Ambev S.A.

Good morning, and thank you for waiting. We would like to welcome everyone to AMBEV's 30th Quarter 2021 Results Conference Call. Today with us, we have Mr. Gio Gereissati, CEO for AMBEV, and Mr. Lucas Lira, CFO and Investor Relations Officer. As a reminder, a live presentation is available for downloading on our website at ri.umbev.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 UMBEV's remarks are completed, there will be a Q&A 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 embeds 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 a bet 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 we'll be discussing during today's call are both organic and normalized in nature, and unless otherwise stated, percentage changes refer to comparison with 30 quarter 2021 results. Normalized figures refers 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 normal life figures are no-gap measures, the company disclosed the consolidated profits, EPS, EBIT and EBITDA, on a fully reported basis in the earnings release. Now, I'll turn the conference over to Mr. Gere Satch, CEO for Ambev. Mr. Gere Satch, you may begin your conference.

Hello everyone, thanks for joining our third quarter earnings call. This is our last call of the year, so I would like to do things a little bit differently today. I will cover the highlights of the quarter in a moment, but I would like to begin talking about people. I have been very vocal about how Ambev is on a transformation journey. Transforming a company like ours, it's hard. It takes time. It's painful. There is a lot of skepticism and setbacks. In many respects, we are learning as we go. But we are doing this together as a team. A couple of weeks ago, something happened that personally meant a lot to me. Ambev was recognized by Great Place to Work as the fifth best large company in Brazil to work for. Just to give you an idea of how transformational this is, in 2020, we rented 27. A lot of great people built this company, and we are a company of owners. Our people have been and will always be the heart and the soul of Ambev. So I'm very proud to see that my team has been humble enough, to face the brutal facts of the last few years and learn from our mistakes, has shown enormous resilience in the face of COVID, made bold bets and delivered results consistently as we recover from the pandemic and at the same time has helped the society, has stayed committed to building a better, more collaborative, diverse, and more sustainable company for the long term and is happier and more engaged along the way. And this is true not only in Brazil, but also across the other markets where we operate. So, a big thank you to everyone that has been making this transformation happen on a daily basis. The third quarter. was another step on this transformation journey. And frankly, it was another solid step in the right direction. I ended the last call saying that our top line momentum would be put to test in the second semester. And in Q3, we delivered 20% net revenue growth with volumes up nearly 8% year over year. Nine of our 10 markets delivered volume growth versus last year, and eight of them grew volumes ahead of 19. And as a result, we delivered 180 million hectoliters on a rolling 12-month basis, 8 million hectoliters above our peak back in 2015. In this quarter, we delivered another solid net revenue per hectolitre performance, which grew 12% versus Q3 2020. Comparing with 2019, net revenue was up 43% on a consolidated level in the quarter, and year-to-date up 31% versus 2019. If we break down this performance by region, our international operations generally continued to bounce back nicely. In fact, volumes grew nearly 9% year-over-year and are just slightly below 2019 levels. As mobility restrictions continue to ease thanks to vaccination, our volumes continue to recover, led by the Dominican Republic and Panama. with the Core Plus and high-end portfolios continue to gain weight in our mix. In last, volumes grew double digits versus 2020 and 2019. Argentina, Chile, and Paraguay drove this growth, also thanks to our Core Plus and high-end portfolios. Bolivia posted strong recovery from 2020, but remains below 2019 levels, and there we still have a lot of work to do. Canada, however, had a tougher quarter in terms of top line. Although still above pre-pandemic levels, net revenue in the quarter declined at roughly 2.5% versus Q3 2020, with volumes down almost 7%, while net revenue per hectolitre grew 4.5%. The industry was still impacted by mobility restrictions, and we faced some supply chain disruptions, mostly in Quebec. Turning to Brazil, starting with NAB, net revenue increased 22% in the quarter versus 2020, and nearly 26% against 2019. Volumes were up nearly 10% compared to Q3 2020. and almost 15% versus 2019. This performance was mainly driven by Gatorade, H2O, and Guaraná Antarctica, all of which grew above 2019. And last but not least, Brazil Beer. Top line grew 16% in the quarter versus 2020, and 51% versus 2019. Our step change in volumes continued in the quarter, with 7.5% growth versus 2020 and almost 35% growth versus 2019, outperforming the industry and gaining market share. This is a result of a commercial strategy that has consistently continued to work despite COVID, despite macro headwinds, and despite competitions. It is not just one thing that's working. It's a combination of a healthier portfolio, at first, with stronger legacy brands, plus a strong innovation pipeline, which once again represented over 20% of our net revenues. In addition, we increased the number of fans of our brands by 3 million people since 2019. Second, a better service level, reaching 53% net promoter score in the quarter. Third, our technology big bets, which have continued to structurally improve how we connect with consumers and solve our customers' pain points. For instance, Visa is now used by 85% of our active customers in Brazil. currently offering over 350 products from 40 third parties of different industries. In addition to that, yesterday it was announced that BRF products will be made available through BEAST, which is consistent with our desire to offer better service and solutions to our customers. And finally, great execution of our pack-in-channel strategy with the 300 ml returnable glass bottles leading the way as the on-premise continues to reopen. All in all, year-to-date top line is up 28%, with volumes growing 12% and net revenue per hectolitre increasing 14% versus 2020. When comparing with 2019, we are up 31% in top line, 11% in volumes, and 17% in net revenue per hectolitre. During our last three calls, I took the opportunity to focus on how each of our technological platforms in Brazil are enabling our transformation as a company. The delivery in Q4 of last year Bees in Q1 2021, and Donus, our syntax, last one. Today, I would like to spend some time on what I like to call the logistics revolution that is underway to allow these platforms to fulfill their potential. As Ambev transforms itself into a platform with inspiring brands, that connects people and the ecosystem, creating shared value, a best-in-class logistics operation is a must. In the 90s, we created our second-tier logistics operations, betting big on direct distribution. With currently more than 100 distribution centers spread across Brazil and making 80,000 deliveries per day. In the last two years, we have started to set up a third-tier logistics operation. Approximately $100 million has been invested to date on several footprint and technology-related initiatives to better prepare us for these new operating models. For instance, in terms of creating a delivery footprint Designed for growth, we are investing behind small urban distribution centers near high-density regions, making our delivery capabilities more flexible and agile. These urban distribution centers, or UDCs, how we call, operate only with small models, like bikes, lightweight motorcycles, and small vans. which are faster and cheaper for small drop-size orders. The idea is to provide a better service level for smallpox, using the right model with more efficient occupancy rates and lower carbon emissions, leaving bigger deliveries for bigger trucks. The UDTs integrate B2B, DTC, and the marketplace platforms, And we are also piloting, offering services to partners, gaining even more efficiency. We currently have five UDCs in operations, three of them in Sao Paulo. We will end up the year with 14, and we are just starting. To wrap things up, some quick words regarding our journey, the reminder of the year in 2022. 2020 was a very tough year, but we stood our ground. 2021 has also been challenging, but we have continued to improve our performance in a consistent way led by our V-shaped top-line recovery. So I'm looking forward to what 2022 will bring with its risks and opportunities. Lucas will go into more details. But although Hill 4 will be another tough comp, we will continue to work to bring our nominal, consolidated, normalized EBITDA for the full year back to 2019 levels. And based on our year-to-date performance, we believe there is room for improving this number, close a better 2021, and be better positioned for the next year. With that said, let me hand it over to Lucas, who will cover our financial performance. Thank you, everybody.

Thanks, John. Good morning and good afternoon, everyone. I would also like to start by talking about transformation. So I will kick off with climate action, where we also took a transformational step in the right direction during the third quarter. Q3 was marked by the announcement of our first carbon-neutral brewery and malt plant in Brazil. Our Ponta Grossa brewery in the state of Paraná and our malt plant in Passo Fundo in the state of Rio Grande do Sul delivered 90% reduction of CO2 emissions versus 2017 and had the remaining 10% emissions neutralized via carbon credits. This process began in 2012 when we built these plants designed to be low-carbon operations and we're proud to see it come to life. To get here, we focus on four things. Heat produced on-site from biomass boilers, green energy produced on-site from biogas of the effluent treatment system, energy consumption efficiency leading to more than 15% total purchased energy reduction, and 100% electricity purchased from renewable resources, in this case, hydro. As next steps, we will implement electrical forklifts starting in Q4 2021 and build on-site solar farms starting next year. And these investments make total financial sense as well. Our decisions to move towards carbon neutrality has not only led to efficiency savings in terms of energy consumption, but also allowed us to secure renewable energy sources at more attractive rates than before. Also, This milestone is not an isolated event. We're developing a roadmap to have 100% of our production facilities become at least carbon neutral in the future, which we expect to be able to share in the coming months. Turning to our financial performance in the quarter, overall, we saw similar dynamics to the first half. EBITDA growth driven by top-line recovery, partially offset by cost and expense headings. The difference this time is that in Q3, we faced much tougher top-line comps than during the first half of the year. But the team's disciplined execution came through once again. In the quarter, net revenue grew nearly 21% organically, lapping 15% organic growth in Q3 2020. EBITDA grew approximately 9% organically against 1.4% organic growth in Q3 2020. Normalized profit grew about 50%, following 2.2% growth in Q3 2020, while operational cash flow declined almost 10%, lapping 99% growth in Q3 2020. Versus Q3 2019, net revenue grew 43%, EBITDA was up almost 16% in organic terms, while normalized profit increased 54%, and operational cash flow improved 80%. Margin pressure, unfortunately, remains a reality, with gross margin contracting to 50% and EBITDA margin contracting to slightly below 30% in the quarter. However, we did see sequential EBITDA margin improvement versus Q2 2021, which stood at 26% at the consolidated level if you disregard the one-off tax credits in Brazil. We still have a long way to go, but we see this as a relevant improvement nonetheless. Now let me go through the main cost and expense drivers. Cogs per hectolitre increased 18.5% on a consolidated basis in the quarter. We once again saw adverse effects in commodity costs as the main factors, particularly in Brazil, while Better Mix offset higher unhedged commodity costs. Brazil beer cash cogs per hectolitre, in Q3, totaled almost 16%, which should be the lowest growth for the year. FX and commodity pressures should still be an issue in Q4, but we continue to expect Brazil beer cash cogs per hectolitre to grow in the low 20s for the full year. As for cash SG&A, year-over-year growth totaled 23.6 on a consolidated basis. Sales and marketing and distribution expenses grew mid-teens, so below net revenue growth. The main drivers here were the same ones from Q2. albeit at lower levels of growth year over year. And administrative expenses were nearly 81% higher year over year, which was primarily a result of provisions for variable comp, since our performance for the year was once again better than expected. And should our performance remain on track during Q4, variable comp accruals should continue to impact our year over year performance. In addition, it's worth sharing that when we break down our administrative expenses, X variable comp accruals, in regions like Brazil, for instance, what we saw in the quarter, and this is also true since 2019, is that overhead packages are growing below inflation, with the exception of two packages. First, our investments behind B2B, D2C, and fintech platforms, and second, technology spends to enable our transformations. Despite the near-term impact, we have no doubt whatsoever that these investments make sense given our overall strategy, and we've managed to find non-working dollar savings and other lines to fund this transformation to a great extent. And as these platforms scale up and we find smart ways to leverage AMBEV's scale and reach, we do see opportunity for more attractive returns in the future. Looking ahead, given year-to-date performance, and should the recovery continue in the final months of the year, we feel more confident in our ability to deliver on our two main ambitions for 2021, despite a tough comp in Q4. First, a healthy balance between improved volume and improved net revenue per hectolitre growth as part of our top-line-led recovery across markets. Year-to-date volumes are up 12.3%, and net revenue per hectolitre is growing 14.1%. And second, normalized consolidated EBITDA performance for the full year above 2019 levels in nominal terms, which we more and more see as feasible. Year-to-date, normalized consolidated EBITDA stands at approximately R$16 billion, which is 4.5% above 2019 in nominal terms, excluding the one-off tax credits in Brazil. Finally, some quick comments on our financial priorities of protecting liquidity and improving our return on invested capital. Liquidity remains solid given strong cash generation, despite the several headwinds we've faced since last year. But the environment does remain uncertain and volatile, so we continue to believe a prudent approach remains warranted. Our use of cash priorities also remain unchanged. reinvest for growth, organically and non-organically, and return excess cash to shareholders over time. And in terms of improving return on invested capital, the name of the game continues to be operating efficiency coupled with better resource allocation across the company. Given the evolution of our business, such as our bets behind B2B, G2C, and fintech platforms, we believe that, when thinking about profitabilities, we need to look beyond margin ratios and also focus on return ratios. Don't get me wrong. We will always focus on improving the drivers of margin ratios for each of our segments and ventures. But given their different financial profiles, we've been focusing more and more on return ratios to manage our business. 2020 was tough in terms of profitability in both dimensions. But the good news is that 2021 has the potential to deliver better returns than 2020, which is important progress despite sustained margin pressure. Our journey of continuous and consistent improvement is well underway since 2020, step by step. This goes way beyond quarterly performance, and we will stay the course towards creating value over the long term. Thank you, and we can now go to Q&A.