Anheuser-Busch InBev SA/NV Q3 FY2023 Earnings Call

Welcome to Anheuser-Busch InBev's Third Quarter 2023 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 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 17th of March 2023. 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 2023 earnings call. It is a great pleasure to be speaking with you all today. Just a heads-up, I'm slightly under the weather and taking the call remotely. Apologies in advance if my voice is a little raspy. 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 executing our strategic priorities. After that, we will be happy to answer your questions. Let's start with our operating performance. Our global momentum continued this quarter, although it was partially offset by the performance of our U.S. business. We delivered revenue growth of 5%, with our net revenue per hectoliter increasing by 9% as a result of pricing actions, ongoing premiumization, and other revenue management initiatives. Total volumes declined by 3.4% as growth in our Middle America, Africa, and APAC regions was primarily offset by performance in the U.S. and a soft industry in Europe. EBITDA increased by 4.1% and reached USD 5.4 billion. Underlying EPS was US$ 0.86, a $0.02 per share increase versus last year. In line with our capital allocation priorities, we have announced a US$3 billion bond tender, and we have also announced today that we will be proceeding with a US$1 billion share buyback program to be executed within the next 12 months. Fernando will provide some additional details on the capital allocation choices later in the presentation. While the operating environment remains dynamic in some of our markets, the strength of our global footprint, brand portfolio, and our continued focus on disciplined resource allocation are enabling us to invest for the long term while delivering efficient, profitable growth. We delivered broad-based growth this quarter with both top and bottom line increases in four of our five operating regions and with revenue growth of more than 80% of our markets. Our scale and diverse geographic footprint with leading positions in the largest profit and growth pools has us well placed to deliver superior long-term value creation. Now, I will take a few minutes to walk you through the operational highlights for the quarter from our key regions, starting with North America. In the U.S., the beer industry remained resilient, delivering revenue growth of 3.3% this quarter, with beer gaining share of value of total alcohol in the off-premise. Our revenues declined by 13.5% and STR volumes by 16.6%, primarily due to volume decline of Bud Light and impacted by shipment phasing ahead of our October price increase last year. With respect to Bud Light brand performance, we have actively engaged with over 260,000 consumers since April, and the common points of feedback remain consistent. One, consumers continue to want the Bud Light brand to concentrate on the platforms that all consumers love, and we are doing just that through investing in partnerships with the NFL, Folds of Honor, news platforms, college football, and our recently announced return to partnering with the UFC. Two, they want Bud Light to focus on beer. The Bud Light is to summer is to Sunday campaigns are all about bringing people together over a beer for the moments that matter. Notably, a recent survey found that over 40% of lapsed Bud Light drinkers said that they are now more open to come back to drinking Bud Light. Third, they want that beer without a debate. We are taking the feedback and working hard towards our consumers' business every day across the world. While our total beer industry share declined by 550 basis points this quarter to 36.6%, it has been stable since the last week of April through mid-October. U.S. EBITDA declined by 9.3% this quarter. Similar to last quarter, approximately two-thirds of the decline was driven by market share performance and one-third driven by productivity loss and the strategic choices we made to increase sales and market investments in our brands and provide support to our wholesaler partners. As we move forward in the U.S., we are focused on what we do best: brewing great quality beer, actively engaging for consumers, supporting our partners, and positively impacting the communities that we serve. Now moving on to our largest region, Middle Americas, which delivered margin expansion and another quarter of growth. In Mexico, we delivered mid-single-digit top and bottom line growth. Our above-core portfolio continued to outperform, led by the strong performance of Modelo Especial and Pacifico. We continue to progress on our digital initiatives with our vendor platform in beer, now enabling digital utility payments and mobile data purchases in more than 9,000 points of sale and generating over 170,000 transactions in the third quarter. As we highlighted at our recent Capital Markets Day, Mexico is an example of the performance that can be delivered with effective execution across all three pillars of our strategy and implementation of our replicable toolkits. In Colombia, our business delivered double-digit top and bottom line growth. Our core portfolio led our performance this quarter with a particularly strong performance from Poker, which grew volumes by high-single digits. In South America, our business in Brazil delivered mid-single-digit top line and double-digit bottom line growth with margin expansion of 628 basis points. Our beer volumes declined by 1.1% as we cycled all-time high quarterly volumes in the third quarter of 2022. Our premium and super-premium brands led our performance, delivering a volume increase in the low teens. Now let's talk about EMEA. In Europe, we grew top and bottom line by low-single digits. Volumes declined by high-single digits, outperforming a soft industry in more than 80% of our key markets according to our estimates. We continue to drive premiumization across Europe. Our premium and super-premium brands delivered mid-single-digit revenue growth this quarter, led by Leffe and Stella Artois. In South Africa, we delivered double-digit top line growth with our portfolio continuing to gain both share of beer and total alcohol. EBITDA grew by mid-single digits as top line growth was partially offset by anticipated transactional effects and commodity headwinds. Our core portfolio continued to outperform, delivering high-single-digit volume growth, and our global brands led by Corona grew volumes by more than 35%. And finally, APAC. In China, our business delivered high-single-digit top and bottom line growth, driven by continued premiumization and on-premise recovery across our key regions. Our premium and super-premium brands continued to outperform, growing volumes by more than 10%. The rollout and adoption of this platform continues with BEES now present in over 200 cities and over 65% of our revenue generated through digital channels in September. Now let's move on to our strategic pillars. Let's start with Pillar 1 of our strategy, lead and grow the category. We continue to execute on our five levers to drive category expansion and deliver another quarter of profitable top-line growth. We are leading and growing the category by offering superior core propositions, developing new consumption occasions, and expanding our premium and beyond beer portfolios. As we shared at our recent Capital Markets Day, premiumization is one of our biggest growth opportunities. Corona, Budweiser, and Stella Artois have all been intentionally built to address one of the key consumption occasions for premium beer. And with the elevation of Michelob ULTRA as our fourth global brand, our focused portfolio is well-positioned across all demand landscapes to lead the premiumization of the beer category. Our global brands are continuing to lead our growth, with the combined revenues of Corona, Budweiser, Stella Artois, and Michelob ULTRA growing by 15.1% this quarter outside of the brands' home markets. Now let's turn to our second strategic pillar, digitize and monetize our ecosystem. This continues to accelerate usage and reach, capturing US$10.4 billion in gross merchandising value this quarter, a 27% increase year-over-year and reaching 3.4 million monthly active users. Customer satisfaction continued to improve with our weighted average Net Promoter Score improving to plus 60, up 7 points since last year. In 15 of the 25 markets where BEES is live, our customers are also able to purchase third-party products through the BEES marketplace. Customer adoption is increasing with 65% of BEES customers now also BEES marketplace buyers. In the third quarter, BEES marketplace generated approximately US$420 million in GMV, representing approximately US$1.7 billion on an annualized basis. Now let's talk about how we are strengthening our direct relationship with our consumers. Our D2C mega brand, Zé Delivery, TaDa, and PerfectDraft are now available in 21 markets, generating over 16.9 million orders and US$125 million in revenue this quarter. We continue to leverage our digital DTC products to generate meaningful consumer insights and drive category growth by developing occasions. For example, across Latin America, Zé Delivery and TaDa are enabling increasing in-home consumption of returnable glass bottles, tests that increase availability and show consumer pain points of carrying these bulk products to and from their homes. With that, I would like to hand it over to Fernando to discuss the third pillar of our strategy, optimize our business.

Thank you, Michel. Good morning, good afternoon, everyone. We aim to maximize value by focusing on three areas: optimized resource allocation, robust risk management, and efficient capital structure. First, let me share with you a few sustainability highlights, as sustainability is key to both risk management and optimizing resource allocation. It allows us to ensure supply security, manage our costs, and protect our license to operate and grow for the next 100-plus years. Here are a few examples of local initiatives with the potential to scale globally that are driving progress on our 2025 sustainability priorities. In climate action, to support our Scope 3 efforts, we organized supplier collaboration and training events across our key markets, including Mexico, Colombia, and China. In smart agriculture, we hosted more than 200 farmers at our annual U.S. grower day to share results from barley variety and crop management research trials. In water stewardship, we launched a partnership with Water Aid in Ghana for a solar-powered water system to deliver clean, safe water to communities in it. For circular packaging, we scaled our program in Mexico to recover bottles destined for landfill, recovering more than 145 million bottles during the third quarter. All of these initiatives serve to optimize our business over the long term. With respect to capital allocation, we are focused on maximizing long-term value creation by dynamically balancing our priorities. We continue to invest in organic growth to support our strategy to lead and grow the category and digitize and monetize our ecosystem. The excess cash generated by our business is dynamically allocated to our three capital allocation priorities: deleveraging, selective M&A, and return of capital to shareholders. As you can see on the next slide, a two times net debt to EBITDA remains the point at which we maximize value, though approximately 90% of the benefits from deleveraging can be captured as we approach three times. Our debt maturity profile remains well distributed with no bond maturities in 2023 and no relevant medium-term refinancing needs. If you look at our debt maturity profile, we have US$3 billion worth of bonds maturing through 2025. Our bond portfolio has an average pretax coupon of around 4% and a weighted average maturity of 14 years. In addition, our debt portfolio does not have any financial covenants and is comprised of a variety of currencies that diversify our FX risk. 97% of our bonds have a fixed rate insulated from interest rate volatility and inflation. As part of our value-creating agenda, we have announced two capital allocation initiatives. First, to further reduce our debt quantum and progress on our deleveraging path, we have announced a US$3 billion cash tender offer for certain outstanding bonds. Second, we announced today that we will be proceeding with a US$1 billion share buyback program to be executed within the next 12 months. We will continue to dynamically balance our capital allocation priorities to maximize value creation. And as we move towards three times net debt to EBITDA, we believe there will be continued flexibility. And now, let me take you through the drivers of our underlying EPS this quarter. We delivered EPS of $0.86 per share versus $0.84 per share last year. Organic EBITDA growth, accounting for $0.11 per share, was partially offset by translational effects and higher non-controlling interest. Optimizing our net finance costs accounted for a $0.05 per share increase. With that, I would like to hand it back to Michel for some final comments before we start our Q&A session.

Thanks, Fernando. Before opening for Q&A, I would like to take a moment to recap my key takeaways for the quarter. While the operating environment remains dynamic in some of our key markets, we continue to make progress in executing across each of our three strategic pillars. Our business momentum continued this quarter with both top and bottom line growth in four of our five operating regions. Driven by the strength of our mega brands, we grew revenue in approximately 80% of our markets. We made important strategic choices in pricing and other revenue management initiatives, which drove continued strong net revenue per hectoliter growth of 9%. We progressed our digital transformation, generating US$10.4 billion of GMV through BEES, with 65% of BEES customers now also BEES marketplace buyers, delivering an annualized GMV of approximately US$1.7 billion. EBITDA grew organically by 4.1% as disciplined overhead management mostly offset the elevated cost environment. With respect to capital allocation, we have announced two important decisions with the launch of a US$3 billion bond tender and a US$1 billion share buyback. We know each quarter will be different and have tailwinds and headwinds. But as we highlighted in our Capital Markets Day last month, when we take a long-term perspective, we are excited by the opportunities ahead of us. The beer category is large and growing, and our unique global leadership advantage, implementation of our replicable growth tools, and superior profitability position us well to generate value for our stakeholders. With that, I'll hand it back to Jesse for the Q&A.

Our first question is from Trevor Stirling with Bernstein. Please go ahead with your question.

Hi, Michel and Fernando. Two questions from my side, please. The first one, probably for Michel, concerning the U.S., it's a bit over six months now since the Bud Light crisis started. We're now starting to get actually some view, some clarity on what the new normal might look like. At what stage do you think you want to reshape the U.S. to match what that new reality might be? And second question, Fernando, the $1 billion of buybacks, I think the first one in 2015. This is, I guess, somewhat hypothetical question. But as you move forward into 2024, presumably your buyback capacity will be even greater if and when Altria decided that they might want to exit some of their stake presuming that would leave you in a good position to participate in that, if you so choose.

Hi, Trevor. Good morning. Michel here. I'll take the first question, and I'll leave Fernando with the second. So I think that, first and foremost, we continue to invest in the U.S. for the long term, driving both our brands, but also category management and focusing on what we do best, which is brewing great quality beer for everyone, connecting and engaging actively, listening to our consumers, supporting our partners, and impacting the commitments that we serve. We are committed to continue to invest in Bud Light and all the platforms that consumers love, including the marketing campaigns. As we rolled out during the summer, we see 'Easy to Summer.' And now during the NFL season, we see 'Easy to Sunday.' Activations across this platform involve NFL, college football, and including new platforms like we just announced the return to partner with the UFC. We remain confident in executing behind this strategy in our mega brands. And this continued investment with new actions led us to stable market share trends through quarter three with signs of improvement that we saw since April. Most recently, if you look at the last week, there was another big step improvement to 4.67 from the beginning of this crisis at 5.6. Considering the steady improvement and what we found in our latest research that over 40% of the lapsed Bud Light drinkers declared that they are now ready to come back and are open to drinking Bud Light again. This gives us some certainty that we are moving in the right direction. On top of that, we continue to fully support our wholesalers. The network is very important for us. We took new steps moving in the right direction. We also highlighted before that two-thirds of what we see in the results are market share-related, while one-third is about operating leverage and strategic choices that we made to invest more and support the network. So those are more under our control. I don't think that we are at a new normal yet, but we have a good grip on what we need to do and how we are proceeding from here. Thank you for the question.

And Trevor, Fernando here. Good morning. On your question, I can't comment on specific shareholders. On our capital allocation, which includes buybacks, it's always good to remind a little how our framework works. So in summary, we have a great business, and the number one capital allocation priority is to invest in organic growth opportunities, and we have no shortage of organic growth opportunities. As we said during the Capital Markets Day, over the last four years, between 2019 and 2022, we invested more than $47 billion to drive organic growth. Then with the cash that we have, we continue to dynamically balance our capital allocation priorities to create value. The right way to think about it is that with the excess cash that we generate, we aim to maximize value creation. And we do that by dynamically balancing the three different capital allocation priorities, which are deleveraging, returning capital to shareholders, and selective M&A. Once again, referring to our Capital Markets Day, as we move towards three times net debt to EBITDA, we believe there will be continued flexibility. The 2022 dividend, which was paid in May, was increased by 50%. As we continue our deleveraging, this quarter, we launched a $3 billion cash tender offer for certain outstanding bonds. I believe this reinforces our commitment to continue to deleverage. In addition to that, we also announced a $1 billion share buyback to be executed within the next 12 months. All in all, we believe that these decisions are maximizing value creation for our shareholders. Thank you.

Thank you very much. Thank you, Michel and Fernando.

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

Great. I have two follow-up questions regarding Trevor's inquiry. First, Michel, could you discuss any signs of improvement in the U.S. market? It seems that Bush Light and Michelob Ultra have shown some positive trends based on the recent scanner data released today. Can you confirm this? Additionally, we’ve heard from several distributors and others at NACS and NBWA that while you may have lost a little shelf space in the fall, it seems minimal, possibly just one facing. Can you provide some clarity on this and what to expect for the spring? Now, Fernando, regarding the share buybacks and capital allocation, could you elaborate on whether there's a specific message or signal you're trying to convey with these buybacks? What gives you the confidence to pursue these actions in such an uncertain macroeconomic environment? Thank you.

Hi Rob. Good morning. Thank you for the question. Let me take these in two pieces. The first one, as we shared on that graphic, and you are right about the last week, Sircana. We've been seeing that despite calling stable market shares since April, the reality is that we are flowing back between 10 to 15 basis points every two weeks. This is happening most with Michelob ULTRA and Bush, which in the last week, both Bush and Michelob ULTRA were positive, and the brands remain very healthy under the consumer perspective in all metrics that we see. Of course, they were impacted by the overall situation, but they are less so than Bud Light; they are more in the family. We see consumers now, 40% of lapsed buyers declaring that they are ready to come back, and this is standing from what we can see in the numbers. We continue to invest in the long term behind the whole portfolio. So we see good momentum as we move forward on the relationship with the retailers and the hard work that our wholesalers do. So we want to continue to claw back this share position and make the right choices and investments for next year so we can minimize any resets coming out of the spring reset. But as I always say in the three-tier system, the retailers are independent; they make their own choices, and their choices are made based on the losses, rate of sales, and the belief they have in the brands that will drive the category. Thank you for the question.

Hi Rob, Fernando here. On your question, I wouldn't look at buyback in any specific action in isolation. If you zoom out, we continue to drive more resources to the leverage. It's a $3 billion tender offer and a $1 billion share buyback. But if you zoom out even further, this is a function of the business that we have. We are in a large and growing category. We have our leadership advantage, which is our unparalleled footprint and scale. We have the replicable growth drivers, iconic mega brands and digital products, and we have superior profitability. It's pretty much our margins on cash flow. When you get all of that and continue to deliver growth, we continue to generate cash, and then we need to allocate cash in a way that creates more value for shareholders, and that's the dynamic allocation of our capital. The $3 billion cash tender and $1 billion share buyback is just a reflection of our business performance and the choices that we have to maximize value for our shareholders.

Thank you.

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 one question, please. You had a big recovery in your EBITDA margin in South America and primarily by Brazil. But can you talk about the drivers of that expansion? Clearly, there was a big benefit at the gross margin level from pricing above COGS inflation. But did these help at all, perhaps in terms of managing SG&A or maximizing your revenue per unit? Thank you.

Hi, Mitch. I think that we also referred to this point in a couple of the calls that we had before, where we clearly made the separation between what our structural issues in relation to our margins versus what was a consequence of commodity inflation and FX. And it's very clear for us that structurally, we don't have any impact on our margins, but we have a lot of impact from commodities and FX. We highlighted that because of specifics in terms of sourcing, hedging, currencies, some of our markets got earlier into this margin compression, and some of the markets later. And therefore, the phasing out is not uniform. When you think about what's happening in Latin America and especially in Brazil, we see great performance from our mega brands. They are growing, driving growth both in power and in share. We are well-positioned with the scale that we have and efficiencies, so operating very efficiently in the overhead. As we see now commodities normalizing and FX a little bit more in our direction, the margins are rebuilding. Of course, part of our operating model now contemplates BEES, which enabled us to reduce cost to serve, enlarge our distribution scale, and is also helping us to manage better the campaigns and the promotions that we do, integrating online and offline. You combine this with a very good portfolio that we have today in Brazil and a market structure that looks much better than it used to be in the past, with competitors competing more at the top, premiumizing the market and the portfolio. This all combined is moving in the right direction.

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

Thank you. Hi, Michel. Hi, Fernando. So two for me, please. The first one is with you around your marketing and sales investments as we go through the end of the year. Is it fair to assume that the rate of SG&A growth that we're going to see in the business into the fourth quarter will probably begin to slow versus what we've now seen in recent quarters as you lap that World Cup spend unwinding Q4-on-Q4? Or should we still expect enough weighting of investment elsewhere in the business and not least your ongoing commitment to wholesaler support in the U.S. to maybe sort of offset some of that sort of theoretical Q4-on-Q4 benefits? So that's my first question. And then just secondly, just I suppose just a point of clarification with regards to the share buyback. Can you start executing that immediately, Fernando? Or do you still need to appoint a bank to handle the process and go through some other approvals before you'll actually be in the market?

Good morning, Simon. Maybe I'll take a shot at the first one, and I'll leave Fernando to complement the buyback. You know that we give guidance on the EBITDA line as a way to simplify our conversations and make sure that we have both the freedom and commitment to invest in the long term while maintaining the financial discipline to deliver profitable growth over time. I don't think that it makes any sense for us to give too many details or guidance for where the sales and marketing will be in quarter four or quarter one next year. This is all built into our overall outlook for the year. But you have one point that's right there, which is we had a World Cup last year in which a lot of the expenses in sales and marketing were skewed towards quarter four of last year. We continue to invest for the long term now and balance well what we need to activate demand across the market. So it's all built into the fourth quarter, which we just reiterated as we announced in quarter three. Thank you for the question.

Hi, Simon, Fernando here. And on your question, the best answer is probably almost immediately. You need to go through a few administrative tasks that you can only do after you announce, but that takes almost no time at all, so kind of almost immediately. Thank you.

Thank you.

Thank you. Our next question is coming from Brett Cooper with Consumer Edge. Please proceed with your questions.

Good morning. Just one for me. Have your digital initiatives revealed any products or categories where the company has a small presence today that are areas where you've seen ABI demonstrate competitive advantage given your infrastructure? Thanks.

Hi Brett, that's an interesting question. I think that I will take this in two parts. We are focused now on increasing the coverage with BEES as we get to new countries and at the same time, getting more people to convert to the BEES marketplace. The growth that we are seeing in the BEES marketplace, both in orders and GMV is very promising. This flywheel works with more partners and their products getting scale and reach as we roll them through the BEES marketplace. When we think about products and services within BEES in the digital ecosystem, we are prioritizing on our own initiatives things that we can use low capital and low infrastructure, but leverage and take advantage of the digital platform that we built. During the Capital Markets Day in Mexico, we showcased Vendo by BEES, which is basically a feature within this platform that allows us to sell digital products or to work as a channel where people can pay digitally their bills. This is scaling quickly. In Mexico, we have had 100,000 orders so far, which is a significant improvement since we were together in Mexico. It's a light structure, fast conversion, and good margins. BEES digital products and digital capabilities, such as credit and digital campaigns, is where we are focusing on more now while we are supporting the development of the products of our partners, with the physical products through the marketplace, which continues to both expand and engage more consumers, with more than 60% of the BEES buyers now also BEES marketplace buyers. Thank you for the question.

Thank you. Our next question is coming from James Edwardes Jones with RBC. Please proceed with your question.

Yes. Good morning. Michelob ULTRA, I noticed included in the global brand slide unlike Q2. How big is Michelob ULTRA outside the U.S.? And what are the main countries where it's sold? And secondly, you had about $10 billion of cash last year-end, which means that you're paying a coupon of more like 5% on your net debt rather than the 4% coupon on your gross debt that you talked about. Presumably, some of that's going to be used for the bond redemption. I guess my question is, how much cash does AB InBev need to operate?

Hi, James. Good afternoon. Michel here. I'll take on the first question, and then I'll leave Fernando to complement on the cash question. I think that Michelob ULTRA, first and foremost, is a brand that is very well aligned with an important global mega trend, which is around healthier lifestyles and wellness as a way to socialize and complement our lifestyle. This is a mega trend that you see present across the globe, in pretty much all markets from Latin America to North America, to Asia, showing an opportunity in this area. Michelob ULTRA fits very well and complements our global portfolio in these more social occasions. We thought that it would be the right moment to elevate Michelob ULTRA, and we showcased the reasons why and how during the Capital Markets Day. If you look at how the brand is developing, in the U.S., we are all familiar with the growth path and the velocity of the brand; this is pretty much being replicated as a core proposition in Canada, where the brand has a lot of momentum, and it's the fastest-growing brand there. When you think about Mexico, which is a place where we launched the brand a couple of years ago, we're seeing healthy growth premium price as well. We extended the brand to some other markets in Latin America, think about Panama and some of the islands in the Caribbean. The brand has very good momentum, and we have plans now to continue to roll out to the most important countries where we want the brand to develop, as it can add to the portfolio as core to us. It's good for margins but also can tap and lead this healthier and wellness type of trend in consumption because it is low calorie and low carb, making it very good for everyday consumption. So there's huge headroom for growth, premium core plus positioning, and our global mega trends are present across the majority of our markets, making it a vital play as we continue to consolidate our mega brands and drive both category growth and our performance with a more efficient portfolio. Thanks for the question.

And James, Fernando here. On your question, the cash we need to operate is around $5 billion to $6 billion. That's normally what you see as the minimum cash you need to operate, and that's already coming from a safe place because it takes account of seasonality and that we are not tapping any other liquidity sources, which we have a lot like the RCF or any commercial paper, to which we have access. If you look at our cash balance, we're taking even a more conservative approach lately. If we finished the year with $10 billion, $10 billion is way more than we need to run the business. We still focus on deleveraging, but maintaining a healthy cash balance to make sure that any volatility, we can navigate with no issues at all. Thank you.

Thank you.

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

Hi, good morning, Michel and Fernando. Just two questions first. First, a follow-up on the recently announced UFC partnership. Could you perhaps give us a bit of background on it? And if it's a normal sponsorship with a fixed payment or if there's a variable part linked to the potential recovery of the Bud Light brand over time? And then secondly, many staples companies have commented on how GLP-1 drugs could potentially affect consumer habits in the U.S. Obviously, I assume AB InBev is not going to be the most concerned about this. But considering that a lot of your portfolio is within the light beer segment already, I was just wondering if you've done any work on the topic and the potential risk to volumes on beer or RTD or hard seltzer sales there. Thank you.

Hi Olivier, Michel here. Good morning. Thank you for the question. So I'll take both, starting with the UFC. I think it’s just emphasizing that UFC is a global vibrant and growing international sport. It reaches hundreds of millions of fans around the world, making it a great fit for Bud Light in the U.S. and for Budweiser in our other markets. The combination of global presence in the U.S. gives us an incredible opportunity to partner with UFC and tap into the fan base both in the U.S. with Bud Light and globally with Budweiser. You know that as a company, we support sports globally; from soccer, FIFA, and basketball to NFL, golf, and many other sports platforms, we believe it is a great way to connect with consumers globally in very relevant occasions. In the U.S., Bud Light was actually the original UFC sponsor, about 15 years ago, so it’s a natural fit for these two great brands to come back together. UFC has shown tremendous growth, boasting over 500 million fans worldwide. Since our revisional sponsorship, it is incredible to see the growth that UFC has achieved and the accomplishments of Bud Light in creating a truly global brand. To answer your question, it's a normal partnership agreement with a fixed payment, as in any other partnership agreement, and then activation around the platform. So there is no variable pay involved in any end of the agreement. We could not be more excited about rejoining UFC and having Bud Light in the U.S. for the fans and Budweiser being activated globally, leveraging the best of both worlds. Regarding GLP-1, we've been seeing a couple of questions and some discussions around this. However, the key point is that the beer category remains vibrant, growing globally, and gaining share of throat. It is projected to continue to grow worldwide according to all sources like IFWR and Euromonitor. At this stage, it’s too early to assess any overlap or change in behavior in relevant consumer groups. The penetration of these drugs is still very small, and there is a relatively wide range of points of view on how this will evolve, with very limited data. Currently, we don’t see an impact on our business. Our portfolio comprises several different options for socialization, and consumers understand that. Importantly, we are not in the indulgence business, and a lot of the conversations around sweet and indulgence are not applicable to our portfolio. On top of that, we have an incredible range of offers with low-calorie and low-carb options, such as Michelob ULTRA, Corona Cero, and Budweiser. Therefore, we see no reasons to make any considerations at this point. Without more data and seeing the developments of deals, it will be more speculation, so at this point, nothing else to offer.

Thank you very much.

Thank you. Our final question will come from the line of Andrea Pistacchi with Bank of America. Please proceed with your question.

Yes. Hi, Richard and Fernando. Two, please for me. The first one is on the consumer environment. Some of your peers have called out in some markets, mainly in Europe and Asia, some deterioration in recent months. LatAm seems to be quite resilient for now. I wonder if you could provide a quick assessment in terms of what you're seeing in the consumer environment in your main markets around the region and whether you have seen any changes since the last update of Q2. The second question is on your SG&A in North America, which increased 2.5%. Now, there are clearly various buckets within your SG&A. I imagine distribution costs will be declining and support to wholesalers going up. But in terms of your media spend, a couple of quarters ago, you said that this year, it would be very focused on the summer months, as there would be a step-up through the summer month. So I was wondering whether that has taken place or whether maybe over the last few months, your plans have evolved a bit. Maybe you're waiting for the dust to settle before really stepping up media spend in the U.S. Thank you.

Andrea, thank you for the questions. I'll take both here. In terms of the consumer environment, I'll follow the sequence of your question, starting with Europe. I think that the categories remain resilient in dollar terms, and most importantly for us, underlying consumer demand for our brands is going very well. Looking at volumes in this quarter, we observed a decline in the high single digits, much of which was weather-related. It’s interesting to note that while the southern part of Europe experienced very hot weather, our footprints are concentrated in the central and northern areas where both weather conditions were cold and wet. This resulted in dismal July and August, with slight improvements in September and further improvements in the early October reports. While it's difficult to ascertain precisely how much was due to the weather versus the consumer environment, it appears to lean more towards the weather. The consumer environment undoubtedly includes factors like inflation and rising prices but is also showing signs of recovery with disposable income. September marked a point where disposable income began to increase due to rising salaries, which are now matching inflation rates. This combination of better weather and increased disposable income is interesting as we transition from quarter three to quarter four. In China, we encountered a similarly complicated industry impacted predominantly by weather as well. I recently returned from spending 12 days in the region. Consumer activity is resurgent, and the beer category remains resilient despite the adverse weather impacts. Most importantly for our portfolio, the premiumization trend continues to be essential. Overall, we see this as a unique recovery, with improvements in utility and activity levels. However, we remain aware of structural issues in real estate, which, while not directly related to our business, affect the broader economy and are more cyclical in nature. In Latin America, we continue to observe the strength that persists across the majority of our markets. Of course, there are localized impacts from events like El Niño. For instance, we just saw significant weather events in Mexico's Poco region. Nevertheless, we are witnessing resilience in other markets such as Colombia and Brazil, where inflation is stabilizing and real wages are improving. The strength of our portfolio is delivering the outcomes we need, indicating positive trends in the consumer environment. Regarding your question on SG&A, I apologize for not addressing that immediately. We are managing our overheads tightly, and while we have been investing as indicated in our brands for the long term, we haven't altered our investment plans for the summer. We will continue to invest wisely, making the right decisions to generate effective demands moving forward. Thank you.

Thank you.

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 Mr. Michel Doukeris for closing remarks.

Thank you, Jesse. Thank you all for your time today and for your ongoing partnership and support of our business. Stay safe and well, and we will see you on our fourth quarter. Thank you.

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