Good morning and thank you for waiting. We would like to welcome everyone to Ambev Third Quarter 2022 Results Conference Call today. With this we have Mr. Jean Jereissati, 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 conference presentation. After Ambev’s remarks are completed there will be a question and answer session, by that tie further instructions will be given. [Operator Instruction] Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Security 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 event 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 express and such forward-looking statements. I would also like to remind everyone that as useful, the percentage changes that will be discussed during today's call are both organic and normalize it nature, and unless otherwise stated, percentage changes refer to comparisons with 3Q 2022 results. Normalized figures, refer to performance measures before exceptional items, which are either e-comp or expenses that do not occur regularly as part of Ambev’s normal activities. As normalized figures are non-GAAP measures, the company’s discloses the consolidated profit EPS operating profit and EBITDA on a fully reported basis in the earnings release. Now I will turn the conference over to Mr. Jean Jereissati, CEO for Ambev. Mr. Jereissati, you may begin your conference call.

Hello everyone. Thank you for joining our earnings call for the third quarter of 2022. Following a great first half of the year, I'm happy with our performance in Q3. Brazil's momentum continued to increase not only in beer but also in naps. And as a result, we are on track to deliver a strong second half in terms of both net revenue and a bit organic growth, despite the headwinds in some of our international operations. This quarter was marked by two themes that we have been talking about since the beginning of this year. First, how the consistent implementation of our strategy is the key to continuous improvement in our operating and financial performance and second, how macro volatility continues to bring several challenges in the short-term. And the good news is that we managed to deliver, once again, led by net revenue per hectoliter growth, continuing to pick up as the year progresses, and volumes growing despite a very difficult comp in Brazil beer showing strong execution and resilient elasticities. In fact, our commercial initiatives continued to build results across most of our markets. Consolidated volumes grew 1.3% in the quarter, exceeding 46 million hectoliter, once again, an all-time high volume performance for a third quarter. Not only consolidated volumes performed well, premium brands gained weight in nine of our 10 top beer markets. At least 85% of our customers in Brazil, Argentina, Dominican Republic, and Panama are using this, marketplace is generating 400 million in revenues at the consolidated level and organic EBITDA grew double digits once again. However, macro conditions and the persistent high inflation in some of our international markets are not only impacting the consumer, but also our supply chain, especially in the countries with less flexibility in capacity and logistics like Chile,…

Thanks, Jim. Good morning. Good afternoon to everyone. If Brazil was the main highlight of our operational performance, that was also true from a financial perspective. It is great to see Brazil driving once again, the improvement in Ambev's overall results. Brazil's top-line grew nearly 20% in the quarter with net revenue per hectoliter growing almost 17% while volumes were up 2.4% and this growth led to around 24% EBITDA increase with gross margins flat and 100 basis points of EBITDA margin expansion. Although, input cost pressure remained an issue thanks to higher commodity inflation, cash COGS per hectoliter for Brazil beer, excluding the sale of non-Ambev marketplace products grew a little over 18%, thus within our guidance. And Cash SG&A grew about 16% in the quarter with sales and marketing growing around 13% as we continue to invest behind our portfolio distribution expenses growing around 18%, once again impacted by higher diesel prices, while administrative expenses grew 13%, mainly due to our investments behind enhancing our technological capabilities. So all-in-all, continuous and consistent progress in our main market. Turning to our operations abroad, the financial picture for the quarter in some markets was certainly not what we would like it to be, particularly in Central America and the Caribbean. Over the last decade, the region went from roughly BRL200 million of EBITDA in 2012 to almost BRL4 billion in 2021. But following a strong post COVID recovery in 2021, 2022 has not been COGS year. H1 already faced relevant headwinds and Q3's financial performance was severely impacted by nearly 20% volume decline, which led to about 13% net revenue decline and 900 basis points of gross margin contraction. While inflation regarding distribution costs and supply chain losses were the biggest drivers behind the higher SG&A and as a result,…

Thank you. [Operator Instructions] Our first question comes from Alan Alanis with Santander. Please proceed.

Thank you so much for taking my question and congratulations on the results. Lucas, my question has to - I have two questions. One of them is, how do we understand - how can we better understand the discrepancy in trends between soft drinks and beer in Brazil? I mean, with this such a strong growth in soft drinks. And the second question I need to give just really quick context about the second question regarding the performance of your brands in the beer portfolio in Brazil, you are seeing high single digit in premium and also mid-single digit in core. That means that, but you didn't talk about super premium nor value, and the volumes are flat. So that means either one of them or the two of them are declining. So could you expand a little bit more in terms of what you are seeing in terms of the composition of the portfolio of beers within the different price points, and how do you see this going forward? Thank you.

Thank you very much, Alan for the question. First, I will try to elaborate on soft drinks and beer. I think, we now - we are first of all, what we are seeing is that all this transformation that we started like three or four years ago with innovation mindset and this vision that we have to innovate in beer that we brought two more brands, that it was Brahma, Duplo Malte and Spot. And so a lot of things happened in between 2019 and today. And beer was really performed well in this period. And if you look at our numbers of beer when we compare with 2019 levels, so we are pretty much 30something 30s-- on the 30s, like 34% above in this quarter, our performance on the 2000 - compared to 2019. So we unlocked a lot of growth during this time and we get to all time high volumes last year in beer that we are so proud that we were able to really get that flat this year, because it really like confirmed all this volumes and transformation during the pandemic, and then more occasions that we created for beer that they maintained the residual when the bars came back. So somehow these volumes of beer long-term a little bit, if you look a little bit further on comparing with the previous year, they are very good. so we are very - and we built this in three years. So, when we felt comfortable and this was working, so then we really turned around to make nabs work. And we are just starting this journey with nabs, and we are not there yet on innovation, for example. So, where I really want to be, but I'm very happy with our portfolio that - is performing…

Got it. That is very useful. Thank you so much and congratulations again with the results.

Thank you very much.

Our next question comes from Marcella Recchia with Credit Suisse.

Hi Jean and Lucas, thank you for taking my question. Let me circle back on the international division first. During the second quarter, we had impression that you were about to see recovery trends there, Ryan, not only in the Central American Caribbean. What was missing back there? What is the current outlook ahead and what has been the main initiatives to stabilize the operation? That is my first question. And secondly, during the presentation, Lucas, you all to mentioned improvements in margins and ROIC to be a focus next year. So what can be shared about the main levers for that? And if you can share anything or say anything about the cost outlook for next year? Thank you so much.

Hi, Marcella. Thank you for the question. This is Luca speaking. In terms of the evolution in CAC from Q2 to Q3 and what we are trying to do to improve performance going forward. I think first, it is important to note that, in Q2, we also saw a challenging operating environment, not only in the Dominican Republic, but also in Panama for different reasons. In the Dominican Republic, we had a specific issue with the glass supplier. And the good news is that, issue was addressed. However, supply chains take time to stabilize, specifically in this region, where you do rely on a greater level of imports, and the infrastructure in the region, right, is not at the same level of infrastructure in North Europe or in South America. So it is a more unstable supply chain and that has proven to be tougher to re-stabilize both the resolution of the glass supply issue in Q2, than we would have hoped for. So that is the Dominican Republic, number one. And in terms of Panama, the two main issues in Panama in Q2 were one, market share. There was a market share loss during the first half of the year that we are still working on to try and revert. And we also faced supply chain issues. The level of imports in Panama is higher than other markets. So as the supply chain constraints were a factor in the entire region, Panama was not immune given the higher weight of imports, volumes suffered even more. Going forward, the focus there is also on in terms of stabilizing supply chain. So to the second part of your question, what we are doing? First and foremost, the focus is on stabilizing the supply chain. Without product availability, everything becomes much tougher.…

Just a quick follow-up, if I may on the guidance of having a second half better, not guidance, let's say ambition of having a second half better than the first half? How dependent is this ambition on the recovery of the international division?

Jean wants to comment, but I think it is based on what we have seen so far this year, the good news is that Brazil has really carried a lot of improvement for the company at the consolidated level. And we see momentum going into Q4 for the reasons that we mentioned in our prepared remarks. We still see good momentum in Brazil and as - continues to show resilience, Canada continues to improve sequentially, and COGS starts to rebound. This hopefully will all help us deliver, deliver our ambition for the year, but I think it is more about Brazil than the international operations.

Yes. If, I could add Marcella, we are confident on that statement. And, so we have really to get better international operations, but this is - I'm thinking about more on the long-term on this statement. We are confident that H2 will really be better than H1.

Okay. Thank you so much.

Our next question comes from Lucas Ferreira with JPMorgan. Please proceed.

Hi, everybody. Thanks for taking my question. The first one is on your whole direct leader pricing. So how to think about that going forward, getting into the fourth quarter? First of all, have you done all the necessary adjustments that you have started doing? Is there anything left to be done still and how to think about the environment in the world up? Should it be like eventually some more of a - some discounts coming in, punctually, how do you see the market petition so how to think about pricing in general? And then the second question about the exact same issue, but looking at 2023, Lucas was just talking about managing the top-line. So with very strong pricing this year, what is the expectation for next year? Do you guys think inflation is something to aim for - or just the carryover of the highs that you have done this year would be enough for you. So how to think about the pricing in 2023, please? Thank you.

Okay, Lucas. It is a good and sensitive question, I think that you have mentioned. Let's see, what can I mention about this. So when we started the year and we mentioned that we wanted to accelerate EBITDA organic growth that we were more prepared with the momentum that we have in net revenue per hectoliter, through this year, because you were structurally better, the portfolio was trading up, the high end is working and the channels adjustment that we needed to do, it was behind us. So I mentioned at that, the big question of the year would really be like the volumes, because I was confident on the last revenue per hectoliter with based on all the adjustments that we have done on the channels and my portfolio was much better. And this I think is being confirmed. And somehow, we are foreseeing a better-than-expected elasticity that we have been able to have really good volumes and with a resilient elasticity. And then we are heading into this Q4 that is my big focus. It really will be on service level, right because I think the demand will be high. We never had World Cup in the summer. So we are super prepared to do a great World Cup in terms of consumer bonding and in some how my mind is really on logistics and service level because my commercial plan is really, really good. So we are really betting on five brands, Brahma, Budweiser, [indiscernible] MIC, that is a new one and Zé Delivery, too. So somehow, my mind is really there. I really believe that this equation, this elasticity, will be very resilient and that doesn't worry that much. It is hard to mention what is going to happen beyond that 2023 levels. Somehow we feel that our main market Brazil has momentum. So somehow consumption has momentum overall. Just simply the unemployment, it is really low. We are very well positioned, ending the year we believe in a - we are going to believe because of the World Cup in a strong load. So somehow I think the mention - what I could mention is that the elasticity has been resilient.

And just to add here, Lucas, as I mentioned in the prior answer. To the extent we manage to continue to grow the weight of the Core Plus within our total mix premium volumes within our total mix, as has been the case over the last four years, to the extent returnable glass bottles continue to grow to their weights, not only because of the recovery of the entree, but also starting to go more and more into the at home occasion. And to the extent we manage to innovate in an accretive way, all these levers, they also help net revenue per hectoliter performance, keep the momentum we have been building over the last few quarters.

Thank you guys, thank you very much.

Our next question comes from Thiago Duarte, BTG Pactual. Please proceed.

Hello good afternoon Jean, Lucas and everybody. Two things on our side here. The first one trying to think a little bit more longer-term and looking at the beer category in Brazil. Looking at volumes in per capita consumption, it seems to have recovered really well over the last two to three years. I don't know exactly where we are, but I think we are very close to historical highs in terms of per capita consumption of beer in Brazil. It is also not a secret that Ambev obviously has repositioned itself, as you mentioned earlier, since 2019, and partially to foster the industry growth and it seems to be working. So my question is really what do you think it is the long-term potential of the category considering everything that you are doing to foster growth and innovation and where you see per capita consumption in Brazil now, and where you think it can get, or as high as it can get looking a few years down the road. I think that is an interesting and important discussion given how strong it has already been in the last couple of years or so. So that would be the first question. And the second question, it is actually a follow up through trying to understand a little bit more on the breakdown and the different segments within your volume performance in Brazil beer. You mentioned premium, you mentioned core being resilient, premium growing. You mentioned value as declining, but I still don't get exactly where the core plus and how the core plus, which is, as we know, one of your biggest bets for your portfolio where the core plus has been performing. I think it is, it seems to be a very similar situation in terms of performance per segment relative to what we had in the second quarter. So just wanted to get this final clarification that would be great to hear as well.

So let me try to elaborate on the category. And long-term gig feel. What is amazing, it is that beer is really part of the Brazilian culture. So it is there, and we feel somehow is stronger than ever. Our category, the beer one has reinvented itself. Like 100years ago we had like, pretty much one style of beer that it was like light lagers. So, somehow like bra and skull, they have like 10 IBU and some type of body. So what we are seeing it is that from the last World Cup, 2019 to today, the market changes so much. We brought so much new news and recipes and innovation and flavors that in we maintained ourselves culturally relevant, like on the context of the new generation in Brazil. So somehow beer category is healthy in Brazil, and we believe that is being resilient. So this year, it was like a year that we are questioning, but industry shows that that is there. So we have this question. So we have this view that a way to there is two main engines of growth of the Brazilian beer industry. Is that frequency, frequency going up? Is this too low when we compare with mature markets? And then we have this new occasions at home being created, like drinking some beer on Tuesday night that it gets really gets that re gets really the residual was there after the pandemic and then the bars came back. We still have a lot of opportunities to grow on Northeast and Midwest, right? So there are areas that are below average of the Brazilian country be somehow as the income go up in this equation of affordability and beer. We still have plenty of room. So if you go countryside of Brazil…

Thank you Jean.

Our next question comes from Carlos Laboy, HSBC.

Yes. Good afternoon, everyone. Thank you for taking my question. J.J., Lucas, a substantial portion of your portfolio rate is now core plus in premium just to stay with this topic a little bit. Can you give us a sense of what you have learned from your market maturity model about where you are in terms of exposure to core plus and premium and where it can go? What are maybe some of the examples of growth and how high Core Plus and Premium can go? And while you are at it, can you give us an update Spaten which calls in that Core Plus category. You just went through October 5th. I know that you were planning to do some big things with that brand this past month. Any update on that? Any learnings that you took from that experience would be helpful. Thank you.

Okay. Thank you for the question, Laboy. So when we like - in 2019 when we mapped the white spaces, and what would be successful in terms of portfolio 10-years from now? We have met a lot the market maturity that we learned with other countries. We studied a lot of Mexico. We studied China. We studied what is going on in the U. S. for us really to do the right moves and really get a better portfolio with ability to win with, with win ability. It was clear for us that, where we were at that stage, we were like betting on a high end for sure, but there was a core plus segment over there that should be developed faster than the long-term path on the high end. So in this was a completely open space that we saw in our portfolio. So we really went on that direction. We believe somehow that it is very underdeveloped today when we see countries like China, U.S. it is really has a full potential of beyond 20% of the industry. And it was pretty underdeveloped. And then we went over there, we looked at what we could do, and then we had the combination of line extensions with new brands that is now in place. So we have, from a double mouth, we have spot chain, we have more to come on that segment, and but we are happy with this performance that we are having. So I was using sometimes the comparison of 2019, sometimes the comparison with the World Cup that we have in 2018, but somehow the Core Plus segment there is five million hectoliters when we compare one World Cup to the other one World Cup. And that was really a work that we are…

Yes. Thank you very much.

Our next question comes from Ricardo Alves, Morgan Stanley.

HI Jean and Lucas, thanks so much for the call. I wanted to go back quickly on the World Cup question and the potential impacts. Should we be aware of any major mix effects, both in terms of channel penetration products, brands when you go back and you look at your performance in World Cups, historically speaking. So any kind of - even if you cannot mention numbers, you mentioned - it is kind of a delicate question. But if you can talk in terms of qualitatively speaking what the World Cup has meant for you in terms of revenue management, historically speaking. And also when you are thinking about SG&A, if there is some of the lines that you have to focus a little bit more on marketing. So just some qualitative comments on that as you go into the fourth quarter. And then second question probably for Lucas. When we look at the derivatives line, the 1.1 billion number, it is explained as you mentioned in the release by the higher hedge carrying cost , but when you look at the 69% number or the cost that you mentioned for Argentina based on the numbers that we see from July through September in the country, we actually thought that that would be - that would have been higher. So, good to see that number. But just wanted to get your thoughts on if the move from the second quarter of 65% to the third quarter around 69% - there was anything specifically that you guys did to control or if maybe we should see higher cost going to the fourth quarter. But any kind of quality that you could provide because it came in below what we expected the 69% cost, even though the 1.1 billion increased on a sequential basis. So any thoughts there, any quality would be helpful.

First question, World Cup, yeah, so I mentioned, so how we are excited about, I did a mention in the beginning, but like we are really launching, but zero that will be the innovation of the World Cup in Brazil. So liquid is just amazing. It is really beating in, in the blind test. The liquids that we have in the market. It really looks like a Budweiser. So, this is one thing that I would like to mention, but talking about World Cup in the end mix, somehow the World Cup should be a creative overall, right? So because there is a scale is one thing that is relevant the size of the occasion somehow in the fix it costs. So somehow scale helps us. There is a big piece of it that that happens in their own trade out of home occasions with draft with RGBs. So somehow of course everything goes up, but somehow I mix wise, I'm more on the positive scenario than in the neutral one. And when you talk about SG&A, specifically sales and marketing, I think, one thing to mention is that, so we started the World Cup already, so we kind of front loaded a bit of sales and marketing in the squad in Q3 to really get prepared for the conversation on the old, on the World Cup and then production costs and some media. So there is a little bit of front loading now. So there is a piece of the World Cup that is already my numbers. And then moving into Q4 somehow what we decide that it is to continue to invest on beer counts on soccer countries like Brazil, Argentina, but then really optimize the footprint there is not that much into soccer. There is pretty much our international operations, but Argentina. So somehow I don't see a issue of, I don't see - coming back to mean even during the World Cups once we already started and we going to do resource allocation moving forward, supporting this soccer passionate about countries.

Let me take the second question, John. Thanks for the question. In terms of the losses on derivative instruments, two impacts - two effects in the quarter. You mentioned Argentina, but there was also an impact in Brazil because the carry cost in Brazil year over year went from around 5% to nearly 10% over a larger exposure base. So that in and of itself also has a relevant impact in the higher costs associated with hedging in Brazil, number one. And number two, in terms of Argentina, we also saw a spike in the carry cost. Last year in Q3, it was around on average. It was around 40%. And this year, it was around on average, like 70% for the quarter. But if you look at month-by-month, right, like towards September, towards the end of the quarter, it was north of 100%. So the cost to hedge keeps getting higher and higher. And that is something that we track and monitor very closely. And as you remember, our hedging policy is such that we say, we remain hedged on average 12-months ahead. But the reality is that, pursuant to the policy, we have a window, a range to work with that goes from 10 to 14 months out. And from time-to-time, we do take views if and when we feel that, there is opportunity or more risk where the cost is higher in the short-term. So I think the important thing to keep in mind, Richard, is really the range that we typically work with. And we were always monitor very closely how attractive or not it is to hedge at a given point in time pursuant to the policy. Okay?

Very clear, Lucas. Thanks for that and thanks for Asia as well.

Thank you. This concludes our question-and-answer session. I would like now to invite Mr. Jean Jereissati for any closing remarks, please proceed.

Okay. Thank you very much all analysts and everyone who joined the call. Thanks for your time and attention. To wrap up, I really feel that, our industry is as good and resilient. Our business is structurally better, all the changes that we have been doing. We are really confident on delivering H2 better than H1. And we remain on-track in terms of our main ambition for the year is really to get Brazil back to bottom-line growth, to have the consolidated organic EBITDA growth ahead of the organic growth that we had in 2021 and having an H2 better than H1, and to improve our ROIC. And we will continue vigilant on the short-term volatility and on cost pressures. So hope you all enjoyed these events and I really looking forward to see you in our ESG Day next week and have a great day.

Thank you. The conference call for Ambev is now ended. Have a great day.