Q3 2022 Ambev SA Earnings Call
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Good morning, and thank you for waiting we would have liked to outcome every y to Ambev third quarter 2022 results conference call today with this we have an Easter as yesterday Saatchi CEO for Ambev and Mr. Luc as leader.
So and Investor Relations Officer as a reminder, a slide presentation is available for downloading on our website, our dry dock ambev dot com BR as well as through the webcast link of this call. We would've liked to a firm you that this event is being recorded.
All participants will be now listen only mode. During the conference presentation at their Ambev. His remarks are completed there will be a question and answer session at the time Thursday strict shows you a big event 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 you owned or the safety Harbor of the Securities Litigation Reform Act of 1996 forward looking statements are based that on the beliefs and assumptions of Ambev is management and on information.
Orion fully available to the company they involve risks uncertainties and assumptions because they relate to future events and therefore, the banjo circumstances that may or may not occur in the future investors should understand that general economic conditions industry conditions.
<unk> and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward looking statements.
I would also like to remind everyone that as usual the percentage changes that will be discussed during today's call are both organic and normalize it in nature and unless otherwise stated percentage changes refer to comparisons dense with three.
Q2, we need to lend it to erase those normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Ambev is normal activities as normalized it figures.
Our non-GAAP measures the company has disclosed as they consolidate it broke that EPS operating profit and EBITDA on a fully reported basis in the earnings release now I would turn the conference over to Mr. Jerry Saatchi CEO for Ambev missed.
<unk> you may begin your conference call.
Hello, everyone. Thank you for joining our earnings call for the third quarter of 2022.
Following a great first half of the year I'm happy with our performance in Q3.
Brazil's momentum continued to increase not only in beer, but also in labs.
And as a result, we are on track to deliver a strong second half in terms of both net revenue and the beat the organic growth. Despite the headwinds in some of our international operations.
This quarter was marked by two teams.
That we have been talking about since the beginning of this year.
First how the consistent implementation of our strategy is the key to continuous improvement in our operating and financial performance and second how macro volatility continues to bring several challenges in the short term.
And the good news is that we managed to deliver once again.
Led by net revenue per hectoliter growth continues to pick up as the year progresses and volumes growing despite a very difficult comp in Brazil beer, showing strong execution and resilient elasticity.
In fact, our commercial initiatives continue to yield results.
Across most of our markets consolidated volumes grew one 3% in the quarter exceeding 46 billion hectoliter.
Once again, an all time high volume performance for the third quarter.
Not only consolidated volumes performed well.
Premium brands, gaining weight in nine of our 10 top beer markets.
At least 85% of our customers in Brazil, Argentina, Dominican Republic, and Panama are using bis.
Marketplace is generating 400 million in revenues at the consolidated level and organic EBITDA grew double digits once again.
However, macro conditions and the persistent high inflation in some of our international markets are not only impacting the consumer but also our supply chain.
Actually in the countries with less flexibility in capacity and logistics like Chile, Canada, and the Dominican Republic.
Not only commodities were more expensive, but also oil prices hiked raise.
Raising inbound and outbound transportation costs.
Therefore results in our international operations War, rather mixed.
We saw a good resilience in loss.
Canada declined year over year, but continuous to improve performance sequentially.
In CAC is the region, that's so for the most.
So let's start with <unk>.
The volume downside was mostly driven by the Dominican Republic and Panama.
In the Dominican Republic bottle supply issues were solved but demand didn't pick up as fast as we expected because of high inflation rates pressuring consumption.
In Panama, we witnessed a tough industry driven mostly by our large scale protest against rising prices, which halted the country for more than a week in late July .
Lastly, weather was significantly impacted by Hurricanes young and feeling that in the end of the quarter.
Our costs were impacted by the high inflation as the region is depended on imports. We are now adjusting our selves the production plants to account and optimize importation.
As for demand, we still have some work to do both in the Dominican Republic and Panama.
We will focus on offering our consumers the right product at the right price to meet their needs and we will continue to invest in our brands and our work to develop a sustainable industry.
But not everything was bad news there this quarter.
Premium brands gained weight across most of the markets driven by Corona and Michelob Ultra.
Except for Panama, There was no significant change in sequential market share in our main markets.
And marketplace net revenue grew in the trainees driven by both Dominican Republic and Panama.
That said, we need to do better there.
Turning to Canada industry improved versus last quarter, but still negative versus a weak comp as last year Covid restrictions was still in place.
Volumes grew over 3% driven by estimated market share gains in beer in the rebound in the beyond beer industry from a weak performance last quarter.
Premium brands gained weight and share in their segments driven by a good performance of Corona and Stella Artois.
Finally in loss volumes grew 4.5% through.
Driven by Argentina, where industry grew versus last year, and we estimate you have gained market share driven by our premium brands.
Bolivia is recovering from the Covid impacts.
However industry in Chile, and in Paraguay declined impacting volume performance. Nevertheless, core plus mix continued to gain weight in both countries.
Marketplace continues to progress in Argentina, and was fully rolled out in Paraguay.
Now moving into Brazil.
Non alcoholic beverages delivered another stellar quarter in what had been a great year for the team.
Volumes grew over 10% result in estimated market share gains.
Our portfolio is very well positioned to serve consumer needs with energy drinks growing almost 50%.
The health and wellness brands over 30% and the premium growing tan.
With a highlight to Pepsi black that now represents approximately 10% of our Cola brands.
N B's is allowing us to serve a higher number of customers.
Nabs, 6% more than last year.
Talking about beer as we lapped over a very tough comp volumes were flat in the quarter.
But 35% above 2019.
And on a 12 month Rolling perspective, 13 million hectoliter is above the same period of 2019.
In terms of segments premium led the growth with a high single digit performance driven by OE as you know in shopping Alabama.
Our core brands remain resilient.
And we continued to invest behind developing our core plus brands like Brahma diploma in Spartan.
Numbers of fans and brand health of focus brands continued to improve versus last year.
And revenue per hectoliter grew 17% driven by disciplined revenue management initiatives and brand mix impacts.
And finally, a beta in Brazil beer grew almost 18% organically with margins expanding by 20 bps.
Our performance in Brazil gives us golf. This that we entered the summer season rare that you de lever and FIFA World Cup.
This event is always an important moment to connect with our customers and clients, especially in Brazil.
Our team has been preparing for the event and they believed this year's World Cup can be better than we had in 2018.
First because this year it will take place in the end of the year during our summer season, which is the peak consumption season.
Second because our business is much better prepared than last time around.
Since the beginning of last year I have spans each earnings call talking about our transformation journey.
Starting with cultural evolution across the organization then moving the technological capabilities that we have been building through zed it either in beef and also the step change in our logistics footprint and service model.
Finally, the evolution of the brand building strategy.
During this year's Investor's day, we unveiled our Ambev S. A platform framework. So I would like to use it that same framework to explain how each of the five pillars will come to life. During this FIFA World Cup.
So first pillar brands for each and every one of our brands are healthier than ever.
If we compare to 2018, our premium brands grew year to date about 4 million Hectoliters.
Our corporate brands grew over 5 million hectoliter, while the core segment grew approximately another 5 million hectoliter.
We are going to use the word cup to support four main brain.
Rama Budweiser.
Mikes whatnot.
On top of all that the delivery.
Second pillar.
To lead the future.
Our innovation is a mindset is a reality now.
More than 25% of the volume growth compared.
Two 2018 came from innovation.
<unk> that didn't exist in Brazil back them.
Third pillar at post to our customers' success.
These allow us to interact more frequently with our customers orders delivered on time and in full will be key for their business during peak days.
Also we now offer on average more than four delivery dates per week per customer.
A number that is 64% above 2018 levels.
Fourth pillar experiences that come to you.
Z delivery has evolved significantly since 2018.
It is now available in almost 300 series covering more than half of Brazil's population, who can order beverages and other products from the convenience of their homes during and after the World Cup games and.
And we just announced that their delivery is the official sponsor of the Brazilian soccer team.
Big move to that.
Fifth pillar and finally to getter for a better world.
100% of our beers in Brazil.
This World Cup.
Are now made with 100% of renewable electricity.
It is important to mention that the plan has been developed not only to meet the moment during the days of the event itself, but to de lever law with brands.
Entity product unparalleled services and memorable experiences to our customers and consumers in order to create a longer lasting effect go with four award.
Moving into 2023.
So we are very excited with what Q4 can bring not only do we want to deliver a strong finish to the year, but we also are looking ahead and working towards starting 'twenty 'twenty three better positions.
'twenty 'twenty three we'll certainly bring challenges and risks, but also opportunities. After all we are living in a more uncertain and volatile times.
With a business that is over 80% located across Latin America.
We are no strangers to volatility.
Macro challenges and inflation.
So we will continue to focus on the things we can control.
And for own my perspective, what matters. The most is that since 2020, we are building a business that is fundamentally better.
Improving results consistently year after year.
First we turned around volumes.
Then cash flow Dan return on invested capital.
More to do still but I have no doubt we are on the right track and I'm proud of what the team has accomplished so far.
With that let me hand over to Lukas.
Thanks, Jim Good morning, good afternoon to everyone.
If Brazil was the main highlight of our operational performance that was also true from a financial perspective.
It's great to see Brazil, driving once again the improvement in the Ambev overall results.
Brazil's top line grew nearly 20% in the quarter with net revenue per hectoliter growing almost 17% while volumes were up 2.4%.
And this growth led to around 24% EBITDA increase with gross margins flat and 100 basis points of EBITDA margin expansion.
Although input cost pressure remained an issue thanks to higher commodity inflation cash Cogs per hectoliter for Brazil beer, excluding the sale of non Ambev marketplace products grew a little over 18% thus within our guidance.
And cash SG&A grew about 16% in the quarter with sales and marketing growing around 13% as we continued to invest behind our portfolio distribution expenses growing around 18% once again impacted by higher diesel prices, while administrative expenses grew 13%.
Mainly due to our investments behind enhancing our technological capabilities.
So all in all continuous and consistent progress in our main markets.
Turning to our operations abroad, the financial picture for the quarter and some markets was certainly not what we would like it to be.
Particularly in Central America, and the Caribbean.
Over the last decade, the region went from roughly 200 million Reais of EBITDA in 2012 to almost 4 billion Reais in 2021.
But following a strong post COVID-19 recovery in 2021.
2022 has not been tax year.
H, one already faced relevant headwinds and Q3's financial performance was severely impacted by nearly 20% volume decline, which led to about 13% of net revenue decline and 900 basis points of gross margin contraction while inflation regarding.
<unk> cost and supply chain losses were the biggest drivers behind the higher SG&A.
And as a result, EBITDA margin contracted nearly 1500 bips.
On the other hand, despite higher Cogs and SG&A levels last posted resilient, albeit the growth driven by Argentina, and Canada showed some sequential improvement.
Moving on to cash flow cash flow from operating activities totaled about 6.1 billion reais in the quarter, which represents a 4.5% decline versus Q3 2021.
Here, we also saw a similar dynamic to the P&L.
Strong cash flow generation in Brazil, resilience in Argentina, but a harder time in important regions such as CAC in Canada.
Despite the lower profit in the quarter year over year cash flow from operating activities before changes in working capital actually improved in the quarter.
However in terms of working capital some important operational factors played against us in the short term.
Receivables in Canada increased given top line acceleration.
Inventory levels rose in Brazil, given buildup during the quarter ahead of Q4 with the FIFA World Cup.
And payables and costs were negatively impacted by the lower production volumes offsetting the increase in payables in Brazil.
Also it's worth reminding everyone that in Q3, 2020, one we monetized over 800 million Reais in Brazilian tax credits related to the Ics in the taxable basis of the peace and the Coffees litigation, which was a one off.
Year to date cash flow from operating activities is down 20%.
Given primarily our performance in Q1, when we faced first higher cash outflows to suppliers given 2021 capex calendar ization and second payment of variable compensation related to our 2020 one performance.
And finally normalized profit declined by nearly 14% in the quarter.
Despite the a bit the growth net finance expenses were higher mainly because of an increase in carry cost in Brazil, and Argentina in connection with our hedging strategy for currency and commodities.
And our effective tax rate faced a tough comp because in Q3 'twenty 'twenty. One we recognized a gain of over 750 million reais related to a one off income taxes favorable legal decision by the Brazilian Supreme Court.
Nevertheless year to date, our normalized profit is up 4%.
Before I close I would like to invite everyone to attend our ESG day next week on November 3rd when we plan to share in detail our progress in terms of environment, social and governance agenda. The.
The idea is to cover how we are trying to build climate resilience along the value chain.
How our cultural transformation is enabling change in the company from within and how increasing diversity and inclusion can create value.
And we will close with a roundtable with the new members of our board of directors and some of our executive officers.
In closing Q.
Q3 was a good start to ache too and we are on track to deliver our ambitions for the year.
First Brazil back to Bottomline growth.
Second deliver organic EBITDA growth at the consolidated level ahead of the 10, 9% organic growth in 2021.
And third do so with a stronger consolidated net revenue and a bit of organic growth in H two versus H one.
Supported by also better cash flow generation and consequently, a better return on investment for shareholders.
And looking ahead, we want to continue to build momentum and pave the way for a good starts to 'twenty to 'twenty three.
Speaking of next year, we will keep pursuing continuous and consistent improvement in our financial performance by one continuing to protect liquidity to improving profitability through increasing our return on invested capital and improve profitability by also focusing on gross margin and EBITDA margin.
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And three delivering strong cash flow generation in order to allow us to not only allocate capital towards organic and nonorganic growth opportunities at attractive returns, but also return excess cash to shareholders from time to time.
That's it for me, let's go to Q&A.
Okay.
Thank you we will now begin the question and answer session. If you have a question. Please press star one our first question comes from Atlanta, Atlanta is with Santander. Please proceed.
Thank you so much for taking my question and congratulations on the results.
Hum.
My question has to do well I have two questions. One of them is how do we understand how can we better understand the discrepancy in trends between soft drinks and beer in Brazil, I mean with this such a strong growth in soft drinks and the second question I need to give just really quick conflicts come out of the second question regarding the performance of your brands in the beer.
Portfolio in Brazil.
We're seeing high single digit in premium and the and also mid single digit and core that means that what you didn't talk about super premium low value and the volumes are flat. So that means either one of them more than two of them are are declining so could you expand a little bit more in terms of what youre seeing in terms of.
The composition of the portfolio.
Of beers within the different price points and how do you see this going forward. Thank you.
Okay.
Uh huh.
Thank you very much for the question, so I'll try to elaborate on soft drinks and beer.
I think it will.
Our first of all what we have seen is that all the stress formation that we started like three or four years ago with.
Innovation.
Mindset and this vision that we have to to innovate in beer.
We brought two more brands that it was Brahma double malls in spot then.
And so a lot of things happens in in between 2019 and today right in beer was.
<unk> performed well in this in this period and if you look at our numbers of beer when we compare with 2019 levels. So we are free.
Pretty much 30, 30, something studies on the studies like 34%.
Both in this quarter our performance on the 2000 compared with 2019. So we'll look at them all off growth during this time and we get Chihuahua.
All time high volumes.
Last year in the year that we are so proud that we were able to really get that flat. This year, because it's really like called formed all this volumes and transformation during the pandemic and innovation working in all the in home occasions that we created for <unk>.
That they maintain their residual when the virus came back so so somehow.
These volumes of Dear long term a little bit if you look a little bit further on.
Hum.
Comparing with the previous year. They are very good. So we are very and we built this in three years. Okay. So so.
We felt comfortable when MBS was working so then we really turned around to Jamaica.
<unk> work.
And we are just starting.
With naps.
And we are not there yet on innovation for example, so so where I really want to be but I'm very happy with.
Our portfolio's debt quite a nice performing well that Pepsi black is gummy and somehow we have seen a resilient.
Industry on <unk> S.
The return to work.
It's really helping with new occasions rightful industry resilient our portfolio.
Very well established.
Beef, helping us to go along with the wage rule is really making we gained a lot of market share and really performed well in that but I think.
This performance, it's really came a little bit further on this transformation that we started on beer and then.
We are just starting this.
Once automation on Nab, so we foresee that you'll be able to outperform.
Moving forward, but somehow this was something that we started.
Before.
Understood.
I elaborate.
A little bit on soft drinks in VSO been coming back to be talking about portfolio right. So portfolio in the end when we mention the high ends.
We combined the premium and the high end over there. So this number that we mentioned to you.
Superpremium premium.
Costs are growing high single idiots.
Okay.
With the combination and when we look a little bit.
Uh huh.
Or bed with 2018, the combination of premium and Super premium they grew 57% when he.
<unk>.
In volumes that we grew total beer 34, right. So so it's a very solid growth. It was a very the scope on premium and high end in Italy.
Italy growing with.
16% CAGR in two years.
And then we have a core very resilience and then we have regional brands really struggling right. So.
This was an important piece of our business.
In 2019, we have we've talked a lot about.
The regional play one owned affordability play on regional brands and this went down.
Bad with 2019, 50%. So what we are really seeing is our portfolio getting better. So that's sort of the core brands. We are resilient. We created this core plus business that now represents a loss to us and then high years in.
That is premium superpremium is really a resilient. So what we have seen is a good shape of the portfolio.
Happy.
Got it.
A useful thank you. Thank you so much and congratulations again on the results.
Thank you very much.
Thank you.
Our next question comes from Matt Stadler Heck at Credit Suisse.
Hi, Joe Lucas. Thank you for taking my question, Let me circle back on the International Division first during the second quarter. We had the impression that you were about to see recovery trends, there right and not terribly in the Central American Caribbean.
What was missing back there what's the current outlook ahead than what has been the main initiatives to stabilize the operation. That's my first question.
Secondly.
During the presentation look as you also mentioned the improvement in margins and I really see to be a focus next year. So what can be shared about the main levers for that and if you can share anything or say anything about the cost outlook for next year.
Thank you so much.
Hey, Hi myself. Thank you for the question. This is Luca speaking.
In terms of in terms of the evolution of <unk> from Q2 to Q3.
And what what what we're what we're trying to do to improve performance going forward.
I think first it's important to note that in Q2.
We also saw a.
Challenging a challenging operating environment not only in the Dominican Republic, but also in Panama for different reasons in.
In the Dominican Republic, we had a specific issue with the glass supplier.
And the good news is that issue was addressed okay.
However, supply chains takes time to stabilize specifically in this region, where you do rely on a greater level of imports.
And the infrastructure in the region right is not at the same level of infrastructure in North America or in South America. So it is a it is a more unstable supply chain and that has proven to be tougher to re stabilize.
The resolution of the of the glass supply issue in Q2 than we than we than we would have hoped for okay.
So that's the Dominican Republic.
Number one in in terms of Panama. The main the main issue either domain issues in Panama in Q2 were one.
Our market share Okay. There was a market share loss during the first half of the year that we're still working on to try and reverse and we also faced supply chain issues. The the level of imports in Panama is higher than other markets. So as the supply chain constraints right.
Were a factor in the entire region, Panama was not the new given the higher weight of the imports.
<unk> suffers.
I'm, even more bullish.
Forward. The focus there is also on in terms of stabilizing supply chain. Okay. So.
The second part of your question right, what what we're doing first and foremost the focus is on stabilizing the supply chain without product availability everything becomes much tougher. So that's our first priority is to stabilize the supply chain and then the second priority is really to improve commercial.
Roof commercial execution, Okay, and what I mean by that is for instance in countries like the Dominican Republic.
And John alluded to this in his prepared remarks.
It's very important in order to reactivate the men.
At the consumer level to make sure that we have great price execution with the right Skus at the right price for the right type of occasions. So theres a lot of focus on on price execution in a market like Dominican Republic.
As we stabilize the supply chain in the Dominican Republic with a broader portfolio coming back we need to make sure that we have the fuller assortment of our skus with more coverage because we lost coverage during some degree of coverage during the first half. So we have to recuperate that and the good news is that.
Actually within within the third quarter in July August and September we signed through it's not only in terms of price execution, but also in terms of coverage levels for the broader assortment of the portfolio.
In the Dominican Republic so.
Heading in the right direction and third make sure that we continue to invest in developing the marketplace. So we can serve consumers customers better not only with our traditional beverage portfolio, but also other products and services that are of value to our clients. Okay.
D R and a recovery plan in a nutshell and in terms of Panama.
I think two main two main highlights that the team is working on their first returnable glass volumes. So returnable glass bottles are irrelevant.
Sensation in a country like Panama, So there's a there's a role for returnable glass bottles to play in terms of having the right skus at the right price at the right in the right channel. So there's a big focus behind RGB in Panama and second marketplace as well, we took a beast to Panama during the course of the year.
And so there's opportunity to improve overall performance by by serving clients better through the marketplace.
That's hopefully address question number one.
In sufficient detail and then in terms of.
Margins for for for the future Alright, I think that the overall leverage Hasnt changed Marcellus, we still believe that to continue on this journey of improving our profitability not only in terms of returns, but also in terms of margin we have to get.
The top line consistently right. So we've built good momentum in terms of top line growth over the last three or four years I think since Covid pandemic lows I think we've managed to build very good momentum and consistent for the most part double digit top line growth.
Overall, and we need to keep it up okay by balancing volume and also improving net revenue per hectoliter growth.
And.
To do that we have to keep keep making sure that premium and innovation portfolios remain.
Growing and healthy we need to support the return of the on trade we need to keep.
Focusing behind returnable glass bottles, not only in the out of home occasion, but also in the in home occasion, which there is plenty of opportunity in many of our markets.
We consistently try to improve our revenue management right market by market. The the the arrival of the B to B pack capabilities B to C. Tech capabilities also give us a better understanding of the client and consumer.
And consumer needs.
And consumption.
Desire, so that makes us potentially smarter in how we can offer.
<unk> Smith.
Better prices for clients and consumers.
So top line is first and foremost the most important lever.
To continue on this journey of improving margins in terms of costs, we will we will share more during our full year.
Our conference call in the beginning of next year, but what I, what I mentioned in July stands true in the sense that after three four years of everything.
Going against Us on the cost side pretty much everything was a it was a headwind.
The BRL depreciating against the U S dollar the Argentine peso comp.
Commodities on the rise of aluminum and barley.
2023 is shaping up to be the first year in a while where we don't have all of these headwinds at the same time, so given our hedging policy. We have a good degree of visibility at this point right. The end of October already there is still some hedging to be done of course, but we have a good degree of visibility.
And the visibility that we have today subject to finalizing the hedging for the year.
And subject to obviously, what we cannot hedge is that the BRL.
Tends to be a tailwind going into next year aluminum tends to be a tailwind going into next year.
Whereas the Argentinian peso should continue to be a headwind and wheat and barley.
Which is kind of pegged suite prices should also be a headwind once again net net.
Better fixture.
And how we entered 2020 to how we enter 2021 how we enter 2020. So obviously, we cannot underestimate the challenges, there's always going to be risks and challenges in the markets, where we operate but.
Given the visibility that we have today the picture certainly looks better than it looked this time last year. Okay. So that's the update on cost that we can give now more to come early next year and finally on the SG&A side.
Different different levers to pull in terms of sales and marketing.
Distribution and add them in but I think overall you know how much we focus on making sure that we are as disciplined as we possibly can in terms of the management of our all of our expensive. So we're constantly looking.
For ways to invest.
Invest better with better returns in terms of sales and marketing distribution.
There are efficiencies and things like that to see which as they scale up we've managed to get more and more efficient on the distribution side of DTC in places like Brazil, and add them in we invested a lot over the last few years to build that capability and so we're constantly looking at ways to be more more.
<unk>.
To keep growing these platforms, but in a more efficient way. So we can perhaps discuss in more detail later, but overall that's what the that's what we can share now.
That's very clear Luka. Thank you. So much just a quick follow up if I may add on that.
On the guidance of having a second half better not guidance, let's say ambition of having a second half better than the first half how dependent is days ambition on the recovery of the International Division.
Somebody wants to comment, but I think it's.
Based on what but based on what we've seen so far this year. The good news is that Brazil has really.
Carried.
A lot of improvement for the company at the at the consolidated level and we see momentum going into Q4 for the reasons that we mentioned in our prepared remarks.
We still see good.
Momentum in Brazil, and as as Lasse continues to rights to show resilience.
Canada continues to improve sequentially and starts to rebound.
This this hopefully will all help us.
Deliver deliver our ambition for the year, but I think it's more about the Brazil and the international operations.
With that myself.
We of course on on that.
This statement ends.
Yes, so we have some really to get better international operations, but this is I am thinking about more on the long term.
On the statement, we are confident that a true.
Would it be better than each one.
Awesome. Thank you so much.
Our next question comes from Lucas Ferreira with JP Morgan. Please proceed.
Hi, everybody. Thanks for taking my question. The first one is on on your whole per hectoliter and pricing so how to think about that going forward.
Getting into the fourth quarter.
First of all have you done all the necessary adjustments to your thought of doing.
Is there anything left to be done still.
And how to think about the environment and the World Cup it should it be like.
Eventually some somewhat of a.
Some discounts coming in functionally how do you see the market or the competition. So how to think about pricing in general and then the second question about the exact same nishu.
But looking at your 2023 Luca.
Lukas just was just talking about the.
Managing the top line.
So with with very strong pricing this year.
What's the expectation for next year do you guys think the deflation as something to aim for or just a carryover of the heights.
Don this year would be enough for you so how to think about the pricing.
In 2023.
Yeah.
Okay Lucas.
<unk>.
A good insensitive question I think that you are mentioned, let's see what can I, what can I mention about that.
So when we started the year.
And we mentioned that.
We wanted to accelerate the.
Organic growth.
We were more prepared.
With the momentum that we have net revenue per hectoliter.
Through this year because we.
You were a structurally better than the portfolio with trading up.
Yeah, Hi, and it's working.
And the channels.
Just meant that we needed to do it was behind us. So I mentioned at that time that the big question of the year would really be like the volumes because our cost of debt is on on the net revenue per hectoliter with based on all the adjustments.
We have done on the agenda was in my portfolio was much better in this I think it is.
It has been confirmed.
And somehow.
We are foreseeing a better than expected.
Better than expected elasticities.
Yet we've been able to too.
Really good volumes.
And with a resilient elasticity.
And then we are handling each who.
This Q4 that is that might be.
Focus is really well.
We will be on service level right, because I think the demand will be.
Hi.
We never had.
World Cup in the summer so with.
We are super prepared.
Do a great well.
<unk> go up in terms of consumer bonding.
In and somehow my mind is really on logistics and service level because my commercial plan is really it.
It's really really good so we are really backing on five brands Brahma.
Budweiser why don't I thought she got mics that is a new one.
In India delivery true so somehow my my mind is really there I really believe that this equation, there's elasticity will be very resilient and our debt.
That doesn't that's underway that's much is hard to mention what's going to happen.
Beyond that 2020.
Three levels somehow we feel that that's our main markets Brazil.
<unk> has more meaningful right. So somehow consumption has momentum overall.
The GDP unemployment the unemployment is really low.
We are very well position ending the year, we believe and are we going to believe because of the World Cup.
Nodes.
So somehow I think dimension what I can mention is that there are a lot of cities.
Electricity has been resilient and just to add to hear Lukas.
As I mentioned in the prior answer.
Yeah.
To the extent, we managed to continue to grow the weight of the core plus within our total mix premium volumes within our total mix as it hasn't been the case over the last four years.
To the extent returnable glass bottles continued to grow their waste not only because of the recovery of the onshore, but also starting to grow more and more into the at home occasion.
And to the extent, we managed to innovate right in an accretive way all of these all of these levers. They also helped net revenue per hectoliter performance right keep keep the momentum we have been building over the last few quarters. Okay.
Perfect guys. Thank you very much.
Our next question comes from Thiago Duarte BTG Pactual. Please proceed.
Hello, Good afternoon, Yeah, because then everybody yeah. Two two things are on our side here. The first one trying to just think a little bit more a longer term and looking looking at the beer category in Brazil.
You know looking looking at volumes in per capita consumption. It seems to be he seems to have recovered really well over the last two to three years.
I don't know exactly where we are but I think we are very close to historical highs in terms of per capita consumption of beer in Brazil.
It's also not a secret that Ambev, obviously has repositioned itself as you mention earlier as you know since 2019 and partially to foster the industry growth and it seems to be working so so my question is really where why do you think it's the long term potential of the cat.
Gory, considering everything that you're doing to foster growth and innovation and where you see per capita consumption in Brazil, now and where you think you can get or as high as it can get you know looking a few years down the road I think that's an interesting and important and discretion given how strong it has.
Already been in the last couple of years or so so that would be the first question.
And the second question, it's actually a follow up to.
I'm trying to understand a little bit more.
On the on the break down into different.
Print segments within your your volume performance in Brazil beer.
You mentioned premium you mentioned core being resilient premium growing you mentioned value is declining, but I still don't get exactly where the core plus or how the core plus which is as we know one of your biggest batch for for your portfolio, where the core plus has been performing I think it's.
It seems to be a very similar situation.
Situation in terms of performance per segment relative to what we had in the second quarter. So just wanted to get this final clarification, there would be great.
Here as well thank you.
Okay.
Thanks for the question.
Sure. So let me try to elaborate on the category right and.
Long term view.
What is amazing is that beer is really part of the Brazilian culture right. So it's.
So it's there.
And.
It's we feel somehow debts.
That is stronger than ever.
Our category the peer one has reinvented itself like.
10 years ago, we had like pretty much one style beer.
It was like lock light lagers right. So so somehow like Brahma and skol.
They have like CNI view in some type of body. So what we have seen is that from the last World Cup 2019 should should a market change. It so much we brought so much.
New news and recipes and innovation in flavors.
<unk>.
And we maintained our selves.
Culturally relevant like on the context of the new generation <unk>.
Brazil somehow beer category is healthy in Brazil, and we believe that it's been resilient. So this year. It was like a year that we were questioning but industry shows that it is their right. So we have this question. So we have this view that way too.
There is two main aimed genes of rural Firstly Brazilian.
Beer industry, that's frequency frequency going up is this too low when we compare with mature markets and then we have.
This new occasions at home being created like.
Drinking some some beer on Tuesday night that if it gets really gets that gets really the residual was there after the pandemic and in the box came back.
We still have a lot of opportunities to grow on.
North northeast and Midwest right. So there are areas that are below.
The average of the Brazilian.
Be it somehow as the income go up in this equation of affordability and B, we still have plenty of room. So if you go country side of Brazil, when we see that like if you do your earthly, it's still not affordable for each by beer too in your body.
So everybody so we still see that.
Break up the consumption has has room.
On top of that we are working on beyond beer. There is a round of growth as we really believe that debt.
Yes.
We're going to have that will be.
Very good for us in the future so mikes.
<unk> is a brand that we are elevating during the World Cup really true.
To hijack together.
Budweiser initiatives, so Budweiser and mics will be together.
Talking about the World Cup so somehow there is.
There is a big Avenue for growth on.
Beyond beer steel so somehow I really I really believe I'm really confident that our category is really resilient and still have space for growth in the loans.
So this was the first question the second question applicable of the portfolio. So in the end.
We made a.
Concho call off.
Take some resources.
In some affordability of Bohemia.
In the core plus.
Segments. It was for us and really concentrates on on spotting and Brahma double amount. So the two main brands over there I still believe we can have.
More innovation in this segment, but when we put all these things together Bohemia really.
It is a drag when we put.
From a double markings, putting together they are pretty much growing.
High single digits, combined and still growing with a lot of them. We are very excited about about the October fast as we did with <unk> Suisse.
Double multis is healthy, helping the mother brand Brahma so.
That's an avenue of growth is there and we are working on.
Thank you Jim.
Our next question comes from Carlos Laboy HSBC.
Yes, good afternoon, everyone.
Thank you for taking my question.
J J Lukas.
<unk>.
A substantial portion of your portfolio rate.
Is now core plus and premium just to stay with this topic.
A little bit.
Can you give us a sense of what you've learned from your market maturity model.
<unk>.
Where you are.
In terms of exposure to core plus and premium and where it can go what are maybe some of the examples of.
Of growth and and how high core plus and premium can go and while you're at it.
Can you give us an update on statin, which calls on that core plus category. You. Just went through October 1st I know that you were planning to.
Do some big things with that brand.
<unk>.
This past month any update on that any learnings that you took from that experience would be helpful. Thank you.
Okay. Thank you for the question on La Boy, So, yes, so when we.
Like 2019, when we mapped.
The white spaces and in what would be successful in terms of portfolio 10 years from now.
We mentioned a lot the market maturity that we learned with other countries. We studied that look Mexico, we stood at China.
We studied what's going on in the U S for us to do the right moves and really get a better portfolio with ability to win with when the ability right.
And it was clear for us that where we were in the stage.
We were like betting on our high yield for sure, but there was a core plus segments over there that should be developed faster than the long term bet on the high end. So in this was a completely open space.
That we saw in our portfolio. So we really.
On on that direction.
We believe somehow that's it's very underdeveloped today, when do we see countries like China UX.
It's really has a full potential beyond 20% of the industry and it was really only developed.
And then we went over there we looked at what we could do and then we had the.
The combination of line extensions with new brands.
That is now in place so haven't grown low double miles, we had spot and we have more to come on that segment.
And but we are happy with this performance.
That we are having so if we if we.
I was using sometimes the comparison of 2019, sometimes the comparison with the awards that we had in 2018, but somehow the core plus segment. There is 5 million hectoliter, new 5 million hectoliter when we compare one one cup to the World Cup and that was really a work that we're doing.
We really believe it can be 20% off of the industry.
And in spite he is doing amazing.
So with spontaneous up brand that is.
That we just started.
And it's.
It's really.
There was this great.
The date that it was like Brazilians really really really love the quality of the product and how it is a combination of there is a little bit.
Strong and easy it is actually translate but it's a it's.
It's a brand that like everybody that brings logs.
Has a great history and then we brought all this heritage two to work in.
Then we did blumenau October fast this year.
That has a great correlation with the one that we do.
Unique and it was just mindful so everybody is kind of in love everybody, that's getting search with the history of the brand with the liquids in the concept of what we do.
It's really.
Excited about is a big Avenue of growth there, it's growing very fast and we are expanding so.
Still a lot of distribution should do is do a lot of.
Bran two builds too but it is really is really doing very well I think these were the two questions right. So all the markets choosing specifically about.
Thanks, Bob Greenberg.
Thank you very much.
Our next question comes strolling hit car dwell base more against tally.
Hi, John Lucas Thanks, so much for the call.
Wanted to go back quickly on the word Cup question and the potential impact.
Should we be aware of any major mix effect, both in terms of you know.
Channel penetration product brands.
When you go back and you look at your upper Pharmacy word cups, historically speaking so any kind of even if you cannot meet your numbers you mentioned, it's kind of a.
A delicate question, but if you can.
Talk in terms of.
Relatively speaking.
The word Cup has meant for you in terms of revenue management, historically speaking and also when you're thinking about SG&A. If there's some some of the lines that you have to focus a little bit more in marketing. So just some qualitative comments on that as you go into the fourth quarter.
And then a second question probably for Lucas.
When we look at the derivatives line, the $1 1 billion number.
It is explained as you as you mentioned in the release by the higher hedged carrying cost.
But when you look at the 69% number or the cost that you mentioned for Argentina.
He's on the numbers that we see.
From July through September in the country, we actually thought that that would be that would have been higher.
So good to see that number but just wanted to get your thoughts on if the move from the second quarter of 65% to the third quarter.
Around 69%.
If there was anything specifically that you guys are.
Did to control or if maybe we should see higher costs go into the fourth quarter, but any kind of color that you could provide.
He came in below what we expected the 69% cost even though the $1 1 billion inquiries on a sequential basis. So any thoughts there any color would be helpful. Thank you.
Okay. First question you guys are so World Cup Yeah. So I mentioned, so we are excited about.
I did mention in the beginning but like we are really.
Launching but zero.
That will be the innovation off of the World Cup.
In Brazil, so liquid this just amazing it really beating in the blind tests the leak.
With that we have in the market, it's really looks like.
Budweiser are so so.
So this is one thing that I would like to mention but talking about World Cup in the end mix somehow.
Somehow they worked up should be accretive overall right. So because there was a scale.
Is one thing there is relevant.
The size of the occasions somehow in the fix it cost sold somehow scale helps us.
There is a big piece of it.
That happens in their own right out of home occasions with dressed with Rgb's. So somehow of course everything goes up but somehow I.
Mix wise.
More on the positive scenario then Danny in the neutral one.
And when we talk about SG&A, specifically sales and marketing I think one thing to mention is that so we started the world Cup already so we kind of <unk> loaded.
Bits of sales and marketing in this quarter in Q3.
To really get the beds for the conversation.
On the World Cup and the production costs and some media. So there is a little bit of front loading now.
There is a piece of that is already my numbers.
And then moving into Q4 somehow what we decided is to continue to invest on the accounts to own soccer countries like Brazil and Argentina.
But then really optimize.
The footprint there is not that much <unk> aegis soccer, there is pretty much our international operations, but Argentina, okay. So somehow I don't see.
Our issue of I don't see I see SG&A coming back to mean.
Even during the World Cups, once we already started and that we're going to.
Our resource allocation moving forward supporting.
The soccer.
Passionate about countries okay.
Let me take the second question Jonathan Thanks for the question here.
In terms of the losses on derivative instruments to truly impact to effect in the quarter.
You mentioned, Argentina, but there was also an impact in Brazil, because the carry cost in Brazil.
Year over year went from around 5% to nearly 10% over a larger exposure base. So that in and of itself also has a has a relevant impact in the in the higher and the higher cost associated with hedging.
In Brazil number one and number two.
In terms of Argentina, we also saw.
A spike in the carry cost.
Last year in Q3 was around on average right.
40% ish.
And this year it was.
Around on average like 70% for the quarter.
But if you look at month by month right you like towards the towards September towards the end of the quarter was north of 100%.
So the cost to hedge is is keeps keeps getting higher and higher and thats something that we track and monitor very closely and as you remember our hedging policy is such that we.
We say we remain hedged on average 12 months ahead.
But.
The reality is that pursuant to the policy, we have a window a range to work with that goes from.
10 to 14 months out and and from time to time, we do take views.
If if and when we feel that there.
There is opportunity or more risk or the cost is higher in.
In the short term so I think the important thing to keep in mind here is really the range that we typically work with and.
We were always monitor very closely.
How how attractive or not it is to hedge at a given point in time pursuant to the policy okay.
Very clear Lucas, thanks for that and thanks for <unk> as well.
Thank you does concludes our question and answer session I would like now to.
I invite Mr. Jerry <unk> for any closing remarks. Please proceed.
Okay. Thank you very much all analysts and everyone who joined the call.
Thanks for your time and attention to wrap up.
I really feel that our industry is as good and resilient our our business is structurally better all the changes that we have been doing we are really confident on delivering <unk> better than each one and we remain on track in terms of our main ambition for the year is really to get Brazil back you bought online.
ROE you have the consolidated organic growth ahead of the organic growth that we had in 2021, and having an H <unk> better than H, one and to improve our our Oh I see.
And we will continue vigilance on the short term volatility in on cost pressures. So hope you will all.
I enjoy these events and I really.
Looking forward to see you in our ESG data next week.
And have a great day.
Thank you.
Frank's call for Ambev is nowhere.
Have a great day.
And would you call.
And then to that Russell.
What are the global sugar all of them, but we'll see what the government or do you know that cycle as well.
We move now not subtracting the badge, but also agree yes.
Hi, Sean.
But most of it.
Okay.
Okay.
Okay.
We do see that my dad. He has a lot of variety or is this just what are the U S.
Sure.
And you saw that as a placebo.
<unk> put a mortgage with us people from one day or something.
Neil.