Ambev S.A.

Good morning and thank you for waiting. We would like to welcome everyone to Ambev's second quarter of 2022 results conference call. Today with us we have Mr. Jean-Gilles Satchez, 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 a listen-only mode during the company's presentation. After Ambed's remarks are completed, there will be a question and answer section. At the time, further instructions will be given. Should any participant need assistance during this call, please press star 0 to reach the operator. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Security 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 the general economic conditions, industry conditions, and other operating factors could also affect the 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 first quarter of 2022 results. Normalized figures refer 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 normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, EBIT, and EBITDA on a fully reported basis in the earnings release. Now, I will turn the conference over to Mr. Jean Gerissati, CEO for Ambev. Mr. Gerissati, you may begin your conference.

Good morning and good afternoon, everyone. Thank you for joining our earnings call for the second quarter of 2022. During our last call, I mentioned that we started 2022 well positioned and that I came out of Q1 encouraged with what we delivered. As I review Q2 results, I see even more evidence to be confident going forward. And here's why. This quarter provided a glimpse of consumption patterns in a post-COVID world. In several of our markets, reopening continues well underway, with services and on-premises businesses coming back. And as this takes place, we have once again been able to meet the moment. Ambev grew 6% in volumes, reaching 42 million hectoliters, which is 15% higher than 2019 levels. It is the first time we reached more than 40 million hectoliters in a second quarter. This led to a net revenue growth of almost 20%. In addition, organic EBITDA and cash flow grew over 17% compared to the same period of last year. So let's talk about Brazil. In Brazil, we witnessed more clearly the consumer comeback journey to the on-trade and overall out-of-home occasions, leading to another quarter of solid top-line performance. In beer, we estimate we gained market share versus last year and sequentially versus Q1 this year in both volumes and value. Volumes grew by 8.5% in the quarter and by 5.2% in the first half. To date, we grew 2.2 million hectoliters. leading the industry expansion, as we estimate that the industry grew almost 0.5 million hectoliters. In terms of segments, premium grew more than 20%, led by Original and Shop da Brahma, which are more relevant in their own trade channel. In fact, this quarter, Shop da Brahma achieved its highest volume in the second quarter, with 40% more buyers than the pre-pandemic levels. While our core portfolio sustained its momentum, increasing volumes low teens, and we continue to invest behind developing our core plus brands, Brahma Duplo Malte and Spaten. Net revenue grew 23%, with net revenue per hectolitre growing about 13%. And finally, EBITDA in Brazil beer grew 27.5% organically, with margins expanding by 80 bps. Talking about NABS in Brazil, we delivered another great performance this quarter. Volumes grew 16%, driven by healthy brands. especially in the out-of-home occasions, supported by bees. We estimate we gained market share again this quarter. In CSD, Pepsi brand grew more than 20%, driven by the great success of Pepsi Black, which almost doubled its weight within our Pepsi brand. Net revenue per hectolitre grew 22%, driven by revenue management initiatives, the premium mix, and package mix, as single-serve packaging grew 37% this quarter. EBITDA grew organically 92%, expanding margins versus last year by 500 bps. Regarding our technology platforms, over 86% of our revenues are coming through BISP. On the marketplace, in June, we announced a partnership with Grupo Pão de Açúcar, who will offer a vast range of products on our platform via a 3P model, just like BRF, delivering an even better assortment and service level for our clients. The delivery fulfilled 15 million orders, 2% below the previous year. mostly impacted by the rise of out-of-home occasions. GMV grew by 7% compared with last year, and we kept a 4 million month active users in the delivery. We continue to invest behind adding more features to our app and delivering a better user experience to our consumers. And BizBank grew TPV quarter over quarter by almost 40% and now reaches about 300,000 customers. Turning to our international operations. In last, overall volumes grew by 1.5% led by Bolivia, which benefited by the reopening. In Argentina, we remain cautious about the impact of rising inflation on consumption, despite flattish overall volumes in the quarter. In Chile and Paraguay, Premium and Core Plus continued to gain weight among our brands. Last net revenue per hectolitre grew 38%. In CAC, overall glass supply constraints remained Coupled with a tougher short-term competitive environment in Panama, this all contributed to a 10% decline in volumes and a flattish net revenue in CAC. Talking about Canada, despite the reopening that took place, industry is still sluggish. We estimate that beyond beer industry declined by almost 9% in the quarter. Talking about beer, We estimate to have gained market share, led by core and value brands. Now, I would like to talk about brand building. During our investor days, we explained our framework based on three pillars, mind, mouth, and heart. And this is a quarter to be proud of, of how much we have evolved in the last few years in brand building. This evolution is no longer going unnoticed. Last year, we were awarded seven prizes in Cannes Festival of Creativity, and this year, 12. Ambev was the most awarded Brazilian company in the festival, with lions for all of our beverages categories. Brahma and Budweiser. were awarded in beer, Guaraná in abs, and Mike's in beyond beer. Talking about our framework, starting with mind, we strongly believe that being creative is the best way to not only capture consumers' attention, but also engage with them in a meaningful way. Brahma brought home its first ever golden lion and seven lions in total. which is an absolute record. It was the most awarded brand in the world in the social media category with our foamy haircut campaign. The results of all this creative effort helps Brahma continue growth in brand health KPIs. Now moving to mouth. Key recent innovations continue to grow as we keep launching products to delight all Brazilian tastes. Our most recent project is Brahma Duplo Malte Escura, or Brahma Double Malt Black, a special limited edition which is brewed with two types of malts to create a darker and even creamier beer. We continue to collect awards for our innovations. In June, we were listed one of the 20 most innovative companies in Brazil by the MIT Technology Review, a study that evaluated innovation capabilities in more than 1,000 companies in the country. Finally, going to our third pillar, the heart, here is all about being relevant in consumers' lives and connecting through their passion points. After the two years gap due to COVID-19, our brands continue to be a fantastic platform for cheering together. Brahma helped to bring back São João festivities in the northeast of Brazil, one of the largest and most traditional celebrations in the country. Budweiser presented the NBA House 2022, a space where more than 40,000 people had the opportunity to watch the season's playoffs. And BAX created the Urbex Festival, an urban music and art circuit that helped to awaken different areas in the main urban centers of Brazil. We will keep consistently focusing on mind, mouth and heart to make sure we are relevant, innovative and loved by our consumers, which will make stronger brands in the long term and help our organic growth trajectory. To conclude, our performance in Q2 accelerated in Brazil even more than we expected. more than offsetting some headwinds we had in our international operations. It was a great H1, and we will work to deliver an even stronger H2 in terms of both top and bottom line, despite facing a tough comp in Brazil beer volumes in the third quarter and the continued volatility and inflationary pressures. We are not making any changes to our guidance for the year relating to Brazil beer cash cogs per hectolitre growth between 16% and 19%, excluding the sale of non-AMBEV marketplace products. Moreover, we remain on track in terms of our main ambitions for the year, that is, to get Brazil back to bottom line growth, to have a consolidated AMBEV organic EBITDA growth ahead of the organic growth that we had in 2021, and to improve our return over invested capital. Lastly, I would like once again to thank the entire team for the ownership mindset in delivering results and transforming the company, and a special shout-out to the marketing team Congratulations for the amazing performance at Cannes. Thank you for your time. And now I will hand over back to Lucas.

Thank you, Jean. And hello, everyone. Our financial performance in Q2 was fairly consistent with the first quarter in terms of what should be the same and what should change in 2022. What would not change? First, Top-line growth remains key. We delivered nearly 20% net revenue growth overall, with Brazil once again being the main highlight. Second, input cost pressure remains a sticking point. Cash COGS per hectolitre grew nearly 18% at the consolidated level, while for beer Brazil, it grew almost 14%, excluding non-AMBEV marketplace products. And third, we would continue to focus on value creation drivers. The name of the game here continues to be improving our return on invested capital, building on our progress in 2021. And in terms of what would change, first, net revenue performance more driven by net revenue per hectolitre than volumes as we adapt to a higher inflationary environment. Net revenue per hectolitre grew almost 13% and volumes grew around 6% in the quarter. Second, cost headwinds would come mostly from commodity inflation rather than effects. Commodity inflation was more explained by the increase in Brazil beer cash cogs per hectolitre, driven mostly by aluminum and barley, which was partially offset by better RGB mix. Third, SG&A growth should improve. Cash SG&A grew about 15% in the quarter, with sales and marketing growing almost 22%, thanks to continued investment behind our brands and innovation, distribution growing 18%, mainly due to rising diesel prices, and admin expenses growing just around 2%, given lower variable compensation accrual once again. And fourth, tax credit one-offs in Brazil that positively impacted our EBITDA, financial results, and effective tax rate in Q2 of last year would be a factor this quarter. and it was a factor, but for a different reason than we originally anticipated. We recognize in the quarter about $1.2 billion in tax credits, of which a little over $900 million in other operating income and approximately $300 million in our financial results. This gain also relates to the inclusion of the ICMS state tax in the taxable basis of the PIS and the COFINS federal taxes, which was declared unconstitutional. As I have mentioned in prior calls, there is still pending litigation in this matter, and during the quarter we concluded, together with counsel and external advisors, both the legal viability assessment as well as the quantification of this additional portion of tax credits for the PIS and the COFINS that we overpaid over the years. As a reminder, these tax credits are technically part of our normalized results from an accounting standpoint. but we disregard them for purposes of calculating our organic performance, treating them as a scope change. Please refer to our financial statements for further details. Now, given our performance in the quarter, we are well on track to deliver a better organic EBITDA growth in 2022 than the 10.9 organic growth we delivered in 2021. Brazil's recovery this year is turning out to be stronger than expected, which is more than offsetting the declines in CAQ and Canada year-to-date. As for last, year-to-date, Argentina is delivering EBITDA growth slightly ahead of local inflation, while the other last countries delivered EBITDA growth in H1, driven mainly by Bolivia, which is finally recovering from COVID. And putting this quarter's performance into perspective, since Q3 2020, we've managed to deliver net revenue growth above 13% quarter after quarter. And this was true again in Q2. So the growth is there, despite all the headwinds we faced. And the good news is that in Q2, we finally managed to deliver growth and profitability in Brazil, which had been lagging for a while. Brazil Beer expanded EBITDA margins by 80 BIPs, while Brazil Knob expanded EBITDA margin by 500 basis points. No doubt there is still work to do on the gross margin side and in terms of consistency, but it's a start. Speaking of profitability, as I've mentioned in prior calls, we've also looked at profitability in terms of working to consistently improve returns on invested capital year after year. And here, we're also happy with the progress we've made so far this year, as first, we continue to look at ways to optimize our business through financial discipline on the cost and expense side, as well as improved resource allocation across our businesses and markets. And second, improve return on invested capital as we look to digitize and monetize our assets. Here, the scale-up of the technology platforms, such as Beast and Zed Delivery, are helping us improve not only NOPAT growth, NOPAT margin, but also asset turnover. It's still relatively early days for these platforms, so we definitely see more upside going forward. Now let's turn to our cash flow and our financial performance below EBITDA, and I will close with some words on ESG. Cash flow from operating activities totaled about 2.2 billion in the quarter, which represents an increase of about 17%. Normalized profit grew a little over 4% in the quarter given EBITDA growth and a lower effective tax rate, partially offset by higher net finance expenses versus Q2 2021 of around 200 million reais. Net finance expenses were mainly impacted by the continued increase in the carry cost associated with our FX and commodity hedges in Brazil and Argentina, which should continue to be an issue going forward. Our interest expense grew mainly due to fair value adjustments of payables under IFRS 13, but it was fully offset by higher interest income resulting from the Brazilian tax credits we recorded in the quarter. Before I wrap up, I want to briefly highlight our progress in terms of some important sustainability milestones. On the environmental side, we announced three more carbon-neutral plants in Brazil. Arosuco Aromas in the state of Amazonas, Juatuba in the state of Minas Gerais, and Curitibana in the state of Paraná. Together, they represent an emission reduction of over 5,000 tons of greenhouse gases per year. and we intend to deliver an additional four carbon-neutral operations by year-end. And on the social side, our people that volunteer within the VOA Social Transformation Program have recently joined Gerando Falcões, a Brazilian NGO of social development, in an initiative to mentor social leaders of Brazilian favelas that are graduating at the NGO's Falcons University. We plan to hold our ESG day during Q3, and we hope you can engage with us in this dialogue. So to wrap up, a few final messages. First, we delivered a stronger H1 than we expected, which gives us more confidence going into H2, particularly in Brazil. Second, our guard remains high since challenges and short-term volatility remain a reality, particularly in countries like Argentina, Panama, and Chile. And third, we remain focused on delivering continuous and consistent improvement in our results as we progress on AMBEV's transformation journey. Now let me turn it back to the operator so we can go to Q&A.