Ambev S.A.

Good morning, good afternoon, and thank you for waiting. We would like to welcome everyone to Ambev's 2024 Third Quarter Results Conference Call. Today with us we have Mr. Gian Gereissati, Ambev's CEO, 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 MBEV'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 Unbev'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 Unbev. 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 third 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. Gian Gereissati. Mr. Gerisati, you may begin your conference.

Hello, everyone. Thank you for joining our Q3 earnings call. I would like to start by putting this quarter's performance into perspective. First of all, we delivered another solid quarter of growth and profitability against our toughest comp of the year. Just as a reminder, Q3 2023 was our strongest quarter last year, where EBITDA grew over 30% ex-Argentina, and EBITDA margin expanded 630 basis points ex-Argentina. Normalized profit grew around 25%, and cash flow from operating activities increased nearly 30%. Second, we built the score on our performance during the first half of the year, with Brazil and CAQ delivering once again, LAS and Canada improving sequentially, and cash flow generation continuing to improve despite the well-known tax headwinds in Brazil. As a result, this quarter brought us one step closer towards delivering another year of consistent top-line growth with record volumes in Brazil, consistent EBITDA growth, gross and EBITDA margins expansion, and a solid cash flow generation. So let's dive into our operational performance, starting with what remained a reality. Resilient consolidated top line performance in the mid single digits. Gross profit growth in the high single digits. And a beta growth with gross and a beta margins expansion. Continued investments behind our brands across our main markets. If we break down volume performance in last. Despite some sequential improvement, we continue to see a tough consumption environment in Argentina, as volumes declined in the mid-teens on the back of the easiest comp of last year. In this scenario, we are better prepared for the future with estimated market share gains and improved brand health indicators in the country. Ex-Argentina volumes increased by mid-single digits, led by Bolivia and Chile performances. Canada volumes sequentially improved, with our premium back to growth. Premium and corpus brands grew by low single digits. Our market share remained stable in the country, according to our estimates. and our brand health improved versus last year, with a highlight to Corona that has the highest brand health in the market and is growing. In CAC, the continued strength of our business in the Dominican Republic delivered mid-single-digit volumes growth, led by Corona and Presidente, which presented a strong brand health performance. However, In Panama, the industry contraction was primarily driven by the recent tax increases amid a tougher macro scenario, which weighed on our volumes. And in Guatemala, a temporary logistics shipment phasing faced by our local distributor impacted our quarterly performance. In Brazil, NAB continued with a great commercial performance, reaching all-time high volumes for a Q3, led by our health and wellness portfolio, with Guarana Zero up high 50s and Pepsi Black and Gatorade up low 20s. Volume of no sugar grew low 20s, with a highlight to our energy and hydration brands presenting solid performances as well. In beer, based on our estimates, industry in July and August grew low single digits, below production data reported. This quarter, we reached our all-time high rolling 12-month volumes. Our brand strategy continued to work with premium, super premium, and core plus brands growing ahead of total volumes, and our brands improving brand health indicators. Our premium brands grew above 20%, led by Corona, Spaten, and Original, all of which rose volumes over 25%. The core plus brands grew in the low teens, led by Budweiser, that increased volumes by nearly 50%. And although Brahma and Antarctica each grew high single digits, our core brands declined by low single digits. Our pricing strategy remained nimble and we took pricing starting in September, which was earlier than last year. In addition, one very important point to make regarding Brazil beer is that we ended this quarter better prepared for the summer season. And here's why. Last quarter, I spoke about our four focus brands, Brahma, Budweiser, Spaten, and Corona. And I'm glad to see that the investments behind these brands are starting to pay off and they have momentum. Each of such focus brands reached all-time high rolling 12-month volumes, with Bud, Spaten and Corona reaching record brand health indicators in the quarter. Combined, these brands grew almost 10% in the quarter. Also, Our inventory levels are much healthier this year than they were at the same time last year, giving a better production in the quarter. On top of that, we have been sustaining all-time high service level to our customers. And before I hand this over to Lucas, as you know, this is also my last earnings call as Ambev's CEO. And as I transition to a new challenge, I would like to share some reflections on the last five years. Ambev was built on great people, strong culture, big dreams, and amazing brands. And I'm proud of how our talented team has evolved over the past few years. We are now better prepared to listen to our ecosystem, to innovate, and to drive continued transformation throughout the company through technology. We are making better decisions. The team embraced change, dreamed big, and created incredible initiatives, from producing hand sanitizers in our breweries during the pandemic to creating some of the largest innovations in the company's history. We have accomplished so much, too many achievements to list here, but each one reminds us on how our business can drive positive impact across our ecosystem while strengthening our performance. Over the past five years, we have attracted around 4 million new fans. thanks to the amazing work our team has done with our brands. As you can see, we are winning in the premium and super premium segment, and we are leading in the core and core plus segments. I'm also proud of our results on innovation across our entire portfolio. we made a significant push into beyond beer and into balanced lifestyle brands where we were pioneers here launching gluten-free brands and low calorie beers and also leading the zero alcohol category another significant evolution was in technology we leveraged tech to enhance our capabilities and we built a platform. With this, we digitized our route to market, increasing the number of POCs served to over 1 million, while improving service levels. We also used all these assets that we have to build a marketplace that offers a broader assortment of products for our customers. And on the consumer front, the delivery is a reality. is a love digital brand, which is now available and relevant in more than 700 cities across Brazil. On our journey to create a future with more tiers, we embraced sustainability in our operations, adding 15 carbon neutral plants to our footprint as part of our decarbonization plan. And we have reduced water usage per liter of beverage produced by over 7%. And through all these changes, we have created substantial value. Over the past five years, we generated 68 billion reais in free cash flow. We expanded ROIC and achieved positive EVA every year. As a result, we have returned over 43 billion reais to shareholders since 2020. And yesterday, our board approved a 2 billion reais share buyback program, demonstrating our disciplined approach to capital allocation and our belief that all these evolutions made our business better. I am proud to say that we accomplished an unparalleled and remarkable transformation as an FMCG company. The combination of a stronger portfolio, B's and Z delivery, driven by our talented team, put us in a solid position to tackle a much bigger addressable market in the future. We have built a stronger business with the stamina to go the distance. So thank you very much. And now I will hand it over to Lucas.

Good day, everyone. Our financial performance in the quarter was all about continuous growth and continuous improvement in terms of profitability. EBITDA grew 8.5%, 8.7% ex-Argentina. Gross margin expanded 180 basis points organically. 220 basis points ex-Argentina. EBITDA margin expanded 110 basis points organically, 130 basis points ex-Argentina. And even though normalized profit declined around 11%, cash flow from operating activities grew a little over 2%, totaling about 8.1 billion reais. What's more, year-to-date cash flow generation was pretty much in line with last year's. despite having invested 1.7 billion reais in connection with a Dominican Republic put option back in January. Additionally, we benefited from exchange rate fluctuations on cash held in our international operations. So let me cover our beyond EBITDA performance, starting with net finance results. Net finance results improved roughly 150 million reais versus 2023, with the same drivers as the first half of the year. First, lower losses on derivative instruments given lower carry costs to implement our hedging strategy for FX in Brazil. Second, lower fair value adjustments of payables pursuant to IFRS 13 and CPC 46, and third, our hedging decisions and lower USD exposure in Argentina, albeit to a lesser extent than in H1, which should continue to be the case in Q4. Moving to income taxes. Tax headwinds in Brazil once again impacted our net profit performance in the quarter. Our income tax expense totaled around 1.1 billion reais in Q3, which was equivalent to a consolidated effective tax rate of almost 24%. The two main drivers were consistent with H1. First, higher EBT, which grew from 4 billion reais to nearly 4.7 billion reais. And second, less deductibility related to state VAT government grants and IOCs. Regarding state VAT government grants, one important update. In August and October, we obtained injunctions with respect to certain of our subsidiaries, which should help partially offset the adverse impact going forward. Let me now provide a brief update in terms of litigation and the tax reform on consumption. Regarding litigation, since our Q2 call, as per note 14 to our financial statements, favorable administrative court decisions totaling about R$ 2 billion became final in Q3. And we also obtained favorable administrative court decisions totaling about R$ 2 billion that are not yet final and may be subject to appeal by tax authorities. And with respect to the tax reform on consumption in Brazil, we continue to expect the Senate to vote on the matter before year-end. We will keep everyone posted as the legislative process progresses. Turning to cash flow, we're off to a good start to the second half of the year. Cash flow from operating activities totaled nearly 8.1 billion reais, almost 200 million reais above last year, with higher EBITDA, better working capital performance in Brazil, and net interest more than offsetting higher cash taxes. Cash flow used in investing activities totaled approximately negative 1.1 billion reais, with year-over-year performance mostly impacted by lower capex. And finally, cash flow from financing activities totaled about negative 1.1 billion reais, an improvement of 300 million reais versus Q3 2023, driven mostly by lower net finance costs. Looking ahead, Q4 is critical in terms of cash generation, given the seasonality of our business, and we also face a tough comp because in Q4 2023, our cash generation benefited from one-off payables in Canada in connection with the 100-year agreement for the long-term licensing of Corona in the country, as disclosed in Note 1 of our 2023 full-year financial statements. So we still have work to do on the cash flow front. Having said that, given the strong cash generation year to date, and the completion of the share buyback program announced earlier this year, the Board has approved the launch of a new share buyback program totaling R$2 billion, with the primary purpose of cancellation of shares as a means to begin returning excess cash to shareholders this year. Any shares that are not canceled may be held in Treasury, transferred, and or cover any share delivery requirements contemplated in our share-based compensation plans. One final remark before handing it back to the operator. I would like to thank and congratulate our finance, shared services, and legal teams for receiving for the second year in a row the 2023 Transparency Award by ANEFACI regarding the integrity and quality of our financial statements. Well done, team. Thank you, and time for Q&A.