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…

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…

[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.