Anheuser-Busch InBev SA/NV

Welcome to Anheuser-Busch InBev's second quarter 2021 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 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 star 2. If you should require operator assistance, please press star 0. Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that AB InBev's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect AB InBev's future results, see Risk Factors in the company's latest annual report on Form 20-F 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 shall not be liable for any action taken in reliance upon such information. Now, it is my pleasure to turn the floor over to Mr. Michel Duterte. Sir, you may begin.

Thank you, Jessie, and welcome, everyone, to our second quarter 2021 earnings call. And my first as CEO of AB InBev. It's a pleasure to be speaking with you all today, and I hope you and your families are all staying well and safe. Before we move through the agenda for the call, I would like to take a moment to acknowledge Brito's accomplishments and to wish him the very best. I know I speak on behalf of my colleagues when I say I will miss working with such a great leader, mentor, partner, and friend. As I reflect upon the last few months, I can best describe this time as a celebration of our culture and a great example of our unique Dream People culture platform working at its best. At AD InBev, we believe that having diverse experiences and perspectives drives growth and value creation. Throughout my 25 years at the company, I've had the privilege to lead our business across different regions of the world. working alongside the industry's most talented and passionate colleagues every step of the way. Stepping into this role, I look forward to working together with the team to collectively drive our business into this next chapter. As we position the business for the future, I'm focused on the following priorities. First, we will continue to meet the moment and build on our current top-line momentum. Our business and the beer category have been proven resilient and reliable in times of crisis. Despite an ongoing challenging environment, we will continue to lead with our customer and consumer-centric approach. Secondly, we will continue to invest in and accelerate what's already working. This includes category development, premiumization, health and wellness, beyond beer, and our digital transformation initiatives. We follow this platform and direct to consumer. Finally, we are confident in the future growth prospects of our business and the beer category. Our commercial strategy, combined with our fundamental strengths, which include our people, leadership across the world's largest beer craft pools, balanced exposure to both developed and emerging markets, Operational excellence and a culture of ownership provide a unique platform to unlock growth and value creation from our ecosystem. With that, I would like to spend the rest of our time together today discussing our second quarter operating performance and commercial and sustainability highlights. I will then hand it over to Fernando to discuss our financials, and after that, we will take your questions. Let me now take you through the operating performance for the quarter. Our business is delivering growth ahead of pre-pandemic levels. Compared to the second quarter of 2019, we delivered top-line growth of 3.2%, even in the context of ongoing impacts related to COVID-19. When we compare to the second quarter of 2020, we delivered top line growth of 27.6%, with volume growth of 20.8%. Our beer volumes grew by 20.5%, while our non-beer volumes grew by 23.2%. Revenue per hectolitre increased by 5.8%. driven by favorable brand mix from the outperformance of our premium portfolio and revenue management initiatives. EBITDA grew by 31%, with an EBITDA margin of 35.8%. Topline growth, operational leverage, and ongoing cost discipline were partially offset by anticipated transactional effects and commodity headwinds. Additionally, our FCG&A increased across our markets as a result of higher variable compensation accruals and growth in sales and market investments to support our top line momentum. Our normalized EPS increased to $0.95, while underlying EPS increased to $0.75. Our net debt to normalize the EBITDA decreased from 4.8 times on December 31st to 4.4 times for the 12-month period and in June 30th. We reduced the total gross debt by $8 billion in the first half of the year. Now, I would like to share some highlights from our key markets. In the US, we deliver top-line growth of 6.8%, driven by the consistent implementation of our commercial strategy. As we remain focused on prioritizing the needs of our customers and consumers, we are absorbing additional cost headwinds related to the tighter supply chain, impacting our bottom-line performance. In Mexico, Our business continues its momentum with top-line growth of more than 10% versus 2019 pre-pandemic levels. We continue to see health growth across all segments of our portfolio. Our Bits platform now accounts for over 60% of our revenue, with an average NPS score 20 points higher compared to non-digital customers. In Colombia, we grew volume by mid-single digits versus 2019, despite ongoing COVID restrictions. Our business is almost entirely digital, with nearly 80% of our revenue coming through this, our digital platform. In Brazil, we grew beer volumes by nearly 13%, once again outperforming the industry according to our estimates. EBITDA declined as top-line growth was offset by anticipated cost headwinds. The digital transformation of our business in Brazil is progressing rapidly, with this covering more than 70% of our active customers, and that delivery fulfilling more orders in the first half of this year than all of 2020. Our business in Europe grew revenue by high teams, and EBITDA by strong double digits, supported by gradual reopening of the on-premise channel and the continued strength of our premium businesses. In South Africa, we continue to see strong underlying consumer demand for our brands, outside of government mandate alcohol bans. The most recent ban was instituted on June 29th. and lasted until July 25th, impacting the last selling week of the quarter and the first month of the third quarter. In China, we estimate our volumes outperforming the industry, led by our premium and super premium brands, which grew by double digits in both volume and revenue. Moving on, let's discuss the key commercial and sustainability highlights for this quarter. We continue to develop a unique and diverse portfolio of brands to reach more consumers on more occasions. As you can see on slide 9, we delivered share gains in the mainstream segment globally, with healthy performances in many of our main markets. Our premium portfolio grew by 28%. Our beyond-the-air brands grew by 45%, and we continue to enhance our portfolio with innovation. Diving a bit deeper into the performance of our global brands, the combined revenues of Budweiser, Stella Trois, and Corona grew by 23% globally, and by 19.3% outside of the brand's home markets, where they typically command the premium price. Compared to pre-pandemic levels of 2019, all three brands delivered growth outside of their respective home markets. Now, let's talk about innovation. Our innovation strategy enables us to deliver a portfolio of differentiated and superior products to address consumer and customer trends. Our Feed and Learn approach gives us critical learnings quickly, which we then use to scale our winning innovations, a process we call Prove and Move. Brema Duplo Malt continues to be a true success story, leading the core pure malt segment in Brazil. It delivers a new experience to consumers. by blending two malts to create a superior liquid with a winning flavor profile. Based on the brand's success, we have expanded this concept to markets such as Mexico, Colombia, and Peru this year. In the Beyond Beer space, We quickly leveraged the learnings from the seltzer segment in the U.S. to adapt and scale Michelob Ultra seltzer in Mexico in less than two months. The brand is now the leader in the seltzer segment in Mexico, with nearly 50% market share. We are also expanding the Mike Hartz brand family into new markets to further strengthen our global Beyond Beer portfolio. The MiceCard Lemoming and MiceCard Seltzer variants will be available in more than 20 markets by the end of the year. Moving on, let me take a moment to share with you a passion point of mine. Our brands and the creative work that brings them to life and connects them with our consumers. At this year's Cannes Lions International Festival of Creativity, our marketing teams achieved their best performance ever, winning 40 Lions, including four won by our internal creative agents, DraftLine. Our winning campaigns expanded across 11 of our brands in six of our countries, showcasing our commitment to brand building, smart drinking, diversity and inclusion, and transformation through data and technology. Michelob Ultra was our best performing brand, winning a total of 16 Lions. Congratulations to our teams and our partners for that amazing work. Now, I would like to talk about the digital transformation of our business. Our digital platforms are gaining scale. driving value across our ecosystem. Our B2B platform, BEEF, is now live in 12 markets with 1.8 million monthly active users. It captured over $4.5 billion in GMV this quarter, a greater than 50% increase from the first quarter. BEEF has achieved significant adoption by customers, in our seven focus markets, with 60% to over 90% of our revenue in these initial markets coming now from digital. Our own DTC e-commerce revenues more than doubled compared to the same period last year. In Brazil, for example, that delivery continued its exponential growth. We continue to scale the successful model across our footprint. with courier platforms now available in 10 markets, covering more than 220 cities. Now, let's talk about sustainability. Sustainability is core to our strategy and a key driver of innovation. I want to briefly highlight a couple of recent examples of our ongoing commitment. First, the appointment of ASG Bárcenas, as our dedicated Chief Sustainability Officer, reporting directly to me. Builds on a strong track record in the space and further accelerates our ESG agenda. Secondly, I want to share one of our most transformational sustainability programs, the 100 Plus Accelerator. We have accelerated 36 startups across 16 countries since 2019. to further scale sustainability solutions. To support our work around smart agriculture and circular packaging, we are leveraging Bunkill, a blockchain-enabled supply chain platform from our first 100-plus accelerator cohort. Bunkill provides farmers and recyclers improved security of deliveries and payments, and a digital economic identity to access formal financial services, while also providing us with more visibility across our value chain. In the second quarter, we extended BanQ to Latin America, following its success across several markets in Africa. In Colombia, it is enhancing the traceability of our recycling supply chain, and improving the financial inclusion of our recycling collectors. In Ecuador, it is supporting local barley sourcing for the Nuestra Sembra brand. With that, I would like to hand it over to Fernando to discuss our financials. Fernando. Thank you, Michel.

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 35 cents from 40 cents to 75 cents. Normalized EBIT increased by 68 cents per share. In net finance costs, we recorded lower interest expense due to gross debt reduction offset by other finance costs. We saw higher income tax expense due to increased profitability, country leaks, and reduced benefits from tax attributes, worth 26 cents per share. We also recorded higher non-controlling interest, worth 9 cents per share, resulting from higher profits of our listed subsidiaries Budweiser APAC, and AMBEV, along with the issuance of a 49.9% minority stake in our U.S.-based metal container operations in December 2020. On slide 17, you see that our debt maturity profile is well distributed across the next several years with no significant maturities over the next five years. in the first half of the year, we redeemed a total of $5.8 billion of bonds. Combined with redemptions of commercial paper, we reduced total gross debt from $98.6 billion at December 31st to $90.6 billion at June 30th. Furthermore, we redeemed an additional $565 million of bonds in July. We continue to reduce debt while maintaining a strong liquidity position of $16.9 billion at the end of the quarter. Let's elaborate further on our debt portfolio on slide 18. As a reminder, we do not have any financial covenants on our entire debt portfolio, including our sustainability linked revolving credit facility. Our bond portfolio, remains largely insulated from interest rate volatility, as approximately 95% holds a fixed rate. Furthermore, the portfolio is comprised of a variety of currencies, with 51% denominated in U.S. dollars, 36% in Euro, and the remainder in currencies such as the Canadian dollar, Pound and 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%. Now let's talk about capital allocation. Maximizing long-term value creation drives how we balance 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 metadata to EBITDA ratio remains our commitment. 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 commitments. Our fourth priority is returning extra cash to shareholders in the form of dividends and or share-by-dex. And with that, I'll hand it over to Jessie to begin the Q&A session.