among other factors. Third, BRL287 million lost on derivative instruments. Mainly driven by the carry cost of our effects Agis [ph], primarily linked to our cargo exporters in Brazil and Argentina.

Given the interest rate differential between Brazilian real or Argentine peso and the US Dollars. We have financial costs associated to these hatches, which are called Carry costs. Carry costs have increased significantly compared to recent years, due to U.S. dollar appreciation and high interest rate differentials. But are sequentially coming down.

Mainly due to the reverse of the Brazilian real, everything else equal. If BRL and or Argentine peso appreciates or interest rates in this country scroll down, carry costs are expected to decline even further.

Now in derivative gains and losses have been another source of volatility in our net financial results, as most of the results including design are related to effects translation. And currencies have fluctuate a lot in previous quarters. But with lower effects volatility this quarter we had no mature gain nor loss in this line.

Our effective tax rate, was negative this quarter due to one, off tax adjustments. First, Around BRL400 million is explained by reversion of a week holding tax provision related to earn remediated earnings from Argentina. In 2013 and new withholding tax over given remittance was created, under the previous government in Argentina.

From that time until now, we have been provisioning for the tax as earnings were generated, but not distributed yet. As of July 23, 2016 legislation in Argentina was enacted revoking the tax, leading to a reversion of these provisions.

Close to BRL800 million driven by a one-time impact from the recognition of deferred tax assets on care of losses related to international subsidiaries. As an example of these losses, in the first quarter of 2015 we highlighted BRL350 million onetime negative impact for intercompany loans.

We mention at that time that this impact came as a result of taxable profits generated from the company loans in certain affiliates, which were not offset by equivalent deductible losses. Due to mainly the lack of sufficient taxable costs in the corresponding affiliates.

We also said, that once draft is were to be generated in the tax loss caring affiliates, these negative impact was expected to be reverted. That's exactly what happened in the third quarter due to a review in our [indiscernible] outside of Brazil. With that, net income was up 30.6% in the third quarter of 2016. Year-to-date Net income is down 6.7%.

From a cash flow perspective cash flow from the Brady activity before changes in working capital was BRL4.1 billion. We started to revert the negative cash impact from working capital, seen in the first and second quarters. Generating most BRL1 billion from working capital in the third quarter. Cash generated from our peroration was BRL5.1 billion.

While CapEx reached BRL900 million. Year-to-date we have generated BRL9.1 billion in cash from operations. On October 19, we announced approximately BRL2.5 billion dividends to be paid as from November 25, year-to-date we have paid or announced BRL6.6 billion in interest in capital and dividends.

As our free-cash flow generation continues to grow sequential in the year of 2016 we have opportunity to continue to return the excess cash to shareholders. Thank you very much. I will now move to Bernardo before going to Q&A. .

Thanks, Ricardo. Hello, everyone. Third quarter was a very tough one and will be never satisfied of the sort of results.

But when we face of a scenario like the one we are facing 2016, we can decide to either go for a quick fix is that can save results in a single quarter or in year, but jeopardize future growth or one to believe is the right way to take advantage of this [indiscernible] that crisis bring to better position itself in a structural way.

As owners we always focus on sustainable valid value creation. Even if temporary volatility pressures our performance in the short term. As discussed in that day to buy rates FX. Had a significant impact to our ability in the quarter.

And you to seek for that short term result would have been to offset this for price, but given our heads, we know this is a temporary impact that to be reverted in the next few quarters. Never long it's been more than half for a decline in Brazil in the quarter.

During [indiscernible] was the impact of the week consuming environment to our top line performers. We've already been dealing for volatile macroeconomics scenario for more than a year.

We just start to see some really positive signs for consumer confidence inflation, but in the short term consumers remain and the significant pressure if they're racking back to top line performance in Brazil. On one hand they are bringing a lot of volatility to our results this year.

On the order is also creating a unique opportunity to stretch for a business for the years to come. And we cannot lose sight of these opportunities during this challenge time we have been boosting key initiatives focus on the five commercial platter forms.

We've been successful in these initiatives and we’re confident we will leave this crisis in a significantly stronger position than the one we were when we entered. Starting with [indiscernible]. In an environment like this it's more important than ever to be close to the people in general, who drinks sour beers every day.

Score sponsorship to Rio 2016 Olympic Games became another mark in the history of the brand. Isco delivered a great experience through a complete throughout six approach, ranging from activations in the on and off trade in the major business of Brazil to unique experience in Rio, directly reaching more than 4 million people during the event.

And last month we launched the new visual brand identity Isco to highlighted the branded straps and reaffirm its leadership on the mainstream segment. Along with the debt we had during the campaign, the iconic arrow in the yellow color are still there; but in a totally new design evoking scores quality, energy and the attitude.

And in doing how we connect with our core target. Another successful initiative to connect for our core target was brands like Brahma. Launched one year ago with three variants; (Lager, Red Lager e Weiss. Brahma has shown strong growth year-to-date, solidifying its presence in the core plus segment in Brazil.

Targeting food and savor in this state, Brahma not only bring the food experience to mainstream but also enhance their activity of Brahma Mother Brand. So let's move to Premium; Premium has been growing and gaining weight in our mix every year in the last five years, including 2016.

Working with a complete portfolio from international to domestic brands, Premium rather represents 10% of our farms but with preference of Premier at 30%, there is still a lot of room to grow. The most successful case is Budweiser, leader of the premier segment since 2015.

Budweiser is growing one by double digits in gaining market share once again this year. Near Beer also became a new reality in Brazil, and with our mix of brands. Representing 2% of our total beer volumes drive incremental volumes and positive price mix.

Launched in 2013, Brahma 00 boosted this growth, disrupting not -- the non-alcoholic beer segment in Brazil with innovative liquid and brand. The opportunity for non-alcoholic and low alcoholic beer in Brazil is too big and we have a plan to tackle that. Beat Sense, launching at the end of 2014 allowed us to target volume occasions.

We were not present before with beer, it became one of the most successful launch in AmBev's history with strong volume growth, very incremental and solid preference. With the addition of Skol Beats Spirit at the end of 2015 and the Skol Beat Secret last month, Beats fan is growing by double digits, given challenge 2016.

Moving to occasions, let's start Emho [ph]. RGBs have always been a key component of our business. However, as a consumer increase -- I mean our increasing look for more attractive price points in more affordable ways to enjoy our beers.

RGBs have gained popularity in the off-trade as well, it's become a reality with our means reached 25% of our volumes in supermarket in the third quarter of '16. Booze, RGBs in the homes of the most of the people is one of the most important opportunity we've seen in 2016 and years to come. It brings affordability with a higher profitability.

Another big initiative to shaping home has been the expansion for our market programs, not only to the big but also is most store formats, improving shopper experience and elevating the beer category in the off-trade. And in thereof home occasion, we are boosting our marketing initiatives and existence in new key selling moments.

In the current environment we'd be able to enter a long-term sponsorship contracts as attractive rates, opportunities which may not have been available in a stronger economy.

For 2017 have already confirmed our presence in two of the biggest street parties in the world, and that will be the official beer of Rio Carnival for the seventh consecutive time, and Risco will be up once again sponsoring the Carnival as over the last three years it's sponsored by our competitors.

Finally, will be also making use of our volume of beck to improve affordability in downtrade, mainly for one leader returnable glass bars which is growing by the mid-single this year. In summary, 2016 has been a very challenging year in Brazil bringing a lot of volatility to our results. We are nothing but disappointed for our short-term results.

That said, we continue to be confident above the growth opportunities in the country and optimistic about the future of our business in Brazil. We expect favorite demographics, the closing of regional disparities in the incomes and the consumer would demand much more about premium products that will help drive long-term for growth.

We also have a very consistent commission strategy based on the five platter [ph] forms and we are using the current environment as an opportunity to push these initiatives into better position and to maximize the structural growth drives. With that, let's move to the Q&A..

[Operator Instructions] The first question comes from Isabella Saminaro [ph] of Bank of America Merrill Lynch. Please go ahead..

Thank you, good afternoon. Bernardo, I have one question on Brazil. Considering the price increase they are probably due or have done already in Q4.

For beer, what do you -- and considering also the positive outlook for costs going forward; how fast do you think we can see beer margins recovering throughout 2017? And also if you could discuss a little bit how you see volume recovery for beer and soft drinks going forward; considering their consumption outlook in Brazil? That would be great.

Thank you..

Okay, thanks Isabella. In terms of our -- I will start with the second question in terms of volumes on the long-term drivers in Brazil. I seem to given that -- we continue to be bullish in Brazil.

We know that's not a straight line-up but it's -- and every time in five years or so we have one of two years or the clinical side there is -- and then you know that -- how a market like Brazil works.

Having said that, I mean I really -- I think that for the long-term, we continue to be bullish in the foreign growth because I mean -- as I said, the legal drink age in young adults in Brazil; I mean they are increasing 1.5% every year.

We know that have you have some reasons of much higher than the orders and then this -- we evolve into happening in this as well. And that will end -- depend much more open to the premium brands, and then we are linked in the segment in the premium brands and the global brands and the local brands that we have will help us to do that.

So we don't comment a lot in 2017 and in the future but I've seen again, we expect -- always expect Brazil to be back when you have a crisis like that every five years or so..

And Isabella, just for me to add; consumer confidence is improving, inflation is decelerating. We know that the consumer environment is a huge challenge with unemployment but I think one lags the order. So we are -- like Bernardo said, excited with the prospects of Brazil; we know it's not a straight line but we're excited..

The next question comes from Luca Cipiccia of Goldman Sachs. Please go ahead..

Hi, good afternoon.

Thanks for taking my question I wanted to understand -- better if you can explain the decision on the pricing in the Sense -- I think you both mentioned the fact that -- the facts was the major headwind and that it would have been easier to increase prices to offset that but arguably you knew all along that that type of pressure was going to emerge in this quarter, and seasonally, typically you do the price increase in September.

So when I look back to the other revisioning guidance that you made after the second quarter, was that the timing of the pricing already incorporated; and therefore, the incremental negative was the volume or the mix? Or rather -- when did you decide to change the strategy -- the pricing timing? Sorry.

And related to this maybe on the market share given that you no longer disclose the absolute value but what drove that incremental sequential improvement by segmental channel or region -- I think you mentioned premium, you mentioned some of the returnable but I don't know if you can qualify -- relative to the second quarter, we increased market share overall primarily from this segment rather than the other segment? That would be great..

Very quickly, the delta in the guidance then -- is more explained by the decision on delayed pricing or is more explained by mix and volumes that's compared to your earlier expectation?.

Thank you..

The next question comes from Lauren Torres of UBS. Please go ahead. .

My question actually was also related to the change in guidance.

But I think with you answering that, I'm just curious to get your perspective on the general environment because we are hearing in Brazil consumer products companies talking about seeing some stabilization in trends if anything maybe a directionally less trading down or things of that perspective.

So, I appreciate that you don't give specific guidance for next year, but if you're a bit more conservative than the rest, if that's what I'm hearing, is this strategy more about this affordability angle, the returnable glass bottles? Do you feel you have to lean on that more or there's opportunities with an environment potentially getting a bit more stable that this could reverse a little bit and we could see the upside coming through?.

So, summarizing, we have a very challenging scenario in the short term. Unemployment close to 12%, 1 million jobs reduction year to date, worse figures in the series, real disposable income down mid-single digits for another quarter. But as you said, and like we also and I think everybody else is seeing, we see positive early signs.

We see inflation decelerating since December 2015 and expect it to decelerate even further even at a speed higher than anticipated at the beginning of the year. Consumer confidence also improving from the bottom in the first quarter of 2016. Remember, still below 2008, 2009, but rebounding. So, we do see the same early signs that you mentioned..

And can you address the returnable glass bottle? I think you gave that 25% number that you're at now.

Is that optimal or how you thinking about that for next year?.

We have some areas of Brazil and regions that it's more than that. It's difficult to say what the number will be in future. But we strongly believe that will be more than that because it's a way to offer great brands that people like, like Brahms, Skol, and Kontachka in a nice pack, affordable ways. So, we expect to continue to grow..

The next question is from Thiago Duarte of BTG. Please go ahead. .

I'd like to follow on the RGB question. Actually two questions regarding RGB. I mean there's been a great evolution in terms of penetration. You mentioned it's already 25% of your volumes in supermarket.

So, the first one is basically I mean if you look at Siqualbi and you look that the different packaging forms that the industry produces in Brazil, my understanding is that one-way presentation has actually continued to gain share versus returnable presentations in Brazil, while you, as a market leader, has been making good progress in increasing returnable presentations in one of the most important channels.

So, just wondering where is the RGB in the supermarkets? Who is RGB in the supermarket gaining share from in your perspective, in your mix? So, that's the first question. And the second question, you mentioned that RGB has a positive EBITDA contribution versus other packages in your mix so that's perfect.

But I was just wondering whether this contribution can actually improve further. I mean the penetration has increased in a very fast pace in the last two years, maybe.

So, I wondered whether this is being subsidized by you in order to increase or to accelerate that penetration with the retailers and therefore there is room for us to see better margins coming from RGB in the coming years. Thank you very much..

Well, I think two things. I mean first one, you have to always check the mix of channels and packs. So, RGB is growing the mix in the on-trade and in the off-trade. But the fact the off-trade channel is growing more than the on-trade and the size of the pie that the one-way has in the off-trade is much higher.

This channel mix one-way is still growing in Brazil. But if you get I mean the RGB in both channels, I think that we're on the right path. And I think for the off-trade the thing that we always say is that it's very relevant because probably in the last year that we had RGBs in the off-trade in the main key accounts and so on was kind of 20 years ago.

So, then you are bringing back RGB and I think that's just the start because at the end of the day we have how to not only do a good job with the channel but start to reeducate people in their homes to get the [indiscernible] there and I think that's why I think it continue to grow. That's why the margins -- I mean they are good.

I mean only with that they will grow will benefit us. And I don't see RGBs in the off-trades at the price going too much up. I think that the price treat [ph] that you always respect. It's important for people. They expect to have a lower price. And with the price that we have nowadays, the margins are better than the one-way.

So, I think that we're on the right path to reeducate people to bring bottles to their homes and crates to their homes. And that's why I think that it will be steady but will be up the way of RGB in the off-trade channel. Not only the big ones, but in the small ones as well..

The next question comes from Robert Ottenstein of Evercore. Please go ahead. .

Great. Thank you very much.

I was wondering if you could talk a little bit about what's going on in Brazil in terms of share of alcohol, whether you think you're gaining share of alcohol and how the consumer has responded whether to spirits, or I guess cocktails, other forms of alcohol relative to beer during this difficult time?.

Robert, thanks for the question.

I think that -- I don't have exactly the number here, but for sure again share of Skol because Skol Beat Sense, it's a huge volume, it's incremental and I think that for consumer that's under pressure in terms of disposable income have alternatives to drink a great liquid and a great brand like Skol, 7.9% of alcohol, it's sweet, it's coed [ph], and that with our machine that put this product in the right point of sales, in the right events, for sure Skol Beat Sense, it's growing and is gaining share of [indiscernible].

So I think that our core drinks, beer drinks are more under pressure because of the disposable income, but I think that premium is growing including Skol Beat Sense. Just launched Skol Beat Secret, that's like the pink one and for sure will be a big hit in the Carnival for next year..

Terrific. And then just one follow-up, ABI has introduced pretty successfully Bud Light in Mexico and obviously there's a general overall goal of getting 20% of volume to be lower alcohol and no alcohol. I know you've got an issue, there is Brahma 0.0.

Any thoughts about bringing Bud Light down to your regions and how exciting could that possibly be?.

I think further go, I mean to -- for NA Beers or low-alcohol beers, if you have a big -- that continues to be Brahma 0.0, so it's doing pretty, pretty well and we continue to invest. I think you'd have room to grow with this product family in the liquid delivers big time.

Link to Bud Light, no comments, don't have any plan to launch Bud Light here in Brazil at the moment..

Okay, thank you very much..

Thanks, Robert..

The next question is from Jeronimo de Guzman of Morgan Stanley. Please go ahead..

Hi, good morning. I wanted to just follow-up on pricing, just ask the question a little bit different.

I just wanted to understand how does delaying the pricing to the fourth quarter change your positioning? I know you mentioned that an easy fix would jeopardize growth, but what I'm still trying to understand is why not take the pricing already if you're going to do it anyway in the fourth quarter? Is there something about the fourth quarter that you think helps the consumers better absorb the pricing or anything else that's different in the fourth quarter that drove this?.

Thanks for the question. Basically what I said before, you always try to balance the volume and the price and the share and I think the biggest issue is disposable income. October we know that the industry tend to be better because of warmer month. We don't like to talk about temperature here and forecast, but we had winter and many in the surface.

So we thought how to balance the volume, and share and price? We're taking account that disposable income and then we thought that would be better to go later in October given the approach of the summer. That it we would have less impact in the industry in a month like that. That's basically is what is done and I think it's the right decision to do..

Thanks and then just a follow-up here. How much latitude do you think you have on the pricing, just given that the competitors aren't necessarily seeing the pressure you're seeing? They saw the pressure a year ago and the fact that the value brands are taking shared.

Is there a concern about them just not following on their price increases?.

Brazil industry has always been a tough one. What's happening now, this is not related to specific one company that's putting price down or up. Basically it's linked to the prices that we have. We don't see that everyone in this market is struggling or is in the sense because of the industry, because of the disposable income.

That's what we can comment..

Okay, thank you..

Okay. Thank you, Geronimo..

The next question comes from Alex Robart of Citi Group. Please go ahead..

Hi, everybody. Thank you. A confirmation and then a question. The confirmation is will we see Panama in the fourth quarter results? And the question, just going back to the cash COGS. First of all, definitely appreciate the visibility that you gave us showing the 17% points in that Brazil, if it decline coming from the cash COGS.

What I meant to hear about is the pressure or their impact from just the fact that you have more glass, you have more returnable glass and that was an incremental cost year-on-year as you've pointed out, RGB is doubled. I guess the last conference call you said that was up 100%.

Within the 17% points, I appreciate the hedge and the pressure from that, but is there also a piece related to the fact that you just have more glass cost? And if that's so, is that something that I assume would continue into the coming quarters and the [indiscernible] to this cash COGS question is on the other graphic you show us that implies your volume 12 months forward, is it safe to assume that in the fourth quarter from the hedge effect, you'll have less pressure on the margin? Thanks very much..

Hi, Alex. Thank you for your question. First of all, using just outside the information from the company, given how we are, very systematic in the way we hedge our COGS. One could infer the type of quarter impacts that we have. One year ago roughly when we did the hedge, we knew a little bit how the hedge would be.

What we didn't know back then is that this impact would be temporary, which is great news. Hedge can only protect you to buy time. If this is temporary, I think it's even better than having a market move above your hedges. That's great news.

On this specific argue being back to the hedges, it's very important to highlight that aluminum is an international traded commodity and as a result is important portion of the COGS for our packaging. And as a result of that denominating the U.S. dollars.

On the other hand, glass being returnable, if you can use the returnable glass bottle for like 20, 30 times, the impact that you have both in your exposure and in the COGS is to reduce it. So the exposure to the dollar gets reduced by a shift towards with the movement of bottles and your cogs gets reduced.

Just highlighting the two main temporary drivers that explain over that kind of quarter is first the hedge funds like we discussed and the second like Bernando and we discussed as well is connected to the adverse market economic scenario.

Related specifically to the fourth quarter, you asked a question specifically about Panama, we never comment the ongoing quarter in the call, but I think the most important thing is that we are very excited with including Panama in our portfolio of countries and we're very excited specifically within the region in which Panama is going to be inserted.

Our CAC business is growing very much in the year and we expect it to continue to grow..

Okay, thank you..

Thanks, Alex, too..

The next question comes from Pedro Leduc of JPMorgan. Please go ahead..

Quickly on pricing in Brazil again and you mentioned you always move pricing on inflation long run, if you look at just regular inflation data, it seems like inflation is already tracking general inflation. So, I'm curious to see your negative 1% slide if it also has to do with deteriorating mix within your brands or within packaging.

Of course, RGB maybe had an impact on this as well. And so, then, looking into the next quarter, if you're raising prices, the base is really high from last year and it appears that you have to take at least 20% pricing to match. So, going back to my mix question, is there mix component in this pricing slide that we're seeing? Thank you..

So, that's exactly what we said in our press release that we don't already expect to achieve our goal flat revenue in Brazil for the full year given an environment but specifically the high net revenue per hectoliter comparable of the previous year.

And now, we can take this offline as well, but you have to run the math on the next revenue per hectoliter including the taxes that go above that for consumers. So, we can go that and then you're going to see how it plays and how for example I think for last year if I'm not mistaken it was like around 20% down from Q3 to the Q4.

But you can look at our numbers. And we can check that, we can explain how this translated on the price to consumers and the impact. We can go into detail with you..

But still on the 3Q minus 1%, is there a mix effect here, I mean the product pricing versus 3Q last year is up, I'm imagining..

So, net revenue per hectoliter was down 1.6% primarily driven by our decision to implement our price adjustment in the fourth quarter this year when you compare it to the third quarter of last year.

In addition, as part of our revenue management strategy, we are using the complete portfolio of packs and brands to achieve attractive more competitive consumer price points. So, this includes the RGB, but is not limited to that. So, I think the important point there is to highlight that we are not changing our revenue management strategy.

Our strategy continues to be to increase our price in-line with inflation and pass on any tax increases over time..

The next question comes from Carlos Laboy of HSBC. Please go ahead..

I was hoping you could expand a little bit on Robert's question earlier. How is the beer category doing in this environment? But my question is against informal alcohol. I think your response to Robert was geared more around formal alcohol..

I mean we don't have information of the informal alcohol, but I would say that [indiscernible] and spirit and secret it's a great alternative because I mean it's a very, very quite I mean liquid. I mean it's cold, it's sweet, it's 7.9% of alcohol, delivers what people want in a specific occasions.

And the price point, it's attractive when you compare it to other kinds of spirits.

The informal alcohol I would say [indiscernible] I think that everyone in Brazil trade up I mean in the last years and then they start to taste differently because including [indiscernible] and I think that I continue to trust the ability of I mean this mix of drinks that we are launching in the market to gain share of throat to the lower price.

And on the other hand, you have to bear in mind that this RGB in the off-trade brings affordability for I mean beer brands like Skol, Brahma, and [indiscernible] in the decent core plus brands as well in the future. So, again, great products, great liquids, great brands in affordable price. That should put pressure on these lower alcohol.

So, I don't think that a lower price alcohol is the threat for us. On the opposite I think there an opportunity..

The next question comes from Gabriel Lima of Bradesco. Please go ahead..

And I just have one confirmation here. When you say, Bernardo, you're back to historical range of market share that you reached, I think, during the third quarter, I recall that the historical range is around 67%, 69% share. So, I just wanted to confirm, is that the numbers we are talking about? So, that would be the first question.

And the second is you mentioned taxes and we have seen lots of headlines here regarding stage taxes that it's a very tough situation at the state level here in Brazil. And the state moved the state taxes. They increased it last year. And you actually changed their footprint based on that is likely.

But how are you looking into taxes mainly at the state level going to next year? Thank you..

So, first question that you asked was about share. So, we measure I mean many, many source, one source is new, another one having internal as well. So, the main thing of many, many sources is limit our initiatives that you put in the market based on the coverage of one source or another source.

I mean you always do what's good for the business and every case counts. If it's in one source or not. Having said that, we have ranged in the [indiscernible] on nusi. On both we are within this range. And if you ask for Nielsen, yes, we are in the 67%, 69% range.

But it's not the only one because having growing volume outside of this rating of Nielsen regular but you are in the range of both readings. And, Gabriel, regarding your question about the state taxes. As you know, in Brazil, each state has its own model, own tax rate, and there's always discussions ongoing.

That said, I can assure that similar to the discussion held at the federal government level in the recent years the cold beverage industry holds a permanent and constructive dialogue with each state government with the intent of showing that a lower tax burden on the industry enables a greater potential for volume growth and further investment.

As a result of tax collections to continue to grow but now pressure on inflation, job creation, on investment.

I mean we say a lot that the model that we believe is the model of the positive cycle, which we do investments; investments generate jobs; jobs generate consumption, consumption generates increasing tax collection, and we have, of course all that permeating stability in terms of rules so that you increase tax collection throughout what we believe to be a sustainable way..

There are no additional questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Mr. Bernardo Paiva for closing remarks..

So, thanks, Kate. Thanks, everyone, for the part of the call. Just a final message. We continue to be bullish here in Brazil. That's the main topic of this call. We know that it's not a straight line, but we have a strong plan. I mean I have been discussing for you for the last one year and a half and now we're elevating forward all the initiatives.

We are able to do that, I mean Skol is doing pretty, pretty well in the market. And then you do even more for the other brands as well. So, premium is growing. We are there.

Near beer, we are doing important things in terms of out of home, in home, route to market, service level, to the parks and on top of that, again, we know that Brazil is still facing this year a tough moment in terms of macro, but you know that we are very confident that next year we will be better.

All the indicators and macro numbers that we have shows that. And we'll be completely ready to capture these opportunity that the country -- I mean we offer to us again. So, very bullish, continue to be bullish with Brazil and about our plans for the future. Thanks a lot. See you next quarter..

Thank you..

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