Ambev S.A.

Good morning and thank you for waiting. We would like to welcome everyone to Ambev's fourth quarter 2020 results conference call. Today with us, we have Mr. Gian Gereissati, CEO for Ambev, and Mr. Lucas Lira, CFO and Investor Relations Officer. As a reminder, our slide presentation is available for downloading on our website, ri.ambevi.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 open a listen-only mode during the company's presentation. After the best remarks are completed, there will be a question and answer session. 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 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 4Q 2019 results. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Zombev's normal activities. As normalized figures are non-GAAP measures, the companies disclosed 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. Gian Gereissati, CEO for Ambev. Mr. Gereissati, you may begin your conference, please.

Good morning. Good afternoon. Thank you very much for joining our call. 2020 was unforgettable in many ways. What a year. On one side, all the sadness, hardship, and challenges that COVID-19 brought. On the other, I praise the resilience of our team and respect their commitment with the profound transformation our company went through last year. Ember made a positive impact in society. Ecosystem collaboration for a better world was the tone of 2020. We launched meaningful innovations too. From Chicha Taquinha in Bolivia to the most commented sparkling wine LP QTP in Argentina. Our innovations grew our portfolio and expanded our reach in terms of new propositions to consumers. In Brazil, Brahma Duplo Malt was the star of our pipeline, thanks to an innovative development process, singular liquid, and a disruptive marketing launch. The Beats franchise revamp with GT and Zodiac also brought us a breath of fresh air with the new generation. Ambev's technology platforms were exponentially adopted in 2020. Digital businesses are here to stay, and platforms like Z Delivery and Bees, our super app, were at the right place and the right time. As for the fourth quarter, we built on the commercial momentum from Q3 to deliver a good finish to the year. More importantly, the success of our commercial strategy in the quarter also positioned us well for 2021. And here's why. Beer volumes continued to recover and grew year over year in seven out of our 10 top markets. led by our double-digit growth in Brazil, in Chile, Guatemala, and Paraguay. It was also important to see our beer volumes in the Dominican Republic recover strongly, despite the COVID-related restrictions. We have been strengthening brand equity and power of our portfolio and gaining market share in most of our key markets. In Canada, for instance, our portfolio grew share once again. In Brazil, beer volumes grew almost 12%. Despite a still very volatile environment, despite the supply chain constraints that impacted us, our service level, the lower government stimulus, and our price increase rollout. On top of all of that, our global brands outperformed the total industry and had a solid growth in brand equity and power. Bohemia and Brahma Duplo Malt finished the year as the top two leader brands in the underdeveloped core plus segment and still have plenty of room to grow. In the core segment, after years of volume decline, we stabilized our brand performance thanks mainly to the expansion of the 300 ml returnable glass bottles in moms and pops and the takeaway bars strategy that we implemented. We strengthened our value portfolio with the launch of two more regional brands, BRO in Piauí and Esmera in Goiás. And finally, we delivered a strong net revenue per hectolitre thanks to a successful implementation of our price strategy that was built around a more flexible approach, a positive mix driven mainly by innovation, the innovation performance, and revenue management initiatives, including a smarter occasion-based promotional activity that proves very efficient. We continued to transform our business to quickly respond to consumer and customer needs and solve their pain points. Today, I would like to share more details about the role technology is playing in this process. And our DTC and B2B platforms are the best examples worth talking about. So let's start talking about Zé delivery in Brazil. Zé's value proposition is really simple. Your favorite beverages at reasonable prices, cold in 35 minutes. This is simple but very, very powerful. ZE is present in more than 200 cities in all 27 Brazilian states and in 2020 delivered 27 million orders with the equivalent of one order per second only in Q4. It also delivered a rich assortment of products from over 40 partners, FMCG companies, and was rated the best delivery app on the App Store and Android. Its strong relationship with more than 2,000 retail partners, such as small and large supermarkets, moms and pops and bars, is essential to ensure a high net promoter score currently north of 80 for both consumers and customers. Zest's focus in 2020 was geographic expansion and improvement of the operational model. For 2021, it will focus on increasing penetration, retention, frequency, and assortment. in order to continue the journey to fulfill its full potential, consumer by consumer, occasion by occasion. Now, let's talk about Bees, our super app, our B2B marketplace platform. Bees is designed to provide our customers more convenience in terms of 24 hours, 7 days a week order taking and delivery tracking. and also serves as a marketplace that provides a broader assortment, additional logistics and financial services. It aims to be the one-stop-shop solution for the retail, with a transformational opportunity for allowing Ambev to develop a closer and more reliable relationship with our customers' ecosystem. It's about a better quality of interaction, and as we listen more and have more data to work with, we can ultimately offer a better service level to our partners. The platform was developed in the Dominican Republic, where 90% of our customers already adopted it. Our marketplace service already offers a broader assortment and we are into eight different categories. with 70 different SKUs that go beyond our beverage portfolio. Going into 2021, we expect another challenging year. COVID is still very real, and we will face larger cost pressures, with cash cogs per hectolitre in Brazil expected to increase in the low 20s. That said, our commercial and top-line momentum built last year is also real. In fact, our top-line performance will be one of the most important things to watch as we work to partially offset the cost headwinds. And the good news is that we are off to a good start, with volumes growing above 10% in Brazil beer so far, despite Carnival cancellation. Also, pricing performance should benefit from mix continuing to play in our favor and a smarter promotional activity remaining in the full year taking into account the market environment. I have no doubt that we are starting this year much more prepared than we were in 2020. Our portfolio is in a better shape. Our brand power is healthy and growing. Innovation pipeline is strong. And our route to market was transformed through all these digital platforms that scaled very fast. On top of that, cash generation continues strong. And we remain committed to invest ahead of the curve. So that was pretty much it. Thank you very much for your time and attention. I will hand over this to Lucas.

Thanks, Jean. And hello, everyone. Let me start by talking about the tax credits in Brazil, given that they were so impactful in the quarter. We recognized 4.3 billion reais in tax credits. 2.5 billion reais were recorded in other operating income, and 1.7 billion reais were charged to our financial results. These credits result from a 2017 Brazilian Supreme Court decision on the merits that declared unconstitutional the inclusion of the ICMS state tax in the taxable basis of the PIS and the COFINS federal taxes. As further disclosed in our notes to the financial statements, With the support of council and external advisors, in December we concluded the estimation with reasonable certainty of the amounts to which we are entitled. Given the nature of the dispute, these tax credits are technically part of our normalized results from an accounting standpoint. However, given the materiality of the amount and to ensure greater transparency of the underlying performance of the business, we decided it was appropriate to do two things. One, disregard these tax credits for purposes of calculating our organic performance and treat them as a scope change. And two, we updated our accounting policy to record all extemporaneous tax credits under other operating income instead of the P&L lines that were originally impacted in the past. If it weren't for the scope adjustments, our nominal normalized EBITDA for 2020 would have been nearly R$19.5 billion, with an EBITDA margin of 33.4%, and normalized profit would have been approximately 8.2 billion reais. There is still ongoing litigation in this matter, and we will keep the market updated as things progress. And any potential further tax credits will be recorded when the prospects of their recovery are practically certain from a legal perspective, and the amounts to which we are entitled can be estimated with reasonable certainty. It is important to point out, however, that even if we disregard the impact of the tax credits, the financial performance in the quarter was actually good given the circumstances. We delivered a consolidated top line growth of 13.4% with a healthy combination of 7.6% volume growth and 5.3% net revenue per hectolitre growth. Gross margin and EBITDA margin improved sequentially once again on a consolidated basis. and net-net EBITDA declined only by a slight 0.1% year-over-year. This performance in the quarter allowed us to deliver 4.7% top-line organic growth for the year, while EBITDA declined organically 11.1% in 2020. In addition, full-year cash flow from operating activities actually grew 2.6%, and we managed to further strengthen our solid liquidity positions. which proved critical in the very volatile operating environment of 2020, which we expect to continue into 2021. CapEx totaled 4.7 billion Reais for the year, and we returned 7.7 billion Reais to shareholders in the form of dividends and IOC. Switching gears to 2021, the challenge around improving our profitability remains front and center. Margins will once again be under pressure, given significant effects and commodity headwinds. For instance, Our average hedge rate for the BRL versus the US dollar for 2021 was 5.29 reais, which represented over a 30% increase year over year. The BRL showed high volatility in 2020 and was second only to the Argentinian peso in terms of depreciation relative to the US dollar among major Latin American currencies. Although we expect to see a correction in the future, this is definitely the biggest hurdle we need to overcome this year. In addition, unlike the past, when we saw some negative correlation between commodity prices and the BRL devaluation against the US dollar, commodity prices have actually trended against us, particularly barley and corn. not all of which we have the ability to hedge. As a result, we currently expect Brazil beer cash cogs per hectolitre to grow in the low 20s for the full year. And to tackle this challenge, we will basically have to get two things right. First, deliver a solid top-line performance. And second, successfully implement several mapped plans and initiatives around productivity and keep our financial discipline with respect to the management of our costs and expenses. As I have mentioned in the past, there's not going to be an easy solution, and there's not going to be a silver bullet. And it's difficult to predict exactly how much of the margin pressure we will be able to offset through these levers, but we remain fully committed to continuously and consistently improve our results during the course of the year without, however, losing sight of the longer term. As I mentioned, we are on a journey to transform the company, and we must do so while investing behind the long-term sustainability of our business. And speaking of sustainability, today I also wanted to share some brief highlights on the progress we've been making on this front. In 2018, we announced our sustainability goals for 2025, which were broken down into five pillars, water, climate and energy, circular packaging, sustainable agriculture, and smart drinking. And I am happy to report that in 2020, we made progress on all fronts, even during these challenging times. and we remain on track to deliver our goals by 2025. For instance, in terms of clean energy, in Chile and Argentina, we are already operating with 100% renewable energy, and we expect to have more than 90% of our Brazilian breweries supplied with renewable energy by 2023. In addition, we are extending the supply of renewable energy to 100% of our distribution centers in Brazil. which will be able to charge our delivery fleet comprised of at least 50% of electric vehicles by 2023. As a final note, I wanted to share the news that Guilherme Yocaichia is succeeding Thiago Levy as our head of investor relations. Yoca, as he is also known, joins us from Budweiser APAC, where he spent the last seven years leading the FP&A agenda for the region. Levi, meanwhile, is taking over as head of M&A for Ambev. I wanted to thank Levi for his work in IR over the last two years and wish both the best of luck and success going forward. With that, let's go to Q&A. Thank you.