Q2 2020 Anheuser Busch Inbev NV Earnings Call
[music].
Welcome to the Anheuser Busch Inbev second quarter, 2020 earnings conference call and webcast.
Hosting the call today from a band that I'm Mr., Carlos Brito, Chief Executive Officer, and Mr., Fernando Tennenbaum, Chief Financial Officer.
To access the slides accompanying today's call. Please visit <unk> AB Inbev website at Www Dot AB dash in bed dot com and click on investors tab and the reports I'm result Center page.
Today's webcast will be available for on demand play back later today.
At this time, all participants have been placed in listen only mode and the floor will be open for your questions. Following the presentation.
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Some of the information provided during the conference call may contain statements a 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 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 future results see risk factors and the company's latest annual report on form 20-F, all with the Securities and Exchange Commission on the 23rd of March 2020.
AB Inbev assumes no obligation to update or revise any forward looking information provided during the conference call I shall not be liable for any action taken them reliance upon such information.
It's now my pleasure to turn the floor over to Mr. Carlos Brito, Sir you may begin.
I think your Maria and good morning, good afternoon, everyone.
Welcome towards second quarter, now, you're doing 20 or news cool.
Okay film was safe and well.
First and foremost would like to extend or need to sympathy remember one has been affected by Cougar 19.
I wouldn't expressed versus your gratitude to goes on to Portland, where their commitment to keep you see particularly healthcare workers.
Well Mark Olson through personally think over colleagues for their dedication and efforts to ensure a business continuity in a true recovery.
The goal remains sympathetic who voted life as we know it.
However, it has not changed or purpose, a baby back to bringing people together for a better world, even if it being together.
Much different though.
Today I'll start by discussing this should goods, we have implemented to ensure the hilton food fewer people.
The communities and we we are brand.
Next.
Oh reviewing the results of the second quarter and this goes to ways in which we're positioned for strong recovery I.
I will then handed over to remember to talk about our financial <unk>.
Well then be happy to answer your questions.
Hello, if you're more people has been and always will be or top reward.
It was more college returned to the workplace markets were restrictions are being lifted wherever implemented rigorous safety measures such as true sanitation <unk> <unk>.
Let's keep capacity in social business in guidelines.
Tracking and personal protective equipment.
Oh products are almost entirely source group and enjoy locally because deeply connected to the communities in which we operate.
We're working closely with local governments and other stakeholders to leverage our scale capabilities and resources to support the fight against the pandemic. It's a dual port did the economic recovery.
Example, we leverage our facilities to producing grenade millions of units of hand, sanitizer based fuels and package water.
We also helped build public health care facilities in Mexico, Colombia, Brazil, Peru.
Our customers have also been severely impacted by the pandemic, particularly on the on premise for our own Perelman's partners.
We're working closely with them through a variety of programs to support business continuity and its strong recovery.
The success of these endeavors.
The rep mobilization and creativity of our teams <unk>.
There's been encouraging them humbling to see that this programs were making a difference, especially through recognitions received.
It's just the United Nations Solidarity award for our initiatives in Brazil.
Let me know spend some time discussed here a second quarter results.
Oh performance in the second quarter was materially impacted by the Cobiz 19 pandemic as expected.
Oh volumes declined by 17.1% with on beer volumes down, 17.2% and on beer volumes down 15.5%.
It's important progress we saw considerable improvement month over month.
In April or volumes declined by 32.4%.
He made the train the trend improved we could decline of 21.4% and in June we delivered one girls <unk>, 0.7%.
We came out of the quarter with reports confidence in the resilience of our business and the global beer category.
Revenue declined by 17.7%, mainly driven by the decline you volume.
Rather park would have declined by 8.6% a successful revenue management initiatives, where more than offset by the change in channel and packaging mix, resulting from the Colgate 19 restrictions.
Our global brands declined by 14.5% and by 14.1% outside of the whole markets.
Slightly outperforming the total business, but heavily impacted by their exposure to the on premise channel.
EBITDA declined by 34.1% with margin contraction of 825 bips to 33.2%.
More than two stewards of the car sales Brac litter increase that contributed to margin contraction was driven by the operational de leverage resulting from lower volumes, especially in the beginning of the quarter.
As always efficiently utilize your resources as part of our DNA in a critical driver of our industry leading profitability.
We implemented several measures to reduce or eliminate discretionary spending which helped offset the impact of the topline decline and operational de leverage.
Normalized dps decreased to 46 cents, well underlying NPS decreased to 40 cents.
Net debt to normalized EBITDA as of June Thirtyth was four point 86 times.
Back to buy the Colgate 19 pandemic and will result in the seasonality of our cash flows which are typically weighted toward the second half of the year.
The leveraging to around two times remains our commitment it will prioritize debt repayment in order to meet this objective.
The trajectory of our performance improved as the second quarter progressed.
This was the result of being able to resume operations in markets, such as Mexico, South Africa in Peru.
The ongoing resilience of the off premise channel into continue reopening of the on premise.
Channel around the world.
We're excited about the return of on premise consumption occasions, well remain cautious as we're now seeing renewed shutdowns of this channels in certain markets.
In addition, South Africa implemented the second ban on the sale of local beverages in mid July which will impact the results in the third quarter.
Let me not thinking through the key takeaways for some of our main markets into second quarter.
In the U.S. to continued implementation of our commercial strategy led to a healthy performance within estimated stable market share for the quarter.
Oh, we're above core portfolio continued to outperform the industry supported by the continued success, the but let's sell through in Michelob Ultra.
We also saw an improved performance into mainstream segment largely due to the uplift abuse sales in the off premise channel which benefits.
Yeah, I wish Brad and larger pack.
In Mexico or be operations face the shutdown in April and May.
The restrictions are lifted at the beginning of June and we recovered rapidly delivery beer volume growth of high team in the month in outperforming the industry in the quarter.
In addition, our portfolio brands became available in 1600 more OXXO stores in July.
We remain excited about the long term growth potential incrementality of this opportunity.
In Colombia outperformance was significantly impacted by the closure of the on premise channel and stay at home restrictions.
However, our team managed to offset some of this impact my quickly pivoting resources to new in home occasion consumption occasions.
We're focused on growing dislocations was supporting their recovery of our on premise customers.
With initiatives, such as Canada, Sitka in online delivery platform.
And our recently launched proprietary digital beat to be platform called <unk>.
In Brazil or be a business delivered a healthy performance in the context of a volatile environment with only a slight volume decline that outperformed the industry. According to our estimates.
We saw an improving trend throughout the quarter driven by the success of our enhanced brand portfolio with innovations like Brahma do promotion in our ability to connect with our customers in consumers in new ways by leveraging technology.
In South Africa, or a business was significantly impacted by the complete ban on the sale of local beverages, which lasted into the end of May.
We're able to fully resumed our operations in June and we saw strong recovery in the month with volume growth of high single digits.
However, a second ban on the sale of all cold beverages was implemented in mid July.
Our priority is and continues to be the safety in welding of our people in our communities.
We remain focused on working with the government measures that were meaningfully combat the public health crisis, while supporting the country's much needed economic recovery.
Our business in China continues its recovery throughout the quarter.
Well, we've faced a 17% declining volumes in April we achieved mid single digit growth in May and June.
With our June performance, representing our highest ever mostly volumes in the country.
We saw improving trends into reopening rates across channels as well as accelerating growth in ecommerce, what we have grown our market share to more than twice that of the next brewer.
In Europe, our performance was heavily impacted by on premises restrictions.
However was saw a gradual reopening of the channel throughout the quarter, resulting in an improving volume trend.
We continue to gain market share across almost all of our markets.
Reported by the strength of or premium brands.
Well the past few months I've been challenging they've also reinforce our confidence in the strength of the beauty category in our business.
This is evidenced by the rapid improvement of our performance in many markets throughout the second quarter supported by strong consumer demand in both developed and emerging markets.
In emerging markets favorable demographic and economic trends provides a structural tailwinds to.
To drive long term category growth for example, the legal drinking age population in Africa is expected to grow by 30% in the next 10 years.
The table on the left side. The slide 811 chose the difference in per capita consumption to mature versus emerging markets.
This represents a significant potential volume opportunity in emerging markets of approximately 2.3 2.3 billion hectoliters.
We have structured our geographic footprint to provide ample exposure to emerging markets that are expected to drive future growth.
In addition, we maintain its trunk presence in developed markets that your rate robust cash flow.
It's continued growth opportunities from criminalization and innovation.
We believe Premiumization will remain an important source of top and bottom line growth.
In both developed and emerging markets.
Gears a category is still in its early stages of Criminalisation, even in developed markets when compared to other uncle categories.
We're all well positioned to capture this growth opportunity as the number one player in the premium segment in many of our key markets.
We have also been investing ahead of occur in the premium segment through the high end company.
Dedicated business units with the specialized focus and structure to grow our portfolio of global local in specialty premium brands.
Behind companies the proven model, having gained more than 12 percentage points of market share the premium segment over the last three years in the markets where it operates.
We're confident that we have the right brand portfolio structure to continue capitalizing on the growing premiumization trend across our footprint.
In order to fully benefit from this growth opportunities in the beer category, we've been investing capabilities to better connect with our customers and consumers.
Growing trends such as digital sales E commerce, and online marketing a more relevant than ever before.
Yeah in had rapidly accelerated in recent months.
We have spent the seven that's several years building our proprietary beat to be sales platform called <unk>.
These combines our unparalleled global logistics system with our intermodal digital capabilities to provide our customers with a truly end to end experience.
We have put an important emphasis on this platform over the last several months, helping our teams state irregular contact with our customers even when in person interactions are not possible. It by providing a valuable source of data when emergent consumer and customer trends.
We believe there are a bit to be initiatives at the power transformer business and drive growth.
But that reason, we recently restructured or a senior leadership team to create the fully dedicated chief B to B officer.
Elite and develop or global strategy.
Ecommerce has been a growing channel for the beer category for several years in the recent situation has rapidly accelerated consumer adoption of this trend.
We're seeing strong growth in both our direct consumer platform and through a partnerships with major global online retailers homes, and third party ecommerce, including more than 20 direct to consumer ventures globally, our positioning us to lead online sales.
In the first half of the year, we increased our market share of online sales.
In addition in response to current the current crisis, we rapidly develop new proprietary direct consumer platforms to help our customers serve consumers in new ways to.
Great Examples Tim the Sitka, a free online delivery service. That's now in used by approximately 400000 neighborhoods shops in eight markets in Latin America.
Our teams have also found innovative ways to connect with consumers while they stayed home.
In Brazil, we launched a livestream concert series called lives, which activates several of the top brands innovations in our portfolio.
The platform is tremendous reach across the country with more than 675 million views into quarter two.
But this is perspective, there's approximately 57% more views generated then the 20 team FIFA World Cup final in Brazil.
In addition, we continue to leverage our sponsorship assets in you in creative ways.
UK otherwise just celebrated the return of the English Premier League by offering fans the opportunity to cheer for their favorite teams on billboards, giving them a safe way to demonstrate their support.
In summary, we believe we're well positioned for a strong recovery, even though we remain cautious in the current environment, given the volatility and uncertainty uncertainty presented by the code we had 19 pandemic.
We are proud leaders.
Of the global beer category, which continues to show tremendous resilience.
We have a diverse geographic footprint with the strong presence in emerging markets that are expected to drive long term growth.
Realization offers an exciting opportunity to grow our top and bottom line.
In both the margin amateur markets and we have of winning structure to capitalize on this on on this through the high end company.
Furthermore, our significant progress in investment in capabilities, such as beat to de sales E Commerce and direct consumer Martin put us in an advantage position to capture growth from this trends.
Most importantly, we have a strong team of talented people with an ownership mindset the leverage those assets as we look forward to a strong recovery.
Now I'd like to handed over to frame and then other please.
Thank you Brito.
Good morning, adopting them after one I hope you all safe and well.
Moving to second quarter, we reported up 2.5 billion dollar noncash wouldn't really fetterman charge.
The core 19 Sunday, making resulted in a shot congressional sales in many countries and reach or predict.
We best fought concluded that the triggering events occurred which required us to perform any impediments tests.
Same fetterman Beth considered to be sent out as far the quality of sales for the fastest cashing that 18, when it's a base case, we changing to me the most likely case I best case, and a worst case.
These are the results of things that amount that we concluded that no impediments wasn't water under the base case, and the best case and others.
Nevertheless, under the worst case scenario right with higher discount rates to effectively Heikkinen uses risks. We concluded that they asked you masonry coveted amounts office solid I'll pick up and the rest of Pasco cash at 18, when it's well below their carrying effect.
Accordingly, we determined that it was little dense and if you off the uncertainties regarding settlement charge of 2.5 dollars a blast 30% to put about beautiful currents off the worst case scenario.
This was partially offset by a 1.9 billion dollar gain on disposal Australia locations.
Now I'd like to discuss the initiatives would have undertaking to one thing is strong liquidity, while proactively managing our that's profile.
Yeah, Washington is here.
He 19th and then it can be gains will have a global impact, resulting setomatic volatility and assistant.
As a result, we quickly took significant and prudent actions to further strengthen our liquidity position.
Moving drawing down our $49 revolving credit facility what else yes.
And issuing approximately $11 billion basketballs.
On June 1st we successfully completing the sale of our Australian munis for approximately $10.8 billion.
Following the completion of this transaction, we repaid though it is yes meaningful.
At the end of the second of what our thoughts on liquidity position I'm, all set to more than $35 billion.
Assisting often 90 billion dollar and draw us, yes, and more than $25 billion off cash.
He's cash about us wouldn't be sufficient to cover our debt maturities through 2024.
Yes, it quickly hour plus higher than when you're quite a dramatic I wouldn't be this even in times of elevated will not change.
Therefore, what it is a mouse we complete attended office for approximately $3 billion off the bones and I'll sit make homes on $1.7 billion involves all of for each one of my swing between 2021 after thousands or anything.
Well once you have to proactively manage our upcoming lab units as we monitor the evolving marketing environments.
I would if they fit both my thought is profile is shown on his lifeway.
Our my thoughts on well distributed across the next several years weve, each and all mctwist, our well below Walker [laughter] position.
Yeah, Jason the redemption that transactions into thinking gizmos had considerably reduced our obligations for the next three years.
As a reminder, we do not have any financial covenants on our side that's portfolio, including all of US yes.
Our bond portfolio remains largely insulated from interest rate volatility as approximately 95% holds a fix generators.
Furthermore, the portfolio is comprised it off and diverse mix of currencies were 64 cents denominated in us dollars and 30% any of them.
Our weighted I've asked them up to what it she is roughly 15 years.
We have a weighted average coupon rate of approximately 44 cents.
I will now take you through our Colocations highlights.
The first priority for the use of cash extreme invested behind our brands and just take full advantage of organic growth opportunities in our business.
Exactly the 11 to control around interest times net debt to EBITDA ratio remains our commitment and we were very tight definitely payment in order to me its objectives.
But if we spectrum in eight we will always be ready to look at opportunities when and if they are right.
Subject to all at a strict financial discipline and television commitments.
Our first priority, which is returning excess cash to shareholders in the form of dividends and all share buybacks.
Which didnt being said, we must continue to exercise who didn't measures during times of some certainty and if we're not changing including efficient management of discretionary expenses, especially those which may not prove effective in the correcting violence.
And with that I'll hand, Vectren Medea should begin to Q any session.
Thank you Sir the floor is now open for questions in the interest of time, there's a limit participants to one question and one follow up question.
Again, if you have a question or comment please press star one on your Touchtone phone.
If at any point. Your question has been answered you never moved yourself from the Q by pressing the town key.
We do ask somebody you pose your question you pick up your handset <unk> optimal sound quality.
Our first question comes from line as Trevor Stirling with Bernstein.
Hi, good morning, but that's a good afternoon pursuant Fernando.
Two questions My side. Please the first one brito. It you reflect the leads results what is being the biggest positive surprise that's come out of this it ticky compared to where we glass talked in May and the second follow up question, you're in Brazil, with great topline performance in Brazil, particularly on beer side, but use kt suffered the margins from operating de leverage on.
Negative channel mix, if we had a normal course or whatever normal quarterly is there any reason why that margin wouldn't reverse.
Oh, Hi, Trevor I think the positive surprise for US, though was twofold first time in.
Our people I think they prepared really well for a strong recovery.
And they kept the business running in most places that an amazing you know degree of flexibility and ingenuity and tried to always see the positive side of things and also protect or people along the way as a top priority, but that wasn't my first surprise that we're able to pivot and be agile as consumers.
When different places different channels different bags, and we have a mentioned the company that we have to go where consumers go because that's where growth is.
So that was my biggest surprising they'll doesn't surprise was the week consumers adapting to a new reality during the locked down and stay at home.
Measures the occasions migrated to the home.
Consumers, we're able to quickly adopt their way of life and they found new channels to buy a products and to entertain we also help them by offering live streaming my offering with our technology. The b to B would be to see better thing the D to C.
Technologies that we have been investing for five years. They went through the roof in terms of adoption. Just so you have an idea.
Our D to C platform in Brazil called their delivery.
In the month of May in again in the months the June they have more orders.
With beer to be the liver at home in less than in our normally 40 minutes cold.
Then they had in the whole year 2019.
They had the whole year 2018 more than that in May and then again more than made in more than 19 in June.
That was a positive surprise.
I think it jumps in Brazil topline.
In margin.
What are what we need to understand is that the margin structure in Brazil like in many places all.
You know messed up because of all the different things that have rights in terms of.
Of you know channel mix back mix everything right, so, but we look at Brazil in a normal quarter I would say that there are some interesting things.
I mean first bought a recovery has a big impact on margin because let's remember a lot of our margin compression this quarter in Brazil was because of a volume deleverage. So the fact that volumes could recover faster.
That could be a big plus another one is doing trade reopening.
With the old trade reopening, we'll have two things going in favor of higher margins first the returnable glass bottle that pretty much cease to exist you know a mix because the on trade was closed will go back and premium products. The very also skewed towards the on freight.
So those are two margin enhancing.
ER levers the second one is that the core plugs in Premiumization strategy remains very live with a new innovations on portfolio continues to be more more interesting to consumers.
And again, we continue to dislocate resources or put more resources behind a corp was like Bromo dupilumab countries like that's like a premiumization portfolio quarter on a but.
You know Stella Hoegaarden and the local specialties like a way in the like ER Colorado's fund in lots of things going on there and when consumers are bad foreign trade them more of a new normal that's another thing to increase margins and the other one is continued innovation.
Well the past two years.
As John John our CEO of Ambev arrived from China in Brazil, two years ago, and now as CEO of them that operation. He came with two or three things that are really important at that time for the breezing operation. The first one you mentioned that in China is so much the day to day of our business in Brazil, not so much so now.
Innovations, becoming like table Stakes for eyes in Brazil, and bring multiple marches scope. Your model does seem to proving that backs and all that.
Second thing he came with this idea that technology could play a much bigger role in our business, especially in the consumer side because in China does much bigger than the rest of the world and again when you look at their delivery. That's also something that T X that invested but he took ownership of that and a good that big time.
In the third one is agility doing everything is it said in a very fast way, which is again, China. They try and style. So I think those are all things that when the new normal sets in those old drivers for enhance margins. Thank you.
Our next question comes from.
Our next question comes from the line of Robert Ottenstein of Evercore ISI.
Great. Thank you very much.
You are too if you could address I'm sort of two related things one kind of the U.S. results that were very strong and tied to that was with spikes seltzer. So you know it first if you could talk about how you were able to you know keep market share a flat which is the best.
Last result really in memory.
In the U.S., given the incredible growth Oh flight claw and truly.
So that's that's quite an accomplishment.
And then second as you look at Spike self service, both in the U.S. and internationally.
Hi, how much market share in Spike Seltzer do you need in the U.S. to offset any general industry substitution and <unk> and related to that or not you know what do you see the international potential to be for Spike Seltzer.
I know, there's a lot there but important questions. Thank you.
Thank Robert So first thing I mean, we're very happy with our market share performance in the quarter ending the year and this comes not by accident. There's the commercial strategy that Michelle put in place two years ago. There was very clear units five drivers.
It's beginning to bear fruits more and more but if you look into Q2 quarter to market sure. There were three drivers for the flat share performance, which is great first the mainstream brands, but Bud light natural bush perform much better. So that's something that's one thing the second one is the corp.
Lets segments.
We'll speak a little more true that continues to perform amazingly well and the third one is the Bud lights on Michelob Ultra.
Michelob Ultra continues to perform ahead of expectations going 23% versus last year.
It's the number one facet shared gaining beer excluding sensors to continue that long term trend of being the number one facet share growth within beer also it became now a sizable Brent. So this 23% is off of a very big base. So today. According to our right Michelob Ultra is.
The number two beard.
In terms of dollar sales.
In the beer category.
Only having bud light ahead of it so.
So in terms of dollar sits Bud light and then Michelob Ultra ahead of the older out a light compared to Brent.
So any sell sure we grew 600% this quarter once again to.
We're category that grew 300%.
So what like doing very well, we doubled the share of or sell sure a portfolio this quarter compared to last quarter year on year I mean, you in your comparison.
So we'll continue to grow cells and the good thing Robert themselves or is that today, our variety bad so what like Seltzer has the same rate of sales as the two leading brands into cells. The category the same rate of sales as.
The two leading brands into cells the category for the variety pack, so and that is greatest sales that increase from first quarter two second quarter.
I can sell for doing very well very profitable and you're right. I mean, we're beginning to look at already not begin you already running pilots in countries around the world because we see that would sell for offers which is low carb slow calories.
More coed waivers less bloating bizarre things that are occurring consumers fights, mostly more developed markets are also there for the take.
So given our global footprint and scale would love to market and consumer insights and goes on.
Thank you.
Our next.
I've credit Suisse.
[noise] I haven't feature I, just love to understand the ER the dynamics in Brazil, and little bit better seems like it was an impressive performance in May and June.
Can you just talk a bit about.
The competitive landscape over that period.
And and is there any difference between selling and sell outs in Brazil. The spirit. Thank you.
Well since you have in terms of the competitive environment as we know Brazil has always been a very competitive marketplace.
Advantage isn't the way we are structured any investments would put in place dream Covis.
For example.
A lot of there are a lot of the share again.
We had in Brazil.
So in the sense of.
As being.
Outperforming the industry had to do with a couple of things first time and we have.
70% of our distribution is you know enhance so you know that means that we have.
A seamless you know contact between the brewer in our direct distribution operations.
Second our Oh innovation did very well right. So our innovations that very well with minimal do promotions and things like that that performed very well like backs as well.
I think about Brahma too much has been amazing innovation was launched this year, but with coated with the light Feeney that we're doing for consumers, but all of the Dupilumab because the me closer and that also brought awareness Brent.
So another thing we have is that we decided to really serve as the the smaller blocks.
More and more we'll have more of a stronghold where a lot of consumers were migrating towards because there were buying within their neighbors [noise].
Hi.
Also focus on the consumer.
And things that since was done in the last few years in terms of.
Technology platforms for B to B to C.
Uhhuh S. explanation release I'll give you a couple of examples so I need to see business like I said deliveries we had.
In a in the quarters, we had 5.5 million orders and that's more than three and a half times last years, well month number of orders.
So bringing that some more details in may we had around 2 million orders and in the last year.
For the whole 12 months, we had 1.8 lead into orders. So in one month, we had more than the whole year NAS last year ending June we have horns in June.
In June who have more than maintains a warriors, who consume is really adopted the contact was delivery options that we had been is asking for five years.
So in the beat to be App was also adopted because we have when pops word lots down in our sales rep could not visit them. She had many points the topic with them, we have telesales, where more and more I'll need to be athletes, which is in that phase.
Ordering system in all the the adoption rate for this new technologies, the b to B assets when.
Sky High.
So I mean, a lot of the things that we have been he's asking to five years. Prior really [laughter]. You know went up big time, it became very relevant for customers and consumers plus the innovation loved the 70% more volume that is done for all distribution system and also the second we're close to consumers giving them.
The team at home with our lives.
It had close to 700 million views, which is more than 50% of the woke up between 18 fine in Brazil and into Brazil before crazy about sockets. So there's there's some things in the competitive environment and how we responded to it and why were performed better than the industry you know asking.
Thanks, and they say any difference between selling and sell out over the period in Brazil.
Well, what we saw is that a the because you know the the off I mean, the on premise was pretty much shut down maybe restrictions. So everything was the off trade.
Jobs trade everything that was coming in was going out because again it was the only China for people to buy beer.
So again in the second quarter of volumes that a slight decline of 1.3%, but as these sure. That's the months were much better from April to June and does outperformed the industry. According to our assets.
Thank you.
Our next question comes from the line of James has what Jones as RBC.
This morning too.
You talked a lot in the statement about E commerce and a so called besides your life, but could you maybe put some numbers around that so they're sort of in some sort of context, but also a contrast trouble and understood about the pet tools are you happy enough cash as very sustainable Truteam trash sounds Twentytwenty school.
Yeah sure. So in terms of a ecommerce I'll give you just a three examples.
In Europe, our proprietary ecommerce platforms and we have both a web to one of the UK one in continental Europe, the double their volume during coherent they continue to grow.
In China.
Our our one Mccormack said has always been stronger.
Grew at a very accelerated pace and today, we have double we lead the segment in terms of your sales than we have doubled the share of the next brewer.
So that's another touch point any in Brazil said before I'll direct consumer is part of the Congress world because it connects consumers of delivering viewed through a home in less than an hour norm normally 40 minutes cooled then we invested five years ago. It was growing growing growing.
In May and June we sold more than the full of last year in both me and then again in June.
So this is just to give you an idea of all of this platforms really that the axes acid five years ago are now totally inch on trend and is providing has a big led up our competitors because of that.
In the second question sorry.
Right. So what would you tell us what proportion yourselves up from E commerce, well, it's too small, but Ah we don't have a number at this point because if we feel that the sports competitive since the but small but growing very fast.
Let me now sitting down to address your second question.
Hi, James.
On the degree to these what I, what I mentioned during my opening remarks is that the given all that further measures that we talked to address our liquidity.
I would in a position data we have enough cash on hand.
Pretty good cachexia cash on their balance sheets.
They do my students throughout 2024.
Even that that that is level liquidity is even higher than it would require you know even enough what I'm, having a vital meant like we're seeing now that's why we've been doing this bond redemptions and make wholes to make sure to read so it'll be today, the cash balance and also reducing their shocked and you're starting landlords.
Thank you very much.
Our next question comes from a lot of Christian Van strain I've had been partners.
[laughter] Hey, guys.
I I'm very worried about South Africa on multiple levels, but you know you say you're working with the government.
But when I look from the outside so when I speak to other guys in the alcohol industry in South Africa. It does not appear to be the case, you get better groups like the taxi industry much more powerful.
So can you maybe give a bit more detail a bit more comfort that you are on Tom said that that your corporate affairs, it's from it's capable.
To deal with the situation.
And actually related to that as a follow up what this is also mean for years I'd like program because when I look at its half these travel nurse that.
They supposed to be supporting.
Or engaging won't exist at this rate by the time it'd be bans lifted.
Thanks.
Well a couple of things for some first in South Africa. It was very unfortunate, though we had a second bench.
We're working to to the government will have access to governments. So they will talk to us.
We have also put some oh, we also try to help the community first and foremost first of all employees make sure they're safe or colleagues, but second a wheel.
More involved as time goes by with the trying to do more and more for the committed to sort of think that's important as well.
And tried to showed that there was a whole part of the economy, that's connected to our business.
<unk> smallholder farmers.
To taverns to our people to tax collections that we do.
Who retailers that depends on our business.
And what happens is that when you have when do you have a dry long like are already or do you have them abandoned Alco a lot of a very sad.
You know side effects starts happening right. So really goal cobalt goes up big time.
Smuggling.
ER criminal organization start again on beer in terms of smuggling we've seen that in Mexico. For example, during two months of like down the same happened in South Africa was for the same during the first like down now we think we'll see the same in that second in the second uncle Dan.
We continue to succeed the garden.
To show that we can be part of the solution.
And that some of the conclusions they had in terms of all cool, causing some issues where misled because when we look at the documents. We can see that what you see is that when people have curfews and they are locked in their homes.
Yes, there are no there's no crime, there's nothing that there's no traffic accidents, because nobody is moving to happen no matter what.
It's a whole with alcohol.
We're not saying, they're not overconsumption, sometimes we're not saying that but there's no into medical records that we examine and there's no reference to all cool, causing or being the main driver for unions. This thing sort of think we see also in terms of domestic violence in which in South Africa is a is an issue.
Is that thing in other countries, even without it with alcohol Ben domestic violence increase when people are forced to staying close quarters. We're a long period of time with new jobs and no income.
So again, we think that we'll continue to work in South Africa hard to say now when this thing will be lifted, but we continue to work with them. When you reasons now the question we.
The you know we have agreed already with them on the payout.
And we're very connected to our customers to make sure they come back to business.
Because they are an integral part of our ecosystem.
We're doing that in many countries, we do that in Europe in the Americas, we do that and in Africa, as well who were trying to help them credits with assortment. So they can come back to business because it's important not only for the communities because of all the jobs and families. The feminist but also because of the way.
Together products to consumers. So we're very well you know very connected to.
Trying to get them back to business as soon as possibly.
[noise]. Thank you if the shape of the answer.
Thank you trust.
Our next question comes from on assignment Hills a city.
Oh, Thank you a more especially when it's not the couple of quick ones for me. They told me could you talk a little bit more about the the exit rate for the group in choosing clean.
It's like a you know in the statement that tilts. The two numbers benefited a little bits and the replenishment or that you sold in South Africa, and and Mexico.
She was going to what the real real underlying exit rate.
As of June next those effects and what's the weather or any other markets, where there's a little bit more replenishment, perhaps in the June period, perhaps fluttering exit rates a little bit.
Then secondly, I wish I could just talk a little bit about sort of the recent trading backdrop.
The U.S., we've clearly seen some of your competitors suffering perhaps a number of out of stocks on brands impacts I believe from your standpoint, you would be much better prepared from a supply chain.
So the standpoints can can you just confirm that's the case and what you're seeing really please.
Well I chose them out of stocks. It took on a hard for us to talk about competitors because we we only see what we see in the marketplace and they think the the biggest one there as to what we hear from our customers right. Our customers are telling I was there a service level.
It's better than some others.
During the month of June leading into the fourth of July. So that's good to see that we'd better shape, but there's still lots to do our supply chain is also stretch like everybody else I think we haven't advantage because michelle and his team in the U.S. has been a big advocate to have one so.
Play chain end to end.
So our suppliers are connected to a breweries that are connected to our wholesalers that are connected to our customers.
In doing that we can see quickly what's happening in terms of inventory in consumer trends in react quickly within the supply chain going old way towards players I think that's a big advantage. We using you know machine learning big data and all that because of course, you have lot of data points a lot of different reasons in the last a different patterns on how the.
We are involved in June this fanatic. So it's good to see the Michel put that in place and we're now taken some benefit but make no mistake were also stretched and I think the big stretch would be now between labor day between between fourth of July and Labor day during the summer, we're gonna be stretched as well, but maybe from what customers are tell.
You know we're more organized we'll see.
Buoy prepared for that is not by coincidence.
So by accident in terms of exit rate if I understood. Your question correctly June of course was the was stronger than April Nate.
A lot of that ER or some of that had to do a lot of that had to deal with consumer demand. Just because you don't trade was reopening some countries that have had been locked down consumers are able to bio products again.
But there was some stock replenishment as well and we think about Mexico. There was closed down for two two months South African same thing through the same thing Panama at the same thing you see that those countries of course are replenishing the pipeline.
So it's a mixed picture between consumer.
You know looking for products after months of being not having that supply. So there's a supply or demand component, but there's also some struck replenishment, especially in some key markets was like Mexico, South African brew.
Got it at all you want to quantify how big a benefit that was pretty telling them that replenishments gives an idea what the real underlying rate would have been exa.
No not at this point, but again a in those countries there was a big component of Oh.
Inventory, just because the whole pipelines and.
Got it thanks, so much.
Thank you.
Our next question comes from the line of cannot organs of Morgan Stanley.
Hi, Good morning. Thank you for taking my question I had one on China. It appears that mainstream and local brands are doing better right. Now is this purely because of the channel shifts or do you see some downtrading and I guess, so what gives you comfort that this trend is temporary and Premiumization should continue in the long time.
I mean, you're now saying what do you really have fully she could also give us some color around the competition dynamics in the premium segments as well. Thank you.
Well. Thank you for question I mean in China, what happened is that because of the nightlife being shut down greenham suffered.
Core doesn't depend on my life, and because everybody was buying more into your home channels because they could only go to local stores because the shutdown the lockdown core benefited.
I think this temporary the Premiumization, China remains strong and a as they see from neighbor to May to June as pottery open C.C. premium Super premium you know going back.
You know faster than core.
So, but yeah, there wasn't an element during the lockdown in which the night life was shut down all the food stores were opened any food stores normally what you have is core brand or even value brands.
But now as the night life is 80%, we open Chinese restaurants, 90 plus percent reopen in home a there. We're always open 100% then you have more of a normal balance and then you see premiumization again.
Team. So we think this trend is there today.
In terms of the competitive environment China's been there always very competitive.
We respect our competitors, but we we respect much more and focus much more and consumers where they're going because at the end of the day. The reason why we went from nothing China to be in the market leader in terms of profitability not in terms of vitamin terms of profitability is because we're always going where consumers are growing and try to even.
Go before they go because we had insights not because we're looking to competitors of course respect them, we have an eye on what they're doing but most of our attention is on our consumers their trends servicing our customers a wholesalers and pay attention on what matters and people they're really.
Trends, which are consumers and our customers. So that has always been dimension.
Thank you.
Thank you.
Our next question comes from like tells me Ocala, let's see on 10 mile.
[noise] Oh I'm just two questions. Please obsessive just on a de leverage has a half year, you're at 4.9 times.
Reiterates its all get old to the dividends already been caught Australia has already been sold on the IPO in Asia.
Has happened it is the current plan.
There you get to this target now organically or all the other options, which all sort of actively up for consideration.
And then secondly, just on the U.S., but two things.
First you flagged in the mainstream business you know good cheerfulness within mainstream.
If you flagged being a beneficiary or a slight too.
So many of brands at large pack sizes.
What was that just a knee jerk.
Reaction of consumers in sort of fear referral to just at the beginning as a period and chain shopping habits or is that something which is being sustained through through the course rentals went to the exit rate.
Then just secondly, within the U.S. still like on margins. If you like it was a timing issue on variable comp a rebate accruals.
It is not likely to be material and the second Thomas Thanks very much.
Yeah.
So, let's start with send them to whereas in the deleverage question.
Thanks, Toby Ah so our total keshav I ought second not changing and then I've listened to the optimal capital structure remains a priority.
Cost of easy it is unique and I'll half wants to any performance wasn't materially impacted by the outbreak of core he's 19.
Well as a reminder, outages you only need a decision to reduce the amount of to define on 2019, DB then you're going to substantiate what about GTT. Once you know the effect of the Colgate 19 fanatic.
We believe it just was prudent and investing into some of the company is this season is cautious stance, we saw a financial discipline deleveraging commitments and other actions taking to navigate using environments.
I always review our asset base today fine noncore assets that can get I've asked it as part of falling automobiles as operations at this stage.
No major divestment Glastra highlights.
Our debt portfolio has a very manageable mctwist for filing football and our liquidity position as I mentioned on my opening remarks remains very comfortable despite the impact of coffee 19, and our business.
That's for why we are feeling Tyson de leveraging we're not sees fit foster to make any short term decisions that wants to me is radically stuff in the long run.
And and the second question told me on a on the U.S.
I mean, what we're sorry is that the drivers for flat share into second quarter were threefold first but like <unk> and its success within seltzer growing double the category Michelob Ultra continues to be the number one share gainer within beer with et cetera, So says but within beer.
I'm going 23% of a very large base metal Bulkers is now in dollars. The number two beer in the U.S. after Bud light in the mainstream that performed better we're bud and Bud light.
Reside.
So what about life to a big brands around the world They increased their share within beer drinkers, David just because consumers are going everywhere for big.
Trusted brands leasebacks in cans.
So this has been sustained throughout the goes in April May June continues to be the same case.
Pretty much everywhere in the world.
And a this is providing has an amazing opportunity for simply.
I think they'll be residual early to say, but a lot of people that maybe we're not in touch with but I'm a like for example, now in touch with them in this product for great. So it's great to see that people are back to trust brands that they know.
But ah, but we'll see I mean, Oh, we're glad to see what happens when on premise opens and people are back when your normal well what happens is a big brands, but we're very happy in supporting there also.
Continues to bring innovation to the families of Bud light is seasonals that brought down to the summer, but like this but like salsa and there's other things in the pipeline to come during the summer I mean, we also investing in.
In a innovation or both wasn't Bud light.
So they can continue to to appeal to consumers.
So well yeah, they happen to share performs.
And in terms of up your question about a variable compensation accruals.
A variable compensation accruals were adjusted inline with our current performance, which has been significantly impacted by the cold it.
Yeah, when inorganic basis. This compare your near term strong second quarter with topline growth was 6.2% EBITDA growth of 9.4%. Therefore to your question last year, what would have accrued the higher amount.
Airbar compensation didn't we have so far this year given the superior performance in second half second quarter and first half of last year.
At this point, that's all we can say because it's hard to predict the second half, but the first half of last year was much better so their crews were higher.
That's very clear sense, thanks, very much like I'll, just follow up on Butler Seltzer, what went into sourcing from.
Great good but was it sourcing from very good point, I mean, 40% of the Bud Light's sells for consumers are being sourced from outside of beer it'd be a category 40%.
And.
And yeah, that's it for the person.
So Fortunately my source from within 60% to be sourced from within the cells the category.
And 40% from outside of cells to categories and incremental to the beer category.
And again, it's good to know the but like sell for variety pack has the same rid of sales is the two leading brands write backs themselves. The category. It's the brand is very strong not only because it was launched but because the repeated purchase has been very strong.
Thank you.
Our next question comes from one of Richards question I've kept pushing Ralph.
Yeah.
Morning, I asked two questions. Please first for going back to Brazil, I mean, it's it's a challenging markets with the impact of Kofi its and difficult economic conditions. If we go back to 2015 16, we saw volume losses during the recession.
Are you expecting something similar in Brazil in the next few years an hour you preparing for this.
And the second question is on the on your cost a U.S. junaid declined by 7% on inorganic basis into second quarter and how do you see that developed a firstly in the short term as as markets recover and secondly longer term do you think you can retain some of those savings.
You're talking about costs in Brazil.
I know what he does the second question was on a at group level.
Right group level Okay.
So in terms of costs at group level for Fernando will take the question I'll take the first one on Brazil same Brazil's you know the 2015 16 17 was the was worth crisis that Brazil had.
You many years and there was tax increases there whats commodity there was.
Facts, there was the consumers in the pressure high inflation everything so.
What what happened there is that a we also took some price decisions that looking back.
Didn't want so well, we learn from it and I think now what's happening with different in Brazil was that we have a portfolio thats brother.
We have innovations that are working well.
We have technology that allows us to connect consumers in box in a different way.
We have what tool kit.
To deal with the value segment with local craft beers that we didnt have then.
And and we have other affordable solutions like the 300 email returnable glass in the eighties, Pat can that has a special waste specific excise tax connected to it that's lower than the average of beer. So I mean, when you put it all together I think we have well.
We more.
Tools in our two Kid.
To make sure that.
That we weathered the storm better.
We also have of course government, helping consumers with a.
Extend to realize per month that consumers are getting which is important and we'll see a two when consumers will have that so the situation remains fluid, but I think in terms or two kids, we had way more.
Reasons to believe that we're gonna be able to deal with this.
Situation, a better way, but that's what we think I mean, there's a lot of things that are outside of our control.
But if you look at everything I, just said in terms of the two kids for affordable brands in terms of innovations like Brazil, Dupilumab, that's really getting share in making has performed better than the industry. When you look at technology at the B to B M B to C level.
When you look at the way our people are.
We closer to consumers just because of this technology into data points that are being.
Generators in there for the the ease of getting sites.
I mean does the old very important things.
That I think are going to all the things we control would better prepared I think.
But there are many on those up their situation remains fluid. So we have to be we optimistically crush we're cautiously optimistic.
And in terms of your second question and then within tackle that in terms of dollar cost.
Oh, Hi, richer Oh, the cost side that are what I'm anxious one is the cost of goods soles.
When you look on a fair hectoliter base, it's fair to say that took dots on the cost of goods sold. This increase was a sanction often want him to leverage and also a significant portion of their them do remain increase was given this package mix, a which was driven by the channel mix and then he sent a different shifts we saw.
Good luck.
On the on the messaging me a lot of data reduction or saw Wasnt efficient management of discretionary expenses or as we mentioned, especially those which might not have effects, excluding that kinda to vitamins.
But going forward.
We we of course, you can always benefits from some of the learnings and efficiencies they shop resources always remain core competence.
And one for the I think we always going to be our gyro.
ER and a quick to react but ER, we had what I continue to streams that seem to brands, that's very important for us.
And she's done a situation is very fluid, we're not going to be providing any guidance on levels.
Half of them.
All right that's great. Thank you. Thank you.
Ladies and gentlemen, we have time for one more question. Our final question will come from the line as Edward Mundy of Jefferies.
Right.
Hi, Brian Thanks for taking my question one question on set up the first today thats what around the tax rate what keeps you touched bottom line team H ones actually a little bit higher I know you don't get in guidance, but I believe what do you have quite a bit Alistair.
As to receive other tax hit like might end up for the year.
Package, it's fully up not that last question around margins just I. He thinks about the philosophically hanging on to some of the savings that you're finding and reinvesting our behind Grace.
Any reason why what <unk>, but the high water loss of 40%.
EBITDA margin, who told United team.
No. So for another one tackled the first one a bone tax rate then I'll tackle the second one when you last margins you talk about Brazil, we've talked in Germany.
So I took with modules.
Sorry.
The total quick lodging.
Gross margin okay.
Okay. So on the first one on your question all on T.I. degrees on our normalized <unk>, excluding the mark to market gains or losses.
It should have had you know foreshadowed basting theme in front of nimble or age true as well as.
A second quarter.
It's pretty many driven by south Uniques and Boston in fact of Stephens Afterwards, with Texas combined on a lower base as a result off the coffee 19 fanatic.
For the next one of them over to me.
Yeah, and the next one in terms of margin I mean, there are many.
Things there that you know impact on margin this year first the volume deleverage.
That was the first one.
So what im de leveraged a said year impacted two thirds of our cost of sales.
Does this quarter so.
So that of course as volumes pick up that one de lever. It does appear cost of sales will go back and does it was a huge impact on our margin.
Second one of the channel mix.
I'm in a don't trade or.
In some countries important countries tends to be more profitable than the off trade in the old trade to shut down operating at a minimum capacity.
So don't trade growing importance.
And that is a an issue for margins because of the relative profitability.
The channel mix also caused another makes it should be which is the package mix.
Normally in many important countries the package mix in New York trade has lower margins than the back of making your own trade for example, returnable glass bottles or more connected to the on trade in the are gone Wendy on trade disclosed CAD the cat business normally.
As much better for margins, but they're gone when the when the on trade is closed NSX I mean, we had FX.
In emerging markets going up big time, another coming down.
But effects of course and commodities in general.
Oh, so put pressure on margins.
So I would say that.
When coated is over or does all situation is a bit better.
You can see that.
Consumers will go back to more normal life channels would be more balanced as they were before FX may be will be.
To more normal plays and so come wasn't all that but the things we control or that you see consumers control is Ah you know premiumization will remain that's important.
Right technology continues to play a role because as we get more efficient in contact customers in consumers that has an impact on margin.
Here, we'll come back as one of them to leverage a cease to exist.
And.
And and we're learning more how to invest behind our brands I'm in for example, using digital the lives in Brazil has been amazing.
Return on investment because you don't need to to spend money creating older.
The the venues in the stages in everything goes production and you have people connecting and buy online because now we have a direct to consumer delivering long term the returnable glass bottle will continue.
Right.
So again I think in summary proposition technology cable best practice sharing in the global footprint, which is a huge assets. So those are things that could get margins.
Back to where they once were.
Thanks.
You sort of so trying to go into the crisis, but then cut out the classic.
Based on what you're seeing and try to give you confidence that the old trade can make a full recovery around the wider global pet shop.
Well, we still have to well into the I mean, if you look through the quarters.
Look at the night life. For example, we have a lot of on margins. It went from 25 reopen to more than 80 now.
Right. So that's very important for margins.
You must continue to fluctuate Super premium brands do well they didn't grow faster during the call just because the nightlife was shutdown and the home was the only one open and in the home core core plus blent brands tend to do better ecommerce going very fast and.
Premium brands tend to do better in the Congress in core brands rights I mean, I think those things are very important.
The channel therefore, the Grand mix.
Farmers.
All those things are.
Margin accretive.
In China.
And let's remember that our Super premium business in China has a lot to grow.
And ER and a was too as it at its infancy.
We did the women.
We doubled the Britons segment in China.
But now with the goal of the Super premium segment in China, where we lead by far and.
And that's Super premium was impacted grew but it was impacted in terms of its growth rate by the pandemic because many channels were close shut down but as people go back to their normal lives superpremium and premium will grow faster they were before and that again is great for margins.
Thank you.
Okay.
I'm not once our final question. It's a catch it question has not been answered please feel free to contact the Investor Relations team I'll now turn the floor back over to Carlos Brito for closing remarks.
Well take a Maria if somebody were excited about the future prospects of the beer category and we're confident in the fundamental strengths of our company rooted in our brands of footprint or capabilities and most importantly, our people we have a culture of ownership in the long term mindset or people are rising to the challenge each day demonstrating creativity fast.
Okay and strength to keep us move forward.
I'd like to once again close by saying. Thank you. Thank you to every one of the front line for their commitment to keeping a safe, particularly healthcare workers and thank you toward teams, especially those on the ground issuing business continuity you inspire me every day and I'm. So proud to be are calling.
Thanks for joining the call today, we hope all of you stay safe and well and we hope to celebrate the strong recovery over a beer soon thank you have a nice thing.
Thank you. This does conclude todays earnings conference call webcast. Please disconnect your lines and have a wonderful day.
[laughter].
[noise].