Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's Third 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 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 participant need assistance during this call, please press star zero to reach the operator. Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996.
Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward-looking statements. I would also like to remind everyone 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 the Q3 2016 results.
Normalized figures refer to performance measures before exceptional items which are either income or expenses that do not occur regularly as part of Ambev's normal activities. As normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, EBIT and EBITDA on a fully reported basis in the earnings release. Now I'll turn the conference over to Mr. Ricardo Rittes, CFO and Investor Relations Officer. Mr. Rittes, you may begin your conference.
Hello, everyone. Thank you for joining our 2017 Third Quarter Earnings Call. I will guide you through 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 our performance in Brazil. Starting with the main highlights of our results in the third quarter. This quarter, we reached an inflection point after four quarters of consolidated EBITDA decline, driven by a solid performance in most of our markets. On a consolidated basis, top line was up 9.6% as volume decline of 2% was more than offset by a net revenue per hectoliter growth of 11.7%.
EBITDA was up 15.8%, reaching BRL 4.6 billion, with an EBITDA margin expansion of 220 basis points to 40.1%. Excluding the impact of the Brazilian Federal Tax Regularization Program, net profit was BRL 3.2 billion , which is 1.2% higher than the third quarter of 2016, as EBITDA organic growth and the reduction of net financial expenses were partially impacted by, first, the negative effect of currency translation driven by the appreciation of the Brazilian real, and second, a higher tax rate. Cash flow from operating activities was BRL 4.6 billion. Year -to -date, cash flow from operating activities totaled BRL 9 billion compared to BRL 4.4 billion in the same period of 2016, which is an increase of 103.4%.
Also, during this quarter, Brazil, our most important market, resumed growth. Our results in the country benefited from a strong performance from our beer business that delivered an EBITDA increase of 25.7% with a margin expansion of 540 basis points. Such result was partially impacted by a decline in CSD and NAB EBITDA. Bernardo will expand on this topic. Now looking at our operational results in more detail and starting with Brazil. Net revenue in Brazil was up 9.7% in the quarter, and EBITDA totaled BRL 2.4 billion with an EBITDA margin expansion of 260 basis points, reaching 39.4%.
Beer Brazil top line was up 9.6% as volume decline of 5.4% was more than offset by robust net revenue per hectoliter growth of 15.8%, driven by revenue management initiatives implemented during the quarter. Beer EBITDA grew by 25.7% with a margin expansion of 540 basis points. Brazil CSD and NAB top line was up 10.2%, benefited from slightly higher volumes coupled with a net revenue per hectoliter growth of 9.6% due to our revenue management initiatives implemented in the second quarter of 2017 and a positive mix. CSD and NAB EBITDA declined by 33.3% with a margin contraction of 1,460 basis points to 22.5%.
Brazil cash COGS was up 0.9% and on a per hectoliter basis, up 5%. Cash COGS per hectoliter growth was heavily impacted by the CSD and NAB businesses, in which cash COGS per hectoliter increased by 26.3% due to, one, sugar, which represents around 25% of CSD and NAB COGS. Sugar price increase of around 60% in the second half of 2016 is fully impacting us now. For reference, sugar price in the third quarter of 2017 was BRL 0.192 per bushel versus BRL 0.126 per bushel in the third quarter of 2016. Second, inflation, and third, a negative mix due to high weight of cans during this quarter.
The severe sugar price impact on our profitability is temporary and will decelerate as of the fourth quarter before becoming a positive driver to our COGS. For reference, corn price for October 2018 is around BRL 0.15 per bushel. Finally, we confirm our previous guidance that we expect cash COGS per hectoliter in Brazil to be flattish to low single-digit up in the second half of 2017. Brazil cash SG&A was up 1.9% below inflation as a result of higher administrative expenses, partially offset by lower distribution and sales and marketing expenses, which benefited from cost savings in our non-working money and pacing and efficiency gains in our working money. Moving now to our international operations.
Our international operations delivered once again solid results, with the exception of Canada, where our performance was heavily affected by a weak summer season that led to a net sales decline of low single digits. In CAC, on the other hand, EBITDA increased by more than 30% , with another quarter of robust margin expansion, also benefiting from synergy resulting from integration of our operation in Panama. In LAS, we continue to have a great volume momentum, especially in Argentina, as a result of an improved macro environment, leading to top line and EBITDA growth of more than 20%. Going into more detail of our operational results in each region.
Starting with Central America and the Caribbean, in the third quarter, net revenue in CAC increased by 7.5% and by 6.1% on a per hectoliter basis. EBITDA reached BRL 474 million, increasing organically by 31.6% , with a margin expansion of 840 basis points to 40.8%. In U.S. dollars, reported EBITDA grew more than 35%. Year-to-date, top line in CAC was up 6.6% and EBITDA up 22.7%, with margin expansion of 550 basis points to 38.3%. Organic volumes were flattish in the third quarter, impacted by a severe hurricane season. On a reported basis, volumes grew by 23.8%, benefiting from the recent swap of assets carried out with ABI and our operations in Panama.
The integration in Panama continued as planned, with synergies and cost savings of more than $10 million captured year-to-date. Our business in the country is also delivering a great performance with our portfolio growing at a fast pace, translating into market share gain. I would also like to highlight that our results in CAC include non-forecasted expenses and write-offs made in connection with the hurricanes that affected the region, and that they were fully recognized during this third quarter. As you know, in September, the region was heavily hit by hurricanes. In Dominica, the hurricanes severely damaged most of the buildings of the island, which included our brewery.
The island was also left without electricity and communication. The Dominican Republic, our most important market in CAC, also suffered significant impact. While none of our employees have suffered serious injuries, we work together with authorities to support the local communities with an emergency relief using our distribution network and donating bottled water, juices, milk, and construction materials. Going forward, we are resolved to initiate the reconstruction of our facilities in Dominica to restart our business in the island as soon as possible. Along with that, we will keep pursuing significant top line and EBITDA margin opportunities in CAC and remain very enthusiastic with the development of our business in the region, especially in Panama.
In Latin America South, top line was up 21.3% in the quarter, with net revenue practically a growth of 16.1%. EBITDA was up 22.8% in the quarter, reaching BRL 1.1 billion with an EBITDA margin expansion of 60 basis points to 45.3%. Volumes grew 4.5% in the quarter as the softness of the CSD and NAB industry in the region was more than offset by strong performance from one, beer volumes in Argentina that grew double digits supported by the overall improvement in macroeconomic environment and favorable weather. Second, Paraguay, due to the continued success of our 340 ml returnable glass bottle strategy.
Third, our high-end portfolio that is delivering a strong performance led by our global brands that are growing double digits year-to-date. I would like also to emphasize that we are very pleased that our volume performance this quarter enabled us to achieve our all-time high volume mark for beer in the third quarter in LAS. Year-to-date, top line in LAS grew by 27.7% and EBITDA was up 24.2% with a margin contraction of 120 basis points to 42.7%. Going forward, we're confident in our ability to continue to deliver solid results in the region, being particularly excited with the recovery of beer volumes in Argentina.
Turning now to Canada. We delivered in the third quarter BRL 599 million of EBITDA, 8.3% lower than in the third quarter of 2016, with an EBITDA margin compression of 180 basis points to 34.6%. Top line declined by 3.6% with net revenue practically declining by 0.7%, primarily impacted by negative mix. Volumes were down 2.9% in the quarter, driven by the industry contraction that was heavily impacted by a weak summer season. In spite of the challenging environment, we maintain our great market share momentum as our main brands perform particularly well, led by one Bud Light that remained as the fastest growing brand in Canada, coupled with Bud Light Radler, our strong brand extension meant for a non-traditional beer occasion.
In second, Stella Artois that is steadily growing. Year-to-date, top line in Canada was flattish, while EBITDA increased by 1.8% with margin expansion of 70 basis points to 33.5%. Going forward, we remain committed to strive towards an improved performance in the country, supported by our great market share momentum and by our portfolio of brands. Now back to consolidated figures. Other operating income totaled BRL 254 million in the third quarter compared to BRL 342 million in the same period of 2016, mainly explained by government grants related to state VAT long-term tax incentives that were down year-over-year due to VAT government grants agreements that had expired by the end of 2016.
Now moving below EBITDA. In the third quarter, net financial results total an expense of BRL 675 million, including the exceptional finance expense of BRL 141 million paid in connection with the Brazilian Federal Tax Regularization Program. Excluding such exceptional expense, net financial results total an expense of BRL 534 million versus an expense of BRL 723 million in the same period of last year, which is a decline of 26%. Going to more details. Main items in the financial expense in the quarter were, first, interest income of BRL 107 million driven by our cash balance, essentially in Brazilian reals, U.S. dollars, and Canadian dollars.
Second, interest expenses of BRL 362 million that include a non-cash accrual of BRL 145 million related to the put option associated with our investment in the Dominican Republic. Third, BRL 33 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. Losses on derivatives instruments declined by almost 90% when compared to the same period of 2016 as lower interest rates in Brazil and positive results from equity swaps are contributing for the reduction of carry costs. Fourth, losses on non-derivative instruments of BRL 51 million, mainly related to FX translation.
Fifth, tax on financial transactions in the amount of BRL 43 million. Sixth, BRL 152 million of other financial expenses, mainly driven by interest on contingencies. The weighted nominal tax rate in the quarter was 27.1%, while reported effective tax rate was 95.3%. Such increase results from the fact that, as announced on September 29th, we joined the Brazilian Federal Tax Regularization Program, committing to pay some tax contingencies that were under dispute, including contingencies related to corporate income tax and social contribution on profit. The amount of BRL 958 million will be paid in 2017, and the remaining amount in 145 monthly installments starting January 2018, plus interest.
Adjusted by the impact of the regularization program, the effective tax rate was -6%, driven by higher interest on shareholders' equity benefits. CapEx totaled BRL 728 million, 19.3% lower than that in the same period of 2016, while year-to-date CapEx declined by 26.2%, reaching BRL 2 billion. Finally, during this year, we announced approximately BRL 3.6 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. The third quarter marked an important turn with great results in most of the countries we operate. I will concentrate my comments in Brazil. Our largest market is back on track, and we'll be able to return to our pattern of growth, especially for Beer Brazil, as mentioned by Ricardo. Our revenue management initiatives implemented in the quarter contributed to a healthy increase in top line that, coupled with improved cost performance, resulted in PTA growth of 25.7% and a significant margin expansion.
Beer top line was up, supported by a solid net revenue per hecto that grew 15.8%, while volumes presented expected deceleration, declining by 5.4%, pressured by, one, the beer industry that, in spite of gradually recovering, is still falling around 1% versus last year, according to Nielsen. Second, pricing. As you are aware, this year we carry out our annual price adjustment earlier, increasing prices in the third quarter when compared to the fourth quarter of last year, resulting in a different comparable base. Third, there was a lag between our implementation of price initiatives and those of the industry.
Year-to-date volume declined 1.1%, outperforming the industry that's declining around 2% according to Nielsen. In this context, during this quarter, we continued to leverage our commercial platform to capture all the opportunities that may arise going forward. Starting with Elevate the Core, we conclude an important step of the implementation for our packaging renovation, and that has resulted in cost savings. New visual brand identities for both Skol and Brahma, and improved secondary package can now be seen in all regions of Brazil. Talking specifically about Brahma, our classic lager, we are very proud that the whole Brahma family is revamped and is standing out on the shelf.
Surveys conducted with consumers demonstrated that Brahma's new VBI increased consumers' purchase intention by double digits and helped in maintaining the brand's health in a positive trend. Brahma also launched two relevant campaigns in the quarter. The first one is Brahma Está de Cara Nova to celebrate and create awareness for its renewed visual brand identity. The second is Brahma Está Aberta. As there is an increasing interest in beer, we've invited our consumers to ask any question about beer, such as ingredients, production process, expiration, and so on. During four weeks, members of our team, including 30 brewmasters, recorded more than 1,000 live videos and answered consumers' doubts through social media.
The campaign generated amazing social listening results with a high ratio of positive comments and great engagement from consumers. The second Brahma family, Brahma Extra, launched a special edition of Märzen lager for the Oktoberfest, contributing to another quarter of double-digit growth of our core plus portfolio. Talking now about Skol, our easy-drinking lager. Summer, the most important season for beer, will start soon. During summer, people are more open to connect with others, and to boost this behavior, Skol launched a big campaign. The slogan, Better Round, that has followed the brand for 20 years is back, supporting the underlying message that round comments bring people together, while square comments separate them.
The campaign will be on air from October until Carnival, extending the summer season with a Bora to seek activation that includes many different TV ads, new trade materials, and innovative digital pieces. Now, talking about Antarctica. The brand kept engaging with its target consumers with innovative formats that transcend regular advertising. Since 2016, through a consistent web series that blends fiction and reality, Antarctica reached its highest ad recall levels and won three Best Strategy awards at Effie Latin America and Effie Brazil. Finally, I would like to highlight that Skol, Brahma, Antarctica campaigns that I just mentioned are good examples that we're evolving in our marketing strategy, exploring new frontiers of brand building with a strong use of non-traditional media to interact with our consumers.
Now turning to premium. Premiumization is a trend that can be expected to continue to foster the beer category. Once again, our high-end brands, they delivered strong results. Following the implementation of the premium portfolio price adjustment in the beginning of the quarter, the volume growth of our premium portfolio presented expected deceleration when compared to the previous quarters, but it still performed partially well. Our three global brands, Budweiser, Stella, and Corona, continued to ramp up and combined increased by double digits in the quarter. Budweiser kept on reinforcing its values of freedom and authenticity.
After the successful campaign with Oscar Mead, Budweiser aired another meaningful campaign featuring Rodrigo Santoro, a well-known actor, and Rincon Sapiência, a famous singer. Stella Artois continued to further consolidate its position as the most sophisticated water beer, connecting with the art platform, while Corona kept on growing volumes and exploring the lifestyle that define it as the coolest premium beer brand. Turning to your beer. Skol Beats cans continued to enhance the equity of its mother brand and to bond with its core target consumers, delivering breakthrough experience such as the Skol Beats Tower, a unique festival that took place in a building with four floors and eight different parties.
Moving to occasions and starting with the in-home. An important initiative to shape the in-home consumption has been the steady evolution of our multi products designed to all size of stores in the off-trade channel. Such initiative has the purpose to elevate the beer category in the off-trade, improving consumers' shop experience. Further, we are continuing the implementation of our 300 ml returnable glass bottles strategy. Our minis are growing year-to-date with an increasing popularity. This is an important step to bring affordability to consumers with a higher profitability. Out of home. Go out with friends to enjoy beer is part of the Brazilian culture.
We continue to step up our service level across the country through different initiatives. The use of new technology is playing an important role. We've been developing sales algorithms and our B2B platform to improve our sales process and strengthen our relationship with the customers and as a consequence, enhance consumers experience at the bar. Now , I'd like to move to CSD and NABs. As you know, the CSD industry is even more challenged than the beer industry when hit by pressure on disposable income and discretionary spending, as consumers tend to trade down to powder juices and tap water. In this environment, we delivered slightly positive volumes while the industry declined mid-single digits.
Nevertheless, our results were temporarily impacted by increased costs and investments ahead of the curve. We are not pleased with our CSD operational results this quarter, but we are confident that we are taking the right measures to deliver a stronger performance, and we will push ourselves even further to resume growth. Finally, this quarter was also marked by an important event. We are very, very proud that for the first time, Ambev was the brewery that received the highest number of medals in the World Beer Awards, a competition with the participation of the best brewers in the world.
We received in total 27 medals, and this is important recognition that we have the greatest beers in the world as we continue to brew with passion and expertise from seed to seed, taking care of all the stages to deliver high quality beers to our consumers. Beer knowledge and love for beer is part of our DNA. In summary, we had an important turn this quarter and the worst is behind us. For the rest of the year, we expect to continue benefiting from healthy top line and reduced costs in Brazil, posting beer growth and margin recovery.
Further, beer volumes will also benefit from the early timing of implementation of our annual price adjustment. Which, along with the consolidation of our commercial platforms in an improving industry perspective, should also support us to deliver strong operational results. We can now move to the Q&A. Thank you very much.
We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your 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 Isabella Simonato with Bank of America Merrill Lynch. Please go ahead.
Hi. Good afternoon, Bernardo , Ricardo. My question is on beer volumes. I think the decline that we saw was a little bit stronger than what we thought. If you could give us more details on per channel or segment or even packaging, how did you see volume declining accordingly? Also, talking about industry volumes, did you see any gradual evolution throughout the quarter when you look on a monthly performance? Is there any signs that, or any month that we already saw a positive volume for the industry or this is still not happening? Thank you.
Thanks, Isabella. Thanks for the question. I think the beer industry has not reached its inflection point. Just a quick recall for the year. In the first half of the year, the industry fell around 2.4% according to Nielsen. In the third quarter, the industry continued to fall less than in the first half of the year. That's good news. It's evolving, but it's still negative. Along with the soft industry would explain the -5.4%. Basically you have two things. One, our price. Per policy, it's normal to increase price in the second half of the year, normally in the third quarter.
But last year we did it in the fourth quarter. This year price was taken again, as we always do in the third quarter. We have a hard comp in this quarter. Second, there's a lag between our implementation of price initiatives and those of the industry, impacting volumes in the short term. Volumes declining in the third quarter is strongly related to the early timing of the implementation of the price initiatives. On the other hand, such early timing will actually benefit us in the next quarter, the current one, the fourth one, as it resulted in a shift in volumes from September to October.
All in all, that we are very confident about our future and our top line initiatives. Even after the price increase in the third quarter, year-to-date volumes are declining 1.1%, while the industry is declining around 2% year-over-year. We are outperforming the industry. Basically, Isabella, I would say that , the thing , that the recovery of the industry, given that the disposable income is in the right path, we are confident that will be, you know, quarter by quarter. The most important thing is that we work in the platforms, and as you know, that we really have been investing in a consistent way, executing excellence in a consistent way to ensure that we will continue to outperform the industry to the remainder of the year.
Thank you.
Thank you.
The next question comes from Luca Cipiccia with Goldman Sachs. Please go ahead.
Good morning. Thanks for taking my question. I have two quick ones. One again on Beer Brazil and on the discussion about pricing. How early in the quarter, if you can share, was the price increase? In the sense that, you know, we understand it was different last year, but if you were to compare it to, you know, what you would have normally done before 2016, did it come, you know, towards the end of the quarter or is it more fully representative of the entire quarter? That's to contextualize a little bit the gap between your pricing and competitors. It seems that from the volume divergence, the third quarter may have incorporated fully that price difference.
Also, just to understand how much of an incremental impact we will see in the fourth quarter. That would be the first question. Secondly, quickly, on the soft drinks side of things. As you mentioned, you know, you're not happy with the performance. I think if we look at the numbers, especially, the detailing is an understandable statement. If I was to look at volumes all year and even pricing, it seems that you've done better than the industry, even Coca-Cola yesterday, I think, commented on high single digit volume decline. I'm just trying to maybe understand a little better your comment.
Is it anything to do with your execution or it's rather a comment more about the industry overall and the headwinds that you're seeing on the COGS front in particular? That would be the two questions.
Luca, thanks for the question again. I mean, related to the price adjustment that we've done in the third quarter, I think we've done that during the third quarter. Yes, I would expect some additional benefit in the fourth quarter that you take the full price increase for the three months. Specifically the CSD part, I think during this quarter, yes, our volume grew slightly up while the industry declined 5.5% year-over-year. In the Year-to-date, our volumes are declining 4.5%, while the industry is around 8%. Yes, we are gaining share, and we are very pleased about that. But as you saw specifically in this quarter, our EBITDA was not good. We know that the reasons.
The first is basically the most important one is the cash cost that increased 26.3%. I mean, almost fully , that almost fully explains the EBITDA, that we have the decline. Such increase is driven by the negative mix and slight negative mix due to the higher weight of cans and mainly to the sugar price that grew around 6% year -over -year. I think the second, the SG&A expenses, this is in the sales and marketing expenditures. Third, the reduction of the net other operating income line, given the expiration of some agreements in the fourth quarter in 2016.
I mean , our job, what we are doing in the market, we are happy evolving even more. I think that Pepsi brands are performing well. I mean, you know us, we know the gaps, and we like to outperform the industry and grow EBITDA. That's why going forward, we are confident that we'll be able to resume growth in the CSD and NAB business. As among other factors, we have visibility that the COGS impact is temporary and will dissipate. We want to continue to gain share and deliver the profitability that we are working for every day.
Just a quick one. On the SG&A front, on the marketing investment, is there an element of you having anticipated something, you know, some of the, what you had budgeted for the year, meaning that in the fourth quarter, you know, that variable will be, you know, less of a drag, or is that the right way to think about it?
Hi, Luca, this is Ricardo. Thank you for your question. Yes, you're right. I mean, there's some phasing also in the SG&A on the soft drinks business, yes. But when you look at the comparable base for that fourth quarter last year, very, you know, small number. Again, there is some phase, and we brought some expenses from the fourth quarter to the third quarter in the soft drink business specifically, yes. Thank you, Luca.
The next question comes from Antonio Gonzalez with Credit Suisse. Please go ahead.
Hi, good morning, Bernardo and Ricardo. Thank you for taking my question. I wanted to talk about margins in Beer in Brazil. You mentioned, Ricardo, in your prepared remarks, that you still expect cash COGS per hectoliter to comply with the guidance that you originally shared for the second semester. Yet, obviously, in this quarter, COGS per hectoliter was up 5%. I was just wondering if you can help us understand what are the elements that help lower that figure in the fourth quarter so that you get to the guidance. Now, is it the hedges or is there any other element that helps sequentially from the third to the fourth quarter?
Just secondly, when we see your SG&A expenses in Beer Brazil, or in Brazil overall, obviously, you guys are doing a great job in Brazil overall with a 2% growth or so year-on-year. What I wanted to ask, as you see some sequential improvement in market share, given the anticipated pricing that you just discussed, can you maintain these low levels of SG&A growth going forward? I know there's no specific guidance for this number, but I just wanted to understand qualitatively how do you think about operating leverage on the way up , as you recover margins, volumes. Thank you.
Antonio, thank you very much for your question. Let me start with the margins one. Because your cash COGS per hectoliter was impacted by the CSD business that Fernando was just explaining. As we have the hedging policy, we also have visibility over this number going forward. Given the volatility of this specific line over the quarter this year, that's the reason why we decided to provide a guidance on the cash COGS per hectoliter for the year. The main fact , bringing a little bit you know higher to 5% the cash COGS per hectoliter was the CSD making cash COGS per hectoliter increased 26.3%.
As Fernando just mentioned, as we, you know, as we have like a decline on that, and on top of that, as we have already visibility over the effects evolution, given the hedging policy, like we said in the beginning of the year, we separate the year in two semester. But we saw the first semester much tougher than the second, the first quarter much tougher than the second quarter, and now the third quarter an improvement, and we can continue to see that, so that we remain very confident and committed to the guidance that we provided in the beginning of the year.
Now, going to the SG&A, qualitatively, I think , you know , what we can say is that essentially the business model of the company is translating non-working money into working money and being more efficient every day into making sure that the money that we spend is money that the consumers can see that should be willing to pay for it. Overall, we're happy with the performance of the sales and marketing, and we cannot forget that the investments that we're making on package renovation, they impact our COGS. They also represent an investment behind our brands. Liquids and packages are the main touch points for consumers.
All right. Thank you so much for this.
Thank you, Antonio.
The next question comes from Pedro Leduc with JP Morgan. Please go ahead.
Thank you. Good morning, everybody. For the question on Brazil Beer share, could you, Bernardo, elaborate a little more what you meant behind the phasing of the price increases of this industry and also the earlier comments that you had about dislocation of volumes? Correct me if I'm wrong, would it be meaning that then you're already growing more or less with the industry so far in October and the fourth quarter? That would be the first one.
Thanks, Pedro, for the question. I think that in terms of the phasing of the volumes that I said, I mean, every time that we increase prices, it's a natural load. If you increase price, I mean, like last year, the previous month, you sell more, so much more. Basically, not having this exactly in the fourth quarter, but in the third quarter, this is kind of the shift of the volume that always happen. Linking to the question in terms of the price increase, we always know, and it's always like that in , you know , every quarter that price increase, our volumes tends to be below the industry, because I mean, the other companies, they tend to lack the implementation of this price increase in the market.
It's expected, but the good news is that for the full year, we are above the industry. So our share is doing well, and we are very confident in the things and all the platforms that we have been implementing in the market. Brands are strong. The packaging to Antonio’s question before is an important touchpoint. I mean, with people, I mean, having the day to day with our brands. We're confident to end the year in the right path in terms of volume, brand and margin expansion year-to-date.
If you can comment, has the catch up already happened towards the end of the quarter, meaning Q4, maybe more in line with industry?
I could not comment about that. I would say that we are confident that we will be in the right path. I would say so.
Okay. One quick one for Ricardo . The Tax Settlement Regularization Program there, BRL 1 billion will be paid in 2017. Will that by any chance be removed from what you had planned as a dividend or you're seeing good enough cash flow to keep the dividend plan despite this disbursement?
Thank you for your question, Pedro. Just as a recap, we distribute dividends and interest on capital pretty much in the amount of the cash flow of the year. As we announced and as I just said in my speech, cash flow , year-to-date , for the year is more than 100% higher than that of the previous year. That, what's been implicit in there is that, I mean, there is no constraint in terms of the dividend that the company would be able to pay by the Tax Regularization Program.
Great. Thank you very much. Talk to you next year.
Thank you. Thank you.
The next question comes from Lauren Torres with UBS. Please go ahead.
Hi, good afternoon. You know, totally understand that the industry trends are still negative, but the rate of decline is lessening. Curious to get your perspective if you're seeing any changes with respect to packages or channels to show you that, if they're actually the confidence is coming back, the spending levels are improving. You know, just to get a better sense going into 2018 that directionally, there are the beginnings, I guess, movements of better consumption trends.
Lauren, thanks for the question. I think that I mean, our plans are linked to grow in both channels and more than ever through a consumer-centric and service oriented approach. Actually, the focus is on the consumer, and we see the channel as a way to reach him or her. The in-home occasion, specifically. We understand that ,and the in-home as a new frontier for us, while really making important steps and bringing better shopper experience in the off-street channel. In the off-street channel in many types, not only the big ones that are considered important, but the smaller formats.
That links to the sales excellence that we are, I mean, working on a daily basis to step up our service level in all channels. I think that the focus in the off-trade will continue to be in the big chains, but with a really, really strong push as well to serve better every customer in Brazil and knowing that people are buying more in the smaller accounts and the smaller point of sale. We are improving their experience in those many, many types of off-trade. In the out of home, that's a big, I mean, fortress for us.
We still think that we have opportunity , and to increase, I mean, to reach more point of sales in a better way so we can continue to expand our volume in this channel. Sometimes people think that despite of the off-trade , the prices are lower, but have to always bear in mind that the logistics costs are lower as well. We have a higher weight of premium brands and smaller CapEx. In the end, both channels are very profitable.
With that said, are you seeing RGB penetration in the supermarket changing? I guess I'm just thinking on a quarter-over-quarter basis, you know, more relevant or less or the same on a quarter-over-quarter basis.
The RGB and it's not new for you, Lauren. You know that we have been implementing in the off-trade channel, not only the big chains but the smaller chains as well. We still, I mean, continue to evolve. Basically the year-to-date, the 200 ml returnable glass bottle volumes are growing double digits, so ahead of the industry. Specifically the third quarter, it has presented an expected deceleration due to the redesign of the price increase that we've done. But it's growing, and people love it because, I mean, it's great brands, it's a fresher liquid, it's good for the environment, it's good for their pockets as well, with very good margins for us. We continue to be bullish in our RGB strategy.
Okay, great. Thank you.
Thank you.
The next question comes from Robert Ottenstein with Evercore ISI. Please go ahead.
Great. Thank you very much. Two questions. When you talk about confidence and sustainable growth now going forward in Brazil, is that volume growth or top line growth, please? What gives you, if it is volume growth? Talk about a little bit more in terms of what gives you that confidence.
Hi, Robert. Thank you very much for your question. This is Ricardo. I mean, it's a combination of both. If you look at the Brazilian industry, I mean, the Brazilian industry hasn't grown since 2014. That was the last time the Brazilian beer industry has grown. Then in 2015, it went down by roughly 1.8%. In 2016, on average, according to Nielsen, 5.5%. What we've seen in the last couple of quarters, that's five quarters more or less, is an improvement. That's the explanation also of the expression we are, you know, cautiously optimistic because in spite of being in a decline, it's a lower decline quarter -after -quarter after quarter, and that's the story of this year as well.
In the long term, we're super bullish and confident and excited with the Brazilian beer industry. What we've seen is that in the short term, we're somehow getting back to the historical growth that we have seen in the last 10, 15 years. That's essentially a function of, one, the demographics. Number two of the per capita, all the things that we can do and the disposable income and et cetera, and innovation of the overall industry as a whole. For example, the returnable glass bottles that Bernardo just mentioned is an affordable and an innovation in terms of packaging that allows more people into the category.
In terms of profitability, we see some of the headwinds that we have had in the last couple of quarters dissipating so that we're excited both in terms of volume and also in terms of bottom line. I think that the plans that have been put in place, I mean, in the last few years in a consistent way, I mean, the platform that Ricardo explained to you, they have an impact in the industry as well. If you think about, let's say, the core, I mean, talk about stronger Brahma brands, and they are stronger, better campaigns, better packaging. That makes a huge difference in the tables of the bars in Brazil.
Stronger key selling moments. Just remember this year we've done only four Carnivals, street Carnivals in Brazil. Last year was five. Previously was one or two. We can activate demand as well because that's what we're doing. Core, we are very focused on that. That's why the obsession of this Elevate the Core is the first and most important part from that. We have secondly, premium. Need states are changing, consumers understanding them even better. That's, I mean, the kind of insights that we have from our market team and sales team. We're able to really show that the portfolio of premium brands are even stronger to get all the need states and the rising ones that are getting there.
In the end, all the long-term initiatives that are put in place to really boost our service level in every port, in every place in Brazil from the state of Acre to the state of Rio Grande do Sul, even going, I mean, with trucks, with boats, but going there and activating the demand in every bar and every off trade store in the country. Again, impacts the volume and impacts in the industry as well. For both of, say, angles, the one that Ricardo said, the macro one and the internal one, the thing that we're doing, we are confident that Brazil and the industry we're back on track.
If I can ask a follow-up question. You now have a competitor that is very different than anything you've had before. You know, the good news is they pay their taxes. The other side of it, though, is that they, you know, are good patient brand builders. They know how to build international premium. You know, they apparently, from what I hear from our contacts, they did a terrific job with Rock in Rio and gained, you know, a lot of share from that, not just on, you know, the delay on the price increase, but, you know, they did a great job with Rock in Rio, gaining significant share, at least in September, you know, in Rio.
While at the same time, it looks like you're backing off a little bit on some of the SG&A. Perhaps, you could kind of frame how maybe you're shifting your strategic plans to deal with a very different type of competitor and, you know, give us some insurance that you know you're able to deal with somebody who has a very different strategy than the kind of competitors that you've worked with in the past.
Robert, I'm gonna start the answer, and then of course, Fernando will finish. Just starting by saying that the Brazilian market is and has been an extremely competitive market. We respect a lot our competition, but we are also very cognizant of the strength of our portfolio. We have been building this portfolio over time, not overnight. One thing just that I would disagree with when you said, like a constriction in terms of SG&A. We never save any money in terms of working money. We just try to be more efficient and get, you know, more benefit out of the resource available. That's what is within the culture of the organization.
Again, when we look to the outside and compare ourselves to our competition in the last 15 years or 20 years, I think the Brazilian market has been extremely competitive. If you look back in the 1990s, we used to have a beer brand, which I'm not gonna say the name, which had more than 20% market share. Just one brand was leading some of the capitals of Brazil. Again, our portfolio approach has proved to be over time a winning one and getting close to our consumers, I think is extremely important in this moment in which there's shift in the competition. Now, Bernardo.
I think, Robert, I mean, everyone that come here to play the marketplace, building brands and not using the leverage, I would say, of only price, and it's good for the industry, you know, because everybody beers. Everything that's good for in terms of the brands of beer is good for the category and is good, I mean, for our business because everybody beer. I think that we've been working a lot in this platforms. I mean, that consumer centric, big time and service oriented to the box that we serve in a very consistent way, you know. The packages that are putting in the market, the differentiation of our easy drinking lager, that Skol and the classic lager, that's Brahma.
The evolution of our social media platform, I mean, with different type of campaigns, not only above the line campaigns, but using experiential moments that are creating through the events, through the activation in the box and boosting the five digital media. All of those things, you see, that we have been working on this for a long time and we're starting to reap the benefits. We know the Brazilian market, but we know other markets as well. You know, I've been working eight years outside Brazil, I mean, U.S., Canada. LAS, our Head of Marketing, that's Paula, she was Head of Insights of ABI, so she knows all the markets.
Our Head of Sales worked in U.S., Canada as well. I think that I would say that Ambev, I mean, lots of people move out from Ambev, great people, but people are coming back. When they come back, they come back with the knowledge of other markets. We didn't wait for the arrival of any other company here to do what should be done, and we start to reaping the benefits of this consistent implementation of the top-line platforms that I mentioned in our goal.
Thank you very much.
Thank you, Robert.
The next question comes from Tristan van Strien with Redburn Partners. Please go ahead.
Hi, good afternoon, guys. Two questions. I may have missed it on the first one. I just wanna get a feeling of your 16% pricing that you have in Brazil. What level of that was mixed? You know, were you able, with your premium brand growth, be able to offset the higher margin, but I guess, top line dilutive RGBs that you have, and how should we think about that going forward? Also maybe related to that, have you been able to increase your own distribution in the quarter as well? The second question, it's around Panama. You're very excited about it.
Obviously, you've lost the Miller portfolio there. They’ve now come back to Molson Coors, which was a very big driver of the premium side of that country. Have you been able to offset that? Have you been able to gain that premium volume back, and which brands are driving the premium side in Panama?
Well, first of all, thank you for your question, Tristan. I'm gonna start with the 16.8% just to, as we do every time that we get a question about pricing. We are very disciplined, consistent in terms of our pricing strategy, which is the best price in line with inflation plus any tax offset. Together with that, when you look on a quarter by quarter basis, sometimes you have volatility to the downside or to the upside. This quarter we have more towards the upside as opposed to the downside.
What impacts this volatility, for example, the timing of a price increase, immediately after a price increase, as we have disclosed in our 20-F, for example, for last year, we had out of the gross profit, roughly 48% of that is taxes. When you do a price increase and have timing in terms of the changing of the basis for taxes for some of the states specifically, what you tend to have also is the benefit in the top line, and I think people have seen that before. We have a little bit of volatility beyond what is the true price increase.
On top of that, specifically on soft drinks, and I'm gonna highlight just for soft drinks, we had a mix impact that benefited on one side, top line towards the upside, and on the other hand, also impacted COGS negatively. Specifically mentioned that the mix of cans, specifically in soft drinks, was higher. Cans cost more, but they also cost more to produce. Then you have a little bit of impact there. Besides that, I think, the price adjustment was in line with our strategy. Usually again, the price increase translates into higher increase in net revenue for the shorter term.
I think that's the short term of that. In terms of the competitors specifically, that you mentioned, we don't comment on any specific competitor or strategy, anything specific. I'm gonna repeat myself a little bit in terms of the answer that we just gave. The Brazilian market is extremely competitive, but we believe we have the right portfolio and all the tools in order to compete in that market, in this market specifically.
Well, the second one was more about Panama. You took over that business, but the biggest premium brand one that was driving the growth the last three years was Miller Lite. Now you've lost that, but you're very excited about Panama. My question is more around what premium brands are you driving to replace that lost volume in Panama?
Okay. Panama, like we said in my speech, Panama is booming. I think, specifically the brand that is growing the fastest there is, Atlas Golden Light. That brand is a brand that has been gaining market share. We , as a company, in spite of losing the Miller family in terms of the brands, we're gaining a lot of market share in the country in the last 12 months, you know, partially because of the great job their colleagues at Molson Coors have been doing, but also because of the implementation of the full portfolio of ABI and some of our portfolio approach techniques that we do whenever we get the specific account. We're very pleased with the results in Panama so far.
For the premium brands there, Corona is growing a lot. It's amazing brand, and it's very cool, as you know, everywhere. It's [Flink] as well, and Stella Artois is in the same path. I think not only our core brands are doing pretty well, the execution in the market that was there, I mean, kind of one of a goal for, I mean, visit the market everywhere. It's amazing how they're stepping up the execution, and the portfolio is strong. The momentum is really good there.
Brilliant. Thank you, Ric.
Thank you.
We have time for just one more question, and that question will come from Alex Robarts of Citi. Please go ahead.
Hi, everybody. Thanks for taking the question. I appreciate it. I was keen really just to go back to the cash COGS trend. It seemed to be cropping up in several areas, including Canada. The first part of the COGS question is on Canada. We see on an organic basis that they were up, you know, cash COGS proactively about 5%, but year-to-date trend, you know, flat. Just the first question is, was there a step-up in one part or several parts of your COGS structure there in Canada that perhaps you can comment on in the seasonally strong quarter up there?
In the second part of the COGS question is more generally at the Ambev level, a group level. You know, aluminum has hit a five-year high recently, kind of 25%, I guess, up year-to-date, year-on-year. What percentage of your aluminum costs today represent this uptick? How are you looking at this important input cost as you set your commodity hedge in the next year? That would be the question with two parts. Thanks a lot.
Thank you very much for your question, Alex. Starting specifically with Canada. Again, Canada, I think most of the COGS structure impact that you have is the mix. When you look specifically at the full year, again, taking out the volatility of a weak summer season like we had recently, you know, Canada was flattish in terms of top line , year-to-date, while EBITDA increased by 1.8% with a margin expansion of 70 basis points to 33.3%. This year we had margin expansion in Canada and top line flattish, so we had the operational leverage there. Again, the Canadian market is a very sophisticated one. We just had a board meeting there, like, a couple weeks ago.
We visit even the West Coast of Canada, very well-developed market. What we do , being a consumer-centric organization, we provide consumers what they want, even if that represents more expensive products and products that, you know, provide us with a better margin. That's somehow reflected in our EBITDA increase , year-to-date. When you look at the COGS more in general, and now going to the main countries, and let's potentially even talk about Brazil specifically. I think Brazil very important. You're absolutely right. I mean, when you look at the aluminum prices today, they are much higher than the aluminum prices that we had one year ago, and this will impact us sometime from now.
Typically, what I tend to say, the time to react for the company is between 10–14 months. The good news is that, on the other side, and Brazil being an exporter of commodities, typically, when commodities go up, Brazilian real goes down. I mean, Brazilian real appreciates, so the number, Brazilian real per dollar goes down, which is, you know, great news. What you're comparing, aluminum being an extremely important commodity in terms of exporter for us, going up, Brazilian real going down. The way we look at the specific input cost is aluminum in reais. So one, you know, somehow, you know, can compensate the other.
When you have one specific commodity moving out, I think our hedging policy works really well because that's exactly when you can get the benefit of, for example, shifting mix, so we can incentivize people through, like, a price differentiation. You know, if you want a aluminum can, you're gonna have to pay a bit more because aluminum can is more expensive going forward, and et cetera. Incentivize the returnable glass bottles like we discussed. There are more things that we can do in comparison to when we have an FX shock, when FX move too fast. Again, given the exposure that we have to the variety of commodities, some are gonna go up like the aluminum, some are gonna go down like the sugar.
Most important, when you look at the FX that we have had, the FX movement that we have had recently, I think that's a tailwind that's much bigger than the headwind that we have for one or for many specific commodities, and aluminum specifically being a very important one. You know, the tailwind coming from the currency is much bigger than the headwind coming from the aluminum.
Just a clarification. The 6% increase that you said was sugar in Brazil, is that 6% increase based on what your hedging is or is that you were talking about the market price of sugar up 6%? Thanks a lot.
It's actually 60%. The price of the sugar impact in this quarter is more than 60% higher than the price of sugar specifically one year ago. Sugar is very important for the soft drinks, so there's a concentrated impact on the third quarter. Also, what I said in my speech is that we expect that to decelerate much faster than, you know, the impact that we have seen from the effects, you know, that lasted more quarters, if you will. Yes, there's an impact this quarter specifically for the soft drinks profitability, with the sugar, which is a 60%, so 60% impact on our costs.
Okay. All right. Thanks a lot, guys.
Thanks, Alex. I mean, thank you.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Bernardo Paiva for any closing remarks.
Thank you. Now I can go. Before we finish our call, I would like to highlight that we're very pleased that this quarter, as expected, will return to growth, especially in Beer Brazil. Our beer volumes were impacted by fading with the early implementation of our annual price adjustment. What will actually be a positive driver for volumes performance in the next quarter. Along with that, gradual recovery of the beer industry and the steady evolution of our commercial platforms should also facilitate the beer growth and margin recovery. As I always say, we will continue to be extremely consistent about the implementation of our commercial platforms and with our obsession of quality in our beers. Because at the end of the day, the love of beer for beer is in our DNA.
Have a great day and enjoy the rest of the day. Thank you.
Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.