Ricardo Rittes - CFO and Investor Relations Bernardo Paiva - CEO.

Luca Cipiccia - Goldman Sachs Isabella Simonato - Bank of America-Merrill Lynch Antonio Gonzalez - Credit Suisse Lauren Torres - UBS Pedro Leduc - JPMorgan Alex Robarts - Citi Robert Ottenstein - Evercore Vito Ferreira - BTG Pactual.

Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's Second Quarter of 2017 Results Conference Call. Today with us we have Mr. Bernardo Paiva, CEO for Ambev, and Mr. Ricardo Rittes, CFO and Investor Relations Officer.

[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 the comparisons with Q2 2016 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..

Thank you. Hello, everyone. Thank you for joining our 2017 second quarter earnings call. I will guide you through our financial highlights of Brazil, CAC, LAS, and Canada, including our below the line items and cash flow.

After that, Bernardo will give you more details about our performance in the quarter starting with the main highlights of our consolidated results.

We had remarkable results in LAS, CAC, and Canada in the second quarter while in Brazil, as anticipated, this was a bridge quarter with our performances still impacted by expected headwinds but on a consolidated basis top line was up 4.8% driven by volumes decline of 1.1% more than offset by a solid net revenue growth of 5.9%.

EBITDA was slightly down, declining 0.7% in the quarter, reaching BRL3.9 billion with an EBITDA margin of 38.4%.

Normalized net profit was up BRL2.1 billion, 2.4% lower than that of the second quarter of 2016 as EBITDA organic decline encouraged the translation negative impact due to the appreciation of the Brazilian Real but partially offset by the reduction the net financial expenses and cash generated from operating activities was BRL2.4 billion versus BRL2.1 billion in the second quarter of 2016.

Year to date cash generated from operating activities reached BRL4.4 billion compared to a negative cash generated from operating activities was BRL2.4 billion versus BRL2.1 billion in the second quarter of 2016.

Year to date cash generated from operating activities reached BRL4.4 billion compared to a negative balance of BRL133 million in the same period of 2016. Now moving to Brazil, in Brazil our EBITDA went down 15.7%, mainly driven by the negative impact of the FX in our COGS and by volume decline in our beer and CSD&NANC businesses.

As predicted, this was a bridge quarter in the country. As we start the second half of the year and left most of the negative drivers that have affected our results in the first half, we are confident that we will return to a pattern of sustainable growth. Bernardo will expand on this topic.

Going into more detail of our operational results in the country, net revenue per hectoliter in Brazil was down 4.1% in the quarter and EBITDA totaled BRL2.1 billion with an EBITDA margin of 39.2%. For Brazil beer, top line declined by 3.3% in the quarter.

The beer industry fell by 2.7% in 2Q '17 according to Nielsen while our beer volumes declined by 1.3%, as the mainstream segment continued to be pressured by the adverse and volatile macroeconomic and political environments. Premium on the other hand grew high teens year over year.

Net revenue per hectoliter in Brazil beer was down 2% driven among other factors by a negative mix as we continued to use our full portfolio of packs and brands to drive affordability to consumers, including the 340ml returnable glass bottles in the off-trade channel. That package grew double digits in this quarter.

On a sequential basis, net revenue per hectoliter was slightly down in line with the usual trend of net revenue per hectoliter variation from the first to the second quarter.

In Brazil CSD&NANC top line was down 8.5% as a volume decline of 14.1% was partially offset by a net revenue per hectoliter growth of 6.6%, explained by revenue management initiatives implemented during the quarter. The traditional CSD industry continued to be beat by the pressure on disposable income declining 9.7% according to Nielsen data.

Year to date our CSD&NANC volumes are outperforming the industry.

Brazil cash COGS was up 4.6% in the quarter while on a per hectoliter basis 9.8% due to, number one, FX impacts due to our hedge policy, the devaluation of the Brazilian Real in the second quarter of 2016, inflating our COGS now at a time the Real suffered close to 15% year over year devaluation, inflating the cost of our commodity prices in US dollars which represent around 50% of our total COGS in Brazil.

And second, inflation. In the first half of 2017, Brazil cash COGS was up 21.2%, and cash COGS per hectoliter increased by 22.3%, in line with our guidance of double digits growth.

Having said that, reiterate that our COGS performance in the second quarter was a transition to the second half of the year when we expect cash COGS per hectoliter to be flattish to low single digit up.

Brazil cash SG&A was down 2.8%, due to, one, flattish distribution expenses, and second, a decline in administrative and sales and marketing expenses, as a result of cost savings in our non-working money and efficiency gains in our working money. Now let's talk about our international operations.

We're very pleased with a strong performance of our international operations in the second quarter. In CAC, EBITDA went up close to 30% with a robust EBITDA margin expansion. In LAS, even though we continue to be pressured on costs due to FX in Argentina, we had a significant volume growth delivering top line and an EBITDA increase of more than 30%.

And in Canada we had a great balance between market share and strong net revenue per hectoliter that along with our cost management initiatives led to another quarter or EBITDA growth and EBITDA margin expansion.

Going into more details of our operation results in each reach, first in Central America and the Caribbean, net revenue increased by 6.9% and on a per hectoliter basis by 4.2%. EBITDA in CAC reached BRL432 million growing organically 29.7% while in US dollars, reported EBITDA went up close to 35%.

Organic volumes went up 1.6% on a tough comparable of 8.8% growth in the second quarter of 2016. On a reported basis, volumes were up 26.2% benefiting from the recent swap of assets carried out with ABI and our operations in Panama which also presented encouraging results with double digit volume growth leading to market share gains in the country.

Regarding the other countries of the region, in the Dominican Republic, we further expanded the Presidente brand execution through micro events activation that more than doubled year to date when compared to the same period of 2016.

And in Guatemala, we continued with the Busch Light campaign and also launched the new visual brand identity for Brahma.

Still on CAC, we benefited from our solid financial discipline leveraging both costs and expenses savings, as well as from phasing of sales & marketing and administrative expenditures leading to expansion of EBITDA margin by 770 basis points to 38.3%.

In Latin America South our top line was up by a solid 36.2% and EBITDA up by 33.9% reaching BRL807 million. Volumes were up 12.2% in the region primarily driven by, number one, Argentina, where we had a very strong volume performance especially in beer that led by Brahma grew more than 20% year over year.

Second, Paraguay, where volumes continued to grow as a result of the success of our 340ml returnable glass bottle strategy. And, third, Uruguay, as execution improvements coupled with favorable weather enabled us to deliver double digits volume growth in both beer and CSD businesses.

Cash COGS in the region grew by 50.2% while on a per hectoliter basis by 33.9%, mainly driven by higher inflation and negative currency impact resulting in EBITDA margin compression of 60 basis points to 38.7%. Now turning to Canada, we delivered in the second quarter BRL618 million of EBITDA, 3.9% higher than that in the second quarter of 2016.

Top line was up 1.4% as volume decline was more than offset by an increase of net revenue per hectoliter of 1.8%. Volumes were slightly down driven by industry softness due to unfavorable weather almost fully offset by share performance from our diversified portfolio.

Our focus brands performed particularly well, led by, one, Bud Light being the fastest growing brand in Canada and, second, the high-end segment with growth from Stella Artois and the craft portfolio helping us to achieve the highest quarterly market share figure recorded in 19 years.

Finally, during the quarter, our cost management discipline played once again an important role, translating topline growth into EBITDA margin expansion of 90 basis points to 35.7%. Now let's go back to consolidated figures.

Other operating income totaled BRL223 million in the quarter, mainly explained by government grants related to State VAT long-term tax initiatives that were down year over year mainly due to, number one, the expiration of VAT Government Grants Agreements in fourth quarter 2016, and, number two, revenue geographic mix.

Now moving to EBITDA, in the second quarter, our net financial results totaled BRL699 million which is only 2.3% less than that in the second quarter of 2016.

Going to more details, causing a financial expense in the quarter or, first, interest income of BRL118 million, driven by our cash balance, mainly in Brazilian reals, US dollars, and Canadian dollars.

Second, interest expenses of BRL390 million that include a non-cash accrual of around BRL150 million related to the put option associated with our investment in the Dominican Republic. As part of the CND deal in 2012 a put option exercisable until 2019 was issued which may result in an acquisition by Ambev S.A. of the remaining shares of CND.

Third, BRL141 million of losses on derivative instruments essentially related to the carry cost of our FX hedges linked to our COGS exposure in Brazil and Argentina.

As expected, losses on derivative instruments declined almost 70% when compared to the same period of 2016 as the reverse of the Brazilian Real and lower interest rates in Brazil are contributing to the reduction of carry costs.

Fourth, losses on non-derivative instruments of BRL101 million which are primarily associated to FX translation and, last, BRL151 million of other financial expenses mainly related to interest on contingencies. The effective tax rate in the quarter was 9.4% which was in line with the second quarter of 2016.

CapEx totaled BRL751 million, 34.8% lower than in the same period of 2016 while year to date CapEx declined by 29.5% reaching BRL1.3 billion. Finally, during the first half of the year we announced approximately BRL3.6 billion to equity holders in dividends. Thank you very much. I will now move to Bernardo before going to Q&A..

Thank you, Ricardo. Hello, everyone. As mentioned by Ricardo, we had an amazing performance in our international operations in the second quarter which between CAC and LAS grew around 30% and with our highest market share in Canada in 19 years.

In Brazil our results were too effected by expected headwinds in our COGS that will dissipate in the second half of 2017. Further, for beer Brazil, we've been able to outperform the industry in terms of volumes and strengthen our position for the second consecutive quarter amid a still challenged political and macroeconomic environment.

In this context along with a strong emphasis on operational excellence, we continue to focus on our five commercial platforms, activating the levers under our control. So first, elevate the core. I always highlight that the core is a top priority for us. Our strong brand is key to assure the sustainability of our business.

During the second quarter we continued to implement a core of the country the initiatives created other than at the core platform that I have mentioned in other calls such as improvements of primary and secondary package, new visual brand identities, among others.

We've also activated important key branding with Skol and Antarctica we expanded the traditional June Festivals of Sao Joao from the northeast to other regions of Brazil, creating a new carnival and delivering breakthrough experiences to consumers.

Further Skol, our easy drinking lager was the official sponsor of the LGBT parade in Sao Paulo, fostering culture and conveying meaningful messages about diversity and inclusion.

Brahma, our classic lager, sponsored several events, creating strong connections with its core target consumers while exploring the brand's beer expertise with initiatives such as the new Brahma structure that has a mini museum that tells the brand's story.

We also continue to roll out Brahma's new visual brand identity that evokes the brand's position for more than 120 years.

With the Skol and Brahma improved package and new visual brand identity, Skol with its yellow round label and young spirit, Brahma with its unique red square label and heritage coupled with distant and consistent communication for each brand, we are differentiation our easy drinking and classic lager even more.

As we elevate the core, the core segment presents a big opportunity to drive sustainable top line growth, providing the best synergies to consumers. Bohemia, the leader of the segment, grew more than 100% in the quarter.

Finally, Skol has been named by Millward Brown-BrandZ the most valuable brand in Latin America while Brahma, Antarctica, and Bohemia were considered, respectively, the third, sixth, and eighth most valuable brands in Brazil. So to us, considering the trend of our core brands, let's move to premium.

Premium segment is growing at a fast pace and we expect it to continue to grow well ahead of the industry. Our premium portfolio with massive international premium brands grew high teens in the quarter with the strong activation of Budweiser, Stella, and Corona.

Budweiser which has proudly been brewed in an unique way for 140 years with water, malt, rice, hops, and aged over beechwood, continued to experience a good momentum, the undisputable leader of the segment and with more than for the quarter a double digit volume growth and preference trending up significantly.

Such performance is a result of continuous improvement of sales and market execution, coupled with meaningful campaigns that show ingredients, quality, and authenticity. One great example of an effectual campaign that Budweiser has launched is the campaign that featured the basketball player Oscar Schmidt.

The campaign received the Golden Lion in Cannes Festival. Oscar Schmidt was authentic and choose the hard way, becoming a legend. Budweiser rewrote this story in a unique partnership with ESPN and NBA, getting Oscar to play his first NBA game at the age of 59.

Stella Artois is also growing at a sustainable rate, exploring the art of craft portfolio and making special adaptations for the occasion such as the Valentine's Day. Our complete portfolio of premium brands and customized execution, we remain committed to lead the segment by leading superior top line growth. Third, near beer.

Near beer continues to be an important platform for us. As a consumer-centric organization, we see this as an opportunity to be closer to our consumers in non-traditional beer occasions, enhancing the equity of our other brands. Fourth, let's move to in home.

In the second quarter, the 340ml returnable glass bottles volumes grew double digits year over year as we continued to evolve in its execution, enhancing shoppers' experience. This is an important initiative to drive affordability to consumers in a challenging macroeconomic environment in a profitable way.

Although with the returnables strategy we continue to focus on our three channels, so the expansion of bottles needs to elevate the gathering and the assortment of our products in the channel. Fifth, out of home.

We have been strengthening our position in the on-trade channel with our complete portfolio of brands together with our initiatives to step up the service level and be even closer to our clients.

We are confident that improved sales in distribution process, categories like consumer inside and the intense use of technology will bring us to the next level of operational excellence. Now talking about CSD&NANC, as mentioned by Ricardo, this is the industry continues to be pressured during the quarter.

While large, the traditional CSD industry remains challenge in the short-term due to the weakness of the economy as it tends to be even more impacted than beer and because of the higher price of existing.

Nonetheless we are confident that this presents a great opportunity in the long-term and that we have the right portfolio to capture this opportunity. The volumes in the non-traditional CSD industry are also encouraging, with products like Fusion, Lipton, and Do Bem that had a solid performance in the second quarter.

Now I'd like to pose a few words about the expectations for the second half of the year. First, for beer Brazil, we are implementing our annual price adjustments during the third quarter.

In this context we have confidence that the stronger top line coupled with the improvement of our cost performance we will resume growth, delivering superior results throughout the second half of the year.

With respect to external factors, the Brazilian economy is recovering at a slow pace, still representing a challenge for the beer industry in the short-term. We acknowledge the difficult reality, but we believe in our strategy remaining cautiously optimistic for the year.

With that in mind, we will continue to move forward in our plans, focusing on our commercial platforms in Brazil and pursuing cost savings and efficiency gains to positively impact our profitability. Finally, having operations outside of Brazil has already proven to be an important asset.

Going forward, we continue to see top line and EBITDA margin expansion potential in our operations in CAC. In LAS, we remain confident in our ability to deliver solid top line and EBITDA, supported by strong brands, in spite of the macro challenges in the region.

And in Canada, we remain optimistic that that we have the right portfolio that, along with our commercial and operational discipline, will continue to yield sustainable growth across the country. Now we can move to the Q&A. Thank you..

[Operator Instructions] Our first question comes from Luca Cipiccia with Goldman Sachs. Please, go ahead..

I wanted to expand a little bit more on the discussion around pricing in the third quarter in Brazil. Arguably you're going into the second half of the year with an industry that is still sadly soft but also with a market share that I assume has gone back to the very eye of the range.

So I was hoping - appreciate you confirm that you're going to do in pricing in the third quarter but I was hoping maybe you could give us some direction of the magnet or how you're going to see the pricing strategy in relation to the market share that you have regained or recovered in the last couple of quarters.

Any sort of indication that you could give us on that would be useful. And then secondly, maybe a quick one on the soft drink side. The Coca-Cola guys commented on recovery, we're chasing emerging trends at the end of the quarter for the first time in quite a while, the volumes turned positive.

And I was wondering if in Brazil you saw some degree of this supposition as well towards the end of the quarter, if there's any comment on July or how you expect soft drinks to perform in the second half as well. Thank you..

Next to the price, we normally increase price in Brazil in the third quarter. Last year was an exception where we increased price in the fourth quarter. So this year we'll go back to the norm and increase prices in this quarter as we used to. We are happy with the first six months in our volume growing ahead of the industry.

That shows the strength of our plan. So that's good. So I think it's specific for the price, it's what I could say, and the main important answer is that you back into the increased price during the third quarter. Specifically to the soft drinks, I think that the macroeconomic environment remains very challenged for the CSD industry.

It tends to be - you know it tends to be even more impacted than the main industry because of the higher prices. So the SKU is under pressure. We've seen, I mean, all trending down to bottled water and low cost juice. We know that. I mean, it's disposable income. It will come back. We know that. And the industry of the soft drinks, CSD, will do the same.

We have always been, the industry will remain challenged but we're confident that again, the disposable income will be coming back, the industry will be back in the same way. The most important thing, I mean, we are constantly doing in our plans and being able to form the industry in the first half, not in the second quarter, but in the first half.

It's a fact. So we're continuing to work on the things that we can do..

You describe it, so you haven't seen much of a change at the end of the quarter or anything that in the short-term suggests that the declines could be halted or reversed..

No. I think - I mean, I know that the industry is very effected by disposable income, very elastic. It seems that disposable income as we show in Brazil recovered but at a slow pace. So I think that the industry will come back but we really don't see any spike in the end of the quarter..

The next question comes from Isabella Simonato with Bank of America-Merrill Lynch. Please, go ahead..

Two questions. First also on pricing in Brazil.

I think consider that inflation is going down and that maybe you have a more benign competitive environment, can we assume that eventually this price increase you're going to implement in Q3, there is room for you to try and catch up on taxes that you couldn't up until now because the industry volumes were so weak or do you feel that the consumer is able to handle maybe a price increase above inflation? And the second question is on Argentina.

I think that the performance in this quarter was very strong.

Can you give us more color on the main initiatives there and if you could - I know that you don't disclose but if you could compare your performance to the industry volumes, so we can have an idea of how the market share was in the quarter?.

I think the first question, Isabella, thanks for the questions, it seems to be confident about the story of increased price in light of inflation and the impacts of that over time. So any opportunity that we have to do it and then to offset the tax increase that we have, we will try to. But we're talking about a more longer-term period.

And again, back to our normal increased price in the third quarter and we will watch and we will see. The specific question that you had about Argentina specifically, we are happy to see our numbers and the strong growth there. I think that we have a great platform there so the portfolio we have is very, very strong.

Brahma, Bohemia, Stella Artois and the operating segment there as well and you have a good go to market. So what I could say is that we're very confident about our plans and about our team. We have good plans in place and it's good to see that the country is back to growth, impacting specifically our industry.

So more comments about the competitors, I'm not able to do it but we are confident about our plans there..

The next question comes from Antonio Gonzalez with Credit Suisse. Please go ahead..

I have two questions. The first one is on SG&A in Brazil in the first semester it's down a little over 1%. And I know your guidance this year was more focused on the COC side and your expectation of top line improvement.

So I wanted to see if you could share with us some qualitative comments on which are the working and non working dollars that you've been able to optimize so far throughout the year and whether you expect that to continue in the second semester.

And my second question is related to obviously you've made many comments about top line sequential improving going forward and so on.

I wanted to ask if it's reasonable to assume that perhaps you will prioritize more top line over margins for the back half of the year, perhaps for the next 12 months as you I guess try to capture all of these initiatives in mainstream and 340ml and so on.

Is it fair to assume that top line growth is more important than margins in the short term? Thank you..

So, starting with SG&A and trying to give a little bit more qualitative examples on some of the things that we're doing, and I'm going to insist that it was in Bernardo's speech, the use of technology has been key for us.

So for example in distribution expenses, first to not only drive efficiency within our system but throughout the transportation companies that work with us and et cetera, providing not only not only let's say a better or more efficient in terms of cost distribution expense overall but more importantly a better service to our points of connection.

I think that is key in the way we're doing, trying to get, optimizing working money and also to take no working money out of the system. Another example, also in terms of the use of technology is being able to reach out to our consumers in a more direct, efficient way through the use of online platforms and etcetera.

So that's another example for us to be more efficient on the working money as well. When we talk about top line and we have been a company for - some of you know we are a company of ands. So we don't talk about top line or margin. We talk about and.

In one of the examples that you mentioned in your question specifically for example, the 340ml RGB is a good example in which it drives top line and drives increase in margin over time.

Of course if we implement such a big shift or a change in a market like the one in the supermarkets, you know that the last couple of years we moved a 4% RGB market in trade to 14 and then to 23 on average for last year. You know? So that is an important shift in the behavior of the Brazilian consumers, in the behavior of that channel.

And sometimes margins take some time to hit the P&L. So we're - just to make sure that we're focused on margins and top line..

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

I guess as a follow-up, Bernardo, to your comments on the consumer environment, a lot of the improvement I guess related to the second half is just on easy comps and some of those cost pressures dissipating. I was hoping you could give us a little bit of framework. I don't know if it's by channel, on versus off premise, or by packages.

If you are seeing any shifts in trends, meaning stabilization and improvement, meaning people coming back to on premise more or buying one way more. Just trying to get a better sense looking into next year that as hopefully things start to improve the trends are going in that direction.

Any early indication of that yet?.

First I think we know and we mentioned that some of the comps in terms of net revenue compared to the third quarter, second half of last year. So this is true. We know that will benefit in compare year over year in the second half. But it's not only that. It's just that first. And certainly you see it's low paced but disposable income going back.

So that's why the percentage of costs, we're optimistic about what's going on in the short-term with the macroeconomic environment in Brazil so that could help as well. And the third, I mean, we've been working in a structured way paying off our forms in terms of elevated core.

That's the main bulk of our industry and in terms of packaging, VBIs, he brings that along and so as a market leader we know we have the responsibility to drive the industry as well. So that's what we're doing. If we drive the industry we're leading the way, we tend to outperform. I think that those - the easy comps, you are right.

But while we say that our culture is optimistic in the short-term because disposable income will likely come back and because we're implementing in a very structured way, thinking short-term and long-term important moves, linking it all to the core, link it to the premium to expand the industry and we make it to a strong step up in our service level.

That brings consumer experience in our point of sales, that drives the industry as well. So I'll say those three things just drive our comment of being optimistic for the future..

If I may add to what Bernardo just said, also when you look at the numbers, I mean, we talked about this in the last couple of quarters. We believe that the Brazilian industry historically - it's a history of growth. So I believe in growth for the Brazilian industry. It's just not a straight line up. It's like ups and downs.

And when you look at for example the market that we had in Brazil for 2016, overall volume declined by more than 5% and you compare to the current situation in the market, of course when all we would like to be excused of volume decline for the industry but it's an improvement in comparison to the previous year which shows a trend towards I would say the average of the Brazilian market which is longer-term growth patterns of the Brazilian industry..

And if I could ask just one other question which I have a feeling you may not be able to provide much color on, as we've been hearing about the Coke bottlers losing distribution in Brazil, could be as early as this year, and Heineken using Kirin, does that change any perspective that you may have on your distribution and the competitive environment know that changes may be potentially sooner than expected..

As we don't comment specific actions of our competitors. But just what we can say is that we are, as a company, have always been prepared to capture any opportunities there are in the market.

The market's very competitive but we are working very hard to capture opportunities and to make sure that drives the material line as well given recent changes in the Brazilian, let's say, industry..

Adding that, it continues to repeat the focus on the platforms as we've been doing, working in a structured way, and I've seen that this effects the short-term and the long-term as well. So nothing changed for us. We continue to work hard on the things that we control..

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

A quick one on cash flow. We saw that it improved but we haven't seen a major improvement in the working capital yet.

And in this regard is it fair to assume that this tool will change once the back off resumes and what do you plan on doing when it perhaps forms CapEx again or distributors given as how you've been doing? And then a separate question to the capital structure given the falling rates and your rapidly falling rates.

Are you contemplating perhaps changing the capital structure as it is today? Perhaps holding less cash?.

So starting with the last question, we believe we are very close to the optimal capital structure of the company. So with no changes, we don't see a reason for us to change the capital structure. So again, we're close to the optimal.

With regards to the cash flow of the company, year to date we generate BRL4.4 billion in cash after operating activities and that compares to an actual balance of BRL133 million in the same period last year.

So we see a very important improvement in cash generation when compared to last year, even when you account for the first quarter which was kind of a one-off due to some tax payments specifically in the first quarter. The second quarter compares the second quarter of the previous year is an important improvement as well.

For us as we have a cycle of negative working capital, to have a negative working capital, the more you grow, the more you can capture cash flow as a consequence of working capital. So again, for us to start to see cash flow coming back in terms of working capital, what we need to do is grow the business..

The next question comes from Alex Robarts with Citi. Please go ahead..

I was keen to go into the soft drink trend again. Looking back on the years, this is a pretty important - we haven't seen this kind of decline in your soft drink volumes I guess ever. And clearly the industry falling to 10% at meals, it seems that things are getting even softer. And I can see why you might fall more than the industry.

You skew a little bit more to the stills and the stills have even higher price sensitivity than CSD but I guess I'm trying to get a sense of - you talk - you said that it hasn't really been a spike of improvement at the end of the quarter in the soft drink industry in Brazil and I'm wondering are the B brands structurally gaining ground? I mean they typically skew high in Brazil compared to the other markets in LatAm.

But have you seen or are you seeing some particular aggressive pricing or promotions from these collective groups, the B brands that are operating in Brazil? And are you pursuing or have you thought about pursuing perhaps more aggressively some affordability initiatives? I know the 123 program that you do an extra is obviously a volume driven promotion.

Are you thinking - is it fair to think that you might pursue more aggressively affordability? And is it fair to assume that maybe it's not going to be until next year, until the industry grows? So that's the first one. And then the second question is around CAC.

Yu specifically state in your outlook state the significant margin opportunity left in CAC going forward. And you're already at the level of last year above Canada.

Could you just map out a little bit for us, your thinking over the medium-term? Where are the margin and top line opportunities in the region? Is it market share penetration? Is it just bringing best practices from other regions? New products? How should we think about the magnitude of this significant potential in 500 basis points, 200 basis points? So those are the two questions.

Soft drink and CAC..

Starting with the CSD, the soft drinks, first in a structural way we know that this industry is very elastic and disposable incomes is much more than beer specifically. And we know as well that Brazil, we will always lead the country and as we always say, it's not a straight line. But it lines up. So we're very confident that Brazil will come back.

And for sure effect in a very positive way the CSD industry. Having said that, we are structuring this business with a portfolio of brands that are ours to grow even further to carbonate soft drinks so we're talking about energy drinks, Fusion is doing great.

Talking about the acquisition of Do Bem last year that's doing great as well so we feel we're placing ourselves much better with brands and a portfolio that allows us the opportunity to seed this particular initiative that's very, very linked to disposable income and Brazil will come back because it's not a straight line, again.

But it always lines up. It's always been like that and will be in the future. And on the other hand, bringing a portfolio of brands to the table that is sure to capture occasions and opportunities for new consumer needs that we know the market are seeing in the market.

All those things, we've altered our thoughts and initiatives to increase and to step up our service level. We have an awful lot of beer business and the soft drinks as well. So basically this is for the full industry.

Regarding this specific year, we are happy because we always perform in the industry in the first half and the second quarter will make some revenue management initiatives. That's why you see our natural and portfolio activity growing around 6.6% above last year.

We slipped a little bit in this specific quarter but all in all our performance can control more above. So basically the CSD will have to come to you and then we'll come in there..

Just highlighting what Bernardo just said, in a nutshell we had - if you look at the first semester in aggregate, we outperformed the industry in terms of volume and we are very well positioned in terms of healthy portfolio management, in terms of net revenue, as well as we're well positioned for the remainder of the year.

So as a result of that we believe we are well positioned in the soft drink industry.

With regards to COC, you know, Alex, that Coke has been a company for so long, I think you know that when we communicated to the market, I think it was 2012, that we saw an EBITDA opportunity of $1 billion in that region specifically, most of the people were like - wow. But $1 billion just for you? Or the whole industry? Etcetera.

If you'll recall at that time I think we had around negativity for like $10 million, $14 million. That was the number. So when you look at this type of growth, margin evolution, and expansion of our business in COC, it's a combination of all the things you described.

It's having the right portfolio, it's having the right people in place in the region, when you have SKU, you can afford to have the best, the very best people there. You can afford to have the full portfolio.

You can get more efficiency in terms of synergies and the margin expansion that we have had there in this quarter, we have Panama in that mix as well which started as a lower base in comparison to our business. So again we're very excited with the COC business for all the reasons that you mentioned yourself.

And it's not only about the numbers but what's behind the numbers, the platforms that we have been talking here in Brazil and have implemented in structural ways, thinking for the long term but we dare as well to push it overall, it's better. And then the benefits are even better.

So talking about the relative core, accelerate premium of the service level and the go to market initiatives that we put in place are for COC as well. And so structurally those countries are in better shape and I think that - we think if we can control and see that implementing in the commercial platforms that we're doing in Brazil is all..

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

I'm wondering if you could talk about what kind of learning's if any you've gotten from the SAB Miller in terms of specifically things like telemarketing, going after total beverage alcohol, perhaps insights at the low end? And really just anything that you've gained from your association with that business and perhaps examples of things that you're doing in the market that reflect that? Thank you..

I think that we know the SAB operates very, very well, operates very, very well in emerging markets. It's similar to ours. So that's one thing. First, I think that the intellectual synergies, I think the approach that we've been doing in terms of the portfolio strategy, it's very interesting.

I think we've been implementing with the core brands and the premium brands and then the same thing, exactly. They overlap the region and so on for channel. Here in Brazil and overall in our business, I think that was very, very good to find the right path and to learn from these. So the portfolio approach was very, very interesting.

I think secondly, everything you need to go to market is always good to see. The telemarketer set, it's good. It's a complex strategy in that it can use the sale to get order taking. So lining up this big go to market project that has been, I will say, working hard the last few years to step up our service levels. So good synergies on this as well.

And the most important thing, we have great people there. That's great.

And to share best practices that you are doing as we speak, and we always capture from our SAB former operations and we even know the companies actually roll a copy as soon as they're aligned to our strategy, the ones that are always commenting on the core, shaping our form and really wrap up our service level, so the next level.

So I think that was good. Good for Ambev I mean. Because of those intellectual synergies will benefit a lot because we operate in similar markets..

And then on returnable glass bottles, you'd mentioned last year they'd average 23% of the business.

Can you give us a sense of where that is for the first half of this year or the second quarter? And any comments in terms of what sort of reaction you're seeing from competitors in the market as they try to combat your strategy?.

It's always good to put it in the frame of returnable strategy for the business but it's, I mean, it's not only that. We have some occasion a lot, the in home occasion, to assure that, as an example, the order in the channel will grow in the right way. And it's growing double digits.

I think that it's not so easy I would say to replicate a model like that because with returnable bottles and the costs there, we need to teach the customers to be happy because we're on the right path, growing double digits with SKU opportunities improving. I mean, as we speak, the execution, the shopper experience, it was a bold move.

I mean since 1996 we don't returnables. Now bringing it back in a successful way and this is the kind of initiative that we're constantly seeking. So it's a dual role. You learn from that. We improve the costs and they know how to get better month by month, people that buy the product know what to do, they become more loyal.

So I think that you are on the right path in a project that leads to operational excellence as well because you only do what you have to ask and we are stepping up even more operational excellence in terms of distribution to ensure that initiatives like that would be successful like it is and not so easy to comp..

On the specifically value, if you know the percentage, we only provide that annually. So we don't provide it on a quarterly basis. But as Bernardo just said, the returnable glass bottle in the channel is growing double digits in an overall market that's declining..

Due to time constraints the final question comes from Vito Ferreira with BTG Pactual. Please go ahead..

My question is related to the cost guidance for the second half of the year. Actually when we see the BRL performance during the second half of '16, the BRL appreciated 8% in the third quarter and 14% in the fourth quarter.

Assuming that the US dollar present approximately 50% of your costs, isn't your cost guidance too conservative this time? I mean if there is space for you to have a better than expected cost performance in the second half of the year?.

For the shorter period of time that you look, the harder it is for you to see exactly how impacted or how like the two main components, inflation and the FX on a more regular basis, you see that much more clearly than on a quarterly basis and at this point we're going to stick to the guidance that we have already provided of having a flattish to low single digits up cash COGS in the next semester..

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bernardo Paiva for any closing remarks..

So before closing our call I would like to highlight once again that we are excited with the implementation for commercial strategy and platforms in Brazil. We will begin slightly more favorable net revenue performance hectoliter comps and deliver improved cost performance in the country.

Further, we also have a positive outlook for our international operations. So having said that, we are confident that we will soon return to growth. So basically that's the final magic. Thank you and enjoy the rest of your day..

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