Ambev S.A.

Good morning, good afternoon, and thank you for waiting. We would like to welcome everyone to Ambev's 2024 First Quarter Results Conference Call. Today with us we have Mr. Jean Gereissati, Ambev's CEO, and Mr. Lucas Lira, CFO and Investor Relations Officer. As a reminder, a slide presentation is available for downloading on our 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 listen-only mode during the company's presentation. After InBev's remarks are completed, there will be a Q&A section when we kindly ask that each participating cell site analyst asks only one question. 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 MBEF 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 2023 first 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, EPS, operating profit, and EBITDA on a fully reported basis in the earnings release. Now, I'll turn the conference over to Mr. Jean Gereissati. Mr. Gereissati, you may begin.

So, hello, everyone. Thank you for joining our Q1 earnings call. Today, before jumping into our first quarter results, I would like to say some words about the situation in the state of Rio Grande do Sul. Since last week, we have been working with all our energies to help our team and the population affected by the floods in the state. As a Brazilian company, we will always be at the side of resilience in all situations, So, in addition to protecting and helping our colleagues, we have already donated more than 185,000 liters of water to 11 affected municipalities. We have also been taking water directly from our brewery in the greater Porto Alegre to supply four hospitals in the capital of the state, totalizing 375,000 liters. In addition, we have stopped our production in Porto Alegre to start producing water to distribute to the local population. And we won't stop. We will continue our efforts to find other solutions to help our ecosystem. Now, talking about the first quarter. In our last call, I left you with three main messages regarding 2024. First, that we were and still are confident about volume growth, especially in Brazil. Second, we are working to deliver solid free cash flow generation. And lastly, our main challenge in the year is taxes in Brazil. And this quarter was a good example of this. Brazil had its best volume performance for a Q1 in history. in both beer and nabs cac grew volumes and last in canada volumes decline were mainly driven by industry cash flow from operating activities and free cash flow grew almost 1.3 billion reais each versus last year and net income was slightly negative thanks to currency devaluation in Argentina and to a higher effective tax rate due to lower deductibility from IOC and VAT government grants in Brazil. All in all, a good start to the year. Going into more details on this quarter's performance, I would like to focus on three topics. First, the Brazil beer top line, then Brazil nabs, and Argentina. So let's get started. Brazil beer volumes grew 3.6% in the quarter. According to our estimates, industry was slightly positive this quarter, and we estimate to have gained market share. Premium and super premium brands grew in the low teens, led by Corona, that grew over 70%, Spaten, and Original. And for the fifth consecutive quarter, we estimate to have gained market share within premium brands. In Corplus, Budweiser family grew 55%, reaching the all-time high volumes in any given quarter. Our core brands remained healthy, growing slightly above the industry. Growth this quarter was led by Antarctica and Brahma, and our value brands declined double digits. I'm very satisfied with this shape of volume growth, led by premium and corpus, with a resilient core, while trade inventory levels remained stable. Now, on to net revenue per hectolitre that grew 0.9% versus last year. Let me break it down into the main components of growth. Price retailers grew above CPI at about 5%. This is well aligned with our strategy of keeping prices in line with inflation, plus and minus the mixed impacts. In addition, when we look at IBGE data, beer consumer inflation reached 4.2% in the quarter. Such data, coupled with a growing industry, show how structurally healthier our industry is. However, state VAT grew ahead of our pricing. This growth is mainly explained by the different schedule that states updated their consumer price reference tables, on which VAT rate applies, compared to our price calendar of the year. Although we might continue to see such an impact for the next quarters, that is not a structural headwind. With that, net revenue grew 4.5% in the quarter ahead of COGS, delivering a 200 basis points gross margin expansion and a beta margin of 33.6%, 260 basis points ahead of last year. In Brazil NAB, volume grew 6.5% versus last year. Growth was led by health and wellness brands pepsi black grew 33 percent and now represents 25 percent of total pepsi cola family and guarana zero confirmed its momentum with a 61 growth number of buyers grew versus last year in all categories supported by bees with a highlight to guaranatastica zero that more than doubled the number of buyers. Net revenue per hectolitre grew 7%, as revenue management initiatives, coupled with a positive brand and single-serve mix, more than offset increased VAT taxable basis. Even though COGS per hectolitre grew in line with net revenue per hectolitre on the account of mix, sugar and overall inflation, EBITDA grew almost 18%, reaching an EBITDA margin of 28.6%. And finally, Argentina. Volumes contracted almost 20% this quarter as macro environment continues to be challenging. In nominal terms, EBITDA reduced significantly given currency devaluation that took place in December 2023. Lastly, despite the industry performance, cash generation, excluding cash upstreams, was above last year performance. Regarding CAC in Canada, the Dominican Republic led CAC to another great quarter. with volume increase, double-digit EBITDA growth, and growth in the EBITDA margins expansion. Canada saw a tough industry again. However, we were able to offset top-line performance, delivering a slight negative EBITDA performance with a resilient cash generation. And when we put things in the long-term perspective, we see that we made huge progress since 2019. Brazil Beer is a good example of how our commercial momentum continues. We have been making great progress in brand health. Together, our focus brands, Corona, Spaten, Brahma and Budweiser reached an all-time high brand health indicator. Innovation continues to work with Stella Pure Gold and Budweiser Zero, combining growing over 40% versus last quarter, and we will add Corona Zero to the portfolio as the official sponsor of the Summer Olympic Games of Paris. These continued to expand and add new third-party products in the marketplace, resulting in a wider assortment of products and a better experience to our customers. And the delivery reached over 65% of population coverage in Brazil, with presence in more than 700 cities. And to close, no different than other years, this year presents challenges and opportunities along the way. Short-term uncertainties are part of operating in Latin America, and that's why we focus on what we can control and on our long-term strategy. For the year, we continue confident in volumes. Tax will continue to be a headwind, impacting both the top line and the net income, and we will work to deliver consistent and sustainable results, expanding margins, and improving cash flow. So, thank you very much. Now, let me hand it over to Lucas. Thank you, Jean.

Good morning and good afternoon, everyone. I close our February call by saying that in terms of our financial performance, the name of the game in 2024 would be consistency and delivering growth, profitability, and resilient cash flows despite the Brazil tax and Argentina headwinds. To do that, our focus would remain on financial discipline, value creation, and capital allocation. And Q1 figures shows that we're off to a good start. EBITDA grew about 12%, 15% ex-Argentina, Gross margins expanded 100 basis points organically, 150 basis points ex-Argentina. EBITDA margin expanded 240 basis points organically, 290 basis points ex-Argentina. Normalized profit declined slightly by 0.6%, and cash flow from operating activities totaled R$718 million. now today i want to spend a bit more time on our net finance results income tax and cash flow given the materiality of the impacts from brazil taxes in argentina starting with net finance results which improved nearly 600 million reais compared to last year there were three main drivers of such improvement first lower losses on derivative instruments given lower carry costs to implement our hedging strategy for effects in brazil and for commodities Second, lower fair value adjustments of payables pursuant to IFRS 13 and CPC 46. Third, the impact of our financial performance decisions in Argentina, where higher cash flow generation during 2023 led to higher interest income. We had lower losses on derivative instruments given our change in hedging strategy and U.S. exposure. And we also had lower losses on non-derivative instruments thanks to less third-party and inter-company payables exposures. Lower carry costs in Brazil and lower fair value adjustments of payables should continue to help our net finance results year-over-year performance going forward. However, the year-over-year gains related to Argentina will be significantly reduced as we lowered our hedging and U.S. exposure throughout last year. Also, we should continue to see higher costs associated with judicial bonds and judicial guarantees expenses. Now let's move to income taxes. Our income tax expense totaled almost 700 million reais in the quarter, which was equivalent to an effective tax rate of 15%. Four main drivers here. First, higher EBT, which grew from roughly 3.9 billion reais to nearly 4.5 billion reais. Second, the final approval during the quarter of our 2023 request to renew the income tax incentive for Adosuku, our subsidiary in the state of Amazonas, which is a one-off. Third, following the December 2023 change in legislation, there were no deductions related to state VAT government grants. Although the new law is already being challenged, we are not yet technically in a position to continue accruing such deductibility. Should the situation change on the litigation front, we will then accrue the corresponding benefit retroactively. And fourth, following the December 2023 change in legislation, there was less IOC deductibility given lower IOC basis for the 2024 fiscal year. We continue to work towards offsetting this as much as possible. In other words, though net income was pretty much flat in the first quarter, these headwinds remain for the time being and should impact our performance during the rest of the year. Since I'm on the topic of taxes, let me provide a quick update on tax litigation and the tax reform on consumption in Brazil. In terms of litigation, there were no material administrative or judicial rulings during the quarter, but we continue to expect decisions at the administrative level in the coming quarters. As for the tax reform on consumption, on April 24th, the federal government formally submitted to Congress the draft enabling legislation. which may be voted in the House of Representatives by mid-year. Although the transition period will only begin in 2026 and the parameters for the excise tax are somewhat clearer, there are still some important topics to be addressed, such as what the federal and state VAT rates will actually be, what the excise tax rates for beer and sugary drinks will actually be, And finally, how the transition period will be structured so as to ensure that there is no increase in the total tax burden of the industry, which is already among the highest in the world. Okay, let's quickly go over cash flow now. Cash flow from operating activities was positive, thanks to a combination of EBITDA growth, lower net finance expenses, and better working capital performance. where higher inventories driven by a faster inventory buildup versus last year were more than offset by better payables, which benefited not only from a lower crop in Argentina that had adversely affected Q1 2023, but also from short-term raw material market dynamics in Argentina, which should revert going forward. Cash flow used in investing activities totaled approximately negative 1.8 billion reais, And year-over-year performance was mainly impacted by CapEx investments, which were 12% lower than last year, and roughly 800 million of investments in Brazilian treasury bonds, so there was ultimately no cash outflow. And cash flow from financing activities was about negative 2.3 billion, with year-over-year performance pretty much entirely driven by the 1.7 billion reais disbursement in January given the Dominican Republic put option. So we began 2024 better cash flow-wise than we did in 2023, which is great, but we still have work to do during the remainder of the year. And finally, regarding sustainability, we will publish our annual sustainability report on our website in the coming weeks, so stay tuned. With that, now let me hand it back to the operator for Q&A.