Ambev S.A.

Good morning and thank you for reading. We would like to welcome everyone to Ambev's third quarter 2020 results conference call. Today with us we have Mr. Jean Gerissat, CEO for Ambev, and Mr. Lucas Lira, CFO and Investors Relations Officer. As a reminder, a slide presentation is available for download on your 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 complete, there will be a question and answer session. At the time, further instructions will be given. Should any participants need assistance during this call, please press star zero to reach the operator. Before proceeding, let me mention that for the local statement are being made under the safe harbor of the Securities Litigation Reform Act of 1996. For the local statement are based on the beliefs and assumptions of unbiased management and on information currently available to the companies. 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 an invest and could cause results to differ materially from those expressed in such front-looking statements. I would also like to remind everyone that, as usual, the percentage chance that will be discussed during today's calls are both organic and normalized in nature and unless otherwise state. Percentage chance refers to comparisons with 30 quarter 2019 results. Normalized figures refer to performances measures before exceptional items which are either income or expense that do not occur regularly as part of unbalanced normal activities. As normalized figures are non-GAAP measures, the companies disclose that consolidated profit, EPS and EBITDA on a fully reported basis and the earnings release. Now, I will turn the conference over to Mr. Jean Gerasati. Mr. Gerasati, you may begin your conference.

Thank you. Good morning and good afternoon. Thanks for joining our call for the third quarter. If the second quarter was marked by resilience, adaptability, and agility, Q3 was all about building momentum. The overall environment remained fluid and challenging, but the team did a fantastic job in terms of executing our plans. Thanks to them, we remained on course for our recovery path. So before diving into the results, I just wanted to thank my team. Great people have always been the foundation and driving force of our company, and I'm very proud of all of them. The third quarter continued to be marked by the pandemic. Despite all the difficulties, our commercial strategy worked. The V-shaped volume recovery trend that started back in May continued throughout the quarter across all of our markets. The trends by country also remain very similar to Q2. Bolivia. Panama and Dominican Republic continued to recover more slowly. Although the volume performance is improving gradually on a monthly basis, these countries continue to have more severe restrictions. Argentina, the pace of the recovery was impacted mainly by the macro backdrop in the country. Paraguay, Chile and Guatemala recovered faster thanks to market share gains. While in Canada, our volumes benefited from the strong performance of our premium, core plus, and beyond beer portfolio that led to market share gains amid a positive industry. In Brazil, what we saw was our adaptability operational excellence and innovation all came together during this quarter. We estimate that the majority of our volume growth came from market share gains as our commercial strategy is gaining traction. The rest came from a combination of industry pricing calendar and tailings. We continued to see operational restrictions across the country, which varied between regions, with big cities and urban centers still being more affected. The good news is that their own trade is gradually reopening, and the small mom and pop of trade stores continue to gain relevance. To give a dimension, we have ended the quarter with an increase of 10% in the number of total buyers versus the pre-pandemic. Also, I like to say that Brazil got gigantic geographically in this pandemic. As customers and consumers were less mobile, Ambev was the trusted partner to deliver volumes in the most remote areas of the country. Following all safety and healthy protocols, our products were delivered from Moipoque, the most northern city in Brazil, to Chuí, the most southern city in Brazil. Just to illustrate this point, during this quarter, our fleet of trucks drove 22% more kilometers than the third quarter in 2019. Looking more to the long term, our strategy will continue to be built around three pillars. Unbath as an ecosystem, innovation as a mindset, and business transformation enabled by technology. Today, I want to spend more time on innovation. We are making a deep transformation on our business to respond faster to customer demands and shifts in market trends. We are in the beginning of this journey to bring solutions to our clients and consumers, but I'm very happy to see that results are starting to come. We will continue to focus on consumer centricity, flexibility to create unique recipes with exclusive ingredients, a pilot testing and learning approach, the creation of an ecosystem that benefits clients, consumers, and suppliers, and the logic of creating demand ahead of supply. We have a framework for innovation where we are betting on five growth avenues. The first one, flavors and value propositions. Looking for products such as Brahma Duplo Malte, which created its own space in the market and took over the leadership in the core plus segment and regionalization too with the affordable approach of the local supply chain. Second, health and wellness as the biggest opportunity for the future. Last quarter, we launched Stella Gluten Free and continued to test and accelerate MyClub Ultra in different countries. Third, convenience for our consumers with initiatives such as Zed Delivery in Brazil, App Bar in Argentina, and CoMap in Dominican Republic. Fourth, innovation in services for our clients. Dominican Republic continues to expand BIS serving as our laboratory market for the marketplace service. More than 75% of the net revenues there already come from the platform. And fifth, beyond beer, we are exploring new territories in the ready to drink wine among other beverages. As I said in a letter to all our colleagues in Ambev in June, we are rejuvenating ourselves. Our market share in the new products that have been launched in the last three years is greater than our total market share in Brazil. This shows that innovation has been over-indexing and will continue to be a key growth driver for us. Finally, as I mentioned in the beginning, the word that defines this third quarter is momentum. We are strengthening our bonds with our ecosystem and opening new perspectives for the future. Thank you for your time and attention. I will hand over to Lucas.

Thank you, Jean. Hi, everyone. After a very tough Q2, it was good to see our financial performance bounce back into Q3. EBITDA grew organically year over year in three of our four regions, despite everything that COVID threw our way. And how EBITDA grew was also quite positive, with our four regions delivering organic top-line growth. In Brazil, last, and Canada, top-line performance was driven by consistent volume recovery, and in CACI, net revenue per hectolitre performance made the difference. We delivered a consolidated 12% volume growth, with improvement from all our operations since Q2. More importantly, volume recovery also translated into improvement in our financial performance. Growth margins and the data margins improved sequentially since Q2, in virtually all our business divisions. Normalized profit also grew year over year, even though net financial expenses increased, given exceptional gains in Q3 of 2019, increased carry costs in Argentina, and the impact of tax litigation regarding the ICMS in the tax basis of the BIS and the COFINS taxes. And finally, cash flow generation nearly doubled thanks mostly to our working capital performance and operational cash flow. This results further strengthen our solid liquidity position. Profitability though, remain the challenge. So let me comment on the main profitability drivers by business units. Brazil beer EBITDA margin improved sequentially, mostly driven by the operating leverage resulting from our 25% volume growth, reopening of the on-premise channel, growth of RGB, premium, and core plus RAM, and margin of creative innovation. Year over year, however, performance was still negative. Channel mix remained a factor. One-way mix led to under-hedged costs, primarily effects in aluminum. And SG&A was impacted by a combination of a tough cost given 2019 phasing, our decision to reinvest some of the savings from Q2 that made sense, given the strong volume recovery, and also our desire to invest behind our key brands as we approach the summer. NAB Brazil was also able to increase the business margin. The main reason for that was an easy comp from last year's phasing of tax credit, but it was important to see the mix of single serve improve as the on-premise gradually reopened. Last was where margin performance continues to struggle the most. In Argentina, the combination of price controls in food and beverages and hyperinflation continued to take its toll, and on top of that, Bolivia's slower recovery of the on-premise channel was also a factor. And finally, in Canada and Kaki, we were able to increase EBITDA margins this quarter year over year. This was primarily a result of volume trends and improved cost efficiency in Canada, and revenue management and discipline execution of our SG&A savings impact. The name of the game going forward will remain continuous and consistent improvement. The pace of our profitability recovery, however, will take longer because of the FX headwinds coming our way in 2021, but this is a priority for the entire organization. We know what we have to do in terms of top line, continue to grow volumes, support recovery of the on-premise and drive returnable glass bottles, GrowCorp Plus and premium brands, and invest behind margin accretive innovation, both in beer and beyond beer. As for costs and expenses, we need to remain with our heightened financial discipline behind working and non-working money and leverage our technology investments in our supply chain and sales organizations. More broadly, COVID generated a greater level of mobilization of the team, increased visibility, and is challenging us to rethink how we run many aspects of our business, from discounts management and cost management to resource allocation and return on invested capital. We still have lots to do, but after surviving Q2 and building momentum in Q3, we're definitely up for the challenge. Time for Q&A, and thank you very much.