Ambev - Q2 2023

Transcript

Operator (participant)

Good morning, good afternoon, and thank you for waiting. We would like to welcome everyone to Ambev's second quarter 2023 results conference call. Today with us, we have Mr. Jean Jereissati Neto, CEO for Ambev, and Mr. Lucas Lira, CFO and Investor Relations Officer. As a reminder, a slide presentation is available for downloading on our website, ri.ambev.com.br, as well as through the webcast link of this call. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company's presentation. After Ambev's remarks are completed, there will be a Q&A section where we kindly ask that each participating analyst asks only one question. At that time, further instructions will be given. Should any participant need assistance during this call, please press star then zero to reach the operator.

Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Ambev's management and on information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward-looking statements. I would also like to remind everyone that, as usual, the percentage changes that will be discussed during today's call are both organic and normalized in nature, and unless otherwise stated, percentage changes refer to comparisons with second quarter 2022 results.

Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Ambev's normal activities. As normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, operating profit, and EBITDA on a fully reported basis in the earnings release. I'll turn the conference over to Mr. Jean Jereissati Neto. Mr. Jereissati Neto, you may now begin your conference.

Jean Jereissati Neto (CEO)

Hello, everyone. Thank you for joining our Q2 earnings call. Q2 was all about consistency. Top-line momentum persisted, with net revenue up 20%. EBITDA grew 34% at a consolidated level and 20% ex Argentina, with Brazil growing 29%. International operations continued to recover, with CAC and Canada delivering EBITDA growth and LAS with steady momentum. Operational leverage continued to come back, with gross margin expanding 170 basis points and EBITDA margin expanding 300 basis points. Although net income declined, given last year's one-off tax credit, cash flow from operating activities increased BRL 1.2 billion. We end H1 having delivered over 23% net revenue growth, 37% EBITDA growth, and 310 basis points of EBITDA margin expansion and well-positioned for H2.

Let's take a closer look at performance by geography, starting with Brazil, which continued to lead the way. In Brazil beer, commercial momentum remained resilient. Topline grew 10%, with volumes declining 2.5%, due mainly to a soft industry. However, despite the decline in industry, premiumization trends continued. Our premium brands grew volumes in the mid-30s, and we gained market share in the segment, according to our estimates. Just to put things into perspective, this year-to-date, volumes of our premium brands grew 180% versus that same period of 2019. In addition, the disciplined execution of our revenue management initiatives, combined with positive brand mix, led to net revenue per hectoliter growing nearly 13%. Our brand-building efforts continued to pay off.

Brand health indicators of focus brands improved again, both sequentially and versus last year, our brands also added 4 million cents since the pre-pandemic period, according to our estimates. We were awarded 13 Lions in the Cannes Festival this year. Brahma brought home five awards, Budweiser four, and Zé Delivery was also recognized for the first time in the event with one award. Finally, EBITDA growth accelerated to almost 30% this quarter. In addition to the sustained commercial momentum, EBITDA performance was positively impacted by two things. First, lower growth in terms of costs. Cash COGS per hectoliter, excluding non-Ambev marketplace products, grew only 4.6%. thanks to a combination of our tailwinds from FX and commodities hedges, a lower than expected inflation and unhedged commodity prices, as well as a more efficient supply chain, given a better production and distribution footprint.

Second, by lower distribution and administrative expenses. In Q2, we began to cycle last year's increase in diesel and our efforts to optimize our business by streamlining and integrating our B2B, DTC, and Fintech with the rest of the organization, continued to make great progress. During 2022, we developed a comprehensive plan to establish a new operating model better suited for Ambev to work as a platform. The results are starting to show more and more, not only in terms of more collaboration across the company, but also in terms of a leaner and a more agile organization. Turning to Brazil NAB, I would highlight three points. First, top line grew 7.5%, thanks to net revenue per hectoliter, growing 10%, given our revenue management initiatives and a positive brand mix contribution.

This offsets the 2.2 decline in volumes, which suffered mainly from a soft drink industry. Second, our brands continued to perform well in the premium, health and wellness, and energy beverages, with Pepsi Black outperforming once again, growing about 170% and now representing about 19% of our Pepsi-Cola volumes. Guaraná Antarctica also was recognized at Cannes for its Women's World Cup campaign. Third, EBITDA grew nearly 25%, with gross margin expanding 490 basis points and the EBITDA margins expanding 310 basis points. Now, let's cover our international operations, which, as I mentioned before, continued to recover. Starting with CAC.

Despite the 2.8% volume contraction, top line grew almost 5%, led by the Dominican Republic, which is the most important country in the region, representing historically around 80% of our EBITDA results on average. Not only did macro conditions improve sequentially, but also we continued to put our operations back on track. For instance, volumes of the Presidente family rose 3% in the quarter, while inventory at wholesaler level normalized and price execution remained consistent. After four consecutive quarters of decline, EBITDA grew almost 8% year-over-year, and both growth and EBITDA margins expanded 100 basis points. What's more, year to date, organic EBITDA growth is above 2021 level, which was our best performing year in CAC. We still have work to do here, but happy to see CAC recovering and in a sustainable way.

In LAS, top line grew roughly 82%. Volumes were slightly positive, growing 0.6%, led by Chile and Paraguay. It's also worth noting that our beer volumes in Argentina grew low single digits, despite the short-term volatility and challenges in the country. Speaking of Argentina, beer gained share of store as a category. Our above core brands continued to gain weight in our volumes. We were also awarded with eight Lions at the Cannes Festival this year with Quilmes and Stella Artois campaigns. LAS is not just about Argentina. The rest of the region delivered a solid quarter, with double digits, top line and bottom line growth, and gross margin, and EBITDA margin expansion. Paraguay and Chile were the highlights, with great performance across the board.

All in all, LAS EBITDA grew 110%, with gross margin expanding 160 basis points and EBITDA margins expanding 380 basis points. Finally, Canada. Top line performance was flat, with 6.6 net revenue per hectoliter growth and a 6.2 volume decline as we underperformed a softer industry and faced a tough comp in Quebec. Having said that, our above core brands' health indicators continued to improve in the country, especially on our premium brands. Corona and Michelob ULTRA continued to grow volumes, supporting estimated market share gains in premium and core plus, respectively, and EBITDA grew a little over 4%, with gross margins contracting 70 basis points, but the EBITDA margins expanding 120 basis points. Well, with H1 behind us, a few words on H2. Starting with what's more clear to us.

In Brazil, our commercial strategy is in good shape given the health of our brands, the better mix, the execution in beers, both in terms of client NPS and expansion of marketplace, and in Zé Delivery. Our cost outlook for the year has improved. We are updating our guidance and currently expect Brazil beer, cash COGS per hectoliter, excluding non-Ambev marketplace products, to grow between 2.5% and 5.5% for the full year. We should continue to benefit from less pressure in terms of distribution and administrative expenses during the second half of the year for the reasons I previously mentioned. Outside Brazil, what I would highlight is CAC, where year-over-year performance should continue to improve, given our sequential recovery and as we lap last year's soft H2.

In terms of where we have less visibility, I would say the two main points are: industry volumes in Brazil, where we will continue to closely monitor disposable income drivers, and overall operating environment in Argentina, which has been, and will continue to be, a point of attention. All in all, although we may still face some degree of volatility and short-term challenges, varying market by market, I believe it's fair to say that our strategy has been working for a while now, and I am confident in our team's ability to continue executing it going forward. Finally, we will continue to work towards delivering growth and profitability in H2, as well as a better organic EBITDA growth in 2023 than the 17.1% that we delivered in 2022.

We closed H1 with over 37% EBITDA growth, so we are well on track to deliver another year of continuous and consistent improvement. With that, thank you very much. Let me hand it over to Lucas.

Lucas Lira (CFO and IR Officer)

Thank you, Jean. Good morning, good afternoon. Since Jean already covered the main performance indicators, and since Q2's performance was consistent in terms of what should not change and what should change this year versus 2022, I will focus on net income, cash flow generation, and taxes. Starting with taxes, two relevant updates here. First, in early July, Brazil's House of Representatives approved the tax reform on indirect taxes, which is intended to simplify the different federal, state, and municipal taxes that are currently levied on consumption, while not increasing the overall tax burden, thus creating conditions for Brazil to deliver better economic growth. The legislative debate now moves to the Senate, which will analyze the proposed changes during the course of H2.

Since the legislative process is ongoing, and since the draft legislation approved by the House is still subject to change, it's still premature to comment in more detail on what to expect going forward and potential impacts on the industry and our business. Having said that, we welcome any tax reform that reduces the complexity of the Brazilian tax system, and that does not increase the total tax burden, which is already among the highest in the world. As for direct taxes, including potential changes to the deductibility of the IOC, despite continued speculation, there has not been any material concrete development on the legislative front. We will keep the market informed accordingly.

Second, in terms of tax litigation in Brazil, as of June 30, 2023, our tax disputes classified as having a possible but not probable chance of loss, reduced by nearly BRL 5 billion compared to December 31, 2022, as a result of favorable decisions we obtained in several different disputes. We expect the administrative and judicial courts to continue ruling on certain of our tax positions during H2, such as tax assessments received in connection with the deductibility of the IOC, the deductibility of goodwill amortization expense, as well as the case related to the ICMS substitute in the taxable basis of the PIS and the COFINS. For further details, please refer to item 26 in the notes to our financial statements.

We will keep the market up to date should there be any material developments, and as mentioned before, we believe the merits of our legal positions will ultimately prevail. Now let's turn to our Q2 financial performance, starting with net income. Normalized profit totaled nearly BRL 2.7 billion in Q2, which represents a 13% decrease versus last year. 2 points worth making here. First, last year's figure was positively impacted by roughly BRL 1.2 billion in one-off tax credits recognized in Brazil. If you disregard such one-off and related effects, our net income would have grown 18% year-over-year.

Second, although net finance results totaled an expense of about BRL 1 billion, which was around BRL 500 million worse than last year, losses from derivative instruments used pursuant to our hedging policy, which has been a pain point historically, actually declined close to BRL 400 million. This reduction is a result of lower USD exposure and lower carry costs in Brazil and Argentina. As you may recall, since Q3 2022, we've been reducing the financial hedges in Argentina, and our net finance results have been positively impacted since then. This should continue to be the case in Q3, and to a lesser extent, in Q4, as we lap the reduction in exposure and hedging. As for cash flows, good news here. Cash flow from operating activity totaled approximately BRL 3.4 billion in the quarter, which is BRL 1.2 billion above last year.

As a reminder, our cash flow from operating activities is highly impacted by the seasonality of our business, and heavily skewed towards the second half of the year. For instance, in the last seven years, over 80% of our cash flow from operating activities was generated in H2. Similarly, working capital tends to be stronger in H2. However, due to its nature, it can be more volatile on a quarterly basis. Q1 is typically the weakest performance of the year, and working capital improves sequentially throughout the year. Let's break down Q2. If you look at it from a geographic standpoint, the biggest year-over-year improvement came from Brazil, followed by LAS, Argentina and Chile, and CAC.

In terms of working capital, receivables improved about BRL 900 million compared to last year, driven by a lower tax credit recognition in Brazil versus Q2 2022, as well as volume performance in CAC, Argentina, and Canada. Inventories improved by BRL 1.3 billion compared to last year, mainly driven by a reduction in days of inventories year-over-year, not only in terms of finished goods, but also packaging and raw materials in Brazil, Argentina, and in Canada. As for payables, results were pretty much flat when compared to last year, driven mostly by Brazil and Canada. In Brazil, non-income tax payables, which had a negative year-over-year impact in Q1, had a positive effect in Q2, given our end of quarter sales performance, and this improvement was offset by lower payables in Brazil, mostly given the reduction of inventories and lower CapEx spend.

In Canada, we were up against a tough comp on non-income tax payables, as H1 2022 taxes were deferred to H2 due to COVID. However, this adverse impact should subside through the end of the year. All in all, following the improvements in Q2, cash flow from operating activities in the first half of the year ended ahead of H1 2022. If we take a step back and look at longer term trends, it's important to highlight 3 points. First, our receivables as days of sales have been declining over time, especially in Brazil, mostly given channel mix. Second, our inventories as days of COGS have been increasing, given a combination of higher level of safety stock to navigate the supply chain disruptions caused by COVID-19 and sustained service level, more vertical operations, and a greater SKU assortment.

Third, when we look at our payables as days of COGS, CapEx, and SG&A, although the current figure is below the peak in 2020, it's currently over 130 days on average. Large suppliers have payment terms longer than 90 days, and they represent more than 55% of our spend, whereas small suppliers represent around 30% of the spend and have payment terms of around 30 days. Before moving to Q&A, I would like to invite everyone to join our ESG update, which we plan to host virtually in November. Stay tuned for more details. With that, let me turn it back to the operator.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press the star key followed by the 1 key on your touchtone phone now. If at any time you would like to remove yourself from the questioning queue, please press star, then 2. Please hold while we collect questions. The first question comes with Lucas Ferreira with JPMorgan. Please go ahead.

Lucas Ferreira (Senior Equity Research Analyst)

Hi, everyone, thanks for taking my question. My question is, I just wanted to understand a little bit more what drove the reduction in the COGS guidance, if it was a mix driven or maybe you're just too conservative before? Just, I'm asking because I just wanted to understand if there's any reading into these for next year, if the company is becoming more, even leaner, more efficient, or the mix is improving in a way that gives you a cost advantage. Thank you.

Jean Jereissati Neto (CEO)

Lucas, thank you very much for the question. Brazil beer, cash COGS x marketplace in Q2 grew 5.1% versus last year. It was like better than we anticipated, right? And it was mostly driven by inflation in brewery performance, partially offset by effects in commodities. In H1, we are on the number of 10.1% versus last year. Forecasting moving forward for the year, we reduced the guidance right to 2.5%, to have the full year in between 2.5% and 5.5% in the full year. A part of it was mix that was better than expected. Yes, so a piece of it.

A piece of it was non-hedged commodities, so malt, barley, energy overall, in that, in a place better than we expected. We are-... really, seeing that we are getting more efficient on our footprint faster than we expected. We have some projects going on, unlocking innovation capabilities in our suppliers, to produce locally bottles that in the previous year, we were importing. Our breweries are, bigger and better suited to roll out the innovations that we, we made in the previous years. There is a piece of it that is, efficiencies in, supply and distribution footprint, that they will stay.

Lucas Lira (CFO and IR Officer)

Yeah. Hi, Lucas. Lucas here. Just to add a few more points. Since you talked about potential implications for 2024, I think there are two points worth noting. Number one, right, as you know, inflation has been coming down across markets, that's again, to the extent that sustains should be supportive going forward. Number two, when you think about our hedging policy, granted, there's still a lot of hedging to be done this year through the end of the year. If you take the picture today, what we're seeing is the BRL FX equation as a tailwind, once again, aluminum hedges as a tailwind once again, and barley as a tailwind, which has not been the case in 2023.

I think that's different, and that's improving so far, right, going into 2024. What's still a headwind is the devaluation of the Argentine peso, which, as we mentioned in our prepared remarks, is a point of attention. Net, net, we're seeing less cost pressure going into 2024 so far, as compared to where we were at this time last year.

Lucas Ferreira (Senior Equity Research Analyst)

Perfect. Thank you, guys.

Operator (participant)

The next question comes with Robert Ottenstein with Evercore. Please go ahead. The next question comes with Thiago Duarte with BTG Pactual. Please go ahead.

Thiago Duarte (Head of Equity Research Brazil)

Yeah, hello, Lucas. Hello, Jean. Thanks for the call. Yeah, my first question actually relates to the industry in Brazil, Brazil beer. You mentioned in the release and Jean made a comment about the, you know, as being one of the points to watch as we go into the second half of the year. Just if you could, Jean, elaborate a little bit more on what you're seeing at the margin, particularly on two things. Number one, how that-- how you expect that to affect the seasonality of the volumes throughout the year? I mean, since the pandemic started, we, we, we saw Q3 volumes looking particularly strong for you guys in the industry in general.

just, just if you could, if you could, you know, discuss a little bit on that, and how that implicates volumes for the second half of the year. Secondly, how that affects the company's pricing decision. I mean, you know, when you, when you took over as CEO, one of the, one of the key things that you, I think you have been saying for, for a few years now is how you were-- you guys are paying a lot of attention to how pricing, you know, does, should not, impact the category and the industry volumes in general. Now that, you know, industry seems to be a little bit weaker, how that affects that behavior from your guys', point of view, I think it would be an important discussion.

Secondly, actually, a follow-up on, on the comment I think Jean made, made on, on, on mix with regards to how that affected, the, the guidance, the, the reduction in the cost guidance for the year. How, how, how that change took, you know, how, how that change in the mix was? The sense that we have is that you guys had a much bigger impact of RGB in the quarter, that could have been the reason for the lower cost. Just wanted to see if we are reading things correctly here, if it was really an increase in RGB penetration relative to one-way presentations, that would be great to understand as well. Thank you.

Jean Jereissati Neto (CEO)

Okay, thank you very much, Duarte. Let, let me try to get the industry first, then we go to talk about price, and then we go to mix, overall, to talk about cost and, and, and prices in general, okay? Duarte, overall, this year has been a stable year, if you look at on a deseasonalized way, month by month, than the previous years because of the pandemic. So long-term wise, we are very confident about the industry in Brazil. Industry is structurally better, trading up, trading up, consumers really, evolving in the right direction. The category has been relevant for the, the, the young generation. We are very confident long-term wise, with the industry.

When, when we look back what happened in the pandemic and now that we went out of it, what we accessed it was that during the pandemic, frequency went up. All right? We see consumers really looking to have beers on Tuesdays, on Wednesdays, at home, to relax. The frequency, that it was a normal pattern, in a country maturity two, that is upgrading to maturity three. Frequency usually goes up. The pandemic accelerated this process. We are seeing a residual effect on frequency that stays today. What we are looking at the industry, the industry is a little bit softer, is about intensity, okay?

It's less about the disposable income, it is, it's more about the euphoria moments in our access that we saw in the previous year. Intensity was higher, people going back to the suites, in one occasion, really in a euphoric mode, going back. This piece, it is the piece that is what we call the dust form, that we had with, with the euphoria, when the country had the masks down in March. That it is something that we have to be taking out. This effect, frequency, residual looks good. Beer, in the basket of consumers' penetration looks good. Somehow this is. We are confident with the structural levers. We know there is this effect of the euphoria after the reopening, okay. That was about the industry.

I think we still gonna see a little bit of this piece, this piece of intensity in this previous years. That's why we are cautious, somehow moving forward, but cautious more because of this effect, less very optimistic about the structural reality of the changes that the Brazilian market is going through, okay? I think this is one point. Talking about pricing, overall, you know that we've been mentioned that we have been very agile and nimble in terms of making decisions on pricing. Much more granular than we have before. Really looking for this equation of having a sustainable balance between a industry that can grow, a category that can be inclusive, and the net revenue per hectoliter growth.

Somehow, consider that inflation is decelerating. We're gonna continue to monitor the industry health, the macro environment in 2023. We're gonna remain flexible, really watching on disposable income and elasticities to make the decisions on pricing moving forward. All the decisions that we do is really to maximize overall this equation of volumes and prices, and generate better, better bottom line. Talking about mix, RGB, they are solid, so they are, they are doing well. Penetration is, is going up. That delivery is helping it. We just went with a big campaign with RGB through the whole Brazil, about how sustainable and how more affordable it is in the in-home occasion. We are happy with this strategy.

A piece of it was mixed, was mixed, but a piece of it that we don't talk that much, is really that my supply footprint is really more, more efficient. During the pandemic, volumes up, supply chain constraints, importation. There is this piece that once things are more stable, we are being able to have a better planning, better negotiations, focus our suppliers on long-term initiatives, on innovation to help us to be more efficient. There is a piece of it that is really coming for a more efficient supply chain.

Thiago Bortoluci (Equity Research Analyst)

Thank you so much, yeah.

Operator (participant)

The next question comes with Carlos Laboy, with HSBC. Please go ahead.

Carlos Laboy (Global Beverage Head and LatAm Food Analyst)

Yes, thank you. Hello, everyone. Given all the growth that you've had in BEES and the emphasis on refillable bottles on premise, might you be able to give us, some insight on how this might be shifting your channel mix?

... and how those, those, those other channels are growing relative to modern trade. Also, is there any insight you can give us or anything you can share with us in terms of share volume versus share value, and how that's been behaving for you as well? Thank you.

Jean Jereissati Neto (CEO)

Okay, Laboy, thank you very much for the questions. Yes, you know that we have this strategy that this is a really relevant piece of our strategy. This is about is really about opening up the company for all the customers that we have in Brazil. We entered the pandemic with 750,000 customers buying. We left the pandemic with more than 1 million, so that was a lot of customers that connected with the platform and small, small retailer in general that really had no access, or my sales rep was not there or were buying from another channel, and then we begin to go really direct. This is an important piece of the strategy with returnability on it.

Yes, we are seeing, in terms of mix, a good resilience on the small retailer, that continues to perform well. When we compare big retailers, we are seeing a lot of initiatives on the big retailers to manage better their cash, to reduce inventories. There is a piece of it that the channel is readjusting inventories, the big formats. We are seeing really small formats, really, really doing well. The on-premise, really, really doing well. There is another piece on the equation, that is that our third-party system that is plugged into this, in this country sides of Brazil, there is Northeast, North, the Midwest.

There is a lot of growth on the countryside of Brazil, together with Brazil growing in the agriculture. We are seeing a big part of our growth coming from these regions, through these, but through our third-party partners. That's a piece of the equation too. When I look at share of value and share of volume, I would say, Laboy, that they are directionally stable when we look in the previous two years, one year. They are directly moving in the same in the same direction. We don't see that share of value is deteriorated or it's really up.

The piece of the upgrade on the brands that we have on the high end, in the short term, this 35% growth that we are having on our high end, looks like it will begin to give some additional gains on our share of value when we compare with share of volume. Overall, they are pretty much with the gains in line in the previous year.

Carlos Laboy (Global Beverage Head and LatAm Food Analyst)

Is it fair to say that modern trade has become a smaller component of your, of your channel mix?

Jean Jereissati Neto (CEO)

We, we can say that.

Carlos Laboy (Global Beverage Head and LatAm Food Analyst)

We can. Okay. Thank you.

Operator (participant)

The next question comes with Isabella Simonato with Bank of America. Please go ahead.

Isabella Simonato (Managing Director of Equity Research)

Thank you. Good afternoon, Jean, Lucas. Thank you for the call. I have two questions. One is, quickly a follow-up on the beer market in Brazil, right? Especially on the pricing side. Are you guys seeing any movement, right, from competition or even on a more granular basis, right, of a pricing deceleration, as costs improve, right, for most of the players? Any more of an irrational or aggressive behavior on that side? That's the first question. The second question is on the LAS business. We also saw some price deceleration on LAS. I was wondering if you could give us a little bit more of a detail on that front, what you expect going forward.

If you could provide also details that you are already seeing from the new approach towards Argentina, right? In terms of cost management and having more of a local sourcing across the board, What sort of impacts are you already seeing? Finally, if that has already been impacting working capital in a more material way? That's it on my side. Thank you.

Jean Jereissati Neto (CEO)

... Okay, thank you, Isabella. Coming back to, to the industry, what we are seeing is, is really an industry that is structurally better. I, I mentioned about the, the consumers, the frequency, the intensity, a little bit about the, the, the tough comp that we have with this euphoria in the previous year of the masks down. Overall, the underlying drivers of the industry, they are healthy. When we go to the competitive landscape, what we are seeing is that somehow, there is more rationality on that. The industry, it was an industry that suffered a lot in the previous two years with the currency devaluation, with commodities going up big time, so margins were very compressed.

What we have seen overall is like, a overall industry that is more, with more rationality, in general. That's what I could, I could mention about, the competitive landscape.

Lucas Lira (CFO and IR Officer)

Hi, Isabella.

Jean Jereissati Neto (CEO)

Talking about last, Lucas.

Lucas Lira (CFO and IR Officer)

Yeah, hi, Isabella, Lucas here. Regarding LAS, I would break it down into two pieces, okay? Piece number one, Argentina, and piece number two, Bolivia, Paraguay, and Chile, okay? Although Argentina is the biggest country, when you combine the three others, it's relevant to material portion of the total LAS business, so it's worth, it's worth mentioning. Starting with Argentina, kind of the new approach towards how to, how to create value in a sustainable way in Argentina, in the current environment, I think the short answer is we're happy with the results so far, okay? When you look at the net effect of less hedging in terms of bottom line impact and cash flow generation, we have, like, positive improvements in both, right?

Even though costs continue to increase, the less hedging that we do ends up having a net positive impact in our net income in the country, which is much better than the past. Number two, we're generating better cash flows in Argentina as compared to the past, okay, in U.S. dollars. I think the strategy has been working so far. We think it's the right strategy. The team has managed to execute it extremely well, but we need to keep at it. It's a volatile market, so we need to continue to be on our toes, okay? For Bolivia, Paraguay, and Uruguay, I think Bolivia, it's all about recovery, right?

Bolivia was one of the two markets that suffered the most with COVID and took the longest to come back. I think 2023 has been the year where Bolivia is finally coming back and contributes to the growth of the region. Paraguay recovered sooner, the good news is that it's kept momentum. We're very happy with the progress in the performance in Paraguay consistently over the last two, three years. Chile, I would say there has been a step change in our operation. We decided to invest in local production to increase capacity. We decided to partner with Andina and Embotelladora to distribute our products, giving us better coverage throughout the country.

With our portfolio, right, skewed towards core plus and premium, with great brand health performance year after year, that combination has led to a, a massive swing in, in EBITDA and cash flow generation in Chile so far this year. We're, we're very happy with, with how Chile is trending, and year-over-year, it's been a relevant impact, really step, step changing Chile's contribution to, to LAS and to Ambev.

Rodrigo Alcantara (Equity Research Director)

That's very clear. Thank you.

Operator (participant)

The next question comes with Alan Alanis, with Santander. Please go ahead.

Alan Alanis (Analyst)

Hello, everyone. Thank you so much for taking my question, Jean and Lucas. I want to expand or dig deeper a little bit on the, on the directional, directionally stable market share answer and the rationality of the, of the competition, really quickly. I mean, we all know that, I mean, in the Brazilian beer market, there's three players. You are the leader, then the number two and the number three. There's this perception that the number two player is doing very well. They even said that the volumes were positive on the, on the second quarter and so forth. Could you help us understand better these dynamics in terms, is all the share that you're gaining really coming from the player number three? That's the first question.

The second question is, congratulations on the, on all the awards for the brands. Could you expand a little bit more in terms of which indicators and which, what can you tell us, tell investors that, to, to give more comfort besides the awards, that the brands and the strategy of the brand portfolio is the right one, particularly versus the player number two? Thank you.

Jean Jereissati Neto (CEO)

Okay, Alan, thank you very much for the question. So yeah, so I think our, our volumes, if you do the math, they were, they were good volumes when we compare the volumes, the selling volumes with, with, with the competitors, right? And, and on a market share basis, so what we mentioned in the previous call was that we had looking really at the sellout market shares, market share, is that we were on a stable level on Q1.

Alan Alanis (Analyst)

Mm-hmm.

Jean Jereissati Neto (CEO)

What we are seeing this, this Q2 in 2023, is that we accelerated and we gained compared with Q1, 2 points, 200 basis points. The truth is that during the euphoria and the masks down in the pandemic, we gained a little bit more than that, in the Q2 of 2023, okay? Sequentially, we are gaining this year, and but we have a, a huge peak in April and May of, of the last year. What I can tell you is that June, we are again, above, the previous years, so sequentially gaining a lot, but it was, last year was, was very strong.

We feel that we are accelerating, and, and, and we're gonna enter the Q3 in a good starting point, entry point, in terms of market share. Talking about brands, I'm super excited about this performance, right? It's not the first quarter that I'm mentioning 30s, 30s, 30s on the high end. The brands are, are really performing. Corona is doing great. Spaten is a huge success, doing very well. Brahma, we had this effect of Brahma Duplo Malte. It grew in the in-home occasion, and then when consumers come back to their own trade, they went back to Brahma. There is really the, the franchise, our regional a little bit too. Overall, regional Brahma, growing a lot. Our brand portfolio, I'm very excited about it.

If you look at a KPI that I mentioned here and there with you about the lovers. We do this research with consumers and, and we ask so about which brands they love, and when we add all our brands of our portfolio, that they are mentioned, that they are loved by the consumers. In this KPI, we gained 4 million new consumers in this comparing this H1, 2023 comparing with the pre-pandemic, the 2019. 4 million consumers mentioning that they love one of our brands that they were not loving, like in 2019, in 2020. I'm very excited about our performance. In generally, our brand portfolio is much healthier and stronger than before, and, and, and really excited about it.

G2C is helping, Zé Delivery is helping it, helping us with insights, with, direct to consumers, communication, transaction, help us a little on that. Somehow, so the feeling, this, the number of consumers that they mention that love our brands is, is really a KPI that, that, that really excites me and, and I really follow a lot. I think it's, it's, pretty much it.

Alan Alanis (Analyst)

Got it. Thank you so much, and we're up.

Operator (participant)

Thank you. The next question comes from Thiago Bortoluci with Goldman Sachs. Please go ahead.

Thiago Bortoluci (Equity Research Analyst)

Yes. Hi, good afternoon, everyone. Thanks for taking my question. Hi, Jean. Hi, Lucas. I'd also like to double click and discuss a little bit more your top line dynamics in Brazil Beer. You mentioned a couple of times, your premium and super premium portfolio growing at 30s, which is unquestionably remarkable, while your consolidated volumes in Brazil were down by 2.5%, right? Within the core and the economy portfolios, how, you know, this portfolio mix adapt to this -2.5? This is the first part of the question. The second one, obviously, we understand there is seasonality, right? If I look to your BRL average price per hectoliter in Brazil, XBs, there was a slight contraction, quarter-on-quarter, right?

It's a 3% quarter-on-quarter contraction with your mix arguably improving, right? How do we adapt on this portfolio composition, the sequentially weaker prices, and how this compare to your true rate strategy so far in the year? Thank you very much.

Jean Jereissati Neto (CEO)

Okay, I'll, I'll get the first, the first one. I will ask you to repeat the second one first. So, basket wise volumes, the big drag that we have, so somehow the core went a little bit in line with the industry, with our performance, the core, but the drag was really the value segment, really were the brands that we were 35% down. And then we have the core, the core in line with our performance, and then the over-deliver on the high end. It was, it was material, the 35%. The value was really the point of attention here, but this is, it's something that we kind of designed it to happen like that.

We really want to upgrade the market for the core brands and then the core plus, and then the high end. We are seeing a lot of traction, specifically on the high end with the strategy that, that we have. You asked about the net revenue and business, I got confused a little. Can you ask it again?

Thiago Bortoluci (Equity Research Analyst)

No, no. Sure. Thanks. Thanks, Jean. It's clear. Your mix is improving, right? Not only year-over-year, but I guess also sequentially, because in the first quarter, you also had the, the, the core probably growing, right? If this is true and your mix throughout the year is improving, how this add up to your average prices, right? If I look to your average prices for beer, X the marketplace, right, it's down by 3% quarter-on-quarter. If your mix is improving, would this imply that you're being eventually a little bit more aggressive on discounts?

Jean Jereissati Neto (CEO)

Let me try to, to find this number that, that my prices are, sequentially down. I think, look, Thiago, for sure, discounts, no. Okay, so that's, that's not we are seeing. What happened usually the in, in sequential prices, they, they have a little bit of seasonality, even though we have, the performance on the segments. There is this seasonality of Northeast, South losing performance, Northeast and North getting more representative as, as the winter comes. The, the, the footprint usually makes, some varieties on the sequential, numbers that we have. I, I would attribute more, to the footprint mix, the overall seasonality. Our revenue management is, is really, really solid, so the level of discounts, they are very-- they are very low, in general.

When you compare with the pre-pandemic level, it's way below, it is stable and very controlled. My point would be more to understand the footprint seasonality, the region seasonality, a little bit of the channel seasonality. When we go really to further regions, as I mentioned, that they are growing with through wholesalers, there is a little bit more on. It's also the cost of distribution that goes through wholesalers. No, discounts, discounts, no.

Thiago Bortoluci (Equity Research Analyst)

Clearly, Jean. If I may, a final one: If I look to the true rate only, right, so eventually price adjustments and hikes, were there anything to notice that you implemented in the quarter?

Jean Jereissati Neto (CEO)

In the past, we had this strategy on prices that we had one big price hike per year and then we would digest it after and stay. Now we are more, much more nimble and granular. Business helping us on that. I think we are pretty much doing what we have been doing. Really look at the consumer willingness to pay, disposable income, elasticities, and do the granular strategy that we have been doing for a while now. No, nothing more than that to mention.

Thiago Bortoluci (Equity Research Analyst)

That's super clear. Thank you very much.

Operator (participant)

The next question comes with Rodrigo Alcantara with UBS. Please go ahead.

Rodrigo Alcantara (Equity Research Director)

Yeah, thank you very much for, for taking my, my question. A lot has been asked about beer, right? Maybe we can comment a bit about the NAB, if you can help me understand the slight decline in volumes, right? You mentioned of the industry, right? Just, you know, have some troubles understanding the number comparing to, you know, what the Coca-Cola bottles reported on the segment. Just said, Pepsi performing okay, right? The energy drinks, okay. Perhaps could be the Guaraná brand having some issues there. Maybe you can comment on that. Als`o on beers, we did see a nice acceleration there in sales growth, 30%, if I'm not mistaken, year-over-year.

Just curious if you can comment on, on, you know, how much of your customer wallets it represents, and beers really representing in the share of your customers' wallet, and how much this increase has been driven by the success of this? Thank you very much.

Jean Jereissati Neto (CEO)

Let me get NAB first. NAB, NAB is doing, we are very excited about NAB. I think NAB, NAB is really... We made a lot of changes in the previous two years, and it's really set to succeed. The RTM is better. The brands are really performing. The segments that we lead, they will grow. We're really excited about the net volumes. I think there is two things that we can mention on this quarter. There is something on the short term, right? It was a very strong quarter last year, that we grew a lot last year.

If I would point it out to one thing that it was a decision and, and we are, we are learning and testing the segment, is the net revenue per hectoliter of NABs. They were very strong, right, in this quarter. Maybe I have some opportunities here and there to be more competitive in one channel or in the other, tactical things in the market. Somehow, I think that's an opportunity that we have. Business well set. Pepsi Black is really a success in Brazil. Gatorade is doing very well. We have two, two plays in the energy. Energy, we have Red Bull, Red Bull, we have Fusion. They are really doing well.

Somehow, very excited about this business. It's like one quarter that, that we mentioned, the volumes, but I'm very excited about top line and, and brand performance in general and even when I compare it, with other things. Okay, can you repeat the second question?

Rodrigo Alcantara (Equity Research Director)

Yeah, sure. On the share of the, of your customers' wallet, right, you know, these accelerators, quarter-over-quarter, also year-over-year. Just wondering, how much of your, of, of your customer, wallet you already represent, and that represent, and, and the contribution of this to this, potential increase, if any?

Jean Jereissati Neto (CEO)

Okay. No, we don't see that. The customer wallet, I think, is a blue ocean. It still has a huge opportunity in the marketplace for us to tackle that. The consumers are there, they are buying. We are just offering a better assortment, better service, there is still a huge opportunity. If you look at my GMV of these, not the net revenue, but the GMV, because you begin to have 3P operations. We begin to sell through wholesalers, and then we don't have exactly the net revenue. We have the GMV, and we have a margin in the middle. If you look at my GMV, we are growing 64% when we compare with Q2 of 2023.

I think, so this is doing well, growing. We have, we are reaching 700,000 customers on them, that bought one product of our marketplace, that products that are not produced by Ambev. That's an important number that is still growing. Somehow, I see strength, I see customers really asking to us to have more credit limits for them to buy more, to have more options to buy more frequently. I think that this marketplace strategy is really solid.

Lucas Lira (CFO and IR Officer)

Just, John, if I may, just to, to add one,one specific opportunity, I think, in the marketplace that's worth highlighting, Rodrigo, is.

Jean Jereissati Neto (CEO)

Yeah.

Lucas Lira (CFO and IR Officer)

As John mentioned, we've managed to really take these across the country through our direct distribution system, through our wholesalers, and that started to make a bigger impact on our overall business, and we're very excited about that. When you drill down and look, for example, at the number of SKUs, right, per partner that we work with, that's still a relatively low, low number. Overall, we have hundreds of SKUs in the marketplace, but when you break it down by each partner from the industry, the SKU number is relatively low. As we strengthen and deepen the partnership with these companies and are able to offer more SKUs from them to the customer, that should also help us continue to grow marketplace and serve better our customers.

Rodrigo Alcantara (Equity Research Director)

Thanks for that clarification, Lucas. Thank you, John, for the answer. Thanks.

Operator (participant)

Ladies and gentlemen, this concludes today's question and answer session. I would like to invite Mr. Jean Jereissati to proceed with his closing remarks. Please go ahead, sir.

Jean Jereissati Neto (CEO)

Thank you all who joined our call for your time and attention. The second quarter results were really about consistency. I mentioned in the beginning of the year that we wanted Brazil to keep its momentum, and I, I think when you look at about the bottom line is really accelerated. I talked about international operations to rebound, and we are seeing international operations to, to rebounding. For the remainder of the year, commercial strategy in Brazil is sound. Costs should improve. We didn't mention, but SG&A, there's a lot of projects on SG&A that they are going on. I, I'm really excited about having a leaner organization in H2. Very, a good plan that we made in the previous years to reorganize the company as a platform.

They are beginning to show up, a company leaner and more collaborative. costs, Cash COGS and expenses should improve. CAC remains on its recovery path. I think the, the, the previous quarters, the, the, the worst quarters, the bad quarters were behind us. Argentina is an operating environment that remains volatile, but overall LAS is resilient. Finally, we continue to work towards delivering growth and profitability in H2, as well as a better organic CapEx growth in 2023 than we had in 2022, that it was 17.1%. Thank you very much. See you in October, and have a great day.

Operator (participant)

That just concludes Ambev's audio conference for today. Thank you for your participation. You may now disconnect.