AB InBev

Welcome to Anheuser-Busch InBev's first quarter 2024 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 touchtone 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 the financial condition indicated in these forward-looking statements. For discussion of some of the risks and important factors that can 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 11th of March, 2024. 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 reliant upon such information. It is now my pleasure to turn the floor over to Mr. Michel Doukaris. Sir, you may begin.

Thank you and welcome everyone to our first quarter 2024 earnings call. It is a great pleasure to be speaking with you all today. Today, Fernando and I will take you through our first quarter operating highlights and provide you with an update on the progress we've made in executing our strategic priorities. After that, we'll be happy to answer your questions. Let's start with our operating performance and the key highlights for the quarter. We are encouraged by our continued momentum and results to start the year. We delivered broad-based top line and bottom line growth with market share gains and volume increases in the majority of our markets. Our mega brands led our growth. with 6.7% net revenue increase. EBITDA increased by 5.4%, in line with our medium-term growth ambition and 2024 outlook, with operational efficiencies driving margin expansion of 90 basis points this quarter. As we continue to optimize our business, underlying U.S. dollar EPS grew by 16%, driven by nominal EBITDA growth and improved net finance costs. The digital transformation of our business provides opportunities to generate additional profitability and revenue streams. This quarter, this marketplace continues to expand, delivering $465 million in gross merchandising value of non-ABI products, a 47% increase versus last year. While it is only the first quarter of the year, we are pleased with our start and are uniquely positioned to activate the category in 2024 through our mega brands and mega platforms. Turning to slide six, you can see that total revenue grew by 2.6% with revenue per hectolitre increasing by 3.3% as a result of revenue management initiatives and ongoing premiumization. Total volumes declined by 0.6%, as growth in the majority of our markets was offset by our volume performance in the US, Argentina, and China. Underlying PS was $0.75, a 16% increase versus last year. As we noted at our full year 23 results, for 2024, the definition of organic growth in Argentina has been amended to cap the price growth to a maximum of 26.8% year-over-year. Our global momentum continued this quarter, with revenue growth in more than 75% of our markets and with bottom-line increases in margin expansion in four of our five operating regions. Our scale and diverse geographic footprint has us well-placed to deliver superior long-term value creation. Now, I'll take a few minutes to walk you through the operational highlights for the quarter from our key regions, starting with North America. In the U.S., the beer industry remained resilient. with beer volumes improving sequentially through the quarter, and dollar sales continued to grow versus last year. Our revenues declined by high single digits, with STW volumes down by 10.1%. While our mainstream beer volumes declined, our above-core beer mega-brands and spirit-based ready-to-drink portfolio continued to grow. Our market share trend has continued to improve gradually from May 2023, with total market share now flat versus last year. Our portfolio is regaining momentum, with growth in key brands such as Michelob Ultra, Bush Light, Kona, Neutral, and Cutwater. Together with our wholesaler partners, we remain laser-focused on executing our long-term strategy. Now, moving to Middle Americas. In Mexico, we delivered mid-single-digit top and bottom line growth with margin expansion. Volumes grew by mid-single digits, driven by the continued strong performance of our core portfolio. In Colombia, our business delivered double-digit top line and high single-digit bottom line growth. Volumes grew by mid-single digits, to reach a new record high for the first quarter, with our portfolio continuing to gain share of total alcohol. Our premium and super premium brands grew volumes by more than 20%, led by Corona. In South America, our business in Brazil delivered mid-single-digit top line and double-digit bottom line growth, with margin expansion of 311 basis points. Volumes increased by 4.4% to reach a new record high for the first quarter. Our performance was led by our premium and super premium brands, which delivered volume growth in the low teens. Now let's talk about EMEA. In Europe, we grew top line by high single digits and bottom line by strong double digits with margin recovery. Volumes grew by mid-single digits, outperforming the industry, according to our estimates. Our portfolio continues to premiumize, led by our mega-brands, which delivered double-digit revenue growth. In South Africa, we again delivered record-high first-quarter volumes, with double-digit top and bottom-line growth and margin expansion. Volumes increased by mid-single digits continuing to outperform the industry in both beer and total alcohol. Our performance was driven by our super premium portfolio, which grew volumes by double digits, led by Corona and Stella Tua. And finally, Asia Pacific. In China, our portfolio continued to premiumize and grow bottom line despite a soft industry. While our total volumes declined by mid-single digits, in line with the industry, according to our mates, our premium portfolio remained resilient, with continued volume growth, led by Budweiser. Now, let's discuss our strategic pillars. Let's start with pillar one of our strategy, lead and grow the category. We aim to lead and grow the category with an efficient and focused portfolio of mega brands. Our mega brands are the top brands in each market that make up the majority of our volume today and are expected to drive the majority of our growth going forward. We are disproportionately allocating sales and marketing investments behind these brands to accelerate brand power build deep consumer connections, and drive efficient, profitable growth. And we are seeing the results. Our mega brands are driving our growth, increasing net revenue by 6.7% in the quarter, led by Corona, which grew revenue by 15.5% outside of Mexico. With the consistent execution of our replicable growth drivers, and our five category expansion levers, we are leading and growing the category by offering superior core propositions, developing new consumption occasions, and expanding our premium and beyond beer portfolios. Now, let's turn to our second strategic pillar, digitize and monetize our ecosystem. Please continue to expand usage and reach capturing approximately $11 billion in gross merchandising value, a 23% increase year-over-year, and reaching 3.6 million monthly active users. Customer satisfaction improved, with our net promoter score improving to plus 61. These marketplaces continue to accelerate, generating 7.3 million orders of non-ABI products and delivering $465 million in January this quarter, an increase of 47% versus last year. Now let's talk about how we are strengthening our direct relationship with our consumers. Through our digital direct-to-consumer platforms, we generated approximately 18 million unique orders this quarter. That's 18 million data points to generate deep consumer insights, develop new consumption occasions, and drive incremental revenue for our business. With that, I would like to hand it over to Fernando to discuss the third pillar of our strategy, optimize our business. Fernando, over to you.

Thank you, Michel. Good morning. Good afternoon, everyone.

First, let me share how we have progressed on some of our 2025 sustainability goals in the first quarter. In climate action, we reduced scopes one and two emissions per hectolitre of production by 6% year-over-year. We are also recognized by CDP as a 2023 supplier engagement leader for our work to drive decarbonization across our supply chain. In water stewardship, we continue to progress towards our 2025 goal to reach a water use efficiency ratio of 2.5 hectoliters per hectolitre, achieving 2.55 this quarter. Our EBITDA margin improved by 90 basis points this quarter, with margin expansion in four of our five regions. Our fundamental strengths, discipline pricing, continued premiumization, and efficient operating model create an opportunity for further margin expansion over time. As you can see on the next page, in the first quarter, we continued to actively manage our bond portfolio. In March, we issued longer-term bonds and used part of the proceeds to reduce near- and medium-term maturity towers through a tender offer. These transactions improved our debt maturity profile while maintaining our weighted average gross debt coupon at approximately 4%. our debt maturities remain well distributed with no relevant medium-term refinancing needs. We have approximately US$4 billion worth of bonds maturing through 2026 and awaited average maturity of 14 years. In addition, our debt portfolio does not have any financial covenants And it is comprised of a variety of currencies, diversifying our effects risk. 99% of our bonds have a fixed rate, insulated from interest rate volatility and inflation. And now, let me take you through the drivers of our underlying EPS this quarter. We delivered EPS of 75 US cents per share. a 10 cents per share increase versus last year. Nominal EBITDA growth accounted for a 12 cents per share increase. Gross debt reduction, combined with proactive cash flow management, resulted in lower net interest expenses, which contributed a 5 cents per share increase. With respect to capital allocation, we are focused on maximizing long-term value creation by dynamically balancing our priorities. We continue to invest in organic growth to support our strategy. The excess cash generated by our business is then dynamically allocated across the leveraging, selective M&A, and return of capital to shareholders. While the leveraging remains a priority, With additional flexibility in our capital allocation choices, this quarter we completed our $1 billion US dollar share-by-back program that was announced in October last year and executed an additional $200 million US direct share-by-back from Altria. We remain disciplined in our capital allocation decisions to maximize value creation. With that, I would like to hand it back to Michel for some final comments before we start our Q&A session. Michel? Thanks, Fernando.

Before opening for Q&A, I would like to take a moment to recap on the quarter and look ahead at the unique opportunities that our mega brands have to activate the category in 2024. We continue to make progress in executing across each of our three strategic pillars. Driven by the continued momentum of our mega-brands, we deliver top-line growth in 75% of our markets. We progress our digital transformation, generating approximately US$11 billion of GMV through BIS. with $465 million in GMV of third-party products through BizMarketplace. EBITDA grew by 5.4%, in line with our medium-term growth ambition and outlook for 2024, with 90 base points of margin expansion. As we continue to optimize our business, underlying EPS increased by 16% versus last year, Looking ahead to the summer and the rest of the year, we are uniquely positioned to activate the category. The combination of our mega brands with key platforms that consumers love and that bring people together is a powerful opportunity to lead and grow the category. From the NBA to Copa America to Olympics, NFL, the UFC, and music platforms like Tomorrowland and Lollapalooza. We will be focused on doing what we do best. Our brands will show up in a big way, connecting with consumers and bringing to life our purpose of creating a future with more cheers. We remain focused on the opportunities ahead of us. The beer category is large and growing, and our unique global leadership advantages Implementation of our replicable growth toolkits and our superior profitability positioned us well to generate value for our stakeholders. With that, I'll hand it back to the operator for the Q&A.

The floor is now open for questions. In the interest of time, we will limit participants to one question and one follow-up question. Again, if you have a question or a comment, please press star 1 on your touchtone phone. If at any point your question has been answered, you may remove yourself by pressing star 2. We do ask that while you pose your question, you pick up your handset to provide optimal sound quality. Our first questions come from the line of Rob Ottenstein with Evercore ISI. Please proceed with your questions.

Great. Thank you very much and great start to the year. So I want to focus on the U.S. and kind of two-part question. First is the data that we're getting shows very significant share gains on premise for Michelob Ultra. And that when you kind of look at the way the year goes kind of by March, and you combine Michelob Ultra, your other brands, you've recovered most of the share loss. Maybe it's about a 200 basis point gap as opposed to in the data that you showed us overall or off-premise kind of 460 basis points through March. So the first question is, is the data that we have roughly accurate and consistent with what you're seeing in terms of the on-premise? And then second, and tied to that, You know, what we're also seeing and particularly, you know, really accelerating in April is, you know, incredibly strong results for Michelob Ultra and for Bush Light, continued strong results for Neutral and Cutwater, which then kind of when I kind of step back and think about it, you know, kind of obviously a lot of pain from Bud Light, horrible situation, but kind of going forward, you know, it would appear to us that in a way you have a stronger and more balanced portfolio with prospects for going forward better growth and share gains. Would you agree with that? Thank you.

Hey, good morning, Robert. Michel here. Thank you for the question. Let's start with the two parts of the question. Number one, in terms of the brands And the current data, that's available data from either Circana or some other sources in their own trade. So overall, we see a strong momentum on Michelob Ultra, as you were describing. And we all know how relevant the brand is and how much the brand has been growing over the years. But moreover, we are all aware of the headroom for growth that the brand has. in terms of geographies and channels, and how aligned the brand is with current trends in terms of liquid profile, calories, and carbs. Through the year, on our own data, we see a lot of expansion in number of POCs, TAPs, and also rate of sales from Nicola Bolton in Don't Trade, so our own numbers They talk to the sources that are external data that you are mentioning. And when you combine this with the off-trade data, which is also available, you can see that Ultra, in the last few weeks, reached an all-time high share for the brand and has momentum that you see on Circana building over the last few weeks. So a lot to come in the year because, actually, To be quite honest, the summer is going to be the strongest activation of Michelob Ultra as we get through Olympics and then all the holidays that we're going to have during the summer with the team USA and the partnership with the Olympic Committee in the U.S. So excited about what we have ahead of us with Ultra. And then Bush Light, as you mentioned, similarly, When you look at the last few weeks, all-time high share for the brand as well. Very good momentum. Plenty of opportunities to continue to expand nationally because the volume today is very concentrated in few regions. And the brand is also very well positioned with a lot of momentum with consumers and consumer needs as of now. You go from there. We are not talking Kona, Estrella, brands that are fighting and growing very well as well. So our entire strategy in the U.S. is about portfolio rebalance, and those are the brands that are making a huge contribution for us regaining momentum and, of course, for our portfolio to be more aligned with all trends that we have out there. When you go to ready-to-drinks, I think we saw this before, cut water, neutral, they continue to grow strongly. We are today just 1% on this spirits industry, but we account for roughly 15% of the dollar growth. Both brands are in the top 10 growing spirits brands in the U.S., and both brands are already part of the top-ranked brands in dollar sales in the U.S. Cutwater still ahead in terms of position, bigger than Neutral, but Neutral growing triple digits and quickly moving up. And if you look as a company, as a matter of fact, quarter one dollar growth in spirits, AB was top three in terms of dollar growth. As I said, two brands. 15% of the total dollar growth in the U.S. And this contributes, of course, to this portfolio rebalancing. So all in all, excited with the momentum behind our brands. As you mentioned, there are Michelob Ultra, Bush Light, Neutral Cutwater, all very strong growth, with Michelob Ultra and Bush just hitting all-time high

market share for both brands in the last few weeks. Thanks for the question. Thank you. Our next questions come from the line of Trevor Sterling with Bernstein.

Please proceed with your questions.

Hello, Michel and Fernando. So, two questions from my end. First one, I noticed that you refer to mega brands rather than global brands, Michel, in the presentation. Does that reflect a change in thinking in terms of how you classify and how you apply that thinking per market? And the second question on Mexico, I think you mentioned mid-single-digit volume growth slightly benefiting from the timing of Easter. Does that imply a market that's really doing very nicely, low single-digit volume growth, stable share, and solid price mix?

Good afternoon.

Thanks for the question. Michel here. First point, mega brands, we were together in Mexico and we talked about our portfolio strategy and the relevance of our brands both at the global level but also at the local markets. And as we are now reporting quarter one, we are incorporating the discussions we had with investors and analysts in Mexico. And we thought that would be good to give you some visibility around this portfolio play and the weight of these brands globally. Those brands are like three to five brands in each market. Part of these are our global brands as well. And because you have very strong champions, billion-dollar brands, when you combine these mega brands, our majority of our volume is above 50%. But they are... They spearhead of this efficient organic growth that we are pursuing. And as we invest in these brands, as we sharpen their positioning, and we align these brands with the key consumer trends, they respond very well. So they are leading the growth with this six plus revenue growth in the quarter one. And we will continue to update you quarter on quarter on the development of these brands. Similarly, we will continue to highlight the results of our global brands because they are very important brands in this context. And they are the brands that when you look in a consolidated way, they continue to lead our growth. Most importantly, one in this quarter in terms of performance, Corona, double digits growth, very strong momentum across many, many markets. And now, combined with the launching and expansion of Corona Zero, we are seeing a lot of good momentum building towards the summer. When you think about Mexico, Mexico continues to be very competitive. healthy market. We see volumes in the quarter one developed very well. You had this shift in terms of calendar with Easter morning to the quarter one. Nevertheless, even without considering this week of Easter, the overall market was very healthy and the underlying demand for our brands remain very positive. So we intend to be very positive about Mexico is number two market for us within the number one zone in terms of growth and continues to perform very well.

Thank you. Our next questions come from the line of Priya Origupta with Barclays. Please proceed with your questions.

Good morning. Congratulations on the quarter and appreciate you taking the question. I think first off, Fernando, just wanted to go back to your dynamic capital allocation model. First, with regards to some of the issuance and tender activity that you undertook already in this year, is our working assumption supposed to be that action should be essentially gross debt neutral? And then following that, as we think about sort of deleveraging as remaining the priority, which you underscored in your prepared remarks, should we be expecting gross debt reduction to continue over the back half of the year, given the seasonal cadence of your free cash flow and what we've seen in the last couple of years? Thank you.

Hi, Priya. Thanks for the question.

So actually, the issuance is probably less to do with the dynamic capital allocation and more to do with managing our debt portfolio. Because as you said, it's gross debt neutral between the debt that we have maturing this year already and the $2.5 billion that we redeem it. It's kind of a neutral. And then kind of as the year goes by and you continue to generate cash, then the dynamic capital allocation is going to come into play, and they're going to decide what is the best approach if we continue to further reduce in debt, dividends, or any other form. But the ongoing assumption, and that's the assumption that we've been working from the last few years, is that we should have some debt pay down every given year. So we should be continuing to work along this line. So no changing here.

Okay, thank you. And just one follow-up on how we should think about share repurchase activity going forward now that your prior program has been completed and you did the incremental $200 million directly with Altria. Thank you.

The leveraging still remains a priority, given how the business performance remains confident in our ability to leverage. When you think about capital locations, the objective is always to maximize value creation for shareholders. And you'll be very disciplined about capital location decisions. We don't have anything to share different than that right now. But, of course, every quarter, every moment, we are looking from these dynamic lenses and we make the decisions accordingly.

Thank you very much.

Thank you. Our next questions come from the line of Edward Bundy with Jefferies. Please proceed with your questions.

Morning, Michelle. Morning, Fernando. Two, please. So, on slide 17, you have a bullet around category participation, which I think was stable last year, but it's up 40% in your markets this year, and some of the increases were led by female consumers. across Latam and Europe, which I think is the holy grail of beer. So what are you doing differently? What are the early learnings? And do you think this could be sticky? And then second of all, on slide 24, you grew EBITDA margins 90 bits in the first quarter, but that's still quite a bit below your peak. Can you remind us about how you get to the high watermark? Or how do you think about getting back to the high watermark for margins, in particular as your mega brand strategy argues for more efficient growth?

I have Michelle here.

Thanks for the question. I'll take the first part and Fernando can comment a little bit more on the margins. But all five levers on how we look at the category and how we think that the category can be further developed are very important for us. And of course, participation is position, as we share with you always. as the first lever because it is very important to keep an eye on participation and making sure that as we work with our brands, as we work with innovation that can be either liquids or packaged, we are always moving towards getting consumers to be in constant touch with our brands and enjoying the category across occasions that are relevant to them. And as we do that, more specifically on your question, and beyond beer, smaller beer package and premium propositions, such as Corona, they tend to be more co-ad, and therefore they participate in more occasions that are relevant for female consumers. And this is one of the reasons why beer continues to gain share of throat in many, many markets. So we know that as we offer more premium propositions, and this can go from corona in many markets to left in Europe, and then we go to propositions such as brutal fruit in Africa or cut water In North America, we see that we gain participation with different cohorts of consumers. And this is all incremental. There is a lot of incrementality when you tap into these pools for our portfolio and for the beer category. We are tracking this now globally for a while, and we'll be able to update you as we are doing now. So 40% of our markets, which is a big amount of markets for the quarter one, showed positive results in participation. And I think that will continue to drive this and to compete in different occasions. and with different consumers, while we'll continue to offer strong propositions for our current consumers with our mega brands. Thank you.

And Fernando here, on your second question, yes, our margins expanded 90 basis points, and they grew in four out of our five operating regions. But indeed, kind of, if you look over the last several years, EBITDA margin has contracted, and it was mostly driven by variable cost escalations, mostly linked to transactional effects and the record high commodity prices, which we've been seeing, and it's been meaningfully ahead of the local CPIs on the markets where we operate. We said before that none of these headwinds are structural, and the fundamental drivers of our industry leading margins, they remain intact. We have, I can quote a few, we have iconic mega brands. We have our unique global footprint. We have the meaningful leadership positions. We have an efficient operating model. And we have the financial discipline and ownership culture. Even though commodities and effects are improving on historical levels, they are still at a quite high level. So that creates further opportunities. But regardless of that, we are controlling what we can control. And a good example of that is if you look, we were quite efficient on our SG&A line, which allow us to look at costs, all the expenses, and making sure that we save on the things that don't create value, and we're able to invest and keep investing to sales and marketing in the monies that are consumer-facing, and that can help drive volume. We don't have any outlook for that. We have an outlook for capex. So you see that this year outlook for capex is smaller, is a lower capex expansion comparing to the outlook for last year. But we are applying the same mindset for all the lines in our P&Ls to continue to drive efficiency. So definitely room to improve, but they're not giving any outlook on how and when.

Thank you. Thank you.

Thank you. Our next questions come from the line of Simon Hales with Citi. Please proceed with your questions.

Oh, hi, Michelle. Hi, Fernando. Can I just come back to the US, please, Michelle, and ask you a little bit more about the shelf reset situation? So you're one of your big competitors. has talked about this a lot over the last sort of few quarters. Back at the fall year, Michel, I think you were indicating around 55% of retailers had announced their resets at that point. Where are we now? What proportion have been executed? And are you still losing? I think you talked about 7% to 8% of facings when those resets are going through now in the spring.

Hey, good morning, Simon.

Thanks for the question. Situation, I think that just like to piece together the two or three last times that we talk about that. So at the end of the year, 15% of the retailers did their usual fall reset. As we talked about the full year results and connecting with now, we were at 50% analysis. Now we pretty much everybody already completed the work. And as we track that, we see that majority of the retailers have already implemented. So it's north of 50%, not everybody yet, but north of 50%. The situation as everybody completed the work changed very little. So actually improved a little bit on our direction. So it's a smaller share of faces now that we are losing, but it's still in the range to simplify the life to you, one out of 20, let's say, 1.5 out of 20. So between one and 1.5 out of 20. And as I said before, we have very strong business plans. These business plans are all negotiated and downloaded to both our wholesaler teams and our retailer partners. Huge buy-in in terms of the activations that we have for the year. Think about how we started with Super Bowl, and now as we phase towards the summer, we will have a very strong set of assets that go through NBA. Then we have Copa America. Then we have Olympics with the Team USA. plus the whole NFL season. So we are very confident on the execution. We are very confident on the ability of our teams to bring beer to the floor and to work hard to continue to build this momentum. As I just said before, key brands such as Michelob Ultra at all-time high now, accelerating momentum, Bush Light, all-time high share, also gaining momentum. And we will continue to work together with the partners to take the best out of the great summer of activations that we have in the remaining part of the year. But all in all, no big change from last time that we talked, just that now we have north of 90% of the retailers already with the work finalized.

Brilliant. Thank you very much.

Thank you. Our next questions come from the line of Sanjit Ajla with UBS. Please proceed with your questions.

Hi, Michel Fernando. Two from me as well, please. Firstly, Fernando, I'd just love to follow up on the SG&A point that came in just up 1.4%, well below inflation. So can you just talk a bit about what's happening in the US, firstly, where there was a decent decline? I think in the past you'd alluded to around one-third of the EBITDA decline in the U.S. being, you know, something you could potentially control. So you're now kind of right-sizing your cost base for the new level of volume in the U.S. and should those benefits continue to accrue through the course of the year. But then also in some of the other emerging markets, particularly EMEA and Middle America, was well below inflation. So just love to get a sense of... you know, how much of that we can extrapolate going forward.

Okay, Sanjit, so on our first question, probably you already answered the question on your own question, is the one-third, two-thirds kind of, we have the two-thirds that is volume-linked, and volume-wise is likely better, so you get a little bit of operational leverage there. And the one-third are the things that we can work. It's part of the pillar number three of our strategy to optimize our business, and we are doing that. We are kind of looking at the things that we can control. They don't happen overnight, but as we said, this one third is something that within our control, and over time, we can get some of that back. When you look at the global mindset, and it's not different than what we're applying to the US, is we look for that every day. There won't be any silver bullet. But we have this ongoing efficiency mindset where we keep looking at all the opportunities, always looking to optimize our business to save what we call non-working dollars to make sure that we can invest more into sales and marketing and continue to support our brands. But there is no specific outlook or anything like that rather than our ongoing optimization.

Great. And just a follow-up for Michel on China. you know, volumes that are particularly weak. I think you call that weather, but can you just talk a little bit about how the category is developing in light of the macro dynamics there, and give us a perspective of what you're seeing across channels as well, please? Thank you.

Hi, Sanjit.

So in terms of China, I think that what we see is maybe stepping back for a second. The long-term fundamental strengths of the category remain place. We continue to see premiumization as a very long-term trend for China. And as you look at the brands that are growing and where these brands are growing in terms of channels and regions, we don't see a big change. We see that this premiumization should continue to drive an expansion on the bidda pool and margins. And this continues to reflect on the numbers as we go through the quarters. And we see, as I think I mentioned during the quarter one, the full year results when we talked, that we saw a little bit of impact from different forces on the mainstream volumes. So there's a little bit of weather, the macro is a little bit soft, and consumers cycling the last year, reopening with a more normal Chinese New Year, traveling, things this year. So I think that long-term fundamentals is in place, industry is premiumizing, premium beers are growing, profit pool should be expanding. And then, because China is very big as a country, like continental, you always have different impacts in regions due to weather, due to the economic moves. And what we saw during the beginning of this year, trimester one, was that weather was impacting a lot, let's say, east, southeast of the country. while other regions more towards the west, southwest, had a easier ride in terms of weather, as well as different comps from last year, the reopening that we all know was more concentrated and more impactful on the eastern provinces of China. But long term, we believe that the fundamentals remain in place, Preliminization remains a very strong force, and whatever weather related is more transitory than something that we should be watching for the remaining of the year. Thank you for the question.

Great. Thank you.

Thank you.

Thank you. Our next questions come from the line of Lawrence Wyatt with Barclays. Please proceed with your questions.

Morning, Michelle and Fernando. Thanks very much. A couple from me, just following up on that China question. Just wondering if you had seen the impact from the flooding that we saw in Guangdong recently, how important that region is to you in China and what the impact on consumers was there. Secondly, Fernando, your balance sheet is likely to pop below the important three times net debt EBITDA number at the end of this year, but of course Altria has started selling some of its stock. They've got a lockup towards the end of the year. But just that sort of the potential of Altria selling some more stock, does that impact your desire to embark on any additional buybacks that change your thinking around how you might return cash to shareholders later in the year? Thank you very much.

Hi, Lawrence. Fernando here. Let me take your question first, and then I'll hand over to Michel. So, Altria, I don't know what would be the intentions or not. There's some questions for you to ask then, but I don't have any views on that. But on our side, we remain disciplined in our capital allocation decisions. And the objectives that we have are always to maximize value created to shareholders. So, we always analyze kind of different opportunities when and if they arise. But bear in mind that we remain disciplined and value creation is the driver that we'll be looking at more than anything else.

And Michel? Hi, Lawrence.

I think they're just complementing what we were talking about on the previous question. South China, part of this eastern, southeast regions in China, are very important for all categories and consumer goods. Guangdong is a very large province, very important for China, very important for all consumer goods, as well as for our own volumes and premium volume. And this is part of this trimester one, slightly different weather patterns that we are seeing in China. And we are watching and following this very close And again, while the weather we cannot control, we continue to be focused on the things that we can control, which are the investments and execution behind our mega brands in China. We have a very strong calendar as we move towards the summer with our brands. That includes Budweiser activating around the Olympics, Blue Girl activating the key events and social events. occasions in China, and we need now to continue to focus on what we can control while, of course, watching, monitoring the weather-related events, plus the macroeconomy, and of course, summer is very big and it's a defining moment for for the industry overall in china we know from last year as a matter of fact if you look to the numbers we had strong industry performance in quarter one quarter two and we had an industry that was not that strong in the second half of the year So I would say maybe complementing the information that we shared before, that we probably will be looking at two different half of the years in China this year, half one facing stronger comps and half two easier comps versus last year.

Thank you for the question. Thank you very much.

Thank you. Our next questions come from the line of Sarah Simon with Morgan Stanley. Please proceed with your questions.

Yes, I have two questions, please. First of all, some of your U.S. peers have been a bit more cautious about trading in April, and I wondered if you could give us any comments on how you see April compared to Q1. And then the second one was you refer to investing more in sales and marketing, but Can you give us any kind of quantification in terms of whether sales and marketing grew organically ahead of revenues or in line or any kind of color on how that reinvestment is going through Q1? Thanks.

Hi, Sarah. Michel here.

Thank you for the questions. So first one, if I understood well, was North America, U.S., trade comes in April. I think that we, first of all, we are talking with the numbers of quarter one in mind here. And of course, that is at this point, a lot of public available data of sales to consumer in the US for April. And in a big picture, I think that what we need to see is the incoming trends of last year that was dollar growth with volumes slightly down between one and two, it remains true for the quarter one as it remains true for the trimester one when we include April into these numbers. I think that a little bit of the conversation was because Easter shift, even in the U.S., Not as much as in Mexico, but this is also a relevant occasion in the U.S. The more you go to the southern part of the U.S., the more relevant it is. And we saw that the industry was recovering through the quarter, with the end of March being stronger. And part of that was because of the Easter shift. And then the beginning of April had the tougher calms because Easter was in the first weeks of April. last year. We saw that the weather, as we go from winter to spring to summer, has a big impact, of course, when you change from winter to spring. And it's a little bit of a late spring this year, so the weather was colder in April. So April, in terms of volume, was slightly worse than the quarter one. But I think it's too early for us to call any deterioration at this moment because dollar-wise was pretty similar. And even with April, all data sales to consumer in still was on this range of minus 1.5 to 2, right? So I think that's too early to call quarter two based on April, while the biggest impact on the April was really the Easter shift. Changing for sales and marketing, We don't give any disclosure specifically on that or any guidance for the year. Everything that we do is comprised by this 428 outlook. As Fernando was discussing before, so we've been extremely disciplined on all fixed costs, and we continue to apply this everyday efficiencies mindset. which is very important for us when you think about overhead and overall SDG&A. That's why we are growing less than inflation. While in the sales and marketing, we want to continue to drive growth by investing in our mega brands and in our mega platforms. So we have very strong activation opportunities throughout the year that will really, really make a difference for the category. And our brands will have the right investments so they can capitalize on all these investments that we have. This investment, of course, is becoming ever more efficient because as we have the right portfolio, the right brands to invest behind, these brands have scale and we can seize better performance from these investments. And because we are now very digital, both in the sales to retailers, but in sales to consumers as well, we know that data is the place to mine for efficiencies. So we've been investing more, but in a more efficient way for growth, while we continue to be extremely disciplined for all the fixed costs And the financial discipline is part of our company that we've been driving stronger and stronger every day.

So thanks for the question.

Thanks.

Thank you.

Our final questions will come from the line of Brett Cooper with Consumer Edge. Please proceed with your questions.

Thank you. A question and a follow-up on your DTC platforms, and I think it dovetails with what you were just talking about. But in the press release, you quote, 18 million e-commerce orders globally, 16 million of those are in Brazil. So in the other 20 markets, you have 2 million orders. So can you just talk about the opportunity and headwinds to develop DTC in the non-Brazil markets? And then the follow-up is, is there some way to frame what the minimal level of development that you need in direct-to-consumer in a market is? to extract the data necessary to generate the majority of the benefits on optimizing your decision and developing the category in your business, or maybe how many of those 20 markets you've gotten to that level of scale?

Thanks. Hi, Brett. Michel here.

Thanks for the question. I will address both of the questions. I think that they are very interesting questions, and they give a good opportunity for us to talk about this direct to consumer, and the link to insights. So as many of our initiatives, given the global footprint that we have, we tend to get our ideas around what we want to develop, choose, select one market, implement the programs, in this case, product, which is our direct-to-consumer product that's called Zed Delivery in Brazil. And, of course, for a period of time, we need to perfect the model and build the scale. So today, Zed Delivery has a meaningful scale in Brazil, both in number of orders, as you were talking, but in terms of number of consumers reach, and even percentage scale. of our volume that goes through direct consumers in Brazil. When you think about that, to give an example that links to your second question, if you think about the way that we do consumer insights and consumer groups to validate an idea, you of course can fit 20, 30 people on a consumer group. And if you do 10 of these groups, you're going to cover 250 to 300 people. Today, with that delivery, we validate ideas. We have 10,000 surveys with our consumers in a matter of minutes. Or we can digitally test ideas on a database of millions of consumers and understand real behavior. like purchase behavior, rather than just declared behavior. So when you get the scale that we have, which is delivered in Brazil today, the insights that we have, the ability to test ideas, the ability to survey behavior response to what we are doing, the innovation promotions, it is disproportionately bigger. And then now we are scaling the product, so the tech product that we developed, we are scaling into any new countries under the brand TADA. And the reason why we are doing TADA, we discussed it before, is because TADA brings for the Hispanic language countries and the English-speaking countries easier concepts. and a very broad concept that brings some magic to the category and to these important, meaningful moments that you are at home, because the value proposition of Zé Tadá is beer cold at home in 30 minutes. So the magic of doing this. And we are scaling the platform, of course, as any other product that is adoption. Some countries are moving very quick. in terms of adoption, an example we saw in the market in Mexico, but many other countries are following a similar adoption curve as we had for Zé in Brazil. The difference is that Zé is in the market in Brazil for over two years now, while Tadá is completing first anniversary in most of the markets that we have. In terms of the scale, Let's say that once you get above 1% of your sales, you already have meaningful data that you can use as long as you have all the intelligence behind and the product is well delivered for that, which in our case, the product is in strength. And in Brazil, we are a multiple of this scale, so the data is already very good. and we are using to develop brands and to develop special occasions in Brazil, so we can already activate big amount of consumers to develop occasions. And in the other countries, we are expanding reach, building scale, but the data is already confirming to be very good data for us to work in all markets. So thank you for the question, and thank you for the opportunity.

Thank you.

These were the final questions. If your questions have not been answered, please feel free to contact the investor relations team. I will now turn the floor back over to Mr. Michel Dukaris for closing remarks.

Thank you, everyone. Thank you for your time today for the ongoing partnership and support for our business. Stay safe and well, and we'll talk soon. Thank you.

Thank you. This concludes today's earnings conference call and webcast. Please disconnect your lines and have a wonderful day.