Ambev S.A. Q1 FY2025 Earnings Call

Good afternoon and thank you for waiting. We would like to welcome everyone to Ambev's 2025 First Quarter Results Conference Call. Today with us we have Mr. Carlos Lisboa, Ambev's CEO; and Mr. Guilherme Fleury, CFO and Investor Relations Officer. As a reminder, a slide presentation is available for downloading on our website, ir.ambev.com.br, as well as through the webcast link of this call. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company's presentation. After Ambev's remarks are completed, there will be a Q&A section, when we kindly ask that each participating sell-side analyst asks only one question. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward-looking statements. I would also like to remind everyone that, as usual, the percentage changes that will be discussed during today's call are both organic and normalized in nature. And unless otherwise stated, percentage changes refer to comparisons with 2024 first quarter 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, operating profit, and EBITDA on a fully reported basis in the earnings release. Now I'll turn the conference over to Mr. Carlos Lisboa. Mr. Lisboa, you may begin your conference.

Good afternoon, everyone. Thank you for joining our first quarter 2025 earnings call. I'm truly delighted to be here with you today. This quarter was particularly significant for me. Although it's my second earnings call, it marked my first three months leading this organization. From the very beginning, we have focused on three key objectives that define my mission here: First, avoid disruptions; second, maintain momentum; and third, build a stronger company and I am pleased to share that we kick off maintaining momentum and delivering a solid step towards making 2025 another successful year for Ambev. And this is why we had a good start to the year. Top line remained resilient, rising by high-single digits with a 0.7% volume growth achieving all-time high levels for our first quarter and net revenue per hectoliter increasing by roughly 6% supporting gross margin expansion of 150 basis points. EBITDA grew by double digits with a 180 basis points margin expansion. And we delivered a slightly flat net income despite a tough comparison given last year's tax one-off. Such results were driven by a consistent execution and performance across each pillar of our strategy. Regarding pillar one: Lead and Grow the Category. Our volumes grew in half of our main markets, which represent almost 80% of our consolidated volumes, bolstered by Carnival festivities in March. Like beer, carnival is culturally relevant in several Latin American countries, especially in Brazil, enhancing our category's image by joining a national passion with one of the most anticipated celebrations of the year. The execution of the Carnival as a mega platform combined with our efforts to bring more consumers into more beer occasions resulted in, first, our core beer segment performing in line with or above the industry in most of our main markets according to our estimates. Two, our above-core brands increasing volumes by high single digits. Three, our nonalcoholic beer brands improving volumes by mid-thirties. And finally, our mega brands growing volumes by mid-single digits while gaining brand equity in eight of our top 10 markets. As for pillar two, digitize and monetize our ecosystem. Now that we have become a digitally enabled company, we have been working to better meet our customers' and consumers' demands, thus strengthening our core business while also building new growth engines. On the B2B front, we have been expanding our transactions via this not only through an increase in the number of customers using the platform but also by boosting the quantity of products sold. In the quarter, monthly active buyers rose by high-single digits and SKU per point of consumption ratio improved by low-single digits versus last year. On the marketplace side, our GMV grew by 60% with the number of customers purchasing non-Ambev products increasing by low teens. As for the direct-to-consumer front, Zé Delivery fulfilled nearly 17 million orders in the quarter, a 5% increase versus last year, enhancing our understanding of consumer behaviors. This enabled us to address consumer needs such as affordability and convenience by offering the brands they love in returnable glass bottles at home, evidenced by a higher returnable glass bottle mix than we have in our total business and a wider assortment of products and brands, especially from the premium segment, which holds more weight in Zé than we have in our total business. Furthermore, Zé Delivery has also been helping us develop new products. Here, our most recent innovation, Beats Red Mix, is a good example. It was developed based on consumer surveys regarding liquid and packaging conducted through the platform and has become the biggest launch among the Beats flavors both on and off Zé. And in pillar three, optimize our business; the synergy of our top line performance, the digitalization of our business, and our disciplined approach to managing costs and expenses translated into the 10th consecutive quarter of consolidated EBITDA growth together with margin expansion. Additionally, EBITDA growth led to the generation of BRL1.2 billion of cash flow from operating activities, an increase of 68% versus last year as well as a slight EPS increase. Looking ahead, as indicated by our guidance for Brazil Beer Cash COGS per hectoliter, we expect to face significant FX and commodities pressure starting in Q2, which presents an important challenge for us. Nonetheless, we will continue to pursue our ambition of expanding consolidated margins in the year. As we continue to consistently implement our growth strategy across our footprint, once again, most of our business units delivered EBITDA growth and margin expansion in the quarter. Let's take a closer look at the commercial performance and highlights of our main markets. In Brazil, we delivered record volumes for our first quarter in both beer and non-alcoholic beverages on top of strong performance from last year. In beer, volumes remained resilient increasing by 0.7% amid a more dynamic consumer environment. The activation of our brands resulted in the carnival with the highest volume in our history. Our above-core portfolio of brands composed mainly by Corona, Stella Artois, Spaten, Original, and Budweiser represents roughly 30% of our volumes and holds a leadership position in this segment. Our premium super premium brands grew in the 20s, while in the core-plus, Budweiser rose by high teens. In the core segment, Brahma and Antarctica jointly increased volumes by mid-single digits. On top of that, non-alcoholic beer volumes expanded by approximately 40%. As for net revenue per hectoliter, performance resulted from timing our price increase after Carnival later this year coupled with a lower carryover from last year. Nevertheless, it grew by 2.5%, which was ahead of our anticipated COGS per hectoliter driving a 260 basis points improvement in our gross margin. Our revenue management decisions in the quarter put us in a good position for the year in light of increasing cost pressures in the upcoming quarters. In Brazil non-alcoholic beverages, double-digit top-line performance was driven by volume growth from non-sugar carbonated soft drinks and sports drinks, coupled with our revenue management initiatives. Volume rose by 3.2% with Guaraná Antarctica Zero and Pepsi Black growing by mid-20s and mid-30s, respectively. We also estimate that we have gained market share within carbonated soft drinks. Moving to Argentina, we continue to deliver sequential improvement in volumes led by our beer business as the overall consumer environment remains on a recovering track. The beer industry declined by low-single digits in the quarter, and our market share remained virtually flat according to our estimates, while our mega brands improve brand health. We are ready to lead and shape near-future category growth in Argentina. Turning to the Dominican Republic, while cycling our toughest comp from last year, volumes declined by mid-single digits impacted by a softer macroeconomic environment as well as a widened price relativity compared to other alcohol categories. We remain confident about the beer category's health and our business fundamentals in the country. Lastly, in Canada, adverse weather conditions and Easter phasing impacted industry volumes. However, we estimate to have gained beer market share in the quarter with our mega brands rising volumes by low-single digits thanks to the performance of Michelob ULTRA and Busch. Now let's take a look at our financial performance in more detail. Following Luca's departure, I'm pleased to invite Guilherme Fleury, our new CFO and Investor Relations Officer. Fleury, welcome to the team. We are counting on you to lead our value creation journey. Over to you now.

Thank you, Lisboa. Hello and good afternoon, everyone. For those of you I haven't yet met, it's a pleasure to connect with you today. It's a true honor to become CFO of Ambev. Now with the opportunity to help Lisboa and the team to lead this new chapter of our company. Before officially joining Ambev, I had already been working closely with the company for several years, having participated in important transactions dating back to the late 90s as an external advisor. Since joining the company nine years ago, I had the privilege of working in several positions and building deep relationships both locally and globally. I started at Ambev as Head of M&A, later serving as Finance Director of our Brazil NAB division and then I spent the last six years at AB InBev, mostly as Global VP of M&A and Business Development. I would also like to take a moment to thank Lucas Lira for his contributions over the past years. Now, turning to this quarter's performance. Let me start by saying that we kicked off 2025 maintaining momentum with solid operational and financial performance. So today, I will focus on three things: first, capital allocation, second, net income, and third, our cash flow generation. On capital allocation, yesterday we announced another intermediary dividend of BRL2 billion to be paid in July, totaling BRL4 billion in dividends already announced in 2025. This reinforces our commitment to returning cash to shareholders while maintaining financial flexibility. Our normalized net income in Q1 2025 totaled BRL3.8 billion, flattish compared to last year, driven by strong EBITDA growth offset by net financial results and higher income taxes. Our net financial results totaled minus BRL856 million in Q1 2025, worsening by BRL450 million year-on-year, driven mainly by three effects: one, the appreciation of the BRL during the quarter led to FX losses in BRL from hard currency cash balance translation. Two, cost to upstream cash from Argentina and Bolivia which impacted the non-derivatives line. And three, in Brazil, the widening of interest rate differential between the SELIC and the Fed funds raised the carry cost on our FX hedging strategy. For further information, please refer to Note 22 of our intermediary financial statements. Turning to taxes. Our effective tax rate in the quarter reached 21.7% versus 15% in Q1 2024. This was primarily driven by a one-off benefit of BRL215 million booked in the first quarter of last year. If we were to adjust for this one-off, normalized net income in the quarter would have grown by 6% year-on-year. Now let me walk you through our cash flow statement. Cash flow from operating activities totaled BRL1.2 billion in Q1 2025, a 6% to 8% increase year-on-year, primarily driven by EBITDA growth and lower cash taxes paid resulting from lower IOC in 2024. Regarding net working capital, despite receivables improving by BRL626 million, payables worsened by BRL1 billion mostly due to later barley payments last year in Argentina. Cash flow from investing activities reached minus BRL484 million, an improvement of 56% versus Q1 2024, primarily due to the impact of short-term investments performed last year. And CapEx reached BRL828 million approximately 18% lower year-on-year, reflecting our continued focus on disciplined capital deployment. Cash flow from financing activities totaled minus BRL8.8 billion, driven mainly by BRL6.6 billion in dividends paid in January and BRL1.2 billion in shares repurchased as part of our ongoing share buyback program out of which we reached 65% by the end of the quarter. To summarize, we've started 2025 with momentum. We remain focused on delivering sustainable value creation to our shareholders through diligent execution of our capital allocation priorities. Thank you for your time today. I am looking forward to connecting with you in person in the coming weeks. With that, let me hand it back to Lisboa.

Thank you, Fleury. And as we approach the end of my remarks, I would like to leave you with a final thought. At our company, we believe that a successful journey begins with a solid start. Q1 was an important first step in executing all three pillars of our growth strategy across our markets and setting the tone in the pursuit of making 2025 another important year within our value creation journey. At the same time, we remain grounded. Operating environment remains dynamic in some of our markets, and we will focus on what we can control while staying flexible and agile to navigate and adapt to the challenges that may lie ahead. Before we move to Q&A, I want to share a thrilling experience from last weekend. Corona celebrated its 100-year anniversary at an electrifying Lady Gaga concert for over 2 million people on the beach of Copacabana, Rio De Janeiro. While music is a big passion point for Brazilians, Rio de Janeiro's lifestyle represents what the brand stands for. It is not a coincidence that in the last couple of years, Corona has been the fastest-growing premium brand in the state, with Brazil representing one of the largest markets for the brand outside Mexico. And there is more to come. We are enthusiastic about our mega platforms calendar. Coming June, the first FIFA Club World Cup sponsored by Budweiser. Two of the greatest passion points in Latin America will connect again, soccer and beer. The team and I are ready for this exciting journey ahead. Thank you for your attention, and now I will hand it back to the operator for the Q&A.

Thank you. Our first question comes from Henrique Brustolin with Bradesco BBI.

Hello, Lisboa, Fleury. Thank you for taking my questions. The one point I would like to explore are prices in Brazil beer during the quarter, especially how we should think about it as a proxy in terms of how we should carry that over into the coming quarters. Right? And the reason I ask that is that you are cycling now easier price comps given the VAT change that happened last year. And we continue to share an expansion relatively in line with what you had in previous quarters. And in the release, you mentioned a mismatch of the pricing calendar in the quarter. So, I mean, if you could qualify, what's behind the price performance for Brazil beer in Q1 and if there were any more relevant one-offs there, that would be really helpful. Thank you.

Hello, everyone, again, and thanks for joining the call. Thanks for the question, Henrique. Let me articulate a little bit about the pricing, right, in Brazil beer. First and foremost, I think it's always good to emphasize that, you know, it was really important for us to change the picture we saw last year, end of last year quarter four, growing volumes by 0.7%, right, which is a pretty important improvement. So with that in mind, we do consider that was an important solid first step into our journey to lead and grow our category. In Q1, net revenue grew by 2.4%, as I mentioned. With revenue management, it's a combination of revenue-managed initiatives and brand mix that was also really solid in the quarter. And the net revenue was partially offset by what I mentioned during my intro, which was a mismatch in the pricing calendar versus last year, Q1, and also a lower carryover from last year. However, having said that, I want to reinforce that net revenue per hectoliter will continue to be a key driver, in order to help us progress with our margin expansion in the year. And it's also important to mention here that what we took in terms of revenue management decisions so far put us in the right position, a good position for what we need in the year to come. Another point that is interesting here, Henrique, is about our portfolio. Different from the past, nowadays, we have a way stronger portfolio, not only in the core, but also in the above-core. We have the leading position core and leading position above core. Brands with a clear complementary role and a stronger portfolio give us more revenue management optionality, enabling us to the combination of domestic and global brands at 10 different price tiers in different consumer occasions and with different consumer needs. And that's the reason why we have been investing in a very consistent fashion along the years, and this year won't be different in order to strengthen even more our portfolio in the two segments. By doing so, we are also going to be improving our revenue management capabilities going forward. So, keep in mind as well that now that we are becoming more and more a digitally enabled company, right, BiS is bringing us new capabilities that make way more effective the way we manage promotions, we manage discounts with a way more granular approach than before.

That's very clear, Lisboa. Thanks very much.

Our next question comes from Thiago Duarte with BTG.

Hello everyone. It's a pleasure to speak with you both. My question is based on the statement you made in your opening remarks, where you reiterated your expectation for margin expansion at a consolidated level this year. I would like to understand your views on how each geography will contribute to this, particularly in relation to beer in Brazil. You mentioned earlier that revenue per hectoliter is a key factor driving margin expansion this year. I'm interested in how you foresee beer in Brazil contributing to that margin growth over the year. As a second, broader question, based on your experience, could you provide insight into the affordability of beer in Brazil today? It’s noteworthy how often you emphasize Ambev's role in supporting and growing the category. Understanding current pricing dynamics is crucial to gauge how much additional pricing or promotional efforts may be necessary to stimulate growth. Thank you very much.

My pleasure, Thiago. Let me explain a bit about it first, then I will address the second point. Regarding margin expansion, it's important to note that 2025 will be very different from the previous two years, particularly since 2024 presented us with a tailwind. This year, we're facing more of a headwind cost. From the very beginning, we recognized that we would need a different approach to achieve our financial ambitions by the end of this year. Our primary ambition remains focused on continued margin expansion. The second point I want to emphasize is that our growth strategy combines three key elements: leading and growing the category, digitizing and monetizing, and optimizing our business. This year, our focus on the third pillar is distinct due to the expected cost impact, particularly in Brazil, which falls within the range we indicated. This creates a different scenario compared to last year. We will need all three pillars to work in unison across all markets. Regarding your point about one specific market outperforming others, that isn’t our expectation. We aim for all markets to progress together, making the integration of the three pillars our true competitive advantage. We want to grow while creating value, and this year will be both interesting and challenging as we strive to realize this ambition. I can elaborate further on how we plan to protect margins this year through productivity. One of the privileges I have returning to Brazil is the opportunity to work with an exceptional group of talented individuals. The talent density here is unique and is a significant differentiator for Ambev. This team accepted the challenge presented at the end of last year, fully understanding the realities we will face in 2025. We all embrace this cause, and every leader in our organization understands the need to deliver on all fronts simultaneously. When we set a goal, we typically achieve it, which gives me great confidence. Regarding productivity, we have undergone significant transformations in various areas of our organization over the years. Each transformation provides an opportunity for calibration, generating substantial value. Our mission is to calibrate and maximize the inherent value within the P&Ls of all markets in which Ambev operates. Now, addressing your second point about affordability, you’ve raised an interesting aspect. Some believe there is limited room for growth in our category, but I don't agree. When I analyze the category profile, not just in Brazil but in other regions where we operate, I see opportunities and positive gaps. For instance, our participation in Brazil is lower compared to markets like Mexico or Colombia. Additionally, the frequency of consumption in Brazil doesn't match that of other mature markets, revealing another gap. As category leaders, it's our responsibility to develop the appropriate portfolio to engage consumers who are not yet connected with our category on more occasions. Regarding affordability, we have an opportunity at the bottom of the pyramid. The advantage of having a diverse portfolio is that we can address both ends of the market. We can continue to develop the premium segment of our portfolio while also ensuring accessibility for consumers who require it. We've successfully done this in Middle Americas, maintaining the category's shelf wallet while reducing the time it takes for those who need it to buy beer. This approach underscores the importance of having strong brands and a well-rounded assortment of SKUs, which provides us with many options. Fleury, would you like to comment?

Oh, thank you, Lisboa and Thiago, Great to reconnect with you here. I'll just start by saying that I'm extremely happy to be back in my country and to be part of a Lisboa team here on this new journey of Ambev. From a financial perspective, what I think is very important for us to have in mind, helping Lisboa on us working towards delivering our ambition that he mentioned before, is three things. One is when you look into our cost, we have very good visibility given our forex and commodities the way we hedge our business. The second is that we are very focused on what we control, and this should not be new for anyone on this call because this is part of the DNA of our company. And the third is they are also working with the different functional areas on productivity levers. So the combination of visibility, focus on what we control, and productivity is how I believe will help us throughout this journey.

Very helpful and complete answers. Thank you so much.

Our next question comes from Isabella Simonato with Bank of America.

Hello. Hi, Lisboa, Fleury. Thank you for taking my question. I would like to talk about a little bit the top line of beer in Brazil in Q1. And if you could elaborate a little bit more, how do you see the sellout volumes during the quarter if that's similar to what we saw in terms of sell-in? And regarding that, I mean, I understand that there was a price pickup, right, as the quarter ended, which basically was a delay, right, given the calendar of the carnival. So, can you give some indication of what type of price increases we could see sequentially in Q2 and how you're thinking about that? I think that would be my first question. The second one in the release, you mentioned about the performance of several brands, right, as you expose here too. But Brahma, Antarctica, I was wondering how is the Skol tragic trajectory going? I mean, last quarter, you mentioned that Skol could no longer underperform as it did in 2024. So I wonder if there was already any type of changing directions seen in Q1. And finally, just quickly on the CapEx side. There was, as you guys mentioned, a very steep decline year over year. Can we assume that type of contraction year-over-year for the full 2025? Thank you so much.

Thank you, Isabella. That's a comprehensive question, so let me address it in parts. I'll start by discussing Skol. It's crucial to remember that we are focused on the category rather than just the brand. However, leading in the category is essential for strengthening our brand portfolio. Our goal is to attract more consumers and encourage greater beer consumption across various occasions with a higher value. Essentially, an effective portfolio strategy is the best approach to achieving this. In the first quarter, as you noted, non-core segments saw strong growth, while the core experienced a slight decline. Both Brahma and Antarctica maintain positive momentum, but Skol was mainly responsible for the core volume decrease. Nevertheless, a robust core segment contributes to a healthier category, and enhancing our core allows for category development without compensatory measures. This is why we highlighted Skol in our previous call. We view Skol as a key part of our portfolio, equally as relevant as Brahma. It's the leading brand in many regions of Brazil and embodies resilience, aligning well with the category's identity. Therefore, it's vital for us to realign Skol on a growth path as it was before 2024. From 2019 to 2023, Skol grew at a healthy rate, but its growth was reversed in 2024. We are committed to addressing the negative impacts on the brand while maintaining the positive momentum of our other offerings, which are increasingly strong. Since the start of the year, we've identified what hasn't worked for Skol and are systematically addressing each issue to return the brand to growth over time. We did not expect Skol to completely rebound in just one quarter. Regarding the first point, Q4 was an anomaly for the Brazilian industry, heavily influenced by adverse weather conditions. We anticipate the industry will recover by the beginning of 2025, thanks to normalized weather compared to last year and historical averages, highlighting the strong and resilient nature of Brazil's beer market, even within a dynamic operating environment. In terms of sellout volumes, we saw slight growth in the quarter, aligning with our performance, which is why our market share remained stable quarter-over-quarter. It's encouraging to note that premiumization, the fastest-growing segment, now constitutes 30% of the industry and our volumes. Importantly, we are not only leaders in the core market but also in the above-core segment in terms of market share, brand equity, and growth rate. Our collective portfolio is generating solid momentum, further propelling the industry by providing new and diverse experiences for Brazilian consumers. I hope that answers your question. Now, I'll pass it over to Fleury.

Isabella, great to connect with you. Let me take the opportunity to mention that CapEx and invest behind our business organically is one of our capital allocation priorities, and that will continue to be the case going forward. Unfortunately, I cannot give you any guidance on CapEx going forward, but let me tell you one thing. We've been even more disciplined along the years to do two things. One is to maximize our footprint of our assets in any given country in which we operate, and we've been even more diligent in looking to business cases and post-factual investments. And that is something that will continue to be the case going forward.

That's very clear. Thank you.

Okay. Thanks. I have one question about cash distribution to shareholders. You announced the dividend yesterday. Wondering to hear your thoughts about this topic. The company is super liquid generating a lot of cash, and it seems like you're going through a moment of, you know, good, you know, margin expansion and results. So my question is if you see room for expanding further, that distribution to shareholders, and eventually going even above a % payout, your thoughts on eventually changing a little bit the leverage of the company going through a leveraging process of the balance sheet, if that could make sense. Given your cost of data, I would assume it's pretty competitive. So wondering how to think about that, how to think about the sort of a full year, cash distribution to shareholders, including the buybacks. Thank you.

Oh, great, Lucas. Thank you. Thank you for your question. I think it's important to remind ourselves, and we said that on the prior call, that we were reviewing potentially increasing intermediary dividends throughout the year. And I think what we just announced last night connects with that. We've done intermediary dividend announcements at the beginning of the year, closing of 2024, and now we announced another one. This is part of our continuous review process about when you look into our cash in hand, when you look into dividends to be paid, buyback, restricted cash. This will be an ongoing exercise that we're going to be doing throughout the year. But take bear in mind there are three things for us always that we think about how to return cash to our shareholders and deliver sustainable growth on that: one is IOC, the second one is dividend, and the third one is share buyback. And we're always going to take those three into consideration. That is as much as I can mention to you on this call. I hope this answers.

Thank you, Fleury. Thank you very much.

Our next question comes from Guilherme Palhares with Santander.

Good afternoon, Carlos, Fleury. Thank you for taking the question. Just a quick one here on Argentina. You guys mentioned on last call that we could see some normalization of that market. We had a pretty rough year in 2024. I'd like your thoughts on performance of 2025. We already see your comments. We saw the comments of the administration on the press release about it. So like some figures going forward, what do you expect from the Argentinian market both in terms of volumes and also on the pricing side, as inflation is this? Thank you.

Thank you very much Guilherme. Let me kick off the answer saying the following. We are very positive about Argentina's future. I think it's important for us to emphasize that several economic indicators are improving sequentially. Not a coincidence, but a consequence that the industry also improved sequentially despite declining low single digits. But taking consideration that we are lapping the toughest comp in '24, in the first quarter. Our volumes are pretty much in line with the industry performance, so we estimate to have maintained, stable market share. We continue doing what we always do, which is, we are here for the long run. We continue to invest in our brands and building the portfolio. For the future to come, we continue to see improvements in brand health of our mega brands in Argentina. This is great because we, as I said before, see the direction moving toward where we want the direction to be. And with all of that, we are confident about being ready to lead and shape the category recovery in the country. In terms of strategy, no difference vis-a-vis the other markets, where we operate: one, two, three, is the formula of success. And pricing, to your question, is part of pillar number one, pillar number three, and pillar number two. What I can say is our revenue management plan is being executed exactly as we designed to for the beginning of this year. So we feel confident that we can move forward, as I said before, leading and shaping the category and the business to where we want the business to be in the future.

Thank you, Lisboa.

Our next question comes from Leonardo Alencar with XP Investimentos.

Hi, Lisboa and Fleury. Thanks for taking my question, and congratulations on the results. I would like to hear a little bit more regarding the cost. And you have the guidance for the 5.5 to 8.5 increase for this year. But the first part was really positive on that side, and you even mentioned that we should expect the cost pressure to start in Q2. But then just understand, it should be a very steep increase for cost in order to reach that guidance. So looking at the outlook now, do you see the lower range of the guidance feasible or even lower than that? Just understand how you are seeing the market. And on top of that, since you have a delayed impact of cost because of the hedging strategy. We probably already see the competitors facing these higher costs and maybe being pushed to increase prices. And even when we look at volumes for the first part of this year, we saw the industry data coming down, some competitors mentioning lower performance, and you managed to increase and even comments on the release that you follow the industry. So just to understand on both sides, if you're already seeing the impacts of higher costs affecting margins and even affecting the price pass-through in order to secure margins and affecting volumes and peers. But then you mentioned that the industry grew in the first quarter despite the data of the industry not being the same. So just understand that and if you are more comfortable with the guidance, the cost guidance after the first quarter. That's it. Thank you.

Hello. Thank you for your question. Lisboa here. So I'm going to just make one comment and I'm going to hand it over to Fleury, right? And the comment is the following: The alcoholic beverage industry production in Brazil declined low-single digits in first quarter in the first quarter. Remind the following. Industry production is a good proxy for performance when we look through the cycle, not necessarily in the short term. I won't talk about our competitors. I will speak about us. First quarter was a tough comp for us given the strong production of last year as we entered 2024 with a very low inventory level and we increased production double digits during the quarter and that's the reason why you see the decline for Ambev against last year. Now to Fleury.

No. Thank you, Lisboa. Just to add to Lisboa's answer, I think it's important for us to remind ourselves how we build our planning scenarios and costs. And given that we have good visibility on effects and commodities, it was no surprise for us that in Q1 in beer, we would continue to have the tailwind. So that's number one. Number two is, like, we continue to work, you know, on productivity efforts and other things related to what we control that we could potentially give an upside. But at this moment, I cannot comment anything different than maintaining our cost guidance that we have given to you at the beginning of the year from 5.5 to 8.5.

Okay. Okay. That's fine. That's great. Thank you.

This concludes the Q&A session. I would like to invite Mr. Carlos Lisboa to proceed with his closing remarks. Please go ahead, sir.

Thank you for joining our call today. This quarter's performance had a good shape in our point of view. Volume and net revenue per hectoliter growth, gross and EBITDA margin expansion, and the slightly higher EPS. All business units grew EBITDA and almost all grew margins. Cash flow was strong and we continue returning cash to shareholders. Looking forward, while our operating environment remains dynamic, we continue pursuing our ambition to expand margins in the year. This was just a quarter, but for us, it is a reason to believe in the potential for our growth strategy for the quarters to come. Thank you and hope to see you soon.

Thank you for joining us. We experienced growth in revenue, improvements in gross and EBITDA margins, and a slight increase in EPS. All business units reported growth in EBITDA, and nearly all saw margin increases. Cash flow remains robust, allowing us to keep returning capital to our shareholders. Although our operating environment is evolving, we remain focused on our goal to enhance margins this year. While this was just one quarter, it reinforces our belief in the potential of our growth strategy in the upcoming quarters. Thank you, and we look forward to seeing you soon.