Ambev S.A. Q1 FY2022 Earnings Call

Good morning, and thank you for waiting. We would like to welcome everyone to Ambev's First 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. 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 discussing 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 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 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, good afternoon, everyone. Thank you for joining our earnings call for the first quarter of 2022. Three weeks ago, during our Investors Day, we focused on how our culture, our strategy, and our business model have evolved. How we embraced technology in benefit of our customers and consumers. Why we see several opportunities to create value going forward in our overall company's transformation? Today, I will of course, focus more on our Q1 results. But as I do this, I will also highlight how many of the things we showcased during the Investors Day are already positively impacting our short-term performance. So, let's talk about the quarter. During our full year 2021 call, I explained why I believe we were starting 2022 in a better position, while acknowledging we expected a tough start to the year. Q1 2021 had a very strong performance with volumes up 12%, net revenue up 28%, and EBITDA up 24%, record growth rates for the first quarter of the year. This year, we were off to a slow start because we had a one-off January, a very tough month in many markets, given the rise of Omicron. However, I was happy to see that the team managed to deliver a better overall performance than we expected, particularly in Brazil and LAS. For instance, Brazil volumes bounced back in February and were very strong in March, which drove consolidated volume growth of 5.5% in the quarter. Brazil's net revenue per hectoliter grew not only year-over-year, but sequentially versus Q4 ‘21 both in beer and in NAB. In beer, volumes grew 2.1% despite the tough January, thanks to the premium portfolio growing in the high teens and core portfolio growing in the mid-single digits. According to our estimates, we once again gained market share versus last year. Our three main core brands Brahma, Antarctica, and Skol were ranked in the top of the 10 most valuable brands in Brazil among 478 brands in 36 different categories according to BrandZ. In the core plus segment, Spaten continues to expand its distribution and volume for outlet and Brahma Duplo Malte launched new returnable and one-way presentations, which will address more consumption occasions. NAB volume grew 16.9%, driving market share gains, according to our estimates. The premium brands volume grew above the rest of the portfolio, led mainly by energy drinks H2OH, Pepsi, and Gatorade. In LAS, volumes grew 2.9% despite a strong comparable in Argentina and the volume impact in Bolivia due to another COVID-19 wave in January. In Chile, we gained market share according to our estimates and expanded distribution despite lapping the start of the partnership with Coke bottlers. Our core plus and above portfolio continued to grow in Chile, as well in Paraguay and Bolivia. Of course, not everything worked. In CAC volumes declined 4.7% due to supply constraints in the Dominican Republic, our largest market in the region. We expect supply constraints to ease going forward, however, above the core portfolio continued to gain weight in our volumes, thanks to brands such as Corona and Modelo. In Canada, volumes declined 8.4%, mainly driven by the worst industry performance in the last 30 years in January, which then recovered in February and March sequentially, coupled with tough comps from Q1 '21. Despite weak volume performance, we may have gained market share in beer and our net revenue per hectoliter grew 4% due to the consistent implementation of revenue management initiatives. So let's dive deeper into what’s behind this performance. Let's talk about our five pillars of our how to win framework. The first pillar, brands for everyone. In Brazil, focus brands Brahma, Beck’s, and Budweiser added over 500,000 fans versus the same period of last year according to our estimates and in LAS, number of fans increased by 300,000. After reaching a better balanced price relativity between one-way and RGB's pack price strategy. Our returnable packaging grew double-digits in Brazil, mainly in the 600 ml presentations in Premium and the 300 ml presentations in core portfolios. Second pillar, thirst to lead the future. Our innovations continue to over-index market share according to our estimates reaching 17.6% of Brazil’s beer net revenue, thanks to the continued success of Brahma Duplo Malte, Spaten, and Stella Gluten Free. Innovations also reached over 70% of LAS net revenue. We launched new can sizes and secondary packaging to serve more occasions in the off-trade channel for brands such as Budweiser, Brahma Duplo Malte, and the Original. Third pillar, a toast to our customers' success. The digitalization of our customers continues to grow successfully and supports our NAB business to achieve higher penetration per outlet and increase its number of customers. We continued the successful expansion of BEES in Paraguay and Argentina. This market place in Brazil grew GMV almost 10 times versus the first quarter of last year. In the last six months, we served more than 500,000 customers offering 400 SKUs, which include partners such as Pernod Ricard and Bacardi. BEES Bank continued its rollout in our operations reaching more than 270,000 accounts and over 1.4 billion TPV in the month of March. And lastly, in April, we announced the deal between us and a relevant player in the logistics industry in Brazil. Together, we will further advance on Urban distribution centers development. The fifth pillar, together for a better world. We launched a collective effort to address Scope 3 emissions with more than 165 suppliers that represent over 65% of our total scope 3 emissions. For the first time, more than 50% of our newly hired employees in the quarter were women. All in all, I come out of Q1 encouraged and we will remain focused on seizing the moment for the main consumption occasions to come during the remainder of the year. We continue to expect volatility in some of our markets and cost pressures coming from commodities for the remainder of the year, but we are not making any changes to our outlook for the year. Therefore, the full year guidance relating to Brazil beer cash cost per hectoliter growth remains unchanged between 16% and 19%, excluding the sale of non-Ambev products on the marketplace. Despite the challenges ahead, we are on track in terms of our main ambitions for the year, including getting Brazil back to bottom line growth, targeting consolidated organic EBITDA growth ahead of 10.9% organic growth that we had in 2021, and improving our ROIC. To close, I would like to once again thank all our people who managed to deliver this quarter's performance. I would like to thank you for your attention and hand this over to you, Lucas.

Thanks, Jean. Good morning, good afternoon, and good evening. During our full year 2021 call, I laid out our approach towards 2022, and I mentioned what should be the same and what should change during the year as compared to 2021. So let me walk you through how Q1 performance stacked up using this exact same logic. Starting with, what wouldn't change? First, topline growth would remain a priority, and the key performance driver resulted in 18.5% net revenue growth overall with Brazil being the main highlight. Second, input cost pressure would remain a headwind. The result cash COGS per hectoliter grew nearly 20% on a consolidated level, and for Brazil Beer, it grew a little over 15% excluding non-Ambev marketplace products. Third, we will continue to focus on value creation drivers. During our recent Investor Days, we shared the financial logic behind our strategy and why we believe there is a path to sustainable long-term value creation for Ambev. Starting with the focus on improving our return on invested capital, building on our progress in 2021. As Jean pointed out, there are some good examples already of how our bets are translating into improvements in short-term performance. Now regarding what should be different in 2022. First, net revenue performance should be more driven by net revenue per hectoliter than volumes, as we adapt to a higher inflationary environment. The result, net revenue per hectoliter grew around 14%, while volumes grew nearly 4%. Second, cost headwinds would come mostly from commodity inflation rather than FX. The result, commodity inflation represented over two-thirds of the increase in Brazil Beer cash COGS per hectoliter driven mostly by aluminum and barley. Third, SG&A growth should improve. The result, cash SG&A grew almost 16% with sales and marketing growing a little over 12%, distribution growing 24% mainly due to rising diesel prices, and administrative expenses growing just about 3%, given lower variable compensation accrual. Fourth, over the last two years, we had significant tax credit one-offs in Brazil that positively impacted our EBITDA, financial results, and effective tax rate. This was not a major factor in Q1, but will be a factor in Q2, given how much this tax credit one-offs positively impacted the second quarter of 2021. What this all means to us is that these results are a clear indication that we are on track to deliver better EBITDA organic growth in 2022 than the 10.9% organic growth that we delivered in 2021. I would now like to cover two more topics: first, our financial performance below EBITDA and cash flow, and then ESG. Cash flow from operating activities totaled about BRL520 million in the quarter, which represents a decline of about 82%. Q1 2021 cash flow from operating activities had grown about 84%, and this quarter, there were two main factors that adversely impacted our operational cash generation. First, payment of variable compensation in March, and second, higher CapEx payments to start the year given the calendarization of our 2021 CapEx commitments. Normalized profit, however, grew nearly 29% in the quarter given EBITDA growth, a lower net finance expense versus Q1 2021 of about BRL600 million, and the lower effective tax rate. We face a very tough comp in Q2, given the tax credit one-offs that totaled about BRL1.6 billion, of which approximately BRL1.2 billion impacted our EBITDA and almost BRL400 million impacted our net finance results last year. Turning to sustainability, we recently had some very important milestones that I would like to highlight: first, we announced two more carbon-neutral breweries in Brazil, Agudos brewery, in the state of Sao Paulo, and Cachoeiras de Macacu brewery, in the state of Rio de Janeiro. Together they represent an emission reduction of over 14,000 tons of greenhouse gases per year, and we intend to deliver another seven carbon-neutral operations by year-end. Second, Guarana Antarctica is now packaged in bottles that are made with 100% recycled PET. This was a groundbreaking initiative that our team embraced and managed to deliver a great outcome. We are very proud of Guarana Antarctica’s heritage in Brazil, what it represents to Brazilian consumers, and its leadership in the circular packaging agenda. Third, another unprecedented initiative regarding scope 3 emissions. As part of our ambition to reach net zero in the value chain by 2040, we engaged over 165 suppliers that represent over 65% of our total scope 3 emissions, covering not only reporting but also concrete actions to decarbonize. Our 2021 ESG report is out and can be found on our Investor Relations website. We plan to host another ESG Day in the second half of the year so we can cover in greater detail our ambition, our progress, and learnings so far, and what to come. That's it, folks. Better start to the year than we expected, which is encouraging. Challenges and volatility remain a reality, so our guard remains high and we have more work to do. Let's move to Q&A.

Ladies and gentlemen, we will now begin the Q&A session. The first question comes from Mrs. Isabella Simonato with Bank of America.

Good morning, everyone. Thank you for the call and the question. I would like to ask about Beer Brazil. You mentioned that the penetration of RGB has been improving. Can you explain how much of this is due to the recovery of the on-trade itself and how much is related to the repositioning strategy of RGB you discussed on Investor Day, particularly regarding more appropriate pricing? What can we expect moving forward? Are we already seeing an optimized mix of RGBs, or is there more to come? That would be my first question. My second question is still regarding the consumption environment. While January was quite weak, we observed improvements across various sectors in February and March. Can you provide insight into how you perceive the start of Q2 in terms of the consumption environment and mix performance? What is your overall feeling about the market as we enter Q2? Thank you.

Hi, Isabella. Thank you very much for the questions. So, regarding the first one, Beer Brazil on-trade recovery is improving right in RGB. What I can mention is that we still don't see in Q1 the full recovery of the social out-of-home occasion, as we compare to pre-pandemic level in terms of mix, okay. So we are still seeing mid-single digits down in terms of mix. However, it's accelerating. We saw that this trend of recovery was happening quarter after quarter then we had sequential improvements in Q1 compared with Q4 of last year, but we are not quite there yet, so there is still opportunity on that front. But I'm happy to see the sequential progress. So this is the first question. The second one, as I mentioned in the last call, the big question of this year really would be about the volumes, right. So I think the other aspects were well set. So we had a good starting point in terms of market share. The pricing looks solid sequentially and the COGS is something that we confirm the guidance. So the question was really about the volumes. We were experiencing a very tough January due to Omicron at that moment. We had questions about disposable income and inflation impact in the industry, but we knew that this year we would have Carnivals and many occasions related to beer, as well as the World Cup in the summer. So the big question was really about the volumes. Then, we figured out during the quarter that January looked like a one-off because of Omicron. February got better, and March was a very strong month, and we have momentum that appears to be continuing.

That's clear, Jean. Thank you very much.

The next question comes from Mr. Thiago Duarte with Banco BTG Pactual.

Hello. Good afternoon, everyone. Thank you for the opportunity. I have two questions. First, I appreciate the detailed breakdown regarding the non-Ambev marketplace sales and their impact on the results. This information is very helpful. Specifically, I would like some additional insights into the revenue per hectoliter performance in the Brazil Beer division. Could you explain how packaging and brand mix have affected the year-over-year performance, or even the sequential performance? Jean mentioned that the RGB is gaining traction, but it's not quite there yet. So, could you elaborate on how packaging and brand mix have influenced the revenue per hectoliter? That would be great. My second question pertains to the core plus segment. It’s evident from the statements that the premium segment performed well and the core remained resilient, but it seems that core plus may have lost some ground. I would like to hear your thoughts on how that specific segment performed this quarter. Thank you.

Okay. Thank you, Duarte. So let's see if I can break it down; I'm not sure if I can break it completely down, but overall, brand mix was over-indexing, right the net revenue per hectoliter. And in the pack mix wins, a little bit down as we mentioned in our Investors Day, that during the previous year, we were rebalancing our pack price strategy always in RGBs. So in the end, net-net, it was positive. We are somehow confident on the net revenue per hectoliter. I think one way for you to look at it is that sequentially, it is going up comparing with Q4. If you look at my previous year, the specific Q1 of the previous year was really a strong one, but then moving forward, the mix effects diluted a little bit in the previous year. We are confident that now it's really sequentially going up and very solid at a good level. When you look at the full year and the level where we are now, okay. So in terms of revenue per hectoliter. Talking about brands and packs, I think we are very pleased with the volumes so if you look at our volumes and compare with the pre-pandemic levels with 2019, if you look at production numbers, we are 5% above 2019, and we are seeing overall competitors at a level that is much below that. Year-over-year, we are happy with the 2%. The bright spots were really the high end, which grew in the high teens, right, mainstream was very solid at mid-single digits combining brands. In the core plus, we put a basket there that includes Brahma Duplo Malte, Spaten, and Bohemia. It already represents more than 10% of our volumes, with the highlights for Brahma Duplo Malte and Spaten. We took some discounts out regionally, but in core plus, we feel that the strategy is right and represents more than 10% of our volumes so far. One big thing too is that I mentioned is that in terms of strategy of portfolio and brands, the RGB basket is really growing double digits and it's not there yet, okay. As I mentioned to Isabella, so the mix of 600-ml is not still at the pre-pandemic level, but when we look at the full basket of RGB, they are really growing double digits, and they are more on the 20%.

Thank you. That's helpful, Jean.

The next question comes from Mr. Sergio Matsumoto with Citigroup.

Yes. Good morning. I wanted to ask deeper on topics that came out in the Investor Day about those four brands, the 3Bs plus Spaten, and kind of ask you about how do you balance between those priority brands versus the complementary brand. Do you see Spaten, Budweiser and Beck’s as those three that are not as big as Brahma too, to kind of just as big over the medium to long term and perhaps overtake the size of Antarctica and Skol or how do you see this balance between these priority brands?

Okay. Thank you for the question. I think when we put our vision on innovation and white spaces to launch new brands and build the portfolio of the future, it became very clear for us that we have space in the Brazil core plus segment that is highly developed across the board in countries like China, the U.S., and mature markets such as Canada and the UK. The space that would be created over there in the core plus should have a potential around 25% for the industry, right. So, in the long term, I think premium at some point could be around 20%, and core plus around 25%. Then we have core and value slightly more than 30%. This opportunity is what we are focusing on in the core plus and entry premiums. So we aim to build something that we over-index in market share in 25% of the market. Our two bets are Brahma Duplo Malte and Spaten. Spaten needs to be sizable and has to be a leadership play that can be developed alongside Brahma Duplo Malte to lead this segment. You can do the math for that, and we are very excited. It's just starting, but we are very enthusiastic about the performance and feedback we are receiving. We believe that it can really be a sizable brand, Spaten in the core plus. Talking about the premium segments, we are optimistic that Budweiser will benefit from the overall reopening linked to entertainment events, particularly the World Cup after it had been depressed over the last few years, and we believe that Beck’s and Corona can also play important roles in building the super-premium segment.

Understood. It does make sense, and it sounds like Spaten has a lot of opportunities ahead. Thanks very much.

Yeah, for sure.

Your next question comes from Mr. Lucas Ferreira with Banco JPMorgan.

Hi. Good afternoon, everybody. Thanks for the time. My first question is regarding the costs, the cost guidance that you have for the year. Specifically, if the volumes come in strong or performing well, put it this way, if you start feeling a bit more comfortable with the cost coming more towards the low end of the range, or eventually coming even below that, as it was the case in the first quarter adjusted for the marketplace. Is this something that we can say or not yet? And the second question is maybe to Lucas regarding the working capital specifically, this quarter, which was a bit heavier, especially on the accounts payable line. So if there is anything particular about this quarter that you can highlight and how to think about that going forward? Thank you.

Okay. So I will take the first one and then Lucas will address the second one. When we provided this guidance in the previous quarter, we were apprehensive because we didn’t have a clear outlook after the war began. However, we were confident, as we made a lot of calculations to arrive at this range, and we are very committed to remaining within that range. It is still too early to mention that we can go below it, but we are confident that we will stay within that range.

Okay. Hi, Lucas. This is Lucas here. Regarding working capital, I think you nailed it. The big difference in the quarter is really the payment of variable compensation. In Q1, remember 2020 was a no-bonus year, so 2021 had no cash outlay for variable compensation, which was not the case in 2021, where there was a bonus paid out that impacted us in the first quarter of 2022. So this was the first significant impact we saw on the payables line. The second was related to CapEx, as you may remember, we have payment terms that vary depending on the category of suppliers and many of our suppliers, particularly for CapEx, we have longer payment terms. Depending on the calendarization of our CapEx spend, there are instances where we book the expense in one fiscal year but the actual payment falls in the next fiscal year. This quarter specifically, we had CapEx commitments that were booked in Q3 and Q4, and the cash outlay fell in Q1 of this year. So those are the two main drivers of this variation on the payables line. For the year, we continue to work very hard on improving working capital performance overall. So I would see Q1 performance as influenced by these two factors and nothing more than that. We’ll continue to work on it.

Excellent. Thank you very much.

The next question comes from Mr. Gustavo Troyano with Itau BBA.

Hi, Jean, Lucas. Hi, everyone. Thanks for taking my question. I was wondering if we could explore a little bit the EBITDA organic growth forecast for 2022 of the 11% that you mentioned in the fourth quarter, especially trying to analyze how this first quarter compares with your initial expectations. So it would be really helpful to hear from you if this quarter came in line with your forecast, especially focusing on a business unit breakdown. So is there a business unit that has surprised you to the upside or to the downside and looking forward as we walk through the second quarter, do you believe these positive or negative highlights are on track to reach our original forecast? Any color that you could give us on this side would be really helpful. Thank you.

Thank you for the question, Gustavo. Let me elaborate on this EBITDA ambition we had. We mentioned that we should grow faster than we did last year, the number is 10.9%. We believe that what's happening is that if you look at the growth of the previous year, Brazil was in negative territory while international operations were doing well. We believe that our acceleration for the year will be driven by international performances along with Brazil's rebound. When I look at this quarter, everything I see makes me confident that we are on track to meet this guidance. Canada and the Dominican Republic had slightly lower performance, but other areas compensated. I feel that this quarter confirms our trajectory toward achieving the ambitious EBITDA growth we mentioned earlier, with the main change being Brazil Beer and NAB bouncing back strongly.

Great. Thank you.

The next question comes from Mr. Robert Ottenstein with Evercore.

Great. Thank you very much. First, a more detailed question on the operating environment and then a bigger picture question. So can you talk and give us a little bit more detail in terms of what kind of pricing is going on in the Brazil Beer market today that you've done that the competition has done and maybe break it out a little bit more by tiers? From what we can tell, it seems much more geared to the high-end and an increasing gap between core, core plus and the high-end, maybe we're wrong, but that's kind of what our trade visit suggested. So that's the first topic on pricing. And then the second topic, kind of just bigger picture some important management changes at the ABI level a growth officer Ricardo Tadeu, with a lot of businesses coming into him. Can you talk about how that impacts how you run your business and if anything changes there and whether it's beneficial. Thank you very much.

Thank you for the question, Robert. In Q1, our net revenue per hectoliter was up 8.4% versus last year, excluding the marketplace segment just discussing beer. This was primarily driven by the price increases we had in Q4 and our revenue management initiatives. Our last price increase occurred in October ‘21, so Q1 presents a tough comparison due to what happened previously, but sequentially, we saw improvements compared to Q4, which puts us in a good position for the rest of the year. We intend to remain flexible in response to inflationary pressures, disposable income considerations, and demand elasticity among other factors to seize all opportunities. Regarding competition segments, from our perspective, the segment that saw the highest price increases was the value segment, which had the largest price hikes overall in the industry. What we noticed in Q1 was our pricing relative to competitors had opened up. We went ahead and competitors were slow to follow, which contributed to favorable performance metrics.

Just to complement Robert, pricing strategy is more tactical now than in the past. In 2020 and 2021, we opted to focus pricing more on one-way packaging, compared to RGB; this kicked off a comprehensive review of our price ladder. We also preferred avoiding an overburden on the on-premise segment that was severely impacted during the pandemic. Moving forward, it’s more about a holistic pricing strategy involving segment-wise, brand-wise, region-wise, and channel-wise evaluations.

Got it. Thank you very much.

Okay.

Your next question comes from Mrs. Fernanda Sayao with Credit Suisse.

Hi, Jean. Hi, Lucas. Fernanda Sayao from Credit Suisse. Thank you for the opportunity to ask questions. I have two on my side. First, I was wondering if you could comment on market share dynamics across markets, specifically across segments and brands. And then also if you could give us some more detail on what happened specifically in Canada and how you see the business going forward. Thank you.

Thanks for the question, Fernanda. Starting with the regional overview, we have maintained solid market share at Ambev. Analyzing the rolling 12-month volumes demonstrates that we are leading the industry, hence focusing not only on market share but also on expanding occasions in the industry. We are optimistic about our volumes. Last quarter we discussed whether we had cycled all the growth or if we could continue growing volumes. Ambev demonstrated strength with rolling 12-months figures, reaching 182,000 hectoliters. Regarding market share dynamics, we are gaining market share in Brazil and Chile. In Canada, we have also regained market share and maintained a strong position in terms of share within the Dominican Republic. In Argentina, we are aligned with the market share we have historically held. In segments within Brazil, we are excited about our performance in NABs, where we are gaining market share through our portfolio rebalance strategy alongside digital platforms. This has been a model of growth moving forward. As for Brazil, the high-end performance in Q1 was strong with high-teens growth, core is outperforming the industry, and we have made pricing adjustments in the value segment, particularly in the cans to elevate prices resulting in lower volumes and market share in that area. However, overall market share remains solid, and we are actively focusing on the core plus segment with specific brands we mentioned during Investors Day.

To add on Canada specifically, we observed good performance in terms of market share, which was led by our premium brands such as Stella and Corona while our core plus brand Michelob ULTRA also performed well. These three brands have been key drivers for us while navigating a notably negative industry, especially in January. They continue to outperform the market and gain share. In addition to volumes, net revenue per hectoliter grew 4%. However, as seen across many markets, the operation faced commodity procurement challenges. On the distribution side, costs suffered due to rising freight expenses; this was also a factor in Q1. Moving ahead, we have solid plans in place to enhance performance but are aware of the challenges.

Thank you and congrats on the results.

Thank you.

The next question comes from Mr. Thiago Bortoluci with Goldman Sachs.

Yes. Hi, Jean, Lucas. Good afternoon, everyone. I have two questions. The first one following up on the discussions on market share. Could you please elaborate a bit more on volumes growth in Argentina, please? This is the first one. And the second one, regarding the additional information you shared on BEES, especially the portfolio up from Ambev. We are seeing at this point cash gross margin close to mid-single digit, right? But I understand that part of this is basically because leveraging your existing footprint and existing capacity within the truck. So most of this should flow to EBITDA. Please correct me if I'm wrong on this. But going forward, as you scale up the platform, how should we think about margins for this business unit on an underlying basis? Should we expect additional SG&A to come over the next quarters or should we take this current levels as an underlying base for margins going forward? Thanks.

I'll handle the first part and then Lucas will address the second part. To go over LAS Argentina specifically, we indeed had a good performance in topline in LAS with a 40% increase. However, our volumes in Argentina were slightly negative in beer this quarter, registering low-single-digit declines as we cycled through a solid Q1 from the previous year. In NABs, the performance was more positive with market share aligning with what we had historically in Argentina.

On BEES margins, I want to clarify that we're still in expansion mode, and while we've made significant progress over the last year, there are still many opportunities ahead. It’s still a bit early to establish a stable state margin expectation for the marketplace business. That said, the way we are structured makes it reasonable to expect a higher gross margin to flow to EBITDA as opposed to observing in other similar operations due to the scaling of this initiative.

And Lucas, if I may follow-up on this. Thanks for the color. Would you think it would make sense to compare this absolute level of margins with cash and carry guys or wouldn't make sense?

You guys are the experts here, right. You are the experts on one of the best comps, okay. We, of course, look at other market participants, but our focus remains on the client and on delivering the best possible service and variety to our clients. I leave it to you to determine the best comparisons.

Thanks, Lucas. Thank you, Jean.

Okay.

The next question comes from Mr. Ricardo Alves with Morgan Stanley.

Hello, Jean, Lucas. Thanks a lot for the call. Most of my questions have been answered. Just some more specific ones. On administrative expenses in Brazil Beer, we did see the year-over-year decline as a percentage of sales. I think you're running at 8% or so, but still seems a little bit above historical. Did you guys expect this line to go lower from here? Did you expect to see a lower number already in the first quarter? Just for the sake of modeling the rest of the year in 2022. Any color here would be helpful, if there is anything within the admin line that surprised negatively in the first quarter and maybe that will change going forward?

Yeah, I think the big key influence regarding Brazil Beer was that the previous year, the sales and marketing expense was down year-over-year. This means we had a tough comparison for the sales and marketing portion of Brazil Beer SG&A. On the distribution side, we continuously face cost inflation impacts, particularly from diesel, since we operate a large direct distribution network. The logistics operations tend to suffer given the rising diesel costs. Looking ahead, this could continue to apply pressure. On the administrative cost side, this was a significant factor in 2021 driven by variable compensation accruals performed quarter after quarter. For this year, we're not seeing this growth in the variable compensation accrual side in Q1 and don’t expect to see it moving forward as we compare 2021 and the level of performance that exceeded our expectations.

It does help. So thanks for the details, Lucas.

Great.

The Q&A session is over. I would like to turn the floor over to Mr. Jean Jereissati for his final remarks.

Thank you all, and especially all the analysts and everyone who joined the call for your time and attention. To wrap up, we had an encouraging quarter, and we will remain focused on seizing the moment for the main consumption occasions during the remainder of the year. We still expect some volatility and cost pressures coming mainly from commodities. However, despite all the challenges, we remain on track with our main ambitions for the year, including delivering consolidated organic EBITDA growth in 2022 that exceeds our 10.9% organic growth from 2021, primarily due to Brazil returning to growth. Thank you very much. See you in July and have a great day.

This concludes Ambev’s conference call. Thank you for your participation and have a good day.