Ricardo Rittes - Chief Financial & IR Officer Bernardo Paiva - CEO.

Luca Cipiccia - Goldman Sachs Group Inc. Isabella Simonato - Bank of America Merrill Lynch Antonio Anaya - Crédit Suisse AG Lauren Torres - UBS Investment Bank José Yordán - Deutsche Bank AG Thiago Duarte - Banco BTG Pactual S.A. Robert Ottenstein - Evercore ISI.

Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's Fourth Quarter and Full Year 2017 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 Q4 or full year 2017 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 very much. Hello, everyone. Thank you for joining our 2017 fourth quarter and full year earnings call. I will guide you through our operational 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 the evolution of our commercial platforms in Brazil.

Starting with the main highlights of our consolidated figures, our results have steadily evolved throughout 2017. After a challenging first half, we posted robust results in the second half of the year, especially in Q4, our strongest quarter.

It is important to highlight that the Q4 is the most important quarter in the beer business, representing roughly 36% of the EBITDA in the year. On a consolidated basis, top line was up 14.7% in the quarter. In the full year, top line rose by 9.6%, with volumes growing by 0.9% and net revenue per hectoliter by 8.5%. EBITDA was up 22% in the quarter.

That corresponds to organic growth of BRL1.3 billion compared to the fourth quarter of 2016. In the full year, EBITDA grew by 7.9%, reaching BRL20.1, with an EBITDA margin of 42.1%. Net profit was down 31.7% in the quarter, while, on a normalized basis, net profit was up 23.2%.

The main difference between reported and normalized profit is a non-cash financial expense of BRL836 million related to foreign exchange translation losses and intra-group lows that were historically reported in equity and were recycled to profit-and-loss account in the fourth quarter of 2017.

In the full year, net profit was down 40%, while adjusted by exceptional items, net profit was up 2.1%.

Along with the negative financial impact in the fourth quarter that I just mentioned we had for the year, first, the swap of assets carried out with ABI at the end of 2016, pursuant to which we agreed to transfer of business in Columbia, Peru, and Ecuador in exchange for the Panamanian business originally owned by SABMiller.

Such transaction resulted in a BRL1.2 billion non-cash gain in the fourth quarter of 2016, creating a hard comparable. And number two, the adherence to Brazilian federal tax regularization program that resulted in the recognition of a tax expense of BRL2.8 billion in the third quarter of 2017.

Cash flow from operating activities reached BRL8.9 billion in the quarter and BRL17.9 billion in the full year, which represents an increase of BRL5.5 billion, or 44.8% compared to 2016.

Now moving to our divisional results, in Brazil, our EBITDA was up 24.3% in the quarter and 0.6% in the full year, while our results in the first half of 2017 were still impacted by expected negative drivers, we lacked most of the drivers in the second half of the year, returning to a pattern of growth.

Brazil beer top line was up 15.2% in the quarter, and 6.3% in the full year. Our beer volumes were up 5.1% in the quarter and 0.7% in the full year, outperforming the industry. Net revenues per hectoliter in beer increased by a robust 9.6% in Q4, mainly driven by our revenue management initiatives implemented during the third quarter.

In the full year, net revenue per hectoliter was up 5.6%. Now talking about Brazil, CSD and NANC, the top line was up 6.7% in the quarter and up 1.6% in the full year.

Volumes were down 3.7% in the quarter, in line with the industry, while, in the full year, volumes declined by 4.3%, lagging the industry, as the adverse consumer environment continued to drive consumers away from CSD to low-cost powder juices, or even to tap water.

Net revenue per hectoliter in the CSD and NANC business was up 10.8% in the quarter and 6.2% in the full year, driven by our price management initiatives implemented during the year. Brazil cash COGS grew by 0.7% in the quarter, while, on a per-hectoliter basis, declined by 2.2%, benefited by a favorable FX.

In the second half of 2017, Brazil cash COGS per hectoliter was up 1.0%, which is in line with our guidance of flattish to low single digits up. In the full year, Brazil cash COGS and cash COGS per hectoliter increased by 9.8% and 10.4% respectively.

Brazil cash SG&A was up 19.9% in the quarter as higher administrative expenses due to variable compensation accruals was partially offset by below-inflation sales and marketing expenses. In the full year, cash SG&A was up 5.5%. As a result, Brazil EBITDA was up 24.3% in the quarter and 0.6% in the full year.

Moving now to Central America and the Caribbean region. In CAC, we deliver another solid year. Our performance was marked by great results in our new operations in Panama, now the second largest market in the region after the Dominican Republic.

Going to more details, in the fourth quarter, top line in CAC increased by 15% and EBITDA by 25.2%, with another quarter of margin expansion. In the full year, top line grew by 8.8%, leading to an EBITDA of BRL1.8 billion, an increase of 23.3% when compared to the full year of 2016, with a robust margin expansion of 500 basis points to 38.9%. In U.S.

dollars, reported EBITDA grew more than 40% in the quarter and 30% in the full year, reaching almost $600 million. While we're still impacted by the severe hurricane season that affected the region in the third quarter, we were able to deliver solid organic volume growth of 4.3% in Q4, driving a 1.9% volumes decrease in the full year.

Reported volumes increased by 30.1% in the quarter and by 26.9% in the full year, benefiting from the recent swap of assets carried out with ABI and our operations in Panama.

The integration with Panama continued to be executed as planned, and our portfolio of brands that comprise Atlas Golden Light and Stella Artois, among others, achieved great results in the year, contributing to double-digits organic volume growth and significant market share gain in the country.

Further, we benefited from our financial discipline in the whole region, leveraging both costs and expenses, leading to an EBITDA margin expansion for the fifth year in a row.

Going forward, we continue to be enthusiastic, with top line and EBITDA growth potential from our current operations as well as with non-organic opportunities, being confident that we are in the right track to keep delivering solid results in the region and to reach our $1 billion EBITDA dream for that region. Turning to Latin America South.

Top line in that region was up 22.6%, and EBITDA grew by 23.6% in the quarter. In the full year, top line increased by 26.1%, and EBITDA by 24%, reaching BRL4.9 billion with margin contraction of 80 basis points to 45.2%, mainly due to negative impact of FX on our costs in Argentina.

Volumes were up 5.8% in Q4, driven by growth in both beers, CSD, and NANC.

Specifically regarding beer, we had a remarkable performance in, number one, Argentina, as double-digit volume growth was supported by our complete portfolio in the country from the mainstream segment with Brahma that grew more than 20%, with profits trending up; coupled with Quilmes, with the launch of Quilmes Classic, which was a great success; and also premium, with the Stella Artois and Patagonia leading the way.

Second, Paraguay, led by the successful implementation of 340 mL returnable glass bottle strategy, and third, Uruguay, driven by execution improvement and a strong industry.

In the full year, volumes were up 5.9%, supported by double-digit increase of beer volumes Argentina, and by the performance of all global brands in the region that presented growth versus last year, enabling us to achieve our all-time high volume mark for beer in LAS.

As we move forward, we're encouraged by the rebound of volumes in Argentina, where we have a particularly positive outlook for 2018, being confident that we are well-positioned to keep posting strong results in the region. Moving now to Canada.

EBITDA in Canada declined by 2.3% in the quarter as inorganic top line growth of 1.3% was impacted by higher costs and expenses. In the full year, top line was flattish, and EBITDA grew by 0.9%, reaching BRL2 billion, with margin expansion of 20 basis points to 33.9%.

Volumes were down 0.7% in Q4, driven by poor weather that led to another quarter of industry contraction. In the full year, volumes declined by 1.3%, in line with the industry.

Despite the tough industry, our main brands performed particularly well, with Bud Light being the fastest-growing brand in the country, and Stella Artois and our portfolio of local craft beer that include Archibald, Stanley Park, Mills Street, among others, outperforming the industry.

Going forward, we remain committed to pursuing proven results in Canada, supported by our strong brands and by our leading market position. Now moving to below EBITDA, net financial results totaled an expense of BRL1.2 billion in the quarter.

In the full year, net financial results reached an expense of BRL3.5 billion, which includes two exceptional financial expenses, debt total BRL977 million.

Those two items are, number one, BRL836 million with no cash impact related to foreign exchange translation losses on intra-group loans that were historically reported in equity and were recycled in the fourth quarter to profit and loss account upon reimbursement of these loans; and BRL141 million paid in connection with the Brazilian federal tax regularization program.

Excluding such exceptional expenses, net financial results total an expense of BRL412 million in the quarter and BRL2.5 billion in the full year, which represents a decline of 32% compared to 2016. Moving to more details.

Financial expenses in the year were, first, interest income of BRL459 million, driven by our cash balance essentially in Brazilian reis, U.S. dollars, and Canadian dollars; second, interest expense of BRL1.6 billion that include the accrual of around BRL600 million related to the put option associated with our investment in Dominican Republic.

As announced on January 18, 2018, we increased our participation in the CND business from 55% to 85%. With that, we continue our partnership with the Leon Jimenes Company, but with a larger stake.

Third, BRL543 million of loss on derivative instruments, mainly driven by the carry cost of our FX [indiscernible], primarily linked to our COGS exposure in Brazil and Argentina.

Important to mention that losses on derivatives instruments declined by almost 65% when compared to the full year of 2016, as low interest rates in Brazil contributed for the reduction of carry costs. Fourth, losses on loan derivative instruments of BRL112 million mainly related to FX translation.

Fifth, tax and financial transactions in the amount of BRL180 million; and sixth, BRL572 million of other financial expenses mainly driven by interest and contingencies.

The effective tax rate was up in the quarter for 9.9% to 34.3%, mainly due to an exception non-cash tax adjustment of approximately BRL510 million related to the tax effects of the foreign exchange variation linked to the intra-group loans that, as I just mentioned, were historically reported in equity and were recycled to profit and loss account upon the reimbursement of those loans.

In the full year, effective tax rate was 39.3% versus 2.4% in 2016, as we not only faced a tough comparable, but were also impacted by the exceptional tax adjustment of BRL2.8 billion related to the Brazilian federal tax regularization program that we announced in the third quarter.

Adjusted by those exceptional items, the effective tax rate was 23.9% in the quarter and 12.8% in the full year. Finally, CapEx totaled BRL3.2 billion in 2017, declining 22.5%. On top of that, during the year, we returned approximately BRL8.5 billion to equity holders in dividends and interest on capital.

This figure does not include a dividend payment of approximately BRL1.1 billion announced on December 21, 2017 and made as of February 22, 2018. Thank you very much. I will now hand over to Bernardo before going to Q&A..

Thank you, Ricardo. Hello, everyone. As mentioned by Ricardo, we ended 2017 with a solid fourth quarter, delivering on a consolidated basis an EBITDA growth of more than 20%. In Brazil, where I will concentrate my comments on, our beer business consistently evolved throughout the year.

Particularly in the last quarter, we posted strong top line, driven by a healthy net revenue per hectoliter increase and solid volumes, driving BTA growth of 27.5% and margin expansion of 500 basis points. Beer volumes were up 5.1%, way above the industry that was flattish, outperforming the market in all the segments, core, core-plus, and premium.

In the full year, our beer volumes were up 0.7% while the industry was slightly negative due to a still-weak consumer environment. In this context, even though the macro in Brazil continued very challenged, we were able to strength of our market position and return to growth.

In addition during the year, we also continued to proudly explore our beer expertise, offering to consumers a unique portfolio of high-quality beers meaning to fulfill different needs and based on different occasions. We granted to consumers the power of choice, as beer is like happiness - everyone has its own recipe.

Having said that, we are confident that all these achievements were fueled by the initiatives taken under our growth platforms. Our first and most relevant platform, in 2017, we implemented the most significant package improvements of Brahma and Skol's history, [indiscernible] to our consumers in [indiscernible].

Further, we kept progressing with our marketing strategy, exploring the connection with the core consumer, differentiating and innovating our brands.

As I mentioned in our third quarter earnings call, Skol, our easy-drinking lager, launched in October at both campaign [indiscernible] the summer season and evoking, once again, [indiscernible] signature, exploring the round-versus square expression, [indiscernible] people to be more open, connected, and respectful to each other.

This campaign comprised eight different TV ads, new trade materials, and strong digital activation. The results were great, with the best consumer valuation we've seen in Skol campaigns during the recent years, putting the brand in a positive momentum. Such momentum has been enforced by the remarkable activations during Carnival of this year.

Once again, Skol took a leading role in promoting the most important street parties in Brazil, such as Sao Paolo, Salvador providing free entertainment for the population. Now talk about Brahma, our classic lager. Brahma had an amazing 2017, growing strongly quarter-after-quarter.

As mentioned in our last call, Brahma's new VBI generating notable results, with consumers' purchase intention growing quite significantly. This perception of the new visual brand identity of Brahma was boosted by the campaign, a very successful one.

As we move to 2018, we are confident that Brahma is in a good position to maintain 2017 growth trend, supported by a strong division during the 2018 FIFA World Cup Russia.

Still on Brahma's family, but [indiscernible] was one of the main highlights of the year, providing consumers with access to a variety of beer styles, showing that food and beer can go along very well in making gastronomy something accessible to everyone.

In the full year, Brahma S.A almost doubled its volume, definitely consolidating in the core-plus segment in Brazil. Finally, Antarctica. Antarctica has a very relevant regional role, especially in Rio and Brasilia.

In 2017, its major highlight was the results of the innovative Web series format, in reality, being close to the consumer's life and their everyday life, the series continued to deliver great numbers, reaching more than 50 million views.

In 2018, [indiscernible] has maintained its consistency, promoting the Carnival in Rio and Brazil, and, during the first quarter, bring another very important moment - the launch of its new visual brand identity.

Following the results and learnings we had with both Skol and Brahma, Antarctica's new VBI is expected to be a major success, exploring brand's tradition and quality. Now moving to premium, consumers are increasing trading up, and the complete portfolio of premium brands has proven to be key to capture all the benefits arising from this trend.

In the fourth quarter, our premium portfolio of global and domestic brands experienced a great acceleration. All the brands grew substantially, driving positive mix and EBITDA margin expansion. In the full year, our premium volumes also presented amazing results, growing double-digits and accounting for more than 10% of our total beer volumes.

We are proud that Budweiser was the leading brand of the premium segment for the third year in a row, growing more than 30% while continuing to build its connection to consumers with meaningful and impactful message, such as the award [indiscernible] NBA and the Latin Say campaigns.

We are also proud to say that Colorado became in 2017 the number one crafted brand in Brazil, inviting consumers to experience different tastes and the wide variety of ingredients, showing to all of us that more than 10,000 years of beer history was marked by diversity, and we will continue to convey this legacy.

Looking ahead into 2018, we are confident that we have a very powerful portfolio to provide consumers with a wide diversity of premium brands while bringing memorable experiences. Moving to different occasions and starting with being home, RGBs continue to be a big focus for this year, carrying our core brands and having an affordable proposition.

We have evolved with the penetration of returnable glass bottle and [indiscernible] channel, bringing affordability to consumers with a higher profitability. In 2017, returnable glass bottles accounted for 29% of our beer volumes in the retail, which includes supermarkets, mom-and-pops, pit stops, among others.

With the 300 mL bottles, the main presentation in this channel growing double-digits year-over-year. In-home, we also implemented new trade programs during the year to boost the shop experience in all different size and formats of stores with the off-trade channel. Turning now to other formal occasion.

The on-trade continues to be the most relevant channel in Brazil, representing the most of our volume. We've been segmenting even more this channel, and, with that, designing and implementing pre-programs to each subsegment of the on-trade that increase the effectiveness of our investment and the output of volumes.

Regarding excellence in client service, as a service-oriented company, enhance our route to market and our service level is at the core of our priorities. For instance, we are still expanding a number of box served by the company.

We are also strengthening our relationship with our clients through the improvement of our tele-sales capabilities, what is resulting in increasing clients' satisfaction.

On top of that, we are also continue to further develop our B2B platforms, particularly for the off-trade channel and VIP clients, and to invest behind new technologies, striving towards the best-in-class level service.

Finally, moving to CSD and NANC, in the fourth quarter, in spite of the volumes going down 3.7%, in line with the industry, we were able to deliver top line growth in CSD and NANC contributing to a DD margin expansion. In the full year, our volumes were down 4.3%, outperforming the industry.

Regardless of the pressure in the traditional CSD industry, our volume we see in CSD and NANC, which comprise Fusion, H2OH, Lipton, Gatorade, and Dubane, delivered strong results in 2017. H2OH and Lipton grew by double digits, where Fusion by high single digits.

On top of that, Dubane volumes increased by more than 100%, supported by the launch of the new line, Dubane Tologia. Such premium brands reached together almost 10% of our CSD and NANC volumes in the full year. Before closing, I would also like to highlight that 2017 was marked by the evolution of our Better World platform.

We want to be here for the next 100 years, and our commitment to sustainability is at the core of our priorities, as well. For instance, in the beginning of 2017, we launched AMA, a mineral water for which 100% of the profit goes to projects for access to potable water in the semi-arid region of Brazil.

AMA already benefited more than 7,000 people and has demonstrated great potential to continue to grow.

We're also involved in our road safety project, such as the [indiscernible] that saved more than 420 lives in 67 counties in the state of Sao Paolo, and Brazil [indiscernible] Segura, that in one year saved more than 130 lives in the federal district.

These are only a few examples and, going forward, we will keep advancing behind our Better World platform, supporting areas to continue to enhance not only our business, but the whole society. In summary, 2017 was an important year in which we reached an inflection point, resuming growth and strengthening the fundamentals of our business.

As we move to 2018, we will continue to be consistent with our strategy, but expect a challenge first quarter for Brazil beer, especially in terms of volume due to, first, a hard-com in the first quarter of 2017 when we outperform the industry by 5.5%; and second, a soft industry that's expected to be impacted by the earlier Carnival and very poor weather.

Nonetheless, we have a positive outlook for the rest of the year, even though the consumer environment remains volatile. Lower inflation and declining unemployment rate and a gradual increase in disposable income as the year progress as well as the FIFA World Cup, should be supported for the industry.

On top of that, we are very confident that we have a powerful portfolio and a solid plan to further accelerate EBITDA growth. We believe Brazil continues to be a unique market that we have experience, and we will keep pursuing growth and profitability.

In this contest, a consistent execution of our growth platforms as well as our passion for bringing the best quality beers in the world, will continue to be of paramount importance. We can go now to the Q&A. Thank you..

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

Congratulations on the strong finish, and I guess on carrying the torch of optimism for Brazil consumers. And I would actually want to ask about the 2018 outlook. Arguably, there is a lot of optimism in your speeches, it seems to be the case.

It also seems that a lot of investments, some of them more painful than others in the last couple of years, are starting to bear fruit. You talk about premium. You talk about returnable, and I think that's great for the setup for this year. But surprisingly, your guidance is somewhat light on details this time around.

And my question is, first, very simply, why that is the case as compared to the past. And then, assuming that you're not going to give us that many more details now in the call, maybe if you can help us understand how the volume, price mix, balance should play out, particularly for beer Brazil, in 2018.

Are you seeing elements that make you more comfortable that, realistically, with consumers trading up, with inflation in food still being very favorable, we could see an even stronger revenue per hectoliter growth, at least a bigger delta between revenue and COGS per hectoliter as we progress through maybe after a more difficult first quarter? So that would be my question, if you can maybe give us some context for the balance between volume and price in 2018..

Luca, thanks for the question. I will start here, and Ricardo Rittes, maybe you can answer later a little bit. So I think that, first, talking about Brazil and the prospects for 2018, in that important to remind that we have been consistent in executing the growth platforms, the strategy that we have.

And yes, we're starting to reap the benefits of the investments that we've done in the last years.

And I think the fundamentals of our business are evolving in a much better place, and I think that the country will be in a better place as well in 2018, and it compares to any prospects are good, seeing that the team is really solid in terms of focus and executing the plan that we have.

And as we have the FIFA World Cup that we will activate strongly with two brands, one core brand, that's Brahma, and the premium is Budweiser. So the plans are really, really strong.

So having said that, the first quarter, volume might be a little bit tough, as I said, because of the tough comps, because they're - I mean, last quarter, the first quarter of 2017, we outperformed the industry in 5.5 percentage points, so it was a tough comp.

and secondly, weather sees basically December - December's not helping at all, and thus affects the industry.

But the good news, that the plans are strong, so the weather will be better, for sure, have World Cup, strong plan, and again, have been consistent with the strategy that we have I'm mentioned there, not only in looking for the short-term, but for the medium-, long-term, as well. So that's my view for 2018. That's why it's a positive view.

So Ricardo, want to comment anything more?.

Like to just start to say that Ambev, out of the 3 main players in Brazil, was the only one who used to give guidance, driving to an asymmetrical value dynamic. Last year, we decided to provide the cash COGS per hectoliter. I think we have, because of the volatility that we had in that specific line.

But if you look to our guidance in 2010, you see that we varied a lot in the level of quantitative guidance provided to the market. What we are trying to do is to compensate somehow with the qualitative view, as you pointed out, with a more detailed - you called us optimistic about Brazil.

We call realistic about the operations, and even providing more color about the first quarter, like Bernardo just said..

Understood.

Maybe just on the receptiveness of the consumer to price increases, and maybe your comments about premium, can you comment about the speed of that improvement? Is that surprising you? Was that encouraging you maybe to be more assertive on pricing as we move towards the year? Is there any additional maybe qualification on that?.

I think that every time that we do a price increase, like we do in third quarter of last year, the first quarter, the quarter that we do that, the partners suffer, we lose share.

I think that the way that we implemented the price increase looking for the full mix the portfolio and so on, understand that [indiscernible] can help us, the returnable waters, and those tricks can do that, assuring that we would maintain the most important price points per channel.

Our, I'll say, intelligence, and our [indiscernible] sales intelligence, all the technology that have been put in to understand the subsegments per channel, understanding that [indiscernible] should be here and there, it's helping us to mitigate the impact of a price increase.

And I think that's why the fourth quarter was - one of the reasons was that as well, took out of the portfolio [indiscernible] that. But the way that we implemented, I think it was very, very good, so good learnings for the years to come. And I think that people are starting out. Brazil will be out of this, and disposable income will come back.

And why I think that the fundamentals will help us, because when disposable income back on track, and it will be back on track in Brazil, our portfolio will be much stronger, the premium much, much stronger. It's very, very important to say that the last quarter, not only Budweiser grew a lot.

All our brands did the same, so Stella, Corona, Originale, so the domestic premium as well.

So I think that's very, I would say, excited about the opportunities of the premium segment, but our first big focus continues to be the core, because the core brands represent the bulk of our business, great brands, historical brands, brands that people like a lot.

And we will continue to invest in every touch point of those brands, of people that taste and drink brand in an everyday basis here in Brazil..

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

Two quick questions.

First of all, in Brazil on the price mix for the quarter, which was very strong, can you exclude the positive impact on the price mix growth from the tax effect? And should that continue towards 2018? And the second on Latin America South, with SG&A growing well below inflation, can you elaborate a little bit more between the selling and G&A lines? And looking for the good prospect for volume growth this year, if you could give us an indication of how that line should perform this year? Thank you..

So just to give you in terms of order of magnitude, the impact of the tax change, if you will, is 1/15th of the total growth that we had in that net revenue per hectoliter. So is not the main fact. It's less than 10%, so that was not the biggest change. And when you look at SG&A, I would ask Bernardo to go through very quickly..

I think that, as you know, we have been steadily proving the market effectiveness and doing the way that we can optimize the campaigns and the media vehicles and testing more the media mix.

And then we also know that the World Cup, it's important investment, but what we're doing is really channeling or prioritizing as well the investment, doing the World Cup, because it's a very important key selling moment, and to build brands, as well. So we don't expect a significant SG&A increase due to the marketing investment during the World Cup.

Again, want to invest in better media mix, be more effective on that. We will do a strong activation during the World Cup, but we don't expect - and not giving any guidance, but we don't expect a big swing in terms of the marketing and sales investments during this year..

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

I wanted to ask on the category expansion framework, ABI did a lot of emphasis on their conference call this morning. And I wanted to see if you can elaborate on how maybe supplying this.

Obviously to some extent, you've been working in Brazil already over the last few years in RGB when it comes to affordability and premium with [indiscernible] and the rest of the brands, et cetera. But I wanted to ask how do these category expansion framework accelerate the deployment of these initiatives in Brazil.

Do you see any upside between implementing easy drinking and classic lager occasionals, or any other initiatives in particular in Brazil? And then, secondly, there were some comments on Argentina in this framework in particular on the ABI call. I want to see how quickly can you deploy this framework across your countries.

Do you think this can be implemented all throughout this year, or start only in 2019? And how relevant do you think it can be for them, [indiscernible] markets for Ambev?.

So I think that, first, the category expansion framework, it's really good. I've been learning a lot. And all of the good things that confirmed as well some initiatives in terms of the group platforms that you know, whether it be the cores, the premium, so on, that we have been doing here.

So I think that what give us a frame, we have to understand the portfolio that we have, the opportunities in terms of the needs, and positioning each brand that we have in the right spot, and really differentiate the brands for each consumer target have been helping a lot in that portfolio design.

But also, we know that had been learning us good with the SABs, the maturity market more then, because Brazil is not only one country. We have different countries here. So have been understanding what regions of the countries, we can have more learnings from U.S. market, or just from the African experience that our partners have there, as well.

So both things have been very, very important for us, for a source of learning, but confirms as well the paths that have been talking the last 3, 4 years in terms of the platforms that have conveyed to you.

I think that the strategy, the growth platforms, I mean, [indiscernible] volume, again, that the category expansion framework help us so to define better. And the state of the regions that you have in Brazil, the mature market framework help us as well.

But adding that, the occasions, that's very, very important because if we understand how it can execute a brand, position of a brand in different occasions, in different touchpoints, it's very key at helping doing that in terms of the shaping [indiscernible].

So that just, I would say, complements all the category [indiscernible] expansion, all the maturity market things that we have been doing confirm the paths that we have been implementing in the last 3, 4 years.

And on top of that, I think that - we think that it also is very, very important to have a view of the cost of the point of sale, because at the end of the day, to provide those experience in bringing this portfolio to life, that defines [indiscernible] in the expansion model, we need to bring this to life, and the [indiscernible] is very, very important.

The point of sales are very, very important, not only for selling more, but for the experience we reflect for each brand. So I think that, again, in summary, I think that the expansion model helped us a lot, helped us to assure that we are in the right path in terms of learnings, as well.

And we guess we can cascade use for other countries, as I said, and ABI Co Argentina is another example. The same have been differentiating in the last three years in terms of Skol, [indiscernible] easy drinking. So not only the easy drinking part in terms of the functionality of the liquid, but the emotional part as well. I mean, it's a young brand.

It's youth. It's edgy. So is Skol easy drinking. Brahma class lager, same thing we are doing there. So [indiscernible] and Brahma, they are - so think that we are doing this as we speak. Our partners are doing that.

And I'm confident that the [indiscernible] expansion, the framework expansion, the [indiscernible] model, together are the things that we have been implementing in terms of the overall for our growth strategy here. It's very powerful. And I think that we will reap the benefits in the future, as well.

And we have the mindset to be consistent to do that, and not only think about one year or six months, but being consistent.

Another example here, all the package improvements and investment that we've done for Brahma and Skol as well, [indiscernible] to assure that we have a clear role further packaging for Skol and for Brahma, a clear differentiation. We start to do that two years ago, and we start to having the benefits now.

So I think that's the model that can help us and build on in the things that we have been working in the last years in Brazil..

Would you be able to comment whether these new framework have been formally incorporated into the business plans of the different countries and regions, KPIs, compensation metrics, and so on? Or that's still, I guess, work in progress?.

I think I'll not comment in details, Antonio, but I would say that it's formally included in our business cycle, in our lives, so it's - for our plans. So we adopted very, very fast. And again, in Brazil, what's very - the adoption was almost instantaneous, one, because we have been working in this path even before.

So I think that we adopted very, very fast, not only Brazil but in other countries, as well..

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

My question relates to channel trends.

Bernardo, you did talk about on- and off-premise behavior, but I was curious, in light of the consumer getting a bit better, and I know it's a gradual process, but are you seeing better on-premise trends? I understand I guess in the first quarter with Carnival, that could be skewed, but are you seeing just generally better restaurant bar consumption? And how does that make you think differently about your investment spend this year? I know you've spent a fair amount on RGBs.

It is a large percent of your beer volume in retail.

So in order to maintain that, does the investment still stay behind that particular format, or based on how consumers - or where they consume - will you redirect that spend this year?.

I think that - talk about the channels. Yes, the off-trade channel in Brazil is gaining ways, over time. But even though the on-trade is still the most important relevant channel here in Brazil, not only in terms of volume but in terms of brand-building, as well, in any case - and keep in mind that we have the plans for both channels.

And more than ever, think about being a more service-oriented company, consumer-centric company, even more. So just as an example, so understanding a lot about the in-home, the consumption at home.

And knowing how the product could arrive there and what kind of experience you're having - must do in the off-trade channel to assure that the product do arrive in the right way and provide the nice experience there.

So as I said, that understand the sub-channels of the off-trade is very, very important, and we will continue to work very, very hard with the big accounts, that we will continue to do that, and category management, increasing the shopper experience.

But understanding how those small format works as well, and translating to them some of this knowledge is very, very important. And then, I think that we have been doing this. So understanding how significantly better the off-trade can assure that, in the off-trade, we could have - including better margins in the future. Just we know the segments more.

We know how to [indiscernible] more better the brands will be, the assortment will be the right ones per specific sub-channel. In terms of the on-trade, I think that not only important for building brands, and you have trade programs, understanding the sub-segments as well. And we found that sales in each of these that we have put in place.

There is a lot of [indiscernible] to the root market strategy that's helping the on-trade, because [indiscernible] in more countries in Brazil, more areas in Brazil in the suburbs, and [indiscernible] even better. Most of those box are the on-trade. So to be able to activate demand in those places.

And then, we will be able to further the on-trade will continue to be a strong segment for the future. So in summary, I think that we have strategies and plans for both channels, and the route to market plans that have been put in place actually are helping a lot the very small box, and most of them are in the on-trade segment.

And in the end, the profitability of both channels today are very, very similar for many, many reasons. One of those reasons, in the case of the off-trade, [indiscernible] the implementation of the boost of the RGB, that today represents 29% of our volume in the off-trade channel..

Brazil's quite different than other parts of the world as far as people consuming out of the house versus in the house.

And coming off a soft environment in Brazil, do you think that could change over time, meaning a greater percentage of volume could go to at-home consumption? Or just directionally, Brazil's a market where more on-premise consumption will always be that much more relevant?.

Yes. I think that I know it. I agree with you. I think that we can tap two ways to deliver trend like that, really in just way that we're not doing.

Understanding the trend of the in-home and do it, and I'll say taking advantage of this trade and trying to shape in a better way to the extent that the sub-channels of this off-trade, of how the products arrives there, [indiscernible] have a good example of the pit stops, so that's a franchise business that we have that's growing a lot.

I'll just say that we know that the in-home will grow, but we have ways to assure that this trend will grow in the right path for the industry. In terms of the on-trade, yes, but have to bear in mind that, in Brazil, people like to go to a bar, because - and beer is like - it's unify people. People really drink beer with their friends in a bar.

If you serve better, and you are doing that, the bars, these smaller ones, not only are you creating jobs for the country so one that you are activating demand and assuring that the on-trade, you will continue to have an importance in the long-term. Yes, you can say it's [indiscernible] against the trend.

Yes, it is likely against the trend, but I think that if a good market, a good service level, so one, yes, we can assure that the number of box in Brazil will not go down in the on-trade, will not be shrinked as you see in other countries..

The next question comes from Jose Yordan with Deutsche Bank. Please go ahead..

My question's on the SG&A in Brazil. It grew almost 20%. And I think that was significantly above - I guess not your guidance, but certainly my expectations. And I was just wondering how much of that 20% growth was due to perhaps catch-up bonus accruals and how much was due to increased marketing spend to support the price increase..

All of it is due to variable compensation for management. Remember that the year before, variable compensation was essentially zero, and this year, as we had growth for the business, more accelerated and skewed towards the last quarter, last six months but especially towards the last quarter, that's where the accrual of the bonus happened..

So in terms of marketing spend, there was no unusual growth year-on-year?.

Actually it was down..

The next question comes from Thiago Duarte with BTG. Please go ahead..

I would like to have a follow-up question actually on Lauren's question and this discussion regarding the on-trade channel versus the off-trade channel.

I guess to you, Bernardo, my question would be do you think you can be as profitable in the off-trade as you are probably historically in the on-trade? Because it seems that, as you look at the most important revenue initiatives and growth channels that you guys have been exploring, they all seem to pursue this growth in the in-home consumption and in the off-trade in performance.

And if you look at the EBITDA margins that you guys made in the fourth quarter and you compare to what you eventually achieved a few years ago, even considering the adjustments for FX and hedges and so on and so forth, you're still below where you were in terms of Brazil beer profitability a few years ago.

So I wonder whether this is related to this migration to the off-trade as opposed to the on-trade channel. I think that would be interesting to hear on that.

And second, back to the SG&A, just wondering, I know you guys are not providing a guidance anymore for the year, but when you look at the Brazil operations as a whole, you used to have SG&A over sales close to 28%, 29% of sales. This figure is now as high as 32% or so.

Is it reasonable, in your view, to assume that this figure will eventually go back to 31%, 30%, eventually 29%, 28% again, or do you think it's fair for us, for modeling purposes, let's put it this way, to assume that this figure might stay higher for a little bit longer? Thank you..

I think that I will touch again in the on-trade and off-trade issue, and then Ricardo will take the other question. I think that your question is you think that the off-trade could be as profitable as the on-trade. The answer is yes, we think.

And reasons to believe is that not only are increasingly capabilities that we have to operate in the off-trade, understand the right assortment, understanding the revenue management initiatives, the logistics system to get there, because including the drop side is higher, so if the drop side is higher, the logistics is lower.

And the last point, understanding the sub-segments we think there are [indiscernible], how we can serve better, because off-trade is much bigger than a big chain or a big store with 20-plus checkouts. Actually, the off-trade that's growing more for us are the small formats and the pit stops.

That's franchise business that's off-trade alternative as well.

So understanding again the subsegments of the off-trade, how profitable they can be, and on top of that revenue management, right assortment, premium growth, have to bear in mind that, in the off-trade, the premium weight is much higher than the on-trade, as well, because all of this, yes, we think that the off-trade could be as profitable of the on-trade.

And actually, in some areas of Brazil, they already are in the same level..

And now going specifically to the margin, the way we see it, we do have a high water mark. But if you look at the historic evolution of our margins in the last 15 years, you see that the direction, the clear direction towards higher margins.

And of course, they are like short-term volatility, but we continue to believe that we can improve our business and improve the profitability of our business.

And when you specifically talk about SG&A, and you are right on your numbers, for example, if you look at 2010 SG&A as a percentage of net turnover, it was around 25.6%, and it evolved consistently over time. Around '13, it was over 26% to a point in which, in '16, it reached 29.2%, and in '17, again, 29.2%.

So for some time it has been on a upwards trend, and then it has stabilized when you look in a year-over-year, even though in 2017 we had bonus accrual and in 2016 we didn't. So when you account for that difference, there's already a reduction on a year-per-year basis.

And of course, if you project Brazil in the medium-term to grow again in terms of volume and et cetera, so you gather dilution of some of those costs, and you should naturally see a positive evolution over time..

Due to the constraints of time, this will be the final question. The next question comes from Robert Ottenstein with Evercore. Please go ahead..

Can you talk a little bit about the - it's been a number of years now. The impact of Heineken on the market, a world-class marketer compared to the more local competitors that you faced and still face now? They seem to be doing very well. They're gaining share.

So how has that changed the market? How has that changed your strategy? And are you doing anything now in other markets to prepare for a possible entrance by Heineken?.

I think as you know, and now have been following us for a long time, the Brazilian industry has always been very competitive. It's true. And as you already know, again, we don't speak about competitors, and we'll continue to focus on the business that we have and let nothing change for us in this sense.

What I could say is that we have been focused a lot in building a strong portfolio of brands and be consistent in [indiscernible] strategy that have been conveying to you in the last 3, 4 years, and doing things on that, on the fundamentals of the business, our core brands, for example, all the packaging that we've done, all of the differentiation in terms of our easy drinking at Skol, our classic lager there, it's Brahma.

The brands are performing well. And we are focused a lot in the core and in the premium segment. So we are gaining share. We gained share last year. We don't participate in the value segment. We participate in a smart way with the returnable bottles from core brands.

I think that we have a different mix than other companies in the market, that most of their volume is value, so that's not our case. So our focus is really core and premium. And I think that we are - and are gaining share because of core and premium, because they're losing in the value segment.

And because of that, I'm bullish that the portfolio that we have, the plans that you have, and the, I would say, competition that we have, that's always good. That push us to do even better.

We'll put our business in a much better place a year from now, as it was today, a better place than a year ago because the fundamentals are better because we have been consistently now in strategy that I have been talking to in every call and every [indiscernible] the last 3, 4 years.

And again, and when Brazil back, I think that people that trade down a lot for the value segment, that's not the most of our volume. It'd be the competitor's volume, most is value. It's not our case. I think that will be more - have more benefit to have a stronger core in premium portfolio in [indiscernible]..

So on that point, if you segment the market value core, mainstream, and premium, obviously the premium's been growing, has over the last couple of years.

How much share has the value segment gotten in the market in 2017 and '16?.

I think that in the last years, because of the crisis in Brazil, the value segment grew because of the disposable income issue, but this will come back. We have taken a slightly better fit that in the right way because of the returnable bottles in the core brands of a very good market. Having said that, we don't disclose our market share per segment.

What I can say that, in the core segment and in the premium segment, market share for us, it's not an issue. And because of that, overall, we gain market share last year, which means that overall market share as well is not an issue. We continue to work hard to gain more market share and to fight every day, but it's not an issue.

I think that I'm very confident in the portfolio, in the approach [indiscernible] for the occasions, in the [indiscernible] for the box, that what this could bring and continue bringing for the future in terms of benefits for our core and premium portfolio..

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

Okay, so thanks, Gary. Before finish our call, I would like to highlight that we are very pleased with our fourth quarter results and with the evolution of our business for all 2017 is a consequence of being consistent in our growth platforms in the last years.

Going forward, remain optimists with the develop of our growth platforms, as I said before, and we believe that we have a solid plan and fundamentals to drive for the EBITDA growth. Have a great day, and enjoy the rest of your day. Thank you..

Thank you..

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