Ambev S.A. Q2 FY2025 Earnings Call

Good afternoon and thank you for waiting. We would like to welcome everyone to Ambev's Second Quarter 2025 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, this conference presentation is available for download on our website, ri.ambev.com.br as well as through the webcast link. We would like to inform you that this event is being recorded. 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 second quarter 2024 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 will turn the conference over to Mr. Carlos Lisboa. Mr. Lisboa, you may begin your conference.

Good afternoon, everyone. Thank you for joining our second quarter 2025 earnings call. It is a pleasure to be here with you today. On our last call, I highlighted that Q2 would be a decisive moment, almost like a transition quarter as we prepare our business to continue to deliver another year of growth with value creation. And I'm glad that our brands demonstrated their strength and supported the results we achieved this quarter, positioning us well for the remainder of the year, given the anticipated acceleration in costs. As leaders in our category, I am confident that we made the right decisions for our business, executing with discipline our growth strategy with a special focus on revenue and cost management. This drove a high single-digit organic EBITDA increase with 110 basis points of margin expansion despite soft industry volumes in several markets, mostly due to adverse weather conditions. But rather than focus on only one single quarter, like in soccer, halftime is a good moment to step back and assess our year-to-date performance. Therefore, it is important to highlight that our brands continue to improve equity. Top line grew mid-single digits. EBITDA grew double digits with 160 basis points of margin expansion. EPS grew 6.5% and cash flow from operating activities remained resilient, growing 4% despite our working capital dynamics. Also, given our year-to-date performance, the Board of Directors has approved another intermediary dividend payout of BRL 2 billion, totaling BRL 6 billion declared this year. The foundation for our performance is based on the execution of our growth strategy. Starting on Pillar 1, lead and grow the category. This quarter reinforced our confidence in the choices we made across our portfolio. Market share pressure linked to revenue management initiatives was softened by the strength of our brands built through consistent execution and investments over the last years. And even in the face of softer industries, the underlying performance of our strategic priorities continues to deliver solid results. Our Premium and super Premium brands delivered low teens growth, expanding in 7 out of the top 10 markets of Ambev. The Balanced Choice portfolio maintained strong growth momentum, expanding in the low 20s, addressing evolving consumer preferences and needs. Activations on platforms like FIFA Club World Cup and Roland-Garros yielded positive results. Our brands stood out as the most recognized in these events, generating engagement and strengthening brand equity. As for the Core segment, while brand equity remains stable, volumes declined given its high sensitivity to industry environment and to our revenue management decisions. As for Pillar 2, digitize and monetize the ecosystem. Bees Marketplace continued its momentum with GMV growing in the 90s and reaching an annualized amount of BRL 7.4 billion, led by partnerships such as Nestle and L'Oréal. On the direct-to-consumer front, Zé Delivery achieved a 7% increase in GMV despite a soft industry environment, supported by an 11% rise in average order value. Additionally, our digital platforms are further strengthening our Core business through better services to customers and consumers, benefits that may not always be visible externally. Over the years, our customers have been spending more time with us. In Brazil, for instance, we now engage for nearly 40 minutes per week through Bees and also in-person visits, fivefold of what we had pre-Bees. This deeper and more frequent engagement has allowed us to set missions to our business developers to focus on sell-out rather than sell-in. And as a consequence, we continue to evolve the number of brands and SKUs per POC, growing 3.4% this year only and managing price and promotions better, driving efficiencies to our net revenue per hectoliter. As a result of higher customization and a more data-driven approach, NPS of customers continues to improve, achieving all-time high levels, close to 70 points this quarter. As for D2C, today, e-commerce is the fastest-growing channel for Ambev and Zé is leading that growth. However, it is not just about growth, but about who is driving it. Gen Z LDA and millennials represent nearly 80% of Zé's buyers, well above their share in the population. Moreover, Zé has become a powerful engagement platform for category lovers. According to our internal data, Zé consumers have a 47% higher frequency of beer consumption compared to the category average. Therefore, being close to them means being close to the trends, and that drives our portfolio forward. It is not a coincidence, but a consequence that both Premium and Balanced Choice brands have a higher mix on the platform. For example, in H1, 14% of Zé users added at least one product from our Balanced Choice portfolio in their baskets, which grew almost twice as fast on Zé compared to the total business and reached 3.6% of total platform sales. And on Pillar 3, optimize our business. Some of you have probably heard me saying this before, muscles have memory. Our disciplined focus on cost efficiency more than offset non-commodity cost inflation, representing a savings of over BRL 500 million in the quarter. In SG&A, we offset the impact of lower scale from volumes in distribution expenses. Overall, these efforts were essential to achieve an operational leverage of 2.2x in the quarter. Moving to the performance of our business units. Consistent with the first quarter, all BUs delivered EBITDA growth and four of them expanded margins as we continue implementing our growth strategy with discipline across our footprint. In this quarter, our diversified geographic footprint contributed in a meaningful way. Now let's look at the commercial highlights of our main markets. In Brazil Beer, our volumes declined by 9%, mostly driven by unfavorable weather with 65 colder days compared to last year. June represented over 60% of the quarter's volume impact with critical regions for the category facing 2 to 4 degrees Celsius lower temperature versus last year. Even so, brand equity improved again in this quarter, softening the market share impact from our revenue management decisions to a low single-digit decline. Our Premium and super Premium brands grew mid-teens, gaining market share in the segment. Above Core brands sustained almost 30% of our volumes and maintained our leadership in the segment. As for the Core segment, it declined by low teens given its higher sensitivity to industry performance and to our revenue management decisions. And lastly, in our Balanced Choice portfolio, Stella Artois Pure Gold more than doubled its volumes. Michelob ULTRA grew by over 60% and non-alcoholic beers grew mid-teens. As a matter of fact, these brands represent around 2.5% of our volumes in H1, up from 1.4% last year. In Brazil, net volumes were slightly positive in the quarter despite a mid-teens decline in June. Top line performance was driven by healthy net revenue per hectoliter as our brands showed resilience, gaining market share according to our estimates and the non-sugar portfolio growing above 30%. Moving to Argentina, volume performance presented another sequential improvement with beer volumes returning to growth after 7 quarters despite underperforming the industry as a result of our revenue management choices. The Premium segment grew double digits, while the health of our mega brands improved once again. Overall, we continue positive on the recovery of the category in the country. In the Dominican Republic, the consumption environment presented a sequential improvement. In this environment, beer gained share of draught as our main brands remain healthy with Presidente family gaining brand equity in the quarter. Lastly, in Canada, volumes grew 0.8%, more than offsetting a soft industry affected by colder temperatures. Our performance was mainly driven by: one, the Ontario industry that continues to grow given the route-to-market change that took place last year; two, the non-alcoholic beer industry that expanded by mid-teens with our brands outperforming by growing mid-20s and now representing almost 5% of our volumes. And lastly, the execution of our strategy and investments behind our brands, resulting in the fastest-growing beer brands in the country with share of draught and market share gains according to our estimates. All in all, we delivered the best EBITDA growth for the second quarter in years. Now let's move on to our financial performance. Fleury, over to you.

Thank you, Lisboa, and hello, everyone. Today, I'll cover 3 topics: first, cost and expenses management; second, net income performance; and third, cash flow generation. So let's get started. As Lisboa mentioned, quarter 2 was a transition quarter. We were expecting cost pressures, especially in Brazil, and we chose to act, protecting margins by controlling what we can. That meant disciplined resource allocation, proactive cost management and targeted SG&A initiatives. The execution of our strategy is already making a difference. Let me walk you through one example in cost of goods sold in Brazil. FX and commodities account for approximately 45% of our cash COGS. Most of that is hedged, which means the impact was largely locked in before the start of the year, but the remaining 55% is where we can act, and that's exactly what we've done. We've been focused on curbing cost escalation where we have control, rationalizing our operations. In 2025 alone, we've reduced the number of SKUs by around 10%, eliminating low churn items, therefore, increasing the productivity of our breweries and distribution centers. To put it simply, this SKU rationalization means fewer line changeovers at our breweries and better productivity, helping our cost performance in Brazil Beer to be within our guidance for the full year. Before we move on to net income, I would like to remind everyone that in Argentina, our results under IFRS, including EBITDA, were significantly affected by the Argentine peso devaluation of 12% in the quarter with the currency impacts of the year-to-date being carried out in the second quarter. Now moving on to net income and starting with net financial results. The increase in financial expenses continues to have the same drivers of the first quarter. One, FX carry costs in Brazil coming from the interest rate differential between Brazil and the U.S.; two, FX losses related to the dollar purchase in Bolivia; and three, a noncash impact linked to the appreciation of the BRL during the quarter from hard currency cash balances translation. And for income tax, our effective tax rate for the quarter was 18.4% compared to 28.6% in second quarter of 2024. The year-over-year decrease is mostly driven by: first, a nonrecurring event in the second quarter of '24 related to accrued withholding taxes over undistributed profits from Labatt coming from the depreciation of the BRL against the Canadian dollar during that period in accordance with IAS-12 accounting standards. Second, the effect of income tax exemption over part of our state VAT government grants following favorable court ruling obtained in the second half of last year; and lastly, a favorable country mix of earnings this quarter. On a year-to-date basis, our effective tax rate remains at the same level as the prior year. In the quarter, the resilient operational performance and disciplined financial management led to a net income of BRL 2.8 billion, a 15% improvement versus last year. Last topic, cash flow generation. In our halftime review, cash flow from operating activities grew 4%, led by the EBITDA growth. In the quarter, our cash flow from operating activities reached BRL 3 billion, the 9.2% decline versus last year reflects the volume dynamic in the quarter with lower sales tax payables, partially offset by better receivables and inventories. Cash flow from investing activities was BRL 1 billion negative, driven mainly by CapEx investments during the quarter, similar to the investment of last year. And cash flow from financing activities reached BRL 4 billion negative, primarily due to the payment of intermediary dividends in April, the repurchase of shares according to our buyback program and Bolivia fees to purchase dollars that, as I mentioned, impacted the financial results. Before I hand it back to Lisboa, I would like to reinforce the message that 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, and back to you, Lisboa.

Thank you, Fleury. Before we conclude, I would like to offer a few closing thoughts. As I noted earlier, reaching halftime gives us an opportunity to assess how we are performing against the mission I set forth when I first came on board. Firstly, avoid disruption, on track. And in fact, the most recent results of our employee engagement survey show improvement across all functions, reinforcing the belief in our future. Secondly, keep momentum, on track. So far in the year, we have achieved better brand equity, top and bottom line growth and also EBITDA margin expansion. Lastly, build a stronger version of our company, on track. I believe that momentum invites more momentum. Our performance in the first half positions us well for the second half. Our roadmap to success shall be paved based on a consistent performance of our business. And before finishing, I want to take a moment to recognize our team who made again a huge difference in our quarter performance, over delivering on everything we have under our control. Thank you very much. And now let's go to the second half when our brands will continue to be part of cultural moments, ensuring presence not only on the tables, but also in the hearts of our consumers. Thank you for your attention. And now I will hand it back to the operator for the Q&A.

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

I have two questions sort of related. First of all, regarding the top line and the volume performance, right, in Brazil. I understand the reasons you mentioned to drive this weakness, but it seems a much steeper change year-on-year versus events that we've seen in the past, right? If I'm not mistaken, this is the largest year-on-year volume contraction we've seen with the exception of what happened during the pandemic. So even with bad weather or your leading price increases that were not necessarily followed by competition. What is your read on the size of the decline? And in that sense, what makes you confident in the second half and ABI also mentioned that the second half of the year will show a significant recovery or will show an improvement. I think that's what we wanted to better understand. And the second point, you've shown, I think, a much better-than-expected margin performance despite this more limited dilution, right? And you guys mentioned some of the initiatives. But I wonder if you could elaborate a little bit more on those things you can control, right? If the bulk of what you plan to do is done in this quarter or if you see more room to continue to cut costs and have a more efficient portfolio. I mean, I think we wanted to get a better sense of what we can expect going forward in terms of initiatives and where we are in this pipeline.

Hello, everyone. Thank you for joining the call. Isabella, it’s great to speak with you. Your question is very clear, and I completely understand your point. I will address the first part and then pass the rest to Fleury. It’s important to take a step back and understand what occurred in the industry during the second quarter. We estimate a mid-single-digit decline in industry sellouts, which aligns with market estimates. This decline was primarily driven by extremely unfavorable weather during this time. The key takeaway is that there hasn't been a structural change in consumer demand in Brazil. According to our models, 70% of the industry decline can be attributed to the weather. We experienced 65 colder days compared to last year, with a significant concentration in one month. June was particularly affected, showing a double-digit decline, which was mostly seen in key regions representing 60% of the industry volume. These areas experienced temperature drops of approximately 2 to 4 degrees Celsius, which greatly affected volumes during that month. Comparing our two divisions, although we saw slight volume growth in our CSD business during the quarter, we also faced the same adverse weather conditions in June as mentioned earlier. Furthermore, the remaining 30% of the industry's impact stemmed mainly from inflation, particularly affecting essential goods, which has risen above the CPI and continues to exert pressure on Brazilian consumers' disposable income. It’s also worth noting that fewer business days during the period impacted industry sales performance. Regarding our sell-in performance, as previously mentioned, three-quarters of the volume impact was driven by the industry, primarily due to the weather. The remaining quarter of the volume performance was largely influenced by pricing decisions we discussed in our first call announcement, leading to a low single-digit loss in market share, which is consistent with Nielsen sell-out data. On the brand performance front, brand equity is improving, which helps mitigate the market share loss compared to our historical models. Notably, the premium segment grew in the mid-teens and gained market share again. The core segment saw a decline in line with low teens, largely due to its sensitivity to adverse weather conditions, as it relies more on out-of-home consumption, which was affected by the weather. These brands are also more sensitive to pricing decisions and experience greater price elasticity. It’s crucial to highlight that our market share in the core segment exceeds the overall performance of our business. Looking forward, without diving into specifics about our third-quarter performance, I can say that July's weather conditions are significantly better than June's, indicating a marked improvement through the month, even though the start of July was still impacted by residual adverse weather. Additionally, we are beginning to see early signs of improvements in consumer price relativity as the month progresses. Beyond July, we remain optimistic. The fundamentals of the beer industry were not adversely affected during the quarter, and we see clear opportunities for per capita growth in the future. It’s also essential to note that we believe our company is currently stronger and better prepared for the upcoming year than we were at the year's start, as our growth strategy is geared towards addressing the cost increases we experienced in the second quarter.

Isabella, Fleury here. I want to emphasize that our focus on cost optimization remains strong. We aim to enhance areas we can control while maintaining the commercial strategies mentioned by Lisboa to boost revenue and brand value. Over the years, we've identified the cost of goods sold as a significant factor in margin pressures, primarily driven by foreign exchange rates and commodity prices. Today, I discussed SKU optimization as one example, but there are more. We're also concentrating on improving distribution costs, which positively influenced the quarter, all while striving to optimize our footprint. It's worth noting our dedication to a zero-based budgeting approach, which we will continue to uphold this year. Lastly, I want to express that our team is highly committed to these efforts.

Our next question comes from Renata Cabral with Citi.

And my question is a follow-up in terms of costs that you just mentioned. Of course, we have the guidance for 2025 in terms of cash COGS. And the first half of the year had a lot of volatility in terms of FX, but we have some horizon for what can happen for 2026. My question is if you can give us some color on what you see and what you've been done in terms of hedging, specifically for raw material costs?

Renata, Fleury, here. So two things with you. We are maintaining our hedging strategy the same as the prior year. So it's a hedging strategy that you look 12 months forward, and it's not speculative. The idea of the hedging for us is to protect the business, #1. #2 is that we are very confident about the cash COGS per hectoliter guidance that we have given to the market, which is Brazil Beer, excluding non-Ambev market place to be within the range of 5.5% and 8.5%. And even though we look that it's still being at the lower part of that guidance for now, this is something that we work towards the year, but I cannot give you any guidance on that topic now.

Our next question comes from Leonardo Alencar with XP.

I would like to explore the topic of pricing further. I recognize it is a delicate matter. Could you elaborate on the dynamics between off-trade and on-trade, especially in light of the current economic situation, which is somewhat unfavorable? Additionally, considering the adverse weather conditions towards the end of the quarter, although it may not be as severe, it still posed challenges at the beginning of the third quarter. What can we anticipate regarding these channels? Also, if you could provide more details about pricing across different categories, I understand that you have been focusing on Premium and Super Premium segments and have gained market share there. Despite a decline in volume this quarter, you were able to raise net revenue per hectoliter, although perhaps not as much as anticipated. I would like to better understand where the most significant price increases might occur within these categories. Those are the two main points I would like to clarify further.

Thank you for your question, Leonardo. This is a delicate topic, so let me provide some clarity on your points. Our revenue management strategy began in March, shortly after the Carnival, and it evolved throughout the quarter. We raised prices across nearly all segments, which contributed to the net revenue per hectoliter performance you noticed in Brazil for the second quarter. It's important to highlight that the rate within the net revenue per hectoliter closely aligns with inflation, and we are also benefiting from premiumization. Regarding Core volumes, there was a decline primarily due to industry factors, as many brands are more sensitive to price variations and channel dynamics. The most significant change observed in the quarter was within the on-premises channel, which was notably affected by adverse weather conditions. However, as I previously mentioned, we still experienced a positive net effect from the mix, alongside the rate initiatives implemented. Looking ahead, net revenue per hectoliter will play a crucial role in our goal to further enhance margins in Brazil. We will consistently balance long-term pricing with CPI while managing short-term cost inflation to safeguard profitability. We will also closely monitor the performance of our brand portfolio, as everything needs to work in harmony to achieve our ambitions for the year.

Our next question comes from Felipe Ucros with Scotiabank.

A couple of questions on digital and loss. So the first one on digital, the marketplaces GMV accelerated quite a bit this quarter. So congrats on that. Just wondering if you can give us some details on what drove this. You mentioned the new brands that you've been signing on the platform, but perhaps a little more from the strategy perspective. You're coming off of a few quarters of consolidating the cost and expense structure of the digital platform. So just wondering if you started pushing harder on the expansion again or maybe it's just other factors like the timing of signing new agreements. And then on loss, I was a bit surprised about the net revenue per hectoliter in the region. I imagine this was mostly driven by Argentina based on the comments in the release. But wondering if you can talk to us a little bit about the drivers here, particularly given the environment where the inflation is pretty high. We've already seen a few beverage companies report in Argentina, they have very good performances. But it seems like everyone in the industry is taking the foot off the accelerator on price mix. So just wondering if you can give us some comments on what's happening there.

Felipe, thank you for your question. One of the aspects that makes us feel very positive about our year performance is the good balance between the three pillars of our growth strategy, with pillar #2 being a very important highlight for the period. Within pillar #2, the marketplace continues to create an interesting revenue stream for Ambev with minimal investments, demonstrating strong performance year-to-date and showing even more potential for the future. We also see a strong correlation with our service level to customers, as indicated by the rising NPS quarter after quarter. In terms of the marketplace, we grew 90% in the quarter, with Brazil achieving growth of 100%. Notably, the 3P part of the marketplace has now surpassed the 1P in terms of GMV for Q2 and year-to-date. The growth was primarily driven by our partnerships with companies like Nestle, L'Oréal, and PepsiCo Foods. It's noteworthy that 80% of our Brazilian customer base made purchases in the marketplace during Q2, which is a significant increase from last year. Additionally, we are increasing the number of SKUs per point of contact, achieving a year-over-year increase of 30% in the first half. The Ambev marketplace is also improving its margins, as you mentioned, with an increase of 400 basis points to 15%. In Brazil, this improvement is even higher, reaching 600 basis points for a total of 17%. This development is also enabling us to better understand our customers through increased touchpoints and a broader assortment, providing us with valuable data insights to better meet their needs.

Thank you, Felipe. I want to address the marketplace gross margin in Argentina. We're observing a consistent improvement in the market overall. Despite its dynamic nature, consumer confidence is slowly rising, which is reflected in our results. In Argentina, since the onset of hyperinflation, we've been very cautious about maintaining our margins by considering costs and the consumers' ability to handle price increases. We will continue to focus on this in that market.

Our next question comes from Nadine Sarwat with Bernstein. I believe she dropped the queue. So I'm going to move on to the next person in line, which is Lucas Ferreira with JPMorgan.

My question is about the low EBITDA lines, particularly the non-derivatives you mentioned, Fleury. How should we view those lines since they have been significant in the last few quarters? You explained the reasons behind that. I'm curious about how to approach those lines in the next 12 months. Will you continue to allocate funds out of some of the countries you've referenced, thereby affecting these operations, or should we expect this line to approach nearly zero at some point? In general, how should we understand your financial expenses line and this recent volatility in the upcoming quarters?

Thank you, Lucas, Fleury here. It's challenging for us to make any projections about the future. When considering how Bolivia might perform on a macro level in the coming months, we have no reason to think it will differ from past performance. We need to be cautious about repatriating cash from other markets, and that situation will remain unchanged. Overall, I don’t anticipate any significant changes in these areas from what I see moving forward. However, that's as much detail as I can provide without making forecasts that aren't appropriate.

Our next question comes from Henrique Brustolin with Bradesco.

I would like to address the transition period we are experiencing and the volatility in the first half of the year, particularly regarding sustaining flat year-on-year margins as discussed. Could you provide an update on your current position compared to the beginning of the year, and how that might influence the target achievement? I understand that the main focus is on the consolidated level for Ambev, but could you also comment on Brazil Beer, specifically regarding your ability to maintain margins and pricing at this point? Additionally, regarding pricing in Brazil Beer, is there anything significant about the price differences between the Premium and mainstream segments that might explain the underperformance in the mainstream? Those are my two questions.

Thank you for your question, Henrique. Let me address your points. The most important thing to highlight about our current position is that we have stronger brands today compared to the past. We now have a much more complete portfolio that includes strong local domestic brands in the Core and also powerful brands above the Core, giving us greater flexibility. As we transitioned from 2024 to 2025, we had no pricing carryover. We have already implemented a significant portion of our plan for this year, especially in the second quarter of 2025, which puts us in a better position moving forward. The second point is the digitalization of our business. This is a crucial element that connects the three pillars of our growth strategy. It enhances our understanding of customers and consumers and creates new revenue streams, while also benefiting the Core side of the business. The third pillar involves aligning our organizational capabilities to work together effectively to drive growth and create value. As I mentioned in our first quarter announcement, we have set a bold ambition to improve our productivity in order to achieve margin expansion this year, even though we anticipate some cost headwinds. This gives us confidence for the upcoming year. Regarding your second question on pricing, the main difference between Core and Premium is that the Core is more reliant on aspects of the industry impacted by adverse weather conditions. In contrast, the Premium brands show greater resilience. We anticipate that the differences we have seen will start to ease, indicating that the second half of the year should present a significantly different situation compared to the second quarter.

Our next question comes from Thiago Duarte with BTG.

I would like to follow up on the pricing discussion for Brazil Beer. First, could you clarify how much of the revenue per hectoliter increase resulted from the mix, especially considering the Premium segment has outperformed the Core segment? Second, regarding pricing, were the revenue management initiatives in Q2 postponed? Historically, Ambev tends to adjust prices in the latter half of the year just before summer. Given the pricing changes already made, how should we approach revenue management in the upcoming months, especially with summer approaching? Additionally, I want to address a broader topic. At the start of the year, we discussed revitalizing the Core by investing in previously underfunded brands. This discussion occurs within the framework of a portfolio that has broadened significantly due to innovation and new products over the past few years. As Lisboa mentioned, we see that, looking at this quarter and year-to-date, brands like Corona and Stella Artois Pure Gold are performing well, despite being relatively new to our offerings. Conversely, our Core brands are losing market share. Fleury noted a 10% SKU reduction in the portfolio, indicating a shift in strategy and results from what we initially planned this year. Could you provide insight into how we should view these dynamics moving forward and the priorities for the business?

Thank you for your question, Thiago. This is indeed a delicate subject, so I want to clarify a few points. It's not entirely accurate to claim that we always raise prices at a certain time each year; it really depends on market conditions. Initially, we began this process after the Carnival, and it developed over the quarter. The impact of pricing aligned closely with inflation, with the variance resulting from a favorable mix effect. It's worth noting that while we faced some negative impacts from channel and regional mixes, we saw significant benefits from brand mix, contributing positively overall. Going forward, our primary aim remains to adjust prices in accordance with inflation, which has been our practice, including this past quarter. Our prices aren't exceeding inflation as we recognize that consumers are under financial strain, and many are very price-sensitive. However, we must also consider inflation as it affects our costs, influencing our decision-making. While we can only address so much regarding this topic, I want to reaffirm that our Core segment remains unchanged. Our goal is to enhance the category and make it more appealing for consumers. A healthy Core is essential for driving overall category growth and future per capita increases. The Core will continue to be a key focus for us, but we cannot progress with our plans without making informed decisions. Looking at just one quarter can be misleading in the context of our long-term expectations and aspirations for the entire year. Although we saw a greater impact on this portfolio segment during the quarter, most of it was due to external, non-structural factors like weather variability. Price adjustments were among the least significant impacts. As we proceed, we will ensure we maintain a balance between our Core and above Core segments. The latter is showing greater resilience, providing us with more options moving forward.

And Thiago, Fleury here. Just two things on my side to contribute here. One is everything that Lisboa mentioned was something that we have planned since the beginning of the year, looking into how we knew cost would probably perform, #1. #2, I think when I mentioned about the 10% rationalization of SKUs, you need to take into consideration the size of our portfolio, the number of brands, so on and so forth. So we are working into formats and SKUs that were low moving and/or would have a lower contribution to our portfolio, which does not create or should not create any confusion to what was explained before about our strategy with brand and portfolio.

Our next question comes from Rodrigo Alcantara.

I would like to address Lisboa. To clarify your perspective, we observed the price movements and the impact of price elasticity on market share. I'm interested in understanding the specific points and evidence that support your statement about the improvement of brand equity across different brands. I acknowledge that it's not fair to evaluate just one quarter, so I assume you were referring to first-half results. I would like to know what led you to conclude that brand equity has improved. Additionally, could you provide an update on the Skol revamp strategy? I understand that detailed plans may not be shared, but I would like to know the progress made and your outlook for the brand in the second half of this year.

Perfect. Rodrigo, let me answer your two questions, okay? The first one about equity improvement. Why? What is the big reason to believe our brands are improving? First and foremost, we track every single month, we track what we call brand power. And this brand power is based on three different components: how different a brand is, how salient a brand is, and how meaningful a brand is to our consumers. The combination of the three components brings to life what we call power. And we do see power improvement in a pretty important part of our portfolio, which gives us even more confidence about the future because power is a very good proxy for share, okay? The second point is the following. When we compare what happened with the consumer price dynamics in quarter 2. In other words, the price relativity gap we had, we faced, the level of impact we had in share was lower than we historically used to see in our portfolio, which also reinforces the point that the power is bringing more strength to our portfolio, right? And regarding your question about Skol, I think this is a very interesting aspect that we didn't discuss. So thanks for bringing the point. I don't want to highlight here any huge revolution in terms of performance for the brand. But we have been, as I mentioned in a few times with you all, we have been working in order to adjust, correct a few aspects about our plans for the portfolio, especially for Skol, and we have been observing interesting improvements, right? One of them is about placement, right? Distribution suffered during '24. And now we are bringing back since the beginning of the second quarter distributions to a way healthier level for the brand, and we know that availability is critical if we want to put the brand back in a growth trajectory. The second aspect is not only being present, but being well executed. We also improved the level of support we have for the brand at a POC level. And we do see that level of support bringing a better turn for the brand, which means share of handlers for Skol within the pots. And last but not least, when we compare from the beginning of the year, today, we see a sort of a V curve. And why a V curve? Because in the middle of this period, we had Carnival, right? And Skol was not a priority for us in terms of brand activation for this period. So the brand still suffered a decline. And since then, we see a recovery, a very consistent recovery in share month after month. Again, too early. I'm not claiming here that we solved it, right? But this is the type of indication that we need to give us confidence that we are touching the right button to put the brand back on a growth trajectory.

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. We feel encouraged by our first half of the year. As I mentioned before, we progressed in all three pillars of our growth strategy. We have a stronger portfolio of brands. Our digital platforms are gaining traction, and we delivered margin expansion through revenue and cost management. I feel that we are a stronger company today than we were 6 months ago, positioning us better for the second half of the year. Looking forward, while our operating environment remains dynamic, the quarter we just went through gives us reasons to believe we are on the right track to continue pursuing another year of growth with value creation for Ambev. Thank you very much again. Hope to see you soon.

This concludes today's presentation. You may disconnect and have a nice day.