Anheuser-Busch InBev SA/NV Q3 FY2021 Earnings Call

To access the slides accompanying today's call, please visit AB InBev's website at www.ab-inbev.com and click on the Investor's tab and the Reports and Results Center page. Today's webcast will be available for on-demand playback later today. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation. Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that AB InBev's actual results and financial condition may differ, possibly materially from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect AB InBev's future results, see risk factors in the Company's latest annual report on form-20F filed with the Securities and Exchange Commission on 19th of March, 2021. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call, which are not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Michel Doukeris. Sir, you may begin.

Thank you, Jessy, and welcome everyone to our Third Quarter 2021 earnings call. It's a pleasure to be speaking with you all today and I hope you and your families are staying well and safe. As the world reopens, I'm looking forward to being able to meet with you in person in the near future. Today, I would like to start with an overview of our third quarter operating performance and key commercial and sustainability highlights. Then, I will hand it over to Fernando, to discuss our financials. After that, we will be happy to take your questions. So let's start with our operating performance for the quarter. When compared to the third quarter of 2020, we delivered top-line growth of 7.9% with a healthy mix of 3.4% volume and 4.3% revenue per hectoliter, driven by revenue management and premiumization. It did increase by 3% with an EBITDA margin of 36.5% versus third quarter of 2019, pre-pandemic levels. We grouped topline by low pings driven by the consistent execution of our strategy and strong underlying consumer demand for our brands. This quarter, we also returned to growth at EBITDA level versus third quarter 2019, as we continue to manage our costs efficiently. Our underlying EPS increased from $0.80 to $0.85, and our normalized EPS was $0.50. We delivered a strong performance in the context of a challenging global operating environment characterized by ongoing COVID-19 restrictions, commodity inflation, and supply chain constraints. Our results were driven by relentless execution, demonstrated by our teams, consistent investments in our brands, and accelerated digital transformation. In light of our continued momentum, we are raising the bottom end of our EBITDA growth guidance from 8% to 12%, to 10% to 12%. Looking ahead to 2022, the current supply chain disruptions will result in higher input costs. We have a proven track record of operating effectively in inflationary environments around the world. We will continue to deliver on our best-in-class revenue management capabilities while relying on the strength of our brand portfolio and enhanced digital capabilities to optimize our performance. In light of the discussed headwinds, we continue to meet the moment and we have already taken action. We've increased pricing in several markets, such as Brazil, Mexico, Colombia, China, and Nigeria, among others. Now, I would like to share some highlights from our key markets. In the U.S., both revenue and EBITDA grew by mid-single-digits, that's in 2019. Compared to the third quarter of 2020, our topline declined by 80 basis points this quarter, driven by a lower industry and supply chain disruptions resulting in out of stocks. We remain focused on the consistent execution of our commercial strategy in rebalancing our portfolio towards faster-growing above core segments. In Mexico, we delivered high single-digit top-line in mid-single-digits, bottom-line, sustained 19 fueled by ongoing portfolio development, digital transformation, and continued channel expansion. Our business platform continues to expand now, comprising nearly 70% of our revenue. In Colombia, we delivered record volumes this quarter, growing top and bottom line ahead of pre-pandemic levels, supported in part by our innovations. BEES's share of total alcohol increased by approximately 120 basis points year-to-date, August versus the comparable period in 2019 resulting in the country's highest beer per capita consumption in 25 years. This now represents 85% of our revenue in Colombia with an average EPS score of 56. In Brazil, we achieved all-time high rolling 12 months via volume in the third quarter of 2021, growing volumes by 7.3% versus third quarter 2020, and by 35% versus third quarter 2019. We outperformed the industry for the fifth quarter in a row, according to our estimates. All segments of our beer portfolio grew by at least double digits versus the same period in 2019 with the premium and core-plus segments leading the way. BEES, now covers more than 85% of our active customers across the country. Our business in Europe grew revenue by low single digits and EBITDA by mid-single digits versus the same period last year, supported by premiumization, operational efficiencies, and additional revenue management initiatives. As vaccination rates continue to increase in our key markets, and as their own premises recover, our performance is improving, driven by health distribution and market share gains for our portfolio. In South Africa, our business delivered volume growth in the mid-20s versus third quarter 2020. Compared to third quarter 2019, even though there were 25 fewer trading days, our revenue declined by only low single digits, reflecting strong underlying consumer demand for our products. In China, the implementation of COVID-19 restrictions led to a total industry decline of mid-single digits according to our estimates. The restrictions disproportionately impacted our key regions, leading to a 7.1% volume decline. Nevertheless, the premiumization trend remains as strong as our super-premium portfolio once again outperformed, led by double-digit growth of Budweiser. Moving now, let's discuss the key commercial and sustainability highlights from this quarter. We continue to develop a unique and diverse portfolio of brands to reach more consumers in more occasions. Our mainstream brands grew revenue by 4%, gaining share of segment across most of our main markets. Our premium portfolio continued to lead the way, delivering over 11% revenue growth. Our Beyond Beer brand continued to add profitable growth, delivering $1.2 billion in revenue year-to-date. Diving deeper into the performance of our global brands, the combined revenues of Budweiser, Stella Artois, and Corona grew by 5% globally and by 9.3% outside of the brand's home markets where they typically command a premium price. Now, let me talk about innovation. Our innovations are meaningfully contributing to our results, making up approximately 10% of our revenue year-to-date. Based on the success of Brahma Double Malt in Brazil, we are expanding the double malt concept to more than 10 markets, including the launch of Capsule Double Malt in South Africa, this quarter. To address the global trends of health and wellness and moderation, we are developing a portfolio of differentiated offerings. We are seeding Michelob ULTRA, our premium low-carb, low-calorie beer in the markets. We're also enhancing our non-alcoholic portfolio by expanding Bud Zero to more than 10 markets by the end of the year. We continue to explore and innovate in the Beyond Beer space. Michelob ULTRA hard seltzer is leading the emerging seltzer segments in Mexico, with nearly 50% market share. In addition, Cutwater continues to rapidly expand, growing triple digits in the U.S. We are also scaling the Michelob brand family to more than 15 markets this year. Now, I would like to talk about how we are transforming our business with technology. Our digital B2B sales platform, BEES, is enabling us to turn customer pain points into opportunities for growth. We are live in 13 markets, with 2.1 million monthly active users, with over $5.5 billion in gross merchandising value this quarter, demonstrating an accelerated growth trajectory in the past 12 months. To give you a deeper understanding of the value we are unlocking with our digital transformation, let me walk you through the journey in our biz pilot market, the Dominican Republic. We chose this market as the first for the full rollout of our digital transformation. Launching BEES in 2019 is an ideal candidate to test and capture learnings to inform the global expansion of the platform. First, it is a market of relevant size which will allow us to understand the potential impact of a full transformation. It is also a market where we have a significant presence. We've got a high level of direct distribution, which facilitates rapid expansion and adoption. Lastly, it is a market with lower e-commerce penetration and a high level of traditional trade, which would provide us with learnings on how to address perceived barriers to adoption. We have seen exciting results since we digitally transformed the market with the platform, unlocking incremental growth for our own business and our customers. The digitization of our relevant market enabled us to fully execute our commercial strategy. With BEES now making up over 90% of our revenue in the Dominican Republic, we are reaping the benefits of accelerated revenue growth versus historical levels. For these customers, particularly those that are fully engaged, we see accelerated performance across several key metrics with higher revenue per order, higher delivery frequency, and more unique SKUs purchased when compared to 2019. We have now rolled out BEES to 13 countries in the last two years. And we are incorporating the learnings we have gained along the way to accelerate the digital transformation across our global footprint. Now, let me talk to you about another pillar of our digital transformation, our own direct-to-consumer business, which generated more than $1 billion in revenue year-to-date and is growing rapidly. The biggest contributor is our e-commerce platform, which grew by 93% year-to-date. In Latin America, we are building our own new channel ecosystem. We operate e-commerce courier platforms across more than 10 countries. Leveraging a best-in-class physical presence, we support retailers in brick-and-mortar direct-to-consumer businesses. In Europe, we are delivering a superior and unique at-home experience through in-home product drops on our e-store, now generating more than $100 million in revenue year-to-date. Now, let me change gears and talk about sustainability. I'm so proud of our journey and our teams in advancing our ambitious sustainability initiatives. We are taking action to decarbonize our footprint. Earlier this year, we announced our first carbon-neutral brewery in Yuan, China. This quarter, we achieved carbon neutrality for our second brewery in our first small calls in Brazil. As pioneers in sustainable brewing, we continue to pursue innovation and partnerships in support of the transition to a low carbon economy. Additionally, in September, at the 76th session of the United Nations Global Assembly, we were recognized as one of only 37 Global Compact Lead Companies for our ongoing commitment to the UN Global Compact's 10 principles for responsible business and the related sustainable development goals. Congratulations to our teams and partners for these important achievements that are driving our sustainability agenda forward. With that, I would like to hand it over to Fernando to discuss our financials.

Thank you, Michel. Good morning, good afternoon, everyone. I hope you are all safe and well. Let me first take you through the drivers of our underlying EPS. Our underlying EPS increased by $0.05, from $0.80 to $0.85. Normalized EBIT increased by $0.13 per share. In net finance costs, we recorded lower interest expense due to gross debt reduction, partially offset by other finance costs. We saw higher income tax expense due to increased profitability, country mix, and reduced benefits from tax attributes which was $0.05 per share. We also recorded a higher share of results from associates worth $0.01 per share, and the highest profit attributable to non-controlling interest worth $0.10 per share, resulting from higher profits of our lifted subsidiaries, Budweiser, a back and Ambev, along with the issuance of a 49.9% minority stake in our U.S.-based metro container operations in December 2020. Moving on to Slide 18, you'll see that our debt maturity profile is well distributed with no significant maturities over the next five years. Let's elaborate further on our debt portfolio shown on the previous slide. As a reminder, we do not have any financial covenants on our entire debt portfolio, including our sustainability-linked revolving credit facilities. Our bond portfolio remains largely insulated from interest rate volatility as approximately 95% holds fixed rates. Furthermore, the portfolio is comprised of a variety of currencies with 52% denominated in U.S. dollars, 34% in euro, and the remainder in currencies such as the Canadian dollar, pound sterling, and Korean won, diversifying our exchange rate risks. The weighted average maturity of our debt portfolio is more than 16 years. Finally, we continue to have a very manageable weighted average coupon of approximately 4%. Now let's talk about capital allocation. Maximizing long-term value creation drives how we balance our capital allocation priorities. Our top priorities for the use of cash are to invest in our brands and to take full advantage of the organic growth opportunities in our business. Our optimal capital structure remains around the two times net debt to EBITDA ratio. With respect to M&A, we will always be ready to look at opportunities when and if they arise, subject to our strict financial discipline and leveraging commitments. Finally, we include returning excess cash to shareholders in the form of dividends and not share buybacks. However, in light of financial discipline and leveraging objectives, there will be no interim dividend. The board's proposal with respect to the full-year 2021 dividend will be announced after we follow full-year '21 results on February 24, 2022. I will now hand it back to Jessy so we can begin the Q&A session. Thank you.

Thank you. The floor is now open for questions. Our first question is coming from the line of Mitch Collett with Deutsche Bank. Please proceed with your question.

Good morning, Michel. Good morning, Fernando. My first question is on pricing. Can you comment on the pricing environment in your key markets? You've been able to take up pricing in Brazil, for example. But perhaps you can tell us what you're expecting for pricing in 2022. Secondly, I would like to ask about your direct to consumer growth. And I think the 60 million DTC orders you've achieved in the 9 months implies $21 million in the third quarter, which is up 40% versus Q2. Can you comment on what's driving the acceleration and how you're benefiting from both the economics of DTC and the additional data it brings to the business? Thank you.

Hi, good morning, everyone. Good afternoon. Thanks for the question, Mitch. Michel speaking here. I think that taking on the first part of your question, the one related to price. What we see is input costs going up across the globe. I think that this is not new news. And we see that there is inflation picking up at different levels across different markets as well. We continue to analyze everything and use our revenue management toolkits to face this moment and make sure that we are planning accordingly, and taking under consideration our overall business performance. In the markets where we already moved with price this year, some of them more than once, such as Brazil. We see that the inflation is peaking up, so consumers and consumer demand remain strong. We have other examples, such as Colombia, Mexico, Nigeria, and China, where we are already on the move and taking actions. When we look forward at this point, it’s too early to see what's going to happen and how costs will be next year, commodities and everything else. But we rely on the strength of our portfolio, best-in-class revenue management capabilities, as well as our enhanced digital capabilities to help and support us in optimizing our business. Then moving on to the second question, direct consumer. This is being a very important journey for us, and very relevant in the way that we've been implementing our digital transformation, and perhaps one of the most important components of our current strategy. We've been seeing meaningful developments in direct-to-consumer. COVID, as everybody talked about, accelerated a lot of consumer behaviors in this front. We generated this year more than $1 billion in revenues. Huge presence for direct-to-consumer in Latin America, we are now in 10 countries. We utilize Ze Delivery, our international courier platform, delivering beer to consumers in 30 minutes at great prices. And in Europe, we have a slightly different approach, also through our e-stores, but also doing perfect draft, which will be helping us a lot to bring the draft experience home. For example, we have a huge base of in-home bars now that people are using with our perfect draft. I think that the main mission in our direct-to-consumer is, on one hand, the best-in-class consumer-centric experiences, but also gathering more data, understanding better occasions, and making sure that we are there when consumers need us. Brazil's delivery now covers more than 50% of the Brazilian population, in more than 280 cities, and continues to expand very fast. Not only in Brazil but also in another 10 countries in Latin America. Thanks for the question.

Thank you.

Thank you. Our next question comes from Edward Mundy with Jefferies. Please proceed with your question.

Hi, Michel. Hi, Fernando. Afternoon, morning, everyone. Two questions, please. You're a 100 days into the role, and you highlighted in your presentation some of the things that are working well on the category development side and also through digital transformation. As you doubled down on these, to what extent do you think there will be sustainable levers to growth beyond the current recovery period? And then my second question is, coming back to COGS. You didn't really have the same digital capability last time the industry faced these COGS headwinds. How do your B2B and DTC assets make it easier to navigate a rising COGS environment?

Hi, Ed. Michel here. Thanks for the question. I think that we were on mute before. So talking about the 100 days, I think that there is a lot to learn in 100 days, it goes by very fast. But when you are focused at the same time you can achieve a lot. I think your question was more into the digital part, and we are doubling down on that. I think that digital is, as I said in the last quarter, this concept of stepping stones. We started this journey five to six years ago, and we knew that as we progress, we would be learning much more and building momentum with the data that we gather, the experiences, and the learnings along the way. What is very relevant here is that this is a long-term investment and a very strategic one. We are doing, first and foremost, focusing on consumer and customers. On the consumer front, it's reasonable experiences; being there for consumers when they want us, on the occasions that they want, and making us more available across a broad range of occasions and tapping into the digital trends that consumers are really engaging with. On the B2B side, this is a very interesting opportunity to digitize part of our commercial strategy, making sure that we learn more to promote scale through data. And now as we capture this data and improve our execution capabilities, our overall strategy gets a much better execution because we free up time from our people, from our team to focus on what matters the most: the premiumization of our portfolio, the activation of all occasions, and this unlocks new revenue streams for us. And of course, we have 13 countries now with BEES. We continue to expand quickly in these countries. We are going very deep, with 70% to more than 80% of our revenues now coming from BEES. And the more we go, the more we learn, and the more we get further opportunities to continue to expand beyond only our own business. So we have examples of marketplaces, we have examples of services, we have examples of credits. When you think about COGS, how does digitalization of our relevant market and relevant consumer help that? It gives us more information, that ability to forecast our own volumes and adjust our supply chain to be more effective. There are many learnings that we are building there. A very unique position given our size and footprint. And this also gives us a better ability to utilize and maximize our revenue management strategy.

Thank you, Michel. Regarding your example of the Dominican Republic on Slide 13, you mentioned that net revenue per delivery is increasing. Does having some BEES contribute to this from a pricing perspective?

Yes. That is again a very interesting market for us. It was the market where the team decided to take BEES to full execution. The base team did a great job understanding all consumer pain points, building up the tech knowledge, enhancing all the models that we had. The team is reviewing everything and all the progress that we're making there. So we're showing here the beer-only revenues in the example, and you saw that there was an acceleration. This acceleration, of course, is a product of following the entire commercial strategy. Not only BEES, because that is more premiumization in the market; there is more innovation, there's more deliveries and there is more availability. This is helped and supported by BEES. On top of that, we also have now lower marketplaces than with BEES. So there is more revenue than the one that we put on this slide. And of course, part of our overall strategy is revenue management. So this growth that we saw in this slide is a combination of volume growth plus revenue per hectoliter growth. And they are both enabled by this, but also by our overall commercial strategy that has premiumization, that has digitalization, and that has a very strong execution in the marketplace.

Great. Thank you.

Thank you. Our next question comes from Trevor Stirling with Bernstein. Please proceed with your question.

Hello Michel and Fernando, two questions on my side. Michel, you increased your guidance today, but just wondering if you wanted to highlight what went so well in the third quarter that gave you the confidence to increase the guidance. The second question is, coming back to your first 100 days, Michel, what do you think is the biggest change you've made since you took over as CEO?

Thanks, Trevor. On the guidance, in the beginning of the year, we provided our guidance of an EBITDA growth of eight to 12. Now, we already have nine months behind us, so it's natural that we raised the bottom end of our guidance. Now we added 10% to 12% and we continue to maintain there's going to be 10% to 12% and our revenue is likely to grow ahead of that which will be a healthy combination of volume and price. It's fair to say that our teams worldwide have been successfully navigating a quite complex environment with our customer and consumer-centric approach. And we are confident about the momentum of our business performance. So as a consequence, we are raising the lower end of the guidance and now we're at 10% to 12%.

Hi Trevor, Michel here. Regarding the second part of your question about the 100 days, time passes quickly, but maintaining focus is essential, and I'm grateful for the team's efforts in maximizing their work. The key takeaway from these 100 days has been engaging with the team and listening to their insights. I'm truly impressed and humbled by their dedication and commitment to our goals. Over these 25 years, I've continued to learn, and our team has been invaluable in sharing their knowledge with me. As I've mentioned before, my initial priorities were to seize the moment and ensure a successful 2021. We need to clearly identify what is working so we can invest in and enhance those areas while focusing on consistent financial performance as a sustainable leader. I previously mentioned this in the press release. My aim is to instill a sense of simplicity and focus within the team, emphasizing relentless execution, investing in our brands, and pushing forward on our digital transformation. To sum it up, my three main points are relentless execution, focus on our brands, and accelerating our digital transformation.

Thank you. Our next question is coming from the line of Sanjeet Aujla with Credit Suisse. Please proceed with your question.

Hey, Michel and Fernando. My question is really looking at many of your markets. Industry demand is well ahead of prepandemic levels. Notably Colombia and Brazil. What do you think is driving that growth and how sustainable is this? Do you think volumes can continue to grow on this new high base? Thank you.

Hi Sanjeet. Good afternoon, Michel speaking here. Thank you for the question. So I think that when you look at the market demand and the way that the category has been developing, I'm very glad to see markets such as Colombia, Brazil, and Mexico. We talked about Canada, the industry growing in the last quarter, and I'm very excited about category development. I'm even more excited when I think about Brazil and Colombia this quarter, because there's really kept awarding growth with all-time high volumes, so we are unleashing category growth and we at AB InBev are leading this growth. It's really innovation, the performance of our brands, and the execution of our digital strategy in these two countries that have been bringing consumers closer to our brands. Therefore, we are reaping the benefits of this category development. When you think about the long term, I think that's in both countries, and moreover, across the globe, the category continues to have a lot of opportunities to develop, and now we are learning from the FTD model. In everything that we've been building over the last five years and accelerating now further, the category expansion model can do and be for us is very exciting. And AB InBev is gaining share globally this year, and I think that this is very good for the long-term prospects in the category. In Brazil and Colombia, it's about innovation, it's about the incredible execution of our teams in the markets, and it's about the pace of our digital transformation.

Thank you. Our next question comes from the line of Simon Hales with Citi. Please proceed with your question.

Thank you. Hi, Michel. Hi, Fernando. Two for me as well, please. Michel, you talked at the beginning about the pricing you've been taking up late and how there are probably going to be more to come as we look forward over the next few months. Some of your competitors have been highlighting that, given the broader inflationary backdrop that is affecting consumer pockets, that they have started to see some signs of a slowdown in some markets in terms of consumer offtake for beer. How do you think and how confident are you in the beer category's ability to hold its fair share of the consumer's wallet against that inflationary backdrop as we look into 2022? And then secondly, on the U.S., how do you see the backdrop for the U.S. businesses as we look into Q4? You clearly had some out-of-stocks in Q3. Is that correcting itself, or are ongoing glass and supply constraints likely to intensify from here into the year-end?

Hi, Simon. Thank you for the questions. I think that brought the two questions here. I will start with the first one on pricing and category. I believe the beer category globally has proven to be very resilient. It's not only resilient over the years, but throughout the pandemic, we saw spikes in consumer demand, and it continues to grow. The category has been gaining share globally. I think that in key markets where we already increased prices, examples include Brazil, China, Mexico, and Colombia. The demand for our brands continues to be strong. This has to do with all investments that we've been making in our brands and the number of consumers that love our brands; it relates to forward execution, the hard work of our teams, and our ability to innovate and continue to support consumer demand. Input costs continue to rise. I don't think we have all the data today on how this will play out, but as all categories face increasing prices due to inflation, we also see that there is a shortage in labor and consumer purchase power continues to be strong. In facing this inflation scenario, but at the same time maintaining consumer purchase power, we expect the category to continue to perform well. Importantly, we continue to invest in our brands to drive consumer demand, innovation, and enhance our digital capabilities. Moving on to the second topic, which is the U.S., I think we need to step back and look at last year. If we think about the third quarter last year, it was an outstanding quarter for beer, with industry growth in both top-line and bottom-line. As we compare this, we are facing tough comps and supply chain disruptions at the same time. The disruptions primarily stem from glass availability and transportation issues caused by winter storms and other events. We faced a lot of challenges in the third quarter. However, our inventory position is now much better, and we are coming back to a much better supply situation for our wholesalers and retailers. Although we are not clear yet on how this will resolve, Q4 looks better based on our forecasts.

Thank you.

Thank you. Our next question comes from the line of Olivier Nicolai with Goldman Sachs. Please proceed with your question.

Good morning, Michel. Good morning, Fernando. Just one question actually on the U.S. and the hops of the category, which has been stirring down in recent months. We have also seen a proliferation of brand and line extensions from you and many of your competitors. Now do you expect the slowdown to be temporary? And do you think you've got a clear path to accelerate again? Also, what's your view on how it plays out outside of Europe, in the U.S. and thinking about Europe or Latin America? Thank you.

Hi, Olivier. Thanks for the question. So I think on two parts here. The first one is in the U.S. category, and I would like to go back to the answer I gave. When we compare the last three months of Q3, we faced a significant comparison to last year. This was driven by two things: the off-trade represents more than 80% of the category, and during the lockdowns, this channel remained open leading to pantry loading. Secondly, the government reacted quickly with stimulus packages which led to increased consumer spending. The industry performed well during the pandemic. Even though we are seeing some slowdown in Q3 this year, it was still stronger compared to Q3 2019. I think the industry will improve. On the second part of your question, when we consider self-service, I always return to the point that self-service and beyond beer are extremely beneficial. We see industries like the U.S. and Canada that have low self-serve segments, growing revenue without increasing volume sales. That's a significant change. In the last two years, they have seen growth largely due to beyond beer segments, attracting consumers from outside the category, with more than 50% growth coming from wine and spirit occasions. There's a lot of potential there, and we have the capabilities for packaging and innovation needed. We’re very well positioned to take advantage of this globally, expanding beyond beer in markets like Mexico and South Africa with products like Flying Fish. We're continuing to innovate and invest, excited about our ready-to-drink offerings, with Cutwater showing impressive triple-digit growth. Thank you.

Thank you for the question.

Thank you. Our next question comes from the line of Celine Pannuti with J.P. Morgan. Please proceed with your question.

Thank you very much. Good afternoon, good morning, everyone. My first question is on gross margin. I noticed that your gross margin decreased by about 130-140 basis points in the quarter. Could you provide some details on the factors involved, as I would assume there were some mixed benefits? Also, your pricing picture seemed to improve. If you could clarify that for us, I would appreciate it. Additionally, I understand you can give a range for margin expectations in 2022, but I assume you have an outlook for the first half of the year. Should we anticipate a similar triple-digit gross margin appraisal as we look into the first half? My second question is about innovation. I'm glad to see that innovation accounted for 10% of your sales year-to-date. How do you define innovation regarding new product launches, and what is the timeframe for these launches? I also noticed that you have many rollouts planned, yet your SG&A for the quarter remained flat. What is the outlook for SG&A as we look ahead to next year? Thank you.

Thanks, Celine. Fernando here. On your gross margin question, going back to our guidance: our guidance would be to grow EBITDA 10% to 12%, and we were saying that our revenues would be growing ahead of the projected EBITDA. The main reason for that, as discussed several times, is the cost pressures that will have an impact this year. For 2022, we are not giving any outlook yet, but we've been seeing the different forces presented by Michel regarding input cost pressures. They are real. However, we have a lot of other initiatives around revenue management, digital capabilities, and innovation to manage through that. Regarding your questions on innovations, we define innovation as new products that didn't exist over the last 3 years or 36 months. That's how we calculate innovation in our numbers.

And on SG&A?

No, we're not also giving outlook on SG&A. The only outlook that we're providing is the EBITDA growth of 10% to 12%.

Thank you.

Thank you. Our next question comes from the line of Nik Oliver with UBS. Please proceed with your question.

Hey, thank you for the questions. Two from my side, especially on Brazil. If you could just share a bit more color on what appears to be a material outperformance in the market in Q3, at least versus the production data that we all track. And then secondly, a longer-term question. I guess in the past we tended to think about AB InBev as an EBITDA margin expansion story. Is it right to think more about the Company now in terms of dollar profit growth as opposed to purely margin expansion, given some of the commodity pressures we've talked about and also some of the innovations that may be additive from a dollar basis but not always from a percentage basis. Thank you.

Hi Nick, Michel here. Thank you for the question. So starting with Brazil, I think that there are a lot of things about Brazil, but maybe starting with one general consideration is probably when we look at Brazil and our commercial strategy, our strategy is more developed, and the implementation is well-advanced, from portfolio re-balancing to innovation and the digital transformation on the consumer end and also at the retail end. We have a great team in Brazil, and their execution is outstanding. They have been pushing this strategy forward relentlessly, even in the face of all challenges that we had during the pandemic, prioritizing our people, our communities, and our business partners. I think that the story in Brazil, as you can see, is really a top-line lead recovery, and there is a looming effect in commodity prices as Fernando mentioned. Our three main points in Brazil involve balancing the portfolio, reigniting innovation, and digitizing our business on the consumer front while also on the retail front. When we think about the margins, I believe that's an excellent question as we possess fundamental drivers that give us the leading margins in the industry. We maintain a strong portfolio of brands, and the premium prices these brands command in each and every market are significant. Our consumer-centric strategy, the digitization of our route to consumer, and our route to market provide us with enhanced capabilities to continue driving margins. Moreover, our leadership position in key markets is very important for gaining industry profit pools, and our operational excellence in managing our business is another important factor. Most importantly, our ownership culture is vital to this success. Although this year's growth reflects that our top line is growing ahead of our bottom line due to the growth we are pursuing, I think you are right to emphasize that dollar growth is as important if not more important than just margin growth. We have examples where initiatives like Beyond Beer and Cutwater have higher margins per hectoliter, but scaling them is key for overall profitability. Moreover, deploying our commercial strategies with digitalization allows us to create better forecasts for volumes and adapt supply chains effectively. There are numerous increments we're pursuing to enhance profits and cash flow.

Great, super clear. Thank you so much.

Thank you.

Thank you. Our final question will come from the line of Rob Ottenstein with Evercore. Please proceed with your question.

Great. Thank you very much. When I look at the global beverage space, and particularly the global alcohol space, I don't think I can remember a time in which the valuations between the beer companies and the spirits companies has ever been this great. And certainly, the Diageos and the Pernods are fantastic companies; they're doing really well. But the valuation differences between them and yourselves and Heineken are really hard, in my mind, to get around. And clearly, the spirits companies are doing better in the U.S. However, you mentioned throughout the presentation that globally beer is gaining share of alcohol. So given the extreme disparities in valuation, can you talk a little bit about how that informs your strategy? And maybe give a little bit more detail about what's going on around the world in terms of beer's performance versus spirits and whether you see opportunities in the spirit space. Obviously, RTD is something you've mentioned. Thank you.

Hi, Robert. Good morning, and thank you for the question. I believe there are several aspects to address, and I'll try to follow your sequence. Regarding valuation, I won't delve too deeply since you have more expertise in valuing companies than I do. However, there are key points to highlight. First, we observed the resilience of the beer category during the pandemic, which prompts us to consider the broader narrative surrounding it. Data indicates that beer is gaining market share worldwide. It's not just growing in certain regions; it's also benefitting from the decline of illicit alcohol. Our brand is gaining from this trend due to factors like moderation and affordability. The expansion of the category is evident in significant markets you mentioned, such as China, Colombia, Brazil, and Mexico. There's still much more we can do. We've learned from the SAV model in driving category growth and while we've built a solid foundation in recent years, we are still accelerating our efforts. Beer is gaining global market share, supported by our leadership, as shown by record volumes in Brazil and record per capita consumption in Colombia. These markets are substantial and very relevant. We are committed to demonstrating our ability to innovate and lead the beer category forward. I'm excited to mention that we will continue to achieve this through market positioning strategies, emphasizing Brand Preference, enhancing innovation, and responding effectively to consumer needs with our comprehensive marketing efforts. Thank you.

Thank you.

Thank you. Thanks for the question.

Thank you. This was the final question. If your question has not been answered, please feel free to contact the Investor Relations team. I will now turn the floor back over to Michel Doukeris for closing remarks.

Thank you, Jessy. And thank you all for their questions. To wrap up, we have been focused on meeting the moment and delivering a great 2021. We continue to build on our momentum by investing in and accelerating what's already working, while focusing on our consumer and customer-centric mindset to drive long-term value creation. I would like to invite everyone to join our Capital Markets Day, which will take place virtually on December 6th. Additional details and links to register will be available on our website in due course. Finally, I would like to take this opportunity to thank and express my gratitude to our 106 to 4 thousand colleagues globally for their continued execution, passion, and ownership. Thank you all for your time today and for your ongoing partnership and support of our business. Please stay safe and well, and I'm looking forward to talking to you soon. Thank you.

Thank you. This concludes today's earnings conference call and webcast. Please disconnect your lines at this time and have a wonderful day.