Ambev SA
BOVESPA:ABEV3
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Ambev SA
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Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's Third Quarter 2019 Results Conference Call.
Today with us, we have Mr. Bernardo Paiva, CEO for Ambev; and Mr. Fernando Tennenbaum, CFO and Investor Relations Officer.
As a reminder, a slide presentation is available for downloading on our website, ri.ambev.com.br as well as through the webcast link of this call. [Operator Instructions]
Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of The Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward-looking statements.
I would also like to remind everyone that, as usual, the percentage changes that will be discussed today during today's call are both organic and normalized in nature and, unless otherwise stated, percentage changes refer to comparisons with the third quarter 2019 -- '18 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, [ EBS ] (sic) [ EPS ], EBIT and EBITDA on a fully reported basis in the earnings release.
Now I'll turn the conference over to Mr. Fernando Tennenbaum, CFO and Investor Relations officer. Mr. Tennenbaum, you may begin your conference.
Thank you. Hello, everyone. Thank you for joining our 2019 third quarter earnings call. I will guide you through the financial highlights of our operations, including our below the line items and cash flow as well as commercial initiatives of CAC, LAS and Canada. After that, Bernardo give more details about our operations in Brazil.
Beginning with the main highlights of our consolidated results. In the third quarter, top line grew 5.9%, a combination of volume increasing 0.8% and net revenue per hectoliter, up 5.1%. EBITDA reached BRL 4.4 billion, an organic decline of 5.4% while EBITDA margin decreased 450 basis points to 36.9%. Normalized net profit for the quarter was down 15.8%, delivering BRL 2.4 billion.
Similar to last quarters, we continue to report the results of our operations in Argentina applying Hyperinflation Accounting. Having said that, I will now move to our divisional results and start with Brazil. In the quarter, Brazil EBITDA reached BRL 2.4 billion, a decline of 13.3% versus Q3 '18 while margins contracted 710 basis points to 37.9%.
Beer Brazil top line grew 1.1%, with a volume decline of 2.8% while the industry grew low single digits according to Nielsen. Net revenue per hectoliter grew 4%. EBITDA for Beer Brazil was down by 7% in the quarter, with margin contraction of 350 basis points to 40.3%. This contraction was explained by the cost pressures we already had anticipated in the full year 2018 earnings release.
Cash COGS per hectoliter grew by 26.5%, impacted by commodities and FX. Year-to-date, top line in Beer Brazil increased by 7.8%. Volumes are up 3.9% and EBITDA was down 3.1%, with margin contraction of 450 basis points to 40.0%.
In NAB Brazil, top line was up by 13.6% in the third quarter, the result of a 6.6% net revenue per hectoliter growth and 6.5% volume increase. Industry grew low single digits according to Nielsen. EBIT in the quarter declined 44.3%, with margin contraction of 2,640 basis points to 25.4% due to hard COGS comparables in Q3 '18.
Year-to-date, top line in NAB Brazil increased by 17.5%, and EBITDA was down 5.8%, with margin contraction of 830 basis points to 33.5%.
For Brazil consolidated, we reiterate our guidance of cash COGS per hectoliter growth of mid-teens in Brazil for this year, which should be more pressure in the first 3 quarters, easing off towards the end of the year.
Moving now to Central America and the Caribbean. CAC continues to show good momentum with a 6.8% net revenues growth, which is a combination of 2.8% increase in volumes and a healthy 3.8% net revenues per hectoliter growth.
EBIT in the quarter reached BRL 688 million, boasting a double-digit growth of 21.1% driven by a strong growth in Dominican Republic and margin expanding 470 basis points to 41.5%. Year-to-date, top line in CAC increased by 10%, and EBITDA was up 23.3%, with margin expansion of 460 basis points to 43.2%.
We're pleased with our commercial strategy in CAC, delivering healthy volume performance in virtually all countries in which we operate. In the core segment, Presidente launched a summer campaign, La Fría más Fría, while delivering experience to consumers with a refreshing ritual. In Panama, our second largest market, we celebrated this quarter the 110th anniversary of Cerveceria Nacional, reinforcing the last connection with consumers through our multicategory activation. We also continued to roll out the optimization strategy in the region, developing Corona, Stella Artois, Modelo and Budweiser through a customized execution, both for the on-premise and off-premise channels. Highlights of the quarter were the triple-digit growth of Modelo in Dominican Republic and of Budweiser in Panama.
Premium accounts for less than 5% of the beer industry volume in CAC, representing a great opportunity for the future. I like to take this occasion to say that we continue to be very excited about our business development and the strong volume performance in CAC, reinforcing our positive outlook for the region moving forward.
Switching now to Latin America South. Volumes in the region increased 6% during Q3 '19, driven by Argentina, where volume increased by mid-single digits as a result of shipments phasing ahead of scheduled price increase in October 2019, and benefiting from favorable comparable in the prior year.
Net revenues per hectoliter increased 15.3%, which led to a 22.3% top line growth. EBITDA in LAS for the quarter was up 7.9%, with margin contraction of 530 basis points to 38.2%. Cash COGS per hectoliter in the quarter increased 28.6% mostly driven by FX and commodity. Year-to-date, top line in LAS increased by 14.1%, and EBITDA was up 15.9% with margin expansion of 70 basis points to 22.3%.
Despite the macroeconomic volatility throughout the region, we remained focused on what we can control in our business and had positive developments. In Argentina, we maintained a strategy of differentiating the core brands. Quilmes, our classic lager, continues to enhance its national credentials with the launch of the Hecha con Cariño campaign. Brahma, our easy drinking lager, activated a campaign in Friend's day, capturing the attention of the younger public above the legal drinking age.
In the core plus segment, Andes Origen led the growth with the launch of the single-serve returnable glass bottle of the Red Lager. And in September, it broke its all-time high volume of sales.
Budweiser embraced a new platform of international soccer, exploiting the global sponsorship of Spanish La Liga and the English Premier League. We continue to see strong growth from our portfolio of brands in the premium segment in the region, with double-digit growth of the portfolio in Argentina. In Chile, the premium portfolio grew double-digit as well, with Cusqueña being the highlight, delivering triple-digit volume growth in the quarter.
Going forward, while cautious with Argentina in the short term, we have positive mid- and long-term perspectives in the country, and remain confident in our ability to deliver solid top line and EBIT in the whole region supported by a strong portfolio.
Turning now to Canada. In the third quarter, top line in Canada declined 3.2%, a combination of 2% net revenue per hectoliter increase and a 5.1% volume decline, which was mostly driven by a declining beer industry. EBITDA reached BRL 565 million, 14.9% lower than in the third quarter of 2018, with margin contraction of 390 basis points to 28.4%.
Cash COGS per hectoliter increased 7.6%, negatively impacted by increased commodity price, higher mixes of imported beers and lower dilution of fixed costs. Year-to-date, top line in Panama decreased by 2.4% and EBIT was down 8.6%, with margin contraction of 200 basis points to 28.9%.
Despite the industry challenges, we had positive achievements with our portfolio during the quarter. Our focused core and core plus brands continued to deliver strong results. Michelob Ultra supported the health and wellness platform. It remains the fastest-growing brand in Canada. In the premium segment, our high-end portfolio is growing ahead of the industry led by a double-digit volume growth of our premium import brands such as Corona and Hoegaarden.
Now back to the consolidated figures below EBITDA. In the third quarter, net financial results totaled in expense of BRL 306 million, 54% lower than in Q3 2018. The main items in the financial expense in the quarter were: First, interest income of BRL 626 million driven by our cash balance and recovery of a tax dispute; second, interest expense of BRL 394 million, that also included interest incurred in connection with the Brazilian Tax Regularization Program as well as a noncash accrual of approximately BRL 60 million related to the put option associated to our investment in the Dominican Republic business; third, BRL 312 million of losses on derivative instruments which were up year-over-year, explained by the increase of tax hedges and carry costs linked to our COGS and CapEx exposure in Argentina and by our fixed swap losses; fourth, losses on nonderivative instruments in the amount of BRL 291 million, mainly explained by noncash intercompany tax variation, mostly linked to the Argentinian peso depreciation; fifth, taxes on financial transactions on the amount of BRL 58 million; sixth, BRL 121 million of other financial expenses, partially explained by accruals on legal contingencies and pension plan expenses; seventh, BRL 174 million of exceptional financial income explained by noncash intercompany transactions; finally, eighth, BRL 7 million of financial income related to noncash incomes resulting from the adoption of Hyperinflation Accounting in Argentina.
The normalized effective tax rate was 7.9% in the quarter. Year-to-date, the normalized effective tax rate was 13.3% versus 7.6% in the same period of 2018. Cash generated from operating activities in Q3 2019 was off BRL 3.6 billion, which is 34.2% lower than last year. Year-to-date, cash generated from operating activities is declining by 8.5%, reaching BRL 8.7 billion. CapEx reached BRL 1.6 billion in the quarter and BRL 3.1 billion year-to-date, increasing 38.2% versus the first 9 months of 2019.
Thank you very much. Bernardo will now share some initiatives and thoughts on the Brazilian market before going to the Q&A.
Thank you, Fernando. Hello, everyone. Before I comment to the key highlights of the quarter, I would like to spend some more time to talk about the transformational change in our business towards becoming even more a consumer-centric and more technology-driven company. This transformation has 2 main pillars: first is our culture, never forgetting the core values that brought us here, such as our ownership mindset; hire and develop great people; the culture of opening gaps; and closing gaps and never taking shortcuts. These values will continue to be the basis for us to achieve our objectives in the changes off site; second, our strategic growth platforms. We're being very consistent on applying this strategy to all areas of the company. And we strongly believe this is the correct path for sustainable growth and value creation for investors. Consumer is changing, and we are changing and evolving as well.
We're going to be become an even more technology-driven company. We have some key milestones that are important to highlight, such as the acquisition of an IT solutions company, streamlining the IT area to give more focus to our core and new business and adding a position of VP of Technology.
Now talk about this quarter. As mentioned by Fernando, we continue to deliver on our main initiatives, include innovation and continue premiumization. During the quarter, volumes were down 2.28%, while the industry increased low single digits, which means a lost share. The impact of our price increase was amplified by simultaneous competitor discounting and a challenging macroeconomic scenario. But in the first 9 months of 2019, volume grew 3.9% while the industry grew low single digits, delivering share gain year-to-date. We continue to be excited about the prospects for Brazil. Demographics are supported as population older than the legal drinking age is growing at 1.5% per year.
On the penetration side, there are also meaningful opportunities as half of the population older than 18 didn't have a beer over the last 12 months, and most of them due to affordability. As the country evolves, we're continuing to see strong development of the previous segment as well as an opportunity to increase consumption of beer by women in order to close the gap to more mature markets.
We remain confident in the growth potential of Brazil given our superior portfolio, which allows us to play in all the segments of the Brazilian market, reaching a more balanced top line growth between product and revenue, our unmatched distribution capability, exciting innovations we have in the pipeline, consistent investments in our strategic platforms and our people.
So now let's begin to talk about our first strategic platform, which is premiumize at scale. Premiumization is a continuous trend, and it's always important to reinforce that our strength in the segment is a great portfolio, combining global and domestic brands. Our premium segment grew double-digit in this quarter led by our global brands, continue this strong momentum we have been having in the previous quarters.
Budweiser, our largest global brand, plays a key role as a bridge for consumers who are trading up towards the premium segment. The brand's quarter was marked by a 360 campaign, highlighting its functional attributes. Budweiser liquid is striking at first with a smooth finish, making it the king of beers. Stella Artois continued to embrace the full platform with another edition of Villa Stella, our proprietary blend. The brand volume was also supported by the continued expansion of new pack formats, such as the returnable sharing-sized bottle. As a result, Stella Artois continues to grow very strong all over the country.
Corona continues to embrace the Better World platform, calling attention to the plastic dumped in the ocean. The campaign Undesirable Museum impacted approximately 22 million people. We are very excited for our latest this launch, Beck's and Colorado Ribeirao Lager. The volumes of those brands are very, very incremental to our portfolio.
We are certain that the premium market is a portfolio gain, and that we are having a very strong position to continue to gain share in the segment.
Now moving to differentiate the core. Brahma, our classic lager beer, continues to experience a memorable momentum. The brand connects with consumers through relevant platforms such as Sertanejo, the Brazilian pop music and soccer. This quarter's campaigns were focused on Chopp Brahma, the authentic Brazilian draft beer and the Sertanejo platform.
Chopp Brahma campaign highlighted the main attributes of the brand, with a 6-episode digital show about iconic Brazilian bars and linked that to our franchise business, Chopp Brahma Express, the in-home experience.
Moving to the Sertanejo platform. Brahma was present in more than 150 Sertanejo Festivals throughout Brazil, including the 2 largest: Barretos and Jaguariúna. Approximately 7 million people attended this event.
Skol's quarter was marked by the continued campaign of the Skol family, reinforcing the most recent launch, Skol Puro Malte, which from a volume perspective has been our biggest innovation in recent years. And it continues to expand quarter-after-quarter.
Bohemia, a core plus pure malt lager, also posted amazing results growing triple digits for the third consecutive quarter and over a meaningful base.
I will now spend a few minutes to talk about driving smart affordability. One of our approach to various segments is to build regional connections, thus creating brand equity at an affordable price point. And given local raw materials, local market and only most profitable packaging, we are also able to deliver very healthy margins. This quarter, we rolled out Legítima in the State of Ceará. Nossa, Magnífica and Legítima are performing very well, with the strong share gains in the states in which they were launched.
Before moving to operational excellence, I would like to talk Beats. This quarter, we announced that Beats and the Brazilian pop singer, Anitta, will join force to develop and create new products. The first outcome of this partnership, the ready-to-drink Beats at 150 bpm was launched on the beginning of October.
Going back to operational excellence. Our mantra is, "Wherever we go in Brazil, there has to be Ambev." Operational excellence has always been one of our biggest strengths and key differentials. Given that point of sales connect our brands to consumers, customer experience is a strong focus. Complementing this strategy, we have our customer experience center. Our customers' requests, open in any Ambev channels such as the B2B, the telesales, WhatsApp, and dollar sales rep doing the visits are direct to the center and solved in one single place.
Talking about technology. As we highlighted last quarter, technology has been a key enabler for us to support our strategic growth platforms. To optimize Ambev's operations, we continue with the HBSIS integration, expanding and improving technology to other areas of Ambev with more agility and scale. HBSIS ended the quarter with more than 500 developers. Also, to give some update on numbers, sales which are not conducted by sales reps at site, now account for 32% of the total of on-premise channel. And Parceiro Ambev, our B2B tool, just surpassed 200,000 clients in September compared to 66,000 in January.
Now moving to our nonalcoholic business division. We are quite pleased with our performance this quarter. As consequence of the implementation of our strategic growth platforms, volume increase came from all different segments in our portfolio. An important highlight are the premium brands such as Tonica, [indiscernible] and Gatorade, which grew double-digit bringing a healthy contribution to the portfolio mix.
Talking about sustainability. A quality beer starts with the best ingredients, and this requires a healthy, natural environment as well as great communities. We have been green for more than a century, and wants to make sure that we are here for the next centuries, bringing people together for a better world. That's right, sustainability, isn't just part of our business. It is our business.
Through our 2025 sustainability goals, we are connecting thousands of farmers to technology and skills, ensuring water access and quality in high water stress communities, partnering with our suppliers to increase recycling content and investing into renewable electricity capacity.
Finally, so far, 2019 has been a good year as our portfolio of brand is delivering a healthy top line growth, which is helping to offset the cyclical pressures arising from FX and commodities. When you look beyond such cost headwinds, we get even more excited about the strong fundamentals and growth potential of our business. We are only able to achieve such results year-to-date, given the amazing people who have always been the foundation of our company. With our team, our culture and our consumer-centric business model, we are confident to being in a strong position to deliver long-term sustainable growth.
We can now move to the Q&A. Thank you.
[Operator Instructions] The first question comes from Isabella Simonato with Bank of America.
I have one question in Brazilian Beer. If you could -- when you mentioned about competition in the release and you also said some headwinds should persist in Q4, can you elaborate a little bit more on how do you see the competitive environment, if you see some sort of structural change? Or if in the beginning of fourth quarter, now in October, you already saw some move from the competition in terms of pricing. I mean when we look for Q4 and also towards 2020, especially as your competitors should increase capacity, how do you see the market share equilibrium going forward? And if I may, a second question on soft drinks. We saw, I think, a very pressured margin in the quarter, not only on the gross margin side, but also on SG&A. How can we think the profitability of this business in the longer run?
Isabella, thanks for the question. I think let's talk a little bit about the quarter in terms of the volumes. We know that was down 2.8%, and the industry grew single digit, low single digit, which means that we lost share. The impact of our price increase was amplified, yes, by a simultaneous competitor discounting and a challenging macroeconomic environment that we still have here in the country, in Brazil. We know as well, I mean from decades that we operate in this market, there are promotional activities to try drive volumes in the short term, but does not build brand acting or a sustainable business for the future.
When you take a more longer view in terms of the volume and in terms of the industry, the first 9 months, I mean we are in a -- still pretty good shape. Our volumes grew 3.9%, outperformed the industry that was low single digit, which means that we are gaining share in this period -- in the year. That's pretty good news. We had a very good and amazing first half, outperforming the industry big time, so we entered in this price increase in the third quarter, yes, we burn some volumes compared to last year given the points that I mentioned before. But again, we're still gaining share this year and outperforming the industry in relevant terms.
It's important to point out that we have not seen any disposable income resuming as well that affect the industry. And when it's happened and we had a positive news in terms of disposable income, we will see a positive impact in our business for sure.
We continue to be very excited with how the portfolio is performing, continue to deliver strong brand power. I mean you have innovation in the market scope, Malt, Bohemia Premium Malt, Colorado, Beck's, all of them performing very, very well. Regarding the fourth quarter, I mean, we do not comment in the current trading, that's what I could say. So all in all, it was a quarter that we underperformed the industry, yes. I think that the promotional activities of the other companies were -- I mean, it was exactly in that moment that we increased price. But I mean, full year, doing well, gaining share on the full year after an amazing first half.
Isabella, Fernando here. Your question on soft drinks. For soft drinks, if you see what happened throughout the whole year, you saw that our SG&A was higher because volume was performing very well, so that's somewhat linked to volume and somewhat linked to investing behind the brands. And that's definitely paying off because we saw that top line in soft drinks continues to be very robust in the third quarter. What was more of a one-off, you could say so, was the cost of goods sold because if you remember, last year, we had that huge improvement on cost of goods sold on the third quarter, and this year is more of a normal year. So the basis was very hard, that why we see such a pressure. But actually, we are quite excited for our soft drink business because top line is performing in a very healthy way.
And just to highlight some numbers, the volume in the first -- the third quarter was 6.5% above last year in 9 months; year-to-date, 9.4%; industry, low single digit; top line in 9 months, 17.5%. I mean business is doing very, very well. The growth platforms are working as they are working in beer, they're working in all parts of the business, driving premium, smart affordability, our core brands are doing pretty well. So very happy with the soft drinks and the nonalcoholic results so far.
The next question is from Lucas Ferreira with JPMorgan.
I wanted to explore a bit more the volume performance in Brazil for beer. If you could give us some more information about which were the categories that suffered the most, which were the categories that you had more competition? So -- and also, on a region-wise -- you have very good performance in the north, northeast of Brazil, if that was still the case in the quarter. So if you can give us more color on the breakdown of this 2.8% volume performance and how competition was doing in each of the categories and regions. And then my second question is regarding the fourth quarter outlook as well. So do you also foresee more pressure coming from pricing? How your competition is shaping up in terms of adjusting prices closer to your portfolio. If you can give us more color on what could happen in the fourth quarter in this sense, that will be super helpful.
Thanks, Lucas, for the question. Again, I mean, just to remind us and repeat to us [indiscernible] Isabella. The portfolio today is working very, very well and gaining share in all segments, stabling the core, gaining share in premium, gaining share in value. So innovations are working. So in the first half of the [indiscernible] grew big, big time. Third quarter increased price. Competitors with promotional activities and discounts going in the opposite way and in this activity to us in all segments. When this happened, and then you have all the experience, we have the segment that really suffer more because of the affordability issue. No disposable income among the core segment. That doesn't mean that the core businesses are not doing well, they're doing pretty, pretty amazing. Brahma, Skol family, the innovations that we are putting in place to support the core as well. But because of affordability issues that we continue to have in Brazil with disposable income that's very low. When don't have a wide net price gap, we have core brands in the shorter term suffer more. But again, what is that? I mean promotional discounts are a tool to try to drive volume in the short-term but does not build our business in the longer term. We are not in this game, in the game of building brands and building a strong business in the longer term. We are here in Brazil for decades.. Second, we are already seeing this type of competitive behavior before and it didn't work for any company in the past and had been working for us in the long run. So that's why despite of the price increase that's coming that we've done and then this [indiscernible] competitor discount that happened, we continue to stick to our long-term approach, supporting strategic growth platforms, investing behind our own brands, innovation in the Ambev ecosystem that we are -- I mean [indiscernible] investing even more. Regarding any price increase, what we could see that after 3 or 4 months, you can see a kind of historical basis equilibrium in the market. That's what -- why I would say, the history says. But again, we don't comment in current rate or anything about the fourth quarter.
Yes. And Lucas, just Fernando Tennenbaum here. You're asking about the fourth quarter outlook, we cannot give any outlook. The only thing we said that in the release is that some of the headwinds might be carried into 4Q. And at the end of the day, when you mention something like that, it's always a combination of volume and net revenues and the headwinds might impact each one of those in different ways. But I cannot comment much more than that.
The next question comes from Luca Cipiccia with Goldman Sachs.
I'm going to hit as well, sorry, on Brazil just to clarify a couple of points. So I think your point about the fact that the 9-month performance did show positive volume growth, I think it's fair. I guess what surprised us, and I would assume almost everybody else, is that the magnitude of the decline in the third quarter in beer given the comps and the timing of the price increase, and I think you point to 2 factors. You point to the macro environment, you point to the competitive landscape, competitive reactions. So the question would be, on the first point for the longest time, we heard the thesis that soft drinks is a more macro sensitive category as compared to beer. Yet, it's been a while now that actually that we see beer suffering proportionally more at least in times of price increases, even where you have clear leadership in that category. So my question would be why are we seeing this greater elasticity, if you like, in beer as compared to soft drinks, which seems to have rebounded not just for you but also for the market leader? And secondly, on the pricing, you definitely have done a lot. You clearly are doing a lot on innovation, bringing new products to the market, new launches, new packages, new initiatives, yet it seems that your competitor is using the oldest trick in the book and when they do holding prices, doing promotional, they do have some significant result or they manage to disrupt a little bit the competitive landscape. So my question will be are you doing enough on affordability or pricing, or should you maybe re-oxygenate the market given that the beer volume growth seems to really struggle to come back or anytime pricing doesn't come through, then we have an impact on volume. So can you maybe expand a little bit on this comparison between the volume, industry volume trends, in soft drinks and in beer? And also, should there be an effort to increase further affordability for the beer segment?
Lucas, thanks for the question. Let's talk a little bit about beer first. I mean, I think it's always important to see in the longer term because when you see quarter-by-quarter, and we will have a specific this quarter and the third quarter. I will repeat, a price increase, as you can see in our net revenues for [ that to lever ] and competitors, at the same time, discounting. This is not so common in the market. I mean not even in the Brazilian market, I mean, in the past. So when you have a situation like that in 1 quarter, the disposable income is still low, the volumes tend to suffer more. And on top of that, when you increase price [ the leader ] when you contract the industries always happens. So those are the 2 effects. I mean every time that any company increase price and a leading company like ours increase price have contract a little bit, contract in the industry. And it specifically -- that affects our volume. Not that you lose lots of share in this in the third quarter. That's not the case at all. But when this happens, a price increase and a competitor is pulling price down, this is not so common, not even in the Brazilian market. What we had experienced in the past is that this is a strategy that does not work. It does not build value in the longer term. So again, I repeat, I've been here in Brazil for decades, we saw this before. Driving volume or prices driving volume, try to driving volume in the short-term price. This does not end well for any company in any industry. So we are not in this game. That's why I'm saying is, the strategy is working, premium is growing double-digit, innovation is growing big, big time. Yet in the shorter term, the core brands, they suffer more because they have a bigger price gap, but when you are seeing a longer 9 months that the number that I can say to you, not even say ahead or first, we still are gaining share. So even with this thing that was very atypical, this behavior of competitors in terms of after a price increase, we're gaining share in the year. I mean we are growing 3.9 and this is low single-digit, so that shows the resilience of our business, the portfolio that's working, the innovation that's working. So even in very typical pricing behavior in the markets with the third quarter, we're still gaining share in the area. So this is the beer business.
For the NAB business, the industry is too low. We are gaining share a lot, so we can have the numbers here, but it's a low single-digit and the volumes in the third quarter was 3-point-something. I'll give the right number at 6.9%. And in the 9 months, it was 9.4%. So we're gaining share big time, so the industry is low single-digit. So this is the first point. Industry is very, very similar. And then I will say here that the competitive environment in the NAB business is more rational, that's why it's reflected as well in the numbers. So that's what I could say to you regarding both business.
If I can follow-up. In an environment in beer, where to your point, there's been a lot of promotional, a lot of pricing disruption, if you like, is it somewhat surprising that volumes are not benefiting more on aggregate for the industry as compared to again NAB where in fact pricing is coming through and volumes are growing? I struggle to reconcile maybe the fact that the industry volumes struggled to come back in spite of pricing or promotional activity has been quite elevated on low comps?
I think let's talk about the industry a little bit in Brazil first. The industry in the quarter is low single-digit so we have this information. So with that, I mean, we know that the way that you measure that specific industry, we have some delays because it's a Nielsen effort, delays in terms of timing. And we know as well that one very important region in the country, that's the north and Northeast in terms of volatility of volume. The coverage of the Nielsen, [indiscernible] is not so good there. So with that, what I could say that our volume in the north and Northeast is growing ahead of the industry there. And the industry there is not so represented in the full industry of the country. So -- which means that our performance compared to the industry, it could be a little bit better what the numbers says here. But the numbers are the numbers, and we have using Nielsen, continue to use Nielsen, improving the coverage a lot. It used to be 65%, today it's 80%, that's not 100%. So based on our internal numbers, probably the industry would be a little bit -- it'll be low, lower than the numbers that we show you. But the numbers are the numbers. Nielsen was around low single digits.
The next question comes from Antonio Gonzalez with Crédit Suisse.
Bernardo and Fernando, I am so sorry to come back to the same topic that everyone has asked so far. But just 2 quick follow-ups. The first one, you are highlighting extended headwinds into 4Q, right? But obviously, 2 months to be played yet. So I wanted to ask the status, without commenting on your strategy, which I understand you cannot. The status so far, are you still seeing a lot of discounting as we speak? Or what leads you to give the comment into 4Q regarding having still 2 months ahead of us? That's the first question. And then the second question, I wanted to see if you can comment, you've shared with us in the previous quarters, what was the movement between mainstream and value, right? 200 bps at the beginning of the year, the market migrating to mainstream, then flattish in the second quarter. Can you share those trends with us for the third quarter?
Fernando here. So let me start by your last question. We saw a decline in the first quarter on the value segment. And since then, it's been stable, which means that probably year-on-year, they are a little bit better. But it is stable since the first quarter. On the question on the fourth Q, we cannot comment on the current trade or give guidance. But what is fair to say is once we increase prices, the market take a little bit of time to find its new equilibrium to go back to normal, even the dynamics between at the moment everyone announced to increase prices. It's rate kind of [indiscernible] a little bit ahead to make sure they have the volume, then the volume goes down. Takes a little bit for the price to go through for the final consumer. So the market takes a little bit of time. So Q3 must to find its new equilibrium. It is something that we've seen before, it is something that every time that we do, you're going to see that, your share is going to suffer a little bit. But then again, this is something normal. What I think it's then, I think that we can see that the highlight is that even in the moment that increased prices, you see that the previous segment continue to perform very well, you'll see that the core, which is the one that expect to suffer. It suffered but the brand power is still quite strong, so I think -- sorry I cannot comment too much more about going forward, but despite this kind of a setback, if I could say so, in the third quarter, we continue to be very excited with the strength of our portfolio.
And Antonio, in Q2 to share some facts, again, to reinforce. In the first half of the year that have more a stable -- a more stable market environment, I could say our volume grew, I mean, 7-plus, outperforming the industry. So good that this strategy is working. No, the volume is coming, share is coming that you could enter in a quarter of a price increase. That wasn't typical, given all promotional activities that you saw in the market. But we enter in this quarter in a very strong base -- with a very strong base in terms of share and volume in a way that we continue to gain share in our year-to-date numbers. And in a way that our volume is strictly 9% above last year, even with this [variable] third quarter. So the fundamentals of the business are there. That's what I could -- I mean, talk about the past regarding the year-to-date numbers.
That's clear. And if I may just very quickly follow-up on a different topic. Is it possible to comment, and I presume it depends ultimately on your Board's proposal and Approvals Board. Dividends, so far, would you expect more of a bullet payment at the end of the year as opposed to installments, which has been the case historically, obviously? Anything that you can comment on that front?
Fernando here. On a normal year, normally we have -- we would have already been paying some dividends throughout the year. But in Brazil, the [ IOC ] is very important kind of the way you paid, and this year, given hyperinflation in Argentina and the impact that it had in our balance sheet accounts, it's much more optimal if you leave it later for it to pay [ IOC ]. So the idea is for us as always to maintain our policy to pay out over the long run all our free cash flow, but more than that I cannot comment because as you mentioned well this needs to be approved by the board and then to be disclosed in the proper way. But the long run, it doesn't change our approach, we always like to pay out all the free cash flow over time.
The next question is from Robert Ottenstein with Evercore ISI.
Terrific. Let me try to change the topic slightly. Two questions. One, can you give us a little bit more sense of the weakness in Canada? Why the industry should be so weak? I don't think the weather was too bad. Tied to that, your plans on a CBD rollout there, so that's the first question. And then the second one, are you seeing any signs in Brazil, the taxes, either at the national or state level will go up. I know they have to be all done by the end of the year where we're 2 months or so away. So those will be the 2 key points that I'd like to hear about.
Okay, Robert. Fernando here, thanks for the question. On your last question, so no signs, no news on that front, too early to comment on taxes. But no news on that front, if there is anything I can say about it. On your first question on Canada, I think that we saw a little bit of softness. From a market share standpoint, no issue there. I think we are in a very good shape, but the overall industry was quite weak. I think weather was not terrible but it was not great either. But overall, the industry as a whole, we can say, was soft. When you -- on your second question, on cannabis. I think we announced that we will be -- we launched our products, but only with CBD, and I think the timing, I think we still need to wait for it to be properly regulated to be available for the market. At the end of the day, Fluids, which is the company that we have a JV in Canada, they will launch the products. We intend to lead the cannabis industry in Canada when it comes to responsible marketing of its products, ensure that it's always focused on legal-aged consumers and fully in compliance with all Health Canada provincial regulators. We intend to have the product for sale to our consumers as early as December, 2019. But of course, this is subject to the regulatory timelines implemented by the Health Canada and provincial regulators. So I think we are excited, but it is too early to make any comment, and even the timing, I cannot be 100% precise but could be as early as December this year.
And just on that, do you currently have the necessary licenses? Does your facility that you have or your partner you have, does it have the current -- the necessary license to produce products? And whatever regulatory approvals you need at this point?
This is kind of a -- we want to make sure that when the time is right, December '19, we have all the licenses. Without it, of course, we'll never be able to sell it, Canada is very regulated market. So the moment that we came out with the product in the market, you can make sure that we have all the necessary approvals and licenses.
Okay. But do you have them now?
Right now, I cannot comment on that. Because it's too -- the regulation was already approved. But even if for it to have your product validated, it takes a while in Canada. It's not something that is kind of -- the regulation is approved, everybody can sell. I think I would be surprised if anyone will be in a position to sell right now. I think the earliest anyone can be in a position is probably December.
The next question is from Thiago Duarte with BTG.
Bernardo, Fernando, I have actually 2 follow-ups on previous questions and answers. The first one, Fernando, you mentioned in the previous question on the performance of the value segment relative to the mainstream segment. You mentioned that the value segment lost ground with the first quarter of the year that has been stable ever since. So I just want to confirm that's the case because that would imply that the value segment, my understanding, lost share versus the mainstream segment on a year-over-year basis versus the third quarter last year. So just want to make sure...
Correct. Correct.
Yes, that's -- okay. Perfect. And the second follow up is, again, back to the statement that you guys had in your earnings release when you say that the headwinds -- some of the headwinds specific for the third quarter, you see that carrying over into the fourth quarter. I just -- it's still not clear to me, where do you see those coming from in the sense that you can anticipate it? So I just want to make sure, I mean, the cost environment should look better in the fourth quarter as per your guidance since the beginning of the year. The industry is growing as per what Nielsen report today, that's good. So I don't -- it doesn't seem to be an industry issue and an overall demand issue, even though the industry's not growing much, it seems to be growing over a reasonable comparison base. So just want to make sure, are you guys anticipating that the competition is going to remain promotional throughout the rest of the fourth quarter? Or just whatever you guys could add on that, just if you could be a little bit more specific would be great. And finally, my question is on the performance of the -- smart affordability initiatives in the Northeast of Brazil. It's clear that those segments are doing very well since the launch has started last year. So just wanted to hear little bit more on how incremental those volumes have been to your portfolio and/or how much -- has there been some cannibalization between those new brands that you guys introduced in certain states relative to your mainstream portfolio and relative for the competition portfolio. I just want to see how those brand shifts are taking place in the Northeast?
Sorry to disappoint you, but we cannot give much more details on Q4, or discuss kind of current rate. I think you flag it right, kind of -- on the cost side, we gave the guidance, and we're not changing the guidance. So there shouldn't be too much surprise in there. One was a little bit of new news and kind of is actually third quarter and the whole competitive environment coupled with the macro environment, that got a little bit worse in Brazil. So I think these are the 2 main reasons we are kind of being a little bit more cautious going into 4Q. But on the cost side, as you asked -- as you said, we gave our guidance. And we are not changing the guidance, so there should be no surprises in there.
And Thiago, linked to the brands for them, the market for the big brands that we launched in the Northeast. They are very incremental. They play in a segment that was -- that's the better segment that is big. That we are, I mean, under the fair share, a big time. So they are helping us in those states to gain share in the beverage segment. And linked to this specifically, I mean again, I will repeat know because if you have a slightly different view, it's specifically of this quarter and the volume and the share. In every market that we have been operating that we have problems with disposable income. Any market, I mean, there have been other markets, not only Brazil, I mean, many, many countries that I saw that are levered. When you increase prices and the competition has this kind of promotional activity that had here, usually the facts in your volume are usually this strong. It's very, very strong. But the good news, and then that shows that our strategies are working, our innovations are working. They are incremental of our business. Definitely, we grew 7.2% in the first half of the year. And we enter in this price increase. That's all very typical in a very strong mode and we end that 3 quarters gaining share with 2.9 volume growth this year. I mean that shows how resilient this portfolio is becoming because maybe in other countries, in other -- I mean, we would lose share, that's not the case. So the fact that you continue in the year-to-date to gain share and outperform the industry in a meaningful way. And I talk about the year-to-date of 3.9 in the industry, low single digit, which means that the portfolio is resilient, that innovation is working. And we see that kind of the shorter term promotion activities does not create value to anyone. I had been here for decades, as we said, it's a shorter term to try to drive volume. I mean we saw this before in many, many times, it didn't work. So we are here to build brands, to build share of our building brands and a sustainable business. And we are happy with that performance of a 3.9% of volume in the first 9 months against the industry that's a low-single digit. Despite of this third quarter very typical, whatever pricing behavior in the market. So I'm very confident about our strategy and in the performance of our portfolio in Brazil.
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bernardo Paiva for any closing remarks.
So before finishing our call, I would like to close saying that we are confident, again as I said, in evolving in a consistent way with our strategic platforms, not only Brazil but in every country that we are operating in Ambev. Despite the short-term volatility in the region that you know in many countries like have been operating here in those countries for many, many times. We continue to focus on the long run and sustainable value creation. Thank you. Have a great day. Enjoy the rest of the day. Thank you again.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.