Anheuser-Busch InBev SA/NV Q3 FY2022 Earnings Call

Welcome to Anheuser-Busch InBev’s Third 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 open 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 20-F filed with the Securities and Exchange Commission on the 18th 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 third quarter 2022 earnings call. It is a great pleasure to be speaking with you all today. Today, Fernando and I will take you through our third quarter operating highlights and provide you with an update on the progress we've made in the execution of our strategic priorities. After that, we'll be happy to answer your questions. Let's start with our third quarter operating performance. We are very pleased with the continued momentum of our business and the strength of the beer category across our footprint, even in the context of the ongoing dynamic operating environment. Our volume momentum accelerated this quarter, driven by strong consumer demand for our brand portfolio, ongoing digital transformation, and increased investment in our brands. We delivered our best quarterly volume performance this year, with 3.7% volume growth. Revenue per hectoliter increased by 8%, driven by revenue management initiatives and premiumization across the majority of our markets, resulting in top-line growth of 12.1%. EBITDA increased by 6.5%, as our top-line growth was partially offset by anticipated transactional effects and commodity headwinds, increased sales and marketing investments in our brands. Normalized EPS was $0.81 and underlying EPS was $0.84. As a result of our performance and continued momentum, we are raising the bottom end of our 2022 EBITDA growth outlook from 4% to 8% to 6% to 8%. Our medium-term outlook remains unchanged. This quarter, we once again delivered broad-based growth with a top-line increase in all five of our regions and volume growth in over 60% of our markets. Our diverse geographic footprint provides a unique combination of growth and reliable cash flow generation, positioning us well to deliver superior value creation. Now let me share some highlights from our key markets. In the US, the beer industry remains resilient with volume trends improving throughout the year in all major beer segments, even in the current inflationary environment. Our business delivered another quarter of top-line growth and strong cash flow generation. Our above core beer portfolio outperformed the industry, gaining share within the segment for the third quarter in a row, led by Michelob ULTRA, which grew volumes by double-digits. Our STR volumes declined by 1.7%, estimated to be below the industry. Within the experience-based ready-to-drink segment, our portfolio continued to outperform the industry, with both Cutwater and NÜTRL growing in strong double-digits. We continue to make progress in our commercial strategy with over 40% of our revenues now coming from both core beer and Beyond Beer brands. In Mexico, we accelerated our market share gains and delivered a third consecutive quarter of double-digit top and bottom-line growth. Our volumes grew by more than 10%, with growth across all segments of our portfolio, led by both core, which delivered volume growth in the high 20s. In Colombia, we delivered double-digit top and high single-digit bottom-line growth and continue to expand the beer category, again, reaching all-time high per capita consumption. We delivered volume growth across all segments of our portfolio, with our premium and super-premium brands growing volumes in the high teens, reaching all-time high volume and share of our total revenue. Our business in Brazil delivered double-digit top and bottom-line growth with EBITDA margin expansion. Our premium and super-premium brands continued to outperform this quarter, delivering high single-digit volume growth. Total beer volumes were flat as we cycled a strong performance year-over-year. Digital transformation continues to make progress with over 70% of our BEES customers now also BEES marketplace buyers and our digital Zé Delivery product reaching 4.3 million monthly active users. In Europe, we grew topline by double-digits, driven by volume growth, revenue management initiatives, and on-premise recovery. Our portfolio continues to premiumize, with growth this quarter led by our premium and super-premium brands. EBITDA declined by mid-single-digits as topline growth was offset by elevated cost pressures and increased sales and marketing investments to support our premium strategy and FIFA World Cup activations. Our business in South Africa grew both top and bottom-line by double-digits this quarter. We delivered growth across all segments of our portfolio, led by over 30% revenue growth in our leading core brand, Carling Black Label. Our premium, super-premium, and Beyond Beer portfolios all delivered a double-digit increase in volumes. We are investing in capacity expansion to support our growth in South Africa. In China, COVID-19 restrictions continued to disproportionately impact our key regions and sales channels. Underlying consumer demand remains consistent with volumes growing by 3.6%. We continue to invest in our strategy, geographic expansion, premiumization, and digital transformation. In our priority expansion cities, excluding those impacted by restrictions, Budweiser and our super-premium portfolio grew volume by double-digits. Premiumization of the beer industry in China remains an exciting long-term value creation opportunity. We continue to make progress across our ESG priorities with highlights this quarter, including: in recognition of our global water stewardship initiatives, we are proud to recently be included on Fortune's Change the World list. We have achieved carbon neutrality at eight facilities to date and continue to drive deep decarbonization across our value chain. We brought together key packaging and raw material suppliers that account for over 50% of our Scope 3 emissions to share best practices and take collective climate action through our global supplier collaboration initiatives called Eclipse. Now let's move on to our strategic pillars. Let's start with Pillar 1 of our strategy, lead and grow the category. Our creative marketing capabilities continue to be recognized. Following our best-ever performance at this year Cannes Lions International Festival of Creativity, we were recently named as the world's most effective marketer in the Global Effie Effectiveness Index for the first time. This combination of best-in-class creative brand-building capabilities and effective marketing are driving strong consumer connections with our brands and enabling our accelerated topline growth. A big congratulations to our teams and partners for this extraordinary achievement. We continue to execute on our five levers to drive category expansion and by making the category more inclusive, offering superior corporate positions, developing consumption occasions, and expanding our premium and Beyond Beer portfolios. We delivered another quarter of consistent and profitable top-line growth. Our global brands continue to drive premiumization across our markets. The combined revenues of Corona, Stella Artois and Budweiser grew by 12.7% outside of the brands' markets, led by Corona with 23.5% growth. To illustrate our portfolio development and execution are driving growth, I would like to take you through three examples from our market expansion model. Let me start with an emerging market example, Zambia. In emerging markets like Zambia, our primary objective is to make the category more inclusive by developing superior core propositions, introducing premium and Beyond Beer brands. Over the last five years, we have expanded our portfolio with a broader range of offerings, expanding price in different segments and consumption occasions. Per capita consumption of the formal beer category has increased by approximately two liters, with significant headroom for growth. While still in the early stage of premiumization journey, our core portfolio has increased its share of our revenue by over 300 basis points to reach approximately 23% today. Category expansion and market share gains have resulted in the consistent growth of our business, increasing volumes at an 8.7% CAGR since 2018. Now let's take a look at one of the key developing markets in our portfolio, Mexico. By consistently investing in our portfolio development, we are unlocking the full potential of the beer category. We are now offering a more complete range of brands and packs across core to reach more consumers in more occasions and leading the development of premium and Beyond Beer segments. The development of the business in Mexico is truly remarkable. Beer per capita consumption continues to grow, and our volumes have consistently outperformed the industry, growing at 5.6% CAGR since 2017. Our core brands continue to lead the industry, while our above core portfolio is leading premiumization. And now moving on to an example from one of our developed markets, the US. In the US, we are at halftime of our 10-year plan to rebalance the portfolio towards the growing segments of the market. Five years ago, the portfolio was over-indexed to declining segments in the industry. To date, as we continue to rebalance and enhance our portfolio, we are better positioned across all segments of the market. To accelerate growth, we are focused on our priority mega brands. Within mainstream, over the last five years, we stabilized our share; Busch Light is one of the top five share gainers in the beer industry since 2019 and has gained share of beer for the last 15 quarters in a row. Busch Light remains the number one brand in volume and brand power. Our above core portfolio continues to improve performance and is gaining share in the last three quarters. Michelob ULTRA doubled volume in the last five years, becoming the second-largest brand in the industry and continues to grow double-digits. In the premium segment, Stella Artois, Kona Big Wave, and Estrella Jalisco are growing volumes in the high single-digits. Within the beer, we now have two of the strongest propositions in the fastest-growing spaces of the category, with Cutwater in NÜTRL. In 2017, 27% of our revenues came from the core and Beyond Beer segments. To date, these segments make up over 40% and have been key contributors to approximately $800 million in revenue growth over the last five years. As a result of this portfolio rebalancing, our business has now delivered revenue growth in eight of the last nine quarters. As we enter the second half of our 10-year plan, we have a healthier portfolio positioned for growth and expect to engage in a multiyear increase in commercial investments to accelerate our portfolio rebalancing. Now, let's turn to our second strategic pillar, digitize and monetize our ecosystem. This continues to accelerate, usage and reach, capturing $7.7 billion in GMV this quarter, a 40% increase year-over-year. This is now available in 19 markets, reaching 3.1 million monthly active users and generating over 1.8 million orders per week. In 14 of the 19 markets, our customers are also able to purchase third-party products through this marketplace. Customer adoption is increasing and 44% of these customers in these markets are now also marketplace buyers. Today, we have over 200 partners providing more than 500 brands through the platform, generating September annualized run rate revenue of approximately $850 million. This winning partnership empowers our customers to grow by the benefits of digital inclusion and enables our partners to benefit from our world-class platform and route to market and highly engaged user base. Now, let's talk about direct-to-consumer. Our digital direct-to-consumer products, Zé Delivery, TaDa, and PerfectDraft are now available in 17 markets and generated over $100 million in revenue and 17 million orders this quarter. 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: one, optimized resource allocation; two, robust risk management; and three, efficient capital structure. With respect to capital allocation, we aim to maximize long-term value creation 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 three capital allocation priorities, deleveraging, selective M&A, and return of capital to shareholders. Our debt maturity profile remains well distributed with no bond maturities in 2022 and 2023 and no relevant medium-term refinancing needs. If you look at our debt maturity profile, we have $2.8 billion of bonds maturing through 2025 and more than sufficient liquidity today to redeem all of these bonds. Our bond portfolio has an average pre-tax coupon of around 4% and a weighted average maturity of approximately 16 years. Moreover, our debt portfolio does not have any financial covenants and is comprised of a variety of currencies, diversifying our FX risk. 94% of our bonds have a fixed rate, insulated from interest rate volatility and inflation. Now let me take you through the drivers of our underlying EPS for the quarter. Underlying EPS was stable at $0.84 per share, $0.01 lower than the third quarter last year. Organic EBITDA growth accounted for a $0.17 per share increase, but was partially offset by $0.12, primarily from translational effects. Higher depreciation and amortization accounted for $0.03. As we continue to deleverage, our net interest expense has reduced contributing a $0.04 improvement. Other financial results reduced EPS by $0.08, largely due to higher cost of hedging, driven by a higher interest rate environment. I'll now hand it back to Michel for some final comments.

Thanks, Fernando. Allow me to take a few minutes to recap my key takeaways for the quarter and how we are continuing to meet the moment. The beer category continues to demonstrate its strength and is gaining share globally. Our business has momentum. We delivered our best quarterly volume performance of the year, with growth in over 60% of our markets. This is now present in 19 countries. This marketplace is gaining traction. We finalized run rate revenues of $850 million. Our industry-leading portfolio of brands, revenue management capabilities, and operational excellence enabled us to navigate the inflationary environment. We continue to execute our strategy and delivered 8% net revenue per hectoliter growth this quarter. Looking ahead to the opportunities to activate demand, I could not be more excited for what we have coming in the fourth quarter. This is a unique moment for us as a company and for me as a lifelong football fan and beer lover. In less than a month, I will be one of the billions of fans watching the FIFA World Cup Qatar, the largest global sporting event. And we are ready to connect people around the world through our shared passion for football and beer. Budweiser, the official beer of the FIFA World Cup, is kicking off its most ambitious global campaign yet. Our leading core brands, like Brahma in Brazil, Jupiler in Belgium, and Quilmes in Argentina, will be leaning into our national King partnerships, supporting local retailers and SaaS. These campaigns will be executed in over 70 countries and 1.2 million points of sales. We will also be creating new consumer experiences, such as the biggest digital campaign in our history. We are engaging with more customers through ads, and we have launched direct-to-consumer activations through Zé Delivery and TaDa. I could not be more excited and proud of our team and partners. The future with more cheers is right around the corner. Before I hand it back to Jessie to begin the Q&A session, let me share with you a short video that really brings FIFA and our campaigns to light.

Our first question is from James Edwardes Jones with RBC. Please go ahead with your question.

Good morning and afternoon. Two questions, please. The business has got momentum, Michel, as you're saying. But are you concerned about the wider economic context you're operating in? And is that going to detract from that momentum? And secondly, I suppose one for Fernando please, the proportion of your debt denominator in euros has fallen from 33% last year to 25% at the end of September. Is that purely a reflection of the euros depreciation, or is there anything more to that?

Hey James, good morning, good afternoon, everybody. I'll take the first one and hand it over to Fernando to complement the second question. I think there are two parts to this answer. The first one is we must focus on what we can control. And what we can control, what we see is business momentum, and this business momentum has to do with the execution of our strategy and everything that we've been discussing over the last quarters and in our meetings. So we are really focused on the category, balancing well our revenue strategy, investments in our brands, and the acceleration of our digital transformation. So we can continue to lead and grow the category. Of course, the consumer confidence and inflationary environment compel us to carefully balance each and every piece of our strategy while we continue to be focused on what we can control, which is the execution of our strategy.

And James, on your second question, Fernando here. So our debt is mostly affected by the euro depreciation. So that's the biggest impact you see there. But probably it's worthwhile to call attention because the euro depreciation is probably the reason you see what’s happening on the balance sheet, and that’s the one you see the impact flowing through the interest line. We don't see there is a huge economic benefit towards highlighting is the rising rate environment; our bonds were trading in the beginning of the year at around 120% of par. And now, given the rate environment, they are trading a little bit lower on average than 90% of par. Given that we continue to deleverage and we are buying back bonds, it means that each dollar that we buyback of debt is worth more than $1. If you apply the math to our whole portfolio, you can see that the interest rate component has a much bigger economic benefit in the rising interest rate environment than any FX swings.

That's very interesting. Thank you.

Thank you. Our next question is coming from Simon Hales with Citi. Please proceed with your question.

Thank you, Michel and Fernando. Two for me as well, please. Obviously, we're getting close to the end of 2022 now. I wonder Fernando, whether you could share any thoughts at all on your outlook for COGS as we move into 2023. I appreciate you might not want to give any specific inflation guidance on COGS, but maybe a directional steer on 2023 COGS versus 2022 would be helpful? And then secondly, Michel, maybe coming back to the comments you were making at the end around the World Cup. Can you talk a little bit about the phasing perhaps of spend and activations into the World Cup? Should we expect to see a big step up in Q4 on marketing spend and SG&A in general, or has a big part of that spend already been felt in Q3 as well in preparation?

Thanks, Simon, Fernando here. Regarding your first question on COGS, we are not providing any outlook at this time. However, our previous comments from the last earnings call remain valid: based on current spot rates, we can anticipate some pressure next year, though it will be less severe than what we experienced this year. Globally, the impact varies, but Europe is likely to face the most significant challenges next year, primarily due to energy and agricultural barley costs. What we mentioned last quarter is still accurate; there will be some pressure, but it will be less than this year.

Simon, good morning or good afternoon. I appreciate your question. Regarding FIFA, let’s start with the main point. I have mentioned before the challenges and opportunities we are encountering this year due to the operating environment, which have indeed been significant, alongside the opportunities from the resurgence of the on-trade with major events returning. Globally, it has been quite difficult to purchase tickets for concerts or sports events. We have been diligently planning and working hard for FIFA, which will be the biggest activation opportunity this year, as it is the largest sports event of the year, and we will be doing this across 70 countries with many of our brands. To make this happen, we are greatly increasing our expenses, both in the third quarter and the fourth. I would explain that our sales and marketing efforts will lean more towards the second half of the year, as is customary during FIFA years when we put more investment into this significant activation in the third and fourth quarters. However, this year is not only about increased investment; we are also becoming more effective. As we undergo digital transformation, we are enhancing our creative focus on key brand segments. We are aiming for a balance of increased support and investment, but in more efficient ways. To answer your question directly, the second half will see heavier investments than the first half to support this major moment for beer consumption.

Got it. Very helpful. Thank you.

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

Hi, Michel and Fernando. I have two questions. First, I’d like to follow up on the market conditions. It appears that consumers in countries like Mexico, Brazil, and even Zambia are quite confident, and this is showing in beer sales. Can you provide more context on this? Is there a consumer confidence that isolates them from the issues in developed markets? Is this trend sustainable? I’d appreciate your insights on what you're observing over the next few quarters. For my second question, I want to refer to comments made by a smaller competitor regarding the US market, suggesting that traditional beer may never see growth again in our lifetime. What is your perspective on that? Additionally, I noticed your presentation mentioned Kona and Stella Artois for the first time; what potential do you see in these brands to boost interest in the beer category, and why are you focusing on them as we move into 2023? Thank you.

Hey, Tristan. Good afternoon, and thank you for the question. I think that I captured three here. I'll try to answer them even though there's some correlation. I think that when we look at the beer category, and I keep on repeating that based on the data that we have and what we are seeing out there, beer category is very resilient, and it's been proving this over the years. You look back in time across all types of economic environments. Even during the pandemic, we discussed this big time. The category is very resilient. Yes, it’s true that inflation is a global thing. It is different on a country-by-country and region-by-region basis. You see anywhere from 80% inflation in Argentina to 2% inflation in China. So, yes, there is global inflation, but the impact is varied worldwide. It is also true that consumer knowledge and all stakeholders, including the government and central banks, to deal with this inflation have been built differently over the years in individual countries; that’s why you see the consumer confidence index differing based on the different realities and preparation that people have to deal with inflation. You are talking about Latin America as a place where consumer confidence is higher, but inflation has less impact on them compared to Europe or North America. What is very different during this time is that employment is very high. It doesn't matter where you go or at least it has returned to a more normal state. Consumers are holding unusually strong evidence. Our volume in the quarter was the best this year, and we had broad-based growth, with 60% of our markets showing volume growth, which is very impressive for a given quarter. If we pivot to talk about the US, the industry in the US is not only resilient, but it is also big and profitable. It continues to premiumize and is incredibly dynamic. It's a market that keeps reinventing itself and proposing new ways for consumers to interact with it. You've published reports, and I read them; the industry continues to be in good shape, growing revenues. Of course, a lot of dynamics are involved in the industry. One of those dynamics is the emerging beyond beer space, flavored beverages category, whatever people call it. A year or two ago, people were discussing how the ready-to-drink segment could become 100% of the market. I have told you multiple times that I believe that won’t happen. Yes, beyond beer will continue to add consumers and growth to the industry, which is exciting because the beyond beer space draws from wine and spirits and is more similar to the beer industry we are all part of. This brings more growth for retailers, wholesalers, and beer players overall. Simply put, the beer industry is incredibly relevant for our wholesalers and retailers. They need to support it as they have done with the industry, thus amplifying the contributions of players who continue to invest and work to enhance this industry. I can speak for ourselves; we are committed to investing as always. We've discussed this at length in our meetings with our wholesalers, emphasizing that we are engaging in multiyear investments in the US because we are right at the halftime of our 10-year plan. In the first five years, we managed to stabilize our core mainstream brands and our above-core portfolio has increased from 27% to 41% of our revenues. We have brands that connect well such as Kona, Estrella Jalisco, and Cutwater, positioning us much better for growth in the industry. Overall, I believe that the second half going strong, investing more, and accelerating growth is doable. The US beer industry remains big, and it’s profitable, and it is resilient with tremendous growth potential.

Thank you, Michel, very clear.

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

Hi, Michel, hi, Fernando. I've got two questions. So 2022 faced quite a few challenges. You've had more lockdowns persisting in China, very significant raw material inflation, and some headwinds in Brazil from the delayed Carnival. But you're now able to guide to EBITDA growth in the top end of your medium-term guidance range. So if you can achieve the top end of your range given those challenges, how does that make you think about the validity of that range going forward in what might be a more normal year? And then my second question is on the spirits-based RTDs in the US, which I think you were just talking about. But that category is achieving explosive growth, and you seem to be gaining from it with Cutwater and NÜTRL. I know you said in the presentation that above core is 40% of your US revenue. Can you just give us the proportion of your US revenue that is spirits-based RTDs and then perhaps a bit more color on the growth, which I think you said was double-digit? Thank you.

Hi, Mitch, Fernando here. Let me get the first one. Your question on guidance; you're right, it's been a very dynamic year, but it's fair to say that the business continues to have momentum. When we look at the year-to-date performance and the momentum that we have in our business, we felt it was appropriate to raise the bottom end of our EBITDA outlook from 4% to 6% to 8%. We also mentioned that our medium-term outlook remains unchanged. Whenever we talk about outlook, it's good to step back and understand why we decided to provide an outlook. At the end of the day, when we had our investor seminar last year, we made a clear evolution of our strategy when we moved from more inorganic to an organic one. Given that we're moving to an organic strategy, which requires investment to lead and grow the beer category, it’s also true that we are dynamically allocating resources to grow and optimize our business while continuing to deleverage. Providing outlook is important to build confidence about what one would expect as an algorithm for ABI. That’s why we are providing outlook. Of course, now we've adjusted the full year 2022 outlook given the momentum and performance so far. The medium-term outlook remains unchanged. For 2023, when we get to the full-year-end release, we’ll decide whether to adjust our outlook, but no update so far.

Yeah, Mitch. Just complementing this answer that Fernando gave to you, Anheuser-Busch InBev each year will be different and present challenges and unique opportunities. As we put our strategy together, we are focused on controlling what we can manage; and executing this strategy requires investments. We will always be balancing risks and opportunities while ensuring financial discipline remains paramount. That’s why we provided this outlook, which as Fernando stated maintains unchanged midterm guidance. Regarding RTD sales, this connects with Tristan's question earlier regarding brand performance and market evolution. RTD beverages in the US are a reality and will remain part of the industry. The ready-to-drink beverage sector is indeed gaining traction, and we are well-positioned because we entered the Cutwater and NÜTRL trend early. It's becoming very evident across the market. Today, analyzed sales for that category account for about $150 million, growing ahead of the industry at high double digits. This growth is promising; although small in comparison to total US revenues, this segment represents a crucial avenue for future growth, signaling immense opportunity.

It's very helpful. Thank you, guys.

Thank you. Our next question is coming from the line of Brett Cooper with Consumer Edge Research. Please proceed with your question.

Thanks for taking the question. Just a quick one. I was hoping you can help us understand the performance of the beer category and beer brands specifically in outlets using these marketplaces versus those outlets where they're not.

Let me try to give you a couple of points here. So this is active in 19 countries. In these countries, we have a very high adoption rate; in most of them, we are already above 80% to 90% adoption. The marketplace is functioning in 14 countries. More than 40% of customers are also marketplace buyers, and traction is improving, meaning more and more of our best customers are buying in the marketplace. The traction is evident since we can get customers to buy and attract more partners. Today, we have over 200 partners who have joined us, providing over 500 brand options for our customers. The reality is straightforward: this makes us more effective at the point of sale. We’ve been able to sell more of our portfolio, and the beer category performs better where we have this as a tool. Marketplaces are engaging our customers; points of sale that leverage marketplaces yield more transactions. They buy more from us, whether directly or through third-party delivery. Because they are more engaged, the performance is better where we leverage this compared to where we don't. It's like a flywheel; the more the customer engages with us, the better our business with them. By enabling them with digital inclusion, we are affecting their success, making them more profitable and successful as business owners.

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

Hi, Michel, Fernando. Thank you for the question. I have two follow-ups: First, in Brazil, which is one of your more established markets in Biz, it seems you haven’t gained significant market share, even though your competitors lack similar platforms. Is there something we might be overlooking, or should we anticipate this situation? Secondly, you've recently begun reporting on your Biz in China, which is now about 10%. How do you anticipate the Chinese market will differ from the markets you are already in, and could you achieve similar levels in China as in your more mature markets, given that around 90% of your customers utilize digital methods? Thank you.

Hey Laurence, thanks for the question. I will address the first question and then discuss China as I build on the answer about Brazil. Biz is all about getting our customers to transform their businesses, increasing their digital capabilities, thus understanding the opportunities that allow their businesses to grow. In doing so, we can also enhance our business performance with these customers. This has been evident across all 19 countries where Biz is operational today; we see significant growth in the beverage area, leading to improved performance for us as well. Regarding China, I have mentioned previously that I can simplify how Biz is evolving globally. Think about three different clusters: the first being direct distribution operations characterized by markets like Brazil, Mexico, and Argentina, where we have superior integrations with ERP systems and can increase the performance of our customers significantly. The second cluster is developing products for large key accounts to improve electronic transaction systems. These systems, used by big accounts today that are modernizing through our tools, vastly improve their efficiency. The third wave pertains to indirect markets, where a three-tiered system exists, involving wholesalers and points of sale. In China, we have approximately 15% of our sales stemming from this cluster as we operate within a distinct ecosystem. Our teams have learned a lot about how to rapidly execute and are now in scaling mode in China. The benefits for our customers will be similar across all markets; we empower them digitally, equipping them with better tools to manage their businesses and providing a superior portfolio that enhances service levels. When this model works, we have more satisfied customers, a healthier category, and consequently improved business performance.

That's all really clear, Michel.

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

Great. Thank you very much. Two questions. First, I was surprised about how well Budweiser did globally given the fact that a lot of its sales are in China, and China has been weak. So could you please remind us what percentage of Budweiser sales are in the US and outside of the US roughly? And what's driving the global Budweiser growth? So that would be question number one. And then question number two is we — there's always this ongoing debate about beer versus spirits, and clearly spirits are doing much better than beer in the US. Can you talk about what you're seeing now in the rest of the world and maybe what markets beer is doing better and gaining share? You called out, I think, Colombia; any other markets would be helpful. Thank you.

Rob, good morning. Thank you for the questions. I'll try to address both here. Yes, you know that we don't disclose absolute numbers, percentages by country or region. But definitely, the two largest global markets for Budweiser are the US and China, so you know this correctly. The brand overall globally is very healthy; you can see even in the US, the brand power and the share of segment having its best performance in 20 years. In China, demand remains very solid when you are absent lockdowns; when we engage cities without restrictions, we continue to see healthy Budweiser growth in global markets. The brand is expanding well in many markets across the globe such as Nigeria, France, the UK, and various Latin American countries. So the brand continues to perform well globally. The greatest utilization of Budweiser for this year will occur in quarter four since Budweiser is the official beer of the FIFA World Cup, and we are activating campaigns in 70 countries; this is the largest activation for Budweiser thus far. We've been discussing this and sharing data emphasizing that beer is gaining share of throat globally. We have multiple countries where it's true, beer is gaining share away from spirits. In Europe, we see beer gaining share from wine this year, which is why volumes remain strong against all inflation and market pressures. In the US, beer proves to be more stable than just a few years ago; during the pandemic and post-pandemic, beer has grown its penetration and share leading to stability in the category. When adding that ready-to-drink beverage segment, we find that a considerable share of spirits' growth stems from ready-to-drink cocktails. We’re excited about Cutwater and NÜTRL growing at double digits; their growth also highlights opportunities in this increasingly competitive space. Overall, beer globally presents an opportunity with a diversified geographical footprint. The growth opportunity exists in Latin America, Africa, and Asia, not only for volume but for growth in premium beer, which is outpacing premium spirits. Premium beer shows tremendous potential, particularly as low-cost beer segments premiumize and US markets continue their premiumization journey, presenting opportunities across the globe.

That’s terrific. Thank you.

Thank you. Our final question is coming from the line of Trevor Stirling with Bernstein. Please proceed with your question.

Hi. I've got two questions, please, Michel and Fernando, considering regional performance. The first one is, I think, virtually every region had margin compression of one form or another, but it looked like the margin compression was worst in Middle Americas. I wonder if you could give us some color about why Middle Americas came under such pressure? And same thing in Brazil, I think beer volumes were flat, but premium was up high single-digits or flow was up mid-single-digit, but was at the economy end of the portfolio that was weak?

Yes, Trevor, if I got your two questions correct there, let me start with Middle Americas. I think that there are two parts to this answer. As we've discussed, inflationary costs for the next year are more weighted on Europe. However, the costs and supply chain disruptions experienced during COVID were not evenly distributed. In Middle Americas, and overall from Colombia to Mexico, we're seeing significant growth. This growth requires an appropriate supplier infrastructure and time to adjust all the disruptions we saw during COVID. Consequently, costs in Middle Americas were higher than in other markets. As we continue to grow, we are achieving healthy top-line and bottom-line growth; however, margins in the short-term are under pressure. Yet, I like our margins; they exist for a very good reason based on our market positions, brand strength, and how efficient our operations are. We will continue to grow in Middle Americas, and I expect our margins will revert as we address supply chain disruptions and align investments. Regarding Brazil, the story is straightforward; we have been growing volumes and topline strongly. Last year was an all-time high in the third quarter and fourth quarter. This year, we’re in line with these top performances. Premium has been growing faster than value; hence core demands are healthy, resulting in strong performance in ports like Brahma. The core mobile growth performance is down compared to last year since the high performance last year impacted this year’s figures.

Understood. Thank you very much, Michel.

Thank you.

Thank you. We have reached the end of our question-and-answer session. So, I'd now like to pass the floor back over to Mr. Doukeris for any additional closing remarks.

Hey, thank you, Jessie, and thank you, everyone, for joining us today and for your time and the ongoing partnership and support for our business. I hope you have a great week, and you’re all as excited as I am for FIFA and what's to come in the fourth quarter. So, thank you again. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference and webcast. Once again, we thank you for your participation, and you may disconnect your lines at this time.