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spk12: Welcome to Anheuser-Busch InBev's second quarter 2022 earnings conference call and webcast. Hosting the call today from AB InBev are Mr. Michelle Dukaris, Chief Executive Officer, and Mr. Fernando Tenenbaum, Chief Financial Officer. To access the slides accompanying today's call, please visit AB InBev's website at www.ab-inbev.com and click on the Investors tab in the Reports and Results Center page. Today's webcast will be available for on-demand playback later today. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. If you should require operator assistance, please press star 0. Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that AB InBev's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect AB InBev's future results, See risk factors in the company's latest annual report on Form 20F filed with the Securities and Exchange Commission on the 18th of March, 2022. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Michelle Dukaris. Sir, you may begin.
spk07: Thank you, Jesse, and welcome everyone to our second quarter 2022 earnings call. It is a pleasure to be speaking with you all today. Today, Fernando and I will take you through our second quarter operating highlights and provide you with an update on the progress we have made in the execution of our strategic pillars. We will then be happy to answer your questions. So let's start with our operating performance. Our momentum continued this quarter, and we are very pleased with the ongoing strength of our business. We delivered top-line growth of 11.3%, with 3.4% volume and 7.5% revenue per hectolitre growth, driven by the expansion of the beer category, ongoing premiumization, supported by increased investments in our brands, and revenue management initiatives across our markets. Despite the dynamic operating environment, we continue to meet the moment, growing EBITDA by 7.2%. Normalized EPS was 75 cents, and underlying EPS was 73 cents. Gross debt decreased by $5.5 billion in the first half of this year, and our net debt to normalized EBITDA decreased to 3.86 times. Our performance this quarter was broad-based, and we delivered top-line growth across all five of our regions, with volume growth in over 60% of our markets. Our diverse geographic footprint and balanced EBITDA contribution provide a unique combination of growth and strong cash generation. Now, I would like to share some highlights from our key markets. In the U.S., I would like to start by highlighting the resilience of the beer industry. Even in the current dynamic operating environment, we have seen gradual improvement throughout the quarter and an increase in value from pre-pandemic levels. While our volumes underperformed the industry, our business delivered another quarter of top-line growth. We remain confident in our long-term strategy, focused on rebalancing the portfolio. Our above-court portfolio continues to outperform, led by Michelob Ultra, which grew volumes by double digits. Within the spirits-based ready-to-drink segment, our portfolio once again outperformed the industry, with both cut-water and neutral vodka seltzer growing in strong double digits. In Mexico, we outperformed the industry, delivering double-digit top and bottom line growth. Our core brands delivered high single-digit volume growth, and our above-court portfolio once again grew by double digits, led by Modelo and Michelob Ultra. Over 60% of our BIS customers are now also BIS marketplace buyers. In Colombia, we delivered double-digit top and high single-digit bottom line growth. and continued to expand the beer category, again reaching all-time high per capita consumption. Our premium and super premium portfolio reached a record high volume, delivering over 40% growth, led by our global brands and local premium brand, Club Columbia. Our business in Brazil delivered 26.8% top-line growth, and a strong 34.3% increase in EBITDA. Brazil is a great example of our evolution towards becoming a tech-first FMCG. Our advanced digital transformation allows us to capture both growth and operating efficiencies. Our beer volumes once again outperformed the industry, growing by 8.5%, led by our core brands, and over 20% volume growth of our premium and super premium brands. In a nutshell, our business in Brazil delivered across all five levers of our category expansion framework. In Europe, we delivered high single-digit top and double-digit bottom line growth, driven by on-premise reopening, ongoing premiumization, and implementation of revenue management initiatives. Our portfolio continues to premiumize, with growth this quarter led by our global and super premium brands. Our business in South Africa delivered high single-digit top and double-digit bottom-line growth, despite significant production constraints in April and May due to floods impacting our prospectum brewery. Underlying demand for our portfolio remains strong. Our leading core brands, delivered continued revenue growth, and our premium and super premium Beyond Beer portfolio outperformed this quarter, delivering a double-digit increase in revenues. In China, the implementation of COVID-19 restrictions led to a total industry decline of mid-single digits in the quarter, according to our estimates. These restrictions disproportionately impacted our key regions and channels, leading to revenue decline of 5.1%. Underlying consumer demand for our brands remained strong. As restrictions eased in June, both our premium and super premium portfolios returned to volume growth, increasing by double digits. I would like to now turn your attention to a few ESG highlights. In the second quarter, we made progress across our ESG priorities with select highlights including advancing circularity in our operations. We opened the first full-scale evergreen production facility in St. Louis to upcycle barley used in our brewing process into high-quality, sustainable protein ingredients. Building a resilient value chain, we brought together more than 250 supply chain partners with the launch of our global collaboration initiative, Eclipse, to drive climate action and decarbonization. Fostering entrepreneurship and innovation, we hosted the third annual demo day of our 100 plus accelerator program with our CPG partners. 34 startups showcased pilots to progress our sustainability goals across water stewardship, climate action, smart agriculture, circular packing, and upcycling.
spk06: Now let's move on to our strategic pillars. And let's start with pillar one, lead and grow the category.
spk07: Our brand and the creative work that brings them to light and connects them with our consumers is a true passion point of mine. At this year's Cannes Lions International Festival of Creativity, our marketing teams achieved their best performance ever, winning 50 Lions, a record high for our company. These 50 awards were distributed across six of our key countries, and nine brands. We were especially honored for being awarded the Creative Marketer of the Year and the Creative Effectiveness Grand Prix for Michelob Ultra Contract for Change campaign. Big congratulations to our teams and partners for this extraordinary achievement and recognition of the progress in our creative marketing capabilities. Now let me take you through our category expansion levers. First, we continue to focus on making the beer category more inclusive for all consumers. This quarter, consumers' participation within our portfolio increased in the majority of our key markets, driven by brand, pack, and liquid innovations. Second, we are offering superior core propositions. Our mainstream portfolio delivered high single-digit revenue growth this quarter. led by strong performances of our core brands in Brazil, Mexico, and Colombia. Third, occasions development. Our global brand Stella Artois grew revenues by 7.7% outside of its home market, led by the focus on the new occasions in key markets such as Brazil and Colombia. Fourth, we added advancing premiumization. This quarter, our above-court portfolio grew revenue by approximately 12%, led by continued double-digit growth of Michelob Ultra in the U.S. and Mexico, and the expansion of Spaten in Brazil. Our global brands continue to drive premiumization across all markets. The combined revenues of Budweiser, Stellar Toi, and Corona grew by 9.7% outside of the brand's home markets. led by Corona with 18.2%, and Estelle Artois with 7.7% growth. Budweiser grew by 6.1%, despite the impact of COVID-19 restrictions in China, the brand's largest market. Finally, we continue to expand the category with our Beyond Beer offerings. Our global Beyond Beer business contributed over 425 million U.S. dollars of revenue in this quarter. In the U.S., our spirits-based ready-to-drink portfolio continued to grow ahead of the industry, led by cut water and neutral vodka seltzer. And in South Africa, brutal fruit and flying fish delivered continued double-digit growth. Innovation this quarter supported the expansion across each of the five levers of our framework, contributing approximately 8% of our total revenue this year. Now let's turn to our second strategic pillar, digitize and monetize our ecosystem. As we invest to become a tech-first FMCG company, this continues to see a remarkable acceleration in usage and reach, capturing 7.4 billion US dollars in Gen Z this quarter, a 64% increase year-over-year. We have now 2.9 million monthly active users, generating over 1.9 million orders per week. In 12 of the 18 countries, our customers are also able to purchase third-party products through this marketplace. Biz Marketplace offers a consolidated order and delivery management platform, solving pain points and empowering our customers to grow. We continue to increase adoption and expansion of product availability, as 40% of Biz customers in this market are also buyers from Biz Marketplace. Today, we have over 100 partners providing more than 500 brands through the platform, generating annualized revenues of $800 million. This winning partnership empowers our customers to grow via the benefits of digital inclusion and enables our partners to benefit from our world-class platform and highly-engaged business user base. Now, let's talk about direct-to-consumer businesses. This quarter, our DTC products generated US$385 million in revenues. The number of online orders surpassed 16 million transactions this quarter, driven by Zed delivery in Brazil and the continued expansion of our on-demand platform in 10 additional markets in Latin America. With that, I would like to hand it over to Fernando to discuss the third pillar of our strategy, optimizing our business.
spk06: Thank you, Michel. Good morning. Good afternoon, everyone.
spk05: We aim to maximize value by focusing on three areas, optimized resource allocation, robust risk management, and efficient capital structure. With respect to capital allocation, we aim to maximize long-term value creation by dynamically balancing our priorities. We continue to invest in organic growth and support our strategy to lead and grow the category and digitize and monetize our ecosystem. The excess cash generated by our business is then dynamically allocated to our other three capital allocation priorities, the leveraging, selective M&A, and return of capital to shareholders. In line with our capital allocation priorities, we continue to make progress on the leveraging. Our gross debt reduced by US$5.5 billion in the first half of 2022, and our net debt to EBITDA ratio decreased to 3.86 times. As you can see on the next slide, our debt maturity profile remains well distributed with no near and medium-term refinancing needs. We have $3.2 billion of bonds maturing through 2025 and more than sufficient cash on hand today to redeem all of these bonds. Our bond portfolio has an average pre-tax coupon of 4% and a weighted average maturity greater than 16 years. Moreover, our debt portfolio does not have any financial covenants and is comprised of a variety of currencies diversifying our effect risk. In addition, 94% of our bonds have a fixed rate, insulated from interest rate volatility and inflation. Now let me walk you through the drivers of our underlying EPS for the quarter. Underlying EPS was 73 cents per share. 2 cents lower than the second quarter last year. This was driven by an increase in net finance costs and higher income tax expense. Net finance costs increased largely due to foreign exchange losses, which accounted for 4 cents. These losses were a result of FX translation of cash held in foreign subsidiaries. I'll now hand it back to Michel for some final comments.
spk07: Michel. Thanks, Fernando. I would like to take a few minutes to recap our reflections and learnings and how we continue meeting the moment in 2022. The beer category continues to demonstrate its strength. We are operating in a big, profitable, and growing category. Beer continues to gain share of throat globally, and we are well positioned to capture this growth as we hold the number one position in seven of the top 10 global beer profit pools. our business has momentum. Driven by relentless execution of our strategy, the strength of our brands, and our accelerated digital transformation, our business delivered sustained profitable growth. On top of that, this year presents unique opportunities to activate demand, such as continued on-premise reopenings and return of marquee events such as the World Cup in the second half of this year. In conclusion, we are confident in our business fundamentals and our team's ability to continue to meet the moment and create a future of more cheers.
spk06: I would now like to hand it over to Jessie to begin the Q&A session.
spk12: Thank you. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is coming from the line of Simon Hales with Citi. Please proceed with your question.
spk15: Thank you. Two questions for me, please. Could you talk a little bit, Michelle, about the strong revenue per hectolitre increase you continue to see in Q2 and whether that robust pricing that continues to go through in your markets around the world is having any real underlying effect on consumer offtake trends? I wonder specifically in the US whether some of the recent pickup we've seen in some of the lower price beer brands like Bush is a reflection of of some of the pricing and inflationary moves in the market. Just interested in your color there. And secondly, maybe one from Fernando around the tax credits in Brazil, which were clearly positive in the quarter. Is that a one-off really in Q2, Fernando? I mean, obviously we had something last year as well, but should we expect any more tax credits to support the numbers into Q3 and beyond?
spk06: Simon, good morning, good afternoon. Thank you for the question.
spk07: I'll take the first one on revenue and then hand it over to Fernando. But when you think about revenue, we discussed at the beginning of this year, as we announced the year-end results, that majority of our price increase and revenue actions were in place. So we had this incoming revenue momentum and the price in place in majority of the markets. And as we look at that, we continue to very carefully analyze and assess the situation market by market, giving the current environment and trying to assertively balance the consumer demand and the value proposition of our brands. Up to date, let's say based on what we saw in the first half of the year and our own volume performance, you don't see any deceleration on the trend. So beer continues to grow globally and gain share of growth in most of the relevant markets. So good performance, good incoming momentum. And as we go deeper market by market, I think that you had this question. There is always two tales of the stories. In the US and globally, you see premiumization as a big trend that's not slowing down. And, of course, there are brands performing differently market to market. The Bush Light point that you ask here is not new. Bush Light is in a big run for several quarters already. Growing is one of the top growth brands in the U.S., very healthy, expanding from the inner parts of the country growing now to more regions, and it continues to accelerate, but I don't think that has any relation to short-term pressure on consumers or trade-down. It's much more brand momentum behind Bush Light that's working very well. So I would say that on a consolidated view, and even specifically in the U.S., we don't see now signals of trading down or a slowdown. Historically, though, we know that beer is very resilient, that consumers trade out of some categories, but not really beer because of its affordability. And we often see more expensive beverages trading down towards spring beer. So often, what we see is an acceleration of spring beer growth when you have... some inflationary scenarios and consumers under pressure. But up to date, things are moving quite well. And the biggest evidence of that is the growth of BF globally, according to Euromonitor and IWSR, and our own volume growth of 3.4%.
spk05: And Simon, on your second question, so the tax credits in Brazil were more of a one-off this quarter. there is always kind of tax decisions out there, but it's not a recurring item that we should be expecting. And the only highlight that I'll say is that even though it has a benefit in the total EBIT and EPS, it's excluded from our organic growth. So the organic growth numbers doesn't take into consideration any tax credit benefits.
spk03: Got it. Very helpful. Thank you.
spk12: Thank you. Our next question is coming from the line of Tristan Venstrian with Redburn Partners. Please proceed with your question.
spk02: All right, gentlemen. Just a few questions for me. Just a quick follow-up on that last one from Simon. So just for the avoidance of doubt, on the current Supreme Court decision on the tax credit, there's nothing coming in future years. Just to clarify that. As far as we know today, no. Okay, great. Just a few questions for me. One for Fernando. It's just on your working capital, quite a big outflow this first half, from the largest I've ever seen. Can you just maybe take us through that and how we should think about it for the full year? I mean, are you going to get back to positive territory like you normally do in H2? And then the second question. Again, it goes to go back on pricing. In the past, you've said you want to get the CPI type level of pricing. When I look at the U.S. in particular, is that something you're still aiming for this year, or is it just really about covering your costs rather than, again, covering CPI? And then, Michelle, the third question on Colombia, it's really going well. I'm just trying to figure out what exactly has been that inflection point. I mean, why are you guys gaining their share from alcohol? which seem to have escaped actually Colombia for many years. What are you doing very differently that has happened in the past? Thank you.
spk05: Hi, Tristan. Fernando once again. So let me take the first one and then I'll let Michel answer the other two questions. So for us to better understand 2022 working capital, we need to look at what happened in the opening balance in 2021. So If you look at capex back in 2020, we made some proactive decisions to reduce capex during the peak of the COVID uncertainty in a meaningful way. And that led to lower payables balance in our opening balance sheet for 2021. The income tax payables were also lower as the business was impacted in 2020, so less income taxes to pay in 2021. And third, you need to remember that there was no bonus for the year 2020. And as always, this bonus is actually paid in 2021. So again, lower payables balance. So with this context, 2022 looks more like a normal year. And if you look, all those anticipated impacts are fully embedded into our plan. And with this in mind, we go back to this trend that seasonally we generate lower cash flow in the first half of the year, and then you should have strong generation in the second half of the year, so no changes in our normal business operation. And Michel, on this.
spk07: Hey, Tristan. Yeah, thank you for the questions. I'll take the first one on pricing CPI. I think that generally the idea does not change much. I think that what really changed big time this year and a little bit last year is that the CPI is much bigger than one would expect and even accelerated throughout the year, right? And because of that, we had our plans in place. We look globally today, I would say that it's clear that beer prices are lagging inflation, while I just said before that we are carefully balancing consumer demand, value proposition of our brands, and input costs as we build our revenue management strategy. But globally, prices are likely below inflation. And if you think a company of our size and scale, of course, we have many levers to pull in how we offset the input costs. And that's the reason why, to date, we are growing both top line with strong volumes and debited. So I think that we continue to monitor, we continue to carefully balance well the consumer demand with our revenue management initiatives. On the second point, maybe just linking straight Colombia to that, I think that Colombia is a very interesting example as well. I mentioned Brazil on the webcast. But in Colombia, we have this very good combination of us activating the category levers, so the five levers of expansion that we talk, with innovation, with strong per capita consumption growth, in a very well-defined digital environment for us now, where we can both activate the demand with retailers, but also start to engage in much more consumers in a 360 type of digital activation that helps us to position well our brands, activate well the demand, and continue to develop the category. So I think that is another good example of a market where everything's coming together and working very well for us as we continue to gain share of growth there.
spk05: And Tristan, just if I could add some color on Colombia as well, because Colombia is a market that we had a double-digit top-line growth, but we had single-digit EBITDA growth. And the single-digit EBITDA growth was actually a function of this disposal of a non-core asset. This quarter is actually, we sold the land. If it wasn't for the sale of our land, we would have also double-digit EBITDA growth in Colombia.
spk06: Great. Thank you very much.
spk12: Thank you. Our next question is coming from the line of James Edward Jones with RBC Capital Markets. Please proceed with your question.
spk13: Good morning. Are you able to give us any indication what's happening to your marketing spend as a percentage of sales? For example, Diageo this morning was insisting on its determination to continue investing in marketing to take share in the total beverage alcohol market.
spk06: I guess I'm wondering what your reaction to that is. Hey, James. Good afternoon, and thank you for the question.
spk07: We have discussed this before as well in the annual release. We continue to invest behind our brands as we premiumize, create more alternatives to grow and expand the category, and there is no change in this plan. I think that what has been changing and is always a good opportunity to highlight that is that we are becoming more efficient so the campaigns have been working better. And the more we become more digital, the more we connect with both points of sales and consumers digitally, we see growing ROI on the investments that we are making. So we will continue to invest, and we are very glad with the performance that we are having both in creative, because we continue to strike very well on the power of the brands, but also in the ROI of these investments that continue to grow as we digitalize.
spk03: Thank you.
spk12: Thank you. Our next question is coming from Edward Mundy with Jefferies. Please proceed with your question.
spk01: Morning, guys. Two questions from me, please. First is on your guidance of 4% to 8% organic EBITDA. for the year. You've delivered 7.5% in the first half, and to deliver 4.8% offers quite a wide range for the second half. I appreciate there's still scope for a lot of volatility, but the China exit rate looks quite encouraging in June. You mentioned the marquee events, and the flooding in South Africa should be in the past. Is there anything that you're seeing so far that would suggest that H2 will be materially worse than the first half? And then the second question is on cut water and neutral. They're doing pretty well in the U.S. Does that give you confidence to push those two brands as spirits-based RTDs globally?
spk06: Hi, Ed.
spk05: Fernando here. So on the 428, we are reiterating the outlook. And when we said 428, we mean 428. There is nothing you could read about the different performance in each quarter other than full year 428. I don't know if Michel wants to add any to that.
spk07: I can add on that and take on the second question. Edward, thank you for the question. I think that the opportunity here to answer that would be just to remind ourselves and to clarify once again why we provided an outlook as we were coming from last year to this year. I think that at the moment that we announced our new strategy and the transition from inorganic growth strategy to a more organic growth strategy, we discussed and shared with you the main things that we had to evolve and what would be required for us to really land this organic strategy. And three points that I stressed and discussed with you was investing to lead and grow the category, invest to advance and accelerate our digital transformation, while dynamically allocating our resources to first grow the business organically and then deliver the other three priorities. And we were at the midst of this pandemic and all this very dynamic operating environment, and we thought that it would be very important to provide clarity on the growth algorithm. That was the reason why we gave the 428. And all of that remains true today. So we are accelerating organic growth, investing in the category and in the digital transformation, and we continue to support this growth. Therefore, the 428 works for us not for a quarter only, but it's more a midterm algorithm and outlook that we are giving and sharing with you. So providing the certainty of the financial discipline that will do the end. We'll do all the investments that we need to do and deliver the bidder growth. And Neutral is a very interesting question. I'm sure that for a lot of people it's a new brand. But Neutral is a leading vodka soda in Canada. It's growing very fast in the last three, four years in Canada. and we decided to launch at the end of last year in the U.S., performed very well in two states. We are rolling it out now nationally. Very accelerated growth. Very good news coming from quarter two, but also from 4th of July, where the brand struck high volumes and very good performance. The key focus now is on the U.S., where you have this dual strategy in the ready-to-drink cut water, which is a more complex, huge variety of cocktails. And neutral is more on the vodka soda, which is the seltzer space, let's say, that is in the spirits-based ready-to-drink vodka soda, taking a lot of share from the mouth-based seltzer space. And the brand is great, performing very well. Once we get this well-established in the US, yes, there will be very good opportunities for both cut water and neutral to continue to expand globally.
spk01: Thank you. And just to come back to the first question, I appreciate that the 48 is a very medium-term framework. And you need to have the flexibility to reinvest. But just to be clear, without guiding for the second half, you haven't seen anything that sort of points to an inflection on the downside since the first half that we need to know about.
spk06: So year to date, no change.
spk07: You see the volume of the second quarter, I think that is the best indication of the momentum, and we remain confident on the fundamentals and the strategy implementation and execution.
spk06: Great. Thank you. Thank you.
spk12: Our next question is coming from the line of Olivier Nicolai with Goldman Sachs. Please proceed with your question.
spk09: Hi. Good morning. I've got two questions, please. Do you see or do you expect any impact on volume from your price increase in some emerging markets, typically in Africa and Latin America, considering that affordability for beer could be an issue and that the food inflation is definitely going up quite a lot in those countries? That's the first question. Then second question, you've made some really good progress on the leveraging in H1. and you usually generate much more cash in H2, would it be fair to assume that you could end the year closer to 3.5 times the debt will be down? And from a cash flow perspective, would you be willing to reinstate the interim dividend as you've done in the past on top of the final dividend? Thank you.
spk07: Olivier, thank you for the question. I'll take the first one and leave Fernando with the second, third question. Our incoming volume trends remain very strong. This growth is across all regions. So we see good trends across regions. And maybe the most important point here is the underlying demand. Because even in some of the regions today, we have some constraints in supply availability. We could be selling a little bit more. but we don't see to date any slowdown on that. And once again, historically, we see that beer is very resilient. Data from Euromonitor, IWSR, that we saw now at the end of quarter one, April, continue to show the same trends, beer growing globally and gaining share of growth. So we will know more once we get through quarter three and quarter four. But to date, trends remain with good momentum.
spk05: And, Olivier, on your second question, Fernando here, you are right. We continue to make progress on the leveraging. And it is true that the leverage seems to normally be stronger on the second half because the cash flow component is far stronger on the second half. So we are not providing any specific guidance on the number, but as part of our strategy, and we've been very vocal about it, we continue to focus on the leveraging, and we should be making further progress on the second half. On your dividend question, I feel the right way to do is going back to our dynamic allocation of our capital. We continue to invest behind our business, and there are a lot of opportunities in there, and if the excess cash I feel at every given moment in time, we will look at what creates more value, whether it's the leveraging, return of cash to shareholders, or selective M&A. And this decision that we're going to be taking at different moments in time, so once we get to October, then we can have a discussion. But what I can tell is that right now, we can create more value from the leveraging than anything else. So that should be more the leveraging to come.
spk03: Thank you very much.
spk12: Thank you. Our next question is coming from the line of Sanjit Ajla with Credit Suisse. Please proceed with your question.
spk14: Hi, Michelle Fernando. Thanks for the question. Given your earlier comments that beer pricing is lagging CPI, it's likely looking like another year of input cost headwinds into 2023. As you think about and budget over the next few quarters, is it reasonable to assume that your pricing will be considered to catch up to where CPI is now? Or should we expect you to price below CPI and place a little bit more emphasis on the volume momentum you have?
spk05: Yes, Anjit. This is Fernando here. Let me start tackling the cost, and then Michel can talk about the top line. So if you look for 2022, the majority of our expense is covered and this is embedded into our full year EBITDA growth outlook of 48%, which is rate to rate today. And of course, revenue is growing ahead of EBITDA. For 2023, we are still in the process of hedging our exposure, so it's too early to make any comments. But it's also fair to say that commodities price continues to be under pressure, but the recent movements have been positive. And the commodity escalation is not evenly spread throughout the world. If you look at based on market price today, the highest year-on-year impact is in Europe, which happens to be where we have the lowest exposure as a business. And maybe Michel can comment on the top line.
spk07: Yeah, Sanjit, thanks for the question. Good afternoon. I think that on the cost, fair to say as well, Fernando, that as we look at the situation today, the impact if the year would finish today for next year is smaller than what was the impact from last year to this year. But we'll need to get through quarter three, quarter four again to understand better all the moving parts. And in price, Sanjit, I think that we are thinking alike, right? So there's no big change in the way that we think about our prices and inflation globally. I think that the biggest change this year was that inflation moved much faster and moved beyond what was the original expectation of everybody. And we continue to monitor and access the situation. The same time is not like abnormal that throughout the year, all the prices that we have are not increasing yet. Because in several markets, we have more than one price increase per year. So we continue to execute our plans as we always do. And the caveat here that I would put forward is this idea of we need to be carefully assessing the consumer environment country by country, brand by brand, segment by segment. So we keep our number one priority, which is grow the category in mind. And we need to grow for the long term, not only for the short term. So penetration is very important. Transactions and frequency is something that we are looking at all the time. So we don't disconnect the category from consumers. But at this point, inflation is common across categories. Prices are moving in the right direction. Beers is likely before inflation and catching up. And consumers are responding well, even though we need to carefully watch the next quarters. And I think and I feel that we will know more as we get through quarter three and quarter four. And we only know the full picture as we get there. So now it's directionally, we are clear on what we are doing and it's working. And we need to continue to monitor the consumer environment.
spk06: It's what I can tell you.
spk14: Great. Thank you very much, Michel Fernando.
spk12: Thank you. Our next question is coming from Trevor Sterling with Bernstein. Please proceed with your question.
spk04: Yes. Hi, Fernando and Michel. Two questions on my side, please. First one, 127 bps of margin compression in the quarter, Fernando. Could you estimate what's the impact of these marketplaces? Clearly very accretive for EBITDA growth. But what order of magnitude of dilution is coming from B's marketplace?
spk06: Hi, Trevor.
spk05: Fernando here. So what I can tell about B's is that the marketplace is still at early stage. We are rolling it out and growing customer and partner base at a very accelerated rate. The revenues coming from B's marketplace are entirely incremental. They'll have a very different margin profile. but very accretive ROI given our existing asset base. Therefore, there is an impact in the margins, which means the base business margin is better than the consolidated one. As marketplace becomes more material, we'll probably disclose it separately. Wrapping up, we have $800 million annualized GMV, and if you use a similar business as a proxy, one can reverse engineer the impact on margins that we're having.
spk04: Great. Thank you, Fernando. And the second question, it's clearly very early days to be looking forward to 2023. And I'm sure you still have not, none of your hedging has to be completed yet. But if you took today's spot rates and guessed forward, are we looking at input cost inflation that's going to be worse than 2022 or better or more or less the same?
spk05: Yes. Michel just mentioned, if we were to look at today, and there is still a lot of quarters to happen, our hedging policy is 12 months, so we are not fully hedged for next year, as one would expect. But if you look at the spot prices today and comparing to last year, you do have some pressures, but to a lesser extent than the one we had in 2022. The only caveat is probably the one region where you have more of an impact is Europe. On average, as a company, you would have less of an impact, an impact, but less of an impact. But the region where you have more of an impact than the one you had this year is Europe.
spk04: Super. Thank you very much, Fernando.
spk12: Thank you. The next question is coming from Brett Cooper with Consumer Edge Research. Please proceed with your question.
spk08: Thanks. Good morning. A question on improving returns. In April, Ambev spoke of focus on improving ROIC being an improvement in asset turnover and NOPAP margin. Can you offer your view on where you are today, the potential deploy or export a similar effort, and any details on that deployment in non-Ambev markets like US, Mexico, China, or Colombia? Thanks.
spk06: Thanks for the question, Brett.
spk05: I feel this is an opportunity for the board. We always look into that. We talk always about resource allocation. We will continue to work on that. And I feel that as long as we continue to deliver growth on a data, we continue to be more efficient on resource allocation, that is an ADI worldwide focus. It's not only one specific country or one specific region, but it's how we optimize our business.
spk03: Great. Thanks.
spk12: Thank you. Our next question is coming from the line of Pinar Ergun with Morgan Stanley. Please proceed with your question.
spk10: Thank you. In the U.S., your performance has been a little lighter than the market trend. Is there anything ABI can do other than portfolio rebalancing towards the growth segments to improve its U.S. performance against the market? Thank you.
spk03: Pinar Michel here.
spk06: Thanks for the question.
spk07: I'll just repeat to make sure that I got this right. You're talking about the U.S. market, right?
spk10: I'm talking about ABI's performance relative to the U.S. market. It appears that your performance has been a little lighter or you've been underperforming the market. Can you do anything other than rebalancing your portfolio towards the growth segments to improve your performance?
spk07: Gotcha. Thank you. I think that we... We talked about three main highlights in the U.S. this quarter, and one was the results of the industry improving while our volumes underperforming the industry. And this is not like a new component. We've been with this story for a while, and, of course, each quarter is different. This one I think that's more highlighted because the industry was very, is low at the beginning, improved throughout. And when the industry is not moving well, the core segments, mainstream brands, they tend to perform less than the overall industry. And of course, the portfolio rebalance, I'll look at this more like the outcome of everything that we are doing. It's not the only thing that we're doing. This is the outcome that we are trying to achieve. And just to give you some examples and highlights. So one of the key areas that we've been improving the U.S. over the years was category management. We made several investments in category management, and we evolved from being, by average, the number 20 supplier to be the number one partner for the retailers in the U.S., according to the Advantage Survey, which is the one that they use. And that was based on all the improvements that we have made. With our wholesalers, we enhanced big time our partnership. We measured the NPS, the engagement, with our wholesalers every year. And we are at all-time high. If you look at the marketing capabilities, innovation, so we've been leading innovation in the last three years and being one of the most awarded companies for the creativity, including several prices at Cannes. And we've been now, even with all the difficulties in the three-tier system, advancing the digital transformation as well, with bees growing, more wholesalers, more states in the U.S., that combining bees with Lola, which is our locally optimized learning algorithm, we are getting much better data and improving the quality of the activations that we do. So as we do all of that and invest behind the right brands, the outcome is the portfolio rebalancing, and that's why we are now seven quarters in a row growing top line in the U.S. And this growth is coming with all this cost inputs inflation with a flat EBITDA, which is an improvement for our business in the U.S. More to do. I think that we underperformed in volumes, and this is the second biggest step that we have to have. But we are confident in the long-term strategy. Yes, each quarter will be different, and each year is going to be different as well, but confident in the long term.
spk03: Thank you.
spk12: Thank you. Our next question is coming from the line of Priya Origupta with Barclays. Please proceed with your question.
spk11: Thank you so much for taking the question. Fernando, I was wondering if we could just dig into the further deleveraging over the latter half of the year. How are you thinking about where you could look to pay down some of that debt and how are you considering opportunities to potentially you know, utilize some of the lower dollar prices that your bonds are trading at to help accelerate deleveraging? Thank you.
spk05: Hi, Priya. Thanks for the question. So actually, we generate, our cash flow is much more skewed towards the second half of the year. So as we move into the second half of the year, With this additional cash flow, the idea is that we look for further opportunities for liability management. And you're right. If you look at the evolution of interest rates and everything that is going on around the world, you can see that our market-to-market of our debt portfolio moved from being 120% of fair value to in the beginning of the year to being close to 100. And if you look at the different spots, the different maturity that you have, you have some others trading below 90%, closer to 80%. So probably that's another boost when you look for the leveraging efforts in the second half. Being able to buy chunks of our debt above Paris is also a great opportunity. And it's also reinforced kind of the opportunities of having kind of a fixed rate debt in an inflationary environment and in a rising rate environment. So we need to make sure we make the most out of it.
spk07: Below par, right?
spk11: Below par. Thank you. And then just one quick follow-up on how we should think about the timing of some of the cash coming in over the course of the second half as you sort of sweep in from your various markets globally. Thank you so much.
spk05: Hi, Priya. That would be too much details, too much specifics. I feel we don't go into the detail month by month or day by day how we generate cash, but the notion that the second half of the year is much stronger of cash flows through has been true for several years in a row. This year it's likely to be no different. And then once we get the cash, we will find the more adequate way to deploy to do liability management.
spk12: Thank you so much.
spk03: Thank you.
spk12: Thank you. Our final question is coming from the line of Rob Ottenstein with Evercore. Please proceed with your question.
spk00: Great. Thank you very much. I want to kind of scope out a little bit bigger picture type questions. So Michelle, you're coming up on about a year now as CEO. Presumably you came into the role with certain preconceptions. Love to, you know, if you take a moment to reflect on any surprises, disappointments, any need to pivot based on what you've learned over the last 12 months, and just assess how things have gone and what you need to do going forward. Thank you.
spk06: Hey, Robert. Good morning.
spk07: Thank you for the question, and thank you for reminding us that time goes by very fast, so it's good to be talking to you here. and have the opportunity. Let me maybe start answering the question, saying something that I have said before and shared with you. This is really the opportunity of a lifetime. It's a lot of things coming together, and I'm very excited each and every day to come to work, to think about the possibilities, sharing with the team what we've been learning and what we've been doing, At the same time that we all need to agree that it's been like an incredibly dynamic environment. So a lot of things happening at the same time. And I'm very glad with the way that the team is engaging and dealing with everything that's happening and building each and every day this future with more cheers that we define it as our purpose. And maybe like putting together the key points on your question, I think that first, Great industry to be, great moment to be working with beer. Beer is inclusive, natural, local, and big, profitable, and growing, right? So those are the big learnings and things that we've been sharing with the team and people everywhere. Great industry to be, growing, gaining a share of throat globally. Second point is great foundation. as we shared when I arrived here on the investor day. Great company, great foundation, global platform, unbelievable opportunities to unlock value. And the more we get our strategy moving, the more we advance our digital transformation and work better with our scale of data, more opportunities we uncover, to grow the company, to digitize and monetize the assets that we have. And I think that the key core things that we are moving is this idea of reimagining what a beer company can be. Much more effectiveness, reason, leading and growing the category, digitizing the assets that we have and finding ways to monetize everything that we built over the years. and continue to optimize the business. So a fantastic opportunity, a lot of learnings, getting a lot of things done within the one year, right? So you think about purpose, strategy, execution of this strategy, change in the organization, and the leveraging at the same time. So it's been very dynamic. but I'm still very excited waking up every day and coming to work with a lot of opportunities for us to continue to deliver.
spk06: Thank you for the question.
spk00: Thank you.
spk12: Thank you. We have reached the end of our question and answer session. I would like to turn the floor back over to Mr. Dukaris for any additional closing remarks.
spk06: So thank you all for being here.
spk07: Thank you for the partnership, and thank you for all the questions. and support for the business.
spk06: Have a great day and looking forward to meet you. Thank you.
spk12: Thank you. Ladies and gentlemen, this does conclude today's conference call and webcast. We thank you for your participation and you may disconnect your lines at this time.
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