Anheuser-Busch InBev SA/NV

Welcome to the Anheuser-Busch InBev's first quarter 2021 earnings conference call and webcast. Hosting the call today from AB InBev are Mr. Carlos Frito, 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 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 risks and uncertainties. It is possible that AB InBev's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect AB InBev's future results, see Risk Factors in the company's latest annual report on Form 20F filed with the Securities and Exchange Commission on 19 March 2021. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and should 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, Lori, and good morning, good afternoon, everyone. Welcome to our first quarter 2021 earnings call. I hope you're safe and well. Before discussing our results, I'd like to take a moment to address our other announcement. As most of you probably know by now, today we announced that after 32 incredible years at the company and 15 years as CEO, I'll be stepping down from AB InBev at the end of June. Starting July 1st, Michelle Dukaris, who has very successfully led our North America zone for the past three years, will become AB InBev's new CEO. Throughout his career at AB InBev, Michel has consistently delivered strong results while serving in key leadership roles in Brazil, China, and the US, three of the company's largest markets. I have the utmost confidence that he is the right person to lead our company through its next phase of growth and value creation. I wish Michel the very best as he begins his new role. When I joined Brahma in 1989, In every imagined journey, our company and I would embark on over the next three decades. I'm immensely proud of what this team has accomplished together. We built the leading and most profitable global brewer with the best brands and, more importantly, the best people. We grew the company both organically and inorganically through industry-defining combinations. Today, we have an unparalleled portfolio of brands. including the most valuable beer brand in the world, Budweiser, and our two other leading global brands, Del Artois and Corona. We became one of the world's leading FMCG companies with operations in nearly 50 markets, our brands sold in more than 180 countries, and selling more than one out of every four beers in the world. I want to thank all 164,000 colleagues of mine who made this all possible through their energy, passion, commitment, and resilience. It has been an honor and privilege to work with such a talented group of individuals as we built this global company based on strong values in our unwavering commitment to excellence, quality, consumers, and communities. I want to thank our shareholders and analysts For the time devoted to AB InBev, I know you will enjoy getting to know Michel. Now let me take you through our agenda today. I'd like to start with how we at AB InBev are doing our part to support the global economic recovery. I'll then take you through our first core results, including highlights from our key markets. Next, I'll walk through our Beyond Beer strategy. I'll then hand it over to Fernando, who will take you through our financials. will then be happy to take your questions. Let's start with what we're doing to support the recovery. Beer has always been a strong engine of economic activity. Our beers are almost entirely sourced, brewed, and enjoyed locally, deeply connecting us to the communities where we live and work. The beer industry generates local jobs upstream in farming, brewing, bottling, and recycling, and downstream supporting local retailers, bars, and restaurants. For instance, for every job in a brewery in the US, over 30 jobs are created in the supply chain. This multiplier is much higher in developing economies. We have an opportunity to recover from the pandemic in a way that's both environmentally and socially sustainable. Our strong value chain can positively impact the economy, given its breadth and depth, putting us in a unique position to support the recovery. Across our operations, we continue to invest behind our business, expanding our facilities, production capacity, and most importantly, creating jobs. For example, in the U.S., we're investing one billion U.S. dollars over the next two years in manufacturing and sustainability across 26 states. In China, We're investing our brewing footprint and capabilities with the new Smart Green Brewery in Wenzhou. In the UK, we announced a £115 million investment in two major breweries to increase capacity and efficiency. In Mozambique, we recently opened a new 2.4 million hectolitre brewery, representing the biggest investment ever in the brewing sector in that country. We believe the fastest way to bring people together again is through a safe and effective global vaccine rollout. Using our marketing expertise, we developed a toolkit in partnership with the United Nations Institute for Training and Research, UNITAR, to create successful vaccination campaigns through public-private partnerships. We're also leveraging our scale and reach to accelerate the vaccine rollout across our markets. In the U.S., Budweiser donated its Super Bowl airtime to raise vaccine awareness. In Colombia, we led COVID-19 vaccination campaigns in partnership with the Ministry of Health. In Argentina, we set up a vaccination site administering 1,000 vaccines per day. We're committed to supporting our communities in doing our part to accelerate a safe and sustainable recovery. Now let me take you through the results of the quarter. Our business is off to a very strong start in 2021. We delivered balanced top-line growth of 17.2%, comprised of 13.3% volume growth and 3.7% revenue per capita growth, driven primarily by favorable brand mix from the outperformance of our premium portfolio. Our beer volumes grew by nearly 15%, while our non-beer volumes grew by 4%. Total volumes are ahead of pre-pandemic levels as well, with beer volume growth of 2.8% versus the first quarter of 2019. Healthy revenue growth and ongoing cost discipline translated to an EBITDA increase of 14.2% and an EBITDA margin of 34.7%. Positive rent makes and ongoing cost discipline was somewhat upset by anticipated pressures from transactional effects and commodity headwinds. channel and packaging mix, and an increase in our SG&A as a result of higher variable compensation accruals, which are recorded by quarter at the zone level, depending on operational performance. Our normalized EPS increased to 51 cents, while underlying EPS increased to 55 cents. We're reaching more consumers than ever before with a portfolio approach. This quarter, we gained share in the core and value segments across our markets. Our premium portfolio grew by double digits and our beyond beer business grew by over 40%. Our digital platforms continue to gain scale with our B2B platform, Bees, capturing over $3 billion in GMV in our own e-commerce business quadrupling in size. Now let me take you through some highlights from our key markets. In the U.S., we delivered top and bottom line growth driven by the consistent execution of our consumer first strategy. We continue to strengthen our industry leading portfolio by rebalancing toward faster growing above core segments. In Mexico, we delivered top line growth of five single digits with both volume and revenue per capita growing by mid single digits outperforming the industry. Our business in Colombia continued its strong momentum, delivering top and bottom line growth above 20%, with robust performance across all segments of our portfolio. Our business in Brazil delivered a strong start of the year. Our beer business again outperformed the industry according to our estimates, growing volumes by nearly 16% and above pre-pandemic levels. In Europe, our business continues to be impacted by significant COVID-19 restrictions. Our own beer volumes, excluding third-party volumes, were flat year-over-year as we delivered double-digit growth in the off-premise channel powered by our premium portfolio. In South Africa, our business was significantly impacted by a one-month government-mandated ban on alcohol sales, which resulted in a volume decline in the quarter. Once the ban was lifted, we saw solid underlying consumer demand for our brands. In China, our business delivered over 90% revenue growth, surpassing pre-COVID-19 levels, driven by ongoing premiumization. Volumes grew by nearly 85%, estimated to be ahead of the industry. Now I'd like to spend some time highlighting our premium portfolios. Premiumization of the beer industry remains one of our most significant opportunities for growth. We have been investing to build a diverse portfolio of global, international, and craft and specialty premium brands across our markets, making us the largest premium brewer in the world. Our premium portfolio now represents more than 30% of our total revenue, an increase of more than 6% points from 2017, and grew by 28% in the first quarter. This growth is accretive to our bottom lines as our premium brands carry a higher dollar profit per hectare than our core brands. Our global brands continue to lead the way in premiumization, with global revenue up by 29.5% and by 46.4% outside of their brand's home markets, where they typically command a premium price point. All three of our global brands, Budweiser, Stella Artois, and Corona, grew by double digits versus the same period in both 2020 and 2019. Now I'd like to take you through our strategy to drive growth in Beyond Beer. The lines between the established segments within alcohol, beer, wine, and spirits continue to blur. A fourth category defined as the intersection between the segments has emerged. as a relevant player with significant growth potential. Recall this category beyond beer, and it includes products such as ready-to-drink beverages like canned wine and canned cocktails, hard seltzer, cider, and flavored malt beverages. This segment is expected to grow by 45% between 2019 and 2024, and is estimated to grow to $58 billion in global sales by 2024, according to Euromonitor. We believe we have the right strategy and capabilities to win in this space by leveraging our agile innovation process, diverse geographic footprint, global supply chain, and extensive route to market. As markets mature, consumer needs and occasions evolve. It is critical to offer a portfolio of options to our consumers to drive growth. Beyond Beer products can offer functional benefits or attributes that are not offered by traditional beer, wine, or spirits. When exploring this space, it's key for us to understand and map the specific opportunities where we have the capabilities and the right to win. Our teams stay close to emerging trends in the Beyond Beer space and are empowered to invest in both organic and inorganic growth opportunities. Each of these opportunities goes through a seed and launch phase designed to test and learn, and then either growth and scale or pivot fast. Successful organic ventures include beets in Brazil, brutal fruits in South Africa. On the inorganic side, we have added brands such as Cutwater, Babe, and Neutral to our portfolio as well. We're building a strong and diverse portfolio beyond beer products globally. We're launching Mike's Hard, a brand we own everywhere outside of the U.S., across our footprint. It will be available in more than 20 countries by the end of this year in both the Mike's Hard Lemonade and Mike's Hard Seltzer variants. In the U.S., our largest Beyond Beer market that represents approximately half of our global Beyond Beer volume We have significantly enhanced our presence in the hard seltzer segment with Bud Light Seltzer and the more recent launches of Michelob Ultra Organic Seltzer and Cacti. We're expanding products like hard seltzer to new geographies. A great example is the launch of Michelob Ultra Hard Seltzer in Mexico, where it has already captured approximately 45% market share of the developing seltzer segment, more than the next three brands combined. Our portfolio is already global with around 90 brands in approximately 40 countries. Our Beyond Beer portfolio is growing fast. The business delivered $1.2 billion in revenue in 2020 and grew over 40% in first quarter 21. This incremental growth is also accretive to our bottom line. On average, our Beyond Beer products have a 20% higher gross profit per hectare than our traditional beer portfolio. With that, I'd like to hand it over to Fernando to discuss our financials. Fernando.

Thank you, Brito. Good morning. Good afternoon, everyone. I hope you are all safe and well. Let me first take you through the drivers of our underlying EPS. Our underlying EPS increased by 4 cents from 51 cents to 55 cents. Our strong performance in the quarter drove an increase in EBIT that equates to $0.15 per share. We also recorded lower net finance costs, worth $0.06 per share. These benefits were partially offset by higher non-controlling interests, worth $0.08 per share, resulting from higher profits of our listed subsidiaries, Budweiser APAC and AMBEZ, along with the issuance of a 49.9% minority stake in our US-based metal container operations in December 2020. We also saw higher income tax expenses due to country mix and reduced benefits of tax attributes worth $0.07 per share. On slide 22, you see that our debt maturity profile is well distributed across the next several years, with no significant maturity over the next five years. We maintained more than $24 billion of liquidity at the end of 2020. As a reminder, we do not have any financial covenants on our entire debt portfolio, including our sustainability linked revolving credit facilities. Our bond portfolio remains largely insulated from interest rate volatility. as approximately 96% holds a fixed rate. Furthermore, the portfolio is comprised of a variety of currencies, with 51% denominated in US dollars, 37% in euro, and a reminder in currencies such as Canadian dollar, pound sterling, and Korean won, diversifying our FX risk. The weighted average maturity of our debt portfolio is 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, which remain unchanged. 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 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. Before handing back to Laurie to begin the Q&A session, I would like to announce changes to our investor relations team. Lauren Abbott, our current head of investor relations, will be assuming a new position as the global VP of economic policy and continue reporting to me. Sean Fulalove, who has been in the company for 10 years, will succeed Lauren as our Global VP of Investor Relations. And now, over to Lauren to begin the Q&A session.