Q2 2021 Ambev SA Earnings Call
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Good morning, and thank you for waiting.
We would like to welcome everyone true.
<unk> second quarter 2021 results conference call.
Today reverse we have Mr share injury, Saatchi CEO for Ambev and Mr. Lucas from Nida.
CFO and Investor Relations Officer.
As a reminder, a slide presentation is available for downloading on our website.
<unk> Dot Ambev dot com Dot BR.
As well as through the webcast link for this call.
We would like to inform you.
This event is being recorded and all participants will be in relation to only mode for the company's presentation.
After <unk> remarks are completed there will be a question theres per session at.
At that time further instructions will be given should any participant need assistance during this call.
With that please press star zero to reach the operator.
Before proceeding let me mention that forward looking statements are being made under the safe Harbor of the Securities Litigation Reform Act of 1996.
Forward looking statements are based on the beliefs and assumptions.
Of Ambev management and on information currently available to the company.
They involve risks and uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.
Investors should understand.
<unk> economic conditions industry conditions, and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward looking statements.
I would also like to remind everyone that as usual the per.
It just changes that will be discussed during today's call are both organic and normalized in nature and unless otherwise stated percentage changes refer to comparisons with second quarter of 2021 results normalized figures refer to performance measures before exceptional.
<unk> items, which are.
Either income or expenses that do not occur regularly as part of Ambev normal activities.
As normalized figures are non-GAAP measures the company disclosed the consolidated profit EPS EBITDA and EBITDA on a fully reported basis.
The earnings release now I will turn the conference over to June <unk> Saatchi CEO for Ambev and Mr. Should Isaacs you may begin your conference.
Good morning. Good afternoon. Thank you very much for joining our second quarter earnings call I Hope you and your families are well and safe.
This quarter, we completed 1 year since the negative impact of the first wave of COVID-19 pandemic.
I'm happy.
You see that the choices we've made in the best 12 months continue to deliver results.
We achieved the highest consolidated volumes in our second quarter on record.
Each led to an all time high of Rolling 12 months volumes Pfizer.
Happy to lead in hectoliter is above the peak back in 2015.
We have previously mentioned that we were better prepared to navigate challenges brought by the pandemic.
But at the same time, we also got ready for the economic reopening S vaccination.
Rates increased.
Our commercial strategy.
Innovation.
Tech platforms and operational excellence supported once again, our performance as mobility restrictions were partially lifted in many of our markets.
9.
5 of our top 10 markets delivered volume growth versus last year in 7 of them grew volumes ahead of 2019.
Net revenue per hectoliter continued with solid growth.
Even by flexible.
9 value approach on pricing.
And from new monetization efforts.
Our above core brands continue to gain relevance within our portfolio.
Our international operations continue the recovery burst in the quarter growing topline ahead.
As of 2019.
And helping to offset transactional FX impacts on a consolidated level impact top line growth was led by Dominican Republic, followed closely by Guatemala.
Which continues to show good.
Momentum.
Panama is bouncing back from tighter restrictions.
In Las we grew volume ahead of 2019 levels.
In Argentina, and Chile, our global brands showed again, a great volume performance.
Driving premium mix.
Which supported margin recovery versus last year in both countries.
Olivia on the other hand remains impacted by the pandemic, where we continue focusing on preparing the company for the recovery.
Canada still suffered from.
From mobility restrictions, however, delivering growth in topline and EBITDA.
In July we saw restrictions being partial listed as vaccination rate reached more than 50% of the population.
Brazil Beer continued show great commercial momentum with.
Double digit volume growth versus 2018.
This was also the fourth quarter net ROE that we gained market share. According to our estimates and that innovation continued to represent more than 20% of our revenues.
We grew volume in.
All segments with highlights to our premium portfolio that grew volumes by approximately 35%.
Beef accounts with more than 70% of our active customer base, helping ambev to reach all time high customers for both beer in.
<unk> as well as all time high customer satisfaction measured by NPS rating in June.
While reaching 9 billion reais of Jimmy this quarter.
The delivery full fields more than 15 million orders.
Continuing to growth.
Rose significantly versus last year.
Talking about brands, we continued to invest in our portfolio and I'm glad to see the growth of our brand power metrics and the recognition of our marketing team at Cannes Lion Awards in frame.
France Ambev.
<unk> received 7 prices 2 goes through silver and 2 bronzes from campaigns in Brazil and Argentina.
In the first half of the year on a consolidated basis EBITDA grew 25% versus 2020.
<unk> Q, 7% behind 2019 impacted by effects.
Commodity headwinds in SG&A expense.
For the second half our outlook remains unchanged, we are on track with our v-shaped topline.
But recovery. Despite all challenges we will continue to pursue volume performance at this new rolling 12 months levels reached in last quarters.
Cost pressures will continue especially in Brazil.
And as for Bottomline normalizes.
<unk> consolidated EBITDA performance for the full year should improve as we work to get back to.
19 levels.
On a longer term perspective, we are building, an ambidextrous organization focusing on delivering the.
Line return while at the same time, transforming our business for the future as.
As we continue this journey our business vision is to transform ambev each web platform with inspiring brands that connect people in the ecosystem creating share value.
Sure as part of our transformation should day I would like to talk about our syntech dongles.
We believe that our customers can increase their chances of success, if they become more digitalized and have access to more insights to more adequate.
Initial resources, lower banking financial transaction fees and even more convenience.
Today more than 80000 customers registered on loans can enjoy solutions such as Pos.
POS terminals these the wallet and credit.
Credit lines on.
On the credit lines, we believe our long history with customers make our credit scoring assessment very reliable so.
So far default rates are within expectations and we are now fund raising to expand this operation.
<unk> by 2021, our focus is to rollout loans in all distribution centers in Brazil.
As we did for this starting last year.
To close our topline momentum is real.
We did put to test in a true given the excellent results.
We had last year and I'm confident in our ability to keep taking our business to new levels.
And I would like once again to thank the ambev team for their dedication during these tough times.
Thank you very much for your time and inflation.
And I will handle this over to you Lukas.
Thank you Joan and hi, everyone.
As you will remember Q2, 2020 was very tough because of the impact of COVID-19.
Volumes collapsed in many markets and the mix shift was severe.
However, despite these short term headwinds we didn't panic, we did what we had to do to adapt quickly getting even closer to our ecosystem and most importantly, we did not lose sight of the long term and decided to seize the opportunities brought by the crisis and placed some big bets to set us up for a sustainable recovery.
How else forward 12 months, our Q2.2021 financial performance brings more evidence of the continuous and consistent improvement that I've been talking about so much.
And the good news is that our team's disciplined execution behind these bets is continuing to pay off big time.
And here's why net revenue.
A little over 36% EBITDA grew 24% normalized profit grew nearly 116% while operational cash flow remains unabated and grew about 2%.
In addition, our financial performance in the quarter was boosted by $1.6.
Growth in Reais and tax credits of which $1.2 billion Reais in other operating income and <unk> 4 billion Reais in our financial results.
Just to recap these tax credits resulted from a favorable Brazilian Supreme Court decision last may that confirmed its 2017.
Believing that the inclusion of the Ics state tax in the taxable basis of the peace and the coughing.
Taxes was unconstitutional.
Given the nature of this dispute. These tax credits are technically part of our normalized results from an accounting standpoint, but as.
Rule case in our Q4.2020 financials, we disregarded these tax credits for purposes of calculating our organic performance treating them as a scope change.
We still have some pending litigation in this matter going forward and we will keep the market updated as things progress however, as.
As disclosed in the notes to our financial statements. The amount that remained under dispute are not as material.
While I'm on the subject of taxes I also wanted to briefly comment on the proposed income tax reform in Brazil, which has generated a lot of questions from investors lately.
The draft legislation.
<unk> is currently being discussed in Congress and we are monitoring the proposed changes under public debate very closely.
It is too early to speculate what will unfold. So we cannot comment on what impact if any this part of the broader tax reform will have on us and our shareholders.
Should there be any.
Material developments, we will of course keep everyone informed.
Now back to Q2.
As expected the quarter presented meaningful headwinds in terms of costs and expenses.
Cogs per hectoliter grew nearly 16% on a consolidated basis.
These headwinds were mostly.
In Brazil, where our cost of goods sold was negatively impacted by adverse FX and commodity costs.
On the other hand, better than expected mix, thanks to our commercial initiatives and entre reopening witness towards the end of the quarter drove our returnable glass bottle volume is up which reached nearly.
40% of our total volume, which is up from 30% in Q2.2020.
Also cash SG&A was higher growing about 42% on a consolidated basis, where sales and marketing grew 35% pretty much in line with our net revenue growth of 36% as.
<unk> submitted our commercial plans for the quarter.
Distribution expenses grew 28% also below our net revenue growth, mainly because of higher volumes growing innovation returnable glass bottle mix and expansion of DTC platforms in countries like Brazil.
And administrative expenses doubled.
With most of the increase coming from provisions for variable compensation since our performance for the year continues to be better than expected.
And remember 2020 wasn't no bonus year.
Should our performance remained on track during the second half of the year variable compensation should continue to impact our year.
Employer SG&A performance.
Having said all of that the most important message is that despite all these headwinds we remain on track towards our main ambitions for the year.
Strong and balanced top line led recovery across our markets.
With better net revenue per hectoliter.
<unk> performance versus 2020, we.
We continue to expect Brazil beer cash Cogs per hectoliter to grow in the low twenties for the full year with better than expected mix pretty much offsetting increasing non hedged commodity exposure.
And normalized consolidated EBITDA performance for the full year.
Over you should improve as we work to get back to 2019 levels.
Let me now turn to our financial priorities of protecting liquidity and improving our return on invested capital.
Liquidity remains under control.
Thanks to the strong cash generation during our recovery we decided.
To pay down in Q2, the remainder of the debt we raised at the height of the COVID-19 crisis to create an additional liquidity cushion.
Having said that going forward, we still believe it is warranted to maintain a prudent approach towards liquidity, given the uncertainty and volatility that persists across our markets.
Year as for the journey of improving our return on invested capital we remain laser focused on operating as efficiently as possible.
But we are also more and more focused on improving our resource allocation across the company.
Think of it this way we have great people, we have great assets and we have very strong.
Strong cash generation.
The better we get at resource allocation, the greater the chance of consistently creating value.
This value creation mindset is becoming a big focus of ours.
And a good example of this approach is how we're looking at our technology platforms.
Platform business models like beef, there and doing those in Brazil, not only make total business sense from a customer and consumer standpoint, but they also make sense from a return on investment perspective.
Of course, we are still scaling them up but we believe that once at scale. These platforms can drive important value.
For the company.
And the reason why I say this is twofold.
First connecting these tech platforms to Ambev base of customers consumers and brands will broaden our total addressable market with potential for further growing both topline and bottom line in absolute terms.
And <unk>.
<unk> over the last decades, we develop this amazing asset base in terms of distribution capabilities and reach as well as trusted relationships with millions of points of sale across Latin America that provide our technological platforms with a very solid foundation to build on and scale in terms of.
Speed autonomy and leverage.
The more we are able to use the core business as a springboard the less capital we will require to grow these businesses.
In terms of use of cash.
After taking into consideration the appropriate liquidity levels for a more.
Second predictable and changing environment.
After allocating resources efficiently towards organic growth and after keeping some M&A dry powder, we intend to continue returning excess cash to shareholders over time.
To wrap up a quick word on ESG.
On June 28.
8 we held our ESG day, when we shared our thinking in terms of how we are approaching sustainability, which after all is our business.
Thanks to everyone, who joined and for those of you who are unable to make it the materials can be found on our IR website.
And we look forward to continuing.
Our dialogue with the investment community, because theres still a lot much more to share to learn and to do.
Thank you and with that let's move to Q&A.
Yes.
Thank you, ladies and gentlemen, we will now begin the Q&A session, if you'd like to ask a question. Please press.
<unk>. This 1 if you like to remove yourself from the question in queue just press star true.
Our first question comes from Marcello hedge with credit Suisse. Please micelle go ahead.
Oh.
Peripheral for myself for the per second.
Hi, Joe Hi, Lucas. Thank you for taking my questions I have 2 questions here.
First on Brazil beer could you explore a little bit more about the strong top line growth. We have seen now for a few quarters in a row.
Sure.
Spectation to sustain this momentum going forward I wait that before going to my second question.
Sure.
So so yes.
Zubair has been.
With with good momentum.
For a while right now.
We know that left the year independent Mick.
The comps are are all over the place, but if you look at our cleaner reference there is 2019 as you can see clear how Brazil was issue with a gain.
Gaining momentum quarter after quarter.
Ambev accelerating true.
And and I think this is based on many decisions that we took all over.
That's the best year that it was really a mine.
Set off of being the leader in expanding the industries and the industry had this opportunity to develop the in home occasion, increasing helping it to increase frequency.
A lot of.
The mindset on innovation.
Well.
There are 20% of our revenues are really coming from in beer, Brazil from products that did not exist 3 years ago. When there is a pipeline of brands that they are come in quarter by quarter and they are maintaining their performance. So.
I am very excited about that.
There was 1 in formation true that we have here in Brazil.
Above the brand equity the brainpower of our portfolio and when we compare H true.
2021 with <unk> to 'twenty 'twenty, we gain of 3 million new fans.
<unk> brands.
So that's the API that we focus and which followed very close so so consumers that they really elect 1 of our brands.
They are.
Preferred brand.
So this number is really increasing our portfolio is really.
Stronger.
Of our beam forwards I think somehow.
The good news will come as the vaccination come backs win win with the reopening we.
We are we come back to our stronghold there is really this social Soc.
Socialize in out of home Oh occasion.
And more so somehow I feel very confident that very confident that we are.
With a structural moments.
On our topline.
With momentum.
Sure.
That I'm very confident of.
Perfect. Thank you very.
For the full year I'll answer.
My second question now is more a sort of an update about your center initiative menu that Carl.
Could you share with us more about the recent development on this business line.
Main menu.
<unk> the market.
Right so that was a.
I startup that.
Startup that we accelerated in 2 years ago.
We grew 60 times their G M D.
With us and then we make a decision to when we are when.
Place reiterated many men who we didn't have built developed and then now we decided to combine these initiatives.
And then.
The marketplace and the new assortment.
B.
We will be leveraged by the order.
<unk> of these so we are migrating the platforms. We have this view of customer community and then we are adding technologies for this customer community and because we will lead that.
And so many of you know is inside the Beast the founders are leading the way with that.
And we are really putting altogether, so mention sold and then go into beef.
So now we have 70% of our active buyers already per chasing through the platform that was like 20% like 1 year ago, the Jim Z. When we put our beers is really accelerating.
And so 9 billion now.
In the NPS that we measure about the usage of the App. The delivery is really is really all time high and now we are with all the team of men who using this platform to develop the partnerships the relations with the different industry than knowledge.
Yeah.
About everything together, so BSM and who they were.
Integrated.
Okay. Thank you so much.
Our next question comes from Carlos Laboy with HSBC.
Above please Carlos go ahead.
Yeah.
Yes.
Everyone. Good morning.
Lucas ore zone can you please share with us how your digital capability and your upgraded.
Approached the business Europe traded values are changing the way.
That you you imposed price discipline.
Across the marketplace in other words, how you resist.
Maybe the impulse or temptation for discounting.
I'm speaking about both the will and the capabilities.
For achieving.
Keep your pricing discipline discipline in how you linked that them to both your brand development in your market development.
Okay I'll take that 1 I think very much for the question. So if you if you look back on this on our journey of.
Becoming more digital.
Appear in in our vision of moving from a beverage company into a platform, where we have 2 big communities. There is a consumer community.
Net zelle leads and the customer community that now these leads.
We are in a long journey off of building this capability.
Since this muscle we acquired back 2 years ago.
Our GAAP basis that was really a.
The company that help with us in the beginning and then we internalize.
And then we invested on Bes and now in their delivery you know we have something.
I think around 2000 coders working with fast really with this mindset of being able to get digital products and not just beverage project product in the market.
And these things theyre, both they give us a lot of visibility a lot of.
Granularity for us.
True.
Increased big time, our revenue management capabilities.
I'll talk first about.
First of all this now 70% of our of our customers. They are there and.
So we know when they buy.
We are really learning that they prefer to use the app during weekends and do not wait for the sales Rep and then the sales Rep gets there and there is.
Learning, that's something that we didn't.
Figure out before that they buy b to B business is made of impulse.
We are already buying different days, if you have good promotions and we can add different products to our basket. If you really have the insight about the basket of our customers when we add different formations. So so bes is a completely different.
So Andy mode that will help us.
You have a lot of insights on our pricing strategy.
Much better that we had before in these help with US already if you see our discount optimization big time.
As you are aware, we are much more linear much more.
Yes.
In terms of acquiring new customers. So we are with 10% more customers that we had.
Before the pandemic in this type of granularity in artificial intelligence is really helping us really to be efficient with discounts.
In.
The Lloyd's market price seen in smarter revenue management and that is another thing. So there we have a 5 million consumers community that they use the app and we are just targeting now 1 location. There is this thing about ultra convenience.
He minutes 30 minutes beer at home with supermarket price, but then there is a lot of room for us really true follow the consumer journey think about when when when our consumers. They have a party to anticipate that.
And.
Trading different type of revenue management for that occasion, and we are and we have the opportunity to increase big time signature shoe, where we have another app instead delivery can at some point in time decide if it goes for this new mission and all of those missions. We can go very grand running who can.
And half of this site.
In late March where whats the revenue strategy per ads. So we are in a completely new.
The moment in terms of capabilities off of.
Using data.
To decide our revenue initiatives.
Really, though so you'll have more tools and capabilities for protecting the value of your brands by offering the point of sale.
Array of other areas from services, where you don't have to give away value in your brands essentially right.
That said because we are we add convenience we're.
About missions, we understand our our consumers and with our broader portfolio. We can when we put all this 4 levers together, we can really go to a different level of revenue management with the technology that we just added.
This.
We've seen excellent. Thank you very much I appreciate your insights.
Yeah.
Our next question comes from Chuck could Duarte BTG Pac 12. Please go ahead.
Oh, Hello, Lucas illusion, Hello, everybody, thanks for the opportunity.
<unk>.
I'd like to ask 3 questions actually.
First 1 is is if you can help us navigate through the SG&A per.
Particularly in beer, Brazil, but I think it goes for for the rest of the.
The geographies, but particularly in Brazil, I mean, it's clear.
The year over year pressure on on G&A coming from bonus accruals, but.
It also fuels like that there is more to it and I was wondering how much that's coming from the digital initiatives.
And last mile logistics that is arguably impacting or.
Cost there, particularly coming from from B's in there.
So if you can if you can help us through our.
Navigating through it in terms of how we should think of it as percentage of revenues.
Going forward.
For SG&A that would be nice.
The second question is only bees.
Europe.
And <unk>.
You mentioned, the 9 building real GMP in Brazil, and how 70% of your clients are already active in the platform.
But can you can you help us or can you detail a little bit more on on how that GMP breaks down between.
<unk> products and third party products.
Or in other words how.
How much your clients.
70%.
How much of their purchases they are doing effectively from from the platform.
And that would be nice to.
Well.
And the third question can you just talk a little bit I think more and more to 2 Oh, yeah can you talk a little bit more about the resilience of the beer industry you already discussed in a previous question about the momentum that you guys have built over the last 4 quarters for.
Here's 5 quarters, but can you talk about the industry itself, because you really looks like the industry ambev is stronger than the industry now, but it looks like the industry is stronger in itself.
So can you talk about this in terms of the demand in terms of how the occasions have built.
Fourth during the pandemic and how you expect this normalization to affect your mix in particular, because it also looks like premium has gained more more ground on the back of this this changes provoked by the pandemic. So if you could elaborate on that that would be nice. Thank you.
Built.
Yeah.
Okay. Good questions.
Thiago. Thank you for the questions I will start backwards.
With <unk> and then we go for SG&A.
Okay. So industry first of all yes, we have seen a resilient industry.
So my mission debt.
That.
Our industry is a resilient 1.
And the point that as debt.
We really made this decision.
A little bit before the pandemic to as a leader comp when you to really bet on that.
Always studied a lot the difference of industries and performance of Brazil and Mexico.
True to get our approach Downey here, Brazil, and then when the pandemic game, we really decided to really accelerates towards the future towards what's going on in the market.
That's maturity chew and growth for maturity 3 and what's our approach for channel in innovation in occasions. So we really went bold on that a big part of the industry expansion, probably all of the industry expansion is really coming from our volumes.
Yeah.
And and and and and what we have seen is that I think.
So is that the.
Beer in Brazil. It is.
Something that is very healthy in terms of consumer approach. So we're not losing share of true does vary.
Williams is.
Is a category that we see as very healthy the interest there.
Concept about new liquids in the meaning of the brand. So everybody is is it still very important in the culture and the People's lives. So this is 1 thing the second thing is that we always knew that.
Moving forward from a more mature market.
New occasions would come and then we had we have this this view of a big part of the the increase in the industry in Brazil coming is coming from frequency is coming from in home is really coming from Mondays.
<unk> choose these relaxation.
Mindset.
That's what we see.
And we believe this is something that we see.
We see coming in all the markets and it was just accelerated by the pandemic and we believe that the <unk>.
Residual of that.
We will maintain.
And then with the vaccination in the restrictions really being lifted we will go back to the other occasions that are really our stronghold the bars in the socialized in out of home. So in the end I believe that the combination of like Ambev really putting into.
In the <unk>.
As a priority and the learnings of Mexico, and the innovation that address occasions.
In address new consumers show for example, Stella.
Saint <unk> is really.
So it's really add consumer.
<unk> 4.
For the industry I really believe that that means we will keep.
We will keep strong so that's that's that's my view on that I believe that.
With vaccination and we are all the things that we did I think we want to have.
I'm optimistic in terms of industry.
Industry about <unk> true.
Reality, a surprise for us it was more than the high end, what we saw it was really innovation in core in the resilience of the core really making a big part of this growth.
Of the industry that we navigated.
Very well high end is something there is more of a structure with more long term. So this we know that we want to come in that difference that we really saw him in this last year. It was really innovation in core that drove a lot of a lot of the changes in the okay. So this is 1 so second.
Second thing about beef.
So first of all.
The vision is to shoot.
Digitalize.
Our our customers and then to have beer as their backbone. So they have true download their app. The b's they have the usage has to be good day NPS SUV.
And and we should be able to do it by ourselves like beer thinking about the new role of the sales representative how they will be in part of that.
How are we going to bring all this e-commerce experience for our for our B to B and theirs.
This is where we are so we are.
Guarantee that this is so we are aggregating now our wholesalers. So so this is now a platform that we would have been 100% of direct distribution centers and wholesalers. So we will be all over all over Brazil.
And then with that we begin to aggregate partners. Okay. So so this 90 billion is pretty much our beer.
Gmg.
When we put at Ambev today, a formation that I can give you is that we are close to $100 million.
As of products that didn't.
Our part of our portfolio. This is growing very fast as we continue to expand our ecommerce portfolio. Now we are with around 300 skus that they are not from our portfolio. They are now, but they are not produced by us.
31 partners and we.
380 cities offering.
This new portfolio.
And so this is the type of numbers that we have so 100 million Reais ambev not just beer, Brazil debts with products that are not from our portfolio and growing very fast.
When we go for SG&A.
I think we have to break it down.
It's hard for us to talk about SG&A combined because they have.
Very different dynamics.
Sales and marketing is pretty much.
What we've seen this quarter, maybe a little bit off.
Amazing from things that we did undoing in chemo in Q1 because of Carnival that we invested more in the premium now, but overall in the long term there should be like.
In line, a little bit below our top line.
When we go for distribution.
What came above.
Our volumes performance and normal inflation, there is a half half performance on on this innovation that we just launched it in the supply capabilities. They are coming so we launch. It for example, now a brand coast pattern.
So it is starting to <unk> and then we move it a lot in.
And then we catch up to producing more breweries. So there is a piece of it and a piece of it it's really the transformation the less my offset so when we look at this numbers in the past.
What goes beyond the volume and deflation there is a half half there is a law.
Lot of efficiency for us should do on those 2 fronts.
<unk>.
Itself innovation, they are accelerating and they're now the list.
There was a lot of opportunities for us.
Boneless is really.
That we didn't have last year.
<unk>.
Once we decided that the roll off this year was to have a V shape recovery on the top line.
Capable so and then this is something that we are delivering and we are accruing the bonus for that there is above last year and above our normal average net debt we have in the past, but I will ask Luca to give a little bit more insights on the SG&A piece.
Okay. Thank you John and thanks for the question channel.
So I think on on sales and marketing right.
And the way the way the way to think of it okay.
<unk> is.
Is really around sales and marketing, which is what we saw in H..1 right. We saw net revenue growth ahead of sales and.
Okay.
I think it's.
We're not targeting specifically any sort of trend going forward, but if you look at the performance over the last the last few quarters.
That's what you've seen.
In terms of distribution I think the way.
Marketing on broke it down makes sense, okay. So I would I would I would look at it.
On the variable side.
Really linked to volume growth.
And also mix of returnable glass bottles on the 1 hand, okay, and so as volumes continue to grow.
Reasonable to expect.
Distribution expenses to also grow and add on returnable glass bottles recover likewise, some some increase in distribution per hectoliter.
As a result, and then on the the other the other side of distribution.
At <unk>, we have the innovation and we have initiatives like DTC innovation, there's opportunity for improvement as we bring online more production capacity spread out around the country.
To really avoid the need to ship.
To ship product along.
<unk> expense as the footprint improves for innovation and as Jim mentioned regarding DTC. The reality is that that is still not at scale and so as it continues to scale up we do see more opportunity for efficiencies on the on the distribution side of the DTC.
<unk> platform, Okay, and then finally on admin.
The bulk of the organic variance year over year is indeed come from variable compensation that.
That explains more than more than half of the increase and thats a function of the fact that recovery is better.
Unexpected right as we went into the year. So if we continue to deliver better than expected results for the remainder of the year, we should continue to accrue for bonus going forward. Okay.
Great answers. Thank you so much guys.
Our next question comes from Isabella Kimono with Bank of America. Please go.
Go ahead.
Hi, Good afternoon, everyone channel kind of thank you for the call.
My question is on the cost side right I remember Luca you mentioned.
Last quarter that Q2 is likely going to be the peak when we think about cost per hectoliter and in reality.
It was better than Q1, right and at the end of the day, you're keeping the guidance.
40 years, so I was wondering.
What does that really.
Yeah.
Changed this quarter right and how you're phasing this for the second half of the year.
Okay, Hi, Isabella Thanks for the question you're right we had a we had a positive surprise.
In Q2 on the Cogs per hectoliter on a cash Cogs per hectoliter performance.
That that improvement came mainly from mix, okay, and the reason for that improvement is really better than expected.
Returnable glass bottle volumes, which recovered much faster than we anticipated okay.
And so and that's that's good news for the.
<unk> grew over the year as we continue to to work behind having returnable glass bottoms bottles continued to gain gain weight as part of our mix okay.
And the reason why.
We are maintaining the full guidance for the year.
As you may remember that in Q1.
I referred to the fact that part of our.
Commodity costs are not hedged right and given the way that commodities.
Commodities have continued to trend since then.
The commodity cost pressure the unhedged portion right.
<unk>.
Continuing to become more of a headwind okay net.
Net.
It's going to be pretty much a wash, meaning the higher unhedged commodity costs are going to be pretty much offset by better mix right, which allows us to reiterate the guidance.
Is that a cash cogs per hectoliter in the low twenties for the full year, okay, but that's the dynamic better mix.
Offsetting higher unhedged commodity costs.
That's clear thank you very much.
And our next question comes from Bank Terror with Barclays. Please go ahead.
Thank you very much Lucas.
From the results just wanted to follow up a little bit on the strategic initiatives around the <unk> and the <unk> business.
And how that is aligned with your more flexible pricing strategy and how you think of the back half of the year and into 2022 in regards to potential price initiatives and how you think you can leverage would you have established on the DTC and b to.
<unk> business. Thank you.
Yeah.
Yes. So so let me try to give you a broader answer on that.
So yes, we are.
We are reviewing upgrading our strength as you're moving forwards.
We have this business.
This vision that we are much more than a beverage company transforming.
Transform into a platform.
With inspiring brands that really connect people in the ecosystem. So that we can all grow together.
And there are so there is a big battle.
On the technology.
This.
On really upgrading.
<unk> the company into a platform, where we have 2 communities that we really have to serve perfectly that the customers community and the consumer communities.
And then there is addressing consumers and then we want to think about how to add more technology to that more missions more.
Occasions.
More.
Does that should be more omni channel and then beef is really about customers and then we should like.
Integrated more with Dawn news and really upgrade these 2.2.
Technology that serves ambev customers.
But should move into a broader portfolio that we are ready to talk in this call. But then moving then each 1 feedback that has this opportunity to really solve financial.
Problems financial services apart.
Customers.
With credits and we have.
Pos machines.
<unk> and everything so we are really going in these 2 directions and the possibilities that we have in revenue management they are transformational.
So if you think.
We are.
Long term wise piloting.
Discounts more S cash backs and the financial.
Back in the financial and the Fintech combined Bliss BS. So we are really thinking about so we are learning allow along with this granular.
Big assortment a lot of customers.
Information that we have that we are using artificial intelligence and the and the algorithms.
They are upgrading and we are getting better and better on on adding more portfolio to the same clients on adding portfolio that is not from our breweries that but they are very accent show to our customers and and so so there is a lot of.
This new new muscle of revenue management that we have on the customer side.
And on the consumer side and at some point in time. This seems will be really fully connected so we give the discounts to our consumer.
That goes in a in a customer that has been in this sense connect and the.
They match each other.
The lease so it's going to be a new muscle that we're going to that we are working very hard to be a competitive advantage for us and and we believe.
The things that we're learning this year, they will really help us.
In 2020 true.
True.
Of course, they are really true.
The formation of India really good not just from our perspective, but the way we settled the things with customers in the way, we target consumers and <unk> get more discounts for consumers on occasion based based on emissions.
I really believe this muscle will be very important for us for 2022, it will help us.
On the topline and other thing is that the best thing that we have so we are leaving an inflationary scenario here in Brazil steel.
And.
In the end so we have to make the decision on.
On the price price increases is that usually comes on September middle of September and the good thing is that we have seen momentum and it will be September October in our business, we see momentum in our business and this is very important to make this decision.
Sure.
Or to take risks.
And we have seen the vaccination numbers, where Brazil can be with like 80% of the population fully vaccinated by October November so looks like we're going to have.
A good end of the year with good momentum.
With new tools and capabilities for us to really leave in this inflationary scenario that we've been living in the less in the last couple of quarters.
Which in turn should also help you to offset some of the incremental raw material cost pressure, you're most likely to have locked in for what at least the.
In F 'twenty tourists correct.
Yeah. Yeah. This is Lucas I can take this 1.
I think the answer is the answer is yes.
Yes, it should help partially offset that.
And remember that given our hedging policy right.
Of course, we still have pretty much half of the year to go.
In terms of hedging, but what we're seeing now is that looking into 2022.
The pressures that we face for 2022 are far lower than the headwinds that we're faced in 2021 remember that given how the BRL.
The Argentinean peso trended.
In the last 12 months right the bigger portion of our cost headwind. This year is coming from FX right and looking into 2022, that's not the case. So far this year right. There is still half of the year to go but so far we're in a much better.
Please on the FX hedge side going into 2022 as opposed to where we where we are today, okay and on the commodity side, yes, we do face.
Commodity headwinds going into 2022, but the net net the combination of FX hedges.
Commodity hedges are at a much lower level than the type of headwinds we're facing in 2021.
Okay, perfect well fingers crossed over second half from thank you very much.
Okay.
Our next question comes from Sean <unk>.
And each bank. Please go ahead.
Good afternoon, everybody Jim Lucas.
I just have 2 quick ones from my side. The first 1 I just wanted to understand with the vaccination accelerating into Cds here in Brazil and beyond trade recovery.
I just wanted to understand I mean, you're of course, you are developing very well on these.
Of course, we're very close to that client throughout the most critical moment of the pandemic. So I wanted to understand how your share or how should we imagine that overall market share in the <unk>.
Entre.
<unk>.
Recover fully.
So that's my first question the second question.
Yeah, Yeah I know.
Developing very well and thanks for sharing that information on the GMT.
And the color on the <unk>.
But I wanted to understand about competition looking more into the long term do you intent to find.
Any potential competitive pressure coming from potentially wholesalers.
Ellen.
The online businesses that compete with the beat to declines in beef. So just wanted to understand more of the long term outlook for proteins.
Thanks.
So.
So first let's talk about the market share.
The reopening in the on trade I think so.
Based on our information so our market share.
It's very strong.
And so.
So we have.
As you think about the last quarters.
So.
This Q2, it is something that that we are with a very good market share that something that we would begin to build in.
And we really are on as I mentioned in the beginning.
Like Brazil is in a new level of volume and market share.
On this Q2.
And and I believe this.
If you think about channel mix, if we really can maintain the market share that we have channel by channel in this day of own trade recovers, there's occasion of social socialize the out of home so usually.
This should be positive for us because it's the occasion that we really over index. So somehow I'm optimistic about both of.
The market share and.
So, let's see let's see how it goes in a true but theoretically.
The trend should be in our favor and on top of that so there is a lot of thing there is really structural so so.
The Brahma brands.
<unk> is much healthier than before but I am a diploma help at the whole category. So the whole family so of the Broncos.
Ramos help it big time on Theyre growing a lot.
1 on the equity there. So this is an important point on the consumer side. So my Artyem is really structurally better than before I'm, reaching.
More customers buy service levels.
Level is all time high so.
Digitalization is bringing a completely new.
Free.
Features and opportunities that we have that they are liking. So much the adoption was so high so somehow I'm very confident on that math.
I think about when you talk about wholesalers.
And beef.
I believe somehow.
Ah.
We are ahead of the game.
So we were really we started this in the right moment.
My issue.
When you were talking about my wholesalers my wholesalers they are really.
Inside my ecosystem very excited and aligned with.
The <unk> platform.
So my wholesale is that they are so my our team is really 100%.
These are when we look about.
Other beverage companies and other FMC Gs looks like we are pretty much ahead in the game.
I know some competitors they are trying here and there but.
Sanford.
I don't see that much coordination.
On that on that matter. So I think we are ahead in the game and I think the.
Marketplace.
I think the competition is more on a per cut down.
Oh on the things, but in the end there is a lot.
Our community. So this market is so fragmented so the leader in.
This industry has 3% 4% of market share so it's really a place where.
Competition is very fragmented and somehow we bring.
Our service level and our capability.
Sort of a bit of delivering in reaching that's unparalleled.
So somehow I think this is this is this thing to death.
Good.
I could mention about multipart question.
Thanks, John.
Just to be clear I was referring to a players for kitchen per se.
When I say.
But I think it answers the question.
Yes, we think the total addressable market is huge and this industry is very fragmented. So we see plenty of opportunity. That's the bottom line and I think it's less about competition in because it's very fragmented it's really about underserve. It.
<unk>.
Bill if you would.
Customers that they are really in need in this moment that although there is more retailer net productivity to go over.
They spent the American in the future.
Indeed, some of our.
Some companies some app that really solve.
Their problems and I think they are really underserved today. So that's the view.
Well, there's 2 things.
Our next question comes from Alan Leong with Sun.
From there.
Sal.
Go ahead.
Thank you so much how we look at from John Congratulations from the results from the MD.
Innovation and the strategic direction of the company, particularly with me.
Just a couple of quick questions 1 of the impact of Covid, a little more strategic with technical 1 could you help us.
Understand.
4%.
When shall decline in pricing in beer in Brazil from the first to the second quarter, how much of that is product.
Product mix brand mix.
Our channel mix, and so forth and the strategic alternatives with Chile, if you could.
David in terms of your relationship.
With the Coca Cola system over though I understand that it's working very well.
What are the lessons that you have learned and what are the opportunities for for those partnerships in other parts of.
Latin America. Thank you.
Thank you.
Let me get this 1 so the price reduction.
Quarter over quarter.
If you look back in.
The best so it's it's usual it usually or cures.
Mainly because of region mix.
And in in a little bit of.
Of channel mix. So is something there is a little bit more structural than decision. It's most of the.
Most of the years.
It's there it's around seasonality.
Mix in.
In general what regions and channels, Okay. So so.
<unk>.
So there is no big deal and that does not there is not.
It's not something that was a decision.
It's something there is more normal.
When we go to Chile.
Yeah. So the good part of that is looks like Andina.
Indiana.
As they mentioned to us its very happy.
We are very happy looks.
It looks like co company is happy to so it is a deal that like is.
There were a lot of value that we that we are properly sharing.
And everybody is nimble.
<unk> nor choice.
It looks like is happy and as a platform with where 1 plus 1 is more than choosing it because so we have the leading brands.
In terms of equity in Chile, there is corona they have the leading platform of distribution than we were.
To put this things.
Hmm parallel when we decide to go together the governance is working.
And it just make us a confidence true true you'll have more alliances in general with an S. Obese.
All over the place as a place.
<unk> is a technology, where we are building a lot of alliances and partnerships.
So I think this concept of alliances they will be on the next level in the past. It was just the liaison on exclusive distribution now and we are very happy with Chile in.
And but then we have to think.
From a broader perspective on using the technology on Z delivery on bids here and there sometimes you'll have from distribution. Sometimes you don't have the distribution. We just get the take rates. So this concept. So we are going to be much more open to different type of alliances for us to do than than we were before.
<unk> is 1 type that makes us really confident that.
Alliances are good and possible.
Yes, Thanks a lot.
So again, congratulations and thanks for taking my question.
Our.
<unk> question comes from Rob Hopkins time with Evercore. Please Rob go ahead.
Great. Thanks, Thank you very much a few questions.
That may be related.
First can you can you talk a little bit about.
How your high end.
Next in Brazil beer is developing obviously a tremendous portfolio.
But.
What percentage of your business now is at the high end is.
Is that part of the business gaining share and are you seeing any changes.
And in the consumer base.
Business between kind of the craft beers that you have the imports any any nuances around corona backs.
So that would be the first question.
And then the second question is.
Can you talk about innovation this year kind of revisit what are the most important.
Our innovations in 2021 and anything that Youre doing thats notable on the beyond beer or returnable, Bob not returnable bottle returnable drink side maybe.
Ready to drink side I'm sorry.
Ready to drink side.
In your region.
So high end 21 innovation.
And ready to drink beyond beer.
Projects in 'twenty 1 thank you.
Okay. So thank you for them.
The question, Robert Let me get the premium first so this was a quarter that we grew with our portfolio of something around 35%. So.
<unk>.
Good growth so what we saw during the pandemic is that so we saw in terms of portfolio of this thing about the resilience of the core.
High end growth from this segment is something more structural that it's like a more long term.
And we see it.
It was coming back again.
In this structure is something that is our priority and we've put in.
TPI for us.
Brand equity so investment in branding.
Head of any type of market share gains okay. So that was.
Our decision and we put the portfolio in place we just thought we.
We position the brands find the consumers and then we are really investing marketing dollars over indexing big time on the high end and we really want to drive brand equity ahead of any type.
Of penetration and consumption.
You really have a sustainable long term business and we are very excited about it because we are growing the equity very fast in.
In a very.
Consistent and sustainable way.
With our portfolio and then our portfolio.
It has to grow volumes accordingly, so it was a good quarter.
But I'm more excited with even though with the brand equity.
How corona is really performing in Brazil, how becks it really came with.
With.
This vision of a problem.
<unk> built a law in and it has the edge in flavor is <unk>, so I'm really excited about.
Brand equity moving very fast sustainable for our portfolio and then volume will follow.
So this.
Second thing is that when we talk about innovation and Adjacencies.
So in total talking about beverage here.
So so the pipeline of innovation the most relevant things that we have in place are so our bet on health and wellness.
Okay. So this is the avenue that we are going to populate and we're going to have.
More products from that so we are.
In the Olympics now launching michelob ultra in Brazil.
With the Olympics.
In the Olympics moments.
Using boats is our.
In our advertising so it was a good moment for us to launch ultra.
We just rolled it out after the pilot Stella.
Without Luton.
We are very excited about so we're bringing out new consumers.
To the to the beer industry. So these are this is an avenue ultra and <unk>.
We launched <unk> in terms of.
Renovation of the core brand growth pattern, there is 1 brand debt.
From our portfolio.
Volume German.
First data from 13.97 that we are rolling out in Brazil that we will have.
<unk> premium core plus price is that it's important.
Beds that we have we just.
Started to roll it out.
And in terms of Adjacencies.
So the Brent the beats brand is doing the farewell.
We are rolling out Mike's hard lemonade.
With.
The flavors and with the Lemon Tangerine tire flavors and we are piloting.
It's in the heart sales force, so that's where we are.
And these are the 3 most important avenues.
Pipeline of innovation that we have for the <unk> true.
Okay.
Great and if I could just follow up although it is very interested in your comments on.
Growing brand equity ahead of volumes essentially.
And making our key Kpis brand equity is that approach somewhat different than what you've had or.
Over the past.
<unk> history, I mean, not maybe the last couple of years, but historically over the last 10 years would that be a very.
Approach.
So this this is specifically this kpis that we are following.
Brand power brand equity in power.
Growing faster than the market share it was something that for now we are 18 months consistent.
Different with this specific strategy.
And we begin to see it paying off.
Yeah.
Terrific. Thank you very much.
Yeah.
Ladies and gentlemen that concludes our question and answer session FERC true.
Now I would like to turn the conference over to Mr. Shannon should ease such as CEO for Ambev for his final remarks.
So I would like to thank again my my team Ambev.
For the dedication during these tough times.
<unk> also.
Nick analysts and everyone, who joined this call for time and attention into wrap up I'm really confident about the future.
I have this feeling that we our company is really structurally batter.
In the cycle of commodities in.
Currencies, but when you look the underlying trends, we are really structurally better commercial strategy innovation tech platforms and operational excellence is really delivering results.
We seize the opportunities abroad.
By the Crazy.
As we place it big.
Once you pass off accelerating.
Towards the future.
Sustainable recovery.
Transformation is here in our business. So we have this vision of platform.
Customers and consumers to big digital products that we have built in there and our portfolio is really stronger.
<unk> brand equity brand power is really showing that we have 3 million consumers in Brazil that that claim that mention to us that a 1 off.
In the past 1 of our brands, we're not their preferred 1 in our 1 of our brands are their preferred 1 so I'm.
Then be excited about my portfolio in cash generation is strong remains strong. So thank you very much for all your time and attention and have a great day.
<unk> Conference call has now come is now concluded.
I'm very happy with so much for attending have a nice day and you may now disconnect.