Q2 2022 Anheuser-Busch Inbev SA Earnings Call
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The call we suggest that you download the PDF of the presentation from the a b Inbev Investor Relations website and follow along.
Welcome to Anheuser Busch Inbev second quarter, 2022 earnings conference call and webcast.
On the call today from AB Inbev are Mr. Michel you Caris, Chief Executive Officer, and Mr. Fernando Tennenbaum, Chief Financial Officer.
To access the slides accompanying today's call. Please visit <unk> website at Www Dot AB Inbev dot com and click on the investors tab and the reports and results Center page.
Today's webcast will be available for on demand playback later today.
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Some of the information provided during the conference call may contain statements of future expectations and other forward looking statements.
These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties.
It is possible that AB inbev 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 in the Companys latest annual report on form 20-F filed with the Securities and Exchange Commission on the 18th of March 2022.
AB Inbev assumes no obligation to update or revise any forward looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information.
It is now my pleasure to turn the floor over to Mr. Michel do terrorists, Sir you may begin.
Thank you Jessica and welcome everyone to our second quarter 2022 earnings call.
It is a pleasure to be speaking with you all today.
So Dave Fernanda and I will take you through our second quarter operating highlights and provide you with an update on the progress we have made in the execution of our strategic pillars.
We will then be happy to answer your questions.
To start with forward operating performance.
Our momentum continued this quarter.
We are very pleased with the ongoing strength of our business.
We delivered topline growth of 11, 3%.
Three 4% volume and seven 5% revenue per hectoliter growth.
Given by the expansion of the beer category ongoing criminalization supported by increased investments in our brands and revenue management initiatives.
Markets.
Despite the dynamic operating environment, we continue to meet the moment good only EBITDA by seven 2%.
Normalized EPS was <unk> 75 cents and underlying EPS was <unk> 73.
Gross debt decreased by $5 5 billion in the first half of this year and our net debt to normalized EBITDA decreased to three six times.
Our performance this quarter was broad based it and we delivered top line growth across all five of our regions. We saw volume growth in over 60% of foreign markets.
Our diverse geographic footprint and balance the bit that contribution provides a unique combination of growth and strong cash generation.
Now I would like to share some highlights from our key markets.
In the U S I would like to start by highlighting the resilience of the beer industry.
Even in the current dynamic operating environment, we have seen gradual improvement throughout the quarter, and then creating value from pre pandemic levels.
While our volumes underperformed the industry, our business delivered another quarter of top line growth.
We remain confident in our long term strategy focused on rebalancing the portfolio.
Our above core portfolio continues to outperform led by Nicola Ultra which grew volumes by double digits.
We didn't see spirits space ready to drink segment, our portfolio once again outperformed the industry with both watering neutral once the seltzer growing strong double digits.
In Mexico, we outperformed the industry delivering double digit top and bottom line growth.
Our core brands delivered high single digit volume growth in our both part portfolio. Once again grew by double digits led by mobile and Michelob Ultra.
Over 60% of our best customers are now also beef marketplace buyers.
In Colombia, we delivered double digit top and high single digit bottom line growth and continued to expand the beer category.
Again, reaching all time high per capita consumption.
Our premium and Super premium portfolio re chip.
High volume delivering over 40% growth led by our global brands and local premium brand <unk>, Colombia.
Our business in Brazil delivered 26, 8% top line growth and a strong $34 three increasing EBITDA.
Brazil is a great example of our evolution towards becoming a textbook SMA sushi.
Our advanced digital transformation allow us to capture both growth and operating efficiencies.
Our beer volumes once again outperformed the industry growing by eight 5% led by our core brands.
And over 20% volume growth of our premium and Super premium brands.
In a nutshell our business in Brazil delivered across all five levers of our category expansion framework.
In Europe , we delivered high single digit top and double digit bottom line growth driven by on premise reopening ongoing premium amortization and implementation of revenue management initiatives. Our portfolio continues to bring a nice with growth this quarter led by our <unk>.
And Super premium brands.
Our business in South Africa delivered high single digit top double digit bottom line growth. Despite significant production constraints in April and May due to floods impacting our perspective brewery.
Underlying demand for our portfolio remained strong our leading core brands delivered continued revenue growth in our premium and Super premium beer portfolio outperformed this quarter delivering a double digit increase in revenues.
In China, the implementation of COVID-19 restrictions led to a total industry decline of mid single digits in the quarter. According to our estimates these restrictions disproportionately impacted our key regions and channels leading to revenue decline of five one <unk>.
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Underlying consumer demand for our brands remains as strong as restrictions ease did in June both our premium and Super premium portfolio's return to volume growth increasing by double digits.
I would like to.
So now turn your attention to a few ESG highlights.
In the second quarter, we made progress occurred already STG play audits, we select highlights including.
Advancing <unk> in our operations, we opened the first full scale ever grain production facility in St. Louis towards cycle bodily using our brewing process into high quality sustainable protein ingredients.
Building, a resilient value chain, we brought together more than 250 to supply chain partners with the launch of our global collaboration initiatives at cliffs, So derived climate action and decarbonization.
Fostering intrapreneur ship and innovation, we hosted third annual dermal date of our 100, plus accelerator program with our CPG partners.
34 startups showcased pilots to progress our sustainability goals, our produced water stewardship climate action is market with culture circle of backing and upcycling.
Now, let's move on to our strategic pillars.
And let's just start with pillar one.
<unk> and grow the category.
Our brands and the creative work that brings them to white and connect them with our consumers is a true passion points of mine.
And this year, Ken Lineups International Festival of creativity, our marketing teams achieved the best performance ever waning 50 lines a record high for our company.
This 50 awards were distributed across six of our key countries and nine brands, we werent, especially owner for being awarded the creative marketer of the year and the creative effectiveness Grand Prix for Mitchell of bolt contract <unk> change campaign.
Big Congratulations to our teams and partners for this extraordinary achievement and recognition of the progress in our creative marketing capabilities.
Now let me take you through our category expansion levers first we continue to focus on making the beer category more inclusive for the alcohol servers.
This quarter consumers participation within our portfolio increases in the majority of our key markets driven by brand.
And liquid innovations.
Second we are offering superior court propositions.
Our mainstream portfolio delivered high single digit revenue growth this quarter led by strong performances of our core brands in Brazil, Mexico and Colombia.
Third occasions development, our global brand Stella Artois grew revenues by seven 7% outside of its home market led by the focus on the new locations in key markets, such as Brazil and Colombia.
Fourth we are advancing premium innovation.
This quarter, our both core portfolio grew revenue by approximately 12%.
Led by continued double digit growth of Michelob ultra in the U S and Mexico and the expansion office button in Brazil.
Our global brands continued to drive print organization across all markets the.
The combined revenues of Budweiser, Stella Artois, and Corona grew by nine 7% outside of the brands' home markets led by Corona with 18, 2% and we Stella Artois with seven 7% growth worldwide.
Budweiser grew by 612% despite the impact of COVID-19 restrictions in China, the brand's largest market.
Finally, we continue to expand the category, we forward beyond beer offerings.
Our global beyond beer business contributed over $425 million of revenue in this quarter.
In the U S. Our spirits space in the ready to drink portfolio continued to grow ahead of the industry led by cutwater in neutral <unk> in South Africa brutal fruit and flying fish delivered continued double digit growth.
Innovation this quarter supported expansion across each of the five levers of our framework contributing approximately 8% of our total revenue this year.
Now, let's turn to our second strategic pillar digitized and monetized our ecosystem.
As we invest to become effects first SME CG company. These continues to see a remarkable acceleration in usage and reach capturing seven 4 billion U S dollars in Gen Z this quarter, a 64% increase year over year.
We have now $2 9 million monthly active users generating over $1 9 million orders per week.
In 12 of the 18 countries. Our customers are also able to purchase third party products through beef marketplace.
These marketplace offers a consolidated order and delivered management platform.
<unk> pain points any poverty our customers to grow.
We continued to increase the adoption and expansion of product availability.
That's 40% of this customers in this market and also buyers from BS marketplace too.
To date, we have over 100 partners, providing more than 500 brands through the platform generating annualized revenues of 800 million U S dollars.
Is waning partnership empowers our customers to grow via the benefits of digital inclusion.
And enables our partners to benefit from our World class platform and highly engaged user base.
Now, let's talk about direct to consumer business.
This quarter, our DTC products generated $385 million in revenues.
The number of four nine orders surpassed 16 million transactions this quarter driven by their delivery in Brazil, and the continued expansion of our on demand platform in additional markets in Latin America.
With that I would like to hand, it over to Fernando to discuss the third pillar of our strategy optimizing our business.
Thank you Michele good morning, good afternoon, everyone.
We aim to maximize value by focusing on three areas.
Optimizing resource allocation.
Robust risk management.
And efficient capital structure.
With respect to capital allocation, we are going to maximize long term value creation by dynamically balancing our priorities.
We continue to invest in organic growth and support our strategy to lead and grow the category and digitized and monetize our ecosystem.
The excess cash generated by our business is done dynamically allocated to our other capital allocation priorities deleveraging selective M&A and return of capital to shareholders.
In light of our capital allocation priorities, we continue to make progress on deleveraging.
Our gross debt reduced by $5 5 billion U S dollars in the first half of 2000.
And our net debt to EBITDA ratio decreased to 386 times.
As you can see on the next slide our debt maturity profile remains well distributed with no near and medium term refinancing needs.
<unk> three 2 billion U S dollars of bonds maturing through 2025 and more than sufficient cash on hand to date to redeem all of these bonds.
Our bond portfolio has an average pre tax coupon, 4% and a weighted average maturity greater than 16 years.
Moreover, our debt portfolio does not have any financial covenants and is comprised of our right of currencies diversifying our effect risk.
In addition, 94% of our bonds have a fix it right insulated from interest rate volatility and inflation.
Now, let me walk you through the drivers of our underlying EPS for the quarter.
Underlying EPS was <unk> 73 per share two cents lower than the second quarter last year.
This was driven by an increase in net finance cost and.
And higher income tax expense.
Net finance costs increased largely due to foreign exchange losses, which accounted for cost base.
These losses were the result of FX translation of cash held in foreign subsidiaries.
I will now hand, it back to Michele for some final comments Michelle.
Thanks Fernando.
I would like to take a few minutes to recap, our reflections and learnings and how we continue meeting the moment in 2022.
The beer category continues to demonstrate this strength.
We are operating the big profitable and growing category.
<unk> continues to gain share of throat globally.
And we are well positioned to capture this growth as we hold the number one position in seven of the top 10 global beer craft pools.
Our business has momentum.
Driven by relentless execution of our strategy the strength of our brands and our accelerated digital transformation, our business delivered sustained profitable growth.
On top of that this year presents unique opportunities to activate demand.
Such as continued on premise to reopen.
In return of my key events, such as the World Cup in the second half of this year.
In conclusion, we are confident in our business fundamentals and our team's ability to continue to meet the moment and create a future of marches.
I would now like to hand, it over to Jesse to begin the Q&A session.
Thank you at this time, we will be conducting our question and answer session.
Like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
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Our first question is coming from the line of Simon Hales with Citi. Please proceed with your question.
Thank you Mollie shareholding plan.
Two questions from me please.
Could you talk a little bit Michel about physical to the strong revenue per hectoliter increase you've continued to see in Q2 and whether that robust pricing that continues to go through in your markets around the world as having any real underlying effect on consumer offtake trends.
Specifically in the U S.
Some of the recent pickup we've seen.
The lower price tier brands like Bush is a reflection.
Some of the pricing and inflationary moves in the market just interested in your color there.
And secondly, maybe Juan Fernando around the tax credits in Brazil, which were pretty positive in the quarter.
Is that a one off really in Q2 can undo I mean, obviously you had something last year as well, but should we expect any more tax credit to support the numbers into Q3 and beyond.
Simon Good morning, good afternoon. Thank.
Thank you for the question.
I'll take the first one on revenue and then hand, it over to Fernando, but when you think about to revenue.
Because at the beginning of this year as we announce it.
At <unk> the results that majority of our price increase in revenue actions put in place. So we had this incoming.
Revenue momentum and the price in place and the majority of the markets.
And as we look at that we continue to very carefully.
Our lives and SaaS the situation market by market given the current environment and trying to assertively ballance, the consumer demand and the value proposition of our brands.
Up to date, let's say based on what we signed the first half of the year and our own volume performance users.
Don't see any deceleration on the trends. So beer continues to grow globally and gained share of growth in most of the relevant markets. So good performance good incoming momentum.
And as we go deeper market by market I think that you had this question that is always took tails of the stories.
In the wax and globally, you see premium amortization.
The big trend that is not slowing down.
And of course that our brands performing differently market to market.
Bush light point that you ask of the heat is among new rich life isn't that big run.
Several quarters already growing is one of the top growth brands in the U S very healthy expanding.
The union of parts of the country.
Growing now to more regions and it continues to accelerate but I don't think that has any relation to short term pressure on consumers trade down is much more brand momentum behind Bush life, that's working very well, so I would say that.
On a consolidated view and even specifically in the less we don't see now signals of trading down audits slowdown historically, though we know that <unk> is very resilient.
That consumers trades out of some categories, but not really because of its affordability.
We often see more expensive beverage trading now towards premium beer. So often what we see is an acceleration of premium beer growth when you have.
Some inflationary scenarios and consumers under pressure, but up to date.
Moving quite well and the biggest evidence of that is the growth of <unk> globally. According to a monitor and adapt the new <unk> and our own volume growth of three 4%.
And Simon on your second question. So the tax credits in Brazil, where model for one off this quarter.
Okay.
That is always kind of.
Decisions out there, but it's not a recurring item that we should be expecting.
And the only the only the only highlight that I would say is that even though it has been at 15 totally deepen EPS is excluded from our organic growth. So the organic growth numbers doesn't take into consideration any tax credit benefits.
Got it very helpful. Thank you.
Thank you. Our next question is coming from the line of Tristan Van <unk> with Redburn Partners. Please proceed with your question.
Alright, gentlemen.
A few questions from me just wanted just a quick follow up on that last one from Simon So just for the avoidance of doubt on.
On the current Supreme Court decision on the tax credits, there's nothing coming in future years.
Clarify that.
As far as we know today.
Okay great.
Just a few questions from me.
One for Fernando.
Just on your working capital quite a big outflow. This first half from the largest I've ever seen.
Can you just maybe take us through that and how we should think about for the full year. I mean are you going to get back to positive territory.
Normally do in H two.
And then the second question.
Again, they're going to go back on pricing in the past you've said you wanted to get the CPI type level of pricing when I look at the U S. In particular is that something you're still aiming for for this year or is it just really about covering your cost rather than <unk>.
Covering CPI.
And then the.
The third question on Colombia is really going well and I'm just trying to figure out what exactly has been that inflection points. I mean, why are you guys gaining share from alcohol, which seem to have escaped actually Colombia for many years.
<unk>.
Are you doing very differently does happened in the past.
Thank you.
I remember once again, so let me take the first one and then I'll, let Michelle answer the other two questions. So.
For us to better understand 2020 'twenty to 2022.
Working capital, we need to look at what happened in the opening balance in 2021.
So if you look at Capex back in 2020, we made some proactive decisions to reduce capex during the peak of the Covid uncertainty in a meaningful way and that led to lower payables balance in our opening balance sheet for 2021 B income tax payables were also lower as the business was impacted in 2002.
It doesn't do any so less less income taxes to pay in 2021.
And third you need to remember that there was no bonus for the year 2020, and as always this bonus is actually paid in 2000, if anyone's so again lower payables balance.
So with this context 2022 looks more like a normal year.
And if you look at those anticipated impacts are fully embed into our plan and with this in mind. We go back to this trend that are seasonally we generate lower cash flow in the first half of the year and then you should have strong generation in the second half of the year. So no changes in our normal business operation.
And Michele.
Great.
Yes. Thank you for the questions I'll take the first one on pricing CPI I think thats generally the idea does not change much I think thats, what really changed in big time, this year and a little bit last year is that the CPI is much bigger.
Then one would expect and even accelerated throughout the year.
And because of that we had our plans in place.
We look globally to date I would say that is.
Clear that <unk>.
Prices are lagging inflation.
While I just said before that we are carefully balancing consumer demand.
Value proposition of our brands.
And input costs as we build our revenue management strategy, but globally practices that is likely below inflation.
And if you think a company of our size and scale of course, we have many levers to pull and how we offset the input costs.
And that's the reason why to date, we are growing both top line, we have strong volumes.
David So I think that will continue to monitor we'll continue to carefully balance well the consumer demand. We saw our revenue management initiatives on the second point, maybe just linking straight Cologne depth to that I think that Colombia is a very interesting examples.
Well I mentioned, Brazil on the webcast, but in Colombia, we have this.
Very good combination.
Earth activating the category levers so the five levers of expansion that we talk with innovation with strong.
Per capita consumption growth.
In a very well defined and digital environment, what is now where we can.
Both activate the demand with retailers, but also starting engaging much more consumers in a three six this type of digital activation that helps us to position while our brands.
<unk> the demand and continue to develop the category. So I think that is another. Good example of a market whenever things coming together and working very well for us as we continue to gain share of throat there.
And Kristen just if I could add some color on Colombia, as well cost Colombia is a market that we had.
<unk> does it.
Top topline growth, but it had single digit EBITDA growth and with single digit EBITDA growth was actually a function of this.
The disposal of our noncore asset this quarter is actually we sold the land if it wasn't for the selloff of land we would have also <unk>.
The growth in Colombia.
Great. Thank you very much.
Yes.
Thank you. Our next question is coming from the line of James Edward Jones with RBC Capital markets. Please proceed with your question.
Good morning.
Are you guys just give us any indication what's happening with your marketing spend as a percentage of sales. For example, this morning with <unk> determination to continue investing in marketing.
Sure.
Petra Zhang co market.
I'm wondering what your reaction sensors.
Hey, James Good afternoon, and thank you for the question. So we have discussed this before as well in that in the annual release, we continue to invest behind our brands as we have premium nice create more alternatives to grow and.
Expand the category and there is no change in discipline I think that what has been changing and is always a good.
Opportunity to highlight that is that we are becoming more efficient.
So the campaign has been working better and more do we become more digital the more we connect with both points of sales and consumers digitally we see growing otherwise on the investments that we're making so we will continue to invest and we are very glad with.
The performance that we are having both in creative because we continue to strike very well.
On the power of the brands, but also down Hawaii of these investments that continue to grow as we digitalize.
Okay.
Sure.
Thank you. Our next question is coming from Edward Mundy with Jefferies. Please proceed with your question.
Good morning, guys two questions for me. Please first is on your guidance of four to eight central kind of keep it for the year, you've delivered seven 5% in the first half and to deliver for eight of its quite a wide range for the second half I. Appreciate there's still scope for a lot of volatility.
But the exit rate looks quite encouraging and June you mentioned the marquee events.
Flooding in South Africa should be in the past is there anything that youre seeing so far that would suggest that <unk> II will be materially worse than the first half.
And then the second question is on Voltaren neutral that is doing pretty well in the U S. Does that give you confidence to push those two brands a spirit based rtd's globally.
Okay.
Hi, Ed the number here so on the fluctuate.
<unk>.
We are reiterating the outlook and when we said fluctuate remains four to eight there is no no no nothing you could read about the different performance in each quarter, rather than full year fluctuates, Illinois, Michelle wants to add any to that.
I can add on that and take on the second question.
Edward Thank you. Thanks for the question I think that that they'll put to me to hear the answer to that would be just to remind ourselves and to clarify once again, why we provided an outlook.
As we were coming from last year to this year.
I think that at the moment that we announced that our new strategy and the transition from inorganic growth strategy to a more organic growth strategy.
We discussed and shared with you the main things that we had to evolve and what will be required for us to really land this organic strategy.
And three points.
I stressed and discuss it with you while investing to lead and grow the category.
Invest to advance and accelerate our digital transformation transformation, while dynamically allocating our resources to first grow the business organically and down believer there are the three priorities.
And we work at the midst of this pandemic and all of this is very dynamic operating environment and we thought that would be very important to provide clarity on the growth of it.
That was the reason why we gave the fluctuate and all of that remains true today right. So we are accelerating organic growth investing in the category and in the digital transformation and we continue to support this growth. Therefore, the four to eight works for us not for the quarter.
Only but it's more of a midterm.
Alberta and outlook desktop gaming.
And sharing with you so providing the certainty of the financial discipline that we will do that and we'll do all the investments that we need to do and deliver the EBITDA growth and neutral.
Interesting question I am sure that for a lot of people is a new brand.
But neutral is a leading blood consolidating Canada, it's growing very fast in the last three four years in Canada, and we decided to launch at the end of last year in the less performing very well in two states. We are rolling it out now nationally.
That accelerated growth.
Very good news coming from quarter, two but also from fourth of July while the brand stroke like high volumes and very good performance.
A key focus now is on the U S. Whether you have this.
Dual strategy in the ready to drink.
Cutwater, which is a more complex.
A huge variety of cocktails and neutral is more on the vodka soda, which is the self serve space, let's say that is in the <unk> basin.
Ready to drink blood first so that they can have a lot of share from that.
<unk> mouth basis <unk> Suisse.
The brand has great performing very well once we get this well established in the U S.
Yes that will be a very good opportunity for both cutwater and neutral to continue to expand globally.
Thank you and just to come back to the first question I appreciate the full dates of our medium term framework.
And you need to have the flexibility to reinvest but just to be clear without guiding for the second half.
<unk> seen anything that sort of.
Puts an inflection on the downside it since the first half.
That we need to know about.
Okay.
So year to date.
No change.
You will see the volume of the second quarter I think that is the best indication of the momentum and we remain confident on the fundamentals and the strategy implementation and execution.
Great. Thank you.
Thank you.
Our next question is coming from the line of Olivier Nicolai with Goldman Sachs. Please proceed with your question.
Hi, Good morning, Michel if Honda Sean I've got two questions. Please first of all.
Do you see or do you expect any impact on volume.
Your price increase in some emerging markets in Africa, and Latin America, considering for the <unk> could be an issue and the food inflation is definitely going up quite a lot in those countries.
The first question and then second question you've made some really good progress on deleveraging in each one.
And you usually generate much more cash in H, two we'd be fair to assume that you could Dan.
Closer to three five times debt to EBITDA and from.
Cash flow perspective would you be willing to reinstate the interim dividend as you've done in the past on top of the final dividend. Thank you.
Olivia Thank you for the question.
Take the first one and leave toward <unk> with the second and third question.
Our incoming volume trends remain very strong.
This growth.
Yes.
Across all regions. So we see good trends across regions.
And maybe the most important.
It is there.
Underlying demand because even in some of the regions today, you would have some constraints in supply availability.
It could be selling a little bit more.
But we don't see to date and the is low down on that and once again historically, we see that <unk> is very resilient.
Data from lower ammonia Thor <unk> that we saw now at the end of quarter. One April continued to show the same trends beer growing globally and gaining share of throat. So.
So we will know more once we get through quarter, three and quarter four but to date trends remain with good momentum.
And Olivia on your second question Fernando here.
You are right, we continue to make progress on deleveraging and it is true.
The leverage since two nominees is stronger in the second half because the.
The cash flow component as far as stronger in the second half. So we're not providing any specific guidance on the number but.
As part of our strategy and we've been very vocal about it we'll continue to focus on deleveraging and it shouldnt be the making further progress on the second half.
On the dividend question.
I see the right way to do is going back to our dynamic and the location of our capital we continue to invest behind our business and then a lot of opportunity in that and the excess cash.
At every given moment in time, we will look at what creates more value, whether it's deleveraging and return of cash to shareholders.
Our selective M&A and this decision that we're going to be taking at different moments in time. So once we get to October and then we can have a discussion, but what I can tell is that right now we can create more value from that leveraging than anything else. So that should be more deleveraging to come.
Thank you very much.
Thank you. Our next question is coming from the line of Sanjay <unk> with Credit Suisse. Please proceed with your question.
Hi, Michelle Fernando Thanks for the question.
Given your earlier comments.
Pricing is lagging CPI.
It's likely looking like another year of input cost headwinds into 2023.
As you think about and budget over the next few quarters is it reasonable to assume.
Your pricing.
It will be considered.
Up to <unk> now.
Or should we expect Q2.
To price below CPI.
I am place a little bit more emphasis on the volume momentum you have.
LNG produced can remember here, let me start tackling the cost and then Michelle can talk about the top line. So if you look for 2022. The majority support expenses covered and this is embedded into our full year EBITDA growth outlook of 42, 8%, which we reiterate today and of course.
Revenues growing ahead of EBITDA for.
For 2023, we are still in the process of hedging our exposure. So it's too early to make any comments.
But it is also fair to say that commodity price continues to be under pressure with the recent market movements have been positive.
And the commodity escalation is not evenly spread throughout the world. If you look at based on market prices to be the highest year on year impact is in Europe , which happens to be where we have the lowest lowest exposure as a business.
And then maybe Michelle can comment on the topline.
Yes, Sanjay thanks for the question. Good afternoon, I think thats on the cost effective sales all Fernando that as we look at the situation today.
The fact is that the year would finish today for next year. These are smaller than what was the impact from last year to this year.
We will need to get through quarter three quarter, four again to understand that that all of the moving parts and in price and just I think that we.
We are thinking alike right. So there is no big change in the way that we think about our price and inflation globally I think that the biggest change this year was that inflation moving much faster.
And move it beyond what was the original expectation of every body and we continue to monitor and access the situation.
At the same time is not like abnormal that throughout the year. All the prices that we have are not and placing at because in several markets. We have more than one price increase per year. So we continue to execute our plans.
As we always do.
The caveat here that I would put forward is this idea of we need to be.
Carefully.
Assessing the consumer environment country by country.
By brand segment by segment. So we keep our number one priority, which is grow the category in mind.
And we need to grow for the long term not only for the shutdowns. So penetration is very important transactions and frequency.
Something that we are looking at all the time. So we don't disconnect the category from consumers, but.
At this point inflation is cuomo across categories prices are moving the right direction be it is likely before inflation and catching up and consumers are responding well, even though we need to carefully watch the next call.
And I think Ken I feel that we will know more as we get through quarter, three and quarter four and we only know the full picture as together right. So now is directionally. We are clear I don't want to we are doing and it's working.
And we need to continue to monitor.
The consumer environment.
I can tell you.
Great. Thank you very much Michelle Fernando.
Thank you. Our next question is coming from Trevor Stirling with Bernstein. Please proceed with your question.
Yes, Hi, Fernando.
Two questions from my side. Please first.
First one.
127 bps of margin compression in the quarter Fernando could.
Could you estimate once the impacted pes marketplace, it's getting very accretive for EBITDA growth, but what order of magnitude of dilution is coming from <unk> marketplace.
Hi, Trevor Fernando here, so what I can tell about this is that the marketplace is still at early stage, we're rolling it out.
And growing customer and partner base at a very accelerated rate.
The revenue is coming from this marketplace are entirely incremental we will have a very different margin profile.
But very accretive rois, given our existing asset base.
Therefore, there isn't impacting the margins, which means the base business margin is better than the consolidated one as marketplace. It becomes more material, we'll probably disclose it separately wrapping up we have <unk>.
$800 million annualized JV any fuse that similar business is approximately one can reverse engineered and impact on margins that were having.
Alright, Thank you for that and second question.
It's clearly very early days to be looking forward to 2023.
Sure you still have tremendous youre hedging has to be completed yet, but if you took today's spot rates and gas forward or are we looking at input cost inflation, that's going to be worse in 2022 or better or more or less the same.
Yes.
<unk> just mentioned if we were to look at today and that is still a lot of quarters to happen now with hedging policy is 12 months. So we are not fully hedged for next year as one would expect but if we look at the spot prices today in comparing to last year, you do have some pressures, but to a lesser extent than the one we had in 2022.
The only caveat is probably the one region, where you have more in modifying packages Europe on average as a company you would have less of an impact in effect with less of an impact, but the euro the region or to have more of an impact than the one who had this year is Europe .
Super Thank you very much Fernando.
Okay.
Thank you. The next question is coming from Brett Cooper with consumer Edge Research. Please proceed with your question.
Thanks. Good morning, a question on improving returns in April Inbev spoke a focus on improving ROIC.
<unk> and improvement in asset turnover turnover and no Pat margin can you offer your view on where you are today and the potential to deploy or export a similar effort and any details on that deployment in non ambev markets like the U S, Mexico, China and Colombia.
Thanks for the question, Brett Sydney as an opportunity.
We always look into that with bulk coal is about.
Resource allocation.
We will continue to we will continue to work on that and I feel that as long as we continue to deliver.
We continue to deliver.
Growth in IDP continues to be more efficient on resource allocation that Susan Abi worldwide focus it's not only one specific country specific region, but it's how we optimize our business.
Great. Thanks.
Okay.
Thank you. Our next question is coming from the line of Pinard Airgun with Morgan Stanley . Please proceed with your question.
Thank you in the U S. Your performance has been a little lighter on the market trends is there anything Abi can do other than portfolio rebalancing towards the growth segments to improve its U S performance against the market. Thank you.
It's not a michelle here thanks.
Thanks for the question I'll, just repeat to make sure that they've got this right you were talking about the last market right.
I'm talking about Avid's performance relative to the U S market. It appears that your performance has been a little lighter or you have been underperforming the market can you do anything other than rebalancing your portfolio towards the growth segments to improve your performance.
Gotcha. Thank you.
I think that we.
We talked about three main highlights in the U S. This this quarter and one was the.
The results of the industry, improving while our volumes underperforming the industry and this is not like a new.
Component, we've been with this story.
For a while and of course each quarter is different.
Is one I think that's more highlighted because the industry was ready.
<unk> lowered the beginning improve it throughout and when the industry is not moving well the core segments mainstream brands.
To perform.
Less than the overall industry and of course the portfolio rebalance ill look at this more like the outcome of everything that we're doing is not the only thing that sort of thing is the outcome that we are trying to achieve.
And just to give you some examples and highlight so one of the key areas that will be improving day less over the years was category management.
We made several investments in category management, and we are evolving from being beverages. The number 20 supplier to be the number one partner for the retailers in the less according to that vintage survey, which is the one that they use and that plus based on all the improvements that we have.
We saw our wholesalers, we enhanced our big time, our partnership we measure the NPS the engagement with our wholesalers every year in the yard at all time high.
Look at the marketing capabilities innovation, so we've been leading innovation in the last three years.
Being one of the most awarded companies for the accretive including several prizes that Ken and we've been now even with all the difficulties in the three tier system advancing the digital transformation as well, we should be growing more wholesalers more.
Five states.
In the U S that combining this with Lola, which is our locally optimized learning algorithm, we are getting much better data and improving the quality of the activations that we do so as we do all of that and invest behind the right brands. The outcome is.
Our portfolio rebalancing and Thats why we are now seven quarters in a row growing top line and day less.
And this growth is coming we felt this cost inputs inflation with a flat EBITDA.
<unk>.
<unk> is an improvement for our business in the U S more to do.
I think that we underperformed in volumes and this is the second biggest step that we have to have but we are confident in the long term strategy.
Each quarter will be different in.
<unk> is going to be different as well, but the confidence in the long term.
Thank you.
Thank you. Our next question is coming from the line of Priya Ari Gupta with Barclays. Please proceed with your question.
Thank you so much for taking the question Fernando I was wondering if we could just dig into the.
Further deleveraging over the latter half of the year and how are you thinking about.
This is where you could look to pay down some of that.
How are you considering opportunities to potentially.
Utilized from a lower dollar prices that your bonds are trading at to help accelerate deleveraging. Thank you.
Hi, Brian .
Thanks for the question so.
Actually we generate our cash flow as much modest Q towards the second half of the year. So as we move into the second half of the year.
With this additional cash flow the ideas that we look for further opportunities for liability management.
And you are right. If you look at the evolution of interest rates and everything that is going on around the world you can see that our our market to market of our debt portfolio moving from being a 120% of.
Fair value in the beginning of the year to being close to 100, and if you look at the different this box the different.
Massachusetts that who have you'll have some modest trading below 90% closer to 80%.
So property that some other boost when you look for our deleveraging efforts in the second half being able to buy.
Chunk of our desktop both bodies is also great opportunities and it's also growing.
<unk> kind of the opportunity of having kind of a fixed rate debt in an inflationary environment and in a rising rate environment. So we need to make sure we make the most out of it.
Hello, Pyrite Hello Pablo.
Yes.
Thank you and then just one quick follow up on how we should think about the timing of some of the cash coming in over the course of the second half.
As you sort of sweep and from.
Your various markets globally. Thank you so much.
That will be too much detail too much specific.
A few kind of we don't go into the detail month by month four day by day, how we generate cash, but the notion that the second half of they get as much stronger cash flows through has been true for several years in a row. This year, it's likely to be no different and then once we get the cash we will refine the model.
Great way to deploy to do liability management.
Thank you so much thank.
Thank you.
Thank you. Our final question is coming from the line of Robin Stein with Evercore. Please proceed with your question.
Great. Thank you very much.
Kind of scope out a little bit bigger picture type questions. So Michelle.
You're coming up on about a year now as CEO .
Presumably you came into the role with certain preconceptions.
Love to.
Take a moment to reflect on kind of any surprises disappointments.
Any need to kind of pivot based on what you've learned over the last 12 months and kind of just kind of assess how things have gone and what you need to do going forward. Thank you.
Hey, Robert.
Thanks for the question and.
And thank you for reminding us that time goes by very fast. So it's good to be talking to Youll hear them.
That's the opportunity.
Let me maybe.
I'll start answering the questions, saying something that they have said before.
<unk> with you this is really.
The opportunity for lifetime, it's a lot of things coming together.
<unk>.
I am very excited each and every day to come to work to think about the possibility.
Chatting with the team what they've been learning and what we've been doing.
At the same time that we all need to agree that as being like an incredibly dynamic environment. So a lot of things happening at the same time and I'm very glad that the way that the team is engaging in dealing with everything thats happening in building each and everyday this future with more tears.
That will define that as our purples and maybe like putting together the key points on your question I think the first.
Great team was supposed to be great moment to be working with beer beer is inclusive natural local and big profitable and growing right.
Those are the big learnings and things that could be shedding the team and people everywhere great industry to be.
Growing gaining a share of growth globally.
Second point is Great Foundation as we shared.
When they arrived in here on that Investor Day, Great Company, Great Foundation go.
Global platform unbelievable opportunities to unlock value and the more we get a restricted to moving the more we advance our digital transformation and more bad debt with our scale scale of data more opportunity, we uncover to grow the company.
To digitize and monetize the assets that we have.
And I think thats.
The key core things that we are moving is this idea of re imagining what would be a company can be much more effectiveness, driven leading and growing the category digitizing DOCSIS definitely have and finding ways to monetize everything.
Everything that we built over the years and continue to optimize the business saw fantastic opportunities a lot of learnings.
Getting a lot of things done within the one year right. So you think about purples strategy execution of this strategy change seen there in the organization and deleveraging at the same time. So it has been very dynamic, but they still very excited.
GAAP everyday and coming toward waste a lot of opportunity for us to continue to deliver a thanks for the question.
Thank you.
Thank you we have reached the end of our question and answer session I would like to turn the floor back over to Mr. Gutierrez for any additional or closing remarks.
So thank you all for being here. Thanks.
Thanks for the partnership and thank you for all the questions and support for the business have a great day and looking forward to meet you.
Thank you.
Thank you ladies and gentlemen, this does conclude today's conference call and webcast. We thank you for your participation and you may disconnect. Your lines at this time.
Okay.
Yes.