Anheuser-Busch InBev SA/NV

Welcome to Anheuser-Busch InBev's third quarter 2020 earnings conference call and webcast. Hosting the call today from AB InBev are Mr. Carlos Brito, 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 and the report 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 touched home phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. If you should require operator assistance, please press star zero. 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 risk 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 risk and information factors that could affect AB InBev's future results, the risk factors in the company's latest annual report on Form 20F filed with the Securities and Exchange Commission on the 23rd of March, 2020. 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. Carlo Brito. Sir, you may begin.

Thank you, Nicole, and good morning, good afternoon, everyone. Welcome to our third quarter in nine months 2020 earnings call. I hope you and your families are staying safe and well. First and foremost, I'd like to personally thank all of our colleagues for their ongoing efforts to ensure business continuity and a strong recovery. The volatility and uncertainty of the past several months have pushed us all to focus on what we stand for and how we can be part of the solution. For all of us at AB InBev, that means staying true to our purpose of bringing people together for a better world and doing everything we can to ensure the health and well-being of our people, our communities, and our customers. The integral role we play in our communities has become especially relevant this year. we're finding creative ways to leverage our strengths to make a difference. In the U.S., we work with elected officials to produce and donate 8 million ounces of hand sanitizer in 40 states and the District of Columbia in advance of November's general election to foster a safe environment for voters across the country. Our efforts have only been successful thanks to the rapid mobilization and creativity of our teams. has been encouraging and humbling to see that these programs are truly making a difference and strengthening our reputation across our stakeholders. Today, I'll first take you through the results of the third quarter and how the strengths of our business and the category in which we operate prepare us for a strong recovery. Next, I'll elaborate on the fundamentals of our innovation strategy and why it has been especially critical for success this year in light of rapidly evolving consumer trends. I will then hand it over to Fernando to talk about our liability management initiatives and capital allocation priorities. We'll then be happy to answer your questions. Let's start with the results and key takeaways from the third quarter. Our results this quarter reflected both our fundamental strengths of the company and the ongoing resilience of the global BIA category. We delivered balanced top line growth with total volume growth of 1.9%. Beer volumes grew by 2.6%, while non-beer volumes declined by 2.5%. Revenue grew by 4%, as volume growth was enhanced by revenue per hectare growth of 2.3%, driven by healthy brand mix from criminalization and successful revenue management initiatives, which more than offset changes in channel and packaging mix resulting from COVID-19 restrictions. Topline growth was offset by higher cost of sales as we rapidly adjusted our supply chain to meet evolving demand, resulting in a slight EBITDA decline of 0.8%, with margin contraction of 188 bps to 38.2%. Our normalized EPS decreased to 79 cents, while underlying EPS decreased to 80 cents. Our business demonstrated incredible resilience and momentum this quarter, in a fast-changing environment. And while we expect our performance in the second half of this year to be better than the first, the environment remains volatile and uncertain, especially as we are seeing renewed restrictions in some markets. Let me now take you through the key takeaways for our main markets in the third quarter. In the U.S., we delivered strong top and bottom line results. Our above-court portfolio outperformed once again. driving overall market share gains and revenue per capita growth. This was led by the success of Bud Light Seltzer, the number one innovation in the country so far this year, and the strength of Michelob Ultra, consistently the fastest share gainer in the beer category, excluding F&Bs. Our mainstream portfolio also had an improved performance in doing market share within the mainstream segment. The strong top line growth coupled with operational leverage and cost efficiencies led to EBITDA growth of 7.5% with margin expansion of more than 100 bps. Moving now to Mexico, where we also had a robust performance this quarter. We delivered balanced top line growth and EBITDA growth of high teams with margin expansion. We outperformed the industry with broad-based gains across our portfolio. We are advancing our commercial expansion into new channels, opening nearly 200 new modelorama stores and completing the next phase of our rollout into the largest C-store chain in the country, Oxfam. In Colombia, our performance was adversely impacted by stay-at-home restrictions. Trends throughout the quarter improved as restrictions began to ease, leading to stable year-over-year volumes in September. We remain focused on growing the beer category and developing the expanding premium segment where our global brands are leading the way with double-digit growth. In Brazil, our beer business delivered impressive volume growth of more than 25%, meaningfully outperforming the industry by leveraging the strength of our commercial strategy and our commitment to operational excellence. Our innovation portfolio contributed in a relevant way, led by Brahma Duplo Malte. We're also encouraged by the strength of our consumer demand for beer, with government subsidies helping to support consumer disposable income. While EBITDA grew by more than 6%, we faced margin compression due to transactional currency headwinds and adverse packaging mix, resulting from the continued growth of one-way packaging this year, particularly cans. Additionally, the growth of can volumes has exceeded our expectations. resulting in additional costs related to being under-hedged in key commodities, primarily FX and aluminum. In South Africa, consumer demand remains strong, though our results were significantly impacted by a one-month outright ban on alcohol sales from mid-July to mid-August. Once the government lifted the ban, we observed robust consumer demand as volumes returned to growth in September. We benefited from a diverse portfolio across various price points and styles, especially as consumers shifted to more affordable brands and bulk returnable packages, benefiting our core brands. Our bottom line was heavily impacted by operational deleverage from the month-long alt-right ban, though partially upset by cost savings initiatives. In China, top and bottom line growth was driven by continued premiumization as our premium and super premium brands deliver strong growth. We grew the most market share among brewers in the increasingly relevant in-home channel, and we are also leading in the growing e-commerce channel with our online beer sales growing double digits this quarter. In Europe, we delivered a solid performance with healthy top and bottom line growth in margin expansion, with our premium brands leading the way. While encouraged by this momentum, we remain cautious as we are now seeing renewed on-premise restrictions across Europe. Our global brands had a strong performance this quarter, going ahead of the total business, demonstrating the resilience of the global premiumization trend. Total global brand revenues grew by 6.8% this quarter. Outside of their respective role markets, where these brands command a premium price point, revenues grew by more than 8%. Budweiser grew by more than 8% outside of the U.S., with top-line growth contributions led by China, Brazil, and the U.K. Del Artois delivered double-digit growth, inviting consumers across the world to savor the in-home meal occasion. Corona continued to perform well, with revenue growth of 5.3% outside of Mexico, with growth across the majority of its markets. We delivered strong results in a challenging environment, demonstrating the strength of our business in the beer category. Our commercial strategy was successfully executed with a best-in-class brand portfolio. Our relentless commitment to operational excellence, coupled with our scale and agility, enabled us to stand out and strengthen our relationships with our customers. These fundamental advantages of our business led to market share gains in most of our key markets this quarter. While our strengths give our business a solid foundation, we're not standing still as our consumers continue to evolve rapidly. We're seeing an acceleration in trends such as online B2B platforms, e-commerce, and digital marketing. We have been investing in these capabilities for several years as we advance toward being a truly customer and consumer-centric organization. We're digitizing our relationships with our customers through our proprietary B2B platform, Bees, which provides them with convenience, seamless communication, and most importantly, enhanced business performance. We're expanding these across our portfolio and seeing rapid and broad-based adoption by our customers. We're also leveraging technology to offer convenience to our consumers through consistent investments in e-commerce. Consumer usage of our proprietary platforms and our third-party partnerships both dramatically accelerated over the past several months, Establish our e-commerce leadership in key markets. As consumer behavior quickly evolves, we're finding new ways for our brands to connect with consumers. With our in-house agency, DraftLine, we're delivering consumer-first marketing campaigns with more speed and relevance than ever before. To better address changing consumer behaviors, it's also critical that we have a diverse portfolio of products that target a variety of consumer needs and occasions. The impressive success of innovations like Brahma Duplo Malte and Bud Light Seltzer this year is a demonstration of a thoughtful and well-designed innovation strategy. We have been evolving this strategy over time to deliver superior products to consumers with increased speed and agility. This capability has proven especially critical this year as consumers adapt to a rapidly changing environment. Our innovation strategy is rooted in four key principles. The first is superiority. We want to provide superior products to our consumers across key attributes. To ensure superior value proposition, our process involves rigorous benchmarking and consumer testing prior to introduction into the market. The second is sustainability. We want our portfolio to be aligned with long-term trends so that we go where our consumers are going and maximize our return on investment. Our goal is to ensure our innovations generate year-over-year consistent growth and that we're de-risking uncertainty prior to launch. That's why seeding and learning is critical to our resource allocation decisions as we aim to prioritize the right projects. Third, scalability. Our aim is to address big consumer pain points and scale solutions globally to take advantage of our diverse geographic footprint. We determine minimum thresholds to ensure we're working on impactful projects and we're disciplined about stopping projects that do not meet performance metrics after their first year. And finally, we focus on incrementality. We're developing our portfolio to engage new consumers and tap into new occasions and segments. Our innovation fundamentals have evolved over time and are categorically focused on the consumer. We continuously engage with our consumers to ensure our portfolio addresses the most structural and unstoppable trends. In addition, we leverage our category expansion framework to broaden and differentiate our portfolio, aiming to find opportunities to fill the right white spaces. From here, we bring products to life through our dedicated feed and learn approach. This process has evolved dramatically. It used to take up to two years and now we're driving toward our 100-day concept-to-launch timeline across all of our markets. We start with smaller local pilots, which allow us to gain critical learnings quickly by seeing how a product actually performs in market. This gives us more confidence for when we do decide to scale our winning innovations, an approach we call Prove and Move. Our strategy has resulted in a portfolio of differentiated innovations that address common consumer opportunities in growing megatrends, like premiumization, health and wellness, and purpose-driven brands. Let me tell you more about three successful innovations that address these megatrends. Starting with Bud Light Seltzer, we launched this product in the U.S. in January. Its volume is more than 40% incremental to the beer category, in more than 75% incremental to our portfolio. But like Seltzer, it's a premium product with 100 calories and lasting one gram of sugar made with natural fruit flavors. Bromo Duplo Malt is another amazing success story. It delivers a new pure malt experience to consumers by blending a Pilsner malt with a Munich malt, which results in a striking flavor profile. It's off to a strong start and is now the leader of the corpus segment in Brazil after only five months. In Ecuador, our local crop innovation, Nuestra Siembra, was developed in partnership with the government. It is supporting and developing thousands of farmers in the country while delivering incremental volume to the category. We're offering a high-quality local product at an accessible price point to broaden our addressable consumer base. Successes like these of the result of a consumer-centric strategy which has driven an accelerated innovation performance over the last three years. The contribution of our innovations to total revenue is growing meaningfully. Last year, innovations contributed approximately $5 billion to our global revenue. In addition, our share of innovation has also been gaining momentum in any of our key markets, validating our global approach. In summary, Our innovation strategy, rooted in consumer centricity and agility, positions us well to drive future growth. It was one of the key drivers of our performance this quarter and will continue to leverage this capability to successfully navigate the volatile environment as consumers adapt to the new reality. So to wrap up before I hand over to Fernando, our third quarter results reflect our fundamental strengths as the world's leading brewer and the resilience of the global beer category. While we expect our performance in the second half of this year to be better than the first, the environment remains volatile and uncertain, especially as some governments are renewing restrictions. We will leverage the unrivaled assets of our company, our diverse geographic footprint with access to high-growth regions, our clear commercial strategy, the world's most valuable portfolio of beer brands, industry-leading profitability, and most importantly, our talented team of true owners. to continue our momentum in this fast-changing environment. Now I'd like to hand it over to Fernando. Fernando?

Thank you, Brito. Good morning, good afternoon, everyone. I hope you are all safe and well. Before I take you through our recent liability management initiatives and capital allocation priorities, I would like to highlight our company's partnership with the United Nations. I am proud to represent AB InBev as a founding member of the United Nations Global Compact CFO Task Force, whose goal is to align corporate investments and finance to the United Nations Sustainable Development Goals, or SDGs. The task force was launched alongside the United Nations General Assembly in September. I had the opportunity to speak about AB InBev's approach to sustainable development. highlighting the challenges that are most material to our business and delivering impact at the local level. Our participation in the task force and our broader engagement during the United Nations General Assembly reflects our company's commitment to the SDGs and, more broadly, our commitment to building a better world for our consumers, our customers, and our colleagues. The pillars of our sustainability strategy are centered around water, agriculture, energy, and packaging, all of which are fundamental to our day-to-day operations. And that's why we always say that sustainability is not just part of our business, it is our business. Now, let me update you on the recent liability management initiatives we have undertaken. As we disclosed at the end of the second quarter, our total liquidity position as of June 30th amounted to more than $34 billion, consisting of the $9 billion unwrong revolving credit facility, or RCF, and more than $25 billion of cash. This liquidity amount was higher than we required to manage our business, even in times of elevated volatility. Therefore, since June 30, we successfully redeemed approximately $11.4 billion of near-term debt through a combination of tender and make-whole exercises in line with our deleveraging commitments. As you see on slide 20, our bond maturities are well distributed across the next several years and recently undertaking redemptions considerably reduced our obligations for the next five years, the risk in the front end of our debt profile. As a reminder, we do not have any financial covenants on our entire debt portfolio, including our RCF. Our bond portfolio remains largely insulated from interest rate volatility, as approximately 96% holds a fixed rate. Furthermore, the portfolio is comprised of a diverse mix of currencies, with 56% denominated in US dollars and 34% in euros. With recent redemptions, we have further extended our weighted average maturity by more than one year to roughly 16 years. Finally, we continue to have a very manageable weighted average coupon rate of approximately 4%. I will now take you through our capital allocation priorities. The first priority for the use of cash is to invest behind our brands and to take full advantage of the organic growth opportunities in our business. Second, the leveraging to around a two times net debt to EBITDA ratio remains our commitment, and we will prioritize debt repayment in order to meet this objective. Third, with respect to M&A, we will always be ready to look at opportunities when and if they arise. subject to our strict financial discipline and the leveraging commitment. Our fourth priority is returning excess cash to shareholders in the form of dividends and or share buybacks. In line with these long-standing capital allocation priorities, our board determined that it would be prudent and in the best interest of the company to forego the 2020 interim dividend payment. While our business is delivering improving results, we continue to face uncertainty and volatility in light of the COVID-19 pandemic. This decision is consistent with our financial discipline and prioritizes our leveraging commitments, which have been impacted by the COVID-19 pandemic. The Board's proposal with respect to a full-year 2020 dividend will be announced with our full-year 2020 results on February 25th, 2021. The organic growth of our business. Our teams have shown incredible agility this year, significantly reducing discretionary expenditures during the elevated volatility of the first half of the year, but then pivoting quickly to invest as the environment began to improve. We will continue to manage our capital with a long-term mindset, managing our resources effectively to drive future growth. And with that, I'll hand back to Nicole to begin the Q&A session. Thank you.