Ambev S.A.

Good morning and thank you for waiting. We would like to welcome everyone to Ambev's fourth quarter 2021 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.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 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 EMBEV 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 comparison with fourth quarter results. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Unbev's normal activities. As normalized figures are non-GAAP measures, the company discloses the consolidated profit on a fully reported basis in the earning release. Now, I'll turn the conference over to Mr. Jean Giresatti, CEO for Unbath. Mr. Giresatti, you may begin your conference.

Good morning, good afternoon, everyone. Thanks for joining our Q4 and full year 2021 earnings call. 2021 is now history, but it definitely left its mark. We had an all-time high engagement of our team which once again rose to the occasion and remains steadfast in transforming this company to a new chapter. We kept a very high reputation as we continue to focus on having a positive impact in society and growing together with our ecosystem. We have reached our record top line performance with yearly volumes at a whole new level, 180 million hectolitres. that's 15 million hectolitres of new volume on top of 2020, and pretty much all the industry growth in the period. Our normalized EBITDA went back to double-digit growth and above pre-pandemic levels, despite unprecedented cost headwinds. And we had free cash flow growing ahead of normalized EBITDA, improving our ROIC while investing heavily in the future. I want to deeply thank my entire team for this amazing year. Now let's talk about Q4. Our main objectives in the quarter were to consolidate our new volume levels. In here, we grew volumes in the quarter, improving our rolling 12 months performance. And to position ourselves to start 2022 is structurally better than we began 2021. We accelerated our net revenue per hectolitre growth, reaching 15.2%, which leaves us in a good place to start the year. Breaking it down by region, in Brazil beer, our volumes in the quarter declined 3%. amid a high single-digit industry decline, according to our estimates. Therefore, we sustained market share gains and we led, in 2021, both volume share and value share growth. In fact, this was the second year in a row in which we outperformed a growing industry. adding 4.5 million hectolitres in 2020 and 6 million hectolitres in 2021. In a quarter, net revenue per hectolitre grew 9%, and we expect to improve this performance in 2022. In Brazil, NAB volumes grew by almost 2%, and net revenue per hectolitre grew nearly 12%. thanks to better packaging and premium mix. We estimate we gained market share in the quarter, benefiting from a better visibility and improved distribution with bees, closing the year with all time high buyers in history. Our international operations continued to rebound consistently. Latin America South was our major growth engine, with volumes growing almost 9% and net revenue per hectolitre about 31%. We had a solid performance in Central America and the Caribbean. Volumes grew by 2.5% and net revenue per hectolitre grew by 16%, thanks to our premium and core plus brands that are gaining mixed weights. Canada, we grew approximately 4% in both volumes and net revenue per hectolitre. An easy comp given Q4 2020, combined with market share gains led by Corona and Michelob Ultra. On top of that, we are structurally better positioned to start 2022. Our portfolio is stronger and healthier. For example, in Brazil, Brahma Duplo Malte and Brahma were first and second in brand equity improvement among all brands in the market. And we are starting this year with 1.6 million more consumers that state that love one of our brands. Also, I would like to highlight the performance of Corona. that is the leading premium brand in Central America and the Caribbean, in Canada, in Chile, in Argentina, and grew 44% in volumes in Brazil. Innovation is working. We tested more than 65 new products throughout the year, including beer and non-beer products. There is an avenue of growth in health and wellness with Stella Gluten Free and Michelob Ultra. Our Core Plus segment already represents 10% of our Brazil volumes. After the successful launch of Brahma Duplo Multi, SPATLIN has had a very good traction in Brazil. This segment represents an enormous opportunity in all countries, with Andes Origin leading in Argentina, Cusqueña doing very well in Chile, and Skoll surprising us in Paraguay. We are going beyond beer. Beyond beer is already an important profitable growth driver in more mature markets, like Canada, where we have the mics and neutral franchises leading the way. And in 2021, to be ahead of the curve in our other markets, we strengthened our beyond beer capabilities. We created a new business unit to bring focus and consistencies to our strategy towards exciting new alcoholic beverages categories such as ready-to-drink, canned cocktails and seltzers. In Brazil, we have the Bits franchise broadening its portfolio, and we will continue to expand MIGS after a successful pilot in 2021. DTC initiatives have steps changed. This is especially true for Z delivery in Brazil, not only in terms of geographic reach, but also scale and assortment. In 2021, they reached 300 cities, delivered 61 million orders, and we begin 2022 with 4 million monthly active users. And this is revolutionizing how we connect with clients in Dominican Republic and in Brazil, where more than 85% of our customers are already ordering online and of which more than 80% make majority of their purchases through the Biz app. Also, our offering of non-AMBEV products on the platform reached a 1.4 billion annualized GMV in 2021 in total AMBEV. And this is just the beginning. In 2021, we kicked off the expansion of BIS software as a service capability with the agreement with BRF in Brazil, and we are speeding up BIS implementation in Argentina, Paraguay, and Panama. At this time of the year, last year, everyone was worried about the impacts from the pandemic, the reduction in government stimulus, the cost pressures given affects the valuation and commodity increases. After 12 months, the results were our volumes were up 9%, net revenues up 24%, and the beta growing 11%. We believe we adapted quickly in 2021, and we invested ahead to continue to lead in 2022. A lot has changed in the past year. In 2022, we will remain alert, attentive, and not let down our guard because COVID is still among us. We're going to see a lot of industry volatility given consumer inflation pressuring disposable income on one side, but we're going to also see a World Cup during the summer on the other side. Cost pressures give an unprecedented commodity inflation. In Brazil beer, cash cox per hectolitre is expected to increase between 16% and 19%. And despite all that, we will deliver consolidated organic EBITDA growth in 2022 ahead of our 2021 performance, with Brazil back to growth. we are structurally better prepared we have a plan and our team is already working on it to finish i would like once again to thank all of our people for the great 2021 and for this amazing transformation journey we have been going through thank you all See you in May.

And now it's over to you, Lucas. Thank you, Jean. And hello, everyone. Let's start with the numbers. Net revenue grew 16% in Q4 and nearly 24% for the full year. EBITDA declined about 2% in the quarter, but grew almost 11% in 2021, which is well above 2019 levels, even if you exclude the impact of one-off tax credits in Brazil. Normalized profit declined about 45% in Q4 due to tax credits one-offs in Brazil, but increased over 11% in the full year. And operational cash flow increased over 40% in the quarter, finishing the year more than 21% above 2020. What's more, our consistent improvement on the operational side also translated into better performance when it comes to our value creation agenda. With return on invested capital, economic profit, and free cash flow all back to growth, and all this while, first, continuing to invest behind our business transformation and future growth, with CapEx for the year totaling 7.7 billion reais, which is nearly 64% above 2020 levels, and sales and marketing growing 15% to support our portfolio strategy and innovation pipelines. And second, returning excess cash to shareholders, with a total payout of R$9.5 billion in the form of dividends and IOC in the year, which was about 23% above 2020. And in terms of sustainability, 2021 was another year of consistent and continuous improvement, and we remain on track to deliver our goals by 2025. For instance, we announced the first carbon-neutral large brewery and malt plant in Brazil, and we also reached 100% renewable energy for our breweries in Panama, the Dominican Republic, and Guatemala. We advanced several initiatives to decarbonize our value chain operations related to Scope 3, and we continue to dream big. We announced our ambition to achieve net zero for our operations by 2030 and for our value chain by 2040. All in all, we delivered the consistent improvement in performance we have been so vocal about since 2020. And now that we are pretty much back to pre-pandemic levels on the bottom line, and with 2021 behind us, we must look ahead. So let's focus on 2022. First, what doesn't change? One, top-line growth will remain a key priority and a key performance driver. Two, input cost pressure unfortunately remains a headwind. And three, our focus on value creation drivers such as return on invested capital, economic profit, and free cash flow generation remain. Now, what should be different in 2022? One, our net revenue performance should be more driven by net revenue per hectolitre than volumes as we adapt to a higher inflationary environment. Two, cost headwinds will come mostly from commodity inflation rather than FX, but at a lower growth rate than in 2021. Three, SG&A growth should improve, which was heavily impacted by variable compensation accruals. And four, the tax credit one-offs in Brazil that positively impacted our EBITDA, financial results, and effective tax rate over the last two years should no longer impact our performance in a material way. Let me give a bit more color on our COGS outlook in Brazil beer, which we are giving specific guidance. We expect Brazil beer cash COGS per hectolitre to grow between 16% to 19% for the full year. This number assumes commodity prices remain at their current levels and does not include the per hectolitre impact on the sale of non-AMBEV products on our bees marketplace, such as milk, vegetable oil, rice, condensed milk, and chewing gum. Given BEE's marketplace growth trend in 2021 and our plan going forward in countries like Brazil and the Dominican Republic, starting in Q1 2022 earnings results, we will report our net revenue per hectolitre, our COGS per hectolitre, and our cash COGS per hectolitre performance, excluding the impact of these non-AMBEF products sold on the BEE's marketplace. This is intended to provide more transparency to the market on this important growth driver, as well as avoid distorting the performance of the underlying beer results. When we bring it all together, what this means is that we will work to deliver better a bit the growth in 2022 than the 11% growth we delivered in 2021, despite a tougher Q1, despite volatility by quarter, and despite the cost headwinds I mentioned. Turning to our financial priorities, we will focus on optimizing our business through three things. First, improving our financial discipline with a focus on liquidity, as well as our typical cost and expense management initiatives, while reinvesting for growth organically and non-organically. Second, further our value creation agenda with a focus on improving our return on invested capital, economic profit growth, and free cash flow growth. And third, return excess cash to shareholders over time. Regarding value creation, we will continue to look beyond margin ratios and also focus on return ratios. Margins remain extremely important, but when it comes to creating value in a sustainable way in the long term, asset turnover is another important lever, and we see room for improvement here, as for instance, our tech platforms continue to expand. And yes, 2021 was still a tough year on the margin side, but on the return side, we managed to break the downward cycle we were on for a while. In 2022, the challenge is to build momentum on top of what we accomplished last year. So to wrap up, following good recovery last year, 2022 brings well-known challenges, but also several opportunities we've been investing behind since 2020. We believe we're better prepared and we will have to deliver once again the continuous and consistent improvement as we transform this company. Thank you, and now let's move to Q&A.