Ambev S.A. Q1 2023 Earnings Call
Okay.
I'm on Mike Z.
And fifth a converged.
Nemo.
Nice.
Pete.
[music].
<unk>.
Hum.
<unk>.
[music].
Mike.
Of course logically so could you remodeled my spud just how much ice baby they book more than awesome.
Yeah, well look at them are there.
She loves to have all been a void now they'll start from Ameren, Illinois, local a separate matter.
[music] whatever could be mobile small just a few months of data.
Clif bars, but yeah actually adequately enough. So my strip malls or do you think the issue.
Good morning.
But the more data soon.
Okay.
Got it.
Okay.
Yes.
Okay.
Okay.
[music].
Hey.
I'm on Mike Z.
And fifth a converged.
So could you Nemo.
Nice.
Perfect.
Hum.
The.
<unk>.
[music].
Mikes creator Quinquagenary liquidity remodeled my spud to come onto the ice baby Dybbuk modernism.
So I look at them are there she loves to have all been a boy's mouth they'll start remembering this morning.
Good morning, good afternoon, and thank you for waiting.
I would like to welcome everyone to them Bad first quarter 2023 results conference call.
Today with US we have Mr. Xiang today, Staci CEO for Ambev and Mr. Luca data CFO and Investor Relations Officer.
As a reminder, I live presentation is available for downloading on our website or I got a map dot com BR as well as through the webcast link of this call.
We would like to inform you that this event is being recorded and all participants will be in a listen only mode. During the company's presentation.
After <unk> remarks are completed there will be a Q&A section, where we kindly ask that each participating analyst ask only one question.
At that time further at that time further instructions will be given.
Should any participant need assistance during the 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 1996.
Forward looking statements are based on the beliefs and assumptions of Ambac management and on information currently available to the company.
They involve risks uncertainties and assumptions because they're related to future events and therefore depend on circumstances that may or may not occur in the future.
Investors should understand that general economic conditions and strict conditions and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward looking statements.
I would also like to remind everyone that as usual the percentage you. The percentage changes that will be discussed during today's call are both organic and normalized in nature and the Alaska, otherwise stated percentage changes refer to comparisons with the first quarter 2022 result.
Yes.
Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of them back to normal activity.
As normalized figures are non-GAAP measures the company discloses the consolidated profit EPS operating profit and E. B I T. A on a fully reported basis in the earnings release.
Now I'll turn the call press over to Mr XI Andre Saatchi, Mr. Shay Staci you may begin your conference.
Hello, everyone. Thank you for joining our Q1 earnings call.
During our last call I had two key messages.
First that I want to starting 'twenty or 'twenty three more costly it that I started 2022.
Because of our business momentum because of overall cost and expenses inflation coming down and because of our financial strength.
Second that in 'twenty to 'twenty three the plan was and is to is to maintain top line momentum and accelerate EBITDA growth with Brazil, leading the way in international operations bouncing back as we continue to improve profitability not only in terms of.
Rois C, but also gross and EBITDA margins.
Well I was happy to see that in this first quarter, we delivered on both fronts.
Topline momentum persists growing above 26% ahead of costs and expenses.
Pete the growth accelerated nearly 40% year over year, which by the way. It was ahead of last year's growth with or without taking Argentina into account with Brazil continue to perform well while international operations are weaker.
Sorry.
And profitability improved with gross margin expanding 290 basis points in the beta margin expanding 310 bips.
In other words, a good start to the year.
Let's see how we got there.
In Brazil beer. According to our estimates industry grew mid single digits in the quarter Becker by Carnival celebrations, returning to the streets. Despite the rainy weather.
Such growth, however was partially offset by tough comps as masks mandate was lifted in March last year.
With that our volumes grew around 1% with flat market share versus last year. According to our estimates as our sell out volumes were higher than selling given a disciplined revenue management during the typically discounted carnival.
Susan.
Our premium and Super premium brands, such as original spot then Stella and Corona grew almost 35% in the core segment remained resilient.
And thanks to consistent investment behind our brands and capabilities the health of our Super premium and premium focus portfolio continued to improve.
We estimate our brands add there's over 700000 stance versus last year, and almost 4 billion six Joannie 19.
Also relationship with our customers remain making progress with N P S reaching over 60 points.
Net revenue per hectoliter increase at the ball, 13% versus last year, and almost 3% sequentially. Following our revenue management strategy and despite the expected pressure on cash Cogs per hectoliter.
<unk> grew 24% the highest increase since the first quarter of 2000, all night with margin expansion of 250 bps supported by a deceleration of distribution expenses growth as well as savings initiatives or administrative X.
<unk>.
In Nab commercial momentum also continued volumes grew above 7%, thanks to a strong portfolio and a wider distribution boosted by beef.
Pepsi Black grew over 200%.
Now representing 14% of Pepsi Cola portfolio, and Guarana, Antarctica grew almost 7% led by what announced arrow.
Net revenue per hectoliter increase at almost 11% following a consistent revenue management strategy and the positive brand and pack mix.
EBITDA grew 47% supported also by cash Cogs per hectoliter growth deceleration, leading to a 530 bips margin exploration.
Regarding our tech platforms, our marketplace in Brazil continues to go in the right direction.
Jim V grew by 36% versus last year in.
Cash gross margin increase at 790 Bips.
We have been working with our partners to expand the offering of their set of products as we still see room for improved sku's brick customer on top of continuing expanding the assortment of marketplace products.
After the FIFA World Cup and Carnival Activations their deliveries awareness continued to grow sequentially in it is present in almost 450 cities in Brazil.
As a result their reach its 5 million monthly active users and <unk> grew 5% versus last year.
Turning to our international operations, even loss macro environment remains a challenge, bringing volatility to our operations and inflationary pressure on disposable incomes.
Volume decreased almost 8% driven mostly by Argentina and Chile.
Revenue grew 66% driven by revenue management initiatives, especially in Argentina, which supported EBITDA margin next patients of 600 Bips.
In Argentina, despite the industry decline in our market share going slightly down premium brands gain weight in our portfolio.
Our plan to perform operational hedging continues evolving and we are more agile in making decisions to protect our cash flow generation in dollars as macro conditions change.
The decision to lower coverage of our financial hedge to steward this water and resulted in improvements in cash flow.
The decision to lower coverage of our financial hedge still stood this quarter and resulted in improvements in cash flow.
In Chile volumes suffered mostly due to continued industry slowdown even with less volume EBITDA improved supported by expanded local production capacity, reducing imports levels believe you're on the other hand grew volumes as it continues on.
The recovery path after COVID-19 restrictions last year.
In CAC sequential improvements continued this quarter.
Revenue is back to growth driven by net revenue per hectoliter and gross profit grew almost 9% after a year of decline.
It beats a declining by 2% as we lap it over a low base in S journey did.
The Dominican Republic continues ahead in terms of recovery volumes grew by low single digits led by President <unk> brand family, which so Fritz from lack of bottles left the year.
In Canada volume grew by 5% driven by both industry lapping historically bad weather and COVID-19 restrictions in early 2022 in.
In estimated market share gains in both beer and beyond beer.
Our premium brands led the pack growing above 10%.
In terms of brand health, our above core brands are a healthier with highlights to Corona the highest brand power in the country.
Net revenue per hectoliter grew above 9% following revenue management strategy and favorable mix impacts in the bit the grew three 5%.
So the numbers for the quarter were good but one thing that I would like to highlight today is that in order for Ambev should do well in a sustainable way. Our ecosystem also has to do well on the last call I mentioned why I believe that the company is more and more solid from a co.
Through operational and financial perspective, what I did not mention was that it's not just about us, but it's about the whole ecosystem. Our platform serves a purpose that goes beyond the company itself.
For instance, as I mentioned before it has been great to see number of fans of our brands growing in our N. P. S with customers continuously improving and nothing formations that the N. P. S. With our suppliers also reached the highest level of the past six years.
Yes, as we have been collaborating more.
We are also proud to see that as a result of our partnerships and relationships with different stakeholders of our ecosystem. We obtained significant results in terms of reputation with Merkel the leading corporate reputation monitor in Latin America ranking the company.
In the second place for the fifth consecutive year in Brazil.
In the first position for the sixth consecutive year in Bolivia.
In Argentina, we evolved from fifth to fourth place.
And finally in terms of value creation the value. That's being created is also being shared with our ecosystem to illustrate this point I wanted to share some data from our value added statement contained in our financials.
In the first quarter, we generated roughly 30 billion re Isaac gross revenues of which approximately 14 billion worth beaches suppliers.
About 8 billion in taxes were collected.
Randy on the ratio of our people and third party capped out or about $1 8 billion each.
In potential remuneration to shareholders correspond to about $3 8 billion.
What this all means is that as ambev grows the ecosystem also benefits and for Ambev shall grow sustainably. The ecosystem also needs to thrive and this is important to us as we think about creating a future with more cheers.
Now looking ahead, we continue to expect Duena 20, threep to bring both challenges and opportunities, but I remain confident that we are on their rights rack and the team is committed to deliver once again.
Short term volatility in challenges vary market by market, but we believe that our long term strategy is sound and we will continue to focus on the things we can control and on executing our plan to deliver our ambitions for the year, which is continuous and costs.
System growth with profitability.
In terms of growth, we are talking about Brazil's momentum and we are talking about international operations recovery, leading to a consistent top and bottom line growth.
And in terms of profitability, we are talking about not all improving rois see once again, but also looking to improve grass and the beat the margins S topline momentum remains while costs and expenses headwinds continues to ease.
So having said all that I would like to thank you all and let me hand this over to Lucas. Thank you.
Thanks, Yeah, Hello, everyone.
I would like to kick things off by putting our Q1 performance into perspective in terms of what we expected would be the same and what should change during this year as compared to 2022.
Starting with what would be the same.
First topline growth remains a key priority with net revenue performance once again, driven more by net revenue per hectoliter than volumes.
The result, nearly 27% net revenue per hectoliter growth with consistent performance across our regions.
Second we expected a tougher Q1, given higher input cost pressures, but this time more from commodities and FX.
The result, cash Cogs per hectoliter increased about 20% driven mainly by the timing of our barley and aluminum hedges.
And third our focus on value creation drivers such as return on invested capital economic profit and free cash flow generation all remain.
The result cash flow from operating activities declined almost 1 billion reais year over year, driven mostly by payables.
Q1 payables are historically negative given the seasonality of our business, which has Q4 as our strongest quarter.
Specifically with respect to Q1 2023, the decline is mainly a result of three things.
Number one lower non income tax payables in Brazil, given lower sales volumes versus March 2022.
Number two lower volumes in CAC and number three a tough comp and non income tax in Canada as H, one 2022 taxes were deferred to H, two given COVID-19 and Canada.
However for the full year, we expect cash generation to improve.
Now regarding what should change this year.
First we expected our cash Cogs per hectoliter for Brazil beer, excluding non ambev marketplace products to be significantly lower than the 16 six growth in full year 'twenty 'twenty. Two the result cash Cogs per hectoliter rose about 15% and we expect this performance to improve.
Materially during the remainder of the year as our aluminum hedges become a tailwind and the benefits from our FX hedges increased from Q2 onwards.
Second SG&A growth should improve given lower inflation overall as well as the implementation of internal restructuring designed to streamline and optimize our b to B D to C and Fintech technology Big bets. The result, cash SG&A grew 27% with administrative.
Expenses growing 17% as we begin to capture projected savings, particularly in Brazil.
And third CAC in Canada to deliver organic EBITDA growth. The result, cocky EBITDA will still about 2% below Q1 2022, but once again showed sequential improvements with a nearly flat EBITDA performance in the Dominican Republic.
In Canada, a bit that was back to growth delivering three 5% improvement year over year.
Our EBITDA reached $6 4 billion reais in the quarter and organic growth of almost 40% year over year.
And which is 8% above our compiled consensus that we now disclose on our web site.
So we start the year definitely on track to deliver better organic EBITDA growth in 2023.
The 17% organic growth, we delivered last year.
Turning to our net income performance.
Normalized profit totaled around $3 8 billion Reais in Q1, and organic growth of about 8% year over year, and which is 22% above our compiled consensus.
This performance was driven mostly by the EBITDA growth, we delivered but also due to net finance results growing at a lower pace.
Here, although on the one hand interest expenses increased mainly due to fair value adjustments of payables pursuant to Ifr S 13, and losses on non derivative instruments that were mainly a result of noncash losses on intercompany balance sheet consolidation and third party payables increased on.
The other hand losses on derivative instruments were actually lower than last year because of lower carry cost expenses in Brazil and Argentina.
As you May recall, starting in Q3, 2022 we have gradually reduced our financial hedging in Argentina, and this decision led to a positive year over year impact this quarter.
Before moving to Q&A, a quick update on tax litigation in Brazil.
Since our full year 2022 earnings call there have been new developments in some of our relevant cases that are worth mentioning.
Accordingly, the Brazilian Supreme Court and the administrative tax courts recently issued rulings in connection with certain of our tax positions involving approximately $9 5 billion reais that are classified as a possible, but not probable chance of loss.
And the good news is that the results were mostly favorable to the company some of which we've already reclassified from possible to remote chance of loss for.
For further details please refer to items 26, and 28 in the notes to our financial statements.
We expect the administrative and judicial courts to continue ruling on certain of our tax positions in the coming months.
Such as tax assessments received in connection with the deductibility of the IOC, the deductibility of goodwill amortization expense and announced free trade zone as well as the case related to the ICM S substitutes and the taxable basis of the peace and the coughing.
We will keep the market updated accordingly, and as we mentioned before we believe in the merits of our legal position and that we will ultimately prevail.
Finally, we will publish our 2022 ESG report on our website in the next few days stay tuned.
That's it for me, let's go to Q&A.
Okay.
Thank you.
Well now be conducting a question and answer session.
If you'd like to ask a question. Please press star.
One on your telephone keypad.
A confirmation tone will indicate your line is in isn't the question queue.
You May press Star two if it was like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing to Turkey.
We kindly ask that each analyst ask only one question.
One moment, please call with Paul's question.
Yeah.
Okay.
First question comes with low costs that hit us from Lucas Ferreira with JP Morgan. Please go ahead.
Hi, good morning, everybody.
I Hope you hear me well.
My question is regarding the your outlook for volumes in beer volumes in Brazil.
From listening to your comments and also looking at the summer.
Industry data apparently March was a fairly weak months.
In all parts of Brazil, but just wondering if you have any views of why March was so we can how if you see like a already a rebound in volumes and in April eventually in May.
And your overall expectations, given the tough comps for the second quarter and third quarter. If you think this new sponsor really tougher than the first quarter like you said, it's tougher so your outlook for volumes for for the rent for the remainder of the year. Thank you very much.
Okay.
Thank you very much Lucas.
So I mentioned in my call that.
We are so we are 7% in this quarter above the 2019 levels.
So this is a very important number for us to keep follow because there were a lot of noise during the pandemic and back and forth but.
This quarter, we were 7%.
Something happened on this quarter show that our sell out volumes were ahead of our selling volumes. We kept our revenue management strategy discipline. While we saw why are we saw a.
Overall market competitors.
Really intensifying our promotional activities. So so that was one of the reasons why we couldn't put a more up rather.
Out in the in the trades, but overall market share.
With consumers.
With sellouts volumes they were okay. They were in line.
When we think about the performance compared with last year in.
In reality, we did good in January but in.
February but.
Somehow it could be better in our view.
Because of this promotional activity and our discipline on revenue management, we knew that March and April would be a tough comps because masks are were lifted in the previous year and they.
They were good months, when we think on a broad there. This has on our lives at volume level, Oh, Wow, given March and April we not historical level. So in terms of these subtle in our lives. It. It was okay, we're going to have to wait a little bit more to understand.
How is it going to go.
May and June .
Two to really give a proper more color on the year, but we are confident market share sequentially. It is it is growing it's growing up our brands are strong.
The minimum salary is coming so.
So somehow.
We believe that.
It would be a good year in terms of volumes.
Perfect. Thank you Jan.
Thank you.
Our next question from Quinn.
He loves the example, with UBS. Please go ahead.
Yeah.
Hi, Thank you for the question My question is about <unk>.
So could you give us more color on what drove the determination and said, let's say is coming from David. Thank you.
Okay. So.
So yes so.
Youre talking about probably about the marketplace right.
We are in.
In reality are talking a little bit.
Is responsible overall four 488% of our customers and 75% of our volumes are really covered by this.
We are very proud that we reach at 1.1 million customers accessing a b's in making their orders.
At some point in time.
Customers are spending more than 20 maintenance in the App per week.
95% of them are registered in our rewards program. So the platform is in our NPS.
With.
Up to above 60 on the first quarter and all of this is.
Really related.
With peace and I'm talking about the marketplace. The G M Z of Norland, Brett no number of products sold.
We reach it 400 million this year it was 36% above last year.
Looking.
Our portfolio there is some seasonality rights when do we think sequentially when Q4 compared with Q1, so we have.
A part of our portfolio that we are trying to learn.
About how they perform in terms of seasonality. So we have hard leak or as we have water our.
Food. So there is a seasonality that we are learning, but compared with last year. It was 36% above now we have more than 366 630 skus.
There is opportunity to increase and in and we are really working on on getting all guests.
<unk> alliances on that so.
We are learning with the with the GM views in and how each product for four months by months.
But I would say that I'm I'm happy so if we add another thing it is that.
The gross margin of the products that we have in that we had this quarter were much better than the gross profit that we had.
Last year last year, we were with a lot of commodities now we have alliances and brands. So somehow I'm confident with our with the potential of the marketplace platform, It's sweat our assets low investment with returns.
And increasing margins and consistent growth.
Thank you David.
Thank you next question comes from Thiago blocked you with BTG Pactual. Please go ahead.
Okay.
Thank you Hello, Hello, Lucas I lose your body.
I have a question and a follow up when we start with a follow up on the Lucas' remarks regarding working capital.
At the beginning of the call.
And this is actually circles back to discussion I think we had been this call last year.
With regards to working capital consumption. So I appreciate the the one offs that you that you clarify to us, but the <unk> still looking trying to think of the level of working capital work that business relative to sales are two question looks like the cash conversion cycle of the of the business has worsened so.
So I understand the seasonality understand the tax payables suggestions in Canada, and so one but just wondering.
If there is something else that could be changing more in a more structural way.
They're working capital intensity of the business. So we can think of this of this line going forward there would be great to hear.
And the question more around a.
Big picture level is with regards to topline held and topline performance in and the brand health I mean, John you mentioned in your remarks, and you guys put in.
In the earnings release that the brand health is improving and particularly talking about Brazil beer.
So just wondering what kind of metrics you're looking at to think.
Think of.
Oh brain health.
Which brands are performing better and which brands are performing not so well and how that drives in your view going forward on the capacity of the portfolio to recompose margins via pricing.
Belgium for Deicing share or jeopardizing the category, which is something that you guys have been putting a lot of effort into preserving in the last few years. So just if you could summarize a little bit how how that impacts the <unk> the capacity of the company to drive pricing there would be great as well. Thank you.
Right.
Oh, Okay. So I'll get the second one genre and then Lucas go back to the first one.
So yes, so when when we present our strategy pillar number one and number two is really about having a lot of its brands is the pillar number one pillar number two is really about our ability to innovate. So these are.
And we follow Ah Ah Ah.
A metric that we call.
A number of levers that I mentioned, so the number of consumers destination that they love one of our brands and we we've been growing are these metrics I. This is more of a push volume metric for us to understand if the overall portfolio has been more logs.
So we increased this metric is 4 million.
Consumers are when we compare to pre pandemic levels in the short term we increased 700000 a.
Lawyers are fans of our brands destination, that's one of our brands.
I'm one of the brands that they love. Another one is really about the Brent Bauer. The brainpower of Mary is it is a metric that we believe that wind power today is is market share.
In the future and we are doing well when this metric.
The branch that's R. Us so there is a up up and down in this.
This overall metric.
Think about portfolio, but the brands that are really performing.
Performing well always have Corona is doing very well spotting is doing very well a stellar.
Group power.
Again, Budweiser is doing well and Brahma.
Our brands that are doing very well or region now is doing very well too.
The loan.
We suffer a little bit more so we're suffering a little bit more with Bohemia.
So that's one example, but the focus brands the brands that we are they are.
Our performing they are performing very well if you if you look at our.
Our net revenue per hectoliter this quarter.
It was well ahead of the.
The consumer pricing the facing a big chunk of it it was really a high end performance the high end and the premium performance the brand mix. So we have seen those brands.
Really been able to.
To grow and then drive mix and even to sustain a more price than we previews expected. For example, you know that that's when we designed the innovation strategy of the company. So we brought spot thing with this view that the core plus sag.
Man.
The aim to bring the core plus plus segment would be a white space that we should bring going to national brands with while it skews heritage.
In performing so well that now we have seen spot day like growing in and it went from like 125, 130% price index to really 141 to 45, so with as it goes.
It's really been sustaining more price. So this is one example, so so yes big part of our strategy.
On pricing all brands is really to get strong brands.
To be able to gain market share and drive mix and pricing and this is working so big part of this net revenue per hectoliter that you saw it was with this strategy.
Yeah.
Hi, Chad will look as he is thank you for the question in terms of in terms of the cash conversion cycle kind of being structurally worse.
I think the short answer is no okay.
And and the reason for that is.
I think as you know we have rights a negative a negative working capital and given the seasonality of our business right Q1 is typically a quarter of less cash generation in Q4 is actually the quarter, where the bulk of our of our cash flow.
<unk> and our performance in terms of working capital really moves the needle.
I think it's important not to necessarily draw any longer term conclusions just based on on Q1 performance. It's important to look at the full year, but speaking specifically about Q1.
I ended up in my prepared remarks, focusing more on payables, but I think it's important too to break down and give some shed. Some light also on on receivables and an inventory. Okay. So if you start looking at receivables in Q1 'twenty to 'twenty two.
We actually had a monetization of tax credits of about 600 million Reais and so that positively impacted our receivables performance last year.
Whereas this year, we didn't have any relevant monetization of tax credits. Okay. So that's an additional element that needs to be factored in when looking at the year over year performance of our of our working capital and so far as receivables are concerned.
And in terms of inventories the performance was actually positive okay child.
Because we continue to actively manage inventory planning not only of raw materials, but also finished goods.
And so we continue to to to focus on the levers, we control and having a lot of discipline to make sure that our cash conversion cycle, which historically hasn't been one of our strongholds.
Obviously.
It's a it's a high threshold for us, but where we're continuing to look at ways to sustain and improve our our cash conversion cycle. Okay. And then just to just to add a little bit more on the payables side.
As I mentioned in my prepared remarks, the biggest impact came from Brazil, Okay, and this was mostly on non income taxes payables.
Given the way tax collection mechanics, or stay to eat for excise taxes work in Brazil.
Is that are old.
Given March volumes are actually paid in April .
So the higher the volumes are in March the higher the payables.
And the opposite is also true.
And this is exactly what happened this time around.
March 20th 22 volumes were very high as Jim mentioned, so more payable in March 2023, we had the tough comp volumes declined so less payables.
Okay, but this is a temporary effect and should not be irrelevant factor from from a full year perspective, okay. So that's not issue number one that we face. This time around this number two was a really cogs volume declining leading to lower payables right generally speaking lower production volumes leads to lower payables.
Our payables for the region ended up being impacted by volume decline, but as volumes continue to recover this should translate into improvements here as well as we look ahead.
And then last but not least we also had an issue in Canada for the specific impact also non income tax related.
And and here. This was a H one 2022 effect because payables that were impacted positively by tax deferrals in Ontario to cope with COVID-19 recovery and this was not the case. This this quarter.
But again looking at the full year picture these things should even themselves out.
And so again I would invite everybody to focus more on the film the full year picture reminding everybody that Q4.
Is the is the the needle driver the needle mover for our cash generation and our working capital performance.
Sure.
Very clear thank you both.
[laughter].
Thank you. The next question comes with Carlos Laboy with HSBC. Please go ahead.
Yes, Hello, everyone.
J J I was hoping we could go back to a conversation a.
A couple of weeks ago.
A couple of years ago.
To drive a new culture, you you modified the behavioral model.
And you emphasize three new core behaviors right.
You're active listening collaboration long term thinking.
But if you reflect on unreason events right.
And the a b ice systems are these behaviors.
You know how do you modify these behaviors to think.
About risk and risk vigilant so are those behaviors maybe.
Very geared towards revenue.
Enhancement.
And I'm asking because.
Look reputational risk can come from so many unexpected places sometimes they just happened to you like like like the emotional thing right Americana thing.
But sometimes they come from within the organization too.
Unexpectedly and so so how do you think about mitigating reputational risk and how do you bring that into the culture of the organization based on the reality of what you're looking at in your organization in Brazil.
Thank you very much for the question of Laboy.
Yes, so you'll know that we've been in the journey everything evolves.
Biology evolves go through half should evolve.
And we are we have this clear view that the growth matrix that we need for the future.
<unk> had two so we had to be global in our culture to bring.
To maintain first of all this.
There's this great rates that I have in the company that people that really think as owners that thinks as the company.
Yeah, I think as owners act with integrity.
Accountability. So this is a very important.
Right. That's we always had so there's ability to dream.
Our company it has to continue but we had to really bring.
More or less an even more collaboration and more a long term vision.
And in and I think we.
We are super happy with with this journey.
Of course, it takes time for for you to see the whole organization are performing culture is really about.
Habits is really about the example was really about leaving the everyday and in talking about the listening and the collaboration.
And in the ability to seek horizon two horizon three why is taking the decision. So we've been like leaves in a this are in our company and when it comes to reputation Companys reputation. It is my responsibility.
And is the responsibility of each person that AR work down here, we know that Ah we leave with that.
This is a personal note to us.
We take it very seriously.
And in one thing that we are that we are doing so.
More and more is it.
It's really to be able.
First of all George to talk about everything that is happening inside the company, but to talk about our company.
To the outside World.
We are so proud about the things that we are building. This seems to me that we are.
Doing down here, we're very cautious about this.
This transformation that we are leaving this topline grew.
Growth that we're having.
We trust our our management model. So somehow this is about taking responsibility and this is about to being completely transparent inside the company and outside the company.
Yeah, if I may just add one thing Carlo so to your question about.
Managing reputational risks, especially right in the short term given all the all that's happened right since the beginning of the year here in Brazil.
I think John alluded to this on the last call, but I think it's important stressing them.
Because one of the things that happened in 2020, when when Covid hit was really a decision on our part right to be there for our ecosystem.
And that applies to consumers that applies to customers that applies to wholesalers to suppliers right to local communities.
And and this was right genuine was intentional was deliberate because we thought it was the right thing to do we needed to be there given what was happening.
In the country at the time and fast forward two or three years, one of the things that's really caught our attention in in Q1 was when when this whole noise hit the support that we got from the Eco system was really was real.
He.
I was relieved.
Impactful for us.
To see consumers standing by us to see customers standing by us to see.
Flyers wholesalers really stepping up former employees of the company right to be vocal about about the company what we what we've been doing why we've been doing it and how we've been doing it.
Really struck a chord with us and I think is a good illustration of how our consistent focus around right building and improving on the cultural evolution and the reputation of the company. It is important.
As important as a matter of principle, Okay, and I think Q1 was a good example.
It's a very thoughtful and and impressive thank you.
Thank you. The next question comes with Isabella <unk> with Bank of America. Please go ahead.
Thank you good afternoon, Yeah, Hi, Lucas. Thank you for the call I have two questions, mostly on the International Division starting with lives I think was this quarter show that a great focus right on pricing.
Even though volume suffering right and combine with the hedging strategy strategy for mainly for Argentina right is this something that should continue to think for the upcoming quarters, I mean, I, even though macro conditions should be tough in volume.
Elasticity it should be higher.
<unk> will will pricing be the key focus here in a way to to maximizes the equation.
For the company.
And Oh, I'm just to come back and try to relate this with with cash flow in any sense I mean, it look or is there an impact on us in any way of working on working capital from this procurement strategy in Argentina or.
Nothing that we should should should Ah that nothing that should be impactful and the second question is on Central American Caribbean I mean, obviously he has been a tough recovery yeah on the margin side and on the topline side I Wonder if you could give us.
More color on what are you looking in terms of recovery going forward.
What would be the drivers and eventually the timing off of them.
A more normalized.
Slide 12 results. Thank you.
<unk>. Thanks for the question, let me, let just start off on the topline aspect of Argentina, then I can complement.
So thank you for the question, it's all about us so yes, so love talking about laws that we have some countries over there of course, Argentina is representative of bus we have Argentina, Chile.
But I do I believe you and we are working for a while we lost through really loss.
Shine.
And the truth is that we we at last entered.
2023, more productive overall, so we knew the macro scenario is.
It's a it is volatile so we we really get more efficient over there.
More productive if you look at Chile, the capacity expansion made us.
Much more agile to have our supply more supply capacity in Chile.
If you look even that if Argentina. So we are really working with cost discipline.
Over there. So overall loss is it's more productive more efficient.
Is lighter because.
Somehow we were.
Kind of overpaying for protection to be.
You feel protected over there so less loss is lighter.
The disciplined loan pricing execution, a it is a priority for us over there and in so that's why you saw.
The P&L that went very well is not just Argentina, Chile.
We performed very well compared with the previous year.
In and believe we saw volumes going.
On the positive side, Paraguay overall has momentum in all the lines are doing well.
And in it but so this thing about the volumes that we had a steep decline over there.
I think it's the volatility is more of the volatility of the of the country goes through a big installations that were rearranging.
So I I I would not say that this type of volume performance.
<unk> around so there is the adjustments AUM in salaries everything even even Chile.
That's had a tough industry in Q1, two we see it is getting better.
Month by month, so somehow loss.
We are very prepared for the volatility we are more efficient lighter.
Discipline on pricing is really what matters for us now and in the volumes I think that that's.
Would it be better than what we saw in Q1. So so then then Lucas on the financial on the financial hedging.
So hi, Isabella.
On the hedging side to put to put things into perspective. It's also I think it's important to remind everyone that since since Howard decision in Q3 of last year to start reducing gradually our financial hedge.
This game this game alongside a decision on our part to also elevate the focus of the organization around free cash flow in U S dollars as a key kpis to define success in Argentina going forward, just given the environment that we're facing in the country and.
As a result of this decision to elevate the free cash flow in dollars as a as an important kpis.
What this has.
Translated into on the hedging side.
Is to continue to.
Have some protection in Argentina, but not to the same extent rights. We had historically the average 12 months of the of the hedging policy as you well know and we continue to be right below 10 months as I mentioned last time that continues to be a reality.
But just given the current conditions of temperature and pressure in the market.
We actually are looking at this this call on how much to hedge on a monthly basis. So this is a monthly exercise that we do together with our local team to see what's the right. What's the optimal level of a financial hedge that we should carry.
Going forward looking at currency currency performance carry cost and trying to optimize that the balance. So that's I think the important message on the financial hedge side on the operational hedge side, which we decided to increase and this speaks to the working capital aspect of your question.
On the operational side, we've made good progress in Q1, so we challenged ourselves to review.
The full suite of our agreements with suppliers to see what could should change and how to implement that in a dialogue with our suppliers. Okay.
And that made good progress during during Q1 are.
Slightly ahead of what we originally had planned for so good progress there, but again, we're being very careful and disciplined to do things gradually okay.
So that's where we're where we just thought the environment requires a lot of a lot of discipline and caution not to kind of joke.
The business and the relationship with suppliers, Okay, and then on the working capital.
Which has also impacted the challenge that we've been facing this is still work in progress.
<unk> is to really find the optimal balance for the current environment. So right the cash conversion cycle for Argentina.
In today's world in the short term, there's going to be different right, Dan the cash conversion cycle.
That we that we had last.
Last year or the year before and it's and it's a constant effort on our part to see to what extent, we need to revisit our payment terms with suppliers payment terms with our with customers' level of inventories that are raw materials be it finished goods, okay and.
This is this is work in progress again Q1, so far so good but since.
Since the the the short term environment is so volatile I think it's going to be a constant a constant points of attention. That's we're going to be actively managing going forward just.
The short term reality requires us to be very nimble flexible and and on our toes to manage all of these aspects of the of the.
That impact free cash flow generation, but again, so far so good.
And then on CAC I think overall we.
We made we made.
Okay progress in the quarter, Okay overall.
The highlights in terms of sequential improvement continues to be the Dominican Republic, which is good unimportant because it's our biggest market.
So despite despite inflationary pressures locally that's continued to impact to some extent the volume recovery the pace of volume recovery, but also cost pressures that still persisted in Q1 to some extent sequentially, we continue to make to make steady progress.
And then when you kind of look under the Hood of the Dominican Republic kind of improvements drivers.
What we continue to see in Q1 was.
The improvement of <unk>.
Three very important kpis that that relate to two the main S. SKU in the country.
Which was the 22 ounce presidente bottle, which was the supply chain issue that has kind of sparked.
The the whole the big challenge that we had last year and so the level of coverage.
Of the 22 ounce president the bottle continues to improve in Q1.
The price the suggested price adherence with with customers with clients continued to improve for a third quarter in a row.
And the inventory levels for for this that SKU.
Also continued to improve sequentially and that translates into better service level that translates into better net promoter score on top of that we're investing in the markets. We're investing behind our brands the focus around the digital ecosystem right. These are in the marketplace continues to be.
Front and center in our strategy and the D. R.
Again, there's no there's no silver bullet for recovery, but we know what we have to do we have to execute extremely well.
Going forward, but the the team the team is confident in their ability to sequentially continue to recover how much time. It will take I think ultimately time will tell but I think we're talking more about a matter of quarter months and quarters not a matter of years, Okay. Just to give you.
Way to think about it and.
And we really need to get the Dominican Republic back to back to where it was pre 202022 because since we did the combination with with diversity and that's another minute Ghana right. The Dominican Republic has had a had a great ride up until 2022, we need to we need to.
Go back to that type of performance and it's going to be a lot about execution top line cost management expense management.
Everything is gonna have to work from an execution standpoint, okay.
This helps.
Sure. Thank you very much.
Okay.
Yes.
Thank you. The next question comes with fan Pier with Barclays. Please go ahead.
Yeah, good morning, or good afternoon, and thank you very much for taking my question just J J, maybe following up a little bit on on the development of beef and Ah they deliver reach of some of the electronic platforms. You've obviously had a very much of a success story here and in all markets growing the penetration.
And depending on the region with somewhere between 70 to 80.
Not even more percent of off like usage, where do you see the potential to get this even higher and what do you need to do in order to give maybe those those last customers converted as well just as it feels like you have a better loyalty with dose.
And then maybe what you used to have in the past.
Okay.
Thank you very much.
Ben for the question.
So so so so these are our focus is to deliver the best solution to our clients and.
Consumers with Theyre talking about visa specifically.
Uh huh.
So so the majority of our customers. They are oh, there, but we have to learn that our debt in terms of debt. All of this has been true for.
Evolving in terms of usage X furious okay. So you why.
And then we are learning a customer by customer how can we deliver a better experience sometimes the customers has a big assortment.
That they prefer to do in the viewer not in the cell phone. So there is a lot of learning consumer by consumer for us to evolve.
In into SaaS different services overall products and categories in general.
Still have a wholesaler, we still have the sales wrap the business representatives are helping the customers overall and we have seen that.
This this two things combined the plateau for them in the in the business represents is if they will help to bring more information through to evolve the y to evolve services and to get a better usage, but I would say that majority Lee a so so abuses already.
The <unk> platform.
Our customers and and they are majority using it.
Thinking about the future and thinking about the growth our fifth just to add a little bit more from the point. We are we continue to see a huge addressable market.
That would be skin can address.
We are growing so there is opportunity of increasing the number of SKU.
For clients for customers' inquiries in overall distribution and frequency.
And and we are learning a lot with with the strip be partnerships that we are doing.
So how can.
Really bees go beyond the one P where the logistics eni's do they all this transaction, but this really becomes.
Something that.
It goes beyond and really have alliances on the treaty.
And then other industries have access of the $1 1 billion customers. That's half the cellphone has the the platform on their computers or on their cell phones. This is really something that and then when we go. This direction is really about understanding the pain points of the <unk>.
Industry understanding the pain points of customers upgrading our UI user experience upgrading services and this is we are just beginning and it's something that.
That's.
We are very very cold stance.
And when we compare with the other platforms that we have in the market. So we are we.
We are confident that we are pretty much I had.
Thank you.
Okay.
Thank you. The next question comes with publicly I know it'll be a <unk>.
Please go ahead.
Without your nose young Lucas good afternoon, everyone. So as you mentioned that the go forward. This year was to improve both gross margins and I need the margins I'd like to explore your SG&A expenses for 2023, especially in beer, Brazil from a Cogs perspective, it seems that the upcoming quarter should be.
<unk> better than the first one is commodity prices decelerate, but from the SG&A standpoint. It should we expect EBITDA margins to increase ahead of gross margin.
And it's this fiscal year on commercial expenses I'd like to hear from you about the strategy of the deployment curve of sales and marketing throughout the year, although you'll see sales and marketing expenses in this first quarter and relative basis to the upcoming quarters. If you consider that this quarter. It was closer to a heavy quarter in terms of investment in it.
Sales and marketing.
And also I was wondering if you could share an overall view for your SG&A perspective, as we move into the second half of 2023, and if there are some efficiencies to be capture in these lines. Thank you very much.
Okay. So let me get half of the question and then Luca jumped into the other half.
So overall, we think what.
What we want to see overall in am best P&L. It is that there is an opportunity of SG&A.
Transforming into margins, which were a bit the margins. So we should improve that with time.
So we we grew a lot in the company in the in the previous two or three years.
And we have been since last year doing a great assessment on a new way.
To operate our company a new way of work. So we really had a comp I need that.
At some point in time was wasn't very siloed.
We have like our divisions in the nabs water, one vertigo and does that delivery and the bees and everybody has their structures. So we really moved into a company that understands itself more like a platform. So there is a lot of change on our.
The way we operate in our structures and how we think the pieces how we.
We can integrate more so there is a stream of value and efficiency that comes from from decision that you're going to see the next.
In the next quarters.
We had been working for six months a year right now are on the distribution part two.
So so we got a lot of scale.
And when we think about all these orders in the volumes in the distribution that are that we could do so so there is an opportunity to be more efficient since you've seen their guys on.
The distributions Choo Choo, we'd want to see moving forward.
Diesel prices going down and in sales and marketing we have been ramping up. So this is something that we want to continue to invest so to support the portfolio to support our brands, but it.
It was be cubic stepped off the top line the top line to grow our top line will be ahead.
So overall this is a bev.
As a whole we gonna see upwards of.
Growth in EBITDA margin really coming from from message Indy Okay. So.
Is this a little bit the picture off of Ambev. So go in are going to Brazil beer.
Uh huh.
Should be more or less this.
This vision.
That should be replicated.
In Brazil, overall, not Brazil beer, but Brazil, we're thrilled that we are looking at knobs in.
And yet to get.
And just to just to add I think looking looking ahead, we will stop.
Just to just to give you a way to think about it directionally for the reasons you mentioned around the opportunities that we see to streamline two to optimize our our structure.
And so far as the technology platforms are concerned right within the three of them, but also with the with what we call the machine the legacy business.
If if we continue to deliver as we did in Q1 this would translate into right into lower lower year over year growth for admin expenses number one.
Followed by distribution lower growth in distribution.
For the reasons that Joe mentioned, and then sales and marketing, it's ultimately going to depend on on on how we execute our plan for the year, we want to continue to invest behind our brands. The portfolio has momentum the health indicators Reits don't don't let me I don't let me lie.
So well, we're not going to compromise on the on the level of our sales and marketing investment because that helps the short term and that's building the long term. So that's the that's the line within SG&A that we as we protect the most whenever we look to optimize SG&A, but the <unk>.
Good news is we're off to a good start on the admin side, we're off to good starts on the distribution side. So to the extent we continue to deliver these should grow at a lower pace than sales and marketing, but net net SG&A.
Hopefully it will will will help us deliver better margin performance at the EBITDA level this year.
Thank you Gian Luca.
Clear.
Yeah.
Thank you all very much. This concludes our question and answer session I would like to turn the conference back over to Mr. Shan Shan is Saatchi for final remarks, you May proceed sir.
So thank you everybody all analysts everyone, who joined the call for your time and attention.
First quarter of the year was solid.
Physically operationally and culturally we.
We are we are feeling very strong and solid Brazil consistently.
Have been improving and getting better and international operations are rebounding.
Top line recovery.
Gross margin expansion in EBITDA margin expansion.
Happened already in Q1 our.
Our ambitions for the year at the.
Top line growth remains a key priority with net revenue performance driven more by net revenue per hectoliter had been volumes.
Profitability, both in terms of ROIC.
As well as margins and free cash flow generation improve them and that's what we want and the EBITDA margin expansion with and without Argentina.
It's a must for us so thank you very much sue in August and have a great day.
This conference has now concluded.
Thank you for attending today's presentation. You may now disconnect have a great day.
Yeah.
Yeah.
Okay.
Yeah.
You can't look at them all.
Yes. He lost his voice now they'll start amendment no.
Okay.
Sure.
[music].
So even though they're small just a gloom of traditional UMH clif bars hydriodic.
Hydriodic would be not so much COVID-19 more there'll be some distribution.
Good morning.
Vehicles, and we're dosing.
Okay.
Okay.
Yes.
Yeah.
Okay.
Okay.
Yeah.
Yeah.
Yeah.
Okay.
Hi, I'm on Mike Z.
Hmm.
So could you name them.
Nice.
Pete.
[laughter].
Hum.
Mhm.
Mike.
Logically stupid you remodeled my budget, how much is maybe they book more than half of them.
You can't look at them on vascular tissue boy's mouth, they'll start amendment at some point.
Uh huh.
[music], but if it can be mobile small just a few months traditional niche clif.
<unk> got about three and it will be not so much COVID-19 more adobe's vision.
Good morning.
Vehicles in Windows.