Anheuser-Busch InBev SA/NV

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 embeds 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 19th of 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. Michel Dukaris. Sir, you may begin.

Thank you, Jessie, and welcome everyone to our third quarter 2021 earnings call. It's a pleasure to be speaking with you all today, and I hope you and your families are staying well and safe. As the world reopens, I'm looking forward to being able to meet with you in person in the near future. Today, I would like to start with an overview of our third quarter operating performance and key commercial and sustainability highlights. Then, I will hand it over to Fernando to discuss our financials. After that, we'll be happy to take your questions. So let's start with our operating performance for the quarter. When compared to the third quarter of 2020, we delivered top line growth of 7.9%, with a health mix of 3.4% volume and 4.3% revenue per hectolitre, driven by revenue management and premiumization. EBITDA increased by 3%, with an EBITDA margin of 36.5%. Versus third quarter 2019 pre-pandemic levels, we grew top line by low things, driven by the consistent execution of our strategy and strong underlying consumer demand for our brands. This quarter, we also returned to growth at the bidder level versus third quarter 2019, as we continue to manage our costs efficiently. Our underlying EPS increased from 80 cents to 85 cents, and our normalized EPS was 50 cents. We delivered a strong performance in the context of a challenging global operating environment, characterized by ongoing COVID-19 restrictions, commodity inflation, and supply chain constraints. Our results were driven by relentless execution demonstrated by our teams, consistent investment in our brands, and accelerated digital transformation. In light of our continued momentum, we are raising the bottom end of our EBITDA growth guidance from 8% to 12% to 10% to 12%. Looking ahead to 2022, the current supply chain disruptions will result in higher input costs. We have a proven track record of operating effectively in inflationary environments around the world. We will continue to deliver on our best-in-class revenue management capabilities, while relying on the strength of our brand portfolio and enhanced digital capabilities to optimize our performance. In light of these cost headwinds, we continue to meet the moment, and we have already taken action with increased pricing in several markets. such as Brazil, Mexico, Colombia, China, and Nigeria, among others. Now, I would like to share some highlights from our key markets. In the US, both revenue and EBITDA grew by mid-single digits versus 2019. Compared to third quarter 2020, our top line declined by 80 bps this quarter. driven by a lower industry and supply chain disruptions, resulting in out-of-stocks. We remain focused on consistent execution of our commercial strategy and rebalancing our portfolio towards faster growing above core segments. In Mexico, we delivered high single-digit top line and mid-single-digit bottom line versus 2019. fueled by ongoing portfolio development, digital transformation, and continued channel expansion through OXO and Modelorama. Our BIS platform continues to expand, now comprising nearly 70% of our revenue. In Colombia, we delivered record volumes this quarter, growing top and bottom line ahead of pre-pandemic levels. Supported in part by our innovations Beer share of total alcohol increased by approximately 120 base points, year-to-date August versus the comparable period in 2019, resulting in the country's highest beer per capita consumption in 25 years. This now represents 85% of our revenue in Colombia, with an average NPS score of 56. In Brazil, we achieved all-time high rolling 12-month beer volume in third quarter 2021, growing volumes by 7.3% versus third quarter 2020, and by 35% versus third quarter 2019. We outperformed the industry for the fifth quarter in a row, according to our estimates. All segments of our beer portfolio grew by at least double digits versus the same period in 2019, with the premium and corpus segments leading the way. This now covers more than 85% of our active customers across the country. Our business in Europe grew revenue by low single digits and EBITDA by mid single digits versus the same period last year. supported by premiumization, operational efficiencies, and additional revenue management initiatives. As vaccination rates continue to increase in our key markets, and as the on-premise recovers, our performance is improving, driven by health distribution and market share gains for our portfolio. In South Africa, our business delivered volume growth in the mid-20s, versus third quarter 2020. Compared to third quarter 2019, even though there were 25 fewer trading days, our revenue declined by only low single digits, reflecting a strong underlying consumer demand for our products. In China, The implementation of COVID-19 restrictions led to a total industry decline of mid-single digits, according to our estimates. The restrictions disproportionately impacted our key regions, leading to a 7.1 volume decline. Nevertheless, the premiumization trend remains strong, as our super premium portfolio once again outperformed, led by double-digit growth of Blue Girl and Vulgarda. Moving on, let's discuss the key commercial and sustainability highlights from this quarter. We continue to develop a unique and diverse portfolio of brands to reach more consumers in more occasions. As you can see on slide 8, our mainstream brands grew revenue by 4%, gaining share of segment across most of our main markets. Our premium portfolio continued to lead the way, delivering over 11% revenue growth. Our Beyond Beer brands continued to add profitable growth, delivering $1.2 billion in revenue year-to-date. Diving a bit deeper into the performance of our global brands, The combined revenues of Budweiser, Stellar 2i and Corona grew by 5% globally and by 9.3% outside of the brand's home markets, where they typically command a premium price. Now, let me talk about innovation. Our innovations are meaningfully contributing to our results, making up approximately 10% of our revenue year-to-date. Based on the success of Brahma Duplo Malt in Brazil, we are expanding the double malt concept to more than 10 markets, including the launch of Castle Double Malt in South Africa this quarter. To address the global trends of health and wellness and moderation, we are developing a portfolio of differentiated offerings. We are seeding Michelob Ultra, our premium low-carb, low-calorie beer, in 10 markets. We are also enhancing our non-alcoholic portfolio by expanding Bud Zero to more than 10 markets by the end of the year. We continue to explore and innovate in beyond beer space. Michelob Ultra Hard Seltzer is leading the emerging seltzer segment in Mexico, with nearly 50% market share. In addition, Catwater continues to rapidly expand. growing triple digits in the U.S. We are also scaling the Mike Hart brand family to more than 15 markets this year. Now, I would like to talk about how we are transforming our business with technology. Our digital B2B sales platform, BIS, is enabling us to turn customer pain points into opportunities for growth. we are live in 13 markets with 2.1 million monthly active users with over $5.5 billion in gross merchandising value this quarter, demonstrating an accelerated growth trajectory in the past 12 months. To give you a deeper understanding of the value we are unlocking with our digital transformation, let me walk you through the journey in our BIS pilot market, the Dominican Republic. We chose the DR as the first market for a full rollout of our digital transformation, launching BIS in 2019. The DR is an ideal candidate to test and capture learnings to inform the global expansion of the platform. First, it is a market of relevant size. which would allow us to understand the potential impact of a full transformation. It is also a market where we have a significant presence with a high level of direct distribution, which facilitates rapid expansion and adoption. Lastly, it is a market with lower digital penetration and a high level of traditional trade. which would provide us with learnings on how to address perceived barriers to adoption. We have seen exciting results since we digitally transformed the market, with the platform unlocking incremental growth for our business and our customers. The digitization of our route to market enabled us to fully execute our commercial strategy. With this now making up over 90% of our revenue in DR, we are reaping the benefits of accelerated revenue growth versus historical levels. For these customers, particularly those that are fully engaged with our features offered in our platform, we see accelerated performance across several key metrics with higher revenue per order, higher delivery frequency, and more unique SKUs purchased when compared to 2019. We have now rolled out this to 13 countries in the last two years. and we are incorporating the learnings we have gained along the way to accelerate the digital transformation across our global footprint. Now, let me talk to you about another pillar of our digital transformation, our own direct-to-consumer business, which generated more than $1 billion in revenue year-to-date, and it is growing rapidly. The biggest contributor is our e-commerce platform, which grew by 90% year-to-date. In Latin America, we are building an omnichannel ecosystem with our e-commerce career platforms across more than 10 countries, leveraging a best-in-class physical presence with our retailers and brick-and-mortar direct-to-consumer businesses. In Europe, we are delivering a superior and unique at-home experience through in-home drafts and products on our e-stores, now delivering more than $100 million in revenue year-to-date. Now, let me change gears and talk about sustainability. I'm so proud of our journey and our team's in the way we are advancing our ambitious sustainability agenda. We are taking action to decarbonize our footprint. Earlier this year, we announced our first carbon-neutral brewery in Wuhan, China. This quarter, we achieved carbon neutrality for our second brewery and our first smokehouse in Brazil. As pioneers in sustainable brewing, We will continue to pursue innovation and partnerships in support of the transition to a low-carbon economy. Additionally, in September, at the 76th session of the United Nations Global Assembly, we were recognized as one of only 37 Global Compact Lead companies for our ongoing commitment to the UN Global Compact. It's 10 Principles for Responsible Business and the Related Sustainable Development Goals. Congratulations to our teams and partners for these important achievements that are driving our sustainability agenda forward. 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 $0.05 from $0.80 to $0.85. Normalized EBIT increased by $0.13 per share. In net finance costs, we recorded lower interest expense due to gross debt reduction, partially offset by other finance costs. We saw higher income tax expense due to increased profitability, country mix, and reduced benefits from tax attributes, worth $0.05 per share. We also recorded higher share of results from associates, worth $0.01 per share, and higher profit attributable to non-controlling interests, worth $0.10 per share. resulting from higher profits of our listed subsidiaries Budweiser, APEC, and Ambev, along with the issuance of a 49.9% minority stake in our U.S.-based metal container operations in December 2020. Moving on to slide 18, you see that our debt maturity profile is well distributed with no significant maturity over the next five years. Let's elaborate further on our debt portfolio shown on the previous slide. 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 52% denominated in US Dollars, 34% in Euro, and the remainder in currencies such as the Canadian Dollar, Palm Sterling, and Korean Won, diversifying our FX risk. The weighted average maturity of our debt portfolio is more than 16 years. We continue to have a very manageable weighted average coupon of approximately 4%. Now let's talk about capital allocation. Maximizing long-term value creation drives how we balance our four capital allocation priorities. Our top priority for the use of cash is to invest in our brands and to take full advantage of the organic growth opportunities in our business. Our optimal capital structure remains around a two times net debt to EBITDA ratio. With respect to M&A, we will always be ready to look at opportunities when and if they arise. This is subject to our strict financial discipline and the leveraging commitments. Finally, we aim to return excess cash to shareholders in the form of dividends and or share buybacks. However, In line with our financial discipline and the leveraging objectives, there will be no interim dividend. The Board's proposal with respect to a full-year 2021 dividend will be announced with our full-year 2021 results on February 24, 2022. I will now hand it back to Jesse so he can begin the Q&A session. Thank you.

Thank you. 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 comment, 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. We do ask that while you pose your question, you pick up your handset to provide optimal sound quality. Thank you. Our first question is coming from the line of Mitch Collette with Deutsche Bank. Please proceed with your question.

Good morning, Michelle. Good morning, Fernando. My first question is on pricing. Can you comment on the pricing environment in your key markets? You've been able to take up pricing in Brazil, for example, but perhaps you can tell us what you're expecting for pricing in F22. Secondly, I'd like to ask about your direct to consumer growth. I think the 50 million DTC orders you've achieved in the nine months implies 21 million in the third quarter or up 40% versus Q2. So can you comment on what's driving the acceleration and how you're benefiting from both the economics of DTC and the additional data it brings to the business?

Thank you. Good morning, everyone. Good afternoon. Thanks for the question, Mish. Michel speaking here. I think that taking on the first part of your question, the one related to price, what we see is input costs going up across the globe. I think that this is not new news. And we see that there is inflation picking up different levels across different markets as well. We continue to analyze everything and using our revenue management toolkits to in order to face this moment and make sure that we are planning accordingly and taking into consideration our overall business performance. In the markets where we already moved with price this year, some of them more than once, such as Brazil, we see that the inflation is picking up, so consumers and consumer demand remains strong. And we have other examples, such as Colombia, Mexico, Nigeria, China, where we are already on the move and taking actions. When we look forward, at this point, it's too early to see what's going to happen and how costs will be next year, commodities, and everything else. But we rely on the strength of our portfolio, best-in-class revenue management capabilities, as well as our enhanced digital capabilities to help us and support us in optimizing our business. Then moving on to the second question, direct to consumer, this has been a very important journey for us, very relevant in the way that we've been implementing our digital transformation, and perhaps one of the most important components of our current strategy. We've been seeing meaningful developments in the direct-to-consumer. COVID, as everybody talked about, accelerated a lot consumer behaviors in this front. We generated this year more than $1 billion in revenues. Huge presence for direct-to-consumer in Latin America. We are now in 10 countries with our Zed Delivery, our international courier platform, delivering beer in 30 minutes, cold to consumers, at great prices. And in Europe, we have a slightly different approach, also owned stores, but also doing perfect drafts, which has been helping us a lot to bring the draft experience to in-home. In the UK, for example, we have a huge base of in-home bars now that people are using with our perfect drafts. I think that the main mission on our direct-to-consumer is, in one hand, best-in-class consumer-centric experiences, but also gather more data, understand better occasions, and making sure that we are there when consumers need us. Brazil's delivery now covers more than 50% of the Brazilian population, more than 280 cities, and continues to expand very fast, not only Brazil, but also, as I said, in another 10 countries in Latin America. Thank you for the question.

Thank you.

Thank you. Our next question comes from Edward Mundy with Jefferies. Please proceed with your question.

Hi, Michelle. Hi, Fernando. Afternoon, morning, everyone. Two questions, please. You're 100 days into the role, and you highlighted in your presentation some of the things that are working well on the category development side and also through digital transformation. As you double down on these, to what extent do you think there'll be sustainable levers to growth beyond the current recovery period? And then my second question is, you know, coming back to COGS, you didn't really have the same digital capability last time the industry faced these COGS headwinds. How do your B2B and D2C assets make it easier to navigate a rising COGS environment?

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Hi, Ed. Michel here. Thanks for the question. I think that we were in mute before. Talking about the 100 days, I think that there is a lot to learn in 100 days. It goes by very fast. But when you are focused, at the same time, you can achieve a lot. I think that your question was more into the digital part, and we are doubling down on that. I think that on digital is, as I said on the last quarter, that is this concept of stepping stones, right? So we started this journey five, six years ago. and we knew that as we progress, we would be learning much more and we would be building momentum with the data that we gather, with the experiences, and with the learnings along the way. What is very relevant here is that this is a long-term investment, very strategic. We are doing first and foremost focusing on consumer and customers. On the consumer front, it's really about experiences and being there for consumers when they want us, on the occasions that they want, and making us more available in a broad range of occasions and tapping into the digital trends that consumers are really engaging with. On the B2B piece, This is a very interesting opportunity to digitize part of our context strategy, making sure that we learn more from our scale through data. And as we capture this data and we improve our execution capabilities, our overall strategy gets a much better execution because we free up time from our people, from our team, to focus on what matters the most, the premiumization of our portfolio, activation of our occasions and this unlocks new revenue streams for us and of course we have 13 countries now with this we continue to expand quickly in these countries we are going very deep 70 to more than 80 percent of our revenues now coming from this and the more we go the more we learn and the more we get further opportunities to continue to expand beyond only our own business. So we have examples of marketplace, we have examples of services, we have examples of credit. And when you think about COGS, how this digitalization of our route to market and route to consumer helps us, it gives us more information, better ability to forecast our own volumes, and how to adapt and adjust our supply chain to be more effective. So there is a lot of learning that we are building there, a very unique position, giving our size and our footprint. And this is also giving us better ability to utilize and maximize our revenue management strategy.

Thanks, Michel. And just coming back to your example on the Dominican Republic on slide 13, You showed that net revenue per delivery is also going up. Does it help from a pricing standpoint to have bees?

Yeah, the idea is, again, a very interesting market for us was the market where the team decided to take bees to full execution. The bees team did a great job there, understanding all consumer pain points, building up the technology, enhancing all the models that we had. I was in DR two weeks ago with the team reviewing everything and all the progress that we are making there. So we are showing here the beer-only revenues on the example, and you saw that there was an acceleration. This acceleration, of course, is a product of our entire commercial strategy, not only this, because there is more criminalization in the market, There is more innovation, there is more deliveries, and there is more availability. And this is helped and supported by this. On top of that, we also have now our marketplace there with this, so there is more revenue than the one that we put on this slide. And, of course, part of our overall strategy is revenue management, so this is Growth that we saw in the slide is the combination of volume growth plus revenue per hectolitre growth. And they are both enabled by this, but also by our overall commercial strategy that has premiumization, that has digitalization, that has a very strong execution in the marketplace.

Great. Thank you. Thank you.

Thank you. Our next question comes from Trevor Sterling with Bernstein. Please proceed with your question.

Hello, Michelle and Fernando. Two questions on my side. Michelle and Fernando, you increased your guidance today. I was just wondering if you wanted to highlight what went so well in the third quarter that gave you the confidence to increase the guidance. And the second question, I suppose, coming back to your first 100 days, Michelle, what do you think is the biggest changes you've made since you took over as CEO?

Thanks, Trevor. On the guidance, in the beginning of the year, we provide a guidance of an EBITDA growth of 8 to 12. Now we already have nine months behind us, so it's natural that we raise the bottom end of our guidance. Now we are at 10 to 12, and we continue to maintain that it's going to be 10 to 12, and our revenue is likely to grow ahead of EBITDA, which is going to be a health combination of volume and price. It's fair to say that our teams worldwide have been successfully navigating quite a complex environment with a customer and consumer-centric approach, and we are confident about the momentum of our business performance. So, as a consequence, we are raising the lower end of the guidance, and now we are at 10% to 12%.

Hi, Trevor. Michel here taking on the second question. part of your question related to the 100 days. As I said before, 100 days, they go by very fast, but focus always helps and takes you to execute and extract more on what you're doing. I think that the real deal on the 100 days so far was really talking to our team and listening from everybody. I'm very impressed and humbled by their passion and their execution and focus on what we need to do. I continue to learn over these 25 years and really our team has been teaching me and sharing a lot with me. So I shared with you before that my three focus as I got started was really about meet the moment and deliver a great 2021. make sure that we are very clear about what's working and therefore able to invest in and accelerate what's already working while building this extreme focus on being a sustainable leader with consistent financial performance. I think that I talked about this on the press release, so what I'm really trying to bring to the team here is a sense of simplicity and focus. and really focus on relentless execution, invest behind our brands, play to my strengths. I'm a marketeer by heart, and this is what I like doing, and accelerate our digital transformation. So those are the three points. So relentless execution, focus and investment behind our brands, and accelerate our digital transformation.

Thank you very much, gentlemen.

Thank you. Our next question is coming from the line of Sanjeev Allah with Credit Suisse. Please proceed with your question.

Hey, Michelle, Fernando. My question is really looking at many of your markets. Industry demand is well ahead of pre-pandemic levels, notably Colombia and Brazil. What do you think is driving that, and how sustainable is this? Do you think volumes can continue to grow on this new high base? Thank you.

Hi, Sanjit. Good afternoon. Michel speaking here. Thank you for the question. So I think that when you look at the market demand and the way that the category has been developing, I'm very glad to see markets such as Colombia, Brazil, Mexico. We talked about Canada industry growing in the last quarter, and I'm very excited with the category development. I'm even more excited when I think about Brazil and Colombia this quarter because it's really category growth, all-time high volumes. So we are unleashing the category growth. And we, ABI, we are leading this growth. So it's really innovation, the performance of our brands, the execution of our digital strategy in these two countries that has been bringing consumers to be closer to our brands. and therefore we are reaping the benefits of this category development. When you think about the long term, I think that in both countries and moreover across the globe, the category continues to have a lot of opportunities to develop And our learnings from the SAB model and everything that we've been building over the last five years and accelerating now with our ideas of what the category expansion model can do and be for us is very exciting. And beer is gaining share of growth globally this year. And I think that this is very good for the long-term prospects in the category. And in Brazil and in Colombia, it's about innovation. It's about an incredible execution for our teams in the two markets, and it's about the pace of our digital transformation.

Thank you. Our next question is coming from the line of Simon Hales with Citi. Please proceed with your question.

Thank you. Hi, Michelle. Hi, Fernando. Two for me as well, please. Michelle, you talked at the beginning about the pricing you've been taking of late and how there's probably going to be more to come as we look forward over the next few months. Some of your competitors have been highlighting that given the broader inflationary backdrop that's hitting consumers' pockets, that they've started to see some signs of a slowdown in some markets in terms of consumer offtake for beer. How do you think and how confident are you in the beer category's ability really to hold its fair share of the consumer's wallet against that inflationary backdrop as we look into 2022. And then secondly, on the U.S., how do you see the backdrop for the U.S. business as we look into Q4? You clearly had some out of stocks in Q3. Is that correcting itself or are ongoing glass and supply constraints likely to intensify from here into the year end?

Hi, Simon. Thank you for the questions. I think I got the two questions here. I will start with the first one on pricing and category elasticity. I think that the beer category globally has been proving to be very resilient. And I think that it's not resilient over the years, but throughout the pandemic, we saw that despite the fall, change and shifts in channel, lockdowns, the consumer demand was there and continues to be there. And the category continues to grow. And as I said before, gaining share of growth globally. I think that in key markets where we already got the price going, examples Brazil, China, Mexico, Colombia, the demand for our brands continue to be very resilient. And this has to do with all the investments that we've been doing in our brands and the number of consumers that love our brands this has to do with our execution so our teams have been working very hard and has to do as well with the ability to innovate and continue to support and drive the consumer demand i think that input costs they continue to be on the rise i don't think that we have all the data today to be quite honest with you on what's going to happen as all categories, as you said, are increasing prices, where inflation continues to pick up. But what we see as well is that there are like shortage in labor, salaries are going up, and consumer purchase power continues to be strong. So in facing this inflationary scenario, But at the same time, having consumer purchase power, we expect the category to continue to perform well. And on our side, which is very important, we continue to invest in our brands to drive consumer demand, innovation, and enhancing our digital capabilities. Moving then to the second topic, which is U.S., I think that we need to step back for a second. I know that you are doing this. And looking at last year, if we think about third quarter last year, was an amazing quarter for beer with industry growth. And we grew both top line and bottom line last year. As we cycled this third quarter, we were faced with tough comps, but also a lot of supply chain disruptions. The disruptions came most, as you just said now, from glass. There was two unfortunate events. One was the end of the winter storms in the south that just caused a big crunch in transportation, but also glass availability. And the second one is the well-known at this point cyber event that also cut in the north. of the u.s the supply chain availability so we had a lot of trouble together with the industry in the quarter three our positions in terms of inventory now are much better we are coming back to a much better supply for our wholesalers and, therefore, retailers. We are not over yet, but the position for the quarter four looks to be much better as we got started October. As a matter of fact, that's the end of September. And now our forecast with what we know now is that's going to be better for quarter four this year, quarter one next year. Thank you for the question. Thank you.

Thank you. Our next question is coming from the line of Olivier Nicolai with Goldman Sachs. Please proceed with your question.

Hi. Good morning, Michelle. Good morning, Fernando. Just one question, actually, on the U.S. and the hard sales category, which has been slowing down in the recent months. We've also seen a proliferation of brand and line extensions, not only from you, but also from many of your competitors. Now, do you expect this slowdown to be temporary? And do you think Korea could accelerate again? And also, what's your view on how Tesla outside of the US and thinking about Europe or Latin America? Thank you.

Hi, Olivier. Thank you for the question. So two parts here. The first one is in the US category. And I would like to go back to the answer that I just gave. And when we compare the last three months or the quarter three there was really this tough comp versus last year. And if we all just think about everything that we discussed last year, the U.S. had a very different behavior in terms of industry during the pandemic as compared as the rest of our markets, right? And this difference was driven by two things, I would say, many more, but two things. One is the difference in channels in the U.S., where the off-trade represents more than 80% of the category, and when you had all the lockdowns, the off-trade was open, and there was a lot of pantry loading. The second part was how quick the government reacted in the U.S. with the stimulus package, and then people had money, and they had the channels open, and they bought a lot of beer, a lot of products, so the industry in the u.s performed quite well during the pandemic so much so that even if this is low down in the quarter three the quarter three this year was above quarter three 2019 uh for the industry as well as for our top line and bottom line therefore i think that there was a tough count But the industry overall remains in good shape and the prospects under our view are very positive for the U.S. On the second part of your question, when we think about seltzers, I always go back to this point that seltzers and beyond beer are very good to the industry. And we see industries like the U.S. I always refer back to Canada as well that has a different beyond beer compositions than really seltzers. These industries, structurally, for a long time, they've been with slowdown, growing in revenue, but not in volumes. And in the last two years, they are growing. And they are growing because seltzer and beyond beer, they attract consumers from outside of the category. And more than 50% of growth of our beyond beer and seltzers, they are from wine and spirit occasions and consumers. Therefore, there is a lot of incrementality there. The manifestation of this beyond beer, it came across these markets in different shapes and forms, right? So it was first ciders, then seltzers, then ready-to-drink cocktails. In Canada, there is very strong ready-to-drink beverages, but also vodka seltzers. So this is good in transformation all the time, but what is true is that it's very incremental and we do have capabilities because of the packaging in which the Beyond Beer shows up, because of the channels, and because of our ability to constantly innovate. to take advantage of this, not only in North America, but also globally. We are very well-equipped as we expand beyond beer globally. Look at South Africa. the results of flying fish and brutal fruit death. Look at Mexico, how fast we are gaining share in the Beyond Beer. And then we continue to expand this in other markets. I think that seltzer and Beyond Beer will continue to grow in North America. Of course, we discussed this at the beginning of the year. We said that growth would be around 20% to 50%. As of today, growth is around 20%, the bottom end of what we said there. And we continue to grow 1.8 times what the category is growing. So happy. We continue to invest. We continue to innovate. And we are very excited with ready-to-drink cocktails. So Cutwater is expanding fast. Year-to-date, triple digit. Quarter three, triple digit. And we are investing fast. to continue to expand distribution, but also brand preference and growth. Thank you for the question.

Thank you very much.

Thank you. Our next question comes from the line of Celine Panutti with JP Morgan. Please proceed with your question.

Thank you very much. Good afternoon. Good morning, everyone. My first question is on growth margin. I saw that your growth margin was down, I think, about 130, 140 basis points in the quarter. Is it possible for you to give us a bit of the building block? Because I would presume you still had some mixed benefit, and obviously your pricing per hectolitre was as well better. So if you could help us there. And given, I appreciate you can't give an outlook for 2022 Romat inflation, but I I presume you probably have a view for the first half of the year. Does it mean that we should expect that kind of triple-digit growth margin pressure as we look into H1? And my second question is on innovation. So you said that innovation was 10% of your sales year-to-date. How do you define innovation like new product launch on what timeframe basis? And I saw that you have a plan, a lot of rollout, yet your SG&A in the quarter was flat. So what is the outlook for SG&A as we look into the next year? Thank you.

Thank you, Celine. Fernando here. On your gross margin question, I'm going back to our guidance. Our guidance would be to grow quickly. EBITDA 10% to 12%, and we were saying that our revenues would be growing ahead of our EBITDA. And the main reason for that, and we discussed that several times, is given the effects and commodity pressures that we have on our cost of goods sold, that will have an impact this year. On 2022, we are not giving any outlook yet, but what we... What we've been seeing is kind of the different forces, but Michelle commented about the input cost pressures. So they are here, they are real. On the other hand, we have a lot of other initiatives on our revenue management, on our digital capabilities, on innovations, to be able to manage through that. Okay. Any other questions on innovations? What innovation, how do we calculate innovation? innovation is new products that didn't exist over the last three years or 36 months. So that's how we define innovation on our numbers. And on SG&A? SG&A, no, we are not also giving outlook on SG&A. The only outlook that we are giving in our data is 10% to 12%.

Thank you.

Thank you. Our next question comes from the line of Nick Oliver with UBS. Please proceed with your question.

Hey, thank you for the questions. Two from my side as well. Firstly, on Brazil, if you could just share a bit more color on what appears to be a material outperformance in the market in Q3, at least versus the production data that we all tracked. And then secondly, a longer term question. I guess in the past, we tended to think about AB InBev as an EBITDA margin expansion story. Is it right to think more about the company now in dollar profit growth as opposed to purely BIPs margin, given some of the commodity pressures we've talked about and also some of the innovations, which I guess may be additive from a dollar basis, but not always from a percentage basis? Thank you.

Hi, Nick. Michel here. Thank you for the question. So starting with Brazil, I think that lots of things about Brazil, but maybe starting with one general concept, which is probably when we look at Brazil and our commercial strategy, the top line growth, Brazil is one of the countries in which our strategy is more developed and the implementation is well-advanced, from portfolio rebalance to innovation to digital transformation in the consumer end, but also in the retail end. We have a great team in Brazil. That execution is outstanding. And they've been pushing this wheel, this strategy, relentless. even in face of all the challenges that we had during the pandemic, prioritizing our people, our communities, and our business partners. I think that the story in Brazil, as you can see, is really a top-line-led recovery because there is a lot in effects and commodities, as Fernando was saying before, and three main points in Brazil, rebalancing the portfolio, reigniting and accelerating innovation, and digitizing our business in the consumer front, but also in the retail front. When we think about the margin question, I think that it's an excellent question because we have fundamental drivers that they give us the leading margins that we have in the industry. So the winning portfolio for brands that we have and the premium price that these brands command in each and every market. Our consumer-centric strategy and digitizing now our right route to consumer and our route to market, it only gives us enhanced capabilities to continue to drive our margins. Our leadership position in the key markets, very important industry profit pools. Our operational excellence, in the way that we manage our business, and most important of all, our ownership culture. When we think, though, about the long term and just think about this year, for example, our top line growing ahead of our bottom line is because there is a lot of growth that we are pursuing, and this growth can be incremental in terms of margins and cash flow generation. And therefore, we want to pursue growth. And I think that you are right when you say that the dollar growth is for us more important than only the margin growth. As a matter of fact, I always use like two examples to build on that. I think that one we just talked about beyond beer and cut water, for example. On a dollar per hectolitre, each and every case that we sell cut water has higher margins per hectolitre. But because there is a lot of costs that go in between the net revenue and the margin, and because we are still building scale on cut water, the percent of margin that you get on each case is not as good as a case of beer or a case of Bud Light in the U.S. But still, total margin, total product leader is very incremental. When you then deploy your full commercial strategy with the digital products that we have, example that I just gave in Dominican Republic, you can take a lot of examples where your margin is on a percentage base, much better, because it's a fixed cost, it's a service type of margin, you get more dollars and a lot of incremental margin from the digital products that you are offering. So the balance of everything is very hard to quantify on a short period of time. But the most important thing, I think, that you brought to point is how we are bringing incremental profits and incremental cash flow.

Great. That's super clear.

Thank you so much. Thank you.

Thank you. Our final question will come from the line of Rob Ottenstein with Evercore. Please proceed with your question.

Great. Thank you very much. When I look at the global beverage space, and particularly the global alcohol space, I don't think I can remember a time in which the valuations between the beer companies and the spirits companies has ever been this great. And certainly the Diageos and the Pernod's are fantastic companies. They're doing really well. But the valuation differences between them and, you know, yourselves and Heineken are really hard, you know, in my mind to kind of get around. And clearly the spirits companies are doing better in the U.S. You mentioned, though, you know, throughout the presentation that globally beer is gaining share of alcohol. So... Given the extreme disparities in valuation, can you talk a little bit about how that informs your strategy and maybe a little bit more details about what is going on around the world in terms of beers performance versus spirits and whether you see opportunities in the spirit space? Obviously, RTD is something you've mentioned. Thank you.

Robert, good morning, and thank you for the question. So I think that there is several pieces of the question I'll try to address in the sequence that you brought to us. But in terms of valuation, I'm not going to get too deep on that. I know that you all are much better than I am in the work of making the evaluation of the companies i think that there is a couple of points though that are very important for us to highlight here as i said before first i think that we all saw how resilient the beer category was over the pandemic and i think that this needs to bring us to reflect upon the way that we've been thinking and talking about the beer category And it's true when you look at data or monitor, we've been putting some data together because this data is not really available from one single source across all countries. But when you combine the different pieces of data, it's very interesting to see that despite of a narrative that I don't know how it was built out there, beer is gaining share of throat globally, right? And I think that is growing and it has a lot to do with illicit alcohol that is no longer growing or beer is capturing because of the moderation And because of the affordability, it has to do with the expansion of the category in some very important markets. You mentioned China, Colombia, Brazil, Mexico, as we just saw. And there is much more that we can continue to do. So I think that we learned from SAB the model of the category. But the model itself is just like a picture. The really important thing is how we are now activating the different elements of the category and innovating to drive growth. When you think even more mature markets, I think that this is good for us to remember always. You think about North America, US or Canada. You think about UK. Beer is growing since 2020, since 2019. And beer is growing by innovating. Beer is growing by tackling new occasions. and beer is growing by driving growth with the Beyond Beer. So this very important intersection between wine, hard liquor, and beer, where the Beyond Beer, the fourth category, as people call it here in the United States, is an incredible opportunity. It sources more than 50% of its growth from wine and from hard liquor. And because we are well-positioned with cans, with our production facilities and with innovation to drive growth in this space, we can continue to drive the category forward and we can take these learnings down to developing and emerging markets and drive further growth in markets such as Brazil, Mexico, Colombia, South Africa. We've been using a lot of data to drive this growth. We've been digitizing our route to market and our route to consumer to understand better not only the points of sales, but also the consumer occasions. And I believe that we are very well positioned as ABI to lead this next wave and to continue to lead the beer category to a better momentum and to further growth. And we see this. I will not take this lightly, but record volumes in Brazil record per capita consumption in Colombia. Those are not small markets. Those are very relevant markets where we've been proving that, yes, we can do it, we can premiumize, we can innovate, and we can lead the category. So I'm very excited with that.

Thank you. Thank you.

Thanks for the question.

Thank you. This was the final question. If your question has not been answered, please feel free to contact the Investor Relations team. I will now turn the floor back over to Michel Doukeres for closing remarks.

Thank you, Jess, and thank you all for your questions. To wrap up, we are staying focused on meeting the moment and delivering a great 2021. We continue to build on our momentum by investing in and accelerating what's already working and focusing on our consumer and customer-centric mindset to drive long-term value creation. I would like to invite everyone to join our Capital Markets Day, which will take place virtually on December 6th. Additional details and links to register will be available on our website in due course. Finally, I would like to take the opportunity here to thank and express my gratitude to our 164,000 colleagues globally for their continued execution, passion, and ownership. Thank you all for your time today and for your ongoing partnership and support of our business. Please stay safe and well, and I'm looking forward to talk to you soon. Thank you.

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