Anheuser-Busch InBev SA/NV Q1 FY2022 Earnings Call

Welcome to Anheuser-Busch InBev’s First Quarter 2022 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Michel Doukeris, Chief Executive Officer; and Mr. Fernando Tennenbaum, Chief Financial Officer. To access the slides accompanying today’s call, please visit AB InBev’s website at www.ab-inbev.com and click on the investors 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 question 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 20-F filed with the Securities and Exchange Commission on the 18 of March 2022. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall 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, Jessie. And welcome everyone to our first quarter 2022 earnings call. It’s a pleasure to be speaking with you all today. First, I would like to take a moment to share our deepest sympathies to all of those who have been affected by the situation in Ukraine and acknowledge the commitment and dedication of our teams in supporting our joint venture colleagues and their families, while wishing for this. Today, Fernando and I will take you through our first quarter operating highlights and provide you with an update on the progress we have made in the execution of our strategic priorities. We'll then be happy to answer your questions. So, let's just start with our operating performance. Our business momentum continued this quarter, and we are very pleased with our performance to start the year. We delivered top line growth of 11.1%, with 2.8% volume growth. Revenue per hectoliter grew 7.8% driven by the implementation of pricing actions across our markets and enhanced by ongoing premiumization and continued recovery of the on-premise channel. EBITDA increased by 7.4% as we managed anticipated commodity cost headwinds and elevated supply chain costs. We delivered normalized EPS of $0.67 and underlying EPS of $0.60. Now I would like to share some highlights from our key markets. Our business in the U.S. delivered continued top line growth, driven by consistent execution of our commercial strategy and the rebalancing of our portfolio despite the soft industry. Our above core portfolio continues to outperform, led by Michelob ULTRA which grew volumes by double-digit. Within the spirits-based ready-to-drink segment, our portfolio continues to grow ahead of the industry, led by Cutwater. In Mexico, we continued our momentum, delivering double-digit top and bottom line growth. We grew volumes across all segments of our portfolio, resulting in further market share expansion. Our above core portfolio increased by double-digit, led by Modelo family and Michelob ULTRA. In Colombia, we delivered double-digit top and bottom line growth and continue to grow the beer category through the implementation of our expansion levers, resulting in a new record high per capita consumption this quarter. We follow route-to-market, now digitized. 30% of these customers are also BEES marketplace users. Our business in Brazil delivered double-digit top line growth. Our beer volumes once again outperformed the industry, growing by 2.1%, despite lapping a strong comparable. With our route-to-market digitized, over 60% of these customers are now BEES marketplace users. In Europe, we grew top and bottom line by double-digit, driven by volume growth, on-premise reopening and supported by revenue management initiatives. Our premium and super premium portfolio led the way growing revenues by mid-teens, representing now over 50% of our total revenue. In South Africa, we continued our momentum, delivering above 30% top line growth with volume increasing in the mid-twenties ahead of the industry. All segments of our portfolio grew this quarter, led by over 40% growth in our leading core brand Carling Black Label, driven by BEES, our route-to-market is now digitized with almost 90% of our revenues coming through digital channels. In China, momentum continued into the start of the year, marked by strong Chinese New Year. However, the implementation of COVID-19 restrictions in March led to a total industry decline of low single digits in the quarter, according to our estimates. These restrictions disproportionately impacted our key regions and channels, leading to top line decline of 1.2%. Notwithstanding the restrictions, underlying consumer demand for premium products remained strong and the share of our total volume generated by our premium portfolio increased. I would like now to turn your attention to a few ESG highlights. In the first quarter, we made progress across our ESG priorities. We select highlights including recognition of our strong sustainability track record, ambitious commitments and our focused ESG strategy. We have been awarded the Gold Medal for international corporate achievement in sustainable development by the World Environment Center. Advancing water stewardship, we published a watershed health guide in partnership with The Nature Conservancy to share learning and capitalize action in driving measurable watershed outcomes. And fostering entrepreneurship, we have launched applications for the fourth cohort of our award-winning 100+ Accelerator program. Founded in 2018, The 100+ Accelerator identifies and scales sustainable innovations focused on solving key challenges related to our ESG priorities. Now, let's focus on our strategic pillars. To enable the execution of our strategy, we have announced a newly aligned commercial leadership structure, designed to accelerate the next phase of innovation and growth at AB InBev, with the creation of the Chief Growth Officer position. Under Ricardo Tadeu's leadership, this new structure will maximize data and digital integration with our marketing and sales capabilities. We are also taking further steps to empower our teams locally. The titles of each of our six zone presidents have been updated to regional CEO to better reflect the scope and impact of these key positions. Next, let's turn to pillar one of our strategy, lead and grow the category. Driven by the execution of our category expansion model, this quarter, we grew volumes in more than two-thirds of our markets. Let me take you through our category expansion levers. First, we continue to focus on making the beer category inclusive for all consumers. Following the successful expansion of Coronita, our smaller bottle pack offering for Corona, we introduced further smaller pack formats in several key markets in Latin America to provide consumers with price points and choice for consumption needs in different occasions. Second, we are offering superior core propositions. Our mainstream portfolio delivered high single-digit revenue growth in this quarter, once again outperforming the industry across most of our key markets. Third, occasion development. Stella Artois, our living brand in the new occasion grew by over 14% globally this quarter, with the planned expansion of our Sign Off, Dine, Bon Appetit campaign to a further seven markets this year. In the non-alcoholic beer category, our portfolio delivered continued revenue growth, led by liquid and pack innovations, such as Corona Sunbrew that we launched in Canada. Fourth, we are leading in premiumization. This quarter, our above core portfolio delivered over 15% revenue growth, led by Michelob ULTRA, which is now available in 14 markets and grew by double digits. Our global brands continue to lead premiumization across our markets. The combined revenues of Budweiser, Stella Artois and Corona grew by 6% outside of the brands' home markets, led by Corona with 14.1% and Stella Artois with 11.5% growth. Budweiser grew by 0.3% impacted by the renewed COVID-19 restrictions in China. Finally, we continue to expand the category with our Beyond Beer offerings. Our global Beyond Beer business contributed over $350 million in revenues this quarter, led by the U.S. where Cutwater grew by strong double digits and in South Africa where Brutal Fruit and Flying Fish delivered continued double-digit growth. Innovation this quarter supported category expansion across each of the five levers, contributing approximately 8% of our total revenue. Highlights include expanding our superior product propositions with the launch of Budweiser Supreme in the U.S., the release of Stella Artois Unfiltered in the U.K., and the launch of Corona Tropical across some of our key markets. In the U.K., we leveraged our direct-to-consumer solution PerfectDraft to exclusively release Stella Artois Unfiltered through the e-commerce channel. Based on the positive consumer feedback and insights from the launch, we are now expanding the brand into other channels and packages. Now, let's turn to our second strategic pillar, digitize and monetize our ecosystem. As we continue to invest to become a tech-first FMCG Company, BEES continues to see remarkable acceleration in usage and reach, capturing approximately $6.5 billion in gross merchandise value in the first quarter, up from approximately $3.5 billion in the first quarter of 2021. We are now live in 17 countries, with 2.7 million monthly active users. In 11 of our 17 countries, our customers are also able to manage their orders for third-party products through the BEES marketplace. We know that for many of our customers, beer typically makes up less than 25% of their resource sales. BEES marketplace offers a consolidated order and delivery management platform, solving pain points and empowering our customers. As of the first quarter, we have seen increased adoption and exponential growth, as 31% of BEES customers are now users of BEES marketplace with annualized revenues of $800 million. Our partners also benefit from the digitalization of sales with increased retailer engagement, distribution reach, and cost efficiencies. We are still in the early stages of exploring the possibilities, and we are excited by the results and feedback from our customers and partners. Now, let's talk about direct-to-consumer business. This quarter, our D2C products generated nearly $300 million in revenues across 20 countries. The number of online orders grew by double digits versus last year, surpassing 17 million transactions. In Latin America, Ze Delivery is already present in approximately 300 cities in Brazil, covering about 50% of the country's population. Revenue from Ze Delivery grew almost 30% year-on-year. Based on the success of Ze in Brazil, we are scaling the courier product to another 10 countries in Latin America. We continue to deliver on our strategy with best-in-class creative marketing and innovation capabilities. Following the announcement that ABI was selected by Cannes as the Creative Marketer of the Year, we were recently named to Fast Company World’s Most Innovative Companies list for the first time. Fast Company recognizes ABI's ability to quickly seed and scale innovation to drive performance and impact. The award highlighted our beer innovations, tech products, and our biotech initiatives, Evergreen. Big congratulations to our teams and partners for this remarkable achievement and further recognition of how we are embedding creativity and innovation into our strategy. With that, I would like to hand it over to Fernando to discuss the third pillar of our strategy, optimizing our business.

Thank you, Michel. Good morning, good afternoon, everyone. We aim to maximize value by focusing on three areas: optimizing resource allocation, robust risk management, and efficient capital structure. With respect to capital allocation, we aim to maximize long-term value by dynamically balancing our priorities. We continue to invest in organic growth and support our strategy to lead and grow the category and digitize and monetize our ecosystem. The excess cash generated by our business is then dynamically allocated to our other key capital allocation priorities: deleveraging, selective M&A, and return of capital to shareholders. In line with our capital allocation priorities, this quarter we completed the redemption of $3.1 billion of bonds. Our debt maturity profile remains well distributed with no near and medium-term refinancing needs, with the weighted average maturity of more than 16 years. Our debt portfolio does not have any financial covenants and is comprised of a variety of currencies, diversifying our FX risk. In addition, approximately 93% of our bonds have a fixed rate, insulated from interest rate volatility and inflation, with an average coupon rate of approximately 4%. Our proactive revenue management, combined with our hedging policy and operational efficiency contributed to 7.4% EBITDA growth and an increase in underlying EPS, growing by $0.05 to $0.60 per share. I will now hand it back to Michel for some final comments.

Thanks, Fernando. I would like to take a few minutes to recap our reflections and learnings and how we are meeting the moment in 2022. The beer category continues to demonstrate strength. We are operating in a big, profitable, and growing category. Beer is gaining share of throat globally. Our business has momentum. Driven by our leading brand portfolio and our accelerated digital transformation, volumes grew in more than two-thirds of our markets. On top of that, this year presents unique opportunities to activate demand, such as continued on-premise reopening and the return of marquee events, such as Carnival and the World Cup. In conclusion, we are confident in our business fundamentals and our team's ability to continue to meet the moment and create a future with more cheers. I would now like to hand it over to Jessie to begin the Q&A session.

Thank you. The floor is now open for questions. Thank you. Our first question is coming from the line of Trevor Stirling with Bernstein. Please proceed with your question.

Hello, Michel and Fernando. Two questions from my side, please. First one, maybe more from Michel. Michel, you've got very robust price mix of 8% in the quarter. Are there any signs in any markets that consumers are starting to react against the pricing, and we're starting to see some volume elasticity creeping in? And the second question, maybe more for Fernando. Just trying to understand the various drivers of gross margin, Fernando. And I appreciate it's a very complex picture of varying enormous in country-to-country. But within price mix, can you give us some sort of broad sense of the components of price, of brand mix, of channel mix, and indeed, the role of the third-party brand sales through the BEES marketplace? And likewise, on the COGS side, what is the mix between underlying policies, currency, and again, that product mix through the BEES marketplace?

Hi, Trevor. Michel here. Good morning. So taking on the first question, I think we discussed this a little bit during the full year results. We have announced or implemented the majority of our price in quarter 4 and quarter 1 this year. And we've been seeing across the globe inflation continue to move up, with most categories increasing prices. And I continue to think that it's a little bit too early to measure all the impacts of that and the consumer elasticity. But it's also true, and we see this across the globe, that inflation is actually trailing ahead of what were the expected numbers and forecasts that we saw last year. We can see clearly that the price to consumer for beer is behind inflation so far. We can also see that the majority of the market, this combination of the economy continues to do well. Employment rates are holding. In some developing markets, commodities are helping the overall economy. So, the elasticity is not really present yet. Even though, I think that as we face towards quarter 2 and quarter 3, we will have much better data to understand where and in which markets elasticity will play a bigger role. You also know, based on what we discussed during the road show in quarter 4 full year announcement, that we organized the markets into three different clusters, anticipating potential elasticity impact. We continue to monitor very closely how things are working. But overall, two-thirds of our markets have very robust growth in quarter 1, and overall quarter 1 showed double-digit top line growth. I'll hand it over to Fernando to take on the second and third questions.

Okay. Hello, Trevor. Thanks for the question. So, at the end of the day, when we look at revenue per hectoliter, consistent with what we are doing, of course, we have some tailwinds in different regions. Like Europe, the on-trade reopening definitely helped the net revenue per hectoliter. But when you step back and look overall, probably the stronger component on net revenues per hectoliter was revenue management, that's the major driver. When you go down to the cost of goods sold, of course, there is always some mix impact. But it's fair to say that the bulk of the impact was the anticipated commodity and FX headwinds. The marketplace and all these things, they are not that meaningful in the grand scheme of things. It's really commodities and FX which were anticipated and are already baked into our four to eight outlook for the year.

Thank you very much Michel and Fernando.

Thank you, Trevor.

Thank you, Trevor.

Thank you. Our next question is coming from Tristan van Strien with Redburn Partners. Please proceed with your question.

Hi. Just two for me. One, just a follow-up on Trevor. Some of your peers are talking about taking another price increase this year. How are you thinking about that? Is there something that's maybe on the table for you as well, particularly in some of your developed markets where that seems to be needed? The second question is just on South Africa, which is a really strong performance, especially when you consider there was a late Easter. So, I'm trying to understand what's driving that performance. What's the balance between what you are doing versus perhaps the market, because both you and your biggest competitors seem to be doing well? So, I wanted to just understand South African performance a bit better. Thank you.

Hey, Tristan. Good afternoon. Thanks for the question. Michel, here. I think that on the first one, when we talk about the price increase, we discussed this and said that the majority of the price actions were announced or implemented between quarter 4 and quarter 1. As you know, each market has a bit of a different agenda. In some markets where we have very high inflation, it's common for us to have more than one price increase during the year. As I said now in answering the question from Trevor, one thing that's very clear now is that inflation is moving much faster than what was anticipated and that beer prices are lagging inflation so far in the year. So, we continue to monitor how things are unfolding, and we continue to work very close to the market, making sure that we are meeting the moment. We believe that the experience we have and the entire revenue management approach we have across the markets suggests that it's better to take the price and to be part with inflation than trying to recover this later when inflation is moving downwards. So, in principle, we continue to monitor. We have markets that typically have more than one increase. Inflation is ahead of expectations, and beer is behind inflation so far. So, we are ready to meet the moment. The second question on South Africa is relevant. This is another example of emerging markets continuing to confirm that beer is big, profitable, and growing. This growth is being led by emerging markets, not only, but most emerging markets. Our category expansion model has been very helpful across the board, as we focus on the five levers to continue to make the category more inclusive and more premium. South Africa is an outstanding example of our core products performing very well and our ability to expand to more occasions, driven by the Beyond Beer expansion. Brutal Fruit, Flying Fish are performing very, very well in South Africa. When you think about the remaining parts of Africa as well, from Nigeria to Tanzania, the market is performing very, very well. Demand is very robust. The levers that we are executing and our strategy of digitizing and expanding occasions is driving a very robust market. We are very pleased with the performance, not only in South Africa, but across most of our markets, and especially emerging markets.

Thank you, Michel. And can I just follow-up on Nigeria? You mentioned that there. Obviously, you're constrained on the growth currently because of capacity. Is that something we should continue to expect? And as a result, I guess everybody is pricing at this moment to recover the currency declines over the last few years. Is that the way we think about it? Or is capacity coming online soon?

Yeah. Nigeria, we had a very strong performance in quarter 1. The underlying demand for our brands continues to be very strong. Our brands are gaining power. There is inflation, and there is price in the market, and we do have capacity coming. But as you know, building capacity in Nigeria is not very easy or quick as it can be in some other markets. However, we are expecting more capacity to come online this year, and we are preparing to supply the demand that we have now and in the future, given the strength of our brands in those markets. We are very pleased with our top line growth, market share, and brand performance there. Thank you, Tristan.

Thank you.

Thank you. Our next question is coming from Rob Ottenstein with Evercore. Please proceed with your question.

Great. Thank you very much. Michel, in the U.S., the adult alcoholic beverage market, combining seltzers, ready-to-drink cocktails, both malt and spirits-based, really seems to be driving overall beverage alcohol growth. I was wondering, is that the case? To what extent is that the case outside of the U.S.? How important a driver do you see this being, again, when you're looking at total share of alcohol? And how is the firm looking at this opportunity through a long-term strategic lens? Thank you.

Robert, good morning. Thank you for the question. I will try to address the points that I gathered from your message. So, I believe that in the U.S., we continue to see this Beyond Beer space, as you termed it, growing. Quarter 1 was no different. We saw growth there. One of the most important and attractive aspects of this growth for us is that it's truly driving share of throat towards these ready-to-drink beverages. Our capabilities in route-to-market, production capacity, and ability to introduce innovations in new brands make us well-positioned and optimistic to continue to drive growth in this area. The example that we often highlight is Cutwater, which is a very new brand, that continues to grow at strong double digits, ahead of the industry this quarter. We just launched Nutrl in the market, as it is already the leading brand in Canada, and we are now expanding to the U.S. So far, this launch has been very successful in all the markets where we introduced it. As you look at this globally, the manifestation varies from market to market. I just mentioned to Tristan, for example, Flying Fish and Brutal Fruit in Africa growing strong double digits, which contributes significantly to the South Africa market. BEES is performing well in Brazil. We have now Corona expanding with Tropical in Mexico and other Latin American markets. Different manifestations exist, but it's a global opportunity. Our global expertise and positioning allow us to capitalize on this consumer trend and opportunity, which makes us very optimistic. We possess strong brands, knowledge from developed markets, innovation capabilities, and distribution channels to lead this global expansion lever. That's why this is one of our five category expansion levels in the model we've proven to be effective across various markets. While it isn't always the same product, different expressions of Beyond Beer present significant global opportunities to gain share of throat.

And I think Brendan mentioned at a recent conference that this was roughly 70% incremental in the U.S. Are you seeing that same rough level of incrementality outside of the U.S.? And just can you tell us a little bit more about the Corona Tropical product? The packaging is amazing. Is this something that you see taking globally?

Yeah. The incrementality numbers in the U.S. are very clear. You have household penetration and panel data to measure. Depending on the innovation, it ranges between 70% and 80%. So, Brandon is accurate about the 75%. And that's why the share of throat opportunity is substantial as we move into the Beyond Beer or adult alcoholic beverage market. In the other markets, while it aids in driving share of throat, beer itself is already gaining share in many emerging markets. Additionally, it opens more occasion opportunities for us to continue to premiumize and drive growth. The innovation in Mexico and Colombia with Corona represents a strong opportunity to make the brand even more premium and available for consumers in a variety of settings. The other indicators are positive. We need to solidify the pilot and innovation success in these markets. If it proves successful, we will likely expand it to other markets, given our competitive advantage with global brands. We have lemonade options across various markets, and the opportunities to leverage Cutwater and Corona’s global brand identity are promising. If the innovation performs well, there’s no reason to limit it to just specific markets.

Terrific. Thank you very much.

Thank you.

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

Hi, Michel. Hi, Fernando. Two questions from me, please. The first is, could you provide some examples as to what in practice the newly aligned commercial leadership structure might mean for accelerating the next phase of innovation and growth? And then, the follow-up question is really around your trading momentum from the first quarter. If we back out the near-term disruption from COVID in China, has trading momentum in the rest of the business continued into the second quarter?

Hi, Edward. Good morning. Thanks for the question. Regarding the structure, the main idea is that it should always align with strategy. This particular part of the structure aims solely to accelerate growth. The question then becomes how will that take place? We've been building on both sales and marketing capabilities, as well as in data and digital fronts. With this simplified strategy of lead and grow, digitize and monetize, and optimize, the integration of data and digital capabilities with marketing and sales will enable us not only to execute our strategy better but to accelerate innovation. This structure simplifies how we can make our platforms and programs interact with the zones and clarifies where capabilities are being developed—at a global level versus the regional CEOs responsible for execution and implementation. Ricardo Tadeu is ideally suited for this role, given his experience in the zones and his leading role in our digital transformation. Regarding China, we started the year very strongly with a great Chinese New Year. However, at the end of March, the implementation of COVID restrictions greatly slowed down the momentum. We witnessed significant closures affecting the on-trade segment, including nightlife and restaurants. Although off-trade numbers maintained some strength due to increased orders and e-commerce, the underlying momentum remains strong. We've noticed improvements in areas like Guangdong and Fujian as restrictions are lifted. Our focus is to analyze how momentum in the rest of Asia is looking while being aware of the COVID disruptions.

Great. Thank you, Michel.

Thank you, Ed.

Thank you. Our next question is coming from Mitch Collett with Deutsche Bank. Please proceed with your question.

Hi, Michel. Hi, Fernando. My first question is hopefully pretty straightforward. You posted 7.4% organic EBITDA growth in Q1, which is pretty close to the top end of your guidance range for the medium term in the year. Can you talk about the puts and takes for the balance of the year that could see you at the top or the bottom of the range? I'm thinking about COGS, pricing, potential lockdowns, on-trade recovery, and anything else. And then, maybe a second, more open question about BEES, because you're now rolling that out into geographies where you don't have the same scale advantage. Do you still get the same benefits when you take these into markets where your market share is lower? Thanks.

Thank you, Mitch. Let me take the first one. We reiterate our outlook of 4% to 8%. Of course, it has been a very dynamic environment and is likely to remain so. We have good visibility into our costs given our hedging, and our team has become more agile, digital, and data-driven over the last two years, making them better equipped to navigate this dynamic environment. We continue to see strong consumer demand for our brands. Our confidence remains in our team’s ability to meet the moment and to reiterate our outlook for 4% to 8% growth for the full year. We acknowledge that revenue is likely to grow ahead of our EBITDA. Now, on BEES.

Yeah. Mitch, on BEES, we've mentioned that there are essentially three waves involving implementation. One is direct distribution, while another involves products in the district called link, which we are developing specifically for large key accounts. This aims to significantly improve our traditional ABI offering over the years, similar to transforming a landline phone into a mobile phone. This is currently being tested in markets like Brazil and the U.S. For the three-tier type of markets, challenges arise, particularly lower market share regions where implementation can be complex. That said, the value proposition is strong across the board. The true value of BEES lies in its ability to provide greater efficiency and visibility, aiding our partners in growing their reach and understanding of the route-to-market. Each market is unique; for example, BEES is progressing quickly in China, even with a low market share. The excitement surrounding it remains consistent as we ramp up numbers. We’re optimistic about where we can take BEES in various markets.

Understood. Thank you.

Thank you.

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

Hey, Michel, Fernando. A couple from me, please. Firstly, can you just comment on the on-trade recovery you're seeing across your major markets? Where are you versus 2019 levels? And tied to that, are there returnable glass bottles also coming back to 2019 levels? And then, my follow-up question is just on the online marketplace. You're annualizing around $800 million of revenue there. Is that profitable for you yet standalone? And what level of revenues do you need to achieve to breakeven there? Thank you.

Hi, Sanjeet. Good afternoon. To address your questions, first regarding on-trade performance, we've observed differences in behavior from market to market. The general trend we've seen is that when markets reopen fully, we achieve quite a robust 90% or more of the pre-pandemic volume. This has been the case in the U.S. and Brazil, and similar outcomes are evident in Europe. Interestingly, the numbers can exceed 100% as we replenish supply to points of sale. However, they stabilize at around 90% to 100% for a while, mainly due to the base infrastructure, which hasn't fully returned to pre-pandemic levels. We've initiated new openings of restaurants and bars, contributing to the supply stabilization. As for your second question regarding BEES, we've thus far penetrated close to 10 markets and are experiencing robust growth with average revenues of $800 million annualized. Our beer sales typically constitute about 25% of our overall sales. While we're just beginning this journey, we are operating strategically. Our partners are able to leverage their capabilities more effectively, facilitating growth and enhancing our competitive advantage through analytics and seamless service. Breakeven isn't a concern right now, as we've been ensuring profitability from day one. Our goal is to grow further while ensuring we can sustainably serve our customers and partners, showing mutual value in the long run.

Thank you.

Thank you. Our next question is coming from Laurence Whyatt with Barclays. Please proceed with your question.

Hi, Michel, Fernando. Thanks very much for the question. Just following on again from BEES. You've achieved nearly 90% or around 90% of your revenues coming through digital channels in several markets, but Mexico remains somewhat below that level at around 75%. Is there anything specific about the Mexican market that means it can't achieve similar success to other surrounding neighbors? Is there anything you would highlight in Mexico that means you can't get there? Thank you.

Hi, Laurence. Good afternoon. There isn't anything particularly unique holding us back. I’d reiterate that there are three waves of implementation. In Mexico, we’re combining various approaches; direct distribution has high adoption and high coverage. For large accounts, we don’t yet have BEES link fully operational. Meanwhile, we are implementing BEES for wholesalers but it isn't fully integrated. This is the primary reason we're at 75% in Mexico while Brazil is above 85%. However, I'm confident that Mexico will reach similar levels very soon.

Excellent. Thanks. And just perhaps a follow-up on Mexico. You've entered a number of OXXO stores, which are in the stronghold of your nearest competitor. I was wondering, has that all gone to plan as you expected? Or is there anything you'd highlight that perhaps was slightly different from your expectations in that part of Mexico? Thank you.

No. OXXO is an incredible opportunity and a great partner, a significant retailer in Mexico. We have now covered two-thirds, give or take, of those stores, and the remaining parts are primarily located in the north, where our market share is smaller and availability more restricted. Thus, the growth opportunity in these areas is larger than before. We are delighted with the evolution thus far. Two-thirds are complete, and one-third remains, which has the potential for even greater opportunity given our lower market share and limited distribution in the country.

Our next question is coming from Olivier Nicolai with Goldman Sachs. Please proceed with your question.

Hi. Good morning, Michel, Fernando. Just a couple of questions, please. Focusing on the U.S. First of all, we've seen a bit of a slowdown in the hard seltzer category, which used to be a tailwind for you and for some of your competitors. You're gaining share, but how do you see prospects, the growth prospects for the category in the midterm? And then, in the U.S., just for this quarter, STRs were down 5%. I know the comps were difficult, but we've heard a lot of commentaries around pressure on disposable income. So, I was wondering if you've seen any changes in consumer behavior for the core mainstream beer drinker in the U.S. I know you indicated in the press release that premium was growing. I'm more interested as a mainstream drinker here. Thank you.

Olivier, good afternoon. Thank you for the question. In relation to seltzers, I have three comments to make. Firstly, we have reiterated that seltzers are a part of the Beyond Beer space and manifest the growing consumer preference in the ready-to-drink category. The pandemic accelerated seltzer's growth, significantly coinciding with increased home consumption. While seltzers showed more challenging growth recently and have seen a decline, we find that the overall Beyond Beer category continues to show growth, driven primarily by ready-to-drink cocktails, with Cutwater performing exceedingly well. We've also recently launched Nutrl, expanding into a new market, showing significant success wherever we introduce it. Secondly, it's important to address that Beyond Beer is seasonal, and quarter 1 is typically low for this category. Furthermore, the colder-than-average temperatures, along with Omicron at the start of the year, impacted overall category performance, leading to declines. With regard to mainstream brands, these categories tend to have noticeable seasonality as well, and January was exceptionally challenging for the industry. Seasonality impacts mainstream brands more than premium offers. We're confident that mainstream brands will perform well during the summer since we haven't detected any significant signs of declining consumption among mainstream drinkers in North America, and the economic indicators, including increasing salaries and employment rates, remain favorable. We are looking forward to the summer months to see how demand trending shapes up then, particularly with the anticipation of warmer weather.

Thank you very much. We are looking forward to the summer as well.

Thank you.

Thank you. Our final question will come from the line of Pinar Ergun with Morgan Stanley. Please proceed with your question.

Hi. Thanks for taking my question. ABI's balance sheet should be stronger by the end of this year compared to a few years. Now, I appreciate organic growth is still our top priority. But I was wondering if you're coming across any interesting M&A opportunities. It would be great if you could please remind us of which categories or geographies would be of most interest. Thank you.

Hi, Pinar. Thanks for your question. Our balance sheet continues to improve, and we've recently made strong progress. We successfully redeemed $3.1 billion of bonds this quarter alone. By year-end, we expect to be in a stronger position. Always remember that cash flow generation exhibits natural seasonality, and deleveraging typically occurs more in the second half of the year. It is important to highlight that while leverage is one metric, having a 6% and 4% interest rate in a rising inflation environment puts us in a good spot. Our business remains strong, and as you've mentioned, we're committed to supporting organic growth opportunities, which are abundant. In terms of potential inorganic opportunities, we will evaluate and engage with those that arise. Currently, there's nothing specific to share as we prioritize enhancing value creation through dynamic capital allocation across our deleveraging efforts, M&A, and returning excess cash to shareholders.

Thank you.

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