Anheuser-Busch InBev SA/NV

Welcome to the Anheuser-Busch InBev's fourth quarter and full year 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 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 the pound key. 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 Inves' future results, see Risk Factors in the company's latest annual report on Form 20-F filed with the Securities and Exchange Commission on the 23rd of March, 2020. AB Inves 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. Carlos Brito. Sir, you may begin.

Thank you, Maria, and good morning, good afternoon, everyone. Welcome to our fourth quarter and full year 2020 earnings call. I hope you and your families are staying safe and well. First and foremost, I would like to personally thank all of our colleagues for their ongoing efforts and commitment to ensure business continuity and a strong recovery through these challenging times. Before I go into detail about the results of 2020, I want to acknowledge that this was undoubtedly a difficult year for our colleagues, our communities, our partners, and our business. However, it also eliminated that the fundamental strengths of our business are true competitive advantage that position us for the long term. Our commercial strategy gives us the toolkit to lead and grow the global beer category and scale best practices around markets. We reach more consumers on more occasions with the world's most valuable portfolio of beers, enhanced by a revamped innovation process. We're leading the way in digitizing our relationships with our more than 6 billion customers and more than 2 billion consumers with investments we have been making for years in B2B sales, e-commerce, and digital marketing. We have a diverse geographic footprint with operations in close to 50 markets and sales in over 150 countries and significant exposure to high-growth regions. Our profitability is industry-leading, allowing us to weather extreme disruption while continuing to invest behind our strategy. Most importantly, we have a culture of ownership and a long-term mindset. Our colleagues across the world are rising to the challenge each day, demonstrating ingenuity, passion, and resilience. One of the things I'm most proud of was how quickly our teams stepped up to help our communities in creative and impactful ways. Our beers are almost entirely sourced, brewed, and enjoyed locally, deeply connecting us to the communities in which we live and work. This means we must lead the way in supporting the fight against the pandemic and doing our part in the economic recovery. In 2020, we produced and donated millions of units of hand sanitizer in over 20 countries and emergency drinking water in over 10 countries. We mobilized our fleets of trucks in Colombia, Peru, and Ecuador to deliver essential food and medical supplies. We helped to enhance critical healthcare infrastructure, including four new hospitals in Mexico, Brazil, Colombia, and Peru, and a vaccine factory in Brazil. To support and empower more than 20,000 direct farmers in our global supply chain, we fulfilled commitments to purchase crops in markets such as Mexico and India, even when our brewing operations were shut down. In the U.S., we collaborated with our sports partners and the American Red Cross to convert stadiums in our on-tour facilities into temporary blood drive centers. We'll continue to partner closely with our stakeholders across our value chain to support the recovery, as we believe a sustainable recovery can only be achieved when we work together. Now let me take you through the results of the fourth quarter and full year, including highlights from our key markets. I'll also elaborate on our commercial strategy, including our digital commerce platforms, and provide you with an update on our Better World agenda. I will then hand it over to Fernando to take you through our financials. We'll then be happy to answer your questions. Let's start with the results and key takeaways from the fourth quarter. We delivered a strong fourth quarter in the context of an ongoing complex environment. We delivered total volume growth of 1.6%. Own beer volume grew by 1.8%, while our non-beer business grew by 1.7%. Our revenue grew by 4.5%. Revenue per hectare grew by 2.7%, supported by revenue management initiatives and premiumization, partially offset by adverse channel and packaging mix related to the impact of COVID-19 restrictions. Topline growth was offset by higher costs, as we rapidly adjusted our supply chain to meet evolving demand, and as we increased investments in line with improving volumes, resulting in an EBITDA decline of 2.4%. While our EBITDA margin contracted by 261 basis points, this still resulted in a healthy margin of 39.7%. Let me now tell you about the results of the full year. While we started the year with good momentum, our overall results in 2020 were significantly impacted by the disruption caused by the COVID-19 pandemic. While the first half of the year was extremely challenging, we were able to pivot quickly to deliver volume growth in the second half of the year, as you'll see on the right side of slide 9. On a four-year basis, revenue declined by 3.7%, as the volume declined by 5.7%, was partially offset by revenue per hectare growth of 2.1%. Our on-beer volumes were down by 5.8%, and non-beer volumes were down by 3.8%. Our EBITDA declined by 12.9%, with EBITDA margin compression of 382 basis points to 36.9%. Our underlying EPS decreased to $2.51. We ended the year with a net debt to normalized EBITDA ratio of 4.8 times as our results were substantially impacted by the COVID-19 pandemic. We remain committed to the leveraging as this constitutes a powerful lever for value creation. The board has proposed a full year dividend of 50 Euro cents per share for fiscal year 2020. Let me now take you through the highlights from our key markets. In the U.S., Top and bottom line growth was driven by the consistent execution of our consumer-first strategy, focused on premiumization, health and wellness, and innovation. We also delivered continued market share trend improvements, with a slight decline of approximately five basis points in 2020. Our above-core portfolio outperformed once again, led by the continued momentum of Michelob Ultra and the success of innovations such as Bud Light Seltzer. We're committed to winning in the fast-growing seltzer segment with a portfolio approach enhanced by recent innovations such as Michelob Ultra Organic Seltzer and Bud Light Seltzer Lemonade. In addition, we delivered flat market share within the mainstream segment in 2020 as we continue to successfully execute our commercial priorities. In Mexico, our business recovered quickly from a two-month government-mandated shutdown of our operations to delivering strong results in the second half of the year. We significantly outperformed the industry once again in 2020 and delivered healthy revenue-corrected growth ahead of inflation. We continue to enhance our commercial footprint with more than 600 new locations of our own retail store, Modelorama, and our continued expansion into the country's largest convenience store, OXO, making our brands available in more than 7,700 stores by the end of the year. In addition, our proprietary B2B platform, Bees, more than doubled in size throughout the year. In Colombia, our results in 2020 were heavily impacted by stringent COVID-19 restrictions, though we finished the year with good momentum across our portfolio. Each month in the fourth quarter was marked by our highest ever monthly beer volumes in the country. Our premium portfolio proved incredibly resilient, led by our global brand portfolio, which grew by high teens in 2020. Our beer business in Brazil delivered a strong top-line performance this year in a challenging environment. We grew beer volumes in both the year and the fourth quarter, gaining market share in both periods according to our estimates. Our premium portfolio outperformed the industry. We stabilized the performance of our core brands, and we delivered highly successful innovations, such as Brahma Duplo Multi. We continue to advance the digital transformation of our business with the accelerated expansion of Bs and direct consumer initiatives, such as Zed Delivery, which fulfilled more than 27 million orders in 2020. In Europe, our performance was impacted by ongoing COVID-19 related restrictions, particularly in second and fourth quarters. Nevertheless, we gained market share in the majority of our markets in 2020 with a strong performance from our premium brand portfolio. In South Africa, our business was significantly impacted by three outright bans on the sale of alcohol over the course of 2020, which resulted in double-digit volume revenue and EBITDA declines, and significant EBITDA margin contraction. Outside of these bands, we saw solid underlying consumer demand for our portfolio throughout the year. In China, our business was heavily impacted by COVID-19-related restrictions from February through April, then recovered swiftly throughout the remainder of the year. Premiumization continues to be a key driver of growth. Additionally, we estimate that we maintained our leadership of the beer category in the e-commerce channel, with an estimated market share more than twice that of the next brewer. Our global brand portfolio returned to growth and outperformed in the second half of 2020, with revenue up by 4.7% outside of their home markets where they command a premium. Budweiser grew by 5.8% outside of its home market of the U.S., in the second half led by China, Brazil, and the UK. Del Artois grew by 6.4% outside of Belgium in the second half as it promoted the in-home meal occasion and achieved strong results in several key markets including Brazil and Argentina. Corona increased by 1.2% outside of Mexico in the second half with growth in the majority of its markets. In summary, we finished the year with good momentum through consistent execution of our commercial strategy. Consumers are at the center of everything we do. Our diverse geographic footprint spans markets of varying maturities. Our market maturity model gives us a roadmap to understand how occasions and consumers evolve. Occasions become more fragmented and diverse as markets mature, demanding a portfolio approach to effectively meet consumer needs. For example, the number of brands required to reach 80% of beer volume in a late-stage maturity market is more than 10 times that of an early-stage maturity market. Additionally, the number of brands within a consumer's consideration set in a late-stage maturity market is more than double that of an early-stage maturity market. Since the combination with SAB in 2016, we have used the category expansion framework to build a robust portfolio of core lagers, premium beers, rafting specialties, smart affordability offerings, and beyond beer adjacencies. 2020 validated the importance of having a superior portfolio of leading brands, enabling us to deliver market share gains in the majority of our key markets. We continue to lead the lager space with our unmatched portfolio and successful innovations, such as Brahma Duplo Malt. It is the absolute leader of the corpus segment in Brazil, and we are expanding the double malt offering to seven new markets in 2021. We are a leader of the corpus segment globally, with brands like Michelob Ultra, Modelo Especial, Club Columbia, and Harbin Ice. In the U.S., Michelob Ultra grew by more than 20%, and holds the number two position by value in the beer category. We're the leading premium brewer in the world and have been gaining market share in this segment for three consecutive years. Budweiser, Stellar, and Coronan are three of the top five most valuable beer brands in the world and reached more than $10 billion of revenue in 2020, representing more than 20% of our total. We also began scaling craft and specialty brands around the world several years ago through a combination of organic and inorganic initiatives. Today, we have the world's largest portfolio of craft and specialty brands. We have gained consistent market share on a global basis in craft since 2015, and we'll continue to enhance our portfolio as the category evolves. On the other end of the price spectrum, our smart affordability initiatives such as our local crop beers in markets including Brazil, Peru, Ecuador, and Uganda, are drawing new consumers into the beer category while also serving our communities by supporting local farmers. Our Beyond Beer portfolio continues to drive growth, with our total adjacencies reaching well over $1 billion in revenue and growing strong double digits in 2020. In the US, the largest Beyond Beer market in the world, our hard seltzer, canned wine, and canned RTD cocktail offerings grew, on average, double their respective segments in the fourth quarter. As a highly mature market, the U.S. provides us with valuable learnings that we can scale across our global footprint. We have been strengthening our Beyond Beer positioning in other markets with offerings such as Skull Beets in Brazil and, recently, Michelob Ultra Seltzer in Mexico. Our portfolio today has a significant presence in spaces where consumers are going, such as premium, health and wellness, convenience, and authenticity. We have developed and are continuously enhancing our portfolio to meet evolving consumer needs, positioning as well to capture long-term growth. To drive long-term growth, we have to go where our customers and consumers go. To unlock the full potential of our brand portfolio and truly excel in service level and execution, we have been making investments for several years in digital commerce platforms. Our proprietary B2B platform, Bees, combines our best-in-class logistics and sales systems with new digital capabilities and connectivity, allowing us to provide customers with convenience, seamless communication, and enhanced business performance. Bees empowers our customers through offerings tailored to their particular needs, user-friendly communications, and visibility of logistics and delivery. This propels us to be truly customer-centric. The more we know our customers, the better partners we can be in driving mutually beneficial growth. The results are powerful. Gross merchandise value from bees reached well over $3 billion in 2020, with revenue growth accelerating throughout the year. In December 2020, Bees had over 900,000 monthly active users across nine markets, and we intend to scale the platform across several more markets in 2021. Most importantly, our customers love the platform, giving us an NPS 18 points higher than those who are not yet transacting with us digitally. We are optimistic about the potential for Bees to truly transform our customer relationships and our business. Our direct-to-consumer, or DTC, e-commerce platforms across the world gives us the ability to reach consumers in new, more convenient ways, while providing us with valuable data on evolving consumer trends. In 2020, we saw significant step change in adoption of our DTC platforms as consumers turned to e-commerce in an environment of social distancing. Orders through our more than 20 proprietary DTC e-commerce platforms increased nearly tenfold in 2020. And we're leading commerce in the beer category in key markets such as China through strategic partnerships with global e-retailers. 2020 also pushed us to find innovative ways for our brands to connect with consumers when traditional channels such as concerts and sporting events were unavailable. Our in-house marketing agency, DraftLine, stepped up to the challenge by creating consumer-first experiences such as our Lives online concert series in Brazil. Lives successfully activated our top brands and innovations in the country, such as Brahma Duplo Malte, delivering over 350 concerts and attracting 678 million views in only 12 weeks. We have seen that these innovative activations meaningfully contribute to increased awareness and trial of our products. helping us to outperform the market. Moving on, I'd like to spend a few minutes discussing the advancements we have made on our Better World agenda, starting with an update on our smart drinking initiatives. We're committed to meaningfully reducing the harmful consumption of alcohol. Our commitment to apply smart drinking guidance labels on the primary packaging of all of our beers is the largest such effort ever undertaken in the world by any single beer, wine, or spirits company. Today, 81% of our beer volume across the 28 countries in scope already includes a smart drinking guidance label, and we plan to reach 100% this year. Additionally, we share the United Nations Sustainable Development Goals, the SDGs, ambition to reduce road traffic injuries and deaths by 50% by 2030. Together with the United Nations Institute for Training and Research, UNITAR, we launched the Management Practice for Safer Roads Toolkit in 2019. We developed the toolkit based on the data-driven approach and piloted it in Sao Paulo, bringing road fatalities in the city down by 16% from 2015 to 2019. In 2020, we renewed our partnership with UNITAR for two more years. In 2018, we launched our 2025 sustainability goals, our most ambitious goals yet. They aim for holistic environmental and social impact to drive transformational change across our value chain. Our goals are closely aligned to the United Nations SDGs as we believe private sector companies have a responsibility to contribute to solutions for some of the world's most pressing issues. In 2020, we continue to make progress toward Our goal, that 100% of our direct farmers will be skilled, connected, and financially empowered. We have been featured in Fortune's Change the World list for the second consecutive year for our work with farmers and the development of agricultural technology to build strong global supply chains. We're also measureably improving water availability and quality for high-stress communities. In 2020, we achieved an industry-leading water use efficiency ratio, of 2.7 hectoliters of water per hectolitre of beer across all of our brewery sites and retained our place in CDP's Water A List as a leader in corporate water stewardship. Even though our progress in circular packaging was affected by COVID-19, we continue to champion a circular economy. By developing partnerships with our suppliers and through the 100-plus accelerator, we're building and strengthening the local recycling ecosystems. Today, more than 74% of our volume globally is in majority recycled content or returnable packaging. Climate change has far-reaching impacts on our business and the communities where we live and work. We have committed to transitioning to 100% purchase electricity from renewable sources by 2025, and we have already contracted 70%. To help us achieve our ambitious sustainability goals, we launched the 100 Plus Accelerator in 2018 to find partners who can deliver breakthrough advancements in water stewardship, farmer productivity, circular packaging, and more. Since then, the accelerator has worked with 36 startups in 16 countries to innovate for sustainable impact and to achieve our 2025 sustainability goals. In 2020, we launched our second cohort and concluded the pilots with a virtual demo day that attracted nearly 400 participants. I'm also happy to share that today we released our inaugural ESG report, now available on our website. The report provides our stakeholders with greater visibility on how we have been working to fulfill our commitment to building a better world. With that, I would like now to hand it over to Fernando. Fernando?

Thank you, Brito. Good morning, good afternoon, everyone. I hope you are all safe and well. To continue where Brito left off, I would like to highlight how we are bringing the sustainability and corporate finance worlds closer together. Let me share you an achievement of which I am personally proud as a CFO and as a founding member of the United Nations Global Compact CFO Task Force. Last week, we announced the successful signing of a new $10.1 billion sustainable linkage revolving credit facility. We are excited by the further integration of sustainable finance principles into capital markets and welcome the opportunity to embed this practice deeper into both our finance organization and the broader company. As the world's leading brewer, With a vast global reach, it is important that we set the example and play a leadership role in addressing the increasing threats of climate change. Now, let me update you on the financials. Our underlying EPS this year, defined as our normalized EPS, excluding the impact of market-to-market related to the hedging of our share-based payment programs and the hyperinflation account in Argentina, decreased by $1.12 from $3.63 to $2.51. The decrease was mainly driven by lower normalized EBIT due to the impact of COVID-19 on our performance. Even though 2020 brought unexpected challenges, We continue to proactively manage the factors within our influence to maintain prudent liquidity during an uncertain time, while supporting the long-term growth of our business. We started 2020 with a strong liquidity position that yielded a healthy risk profile. Throughout the year, we undertook a series of liability management initiatives that furthered the risk at our balance sheet while creating value. We reduced our gross debt with maturities over the next five years by approximately $18 billion and extended our weighted average maturity by more than two years. Our liquidity position remains higher than usual in light of the ongoing uncertainty. At the end of the year, our total liquidity position was approximately $24.3 billion consisting of the $9 billion undrawn revolving credit facility, RCF, and $15.3 billion of cash, more than sufficient to cover our bond maturities through 2026. As you see on slide 30, our bond maturities are well distributed across the next several years, and recent redemptions considerably reduced our obligations for the next five years. As a reminder, we do not have any financial covenants on our entire debt portfolio, including our new sustainability-linked revolving credit facility. Our pro forma bond portfolio, as of February 2021, 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 33% in euro. We have further extended our weighted average maturity to more than 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 the 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 always be ready to look at opportunities when and if they arise, subject to our strict financial discipline and the leveraging commitments. Our fourth priority is returning excess cash to shareholders in the form of dividends and or share buybacks. To reiterate, our first capital allocation priority is and remains the organic growth of our business. Our teams have shown incredible agility this year, significantly reducing discretionary expenditures in 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 Maria to begin the Q&A session.