Ambev SA
BOVESPA:ABEV3
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
11.09
14.7
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Ambev SA
You don't have any saved screeners yet
Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's Second Quarter 2022 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. After Ambev's remarks are completed, there will be a question-and-answer session. At that time, further instructions will be given. [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 we will be discussed during today's call are both organic and normalized in nature; and unless otherwise stated, percentage changes refer to comparison with first quarter 2022 results.
Normalized figures refers 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 profits, EPS, EBIT, and EBITDA on a fully reported basis in the earnings release.
Now, I will turn the conference over to Mr. Jean Jereissati, CEO for Ambev. Mr. Jereissati, you may begin your conference.
Good morning and good afternoon, everyone. Thank you for joining our earnings call for the second quarter of 2022. During our last call, I mentioned that we started 2022 well-positioned and that I came out of Q1, encouraged with what we delivered.
As I review Q2 results, I see even more evidence to be confident going forward. And here is why. This quarter provided a glimpse of consumption patterns in a post-COVID world.
In several of our markets, reopening continues well underway with services and on-premises businesses coming back. And as this takes place, we have once again been able to meet the moment.
Ambev grew 6% in volumes, reaching 42 million hectoliters, which is 15% higher than 2019 levels. It is the first time we reached more than 40 million hectoliters in the second quarter. This led to a net revenue growth of almost 20%. In addition, organic EBITDA and cash flow grew over 17% compared to the same period of last year.
So, let's talk about Brazil. In Brazil, we witnessed more clearly the consumer comeback journey to the entrée and overall out-of-home occasions, leading to another quarter of solid topline performance.
In Beer, we estimate we gained market share versus last year, and sequentially versus Q1 this year in both volumes and value. Volumes grew by 8.5% in the quarter and by 5.2% in the first half. To-date, we grew 2.2 million hectoliters, leading the industry expansion as we estimate that the industry grew almost 0.5 million hectoliters.
In terms of segments, premium grew more than 20% led by Original and Chopp Brahma, which are more relevant in their own tray channel. In fact, this quarter, Chopp Brahma achieved its highest volume in the second quarter with 40% more buyers than the pre-pandemic levels. While our corporate volume sustained its momentum, increasing volumes, low-teens, and we continue to invest behind developing our core plus brands, Brahma Duplo Malte and Spaten.
Net revenue grew 23%, with net revenue per hectoliter growing about 13%. And finally, EBITDA in Brazil beer grew 27.5% organically, with margins expanding by 80 bps.
Talking about NABs in Brazil, we delivered another great performance this quarter. Volumes grew 16%, driven by healthy brands, especially in the out-of-home occasions supported by BEES.
We estimate we gained market share again this quarter. In CSD, Pepsi brands grew more than 20%, driven by the great success of Pepsi Black, which almost doubled its weight within our Pepsi brand. Net revenue per hectoliter grew 22%, driven by revenue management initiatives, the premium mix and package mix as single-serve packaging grew 37% this quarter.
EBITDA grew organically 92%, expanding margins versus last year by 500 bps. Regarding our technology platforms, over 86% of our revenues are coming through BEES. On the marketplace, in June, we announced a partnership with Grupo Pão de Açúcar, who will offer a vast range of products on our platform via a 3P model, just like BRS, delivering an even better assortment and service level for our clients.
Zé Delivery fulfilled 15 million orders, 2% below the previous year, mostly impacted by the rise of out-of-home occasions. GMV grew by 7% compared with last year, and we kept a 4 million month active users in the delivery. We continue to invest behind adding more features to our app and delivering a better user experience to our consumers. And BEES bank grew TPV quarter-over-quarter by almost 40% and now reaches about 300,000 customers.
Turning to our international operations. In LAS, overall volumes grew by 1.5%, led by Bolivia, which benefited by the reopening. In Argentina, we remain cautious about the impact of rising inflation on consumption, despite flattish overall volumes in the quarter.
In Chile and Paraguay, Premium and Core Plus continued to gain weight among our brands. LAS, net revenue per hectoliter grew 38%. In CAC, overall glass supply constraints remained, coupled with a tougher short-term competitive environment in Panama, this all contributed to a 10% decline in volumes and a flattish net revenue in CAC.
Talking about Canada, despite the reopening that took place, industry is still sluggish. We estimate that Beyond Beer industry declined by almost 9% in the quarter. Talking about beer, we estimate to have gained market share led by core and value brands.
Now I would like to talk about brand building. During our Investor Day, we explained our framework based on three pillars; mind, mouth and heart. And this is a quarter to be proud of, of how much we have evolved in the last few years in brand building. This evolution is no longer going unnoticed. Last year, we were awarded seven prizes in Cannes Festival of Creativity and this year, 12. Ambev was the most awarded Brazilian company in the festival with Lions for all of our beverages categories, Brahma and Budweiser were awarded in beer, Guarana in ads and mind in Beyond Beer.
Talking about our framework, starting with mind, we strongly believe that being creative is the best way to not only capture consumers' attention but also engage with them in a meaningful way. Brahma brought home its first-ever Golden Lion and seven Lions in total, which is an absolute record. It was the most awarded brands in the world in the social media category with our Foamy haircut campaign. The results of all this creative effort helps Brahma continued growth in brand health KPIs.
Now moving to mouth. Key recent innovations continue to grow as we keep launching products to delight all Brazilian tastes. Our most recent project is Brahma Duplo Malte Escura, or Brahma Duplo Malte Black, a special limited edition, which is brewed with two types of malte to create a darker and even creamier beer. We continue to collect awards for our innovations. In June, we were listed one of the 20 most innovative companies in Brazil by the MIT Technology Review, a study that evaluated innovation capabilities in more than 1,000 companies in the country.
Finally, going to our third pillar, the heart. Here it’s all about being relevant in consumers' lives and connecting through their passion points. After the two years gap due to COVID-19, our brands continue to be a fantastic platform for cheering together. Brahma helped to bring back some of the festivities in the Northeast of Brazil, one of the largest and most traditional celebrations in the country. Budweiser presented the NBA House 2022, a space where more than 40,000 people had the opportunity to watch the season playoffs and Beck’s created the Urbeck’s festival. On urban music and our circuit that helped to awaken different areas in the main urban centers of Brazil. We will keep consistently focusing on mind, mouth and heart to make sure we are relevant, innovative and loved by our consumers, which will make stronger brands in the long term and help our organic growth trajectory.
To conclude, our performance in Q2 accelerated in Brazil even more than we expected more than offsetting some headwinds we had in our international operations. It was a great H1, and we will work to deliver an even stronger H2 in terms of both top and bottom line despite facing a tough comp in Brazil Beer volumes in the third quarter and the continued volatility and inflationary pressures.
We are not making any changes to our guidance for the year relating to Brazil Beer cash COGS per hectoliter growth between 16% and 18% and excluding the sale of non-Ambev marketplace products. Moreover, we remain on track in terms of our main ambitions for the year. That is to get Brazil back to bottom line growth, to have a consolidated non-Ambev organic EBITDA growth ahead of the organic growth that we had in 2021 and to improve our return over invested capital.
Lastly, I would like once again to thank the entire team for the ownership mindset in delivering results and transforming the company and a special shout out to the marketing team. Congratulations for the amazing performance at Cannes. Thank you for your time.
And now I will hand over back to Lucas.
Thank you, Jean, and hello, everyone. Our financial performance in Q2 was fairly consistent with the first quarter in terms of what should be the same and what should change in 2022. What would not change, first, top line growth remains key. We delivered nearly 20% net revenue growth overall, with Brazil once again being the main highlight.
Second, input cost pressure remains a sticking point. Cash COGS per hectoliter grew nearly 18% at the consolidated level, while for Beer Brazil, it grew almost 14%, excluding non-Ambev marketplace products. And third, we would continue to focus on value creation drivers. The name of the game here continues to be improving our return on invested capital, building on our progress in 2021.
And in terms of what would change, first, net revenue performance more driven by net revenue per hectoliter than volumes as we adapt to a higher inflationary environment. Net revenue per hectoliter grew almost 13% and volumes grew around 6% in the quarter. Second, cost headwinds would come mostly from commodity inflation rather than FX. Commodity inflation was more explained by the increase in Brazil Beer cash COGS per hectoliter driven mostly by aluminum and barley, which was partially offset by better RGB mix.
Third, SG&A growth should improve. Cash SG&A grew about 15% in the quarter with sales and marketing growing almost 22%, thanks to continued investment behind our brands and innovation, distribution growing 18%, mainly due to rising diesel prices and admin expenses growing just around 2%, given lower variable compensation accrual once again.
And fourth, tax credit one-offs in Brazil that positively impacted our EBITDA, financial results and effective tax rate in Q2 of last year would be a factor this quarter. And it was a factor, but for a different reason than we originally anticipated. We recognized in the quarter about $1.2 billion in tax credits, of which a little over 900 million in other operating income and approximately 300 million in our financial results. This gain also relates to the inclusion of the ICMS state tax in the taxable basis of the PIS and COFINS federal taxes, which was declared unconstitutional.
As I have mentioned in prior calls, there is still pending litigation in this matter. And during the quarter, we concluded together with counsel and external advisers, both the legal viability assessment as well as the quantification of this additional portion of tax credits for the PIS and COFINS that we overpaid over the years.
As a reminder, these tax credits are technically part of our normalized results from an accounting standpoint, but we disregard them for purposes of calculating our organic performance, treating them as a scope change. Please refer to our financial statements for further details.
Now, given our performance in the quarter, we are well on track to deliver a better organic EBITDA growth in 2022 than the 10.9% organic growth we delivered in 2021. Brazil's recovery this year is turning out to be stronger than expected, which is more than offsetting the declines in CAC and Canada year-to-date.
As for last, year-to-date, Argentina is delivering EBITDA growth slightly ahead of local inflation, while the other last countries delivered EBITDA growth in H1, driven mainly by Bolivia, which is finally recovering from COVID. And putting this quarter's performance into perspective, since Q3 2020, we've managed to deliver net revenue growth above 13% and quarter-after-quarter, and this was true again in Q2. So the growth is there, despite all the headwinds we faced.
And the good news is that in Q2, we finally managed to deliver growth and profitability in Brazil, which had been lagging for a while. Brazil beer expanded EBITDA margins by 80 bps on while Brazil NAB expanded EBITDA margin by 500 basis points. No doubt, there is still work to do on the gross margin side and in terms of consistency, but it's a start.
Speaking of profitability, as I've mentioned in prior calls, we've also looked at profitability in terms of working to consistently improve returns on invested capital year-after-year. And here, we're also happy with the progress we've made so far this year. As first, we continue to look at ways to optimize our business through financial discipline on the cost and expense side, as well as improved resource allocation across our businesses and markets; and second, improved return on invested capital as we look to digitize and monetize our assets. Here, the scale-up of the technology platforms such as BEES and Zé Delivery are helping us improve not only NOPAT growth, NOPAT margin, but also asset turnover. It's still relatively early days for these platforms, so we definitely see more upside going forward.
Now let's turn to our cash flow and our financial performance below EBITDA, and I will close with some words on ESG. Cash flow from operating activities totaled about $2.2 billion in the quarter, which represents an increase of about 17%. Normalized profit grew a little over 4% in the quarter given EBITDA growth and a lower effective tax rate, partially offset by higher net finance expenses versus Q2 2021 of around BRL200 million.
Net finance expenses were mainly impacted by the continued increase in the carry costs associated with our FX and commodity hedges in Brazil and Argentina, which should continue to be an issue going forward. Our interest expense grew mainly due to fair value adjustments of payables under IFRS 13, but it was fully offset by higher interest income resulting from the Brazilian tax credits we recorded in the quarter.
Before I wrap up, I want to briefly highlight our progress in terms of some important sustainability milestones. On the environmental side, we announced three more carbon neutral plants in Brazil; Arosuco Aromas in the State of Amazonas; Juatuba in the State of Minas Gerais; and Curitiba in the State of Parana. Together, they represent an emission reduction of over 5,000 tons of greenhouse gases per year and we intend to deliver an additional four carbon-neutral operations by year end.
And on the social side, our people that volunteer within the VOA social transformation program have recently joined Gerando Falcões, a Brazilian NGO of social development in an initiative to mentor social leaders of Brazilian favelas that are graduating at the NGOs Falcons University. We plan to hold our ESG date during Q3, and we hope you can engage with us in this dialogue.
So to wrap up, a few final messages. First, we delivered a stronger H1 than we expected, which gives us more confidence going into H2, particularly in Brazil. Second, our guard remains high since challenges and short-term volatility remain a reality, particularly in countries like Argentina, Panama and Chile. And third, we remain focused on delivering continuous and consistent improvement in our results as we progress on Ambev’s transformation journey.
Now let me turn it back to the operator so we can go to Q&A.
Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question comes from Marcella Recchia of Credit Suisse.
Hi, Lucas. Hi, Jean. Thank you for taking my questions and congrats on results. I have two questions. First, on price. Based on conversations with the industry participants, we heard that Ambev implemented an off-cycle price increase in the second quarter. So just would like to confirm that and if so at which channel and pack and by how much?
On top of that, based on third quarter hard cost, can we expect the usual price increase to come, or could we -- could you increase discounts or reduce price in order to push volumes? Let me [indiscernible] the answer of that before asking the second question.
Okay, Marcella. Thank you very much for your question. As you know, we are really focusing on finding the right elasticity in the sustainable benefit between volumes and net revenue per hectoliter, always with medium long-term pricing strategy unchanged, prioritizing to do not lag inflation, but really work on a favorable brand back in channel mix.
So this is – strategy pretty much does not change. Since 2019, we have been growing volumes, while improving pricing performance and we continue to monitor the environment moving forward but in a flexible way, watching inflation, disposable income, really working on elasticities to make the decisions on revenue management.
So having said that, we did a more tactical price increase in May, it was a small one. It was granular in some packs by Jan, there were some regions that it was around 2.5%, both on off-trade and on the -- on say, right? So usually, we see in Q2 net revenue per hectoliter going down sequentially, so this is more of an effect on mix in the Northeast regions gain weight, and then we get the winter coming in the Southeast.
But this quarter was surprised us, it was really that the actions that we took, the channel mix, and the PET mix during the COVID and the reopening of bars maybe seen RGB 600 ml bottles or regional [indiscernible] really getting traction. So, this helped us to somehow -- to mitigate this usually net revenue per hectoliter decline that we have Q2 to Q1. Page two, I can't really comment. I can't really comment on the competitors sensitive on pricing decisions moving forward.
Perfect. That's very helpful. And the second question very quickly is, about the core plus segment, which was the only segment you did not mention how much volumes grew in the quarter. So, it would be nice to hear from you how the segment performed in the second quarter? And also, if you can give us some color on how has been the rollout and acceptance of [indiscernible]? Thank you.
Okay. So that's a good question. Let me give a step up to talk about dynamics that we saw in the Q2 and then we talk about the segment. What we see Marcella during this – doing a deep study in the previous two years is that, we developed a lot of actions really to fulfill the in-home opening, right? So since the pandemic arrived, we designed ourselves to get the in-home occasion right and we went deep on that, right? So you see that delivery was slowed.
Brahma Duplo Malte, it was a brand on the core plus segment designed [indiscernible]. We changed -- we expanded the 300 ml bottles focused on the traditional trade to get inside homes. So it was really a strategy that we are very happy with it. It's really step changed our volumes that was to combine all these things, that's really something that that really led our 10 million hectoliters change in the company. But what we have seen in Q2, it is that -- so there is a lot of residual of in-home actions, but consumers travel back to our strength that it was the bars. And then we see everything around this social out-of-home occasion really shining and a lot of residual on the home really shining the out-of-home occasion.
So, because of that, we see high end very strong with Original, Brahma that they are -- they were waiting for to come back, right? So -- and they suffered a lot and they came back. We've seen somehow be core in 600 ml bottles and liter bottles coming back that they were really growing more on the 300 ml bottle.
In the corporate strategy, it continues -- so Bohemia, we kind of unplugged with market initiatives. We are really focusing on Spaten and Brahma Duplo Malte that segment. And if you see the combination of these two brands, Spaten, it was designed more on the 600 ml bottles, Brahma Duplo Malte more on the in-home occasion. If we get the two combined we are growing double-digits in this quarter, but with Bohemia with negative volumes.
Excellent. Thank you so much and congrats again.
The next question comes from Isabella Simonato with Bank of America.
Thank you. good morning Jean, Lucas. Good morning everyone. Just a follow-up, two questions is, first of all, a follow-up on the volume discussion in Brazil. It's interesting when you mentioned, right, based on the remarks, pretty much all the main segments, right, grew double-digits this year, while when we look at the printed volume, right, they're going to have -- looks below the average of those segments. So, if you just give a little bit more color per segment or what exactly brings the average a little bit down? I think that would be helpful.
And the second question is when we think about the performance right over the first half, and you guys mentioned it has been a positive surprise. However, you didn't change guidance, right, or you -- I don't know if you think there is more room for positive surprise or if you guys are seeing a more challenging second half. And if that's the case, what would be those challenging, right? It is in the international market, given what's going on in Argentina, or a tough comp in Brazil? So, just to get a little bit more color how you guys see in the second half. Thank you.
Let me get the first one and then Lucas get the second one. But Isabella, so volume-wise, we are very excited about. So, 8% volume -- it's a great volume in the quarter. But in the end to look quarter-by-quarter, sometimes, it's misleading because consumer is moving. So -- and from one occasion to another. It was really -- if you look back to 2019, we are 20% above our volumes in 2019, okay? So, we've seen a structural brands in the high end doing well consistently in this period, and then we landed in above 20s in the high-end brands with like Original and Skol, Brahma [ph] as I mentioned, really leading more than that.
Somehow, I mentioned that [indiscernible] plus Sparking, they are double-digits. The midstream is around that two, okay? So with low teens to what really went down, it was the value brand that we really unplugged, brands like [indiscernible] brands that some regional brands that we have like [indiscernible].
So they were brands that really took the heat overall. And -- but we see somehow core and core plus taking brand now in the same pace and then high end ahead of – of the portfolio. Our specialty brands, they are doing very well, okay? So the craft are going doing very well to specialty. So this is one thing.
Talking about the guidance, I will hand over to Lucas, but just to mention, just to guarantee that he put the right words here on the call. But somehow, we are excited. We mentioned that Q1, we had that strange January that as a one-off hit on -- with Omicron in many markets. Then we had this Q2. Then when we look at H1, it's more something like what we was expecting in Q1, if it was not Omicron and it's a place that we are better than we were in Q.
And what I mentioned in my initial statement is that we believe that H2 will be strong -- we are confident that we will be better in top line and bottom line when we -- H2 when we compare with H1. So somehow, if you put the numbers, we are confident. But I will get to Lucas as you look at kind of rounded up.
Sure. Thank you, Jean. Hi, Isabella. Thanks for the question. Starting with the guidance. The guidance that we gave for the year was related to cash COGS per hectoliter in Brazil beer, excluding non-marketplace products, right, Ambev products, non- Ambev marketplace products. And that was the guidance that we gave, right, in Q4 when we announced the full year results and announced our expectations for the year.
And that guidance stands year-to-date, the cash cost per hectoliter in Brazil beer, excluding non- Ambev marketplace products, is trending at 14.5%. So below the range, which is good. But again, given that not 100% of our costs, right, are hedgeable, right? We still see merit in keeping the 16% to 19% outlook for the year, okay, as our official guidance.
On top of that, when you think of our ambitions for the year, just to add on to what Jean mentioned, when we look at our H1 performance, our view is that we come out of H1 more confident on our ability to deliver our ambition of growing ahead of 10.9% organically at a consolidated level, which is what we delivered in 2021.
When we shared this ambition on one of our prior calls, I remember I got the question on why we believed, right, growing ahead of 10.9% was feasible. And the answer then was that if we managed to deliver a Brazil bottom-line coming back to growth that in and of itself, right, would be a significant tailwind in our ability to deliver this ambition.
And if you look at our results in H1, right, there was a step-up in Q2 in terms of our overall performance, and that made an enormous difference on our total EBITDA growth for Ambev in the first half, which is around 15%, I believe, 14%, 15%.
So, within H1 at 15% and Brazil, stronger than we expected, right, we think that if we manage to do a better job in Cochin, Canada and last continues to deliver good performance and mindful of the challenges in Argentina. But outside of Argentina, last in Q2, the other countries Bolivia, Paraguay, Chile, and Uruguay, they grew double digits in Q2, okay? Just for instance, just another data point for you to have.
So, if we manage to have Brazil continuing momentum in H2, last continuing to deliver that can be helpful in offsetting potential headwinds in a in Cochin, Canada. But again, we still have work to do there and we're still going to pursue better results in Canada and in CAC in H2, okay?
No, that is super clear. Jean just one minor confirmation. When Jean said second half could be better on topline and bottom-line than half one, is it nominal terms or growth, just to double check that?
Inorganic growth.
Inorganic growth. Okay. Perfect. Thank you.
The next question comes from Lucas Ferreira with JPMorgan.
Hi, everybody. Thanks for questions. The first one is regarding SG&A. If you can discussing the second half of how to think about SG&A, you have some important events ahead, such as the World Cup, potentially provisioning for bottles, again, it's going to be a strong year. So, how to think about that? There was already kind of heavy SG&A of this first half. So, should we see similar trends into the second half or that should see somewhat alleviated to help you deliver this growing expectations you're talking about?
And the second question, Lucas, last year, you guys had some issues with sort of an unhedged position because, I guess, the company ended up with selling much more beer than you expected, right? So, how to think about that this year? Are you also probably performing a bit better than expected? Are you guys having sort of unhedged positions to do as well? And would those come maybe now at a lower cost given the foreign commodity prices or you cannot say that yet? Thank you.
Sure. Lucas, thanks for the question. Let me start with the second one on the hedges, okay? So, everything that's hedgeable for 2022 has been done, right and has been done for quite some time now. So, the issue is not around hedging per se, okay, looking into H2. The issue is more on the unhedgeable side of our cost base. And you're right, that was an issue last year. There was an increase in the second half of the year on the unhedged portion of our costs. This year, there has been some impact not enough right to compromise, right, the guidance that we gave in Brazil beer. But that remains a risk for H2, and that's one of the reasons why, right, we're not updating – we're not making any changes to our guidance of 16% to 19% in Brazil beer, as I mentioned, and in my prior answer, okay?
So again, the issue is not the hedging side that's done for 2022. The issue is more on the unhedgeable portion of our cost. And again, we are living in higher inflationary environments overall that applies to cost that apply to expenses. And that's a good segue to try and answer your first question around the SG&A.
What we anticipated directionally for SG&A in 2022, was a lower growth of SG&A year-over-year as compared to, right, 2021 to 2022 and because of the lower accrual for variable compensation, right? As you will recall, Lucas, last year, one of the main factors that led to a higher SG&A growth year-over-year versus 2020 was precisely the fact that the recovery was much stronger than we expected. And 2020 was no bonus year, right? So that created a double whammy effect, if you will, on the admin side through higher bonus accruals. That's not the case this year so far.
Obviously, H2 will depend on how we do versus our budget, and then we will accrue according, right? So with admin expenses growing at a lower rate because of lower year-over-year bonus accruals, that should help us, right, for the year, deliver a better SG&A growth. And then on the sales and marketing side, I think the point to call out is really Q4 and Q3 as we prepare for the World Cup, right? So there is sales and marketing investment for an event of that proportion, right? It's a great opportunity that we have coming up in Q4 to really leverage not only our brand portfolio but also our technology platforms, right, to really meet the moment, serve clients better, serve consumers better during such an important event for markets like ours.
So yes, there is a calendarization that's different than this year, because of the events that we have coming forward. And in terms of distribution, I think the watch out is really what happens to diesel, right? I mean diesel has been a factor on our distribution expenses, not only in Q1 but also in Q2, it was a factor. I think the glass half-full side of the equation in terms of sales and marketing and in terms of distribution is that year-to-date it's growing below net revenue growth, right? And I think that's good news. That's something that we always do that sense check, and in addition to that, right, we're applying our typical financial discipline, making sure that we are as focused as possible on being strict on the non-working money side of our business, which is everything that consumers don't touch, feel, see to release funds to be able to invest more in things like sales and marketing that are going to continue to develop the health of our brands going forward. Okay?
Perfect, super clear. Thank you.
The next question comes from Thiago Bortoluci with Goldman Sachs.
Yes. Hi, Jean and Lucas, good morning everyone. Thanks for taking the questions. I have two. The first one, a follow-up on the cash from guidance. Obviously, there are a lot of different moving parts here, and we understand that you have an average policy of hedging in part of our commodity needs on a pro forma, but you might also be kind of [indiscernible] price as well. So I'm just curious to hear from you if we should see the impact from lower commodity prices just 12 months from now, or you could have decided to go for more to meet the dealer and you could see some part of business selection early on over the next quarter? This is the first question.
And the second one is regarding the World Cup and the outlook for the first quarter, right? Obviously, that there are also a lot of different moving parts just in Brazil, the election typically, we know that this event is very positive for volume, right? So just try to explain and hear a little bit from you, how much of an opportunity do you see for the first quarter and beyond that if you believe this volume should be really incremental as you head into 2023, or this might create an opportunity? Thank you. Those are the questions. Thanks guys.
Okay. Thanks, Thiago. This is Lucas. Let me take the first one, and I'll hand it over to Jean to talk about the preparations for the World Cup on the commercial side, okay? So in terms of the exposure to aluminum specifically, right? I think this is more of a 2023 issue than the 2022 issue. And the good news is that, of course, it's still early to give any specific outlook for 2023. We still have a good portion of hedging to do right through the end of the year.
But the good news is that so far aluminum is no longer a tailwind. It's no longer a headwind as it has been over the last two, three years. On the currency side, the BRL hedge versus the US dollar is also a tailwind for a change. It has been a headwind for the last two and three years as well. And so that's the good news so far, again, still a lot of hedging to do through the end of the year.
And on the glass half empty side of the hedge for 2023, so far our hedges with respect to barley are continuing to be a headwind, but to a lower extent than the levels that we saw in 2022 and the Argentinean peso FX hedges should continue to be a headwind, at least that's what we've seen so far this year. So aluminum, more of a 2023 issue, and kind of that's where we are so far this year, let's see how things unfold on the hedging for commodities and FX through the remainder of the year.
Over to you, Jean.
Okay. So let me talk about the World Cup here, right? So the question that we are for you to get the information yesterday, we had a World Cup team, okay? So we put like 50 people in the room from inside the company, outside to have the best insights of what could do – could we do in this World Cup, and we learned a lot yesterday.
And the question that we did for ourselves, the statement so the briefing of the day is what can we do in this World Cup that will make us better in 2023, okay? So that was the statement that we did to 50 people to outside to people from agencies, consultants and it was a day that we learned a lot and we went out with great plans on that opportunity to resolve problems to make this World Cup more inclusive to make in the end the young people more interested, to make soccer something that can be enjoyed by women.
So we are really thinking about how can we solve problems with our brands, with this World Cup strengthening the brand. We are connecting that delivery, how can we acquire users during the World Cup that they will stay, how can we touch the hearts of the Brazilian. The sentiment that we find with the survey’s that everybody is waiting for this World Cup as a breath. Everybody knows that the next three, four months, it will be about quality organization looks like the World Cup is a moment that Brazil can come together again.
So it will be a very important moment. We are very intuit. We are prepared on the logistics side. We are prepared on the marketing side. We believe that we will -- it's the first time that we have World Cup in the summer in this context after one year of pandemic. And for sure, we will help us this year. The big question is what are the structural things with brands and digital products that we can do to get together with the Brazilian and to make it residual for 2023. We are very excited about the World Cup.
Very interesting. Thank you.
The next question comes from Thiago Duarte, BTG Pactual.
Hello. Thank you. Hello, Lucas and everybody. I have – three questions on from my side. The first one it is clear at this point that you're positively surprised by the performance in Brazil relative to when you provided the guidance or when you even said that the momentum was strong in the end of the first quarter. But it's not clear to me what exactly is the biggest source of surprise. Is it -- so if I think, Jean could comment a bit on that.
So it is just demand -- the consumer demand or how strong consumers are going back to on-premise? Is it the solution of high ecommerce [ph], is it the cost side, which is on the favorable side in terms in terms of your guidance.
So you if can -- if you could elaborate a little bit more on what you are saying are the biggest sources of a positive surprise for the performance that the company had in the second quarter and in the first half of the year, that would be great.
The second question is going back over the pricing in Brazil business. Jean, you mentioned a small price increase in the second quarter. If you could elaborate a little bit more when we look at the 11.2% revenue per hectoliter growth with beer excluding marketplace, how mix, in particularly, packaging with the incremental RGB is driving that now, that would be very helpful as well.
And a third question would be on working capital. It's not only on Q2, but also in the entire first half, there was some -- second working capital consumption, which is not very common, considering that you guys are growing volumes and are easily gaining share. And I presume this is positive for the working capital of the company, as you guided before. So if you could elaborate a little bit on what's driving that working capital consumption ahead of the second half; that would be nice as well? Thank you
I'll get the first and the second question. And then Lucas jump in to the third one, okay. So what surprised us in Brazil in Q2, it was so -- the moving pieces we knew, okay, but surprises us that we continue to gain market share. Okay? So sequentially, we gained the market share and the strength of the bars reopening, it was something that came on the top of our range of expectations, okay?
So somehow, there was this discussion about when the consumer -- when the bars really fully reopen -- and it's not just the bars and the social out-of-home occasion gets a full potential. So what's the size of it? And what's the residual volumes of the in-home initiatives and the occasion that it was created during the pandemic.
And this mathematics surprised us. Or at some point in time, we believe that in-home could go down more for their on-trade to go to be reopen or the on-trade was not that strong. So it was the combination of this equation, the residual of in-home with the strength of the out-of-home that surprised us. And then 8.5% in terms of volumes, it was above this math.
And talking about revenue management, you know that we are very granular now on the revenue management. You know that we have a strategy that we are -- have been very inclusive and really maintaining beer competitive in the basket of the Brazilian consumers.
And what we liked about this quarter is that it was really -- we really challenged the elasticity in general. Okay, it was like good net revenue per hectoliter actually with good volumes. And it was about the carryover of the previous year, the tactical things we did, as I mentioned, here in May. But a big part of it, it was the 600 ml bottles and the high end, the brand mix helping us in the value brands going down to. So the combination of brand mix and 600 ml bottles coming back that made this number that you see in our Q2. So working capital, Lucas?
Sure. Hi Charlie [ph]. Thanks for the question. I think in terms of working capital, I would say that the bigger issue was actually Q1 on the payable side, okay? I mean like if you recall our conversation last quarter, right, our payables in Q1 have had an issue around the payment of the variable compensation, right? And also, there was a higher level of payments to suppliers, given the calendarization of our CapEx.
So CapEx that was booked, right, in H2 of 2020 ended up being paid in Q1, right? So that double effect created a bigger gap in terms of working capital in Q1. In terms of Q2, and that's by far kind of the biggest factor year-to-date. I think Q2, what the outlier here is more on the receivables side, and it relates to the tax credits that we recognize, unlike last year when we recognized the tax credits, but did not immediately monetize. This year, the monetization was faster than last year and that has an impact on our receivables.
In terms of inventories, no major change in terms of inventory building, there was some more inventory building in Q2 this year than last year, but again, it's more of a calendarization effect. And then on the payables side, in Q2 also no big major change other than just a different calendarization of our CapEx spend and when the payments are falling. So I think it's better to look at working capital more on a yearly view because on a quarterly view, you will have, from time to time, these swings related to specific events like the bonus, like calendarization of CapEx, like the tax credit.
That's clear. Thank you so much.
The next question comes from Alan Alanis with Santander.
Hi everyone. Thanks very much for taking my question. Congrats on the results you have in [indiscernible] has to do with the competitive dynamics and the connection between soft drink and beer. I mean, I understand we've been gaining market share on beer. I think that there are reasons also among your competitors, the separation with institutions of Heineken from the Coca-Cola system.
And I think that – congratulations, you are doing a lot of things right in taking advantage of that in gaining market and value share. What's a bit of a surprise for me to see that you're also gaining a lot of market and value share in sales after the Coca-Cola Company and [indiscernible] what are you seeing and what are you doing differently in soft drink in order to be gaining market share and how sustainable is this going forward?
Thank you, Alan, for the question. In reality, soft drink was really big start of this quarter, right. It's -- we are very proud of the performance of soft drinks and somehow, I've been mentioning for a while now that we've been transforming ourselves into more of a platform in the past we were like a beverage company. Now we are a platform. So, this is something that people do not understand somehow, but we did a huge structural change inside the company in terms of breaking the silos in terms of having the marketing areas as a marketing-as-a-service; have my frontline team working for the whole portfolio in the past I have siloed teams.
So, we did a big change to prepare the company to really unlock its potential of topline growth. On top of that, we focused our efforts on soft drinks, on brands of the future. So, somehow, the PepsiCo partnership is stronger than ever.
The launch of Pepsi Black, it was just a surprise for us how the product is getting into the face of the cities and the places that we are launching. And somehow -- so with this strategic view with a good partnership of Pepsi and this arising where we had in the past a sales rep that somehow was a fun in terms of number of SKUs that they could offer.
So, the combination of these three things maybe put NAB on fire we estimate that we are gaining market share. So, Pepsi brand, there is a whole ocean of colas that we never tackle reality as really accelerating and gaining market share. And this is really allowing us to do much more things that we would do in the past. So it's important avenue of growth for us that we are really interested. So I think this is structural.
Got it. No, that is -- so you're pushing more towards the total beverage and you are deleveraging your real power, your scale here to move more soft drinks. Thank you so much and again, congrats ono your results.
The next question comes from Carlos Laboy with HSBC.
Good afternoon everyone. Jean, it's nice that the creative team is winning awards and I was thinking it's a landmark really, that you can celebrate your markers and they're growing importance. But can you speak to the proof point to evidence a lasting brand rehabilitation and renovation is happening. Maybe you can expand on the Brahma case or on any other incremental proof points that you have that your core brand build strategy and renovation strategy are working here.
Okay. Thank you for the question, Laboy. Yes, so I could mention I think Brahma is really one brand that is really on fire as a family with Chopp Brahma appearing a long time that we don't talk about it as the reference of beer in Brazil when the reopening of bars like. So, on fire Chopp Brahma with the using Brahma brand doing very well and Brahma Duplo Malte coming in the middle of all this family making a stature of brand and family that it's really getting consumers. If you add up, it's really the brand most valuable of Brazil is really drama that has more lowers is really the overall brand Brahma doing very well and it was not like that like two or three years ago, we rejuvenates Brahma with Brahma Duplo Malte, and we stepped up again, the quality use of the brand with Chopp Brahma coming back as it come in this stage in the Q2. I think somehow, it's a combination of mind, mouth and hearts that we were able to tackle in the right way these three themes with the Brahma brand, for example.
Another brand that is doing very well, so we are somehow biased this quarter that original just explode it to. It's a brand that is about the traditional routes of the Brazilian about the bar. So the bars were closed at the occasion. So everybody is coming to our original brand and Pasco regional. So this is one thing another way that we can mention.
And I'm very excited about BEX [ph], there is a brand that we are cooking in a very low temperature, like, I don't know how we say this in English, but we are cooking it slowly. It's read about getting the pallets right in the edginess of the ruble centers. And it's on fire to us is the brand that everybody is talking about the edge of the palate, European, trendy, moving the boundaries. So we showed you that architecture of brands that we have in their archetypes. And somehow, I think that our focus brands are doing just amazing. You've seen the numbers. Our price, it was very resilient this quarter.
This means that the channels are right, this mean that consumers are paying. And this is what a combination of renovation and innovation. So I don't know, if I really answered your question, but the last thing that I could mention is that pre-pandemic levels in today levels, we have 1.5 million people that saying to us that that they love one of our brands. So pre-pandemic level to now 1.52 million consumers that elect one of our brands and their loved brand. So I think that's it.
Thank you, JJ. And cash COGS for hedge funds, but this brand renovation is the real lasting stuff on the turnaround. Congratulations.
Thank you
The next question comes from Sergio Matsumoto with Citigroup.
Yes, good morning, and thanks for taking my question. I wanted to circle back on the voice improvement of the new metric as discussed in the that – with the recent improvement in the top line, and the recent decreases in the spot prices of the commodities, I'm wondering if perhaps we can see some changes in how the composition of the return on investment capital might improve over the coming years with -- you had mentioned investment capital turnover as the first phase and then transitioning into more of a no path to margin improvement, would you say that the -- that transition might occur faster than expected when you than a few months ago?
Yes. Hi, Sergio, thanks for the question. This is Lucas speaking. Sergio, in all honesty, I think it's very hard to right – it's very hard to speculate at this point to what extent, right, our longer-term perspective on the two drivers for improving our return on invested capital, right, could change in view of the latest, right, the latest movements in Q2, right? And the reason I say that is, in Q1, the picture was right strikingly different because commodities were on the rise in Q1.
So to me, I would be speculating here if I gave you any indication of – of what change this can imply longer term. I think we have to really wait and see how commodities behave going forward, how currencies move going forward. I think what's important for us on the commodity side and on the currency side is the discipline that we have in following our hedging policy, right? That's key to give us predictability that's key to give us time to react as headwinds may arise. So that discipline remains intact, and we will continue to focus on that.
Having said that, if we continue to deliver top line growth, right, as we have in the last two years, that's obviously helpful for the margin recovery. And so let's see how things progress on the top line side. But as we've mentioned time and time again, top line growth remains a priority for us. Some quarters, some years, it may be more volume than price. It may be the other way around, like we're seeing in 2022. But we remain kind of steadfast in continuing the momentum that we've built on the top line growth side.
And on top of that, we have the better asset turnover potential given the platforms such as these with marketplace and D2C and fintech and as these scale up, we see opportunity to have a better asset turnover profile than in the past, but we have to deliver. Let's see.
Understood. Thank you very much.
The next question comes from Leandro Fontanesi with Bradesco BBI
Hi, everyone. One question or one discussion that we have with investors is regarding Argentina, right? So recently, the depreciation of the Argentinean peso at the blood market was much stronger relative to the official rate, right, than it was in previous quarters. And so there's a concern that the net income that you're generating in Argentina you may have issues to take that money out of Argentina and especially relative to what you report on your accounting numbers, right, they use the official rate.
So to help us address or to help us understand the risk, if you could like provide us with some information such as what percentage of your total EBITDA comes from Argentina, also how you are addressing that risk going forward?
And actually, I understand that you report how much you're having cash in Argentina and Cuba, which I think is like BRL600 million, does not look relevant. But it has been reducing in previous quarters that means you are burning cash in Argentina, and then generating the majority of your cash outside of this operation. So to understand if you could potentially allocate some of their costs from other operations in that country in that way, you don't need to depend that much on taking the money out of the country? Thanks.
Yeah. Hi, Leandro, thanks for the question. This is Luca speaking. Regarding Argentina, I think, first, there is a lot of short-term volatility in the country. The good news is that on the operational side, the business continues to perform relatively well when you think of top line, when you think of the portfolio and the health of the portfolio and how that's translating into our performance, not only in core but in above core segments such as Core Plus and premium brands with good brand health indicators, market share in line with what we expect, so on and so forth.
However, on the macro side, we are once again seeing more volatility coming out of Argentina. That's a fact. The last time we faced something similar was 2019. And there have been other instances in the past 10, 15 years where there have been years of more volatility and currency devaluation and so on and so forth.
So I think for us here, the way we approach it is stay focused on the micro and the commercial performance because it's a sizable market. It's a growing market. It's a profitable market for us. So that remains a priority number one.
Number two, protect what we can protect, what we control on the cost side. So that's where the hedging policy comes in. So we continue to adhere to our on average 12 months hedging for the Argentinean peso and for the commodities, right, as they apply to the Argentinian business, okay? And that helps us protect our costs in Argentina, okay, and the EBITDA performance in Argentina.
We also look into -- we're constantly looking into right cash management, how we manage counterparty risk in Argentina between local banks, international banks. And so there's a lot of tracking and monitoring of the situation on the ground to make sure that we're very disciplined and diligent in terms of our cash management, so the operation can keep running, right? We can continue to work with our clients, work with our suppliers. We want to keep things running in as seamless way as possible, okay?
And then, on the taking money out of the country side, I think, the point here is more as -- is more of, there are -- right, there are restrictions in place, right, for operating in foreign exchange markets.
Our focus is more accessing foreign exchange markets in Argentina to keep the operation running. The level of imports is fairly low, but we want to make sure that we still have access to keep the operation running. So that's the bigger priority.
And in terms of cash generation, historically, the cash generation is more -- in Argentina is more skewed towards the second half year of the year than in the first half of the year. Hope this helps.
Yes. Thank you, Lucas.
The Q&A session is over. I would like to turn the floor over to Mr. Jean Jereissati for his final remarks.
So, thank you all. I thank, all analysts, everyone who joined today, the call time -- for your time and attention. To wrap up, I think, it was -- I like to look at better H1 than Q2. I think it was a great H1 for Ambev, for Brazil, and we are confident that we can deliver an even stronger H2, okay?
We remain on track in terms of our main ambitions for the year, to get Brazil back to bottom line growth, to have consolidated Ambev organic EBITDA growth ahead of the organic growth that we had 2021 and improve our ROIC. And we will continue vigilant on the short-term volatility and cost trend. Thank you very much. See you in October and have a great day.
This concludes Ambev's conference call. Thank you for your participating and have a good day.