Q2 2023 Ambev SA Earnings Call

August 3, 2023

Operator: Unless otherwise stated, percentage changes refer to comparisons with Q2 2022 results. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Ambev's normal activities. As normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, operating profit, and EBITDA on a fully reported basis in the earnings release. Now, I'll turn the conference over to Mr. Jean Jereissati. Mr. Jean Jereissati, you may now begin your conference.

Percentage changes refer to comparisons with the second quarter 2022 results.

Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of our baths normal activities.

As normalized figures are non-GAAP measures the company discloses the costly David profit EPS operating profit and E. B I T D. A on a fully reported basis in the earnings release.

Now I'll turn the conference over to Mr. Joshua They saatchi.

Mr. Zhu They Saatchi you may now begin your conference.

Jean Jereissati: Hello, everyone. Thank you for joining our Q2 earnings call. Q2 was all about consistency. Topline momentum persisted with net revenue up 20%. EBITDA grew 34% at a consolidated level and 20% ex Argentina, with Brazil growing 29%. International operations continued to recover with CAC and Canada delivering EBITDA growth and LAS with steady momentum. Operational leverage continued to come back with gross margin expanding 170 basis points and EBITDA margin expanding 300 basis points. Although net income declined given last year's one-off tax credit, cash flow from operating activities increased BRL 1.2 billion. We end H1 having delivered over 23% net revenue growth, 37% EBITDA growth, and 310 basis points of EBITDA margin expansion, and well-positioned for H2.

Hello, everyone. Thank you for joining our Q2 earnings call Q2 was all about consistency.

Topline momentum persisted with net revenue up 20% EBITDA grew 34% at a consolidated level in 20% ex Argentina with Brazil growing 29%.

International operations continued to recover with pack and Canada, delivering EBITDA growth in Las with steady momentum.

Operational leverage continues to come back with gross margin expanding 170 basis points and the beat the margin expanding 300 basis points.

And although net income declined given last year's one off tax credit cash flow from operating activities increased $1 2 billion Reais.

So we and each one having delivered over 23% net revenue growth.

37%, the beta growth and 310 basis points of EBITDA margin expansion and well position for age too.

Jean Jereissati: Let's take a closer look at performance by geography, starting with Brazil, which continued to lead the way. In Brazil beer, commercial momentum remained resilient. Top line grew 10% with volumes declining 2.5%, due mainly to a soft industry. However, despite the decline in industry, premiumization trends continued. Our premium brands grew volumes in the mid-30s, and we gained market share in the segment according to our estimates. Just to put things into perspective, this year-to-date, volumes of our premium brands grew 180% versus that same period of 2019. In addition, the disciplined execution of our revenue management initiatives, combined with positive brand mix, led to net revenue per hectoliter growing nearly 13%. Our brand building efforts continued to pay off. Brand health indicators of focus brands improved again, both sequentially and versus last year.

So let's take a closer look at performance by geography, starting with Brazil, which continued to lead the way in Brazil beer commercial momentum remained resilient.

Top line grew 10% with volumes declining two 5% due mainly to a soft industry.

However, despite the declining industry premium amortization trends continued.

Our premium brands grew volumes in the mid thirties, and we gained market share in this segment. According to our estimates and just to put things into perspective. This year to day volumes of our premium brands grew 180% versus the same period.

2019.

In addition, the disciplined execution of our revenue management initiatives combined with positive brand mix led to a net revenue per hectoliter growing nearly 13%.

Our brand building efforts continued to pay off brand health indicators of folks use brands improved again, both sequentially and versus last year in our brands also added 4 million says six the pre pandemic period According to <unk>.

Jean Jereissati: Our brands also added 4 million fans since the pre-pandemic period, according to our estimates. We were awarded 13 Lions in the Cannes Lions this year. Brahma brought home 5 awards, Budweiser 4, and Zé Delivery was also recognized for the first time in the event with 1 award. Finally, EBITDA growth accelerated to almost 30% this quarter. In addition to the sustained commercial momentum, EBITDA performance was positively impacted by 2 things. First, lower growth in terms of costs, cash COGS per hectoliter, excluding non-Ambev marketplace products, grew only 4.6%, thanks to a combination of our tailwinds from FX and commodities hedges, a lower than expected inflation and unhedged commodity prices, as well as a more efficient supply chain given a better production and distribution footprint. Second, by lower distribution and administrative expenses.

Two our estimates.

And we were awarded 13 lines in the Con Festival. This year Brahma brought home five awards Budweiser for and Z delivery was also recognize that for the first time in the event with one award.

And finally, a bit the growth accelerated to almost 30%. This quarter. In addition to the sustained commercial momentum a bit the performance was positively impacted by two things.

First lower growth in terms of costs cash Cogs per hectoliter, excluding known Ambev marketplace products grew only four 6%.

Thanks to a combination of our tailings from FX and commodities hedges.

Our lower than expected inflation, and unhedged commodity prices as well as a more efficient supply chain, given a better production and distribution footprint.

And second by lower distribution and administrative expenses in Q2, we began to cycle last year's increase in diesel.

Jean Jereissati: In Q2, we began to cycle last year's increase in diesel, and our efforts to optimize our business by streamlining and integrating our B2B, DTC, and fintech with the rest of the organization continued to make great progress. During 2022, we developed a comprehensive plan to establish a new operating model better suited for Ambev to work as a platform, and the results are starting to show more and more, not only in terms of more collaboration across the company, but also in terms of a leaner and a more agile organization. Turning to Brazil NAB, I would highlight three points. First, top line grew 7.5%, thanks to net revenue per hectoliter growing 10%, given our revenue management initiatives and a positive brand mix contribution. This offsets the 2.2 decline in volumes, which suffered mainly from a soft drink industry.

In our efforts to optimize our business by streamlining and integrating our beat you be DTC and Fintech with the rest of the organization continued to make great progress.

During 2022 we developed a comprehensive plan to establish a new operating model better suited for Ambev to work as a platform.

And the results are starting to show more and more not only in terms of more collaboration across the company, but also in terms of a leaner and a more agile organization.

Turning to Brazil, Nab I would highlight three points first topline grew seven 5%. Thanks to net revenue per hectoliter growing 10%, given our revenue management initiatives and a positive brand mix contribution. This offsets the two point showed declining.

<unk>, which suffered mainly from a soft drink industry.

Jean Jereissati: Second, our brands continued to perform well in the premium, health and wellness, and energy beverages, with Pepsi Black outperforming once again, growing about 170% and now representing about 19% of our Pepsi-Cola volumes. Guaraná Antarctica also was recognized at Cannes for its Women's World Cup campaign. Third, EBITDA grew nearly 25%, with gross margin expanding 490 basis points and the EBITDA margins expanding 310 basis points. Now, let's cover our international operations, which as I mentioned before, continued to recover. Starting with CAC. Despite the 2.8% volume contraction, top line grew almost 5% led by the Dominican Republic, which is the most important country in the region, representing historically around 80% of our EBITDA results on average.

Second our brands continued to perform well in the premium health and wellness and energy beverages with Pepsi Black outperforming once again growing about 170, percents and now representing about 19% of our.

They call our volumes and whatnot that article also was recognized at Ed Con for its women's World Cup campaign.

And third EBITDA grew nearly 25% with gross margin expanding 490 basis points in the beat the margins expanding 310 basis points.

Now, let's go over our international operations, which as I mentioned before continued to recover.

Starting with CAC. Despite the two 8% volume contraction topline grew almost 5% led by the Dominican Republic, which is the most important country in the region, representing historically around 80% of our EBITDA results on average not.

Jean Jereissati: Not only did macro conditions improve sequentially, but also we continued to put our operations back on track. For instance, volumes of the Presidente family rose 3% in the quarter, while inventory at wholesaler level normalized and price execution remained consistent. After 4 consecutive quarters of decline, EBITDA grew almost 8% year over year, and both gross and EBITDA margins expanded 100 basis points. What's more, year to date, organic EBITDA growth is above 2021 level, which was our best performing year in CAC. We still have work to do here, but happy to see CAC recovering and in a sustainable way. In LAS, top line grew roughly 82%. Volumes were slightly positive, growing 0.6%, led by Chile and Paraguay.

Not only did macro conditions improved sequentially, but also we continued to put our operations back on track.

For instance, volume was up the Presidente family Rose, 3% in the quarter, while inventory at the wholesaler level normalize and price execution remained consistent.

And after four consecutive quarters of decline EBITDA grew almost 8% year over year in both growth and the beat the margins expanded 100 basis points.

What's more year to date organic EBITDA growth is above 2021 level, which was our best performing year in CAC, we still have work to do here, but happy to see CAC recovering and in a sustainable way.

In loss topline grew roughly 82% volumes were slightly positive growing 6% led by Chile and power away, but it's also worth noting that our beer volumes in Argentina grew low single digits. Despite the short term.

Jean Jereissati: It's also worth noting that our beer volumes in Argentina grew low single digits despite the short-term volatility and challenges in the country. Speaking of Argentina, beer gained share of throat as a category. Our above core brands continued to gain weight in our volumes. We were also awarded with 8 Lions at the Cannes Lions this year with Quilmes and Stella Artois campaigns. LAS is not just about Argentina. The rest of the region delivered a solid quarter with double digits top line and bottom line growth, and gross margin and EBITDA margin expansion. Paraguay and Chile were the highlights with great performance across the board. All in all, LAS EBITDA grew 110% with gross margin expanding 160 basis points and EBITDA margins expanding 380 basis points. Finally, Canada.

Volatility and challenges in the country.

Speaking of Argentina beer gain share of stroke as a category our above core brands continued to gain weight in our volumes. We were also awarded with eight lines at the Con Festival this year with cubes and Stella Artois campaigns, but loves it.

Not just about Argentina, the rest of the region delivered a solid quarter with double digit topline and bottom line growth and gross margin and EBITDA margin expansion, Paraguay, and Chile worthy highlights with great performance across the.

Aboard all in all lost EBITDA grew 110% with gross margin expanding 160 basis points in the beta margins expanding 380 basis points.

And finally, Canada.

Jean Jereissati: Top line performance was flat with 6.6 net revenue per hectoliter growth and a 6.2 volume decline as we underperformed a softer industry and faced a tough comp in Quebec. Having said that, our above core brands health indicators continued to improve in the country, especially on our premium brands. Corona and Michelob ULTRA continued to grow volumes, supporting estimated market share gains in premium and core plus, respectively. EBITDA grew a little over 4% with gross margins contracting 70 basis points, but the EBITDA margins expanding 120 basis points. Well, with H1 behind us, a few words on H2, starting with what's more clear to us.

Topline performance was flat with $6 six net revenue per hectoliter growth and a $6 two volume decline as we underperformed our softer industry and faces a tough comp in Quebec.

Having said that our above core brands health indicators continued to improve in their country, especially on our premium brands Corona and Michelob Ultra continues to grow volumes supporting estimated market share gains in premium and core plus.

Respectively in the beta grew a little over 4% with gross margins contracting 70 basis points, but the beat the margins expanding 120 basis points.

Well with age one behind US a few words on <unk>, starting with what's more clear to us in Brazil, our commercial strategy is in good shape, given the health of our brands.

Jean Jereissati: In Brazil, our commercial strategy is in good shape given the health of our brands, the better mix, the execution in beers, both in terms of client NPS and expansion of marketplace, and in Zé Delivery. Our cost outlook for the year has improved. We are updating our guidance and currently expect Brazil beer cash COGS per hectoliter, excluding non-Ambev marketplace products, to grow between 2.5% and 5.5% for the full year. We should continue to benefit from less pressure in terms of distribution and administrative expenses during the second half of the year for the reasons I previously mentioned. Outside Brazil, what I would highlight is CAC, where year-over-year performance should continue to improve given our sequential recovery and as we lap last year's soft H2.

Mix the execution in bees, both in terms of clients N P. S in expansion of marketplace.

And in Ze delivery.

Our cost outlook for the year has improved we are updating our guidance and currently expect Brazil beer cash Cogs per hectoliter, excluding non ambev marketplace products to grew between two five and five 5% for.

The full year.

And we should continue to benefit from less pressure in terms of distribution and administrative expenses during the second half of the year for the reasons I previously mentioned.

And outside of Brazil, what I would highlight is CAC where year over year performance should continue to improve given our sequential recovery and as we lap last year's soft H two.

Jean Jereissati: In terms of where we have less visibility, I would say the two main points are industry volumes in Brazil, where we will continue to closely monitor disposable income drivers and overall operating environment in Argentina, which has been and will continue to be a point of attention. All in all, although we may still face some degree of volatility and short-term challenges varying market by market, I believe it's fair to say that our strategy has been working for a while now, and I am confident in our team's ability to continue executing it going forward. Finally, we will continue to work towards delivering growth and profitability in H2, as well as a better organic EBITDA growth in 2023 than the 17.1% that we delivered in 2022.

In terms of where we have less visibility I would say the two main points are industry volumes in Brazil, where we will continue to closely monitor disposable income drivers and overall operating environment in Argentina, which has been and we will.

Continue to be a point of attention.

All in all although we may still face some degree of volatility and short term challenges vary market by market I believe it's fair to say that our strategy has been working for a while now and I am confident in our team's ability to continue executing it going.

Forward and finally, we will continue to work towards delivering growth and profitability in age too as well as a better organic EBITDA growth in 'twenty or 'twenty three than the 17, 1% that we delivered in 2022 we closed.

Jean Jereissati: We closed H1 with over 37% EBITDA growth, so we are well on track to deliver another year of continuous and consistent improvements. With that, thank you very much. Let me hand it over to Lucas.

H, one with over 37% EBITDA growth. So we are well once rack to deliver another year of continuous and consistent improvements.

With that thank you very much let me hand, it over to Lucas.

Lucas: Thank you, Jean. Good morning, good afternoon. Since Jean already covered the main performance indicators and since Q2's performance was consistent in terms of what should not change and what should change this year versus 2022, I will focus on net income, cash flow generation, and taxes. Starting with taxes, two relevant updates here. First, in early July, Brazil's House of Representatives approved the tax reform on indirect taxes, which is intended to simplify the different federal, state, and municipal taxes that are currently levied on consumption while not increasing the overall tax burden, thus creating conditions for Brazil to deliver better economic growth. The legislative debate now moves to the Senate, which will analyze the proposed changes during the course of H2.

Lucas Lira: Thank you, Jean. Good morning, good afternoon. Since Jean already covered the main performance indicators and since Q2's performance was consistent in terms of what should not change and what should change this year versus 2022, I will focus on net income, cash flow generation, and taxes. Starting with taxes, two relevant updates here. First, in early July, Brazil's House of Representatives approved the tax reform on indirect taxes, which is intended to simplify the different federal, state, and municipal taxes that are currently levied on consumption while not increasing the overall tax burden, thus creating conditions for Brazil to deliver better economic growth. The legislative debate now moves to the Senate, which will analyze the proposed changes during the course of H2.

Thank you Joe.

Good morning, good afternoon.

Since you already covered the main performance indicators and since Q2's performance was consistent in terms of what should not change and what should change this year versus 2022, I will focus on net income cash flow generation and taxes.

Starting with taxes two relevant updates here first in early July Brazil's house of Representatives approved the tax reform on indirect taxes, which is intended to simplify the different federal state and municipal taxes that are currently levied on consumption, while not increasing the overall tax burden that's key.

Creating conditions for Brazil to deliver better economic growth.

The legislative debate now moves to the Senate, which will analyze the proposed changes during the course of H two.

Lucas: Since the legislative process is ongoing, and since the draft legislation approved by the House is still subject to change, it's still premature to comment in more detail on what to expect going forward and potential impacts on the industry and our BEES. Having said that, we welcome any tax reform that reduces the complexity of the Brazilian tax system and that does not increase the total tax burden, which is already among the highest in the world. As for direct taxes, including potential changes to the deductibility of the JCP, despite continued speculation, there has not been any material concrete development on the legislative front. We will keep the market informed accordingly.

Lucas Lira: Since the legislative process is ongoing, and since the draft legislation approved by the House is still subject to change, it's still premature to comment in more detail on what to expect going forward and potential impacts on the industry and our BEES. Having said that, we welcome any tax reform that reduces the complexity of the Brazilian tax system and that does not increase the total tax burden, which is already among the highest in the world. As for direct taxes, including potential changes to the deductibility of the JCP, despite continued speculation, there has not been any material concrete development on the legislative front. We will keep the market informed accordingly.

Since the legislative process is ongoing and since the draft legislation approved by the house is still subject to change it's still premature to comment in more detail on what to expect going forward and potential impacts on the industry and our business, having said that we welcome any tax reform that reduces the complexity of the Brazilian tax system and that.

Does not increase the total tax burden, which is already among the highest in the world.

As for direct taxes, including potential changes to the deductibility of the IOC. Despite continued speculation there has not been any material concrete development on the legislative front, we will keep the market informed accordingly.

Lucas: Second, in terms of tax litigation in Brazil, as of 30 June 2023, our tax disputes classified as having a possible but not probable chance of loss reduced by nearly BRL 5 billion compared to 31 December 2022 as a result of favorable decisions we obtained in several different disputes. We expect the administrative and judicial courts to continue ruling on certain of our tax positions during H2, such as tax assessments received in connection with the deductibility of the JCP, the deductibility of goodwill amortization expense, as well as the case related to the ICMS substitute in the taxable basis of the PIS and the COFINS. For further details, please refer to item 26 in the notes to our financial statements.

Lucas Lira: Second, in terms of tax litigation in Brazil, as of 30 June 2023, our tax disputes classified as having a possible but not probable chance of loss reduced by nearly BRL 5 billion compared to 31 December 2022 as a result of favorable decisions we obtained in several different disputes. We expect the administrative and judicial courts to continue ruling on certain of our tax positions during H2, such as tax assessments received in connection with the deductibility of the JCP, the deductibility of goodwill amortization expense, as well as the case related to the ICMS substitute in the taxable basis of the PIS and the COFINS. For further details, please refer to item 26 in the notes to our financial statements.

And second in terms of tax litigation in Brazil as of June 32023, our tax disputes classified as having a possible, but not probable chance of loss reduced by nearly 5 billion reais compared to December 31, 2022, as a result of favorable decisions we obtained in several different disputes.

We expect the administrative and judicial courts to continue ruling on certain of our tax positions. During H two such as tax assessments received in connection with the deductibility of the IFC the deductibility of goodwill amortization expense as well as the case related to the ICM S substitute in the taxable basis of the piece and the <unk>.

Coughing.

For further details please refer to item 26 in the notes to our financial statements.

Lucas: We will keep the market up to date should there be any material developments, and as mentioned before, we believe the merits of our legal positions will ultimately prevail. Now let's turn to our Q2 financial performance, starting with net income. Normalized profit totaled nearly BRL 2.7 billion in Q2, which represents a 13% decrease versus last year. Two points worth making here. First, last year's figure was positively impacted by roughly BRL 1.2 billion in one-off tax credits recognized in Brazil. If you disregard such one-off and related effects, our net income would have grown 18% year over year.

Lucas Lira: We will keep the market up to date should there be any material developments, and as mentioned before, we believe the merits of our legal positions will ultimately prevail. Now let's turn to our Q2 financial performance, starting with net income. Normalized profit totaled nearly BRL 2.7 billion in Q2, which represents a 13% decrease versus last year. Two points worth making here. First, last year's figure was positively impacted by roughly BRL 1.2 billion in one-off tax credits recognized in Brazil. If you disregard such one-off and related effects, our net income would have grown 18% year over year.

We will keep the market up to date should there be any material developments and as mentioned before we believe the merits of our legal positions will ultimately prevail.

Now, let's turn to our Q2 financial performance starting with net income.

Normalized profit totaled nearly $2 7 billion Reais in Q2, which represents a 13% decrease versus last year two points worth making here first last year's figure was positively impacted by roughly $1 2 billion Reais and one off tax credits recognized in Brazil.

If you disregard such one off and related effects, our net income would have grown 18% year over year.

Lucas: Second, although net finance results totaled an expense of about BRL 1 billion, which was around BRL 500 million worse than last year, losses from derivative instruments used pursuant to our hedging policy, which has been a pain point historically, actually declined close to BRL 400 million. This reduction is a result of lower USD exposure and lower carry costs in Brazil and Argentina. As you may recall, since Q3 2022, we've been reducing the financial hedges in Argentina, and our net finance results have been positively impacted since then. This should continue to be the case in Q3 and to a lesser extent in Q4 as we lap the reduction in exposure and hedging. As for cash flows, good news here. Cash flow from operating activity totaled approximately BRL 3.4 billion in the quarter, which is BRL 1.2 billion above last year.

Lucas Lira: Second, although net finance results totaled an expense of about BRL 1 billion, which was around BRL 500 million worse than last year, losses from derivative instruments used pursuant to our hedging policy, which has been a pain point historically, actually declined close to BRL 400 million. This reduction is a result of lower USD exposure and lower carry costs in Brazil and Argentina. As you may recall, since Q3 2022, we've been reducing the financial hedges in Argentina, and our net finance results have been positively impacted since then. This should continue to be the case in Q3 and to a lesser extent in Q4 as we lap the reduction in exposure and hedging. As for cash flows, good news here. Cash flow from operating activity totaled approximately BRL 3.4 billion in the quarter, which is BRL 1.2 billion above last year.

And second although net financial results totaled an expense of about 1 billion rise, which was around 500 million worse than last year losses from derivative instruments used pursuant to our hedging policy, which has been a pinpoint historically actually declined close to 400 million reais.

This reduction is a result of lower USD exposure and lower carry cost in Brazil and Argentina.

As you May recall since Q3, 2022, we've been reducing the financial hedges in Argentina, and our net finance results have been positively impacted since then.

This should continue to be the case in Q3 and to a lesser extent in Q4 as we lap the reduction in exposure and hedging.

As for our cash flows good news here.

Cash flow from operating activities totaled approximately $3 4 billion a rise in the quarter, which is $1 2 billion rise above last year.

Lucas: As a reminder, our cash flow from operating activities is highly impacted by the seasonality of our BEES and heavily skewed towards H2 of the year. For instance, in the last seven years, over 80% of our cash flow from operating activities was generated in H2. Similarly, working capital tends to be stronger in H2. However, due to its nature, it can be more volatile on a quarterly basis. Q1 is typically the weakest performance of the year, and working capital improves sequentially throughout the year. Let's break down Q2. If you look at it from a geographic standpoint, the biggest year-over-year improvement came from Brazil, followed by LAS, Argentina, and Chile, and CAC.

Lucas Lira: As a reminder, our cash flow from operating activities is highly impacted by the seasonality of our BEES and heavily skewed towards H2 of the year. For instance, in the last seven years, over 80% of our cash flow from operating activities was generated in H2. Similarly, working capital tends to be stronger in H2. However, due to its nature, it can be more volatile on a quarterly basis. Q1 is typically the weakest performance of the year, and working capital improves sequentially throughout the year. Let's break down Q2. If you look at it from a geographic standpoint, the biggest year-over-year improvement came from Brazil, followed by LAS, Argentina, and Chile, and CAC.

As a reminder, our cash flow from operating activities is highly impacted by the seasonality of our business and heavily skewed towards the second half of the year.

For instance, in the last seven years over 80% of our cash flow from operating activities was generated in H two.

Similarly, working capital tends to be stronger in H. Two however, due to its nature. It can be more volatile on a quarterly basis Q1 is typically the weakest performance of the year and working capital and improve sequentially throughout the year.

So let's break down Q2.

If you look at it from a geographic standpoint, the biggest year over year improvement came from Brazil, followed by Lasse, Argentina, and Chile and CAC.

Lucas: In terms of working capital, receivables improved about BRL 900 million compared to last year, driven by lower tax credit recognition in Brazil versus Q2 2022, as well as volume performance in CAC, Argentina, and Canada. Inventories improved by BRL 1.3 billion compared to last year, mainly driven by a reduction in days of inventories year over year, not only in terms of finished goods, but also packaging and raw materials in Brazil, Argentina, and in Canada. As for payables, results were pretty much flat when compared to last year, driven mostly by Brazil and Canada.

Lucas Lira: In terms of working capital, receivables improved about BRL 900 million compared to last year, driven by lower tax credit recognition in Brazil versus Q2 2022, as well as volume performance in CAC, Argentina, and Canada. Inventories improved by BRL 1.3 billion compared to last year, mainly driven by a reduction in days of inventories year over year, not only in terms of finished goods, but also packaging and raw materials in Brazil, Argentina, and in Canada. As for payables, results were pretty much flat when compared to last year, driven mostly by Brazil and Canada.

In terms of working capital receivables improved about 900 million compared to last year, driven by a lower tax credit recognition in Brazil versus Q2, 2022, as well as volume performance in CAC, Argentina and Canada.

Inventories improved by $1 3 billion reais compared to last year, mainly driven by a reduction in days of inventories year over year not only in terms of finished goods, but also packaging and raw materials in Brazil, Argentina and in Canada.

And as for payables results were pretty much flat when compared to last year, driven mostly by Brazil and Canada.

Lucas: In Brazil, non-income tax payables, which had a negative year-over-year impact in Q1, had a positive effect in Q2 given our end of quarter sales performance, and this improvement was offset by lower payables in Brazil, mostly given the reduction of inventories and lower CapEx spend. In Canada, we were up against a tough comp on non-income tax payables as H1 2022 taxes were deferred to H2 due to COVID. However, this adverse impact should subside through the end of the year. All in all, following the improvements in Q2, cash flow from operating activities in H1 ended ahead of H1 2022. If we take a step back and look at longer term trends, it's important to highlight three points. First, our receivables as days of sales have been declining over time, especially in Brazil, mostly given channel mix.

Lucas Lira: In Brazil, non-income tax payables, which had a negative year-over-year impact in Q1, had a positive effect in Q2 given our end of quarter sales performance, and this improvement was offset by lower payables in Brazil, mostly given the reduction of inventories and lower CapEx spend. In Canada, we were up against a tough comp on non-income tax payables as H1 2022 taxes were deferred to H2 due to COVID. However, this adverse impact should subside through the end of the year. All in all, following the improvements in Q2, cash flow from operating activities in H1 ended ahead of H1 2022. If we take a step back and look at longer term trends, it's important to highlight three points. First, our receivables as days of sales have been declining over time, especially in Brazil, mostly given channel mix.

In Brazil, non income tax payables, which had a negative year over year impact in Q1 had a positive effect in Q2, given our end of quarter sales performance and this improvement was offset by lower payables in Brazil, mostly given the reduction of inventories and lower capex spend.

And then Canada, we were up against a tough comp on non income tax payables as H, one 2022 taxes were deferred to H two due to COVID-19. However.

However, this adverse impacts will subside through the end of the year.

All in all following the improvement in Q2 cash flow from operating activities in the first half of the year and ahead of each one and 2022.

And if we take a step back and look at longer term trends. It is important to highlight three points first our receivables as days of sales have been declining over time, especially in Brazil, mostly given channel mix.

Lucas: Second, our inventories as days of COGS have been increasing given a combination of higher level of safety stock to navigate the supply chain disruptions caused by COVID-19 and sustained service level, more vertical operations, and a greater SKU assortment. Third, when we look at our payables as days of COGS, CapEx, and SG&A, although the current figure is below the peak in 2020, it's currently over 130 days on average. Large suppliers have payment terms longer than 90 days, and they represent more than 55% of our spend, whereas small suppliers represent around 30% of the spend and have payment terms of around 30 days. Before moving to Q&A, I would like to invite everyone to join our ESG update, which we plan to host virtually in November. Stay tuned for more details.

Lucas Lira: Second, our inventories as days of COGS have been increasing given a combination of higher level of safety stock to navigate the supply chain disruptions caused by COVID-19 and sustained service level, more vertical operations, and a greater SKU assortment. Third, when we look at our payables as days of COGS, CapEx, and SG&A, although the current figure is below the peak in 2020, it's currently over 130 days on average. Large suppliers have payment terms longer than 90 days, and they represent more than 55% of our spend, whereas small suppliers represent around 30% of the spend and have payment terms of around 30 days. Before moving to Q&A, I would like to invite everyone to join our ESG update, which we plan to host virtually in November. Stay tuned for more details.

Our inventories as days of Cogs have been increasing given a combination of higher level of safety stock to navigate the supply chain disruptions caused by COVID-19, and sustained service level more vertical operations and a greater SKU assortment.

And third when we look at our payables days of Cogs, Capex and SG&A, although the current figure is below the peak in 2020. It's currently over 130 days on average.

Large suppliers have payment terms longer than 90 days and they represent more than 55% of our spend.

Whereas small suppliers represent around 30% of the spend and have payment terms of around 30 days.

Before moving to Q&A I would like to invite everyone to join our ESG update which we plan to host virtually in November stay tuned for more details.

Lucas: With that, let me turn it back to the operator.

Lucas Lira: With that, let me turn it back to the operator.

With that let me turn it back to the operator.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press the star key followed by the one key on your touchtone phone now. If at any time you would like to remove yourself from the questioning queue, please press star then two. Please hold while we collect questions. The first question comes from Lucas Ferreira with J.P. Morgan. Please go ahead.

Thank you.

Ladies and gentlemen, we'll now begin the question and answer session. If you'd have a question. Please press the star key followed by the one key on your Touchtone phone now if at any time, you would like to remove yourself from the questioning queue. Please press Star then two.

Please hold while we collect collect question.

Yeah.

Okay.

The first question comes with Lucas they hate out with J P. Morgan. Please go ahead.

Lucas Ferreira: Hi, everyone. Thanks for taking my question. My question is, I just wanted to understand a little bit more what drove the reduction in the COGS guidance, if it was a mix driven or maybe you're just too conservative before. Just I'm asking because I just wanted to understand if there's any reading into these for next year, if the company is becoming more even leaner, more efficient, or the mix is improving in a way that gives you a cost advantage. Thank you.

Yeah.

Hi, everyone.

Thanks for taking my question.

My question is I, just wanted to understand a little bit more what drove the reduction in the in the Cogs guidance. If I'm. If it was a mix driven or maybe you're just too conservative before.

I'm, just I'm asking because I just wanted to understand if theres any reading.

Each of these are for next year, if the companies is becoming more of an even leaner more efficient or the mix is improving in a way that gives you a cost advantage. Thank you.

Yeah.

Jean Jereissati: Okay. Lucas, thank you very much for the question. Yeah, Brazil beer cash COGS ex marketplace in Q2 grew 5.1% versus last year. It was like better than we anticipated, right? It was mostly driven by inflation in brewery performance, partially offset by effects in commodities. In H1, we are on the number of 10.1% versus last year. Then, forecasting moving forward for the year, we reduced the guidance to 2.5% to have the full year in between 2.5% and 5.5% in the full year. A part of it was mix that was better than expected. Yes, so a piece of it.

Okay Lucas Thank you very much.

For the question.

Yes, so Brazil beer cash Cogs ex marketplace in Q2 grew 5.1.

Versus last year.

It was like.

Better than than we anticipated right.

It was mostly driven by inflation and Gregory.

Performance.

Partially offset by FX and commodities.

In each one we are on the number of standpoint, 1% versus last year and then forecasting.

Moving forward for the year, we reduced.

<unk> reduced the guidance rise to $2 five two to have the full year in between two five and five five in the full year.

A part of it was mix.

That was better than expected.

Jean Jereissati: A piece of it was non-hedged commodities, so malt, barley, energy overall, in that, in a place better than we expected. We are really seeing that we are getting more efficient on our footprint faster than we expected. We have some projects going on, unlocking innovation capabilities in our suppliers, to produce locally bottles that in the previous year we were importing. Our breweries are bigger and better suited to roll out the innovations that we made in the previous years. There is a piece of it that is efficiencies in supply and distribution footprint, that they will stay.

Yeah, So a piece of it a piece of it was non hedge commodities, so malt barley energy overall.

And that's in a place better than we expected, but we are a really.

Seeing that we are getting more efficient on our footprints faster than we expected we have some projects going on.

Unlocking innovation capabilities in our suppliers.

To produce locally bottles deaths in the.

That's great in the previous year, we were in 14.

Our our breweries are.

Bigger and better suited to rollout the innovations that we have made in the previous years. So there is a piece of it that is.

Fisher is in our supply and distribution footprints.

That they will.

Lucas: Yeah. Hi, Lucas. Lucas here. Just to add a few more points. Since you talked about potential implications for 2024, I think there are two points worth noting. Number one, right, as you know, inflation has been coming down across markets, and that's again, to the extent that sustains should be supportive going forward. Number two, when you think about our hedging policy, granted there's still a lot of hedging to be done this year through the end of the year, but if you take the picture today, what we're seeing is the BRL FX equation as a tailwind once again, aluminum hedges as a tailwind once again, and barley as a tailwind, which has not been the case in 2023.

Lucas Lira: Yeah. Hi, Lucas. Lucas here. Just to add a few more points. Since you talked about potential implications for 2024, I think there are two points worth noting. Number one, right, as you know, inflation has been coming down across markets, and that's again, to the extent that sustains should be supportive going forward. Number two, when you think about our hedging policy, granted there's still a lot of hedging to be done this year through the end of the year, but if you take the picture today, what we're seeing is the BRL FX equation as a tailwind once again, aluminum hedges as a tailwind once again, and barley as a tailwind, which has not been the case in 2023.

State.

Yeah, Hi, Lucas Lucas here, just to just to add.

A few more points.

Since you talked about potential implications for 2024, I think there are two points worth noting number one as you know inflation has been coming down across across markets and that's again to the extent that sustains should be should be supportive going for.

Forward.

And number two when you think about our hedging policy.

Granted there's still a lot of hedging to be done this year.

Through the end of the year, but you should take the picture today, what we're seeing is.

The BRL FX equation as a tailwind once again.

Aluminum hedges as a tailwind once again.

And barley as a tailwind which has not been the case in 2023, So I think that's different and that's improving.

Lucas: I think that's different and that's improving, so far, right, going into 2024. What's still a headwind is the devaluation of the Argentine peso, which, as we mentioned in our prepared remarks

Lucas Lira: I think that's different and that's improving, so far, right, going into 2024. What's still a headwind is the devaluation of the Argentine peso, which, as we mentioned in our prepared remarks

So far right going into 2024, it was still a headwind is the devaluation of the Argentine peso, which as we mentioned in our prepared remarks, as a point of attention, but NASA nest.

Jean Jereissati: It's a point of attention. Net, we're seeing less cost pressure going into 2024 so far, as compared to where we were at this time last year.

Lucas Lira: It's a point of attention. Net, we're seeing less cost pressure going into 2024 so far, as compared to where we were at this time last year.

We're seeing less cost pressure going into 2024, so far.

As compared to where we were at this at this time last year.

Yeah.

Lucas Ferreira: Perfect. Thank you, guys.

Perfect. Thank you guys.

Yeah.

Operator: The next question comes with Robert Ottenstein with Evercore. Please go ahead. The next question comes with Thiago Duarte with BTG Pactual. Please go ahead.

The next question comes with Rob Einstein with Evercore. Please go ahead.

Yeah.

Okay.

The next question comes with Chicago to watch it with BTG Pactual. Please go ahead.

Thiago Duarte: Yeah, hello, Lucas. Hello, Jean. Thanks for the call. Yeah. My first question actually relates to the industry in Brazil beer. You mentioned in the release, and Jean made a comment about the, you know, as being one of the points to watch, as we go into H2. Just if you could, Jean, elaborate a little bit more on what you're seeing at the margin, particularly on two things. Number one, how you expect that to affect the seasonality of the volumes throughout the year? I mean, since the pandemic started, we saw Q3 volumes looking particularly strong for you guys in the industry in general.

Yeah, Hello, Lucas Hello.

Thanks for the call Yeah. My first question actually relates to the industry in Brazil, Brazil Beer, you mentioned in the release and in <unk>.

Made a made a comment about the you know as being one of the points to watch as.

As we go into the second half of the year.

Show just a just a if you could elaborate a little bit more on what you're seeing at the margin, particularly on two things number one.

How that how you expect that to affect the seasonality of the of the volumes throughout the year I mean.

Since the pandemic started we we saw Q3 volumes are looking particularly strong for you guys in the industry in general So I'm just just if you could if you could discuss.

Thiago Duarte: Just if you could, you know, discuss a little bit on that and how that impacts volumes for H2. Secondly, how that affects the company's pricing decision. I mean, you know, when you took over as CEO, one of the key things that you I think you have been saying for a few years now is how you guys are paying a lot of attention to how pricing, you know, should not impact the category and the industry volumes in general. Now that, you know, industry seems to be a little bit weaker, how that affects that behavior from your guys' point of view, I think it would be an important discussion.

Discuss a little bit on that and how that implicates volumes for the second half of the year and secondly, Uh huh.

How that affects our.

The company's pricing decision I mean, you know when you when he took over as CEO one of the.

Wanted to kick things that she I think you have been saying for a few years now is how we were you guys are paying a lot of attention to how pricing you know doesn't should not impact.

Impact the category and the industry volumes in general I know that you know industry seems to be a little bit weak or how would that affect that behavior from your guys' point of view I think it would be an important discussion.

Thiago Duarte: Secondly, actually a follow-up on the comment I think Jean made on mix with regards to how that affected the guidance, the reduction in the cost guidance for the year. How that change in the mix was, you know. I mean, because the sense that we have is that you guys had a much bigger impact of RGB in the quarter, that could have been the reason for the lower cost. Just wanted to see if we are reading things correctly here. If it was really an increase in RGB penetration relative to one way presentations, that would be great to understand as well. Thank you.

And secondly, actually a follow up on the comment I think Jeremy made on mix with regards to how that affected our the guidance the reduction in the cost guidance for the year, how how that change too.

How how that change in the mix was and he was because the sense that we have is that you guys had a much bigger impact of RGB in the quarter.

That could have been the reason for the lower costs or just wanted to see if we're reading things correctly here.

It was really an increase in RGD penetration relative to one way pet presentations, there would be great to understand as well. Thank you.

Jean Jereissati: Okay. Thank you very much, Duarte. Let me try to get the industry first, then we go to talk about price, and then we go to mix, overall to talk about cost and prices in general, okay? Duarte, overall, this year has been a more stable year, if you look at on a de-seasonalized way, month by month, than the previous years because of the pandemic. Long-term wise, we are very confident about the industry in Brazil. Industry is structurally better, trading up, consumers really evolving in the right direction. The category has been relevant for the young generation. We are very confident long-term wise with the industry.

Okay.

Thank you very much the wash it less let me try to get the industry first.

When we go talk about price and then we go to mix.

Overall, just talk about Austin.

And in prices in general Okay. So blotchy overall.

Overall.

This year has been a more stable year. If you look at on a D says on a lighted way month by month.

Then the previous years because of the pandemic. So so so long term wise, we are very confident about the industry in Brazil industry is structurally better.

Straight up trading up consumers really are evolving in the right direction.

The category has been relevant for the young generation. So we are very confident long term wise with the industry, but when you when we look back what happened in the pandemic and know that we went out of it.

Jean Jereissati: When we look back what happened in the pandemic and now that we went out of it, what we assessed is, it was that during the pandemic, frequency went up, all right? We see consumers really looking to have beers on Tuesdays, on Wednesdays at home to relax. The frequency that it was a normal pattern in a country maturity two that is upgrading to maturity three. Frequency usually goes up. The pandemic accelerated this process. We are seeing a residual effect on frequency that stays today. What we are looking at the industry, and the industry is a little bit softer, is about intensity, okay? It's less about the disposable income. It is, it's more about the euphoria moments in our assessment that we saw in the previous year.

What we ask accesses it was that during the pandemic frequency.

With up a REIT so we see a.

Consumers really looking to have beers on on Tuesdays and Wednesdays at all to relax.

So the frequency of that it was a normal pattern.

Yeah in our culture maturity chew that is upgrading to maturity three frequency usually goes up the pandemic accelerated this grosses, we're seeing a residual.

Effect on frequency that stays today, what we are looking.

Looking at the industry in the English is a little bit softer.

Is about intensity, okay is less about the disposable income. It is is more about a deal.

Therefore, we have moments in our access that we saw in the previous year. So intensity was higher people going back to the suites in one occasion really in a euphoric mode going back. So this piece is the piece that is what we call the dust off.

Jean Jereissati: Intensity was higher, people going back to the streets, in one occasion, really in a euphoric mode, going back. This piece, it is the piece that is what we call the dust form, that we had with the euphoria, when the country had the masks down in March, that it is something that we have to be taking out these effects. Frequency residual looks good. Beer in the basket of consumers' penetration looks good. Somehow this is. We are confident with the structural levers. We know there is this effect of the euphoria after the reopening, okay. That was about the industry. I think we still gonna see a little bit of this piece of intensity in these previous years.

That we had with.

With the four year.

When the culture had the masks down in March.

That is something that we have to be taking all these effects frequency residual looks good.

Beer in the basket of consumers penetration looks good. So somehow. This is so we are confident with the structural levers. We know there is this effect of the euphoria. After they are reopening okay.

So that was about the industry I think we still want to see a little bit of this piece this piece of intensity in the previous years.

Jean Jereissati: That's why we are cautious, somehow moving forward, but cautious more, because of this effect, less very optimistic about the structural reality of the changes that the Brazilian market is going through, okay? I think this is one point. Talking about pricing, overall, you know that we've been mentioned that we have been very agile and nimble in terms of making decisions on pricing, much more granular than we have before. Really looking for this equation of having a sustainable balance between a industry that can grow, a category that can be inclusive, and the net revenue per hectoliter growth. Somehow consider that inflation is decelerating. We're gonna continue to monitor the industry health, the macro environment in 2023.

That's why we're cautious.

Samsung somehow moving forward, but cautious more.

Because of this effect less very optimistic about the structural issues of the changes that the Brazilian market is going through okay. I think this is this is one point.

Talking about pricing.

Overall, you know that we've been mention that we had been a very agile and nimble in terms of.

Making decisions on pricing much more granular.

And then we have before really looking for does this equation is equation of having a sustainable balance between our industry that can grow as a category that can be inclusive and the net revenue per hectoliter growth, so somehow or cedars.

That inflation is accelerating and we got to continue to monitor the industry has the macro environment in 'twenty to 'twenty three is going to remain flexible are really watching on disposable income and elasticity to make the decisions on pricing moving forward all the decisions that we do is really to maximize.

Jean Jereissati: We're gonna remain flexible, really, watching on disposable income and elasticities to make the decisions on pricing moving forward. All the decisions that we do is really to maximize overall this equation of, volumes and prices and generate better bottom line. Talking about mix, RGB, they are solid. They are doing well. Penetration is going up. Zé Delivery is helping it. We just went with a big campaign with RGB through the whole Brazil about how sustainable and how more affordable it is in the in-home occasion. We are happy with this strategy.

Overall, this equation of our volumes and prices and generate.

Better better bottom line and talking about mix.

There is a so.

So yes, so RGB they are solid so they are they are doing well penetration is going up.

The delivery is helping it we just went with a big campaign.

With RGB through the whole, Brazil about how sustainable and help more affordable it is Indian hormone Asia. It is so we are.

Jean Jereissati: A piece of it was mix, but a piece of it that we don't talk that much is really that my supply footprint is really more efficient. During the pandemic, volumes up, supply chain constraints, importation. There is this piece that once things are more stable, we are being able to have a better planning, better negotiations, focus our suppliers on long-term initiatives on innovation to help us to be more efficient. There is a piece of this that is really coming from a more efficient supply chain.

Happy with the strategy. So a piece of it was mix was mix, but a piece of it that we don't talk that much is really that my soup pallet supply food screens.

Is really more a more efficient during the pandemic our volume was up our supply chain constraints importation. So there is this piece that since once things are more stable, we are being able to have a better planning better negotiations.

<unk>, our suppliers on long term initiatives on innovation to help us to be more efficient. So there is a piece of this that is really coming for.

A more efficient supply chain.

Thiago Duarte: Thank you so much, yeah.

Thank you so much.

Operator: The next question comes from Carlos Laboy with HSBC. Please go ahead.

The next question comes with Carlos Laboy with HSBC. Please go ahead.

Carlos Laboy: Yes, thank you. Hello, everyone. Given all the growth that you've had in BEES and the emphasis on refillable bottles on premise, might you be able to give us some insight on how this might be shifting your channel mix, and how those other channels are growing relative to modern trade? Is there any insight you can give us or anything you can share with us in terms of share volume versus share value and how that's been behaving for you as well? Thank you.

Yes, Thank you Hello, everyone.

Given all the growth that you've had in BS and the emphasis on refillable bottles on premise.

Might you be able to.

Give us some insight on how this might be shifting your channel mix.

And how those those those other channels are growing.

Relative to modern trade and also is there any insight you can give us or anything you can share with us in terms of.

Share of volume versus share value and that's been behaving for you as well. Thank you.

Yeah.

Okay.

Jean Jereissati: Okay, Laboy, thank you very much for the questions. Yes, you know that we have this strategy that this is a really relevant piece of our strategy. This is really about opening up the company for all the customers that we have in Brazil. We entered the pandemic with 750,000 customers buying. We left the pandemic with more than 1 million. That was a lot of customers that connected with the platform and small retailer in general that really had no access, or my sales rep was not there or were buying from another channel, and then we begin to go really direct. This is an important piece of the strategy with returnability on it. Yeah.

Yeah.

Okay Laboy. Thank you very much for the questions. So we as you know that we have this strategy of desktop.

That is a.

A really relevant a piece.

Of our strategy and business about is really about opening up a.

The company.

For all the customers that we have are in Brazil. So we entered the pandemic with 750000 customers.

Customers buying.

We left the pandemic hit with more than 1 million. So that was a lot of customers that connected with the platform and small and small retailer in general that really had no what fast.

Or my sales Rep was not there or we're buying from another channel and then we begin to go really direct so it is an important piece of the strategy with return ability on it and India. In yes, we are seeing in terms of mix.

Jean Jereissati: Yes, we are seeing in terms of mix a good resilience on the small retailer that continues to perform well. When we compare big retailers, we are seeing a lot of initiatives on the big retailers to manage better their cash, to reduce inventories. There is a piece of it that the channel is readjusting inventories, the big formats. But we are seeing really small formats really doing well. The on-premise really doing well. There is another piece on the equation that is that our third-party system that is plugged into this in this country sides of Brazil, there is Northeast, North, the Midwest.

A good resilience on the small retailer.

That continues.

Two to perform well.

And when we compare our <unk>.

Our big retailers, we are seeing a lot of initiatives on the big retailers too.

Manage better their cash to reduce inventories.

And so there is a piece of it that the channel is readjusted inventories of the big formats, but we have seen really small formats are really really doing well the on premise are really really.

Doing well so there is another piece of the equation there is that our third party system.

That is plugged into BS in this country sides of Brazil, there is northeast north.

Jean Jereissati: There is a lot of growth on the countryside of Brazil together with Brazil growing in the agriculture. We are seeing a big part of our growth coming from these regions through our third-party partners. That's a piece of the equation too. When I look at share of value and share of volume, I would say, Laboy, that they are directionally stable when we look in the previous two years, one year. They are directionally moving in the same direction. We don't see that share of value is deteriorating or is really up.

The Midwest. So there is a lot of growth.

On the on the countryside of Brazil, together with Brazil growing in.

The agriculture, so we have seen a big part of our growth coming.

From from these regions.

<unk> bees, but through our third party partners.

So there's a piece of the equation Shaw and when they look at share of value in share of volume.

I would say laboy that they are Ah.

Directional is stable when we look at the previous.

Two years one year.

<unk> directly.

Moving in the same in the same direction. So we don't see that.

The share of value has deteriorated.

Or is really up I saw the piece of the upgrade on the brands that we have on there and the high end.

Jean Jereissati: The piece of the upgrade on the brands that we have in the high end in the short term this 35% growth that we are having on our high end looks like it will begin to give some additional gains on our share of value when we compare with share of volume. Overall, they are pretty much with the gains in line with the previous year.

In the short term this 35% growth that we are having on our high end.

And looks like it will begin to give some additional gains on our on share of value when we own paired with share of volume, but overall they are pretty much.

With with Vic.

The gangs in line in the previous year.

Lucas: Is it fair to say that modern trade has become a smaller component of your channel mix?

Carlos Laboy: Is it fair to say that modern trade has become a smaller component of your channel mix?

So is it fair to say that modern trade has become a smaller component.

Of your.

Of your channel.

Channel mix.

Jean Jereissati: We can say that.

Yeah.

We we can say that.

Lucas: We can. Okay. Thank you.

Lucas Lira: We can.

Carlos Laboy: Okay. Thank you.

We can okay.

Thank you.

Okay.

Operator: The next question comes with Isabella Simonato with Bank of America. Please go ahead.

Yeah.

The next question comes with Isabella <unk> with Bank of America. Please go ahead.

Isabella Simonato: Thank you. Good afternoon, Jean, Lucas. Thank you for the call. I have two questions. One is quickly a follow-up on the beer market in Brazil, right? Especially on the pricing side. Are you guys seeing any movement right from competition or even in a more granular basis, right, of a pricing deceleration as costs improve, right, for most of the players? Any more of an irrational or aggressive behavior on that side? That's the first question. The second question is on the BEES. We also saw some price deceleration on BEES. I was wondering if you could give us a little bit more of a detail on that front, what you expect going forward?

Thank you good afternoon Lucas. Thank you for the call I have two questions. One is quickly a follow up on the <unk>.

The beer market in Brazil, right, and especially on the pricing side.

How are you guys seeing any movement right from competition or even.

In a more granular basis right.

Our pricing deceleration.

Scott.

Prove right for for most of the players are any more of our irrational or aggressive behavior on that side and.

That's the first question and the second question is on the life business. We also saw some price deceleration on lives.

I was wondering if you could give us a little bit more of a detail.

On that front, what you expect going forward.

Isabella Simonato: If you could provide also details that you're already seeing from the new approach towards Argentina, right? In terms of cost management and having more of a local sourcing across the board, what sort of impacts are you already seeing? Finally, if that has already been factoring working capital in a more material way. That's it on my side. Thank you.

If you could provide also details.

That you're already seeing from the new approach towards Argentina, right in terms of.

Of cost management and Uh huh.

Having more of a local sourcing.

Across the board how has what sort of impact are you already seeing and finally, if if that.

It has already been back in working capital in a more material way.

That's it from my side. Thank you.

Jean Jereissati: Okay. Thank you, Isabella. Coming back to the industry. What we are seeing is really an industry that is structurally better. I mentioned about the consumers, the frequency, the intensity, a little bit about the tough comp that we have with this euphoria in the previous year of the masks down. Overall, the underlying drivers of the industry, they are healthy. When we go to the competitive landscape, what we are seeing is that somehow there is more rationality on that. The industry was an industry that suffered a lot in the previous two years with the currency devaluation, with commodities going up big time. Margins were very compressed.

Okay. Thank you Isabella coming.

Coming back to the industry.

What we are seeing is really our industry there is a structurally better.

Ah Ah I mention about the consumers the frequency the MCT up a little bit about that.

The desktop that we have with this euphoria.

In the previous year of the masks down.

But overall.

The underlying.

The drivers of the industry they are healthy and when we go to the competitive landscape are what we are seeing is that somehow there is more rationality on that so we.

We were the industry it was.

Our industry suffered a loss in the previous two years with the currency devaluation with commodities going up big time, So margins were very compressed. So what we have seen overall with like a overall industry that is more with more rationality.

Jean Jereissati: What we are seeing overall is like a overall industry that is more with more rationality in general. That's what I could mention about the competitive landscape.

Ah in general so that's what I would I could mention about.

The competitive landscape.

Lucas: Hi, Isabella.

Lucas Lira: Hi, Isabella.

Jean Jereissati: Talking about last, Lucas.

How is that they're talking about glass out Lucas you know hi, Isabella Lukas here, so regarding loss I would break it down into into two pieces. Okay.

Lucas: Yeah, no. Hi, Isabella, Lucas here. Regarding LAS, I would break it down into two pieces, okay? Piece number one, Argentina, and piece number two, Bolivia, Paraguay, and Chile, okay? Because these are, although Argentina is the biggest country, when you combine the three others, it's relevant. It's a material portion of the total LAS business. It's worth mentioning. Starting with Argentina, kind of the new approach towards how to create value in a sustainable way in Argentina in the current environment. I think the short answer is we're happy with the results so far, okay? When you look at the net effect of less hedging in terms of bottom line impact and cash flow generation, we have, like, positive improvements in both, right?

Lucas Lira: Yeah, no. Hi, Isabella, Lucas here. Regarding LAS, I would break it down into two pieces, okay? Piece number one, Argentina, and piece number two, Bolivia, Paraguay, and Chile, okay? Because these are, although Argentina is the biggest country, when you combine the three others, it's relevant. It's a material portion of the total LAS business. It's worth mentioning. Starting with Argentina, kind of the new approach towards how to create value in a sustainable way in Argentina in the current environment. I think the short answer is we're happy with the results so far, okay? When you look at the net effect of less hedging in terms of bottom line impact and cash flow generation, we have, like, positive improvements in both, right?

Piece number one.

Argentina in December to Bolivia, Paraguay, and Chile, Okay.

Because these are although Argentina is the biggest country. When you combine the three others that are irrelevant to a material portion of the total lost business. So it's worth it's worth mentioned, so starting with Argentina kind of the new approach towards how to how to create value.

Sustainable way in Argentina in the current environment.

I think the short answer is we're happy with the results. So far okay. When you look at the the NASA effect of.

Less hedging.

In terms of bottom line impact and cash flow generation.

We have like positive improvements in both right. So even though costs continue to increase the less hedging that we do ends up having a net positive impact in our net income in the country, which is which is much better than than the past and number two we're generating better cash flows.

Lucas: Even though costs continue to increase, the less hedging that we do ends up having a net positive impact in our net income in the country, which is much better than the past. Number two, we're generating better cash flows in Argentina as compared to the past, okay? In US dollars. I think the strategy has been working so far. We think it's the right strategy. The team has managed to execute it extremely well. But we need to keep at it. It's a volatile market, so we need to continue to be on our toes, okay? As for Bolivia, Paraguay, and Uruguay, I think Bolivia, it's all about recovery, right?

Lucas Lira: Even though costs continue to increase, the less hedging that we do ends up having a net positive impact in our net income in the country, which is much better than the past. Number two, we're generating better cash flows in Argentina as compared to the past, okay? In US dollars. I think the strategy has been working so far. We think it's the right strategy. The team has managed to execute it extremely well. But we need to keep at it. It's a volatile market, so we need to continue to be on our toes, okay? As for Bolivia, Paraguay, and Uruguay, I think Bolivia, it's all about recovery, right?

In Argentina as compared to the past okay.

U S dollars so.

I think the strategy has been working so far we think it's the right strategy. The team has managed to executed extremely well.

But we need to keep at it.

It's a volatile market. So we need to be continued to be on our toes. Okay.

As for Bolivia, Paraguay, and Uruguay, I think Bolivia, it's all about recovery right. Bolivia was was though was one of the two markets that suffered the most with Covid and took the longest to to come back, but I think 2023 has been the year, where Bolivia is fine.

Lucas: Bolivia was one of the two markets that suffered the most with COVID and took the longest to come back. I think 2023 has been the year where Bolivia is finally coming back and contributes to the growth of the region. Paraguay recovered sooner, and the good news is that it's kept momentum. We're very happy with the progress in the performance in Paraguay consistently over the last 2, 3 years. In Chile, I would say there has been a step change in our operation. We decided to invest in local production to increase capacity. We decided to partner with Andina and Embonor to distribute our products, giving us better coverage throughout the country.

Lucas Lira: Bolivia was one of the two markets that suffered the most with COVID and took the longest to come back. I think 2023 has been the year where Bolivia is finally coming back and contributes to the growth of the region. Paraguay recovered sooner, and the good news is that it's kept momentum. We're very happy with the progress in the performance in Paraguay consistently over the last 2, 3 years. In Chile, I would say there has been a step change in our operation. We decided to invest in local production to increase capacity. We decided to partner with Andina and Embonor to distribute our products, giving us better coverage throughout the country.

Ali coming back and contributes to the growth of the region.

Why are recovered sooner and the good news is that it's kept momentum.

So we're very happy with the progress and the performance in Paraguay.

Consistently over the last two or three years and Chile, I would say there has been a step change in our operation.

We decided to invest in local production.

To increase capacity.

We decided to partner with Andina in Bordeaux and whatnot.

To distribute our products, giving us better better coverage throughout the country and with our portfolio right skewed towards Corp, lessen premium.

Lucas: With our portfolio, right, skewed towards core plus and premium, with great brand health performance year after year. That combination has led to a massive swing in EBITDA and cash flow generation in Chile so far this year. We're very happy with how Chile is trending. Year over year, it's been a relevant impact, really step-by-step changing Chile's contribution to LAS and to AMBEV.

Lucas Lira: With our portfolio, right, skewed towards core plus and premium, with great brand health performance year after year. That combination has led to a massive swing in EBITDA and cash flow generation in Chile so far this year. We're very happy with how Chile is trending. Year over year, it's been a relevant impact, really step-by-step changing Chile's contribution to LAS and to AMBEV.

With Great brand health performance year after year that combination has led to a massive swing in in EBITDA and cash flow generation in Chile, So far this year.

So we're very happy with with how she lists trending in year over year. Its been a relevant impact really suggest that step changing chili's contribution to last into ambev.

Isabella Simonato: That's very clear. Thank you.

That's very clear thank you.

Operator: The next question comes with Alan Alanis with Santander. Please go ahead.

The next question comes with Alan Alanis with Santander. Please go ahead.

Alan Alanis: Hello, everyone. Thank you so much for taking my question, Jean and Lucas. I wanna expand or dig deeper a little bit on the directionally stable market share answer and the rationality of the competition. Really quickly, we all know that, in the Brazilian beer market, there are three players. You're the leader, and then the number two and the number three. There's this perception that the number two player is doing very well. They even said that the volumes were positive on the Q2 and so forth. Could you help us understand better these dynamics in terms; is all the shares that you're gaining really coming from the player number three? That's the first question.

Hello, everyone. Thank you so much for taking my question, Jeremy Lucas I'm going to expand or dig deeper a little bit on the directional directionally stable market share and the rationality of the of the competition really quickly I mean, we will know that I mean in the.

The Brazilian beer market. There are three players you're the leader and then there are a number towards the number three and there's this perception that the number two player is doing very well.

And they even said that volumes were positive on the second quarter and so forth. So could you help us understand better dynamics in terms is all the share that you're gaining really coming from the player number three and that's.

Alan Alanis: The second question is, congratulations on all the awards for the brands. Could you expand a little bit more in terms of which indicators and which, what can you tell investors to give more comfort besides the awards, that the brands and the strategy of the brand portfolio is the right one, particularly versus the player number two? Thank you.

That's the first question. The second question is is congratulations on the on the all the awards for their brands, but could you expand a little bit more in terms of which indicators and which yes. What can you tell us co investors.

To give more comfort besides the awards that the brands and the strategy of the brand portfolio is the right one particularly versus the player number two thank you.

Lucas: Okay, Alan. Thank you very much for the question. Yeah. I think our volumes, if you do the math, they were good volumes when we compare the volumes, the selling volumes with the competitors, right? And on a market share basis, what we mentioned in the previous call was that we had looking really at the sell-out market shares is that we were on a stable level on Q1.

Jean Jereissati: Okay, Alan. Thank you very much for the question. Yeah. I think our volumes, if you do the math, they were good volumes when we compare the volumes, the selling volumes with the competitors, right? And on a market share basis, what we mentioned in the previous call was that we had looking really at the sell-out market shares is that we were on a stable level on Q1.

Okay Ella.

Thank you very much for the question.

So so yeah. So I think our our volumes if you do the math.

They were.

They were good volumes when we compare the volumes are there.

Selling volumes.

With the competitors right.

And in all our market share.

Phases.

So what we mentioned in the previous call that we had looking really at the sell out market shares market share is that we were on a stable level on Q1.

Alan Alanis: Mm-hmm.

Lucas: What we have seen this Q2 in 2023 is that we accelerated and we gained, compared with Q1, 2 points, 200 basis points. The truth is that during the euphoria and the masks down in the pandemic, we gained a little bit more than that in the Q2 of 2023, okay? That's sequentially we are gaining this year, but we have a huge peak in April and May of the last year. What I can tell you is that in June we are again above the previous years, so sequentially gaining a lot. Last year was very strong.

And then.

Jean Jereissati: What we have seen this Q2 in 2023 is that we accelerated and we gained, compared with Q1, 2 points, 200 basis points. The truth is that during the euphoria and the masks down in the pandemic, we gained a little bit more than that in the Q2 of 2023, okay? That's sequentially we are gaining this year, but we have a huge peak in April and May of the last year. What I can tell you is that in June we are again above the previous years, so sequentially gaining a lot. Last year was very strong.

What we have seen this issue.

This Q2 inch range 23 is that we accelerated as we gain compared with Q1.

Two points 200 basis points, but the truth is that during the last four years and the masks now in the pandemic, we gain is a little bit more than that.

In the Q2 of 2023, okay. So deadly.

That's so sequentially, we're gaining this year in but we have a huge beach in April and May of the last year and what I can tell you is that June we are again are above the previous year's so sequentially gaining a lot.

It was.

Last year was very strong.

Lucas: We feel that we are accelerating, and we're gonna enter the Q3 in a good starting point, entry point, in terms of market share. Talking about brands, I'm super excited about this performance, right? It's not the first quarter that I'm mentioning thirties on the high end.

Jean Jereissati: We feel that we are accelerating, and we're gonna enter the Q3 in a good starting point, entry point, in terms of market share. Talking about brands, I'm super excited about this performance, right? It's not the first quarter that I'm mentioning thirties on the high end.

But we feel that we are accelerating our.

And and and we are going on and see the Q3 in a good starting point entry point.

In terms of market share I'm talking about brands I'm Super excited about this performance right. So it's not the first quarter that I'm mentioning duties Dirty studies on the high end.

Jean Jereissati: The brands are really performing. Corona is doing great. Sparkling is a huge success, doing very well. Brahma, we had this effect of Brahma Double Malt. It grew in the in-home occasion. When consumers come back to their on-trade, they went back to Chopp Brahma. That is really the franchise. Our original a little bit too, but overall regional Chopp Brahma are growing a lot. Our brand portfolio, I'm very excited about it. If you look at a KPI that I mentioned here and there with you about the lovers.

So the brands are really performing.

Corona is doing great.

His passing is a huge success.

Doing very well, but we had this effect of grandma double mouth. It grew in the in home occasioned in when consumers come.

Come back to their own trade. They went back to shop at <unk>. There is really the franchise our region, our little bit true, but so overall regional shop at that brand.

Is growing a lot so so ah Ah our breath.

Brand portfolio I'm very excited about it if you look at our Kpis at Imation.

Here and there with you about the levers so we do this research.

Jean Jereissati: We do this research with consumers and we ask about which brands they love, and when we add all our brands of our portfolio that they are mentioned that they are loved by the consumers. In this KPI, we gained 4 million new consumers comparing this H1 2023 with the pre-pandemic, 2019. Four million consumers mentioning that they love one of our brands that they were not loving like in 2019, in 2020. I'm very excited about our performance. In general, our brand portfolio is much healthier and stronger than before, and really excited about it. GTC is helping.

With consumers and we ask so.

About which brands they love.

And when we add all our brands of our portfolio that they are mention that they are lost by the consumers. So in desk API, we gained 4 million new consumers in this comparing this H one 2023 or bearing with the pre pandemic of the June 19th so or billion consumers.

Mentioning.

That they love one of our brands.

That they were not loving like Ah Ah.

2019 inch valves in 'twenty, So I'm very excited about our performance in general in our brand portfolio is much healthier and stronger than.

Then before.

And really excited about about at GTC is helping.

Jean Jereissati: Zé Delivery is helping it, helping us with insights, with direct to consumers communication, transaction, help us a little on that. Somehow, this feeling, this number of consumers that they mentioned that love our brands is really a KPI that that really excites me and I really follow a lot. I think it's pretty much it.

Delivery is helping it helping us with insights with our direct to consumers communications transaction help.

Help us earlier on that but somehow so.

So this feeling this.

A number of consumers that the nation that love our brand. This is really our kpis.

That really excited me and I really follow a lot. So I think it is a.

Pretty much it.

Alan Alanis: Got it. Thank you so much.

Got it thank you so much.

Operator: Thank you. The next question comes from Thiago Bortoluci with Goldman Sachs. Please go ahead.

Okay.

Thank you.

Next question.

From Jakob a total cigarette Goldman Sachs. Please go ahead.

Thiago Bortoluci: Yes. Hi. Good afternoon, everyone. Thanks for taking my question. Hi, Jean. Hi, Lucas. I also like to double-click and discuss a little bit more your top line dynamics in Brazil beer. You mentioned a couple of times your premium and super premium portfolio growing at 30s, which is unquestionably remarkable, while your consolidated volumes in Brazil were down by 2.5%, right? Within the core and the economy portfolios, how this portfolio mix adapt to this -2.5? This is the first part of the question. Then the second one, obviously we understand there is seasonality, right? If I look to your average price per hectoliter in Brazil beers, there was a slight contraction quarter-on-quarter, right?

Yes, hi, good afternoon, everyone. Thanks for taking my question, Hi, Joe Hi, Lucas, our celestial double click and discuss a little bit more.

PR top line dynamics in Brazil beer.

Ah you're main Shand, a couple of times your premium and superpremium portfolio growing authorities, which is unquestionably remarkable why yoga consolidated volumes in Brazil were down by two 5% right. So within the core and the economy portfolios, how you'll know that.

This portfolio on mix and that trend is minus 2.5. This is the first part on the quiet. After the question and then the second one obviously, we understand there's seasonality right, but if I look to your average price per hectoliter in Brazil ex Beach, there was a slight contraction quarter on quarter.

Thiago Bortoluci: It's a 3% quarter on quarter contraction with your mix arguably improving, right? How do we adapt on this portfolio composition, the sequentially weaker prices, and how this compare to your true rate strategy so far in the year? Thank you very much.

Got it.

A 3% quarter on quarter contraction winter, our mix arguably improving right. So how do we adapt on this portfolio composition the sequentially weaker prices and how this compare to your churn rate strategy. So far in the year. Thank you very much.

Jean Jereissati: Okay. I'll get the first one. I will ask you to repeat the second one first. Basket-wise volumes, the big drag that we have. Somehow the core went a little bit in line with the industry, with our performance, the core. The drag was really the value segment, really the brands that we were 35% down. Then we have the core in line with our performance and then the over-deliver on the high end. It was material, the 35%. The value was really the point of attention here. This is something that we kind of designed it to happen like that.

Okay I'll get the first the first one are you rescue tools to repeat the second one first so.

So yeah.

Basket wise volumes.

The big drag that we have so somehow the core wins are a little bit in line with with the with the industry with our performance the core but the drag was really the value segments.

Really what are the brands that we were 35% down.

And and then we have the core the core in line with our performance had been the over deliver on the high end. It was a it was material that 35% of the value was really.

The point of attention here, but it is something that we kind of design it.

Jean Jereissati: We really want to upgrade the market for the core brands and then the core plus and then the high-end. We are seeing a lot of traction specifically on the high end with the strategy that we are doing. You asked about the net revenue of BRLs, and I got confused a little. Can you ask it again?

<unk> to happen like that so we really want to upgrade the.

The market for our core brands in the core plus and then the high end. So we have seen a lot of traction.

Specifically on the high end with this strategy.

And then you asked about the net revenue would be is in the I got confused that it can you ask that no no sure. Thanks. Thanks, Yeah. It's clear so your mix is improving right not only year on year, but I guess also sequentially because in the first quarter. You also had there that there are probably growing right now if this is true in your mix through all day.

Thiago Bortoluci: No. Sure. Thanks, Jean. It's clear. Your mix is improving, right? Not only year-on-year, but I guess also sequentially, because in Q1, you also had the core probably growing, right? If this is true and your mix throughout the year is improving, how this adapt to your average prices, right? Because if I look to your average prices for BEES, the marketplace, right, it's down by 3% quarter-on-quarter. If your mix is improving, would this imply that you're being eventually a little bit more aggressive on discounts?

<unk> is improving how this.

To you our average price is right because if I look to our average prices for our beer ex the marketplace right. It's down by 3% quarter on quarter is permitted is improving would this imply that you are being eventually a little bit more aggressive on discounts.

Jean Jereissati: Let me try to find this number that my prices are sequentially down. I think, Thiago, for sure, discounts, no. Okay? That's not what we are seeing. What happens usually in sequential prices, they have a little bit of seasonality even though we have the performance on the segments. There is this seasonality of Northeast, South losing performance, North, Northeast and North getting more representative as the winter comes. Then, the footprint usually makes some varieties on the sequential numbers that we have. I would attribute more to the footprint mix, the overall seasonality. Our revenue management is really solid. The level of discounts, they are very low in general.

Okay.

So let me try to find this number in that.

That my prices are.

Sequentially down.

Yeah.

Chavez for sure. This culture no. Okay. So that's that's not we're seen what's.

What's happened to usually in a in sequential prices.

They have a little bit of seasonality, even though we have the performance on the segments, but there is this seasonality of north east.

South losing performance, Norway, northeast and north getting more representative as the winter comes and then so the footprint usually makes a some variety is on the sequential.

The numbers that we have so I would attribute more.

The footprint mix the overall seasonality.

Our revenue management. This is really really solid so the level of discounts. They are very they are very low in general so when you compare with the pre pandemic level suites.

Jean Jereissati: When you compare with the pre-pandemic levels, it's way below. It is stable and very controlled. My point would be more to understand the footprint seasonality, the region seasonality, a little bit of the channel seasonality. When we go really to further regions, as I mentioned, that they are growing through wholesalers, there is a little bit more on the cost of distribution that goes through wholesalers. No discounts, no.

Hey.

Hello is it is stable and in a very controlled so I would.

So my point would be more.

To understand the footprint seasonality the region seasonality a little bit of the channel seasonality, then where do we go really true for the regions as I mentioned that they are growing with true wholesale is there is a little bit more on on on is also the cost of distribution.

That goes through wholesalers, but no discounts discounts.

Thiago Bortoluci: Clearly, Jean. If I may, a final one. If I look to the true rate only, right, so eventually price adjustments and hikes, were there anything to notice that you implemented in the quarter?

Clearly Shanghai MA a final one if I look for Nitro Ray Tonally rates, eventually price adjustments and hikes weren't there or anything to notice letter implemented in the quarter.

Yeah.

Jean Jereissati: In the past we had this strategy on prices that we had one big price hike per year, and then we would digest it after and stay. Now we are much more nimble and granular. BEES helping us on that. I think we are pretty much doing what we have been doing. Really look at the consumer willingness to pay disposable income elasticities and do the granular strategy that we have been doing for a while now. No, nothing more than that to mention.

So that's all of our us so in the best we had this strategy on prices that we had one big price hike for.

A year and then we digested after and stay so now we are more much more nimble in granular.

So business is helping us on that so I think we are pretty much doing what we have been doing so really look at the consumer.

<unk> willingness to pay suppose able income mail us dcp's and do the granular strategy that we have been doing for a while now so nothing more than that true true.

Sure Mitch.

Thiago Bortoluci: That's super clear. Thank you very much.

That's super clear, thank you very much.

Lucas Ferreira: The next question comes with Rodrigo Alcântara with UBS. Please go ahead.

Okay.

The next question comes with Entre Gold Cantera with UBS. Please go ahead.

Rodrigo Alcântara: Yeah. Thank you very much for taking my question. A lot has been asked about beer, right? Maybe we can comment a bit about the non-beer. If you can help me understand the slight decline on volumes, right? You mentioned soft industry, right? Just you know, had some troubles understanding the number comparing to you know, what the Coca-Cola bottlers reported on this segment. You said Pepsi performing okay, right? The energy drinks okay. Perhaps could be the Guaraná brand having some issues there. Maybe you can comment on that. And also on this, we did see a nice acceleration there in sales growth, 30%, if I'm not mistaken, year over year.

Rodrigo Alcantara: Yeah. Thank you very much for taking my question. A lot has been asked about beer, right? Maybe we can comment a bit about the non-beer. If you can help me understand the slight decline on volumes, right? You mentioned soft industry, right? Just you know, had some troubles understanding the number comparing to you know, what the Coca-Cola bottlers reported on this segment. You said Pepsi performing okay, right? The energy drinks okay. Perhaps could be the Guaraná brand having some issues there. Maybe you can comment on that. And also on this, we did see a nice acceleration there in sales growth, 30%, if I'm not mistaken, year over year.

Yeah. Thank you very much for chicken that my question.

So a lot has been asked about their rights or maybe he can comment a bit about the seasonality.

And help me understand that.

The slight decline.

Uh-huh volumes regimens from the industry right just.

Had some troubles understanding the number comparing to what the Coca Cola bottlers reporting segmental.

Yeah, just had absolute performing okay, right energy transfer, okay, perhaps could be having some some niches. There maybe you can comment on that and also on <unk>. We did see a nice acceleration very sensible 30.

30% second year over year. So just curious if you can comment on how much of the.

Rodrigo Alcântara: Just curious if you can comment on, you know, how much of your customer wallets represents, and that this really representing in the share of your customers' wallet, and how much this increase has been driven by the success of this. Thank you very much.

Rodrigo Alcantara: Just curious if you can comment on, you know, how much of your customer wallets represents, and that this really representing in the share of your customers' wallet, and how much this increase has been driven by the success of this. Thank you very much.

Yeah.

Of your customers' wallets.

You have a percentage on that.

It won't be as jewelry, representing in the share of the customer's wallet and how much of this increase has been driven by my sense of this thank you very much.

Jean Jereissati: Let me get NAB first. NAB is doing. We are very excited about NAB. I think NAB has really made a lot of changes in the previous two years, and it's really set to succeed. The RTM is better. The brands are really performing. The segments that we lead, they will grow. We're really excited about the NAB volumes. I think there are two things that we can mention in this quarter that is something on the short term, right? It was a very strong quarter last year that we grew a lot last year.

So let me get Nab first.

Yeah.

So so so not nobody is doing we are very excited about our Nab a I think a nab nab is really.

We made a lot of changes in the previous two years and it's really set a Jew succeeds.

Our team is better the brands are really perform in the segments that we are that we lead that they will grow.

So we're really excited about the net volumes I think there is two things that we can mention on this quarter or there is something.

In the short term right. So it was a very strong quarter last year that we grew a lot last year, but if I would point it out to one thing that it was.

Jean Jereissati: If I would point it out to one thing that it was a decision and we are learning and testing the segment is the net revenue per hectoliter of NAB. They were very strong, right, in this quarter. Maybe I have some opportunities here and there to be more competitive in one channel or in the other, tactical things in the market. Somehow I think that's an opportunity that we have. BEES well set. Pepsi Black is really a success in Brazil. Gatorade is doing very well. We have two plays in energy. Energy, we have Red Bull, we have Fusion. They are really doing well. Somehow very excited about this BEES.

Seizure them in and we are we are learning and testing.

This segment is the net revenue per hectoliter off of.

Of note, we're very strong right in this quarter and may be.

I have some opportunities a year in there to be more competitive in one channel or in the other.

Tactical things are in the market, but somehow.

I think that's a that's an opportunity that we have so business well Seth Pepsi Black is really our success.

In Brazil, Gatorade is doing very well.

So we have two who plays in the energy and then as you would have read new Red Bull has fusion. They are really doing well. So so somehow are very excited about this business is like one quarter of debt that we mention are the.

Jean Jereissati: It's like one quarter that we mention the volumes, but I'm very excited about top line and brand performance in general and even when I compare with other things. Okay, so can you repeat the second question?

The volumes, but I'm very excited about topline and brand performance in general and be there when they hope there.

With other fleets.

Okay. So can we can you repeat the second question.

Rodrigo Alcântara: Yeah, sure. On the share of your customer's wallet, right, you know, these accelerators, quarter over quarter, also year over year. Just wondering how much of your customer wallet you already represent and that represent and the contribution of this to this potential increase, if any.

Rodrigo Alcantara: Yeah, sure. On the share of your customer's wallet, right, you know, these accelerators, quarter over quarter, also year over year. Just wondering how much of your customer wallet you already represent and that represent and the contribution of this to this potential increase, if any.

Yeah sure on the share of the customer's wallet right Oh, yes accelerators are quarter over quarter also year over year, just wondering how much of your of your customer.

While that you already have a percent under 4% and the contribution of these two these are potentially increase.

If any.

Jean Jereissati: Okay. No, we don't see that. The customer wallet, I think, is a blue ocean. It still has a huge opportunity in the marketplace for us to tackle that. The consumers are there, they are buying. We are just offering a better assortment, better service. There is still a huge opportunity. If you look at my GMV of these, not the net revenue, but the GMV, because you begin to have 3P operations. We begin to sell through wholesalers, and then we don't have exactly the net revenue. We have the GMV, and we have a margin in the middle. If you look at my GMV, we are growing 64% when we compare with Q2 of 2023. I think business doing well, growing.

Okay. So no we don't see that so the customer wallet I think is a blue Ocean is still has a huge opportunity in the marketplace for us through to tackle that so the consumers that they had they are buying we are just offering a better assortment better service. So there is a skew a huge opportunity.

<unk> Ah if you look at my G M V of.

<unk> has not been that revenue, but the geography, because you begin to have.

Three P operations will begin to sell through wholesalers and then we don't have exactly the net revenue we have the GM. The V and we have a margin in the middle. So if you look at my Jian Xie.

We are growing 64%.

When we compare with Q2 of 2023.

So I think.

So business.

Doing well growing where.

Jean Jereissati: We are reaching 700,000 customers that bought one product of our marketplace, products that are not produced by Ambev. That's an important number that is still growing. Somehow, I see strength. I see customers really asking us to have more credit limits for them to buy more, to have more options to buy more frequently. I think that this marketplace strategy is really solid.

We are reaching 700000 customers on them all that bought one product of our marketplace that projects that are not produced.

By Ambev. So that's an important number that is still growing so somehow I see strength IC.

Our customers really are asking to us to have more credit limits for them to buy more to have more options to buy more frequently so I think.

These markets creates a scrappage is really solid.

Lucas: Just, Jean, if I may, just to add one specific opportunity, I think, in the marketplace that's worth highlighting, Rodrigo, is, as Jean mentioned, we've managed to really take these across the country through our direct distribution system, through our wholesalers, and that started to make a bigger impact on our overall BEES, and we're very excited about that. But when you drill down and look, for example, at the number of SKUs per partner that we work with, that's still a relatively low number. Overall, we have hundreds of SKUs in the marketplace. But when you break it down by each partner from the industry, the SKU number is relatively low.

Lucas Lira: Just, Jean, if I may, just to add one specific opportunity, I think, in the marketplace that's worth highlighting, Rodrigo, is, as Jean mentioned, we've managed to really take these across the country through our direct distribution system, through our wholesalers, and that started to make a bigger impact on our overall BEES, and we're very excited about that. But when you drill down and look, for example, at the number of SKUs per partner that we work with, that's still a relatively low number. Overall, we have hundreds of SKUs in the marketplace. But when you break it down by each partner from the industry, the SKU number is relatively low.

John If I may just to add one one specific opportunity I think in the marketplace. That's worth highlighting with ruble is.

As Joe mentioned, we have managed to really take these across the country through our direct distribution system through our wholesalers.

And that started to make a right a bigger impact on our overall business and we're very excited about that but when you drill down and look for example at the number of Skus right per partner that we work with that's still a relatively low number. So overall, we have hundreds of skus in the marketplace, but when you.

You break it down by by each partner from the industry. The SKU number is relatively low so as we as we strengthened and deepened our partnership with these companies and are able to offer more S. Skus from them to the customer that should also help us.

Lucas: As we strengthen and deepen the partnership with these companies and are able to offer more SKUs from them to the customer, that should also help us continue to grow marketplace and serve better our customers.

Lucas Lira: As we strengthen and deepen the partnership with these companies and are able to offer more SKUs from them to the customer, that should also help us continue to grow marketplace and serve better our customers.

Two to grow marketplace and serve better our customers.

Rodrigo Alcântara: Thanks for that clarification, Lucas. Thank you, Jean, for the answer. Thanks.

Yeah.

Rodrigo Alcantara: Thanks for that clarification, Lucas. Thank you, Jean, for the answer. Thanks.

Thanks for that clarification Luca Thank you Jen for dancer.

Operator: Ladies and gentlemen, this concludes today's question and answer session. I would like to invite Mr. Jean Jereissati to proceed with his closing remarks. Please go ahead, sir.

Ladies and gentlemen. This concludes today's question and answer session I would like to invite Mr. Shan Shan is subject to proceed with his closing remarks. Please go ahead Sir.

Jean Jereissati: Thank you all, who joined our call, for your time and attention. The Q2 results were really about consistency. I mentioned in the beginning of the year that we wanted Brazil to keep its momentum. I think when you look about the bottom line is really accelerated. I talked about international operations to rebound, and we are seeing international operations to rebounding. For the remainder of the year, commercial strategy in Brazil is sound. Costs should improve. We didn't mention, but SG&A, there's a lot of projects on SG&A that they are going on. I'm really excited about having a leaner organization in H2. A very good plan that we made in the previous years to reorganize the company as a platform.

So thank you all who joined our call for your time and attention.

Second quarter results were really about consistency I mentioned in the beginning of the year that we wanted Brazil.

To keep its momentum and I think when you look about the bottom line is really accelerated I talked about international operations to rebound and we have seen international operations to rebounding.

And for the remainder of the year commercial strategy in Brazil is sound.

Costs should improve we didn't mention but the SG&A.

There was a lot of projects on SG&A.

That they are going to launch it so I am really excited about having a leaner organization in each chew a very a.

Good plan that we made in the previous years to reorganize the company as a platform. They are beginning to show up a company leaner and more collaborative.

Jean Jereissati: They are beginning to show up as a company leaner and more collaborative. Costs, cash, COGS, and expenses should improve. CAC remains on this recovery path. I think the previous quarters, the worst quarters, the bad quarters were behind us. Argentina is an operating environment that remains volatile, but overall LAS is resilient. Finally, we continue to work towards delivering growth and profitability in H2, as well as a better organic EBITDA growth in 2023 than we had in 2022, that it was 17.1%. Thank you very much. See you in October, and have a great day.

So costs are cash Cogs in expenses should improve.

CAC remains on this recovery path I think the the previous quarters.

The worst quarters, the bad quarters were behind us.

Ciena.

Is that an operating environments.

That remains volatile, but overall loss is resilient and finally, we continue to work towards delivering growth and profitability in a shoe as well as a better organic EBITDA growth in 2020 three than we had in 2022 that it was 17, 1%. So thank you very much <unk>.

In October and have a great day.

Operator: That just concludes Ambev's audio conference for today. Thank you for your participation. You may now disconnect.

That does conclude and pass audio conference for today. Thank you for your participation you may now disconnect.

Q2 2023 Ambev SA Earnings Call

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