Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's Q2 of 2017 results conference call. Today with us, we have Mr. Bernardo Pinto 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 session. 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 Private 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 comparisons with Q2 2016 results. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Ambev's normal activities.
As normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, EBIT, and EBITDA on a fully reported basis in the earnings release. Now I'll turn the conference over to Mr. Ricardo Rittes, CFO and Investor Relations Officer. Mr. Rittes, you may begin your conference.
Thank you. Hello, everyone. Thank you for joining our 2017 Q2 earnings call. I will go through the financial 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 the quarter. Starting with the main highlights of our consolidated results. We had remarkable results in LAS, CAC, and Canada in the Q2, while in Brazil, as anticipated, this was a bridge quarter where our performance was still impacted by expected headwinds. On a consolidated basis, top line was up 4.8%, driven by volumes decline of 1.1%, more than offset by a solid net revenue per hectoliter growth of 5.9%.
EBIT was slightly down, declining 0.7% in the quarter, reaching BRL 3.9 billion, with an EBITDA margin of 38.4%. Normalized net profit was of BRL 2.1 billion, 2.4% lower than that of the Q2 of 2016, as it is our organic decline and currency translation negative impact due to the appreciation of the Brazilian real were partially offset by a re-reduction of the net financial expense. Cash generated from operating activities was BRL 2.4 billion versus BRL 2.1 billion in the Q2 of 2016. Year-to-date, cash generated from operating activities reached BRL 4.4 billion compared to a negative balance of BRL 33 million in the same period of 2016. Now moving to Brazil.
In Brazil, revenue went down 15.7%, mainly driven by the negative impact of the effects in our costs and by volumes decline in our beer and CSD and NAB businesses. As predicted, this was a bridge quarter in the country. As we start the H2 of the year and left most of the negative drivers that have affected our results in the H1, we are confident that we will return to a pattern of sustainable growth. Bernardo will expand on this topic. Going into more detail of our operational results in the country. Net revenue in Brazil was down 4.1% in the quarter, and EBITDA totaled BRL 2.1 billion with an EBITDA margin of 39.2%. For Brazil Beer, top-line declined by 2.3% in the quarter.
The beer industry fell by 2.7% according to Nielsen, while our beer volumes declined by 1.3%, as the mainstream segment continued to be pressured by the adverse and volatile market, economic, and political environment. Premium, on the other hand, grew high teens year-over-year. Net revenue per hectoliter in Brazil Beer was down 2%, driven among other factors by a negative mix as we continue to use our full complete portfolio of packs and brands to drive affordability to consumers, including the 300 ml returnable glass bottle in the off-trade channel. Net revenue per package grew double digits in this quarter. On a sequential basis, net revenue per hectoliter was slightly down, in line with the usual trend of net revenue per hectoliter variation from the first to the Q2.
In CSD&NANC, top line was down 8.5%, as a volume decline of 14.1% was partially offset by a net revenue per hectoliter growth of 6.6%. Explained by revenue management initiatives implemented during the quarter. The traditional CSD industry continued to come under pressure on disposable income, declining 9.7% according to Nielsen data year to date. CSD&NANC in nine quarters are outperforming the industry. Brazil cash COGS was up 4.6% in the quarter, while on a per hectoliter basis, 10.8% due to, number one, FX impact. Given our hedge policy, the devaluation of the Brazilian real in the Q2 of 2016 is hitting our COGS now.
At that time, the BRL saw close to 15% year-over-year devaluation, is still inflating the cost of our commodity prices in US dollars, which represent around 50% of our total COGS in Brazil. Second, inflation. In the H1 of 2017, Brazil cash COGS was up 21.2%, and cash COGS per hectoliter increased by 22.3%, in line with our guidance of double-digit growth. Having said that, reiterate that our COGS performance in the Q2 was a transition to the H2 of the year when we expect cash COGS per hectoliter to be flattish to low single-digit up.
Brazil cash SG&A was down 2.8% due to, one, high distribution expenses, and second, a decline in administrative and sales and marketing expenses as a result of cost savings in our non-working money and efficiency gains in our working money. Now let's talk about our international operations. We are very pleased with the strong performance of our international operations in the Q2. In CAC, EBITDA went up close to 30% with a robust EBITDA margin expansion. In LAS, even though we continued to be under pressure on costs due to FX effects in Argentina, we had a significant volume growth, delivering top line and EBITDA increase of more than 30%. In Canada, we had a great balance between market share and a stronger revenue per hectoliter that, along with our cost management initiatives, led to another quarter of EBITDA growth and EBITDA margin expansion.
Going into more details of our operation results in each region. First, in Central America and the Caribbean, net revenue increased by 6.9% and on a per hectoliter basis by 4.2%. EBITDA in CAC reached BRL 432 million, growing organically 29.7%, while in US dollars, reported EBITDA went up close to 35%. Organic volumes increased by 1.6% on a tougher comparable of 8.8% growth in the Q2 of 2016. On a reported basis, volumes were up 26.2% benefiting from the recent swap of assets carried out from ABI and our operations in Panama, which also presented encouraging results with double-digit volume growth due to market share gain in the country. Regarding the other countries of the region.
In Dominican Republic, we further expanded the Presidente brand execution through micro event activation that more than doubled year to date when compared to the same period of 2016. In Guatemala, we continued with the Busch Light campaign and also launched a new visual brand identity for Brahma. Still on CAC, we benefited from our solid financial discipline, leveraging both cost and expense savings as well as completion of sales and marketing and SG&A expenditures, leading to expansion of EBITDA margin by 770 basis points to 38.2%. In Latin America South, our top line was up by a solid 36.2%. EBITDA was up by 33.9%, reaching BRL 807 million.
Volumes were up 12.2% in the region, primarily driven by, number one, Argentina, where we had a very strong volume performance, especially in beer, that led to growth of more than 20% year-over-year. Second, Paraguay, where volumes continued to grow as a result of the success of our 240 mL sustainable glass bottle strategy. Third, Uruguay, as execution improvements coupled with favorable weather enabled us to deliver double-digit volume growth in both beer and CSD businesses. Cash COGS in the region grew by 15.2%, while on a per hectoliter basis by 33.9%, mainly driven by higher inflation and negative currency impact, resulting in an EBITDA margin compression of 60 basis points to 38.7%. Now turning to Canada.
We delivered in the Q2 BRL 818 million of EBITDA, 2.9% higher than that in the Q2 of 2016. Top line was up 1.4% as volume decline was more than offset by an increase of net revenue per hectoliter of 1.8%. Volumes were slightly down, driven by industry softness due to unfavorable weather, almost fully offset by share performance from our diversified portfolio. Our focus brands performed particularly well, led by one, Bud Light is the fastest growing brand in Canada. And second, in high-end segment, with growth from Stella to craft portfolio, helping us to achieve the highest quarterly market share figure recorded in 19 years.
Finally, during the quarter, our cost management discipline played once again an important role, translating top-line growth into the margin expansion of 90 basis points to 35.7%. Now let's go back to consolidated figures. Other operating income totaled BRL 222 million in the quarter, mainly explained by government grants related to state VAT long-term tax initiatives that were down year-over-year, mainly due to, number one, the expiration of certain government grant agreements in the Q4 of 2016. Number two, revenue geographic mix. Now moving to our EBITDA. In the Q2, our net financial results totaled BRL 699 million, which is 22.3% less than that in the Q2 of 2016. Going into more details.
Main items in the financial expense in the quarter were, first, interest income of BRL 118 million driven by our cash balance, mainly in Brazilian reais, US dollars, and Canadian dollars. Second, interest expense of BRL 390 million that include a non-cash accrual of around BRL 160 million related to the put option associated with our investment in the Dominican Republic. As part of the CND deal in 2012, a put option exercisable until 2019 was issued, which may result in an acquisition by Ambev S.A. of the remaining shares of CND. Third, BRL 141 million of losses on derivatives instrument, essentially related to the carry cost of our FX hedges linked to our COGS exposure in Brazil and Argentina.
As expected, losses on derivatives instruments declined almost 70% when compared to the same period of 2016, as the recovery of the Brazilian real and lower interest rates in Brazil are contributing to the reduction of carry costs. Fourth, losses on non-derivative instruments of BRL 101 million, which are primarily associated to FX translation. Last, BRL 151 million of other financial expenses, mainly related to interest on contingencies. The effective tax rate for the quarter was 9.4%, which was in line with the Q2 of 2016. CapEx totaled BRL 751 million, 34.8% lower than the same period of 2016. While year-to-date, CapEx declined by 29.5%, reaching BRL 1.3 billion.
Finally, during the H1 of the 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. As mentioned by Ricardo, we had an amazing performance in our international operations in the Q2, with AB InBev in CAC and LAS growing around 30% and with our highest market share in Canada in 19 years. In Brazil, our results were still affected by expected headwinds in our COGS that will dissipate in the H2 of 2017. Further, AB InBev Brazil has been able to outgrow the industry in terms of volume and strengthen our position in the second consecutive quarter and in a still challenged political and macroeconomic environment. In this context, along with a strong emphasis in our operational excellence, we continue to focus on our five commercial platforms with execution levers under our control. First, Elevate the Core. I always highlight that Elevate the Core is a top priority for us.
Building strong brands is key to assure the sustainability of our business. During the Q2, we continued to implement across the country the initiatives created under the Elevate the Core platform, and that has been mentioned in our calls, such as improvement of primary and secondary packaging, new visual brand identities, among others. We also activated an important key branding and selling moment. Skol in the past expanded its traditional June festivals of São João from the Northeast to the other regions of Brazil, creating a new carnival and delivering great consumer experience to consumers. For the Skol, our easy-drinking lager was the official sponsor of the LGBT parade in São Paulo, fostering culture and conveying meaningful messages about diversity and inclusion.
Brahma, our classic lager, sponsored several events in the Circuito Brahma Sertanejo, creating strong connections with its core target consumers while exploring the brand beer expertise with initiatives such as the new Brahma truck, a structure that has a mini museum that tells the brand story. We also continue to roll out Brahma's new visual brand identity that evokes the brand's tradition for more than 120 years. With the Skol and Brahma's improved package and new visual brand identity, Skol with its yellow round label and young spirit, Brahma with its unique red square label and heritage, coupled with distinct and consistent communication for each brand, we are differentiating our easy drinking and classic lager even more. If you only visit core, the core plus segment presents a big opportunity to drive sustainable top-line growth, providing the best pick-up alternative to consumers.
Now, Essa, the leader of this segment, grew more than 100% in the quarter. Finally, Skol has been named by Kantar BrandZ the most valuable brand in Latin America, while Brahma, Antarctica, and Bohemia were considered respectively the third, sixth, and eighth most valuable brands in Brazil. Such awards confirm the strengths of our core brands. Let's move to premium. Premium segment is growing at a fast pace, and we expect it to continue to grow well ahead of the industry. Our premium portfolio with domestic and international premium brands grew high teens in the quarter with a strong activation of Budweiser, Stella, and Corona. Budweiser, which has probably been brewed in the same unique way for 104 years with water, malt, rice, hops, and aged over beechwood, continued to experience a great momentum.
Being indisputable leader of the segment had another quarter of double-digit volume growth, with its preference trending up significantly. Such performance is a result of continuous improvement of sales and marketing execution, coupled with meaningful campaigns that show its ingredients, quality, and authenticity. One great example of the impacts of campaigns that Budweiser has launched is Oscar in the NBA that featured the basketball player, Oscar Schmidt. The campaign received the Gold Lion in Cannes Festival. Oscar was authentic to choose the hard way, becoming a legend. Budweiser rewrote this story in a unique partnership with ESPN NBA. Oscar played his first NBA game at the age of 59. Stella Artois is also growing in a sustainable way, exploring the other platform and making special editions in important locations such as the Valentine's Day.
With our complete portfolio of premium brands and customized execution, we remain committed to lead this segment, delivering superior top-line growth. Third, near beer. Near beer continues to be an important platform for us. As a consumer-centric organization, we see this as an opportunity to be closer to our consumers in non-traditional beer occasions, enhancing the equity of our mother brands. Fourth, let's move to in home. In the Q2, this 300 ml returnable glass bottled volumes grew double digits year-over-year as we continue to evolve in its execution, enhancing shoppers' experience. This is an important initiative to drive affordability to consumers in a challenging macroeconomic environment in a proper way. Along with the returnable strategy, we continue to focus on off-trade channel with the expansion of programs meant to elevate the category and the assortment of our products in the channel. Fifth, out of home.
We've been strengthening our position in the on-trade channel with our complete portfolio of brands together with our initiatives to step up the service level and be even closer to our clients. We are confident that an improved sales and distribution process coupled with right consumer insights and the intense use of technology will lead us to the next level of operational excellence. Now, talking about CSD & NAB. As mentioned by Ricardo, the CSD & NAB industry continued to be pressured during the quarter. We acknowledge that the distribution of CSD & NAB industry remains challenging in the short term due to the weakness of the economy as it tends to be even more impacted than beer, mainly because of the higher price elasticity. Nonetheless, we are confident that still represents a greater opportunity in the long term, and that we have the right portfolio to capture such opportunity.
The prospects awaiting of the traditional CSD industry are also encouraging with products like Fusion, Lipton, Do Bem that had a solid volume performance during the Q2. Now, I would like to close with a few words about our expectations for the H2 of the year. First, for Beer Brazil, we are implementing our annual price adjustment during the Q3. In this context, we are confident that with a stronger top line coupled with the improvement of our cost performance, we will resume growth, delivering superior results throughout the H2 of the year. With respect to the external factors, the Brazilian economy is recovering at a slow pace, still representing a challenge for the beer industry in the short term. We acknowledge the difficult reality, but we believe in our strategy, remaining cautiously optimistic for the year.
With that in mind, we will continue to put effort in our plans, focus on our commercial platforms in Brazil, and pursuing cost savings and efficiency gains to improve our profitability. Finally, having the provisions outside of Brazil has already proven to be an important asset. Going forward, we continue to see top-line in-market expansion potential in our operations in LAS. Last, we remain confident in our ability to deliver solid top-line and EBITDA supported by strong brands in spite of the macro challenge in the region.
In Canada, we remain optimistic that we have the right portfolio that, along with our commercial and operational discipline, we will continue to yield sustainable growth across the country. Now we can move 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 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. Our first question comes from Luca Cipiccia with Goldman Sachs. Please go ahead.
Hi, good morning, Bernardo, Ricardo. Thanks for taking my question. I wanted to expand a little bit more on the discussion around pricing in the Q3 in Brazil. Arguably, you're going to the H2 of the year with an industry that is still fairly soft, but also with a market share that I assume has gone back to, you know, the very high of the range. I presume you confirmed that you're gonna do pricing in the Q3. But I was hoping that you can give us some direction of the magnitude or how you're going to see, you know, the pricing strategy in relation to the market share that you have regained or recovered in the last couple of quarters.
Any sort of indication that you could give us on that would be useful. Secondly, maybe a quick one on the soft drink side. You know, the Coca-Cola guys commented on a recovery or at least an inversion in trends at the end of the quarter for the first time in quite a while. The volumes turned positive, and I was wondering if in Brazil you saw some degree of stabilization as well towards the end of the quarter, or if there's any comment on July on how you expect you know, soft drinks to perform in the H2 as well. Thank you.
Hi, Luca. Thanks for the-
Hey
For the question. Hey, related to the price, we normally increase price in Brazil in the Q1. Last year was an exception. We increased price in the Q4. This year we go back to the norm and increase prices in this quarter as we speak. We are happy with this first six months in our volume, because we're growing ahead of the industry. That shows, I mean, the strength of our plans. That's good. Specifically for the price, it's what I could say, the main point of the message that we're back to our norm to increase price during the Q3. Specifically to the soft drinks, I think that we know that the macroeconomic environment remains very challenged for the CSD industry.
It tends to be, as you know, it tends to be even more impacted than the beer industry, mainly because of the higher price elasticity. Disposable income is key, is under pressure. We have seen, I mean, all trade down to tap water and low-cost powdered juice. Yeah, we know that, I mean, slowly the disposable income will come back. We know that. Then the soft drinks industry, CSD will do the same. We acknowledge that the CSD industry will remain challenged, but we are confident that, again, the disposable income coming back, the industry will react in the same way.
The most important thing, I mean, we are confident with the things we are doing in our plans, and we have been outperforming the industry in the H1, not in the Q2, but in the H1 it's a fact. We continue to work the things under control.
You described it. You haven't seen much of a change at the end of the quarter or anything that in the short term suggests that, you know, the steepness of declines could be halted or reversed?
No, I think that, as I mean, we know that the industry is very affected by disposable income, very elastic. I think that disposable income, as we show in Brazil, recovered but in a slow pace. We think that the industry will come back, but we didn't see any spike in the end of the quarter. That's it.
All right. Okay. Thank you. Thank you very much.
Thanks, Luca.
The next question comes from Isabella Simonato with Bank of America Merrill Lynch. Please go ahead.
Thank you. Good afternoon, Ricardo and Bernardo. Two questions. First, also on pricing in Brazil. I think considering that inflation is going down and maybe you have a more benign competitive environment, can we assume that eventually this price increase you're going to implement in Q3, there is room for you to try to catch up on taxes that you couldn't until now because the industry volumes were so weak? Or do you feel that the consumer is able to handle maybe a price increase above inflation? The second question is on Argentina. I think that the performance in this quarter was very strong. Can you give us more color on the main initiatives there?
If you could, I know that you don't disclose, but if you could compare your performance to the industry volumes just so we can have an idea of how the market share was in the quarter. Thank you.
I think that the first question, Isabella, thanks for the question. We continue to be confident about the strategy of increased price in line with inflation plus any tax offset over time. Any opportunity that we could have to do it and then to offset the tax increase that we have, we will try to, but it's not time. Talking about, it's a longer term period. Again, we're back to our norm to increase price in advance is basically what we could say. If specific to us, the question that you have about Argentina specifically, that we are happy, I mean, to see our numbers and the volumes of the strong growth there. I think that we have a great team.
The platforms of growth there is solid. The portfolio that we have, it's very strong. Brahma, Quilmes, then we have Stella Artois in our premium segment there as well. We have a good growth market. What I could say that we're very confident about our plans, about our team. We have good plans in place, and good to see that the country is back, I mean, to grow, impacting specifically our industry. More comments about the competitors, I'm not able to do it, but we are confident about our plans there.
Thank you.
Thank you very much.
The next question comes from Antonio Gonzalez with Credit Suisse. Please go ahead.
Good afternoon, Bernardo and Ricardo. Thank you for taking my question. I got two questions. The first one is on SG&A in Brazil. In the first semester, it's down a little over 1%. I know your guidance this year was more focused on the Coke side and your expectation of top line improvements. But I wanted to see if you can share with us some qualitative comments on which are the working and non-working dollars that you've been able to optimize so far throughout the year, and whether you expect that to continue in the second semester. My second question is related to obviously you've made many comments about top line sequentially improving going forward and so on.
I wanted to ask if it's reasonable to assume that perhaps you will prioritize more top line over margins for the back half of the year, perhaps for the next 12 months as you I guess try to capture all of these initiatives in mainstream and 300 mL and so on. Is it fair to assume that top line growth is more important than margins in the short term? Thank you.
Antonio, thank you for your question. Starting with that NAB and trying to give a little bit more qualitative examples on some of the things that we're doing. I'm gonna insist it was in Bernardo's speech. The use of technology has been key for us. For example, in distribution expenses, for us to not only drive efficiency within our system, but also throughout the, you know, the transportation companies that work with us and et cetera, providing not only a, let's say, a better or more efficient in terms of cost distribution expense overall, but more importantly, a better service to our points of connection.
I think that is key in the way we're doing trying to get like you know optimizing what we call like working money and also take non-working money out of the system. Another example also in terms of the use of technology is being able to reach out to our consumers in a more direct efficient way through the use of online platforms and et cetera. That's another example for us to you know to be more efficient on the working money as well. When we talk about top line and we you know we have been you know covering the company for some of you know that we are a company of ands. We don't talk about like top line or margin. We talk about and.
One of the examples that you mentioned in your question specifically, for example, the 3ML RGB is a good example in which it drives top line and drives increase in margin over time. Of course, when we implement such a big shift or a change in a market like the one in the supermarkets, you know that in the last couple of years, we moved from a 4% RGB off-trade to 14.23% on average for last year. You know, that is like an important shift in the behavior of the Brazilian consumers, in the behavior of that channel. Sometimes the margins, you know, they take some time to hit the P&L. But we are just to make sure that we are focused on margins and top line.
All right. Thank you so much.
Thank you.
The next question comes from Lauren Torres with UBS. Please go ahead.
Yes. Hi, everyone. I guess as a follow-up, Bernardo, to your comments on the consumer environment. A lot of the improvement, I guess, related to the H2 is just on easy comps and some of this cost pressure dissipating. I was hoping you could give us a little bit of framework, I don't know if it's by channel on- versus off-premise or by packages. If you are seeing any shift in trends, meaning stabilization and/or improvement, meaning people coming back to on-premise more or buying one way more. Just trying to get a better sense looking into next year that as hopefully things start to improve, the trends are going in that direction. Any early indication of that yet?
Thanks, Lauren, for your question. First, I mean, you know we mentioned that some of the easy comps in terms of net revenue, compared to the Q3, H2 of last year. This is true. We know that will benefit us when comparing year-over-year in the H2. That's not only that, as you said. First, exactly you see, I mean, in a slow pace, but disposable income going back. That's why you said that you're cautiously optimistic about what's going on in the short term with the macro environment in Brazil. It would have helped as well. Third, I mean, we have been working hard in a structured way in our platforms in terms of Elevate the Core.
That's the main bulk of our industry. Again, in terms of packaging, BBIs keep bringing value on. As a market leader, we know that we have the responsibility to drive the industry as well. That's what we are doing. If you drive the industry, we lead it the way, I mean, we tend to outperform the industry. I think that those do the easy comps you are right. Why you say that our culture is optimistic in the short term, because disposable income will likely come back in a slow pace, but will.
Because we're implementing in a very structured way, thinking short and long-term, important moves linked to all of the core, linked to the premium to expand the industry, and linked to a strong step up in our service level. That brings consumer experience in our point of sales. That drives the industry as well. I would say those three things justify our comment of being cautiously optimistic for the future.
Thank you.
Thank you.
Lauren, if I may add to what Bernardo just said. Also, when you look at the numbers, I mean, iterating what we said in last couple of quarters, we believe that the Brazilian industry history is a history of growth. We believe in growth for Brazilian industry. It's just not a straight line up. It's like ups and downs. When you look at, for example, the market that we had in Brazil for 2016, overall volume declined by more than 5%. When you compare to the current situation of the market, of course, we're not where we would like to be.
It still is a volume decline for the industry, but it's an improvement in comparison to the previous year, which shows a trend towards also the average of the Brazilian market, which is longer term growth patterns of the Brazilian beer industry.
If I could just ask one other question, which I have a feeling you may not be able to provide much color on, but as we've been hearing about what the coke bottlers losing distribution in Brazil could be as early as this year, and I think is Kirin, does that change any perspective that you may have on your distribution and the competitive environment, knowing that change is maybe potentially sooner than expected?
Sorry. As we don't comment specific actions on our competitors. Just what we can say is that we are, as a company, have always been prepared to capture any opportunities there are in the market, because the market is very competitive, that we are working very hard to capture opportunities and to make sure that threats don't materialize as well, you know, given recent changes in the Brazilian, let's say, industry.
Adding that, I mean, we continue to just repeat to focus on the platforms that we have been doing, working in a structured way. I think that this affects the short term, the long term as well. Nothing changed for us. We continue to work hard on things that we control.
Okay. Thank you.
Thank you.
Your next question comes from Pedro Leduc with JPMorgan. Please go ahead.
Hello, everybody. Thank you for taking the question. A quick one on cash flow. We saw that it improved, but we haven't seen major improvement in working capital yet. In this regard, is it fair to assume that this too will change once the category resumes? What do you plan on doing? Will it perhaps fund CapEx again or distribute as you've been doing? The separate question to the capital structure, given the falling rates in Brazil, rapidly falling rates, are you contemplating perhaps changing the capital structure as it is today, perhaps holding less cash? Thank you.
Hi, Pedro. Thank you for your questions. Starting with the last question, we believe we're very, you know, close to the optimal capital structure of the company. With no changes, we don't see a reason for us to change, you know, the capital structure, you know. Again, we're close to the optimal. With regards to overall cash flow of the company, year to date, we generate BRL 4.4 billion in cash from operating activities, and that compares to a negative balance of BRL 133 million in the same period of last year. We see a very important improvement in cash generation when you compare to last year.
Even when you account for the Q1, which was kind of a one-off due to some tax payments specifically in the Q1, it's the Q2 of this year compares to Q2 of the previous year, it's an important improvement as well. For us, as we have like a cycle of negative working capital, we have a negative working capital. The more you grow, the more you can capture cash flow as a consequence of working capital. Again, for us to start to see cash flow coming back in terms of working capital, what you need to do is grow the business.
The next question comes from Alexander Robarts with Citi. Please go ahead.
Thank you, I don't know if Pedro had any follow-up on the question. We lost Pedro, maybe. All right, let's go to Alex. Alex, go on.
Hi. Hi, everybody. No worries. Yeah, no, listen, I was keen to go into the soft drink trend. Again, I mean, I, you know, looking back on the years, I mean, this is a pretty important. We haven't seen this kind of decline in the soft drink volumes ever. Clearly the industry falling 10%, as Nielsen says, it seems that things are getting even softer. I can see why you might fall more than the industry. You know, you skew a little bit more to the stills, and the stills have even higher price sensitivity than CSD.
I guess I'm trying to get a sense of, you know, you've said that it hasn't been really a spike of improvement at the end of the quarter in the soft drink industry in Brazil. I'm wondering, kind of, are the B brands structurally gaining ground? I mean, they typically skew high in Brazil compared to the other markets in Latam. Are you seeing some particularly aggressive pricing or promotions from these collective groups, you know, the B brands that operate in Brazil? Are you pursuing or have you thought about pursuing perhaps more aggressively some affordability initiatives?
You know, the one, two, three program that you do in Extra obviously is a volume driven promotion. Are you thinking? I mean, is it fair to think that you might pursue more aggressively affordability? Is it fair to assume that maybe it's not gonna be until next year the industry grows? That's the first one. Then the second question is around CAC, right? You specifically state in your outlook statement, there's significant margin opportunities left in CAC going forward. You know, you're already at the level of last year above Canada. Could you just map out a little bit for us, thinking over the medium term, where are the margin or top-line opportunities in the region?
Is it market share penetration? Is it just bringing best practices from other regions, new products? You know, how should we think about the magnitude of this significant potential in, I mean, 500 basis points, 300 basis points? Those are the two questions, soft drink and CAC. Thank you very much.
Hi, Alex. Starting with the CSD soft drinks, I mean, first, in a structural way, we know that this industry is very elastic and disposable income is key, much more than beer specifically. We know as well that Brazil, I mean, will grow. That's always been as a country. As we always say, I mean, it's not a straight line, but the line is up. We're very confident that, I mean, Brazil will come back, and for sure will affect in a very positive way the CSD industry. Having said that, I mean, we are structuring this business with a portfolio of brands that allow us to grow even further the carbonated soft drinks. We're talking about energy drinks. Fusion is doing great.
We're talking about the acquisition of the Do Bem of the last year. That, I mean, is doing great as well. I think we are placing ourselves much better with brands and a portfolio that together the opportunity in the CSD specifically industry that's very, very linked to disposable income, and Brazil will come back because it's not a straight line again, but the line's up. It was always like that, and will be in the future. On the other hand, bringing a portfolio of brands to the table that could assure us to capture occasions and opportunities and new consumer needs that we know are in the market.
Together with those things, with all this, our efforts and the initiatives to increase and to step up our service level will help not only the beer business but the soft drinks as well. Basically, this is for the full industry. In this specific year, we are happy because we are outperforming the industry in the H1. In the Q2, we made some revenue management initiatives. That's why you see our net revenue per hectoliter is growing around 6.6% above last year. We slipped a little bit, so in this specific quarter. All in all, H1, our performance is considerably more above the. Basically, I mean, the CSD, what I have to comment to you, and then maybe Ricardo can comment on the-
Just highlighting what Bernardo just said. In a nutshell, we had like if you look at the first
Semester as in aggregate. We outperformed the industry in terms of volume, and we are very well positioned in terms of healthy portfolio management in terms of net revenue per hectoliter, as well, very well positioned for the remaining of the year. As a result of that, I believe we are well positioned in the soft drink industry. With regards to CapEx, I know, Alex, that covers the company for so long. I think you know that when we communicated to the market, I think it was 2012, that we saw an EBITDA opportunity of $1 billion in that region specifically.
Most of the people were like, "Wow, but $1 billion just for you or for the whole industry and et cetera." If you recall at that time, I believe we had around like, you know, negative EBITDA for around like 10-14 million dollars. That was the number. When you look at this type of growth, margin evolution and the expansion of our business in CAC, it's a combination of all the things that you described. It's having like the right portfolio. It's having the right people in place in the region. When you have scale, you can afford to have the, you know, the best, the very best people there. You can afford to have the full portfolio.
You can get like a more efficiency in terms of synergies and the margin expansion that we have had there, like in this quarter, we have Panama in that mix as well, which started as a lower base in comparison to our business. We're very excited with the CAC business for all the reasons that you mentioned yourself. It's not only about the numbers, but what's behind the numbers. I think that the same platforms that I have been talking here to Brazil and have been implementing in a structural way, and we think it for the long term. We're doing there as well. Interest there overall is better, and then the benefits are even better.
Talking about maybe the core, actually retaining all the service level and that the route to market initiative that they are in place are valid for CAC as well. Structurally, those countries are in better shape. I think that and the things that we control, we're in the same path of implementing in the commercial platform that we're doing in Brazil as well.
Got it. Thank you.
Thank you, Alex. Thank you.
The next question comes from Robert Ottenstein with Evercore. Please go ahead.
Great. Thank you very much. I'm wondering if you could talk about what kind of learnings, if any, you've gotten from, you know, SABMiller, in terms of specifically perhaps things like telemarketing, going after, total beverage alcohol, perhaps, insights, at the low end and, you know, just really anything that you've gained from your association with that business and perhaps examples of things that, you're doing in the market that reflect that. Thank you.
Hi, Robert, Bernardo speaking. Great question. Thanks for the question. I think that we know that SABMiller fits very, very well, where it is very, very well in emerging markets that are similar to ours. That's really. First, I think that there is integration synergies. I think that the approach that they were been doing in terms of the portfolio strategy, I mean, it's very interesting. I think it has been implementing with the core brands and those premium brands, and then understanding exactly the overlap, the region, and so on, the channel, here in Brazil and overall in our business in Ambev. I think that was very, very good to show that we're on the right path, and to learn from this.
I mean, all the portfolio approach was very, very interesting. I think secondly, everything related to the route to market, always good to see, the telemarketing, as you said, it's key. The complex strategy that we can use ourselves to get orders taking. It was in line of this big route to market project that have been, I would say, working hard in the last few years to, I mean, step up our service level. Good synergies on this, as well. The most important thing, I mean, yes, we have great people there. That's great. I mean to share best practices that we are doing as we speak.
We will always capture from, I mean, the SAB former operations, and from even other companies that you go and you copy as soon as they align to our strategy, that the ones that I always comment on the core, the premium, shaping, home reform, it really ramp up our service level to the next level. I think that was good. Good for Ambev. I mean, because of those integration synergies, we'll benefit a lot because we operate in similar markets.
Okay. Then, on returnable glass bottles, you'd mentioned last year, I think it averaged 23% of the business. Can you give us a sense of where that is for the H1 of this year or the Q2? Any comments in terms of what sort of reaction you're seeing from competitors in the market as they try to, you know, combat, you know, your strategy?
I think that it's always good to put in the frame. I think this returnable strategy will touch affordability, but it's, I mean, not only that. We have, I mean, still the occasion a lot, the in-home occasion, to assure that in this example, the 200 ml in the off-trade channel will grow in the right way, and it's growing double digits. I think that is not so easy, I would say, to replicate a model like that, because, you know, it's with returnable bottles and our customers there. We need to teach the customers again. I'm happy because we are in the right path, growing double digits. Still opportunities and try improving.
I mean, as we speak, the execution, the shopper experience, it was a bold move. I mean, since 1996, we don't have returnables in the off-trade. We are bringing back in a successful way, and this is the kind of initiative that consistency is key. You do, you grow, you learn from that, you improve. The customers, they know how to prepare month by month. People that buy the product knows how to do. I mean, become more loyal. I think that you are in the right path, in a project that leads to operational excellence as well, because you only do if you have that. As I said, we are stepping up even more operational excellence in terms of season distributions.
Sure, that initiatives like that would be successful like it is, and not so easy to come. I think that's what I could comment.
Robert, on the specific value, if you will, the percentage, we only provide that annually. We don't provide on a quarterly basis. As Bernardo just said, the returnable glass bottle in the off-trade channel is growing double digits in an overall market that's declining.
Thank you very much, guys.
Thanks, Robert.
Due to time constraints, the final question comes from Vito Ferreira with BTG Pactual. Please go ahead.
Hi, Bernardo, Ricardo. My question is related to the cost guidance for the H2 of the year. Actually, when we see the BRL performance during the H2 of 2016, the BRL appreciated 8% in the Q3 and 14% in the Q4. Assuming that the US dollar represents approximately 50% of your costs, isn't your cost business too conservative at this time? I mean, is there a space for you to have a better than expected cost performance in the H2 of the year? Thank you.
Hi, Vito . Of course, the shorter period of time that you look, the harder it is for you to see exactly how impacted or how like the two main components, inflation and the effects on a more yearly basis, you see that much more clear than on a quarterly basis. At this point, we're gonna stick to the guidance that we have already provided of having a flattish to low single digits up in COGS in the next semester.
Okay, thank you.
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.
Thanks, Gary. Before closing our call, I would like to highlight once again that we are excited with the implementation of our commercial strategy and platforms in Brazil. We will now begin slightly more favorable net revenue per hectoliter comps and deliver an improved cost performance in the country. Further, we also have a positive outlook for our international operations. Having said that, we are confident that we will soon return to growth. Basically, that's the final message. Thank you, and enjoy the rest of your day. Thank you.
Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.