Ambev - Earnings Call - Q3 2020

Transcript

Speaker 0

Good morning and thank you for waiting. We would like to welcome everyone to Ambev's Third Quarter twenty twenty Results Conference Call. Today with us, we have Mr. Jean Geressat, CEO for Ambev and Mr. Lucas Lira, CFO and Investor Relations Officer.

As a reminder, a slide presentation is available for download on your website, ir.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 complete, there will be a question and answer session. At that time, further instructions will be given. 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 Ambeva'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 OMBAF 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 that will be discussed during today's call are both organic and normalized in nature. And unless otherwise stated, percentage change refer the comparison with third quarter twenty nineteen results.

Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Ambarella's normal activities. As normalized figures are non GAAP measures, the company disclosed that consolidated profit, EPS, EBIT and EBITDA on a fully reported basis in the earnings release. Now, I will turn the conference over to Mr. Gian Geraisatti. Mr.

Geressati, may begin your conference.

Speaker 1

Thank you. Good morning and good afternoon. Thanks for joining our call for the third quarter. As the second quarter was marked by resilience, adaptability and agility, q three was all about building momentum. The overall environment remained fluid and challenging, but the team did a fantastic job in terms of executing our plans.

Thanks to them, we remain on course for our recovery path. So before diving into the results, I just wanted to thank my team. Great people have always been the foundation and driving force of our company, and I'm very proud of all of them. The third quarter continued to be marked by the pandemic. Despite all the difficulties, our commercial strategy worked.

The V shaped volume recovery trend that started back in May continued throughout the quarter across all of our markets. The trends by country also remain very similar to q two. Bolivia, Panama, and Dominican Republic continued to recover more slowly. Although the volume performance is improving gradually on a monthly basis, these countries continue to have more severe restrictions. Argentina, the pace of the recovery was impacted mainly by the macro backdrop in the country.

Paraguay, Chile and Guatemala recovered faster, thanks to market share gains, while in Canada, our volumes benefited from the strong performance of our premium, core plus and beyond beer portfolio that led to market share gains amid a positive industry. In Brazil, what we saw was our adaptability, operational excellence and innovation all came together during this quarter. We estimate that the majority of our volume growth came from market share gains, as our commercial strategy is gaining traction. The rest came from a combination of industry pricing calendar and tailwinds. We continued to see operational restrictions across the country, which varied between regions, with big cities and urban centers still being more affected.

The good news is that the own trade is gradually reopening, and the small mom and pop off trade stores continue to gain relevance. To give a dimension, we have ended the quarter with an increase of 10% in the number of total buyers versus the pre pandemic. Also, I'd like to say that Brazil got gigantic geographically in this pandemic. As customers and consumers were less mobile, Ambev was the trusted partner to deliver volumes in the most remote areas of the country. Following all safety and healthy protocols, our products were delivered from Moya Poki, the most northern city in Brazil, to Chui, the most southern city in Brazil.

Just to illustrate this point, during this quarter, our fleet of trucks drove 22% more kilometers than the third quarter in twenty nineteen. Looking more to the long term, our strategy will continue to be built around three pillars: Ambev as an ecosystem, innovation as a mindset, and business transformation enabled by technology. Today, I want to spend more time on innovation. We are making a deep transformation on our business to respond faster to customer demands and shifts in market trends. We are in the beginning of this journey to bring solutions to our clients and consumers, but I'm very happy to see that results are starting to come.

We will continue to focus on consumer centricity, flexibility to create unique recipes with exclusive ingredients, a pilot testing and learning approach, the creation of an ecosystem that benefits clients, consumers and suppliers, and the logic of creating demand ahead of supply. We have a framework for innovation where we are betting on five growth avenues. The first one, flavors and value propositions, looking for products such as Brahma Duplo Malte, which created its own space in the market and took over the leadership in the core plus segment and regionalization too with the affordable approach of the local supply chain. Second, health and wellness as the biggest opportunity for the future. Last quarter, we launched Stella Gluten Free and continued to test and accelerate MacLock Ultra in different countries.

Third, convenience for our consumers with initiatives such as Z Delivery in Brazil, Epbar in Argentina and CoMAP in Dominican Republic. Fourth, innovation in services for our clients. Dominican Republic continues to expand BIS, serving as our laboratory market for the marketplace service. More than 75% of the net revenues there already come from the platform. And fifth, beyond beer, we are exploring new territories in the ready to drink wine among other beverages.

As I said in a letter to all our colleagues in Ambev in June, we are rejuvenating ourselves. Our market share in the new products that have been launched in the last three years is greater than our total market share in Brazil.

Speaker 2

This shows that innovation has been over indexing and will continue to be a key growth driver for us.

Speaker 1

Finally, as I mentioned in the beginning, the word that defines this third quarter is momentum. We are strengthening our bonds with our ecosystem and opening new perspectives for the future. Thank you for your time and attention. I will hand over to Lucas.

Speaker 3

Thank you, Jean. Hi, everyone. After a very tough Q2, it was good to see our financial performance bounce back in Q3. EBITDA grew organically year over year in three of our four regions despite everything that COVID threw away, and how EBITDA grew was also quite positive with our four regions delivering organic top line growth. In Brazil, Glass and Canada, top line performance was driven by consistent volume recovery and in CACI, revenue per hectoliter performance made the difference.

We delivered a consolidated 12% volume growth with improvement from all our operations since Q2. More importantly, volume recovery also translated into improvements in our financial performance. Gross margins and EBITDA margins improved sequentially since Q2 in virtually all our business divisions. Normalized profit also grew year over year even though net financial expenses increased given exceptional gains in 2019, increased carry costs in Argentina and the impact of tax litigation regarding the ICMS in the tax basis of the PIS and COFINS taxes. And finally, cash flow generation nearly doubled, thanks mostly to our working capital performance and operational cash flow.

This result further strengthened our solid liquidity position. Profitability, though, remains a challenge. So let me comment on the main profitability drivers by business unit. Brazil beer EBITDA margin improved sequentially, mostly driven by the operating leverage resulting from our 25% volume growth, reopening of the on premise channel, growth of RGB, premium and core plus brands and margin accretive innovation. Year over year, however, performance was still negative.

Channel mix remained a factor. One way mix led to under hedged costs, primarily FX and aluminum. And SG and A was impacted by a combination of a tough comp given 2019 phasing, our decision to reinvest some of the savings from Q2 that made 10, given the strong volume recovery, and also our desire to invest behind our key brands as we approach the summer. NAV Brazil was also able to increase EBITDA margin. The main reason for that was an easy comp from last year's phasing of tax credit, but it was important to see the mix of single serve improve as the on premise gradually reopened.

Last was where margin performance continues to struggle the most. In Argentina, the combination of price controls in Food and Beverages and hyperinflation continued to take its toll, and on top of that, Bolivia's slower recovery of the on premise channel was also a factor. And finally, in Canada and CACI, we were able to increase EBITDA margin this quarter year over year. This was primarily a result of volume trends and improved cost efficiency in Canada and revenue management and disciplined execution of our SG and A savings impact. The name of the game going forward will remain continuous and consistent improvement.

The pace of our profitability recovery, however, will take longer because of the FX headwinds coming our way in 2021, but this is a priority for the entire organization. We know what we have to do in terms of top line, continue to grow volumes, support recovery of the on premise and drive returnable glass bottles, grow core plus and premium brands, and invest behind margin accretive innovation, both in beer and beyond beer. As for cost and expenses, we need to remain with our heightened financial discipline behind working and nonworking money and leverage our technology investments in our supply chain and sales organization. More broadly, COVID generated a greater level of mobilization of the team, increased visibility, and is challenging us to rethink how we run many aspects of our business, from discounts management and cost management to resource allocation and return on invested capital. We still have lots to do, but after surviving Q2 and building momentum in Q3, we're definitely up for the challenge.

Time for Q and A, and thank you very much.

Speaker 0

Our first question comes from Marcella Heckia, Credit Suisse.

Speaker 4

Hi, Luca. Questions here. First one, basically, a surge in volumes of aluminum cans this quarter puts you in a hedged position in terms of aluminum and FX, right, which resulted therefore in higher than expected cost increase. So I just would like to understand if we can isolate the magnitude of this cost impact that your gross and EBITDA or EBITDA margin. So meaning, in other words, what was your unhedged cost position this quarter?

And how much of this cost was above your hedged cost? And, Mutlu, if we can connect that with your outlook amid the current constraint aluminum can and gas bottle supply environment.

Speaker 2

Respect

Speaker 3

to the cost for Brazil Beer in the quarter, a few things we already expected, right? So we already anticipated that the FX headwind would hit us, right, based on our hedging policy since last year, number one. Number two, we already anticipated that the mix would also be a factor because as we saw in Q2, in Q3, we also saw a year over year increase of mix of one way packaging, particularly cans, and that brings along with it an impact on our costs. And then finally, what was unexpected was really that the weight of the growth in one way year over year was greater than what we had hedged going into the year. And so we ended up having to face an additional cost because it was not hedged in advance, okay?

Net net, we estimate that the impact was around 90 basis points, okay, just to give you a reference, okay? So but for this additional impact, our EBITDA margin for Beer Brazil would have been 90 basis points better, Okay? And could you repeat again the second part of your question, please?

Speaker 4

Yeah. How what's your your outlook, you know, amid the current constraint in the aluminum can and gas gas bottle supply environment?

Speaker 3

Sure. Well, I think number one, we're still ramping up our our can plant. Right? So Mhmm.

Speaker 5

We we

Speaker 3

we launched during the quarter our can plants in the state of Minas Gerais, and it's currently ramping up. So as it continues to ramp up during the next couple of weeks and months, we expect that to play a role in helping us alleviate the supply chain pressure, okay? Having said that, we do acknowledge that the supply chain pressure overall will continue, okay, in the country. What we're doing about it is we're planning ahead and we're planning ahead trying to leverage our global footprint and our global footprint of suppliers to really to be as prepared as possible for a summer that we anticipate will remain putting pressure on the supply chain.

Speaker 4

Got it. Very clear. And secondly, very quickly, if I may. Can you give us some color how much innovation or recent launch of projects such as Brahma Dupuy Malte were relevant for your gains of market share this quarter?

Speaker 5

So hi, Marcello. I I can take this one. So innovation is really is really a big part of our of our strategy. So we have been working on on this for eighteen months now. So building the capabilities, hiring people, redesigning the organization to have, squads and to have innovation team working in each avenue of growth.

And Q3 was particularly very strong where innovation really played a very important role. We believe that our volumes, the majority of it really came from our commercial strategy, and a big part of it is innovation. And as you know, just mentioned Brito mentioned in the other call that I mentioned that Ramadu Plumauci took over the leadership on the corporate segment. So what I can say is that majority, more than half of our growth really came from our commercial strategy. A big part of it is the acceleration of innovations and Brahma Duplauch is the number one brand on the core plus segment.

Speaker 4

That's very helpful. Thank you both.

Speaker 0

Our next question comes from Luca Ciciccia, Goldman Sachs.

Speaker 6

Hi. Good morning, John. Good morning, Luca. Thanks for taking my question. I hope you're well.

I wanted to also ask something about the beer performance in Brazil. Evidently, 25% growth was, you know, quite dramatic move. I went back, and I couldn't find the growth above 20% since the early two thousand. So, you know, definitely, it stands out. But even if I look at it in absolute hectoliters, nominal levels, 20, almost 22,000,000 hectol.

It's something that typically we see in fourth or in the first quarter, in the summer quarter. So my first question would be, I understand some specific tailwinds at some exceptional levels. I understand that Q3 didn't grow for the last five years. But even if I look compared to 2015, these numbers were about 77% higher. Can you help us understand how much the pricing discussion also played a role in relative terms compared to what the others have done in the market, but also whether there's an element of anticipation of orders if you've been eating into some of the fourth quarter volumes, if you can quantify that?

And then secondly, on the pricing specifically, you make reference to the changes that you've made and more data mix. What do you mean exactly? The price changes have been more targeted or more regional or you haven't done them, at all or not much? And how should we think about this going to the end of the year? Is it reasonable to assume that this year is about volumes, is about mix, is not going to be about pricing or it's something that you leave open to changing market conditions or other factors?

If you can comment first on these two points, it would be great.

Speaker 5

Okay. So let me start with the last one. Let me start first with the pricing, okay? So I've been saying that we had been studying the previous Q3 and our pricing strategy. And we in the past, we have been very disciplined, very rigid on our strategy.

And we just believe that we should kind of move to really have a strategy that could in the long term bring more value for us. So we are being more flexible in general. If you see, we are playing a different playbook across the countries. If you look at Dominican Republic, we are playing a playbook. If you see Canada is another one, Paraguay, a different one, and Brazil, different too.

So we are being really looking, with more variables to really understand, how can, this lever really bring values, value to our company, okay? So coming down to Brazil, what happened, it is really that, we were in the middle of the pandemic, and we really try to find the best moment for us really to go and recover a little bit of net revenue per hectoliter in a way that it could stick and it could be manageable by our customers and our consumers. But in the end, this is so that looks like more, a little bit, outside of the pandemic, closer, to the peak season. I think it was the right moment. But even though I really don't think that, that was a major change on the volumes of the quarter.

Anything that we talk about, elasticities of pricing and volumes, I don't think that, that was the major motive of the volumes of discount of this quarter, mainly because it was really finding one week some weeks after what we did in last year. But it was important really to make it, more close to the to the peak season to really see, in a way that it was more flexible, in a way that it was like protecting a little bit the own trade that is needing to get traction still. And so we are very happy with this strategy that we are taking, okay? So having said that, the volumes, I think this call, we are talking about momentum. So the volumes that we did, it is not really a part of it is when we compare is about easy comps.

But the point is that we really believe that our commercial strategy is really working. And in the end, if you see this type of volumes compared, they are more close to Q4 volumes. And if you see in a disasternalized way, they are really, really strong volumes that we have seen in the Q3. So majority of this growth really came from our commercial strategy. Our portfolio is really in a much better shape than we had before.

I point out the fact that we are seeing the core very resilient. The point the point is that the consumers and the occasions that we are seeing that are rising during the pandemic. There's more relaxation, more in home with friends. They are really benefiting the core. So it's really a big chunk of it is our core is really getting more consumers and occasions than losing.

Our value strategy is really working too with the smart affordability that we have now going for five states. So the value, it is not so we are not seeing, trade down, but we are performing well, in the value. What we are seeing is really the core resilience. And then on top of these two things, global brands growing 40% and the innovations are bringing differentiation to the core and really creating this core plus segments. When we put all of this together, it's really what we believe it is doing the 25% growth that we had.

Let me

Speaker 6

just go on. Clear. So just to clarify, so you don't think there was a meaningful element of Q4 volumes going to Q3 because you know, there's an expectation that, you know, you're gonna hit with a price hike, and I better stock up now. Or if there was that consideration, it was not material. Is that is that the right position?

Speaker 5

So we monitor the level of inventory stocks in the market, and that's definitely not what happens.

Speaker 6

Okay. And if I if I may just a quick one, more of a of a holistic question, maybe unfair one. But, you know, I wonder, you know, if a 25% growth in beer volumes doesn't move the, you know, the share price, I don't know what will. And my hunch would be, aside from, you know, market conditions and, you know, other factor is that people are worried about margins or have, you know, questions on, you know, where the margins will land as we move forward. We know that, you you're going to get hit by FX, mix, some other elements, but maybe there is less clarity on how much pricing or operating leverage will be able to offset that.

So anything you can give us to, let's say, anchor margin expectations within a reasonable range as we think about Ambeth 2021, 2022, that I think is what remains a major concern for investors?

Speaker 5

So let me get the overall view of this question, and then I will hand over to Lucas for us to it's a good question for us to talk about. So as we highlighted before, we were really forecasting a V shape recovery, and we were really working on the volume, stay focused in strengthening the connection with our clients, renovating our portfolio. Our commercial strategy is really working. We believe we have momentum. So that's so we are gaining momentum.

So that we confident on that, okay? So this was a particular Q3 in Brazil quarter that we delivered strong top line, resulting with EBITDA growth year over year and sequentially EBITDA margin improvement. So this was a quarter that we were very happy with it because we could overcome the pandemic and the impact of mix and the initial impacts of the currency with our commercial strategy that really sticked and we paid with the top line, and had EBITDA growth year over year. So as you know, it's important. So we have significant transactional FX headwinds, moving forward.

But in the end, we will continue and work with our long term view working on the volume recovery. So you have to understand that I already had 10,000,000 hectoliters more than I had last year. So that's a number that from our peak volumes in 2014 that will help us in this recover in a sustainable way of margins. So the own trade reopening and so it's halfway still. So it is really something that we begin so we believe it will come.

It's not structural. We believe it will come back. So the core plus and premiumization strategy will bring us a way for us to mitigate what we are seeing in the short term of FX headwinds and the continued of a strong innovation pipeline. On top of that, strategic CapEx investment on technology footprint, we are working on all of that for us to mitigate the impact on the currencies. But just to make it clear, so this Q3 was a shape that we like, a strong top line mitigating the profitability issue with EBITDA growth and really having sequential EBITDA margin is still with a lot of opportunities to move this forward, okay?

Speaker 3

Luca, as to the first part of your question, we really can't comment on the share price and share price movements and reaction. A multitude of effects go into that. It's ultimately for the market to decide what the price of the share should be. What we can comment on is what we're trying to achieve as management, okay? And that is to continue to improve our results, right, consistently over time.

This won't happen overnight. Q2 was very tough. We survived. Q3, we think we're starting to build good momentum. We have to continue to deliver by executing our strategy.

We're constructive on the business opportunities we see. We're constructive on our portfolio where it is today. We're constructive on our team and their ability to deliver. So that's going to be our focus going forward. What the share price will be, the market will decide from time to time.

Speaker 6

Absolutely. Thank you. And I wasn't expecting you to comment on on the share price. I was just channeling as a as a way to, you know, to refer to concerns or question around the margin outlook. So totally fair and thanks for the questions.

Very clear. Thank you.

Speaker 0

Our next question comes from Thiago Duarte, BTD.

Speaker 2

Thank you. Hello, Jean. Hello, Lucas. Hello, everybody. I've got three questions.

The first one is circling back to the discussion on pricing. I think it's clear, Jean, the the flexibility that you you're trying to implement on your your price policy. But the the one aspect that that called our attention here was, you know, as we try to combine effective price increase with your revenue management, particularly how you play the discounts over over gross revenues. Right? So looking at at the financials, particularly when you look at the parent company level for Ambev, discounts were pretty low, relative to the levels that we have been seeing for several quarters now.

So just wondering, we discussed that in the past. So just wondering whether you think discounts can go even lower as a way as a tool for you guys to play, you know, pricing with customers or or whether this should be seen as a one off or or something like that. So if

Speaker 5

you comment on that, it would

Speaker 2

be nice. The second part of my question is is on on brand performance. Right? You you you guys brought in the release some comments about and I'm talking about Brazil Beer here. Some comments about, you know, international premium brands performing really well, core plus with Brahma du Promolgi performing really well.

So just wondering how your core portfolio, your core brands performed in the quarter. You mentioned it was resilient. So just if you could situate us a little bit in terms of how they did relative to the average of the portfolio, it would be nice. And the third question is on dividends, right? You guys, if I'm not mistaken, this is your all time high net cash position that you guys reported for September.

So Lucas, if you could comment on your dividend policy, whether we should expect it to be similar to what we saw last year when you guys paid the entire fiscal year related dividend one time or or something different, it'd be nice to update as well. Thank you.

Speaker 5

Okay. So let me get the one on discounts and the resilience of the core. So yes, Dwaj. So we are so when I mentioned that long term wise, we really want to follow the inflation on the price increases is really our long term view, so what we want. And on top of that, you have many factors that does not affect consumers, isn't it?

So there is this part of the channel mix, this part of packaging mix, discount optimization. So we have we are working a lot on other levers to guarantee that our price conduct is the one that we really be inclusive with consumers, guarantee a healthy industry. But we are working a lot on other levers for us to have a better profitability in the future. So we are studying the price, the decision of the price much more on the macroeconomic scenario, elasticity mix strength. But in the end, what we have another levers moving forward that we believe that will begin to play in our favor, That is the channel mix moving forward should be something that would be positive for us.

And the brand mix, that is something that we've been talking. But we are really seeing it with more strength right now, mainly because, as I mentioned before, the core is resilient. So what we are seeing, so if I can give you some numbers, so we had 25% of our volume growth. So the core was pretty much when we put core and core plus together, they were pretty much in line with that. The premium was global brands growing 40%.

And then we the value, it was really under indexing in growth, but gaining market share. So this is the equation that is a good equation for us, core resilient with innovation, core plus helping on this equation and then premiumization on top of everything and a healthy value, gaining market share, but do not really impacting that much down. The mix the part of the mix and discount is an opportunity. So I mentioned to you, so it's broader view of that, okay? So what we see is that we are already selling to 10% more customers that we sold pre pandemic because we are really getting linear.

So we have been the reliable supplier and we are across the board looking for more customers, smaller cost of customers. So there is less of intermediates on this process and then you have opportunity to on the discount optimization when we have this mix of customers really moving in the right direction. Core plus is positive and region mix is something that usually it is less accretive because we are really growing in Northeast, North And Middle East. So opportunity in discounts, opportunity in core plus. So the resilience of the core performance when we put everything together in line with the total volume and the decision on pricing that affect consumers really with looking at more variables and really having the right moment to do it.

Speaker 3

Thiago. With respect to your last question, starting first with the cash position. The cash position that we ended up in the quarter is the result of, I would say, three main factors. Number one, the liquidity cushion we built during the second quarter because of COVID, okay? And that liquidity cushion is something that we're constantly assessing, right, based on what's going on in markets and in our business and the needs.

So that's something that we will continue to monitor very closely. We still live in fairly volatile, uncertain and fluid reality across our markets. So even though we survived Q2, building momentum in Q3, we're not out of the woods yet, right? A lot can still happen and a lot can change rather quickly. So we think a good dose of prudence is still warranted, okay?

But that's something that we'll continue to keep on our radar and monitor. The second thing is currency translational adjustments, sorry. This is basically a result of the cash positions in our foreign operations and given the devaluation of the real versus the U. S. Dollar.

When you translate the balances, right, it creates an impact, okay? And then the third one is really the strong cash flow generation that we had in the quarter, which was great to see, okay? So that's kind of where we ended up in terms of cash and the main drivers for it. As for dividends, as you will know, the AMBER bylaws do provide for a mandatory dividend of 40% of our adjusted annual net income, okay? So it's always good to remind folks of that.

When we think of use of cash, our thought process remains the same, okay? So number one, reinvesting in the organic growth of the business. We continue to see opportunity and we will continue to invest behind growth, be it CapEx, be it investing behind our sales and marketing to further strengthen the portfolio that we're trying to create and strengthen, okay, and further develop. Number two is invest in non organic opportunities that may pop up from time to time. Obviously, hard to pinpoint if and when they will happen, but we see value in retaining the flexibility to be able to pull the trigger and invest resources behind that.

And then last but not least, return excess cash to shareholders. And this and in doing so, we will continue to focus on maximizing the IOC payouts given the deductibility that comes along with it. So that remains a priority when it comes to returning excess cash to shareholders. And the balance is going to be a combination of potentially dividend and share buybacks depending on kind of a multitude of conditions that we evaluate from time to time together with the Board. So this is an ongoing discussion towards the end of the year.

Once we have finalized our budget, have a clearer view of our plan for 2021 and beyond and taking stock of kind of where we see the environment. Going forward, we will make a recommendation to the board and update the market as needed.

Speaker 2

Thank you so much. Our

Speaker 0

next question comes from Robert Wotenstein, Evercore.

Speaker 7

Great. Thank you very much and terrific progress. I'm wondering if you could go into a couple of things and just trying to get a little bit of a sense of the sequential improvement or changes. And that is, is number one, returnable glass bottles as a part of your mix? I don't if you can kind of give us a sense of what they were in Q1, Q2, really trying to get a sense of that sequencing?

And then second, any color on Z delivery? I mean, you gave us some numbers in prior quarters. Love to kind of see where that is, how that's growing and progressing. Thank you.

Speaker 3

Okay, Robert.

Speaker 5

So talking about returnable bottles and cans. So we saw a sequential recovery in RGB mix in this quarter driven mainly by the strategy that is really picking up of small RGB for in home consumptions in moms and pops and in small straight that continues to gain traction. And this is, just to make a comment, to to the question of Duarte two. This is an important piece of the resilience of the core, the small RGB 300 ml strategy to go over in home occasions. So in in September, the 300 ml RGB is already growing and getting more traction than CAMS, for example.

And on top of that, we foresee that the reopening on the on-site channel that it will really help us to continue to grow on the RGB. So what can I say? We are more or less halfway what we lost and gaining traction with the reopening of the own trade and the RGB strategy moving forward. So that's pretty much where we are in the RGB. ZAGGELIVIER is doing very well during this pandemic.

We have a great window of opportunity in Brazil to really take, customer engagement to the next level, consumer engagement to the next level. Is really something that we have been working for five years on that and we are seeing all coming together, with a big window of opportunity for us. The Z delivery particularly delivers cold beer one hour at home. It was really important in this moment of the pandemic, really solves our consumer our consumer pain points. We are in more than 27 states right now, and we reached 200 cities and and and aggregating cities more and more.

And what I can say, it is that we did in this quarter six times what we had in the previous year. So it's really accelerated, really something that's solving a lot of consumer issues. On top of that, seeing that we are really, again, talking about technology. So we have the marketplace coming. We call this.

We are really piloting it and using Dominican Republic as a laboratory, but it's already arriving in Brazil. So we are really enhancing our platform with our customers, digital connection, customer satisfaction in another level. We are really seeing the engagement of our customers in Brazil, really going up, with, the arrival of beef. That's the marketplace that we're going to bet for the future. There's another great opportunity that we will be talking the next quarters.

Speaker 7

If I were to kind of guess, you know, Zed Delivery in terms of getting to 5% of your business in five years, would that be low or high based on your best assumptions?

Speaker 5

So Robert, what I mentioned, I mentioned this in another calls, our DTC strategy should lead us to 10% of our total net revenue in five years. And the delivery is a very important piece of it. It's not a loan, but it's very important piece of our strategy.

Speaker 7

Great. Thank you very much.

Speaker 0

Our next question comes from Luca Ferreira, JPMorgan.

Speaker 6

Hi, good

Speaker 2

afternoon gentlemen. I have two questions on the consumption environment in Brazil. The first one is about the coronavirus. You mentioned this in the release as being one of the supporting factors of the distribution volumes. We are seeing already a decline in the voucher.

It went up from 600 to 200 reais, and we're starting to see some of the Supermarket Association complaining that, you know, this is already back in sales. So and and also we've been seeing a very high food inflation. So wondering if the two factors are already, you know, having some sort of impact in sales as of, let's say, October or September, which is which is sense of that this this is a is a issue. And and then my my second question, you also mentioned in the release that the the number of active clients you have right now is the same as the pre pandemic. And I remember discussing a lot this with the with the association of advising restaurants that they they were expecting initially sort of, you know, 30% reduction in the number of, and of, point of sale or something like this.

So I'm wondering if you can comment on sort of the financial health of your impairment channel. How that has been behaving in the context of a loss? And if you can talk a little bit about it, if this is kind of surprising you to the upside or not? So wondering if you can comment on the impairments, please.

Speaker 5

Okay. So first of all, so as I mentioned before, this quarter was a quarter that we are very happy with the volume performance and the momentum that we have. And we are really focusing on things that we can control. And majority of our performance, more than half, it was really about, our commercial strategy, things that were in our hands. So the acceleration of innovation, the resilience of the core.

So the new positioning of Bohemia, is really gaining traction in the North and Northeast. So global brands, really, really growing fast, 40% operational excellence and improving service level across the country. So these are the things that really brought, the majority of our volume growth, in Q3. When we put together the corona voucher together with the disposable income that went down and the shutdown of bars, so this thing is really something that is important, but it's not net net that big. The coronavirus alone is important.

But when we put all these things together, it is important, but it's not that big. Another thing that really helped the industry, it was really our pricing calendar, our flexibility in doing the right moment, I think, somehow expanded the industry a little bit. But when we put the quarter together, majority, 60% more than 60% of our performance, we really attribute to our commercial strategy things that it's in our hands, okay? So this is one thing. So talking about channels and customers.

So yes, I mentioned that we are already selling for 10% more customers that we usually sold pre pandemic. So we are really seeing the moms and pops is really in these small formats of trade are the big winners. So they are really with volumes up, more clients, so we are reaching more, so we are more prepared to deal with them. Our strategy of digitalization and getting orders online is really something that is helping this process. It's really a competitive advantage that we have.

We already see bars on the same level that we had pre pandemic, but it's still with the occasion, that last number of tables and restrictions in terms of opening hours, really still, making less of volumes in the channel, but we see number of clients in the channel already in the new on same level of of the the the pre pandemic.

Speaker 0

Our next question comes from Riccardo Alves, Morgan Stanley.

Speaker 2

Hi, Gianluca. Good morning, everybody, and thanks for the call. A couple of follow-up questions. The first one, back to the channel mix, of related to this last topic. Based on

Speaker 3

the chart you've shown in

Speaker 2

the release, it seems that Brazil went from 70% off trade to slightly below 60% now in the third quarter, if I'm not mistaken. It's a pretty big move. So could you talk a little bit about that? I mean, you talked about you know, how the bars and restaurants are are kind of ramping up, but, know, talking specifically about your exposure to the entree, I think that that would be helpful way to train if, you know, perhaps you saw major improvement in September versus July and August or maybe to see more of that now in October, I think that that would be helpful. The second question is also a follow-up on the premium side also in Brazil.

You mentioned, I believe, premium growing in the double digits. And now in the call, you mentioned 40% growth for global brands. So just wanted to see if you can give a little bit more color on the other stuff as well, the domestic brands, how they're performing, if you know, on on the margin with everything that you just said, right, on the, restaurants and bars, if you see signs of improvement on on that specific, segment as well. Thank you

Speaker 5

so much. Okay. So let me get a little bit more information on that. So our sales mix for Brazil Beer in Q3, it was divided in 42% on trade, including small moms and pops and 58% off trade. So by comparison, in 2019, trade was around 55% and off trade 45% in the same metric.

And in Q2 twenty twenty, on trade was around 30 and off trade 70. So we are more or less halfway in the mix that we had in the past. Even though we have seen the own trade gradually reopen and the number of clients of their own trade already in line with the pre pandemic, bars are not operating at full capacity due to social distancing safety measures. And mainly and most important, the VIP, so the more the bars that are more in important urban centers. Now on top of that, consumers are still reluctant to fully return in the same pattern that they had before.

Okay. So the bars are there, the bars number of bars are working, but the occasion is something that is still not completely there. When we think about channel mix and this impact of occasion, we are halfway returning in the back for what we have in the past. So having said that, so our global brands are doing very well, 40% growth average with Corona and Beck's growing much ahead of that because they have a footprint that they can go off straight, they can go home. When we talk about premium, the big hit that, I have in my portfolio are two brands that is Shook da Brahma, that is really one related with the occasion that is not there yet, the the occasion.

And original big bottles, 600 ml that they are really the two most important brands of this occasion. There is socializing out of home in bars. So this one are really still still not there. But global brands Budweiser, Corona Bags that we have, long necks, cans, and we can go off trade and e home, they are very a

Speaker 2

That's helpful. Yeah. Thank you. Just a quick follow-up on premium. When you talk about double digit growth, you know, for the whole category, are you prefer to say that it was more or in line with your consolidated Brazil beer volume?

Speaker 6

Hello?

Speaker 0

Excuse me, mister Jadisat. Your line is open. Excuse me, the Q and A session is closed. I would like to turn the floor over to Mr. Jean Jacques Rayshard for your closing statement.

Danube's conference call is finished today. Have a nice day, and thank you for using Chorus Call.