Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's fourth quarter and full year 2017 results conference call. Today with us, we have Mr. Bernardo Paiva, CEO for Ambev, and Mr. Ricardo Rittes, CFO and Investor Relations Officer. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company's presentation. After Ambev's remarks are completed, there will be a question-and-answer section. At that time, further instructions will be given. Should any participants 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 Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the company.
They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward-looking statements. I would also like to remind everyone that, as usual, the percentage changes that will be discussed during today's call are both organic and normalized in nature, and unless otherwise stated, percentage changes refer to comparisons with Q4 or full year 2017 results. Normalized figures refer to performance measures before exceptional items which are either income or expenses that do not occur regularly as part of Ambev's normal activities.
As normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, EBIT and EBITDA on a fully reported basis in the earnings release. Now I'll turn the conference over to Mr. Ricardo Rittes, CFO and Investor Relations Officer. Mr. Rittes, you may begin your conference.
Thank you very much. Hello, everyone. Thank you for joining our 2017 fourth quarter and full year earnings call. I will guide you through our operational highlights of Brazil, CAC, LAS and Canada, including our below-the-line items and cash flow. After that, Bernardo will give more details about the evolution of our commercial platforms in Brazil. Starting with the main highlights of our consolidated figures. Our results steadily evolved throughout 2017. After a challenging first half, we posted robust results in the second half of the year, especially in Q4, our strongest quarter. It is important to highlight that the Q4 is the most important quarter in the beer business, representing roughly 36% of the EBITDA in the year. On a consolidated basis, top line was up 14.7% in the quarter.
In the full year, top line rose by 9.6%, with volumes growing by 0.9% and net revenue per hectoliter by 8.5%. EBITDA was up 22% in the quarter. That corresponds to organic growth of BRL 1.3 billion compared to the fourth quarter of 2016. In the full year, EBITDA grew by 7.9%, reaching BRL 20.1 billion with an EBITDA margin of 42.1%. Net profit was down 31.7% in the quarter, while on a normalized basis, net profit was up 23.2%.
The main difference between reported and normalized profit is a non-cash financial expense of BRL 836 million related to foreign exchange translation losses on intragroup loans that were historically reported in equity and were recycled to profit and loss account in the fourth quarter of 2017. In the full year, net profit was down 40%, while adjusted by exceptional items, net profit was up 2.1%. Along with the negative financial impact in the fourth quarter that I just mentioned, we have for the year. First, the swap of assets carried out with ABI at the end of 2016, pursuant to which we agreed to transfer our business in Colombia, Peru, and Ecuador in exchange for the Panamanian business originally owned by SABMiller.
Such transaction resulted in a BRL 1.2 billion non-cash gain in the fourth quarter of 2016, creating a hard comparable. Number two, the adherence to Brazilian Federal Tax Regularization Program that resulted in the recognition of a tax expense of BRL 2.8 billion in the third quarter of 2017. Cash flow from operating activities reached BRL 8.9 billion in the quarter and BRL 17.9 billion in the full year, which represents an increase of BRL 5.5 billion or 44.8% compared to 2016. Now moving to our divisional results. In Brazil, our EBITDA was up 24.3% in the quarter and 0.6% in the full year.
While our results in the first half of 2017 were still impacted by expected negative drivers, we lapped most of such drivers in the second half of the year, returning to our pattern of growth. Brazil Beer top line was up 15.2% in the quarter and 6.3% in the full year. Our beer volumes were up 5.1% in the quarter and 0.7% in the full year, outperforming the industry. Net revenue spread per liter in beer increased by a robust 9.6% in Q4, mainly driven by our revenue management initiatives implemented during the third quarter. In the full year, net revenue per liter was up 5.6%. Now talking about Brazil, CSD, and NANC.
The top line was up 6.7% in the quarter and up 1.6% in the full year. Volumes were down 3.7% in the quarter in line with the industry. While in the full year, volumes declined by 4.3% less than the industry, as the adverse consumer environment continued to drive consumers away from CSD to low-cost powdered juices or even to tap water. Net revenue BRL per liter in the CSD and NANC business was up 10.8% in the quarter and 6.2% in the full year, driven by our price management initiatives implemented during the year. Brazil cash COGS grew by 0.7% in the quarter, while on a per liter basis, declined by 2.2%, benefited by a favorable FX.
In the second half of 2017, Brazil cash COGS per hectoliter was up 1.0%, which is in line with our guidance of flattish to low single digits up. In the full year, Brazil cash COGS and cash COGS per hectoliter increased by 9.8% and 10.4% respectively. Brazil cash SG&A was up 19.9% in the quarter, as higher administrative expenses due to variable compensation accruals was partially offset by below-inflation sales and marketing expenses. In the full year, cash SG&A was up 5.5%. As a result, Brazil EBITDA was up 24.3% in the quarter and 0.6% in the full year. Moving now to Central America and the Caribbean region. In CAC, we deliver another solid year.
Our performance was marked by great results in our new operations in Panama, now the second-largest market in the region after the Dominican Republic. Going into more details. In the fourth quarter, top line in CAC increased by 15% and EBITDA by 25.2% with another quarter of margin expansion. In the full year, top line grew by 8.8% leading to an EBITDA of BRL 1.8 billion, an increase of 23.3% when compared to the full year of 2016, with a robust margin expansion of 500 basis points to 38.9%. In U.S. dollars, reported EBITDA grew more than 40% in the quarter and 30% in the full year, reaching almost $600 million.
While we're still impacted by the severe hurricane season that affected the region in the third quarter, we were able to deliver a solid organic volume growth of 4.2% in Q4, driving a 1.9% volumes increase in the full year. Reported volumes increased by 30.1% in the quarter and by 26.9% in the full year, benefiting from the recent swap of assets carried out with ABI and our operations in Panama. The integration with Panama continued to be executed as planned, and our portfolio of brands that comprise Atlas Golden Light and Stella Artois, among others, achieved great results in the year, contributing to double-digit organic volume growth and significant market share gain in the country.
Further, we benefited from our financial discipline in the whole region, leveraging both costs and expenses, leading to an EBITDA margin expansion for the fifth year in a row. Going forward, we continue to be enthusiastic with top line and EBITDA growth potential from our current operations as well as with new organic opportunities, being confident that we are in the right track to keep delivering solid results in the region and to reach our $1 billion EBITDA dream for that region. Turning to Latin America South. Top line in that region was up 22.6%, and EBITDA grew by 23.6% in the quarter.
In the full year, top line increased by 26.1% and EBITDA by 24%, reaching BRL 4.9 billion with margin contraction of 80 basis points to 45.2%, mainly due to negative impact of FX effects on our costs in Argentina. Volumes were up 5.8% in Q4, driven by growth in both beer, CSD, and NANC. Specifically regarding beer, we had a remarkable performance in number one, Argentina, as a double-digit volume growth was supported by our complete portfolio in the country from the mainstream segment with Brahma that grew more than 20% with preference trending up, coupled with Quilmes with the launch of Quilmes Clásica, which was a great success. Premium with Stella Artois and Patagonia leading the way. Second, Paraguay led by the successful implementation of 240 ml returnable glass bottle strategy.
Third, Uruguay driven by execution improvement and a strong industry. In the full year, volumes were up 5.9%, supported by double-digit increase of beer volumes in Argentina and by the performance of all global brands in the region that presented growth versus last year, enabling us to achieve our all-time high volume mark for beer in LAS. As we move forward, we're encouraged by the rebound of volumes in Argentina, where we have a particularly positive outlook for 2018, being confident that we are well-positioned to keep posting strong results in the region. Moving now to Canada. EBITDA in Canada declined by 2.2% in the quarter as an organic top line growth of 1.2% was impacted by higher costs and expenses.
In the full year, top line was flattish and EBITDA grew by 0.9%, reaching BRL 2 billion, with margin expansion of 20 basis points to 33.9%. Volumes were down 0.7% in Q4, driven by poor weather that led to another quarter of industry contraction. In the full year, volumes declined by 1.3% in line with the industry. Despite the tough industry, our main brands performed particularly well, with Bud Light being the fastest-growing brand in the country, and Stella Artois and our portfolio of local craft beers that include Archibald, Stanley Park, and Mill Street, among others, outperforming the industry. Going forward, we remain committed to pursue improved results in Canada, supported by strong brands and by our leading market position. Now moving to below EBITDA.
Net finance results total an expense of BRL 1.2 billion in the quarter. In the full year, net finance results reached an expense of BRL 3.5 billion, which includes two exceptional financial expenses that total BRL 977 million. Those two items are, number one, BRL 836 million with no cash impact related to foreign exchange translation losses on intragroup loans that were historically reported in equity and were recycled in the fourth quarter to profit and loss account upon reimbursement of these loans, and BRL 141 million paid in connection with the Brazilian Federal Tax Regularization Program.
Excluding such exceptional expenses, net finance results total an expense of BRL 412 million in the quarter and BRL 2.5 billion in the full year, which represents a decline of 32% compared to 2016. Going into more details, main items in the financial expenses in the year were, first, interest income of BRL 459 million due to the borrower's cash balance, essentially in Brazilian reais, US dollars, and Canadian dollars. Second, interest expense of BRL 1.6 billion. That includes the accrual of around BRL 600 million related to the put option associated with our investment in the Dominican Republic. As announced on January 18, 2018, we increased our participation in the CND business from 55% to 85%.
With that, we continue our partnership with the E. León Jimenes Company, but with a larger stake. Third, BRL 543 million of losses on derivatives instruments, mainly driven by the carry cost of our FX hedges, primarily linked to our current exposure in Brazil and Argentina. Important to mention that losses on derivatives instruments declined by almost 65% when compared to the full year of 2016, as low interest rates in Brazil contributed for the reduction of carry costs. Fourth, losses on non-derivative instruments of BRL 112 million, mainly related to FX translation. Fifth, tax on financial transactions in the amount of BRL 180 million. Six, BRL 572 million of other financial expenses, mainly driven by interest and contingencies.
The effective tax rate was up in the quarter from 9.9% to 34.3%, mainly due to an exceptional non-cash tax adjustment of approximately BRL 510 million related to the tax effects of the foreign exchange variation linked to the intragroup loans debt, as I just mentioned, were historically reported in equity and were recycled to profit and loss account upon the reimbursement of those loans. In the full year, effective tax rate was 39.3% versus 2.4% in 2016, as we not only faced a tough comparable, but were also impacted by the exceptional tax adjustment of BRL 2.8 billion related to the Brazilian Federal Tax Regularization Program that we announced in the third quarter.
Adjusted by those exceptional items, the effective tax rate was 23.9% in the quarter and 12.8% in the full year. Finally, Capex totaled BRL 3.2 billion in 2017, declining 22.5%. On top of that, during the year, we returned approximately BRL 8.5 billion to equity holders in dividends and interest on capital. This figure does not include the dividend payment of approximately BRL 1.1 billion announced on December 21, 2017, and made as of February 22nd, 2018. Thank you very much. I will now hand over to Bernardo before going to Q&A.
Thank you, Ricardo. Hello, everyone. As mentioned by Ricardo, we ended 2017 with a solid fourth quarter, delivering on a consolidated basis an EBITDA growth of more than 20%.
In Brazil, where I will concentrate my comments on, our beer business consistently evolved throughout the year. Particularly in the last quarter, we posted a strong top line driven by a healthy net revenue per hectoliter increase and solid volumes, driving EBITDA growth of 27.5% and margin expansion of 500 basis points. Beer volumes were up 5.1%, way above the industry that was flat-ish, outperforming the market in all the segments, core plus, and premium. In the full year, our beer volumes were up 0.7%, while the industry was slightly negative due to a still weak consumer environment. In this context, even though the macro in Brazil continued very challenged, we're able to strengthen our market position and return to growth.
In addition, during the year, we also continued to probably explore our beer expertise, offering to consumers a unique portfolio of high-quality beers meant to fulfill different needs and tastes on different occasions. We granted to consumers the power of choice, as beer is like happiness. Everyone has its own recipe. Having said that, we are confident that all these achievements were fueled by the initiatives taken under our growth platforms. Starting with the core, our first and most relevant platform. In 2017, we implemented the most significant package improvements of brands in Skol's history, reaching our consumers in every occasion. Further, we kept progressing with our marketing strategy, exploring the connection with the core consumer, differentiating and elevating our brands.
As I mentioned in our third quarter earnings call, Skol, our easy-drinking lager, launched in October a bold campaign extending the summer season and evoking once again the taste of [Addons] signature, exploring the round versus square expression, inspiring people to be more open, connected, and respectful to each other. This campaign comprised eight different TV ads, new trade materials, and strong digital activation. The results were great, with the best consumer evaluation we've seen in Skol campaigns during the recent years, putting the brand in a positive momentum. Such momentum has been reinforced by the remarkable activations during Carnival. This year, once again, Skol took a leading role and promoted the most important street parties in Brazil, such as São Paulo, Salvador, Recife, Belo Horizonte, providing free entertainment for the population. Now talk about Brahma, our classic lager.
Brahma had an amazing 2017, growing strongly quarter after quarter. As mentioned in our last call, Brahma's new VBI generated notable results, with consumers' purchasing intention growing quite significantly. This positive perception of the new visual brand identity of Brahma was boosted by the Brahma é só cara nova campaign, a very successful one. As we move to 2018, we are confident that Brahma is in a good position to maintain 2017 growth trend, supported by strong 360 activation during the 2018 FIFA World Cup Russia. Still on Brahma's family, Brahma was one of the main highlights of the year, providing consumers with access to a variety of beer styles, showing that food and beer can go along very well and making gastronomy something accessible to everyone. In the full year, Brahma almost doubled its volume, definitely consolidating the core plus segment in Brazil. Finally, Antarctica.
Antarctica has a very relevant regional role, especially in Rio and Brasília. In 2017, its major highlight was the results of the innovative web series format. Blending fiction and reality, being close to the consumers' lives and their everyday life, the series continued to deliver great numbers, reaching more than 50 million views. In 2018, Antarctica is maintaining its consistency, promoting the carnival in Rio and Brasília, and during the first quarter, bringing another very important moment, the launch of its new visual brand identity. Following the results and learnings we had with both Skol and Brahma, Antarctica's new VBI is expected to be a major success, exploring brand's tradition and quality. Now moving to premium. Consumers are increasingly trading up, and a complete portfolio of premium brands has proved to be key to capture all the benefits arising from this trend.
In the fourth quarter, our premium portfolio of global and domestic brands experienced a great acceleration. All the brands grew substantially, driving positive mix and EBITDA margin expansion. In the full year, our premium volumes also presented amazing results, growing double digits and accounting for more than 10% of our total beer volumes. We are proud that Budweiser was the leading brand of the premium segment for the third year in a row, growing more than 30% while continuing to build its connection to consumers with meaningful and impactful methods, such as the award, Oscar, NBA and the Let Them Say 10 Thanks.
We are also proud to say that Colorado became, in 2017, the number one craft brand in Brazil, inviting consumers to experience different tastes and a wide variety of ingredients. Showing to all of us that more than 10,000 years of beer history was marked by diversity, and we will continue to convey this legacy. Looking ahead into 2018, we are confident that we have a very powerful portfolio to provide consumers with a wide diversity of premium brands while bringing memorable experiences. Moving to different occasions and starting with the in-home. RGBs continue to be a big focus for this year, carrying our core brands and having an affordable proposition. We have evolved with the penetration of returnable glass bottle in the off-trade channel, bringing affordability to consumers with a higher profitability.
In 2017, returnable glass bottles accounted for 29% of our beer volumes in the retail, which includes supermarkets, modern POS, Pit Stop, among others. With the 300 ml bottles, the main presentation in this channel growing double digits year-over-year. Still in home, we also implemented new trade programs during the year to boost the shopper experience in all different sizes and formats of stores within the off-trade channel. Turning now to out of home occasion. The on-trade continues to be the most relevant channel in Brazil, representing the most of our volume. We've been segmenting even more this channel and with that, designing and implementing trade programs to each sub-segment of the on-trade. That increased the effectiveness of our investments and the output of volumes.
Regarding excellence in client service, as a service-oriented company, enhancing our route to market and our service level is at the core of our priorities. For instance, we are steadily expanding the number of POS served by the company. We are also strengthening our relationship with our clients through the improvement of our telesales capabilities, which is resulting in increasing client satisfaction. On top of that, we also continue to further develop our B2B platforms, particularly for the off-trade channel and VIP clients, and to invest in new technologies, striving towards the best-in-class level of service. Finally, moving to CSD and NANC. In the fourth quarter, in spite of the volumes going down 3.7% in line with the industry, we're able to deliver top-line growth in CSD and NANC, contributing to a margin expansion.
In the full year, our volumes were down 4.2%, outperforming the industry. Regardless of the pressure in the traditional CSD industry, our premium portfolio within the CSD and NANC, which comprise Fusion, H2OH!, Lipton, Gatorade, and Do Bem, delivered strong results in 2017. H2OH! and Lipton grew by double digits, with Fusion by high single digits. On top of that, Do Bem volumes increased by more than 100%, supported by the launch of the new line, Do Bem Todo Dia. Such premium brands reached together almost 10% of our CSD and NANC volumes in the full year. Before closing, I would also like to highlight that 2017 was marked by the evolution of our Better World platform. We want to be here for the next 100 years, and our commitment to sustainability is at the core of our priorities as well.
For instance, at the beginning of 2017, we launched AMA, a mineral water from which 100% of the profit goes to projects for access to potable water in the semi-arid region of Brazil. AMA already benefited more than 7,000 people and has demonstrated great potential to continue to grow. We also evolved in our road safety project, such as the Movimento Paulista de Segurança no Trânsito, that saved more than 400 million lives in 67 counties in the state of São Paulo. Brasília Vida Segura that in one year saved more than 130 lives in the Federal District. These are only a few examples. Going forward, we will keep investing behind our Better World platform, supporting us to continue to enhance not only our business, but the whole society.
In summary, 2017 was an important year in which we reached an inflection point, resuming growth and strengthening the fundamentals of our business. As we move to 2018, we will continue to be consistent with our strategy, but expect a challenged first quarter for Brazil Beer, especially in terms of volume, due to, first, a hard comp in the fourth quarter of 2017 when we outperformed the industry by 5.5%. Second, a soft industry that's expected to be impacted by the earlier Carnival and a very poor weather. Nonetheless, we have a positive outlook for the rest of the year. Even though the consumer environment remains volatile, low inflation, a declining unemployment rate, and a gradual increase in disposable income as the year progress, as well as the FIFA World Cup should be supported for the industry.
On top of that, we are very confident that we have a powerful portfolio and a solid plan to further accelerate EBITDA growth. We believe Brazil continues to be a unique market that we have experience
We'll keep pursuing growth and profitability. In this context, a consistent execution of our growth platforms as well as our passion for bringing the best quality beers in the world will continue to be of a paramount importance. We can go now to the Q&A. Thank you.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Luca Cipiccia with Goldman Sachs. Please go ahead.
Good morning, Bernardo, Rittes. Thanks for taking my question. Congratulations on the strong finish and I guess on carrying the torch of optimism for Brazil consumers. I would actually wanna ask about the 2018 outlook. You know, arguably, there is a lot of optimism in your speeches. It seems to be the case. It also seems that a lot of the investments, some of them more sort of painful than others over the last couple of years are starting to bear fruit. You talk about premium, you talk about returnable. I think that's great for the setup for this year.
Surprisingly, you know, your guidance is somewhat light on details this time around. Well, my question is, first, very simply why that is the case as compared to the past?
Assuming that you're not gonna give us that many more details, now in the call, maybe if you can help us understand how, you know, the volume price mix balance should play out, particularly for Beer Brazil, in 2018, are you seeing elements that make you more comfortable that, realistically, with consumer trading up, with inflation in food still being very favorable, we could see an even stronger, let's say, revenue per hectoliter growth, at least a bigger delta between revenue and COGS per hectoliter as we progress through the year, maybe after a more difficult first quarter. That would be my question, if you can maybe give us some context for the balance between volume and price in 2018.
Hi, Luca. Thanks for the question. I'll start here, and Ricardo Rittes, maybe you comment later a little bit. I think that first, I mean, talking about Brazil and the prospects for 2018, I think it's important to remind all that we have been consistent in executing the growth platforms, the strategy that we have. Yeah, we're starting to reap the benefits of the investments that we've done in the last years. I think the fundamentals of our business are evolving and are in a much, much better place. I think that the country will be in a better place as well in 2018 compared to 2017. The prospects are good. I think that the team is really, I mean, solid in terms of focus and executing the plan that we have.
Yes, we have the FIFA World Cup that we will activate strongly with two brands, one core brand, that's Brahma, and the premium is Budweiser. The plans are really, really strong. Having said that, the first quarter, I mean, volume will be a little bit tough as I said, basically because of the tough comps because I mean, the last quarter, I mean, the first quarter of 2017, we outperformed the industry in 5.5 percentage points, so it was a tough comp. Secondly, weather since basically December, mid-December, it's not helping at all and affects the industry. The good news is the trends are strong. The weather will be better for sure. We have World Cup, strong plan.
Again, have been consistent with the strategy that we have implementing that, not only looking for the short term, but for the medium long term as well. That's my view for 2018. That's why it's a positive view. Ricardo, you want to comment anything more?
Hi, Luca. Thank you very much for your question. I would like to just start to say that Ambev out of the three main players in Brazil was the only one who used to give guidance driving to an asymmetric competitive dynamic. Last year, we decided to provide a cash COGS per hectoliter because of the volatility that we had in that specific line. If you look at from to our guidance since 2010, you see that we varied a lot in the level of quantitative guidance provided to the market.
What we're trying to do is to compensate somehow with the qualitative view, as you pointed out, with a more detailed optimistic about Brazil, you call realistic about the operations and even providing more color about the first quarter like Bernardo just said.
Understood. Maybe just on the receptiveness of the consumer to price increases and maybe your comment about premium. Can you comment about the speed of that improvement? Is that sort of surprising you? Is that encouraging you maybe to be more assertive on pricing as we move towards the year? Is there any additional maybe qualification on that?
I think that every time that we do a price increase, what we do in third quarter of last year, I mean the first quarter, the quarter that we do that, the volumes suffer, we lose share. I think that the way that we implemented the price increase, looking for the full mix, the portfolio and so on, understanding that premium yes can help us, the returnable bottles and those three can do that, assuming that we would maintain the most important price points per channel. Our, I'll say intelligence or our sales intelligence, all the technology that have been putting to understand the subsegments per channel, understanding exactly the price point that should be here and there. It's helping us to mitigate the impact of our price increase.
I think that's why the fourth quarter was one of the reasons, I mean, that as well, together the portfolio, all the strategy. The way that we implemented, I think it was very good. Good learnings for the years to come. Yeah, I think that people were starting, you know, Brazil will be out of this, and disposable income will come back. Why I think that the fundamentals will help us, because when disposable income back on track, we'll be back on track in Brazil, our portfolio will be much stronger. The premium much stronger. Very important to say that the last quarter, not only Budweiser grew a lot, all our brands did the same.
Stella, Corona, Antarctica Original, the domestic premium as well. I think we're very excited about the opportunities of the premium segment. Our first big focus continues to be the core, because the core brands represent the bulk of our business and great brands, historical brands that people like a lot and we will continue to invest in every touch point of those brands of people that taste and drink brands called Antarctica on an everyday basis here in Brazil.
Thank you. Thank you. Thank you both.
Thank you.
Thanks, Luca.
The next question comes from Isabella Simonato with Bank of America Merrill Lynch. Please go ahead.
Thank you. Good afternoon, Bernardo , Ricardo. Two quick questions. First of all, in Brazil, on the price mix for the quarter, which was very strong, can you exclude the positive impact on the price mix growth from the tax effect? Should that continue towards 2018? The second, on Latin America South, with SG&A growing well below inflation, can you elaborate a little bit more on between the Selling and G&A lines and, looking for the good prospects for volume growth this year, if you could give us an indication how that line should perform this year? Thank you.
Hi, Isabella. Thank you for your question. Just for to give you in terms of order of magnitude, the impact of the tax change, if you will, is 1/15 of the total growth that we had in that revenue per hectoliter. It's not the main impact. It's less than 10%. That was not, you know, the biggest change. When you look at SG&A, I would ask Bernardo to go through very quickly.
Hi, Isabella. No worries. I think that, as you know, we have been steadily improving the market effectiveness and doing the way that we can optimize the campaigns, the media vehicles, I mean, testing more the media mix. We also know that the World Cup, it's important investment, but what we're doing is really channeling or prioritizing as well the investment during the World Cup, because it's a very important piece at the moment and to build brands as well. We don't expect kind of a significant SG&A increase due to the marketing investment during the World Cup. Again, we're investing better media mix, be more effective on that.
Yes, we do. We will do a strong activation during the World Cup, but we don't expect. I'm not giving any guidance, but we don't expect, I mean, a big swing in terms of the marketing and sales investments during this year.
Great. Thank you very much.
Thanks, Isabella.
Thank you.
The next question comes from Antonio Gonzalez with Credit Suisse. Please go ahead.
Good morning, Bernardo and Rittes. Thank you for taking my question, and congrats on the results. I wanted to ask on the category expansion framework. AB InBev had a lot of emphasis on their conference call this morning. I wanted to see if you can elaborate on how Ambev is applying this. Obviously, to some extent you've been working in Brazil already over the last few years in RGB when it comes to affordability and premium with Bud and the rest of the brands, et cetera. But I wanted to ask, how does this category expansion framework accelerate the deployment of these initiatives in Brazil? Do you see any upside between implementing easy drinking and classic lager occasions in or any other initiatives in particular in Brazil?
Then secondly, there were some comments on Argentina in this framework, in particular on the ABI call. I want to see how quickly can you deploy this framework across your countries. Do you think this can be implemented all throughout this year or start only in 2019? How relevant do you think it can be for the export sale markets for Ambev? Thank you.
Thanks, Antonio. Hi, thanks for the question. I think at first, the category expansion framework, I mean, it's really good. I've been learning a lot. One of the good things that confirmed as well some initiatives in terms of the growth platforms that you know already, the cores, the premium and so on, that we have been doing here. I think that what gives us a frame really to understand the portfolio that we have, the opportunities in terms of the needs, and positioning each brand that we have in the right spot. Really differentiate the brands for each consumer type has been helping a lot in the portfolio design.
Also we know that we have been learning what's good with the lenses that SAB is the maturity market model, because Brazil is not only one country, we have different countries here. So helping understand what regions of the countries we could have more learnings from a U.S. market, others from the African experience that our partners have there as well. Both things have been very, very important for us from a source of learning, but confirms as well the path that have been talking, I mean, the last three, four years in terms of the platforms that have conveyed to you. I think that the strategy and the growth platforms, I mean, start to form a portfolio, again, that the category expansion framework help us to define better.
Understanding the regions that we have in Brazil, the mature market framework helps us as well. Adding that, the occasions, that's very, very important because they understand how we can execute a brand positioning of a brand in different occasions, in different touch points is very key, that have been doing that in terms of the shaping at home, boosting out of home. They just, I would say, complement all the category model expansion, all the mature market things that have been doing confirm the path that have been implemented in the last three, four years. On top of that, I think that we think that also is very, very important to have a view of the customer, of the point of sale.
Because at the end of the day, to provide those experience and bring this portfolio to life, that's defined very well in the category expansion model, we need to, I mean, to bring this to life, and the channel is very, very important. The point of sale is very, very important, not only for selling more, but through the experience, we reflect the position for each brand. I think that, again, in summary, I think that the category expansion model, I mean, helped us a lot, helped us to assure that we are in the right path in terms of learnings as well. We guess we can cascade this for other countries. As you said, on the ABI call, Argentina is another example.
The same way that we have been differentiating Brahma and Antarctica in the last three years in terms of Skol, more young, easy drinking. Not only the easy drinking part in terms of the functionality of the liquid, but the emotional part as well. I mean, it's a young brand, it's a youth, it's edgy. It's called easy drinking. Brahma Classic lager, same thing we are doing there. With Quilmes and Brahma there. I think that we are doing this as we speak. Our partners are doing that. I'm confident that the category model expansion, the framework expansion, the maturity model, together with the things that have been implemented in terms of the overall portfolio growth strategy here, it's very powerful.
I think that we will reap the benefits in the future as well. We have the mindset to be consistent to do that. Not only think about one year, six months, but be consistent. Another example here, all the packaging improvements and investment that we've done in Brahma and Skol is exactly to assure that we have a clear role through the packaging for Skol and for Brahma. A clear differentiation. We start to do that two years ago, and we start to having the benefits now. I think that's a model that can help us and build on in the things that we have been working in the last years here in Brazil.
Thanks for that color, Bernardo. Would you be able to comment whether this new framework has been formally incorporated into the business plans of the different countries and regions, KPIs, compensation metrics, and so on? Or, that's still, I guess, work in progress?
I think I'm not commenting on details, Antonio, but I would say that it's formally included in our business cycle, in our lines. It's, you know, in our plans. We adopted very, very fast. Again, in Brazil, I mean, the adoption was, I mean, almost instantaneous. One, because we have been working in this path, even before. I think that we adopted very, very fast, not only in Brazil, but in other countries as well.
Fantastic. Thanks, and, congratulations again.
Thanks, Antonio. Bye-bye.
The next question comes from Lauren Torres with UBS. Please go ahead.
Hi, everyone. My question relates to channel trends. Bernardo, you did talk about on and off premise behavior, but I was curious in light of, you know, the consumer getting a bit better, and I know it's a gradual process, but are you seeing better on-premise trends? I understand, I guess, in the first quarter with Carnival that could be skewed, but are you seeing just generally better restaurant bar consumption? And, you know, how does that make you think differently about your investment spend this year? I know you've spent, you know, a fair amount on RGBs. It is a large percent of your beer volume in retail. So in order to maintain that, does the investment still stay behind that particular format? Or based on how consumers or where they consume, will you redirect that spend this year?
Thanks, Lauren. I think to talk about the channels. I mean, yes, the off-trade channel in Brazil is gaining weight over time. But even though the on-trade is still the most important relevant channel here in Brazil, not only in terms of volume, but in terms of brand building as well. In any case, you should keep in mind that we have the plans for both channels. More than ever, I mean, think about being a more service-oriented company and a consumer-centric company even more. Just an example. Understanding a lot about the in-home consumption at home.
Knowing how the product could arrive there and what we must do in the off-trade channel to ensure that the product will arrive in the right way and provide a nice experience there. Having said that, understanding the sub channels of the off-trade is very, very important. We will continue to work very, very hard with the big accounts that we'll continue to do that and category management, increasing the shopper experience. Understanding how the small format works as well and translating to them some of this knowledge is very, very important. I think that we have been doing this.
Understanding how significant data the off-trade can assure that in the off-trade, we could have including better margins in the future because we know the segments more, we know how to execute more better. The brands will be the assortment will be the right ones per specific sub channel. In terms of the on-trade, I think that not only important for building brands and you have trade partners, understanding the sub segments as well with all the tax sales initiatives that have been putting in place. There is another thing linked to the go-to-market strategy that's helping the on-trade. Because we're saving more boxes in more smaller boxes in more counties in Brazil, more areas in Brazil, in the suburbs, and cities are even better. Most of those boxes are the on-trade.
When you go direct, we'll be able to activate demand in those places. We will be able to assure the on-trade will continue to be a strong segment for the future. In summary, I think that we have strategies and plans for both channels. The go-to-market plans that have been put in place actually are helping a lot the very small box, the most of them are in the on-trade segment. In the end, I mean, the profitability of both channels are today very similar for many reasons. One of these reasons, in the case of the off-trade is the implementation of the boost of the RGB that today represents 29% of our volume in the off-trade channel.
Can I just ask a quick follow-up on that? You know, Brazil is quite different than other parts of the world as far as people consuming, you know, out of the house versus in the house. Coming off a soft environment in Brazil, do you think that could change over time, meaning a greater percentage of volume could go to at home consumption or just directionally, Brazil is a you know market where more on-premise consumption will always be that much more relevant?
Well, yes. I think that I know this trend. I agree with you. I think that we can have two ways to deal with a trend like that. Understanding the trend of in-home and taking advantage of this trend and trying to shape in a better way to understand the sub channels of this off-trade, of how the product arrives there. So we have a good example of the Pit Stop. So we have that's a franchise business that we have that's growing a lot. I'm just saying that we know that the in-home will grow, but we have ways, I mean, to assure that this trend will grow in the right path for the industry.
In terms of the on-trade, yes, but have to bear in mind that in Brazil, people like to go to a bar. I mean, because beer is like, you know, it unifies people. I mean, people really bring beer with the friends in a bar. If you serve better, and you are doing that, the bars, the smaller ones, not only you are creating jobs for the country and so on, but you're activating demand and assuring that the on-trade will continue to have an importance in the long term. Yeah, you can say it's likely against the trend. Yes, this is likely against the trend.
I think that if a good go-to-market, a good service level and so on, yes, we can assure that the number of boxes in Brazil will not go down and then the on-trades will not be shrinking as you see in other countries.
Okay, great. Thank you.
The next question comes from Jose Yordan with Deutsche Bank. Please go ahead.
Hi, good morning, everyone. My question's on the SG&A in Brazil. I mean, it grew almost 20%. You know, I think that was significantly above, I guess, not your guidance, but certainly my expectations. I was just wondering how much of that 20% growth was due to perhaps catch up bonus accruals, and how much was due to increased marketing spend to support the price increase?
Hi, Jose, this is Ricardo . All of it is due to variable compensation management. Remember that, the year before, variable compensation was essentially zero. This year, as we had growth for the business, more accelerated and skewed towards
The last quarter, the last six months, but especially towards the last quarter, that's where, you know, the accrual of the bonus happened.
In terms of marketing spend, there was no unusual growth year-on-year?
Actually was down.
Okay. Thank you.
Thank you.
Thank you.
The next question from Thiago Duarte with BTG. Please go ahead.
Thanks. Good afternoon, Bernardo, Rittes. Well, I would like to have a follow-up question actually on Lauren's question and this discussion regarding the on-trade channel versus the off-trade channel. I guess to you, Bernardo, my question would be, do you think you can be as profitable in the off-trade as you are probably historically in the on-trade? I mean, 'cause it seems that as you look at the most important revenue initiatives and growth channels that you guys have been exploring, they all seem to pursue this growth in the in-home consumption and the off-trade in particular.
If you look at the EBITDA margins that you guys made in the fourth quarter, and you compare to what you eventually achieved a few years ago, even considering, you know, the adjustments for effects and hedges and so on and so forth, you're still below where you were in terms of Brazil beer profitability a few years ago. I wonder whether this is related to this migration to the off-trade as opposed to the on-trade channel. I think it would be interesting to hear on that. Second, back to the SG&A, I was just wondering. I know you guys are not providing a guidance anymore for the year.
You know, when you look at the Brazil operations as a whole, you used to have SG&A over sales close to 28%-29% of sales. This figure is now as high as 32% or so. Is it reasonable in your view to assume that this figure will eventually go back to 31, 30, eventually 29, 28 again? Or do you think it's fair for us, for modeling purposes, let's put it this way, to assume that this figure might stay higher for a little bit longer? Thank you.
Hi, Duarte. Thanks for the question. I think that I will touch again in the on-trade and off-trade issue and then Ricardo will go for the other question. I think that your question is, do you think that the off-trade could be as profitable as the on-trade? The answer is yes, we think. Reasons to believe is that not only are increasing the capabilities that we have to operate in the off-trade, understand the right assortment, understand the revenue management initiatives, the logistics system to get there, because including the drop size is higher. So if the drop size is higher, the logistics is lower. The last point, understanding the subsegments within the off-trade. How we can serve better? Because off-trade is much bigger than a big chain or a big, I mean, store with 20+ checkouts.
Actually, the off-trade that's growing more for us are the small formats and the Pit Stop. That's our franchise business. That's our off-trade alternative as well. So understanding, again, the subsegments of the off-trade, how profitable they can be, and on top of that, revenue management, right assortment, premium growth. You have to bear in mind that in the off-trade, the premium weight is much higher than the on-trade as well. Because of all of this, yes, we think that the off-trade could be as profitable of the on-trade. Actually, in some regions of Brazil, they already are in the same level.
Now going specifically to, you know, to the margin, the way we see it, we do have a high water mark. But if you look at the historic evolution of our margins in the last 15 years, you see that the direction is a clear direction towards higher margins. Of course, there are like short-term volatility, but we continue to believe that we can improve our business and improve the profitability of our business. When you specifically talk about SG&A, and you're right on your numbers. I mean, for example, if you look at 2010, SG&A as a percentage of net turnover, it was like around 25.6%. They developed consistently over time.
Around 2013 was like over 26% to a point in which in 2016 it reached 29.2%. In 2017, again, 29.2%. For some time, it has been like on a upward trend. It has stabilized when you look year-over-year. Even though in 2017, we had a bonus accrue, and in 2016 we didn't. When you account for that difference, there's already a reduction on a year per year basis. Of course, that if you project Brazil in the medium term to grow again in terms of volume and et cetera, you get a dilution of some of those costs, and you should naturally see a positive evolution over time.
Very clear. I appreciate.
Thanks a lot.
Thank you.
Due to the constraints of time, this will be the final question, and it comes from Robert Ottenstein with Evercore. Please go ahead.
Thank you very much for fitting me in. Can you talk a little bit about you know it's been a number of years now you know the impact of Heineken on the market you know a world-class marketer compared to you know the more local competitors that you faced and still face but now they seem to be doing very well. They're gaining share. So how has that changed the market? How has that changed your strategy? Are you doing anything now in other markets to prepare for a possible entrance by Heineken? Thank you.
Hi, Robert. Thanks for the question. As you know, I know you have been following us for a long time, the Brazilian industry has always been very competitive. As you already know, again, we don't speak about competitors, and we will continue to focus on the business that we have, and that's nothing changed for us in this sense. What I could say is that we have been focused a lot in building a strong portfolio of brands and be consistent in a growth strategy that has been conveyed to you in the last 3, 4 years.
Have been doing things on that, on the fundamentals of the business, our core brands, for example, all the packaging that we've done, all the differentiation in terms of our easy drinking that Skol, our classic lager that it's Brahma, they're both performing well. We are focused a lot in the core and in the premium segment. We gain share, we gained share last year. We don't participate in the value segment. We participate in a smart way with the returnable bottles from core brands. I think that we have a different mix than other companies in the market that most of their volume is value. That's not our case. Our focus is really core and premium.
I think that we are gaining share because of core and premium, because we're losing in the value segment. Because of that, I'm bullish that the portfolio that you have, the plans that you have, and the competition that we have, that's always good, that push us to do even better, will put our business in a much better place a year from now than it is today, a better place than a year ago, because the fundamentals are better because we have been consistent in our strategy that I have been talking to you in every call, in every meeting that we have the last three, four years.
When Brazil back, I think that people that trade down a lot for the value segment, that's not the most of our volume. Maybe the competitor's volume, most is value, it's not our case. I think that will be more benefit to have a stronger core and premium portfolio in the market.
On that point, if you segment the market value, core mainstream and super premium, or premium, obviously the premium has been growing. Has over the last couple of years, how much share has the value segment gotten in the market in 2017 and 2016?
I think that in the last years, I mean, because of the crisis in Brazil, the value segment grew because of the disposable income issue, but this will come back. We are taking a slight benefit that in the right way because of the returnable bottles in the core brands with a very good margin. Having said that, I mean, we don't disclose our market share per segment. What I can say that in the core segment and in the premium segment, market share for us, it's not an issue. Because of that, overall, we gained market share last year, which means that overall market share as well is not an issue. We continue to work hard to gain more market share and to fight every day, but it's not an issue.
I think that I'm very confident in the portfolio, in the approach I do for the occasions, in the service level for the parks, that what this could bring and continue bring for the future in terms of benefits for our core and premium portfolio.
Terrific. Well, thank you very much. That's very clear.
Thanks, Robert.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Bernardo Paiva for any closing remarks.
Okay. Thanks, Gary. Before I finish our call, I would like to highlight that we are very pleased with our fourth quarter results and with the evolution of our business for all 2017, is a consequence of being consistent in our growth platforms in the last years. Going forward, we remain optimistic with the development of our growth platforms, as I said before, and we believe that we have a solid plan and fundamentals to drive further EBITDA growth. Have a great day, and enjoy the rest of your day. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.