Welcome to Anheuser-Busch InBev Second Quarter 2021 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Michel Doukeris, Chief Executive Officer; and Mr. Fernando Tennenbaum, Chief Financial Officer. To access the slides accompanying today’s call, please visit AB InBev’s website at www.ab-inbev.com, and click on the Investors tab and the Reports and Results Center page. Today’s webcast will be available for on-demand playback later today. At this time all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation.

Thank you, Jesse, and welcome everyone to our second quarter 2021 earnings call, and my first as CEO of AB InBev. It’s a pleasure to be speaking with you all today, and I hope you and your families are all staying well and safe. Before we move through the agenda for the call, I would like to take a moment to acknowledge Brito’s accomplishments and to wish him the very best. I know I speak on behalf of my colleagues when I say how we miss working with such a great leader, mentor, partner and friend. As I reflect upon the last few months, I can best describe this time as a celebration of our culture and a great example of our unique Dream, People, Culture platform working at its best. At AB InBev, we believe that having diverse experiences and perspectives drives growth and value-creation. Throughout my 25 years at the Company, I’ve had the privilege to lead our business across different regions of the world, working alongside the industry’s most talented and passionate colleagues every step of the way. Stepping into this role, I look forward to working together with the team to collectively drive our business into this next chapter. As we position the business for the future, I’m focused on the following priorities. First, we will continue to meet the moment and build on our current top-line momentum. Our business and the beer category have been proving resilient and reliable in times of crisis. Despite an ongoing challenging environment, we’ll continue to lead with our customer and consumer-centric approach. Secondly, we’ll continue to invest in and accelerate what’s already working. This includes category development, premiumization, health and wellness, Beyond Beer, and our digital transformation initiatives with our BEES platform and direct-to-consumer. Finally, we are confident in the future growth prospects of our business in the beer category. Our commercial strategy combined with our fundamental strengths, which include our people, leadership across the world’s largest beer craft brewers, balanced exposure to both developed and emerging markets, operational excellence and a culture of ownership, provide a unique platform to unlock growth and value-creation from our ecosystem.

Thank you, Michel. Good morning, good afternoon, everyone. I hope you are all safe and well. Let me first take you through the drivers of our underlying EPS. Our underlying EPS increased by $0.35 from $0.40 to $0.75. Normalized EBIT increased by $0.68 per share. Net finance cost, we recorded lower interest expense due to gross debt reduction offset by other finance costs. We saw higher income tax expense due to increased profitability, country mix and reduced benefits from tax attributes worth $0.26 per share. We also recorded higher non-controlling interest worth $0.09 per share, resulting from higher profits of our listed subsidiaries, Budweiser APAC and Ambev, along with the issuance of a 49.9% minority stake in our U.S.-based metal container operations in December 2020. On slide 17, you’ll see that our debt maturity profile is well distributed across the next several years with no significant maturities over the next five years. In the first half of the year, we redeemed a total of $5.8 billion of bonds. Combined with redemptions of commercial paper, we reduced total gross debt from $98.6 billion at December 31 to $90.6 billion at June 30th. Furthermore, we redeemed an additional $565 million of bonds in July. We continue to reduce debt while maintaining a strong liquidity position of $16.9 billion at the end of the quarter. Let’s elaborate further on our debt portfolio on slide 18. As a reminder, we do not have any financial covenants on our entire debt portfolio, including our sustainability-linked revolving credit facility. Our bond portfolio remains largely insulated from interest rate volatility as approximately 95% holds a fixed rate. Furthermore, the portfolio is comprised of a variety of currencies with 51% denominated in U.S. dollars, 36% in euro and the remainder in currencies such as the Canadian dollar, pound sterling and Korean won, diversifying our FX risk. The weighted average maturity of our debt portfolio is more than 16 years. Finally, we continue to have a very manageable weighted average coupon rate of approximately 4%.

Our first question is coming from Trevor Stirling with Bernstein.

Good morning, Michel and Fernando. Just one question from my side is relating to North America. Very strong price mix in the quarter, over 4%, and yet EBITDA margins compressed 280 basis points. Could you just give us a little bit of color about what drove that? And how much of that pressure you expect to persist into the second half of the year?

Hi, Trevor. Good morning, and thank you for your question. I think that as you said, we delivered top-line growth of 6.8% in the U.S. in this quarter. It was driven by volume as well as net revenue per hectoliter that came very strong. We made a strategic decision to prioritize service levels to our consumers and customers during the year. And as you know, last year, we had a lot of disruptions in the supply chain. And as you can imagine, when we went last year from full markets to servicing only the off-premise, you have like bigger package leading one channel, bigger drop size. As the market and the economy reopen because of consumer mobility, you can imagine that the channels, they will open gradually and you go from concentrated volumes in off-premise to then seen convenience stores in different packages, lower drop size, to a subsequent on-premise reopening, even more packs and even more drops for you to do with your distribution network. And this, of course, is something that you have the shutdown and the reopening, almost like a reset. If you get straight, there are like two costs impacting big time the quarter in North America. One is imported cans in order to maintain surge level because the canned market in the U.S. was very tight last year and first half of this year. We are importing cans from several other markets and as well as, as we described in the press release, the accruals of variable compensation, which I can then hand over to Fernando to talk a little bit more because this is one impact that we’ll see across different markets.

Hi, Trevor, Fernando here. So, building up on what Michel just said, variable compensation is going to come across not only the U.S. but across all zones. As you know, the compensation structure that we have is closely linked to business performance. And in 2020, most of our people, including the senior leadership team did not receive a bonus because we had, given -- especially what happened in the first half of last year. This quarter, given that we -- the performance was strong, our EBITDA grew 22%, so we had variable compensation accruals, which we recorded quarter-by-quarter at some level and it depends on the operational performance. So, if you look at second quarter, we grew even more than we grew in the first quarter. So that comment is on variable compensation accrual. So quarter-by-quarter, this might change. But it’s one number for you to have in mind that whenever we posted strong growth, there also commands higher variable compensation accruals.

And bringing this to one point for you to have in mind, the underlying trends in the U.S. reflected in our top-line remain very strong.

If I could just ask a follow-up, particularly one around bonus accruals. Your guidance implies that -- second half EBITDA growth for the group will be significantly less and flat, maybe down, maybe up slightly. Presumably then, the bonus accruals will be much lower in the second half than maybe in the first half.

Hi, Trevor. We are not giving any guidance on how we accrue. But it’s fair to say that the growth of our business has an impact, the growth on a given quarter on how we accrue bonus. So -- and it’s also a fair statement, the one that you made, if you look at our guidance of 8% to 12% that since we grew ahead of that on the first half of the year, our guidance, if you do the math, you are going to grow at a lower pace than we do in the first half. So, that is a component to take into account to a new accrue bonus.

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

Can I ask you a little bit about marketing spend, please? You’ve clearly been upweighting spend again through the period. Where are we now in terms of the level of support that’s going behind the business, especially in key markets, like the U. S. compared to where you were pre-pandemic? And more generally, Michel, when you look forward in your new role, do you see a need to perhaps significantly further upweight over the next two to three years, overall levels of marketing investments, or is it more about maximizing the efficiency on the existing spend that’s there?

Good morning. And thank you for your question. So, I think that the first message there is that we continue to be positive and confident on the momentum of our business with our top-line growing ahead of pre-pandemic levels. And we are supporting this growth, investing in both sales and marketing, but also CapEx as we continue to drive this growth and this momentum forward. When we think about our ability to continue to drive the business and organic growth, we’ll continue to invest and accelerate things that are already working for us. And we see several opportunities in this area, category development, premiumization, Beyond Beer, our digital transformation and innovation.

Thank you. Our next question is coming from the line of Pinar Ergun with Morgan Stanley.

How do you expect your commercial strategy in Brazil to evolve over the next year in the context of increasing capacity in the industry? And by that, I would love to hear how much of the market share gains you’ve had are sustainable, you think? And how would you think about pricing going forward?

Good morning, Pinar. So Brazil, as we highlighted in the main highlights is with very strong momentum. Our volumes grew double digit, outperforming the industry. We have our premium portfolio and our global brands also growing double digits, very strong performance. Our innovation is leading the way. Brahma Duplo Malte now is the leader in the pure malt segment and continues to grow, very strong momentum. And our core brands throughout the pandemic have shown a lot of resilience. So, the core segment remains performing very well. And you know, our history and heritage in Brazil with good operational performance, we’ve been proving this and unlocking a lot of opportunities with new technology, so digital transformation in Brazil with this, the way that we serve our customers and our direct-to-consumer, which is that delivery, they continue to strength the beer business that we have there, giving us opportunities to go Beyond Beer and have also good performance, and the power of our brand is responding together with the momentum that we have. So, we are closer to consumers. We are closer to customers, and our brands are gaining momentum. So, we are very confident and positive on the outlook in Brazil.

Our next question comes from Priya Ohri-Gupta of Barclays.

Michel, welcome. And Fernando, I think these questions will be geared a little bit more towards you. First, I was hoping that you could talk a little bit about the leverage. You showed good progress improving about 0.4 times over the first half. As we consider the second half, given sort of the implicit cadence reduction in EBITDA, I wanted to get your thoughts on whether there’s scope to see a similar level of improvement and how we should think about the different pace of recovery that’s occurring in various markets, as a result of the delta variant and vaccine rates affecting that? Thank you.

Hi, Priya. Thanks for your question. So, you’re right, with the leverage, like 0.4 turns in the first half of the year, we are not giving any specific guidance on that is going to go moving forward. But, if you look, like we had an EBITDA increasing that helped. Net debt was pretty much flat, which is normal. It’s part of the seasonality of our business. And normally, we tend to generate a meaningful amount of cash in the second half. So, in the second half, not only we have EBITDA component, but you also have the debt paydown component. If I could highlight one point was actually the gross debt reduction, which is a very important one, and it talks a little -- it talks somehow to your question about our business. Our business has proven to be very resilient and very reliable. Last year, in the beginning of the year, we decided to increase cash balances, which was important given how uncertain the environment to us, especially in the first two months of the pandemic. As we keep going and our business has proven over and over again to be resilient, reliable and predictable, we started reducing this cash balance. So, a number that I’d like to highlight is the $8 billion reduction in cash balances in gross debt that we have this year. We still have a very healthy liquidity position, but this connects directly to our interest expense, which was reduced by almost like $100 million in the second quarter.

Okay. That’s helpful. And just following up on that last point with regards to interest expense. Given the progress that you’ve made on addressing the debt maturities that you have over the next five years or so and pushing out the maturity profile, how are you thinking about opportunities to further improve your interest expense, particularly with some of the long-dated or higher compound debt that you have outstanding? Thank you.

Thanks, Priya. Probably, we are going to continue to generate cash and continue to reduce debt. That is going to be the focus. So, the interest expense reduction is likely to come from reducing, paying down debt rather than any other initiative.

Thank you. Our next question is coming from Sanjeet Aujla with Credit Suisse.

Michel and Fernando, three questions from me, please. Firstly, can you just talk a little bit about how the channel and package mix of your portfolio is evolving as the on-premise is reopening across many markets? Are you seeing that channel pack mix quickly go back to kind of prepandemic levels, or are we still lagging there? And secondly, Fernando, I was just wondering if you’d be able to quantify, of the 18% increase in SG&A in the first half of the year, exactly how much of that was driven by bonus accruals? And then, I know still it’s quite early to be talking about 2022, but clearly, with recent commodity cost moves, the industry is likely to face pressure on input costs. Do you have a view on how significant that could be? And how you’re thinking about pricing across your markets to manage through that? Thanks.

Hi, Sanjeet. Good afternoon. Let me take the first one here, and I will hand over to Fernando to talk about the second and maybe come back to talk about the third. I think that I was trying to describe early on the call to Trevor. As you can imagine, when the markets were locked down, you had this huge migration that was from on-premise, convenience store, all consumers going to the large off-trade. And large off-trade, what we saw was a lot of concentrated volume that was concentrated in large packs. As we reopen, what we’ve been seeing in majority of markets, okay, not everywhere, but in majority of markets, is that, first you start with consumer mobility. And then, the first channels that are impacted are the small off-trade and convenience stores. And then, the difference when you go to the large big packs, you start having more small, medium packs in a lot of variety, which is the third in the convenience store. And the last one to pick up is then on-trade and the on-trade is generally starting with bigger brands and a lot of bottles, but quickly then transitioning to more brands and draft as well. And then, you go from very large volumes, concentrated packs toward bigger variety packs and then a third wave that brings much more variety and smaller packs as well. Of course, as it was at first, is a onetime setup, right, because things tend to be normal after that. And you’ve been seeing markets that are more normalized now. I can use examples that are very close to me in the U.S. If you think about Florida, that was already operating for somehow 3 months in a more normal, we are back to normal pace. And overall, you see around 90-plus percent of the on-trade coming back, convenience stores are fully operating and the off-premise continues to keep some of the strengths before, which I assume related to occasions, a lot of in-home locations that came to play. Let me then hand over to Fernando to talk about SG&A.

Thanks, Michel. Sanjeet, we’re not giving split guidance or quantifying the bonus accruals. But probably, the best way for us to think about it, and I know that sometimes you have some kind of in-quarter volatility or phasing, but normally the best way for you to try to model sales and marketing is always a percentage of revenues and maybe you can use that as a proxy, with some variability up and down, but it’s a good proxy. And then, if I could make a statement, probably the highest increase that we had in our administrative expenses was the variable compensation accrued. So, that’s probably a good way for you to look at that. With that, I’m going to hand back to Michel, so he can comment on the cost pressures for 2022 and beyond.

So, I think if I got your question right, Sanjeet, you’re talking about pricing and costs, how these two things come together, right? I think that I would like to start by thinking about our H1 revenues per hectoliter, we grew 4.7%. While in the quarter two, we grew 5.8%. And when I think about our price decision, of course, they take under consideration several elements that include the local market situation, local market competition but also inflation. And because of our hedging policy, and our industry-leading profitability, we do have time to react as we plan for what’s coming. And on our long-term strategy for price, there’s no change. We continue to look at CPI inflation and how we price. But, we do have in-house capabilities, track record and a lot of experience in operating in different inflationary environments. Therefore, we are confident on the way that we look forward and our ability to continue to drive momentum while we are cautious and looking at the cost, so we can further tailor our price movements for next year.

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

One big picture one for Michel. As a global leader in beer, I’d love to get your perspectives on the health of the category overall, and specifically, its competitive position relative to other segments. It seems, in particular, that your competitors in spirits are investing more. So, does that require a competitive response from you? Thanks.

Good morning, good afternoon. Thanks for your question. So, I think that if you allow me to step back for a second, and we put this point there several times during the call today in the press release, the beer category globally has proven to be very resilient, and our business, very reliable, even in the context of the pandemic. And on top of that, when you look into global beer category, beer is growing. Meaningful markets such as Brazil, China, Mexico, Colombia, South Africa, you name it, beer is gaining share of throat. And our top-line growth that was ahead of pre-pandemic levels, demonstrates not only the resilience but the reliability of our business and our momentum. When you think more mature markets, if that would come as a question to you, like U.S., UK, Canada, even France, beer is growing in the last few years, and what is driving growth is both, premiumization and innovation. Think, for example, on the Beyond Beer and the impact that seltzers, for example, had in the U.S. or the ready-to-drink cocktails are having in a very mature market, such as Canada. When we think about the capabilities we have, the brands that we are working with and the innovation that we can drive, we do have an opportunity to increase our addressable market and grow. I can give another example. Cutwater, our ready-to-drink brand in the U.S. is growing triple digits and is growing ahead of a segment now in the industry that is very healthy and growing triple digits as well. We do have here a big opportunity. We have the right capabilities to win at scale, profitably and globally in these Beyond Beer opportunities, addressing more consumers, more occasions and building on the strength of our route to market and the platform that we built over the years in beer. So, we see confident outlook there for the beer industry, which is growing globally, but as well as further opportunities for us to build and unlock value by going Beyond Beer and taking advantage of what we built over the last several years.

Thank you. Our next question is coming from Rob Ottenstein with Evercore.

Great. Thank you very much. And congratulations again, Michel. You talk about a number of places in the press release being consumer and customer-centric. I was just wondering what that means to you, and how you look at that? And whether that is different than how the Company operated in the past? Thank you.

Thank you, Robert. Very thoughtful question, and I appreciate you giving the chance to talk about that. I will try to be very brief here. But I think that there are three points when you think about customer and consumer centricity. The number one is really a mindset change in the Company that here I can best describe as instead of looking inside out, so what we want to achieve and execute things, you really need to look outside in. And fortunately, I think that over the last few years, this transformation is already taking place in the overall company, while some pockets of our company have been in this journey for a much longer time. Think about China and everything that we built in China. The second one is a very deliberative initiative of investing behind the insights, getting much more data and analytics to work in our favor, and with that, reorient the entire company on this outside in perspective and the company portfolio to be more oriented to where consumers are moving to and where the opportunities of growth for the future will be. So, I know that you are very familiar, and we have shared this in previous investors’ meeting, I have twice with you, our 10 YP idea in China, our 10 YP idea in U.S. and understanding very clear growth opportunities for us, so we could ruthlessly and very confidently invest in the future, not only the portfolio, but also in capability that we need to win in the future for the company. Examples of these capabilities are the high-end company, our Beyond Beer company and something that I’m very focused now, our digital transformation. And I would like to expand a little bit on the digital side. The digital transformation that we are…

Our next question is coming from Edward Mundy with Jefferies.

I was interested in your sort of innovation angle and some of the early customer feedback on the rollout of the Duplo Malte segment into Colombia and Mexico and some of the other markets. Sort of how quickly have you moved from inception to launch? I know that you sped up the innovation process in the U.S. And beyond pure malt, do you think there are opportunities to bring a bit more excitement into the beer category, is my first question. My follow-up is one for Fernando. You banked a pretty decent first half from an EBITDA perspective. Are you able to provide a bit more of a framework of how you think about the range of scenarios into H2, some of the puts and takes to get to that 8% to 12%?

Thank you. Thanks for your question. Let me take the first one on innovation, and I will then hand over to Fernando to complement on the H2 EBITDA. So, in terms of innovation, we’ve been investing behind innovation, and we’ve been delivering on very sustainable and strategic innovations. And I just mentioned, for example, the innovations and the products that we are creating digital, and just imagine how fast we are able to create a new digital brand. BEES is scaled up to $4.5 billion in one single quarter in Gen Z and all the opportunities, once we connect these 1.8 million customers that we have for us to build and unlock and monetize this platform over time. In products, Duplo Malte is a true success story in Brazil. We built this brand in Brazil, our team built this brand and delivered an incredible product that is leading the malt segment in Brazil, the pure malt segment and is leading with product quality and with product taste and with product attributes. These travels so prove and move is what we are doing. And in other markets, this class to lager innovation is also proving to be true. So, that’s why we have now Colombia. We have now Mexico and other markets, and that was all done in a period of less than one year from the launch in Brazil to this scale up. But I just mentioned during the webcast that seltzer, Michelob ULTRA Seltzer, for example, in Mexico, was less than two months and is now leading the seltzer segment in Mexico and is a meaningful size of the Beyond Beer in Mexico, more than 10% already is seltzer. And when we think about delivering to consumers, it’s all about the quality, the experiences and our ability to continue to innovate and learn again from the good of our scale. And that’s why operating in 50 different markets gives us an advantage. But then, we have product innovation that goes straight into beer. We have products and capabilities innovations in Beyond Beer. And what I’m very excited about are our innovations in products that we are creating now in the digital space. I mentioned here BEES, but Zé Delivery is another brand that was created in a very short period of time and is already massive in Brazil as one of the main apps for people to order and having beverage being delivered at home, a very loyal consumer base and continues to scale up very quick in Brazil, and now it’s coming up in another 12 different countries. So, when you think about innovation on our side, think about products in beer, products Beyond Beer and the capabilities that we have and our ability that’s been proving now to create digital products that we will unlock a lot of value for our ecosystem.

And on your question on range of scenarios or the guidance, the best way to put it, Ed, is like we gave our guidance on the -- after the first quarter. We continue to stand behind our guidance. The business is very reliable, very predictable. So, we knew starting that first half would be stronger, just because of -- that’s where the kind of the biggest hit of the pandemic last year happened. So, we knew that the first half would be stronger. We also knew, and we talked a lot, there will be some headwinds from effects on commodities. That’s our hedging policy. But if there is one takeaway that I would have is that we continue to be confident on the business. Very predictable, very reliable, even in the challenging environment that we are in. And the mention that we had that we should have revenue growth ahead of EBITDA because the top-line is performing very well and expect to continue to be strong. So, very, very happy with the business momentum.

Thank you. This was the final question. If your question has not been answered, please feel free to contact the Investor Relations team. I will now turn the floor back over to Michel Doukeris for closing remarks.

Thank you, Jesse, and thank you all for your questions. To wrap up, I would like to say that we continue to be focused on meeting the moment and deliver in 2021 and building on our current top-line momentum. We will continue to invest in and accelerate what’s already working and explore future growth opportunities and further unlock value from our ecosystem. Finally, I would like to express my gratitude to our 164,000 colleagues globally for their continued resilience, passion and ownership. Thank you all for your time today and your ongoing partnership and support of our business. Please stay safe and well.

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