Q2 2024 Ambev SA Earnings Call
Speaker Change: The world is ours We are the world We are the world Corona Zero For all the moments of gold For all the moments of gold Enjoy your life Enjoy your life
Operator: Recording in progress. Good morning, good afternoon, and thank you for waiting.
Speaker Change: Recording in progress.
Speaker Change: Good morning, good afternoon, and thank you for waiting. We would like to welcome everyone to Ambev's 2024 Second Quarter Results Conference Call. Today with us we have Mr. Jean-Jerry Satie, Ambev CEO , and Mr. Lucas Lira, CFO and Investor Relations Officer. As a reminder, a slide presentation is available for downloading on our website, ri.ambev.com.br, as well as through the webcast link of this call.
Operator: We would like to welcome everyone to Ambev's 2024 second quarter. Today with us, we have Mr. Jean-Jerry Fauch, Pio, and Mr. Lucas Lira, CFO and investor relations, As a reminder, a slide presentation is available for downloading on our website, ri.ambev.com, as well as through the webcast link of this, like to inform you that will be in a listen-only mode during the company's After Ambev's remarks are completed, there will be a Q&A section when we kindly ask, Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor Forward-looking statements are based on the beliefs and assumptions of Ambev. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.
Speaker Change: We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company's presentation. After IMBEV's remarks are completed, there will be a Q&A section when we kindly ask that each participating cell-site analyst asks only one question.
Operator: Investors should understand that general economic, Industry Conditions, and other operating conditions could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward-looking studies. I would also like to remind everyone that, as usual, the percentage of changes that will be discussed and, unless otherwise, Percentage changes. Comparisons with the 2023 second quarter. I refer to performance measures before exception, which are either income or expenses that do not occur regularly as part of Ambev's normal business. 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. Now, I'll turn the conference over to Mr. Jean Gerisati. Mr. Gerisati, you may begin your.
Speaker Change: Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996.
MBEV's management: Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the company.
Speaker Change: They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.
Speaker Change: Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of OMBED and could cause results to differ materially from those expressed in such forward-looking statements.
Speaker Change: I would also like to remind everyone that, as usual, the percentage of changes that will be discussed during today's call are both organic and normalized in nature, and unless otherwise stated, percentage changes refers to comparisons with 2023 second quarter results.
Speaker Change: Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of UMBEV's normal activities.
Speaker Change: Now, I'll turn the conference over to Mr. Jean Gerisati. Mr. Gerisati, you may begin your conference.
Jean Gerisati: Hello everyone, thank you for joining our Q2 Earnings Call. In our last call, I mentioned several initiatives regarding the heavy rains that impacted many cities in Rio Grande do Sul. I also mentioned that we wouldn't stop until our ecosystem was back on its feet. During this quarter, we continued with several initiatives in the region, focusing on helping to rebuild the local community. For instance, we donated more than 5 million liters of water to people and hospitals.
Speaker Change: In our last call, I mentioned several initiatives regarding the heavy rains that impacted many cities in Rio Grande do Sul.
Speaker Change: I also mentioned that we wouldn't stop until our ecosystem was back on its feet.
Speaker Change: During this quarter, we continued with several initiatives in the region, focusing on helping to rebuild the local communities.
Speaker Change: For instance, we donated more than 5 million liters of water to people and hospitals.
Jean Gerisati: We also contributed over R$16 million to support local customers, helping with structure and commercial initiatives. For our people, we have supported them to rebuild their homes. It's part of our role as a leading Brazilian company to support our ecosystem so we can grow together. Now, we shift gears to our business. And this quarter's performance was very consistent when compared to Q1.
Speaker Change: We also contributed over R$16 million to support the local customers, helping with structure and commercial initiatives.
Speaker Change: For our people, we have supported them to rebuild their homes.
Speaker Change: It's part of our role as a leading Brazilian company to support our ecosystem so we can grow together.
Speaker Change: Now, shifting gears to our business, this quarter's performance was very consistent when compared to Q1.
Jean Gerisati: Volumes Guru, led by Brazil and CAC, more than offsetting soft industries in Argentina and Canada. Ebitda Guru Double Digits with Margin Expansion, Free cash flow performance improved versus last year, and normalized profit was impacted by higher income pay. Let me now go a little bit more in detail, starting from CAC in Canada.
Speaker Change: Volumes grew, led by Brazil and CAC, more than offsetting soft industries in Argentina and Canada.
Speaker Change: EBITDA grew double digits with margin expansion, free cash flow performance improved versus last year, and normalized profit was impacted by higher income taxes.
Speaker Change: Let me now go a little bit more in details.
Jean Gerisati: Similar to last quarter, CAC had another good quarter led by the Dominican Republic with the Corona and Presidente families of Brandon. Volumes increased by 3.4%, and TheBetaBy18 with 330 bips of margin expression. Why will Canada continue to experience a tough industry? We continue working to offset top-line performance with disciplined cost management, delivering a 2% beta decline while cash flow increased. In Argentina, despite some improvement in terms of monthly inflation readings, the beverage industry continues to suffer in the short term. Our volumes declined by over 21% as consumption environments remain challenging. In nominal terms, a beta-reduced signifier because of the currency devaluation that took place in December last year.
Speaker Change: starting from CAC and Canada.
Speaker Change: Similar to last quarter, CAC had another good quarter led by the Dominican Republic with Corona and Presidente families of brands.
Speaker Change: volumes increased by 3.4% and the beta by 18, with 330 bps of margin expansion.
Speaker Change: While Canada continued to experience a tough industry, we continued working to offset top-line performance with disciplined cost management, delivering a 2% beta decline while cash flow increased.
Speaker Change: In Argentina, despite some improvement in terms of monthly inflation readings, beverage industry continued to suffer in the short term.
Speaker Change: Our volumes declined by over 21% as consumption environments remain challenging.
Speaker Change: In nominal terms, EBITDA reduced significantly because of the currency devaluation that took place in December last year. In Brazil NABs, we had another great quarterly performance.
Jean Gerisati: In Brazil, Nabs, we had another great quarterly performance. Volumes grew almost 8% with our non-sugar portfolio continuing to outperform, growing 15%! with a highlight to Guarana Zero that grew over 40.
Speaker Change: Volumes grew almost 8%, with our non-sugar portfolio continuing to outperform, growing 15%, with a highlight to Guaraná Zero that grew over 40%.
Jean Gerisati: Also, earlier this year, we were awarded the best Pepsi bottler in the world for the first time. This marks how our consumer-centric approach has improved not only our business but our partnership. Net revenue per hectoliter grew 6.8%, on the back of revenue management initiatives and a positive brand cash cogs per hectoliter decelerated to an increase of 1.2%, while lower spending on marketing activities from a heavier Q1 due to carnival contributed to a beta growth of 40% and a margin expansion of 500 basis points. In Brazil, beer volumes grew 2.9%, with our premium and super premium brands up in the low Foxen, and Ori.
Speaker Change: Also, earlier this year, we were awarded the best Pepsi bottler in the world, for the first time. This marks how our consumer-centric approach has improved not only our business, but our partners.
Speaker Change: Net revenue per hectolitre grew 6.8% on the back of revenue management initiatives and a positive brand mix.
Speaker Change: Cash Cogs per hectolitre decelerated to an increase of 1.2%.
Speaker Change: while lower spending in marketing activities from a heavier Q1 due to Carnival contributed to a beta growth of 40% and margin expansion of 500 basis points
Speaker Change: In Brazil beer volumes grew 2.9%, with our premium and super-premium brands up in the low teens, led by Corona, Spaten and Original.
Jean Gerisati: Core Plus, brands growing in the high teens, led by Budweiser, and Core Brands posted single digits. Net revenue per hectoliter grew 3.9%. Pressure retailers grew nearly ahead of general consumer inflation once again, which was partially offset mainly by the carryover impact from the VAT taxable base that we explained last week. In addition to a healthy and consistent beer performance, Marketplace grew GMV sequentially and 32% versus last year, and represents close to 10% of our net revenue growth year-to-date, and the beta grew 21%, also supported by a decrease in cash costs per hecto I'm very satisfied with our performance in Brazil.
Speaker Change: Core Plus, brands growing in the high teens, led by Budweiser and Core Brands, up low single digit.
Speaker Change: Net Revenue per hectolitre grew 3.9%
Speaker Change: Pressure retailers grew nearly six.
Speaker Change: ahead of general consumer inflation once again, which was partially offset mainly by the carryover impact from VAT taxable base that we explained last quarter.
Speaker Change: In addition to a healthy and consistent beer performance, Marketplace grew GMV sequentially and 32% versus last year, and represents close to 10% of our net revenue growth year to date.
Speaker Change: And the BIPTA grew to 21%, also supported by a decrease in cash costs per hectoliters, with margins expanding 350 BIPs to 30.
Speaker Change: I am very satisfied with our performance in Brazil.
Jean Gerisati: For a while, we have been delivering a solid operational performance, reaching all-time high record volumes for a second quarter and significant EBITDA growth. Last quarter, I spoke about our commercial momentum in Brazil beer and how that's tied to the brands, Innovate! Beas, and Zé Believer.
Speaker Change: For a while, we have been delivering a solid operational performance.
Speaker Change: reaching in Q2-24 all-time high record volumes for a second quarter and a significant EBITDA growth.
Speaker Change: Last quarter, I spoke about our commercial momentum in Brazil beer and how that's tied to brands.
Speaker Change: Innovation
Jean Gerisati: Today, I would like to talk more deeply about the brand. We decided to allocate our resources. Prioritizing, they received additional investors, be it in media Experiential, trade, or say. Each of these focus brands has clear reasons to believe in why it can win. Corona Super Premium is the brand with the highest brand health to market share ratio in the market, and it relates to values like balance, enjoying life, traveling, and unwinding.
Speaker Change: Bees and the delivery
Speaker Change: Today, I would like to talk more deeply about brands.
Speaker Change: We decided to allocate our resources prioritizing four brands that we call focus brands.
Speaker Change: They received additional investments, be it in media,
Speaker Change: experiential trade or sales
Speaker Change: Each of these focus brands has clear reasons to believe on why it can win.
Speaker Change: Corona Inda Super Premium is the brand with the highest brand health to market share ratio in the market and it relates to values like balance, enjoying life, traveling and unwinding.
Jean Gerisati: On top of that, it has a distinctive packaging, a liquid that is made with 100% natural ingredients and is more refreshing, and Premium is one of the highest growing brands in the market. And it has very clear BIR credentials, which positions it as a BIR authority in Brazil. It has been selected as Brazil's Best Pure Mouth Beer by a group of beer specialists in a survey from the Estado de So Paulo newspaper.
Speaker Change: On top of that, it has a distinctive packaging, a liquid that is made with 100% natural ingredients, and is more refreshing.
Speaker Change: Spaten, in premium, is one of the highest growing brands of the market, and it has very clear beer credentials, which positions it as a beer authority in Brazil.
Speaker Change: It has been selected as Brazil's best pure malt beer by a group of beer specialists in a survey from o Estado de São Paulo newspaper.
Jean Gerisati: Budweiser is the most aspirational, corporatless brand in America. Through its global events, like the World Cup and international music festivals, such as Lollapalooza and Tomorrowland, it is seen as an iconic and youthful brand. On top of that, in both blinded and branded liquid tests, Budweiser scores as the highest beer of the year. And Brahma, at core, is the biggest brand in the market, and it connects to Brazilian culture like no other, being part of people's lives for generations. Soccer, Sertanejo, Carnival, and So Joo.
Speaker Change: Budweiser is the most aspirational corporate brand in the market.
Speaker Change: Through its global events like the World Cup and international music festivals such as Lollapalooza and Tomorrowland, it is seen as an iconic and youthful brand.
Speaker Change: On top of that, in both blinded and branded liquid tests, Budweiser scores as the highest beer of the market.
Speaker Change: And Brahma, in core, is the biggest brand of the market, and it connects to Brazilian culture like no other, being part of people's lives for generations, through soccer, sertanejo, carnival and São João.
Jean Gerisati: It has the biggest brand health and salience of the market in its unique functional attributes, bramosidade. Cremosida solidifies it as the number one high-quality brand. The good news is, this strategy is working. Our focus brands are at all-time high levels of brand health and volume. In terms of year-to-date volumes, Focus Brands grew over 10% combined, representing over 120% of the company's growth, excluding the value segment which is our largest detractor; other brands are virtually flat, and Brazil became one of the largest markets for Corona and But the results are very incorrect.
Speaker Change: It has the biggest brand health and salience of the market, and its unique functional attributes – bramosidade, cremosidade – solidifies it as the number one high-quality brand in CORE.
Speaker Change: The good news is, strategy is working. Our focus brands are at all-time high levels of brand health and volumes.
Speaker Change: In terms of year-to-date volumes, focus brands grew over 10% combined, representing over 120% of companies' growth.
Speaker Change: Excluding the value segment, which is our largest detractor, other brands are virtually flat this year.
Speaker Change: And Brazil became one of the largest markets for Corona and for Sputnik.
Speaker Change: Brand building is a journey and we need to be consistent throughout.
Speaker Change: But the results are very encouraging. Now, to close, I have been conveying three messages since the start of the year. First, we are confident about volume growth, especially in Brazil.
Jean Gerisati: Now to close, I have been conveying three messages since the start of the year. First, we are confident about volume growth, especially in Brazil. Second, our main challenge for the year is taxes in Brazil. And third, despite the headwinds, we don't expect cash flow to be impacted materially, and we continue working to deliver solid free cash flow generation. We will continue acting on what we can control.
Speaker Change: Second, our main challenge in the year is taxes in Brazil.
Speaker Change: And third, despite the headwinds in taxes, we don't expect cash flow to be impacted materially and we continue working to deliver solid free cash flow generation.
Speaker Change: We will continue acting on what we can control, and in the short term, we will focus on keeping our business momentum and protecting cash flow generation.
Jean Gerisati: And in the short term, we will focus on keeping our business momentum and protecting our cash flow generator. Thank you very much, now let me hand over to Lucas. Thanks, Jim. And hello, everyone. If I were to summarize our financial performance in Q2, I would highlight three things: more growth than in Q1, more profitability than in Q2, and consistent cash flow generation despite, Let's go through them. Evita grew nearly, almost 18.
Speaker Change: Thank you very much, now let me hand over to Lucas. Thanks Jean, and hello everyone.
Lucas: If I were to summarize our financial performance in Q2, I would highlight three things.
Lucas: more growth than in Q1, more profitability than in Q1, and consistent cash flow generation despite the Brazil taxes and Argentina headwinds.
Lucas: Let's go through the numbers.
Lucas: EBITDA grew nearly 16%, almost 18% ex-Argentina.
Lucas Lira: Gross margins expanded 200 base, Ibiza Margin Expanded $300 Billion 330, And although normalized profit declined to..., totaling about Joe already covered that, Let me break down our Beyond, Net Finance Results Improved the Proximity. The main drivers of such improvement were consistent with Q1, namely, first, lower losses on the lower carry costs to implement our hedging strategy for FX in Brazil. Lower Fair Value Adjustment.
Speaker Change: Gross margins expanded 200 basis points organically, 240 basis points ex-Argentina.
Speaker Change: EBITDA margin expanded 300 basis points organically.
Speaker Change: 330 basis points ex-Argentina and although normalized profit declined around 8 percent cash flow from operating activities decreased by nearly 2 percent totaling about 3.4 billion Reais.
Speaker Change: Jean already covered the operational performance, so let me break down our Beyond-A-Bit performance.
Speaker Change: Net finance results improved approximately 450 million Reais compared to last year.
Speaker Change: The main drivers of such improvement were consistent with Q1, namely, First, lower losses on derivative instruments given lower carry costs to implement our hedging strategy for FX in Brazil.
Speaker Change: Second, lower fair value adjustments of payables pursuant to IFRS 13 and CPC 46.
Lucas Lira: And third, our hedging decisions and lower USD exposure in our, albeit to a lesser extent than in Q1, which by the way should also, In addition, the devaluation of the Brazilian real... had a positive impact. Turning to income taxes. The tax headwinds in Brazil impacted us, and we didn't have the positive one-off. Our Income Tax totaled almost 1 billion reais, the equivalent to an effective tax rate of nearly $29 billion.
Speaker Change: And third, our hedging decisions and lower USD exposure in Argentina, albeit to a lesser extent than in Q1, which by the way should also be the case for H2.
Speaker Change: In addition, the devaluation of the Brazilian Real in the quarter had a positive impact of over a hundred and thirty million Reais given cash balances in US dollars.
Speaker Change: Turning to income taxes.
Speaker Change: As anticipated, the tax headwinds in Brazil impacted our performance in the quarter and we didn't have the positive one-off from Q1.
Speaker Change: Our income tax expense totaled almost 1 billion Reais in Q2, which was equivalent to an effective tax rate of nearly 29%.
Lucas Lira: There were three main drivers. First, hire. Second, less deductibility related to state VAT, as was already the case in Q1, related to Labatt's undistributed profits as per IAEA. By the way, speaking of taxes, let me share a quick update. In terms of litigation, since our last call, we obtained favorable administration, totaling about As per note 25 to our finances, and one partially unfavorable decision regarding IOC, which we will appeal at the judicial level once we are notified. And as for the tax reform, in mid-July, the draft was voted in the House.
Speaker Change: There were three main drivers here.
Speaker Change: First, higher EBT, which grew from roughly 2.4 billion Reais to over 3.4 billion Reais.
Speaker Change: Second, less deductibility related to state VAT government grants and IOC, as was already the case in Q1, and which should also impact H2.
Speaker Change: And third, given the roughly 10% depreciation of the Brazilian Real during the quarter, a non-cash effect due to higher withholding tax provision related to Labatt undistributed profits as per IAS 12 requirements.
Speaker Change: By the way, speaking of taxes, let me share a quick update in terms of litigation and the tax reform on consumption.
Speaker Change: In terms of litigation, since our last call, we obtained favorable administrative court decisions totaling about 2.6 billion Reais.
Speaker Change: As per note 25 to our financial statements.
Speaker Change: and one partially unfavorable decision regarding IOC deductibility, which we will appeal at the judicial level once we are notified of the decision.
Speaker Change: And as for the tax reform on consumption in Brazil, in mid-July the draft legislation was voted in the House of Representatives, and the debate now moves to the Senate, which should vote on the matter before year-end. We will keep everyone posted.
Lucas Lira: And the debate now moves, vote on the matter before, Now, over to Cash flow from operating, almost 3.4 billion, Kaira Bitta, and Lower Net Finance Costs, offset primarily by working capital in Brazil and Argentina. Willis, Cash Tax, and Cash Flow Used in Investing, approximately negative one billion year-over-year performance mostly impacted by lower... And finally, cash flow from financing activities was in line, about negative 1.7 billion reais, with approximately... All in all, our cash balance, while the bulk of our cash generation historically takes place in H2.
Speaker Change: Now, over to cash flow.
Speaker Change: Cash flow from operating activities totaled almost R$3.4 billion, just R$60 million below Q2 2023, with higher EBITDA and lower net finance costs offset primarily by working capital in Brazil and Argentina, as well as cash taxes in Brazil.
Speaker Change: Cash flow used in investing activities totaled approximately negative 1 billion Reais with year-over-year performance mostly impacted by lower CapEx.
Speaker Change: And finally, cash flow from financing activities was in line with Q2 2023 at about negative 1.7 billion Reais, with approximately 300 million Reais in share repurchases in connection with our share-based compensation plan.
Speaker Change: All in all, our cash balances at the end of the quarter increased ahead of last year, so we finish H1 on solid footing cash flow-wise, while the bulk of our cash generation historically takes place in H2, particularly Q4.
Lucas Lira: Before wrapping up, a quick update in terms of sustainability. As part of our ongoing efforts in partnership, we've identified that more than 75% of our main suppliers, together representing over 30, already operate with some level of electricity from renewable sources.
Speaker Change: Before wrapping up, a quick update in
Speaker Change: As part of our ongoing efforts in partnership with our ecosystem to reduce Scope 3 carbon emissions, we've identified that more than 75% of our main suppliers in Brazil, which together represent over 30% of Scope 3 emissions,
Speaker Change: already operate with some level of electricity from renewable sources.
Operator: We've also mapped, with such suppliers, a potential reduction of more than $100,000, representing a reduction of approximately four percent. We still have a long way to go, but we believe her on the For more details on our sustainability strategy, check out our annual and sustainable reports found on our invest page. With that, let me hand it back to the operator. We will now begin the Q&A session. To ask a question, we kindly ask cell site analysts to click on the Raise Hand button at the bottom. To remove a question from the queue or after your question has been submitted, please click on the lower left button.
Speaker Change: We've also mapped, with such suppliers, a potential reduction of more than 100,000 tons of CO2, representing a reduction of approximately 4% of our Scope 3 emissions in Brazil going forward.
Speaker Change: We still have a long way to go towards our 2040 net zero ambition, but we believe we're on the right track.
Speaker Change: And for more details on our sustainability strategy and results, please check out our annual and sustainability report, which can be found on our Investor Relations website.
Speaker Change: With that, let me hand it back to the operator for Q&A.
Speaker Change: We will now begin the Q&A session.
Speaker Change: To ask a question, we kindly ask cell site analysts to click on the Raise Hand button at the bottom.
Speaker Change: To remove a question from the queue or after your question has been made, please click on the lower hand button. We reinforce our request that each participant asks only a single question.
Operator: We reinforce our request that each participant asks only a single question. Our first question comes from Thiago Duarte with BTG. You can open your microphone.
Speaker Change: Our first question comes from Tiago Duarte with BTG. You can open your microphone.
Thiago Duarte: Yeah, thank you. Hello, everybody. Jean, Lucas, everybody on the team.
Tiago Duarte: Thank you. Hello, everybody. Jean, Lucas, everybody with the team. Yeah, I have a question and a follow-up, if I may. The question is regarding pricing in Brazil beer, right? So based on the presentation that you just shared with us,
Thiago Duarte: Yeah, I have a question and a follow-up, if I may. The question is regarding pricing in Brazil beer, right? So, based on the presentation that you just shared with us, my understanding is that most, if not all, of the pass-through pricing, accounted for the increase in ICMS in beer, was already done, right? So, just, understanding if that's really the case would be nice.
Speaker Change: My understanding is that most, if not all, of the pass-through pricing accounted for the increase in ICMS in beer. It was already done.
Speaker Change: So understanding if that's that's really the case would be nice
Jean Gerisati: And then, if you could comment on whatever you can and what you can share with regards to the pricing season that usually takes place for you guys between the third and the fourth quarter, what we should expect in terms of that, if we should continue to think of inflation as the baseline for pricing, or whether you guys would be willing to guide us in a different direction. That would be the first question. And the follow-up is actually based on the part of the presentation that Jean did with regard to brand health, which I think was very interesting.
Speaker Change: and and then if you could comment on on what
Tiago Duarte: whatever you can and what you can share with regards to the pricing season.
Speaker Change: that usually takes place for you guys between the 3rd and the 4th quarter.
Speaker Change: what we should expect in terms of that, if we should continue to think of inflation as the baseline for pricing, or whether you guys would be willing to guide this to a different direction. That would be the first question. And the follow-up is actually based on the part of the presentation that Jean did.
Speaker Change: with regards to brand health, which I think was very interesting. So, just if you could, Jean, clarify a little bit.
Jean Gerisati: So just if you could clarify a little bit how you're measuring that, what kind of information you're gathering to measure that. And when you talk about all-time high brand health, whether you are looking at those four focus brands or whether you're talking about the entire portfolio, that would be interesting to understand as well. Thank you. Thank you, Duarte.
Jean Gerisati: What how you're measuring that what kind of
Speaker Change: what kind of information you are gathering to measure that. And when you talk about all-time high brand health, whether you are looking at those four focus brands and whether you're talking about the entire portfolio, that would be interesting to understand as well. Thank you.
Jean Gerisati: Thank you for the question. Q2, Brazil's beer net revenue per hectoliter versus last year was 3.1x the marketplace, right? And it was mainly driven by revenue management initiatives with the price to consumer and price to retailers ahead of inflation, but still net revenue per hectoliter a little bit below. We didn't take prices in Q2. We took prices at the end of Q1.
Speaker Change: Thank you, Duarte. Thank you for the question. Q2, Brazil beer net revenue per hectolitre versus last year was 3.1x marketplace, right?
Speaker Change: And it was mainly driven by revenue management initiatives with the price to consumer and price to retailers ahead of inflation, but still net revenue per hectolitre a little bit below.
Speaker Change: We didn't took prices in Q2, we took prices in the end of Q1.
Speaker Change: And moving forward, we will remain nimble in our pricing strategy, focusing really on the sustainable balance between volume and net revenue per hectolitre growth, with medium to long-term pricing strategy unchanged.
Jean Gerisati: And moving forward, we will remain nimble in our pricing strategy, focusing really on the sustainable balance between volume and net revenue per hectoliter growth with medium to long-term pricing strategy unchanged, prioritizing price increases in line with inflation and favorable brand, pack, and channel mix. Okay, so that's what I can mention.
Speaker Change: prioritizing price increase in line with inflation and favorable brand pack and channel mix.
Jean Gerisati: I would add to that, so we don't talk exactly about the pricing moving forward, but in the end, the strategy is unchanged. What I can say is that we are very happy with the momentum that we have in Brazil. So Q1 was good, Q2 was better, and we started July well. Okay, so that's what I would mention. And when we go for brand health, the KPIs that we measure are three. We measure how meaningful our brands are to consumers, how differentiated our brands are, and how remembered our brands are.
Speaker Change: Okay, so that's what I can mention. I would add to that, so we don't talk exactly about the pricing moving forward.
Speaker Change: but in the end, strategy is unchanged.
Speaker Change: What I can say is that we are very happy with the momentum that we have in Brazil. So Q1 was good, Q2 was better, and we started July well.
Speaker Change: The KPIs that we measured, they are three. We measured how meaningful our brands are to the consumers.
Speaker Change: how differentiated
Speaker Change: our brands are.
Speaker Change: and how remembered.
Speaker Change: our brands are, and then we combine these three metrics.
Isabella Simonato: And then we combine these three metrics in one that kind of illustrates the power of our brands. In my presentation, I was particularly talking about the focus brands' growth. That's clear, thank you. Next question from Isabella Simonato with Bank of America. You can open your microphone.
Speaker Change: in one that kind of picture the power of our brands. My presentation, I was particularly talking about the focus brands growth.
Speaker Change: That's clear, thank you.
Speaker Change: Next question from Isabela Simonato with Bank of America.
Speaker Change: You can open your microphone.
Isabella Simonato: Thank you. Hi Jean, Lucas. Hi everyone. So I have two questions. First of all, it's about here in Brazil, and especially the mainstream segment, which I think we saw different performances, right, between you and peers and different impact, right, from a more aggressive, competitive environment in some of the segments, right? And it's interesting that in the call, in the release, you mentioned that Roma and Antarctica were supporters, right, of the mainstream category, especially Antarctica, which, If I'm not wrong, you guys have not been highlighting as a key driver of growth for a while.
Isabela Simonato: Thank you. Hi Jean, Lucas, hi everyone. So I have two questions. First of all, it's about here in Brazil and especially the mainstream segment.
Speaker Change: which I think...
Speaker Change: We saw different performances right between you and peers and different impact right from
Speaker Change: more aggressive, competitive environment in some of the segments, right? And it's interesting that in the call, in the release, you mentioned that Roma and Antarctica were supporters, right, of the mainstream category, especially Antarctica, which
Speaker Change: If I'm not wrong, you guys have not been highlighting that as a key driver of growth in a while.
Isabella Simonato: So I wanted to understand a little bit more the dynamics of mainstream, and especially if you could touch base on Brema, Skoll, and Antarctica and how you're looking. You talked a lot about Brema already, but I mean, how you're looking at those three brands, I think it will be interesting to understand the dynamics. And my second question is to Lucas more regarding capital location, right?
Speaker Change: So I wanted to understand a little bit more the dynamics on mainstream.
Speaker Change: and especially if you could touch base on Brema, Skoa and Antarctica and how you're looking. You talked a lot about Brema already, but I mean, how you're looking at those three brands I think will be interesting.
Speaker Change: to understand the dynamics.
Jean Gerisati: We're looking at CapEx down year over year. Not sure if that will continue to be the base for the remainder of 2024. But as you guys pointed out, right, FreeCastle has been strong despite the higher taxes. So I was wondering if you could elaborate a little bit more on how you're thinking about further capital location. Thank you.
Speaker Change: at the CapEx down year over year. Not sure if that will continue to be the case for the remainder of 2024. But as you guys pointed out, FreeCASO has been strong despite the higher taxes. So I was wondering...
Speaker Change: If you could elaborate a little bit more on how you're thinking about further capital allocations. Thank you.
Lucas Lira: So thank you very much for the question, Isabella. OK, core, let's talk about the core brands. Core grew low single digits this quarter.
Speaker Change: So thank you very much for the question Isabella. Okay core, let's talk about the core brands. Core grew
Speaker Change: Low single digits this quarter.
Jean Gerisati: And it's a good performance, in our view. Long term, mainstream, in line with the total industry, is really what we pursue. And it looks like we had a good performance. Inside this basket, Brahma is doing very well.
Speaker Change: And it's a good performance, in our view, long-term-wise. Mainstream, in line with total industry, is really what we pursue.
Speaker Change: and it looks like we had a good performance.
Speaker Change: Inside this basket, Brahma is doing very well. So yes, we prioritize Brahma as a focus brand, as the national brand, Brazilian.
Jean Gerisati: So yes, we prioritize Brahma as a focus brand. It's the national brand, Brazil. It's doing very well, the supporting brand overall, and its family is doing very well with Antarctica Original in the premium and Antarctica in the core, both of which are doing very well too, so when we combine all these things, Brahma, Antarctica, and Skoll, that is in the negative territory, but still, we see mainstream going up low single digits, OK. Lucas. Hi Isabella.
Speaker Change: is doing very well, and then Antarctica is what we call...
Speaker Change: supporting brand overall and its family is doing very well with Antarctica Original
Speaker Change: in the premium and Antarctica in the core.
Speaker Change: both are doing very well too. So when we combine all these things, Brahma, Antarctica, any skull that is in the negative territory, still we see mainstream going up low single digits.
Lucas Lira: Thank you for the question. Isabella, with respect to CapEx, I think it's good to put the first half's performance and also 2024 a bit into perspective. If you go back to the pandemic, we didn't refrain from investing during the pandemic. We made a decision, perhaps, to counter-cyclically continue to invest behind our supply footprint as we had an innovation pipeline coming through, and we needed to have more capacity, more spread out for the broader portfolio across the country.
Speaker Change: Okay.
Speaker Change: Hi Isabella, thank you for the question.
Speaker Change: Isabella, with respect to CAPEX, I think it's good to...
Speaker Change: to put
Isabella: The first half's performance and also kind of 2024 a bit into perspective
Speaker Change: If you go back to the pandemic, we didn't refrain from investing during the pandemic. We made a decision.
Speaker Change: perhaps to counter-psychically continue to invest.
Speaker Change: behind our supply footprint as we had an innovation pipeline coming through and we needed to have more capacity, more spread out for the broader portfolio across the country and we also decided to kind of go big behind B2B and B2C which required also some
Lucas Lira: And we also decided to kind of go big behind B2B and B2C, which required some tech investments. And so if you look at between 2020 and 2023, or 2022, better said, we went through this higher CapEx investment cycle. And since 2023, I think we've started to go through a lower investment cycle as we start to kind of reap the benefits of the investments that we made in the prior investment cycle.
Speaker Change: some tech investments.
Speaker Change: and so if you look at
Speaker Change: between 2020 and 2023.
Speaker Change: or 2022, better said.
Speaker Change: We went through this higher capex investment cycle. And since 2023, I think we've started to go through a lower investment cycle as we start to kind of reap the benefits of the investments that we made in the prior investment cycle.
Lucas Lira: So I think 2024, what you're seeing is a continuation of this kind of trend, kind of consistent with what we saw in 2023, so far lower than last year. And I think for the full year, it makes sense to think about all in all a lower CapEx investment. And when you double-click within the CapEx, kind of the different CapEx line items, the bulk of it continues to go to capacity investments to have, again, more of our portfolio, the broader SKU assortment present closer to consumption, also cost projects with obviously attractive ROI.
Isabella: So I think 2024, what you're seeing is a continuation.
Isabella: of this kind of trend, kind of consistent with what we saw in 2023.
Isabella: So far lower than last year and I think for the full year, I think it makes sense to think about all-in-all a lower CapEx investment, and when you double-click...
Isabella: within the CAPEX, kind of the different CAPEX line items.
Isabella: The bulk of it continues to go to capacity.
Isabella: investments to have, again, more of our portfolio, the broader SKU assortment.
Isabella: present closer to consumption. Also, cost projects with obviously attractive ROIs.
Isabella: And then the third big destination is really around returnable packaging and tech investments, which were bigger in the previous investment cycle, is now kind of
Lucas Lira: And then the third big destination is really around returnable packaging and tech investments, which were bigger in the previous investment cycle are now kind of at a lower level. So lower CapEx so far, I think for the year, lower CapEx as well. And then connecting that to the second part of your question, the capital allocation, right? The mindset has not changed in the company. So, we have good visibility around reinvestment for growth organically, as I just mentioned.
Isabella: Is at a lower level so lower CapEx so far I think for the year lower CapEx as well and then Connecting that to the the second part of your question and the capital allocation, right? Mindset has not changed in the company
Isabella: So, we have good visibility around reinvestment for growth, organically as I just mentioned.
Lucas Lira: Non-organic opportunities, right, we're always in the water, nothing to report for now. And, as we've seen historically, at the end of the year, which is when we have the greatest visibility around residual cash available to be returned to shareholders, the Ambev board decides how much to return to shareholders. If you look at the last 10 years, I believe we've managed to pay out on average 80% of net income in the form of dividends and IOC. And so, at the end of the year, the board will reconvene and will decide how much to return and in what form that will take.
Speaker Change: non-organic opportunities right we're always in the water nothing nothing to report
Speaker Change: for now.
Speaker Change: and as we've seen historically, at the end of the year,
Speaker Change: which is when we have the greatest visibility around residual cash available to be returned to shareholders. The AMBERF board decides...
Speaker Change: How to how much to return to shareholders if you look at the last 10 years, I believe We've managed to pay out on average 80% of net income in the form of dividends and IOC
Speaker Change: and so at the end of the year, the board will reconvene.
Speaker Change: and we'll decide how much to return and in what form that will take. Either dividends, either IOC.
Speaker Change: always looking to maximize IOC and share buybacks are also a possibility but again this is a December conversation with the MBEV board.
Jean Gerisati: Either dividends, either IOC, always looking to maximize IOC, and share buybacks are also a possibility. But again, this is a December conversation with the Ambev board. Keep in mind that the bulk of our cash flow generation comes in H2, particularly in Q4. So, we like to take this kind of decision, which is more of a structural decision, with kind of full visibility or maximum visibility going into the next year. That's very clear. Thank you. And Jean, just a quick follow-up, if I understand correctly, can we think that Skoll, in this environment that you talked about, Brahma and Antarctica, has been still a volume detractor, or not necessarily?
Speaker Change: Right, keep in mind that
Speaker Change: The bulk of our cash flow generation comes in H2, particularly in Q4, so we like to take this kind of decision, which is more of a structural decision, with kind of full visibility or maximum visibility going into the next year, okay?
Speaker Change: That's very clear, thank you. And Jean, just a quick follow-up, if I understand correctly, can we think that call...
Speaker Change: in this environment that you talked about, Burma and Antarctica, has been still a volume detractor?
Jean Gerisati: Skoll, in this quarter, was a volume detractor, yes. Okay, thank you so much. Next question is from Carlos Laboy with HSBC. You can open your microphone.
Speaker Change: [inaudible]
Speaker Change: This call in this quarter was a volume detector, yes.
Speaker Change: Okay, thank you so much.
Speaker Change: Next question from Carlos Laboy with HSBC
Speaker Change: You can open your microphone.
Carlos Laboy: Here we go. Hello, everyone. Lucas.
Speaker Change: There we go. Hello, everyone. Lucas.
Carlos Laboy: Quite Cheap, Ambev Stock List. We have you at six times EBITDA, and for perspective, Carlsberg just paid what? Like 14 times EBITDA for a pretty weak Pepsi bottler, 14 times, more than double regret. Are there any conditions that need to be in place for you to need to start deploying some of your four billion in cash to retire the float or for ABI to tender? I mean, either one would be greatly accretive for ABI.
Carlos Laboy: Why keep Ambev stock listed?
Speaker Change: Pepsi bottler, 14 times, more than double what you're at.
Speaker Change: Are there any conditions that need to be in place for you to start deploying some of your $4 billion in cash to retire?
Speaker Change: The float
Speaker Change: or for ABI to tender for it? I mean, either one would be greatly accretive for ABI. Does the board of Ambev at some point say?
Lucas Lira: Does the board of Ambev at some point say, Hey, if Latin American investors don't see value in our business, maybe we shouldn't be listed? Yeah. Hi, Laboy.
Speaker Change: Hey, if Latin American investors don't see value in our business, maybe we shouldn't be listed at all.
Lucas Lira: Thanks for the question. With respect to ABI's view, I obviously can't comment on their behalf for obvious reasons. When you look at it from an Ambev perspective, we've always seen value in having Ambev as a listed entity, given our local presence in Brazil. Brazil has been and should continue to be our main market, and so we've always seen value in having Ambev as a publicly listed entity in Brazil, given the relevance of the business in the country, number one, and in terms of talent attraction and retention.
Speaker Change: With respect to ABI's view, I obviously
Speaker Change: Can't comment right on their behalf for obvious reasons
Speaker Change: When you look at it from a NAMBF perspective...
Speaker Change: We've always seen value in having Ambev as a listed entity.
Speaker Change: Given our local presence in Brazil, Brazil has been and should continue to be our main market.
Speaker Change: a net positive in terms of talent, attraction, and retention, okay?
Lucas Lira: So one of the advantages over the years that we saw was that by having Ambev as a publicly listed entity with our management compensation model, which is designed to align management's interest and rewards to some kind of shareholder's interest, we've managed to attract great talent over the years and use our shares to retain talent over the years as well, right? And as we generated value, we shared value with kind some of the partners of the company over time.
Speaker Change: management's interest and rewards to kind of shareholders interest
Speaker Change: We've managed to attract great talent over the years and use our shares to retain talent over the years as well. And as we generated value, we shared value with the partners of the company over time.
Lucas Lira: So I think these two reasons for being a public company stand, they remain. And so that's kind of where we are today. And then, in terms of, again, buying back stock, we just completed the latest share buyback. We opened it a few months ago.
Speaker Change: So, I think these two reasons for being a public company, I think they stand, they remain.
Speaker Change: And so that's kind of where we are today. And then in terms of, again, buying back stock,
Speaker Change: We just completed
Speaker Change: The latest share buyback, we opened it a few months ago.
Lucas Lira: We did it with the sole purpose of acquiring stock to be able to deliver to the partners of the company as share-based payments come due in the near future. So we saw an opportunity to buy back this stock at current prices, and we've executed it pretty much 100% already. You can see it in our cash flow statement. And, as I mentioned in my response to Isabella's question, the debate around capital allocation will take place towards the end of the year with the Ambev board, and future share buybacks are an alternative that will be considered. Excellent, thank you. We'll keep it to one question, as requested. Next question from Ricardo Alves with Morgan Stanley. You can open your microphone.
Speaker Change: We did it with the sole purposes of
Speaker Change: acquiring stock to to be able to deliver.
Speaker Change: to the partners of the company as share-based payments come due in the near future. So we saw an opportunity to buy back this stock.
Speaker Change: at current prices, and we've executed it pretty much 100% already. You can see it in our...
Speaker Change: in our cash flow statement.
Speaker Change: And as I mentioned in my response to Isabella's question, the debate around capital allocation will take place towards the end of the year with the AMBEV board and future share buybacks are an alternative that will be considered.
Speaker Change: Excellent, thank you. We'll keep it to one question as requested. Thank you, LeBoy.
Speaker Change: Next question from Ricardo Alves with Morgan Stanley.
Speaker Change: You can open your microphone.
Ricardo Alves: Thank you very much, everybody, Jean, Lucas, thanks for the call, thanks for the opportunity. Back to unit revenue in Brazil beer, but maybe we can focus more on competition. I guess you have been highlighting the share evolution of Brazil beer in recent releases. I was wondering how you performed versus the industry in terms of share. If it's possible to break that down as much as you can by category, or maybe if you're focusing on selling or sellout, that would be helpful because our understanding, at least initially, was that some of your peers were more aggressive on pricing.
Ricardo Alves: Thank you very much everybody. Jean, Lucas, thanks for the call. Thanks for the opportunity. Back to unit revenue in Brazil beer, but maybe if we can focus more on competition.
Ricardo Alves: I guess you had been highlighting the share evolution of Brazil beer in recent releases. I was wondering how you performed.
Speaker Change: versus the industry in terms of share. If you, if it's possible to break that down as much as you can by category or maybe for focusing on selling or sell out, that would be helpful. Cause our understanding, at least initially, was that some of your peers were more aggressive on pricing.
Ricardo Alves: But in the end, it actually seems that, versus what we saw in the first quarter and second quarter, it seems that you gained some ground over your main competitors. So I don't know, maybe it's an issue of discount activity being more intense in the economic, in the value side of the market, or anything that you can share on the competition and discount activity by your peers that would be helpful. Thank you very much.
Jean Gerisati: Okay, thank you, Ricardo, for the question. What we are seeing is that the beer industry continues to demonstrate structural strength in Brazil. I want you to bear in mind that our estimates of the industry and market share are our data. It is derived from a blend of news information, sell-out data, industry production, our own volumes in the DTC platforms, and channel mix. And then we got to a number that is a number that we like to use internally. And that's why we don't talk that much outside of it, because it's our estimate.
Speaker Change: I want you to bear in mind that our estimates of the industry and market share is our data. It is derived from a blend of news information.
Speaker Change: And then we got to a number that is a number that we like to use internally and that's why we don't talk that much outside of it, because it's our estimates and we are very excited about our performance.
Jean Gerisati: And we are very excited about our performance based on that. We still, for the quarter, don't have the production data information for us to put everything together, but we are very excited about our performance. Overall, we are seeing Petropolis really active in the market, but overall, the value segment is under-indexed in our company, so I think this impacts other competitors more, okay? So overall, that's what I can mention about market share, and the good part is that Q2 showed strength in volumes, and while we were really catching up with prices, and that's it.
Speaker Change: but we are very excited about our performance.
Speaker Change: But overall, the value segment is under-indexed in our company, so I think this impacts more
Speaker Change: other competitors, OK? So overall, that's what I can mention about market share. And the good part is that Q2, it showed strength in volumes.
Speaker Change: And while we were really catching up with prices...
Jean Gerisati: The Brazilian market has always been very competitive, but I think there are no surprises in the current environment. Very helpful. Thank you very much, Jean. Next question from Renata Cabral with CQS. You can open your microphone.
Speaker Change: Very helpful. Thank you very much, Jean.
Speaker Change: Next question from Renata Cabral with Citi.
Speaker Change: You can open your microphone.
Renata Cabral: Hi, everyone. Good morning. Thanks so much for taking my question. It's actually a follow-up regarding the core portfolio and the strategic view of the company. So we are seeing that the premium and the upstream segments are growing more than the core portfolio, and obviously, they will take a higher share in the company.
Renata Cabral: Hi everyone. Good morning. Thanks so much for taking my question.
Renata Cabral: It's actually a follow-up regarding the core portfolio and the strategic view of the company.
Speaker Change: So we are seeing that the premium and the upstream segments are growing more than the core portfolio and obviously they will take a higher share in the company. The importance will grow over time.
Renata Cabral: The importance will grow over time. So my question is regarding the strategic view of Ambev today. So, for the last 10 years or so, the industry has really been talking about premiumization. Do you think that in the short term it can happen that the core portfolio will revert its trend?
Speaker Change: So, my question is regarding the strategic view of AMBAS today, so in the last...
Speaker Change: 10 years or 5 years more, the industry is really talking about deprimerization.
Jean Gerisati: Or is the company looking at an innovative portfolio like non-alcoholic beer? What is the next theme for the beer industry in Brazil? That's my question. Thanks so much.
Speaker Change: Do you think that in the short term can happen that the core portfolio will revert its trend?
Speaker Change: or the companies looking at innovative portfolio like non-alcoholic beer. What is the next theme for the beer industry in Brazil? That's my question. Thank you so much.
Jean Gerisati: Thank you very much for the question, Renata. Let's talk about the core and let's talk about the industry, right? So these are, I think, the two main points.
Jean Gerisati: Industry in Brazil, healthy, looks like structurally better. AES's premiumization trend continued with the premium, and super premium segments really outpacing. Very happy with Corona performance.
Speaker Change: healthy, looks like
Speaker Change: Structurally better
Speaker Change: AES premiumization trend continued.
Speaker Change: with a premium, super premium segment, really outpacing.
Speaker Change: very happy with Corona performance, very excited about
Jean Gerisati: Very excited about the capabilities that we built in the previous two years to get Corona right here. The brand equity, what's going on in the Olympics right now that we just had Medina doing that great show in the Olympics and Corona partnering with it. Very excited about Spartan. That really was elected the best pure mouth beer in Brazil by a group of specialists.
Speaker Change: the capabilities that we built.
Speaker Change: in the previous two years to get Corona right here. The brand equity, what's going on on the Olympics.
Speaker Change: right now that that we just had Medina doing that that great show in the Olympics and Corona partnering with it
Speaker Change: Very excited about Spartan. It was elected the best pure malt beer in Brazil by a group of specialists.
Jean Gerisati: Stella Artois doing very well, Original doing very well, so yes, above Core, we are very excited about our performance, and Core, once, if I keep this strategy, that is, if I can keep this execution of Core in line with total industry, it means that the Core will be always relevant and will be healthy in the same levels that we are today, so I could deliver that in Q2, I plan to deliver that moving forward, and the Core is still very exciting for many Brazilians, Brazil is a huge country, Brahma is doing very well in many regions, in the Northeast, in the Midwest, so doing very well across the board in the growth frontiers that we have, that is North, Northeast, and Midwest, and if we can really make this performance in line with the total industry, then that's what we call success. On top of that, Budweiser, there is a brand that is below the entry premium in the Core Plus now, it really grew ahead of the 40s.
Renata Cabral: Stella Artois doing very well, Original doing very well. So yes, above core, we are very excited about our performance.
Speaker Change: In core, once, if I keep this strategy that is
Speaker Change: If I can keep this execution of core in line with total industry, it means that the core will be always relevant.
Speaker Change: and we'll be healthy in the same levels that we are today. So I could deliver that in Q2. I plan to deliver that moving forward.
Speaker Change: In the core, it is still very exciting for many Brazilians. Brazil is a huge country. DRAMA is doing very well in many...
Speaker Change: regions in the northeast.
Speaker Change: in the Midwest, so doing very well across the board in the growth.
Speaker Change: in the growth frontiers that we have, that is north, northeast.
Speaker Change: and Midwest. And if we can really make this performance in line with the total industry, then that's what we call success.
Renata Cabral: On top of that, Budweiser, there is a brand that is below the entry premium in the core plus now. It really grew ahead of the 40s.
Jean Gerisati: It was really the brand in the core plus and core segment that grew the most among our brands and competitors' brands, so Budweiser showed a very solid performance. And this is the strategy that I mentioned for a while, really building something in between core and premium and tackling this opportunity that we have in many places around the world that we don't have in Brazil, which is really getting this core plus right. We tested one thing; now we are with Budweiser, and we are happy with the Budweiser performance.
Renata Cabral: It was really the brand in the core segment that grew the most among our brands and competitors' brands. So Budweiser showed...
Renata Cabral: Very solid performance.
Renata Cabral: and in this
Renata Cabral: is the strategy that I mentioned for a while that really to build something in between core and premium and tackle this opportunity that we have in many places around the world that we don't have in Brazil that is really get this core plus.
Renata Cabral: We tested one thing, now we are with Budweiser and we are happy with the Budweiser performance.
Jean Gerisati: On top of that, we have this innovation strategy that is part of my long-term strategy for the company and is pillar two of our strategy to have 20% of revenues coming from products that did not exist two years ago. continues to have a market share that's higher than the overall company's market share. We are with three avenues of growth that are really helping the Brazilian industry to continue to exciting. We are going in with this avenue of growth of functionality. So we are really building up the zero alcohol portfolios. First, we have a strong Brahma.
Renata Cabral: On top of that, we have this innovation strategy that's part of my long-term strategy for the company. It's the pillar two of our strategy, to have 20 percent.
Speaker Change: then the overall company market share and we are with three avenues of growth that is really helping
Renata Cabral: the Brasilia industry to continue exciting. So we are going in with this avenue of growth of functionality.
Renata Cabral: So we are really building up the zero alcohol portfolios. First, we have a strong Brahma.
Jean Gerisati: We launched Bud two years ago, and we launched Corona Zero one month ago. So we are really growing in the 30s in the segment. We have an avenue of growth for low calories, gluten-free.
Speaker Change: We launched Buds two years ago and we launched one month ago Corona Zero, so we are really growing on the 30s in the segment.
Speaker Change: We have an avenue of growth of low-calories, gluten-free. That we have Nickel-O-Butter and Stella Pure Gold. That they are doing very well, too, in this segment. And they are becoming...
Jean Gerisati: That we have Nicola Boutre and Stella Purgot. That they are doing very well, too, in the segment. And they are becoming relevant brands. They are very young, but it's part of our innovation strategy. On top of that, we have the Beyond Beer strategy that really brings out the sweet palate. And they have the RTGs.
Speaker Change: relevant brands. They are very young, but it's part of our innovation strategy. On top of that, we have the Beyond Beer strategy that really brings sweet palates, and they have the RTGs.
Jean Gerisati: That is doing very solid, too. So if I could put everything together, it's aiming for a core to keep relevant in Brazil. Really get it right, this trade-up strategy to core plus and to premium.
Speaker Change: That is doing very solid too, okay? So, if I could put everything together, it's aiming for a port to keep relevant in Brazil, really.
Speaker Change: get it right this trade up strategy to core plus and to premium and we have been doing very well in the high-end quarter after quarter
Jean Gerisati: And we have been doing very well in the high end, quarter after quarter. And then we got innovation right to bring more frequency to the category, to bring more penetration to the category when we take out some of the hurdles. For example, alcohol. For example, gluten.
Speaker Change: and then get innovation right.
Speaker Change: to bring more frequency to the category, to bring more penetration to the category when we take out some of the hurdles, for example, alcohol, for example.
Jean Gerisati: So really get this thing right moving forward. And the combination of that is what we are seeing our volumes doing very well. The industry being connected to the total population, with the new generation. That was really helpful, Jean. Thank you so much.
Speaker Change: [inaudible]
Speaker Change: That was really helpful, Jean. Thank you so much.
Robert Ottenstein: Next question from Robert Ottenstein with Evercore, and open your microphone. Great, thank you. Let me just first echo Carlos Laboy's comments. The valuation really looks absurd to us, and I would think there's an opportunity.
Speaker Change: Next question from Robert Autenstein with Evercore
Speaker Change: You can open your microphone.
Robert Autenstein: Great, thank you. Let me just first echo Carlos Leboy's comments. The evaluation really looks absurd to us and I would think there's opportunity.
Robert Ottenstein: My question is, you know, to get more details on your award as the top Pepsi bottler. Can you talk to us a little bit about what metrics Pepsi uses to make that decision and what changes you have made to improve your execution for Pepsi and maybe how that ties into, you know, bees and some of your other IT initiatives. Thank you. Thank you very much for the question, Robert. The first part, I agree; okay.
Robert Autenstein: My question is, you know, to get more details on your award as the top Pepsi bottler, can you talk to us a little bit about what metrics
Speaker Change: Pepsi uses to make that decision and what changes you have made to improve your execution for Pepsi and and maybe does that tie into you know bees and some of your other IT initiatives. Thank you.
Speaker Change: Thank you very much for the question, Robert. The first part, I agree. Okay. The second part, I will talk broadly about our NAB business.
Jean Gerisati: The second part, I will talk broadly about our NAB business. And we are very excited about our NAP business, first of all because we feel that the trends are in our favor. So we over-index in the market share of the non-sugar products. So we have something around 17, 18% of market share in the total industry. When we go just for the portfolio without sugar, this goes to 30.
Speaker Change: And we are very excited about our NAP business. First of all, because we feel that the trends are in our favor. So we over-index in the market share of the non-sugar products.
Speaker Change: So we have something around 17-18% of market share in the total industry. When we go just for the portfolio, without sugar, this goes to 30.
Jean Gerisati: And we are seeing strength in consumers really switching to non-sugar. And in this process, my portfolio gets stronger. We are seeing Guaraná doing very well overall as a brand, helped by the Guaraná Zero New launch. We got it right three years ago with Pepsi Black, that is really something that is doing very well in Brazil.
Speaker Change: And we are seeing like strength and consumers really switching to non-sugar and in this process.
Speaker Change: My portfolio gets stronger. We are seeing Guaraná doing very well overall as a brand, helped by the Guaraná Zero new launch.
Speaker Change: We got it right.
Speaker Change: Three years ago, Pepsi Black, that is really something that is doing very well in Brazil.
Jean Gerisati: And so this combination of a good view of the portfolio of the future and the capabilities that this brings to us for us to really get innovation right. So the combination of these two things is really making the performance of the NAP business very exciting. And then Pepsi, for the first time in 20-something years, named us last year the best bottler in Latin America and this year the best bottler around the world.
Speaker Change: And so this combination of a good view on the portfolio of the future and the capabilities that this
Speaker Change: brought to us, for us to really get innovation right. So the combination of these two things is really doing the performance of the map business being very exciting. And then, Pepsi.
Speaker Change: for the first time in 20 something years.
Speaker Change: elected us, last year, the best butler in Latin America.
Jean Gerisati: I think they do many metrics, the upside on distribution, the got it right execution on brands, and performance. I think they have a broad analysis of our performance that they don't share that much. But it looks like they are really happy with our performance as a long-term partner that we have, and we have many plans together moving forward, thinking about how to accelerate Gatorade. For example, we still don't have Gatorade Zero, and we are just starting. I think it's a very relevant avenue of growth. We are talking, overall, about energy.
Speaker Change: the upside on distribution, the got it right execution on brands, the performance. I think they have a broad analysis on our performance that they don't share that much.
Speaker Change: But it looks like they are really happy with our performance as a long-term partner that we have. And we have many plans together moving forward, thinking about how to accelerate Gatorade
Speaker Change: For example, we still don't have Gatorade Zero, and we are just starting. It's a very relevant avenue of growth.
Jean Gerisati: So it's a great partner that looks like we are in a great place together with a lot of ambition for business in Brazil. Terrific, thank you. Next question from Leonardo Alencar with X. You can open your microphone.
Speaker Change: We are talking about overall about energy, so it's a great partner that looks like we are in a great place together with a lot of ambition for the business in Brazil.
Speaker Change: Terrific, thank you.
Speaker Change: Next question from Leonardo Alencar with XP.
Speaker Change: You can open your microphone.
Leonardo Alencar: Hi Gerald, hi Lucas. First of all, thank you for taking my questions and congratulations on the results. I understand that you already mentioned lots of information regarding the pricing strategy, the brand strategy, and performance in Brazil. Just to get some more details, we had very favorable weather this year, so this was expected to be positive for beer consumption, but when we look at the industry data, that doesn't really correlate, so if you could just comment on that, on what could have happened, or if this was their brand, right, not for all players in the market.
Leonardo Alencar: Thank you for taking my questions and congratulations on the results.
Leonardo Alencar: I understand that you already mentioned lots of information regarding the pricing strategy, brand strategy and performance in Brazil. Just to get some more details...
Leonardo Alencar: And one more thing regarding Brazil. We saw a very steep increase in aluminum prices, and then prices came down again, but the FX rate is at a very different level right now. So we could expect the COGS to be at a different level by maybe the end of 2024 or even 2025, if it continues at this level, of course. Do you think that could change the strategy from some peers in the Brazilian market, especially focusing on the economy sector? Or do you think in that environment you will manage to have a better strategy?
Speaker Change: the Pogues to be at a different level of buying.
Speaker Change: maybe end of 2024 or even 2025, if it continues at this level, of course. Do you think that could change the strategy from some peers in the Brazilian market, especially focusing on the economy sector, or do you think in that environment you will manage to have a better strategy? And just a very
Jean Gerisati: And just a very small comment from you guys, do you think that we've reached rock bottom in Argentina? That's it. Thank you. Okay. Thank you very much. Now, let me get the first and the third. Lucas will get the second one.
Speaker Change: That's it. Thank you. Okay
Jean Gerisati: Okay, so the industry in Brazil looks exciting. We are excited about looking at external factors that go beyond category relevance, new generation, innovation, and thinking about outside factors. So, yes, temperature helps, and temperature was something good and important in Q2, even though we have to look at rainfall too, and rainfall, when it rains, it counts negatively, and it's raining a little bit more too, so there is this combination of these two pieces of information.
Speaker Change: the outside factors.
Speaker Change: So, yes, temperature helps, and temperature was something good and important in Q2.
Speaker Change: Even though we have to look at rainfall too, and rainfall, when it rains, it counts negatively and it's raining a little bit more too, so there is this combination of these two informations.
Jean Gerisati: And on top of that, we are seeing the job market, we are seeing unemployment, and we are seeing economic activity playing a healthy role in the industry overall. Okay, so that is what I could mention about the industry. Talking about Argentina, April and May were the toughest moments, months in Argentina, so I think we, it is always early to say, but it looks like April and May were the bottom of Argentina's performance.
Speaker Change: And on top of that, we are seeing like the job market.
Speaker Change: We are seeing unemployment, we are seeing economic activity playing a healthy role in the industry overall. So that is what I could mention about industry. Talking about Argentina...
Speaker Change: April and May were the toughest moments, months.
Speaker Change: in Argentina. I think we...
Speaker Change: It is always early to say, but it looks like April and May, they were the bottom.
Jean Gerisati: June and July, it looks like a reverting trend and still far from what it has to be, but better than April and May. And the good part is that, somehow, we are excited about the future of Argentina; brands are doing well, and the power of the brands is doing well, and it looks like if the government really gets this thing right, we will be very positioned for a strong 2025. Okay, so that's our game. Hi Leonardo. Lucas here.
Speaker Change: of the Argentina performance. June and July, it looks like a reverting trend.
Speaker Change: and still far from what it has to be, but better than April and May.
Speaker Change: And the good part, it is that...
Lucas Lira: Thanks for the question. In terms of where we are on the cost outlook, given our hedging strategy, right, pursuant to which we hedge on average 12 months out, what we're seeing today is a headwind in FX insofar as the BRL is concerned and a headwind in aluminum. So as of now, it's a net headwind. Not anywhere kind of close to what we saw a few years back, but a net headwind.
Speaker Change: Hi Leonardo, Lucas here. Thanks for the question. In terms of where we are on the cost outlook, given our hedging strategy, pursuant to which
Speaker Change: is a headwind in effects insofar as the BRL is concerned and a headwind in aluminum.
Lucas Lira: But we still have a good amount of hedging to do through the end of the year, so I think it's early to draw any sort of conclusions on what to expect going forward. Let us kind of implement the hedging, implement the hedging through year end, and we'll come with more visibility once we have it. And in terms of what potential headwinds may mean in terms of kind of competitive dynamics, the different levels of exposure that each player has and how they protect themselves vary by company.
Speaker Change: and in terms of what potential headwinds may mean in terms of kind of competitive dynamics.
Speaker Change: The different levels of exposure that each player has and how they protect themselves varies by company, so we will continue to focus on our business.
Lucas Lira: So we will continue to focus on our business, our commercial strategy, continue to execute it, continue to build our portfolio to deliver to customers, to deliver to consumers the best brand experiences that we have. So our focus is going to be on us, and the competition needs to see what they're going to do. Can I add something to Luca's answer?
Speaker Change: our commercial strategy, continue to execute it, continue to build our portfolio to deliver to customers, to deliver to consumers.
Speaker Change: the best brand experiences that we have.
Speaker Change: So our focus is going to be on us, and the competition needs to...
Speaker Change: to see what they're going to do. Can I add something on Lucas' answer? Just because we don't talk that much about it, but in the last three years, we invested $1.5 billion in projects of cost efficiency.
Jean Gerisati: Just because we don't talk that much about it, but in the last three years, we invested $1.5 billion in projects of cost efficiency. And there are a lot of things that are coming and maturing. Bottle, supplier, verticalization, footprint, production capabilities in the north, northeast, and midwest.
Speaker Change: And there is a lot of things that are coming and maturing. Bottle, supplier verticalization, footprint, production capabilities on north, northeast, and midwest.
Jean Gerisati: We are going through a massive productivity gain in terms of the amount of people per hectoliter produced. Especially during 2024, we aim to increase 6% this number of hectoliters per person in terms of production. So there are a lot of things coming on this matter today and moving forward. Okay, thank you for all the details. That was an excellent answer.
Speaker Change: We are going through a massive productivity gain on this view of amount of people per hectolitre produced.
Speaker Change: especially during 2024, we aim to increase 6%
Speaker Change: this number of hectoliters per person total company in terms of production. So there is a lot of things coming on this matter today and moving forward.
Speaker Change: Okay, thank you for all the details. That was an excellent answer. Thank you.
Lucas Ferreira: Thank you. Next question from Lucas Ferreira with J.P. Morgan. You can open your microphone.
Speaker Change: Next question from Lucas Ferreira with JP Morgan. You can open your microphone.
Lucas Ferreira: Hi guys, thanks for the space to ask a question. My question is, if you can slide, the good performance of Brazil by channel and then buy with the comments you already made about the competition and prices. Because of this, where we change it completely, the relationship that we have with customers, so we are okay to do the logistics more and more in a light way, in a way that it calls it less capex; it's more light.
Lucas Ferreira: Hi guys, thanks for the space to ask a question. My question is, if you can slice...
Lucas Ferreira: the good performance of Brazil by channel and then buying with the comments you already made with the competition, with prices.
Speaker Change: I'm just wondering if this is this sort of maybe bigger competition at the bottom of the of the of the
Speaker Change: The pyramid is more more storm in the cash and carry in the Off-premise and then how how was your performance?
Speaker Change: in the on-premise as well. In other words, how you see your channel performance and how has it happened for you to deliver the good results in Brazil you delivered this quarter. Thank you.
Speaker Change: Thank you, Lucas. Let me give you some perspective on this question.
Speaker Change: So, one thing there is...
Speaker Change: that is really calling our attention and we are working for that.
Speaker Change: It is that the segment today, we can break in many ways, right? The channels and the segments and everything.
Speaker Change: But what is growing a lot
Speaker Change: with us is third-part distributors, our distributors that is not direct distribution, so this channel is really something that we are supporting.
Speaker Change: Because of this...
Speaker Change: where we change it completely, the relationship that we have with customers. So we are okay to get the logistics more and more in a light way, in a way that it calls it less capex, it's more light.
Lucas Ferreira: And the wholesalers that are in this strategy, the third part distribution, the wholesalers, they are very excited; they are performing very well across the board in Brazil. So this is one cut for you to know, because even though with that it changes a little bit because it impacts the net revenue per hectoliter and the distribution costs in a different way, but this is growing and it's lighter in terms of capex and it's very well performing, this is what we will call chat, okay? So having said that, off-trade overall, we are seeing performing a little bit better than on-trade this year. Nothing that much relevant, but slightly better.
Speaker Change: And the wholesalers that are in this strategy, the third part distribution, the wholesalers, they are very excited, they are performing very well across the board in Brazil. So this is one cut.
Speaker Change: for you to know because this, even though with that, it changes a little bit because impact.
Speaker Change: the net revenue per hectolitre and the distribution cost in a different way.
Speaker Change: But this is growing, and it's lighter in terms of capex, and it's very well performing.
Speaker Change: We will quote you, okay? So, having said that...
Speaker Change: Off-street
Speaker Change: Overall, we are seeing performing a little bit better than on-trade.
Speaker Change: This year, nothing that much relevant, but slightly better.
Jean Gerisati: And we are seeing in terms of segment, right? We're really seeing the core plus really growing, picking up as the segment that grew the most for us in the previous quarters, okay? So not sure if I can respond specifically to the channel mix; I'll try to give you a broader perspective on the cuts that we have.
Speaker Change: And we are seeing in terms of segments, right, really seeing the core plus.
Speaker Change: really growing, picking up as the segment that grew the most.
Speaker Change: in the for us in the previous quarters okay so no not sure if I respond specifically the channel mix I try to give you a broader perspective on on the on the cuts that we have
Jean Gerisati: That's great. Thank you. Thank you again. This concludes the Q&A session. I would like to invite Mr. Giangere Sacchi to proceed with his closing remarks. Please, go ahead, sir.
Speaker Change: That's great. Thank you.
Speaker Change: This concludes the Q&A session. I would like to invite Mr. Giangiri Sachi to proceed with his closing remarks. Please, go ahead, sir.
Jean Gerisati: So thank you very much. Thank you all who joined the call for your time and attention. We kicked off the year with a very good operational performance, and we maintained it throughout all of H1, delivering strong results in Q2. We are confident in volume, specifically in Brazil and CAC, giving us commercial momentum, despite Argentina and Canada's tougher industries. However, taxes will continue to impact our net income, as you saw in H1. And we will continue to work to deliver consistent and sustainable results, really focusing on and trying to compensate for this in cash flow generation. So, thank you very much. See you in October. Have a great day! This does conclude today's presentation. Thank you, and I wish you a nice day.
Giangiri Sachi: So, thank you very much. Thank you all who joined.
Speaker Change: the call for your time and attention. We kicked off the year with a very good operational performance and we maintained it during all the H1 delivering strong results in Q2.
Speaker Change: We are confident in volume, specifically in Brazil and CAC.
Speaker Change: Given our commercial momentum, despite Argentina and Canada's tougher industries, taxes will continue to impact our net income, as you saw in H1, and we will continue to work to deliver consistent and sustainable results.
Speaker Change: really focusing and trying to compensate this on the cash flow generation. So, thank you very much. See you in October. Have a great day.
Speaker Change: This does conclude today's presentation. Thank you and wish you a nice day.