Good morning, and thank you for waiting. We would like to Welcome everyone to Ambev's Third Quarter 2016 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 session. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach an operator. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the company.
They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward-looking statements. I would also like to remind everyone that, as usual, the % changes that will be discussed during today's call are both organic and normalized in nature. Unless otherwise stated, % changes refer to comparisons with Q3 2015 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.
Thanks, Kate. Hello, everyone. Thank you for joining Our 2016 Third Quarter Earnings Call. I will guide you through our operational highlights of Brazil, CAC, LAS and Canada, including our below-the-line items and cash flow. After that, Bernardo will give you more details about our performance in Brazil and how we are positioning ourselves for the quarters to come. Starting with our consolidated results. Third quarter proved to be the toughest quarter of an already very challenging year. Despite solid growth in most of the countries we operate, our performance in Brazil was impacted by a temporary effect of our FX hedges and the weak consumer environment. Consolidated top line was up 2.3% in the quarter, with a volume decline of 3.4%, more than offset by a net revenue per hectoliter growth of 5.9%.
EBITDA was down 14% to BRL 4 billion, with an EBITDA margin of 41.5%. Net income was up 3.6%. Year to date, top line is up 2.7%, EBITDA down 4%, and net income down 6.7%. In Brazil, our EBITDA was down 31.3% in the quarter. We are nothing but disappointed with our short-term EBITDA performance. It is very important to understand the drivers behind the numbers, so I will start by discussing the two main reasons that explain the temporary decline of our EBITDA in Brazil. The first one is related to cash COGS, which explains more than half of our EBITDA decline. As you know, we have a hedge policy pursuant to which we hedge all the effects in commodity exposure that can be hedged.
Timing will depend on the nature of the exposure, time to react, and other factors. Specifically, we hedge our transactional currency exposure one year in advance. Given that, the material devaluation of Brazilian reais in the second half of 2015 is fully impacting our COGS now. During that time, Brazilian reais suffered close to 60% year-over-year devaluation before peaking at 4.18 BRL to the US dollar in September 2015. This is inflating our cost of sales denominated in US dollars, which represents around 40% of our COGS in Brazil. With COGS inflated due to BRL devaluation, the easy decision to protect our profitability in the short term would have been to offset this through price. Given our hedges, we know this is a temporary headwind, and will ease in the next quarters before becoming a deflationary driver.
In summary, the high volatility of BRL experienced in the second semester of 2015, when it peaked at BRL 4.18 to the dollar, is temporarily impacting us now. Given the reversion of the currency to current levels of 3.20, this will be a positive for the company in the second semester of 2017. The second reason is connected to the top-line decline due to adverse macroeconomic scenario in Brazil. We have seen consumer confidence improving in recent months and inflation decelerating, which will be a strong positive for consumers. Reality in the short term is that the real disposable income continued to decline, pressured by higher unemployment. In this environment, our top line declined by 6.6% in the quarter, with a net revenue per hectoliter down 1.6%.
This was driven primarily by our decision to implement our price adjustments in the fourth quarter this year compared to the third quarter last year. In addition, as part of our revenue management strategy, we are using our complete portfolio of packs and brands to achieve attractive and more competitive consumer price points. This initiative includes growing our mix of returnable glass bottles, especially in supermarkets, where this format now accounts for roughly 25% of our volume. These two temporary drivers, FX impact on cash COGS and weak macro impact on top line, explain most of the EBITDA decline in the quarter. Now going to more detail of our operational results in Brazil. Our beer volumes were down 4.1%, facing a tough comparable in the third quarter of 2015.
We estimate that the beer industry's volumes declined by approximately 3% in the third quarter given the challenging macroeconomic environment. Brazil Beer top line was down 5.3%. While our average market share in the third quarter of 2016 was down year-over-year, we delivered sequential improvement vs the second quarter of 2016, going back to our historical market share range and reaching the best market share level in the year. Bernardo will expand on this topic and discuss how we are positioning ourselves for the future in the current scenario. Now talking about Brazil's CSD and NAB. CSD and NAB top line was down 13.8%. Volumes declined by 8.1%, in line with the industry as we estimate, as the adverse consumer environment is temporarily driving consumers away from CSDs to tap water and low-cost powdered juices.
Net revenue per hectoliter was down 6.2% due to negative mix, the impact of taxes, and the fact that we also decided to implement our price initiatives in the fourth quarter, facing a tough comparable base due to the early timing of our price initiatives last year. Brazil cash COGS was up 24%, while on a per hectoliter basis, 30.6%. As already discussed, the main driver for this performance was the temporary impact of our FX hedges. Brazil cash SG&A was up 5.8% due to, number one, phasing of sales and marketing expenses that were more concentrated in this quarter, mainly due to the Olympics. Number two, higher distribution expenses, which were partially offset by savings in administrative expenses.
As a result, Brazil EBITDA was down 31.3% in the quarter, while year-to-date, it is down 13.2%. Now moving to Central America and the Caribbean. In CAC, we delivered another solid quarter. Our performance in the region was mainly driven by double-digit top-line growth with a good balance between volume and price. EBITDA was up 9% to BRL 353 million, with EBITDA margins of 37.6%. In Dominican Republic, we continue to invest behind our brands, connecting with our consumers and activating demand in key selling moments, such as Verano Presidente and Corona Sunsets. Throughout the quarter, we're able to expand our presence in different consumption occasions, reaching the all-time high share in the total alcoholic beverage space in September.
In Guatemala, we had another quarter of market share gains, driven by strong performance from Modelo brands, mainly Corona. While we're still benefiting from our solid cost management discipline in the region, EBITDA performance was impacted by the timing of sales and marketing expenses in the quarter. Year to date, our EBITDA margin is up 80 basis points, driving an EBITDA growth of 19.4% in organic terms. Going forward, we continue to be extremely excited with top line and EBITDA growth potential from our region, from current operations and other known organic opportunities, including Panama, that will become part of CAC, pushing us a little bit closer to our dream of $1 billion EBITDA in the region. In Latin America South, our top line was up 22.1% and EBITDA 22.6% above that of last year.
Our volumes, however, were down 1.4% as adverse macroeconomic conditions, specifically in Argentina, led to another quarter of volume decline in the country. Almost fully offsetting this, we reached record volumes in Bolivia, Paraguay, and Chile. In Bolivia, this growth was driven by our RGB strategy and route to market improvement. In Paraguay, this growth was led by the successful rollout of the 340 ml returnable glass bottle, and in Chile, with a strong performance across all of our global brands in the country. Net revenue per hectoliter increased by 23.8% in the region due to the successful implementation of our revenue management strategy linked to inflation and premium mix.
Despite costs and expenses still pressured by high inflation and unfavorable currency movements made in Argentina, we're able to offset these impacts through top line growth and procurement savings, delivering an EBITDA margin expansion of 20 basis points to 42.8%. Year to date, our EBITDA is up 16.2% in organic terms with an EBITDA margin expansion of 90 basis points. As we move forward, we remain confident in our ability to deliver a solid top line growth in LAS while protecting our profitability over time despite the economic volatility in Argentina. Turning now to Canada. Reported volumes grew 6.5%, mainly driven by strong performance of our global brands, which grew high double digits. The benefit from our strategic acquisitions with Mike's Hard Lemonade and Mill Street Brewery growing solid double digits in the quarter.
Including the new brands we acquired, we have achieved the highest market share in 17 years. Organic volumes were down 1.3%, with the industry negatively impacted by unfavorable weather, which was partially offset by solid performance of Bud Light, Stella Artois, and Corona. Net revenues increased by 0.1%, with net revenue per hectoliter growing 1.3%, mainly driven by our revenue management initiatives in line with inflation. EBITDA declined 7.4% on an organic basis, negatively impacted by currency devaluation and negative mix, along with higher administrative expenses. Year to date, our EBITDA is down 2.4% in local currency with an EBITDA margin compression of 130 basis points. In nominal terms, however, our EBITDA is growing 14.6%.
Going forward, we remain excited with our complete portfolio, including our recent acquisitions in near Beer, while also committed to balance net revenue per hectoliter and margin in market share to deliver profitable growth. Now, moving below EBITDA. Our net financial results total a net expense of BRL 723 million vs BRL 217 million last year. Main items in the financial expense were, first, interest income of BRL 139 million driven by our cash balance, mainly in Brazilian reais, U.S. dollars, and Canadian dollars. Second, an expense of BRL 480 million due to interest expenses. Close to half of this is a non-cash accrual related to the put option associated with our investment in the Dominican Republic.
As many of you remember, as part of the C&G 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 C&G for a value that's based on an EBITDA multiple. This non-cash accrual expenses increases over time as we approach 2019 as EBITDA growth among other factors. Third, BRL 287 million losses on derivative instruments, mainly driven by the carry cost of our FX hedges, primarily linked to our COGS exposures in Brazil and Argentina. Given the interest rate differential between Brazilian reais or Argentine pesos and the U.S. dollars, we have financial costs associated to these hedges, which are called carry costs.
Carry costs have increased significantly compared to recent years due to U.S. dollar appreciation and higher interest rate differentials, but are sequentially coming down, mainly due to the reversal of the Brazilian real. Everything else equal, if BRL and/or Argentine peso appreciates or interest rates in these countries go down, carry costs are expected to decline even further. Non-derivative gains and losses have been another source of volatility in our net financial results, as most of the results included in this line are related to FX translation, and currencies have fluctuated a lot in previous quarters. With lower FX volatility this quarter, we had no material gain nor loss in this line. Our effective tax rate was negative this quarter due to one-off tax adjustments. First, around BRL 400 million is explained by reversion of a withholding tax provision related to unremitted earnings from Argentina.
In 2013, a new withholding tax over dividend remittance was created under the previous government in Argentina. From that time until now, we have been provisioning for this tax as earnings were generated, but not distributed yet. As of July 23, 2016, legislation in Argentina was enacted revoking this tax, leading to a reversion of these provisions. Second, close to BRL 800 million driven by a one-time impact from the recognition of deferred tax assets on carried losses related to international subsidiaries. As an example of these losses, in the first quarter of 2015, we highlighted a BRL 350 million one-time negative impact from intercompany loans.
We mentioned at that time that this impact came as a result of taxable profits generated from intercompany loans in certain affiliates, which were not offset by equivalent deductible losses, due to mainly the lack of sufficient taxable profits in the corresponding affiliates. We also said that once profits were to be generated in the tax loss-carrying affiliates, this negative impact was expected to be reverted. That's exactly what happened in the third quarter due to a review in our capital structure outside of Brazil. With that, net income was up 3.6% in the third quarter of 2016. Year to date, net income is down 6.7%. From a cash flow perspective, cash flow from operating activities before changes in working capital was BRL 4.1 billion.
We started to revert the negative cash impact from working capital seen in the first and second quarters, generating almost BRL 1 billion from working capital in the third quarter. Cash generated from our operation was BRL 5.1 billion, while CapEx reached BRL 900 million. Year to date, we have generated BRL 9.1 billion in cash from operations. On October nineteenth, we announced approximately BRL 2.5 billion in dividends to be paid as from November 25t h. Year to date, we have paid or announced BRL 6.6 billion in interest on capital and dividends. As our free cash flow generation continues to grow sequentially in the year of 2016, we have the opportunity to continue to return the excess cash to shareholders. Thank you very much. I will now move to Bernardo before going to Q&A.
Thank you, Ricardo. Hello, everyone. Third quarter is a very tough one and we'll be never satisfied with this sort of results. When faced with a scenario like the one we are facing in 2016, one can decide to either go for quick fixes that can save results in a single quarter or a year, but jeopardize future growth or what we believe is the right way, take advantage of disruptions that crisis bring to better position itself in a structural way. As owners, we always focus on sustainable value creation, even if temporary volatility pressures our performance in the short term. As discussed in detail by Ricardo Rittes, FX had a significant impact to our EBITDA in the quarter. An easy fix for that short-term result would have been to offset this for prices.
Given our hedge, we know this is a temporary impact that will be reverted in the next quarters. That alone explain more than half our EBITDA decline in Brazil in the quarter. The other main headwind was the impact of the weak consumer environment to our top line performance. We've already been dealing with a volatile macroeconomic scenario for more than a year. We will start to see some early positive signs for consumer confidence, inflation, but in the short term, consumers remain under significant pressure with direct impact on our top line and EBITDA performance in Brazil. On one hand, the recession is bringing a lot of volatility to our results this year. On the other, it's also creating unique opportunities to strengthen our business for the years to come. We cannot lose sight of these opportunities.
During this challenge time, we have been boosting key initiatives focused on the five commercial platforms. We've been successful in these initiatives, and we are confident we will leave this crisis in a significantly stronger position than the one we were when we entered. Starting with Elevate the Core. In an environment like this, it's more important than ever to be close to the people in general who drinks our beers every day. Skol sponsorship to Rio 2016 Olympic Games became another mark in the history of the brand. Skol delivered a great experience through a complete 360 approach, ranging from activations in the on and off trade in the main urban centers of Brazil to a unique experience in Rio, directly reaching more than 4 million people during the event.
Last month, we launched a new visual brand identity for Skol to highlight the brand strengths and reaffirm its leadership on the mainstream segment. Along with the Desce Redondo campaign, the iconic arrow and the yellow color are still there, but in a totally new design, evoking Skol's quality, energy, and young attitude, and in doing, how we connect with our core target. Another successful initiative to connect with our core target was brands like Brahma Extra. Launched one year ago with three variants, Lager, Red Lager, and Weiss, Brahma Extra has shown strong growth year to date, solidifying its presence in the core plus segment in Brazil. Targeting food and savory need state, Brahma Essence not only bring the food pairing experience to mainstream, but also enhance the equity to of Brahma mother brand. Let's move to premium.
Premium has been growing and gaining weight in our mix every year in the last five years, including 2016. Working with a complete portfolio from international to domestic brands, premium already represents 10% of our volumes, but with preference of premium already at 30%, there is still a lot of room to grow. The most successful case is Budweiser, leader of the premium segment since 2015. Budweiser is growing volume by double digits and gaining market share once again this year. Near Beer also became a new reality in Brazil and within our mix of brands, representing 2% of our total beer volumes, driving incremental volumes and positive price mix. Launched in 2013, Brahma 0.0% Boosted this growth, disrupting the non-alcoholic beer segment in Brazil with an innovative liquid and brand idea.
The opportunity for non-alcoholic and low-alcoholic beer in Brazil is still big, and we have a plan to tackle that. Beats Senses, launched in the end of 2014, allowed us to target volume occasions we were not present before with beer, one of the most successful launch in Ambev's history, with strong volume growth, very incremental, and solid preference. With the addition of Skol Beats Spirit at the end of 2015 and Skol Beats Secret last month, Beats family is growing by double digits even in a challenged 2016. Moving to occasions, let's start with the in-home. RGBs have always been a key component of our business in the on-trade. However, as I mean, consumers are increasingly looking for more attractive price points and more affordable ways to enjoy our beers, RGBs have gained popularity in the off-trade as well.
It's become a reality, with our minis reaching 25% of our volumes in supermarkets in the third quarter of 2016. Both RGBs in the homes of the people is one of the most important opportunities we see in 2016 and years to come. It brings affordability with a higher profitability. Another big initiative to shape in-home has been the expansion for our market programs not only to the big but also small store formats, improving shopper experience and elevating the beer category in the off-trade. In the out-of-home occasion, we are boosting our marketing initiatives in existing and new key selling moments. In the current environment, we've been able to enter long-term sponsorship contracts at attractive rates, opportunities which may not have been available in a stronger economy.
For 2017, have already confirmed our presence in two of the biggest street parties in the world. Antarctica will be the official beer of Rio Carnival for the seventh consecutive time, and Skol will be once again sponsoring Salvador Carnival after the last three years sponsored by our competitors. Finally, we have been also making use of our portfolio of packs to improve affordability in the on-trade, mainly for our one liter returnable glass bottles, which is growing by mid-single digit this year. In summary, 2016 has been a very challenging year in Brazil, bringing a lot of volatility to our results. We are nothing but disappointed for our short-term results. That said, we continue to be confident about the growth opportunities in the country and optimistic about the future of our business in Brazil.
We expect favored demographics, the closing of regional disparities in the per capita incomes, and a consumer that will demand much more about premium products that will help drive long-term volume growth. We also have a very consistent commercial strategy based on the five platforms, and we are using the current environment as an opportunity to boost these initiatives and to better position Ambev to maximize the structural growth drivers. With that, let's move to the Q&A.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. We ask that you limit yourself to one question. You may re-enter the queue if you have additional questions. At this time, we will pause momentarily to assemble our roster. The first question comes from Isabella Simonato of Bank of America Merrill Lynch. Please go ahead.
Thank you. Good afternoon, Bernardo, Ricardo Rittes. I have one question on Brazil. Considering the price increase that probably due or have done already in Q4 for beer, and considering also the positive outlook for costs going forward, how fast do you think we can see beer margins recovering throughout 2017? Also, if you could discuss a little bit how you see volume recovery for beer and soft drinks going forward, considering the consumption outlook in Brazil, that would be great. Thank you.
Okay. Thanks, Isabella. I think that in terms of, I will. We'll start for the second question in terms of volumes. On the long-term drivers in Brazil, I think given that we continue to be bullish in Brazil. We know that's not a straight line up, but. Every time in five years or so, we have one of two years or the things go sideways. Then, you know, that's how a market like Brazil works.
Having said that, I mean, I would think that for the long term, we continue to be bullish in the volume growth because, I mean, as I said, the legal drinking age, the young adults here in Brazil, I mean, they're increasing 1.5% every year. Per capita, we know that you have some regions of much higher than the others, and then this will evolve, and we have the industry as well. People are much more open to the premium brands. We are leading the segment in the premium brands and, you know, the global brands and the local brands that we have will help us to do that. We don't comment a lot in 2017 and in the future.
I think again, we always expect Brazil to be back when you have a crisis like that every five years or so.
Isabel, just for me to add, consumer confidence is improving. Inflation is decelerating. We know that the consumer environment is still challenging with unemployment, but I think, you know, one lags the other. We are, like Bernardo said, excited with the prospects of Brazil. We know it's not a straight line, but we're excited.
Thank you.
Thank you, Isabel.
The next question comes from Luca Cipiccia of Goldman Sachs. Please go ahead.
Hi, good afternoon. Thanks for taking my question. I wanted to understand a bit better if you can explain the decision on pricing in this sense. I think you both mentioned the fact that, you know, the FX was a major headwind, and that it would have been easier to increase prices to offset that. Arguably, you knew all along that the type of pressure was going to emerge in this quarter. Seasonally, typically, you do the price increase in September. When I look back to the other revising guidance that you made after the second quarter, was that the timing of the pricing already incorporated, and therefore, the incremental negative was the volume or the mix?
You know, when did you decide to change the pricing timing? Sorry. Related to this, maybe on the market share, given that you no longer disclose the absolute value, but what drove that incremental sequential improvement by segment or channel or region? I think you mentioned premium, you mentioned some of the returnable, but I don't know if you can qualify relative to the second quarter, we increased market share overall primarily from this segment rather than the other segment. That would be great.
Luca, thanks for the question. I think we have not changed the way that we manage the revenue management and the price strategy. Our strategy continues to be to increase price in line with inflation in the long term plus any tax obstacle. In the short term, in order to balance volume, market share, I mean, we always manage volume, market share and price, and we decide to implement the adjustments in the fourth quarter, I mean, instead of the third quarter last year. Another thing that we always see is the way that disposable income, I mean, how we can connect with that and ensure that the price increase will be in the right moment to mitigate the impact in the industry.
When we put all together, we thought that was better to delay the price increase for the fourth quarter. Again, we've not changed our strategy in terms of price that we have been saying to you for many, many years. I think the second question was linked to specifically the market share, the third one. I think that market share we know have many, many sources, no? I mean, one is Nielsen, one is SICOBE industry as well. In the end of the day, I mean, we are very pleased that we are back to our historical range. We know that the initiatives that we are doing that are tackling affordability is helping us.
I mean, the growth of the 300 ml returnable bottles in the off trade, I mean, covering some price points that were not covered using pack price helped us. All the initiatives that we are doing for our brand helped as well. We are pleased to see that even in a tough quarter, we're able to get our market share, our best market share of the year in this quarter.
Bernardo, just very quickly, the delta in the guidance then is, you know, more explained by the decision on delayed pricing or is more explained by mix and volume as compared to your earlier expectation?
Yeah. I think there are two things, basically. I think at first I always have to remind ourselves that the expectation of inflation of this year is much lower than last year. Last year was around 11%. The inflation this year is 7%. So if you given, like, all the guidance that we have to increase prices in line with inflation only that, it's a kind of difference that you see in this price increase of this year compared to the last year. We know that the macroeconomic scenario is not an easy one. You know, we expect this to recover over time. Brazil will get back. In the short term, disposable income continues to be a big, big issue.
I think that those are the two things that I mean it was really the ones that I mean have to revise is likely the guidance of top line.
Thank you.
Thank you.
The next question comes from Lauren Torres of UBS. Please go ahead.
Yes. Hi, everyone. My question actually was also related to the change in guidance, but I think with you answering that, I'm just curious to get your perspective on you know the general environment. We are hearing in Brazil consumer products companies talking about seeing some stabilization in trends, if anything, maybe a directionally less trading down or things of that perspective. I appreciate that you don't give you know specific guidance for next year. You know, if you're a bit more conservative than the rest, if that's what I'm hearing, you know, is this strategy more about this affordability angle, the returnable glass bottles?
You know, do you feel you have to lean on that more or there's opportunities, you know, with an environment potentially getting a bit more stable that this could reverse a little bit and we could see the upside coming through?
Hi, Lauren. Thank you for the question. Summarizing, we have a very challenging scenario in the short term. Unemployment close to 12%, 1 million jobs reduction year to date, worst figures in the series, real disposable income down mid-single digits for another quarter. As you said, and you know, like, we also, and I think everybody else is seeing, we see positive early signs. We see inflation decelerating since December 2015 and expect to decelerate even further, even at a speed higher than anticipated in the beginning of the year. Consumer confidence also improving from the bottom in the first quarter of 2016. Remember, still below 2008, 2009, but you know, but rebounding.
We do see the same early signs that you mentioned.
Can you address the returnable glass bottle? I think you gave that 25% number, that you're at now. Is that optimal or how are you thinking about that for next year?
I think that we have some areas of Brazil and regions that it's more than that. It's very difficult to say that what the number will be in the future. We strongly believe that will be more than that because it's a way to offer great brands that people like Brahma, Skol, Antarctica, you know, in a nice pack in an affordable way. We expect to continue to grow.
Okay. Thank you.
Thank you.
The next question is from Thiago Duarte of BTG. Please go ahead.
Thank you very much. Good afternoon, Bernardo, Rittes, everyone. I would like to follow on the RGB question. Actually two questions regarding RGB. I mean, there's been a great evolution in terms of penetration. You mentioned it's already 25% of your volumes in supermarket. The first one is basically, I mean, if you look at SICOBE and if you look at the different packaging forms that the industry produces in Brazil, my understanding is that one way presentations actually continue to gain share vs returnable presentations in Brazil, while you as our market leader has been making good progress in increasing returnable presentations in one of the most important channels. Just wondering, where is the RGB in the supermarkets?
Who is RGB in supermarket gaining share from, in your perspective, in your mix? That's the first question. The second question, you mentioned that RGB has a positive EBITDA contribution vs other packages in your mix. That's perfect. But I was just wondering whether this contribution can actually improve further. I mean, the penetration has increased in a very fast pace in the last two years maybe. I wonder whether this is being subsidized by you in order to increase or to accelerate that penetration with the retailers and therefore there is room for us to see better margins coming from RGB in the coming years. Thank you very much.
Thanks a lot, Thiago. I think there are two things. I mean, first one, you have to always check the mix of channels and packs. So RGB is growing the mix in the on-trade and in the off-trade. But the fact that the off-trade channel is growing more than the on-trade and the size of the pie that the one-way has in the off-trade is much higher, this channel mix makes one-way still growing in Brazil. If you get, I mean, the RGB in both channels, I think that we are in the right path now.
I think it's for the off trade. I think that we always say is that it's very relevant because probably the last year that we had RGBs in the off trade in the main key accounts and so on was kind of 20 years ago. We are bringing back RGB, and I think that's just the start because in the end of the day, it's you have to not only do a good job with the channel, but start to reeducate people in their homes to get the bottles there, the crates there. I think that's why I think that it'll continue to grow. That's why the margins, I mean, they are good. I mean, only with the way that they will grow will benefit us.
I don't see RGBs in the off-trade, the price going too much up. I think you have the price tier that you always respect. It's important for people. They expect to have a lower price. With the price that we have nowadays, the margins are better than the one-way. I think that we're in the right path to re-educate people to bring bottles to their homes and crates to their homes. That's why I think that you'll be steady, but you'll be up the way for the RGB in the off-trade channel. Not only the big ones, but in the small ones as well, the small formats.
Thank you. That's helpful.
Thank you, Thiago .
The next question comes from Robert Ottenstein of Evercore. Please go ahead.
Great. Thank you very much. I was wondering if you could talk a little bit about what's going on in Brazil in terms of share of alcohol, whether you think you're gaining share of alcohol, and how the consumer has responded to spirits or I guess it's or cocktails, other forms of alcohol relative to beer during this difficult time.
Robert, thanks. Thanks for the question. I think that I don't have exactly a number here. For sure, again, share of throat because Skol Beats Senses, I mean, it's a huge volume. It's incremental. I think that for a consumer that's under pressure in terms of disposable income, have alternatives to drink a great liquid and a great brand like Skol, that's 7.9% alcohol. It's sweet. It's cold. And that with our machine that put this product in the right point of sales, in the right events, for sure, Skol Beats Senses, it's growing and it's gaining share of throat. I think that our core brands, beer brands are more under pressure because of the disposable income. Everything that's premium is growing, including Skol Beats Senses.
Just launched Skol Beats Secret. That's like the pink one. For sure you'll be a big hit in the carnival for next year.
Terrific. Then just one follow-up. You know, ABI has introduced, you know, pretty successfully Bud Light in Mexico, and obviously there's a general overall goal of getting 20% of volume to be lower alcohol and no alcohol. I know you've got initiatives with Brahma 0.0. Any thoughts about bringing Bud Light down to your regions and how exciting could that possibly be?
I think for NAB beers or low alcohol beers, I think our big bet continues to be Brahma 0.0%, so it's doing pretty well, and then continue to invest. I think they have room to grow with this product. It's amazing, the liquid delivers big time. Linked to Bud Light, I mean, no comment. Don't have any plan to launch Bud Light in Brazil at the moment.
Thank you very much.
Thanks, Robert.
The next question is from Jeronimo De Guzman of Morgan Stanley. Please go ahead.
Hi. Good morning. I wanted to just follow up on pricing, just ask the question a little bit different. I just wanted to understand how does delaying the pricing to the fourth quarter kind of change your positioning? I know you mentioned that an easy fix would jeopardize growth. What I'm still trying to understand is why not take the pricing already if you're gonna do it anyway in the fourth quarter? Is there something about the fourth quarter that you think helps the consumers better absorb the pricing or anything else that's different in the fourth quarter that drove this?
Thanks for the question. I think basically what I said before, you know what I mean? That you always try to balance, I mean, the volume and the price and the share. I think the biggest issue is the disposable income. October, we know that the industry tends to be better because it's a warmer month. We don't like to talk about temperature here and forecast, but we had a tougher winter, mainly in the Southeast. We thought, I mean, how to balance volume and share and price. We take into account the disposable income, and then we thought that would be better to go later in October.
Given the approach to the summer, I mean, that would have less impact in the industry in a month like that. I mean, that's basically what is done, and I think it's the right decision to do.
Thanks. Just to follow up here, I mean.
Yeah, sure.
How much latitude do you think you have on the pricing, just given that the competitors aren't necessarily seeing the pressure you're seeing? I mean, they saw the pressure a year ago, and the fact that the value brands are taking share. I mean, is there a concern about them just not following on your price increases?
Brazilian industry has always been a tough one. What's happening now this year is not related to specific one company that's putting prices down or up. I mean, basically, it's linked to the crisis that we have. I think that everyone in this market is struggling or is in the sense because of the industry and because of the disposable income. That's what we can comment.
Okay. Thank you.
Okay. Thank you, Jeronimo.
The next question comes from Alex Robarts of Citigroup. Please go ahead.
Hi, everybody. Thank you. A confirmation and then a question. The confirmation is will we see Panama in the fourth quarter results? And the question, yeah, just going back to the cash costs. You know, first of all, definitely appreciate the visibility you gave us, showing the 17 percentage points in that Brazil EBITDA decline coming from the cash costs. It's and so what I'm interested just to hear about is the pressure or the impact if, I mean, from just the fact that you have more glass, you have more returnable glass, and that was an incremental cost year on year. As you've pointed out, RGB has doubled. I guess the last conference call you said it was up 100%.
Within the 17 percentage points, I mean, I appreciate the hedge and the pressure from that, but is there also a piece related to the fact that, you know, you just have more glass costs? If that's so, that's something that I assume would continue into the coming quarters. The corollary to this cash costs question is, on the other graphic you show us that implies you're buying 12 months forward. Is it safe to assume that in the fourth quarter from the hedge effect you'll have less pressure on the margin? Thanks very much.
Hi, Alex. Thank you for your question. First of all, using just outside information from the company, given how we are very systematic in the way we hedge our costs, one could infer the type of quarter impacts that we have. We, one year ago, roughly when we did the hedges, knew a little bit how the hedge would be. What we didn't know back then is that these impacts would be temporary, which is great news. A hedge can only protect you to buy time. If this is temporary, I think it's even better than having like a market move above your hedges. That's great news.
On the specific RGB impact on the hedges, it's very important to highlight that, aluminum is internationally traded commodity, and as a result is an important portion of the costs for our packaging, and as a result of that, denominated in U.S. dollars. On the other hand, glass being returnable, if you can use a returnable glass bottle for like 20, 30 times, the impact that you have both in your exposure and in the costs is to reduce it. Your exposure to the dollar gets reduced by a shift towards returnable glass bottles and your costs gets reduced. Just highlighting that, the two main temporary drivers that explain EBITDA decline in the quarter is first the hedge policy like we discussed.
The second, like Bernardo, and we discussed extensively as well, is connected to the adverse macroeconomic scenario. Related specifically to the fourth quarter, you asked a question specific about Panama. We never comment on the ongoing quarter in the call. I think the most important thing is that we are very excited with including Panama in our portfolio of countries, and we're very excited specifically within the region in which Panama is going to be inserted. Our CAC business is growing very much in the year and we expect it to continue to grow.
Okay. Thank you.
Thanks, Alex. See you.
The next question comes from Pedro Leduc of JP Morgan. Please go ahead.
Thank you. Thank you all for the question and the call. Quickly on pricing in Beer Brazil again, and you mentioned you always move pricing with inflation long run, no? If we look at the just regular inflation data, it seems like beer inflation is already tracking general inflation. I'm curious to see your -1% slide, if it also has to do with the deteriorating mix within beer brands or within packaging. Of course, RGB may be having an impact on this as well. Looking into the next quarter, if you're already raising prices, the base is really high from last year. Now it appears that you have to take at least 20% pricing to match it.
Going back to my mix, question, is there a mix component in this pricing slide that we're seeing? Thank you.
Hi, Pedro. Thank you very much for your question. That's exactly what we said in our press release, that we no longer expect to achieve our goal of flat net revenue in Brazil for the full year, given an environment, but specifically the high net revenue per hectoliter comparable of the previous year. We can take this offline as well, but you have to run the math on the net revenue per hectoliter, including the taxes that go above that for consumers. We can go that and then you're gonna see how it plays and how, you know, for example, I think for next, for last, from last year, if I'm not mistaken, was like around 20% delta from Q3 to Q4.
You can look into our numbers, and we can check that. We're gonna explain to you how this translated on the price to consumers and how it is the impact. We can go into detail with you.
Okay. I appreciate it. Still on the 3Q -1% , is there a mix effect here in the same product pricing vs 3Q last year is up, I'm imagining?
Net revenue per hectoliter was down 1.6%, primarily driven by our decision to implement our price adjustment in the fourth quarter this year when you compare it to the third quarter last year. In addition, as part of our revenue management strategy.
We are using the complete portfolio of packs and brands to achieve attractive, more competitive consumer price points. This includes the RGB, but is not limited to that. I think the important point there is to highlight that we're not changing our revenue management strategy. Our strategy continues to be to increase our pricing in line with inflation and pass on any tax increases over time.
Got it. Thank you.
Thank you.
The next question comes from Carlos Laboy of HSBC. Please go ahead.
Yes, good afternoon, everyone. I was hoping you could expand a little bit on Robert's question earlier. How is the beer category doing in this environment? My question is against informal alcohol. I think your response to Robert was geared more around formal alcohol.
Thanks, Carlos, for the question, I mean. We don't have information of the informal alcohol, but I'll say that Skol Beats Senses and Spirit and Secret, it's a great alternative because, I mean, it's a very, very quiet, I mean, liquid. Again, this is Skol. It's sweet. It's 7.9% alcohol, delivers what people want in some specific occasions. The price point is attractive when you compare to, I mean, other kind of spirits. The informal alcohol, I would say cachaça, I think that everyone in Brazil trade up, I mean, in the last years, and then they start to taste different liquids, including Beats Senses.
I think that I continue to trust the ability of, I mean, this mix of drinks that we're launching in the market to gain share of throat to the lower price point. On the other hand, I have to bear in mind that this RGB in the off trade brings affordability for, I mean, beer brands like Skol, Brahma, Antarctica, and maybe some corporate brands as well in the future. That, again, great products, great liquids, great brands in affordable price, that will put pressure on this lower alcohol. I don't think that a lower-priced alcohols they are a threat for us. On the opposite, I think they are an opportunity.
Thank you.
Thank you, Carlos.
The next question comes from Gabriel Lima of Bradesco. Please go ahead.
Hi, thanks. Good morning. I'm sorry, good afternoon. I just have one confirmation here. When you say that you're back to the historical range of market share that you reached, I think during the third quarter, I recall that the historical range is around 67-69% share. Just wanted to confirm is that the numbers you know we are talking about. That would be the first question. The second, just you know you mentioned taxes, and we've seen lots of headlines here regarding state taxes that you know the very tough situation at the state level here in Brazil.
The state taxes, they increased in the last year or so, and you actually changed your footprint based on that slightly. You know, how are you looking into taxes, mainly at the state level, going to next year? Thank you.
Thanks, Gabriel. First question that you asked was about share. We measure, I mean, many sources. One source is SICOBE, another one, and we have internal as well. The main thing of having many sources is because you do not limit our initiatives that you put in the market based on the coverage of one source or another source. I mean, you always do what's good for the business and every case counts, if it's read in one source or not. Having said that, we have ranges in the SICOBE, and we have ranges on Nielsen. In both, we are within this range. I mean, if you ask for Nielsen, yes, we are in the 67%-69% range.
It's not the only one, because you have a growing volume outside of this reading of Nielsen, regular one, but we are in the range of both readings.
Mm-hmm.
Gabriel, regarding your question about state taxes, as you know, in Brazil, each state has its own model, own tax rate, and there's always discussions ongoing. That said, I can assure that, similar to the discussion held at the federal government level in the recent years, the cold beverage industry holds a permanent and constructive dialogue with each state government, with the intent of showing that a lower tax burden on the industry enables a greater potential for volume growth and further investment. As a result, allows for tax collections to continue to grow with no pressure on inflation, job creation or investment. I mean, we say a lot that the model that we believe is the model of the positive cycle in which we do investments generate jobs generate consumption generates increasing tax collection.
We have, of course, all that permeating stability in terms of rules so that you increase tax collection throughout what we believe to be a sustainable way.
Okay. Thank you very much.
Yep.
There are no additional questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Mr. Bernardo Paiva for closing remarks.
Thanks, Kate. Thanks, everyone, for being part of the call. Just a final message. We continue to be bullish here in Brazil. That's, I mean, the main topic of this call. We know that's not a straight line, but it's up. We have a strong plan. I mean, have been discussing there for you for the last one year and a half, and now Elevate the Core, the initiatives we are able to that. I mean, new VBI of Skol, it's doing pretty well in the market, and then we'll do even more for the other brands as well. Premium is growing. We are there. Near Beer. We are doing important things in terms of out of home, in home, go-to-market, service level to the parks.
On top of that, again, we know that Brazil is still facing this year a tough moment in terms of macro, but we know that we're very confident next year will be better. All the indicators, the macro numbers that we have shows that, and we'll be completely ready to capture this opportunity that the country, I mean, will offer to us again. Very bullish. Continue to be bullish about Brazil and about our plans for the future. Thanks a lot. See you next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.