Q2 2022 Ambev SA Earnings Call

July 28, 2022

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Good morning, and thank you for waiting we would like to welcome everyone to them. They have the second quarter of 2022 results conference call.

Besides he has me citizens are these hatches feel for them baby and Mr. Lucas, Neither CFO and Investor Relations Officer.

As a reminder, these lines presentation is available for download on our website are either come back that you Couldnt Dutch beer as well instead of the webcast link of this call.

We would like to farm you that this event is being recorded and all participants who had been a listen only mode. During the company's presentation.

Brown bags remarks are completed there will be a question and answer section at the time further instructions will be given should any participant need assistance. During this call. 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 90 to 92 six.

Forward looking statements are based on the beliefs and assumptions of some bad as management and on information currently available to the company things.

Things over risks uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not securing the future.

Investors should understand that general economic conditions industry conditions and other operating factors could also affect the future results of from Davy.

Could cause results to differ materially from those expressed in such a forward looking statements.

I would also like to remind everyone that as usual the person's age change that will be discussed during today's call are both organic and normalized in nature, and then less otherwise stated present age change refer to comparisons with first quarter of 2020 chorizo.

Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of a baby's normal activities and.

Is there a realized figures our non G. A a P measures the company discloses the consolidated profit EPS beat in EBITDA on a fully reported basis in the earnings release.

Now I would turn the conference over to MS. Data shows you the SGR appeal for them Daisy. Mr. <unk> you may begin your conference good morning, and good afternoon, everyone.

Thank you for joining our earnings call for the second quarter of 2022.

During our last call I mentioned that we started 2022 well positioned.

And then I came out of Q1 encouraged with what we delivered.

As I review Q2 results I see even more evidence to big golf, there going forward and here's why.

This quarter provided a glimpse of consumption patterns in a post COVID-19 world.

In several of our markets reopening genius, well under way with services and on premises businesses coming back in this this takes place we have once again been able to meet the moments.

Bev grew 6% in volumes, reaching 42 million hectoliter, which is 15% higher than 2019 levels.

It is the first time, we reached more than 40 million hectoliter in our second quarter.

This led to our net revenue growth of almost 20%. In addition, organic EBITDA and cash flow grew over 17% compared to the same period of last year.

So lets talk about Brazil in.

In Brazil, we witness more clearly the consumers come back journey through the old Street came overall out of home occasions.

Leading to another quarter of solid top line performance.

In beer, we estimate we gained in market share versus last year and sequentially versus Q1, this year in both volume and value.

Volumes grew by eight 5% in the quarter and by five 2% in the first half.

To date, we grew 2.2 million hectoliters, leading the industry expansion as we estimate that the industry grew almost <unk> 5 million hectoliter.

In terms of segments premium grew more than 20% led by already as you know in shop in the abdomen, which are more relevant in their own trade channels.

In fact, this quarter shutdown, but AMR achieved its highest volume in the second quarter with 40% more bias than the pre pandemic levels, while our corp, which for your sustained its momentum increasing volume was low teens and we continue to invest.

S behind developing our core plus brands, but I'm going to blow my Archie and Spartan.

Net revenue grew 23% with net revenue per hectoliter growing about 13, and finally EBITDA in Brazil beer grew 27.5% organically with margins expanding by 80 bps.

Talking about nabs in Brazil, we delivered another great performance this quarter.

Volumes grew 16% driven by healthy brands best.

Specially in the out of home occasion supported by beef, we estimate we gained market share again this quarter.

You can see us D. Pepsi brands grew more than 20% driven by the great success of Pepsi Black, which almost doubled its weight within our Pepsi brands.

Net revenue per hectoliter grew 22% driven by revenue management initiatives, the premium mix and package mix S single serve packaging grew 37% this quarter.

EBITDA grew organically, 92% expanding margins versus last year by 500 Bips.

Regarding our technology platforms over 86% of our revenues aren't coming through piece.

On the marketplace in June we announced a partnership with Groupon, just Luca who we work for a vast range of products on our platform via a three P model, just like brs, delivering an even better assortment and service level for our clients.

Does that delivery fulfilled 15 million orders, 2% below the previous year.

Mostly impacted by the rise of out of home occasions, Jim Z grew by 7% compared with last year, and we kept our 4 million MOF active users in their delivery, we continue to invest behind adding more features to our app and delivery.

Better user experience to our consumers and B's big grew to PV quarter over quarter by almost 40% in now reaches about 300000 customers.

Turning to our international operations in loss overall volumes grew by 1.5% led by Bolivia, which benefited by the reopening.

In Argentina, we remain cautious about the impact of rising inflation on consumption. Despite flattish overall volumes in the quarter.

In Chile, empower white Premier and core plus continued to gain weight among our brands.

Lost net revenue per hectoliter grew 38%.

In fact overall glass supply constraints remain.

Coupled with the first short term competitive environment in Panama. This all contributed to a 10% decline in volumes in that flattish net revenues cock.

Jochen about Canada. Despite the reopening that took place industry is still sluggish.

We estimate that's beyond beer industry declined by almost 9% in the quarter.

Talking about beer, we estimate to have gained market share led by core and value brands.

Now I would like to talk about brand building.

During our Investor days, we explained at our framework based on three pillars.

Mind mouth in harsh.

And this is a quarter to be proud off of how much we have evolved in the last few years in brand building.

This evolution is no longer going unnoticed last year, we were awarded seven prizes in Con festival of creativity in this year 12.

Bev was the most awarded Brazilian company in the festival with Lions for all of our beverages categories.

Brahma and Budweiser were awarded in beer Guadiana in knobs in mics in beyond beer.

Talking about the or framework, starting with mines, we strongly believe that been creative is the best way to not only capture consumer's attention, but also engage with them in a meaningful way.

Brahma brought home its first ever Golden Lion and seven lines in total.

Which is an absolute record.

It was the most awarded brands in the World in the social media category with our for me haircut camping. The results of all of this creative effort helps Brahma continued growth in brand health Kpis.

Now moving to mouse key recent innovations continue to grow as we keep launching products to delight all Brazilian states.

Our most recent project is but I'm, a diploma scooter or Brahma double walled Black eye Special limited edition, which is brewed with two types of mouth to create a darker in even premier beer.

We continue to collect awards for our innovations.

In June we were listed one of the 20, most innovative companies in Brazil by they might cheat technology review I study that evaluated innovation capabilities in more than a thousand companies in the country.

Finally go into our third pillar the heart here is all about be relevant in consumers' lives and connecting through their passion points. After the two years GAAP due to COVID-19, our brands continue to be.

A fantastic platform for cheering together.

Brahma help it to bring back some of your own festivities in the northeast of Brazil, one of the largest and most traditional celebrations in the country Budd.

Budweiser presented the NBA House, 2022, I space, where more than 40000 people had the opportunity to watch the season's playoffs.

And Becks created the Aerobics festival on urban music and art Sue quit that's helped to awaken different areas in the main urban sensors of Brazil, we will keep courses simply focusing on mind mouth in heart to make.

Sure we are relevance innovative and loved by our consumers.

Which will make stronger brands in the long term and help our organic growth strategy.

To conclude our performance in Q2 accelerated in Brazil, even more than we expected more than offsetting some headwinds we had in our international operations. It was a great each one and we work to deliver even.

Even stronger H two inc.

In terms of both top and bottom line, despite facing a tough comp in Brazil beer volumes in the third quarter and the continued volatility in inflationary pressures.

We are not making any changes to our guidance for the year related to Brazil beer cash Cogs per hectoliter growth between 16, and 18% excluding the sale of non ambev marketplace products. Moreover, we remain on track in terms of our <unk>.

<unk> ambitions for the year that is to get Brazil back to Bottomline growth.

To have a consolidated ambev organic EBITDA growth ahead of the organic growth that we had in 2020 one.

And two we prove our return over invested capital.

Lastly, I would like once again to thank the entire team for the ownership mindset in delivering results in transforming the company.

And a special shout out to the marketing team.

Congratulations for their amazing performance at Cannes.

Thank you for your time and now I will handle over back to Lucas.

Thank you, Joe and Hello, everyone.

Our financial performance in Q2 was fairly consistent with the first quarter in terms of what should be the same and what should change in 2022.

What would not change.

First topline growth remains key.

We delivered nearly 20% net revenue growth overall with Brazil, once again being the main highlights.

Second input cost pressure remains a sticking point.

Cash Cogs per hectoliter grew nearly 18% at the consolidated level, while for beer, Brazil. It grew almost 14% excluding non ambev marketplace products.

And third we would continue to focus on value creation drivers. The name of the game here continues to be improving our return on invested capital building on our progress in 2020 one.

And in terms of what would change.

First net revenue performance more driven by net revenue per hectoliter than volumes as we adapt to a higher inflationary environments.

Net revenue per hectoliter grew almost 13% and volumes grew around 6% in the quarter.

Second cost headwinds would come mostly from commodity inflation rather than FX.

A modest inflation was more explained by the increase in Brazil beer cash Cogs per hectoliter, driven mostly by aluminum and barley, which was partially offset by better RGB mix.

Third SG&A growth should improve.

Cash SG&A grew about 15% in the quarter with sales and marketing growing almost 22%. Thanks to continued investment behind our brands and innovation.

Distribution growing 18%, mainly due to a rising diesel prices.

And admin expenses growing just around 2% given lower variable compensation accrual once again.

And fourth tax credit one offs in Brazil that positively impacted our EBITDA financial results and effective tax rate in Q2 of last year would be a factor this quarter.

And it was a factor but for a different reason than we originally anticipated.

We recognized in the quarter about 1.2 billion in tax credits of which a little over 900 million and other operating income and approximately $300 million in our financial results.

This gain also relates to the inclusion of the ICM S state tax in the taxable basis of the peace and the coffins federal taxes, which was declared unconstitutional.

As I have mentioned in prior calls there are still pending litigation in this matter and during the quarter. We concluded together with counsel and external advisors, both the legal viability assessments as well as the quantification of this additional portion of tax credits for the peace and the coffee that we overpaid over the years.

As a reminder, these tax credits are technically part of our normalized results from an accounting standpoint, but we disregard them for purposes of calculating our organic performance treating them as a scope change.

Please refer to our financial statements for further details now given our performance in the quarter, we are well on track to deliver a better organic EBITDA growth in 2020 two than the 10.9 organic growth, we delivered in 2020 one.

Brazil's the recovery. This year is turning out to be stronger than expected, which is more than offsetting the declines in CAC and Canada year to date.

As for last year to date, Argentina is delivering EBITDA growth slightly ahead of local inflation, while the other last countries delivered EBITDA growth in each one.

Given mainly by Bolivia, which is finally recovering from Covid.

And putting this quarters performance into perspective since Q3, 'twenty 'twenty, we've managed to deliver net revenue growth above 13% quarter after quarter and this was true again in Q2.

So the growth is there despite all the headwinds we faced.

And the good news is that in Q2, we finally managed to deliver growth and profitability in Brazil, which had been lagging for a while.

Brazil beer expanded EBITDA margins by 80 bps, while Brazil, Nab expanded a bit the margin by 500 basis points.

No doubt there is still work to do on the gross margin side and in terms of consistency, but it's a start.

Speaking of profitability as I've mentioned in prior calls we've also looked at profitability in terms of working to consistently improve returns on invested capital year after year.

And here, we're also happy with the progress we've made so far this year as first we continue to look at ways to optimize our business through financial discipline on the cost and expense side as well as improved resource allocation across our businesses and markets.

And second improve return on invested capital as we look to digitize and monetize our assets.

Here the scale up of the technology platforms, such as beef and their delivery are helping us improve not only no path growth no path to margin, but also asset turnover.

It's still relatively early days for these platforms. So we definitely see more upside going forward.

Now, let's turn to our cash flow and our financial performance below EBITDA and I will close with some words on the S. G.

Cash flow from operating activities totaled about $2 2 billion in the quarter, which represents an increase of about 17%.

Normalized profit grew a little over 4% in the quarter, given EBITDA growth and a lower effective tax rate, partially offset by higher net finance expenses versus Q2, 2021 of around 200 million rack.

Net finance expenses were mainly impacted by the continued increase in the carry cost associated with our FX and commodity hedges in Brazil, and Argentina, which should continue to be an issue going forward.

Our interest expense grew mainly due to fair value adjustments of payables under Ifr S 13, but it was fully offset by higher interest income, resulting from the Brazilian tax credits, we recorded in the quarter.

Before I wrap up I want to briefly highlight our progress in terms of some important sustainability milestones.

On the environmental side, we announced three more carbon neutral plants in Brazil are still quite almost in the state of Amazon's Xu October in the state of Minas Your eyes and credit your burner in the state of Parana.

Together, they represent an emission reduction of over 5000 tons of greenhouse gases per year.

And we intend to deliver an additional four carbon neutral operations by year end.

And on the social side, our people that volunteer within the voice social transformation program have recently joined as yet on the four points of Brazilian NGO of social development and an initiative to mentor social leaders of Brazilian favela that are graduating at the Ngos Falcons University.

We plan to hold our ESG day during Q3, and we hope you can engage with us in this dialogue.

So to wrap up a few final messages.

First we delivered a stronger H, one than we expected, which gives us more confidence going into H, two particularly in Brazil.

Second our guard remains high since challenges and short term volatility remain a reality, particularly in countries like Argentina, Panama and Chile.

And third we remain focused on delivering continuous and consistent improvement in our results as we progress on Ambev transformation journey.

Now, let me turn it back to the operator, so we can go to Q&A.

Okay.

Ladies and gentlemen, thank Jim the question and answer session.

We would have liked.

Brian This is Pat.

If at any point.

I'm sorry.

They killed by pressing star chip.

Please wait while we gather Nick for every request.

The first question comes from Marcello.

With credit Suisse.

Hi, locales hi, yeah. Thank you for taking my questions and congrats on the results.

I have two questions first on price are based on conversations with industry participants, we heard that ambac implemented an off cycle price increase in the second quarter.

I would like to confirm that and if so at what channel and pack and by how much on top of that based on third quarter hard column can we expect the usual price increase to come or could do we could you could you increase discounts or reduce pricing in order to push volumes.

Let me wait the dancer off that's before asking the second question.

Yeah.

Okay Marcella. Thank you very much for your question.

As you know we are really focusing on finding the right unless DCT.

Into sustainable balance between volume and net revenue per hectoliter all of these will be.

Between low long term pricing strategy unchanged.

They are prioritizing too do not lagging inflation, but really work on a favorable brand back in channel mix. So this is our strategy pretty much does not change.

This 2018, we haven't been growing volumes why why are we improving pricing performance.

And we continue to monitor the environment moving forward, but in a flexible way and watching inflation disposable income really working on the elasticity is.

To make the decisions.

One on revenue management, Okay. So having said that we did.

More tactical.

Writes inquiries in May it was.

Small one it was granular in some backed by Jan there will some regions.

It was around two 5%.

Both on and off trade in in on.

And Andre right. So.

Usually we see in Q2 net revenue per hectoliter.

Going down sequentially. So this is more of a effect on on mix in the north North East regions gained weight and then we get the winter coming in the southeast Celsius, but this.

This quarter.

The rise of the US it was really that.

The actions that this tool.

The channel mix.

In the pack mix.

During the coffees and the reopening.

Of bars.

Mainly seen RGB 600 ml bottles of regional shortened up realm are really getting traction. So this help us helping us to choose somehow to mitigate this usually nets.

Net revenue per hectoliter decline.

That we had Q2 to Q1.

H you.

I can't really comment I can't really comment on the competitive it's competitively sensitive.

On pricing decisions moving forward.

Okay. That's very helpful. Yeah, and the second question very quickly is about the Carb Quest segment, which was the only segment you did not mention how much volumes grew in the quarter. So it would be nice to hear from you. How the segment performance in the second quarter and also if you can give us some color on how.

Has been the real loud and affects the effective.

Spot then thank you okay. So that's a good question. Let me give you my step up could you talk about dynamics that we saw in this Q2 and then we talk about the segments.

What we see myself doing this doing the deep study on the previous two years is that we developed a lot of actions.

<unk> fulfilled digging home location right. So since the pandemic arrived we designed it ourselves too to get those in home occasion rights and we went deep on this.

See this is that delivery was.

It's explodes Brahma <unk> <unk>. It was a brand on the core plus segment designed at least 350.

<unk> 50 ml cans to the home occasion.

We change it we expanded the 300 ml bottles focus on the traditional trade to get insight homes. So it was really a strategy that we are very happy with it it's really step change our volumes it was.

Combining all of this seems it's really something that.

Debt.

Really lagged our 10 million hectoliter exchange in the company, but what we are seeing into true. It is that so there is a lot of residual what is this.

In home actions, but costumers.

Back to our strengths that this was.

The bars and then we see everything around this social out of home occasion.

Really shiny and a lot of residual holding home, but really shine in the out of home occasion, so because of that you see high end service.

There was strong with regional shopping.

Yeah, they were waiting for to come back right, So and they suffered the law and they came it back we've seen some.

Somehow.

Sure I mean, 600 ml bottles in lithium autos coming back that they were really growing more on the 300 ml bottle.

In the corporate strategy and it's called genius, So Bohemia, we kind of unplugged.

Or with marketing initiatives, we are really focusing on spot in in but I'm, a little knowledge on that segment and if you see the combination of these two brands.

It was designed it more on the 600 ml bottles, but I'm a little promotion more on the in home occasion, if you get the steward combine it we are growing double digits in this quarter, but with Bohemia with negative volumes.

Excellent. Thank you so much and congrats again.

The next question comes from Isabella <unk> with Bank of America.

Thank you good morning, as you want to look as good morning, everyone.

Just a follow up two questions is first of all a follow up on on the volume discussion in Brazil.

It's interesting when you mentioned right there based on their remarks pretty much all of the main segments right grew double digits this year while.

When we look at that the printed volume right today than I have looks below.

Average off those segments. So if you just give a little bit more color.

Per segment or what exactly brings the average a little bit down I think that would be helpful.

And the second question is.

When we think about the performance ride over the first half and you guys mentioned.

He has been a positive surprise.

However, you didn't change guidance right or I don't know if you think there is more room for positive surprise or if you guys are seeing a more challenging second half and if that's the case what would be those challenges right that it is an international market given what's going on in Argentina or I.

Tough comp in Brazil suggest to get out.

Little bit more color, how you guys think.

Second half thank you.

Okay.

Let me get the first one and then Luke I forgot the second one but.

Is that better so volumes wise, we are very excited.

Excited about <unk>.

8% volume.

It's a great volume in the quarter, but.

<unk> to look quarter by quarter, sometimes its misleading because consumer is moving so from one location to another it was really a.

If you look back to 2019, we are 20% above our volumes in 2019, okay. So we've seen a structural.

Brands in the high end doing well consistent leading dispute and then we landed in.

Our box trainees in.

In the high end brands with like lesion now in ship them one of them as I mentioned really leading more of it more than that.

Somehow I mentioned that our blood so what I'm gonna do Promulge Bloods espousing they are double digits.

The midstream is around that sure okay. So it's.

Low teens to what's really went down.

It was the value brands that we as we really unplug.

Brands like.

So these are all brands that some regional brands that we have like say huh.

They were brands that that really took the heat.

Overall.

And but we see somehow.

Core and core plus that's taken the <unk> and the same base and high in our heads.

Of the portfolio.

Our our specialty brands.

They are doing very well too okay. So the graphs are born yet.

Specialty.

So this is one thing.

Talking about the guidance I will hand over to Lucas, but just to mention just from guaranteed that he put the right words here on the call but.

Somehow we are excited we mentioned that Q1, we had.

That range January that's it was a one off.

On with Omi chrome in many markets than we had this Q2 then we'd look at.

One it's more something like what we were expecting in Q1, if it was not.

Amit wrong.

And it's.

A place that we are.

We are.

Better than we award in Q1, and what I mentioned in my initial statement is that we believe that issue will be.

Strong, although we of course needed to be better in topline and bottom line when we <unk> when we compared with each one so somehow if you put the numbers we are confident but I will get to Lucas Lucas kind of sure rounded up sure. Thank you John Hi, Isabella Thanks for the question.

Starting with the guidance the.

The guidance that we gave for the year.

It was related to cash Cogs per hectoliter in Brazil beer.

Excluding non marketplace products right.

Beth products non ambev marketplace products.

And that was the guidance that we gave right in Q4, when we announced our full year results and announced our expectations for the year.

And that guidance stand year to date.

The cash Cogs per hectoliter in Brazil beer, excluding non ambev marketplace products is trending at 14, 5% so below the range, which is good.

But again given that not 100% of our costs right are our hedgeable right, we still see merit in keeping in keeping the 16% to 19%.

Outlook for the year, Okay as our official guidance.

On top of that when you think of our ambitions for the year just to add onto what Jim mentioned.

When we look at our H one performance.

Our view is that we come out of each one more confidence on our ability to deliver our ambition of growing ahead of 10.9% organically at a consolidated level, which is what we delivered in 2020 one when.

When we when we shared this ambition on one of our prior calls I remember I got the question on why we believed right growing ahead of 10.9 was feasible and the answer then was that if we manage to deliver.

Brazil, Bottomline coming back to growth that in and of itself right would be a significant tailwind in our ability to deliver this ambition and if you look at our results in each one right. There was a step up in Q2 in terms of our overall performance and.

That made an enormous difference on our total EBITDA growth for Ambev in the first half, which was around 15% I believe 14, 15% so with an H, one at 15% and Brazil stronger than we expected right, we think that if.

If we manage to.

Do a better job in CAC in Canada.

And last continues to continues to deliver to deliver good performance and mindful of the challenges in Argentina, but outside of Argentina last in Q2, the other countries believe Paraguay, Chile, and Uruguay are they grew double digits in Q2, Okay. Just for instance, just another.

Ada point for you to have so if we manage to have Brazil, continuing momentum in H, two lasse continuing to deliver that that can be helpful. In offsetting potential headwinds and <unk> in Canada, but again, we still have work to do there and we're still going to pursue better results.

In Canada and in CAC in H two okay.

No that is super clear John just one more.

Minor confirmation one gen sets.

Second half could be better on topline and Bottomline doesn't have one is in nominal terms.

Or a growth just to double check that.

E in organic growth.

Inorganic growth okay. Okay.

Perfect. Thank you.

The next question comes from Christopher Hayden, We spoke with J P. Morgan.

Hi, everybody. Thanks for at least based on those questions.

The first one is regarding SG&A as you can see we're discussing second half I'll tell you how to think about SG&A have some important events.

I had such as the World Cup.

Potentially provisioning for brought US again, it's going to be a strong year.

So how to think about that.

As already kind of have the SG&A to this first half so should we see similar trends into second half.

That should send somewhat alleviates to help you deliver it as a growing expectations you were talking about and the second question.

Last year, you guys had some issues with some of our unhedged position because they've got the company ended up put solely much selling much more beer than you would expect there right. So.

How to think about that this year, you also probably performing a bit better than expected.

Are you guys, having survived unhedged positions to us to do as well and would those come maybe now at the lower cost given the falling commodity prices or.

While you cannot see that yet thank you.

Sure Hi, Hi, Lucas. Thanks for the question, let me start with the second one on the hedges. Okay. So everything that's hedgeable for 2020 two.

It has been done right than has been done for quite some time now so the issue is not around hedging.

Hedging per se, okay looking into <unk>. The issue is more on the unhedged Abel side of our cost base and Youre right that was an issue last year there was a.

And the increase in the second half of the year on the unhedged portion of our of our costs.

This year there has there there has been some impact not enough rights to two two to compromise right. The guidance that we gave in Brazil beer, but that remains that there remains a risk for.

For <unk> and that's one of the reasons why right. We're not updating it will not make any changes to our guidance of 16 to 19 in Brazil beer as I mentioned in my prior answer Okay. So again the issue is not the hedging sides. That's done for 'twenty to 'twenty two the issue is more on the unhedged will.

The unhedged portion of our costs and again, we are living in higher inflationary environments overall that applies to costs that apply to expenses and that's a good segue to it to try and answer your first question around the SG&A.

What we what we anticipated directionally for SG&A in 'twenty to 'twenty, two was a lower a lower growth of SG&A year over year as compared to right to 'twenty, one 2021 to 'twenty to 'twenty two.

Because of the lower accrual for variable compensation right as you will recall Lucas last year, one of the main factors that led to a higher SG&A growth year over year versus 'twenty 'twenty was precisely the fact that the recovery was much.

Stronger than we expected.

And 2020 was a noble in this year right. So that created a double whammy effect. If you will on the admin side through higher bonus accruals.

That's not the that's not the case this year so far obviously H two will depend on how we do versus versus our budget and then we will look we will accrue accordingly right.

So with with admin expenses growing at the lower rates because of lower year over year bonus accruals.

That should help us right for the year to deliver a better SG&A growth.

And then on the sales and marketing side.

I think the the point to call out is really Q4 and Q3 as we prepare for the World Cup right. So there is sales and marketing investments.

For an event of that proportion right. That's a great opportunity that we have coming up in Q4 to really leverage not only our brand portfolio, but also our technology platforms right to really meet the moment serve clients better serve consumers better during <unk>.

Such an important event for for markets like like ours.

So yes, there there is a calendar ization that's different this year.

Cause of of the events that we have coming forward and in terms of distribution I think the the watch out is really what happens to diesel right. I mean diesel has been a factor on our distribution expenses not only in Q1, but also in Q2 it was a factor.

The glass half full.

Side of the equation in terms of sales and marketing and in terms of of distribution is that year to date, it's growing below net revenue growth right and I think that's a that's good news that's something that we we we always do that sense check.

And in addition to that right we were applying our typical financial discipline, making sure that we are as as is.

As focused as possible on.

Being being being strict on the nonworking money side of our business rights, which is everything that consumers don't touch feel see rights to release funds to be able to invest more in things like sales and marketing that theyre going to continue to develop the health of our brands going forward.

Okay.

Perfect very clear thank you.

The next question comes from Cackleberry, Tullow Ritchie with Goldman Sachs.

Yeah.

Yes, hi, good morning, everyone. Thanks for taking the questions I have two the first one a follow up on the cash club guidance, obviously that there are a lot of different moving parts here and we understand that you have an average quality.

Hey, Julien, it's part of their commodity needs beyond that off my part, but you might also be kind of opportunities they called out aluminum price that's right. So.

I'm just curious to hear from you if we should see the impact from lower commodity prices. Just 12 months from now or you could have decided to go for a marker to me it can be when we could see some part of this we're collecting every day on over the next quarter would be the first question and the second on the one that you're guiding the World Cup.

The outlook for enterprise.

Right.

There was also a lot of different moving parts.

But a few of the election, but keep the Cali.

We know Danny van.

It's a very positive part of volumes right.

Sure.

And here a little bit.

How much of an opportunity do you see it.

Florida.

On the back.

If you believe this volume it shouldn't be a real incremental as you head into 2023 arguably create an overhang.

Those are the questions.

Okay. Thanks, Chad. This is Lucas let me take the first one and I'll hand, it over to John to talk about the preparations for the World Cup on the commercial side Okay.

So in terms of in terms of the.

The exposure to aluminum specifically right.

I think this is more of a 'twenty to 'twenty three.

Issue than a 2022 issue, okay and and.

And the good news is that of course, it's still early to give any sort of specific outlook for 'twenty to 'twenty. Three we still have a good portion of hedging to do right through the end of the year, but the good news is that so far okay.

Hum.

Is is no longer a tailwind there's no longer a headwind as it has been over the last two or three years okay.

On the currency side the BRL.

Hedge versus the U S. Dollar is also a tailwind for a change right that has been a headwind for the last two or three years as well and so that's the the good news so far right again still a lot of hedging to do through the end of the year and on the glass half empty side of the hedge.

For 2023, so far.

Our hedges with respect to barley.

Our continuing to be a headwind.

But to a lower extent than than the levels that we saw in 2022 and the Argentinian peso FX hedges.

It continues to be a headwind at least that's what that what we've seen so far this year. Okay. So our aluminum more of a 'twenty 'twenty three issue and then kind of that's where that's where we are so far this year, let's see how things unfold on the hedging for commodities and FX through the through the remainder of the year.

Over to you is young.

Okay. So let me talk about.

The World Cup year right. So.

The question that that we are.

For you to get the information yesterday, we have.

We had a world Cup the okay. So we put like 50 people in the room from inside the company outside to have the best insights of what we.

Would we do in this World Cup and we learned a lot yesterday.

And the question that we did.

For ourselves.

The statements so.

The briefing of the day is what can we do in this world Cup that for you.

Bakers better each week 23, okay. So that was a statement.

That was due to 50 people 12 Psi two people from agencies consultants.

And it was a bid that we learned a lot and we went out with great plans on that.

Opportunity to resolve problems.

To make.

This World Cup a more inclusive.

To make.

In the end.

The young people more.

Interested to make soccer something that.

It can be enjoyed by women.

So we are really thinking about how can we solve problems with our brands with this world Cup stressing the brands.

We are connecting Ze delivery, how can we acquire users.

During the World Cup that they will stay.

Hey, how can we touch the hearts of the Brazilian the sentiment that we find with the surveys that everybody is waiting for this work.

As a breast everybody knows that.

Next three or four months it will be about quality.

Nation. It looks like the World Cup is a is a moment desk and that Brazil can come together again, so it will be a very important moment, we are very intuitive.

We are prepared on the logistics sides. We are prepared on the marketing side. We believe that if you is the first time that we have.

World Cup in the summer in this opex after one year of pandemic.

And for sure we will help us this year. The big question is what are the structural things with brands and diesel products that we can do to get together with the Brazilian and to make it residual for 'twenty is finished but we are very excited about the west coast.

Very interesting things.

Yes.

The next question comes from Chad, we're glad she likes.

Alright.

Hello, Thank you.

I will then everybody yeah.

Three questions from my side the first one.

It's clear it's clear at this point that sure you were positively surprised by the performance in Brazil relative to when you provided the guidance or when you. When you even said that the momentum was strong at the end of the first quarter.

But it's not clear to me what exactly is the biggest source of surprises is is it. The so if you could comment a bit on that so if you took the the demand the consumer demand or strong demand consumers are going back to my premise is it the evolution of Archie on the cost side, which is.

Sure.

On the favorable side in terms of Charles your guidance or if you're calling in if you could elaborate a little bit.

Why do you say our biggest sources of a positive surprise for the performance that the company had done in the second quarter.

And in the first half that would be great great.

The second question is going back over the.

The pricing right in Brazil beer.

John You mentioned, a small price increase in the second quarter, but if you could if you could elaborate a little bit more when we look at the at the 11, 2% revenue per hectoliter growth resumed.

<unk> marketplace.

How mix, particularly back to generics.

With the incremental large it'll be.

Is driving dropping out or that would be very helpful as well.

And my third question would be on working capital and it's not only on the Q2, but also in the entire first half.

There was some.

It isn't working capital consumption, which is not very comparable cost you think that you guys are growing volumes in the easiest gaining share and then I presume. This is positive for the working capital of the company as you guys mentioned before so you could elaborate a little bit on what's driving down working capital consumption ahead of the second half.

Uh huh.

He says well thank you.

I'll get the first and the second Washington, then Luca jumped into the 30 months to do so.

What surprises us in Brazil in Q2.

It was so the moving pieces, we knew okay, but.

Surprises that we.

Continued to gain market share.

So sequentially, we gained in the market share.

And the strength of the borrowers.

Reopening.

It was.

Something that gain.

On the top of our range of expectations. Okay. So.

Somehow.

There was this discussion about when the consumer wins the box really fully reopen in it's not just the bars in the social out of home occasion guests its full potential.

So what's the size of this in and what's the residual volumes of the home initiatives and the occasions that it was created during the pandemic in this mathematics.

Surprisingly or.

At some point in time, we believe that the home could go down more.

On trade to go to be reopening or the on trade was not that strong. So it was the combination of this equation the residuals the home with the strength of the order form that surprises us in there.

Eight 5% in terms of volumes it was up both this math.

And in talking about revenue management, you know that we are very granular now on on the revenue management.

You'll note that we have a strategy that.

We.

<unk> been very inclusive and really maintaining the.

Compared to in the basket of the Brazilian consumers and what we like about this quarter is that it was really we really challenge the allowance DCT General case was like good net revenue per hectoliter with good volumes and it was about the carryover of the PV.

Z tactical themes, we as I mentioned to you and me, but a big part of it. It was the 600 ml autos in the high end at rent mix, helping us.

In this value rents going down too so the combination of brand mix.

600 ml bottles coming back that meet those numbers that you see in our future.

Okay. So working capital sure Hi, Chuck Thanks for the question I think in terms of working capital.

Would say that the the bigger issue was actually Q1 on the payable side.

I mean, let in light if we recall our conversation last quarter right our payables in Q1.

<unk> had.

Uh huh.

<unk> had an issue around the payment of the variable compensation right.

And also there was a higher level of payments to suppliers given the calendar ization of.

Our capex so our capex that was booked right and H two of 'twenty 'twenty ended up being paid in Q1, right so that double effect.

<unk> created a bigger a bigger gap in terms of working capital in Q1.

In terms of Q2.

And that's and that's by far kind of the biggest factor year to date I think Q2.

What.

The outlier here is more on the receivable side and it relates to the tax credits that we recognized.

Unlike last year, when we recognized the tax credits, but did not immediately monetize this year. The monetization was was faster than last year and that has an impact on on our on our receivables in terms of inventories no major change in terms of inventory building there was some more inventory.

Are you building in Q2 this year than last year, but again, it's more of a calendar ization effect and then on the payables side in Q2 also no no no big no big major change other than just a different calendar ization of our of our Capex spend and when the payments are falling so I think it's better to look at work.

<unk> capital more on a yearly view because on a quarterly view you will have from time to time. These these swings relate.

Related to specific events like the boldness like calendar Ization of Capex like the tax credits.

That's clear thank you so much.

The next question comes from Alan Alanis with Santander.

Hi, everyone. So much for taking my question and congrats on the results.

My question has to do with the competitive dynamics.

The connection between soft drinks beer I mean.

I understand.

Gaining market share of beer.

There are reasons also what will your competitors and separation of leading distributions.

Trying to get from the Coca Cola.

Well, congratulations you're getting a lot of things right and thinking about that.

What are you gaining market in value share, but what's the beautiful surprise for me.

You also gave me a lot of market value sharing Salisbury.

After the Coca Cola company.

Mortgage debt with their mentioned Joe.

What are you seeing what are you doing differently soft drinks in order to gain market share and how sustainable.

Going forward.

Yes.

Thank you for the question in reality, a soft drinks was really the star of this quarter life.

It's.

We are very proud of the performance.

Thanks.

And somehow.

I've been mentioning for a while now that we've been transforming ourselves each well.

More of a platform in the past we were like a beverage company now we are a platform so in.

This is something that people do not understand some somehow but we did a huge structural change inside the company in terms of breaking the silos.

In terms of having the market in areas as our marketing as a service have my frontline team working for the whole portfolio and the best way.

Siloed teams. So we did a big change to prepare the company to really unlock its potential.

Top line growth on top of that we focused our efforts on soft drinks on brands of the future. So somehow the Pepsico partnership.

Is stronger than ever.

The launch of Pepsi Black it was.

Just a surprise for us how the problem is getting into the face of.

This series in the places that we are launching and somehow.

So with this strategic view with the good partnership Opex in visa rising.

Where we had in the past.

Sales Rep. That's somehow was a spun them in terms of number of skus that they can offer so the combination of these two things really.

Good.

On fire, we estimate that we are gaining market share.

So betsy.

Betsy brand. There is there is a whole ocean of coolers that we'd never tackle.

Yes really.

Accelerating and gaining market share.

And this is really allowing us to do much more things that we were doing the best so it's a water.

Avenue of growth for us that we are really each weights.

So I think this is a structural.

Yeah.

Got it.

You put you more towards the total beverage and you are deleveraging.

Bob.

Hello.

Two two.

Thank you so much and again congrats on the results.

The next question comes from Carlos Luckily English.

Okay.

Good afternoon, everyone.

John It's it's nice that the creative teams winning awards.

I was thinking it's a landmark really.

You can celebrate your marketers and their growing importance, but.

But can you speak to the two proof points.

To evidence of lasting brand rehabilitation and renovation.

It's happening maybe you can expand on the Brahma case.

Or on any other incremental proof points that you would have.

Uh huh.

On fire.

As a family.

Sure <unk>.

In a long time that we don't talk about the reference of beer in Brazil when the.

Reopening of bars like so on fire <unk> with this view.

Bromont.

Brand doing very well in reputable multi coming in the middle of all this family, making sexual rule.

Brand and assembly.

Really.

It's really getting consumers if you add up is really the brand.

Most valuable off Brazil is really Brahma has more law worse is really the overall brands Brahma Queensbury, we always a plus.

Not like that like a two or three years ago.

Rejuvenated Brahma with Brahma double mouse.

And we step it up again.

Quality skus of the brand with.

With Shaw spoke with Abbott on the come.

<unk> back.

Yeah.

It's come in this stage in the future I think so somehow is a combination of mind mouth and hearts that we weren't able to tackle.

On the right weighting this with teens.

The Brahma brand for example.

Another another brand.

That is doing very well.

So we are somehow buyers this quarter that origin I'll just exploded through with a brand that is about the traditional routes of the Brazilians are both the bar. So the bogs work flows adult occasions. So everybody is coming to our regional brand in past quarters, you know so.

One thing another way that we can measure and I'm very excited about.

Thanks.

A brand that we are cooking.

In a very low temperatures.

Say this in English, but we are cooking it slowly.

It's really about getting the paddle leads right into edginess Uber Santos.

And it's it's.

It's on fire to us is the brand that.

Everybody has spoken about.

The edge of the ballet.

European <unk>.

Randy moving the boundaries. So so you know we show you elaborate isn't it so.

Sure.

Brands that we have in their archetypes and somehow.

That's our focus brands.

Just amazing you've seen the numbers.

Our price it was very resilient.

This quarter this means that the.

The agenda was a right does it mean that the consumers are paying.

And this is what the combination of renovation and innovation. So I don't know if I really answered your question, but.

The last thing that I would mention is that we've been dimmick levels intraday levels, we have.

<unk>.

One 5 million people that seem to us that.

Get the loved one of our brands. So we can then make level till now.

$1 5 million consumers that are less one of our brands.

A lot of these brands so.

I think that's it.

Thank you J J.

Yeah.

These are for.

For hedge funds because this brand renovation is the real Alaska and stuff from a turnaround my congratulations.

Thank you.

The next question comes from Serge you Must've molecule with Citigroup.

Yes, good morning, and thanks for taking my question I wanted to circle back on the road.

The improvement of some new metrics discussed in depth.

Yes.

With the recent rate.

Improvement in the top line.

And the reason.

Decreases in the spot prices.

<unk>.

I'm wondering if perhaps you can see changes in how the composition of that.

Return on investment capital likely improve over the coming years with.

You had mentioned.

That's great capital turnover.

First phase and then transitioning into more of a.

Ah.

No path to margin improvement.

Would you say.

About.

That transition might occur.

After that.

Expected.

Then a few months ago.

Yeah, Hi, Hi, Sandra Thanks for the question. This is Lucas speaking.

In all honesty, I think it's very hard to right, it's very hard to speculate at this point.

To what extent right, our our longer term perspective on the two drivers for for improving our return on invested capital right could change in view of the the latest right. The latest movements in Q2 right and then the reason I say that is in Q1 the picture was.

What was striking.

Achingly difference because commodities were on the rise in Q1, so to me I would be speculating here.

If I gave you any indication of of what changed this can imply longer term I think we have two really.

Wait and see how how how commodities behave going forward, how currencies move going forward.

What's important for us.

On the commodity side and on the currency side is the discipline that we have in following our hedging policy right.

That's key to give us predictability.

That's key to give us time to react.

As headwinds May may may arise, so that discipline remains intact, and we will continue to focus on that.

Having said that if we continue to deliver top line growth right as we have in the last Ah.

Two years, that's obviously helpful for the margin.

Recovery.

And so let's see let's see let's see how things how things progress on the topline side, but as we've mentioned time and time again top line growth remains a priority for us.

Some quarters some years it may be more volume than price. It may be the other way around like we're seeing in 2022, but we remain kind of steadfast and continuing the momentum that we've built on the top line growth side.

And on top of that we have the better asset turnover potential given.

Given the platforms, such as beads with marketplace and need to see and in Fintech and as these scale up we see opportunity to have a better asset turnover profile than.

And then in the past, but we have to deliver let's see.

Understood. Thank you very much.

The next question comes from Linda from Vanessa risk, but it does cause maybe I.

Hi, everyone.

Question, where what discussion that we have with investors is regarding Argentina right. So recently the depreciation of the.

Although Argentinian peso had the blood market.

It's a much stronger relative to cause your fisher rates right.

Squatters and so that was a concern that.

Net income that youre generating in Argentina.

You may have issues too.

Take that money out of Argentina, especially relative to what you report and order.

Counting number right.

No for sure right so to help close that gap.

Help us understand the risks.

Provide us with information such as what percentage of our total EBITDA comes from Argentina.

And also how you are addressing that risk going forward.

Actually I understand that you report how.

How much youre, having caching, Argentina in Cuba, which I think is like 600 million here is relevant but.

But it has been reducing in previous quarters that means you are.

Kashi in Argentina, and then generating the majority of your cash outside of the.

Operation.

I understand that you could potentially allocate some of your costs from other operations in that country.

Where you don't need to depend that much.

That money out of the country.

Okay.

Yeah, Hi, Hi, Linda Thanks for the question. This is Luca speaking.

Regarding Argentina I think.

First.

There is a lot of short term volatility.

In the country.

The good news is that on the on the operational side.

The business continues to continues to perform relatively well when you think of.

Top line when you think of the portfolio and the health of the portfolio and how that's translating into into our performance not only in core but in above core segments, such as core plus and premium brands.

With Woods brand indicate brand health indicators market share.

In line with in line with what we expected so on and so forth.

However on the macro side.

We are once again.

<unk> more volatility coming out of Argentina, that's a fact.

The last time, we faced something similar was 2019.

And there have been other instances in the past 10, 15 years, where there have been.

Years of more volatility in currency devaluation, and so on and so forth. So I think for US here the way the way we approach. It is state stay focused on stay focused on the micro and the commercial performance because it's a it's a it's a sizable market it's a growing market.

It's a profitable market for us so that remains a priority number one number two.

Protect what we can protect what we control on the cost side, So that's where the hedging policy right. The hedging policy comes in so we continue to adhere to our on average 12 months.

Hedging for for the Argentinian peso and for the commodities rights as they as they apply to the Argentinian business. Okay.

And that helps us protect.

Our our costs in Argentina, Okay.

And the EBITDA performance in Argentina.

We also look into we're constantly looking into right cash management, how we manage counterparty risk in Argentina.

Between local banks international banks, and and so Theres a lot of there's a lot of tracking and monitoring of the situation on the ground to make sure that we're very disciplined and diligent in terms of our cash management. So the operation can keep running right. We can continue to work with our clients.

Work with our suppliers, we want to keep things running in.

And in a seamless way as possible okay.

And then on the taking money out of the country side I think the the point here is more as is more of.

There are right there are restrictions in place right for for operating and foreign exchange markets.

Our focus is more accessing foreign exchange markets in Argentina to keep the operation running the level of imports is it's fairly low, but we want to make sure that we still have access to keep the operation running.

So that's the bigger priority.

And in terms of cash generation historically, the cash generation is more skew in Argentina is more skewed towards the second half of the year than in the first half of the year.

Hope that helps.

Thank you Michael.

The Q&A session is over I would like to turn the floor over to MS. Christianity Sacha for his final remarks.

So safe.

Thank you. Thank you all to take all analysts everyone, who joined today's call for your time and attention.

To wrap up.

I think it was I like to look at better H ones in Q2, I think it was a great H one for Ambev.

For Brazil, and we are confident that we can deliver even stronger <unk>. Okay. We remain on track in terms of our mainland pieces for the year to get Brazil back. It wasn't like rules to have consolidated Ambev organic EBITDA growth ahead of the organic growth that we had each range when you want.

And to improve our way.

And we will continue.

<unk>.

On the short term volatility.

Thank you very much Sue you will see you in October and have a great day.

This concludes this conference call. Thank you for your participation and have a good.

Good day.

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