Ambev S.A.

Good morning, and thank you for waiting. We would like to welcome everyone to AMBEV's first quarter 2020 results conference call. Today with us, we have Mr. Jean Gerasati, CEO for AMBEV, and Mr. Lucas Lira, 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. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company's presentation. After AmBev's remarks are completed, there will be a question and answer section. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. 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 the 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 first quarter 2019 results. Normalized figures refer to the 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-gap measures, the company discloses the consolidated profit, EPS, EBIT, and EBITDA on a fully reported basis in the earnings release. Now, I'll turn the conference over to Mr. Jean Gerasati, CEO for Ambev. Mr. Gerasati, you may begin your conference.

Thank you. Good morning. Good afternoon to everyone. Thanks for joining our Q1 call. Today, I will share the overall view on our business, and Lucas will cover the highlights of our financial performance. We will be as brief as possible so we can dedicate more time to Q&A. Since COVID-19 has been so life-changing, I want to share what we have seen so far on the ground, what we are doing about it, and how we plan to come out of this stronger. During Q&A, I will happily take any questions you may have regarding our Q1 performance. I would like to start by thanking my team. They have risen to the challenge and have made a big difference in how we are managing the crisis so far. Above all, I want to thank our people at the breweries, at the distribution centers, and everyone who has been servicing the market despite all the risks they are facing. As you know, we already knew Q1 would be challenging. We expected COGS pressure front load of sales and market investments as part of our commercial plan, and a tough comp as we had the peak of our market share in Q1-19. But then COVID-19 came, was an unprecedented event that really negatively affected our performance on top of everything. I would like to explain how each region was affected in terms of volume impact. Panama, Dominican Republic and Bolivia were hit the hardest. Those countries had more severe restrictions on people's circulation, adopting on and off trade opening hours and alcohol sales bans. Brazil suffered quite a bit. Given the relevance of the on-trade channel, which was significantly impacted by states and local government measures to contain the spread of the virus. Argentina, Paraguay, and Chile suffered less because our volumes are heavily weighted towards the off-trade channel. Canada, volumes benefited in the short term given the pantry loading. It has been challenging to manage through COVID. People are scared and there is a lot of uncertainty. But as far as Ambev is concerned, our dream of bringing people together for a better world is more relevant than ever. I believe we have been able to move very fast because we entered this crisis very well positioned. What I believe is making the difference for us is the following. First of all, we are taking care of our people. Our top priority has been the safety. and health of our team. We have focused on providing a safe working environment. Thankfully, we have had a limited number of cases and we have provided full support to our people and their families. Our team has shown great resilience, agility, and sense of ownership. In fact, I think it is fair to say This crisis has brought the team closer together. Second, our size and scale are making a difference. Being present in 18 markets across the Americas and being part of AB InBev gives us a unique position to learn from each other. We can share best practices, anticipate issues, and be prepared for what's about to come. We entered this crisis with ample liquidity. Our financial discipline also helped. We quickly revisited our costs, expenses, and investments to focus on what matters most in the current environment. But we did not lose sight of product quality, the long-term health of our brands, and our desire to continue to innovate. Third, our strategies. COVID-19 is becoming a catalyst to accelerate the changes we have been implementing in the company so far. I would like to recall that our strategy is based on three pillars, AMBEZ as an ecosystem, innovation as a mindset, business transformation enabled by technology. Let me share with you what we are doing in each of these three pillars. starting with Ambet as an ecosystem. We know our businesses are local. We understand it is our role to help the countries and communities where we operate. We knew we had to collaborate, repurpose the company's competencies and capabilities to really solve real problems. So what are we doing? First, we need to be there for our community. Let me give you three examples of what we have been doing so far to impact people's lives in a relevant way. In most of our markets, we converted some of our production lines to produce and donate hand sanitizers to most of our markets. In Brazil, for example, we put out a team into a project to build a 100-bed hospital in 36 days. just being delivered before the peak of the virus. We will also produce and donate 3 million PET protection masks for health professionals in Brazil. In Argentina, we are donating beer barley to produce bread. We are also helping to distribute the bread through our route to market in collaboration with NGOs. We need to be there for our customers too, particularly the on-trade. Stella Ardois has headed a campaign to support restaurants and bars in most of our markets, where consumers can support their favorite bars and restaurants by buying vouchers for future consumption. Finally, we need to be there for our wholesalers, suppliers, and commercial partners, and we need to work together with governments. We are being as flexible as possible to work with the stakeholders while protecting our business. Lucas will speak more about this later. The second pillar of our strategy is innovation as a mindset. On Carnival, we had had a successful nationwide launch of Beats It was consumed by 4 out of every 10 people who attended the street celebration. And among younger people, above the legal drinking age, the number increases to 6 out of 10. In the first quarter, we were also piloting Brahma Duplo Malt as an innovation on the cork plus pure malt segments. with a different concept of liquid to play. And because every crisis brings opportunities, we quickly identified a social need that people need to have access to entertainment while staying at home, the live stream concerts, and we were able to ramp Brahma Duplo Mouch up, achieving in two months what was supposed to be done in two years. We expanded the live streams platform into a full calendar of concerts with different musical genres and included our broader portfolio, such as On Top of Brahma Duplo Mauch, Bohemia, Budweiser, and Original. We had 375 million views so far, breaking all viewing records possible. we had 24 times more earned media impressions than FIFA World Cup in 2018. On our first live stream with Bohemia, we had 272,000 mentions on social media, which means about 8% of the total number of mentions that we had from all of our brands in 2019. The third pillar of our strategy is business transformation enabled by technology. Here, I would like to highlight the acceleration of our B2B and B2C across our markets. We boosted our capabilities and reach, solving client pain points and bringing convenience to consumers. For example, our B2C platform in Brazil's debt delivery more than doubled the coverage of FOX since mid-March. Only in April, it made more than 1 million deliveries, compared to 1.5 million during all of the year 2019. To wrap up, I would like to say we are not only focused on surviving the storms. but we really want to come out of it stronger, thanks to the transformation that we already have begun. Q2 will be tougher than Q1, as all our markets cope with volume decline that results from COVID-19 and the operational deleverage that comes with it. But we are here for the long term and are confident in our ability to bounce back And we will do that by focusing on our people, being there for our consumers and clients, continue to invest towards a winning portfolio, and serving our communities and collaborating with wholesalers, suppliers, commercial partners, and governments. So thank you very much. See you in the Q&A. And Lucas, over to you.

Thanks, John. Good morning, good afternoon, everyone. Great to be back at Amdev after six and a half years at AB Invest. I'd like to thank Tenenbaum for his support during the transition and for leaving behind a great team, which has made a huge difference as I arrived. I've already had the opportunity to reconnect with some of you on the sell side and the buy side in the last couple of months, and I look forward to working with the investment community going forward. Our Q1 financial performance was mainly impacted by the EBITDA decline and a significant increase in our financial expenses due to the settlement of equity slots and higher carry costs related to the hedging of our FX and commodity exposure in Argentina. In terms of our financial performance since the COVID-19 outbreak, we've been focusing on two things. One, manage our liquidity in a disciplined way. And two, revisit our cost structure and expenses to minimize the impact on our profitability. Regarding liquidity, although we entered the COVID-19 crisis with a very solid cash position, we haven't lowered our guard. We've increased the level of tracking of receivables, being flexible where we can to support our wholesalers and POCs. We're sitting down with government to see where we can work together to support the trade, We're working with our suppliers as everyone adapts to the tougher outlook. We're revisiting our cap-ups and reprioritizing our investments. And we've accessed credits and select markets as an additional safeguard. As for our costs and expenses, we conducted a bottom-up exercise with each line item owner to tighten the belt, revising the budget, and reprioritizing. particularly what we call non-working money. As an example, we have significantly reduced our travel spend and internal events. We've internalized certain services and revisited our entire people spend towards avoiding furloughs or layoffs while taking advantage of government relief initiatives. We're also looking into working money. We've reviewed our trade spend on the on-premise channel we've leveraged more our draft lines content creation team, as well as revisited our marketing investments. For instance, we've suspended investments that are tied to large-scale events that have been suspended or postponed. And content creation that does not speak to what consumers are currently going through have been either suspended or shifted towards our prioritized marketing initiatives. like the ones Jean mentioned. All this while maintaining or even boosting service level to clients, sticking to our main investments behind key innovation, and without compromising the quality of our product. Finally, our hedging policy for FX and commodities remains in place. Given the increased level of volatilities, we see even more value in the predictability that hedging our exposure on average 12 months ahead gives us. To wrap up, given all the uncertainty that lies ahead, we will continue this dual focus on protecting liquidity on the one hand and minimizing the impact of volume decline on our profitability on the other hand, while trying to seize opportunities that come up. It is fair to say, however, that protecting profitability will be our biggest challenge on the financial side, particularly in Q2. With that, let's go to Q&A. Thank you.