Ambev S.A.

Good morning, and thank you for waiting. We would like to welcome everyone to the AMBEV first quarter 2019 results conference call. Today with us, we have Mr. Bernardo Paiva, CEO for AMBEV, and Mr. Fernando Tenebaum, CFO and Investor Relations Officer. As a reminder, a slide presentation is available for downloading on our website at ri.ambev.com.br, as well as through the webcast link of this call. We would like to inform you that this event is being recorded and that all participants will be in listen-only mode during the company's presentation. After AMBEZ remarks are completed, there will be a question and answer section. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. 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, as usual, that 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 first quarter 2018 results. Normalized figures refer to the performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of AMBEV's normal activities. as normalized figures are non-GAAP measures, and the company discloses the consolidated profit, EPS, EBIT, and EBITDA on a fully reported basis in the earnings release. Now, I will turn the conference over to Mr. Fernando Tenenbaum, CFO and Investor Relations Officer. Mr. Tenenbaum, you may begin your conference.

Thank you. Hello, everyone. Thanks for joining our 2019 First Quarter Fund Call. I'll guide you through the financial highlights of our operations, including our below-the-line items and cash flow, as well as commercial initiatives of CAC, LAS and Cananá. After that, Bernardo will give you more details about our operations in Brazil. Beginning with the main highlights of our consolidated results. On a consolidated basis, In the first quarter, top line grew 13.7%, a combination of volumes increasing 5.7% and net revenue per hectolitre up 7.5%. A DISA reached 5.1 billion reais, an organic growth of 16.4%, while a DISA margin increased 100 base points to 40.5%. Normalized net profit from the quarter was up 6.2%, delivering R$2.8 billion. It is worth highlighting that following the categorization of Argentina as a country with a three-year cumulative inflation rate greater than 100%, the country is considered highly inflationary in accordance with IFRS. Similar to the last two quarters, We continue to report the results of our operations in Argentina, applying hyperinflation accounting. Having said that, I'll now move to our designal results and start with Brazil. In the quarter, Brazil's EBITDA reached 2.9 billion reais, an increase of 8.1% versus first quarter's 1,018, while March's contracted 220 base points to 40.8%. Brazil had a very solid performance with volumes delivering double-digit growth at 11.3%, which coupled with a 3.7% net revenue per hectare liter growth, yielded a top-line 15.4% higher than first-class in 2019. Net revenue per hectare liter ended up leading to line inflation, cycling of last year's price increase, and negativity impacted by regional means, as North and Northeast regions grew ahead of the country average. While our volumes grew 11.3%, industry estimates by nuisance points toward a low single-duty growth. Euribita for Bia Brasil was up by 5.4% in the quarter, with margin contraction of 400 base points, to 42%. This contraction was explained by the cost pressures we had anticipated in the full year 2018 early release. Cash calls for Hexaliter grew by 24%, impacted by aluminum, ballet, and effects. Cash SG&A increased 3.1%, which is less than inflation in the period, even accounting for bonus accruals that we didn't have in the first quarter of 2018. Such performance was most related to initiatives on non-working money expenses. Including bonus accruals, Brazil's year-to-date growth would have been around 7%. In NAVI Brazil, prop line was up by 25.1% in the first quarter. the result of a 7.6% net revenue from head center growth and 16.3% volume increase. In the last two years, Indus also grew low single digits, according to Nielsen. Indus in the quarter grew 31.9%, with margin extension of 178 points to 33.6%. In terms of cost and expenses, Cash cost per hectolitre was up 4.7%, with higher aluminum costs being offset by lower sugar prices and operational leverage. Cash SDG&A was up 17.3%, impacted by bonus accruals, distribution expenses related to volume growth, which was partly offset by phasing in non-working money, as well as phasing of expenses in Q1. For the full Brazilian business, We reiterate our guidance of cash cost and actual interest growth of new teams in Brazil for this year. We should see more pressure in the first three quarters, easing off towards the end of the year. Moving now to Central America and the Caribbean. Central America and the Caribbean continues to show good momentum, with a 12.7% net revenue growth, which is a combination of 9.1% increasing volume and a healthy 3.3% net revenue growth. EBITDA in the quarter reached 578 million reais, posting a double-digit growth of 14.4%, and margin spending 58 points to 39.5%. Cash costs per hectolitre increased by 8.5%, mostly affected by Panama, where our strong volume evolution since 2017 has driven additional temporary costs in order to supply the market with no disruption. Further, Cash FG&A in the region was at 1.1%, below the average inflation in the region, pressured by variable compensation accrues and FG&A stays in Guatemala, and boosted by improving distribution expenses, mainly in Dominican Republic, as well as projections related to non-working money. We are pleased with our commercial strategy tax, delivering healthy volume performance in virtually all counties in which we operate. In the core segment, we continue to invest in our trade programs, strengthening our connection with our consumers through commercial platforms to further enhance the present brand in the Dominican Republic. We added more than 3.5 thousand coolers in the quarter. In Panama, our second-largest marketing region, we keep investing in the trade execution with our main brand, Atlas Golden Lights, and being present in the kick-selling moments in the country. such as Carnaval and Atlas Golden Fest. Panama Carnaval was received with a solid, complete portfolio. Atlas Golden Lights led the way with the campaign, taxable soul of soul. That invited consumers to disconnect from daily routine and enjoy sunny days. We also had, for the first time, a super clean execution of Carnaval with Coronas. These years, Atlas Golden Fest was the biggest music festival in the country. It's for a public of 18,000 people, 80% more than last year's edition, and it's a major social media engagement. We also continue to roll out optimization strategy in the region, developing Corona, Escalatois, Modelo, and Budweiser to optimize the execution both for the on-premise and off-premise channels. Premium accounts for less than 5% of the digital industry volume in fact, representing a great opportunity for the future. I'd like to take this occasion to say that we continue to be very excited about our business development and its strong volume, performance, and cash, reinforcing our positive outlook for the region moving forward. Switching now to Latin America South. Volumes in the region declined 10.6% during first quarter 2019, mostly driven by Argentinians, where volume decreased by new cities impacted by a challenging macro environment. That revenue for Hector Lipper increased 27.1%, which led to a 14.5% top-line growth. Editing last for the quarter was up 36.5%, with margin extension of 820 base points to 47.6%. Cash calls for Hector Lipper in the quarter declined 4.7%, mostly driven by favorable effect hedges, while cash and CNAs increased by 19%. Despite the macroeconomic volatility throughout the region, we remain in focus on what we can control in our business and have positive developments. In Argentina, we maintain the strategy of differentiating the core brands, Jumis, our plastic lager, and Brahma, our existing lager. We opened for the first time Jumis' own bar, named Los Plastos de Jumis, to further improve consumer experience. On the corpus segment, Budweiser continues to embrace the new platform, sponsoring Lollapalooza through several activations, promotions, and even releasing an exclusive 473 ml can. We also launched Andes Origins Vengenia, another limited edition variety for the Andes Origins. Due to this great, Vengenia was the first beer to be present at a wine festival. Our high-end strategy has also shown promising results in last. We saw a clear portfolio of space in the industry across all countries in which we operate. Both Stella Artois and Corona launched a better world campaign with huge institutions in Argentina. For the first time, Stella Artois took the donations to SPAC and changed its iconic red cartouche to blue. Not only Stella started blue. We launched Stella Blue Challenge, by inviting different stakeholders such as top celebrities to join in by coloring their hair blue, Buenos Aires City by turning city monuments blue, and one of the main newspapers in the country by turning their logo blue. Corona launched Protected Paradise and Plastic Doesn't Belong to the Ocean as a focus of their summer campaign, generating a lot of work through cleaning up, activations, and a huge tank full of plastic in the middle of the city's main train stations. Going forward, while cautious with Argentina in the short term, we have positive mid- and long-term perspectives in the country and remain confident in our ability to deliver solid top line and a dip in the whole region, supported by a strong portfolio. Turning now to Canada. In the first quarter, top line in Canada declined by 3.1%, a combination of a 1.2% max revenue per hectare increase and a 4.3% volume decline. which was mostly driven by a slowdown in the beer industry. Edita reached 329 million reais, which is 6.5% higher than in the first quarter of 2018, with margin extension of 230 base points to 25.4%. In the quarter, cash costs for Hector Edita declined 1.9%, as higher aluminum and other commodity prices and lower dilution of fixed costs were more than observed by a new comparable in first quarter 2018. Cash efficiency declined by 6%, driven by phasing of sales and marketing expenses. Despite the industry challenges, we had positive achievements with our portfolio during the quarter. Focus Core and Core Plus brands also continued to deliver strong results, with Nickelodeon remaining the fastest growing brand in Canada in the quarter. and Bud Light continues momentum and gaining market share. In the premium segment, our high-end portfolio is growing ahead of the industry, led by the double-digit falling growth of premium import brands. Corona launched its first winter 360 campaign called Corona Sunsets Winter Tour. Now back to consolidated figures below a distance. In the first quarter, Net financial results total an expense of 672 million reais, 12.2% higher than our Q1 2018. Main items in the financial expense in the quarter were, first, interest income of 135 million reais driven by our cash balance. Second, interest expense of 391 million reais that also includes interest in selling in connection with Brazilian tax regularization program, as well as the non-cash accrual of approximately 60 million reais related to the per option associated to our investment in the Dominican Republic business. Third, 195 million reais of losses on derivative instruments, which were rough year over year, explained by the increase of effect heavy carry costs linked to our profit with sold and capital exposure in Argentina, partly offset by equity swap gains. Fourth, Lock is a non-derivative instrument in the amount of R$111 million, mainly related to an adjustment in the fair value of the poor option in the Dominican Republic. 5. Technical financial transactions in the amount of R$54 million. 6. R$153 million of other financial expenses, partly explained by intercomponent transactions. Finally, 7. 97 million reais of financial income related to non-cash income resulted from the adoption of hyperinflation accounts in Argentina. The normalized effective tax rate was 18.7% in the quarter, lower than in Q1 2018. Cash generated from operations in Q1 2019 was 2.1 billion reais, which is 121% higher than last year. Apex reached R$ 546 million in the past, increasing 15.5% versus 2019. Thank you very much. Bernardo now will share some of the initiatives and thoughts from the Brazilian market before going to training.

Thank you, Fernando. Hello, everyone. As mentioned by Fernando, we started the year delivering solid volume and VBA growth. When we announced the 2018 full-year results, we highlighted that the transformational investments we made behind our strategic platforms in the past years, even in a moment of external volatility and challenging macroeconomic environments, would place us in a much stronger position to compete in the Brazilian beer market, and that we would be prepared to fully benefit from the economic rebound. Our performance this quarter is a consequence of the consistent investment we did in our strategic platforms. It's important to point out we have not seen yet disposable income resuming growth, which would likely provide a meaningful positive impact. As owners, we focus on the long-run and sustainable value creation. Therefore, it's important to understand our strategy. Having said that, I would like to take some time to further explain our strategic platforms, what's our long-term plan, and how we implement it. The heart of it is the consumer-centric approach, which, with the category development framework, guides the design of our portfolio. The same consumer-centric approach is translated into our strategic platform. Premiumize at scale, differentiate the core, and drive smart affordability. supported by sustainability, operational excellence, and finally, business transformation enabled by technology. All of this is supported by our major long-term sustainable advantage, our dreams, people, and culture. Now, let's go through the category framework and portfolio strategy. Our approach is based in the market maturity model and on the category expansion framework. The market maturity model is about how gear and markets evolve, while the category extension framework is a vision of the portfolio mix and initiatives that should be applied to each market stage. Markets have different stages of maturity, one, two, and three. Therefore, different consumer-centric approaches should be adopted in each of these stages. In the lower maturic level, consumption is mostly on-premise, men socializing and relaxing, and the competition is informal alcohol or spirits. In the middle maturic level, drinking is mixed gender and social. Occasions are balanced between home and on-premise, although beer remains stronger in the on-premise. Competition remains primarily spirits, and some drinks are consumed in alcohol-appropriate occasions. Finally, in the high-maturity level, shopping is mostly off-premise and more than trade. Consumption is in-home and milk, and relaxed occasions dominate the landscape. Competition from wine and spirits is bigger. Smaller alcohol categories arise, and in the non-alcohol space, varieties increase. The category expansion strategy, in its turn, is about how beer optimally evolves to address the change in market opportunity. We start with a classic lager that has the typical features of the lowest maturity levels, and then the portafolio bulbs, expanding to other kinds of beer and categories. Our largest beer market, Brazil, is on average at middle maturity. However, as a large and diverse country, there are regions in all different levels. In this stage we are in Brazil, One of the most important trends is the takeoff of premiumization. So, let's talk about the premium strategy. As we have been saying, premiumization is a trend and a portfolio game. As consumers evolve, there are much more occasion-need state spaces, and no brand standalone can fulfill all these requirements. With that in mind, in mature markets, there is no single brand that holds more than around 60% of the premium segment. It's important to reinforce that our strength in the segment is a superior portfolio of brands, combining global and domestic premium brands. As the market matures, the average number of brands per country increases. So to win in the premium segment, you have to build a strong portfolio, and it has to have it. as it has been doing in the past years. From an organizational structure standpoint, we created a high-end dedicated team years ago, a group that focused exclusively on the premium segment, boosting its execution and supporting its growth. Such strategy is already providing tangible results. This quarter, our global brand, comprises of Budweiser, Stella Soir and Corona grew more than 50%. Once again, we gained market share in the dream, as we have been doing in the last consecutive quarter. Brand construction goes through an investment experience that allows consumers to realize the values of each brand in a deeper way. This can be done through sponsoring an asset that's relevant to consumers such as Lollapalooza, NBA, or the NFL, or through proprietary events, such as Bud Basement, City Stella, and Corona Sunset, where the immersion into the brand value is very relevant. All of this is amplified by social media. We are also stepping up on packaging with initiatives such as the new visual brand identity and the new bottle shape for Budweiser, which enhances the brand's attributes and also on packed assortment, having now in our portfolio more cans and sharing size bottles. Budweiser, our largest global brand, plays a key role as a bridge for consumers who are trading up towards the premium segment. It was the premium brand with the biggest number of mentions in digital platforms in the quarter, a growth of 100% compared to the first quarter of 2018. This quarter was marked by campaigns such as International Women's Day, Super Bowl, and Lollapalooza. Stella Fla is a reference of European quality in Brazil. A classic Belgian lager with a distinctive taste that experienced an accelerated growth from the second semester on last year. In this quarter, we maintained the focus on gastronomic cultural events, It's another successful addition of our proprietary events here at Stella Soir in Rio de Janeiro, one of the main markets for Stella in Brazil. Stella Soir volume was also supported by the continued expansion of new peck formats, such as the sharing size bottles and the new cans that offer to Stella consumers new options to taste a Stella in different locations. Stella volumes continue to deliver very strong double digits. Corona bought more than double this quarter, a historical achievement. The brand was present in the trendiest New Year's Eve party in the country with the Corona Sunset Circus. In the better words front, Corona officially launched the partnership with Polly for the Ocean, to clean 20 Brazilian beaches in 2019. together with our World Surf League Champion, Gabriel Medina. With that, the brand reaches its all-time high number of mentions in the social media in the quarter. Now, I would like to spend a few words about the domestic portfolio, Original and Serramaut in particular. This brand was first developed in their own trade channel, delivering amazing experience to consumers. Original and Serramaut had their combined volume increase in double digits during the first quarter. In summary, our premium portfolio continues to lead and that organic growth. We believe that we are far from reaching the full potential of the premiumization trend, which will fuel our results for the future. Now moving to the core segments. We made some transformational investments in our core segments in the past year, with new visual brand identities, great packaging improvements, launch of new liquids, building a portfolio to offer consumers a variety of choices for different tastes and occasions. This started with Brahma in 2016. We launched three varieties of Brahma Eta, creating a true family of beer. And since its launch, Brahma family has been growing strongly quarter after quarter. Brahma family is all about beer expertise. Brahma Edison reinforced that and has also had a positive impact on the brand X of Brahma, its mother brand. Based on the learnings from Brahma, he created the Skull Family, a family of beers designed to bring innovation and variety to the beer market. In addition to Skull Pilsen, the original liquid, the Skull Family is composed of Skull Rocks, a beer with special rocks, and Skull Furumouchi, a bill that addresses consumers' interest in few months, and also prefer a very drinkable liquid. All of them maintain the main attributes of Skoll, which is drinkability. The development of this family extends the location and consumer reach of our core portfolio, and also enhances the quality perception and brewing credentials of the respective mother brands. Both families maintain the cattle extension framework positioning of the brand. Skol as our easy drink lager and Brahma as our classic lager. Brahma continues to grow well above the industry quarter after quarter. To increase its meaning and relevance, Brahma launched in this quarter a new campaign reinforcing that the brand has been part of the Brazilian consumer's life for a long time. The objective to remind Brazilians of emotional moments, while reinforcing that Brahma was always present in these moments. While in 2018 we focused on strengthening Brahma's qualities through our 130-year anniversary celebration, sharing with consumers the pure knowledge that we acquired over the years, we now want to reinforce our qualities, heritage, and traditions through a more emotional approach. This new campaign will be reflected in all Brahma's touchpoints, including soccer with Copa America and country music. Skoll closed the summer with a very strong carnival. The brand promoted the most important street parties in Brazil, providing breakthrough experience to more than 37 million consumers in more than 31 cities. The brand Skol also increases in a positive way the numbers of mentions in social media. Total mentions increased by 23% in more than half given by Skol Poromaus. Skol Poromaus is not yet being sold in office in the States. We are still rolling out nationally, but so far the product is an amazing success. Having the three varieties of liquids support the family concept, and the Skoll family grew in the quarter. I will now spend a few minutes talking about values. As we mentioned before, the value segment is characterized by the importance of brand accuracy. Moreover, even though it's quite relevant in terms of volume, its share in the easy street profit pool is very, very low. However, considering its size, we have seen stagnant affordability, with relevant brands and without disruption in profitability. As a result, we have developed initiatives related to packaging, such as the 300 ml returnable glass bottle, and 18 can packs, and more recently, new brands, such as Noxa and Magnifica. Regarding this quarter, the value segment declined 280 points against its peak last year, We remain confident that once we start to see disposable income improving, we are likely to see the value sagging back to its historical levels. Nossa and Magnifica continue their successful rollout in the states of Pernambuco and Maranhão, respectively. Moving to sustainability. Sustainability is an important platform to pursue the dream of building a better world and also enhance Last year, we announced an aggressive set of environment targets for G5 2025. These are goals related to challenges proposed by the United Nations through the Sustainable Development Goals and aimed at reducing CO2 emissions, renewable energy, water management, intelligent agriculture, and circular packaging. As well of these goals, we also have a strong commitment for responsible consumption. A few days ago, for example, we launched a huge campaign on TV, social networks and print vehicles warning to the danger of drinking and driving. We show some of our beer logos with letters mixed up to say this is what happens when people drink and think it's okay to drive. Profit obtained with this product is totally reverted to projects of access to affordable water in the Brazilian Saniare. So far, we've delivered more than 3 million reais, benefiting 26,000 people. And we have our VOA program, an internal consulting company with voluntary participation for our people, created to help NGOs optimize their profits, budgets, and also manage people and careers. We are proud to help by doing what we do best. The project has impacted socially over 2 million people, with 185 NGOs and 200 company volunteers. The result of such meaningful initiatives is that the best ranked second in the Merkle 2018 reputation pool. Moving now to operational excellence. operation excellence has always been one of our biggest strengths and key differentials. Given that point of sales connects our brand to consumers, client service is a strong focus. We've been improving our process by reducing pain points and freeing up sales representatives time in order to focus on activities that add more value to the point of sales. Our mantra is, whatever we call it Brazil, that had to be unbound. We divided the country in a large quantity of micro territories, and we have been stepping up our rule to market focus on the idea that consumers should always be able to have products close, cold, and at the right price. In order to measure client satisfaction, last year we started tracking the net promoter score of our clients. This allow us to better understand their standpoint and how can we provide more value-added service with greater granularity in the country. We are also investing in predictive algorithms with the use of machine learning to address possible client issues before it happens. We have also excellent programs to ensure consistent quality and sharing of best practices on rules, logistics, sales, and shared service centers. In summary, there is an ongoing pursuit of operational excellence that delivers both efficiencies and quality. Talking about technology, it has been a key enabler for us. For example, the ideal order for each point of sale is provided by a constantly evolving algorithm through our portal, seller sales, as well as salesman handhelds. This process has enabled the portfolio strategy execution, delivering savings, improved volume as well, thus free time from our sales force to focus on port of sales execution and client service rather than other tapings. In March, we concluded the acquisition of our main IT solution supplier, responsible for more than 60 EIT processes. Technology is core and very strategic for our business. The rationale behind this acquisition was to internalize technology knowledge and expand technology support to other areas of AMBAP with more activity and scale. With the acquisition, over 400 developers with deep knowledge in several areas and in the nearest technology joined AMBAP's team. We understand that increasing use of data and personalized content will play a major role in the life of consumers. With that in mind, we created our own digital content bureau called DraftLine. DraftLine has the objective of establishing a closer relationship with our consumers in a more personalized way and on a larger scale. It will use data and create content to constantly increase brands' engagement. It will also work as a laboratory for new marketing formats in a more agile way of working than traditional ecosystems. Now moving to the next division. We are quite pleased with our performance this quarter. Volume growth came from all different segments in our portfolio. An important highlight is the premium brands such as Gatorade, H2OH, Lipton, and Tonic Antarctica, which not only grew double digits, but brings a healthy contribution to portfolio mix. Finally, we are only able to achieve such results in the first quarter, given the amazing people who have always been the foundation of our company. With our team, our culture, and our consumer-centric business model, we act confidently. that we are in a strong position to deliver long-term sustainable growth. We can now move to the Q&A. Thank you.