Ambev Reports 2016 Fourth Quarter and Full Year Results Under IFRS

SAO PAULO, March 2, 2017

Operating and Financial Highlights

Top line performance: Top line was flattish in the quarter (+0.4%), as solid growth in CAC (+8.9%) and LAS (+19.3%) was impacted by a decline in Brazil (-9.7%) and Canada (-0.5%). Volumes were down 5.6% while net revenue per hectoliter (NR/hl) was up by 6.3%. In the full year, top line increased 1.9%, as Brazil's top line decline (-5.2%) was more than offset by solid performance in (i) CAC (+14.0%), as our business in the region continued to grow; (ii) LAS (+15.8%), due to a strong NR/hl performance partially offset by volumes decline in Argentina; and (iii) Canada (+0.7%). On a consolidated basis, volumes declined 5.8% mainly explained by Brazil and Argentina, where the challenging macroeconomic scenario continued to put pressure on consumers, while NR/hl was up by a solid 8.3%, due to our revenue management initiatives.

Cost of Goods Sold (COGS): Our COGS increased 6.8% in the quarter, while on a per hectoliter basis COGS was up by 13.1%. In the full year, COGS and COGS/hl increased 6.5% and 13.1%, respectively, mainly driven by Brazil.

Selling, General & Administrative (SG&A) expenses: SG&A (excluding depreciation and amortization) was up by 7.5% in the quarter and 7.6% in the full year, mainly explained by higher sales and marketing expenses, as we continued to invest in our brands, partially offset by efficiency gains in administrative expenses across all our operations.

EBITDA, Gross margin and EBITDA margin: Normalized EBITDA was R$ 6,015 million (-12.1%) in the quarter with gross margin and EBITDA margin compression of 210bps and 650bps, respectively. In the full year, EBITDA was R$ 19,483 million (-6.9%) with gross margin contracting 150bps and EBITDA margin contracting 410bps, driven by Brazil (-820bps) and Canada (-50bps) partially offset by CAC (+220bps) and LAS (+180bps).

Net Profit, Normalized Net Profit and EPS: Net Profit reached R$ 4,834 million in the quarter, 13.5% above 4Q15, while on a normalized basis Net Profit declined 15.9% to R$ 3,656 million.  In the full year, Net Profit was up 1.6% to R$ 13,083 million, while adjusted by exceptional items, Net Profit was down 9.7% to R$ 11,949 million, as EBITDA decline and higher net finance results due to the cost of carry of our hedges and non cash accretion expenses related to our investment in the Dominican Republic were partially offset by a lower effective tax rate. EPS was R$ 0.80 and Normalized EPS was R$ 0.75 in the full year.