News

Ambev S.A. (ABEV) Q2 2023 Earnings Call Transcript

Ambev S.A. (ABEV)

Q2 2023 Results Conference Call

Company Participants

Jean Jereissati - Chief Executive Officer

Lucas Lira - Chief Financial and Investor Relations Officer

Conference Call Participants

Lucas Ferreira - JPMorgan

Thiago Duarte - BTG Pactual

Carlos Laboy - HSBC

Isabella Simonato - Bank of America

Alan Alanis - Santander

Thiago Bortoluci - Goldman Sachs

Rodrigo Alcantara - UBS

Presentation

Operator

Good morning, good afternoon, and thank you for waiting. We would like to welcome everyone to Ambev's Second Quarter 2023 Results Conference Call. Today with us, we have Mr. Jean Jereissati, CEO for Ambev; 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. 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. [Operator Instructions]

Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the Company. 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. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward-looking statements.

I would also like to remind everyone that, as usual, the percentage changes that will be discussed during today's call are both organic and normalized in nature, and unless otherwise stated, 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 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. Jereissati, you may now begin your conference.

Jean Jereissati

Hello, everyone. Thank you for joining our Q2 earnings call. Q2 was all about consistency. Top line 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. And although net income declined, given last year's one-off tax credit, cash flow from operating activities increased BRL1.2 billion. So 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.

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 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. And just to put things into perspective, this year-to-date volumes of our premium brands grew 180% versus the 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 focused brands improved again, both sequentially and versus last year. And our brands also added 4 million fans since the pre-pandemic period, according to our estimates. And we were awarded 13 Lions in the Cannes Festival this year. Brahma brought home five awards, Budweiser four, and Ze Delivery was also recognized for the first time in the event with one award.

And finally, EBITDA growth accelerated to almost 30% this quarter. In addition to the sustained commercial momentum, EBITDA performance was positively impacted by two 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. And second, by lower distribution and administrative expenses. 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 suffers mainly from a soft drink industry.

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. And Guarana Antarctica also was recognized at Cannes for its women's World Cup campaign. And third, EBITDA grew nearly 25% with gross margin expanding 490 basis points and 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. 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 wholesale level normalized and price execution remained consistent. And after four 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 in a sustainable way. In last, top line grew roughly 82%. Volumes were slightly positive, growing 0.6%, led by Chile and Paraguay, but 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 Festival this year with Quilmes and Stella Artois campaigns. But LAS is not just about Argentina.

The rest of the region delivered a solid quarter with double-digit 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.

And finally, Canada, 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. And EBITDA grew a little over 4% with gross margins contracting 70 basis points, but EBITDA margins expanding 120 basis points.

Well, with H1 behind us, a few words on H2, starting with what's more clear to us. In Brazil, our commercial strategy is in good shape, given the health of our brands, the better mix, the execution in BEES, both in terms of client NPS and 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 grow between 2.5% and 5.5% 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 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....

]]>

© www.conferencecalltranscripts.org 2020 | Terms of Service