Good afternoon, and thank you for waiting. I would like to welcome everyone to Ambev's First 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. We would like to inform you that this event is being recorded. [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 Q1 2016 results. Normalized figures refer to the performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Ambev's normal activities. As normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, EBIT and EBITDA on a fully reported basis in the earnings release. Now I'll turn the conference over to Mr. Ricardo Rittes, CFO and Investor Relations Officer. Mr. Rittes, you may begin your conference.

Thank you. Hello, everyone. Thank you for joining our 2017 first 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 Brazil. Starting with the main highlights of our consolidated results. We started the year with solid results in CAC, LAS and Canada, impacted by an expected weak performance in Brazil. On a consolidated basis, top line was up 8% in the quarter, with volumes increasing by 2.4%, led by growth in most of the regions we operate and a net revenue per hectoliter increase of 5.3%. EBITDA was down 7.6% in the quarter, reaching BRL 4.4 billion, with an EBITDA margin of 38.7%. Net profit was BRL 2.3 billion, which is 20.1% lower than that of the first quarter of 2016, driven by EBITDA organic decline and currency translation negative impact due to the appreciation of the Brazilian real. And cash generated from operations totaled BRL 3.1 billion versus BRL 2.3 billion in the first quarter of 2016, increasing by 37.7%. In Brazil, our EBITDA declined 23.8%, being explained by expected headwinds: first, the temporary increase of our cash COGS by 38.2% and, on a per hectoliter basis, by 34.8%, mainly due to FX impacts, inflation and a hard comparable in the first quarter of 2016 when our cash COGS per hectoliter increased by 2.3% despite of an inflation of around 10% and an FX impact of more than 20%. Second, a tough comparable net revenue per hectoliter as the 2016 state tax increase only became effective towards the end of February 2016, and thus, the first quarter of 2017 is still on year-over-year comparison on an orange-to-apple basis. On the other hand, whilst the consumer market in Brazil remained challenging, leading to the beer industry decline of low single digits, based on Nielsen, we have been able to revert the negative trend and grow our beer volumes by 3.4%, outperforming the industry. Bernardo will expand on this topic. Going to more detail of our operational results in Brazil. Net revenue in Brazil was up 0.6% in the quarter and EBITDA down 23.8% to BRL 2.5 billion, with a margin of 39.0%. Net revenue per hectoliter in Brazil beer was down 2.2% in the quarter. On top of a hard comparable basis, as part of our revenue management strategy, we continue to use our full portfolio of packs and brands to drive affordability to consumers, including the 1-liter returnable glass bottles in the on-trade channel and the 300-ml returnable glass bottles in the off-trade channel. Volumes of both packaging presentations grew double digits in the quarter. Brazil CSD & NANC top line was down 2.6% as flattish volumes were impacted by net revenue per hectoliter of minus 2.7%. According to Nielsen, the CSD & NANC industry declined high single digits as consumers continue to be pressured by negative real disposable income growth. Brazil cash COGS was up 38.2% while, on a per hectoliter basis, 34.8% mainly due to: first, FX impacts. Given our hedge policy, the devaluation of the Brazilian real in the first quarter of 2016 is fully impacting our COGS now. At the time, the BRL suffered close to a 40% year-over-year devaluation, temporarily inflating the cost of our commodity price in U.S. dollars, which represent around 50% of our COGS in Brazil. Second, inflation; and third, a hard comparable base in the first quarter of 2016 when our cash COGS per hectoliter increased by only 2.3% despite of an inflation of around 10% and an FX impact of more than 20%. In this context, we reiterate our guidance that we expect cash COGS per hectoliter to grow double digits in the first half and to be flattish to low single digit up in the second half of 2017. Having said that, the year-over-year growth of the cash COGS per hectoliter in the second quarter of 2017 will be significantly lower than in the first quarter, being a bridge for the second half of the year. Brazil cash SG&A was up 1.5%, below inflation, due to: one, a low single-digit growth of distribution and administrative expenses; and second, a decline in sales and marketing expenses, driven by efficiency gains in our nonworking money. Now moving to our international operations. In Central America and the Caribbean, we continue to experience a good momentum in the region. In the first quarter of 2017, EBITDA in CAC reached BRL 377 million, increasing organically by 7.8%, while in U.S. dollars, reported EBITDA grew close to 25%. Net revenues increased by 5.5% and, on a per hectoliter basis, by 3.4%. Organic volumes increased by 1.2% on a tough comparable of 10.4% growth in the first quarter of 2016. On a reported basis, volumes were up 27.3%, benefiting from the recent swap of assets carried out with ABI and our operations in Panama. In Dominican Republic, we continue to connect with our consumers through relevant platforms, such as Carnival Presidente and The World Baseball Classic, supporting the equity of our brands. In Guatemala, we improved our execution with strong summer activation of Corona and Busch. Along with top line, our EBITDA performance also benefited from a solid financial discipline, leveraging on both cost and expense savings, expanding our EBITDA margins for another quarter. Going forward, we will keep pursuing top line growth and EBITDA margin expansion, and we remain enthusiastic with our operations in the region. Now moving to Latin America South. Our top line in the region was up 27.4% and EBITDA, 20.5% above that of last year, reaching BRL 1.2 billion. Net revenue per hectoliter increased by 23.3%, explained by revenue management strategy linked to inflation and premium mix. Volume grew 3.1% as the softness of the CSD and NANC industry in the region was more than offset by strong performance of beer in: number one, Argentina, where volumes reverted the recent trend and increased by high single digits, with great contribution from Brahma, Iguana and Corona; second, Bolivia, mainly driven by Huari; third, Paraguay, with an outperformance of Brahma, Bud Light and Ouro Fino; fourth, Chile, with strong performance of our global brands; and fifth, Uruguay, with a double-digit volume growth, driven by both mainstream and premium portfolios. Cash COGS in the region grew by 41.8% while, on an hectoliter basis, by 35%, mainly driven by high inflation and negative currency impact. Further, cash SG&A increased by 27.7%, adversely impacted by inflationary pressures mainly in Argentina, resulting in EBITDA margin compression of 250 basis points to 43.5%. Going forward, we're excited with the positive volumes trend and top line growth opportunity in the region, especially for beer, while we're still cautious with the macro environment in Argentina. Turning now to Canada. We delivered in the first quarter BRL 321 million of EBITDA, 17.5% higher than in the first quarter of 2016. Top line was up 2.3% as volume decline was more than offset by an increase of net revenue per hectoliter of 3.3%, driven by our revenue management initiatives. Volumes were down by 0.9%, mostly due to contraction of the Canadian beer industry impacted by Easter holiday savings, partially offset by performance ahead of trend of our lead brand, Budweiser, double-digit growth of Bud Light and continued strong support from the craft and near beer portfolio. Cash COGS decreased by 8.4% while, on a per hectoliter basis, by 7.6%, primarily driven by cost absorption with increased production and cost efficiencies with our import portfolio from ABI, while cash SG&A expenses increased by 2.5%. Going forward, we remain committed to balance volume and price and confident that we have the right portfolio to deliver profitable growth. Back to consolidated figures. Other operating income totaled BRL 291 million in the quarter, mainly explained by government grants related to state VAT long-term tax incentives that were down year-over-year due to: one, the expiration of VAT Government Grants Agreements in the fourth quarter of 2016; and two, revenue geographic mix. Now moving below EBITDA. In the first quarter, our net financial results totaled BRL 873 million, 25.5% less than in the first quarter of 2016. Going to more details. Main items in the financial expense (sic) [ results ] in the quarter were: first, interest income of BRL 109 million, driven by our cash balance, mainly in Brazilian reals, U.S. dollars and Canadian dollars. Second, interest expenses of BRL 402 million that include a noncash accrual of around BRL 140 million related to the put option associated with our investment in Dominican Republic. As part of the CND deal in 2012, a put option exercisable until 2019 was issued, which may result in an acquisition by Ambev S.A. of the remaining shares of CND for a value based on EBITDA multiple. Third, BRL 247 million of losses on derivatives instruments, mainly driven by the carry cost of our FX hedges, primarily linked to our COGS exposure in Brazil and Argentina given the interest rate differential between Brazilian reals and Argentine pesos and the U.S. dollars. We have financial costs associated to these hedges, which are called carry costs. Carry costs are going down, as expected, mainly due to the reversal of the Brazilian real and due to lower interest rates in Brazil. Fourth, losses on nonderivative instruments of BRL 78 million, mainly related to FX translation, 68% lower than that in the first quarter of 2016. Fifth, BRL 216 million of other financial expenses, mainly driven by interest on contingencies. The effective tax rate in the quarter was 12.9% versus 10.4% last year. From a cash flow perspective, cash flow from operating activities before changes in working capital was BRL 4.6 billion. Cash generated from our operations was BRL 3.1 billion, which is 37.7% higher than that in the first quarter of 2016. And CapEx totaled BRL 559 million, which is 20.9% less than that in the first quarter of 2016. Finally, during the first quarter, we returned approximately BRL 1.1 billion to equity holders in dividends. Thank you very much. I will now move to Bernardo before going to Q&A.

Thank you, Ricardo. Hello, everyone. We started 2017 with a solid volume performance, boosted by beer in Brazil, where volumes grew 3.4%, while the total industry was down low single digits. In Brazil, we left 2016 before beer volumes going down 6.6%, performing slightly below the industry that declined low single digits. In the first quarter, we had a turnaround, outperforming the industry and recovering growth in a still very weak macro environment. As explained by Ricardo, our financial results in Brazil were still weak due to temporary headwinds that will attenuate throughout the year: first, the increase of our cash COGS, mainly driven by FX impacts, inflation and the hard comparable in the first quarter of 2016; and second, a tough comparable net revenue per hectoliter as the 2016 state taxes increases only became effective towards end of February. And thus, we still have a year-over-year comparison on an orange-to-apple basis. When we announced our full year 2016 results, we've mentioned that 2016 was also a year we took as an opportunity to strengthen our foundations for the future and that we felt confident on our ability to resume growth. And our beer volumes in the first quarter of 2016 confirmed that. Beer volumes were up in all the segments we operate, such as core, core plus and premium. Finally, our consistent recovery, supported by the initiatives we've been implementing in our business through our commercial platforms. Starting with Elevate the Core. Elevate the Core is our top priority. Building strong brands is key to create enduring bonds with our consumers. Several initiatives were created in the past 18 months under the Elevate the Core platform, and that's, as mentioned in our last call, such as new visual brand identities, improvement on primary and secondary packaging, bolder 360 activations, among others. All of them have started to hit the market during this quarter, positively impacting our volumes performance. On top of that, we've been expanding the beer key selling moments. Skol, our easy drinking lager, bolstered its presence during Carnival, bringing excitement to more than 40 cities and engaging with more than 35 million people while delivering amazing experience in one of the most important events of the year. Skol also launched a new campaign, conveying a meaningful message relating to inclusion and diversity. Examples of the brand's concept are the launch of the limited edition of skin-colored cans to celebrate diversity and the Reposter campaign, when Skol has invited feminist artists to redesign old posters with the purpose of passing on women's power and strength. For Brahma, our classic lager, we've continued to communicate Brahma's campaign that highlights our passion for brewing. On top of that, we've just launched a new visual brand identity to enhance the brand's attributes of flavor and beer expertise. Its gold and red colors are still there, but it's a brand label in a totally new design inspired in its old visual brand identity, evoking all the tradition Brahma has based on more than 120 years of heritage. With the Skol and Brahma's package and VBI improvements, Skol with its rum label in the young spirit; and Brahma, with its crown label in heritage, combined with all the brands' initiatives and together with meaningful and distinct communication for each brand, we'll be able to differentiate our easy-to-drink lager and our classic lager even more. Still talking about Brahma's family. Brahma is -- continues to deliver amazing results in the core plus segment, growing triple digits year-over-year. Finally, on [ Patcha ]. It continues to engage with its core target consumers through its innovative media format, with a web series presented in YouTube and in cinemas, creating easy, stronger bonds with Rio de Janeiro in December as a background, conveying the underlying message that good things attract good things. And there is still more to come. We will continue to focus on the full rollout of our initiatives, and we are looking forward to deliver a strong execution in the 360 activation during other key selling moments, such as the traditional São João in the Northeast and the LGBT Parade in São Paulo. Now talk about premium. We have a complete portfolio of premium brands, with domestic and global brands, such as Original, Serramalte, Budweiser, Stella Artois and Corona. Our premium portfolio delivered another quarter of solid performance, with volumes growing double digits, supported by a continuous improvement of execution and strong marketing campaigns. Budweiser continues to lead the segment, with volumes increasing more than 30% year-over-year. Stella Artois launched a global campaign, Buy a Lady a Drink, in partnership with Water.org, to help raise awareness of the global water crisis, inviting its core target consumers to leave a legacy and enhance the brand's attribute of quality. Moving to near beer. Our strong activation during Carnival has been supported by Skol Beats with its 3 variants: Senses, Spirits and Secret. Going forward, there is still a big opportunity for near beer, capturing a bigger share of throat in nontraditional beer occasions. Moving to occasions, and to start with the In Home. We are putting great efforts to improve execution in the off-trade channel through the expansion of programs designed to improve the assortment of products and category space, enhancing shoppers' experience. In addition, the 300-ml returnable glass bottles are still big focus in this year. They continue to grow year-over-year, ahead of the industry, driving affordability to consumers amid the depressed macro environment. This is an important initiative for the short and for the long term. Moving to Out of Home. In the out-of-home occasion, improving execution and service level across this country is definitely one of our top priorities. Further, among other initiatives, we are investing in meaningful trade programs to support the point of sales in such a tough macro environment. The 1-liter returnable glass bottles are also playing an important role in this channel, growing volumes year-over-year and driving affordability in the out-of-home occasion. In summary, we are confident that the initiatives taken under our commercial platforms has played a key role for the recovery of our volumes. On top of that, it's important to highlight that we've continued to improve the efficiency of our sales and marketing investments, with a more developed process, stronger consumer insights and more robust testing models. On the other hand, it's important to keep in mind that the macro environment remains very challenging, with an all-time-high unemployment rate and depressed disposable income that's leading to a continued decline of the beer industry. In this context, we remain cautiously optimistic for the year as we continue to leverage our commercial platforms. We will also keep pursuing efficiencies in our investments, as we made in the first quarter. And despite the short-term negative impact of our COGS, as part of our culture, we will push ourselves further to improve our cost performance and deliver superior results. We remain excited with the opportunities we see going forward to resume top line and EBITDA growth. We can now move to Q&A. Thank you very much.

[Operator Instructions] Today's first question comes from Isabella Simonato of Bank of America Merrill Lynch.

I have 2 questions related to beer in Brazil. First of that, on SG&A. Despite all the investments you made on Carnival, you managed to deliver flat SG&A. And so you mentioned, you captured some efficiencies on nonworking money. If you could outline to us specifically which were those. And also, how sustainable are those efficiencies going forward? And my second question is regarding volumes. My -- in my calculations here, you were able to get a market share that is close to the top of the range historically. I understand that Carnival probably represents a big part on that, but if you could give more details on what else helped to drive this performance. Any change in terms of consumers or competitive dynamics now this quarter?

Thanks, Isabella. Very good question. I think that the first question is regarding the SG&A and the marketing and sales investments. As I said in my speech, we have continued to improve the efficiency in the sales and marketing investments. And first, it's much better when you go again even more in the insights that we have, not only in the way that we build the brands and -- but really finding the meaningful message. So with that, we can concentrate investments in the meaningful message behind the brands. And in the trade as well, so all the shopping sites that we have, have been helping us to be more efficient in the investments. Second point is data process, really, bringing excellence even more to the next level, not only for the sales organization but for the marketing organization, testing more everything that we do. And we'll have a much more, I mean, robust testing model. And we are making choices as well. I think that just taking the right insights, you can not only be more efficient but bring the money, put the money behind the things that really matters to grow. I think the second question is linked to the share. I think that, as we always said, Brazilian market share, it's tough, but we are pleased with our volumes. Our volumes are up 3.4%, and as you saw, I mean, the industry, I mean, low single digit below last year. So I think that we are pleased with the kind of performance in the market that we have in the first quarter since we significantly outperformed the industry.

And our next question comes from Mariana Hernandes of Crédit Suisse.

My question is also regarding Brazil SG&A. I was wondering if maybe you could be more specific. I mean, there was a relocation of a portion of the expenses between beer and soft drinks SG&A. What was this about exactly? And I mean, what did you mean by efficient gains with nonworking money for the beer SG&A in particular? And still on SG&A but now looking longer term, how do you see design evolving going forward? I mean, given the strategy of boosting top line growth and EBITDA growth but also considering you are going to start reaching points of sale that you were not yet present or you were not operating as long as you think you are, and I think it's also sad to say, also considering that in the new outlook, now there is a different or a bigger competitor in the market. So how do you see design evolving going forward?

This is Ricardo. Thanks for your question. I mean, first of all, in terms of SG&A, we just want to highlight that it's not like a program or anything. It's part of our strategy, long-term strategy for us to find nonworking money and take this out of the system and then invest the necessary resources into the marketplace for us to be able to win in the marketplace. As a result of that, it's nothing different from what we have been doing always. If you go back a couple of years, you'll see that we stepped up some of our -- some investments over the course of the last years. And -- but in a way, I think the company has been able to outperform, if you will, inflation in the SG&A line over the course of its existence. So that's pretty much, I think, the strategy. We don't give guidance for SG&A for the longer term. And as Bernardo said, the Brazilian market is very competitive. We don't like to comment specifically about any of our competitors. It has been very competitive for a long time already, and as a matter of fact, like, I think, even Brito said in their call today, we like a good competition.

And our next question comes from Luca Cipiccia of Goldman Sachs.

I wanted to ask 2 things. One, maybe a clarification on some comments that were made in the earlier call from ABI. Just when we look at the margin contraction, the gross margin contraction in the quarter in Brazil would seem to drive revenue breakthroughs or cost breakthroughs and some of the things that you highlighted. But I think there was a comment that suggested that 75% or so of the margin contraction was FX related as compared to mix. And I just wanted to clarify maybe or if you could expand a little bit or help us separate a bit better what is packaging mix, what is, in fact, more of a sort of temporary FX headwind that we discussed in the past. But I think there was that reference in the ABI call, if I'm correct, and I just -- I was hoping that you could clarify that. That's my first question, then I have a more general follow-up.

Luca, this is Ricardo. Thank you for your question. And in a nutshell, I think, essentially, what we have impacting margins is the -- are the temporary headwinds. This is like the #1 reason and represents like, I guess, that 75% of the impact or even more. And these -- as also was discussed in the ABI call, these are headwinds that are expected to dissipate over the course of this year. That was even the word that Brito used. How can we say that? Because of course, we have a hedging policy in which the transactional FX, we know sometime in advance. And we discussed that even when we announced the third quarter of last year results and again in the fourth quarter, that we've made a decision to took, like, a short-term hit into our P&L in order to build, if you will, a better future for the overall Brazilian industry. And so in summary, I mean, giving as much clarity as we could give, the -- essentially what you see the #1 impacting factor in the margin contraction, and the 75% is correct as well, is the FX impact.

And maybe -- that's clear. Just as a follow-up to that, without necessarily putting a time line, but if I look at your gross margin for Brazil beer on a, say, 10 or 12 years average, I think it's been around 70% or so. Last year, it was around 64%. So that's about a 500, 600 basis point gap between the type of profitability we've seen in 2016, even lower, in fact, in this quarter. And my question would be, as we seem to be moving to a more normalized environment in Brazil, lower inflation, consumer, arguably, possibly picking up later on, is there an element of doubting that you can go back to that level of normalized profitability, again, on a gross margin basis, around 70% that we've seen historically you were able to achieve? Or some of the structural mix evolution that we are seeing, should you exercise more caution? Again, not necessarily putting a time frame, but more under a normalized Brazilian market from a consumer standpoint and FX backdrop as well.

Luca, thanks for the question. I think bear in mind, I mean, we don't give a guidance of margins. But I think it's fair to say that we see opportunities to really enhance the margins. In the last 5, 10 years, we're able to keep consistent increase in margins and in the long run, I mean, we've done that, and despite of the short-term issues, like we have last year, so -- and still with this quarter. That's temporary and will be dissipated towards end of the year.

And our next question comes from Lauren Torres of UBS.

Bernardo, I was hoping you could expand a little bit more on your commercial platform of accelerating premium. And I think it's been quite impressive in light of a softer consumer, that we've seen this double-digit growth in the premium category. So just looking for your broader perspective on the potential of the premium category in Brazil, I think it does underindexed versus the world average of premium brands. So how quickly do you think this could develop? What -- not just the volume but, I guess, the profit or the margin potential of these premium brands to your mix? I think we ask a lot about pricing but forget about mix. So can you talk about that mix impact to your numbers and how quickly we could see more of that being impactful to your numbers going forward?

Thanks, Lauren. I think that, I mean, as I said, the premium brands are growing in a solid way, and we are very confident that this segment will continue to grow ahead of the industry for the next years. So I mean, one important information. There is strong preference for premium brands in Brazil, close to 30%. So in the segment, it's underpenetrated, including in regions of the country. On top of that, we have a complete portfolio of brands that today represent 10% of our beer brand. It could be even more. We have global brands. We have domestic premium brands. We have the craft beers that we acquire. And more important than that, we have a deep knowledge of the consumer insights and need states to assure that each brand will play in the right space. So that's why I think that there is no other else in the market positioned as good as we are to benefit from this opportunity. And taking one example, Budweiser, for instance, was up 30% year-over-year. It is the leading brand in the segment. And every quarter, we see that -- I mean, this brand growing and growing in a very healthy way because all the brand attributes are up as well. And all the go-to-market and sales execution initiatives that are put in place to support specific execution that is needed for the premium segment had been evolving a lot. So with that, in a market that we need to build brands with the right content, the right brands, but in the trade as well, I think that we are really in the right path to really get all these -- the opportunities that the premium segment growth will have in Brazil for the future. I mean, we are doing this and continue to do even more.

And I guess just as a quick follow-up. I know you don't directly comment on competition, but Heineken's obviously doing the same initiatives with their premium brand. So just to add on to that, if there's any differentiating factor that you could talk about with respect to your portfolio and how you feel that, relative to the competition, you're doing something a bit different or to capture more attention longer term.

I mean, we always say, we don't talk about companies, and I think that we like to compete in the market. It's good for the industry, and it's good for us as well because any open gaps in the Carnival. But I think that one of the biggest strengths that we have is the portfolio, the complete portfolio of brands that we have. So we have, in the global -- we have not only Budweiser but Stella, Corona as well. If we go to domestic premium, Original, Serramalte, [indiscernible]. And if you go to the crafts, we have important brands as well, like Wäls, one example, that's important. It's important really to fulfill the need state that we can see in the marketplace. So the portfolio, that is really, really strong. And again, together with that, strong execution that we are evolving big time to support the execution of those brands in the right places of the industry.

And our next question comes from Pedro Leduc of JPMorgan.

Two quick ones. First, on the Brazil beer volumes, it's up 3.4%. If you have an estimate of what it looked like, excluding the more advantageous kind of bailiwicks, so just as far as to go out to show what the underlying trends may be for the next one. And still then on Brazil beer, average price is down 2% year-over-year. I understand you write here -- it's a tough day, so a tax effect. But also, I'm looking to perhaps the mix between channel and as well as packaging. And first of all, I understand that you did not discount prices down 2% year-over-year, just to make sure. And if you have noticed any sort of improvement in the consumer health, maybe looking for off-trading, maybe a little more on-trade activities versus -- haven't seen any of that. Or is it still to come, in your view?

This is Ricardo. Let me start by commenting on the net revenue per hectoliter. So net revenue per hectoliter, one way of looking at it is also to look sequentially because we have information on the third and fourth quarter of last year. So when you look sequentially, usually, from the fourth quarter to the first quarter, there is a reduction on net revenue per hectoliter. Why? Because there's the catch-up in terms of taxes, as we have discussed many times. But -- and as a result of that, the important period to look and compare is the first quarter to the third quarter, which is like immediately before price increases, for you to have a sense on the evolution of net revenue per hectoliter on a more linear basis. So from the third quarter of 2016 to the first quarter 2017, after pricing and state tax is updated, net revenue per hectoliter was skewed up, increasing by 7.8%. So in any case, we should keep in mind that the longer the period, the better or more precise is the visibility of net revenue per hectoliter. So for instance, if you go back 5 years, net revenue per hectoliter has increased in line with inflation despite of some short-term volatility. And again, what we said even in the release, that the minus 2.2% is related to -- appeared also that [indiscernible] throughout those dates because also, we have the tax increase towards the end of February of last year.

And Pedro, I mean, we don't comment about Brahma in Carnival and so on. But just for you to understand what we have been doing, in terms of to understanding the occasions, no? We are -- it's always important to be present and to gain share and activate the demand in occasions that maybe beer is not so relevant. But it's also an -- even more important to boost the occasions that beer is relevant. So the Carnival volume is not a given. The Carnival volume, if you understand really how to operate, how to do a 360 occasion-based activations, the right brands with the right matches, working with the street vendors, activating Carnival even 30 days before Carnival, it can really build demand. And if you build demand for our brands, you will be able to gain share and activate the industry. Think that as demand activation mindset, understanding the occasions. And connecting with the brands in a brand-led company, it's very powerful because it can lead the industry, make this industry better. And leading that, we will gain share as well. I think that is what I can comment. That's why the key selling moments are so important for our industry. And for us, I mean, as the leader of this industry, we'll do it even more to elevate beer and to drive volumes to our company.

And just the last piece, if you have noticed any sort of improvement in the same consumer health, any off-trading, any more on-trade activity. And any signs of that? Or is it yet to come, in your view?

Pedro, just to highlight from that, so as you -- as we mentioned in the speech, when you look at the overall industry, the beer industry in Brazil still had a decline despite of a Carnival that was later in the year in comparison to the previous year. So we have no doubt that the macroeconomic environment in Brazil, it's still very tough, with high unemployment and disposable income still at the very low levels. But what we are confident is, with that, we can see, let's say, improvement in size. So we're very confident with Brazil, the country resuming growth going forward.

And our next question today comes from Thiago Duarte of BTG.

A couple of questions here. First, I wanted to follow up on the discussion about gross margin and your COGS in Brazil. If you look at the 29% growth year-over-year of COGS per hectoliter, ABI mentioned in their release that there is a 40% impact from the currency hedge, and that represents roughly 50% or half of your COGS. So that leaves us about a 20% impact coming from the rest of your COGS that not FX related. So I just wanted to get a little bit more granularity there in the sense that you mentioned that you have a pretty hard comps in terms of COGS from last year's first quarter, and that's probably true. So I just wanted to understand what you think in terms of what your normalized costs should look like. Should we think more in terms of the first quarter of this year or the first quarter of last year? And why would be the difference? And the second question is related to market share. You mentioned a few times that you made a pretty good progress in terms of outperforming the industry and gaining market share this year. So -- I mean, in the first quarter. So I just wanted to understand a little bit more if you could give a little bit more in terms of granularity for -- in terms of [ Canada ] in particular, if you made a better progress in the on-trade versus the off-trade for some reason or vice versa or even in terms of segments in the mainstream or the premium, that would be interesting.

Thiago, this is Ricardo. Just starting with the COGS, and we mentioned even the hard comparison of the first quarter. It's very important for you to bear in mind that within the quarter -- it's easy for you to have volatility even into the hedging and the comparison, et cetera. So again, the longer the periods, the easier it is for you to see. We're going to stick to the guidance, so we expected double-digits increase in terms of the COGS per hectoliter for the first semester of the year and, of course, say, flattish to low single-digit evolution in the second semester of 2017. What we added in this rebuild was that the second quarter of 2017 is expected to be a bridge in which the year-on-year variation is expected in this company to be lower than that of the first quarter, so the first quarter being, if you will, like a little bit of a concentration in terms of this variation and then migrating towards the second semester. This as far as we went, and again, we just used the comparison of the first quarter of 2016 for you to see that, despite of being very systematic in the way we hedge, so even on a year-to-year basis, I think the hedging of 2016, if I'm not mistaken, was at $0.09 lower than the average of the spot rate of 2016. And the hedging of 2017, if I'm not mistaken, was exactly $0.09 ahead of the average of the spot rate for the FX in 2016. So again, irrespective of the variations, we decided to give you even more color on the COGS exactly for people to be able to make the screenshot on how the year is going to look like on the COGS side.

And Thiago, thanks for the question. Relating to the market share, I mean, as I said before, for the industry there, it was probably low single digit. Our volume is 3.4% above last year, very, very pleased with that. And what I can say, I mean, to get a volume like that, we've woven -- and in our [indiscernible], we've had a good results in the in-home occasion but in the out-of-home occasion as well. That is a proxy for the channels, but I think that's what I can say to you. So we're seeing that we're in the right path in both occasions in terms of market share and in terms of volume performance.

Just a follow-up on this. You also mentioned a good brand preference development throughout the quarter, given your commercial initiatives and activations and so on and so forth. Can you give us a sense of if that happened across the board in terms of a brand portfolio, if there was a good recovery for the mainstream brands or how that stacks up versus the brand preference that you had a few years ago? Just for us to get a sense whether you're truly -- in terms of -- especially in terms of the mainstream brands, that would be interesting.

Thiago, what -- I mean, again, what I can say, pleased because of the volumes and pleased because we understand why this volume happened. I mean, the initiatives that are put in place in the marketplace. And one of that is all of the things that we had been doing in terms of Elevate the Core, the things that you don't plan and implement overnight. I mean, we have been working hard over the last years to -- I mean, some of the things that I said in terms of new ABI packaging is a better understanding of the key selling moments, meaningful message behind those brands. Brahma is growing faster, our core. We have been working a lot in the last, I mean, 1.5 years, 2 years, to really go to the next level, those brands. And happy to see that what drove -- I mean, our preference in the first quarter were the core brands. So I'm not commenting one brand or another for competitive reasons. But I think that the core, premium continue to grow, it was good, we knew that. It will continue to grow in the future. But I'd say that happy to see that the core brands had a very good quarter, and we have very good plans for the future in our Elevate the Core platform.

And our next question comes from Antonio Barreto of Itaú.

My question -- my first question was about Argentina. You mentioned a high single-digit growth in the country. Was wondering if you can give us a little bit more color if, at least, you can compare actually how the market performed. And also, you commented on the FX hedging impact. So I was wondering if we can expect that the FX hedges would have about the same shape of impact that you're having in Brazil and maybe it will dial down over the next quarters.

This is Ricardo. So Argentina, I think we are seeing important improvement in Argentina when you look in terms of the volume trends and when you look at overall market dynamic, if you will. Again -- but the overall environment in the country continues to be challenging, with negative disposable income growth. Structural reform is undergoing in the country, and we believe that presents a great potential for the future. But like we've said, that before, they're putting pressure in the short term. One way that we put it like in the past is that the harder it is in the short term in Argentina, the more excited we get about the future. Why? Because there will be structural reforms, which present a challenge for the short term they are being implemented. And as a result, we are more excited about the future. We have been in the country for a long time. Our brands have been in the house of the consumers, I don't know, for a very long time. And we are -- again, the same way that we are with Brazil, we're excited with Argentina. We believe we have a strong brand and strong team. We continue to use our full toolkit to implement our revenue management initiatives to operate in a high inflationary environment in the country. And so the bottom line is that our team knows how to work in this environment, and we remain truly committed to our business in Argentina. And the good news is that, once things improve, we believe we will be even better positioned to capture it. In regards to the COGS, the specific impact of the FX in the COGS in Argentina, we didn't disclose any of that for remarks. So we didn't disclose that. But what you could expect also is similar -- again, we are very systematic in the way we do hedges. So similar pattern that we described for Brazil is what you should expect for Argentina as well.

I don't know if you can comment -- it would be helpful if you could at least comment on how was your volume performance, the high single-digit performance that you reported, how was it compared to the market in Argentina?

I mean, we don't disclose the market share information on a quarterly basis. If you look, the difference between Brazil and Argentina, why we're able to comment on that is, number one, one of our competitors' disclosure how the market performed and provided even the source in the first quarter. And on top of that, again, I think we were giving some guidance if we go in some direction in terms of how we perform, but we don't do that in Argentina. Traditionally, we don't do that.

Okay. And if I could ask just one last question about the working capital. I just saw the working capital cycle going a bit down in this quarter, especially in the long-term accounts payable. If you could go over a little bit to explain us or give a little bit more color on what happened there, it would be helpful.

Look I mean, when you look at the overall cash flow generated from our operations, which was BRL 3.1 billion, it was almost like 40% higher than that in the first quarter of 2016. I think to be precise, it was 37.7%. CapEx was also down. I mean, we can -- if you look at the overall working capital cycle, specifically on the payables, when you come from the last quarter of the year, which have, like, a higher stock of payables in comparison to the first quarter, you tend to see payables going down a little bit as an evolution as you see over the course of the year, for example.

And our next question comes from Rob Ottenstein of Evercore.

Two questions off a little bit different path than we've been on. In Brazil, The Coca-Cola Company now has been talking about the need to restructure its price pack architecture in the light of the kind of new realities for the consumer and disposable income. Wanted to get a sense of where you thought you were on the soft drink side. So that's -- and whether you feel that you need to make those same sorts of moves or are you -- or ahead of the curve? That's the question number one. And then question number 2, I was wondering if you could give a little bit more insight into what's going on in Canada. Volumes were down, but very strong revenue per hectoliter, up 3.3%. So just trying to understand a little bit the -- what's going on there and then also what's going on, on the COGS, which was down substantially.

Thanks for the question. I think that I'll just get the question of the soft drinks. We've been doing a very good job in terms of the revenue management with soft drinks and really trying to understand per region, per channel because we know that the -- I mean, the huge crisis that we had is 2-faced: affects disposable income, and this affects the soft drink business even more. If I could compare to the year, both struggled there, but the CSD business even more. Having said that, I think that we have a good plan in terms of revenue management, understanding the disposable income per region, per channel, understanding the capacity that we have in each area and, I mean, doing this kind of match capacity, elasticity models that we have per pack per region, per channel to maximize the capacity that we have to drive affordability in a moment like that with good margin. So that's what I could say. But I mean, we are working on this, I mean, not now, I mean, since we knew 2 years ago, 3 years ago that the crisis in Brazil would be tough and with the [ affects soft drink ] business even more than the other kind of business.

So it sounds like you're ahead of them in terms of rightsizing, so to speak, the price pack architecture?

We will not comment about, I mean, the -- about what they are doing or the competitors are doing. I'm just saying that these are tough issue in our agenda, had been a tough issue in our agenda. And we are evolving the way that we think that's good for Ambev and for people that like our brands.

And Robert, the next question about Canada. We had very strong performance in Canada this quarter. And just to highlight, it's a little bit of the same but inverted situation that we have had in Brazil, with the volatility on the COGS side. Here, in terms of the input costs, it's being translated into more Brazilian reals, and as a result, that's negatively impacting our business in Brazil. In Canada, just for example, we also have an important brand there, Corona, that we import from Mexico and buy from ABI as imports produced in Mexico. And so also, we had some FX among them, some of the Corona impacting the P&L, specifically the COGS line, on a positive scenario given the recently weakness of the Mexican peso.

Today's final question will come from Alex Robart (sic) [ Alex Robarts ] of Citi.

I wanted to go back to the Brazil COGS. And appreciate the guidance and the new information around 2Q. The reality is that there's still 4, 5 percentage points of delta in the second half when we think about how COGS per -- how the growth of COGS per hectoliter decelerates. And at the gross level, that can be meaningful when we think about earnings. So kind of in the spirit of that, I had 2 related questions on Brazil COGS. The -- I understood from your prepared remarks that dollar COGS as a percent of total COGS in Brazil have -- are now around 50%. And I guess I recall the messaging last year that, that was -- that number was around 40%. And I guess I wonder, is it fair to assume that there's been a step up in just the dollar piece of your Brazilian COGS? And the second related question is, you've made the case publicly that the dollar hedge cost pressure will dissipate as we kind of look out to the rest of the year. But I'm wondering about the dollar commodity cost curve, which you also hedged. And is it fair to assume that, perhaps, it goes the other way? And the reason why I asked that is, when we look at the aluminum price, the futures with the wheat, which is how we get kind of a proxy for malt, as well as PET -- I mean, it seems like those 3 inputs seem to be -- or have been trending up. So I'm wondering if that sounds about right. And would it be fair to think that the commodity hedge that you guys have this year might be above the one last year?

Alex, thanks for your question. So let me start with the -- first, the comment that we made was absolutely correct, which is the 40% of our total COGS moving up to 50%, as of course, as FX moves. And that's 40% increase. It's more than the other 60% on a proportional basis. This increases the overall percentage of the pie. And as result, that was what happened. If you look at our COGS, total COGS with an FX before, what we've seen, like, let's say, at a level of 2.5 or something, it was closer to 40%. At the current level of 3-something, it's closer to 50%. Just to explain the evolution right now, I think you -- it's a little easier for people to do their, let's say, mental calculations with a 50% COGS, our COGS being FX related. Regarding that COGS impact over the course of 2017, again, like we said, we expect it to dissipate second semester, just to reiterate. We believe that the COGS factor is expected to be flattish to low single digits in the semester, the second semester of this year. And we provided more information about the second quarter, saying that some -- there's a very high-level orders evolution that we have seen this quarter. We expect the second quarter to be a little bit of a bridge to that. With regards to the other commodities, specifically the ones that you mentioned, aluminum is the most important one out of the 3 that you mentioned. So I'm going to use aluminum as an example. Aluminum has increased in price recently, and that's true. But at the same time, aluminum is still very inexpensive when you look in view in terms -- on a longer-term view, if you will. So aluminum has been -- has traded, let's say, 10 years ago, if you will, at like $3,300 per metric ton. And currently, it's at much, let's say, lower levels. So in spite of the recent volatility that we have had in aluminum, our hedging policy protects us to be able to react operationally. I just want to make the point and highlight that the size of magnitude and the size of exposure of the Brazilian real FX, which is 50% of the COGS, is much, much larger than any of the other commodities that we have individually, if you will, in spite of some of those commodities having a higher volatility than the FX. So it is still -- again, Brazilian FX impacts the Brazilian COGS much more than any of the commodities that you gave.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Bernardo Paiva for any closing remarks.

Thanks, Rocco. So everyone, before we finish our call, I'd like to highlight once again that the headwinds that had impacted our results in this quarter will dissipate throughout the year. On top of that, we are very pleased with our beer business performance in the first quarter, which has strongly supported by our commercial platforms. However, you cannot deny that the economic activity in Brazil is still not, I mean, yes, in the shape that we want and the macro is still very tough out there. Having said that, we remain cautiously optimistic for the year, and we will continue to put great efforts on our plans, commercial platforms to strengthen the pillars for the future and for the short term. And we are very confident that we are in the right path to resume top line and EBITDA growth. Thank you. Enjoy the rest of your day.

And thank you, sir. This concludes today's conference. You may all disconnect your lines, and have a wonderful day.