Good morning,
and thank you for waiting. We would like to welcome everyone to Ambev's 2nd Quarter 2021 Results Conference Call. Today with us, we have Mr. Giorisace, 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.umbev.com.br, as well as through the webcast link for this call. We would like to inform you that this event It's being recorded and all participants will be in listen only mode for the company's presentation. After Ambev's remarks are completed, 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 Onbep's management and on information currently available to the company. They involve risks and 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 general economic conditions, industry conditions and other operating factors could also affect the future results of Ambev and could cause results to differ materially from those expressed in such forward looking statements. I would also like to remind everyone that as usual, the percentage changes that will be discussed during today's call are both organic and normalized in nature. And unless otherwise stated, Percentage changes refer to comparisons with Q2 of 2021 results.
Normalized figures refer to to measures before exceptional items, which are either income or expenses that do not occur regularly as part of Ambev's as normal activities. As normalized figures are non GAAP measures, the company disclosed the consolidated profit, EPS, EBIT and EBITDA on a fully reported basis in the earnings release. Now I'll turn the conference over to Jean Gerezace, CEO for Ambev. Mr. Gerezace, you may begin your conference.
Good morning. Good afternoon. Thank you very much for joining our Q2 earnings call. I hope you and your families are well and safe. This quarter, we completed 1 year since the negative impacts of the first wave of COVID-nineteen pandemic.
And I'm happy to see that the choices we made in the past 12 months, continue to deliver results. We achieved the highest consolidated volumes in a second quarter on record, which led to an all time high rolling 12 months volumes, to 5,000,000 hectoliters above the big bag in 2015. We have previously mentioned That we were better prepared to navigate challenges brought by the pandemic. But at the same time, we also got ready for the economic reopening as vaccination rates increased. Our commercial strategy, Innovations, tech platforms and operational excellence supported once again our performance As mobility restrictions were partially lifted in many of our markets, 9 of our top 10 markets delivered volume growth versus last year, and 7 of them grew volumes ahead of 2019.
Net revenue per hectoliter continued with solid growth, driven by flexible and agile approach on pricing and premiumization efforts. Our above core brands to continue to gain relevance within our portfolio. Our international operations to continue the recovery path in the quarter, growing top line ahead of 2019 in helping to offset transactional FX impacts on a consolidated level. In CAC, top line growth was led by Dominican Republic, followed closely by Guatemala, which continues to show good momentum. Panama is bouncing back from tighter restrictions.
In last, we grew volume ahead of 2019 levels. In Argentina and Chile, our global brands Showed again a great volume performance, driving premium mix, which supported margin recovery by the pandemic where we continue focusing on preparing the company for the recovery. Canada still suffered from mobility restrictions, however, delivering growth in top line and EBITDA. In July, we saw restrictions being partially lifted as vaccination rate reached more than 50% of the population. Brazil Beer continued to show great commercial momentum with double digit volume growth versus 2019.
This was also the 4th quarter in a row that we gained market share according to our estimates And that innovation continued to represent more than 20% of our revenues. We grew volume in all segments with highlights to our premium portfolio that grew volumes by approximately 35%. This counts with more than 70% of our active customer base, helping Ambev to reach all time high customers for both beer and nap as well as all time high customer satisfaction Measured by NPS rating in June, while reaching BRL9 1,000,000,000 of GMV this quarter. Z Delivery fulfilled more than 15,000,000 orders, continuing to grow significantly versus last year. Talking about brands, we continue to invest in our portfolio.
And I'm glad to see to the growth of our brand power metrics and the recognition of our marketing team at Cannes Lion Awards in France. Ambev received 7 prizes, 2 gold, 3 silver and 2 bronzes from campaigns in Brazil and Argentina. In the first half of the year, on a consolidated basis, EBITDA grew 25% versus 2020, but was still 7% behind 2019, impacted by to FX, commodities headwinds and SG and A expenses. For the second half, our outlook remains unchanged. We are on track with our V shaped top line recovery Despite all challenges, we will continue to pursue volume performance at this new rolling 12 months levels reached in last quarters.
Cost pressures will continue, especially in Brazil. And as for bottom line, Normalized consolidated EBITDA performance for the full year should improve as we work to get back to 2019 levels. On a longer term perspective, we are building an ambidextrous organization focusing on delivering the short term while at the same time transforming our business for the future. As we continue this journey, our business vision is to transform Ambev into a platform with inspiring brands that connect people in the ecosystem creating shared value. As part of our transformation, Today, I would like to talk about our FinTech, Domus.
We believe that our customers Can increase their chances of success if they become more digitalized and have access to more insights, to more adequate financial resources, lower bank and financial transaction fees and even more convenience. Today, more than 80,000 customers registered on Domus can enjoy solutions such as to POS terminals, digital wallet and credit lines. On the credit lines, we believe our long history with customers Makes our credit scoring assessment very reliable. So far, default rates are within expectations, And we are now fundraising to expand this operation. In 2021, our focus is to roll out Dom's in all distribution centers in Brazil, as we did for base starting last year.
To close, our top line momentum is real and will be put to test in H2 given the excellent results we had last year. And I'm confident in our ability to keep taking our business to new levels. And I would like once again to thank the Ambev team for their dedication during these tough times. Thank you very much for your time and attention. And I will handle this over to you, Lucas.
Thank you, Jean, and hi, everyone. As you will remember, Q2 2020 was very tough because of the impact of COVID-nineteen. Volumes collapsed in many markets and the mix shift was severe. However, despite these short term headwinds, we didn't panic. We did what we had to do to adapt quickly, getting even closer to our ecosystem.
And most importantly, we did not lose sight of the long term and decided to seize the opportunities brought by the crisis and play some big bets to set us up for a sustainable recovery. Fast forward 12 months. Our Q2 twenty twenty one financial performance brings more evidence of the continuous and here's why. Net revenue grew a little over 36%, EBITDA grew 24%, Normalized profit grew nearly 116%, while operational cash flow remains unabated and grew about 2%. In addition, our financial performance in the quarter was boosted by BRL1.6 billion in tax credits, of which BRL1.2 billion in other operating income and BRL0.4 billion in our financial results.
Just to recap, these tax credits resulted from a favorable Brazilian Supreme Court decision last May that confirmed its 2017 ruling that the inclusion of the ICMS state tax in the taxable basis of the PIS and the COFINS federal taxes was unconstitutional. Given the nature of this dispute, these tax credits are technically part of our normalized results from an accounting standpoint. But as was the case in our Q4 2020 financials, we disregarded these tax credits for purposes of calculating our organic performance, treating them as a scope change. We still have some pending litigation in this matter going forward, and we will keep the market updated as things progress. However, as disclosed in the notes to our financial statements, The amounts that remain under dispute are not as material.
While I'm on the subject of taxes, I I wanted to briefly comment on the proposed income tax reform in Brazil, which has generated a lot of questions from investors lately. The draft legislation is currently being discussed in Congress and we are monitoring the proposed changes under public debate very closely. It is too early to speculate what will unfold, so we cannot comment on what impacts, if any, this part of the broader tax reform will have on us and or our shareholders. Should there be any material developments, we will, of course, keep everyone informed. Now back to Q2.
As expected, the quarter presented meaningful headwinds in terms of costs and expenses. COGS per hectoliter grew nearly 16% on a consolidated basis. These headwinds were mostly felt in Brazil, where our cost of goods sold was negatively impacted by adverse FX and commodity costs. On the other hand, better than expected mix, Thanks to our commercial initiatives and on trade reopening witnessed towards the end of the quarter, drove our returnable glass bottle volumes up, which reached nearly 40% of our total volumes, which is up from 30% in Q2 2020. Also, cash SG and A was higher, growing about 42% on a consolidated basis, where sales and marketing grew 35%, pretty much in line with our net revenue growth of 36% as we implemented our commercial plans for the quarter.
Distribution expenses grew 28%, also below our net revenue growth, mainly because of higher volumes, Growing innovation, returnable glass bottle mix and expansion of DTC platforms in countries like Brazil and administrative expenses doubled with most of the increase coming from provisions for variable compensation since our performance for the year continues to be better than And remember, 2020 was a no bonus year. Should our performance remain on track during the second half of the year, Variable compensation should continue to impact our year over year SG and A performance. Having said all that, The most important message is that despite all these headwinds, we remain on track towards our main ambitions for the year. Strong and balanced top line led recovery across our markets with better net revenue per hectoliter performance versus 2020. We continue to expect Brazil beer cash COGS per hectoliter to grow in the low 20s for the full year with better than expected mix pretty much offsetting increasing non hedged commodities exposure and normalized consolidated EBITDA performance for the full year to improve as we work to get back to 2019 levels.
Let me now turn to our financial priorities of protecting liquidity and improving our return on invested capital. Liquidity remains under control. Thanks to the strong cash generation during our recovery, We decided to pay down in Q2 the remainder of the debt we raised at the height of the COVID-nineteen crisis to create an additional liquidity cushion. Having said that, going forward, we still believe it is warranted to maintain a prudent approach towards liquidity, given the uncertainty and volatility that persists across our markets. As for the journey of improving our return on invested capital, We remain laser focused on operating as efficiently as possible, but we are also more and more focused on improving our resource allocation across the company.
Think of it this way. We have great people, we have great assets and we have very strong cash generation. So the better we get at resource allocation, the greater the chance of consistently creating value. This value creation mindset is becoming a big focus of ours. And a good example of this approach is how we are looking at our technology platforms.
Platform business models like BIS, ZE and Duenas in Brazil not only make total business sense from a customer and consumer standpoint, But they also make sense from a return on investment perspective. Of course, we are still scaling them up, but we believe that once at scale, These platforms can drive important value creation for the company. And the reason why I say this is twofold. 1st, Connecting these tech platforms to Ambev's base of customers, consumers and brands will broaden our total addressable market with potential for further growing both top line and bottom line in absolute terms. And second, over the last decades, We developed this amazing asset base in terms of distribution, capabilities and reach, as well as trusted relationships with millions of points of sale across Latin America that provide our technological platforms with a very solid foundation to build on and scale in terms of speed, autonomy and leverage.
The more we are able to use the core business as a springboard, the less capital we will require to grow these businesses. In terms of use of cash, after taking into consideration the appropriate liquidity levels for a more unpredictable and changing environment, After allocating resources efficiently toward organic growth and after keeping some M and A dry powder, We intend to continue returning excess cash to shareholders over time. To wrap up, a quick word on ESG. On June 28, we held our ESG Day, when we shared our thinking in terms of how we are approaching sustainability, which after all is our business. Thanks to everyone who joined.
And for those of you who are unable to make it, The materials can be found on our IR website. And we look forward to continuing this dialogue with the investment community because there's still a lot much more to share, to learn and to do. Thank you. And with that, let's move to Q and A.
Thank you, ladies and gentlemen. We'll now begin the Q and A session. Our to Profad Marcelo,
Hi, Jean. Hi, Lucas. Thank you for taking my questions. I have two questions here. First on Brazil Beer.
Could you explore a little bit more about the
So yes, Brazil Beer has been with good momentum for a while right now. We know that last year in the pandemic, The comps are all over the place. But if you look at a cleaner reference, there is 2019, You can see clear how Brazil is still with gaining momentum quarter after quarter. Ambev Accelerating 2. And I think this is based on many decisions that We took all over the past year that it was really a mindset of being the leader in expanding the industries.
The industry has this opportunity to develop the in home occasion, increasing helping it to increase frequency, a lot of the mindset on innovation, where 20% of our revenues are really coming from in Via Brazil from products that did not exist 3 years ago. And this is a pipeline of brands that They are coming quarter by quarter and they are maintaining their performance. So I'm very excited about that. There is one information too that we have here in Brazil about the brand equity, the brand power of our portfolio. And when we compare H2 2021 with H2 2020, we gained 3,000,000 new fans of our brands.
So that's a KPI that we focus and we follow very closely. So consumers that they really elect one of our brands as their preferred brand. So this number is really increasing. Our portfolio is really stronger. And moving forward, I think somehow the good news will come as the vaccination come back.
With the reopening, We are we come back to our stronghold. There is really this socializing out of home occasion. So somehow, I feel very confident that we are with a structural moment on our top line with momentum that I'm very confident of.
Perfect, Jean. Thank you very much for the clear answer. My second question now is more a sort of an update about your venture initiative, to tivemenu.com. Could you share with us more about the recent developments on this business line?
Menu? Yes. The marketplace, right? So that was A startup that we accelerated 2 years ago, we grew 60 times They are GMV with us and then we make a decision to when we and then the marketplace and the new assortment will be leveraged by the audience of this. So we are migrating these platforms.
We have this view of customer community And then we are adding technologies for this customer community and Biz will lead that. And so Menuh now is inside BIS. The founders are leading the way with that. And we are Willy Putin altogether. So mentioned so and then going to this.
So now we have 70% of our active buyers already purchasing Through the platform that was like 20%, like 1 year ago. The GMV, when we put our beers, is really So, SEK 9,000,000,000 now. And the NPS that we measure about the usage of the app, the delivery It's really all time high. And now we are with all the team of MENU using this platform to develop The partnerships, the relations with the different industry, the knowledge about everything together. So Biz and Menu, they were integrated.
Perfect, Chen. Thank you so much.
Our next question to comes from Carlos Laboy with HSBC. Please, Carlos, go ahead.
Yes, everyone. Good morning. Lucas or Jean, can you please share with us, how your digital capability and your upgraded to approach the business. Your operated values are changing the way that you impose price discipline across the marketplace. In other words, how you resist maybe the impulse or the temptation for discounting.
And I'm speaking about both the will and the capabilities for achieving superior pricing discipline and how you link that then to both your brand development and your market development.
Okay. I'll take that one, Laboy. Thank you very much for the question. So if you look back on this on our journey of becoming more digital and in our vision of moving from a beverage company into a platform where we have 2 big communities. There is consumer community that Zelleads and the customer community that now this leads.
We are in a long journey of building this capability and this muscle. We acquired back 2 years ago Agapecis that was really The company that helped us in the beginning and then we internalized and then we invested on these and now In Zelle delivery, now we have something around 2,000 coders working with us, really with this mindset of Being able to get digital products and not just beverage products in the market. And BZZZ, both, They give us a lot of visibility, a lot of granularity for us to to increase big time our revenue management capabilities. So I'll talk first about this. Now 70% of our customers, they are there.
And so we know when they buy, we are really learning that they prefer to use the app during weekends and do not wait for the sales rep and then the sales rep gets there. And there is the learning that something that we didn't figure out before that they buy B2B business is made of impulse too. So they buy in different days if you have good promotions and we can add different products to a basket if you really Have the insight about the basket of our customers when we add different information. So bees is a completely different A muscle animal that will help us have a lot of insights on our pricing strategy, much better than we had before. And this helped us already if you see our discount optimization big time this year where we are much more linear, much more in terms of acquiring new customers.
So we are with 10% more customers that we had Before the pandemic, in this type of granularity and artificial intelligence is really helping us really to be efficient with discounts in to do a smarter pricing and smarter revenue management. And Zelle is another thing. So Zelle, we have a 5,000,000 consumers community that they use the app. And we are just targeting now one occasion that is this thing about ultra convenience, 20 minutes, 30 minutes beer at home with supermarket prices. But then there is a lot of room for us really to follow all the consumer journey, Think about when our consumers, they have a party to anticipate that and have a different type of revenue management for that occasion.
And we have the opportunity to increase big time to where we have another app and Z Delivery can at some point in time decide if it goes for this New mission and all these missions, we can go very granular and you can really decide in a smart way what's the revenue strategy for us. So we are in a completely new moment in terms of capabilities of using data to decide our revenue initiatives.
So you have more tools and capabilities for protecting the value of your brands by offering the point of sale an array of other areas in services where you don't have to give away value on your brands, essentially, right?
That's it. Because we are We add convenience, we think about missions, we understand our consumers. And with a broader portfolio, We can when we put all these four levers together, we can really go to a different level of revenue management
Our next question comes from Thiago Duarte with BTG Pactual. Please, Thiago, go ahead.
Hello, Lucas. Hello, Jean. Hello, everybody. Thanks for the opportunity. I'd like to ask Three questions actually.
The first one is if you can help us navigate through the SG and A, particularly in Beer Brazil, but I think it goes for the rest of the geographies. But Particularly in Brazil, I mean, it's clear the year over year pressure on G and A coming from bonus accruals, but It also feels like that there is more to it. And I was wondering how much that's coming from the digital initiatives and the last mile logistics that is arguably impacting your cost there, particularly coming from BIS and NOSE. So if you can help us through navigating through it in terms of how we should think of it in percentage of revenues going forward for SG and A, that would be nice. The second question is on Bs.
And you mentioned the BRL 9,000,000,000 GMV in Brazil and how 70% of your clients are already active in the platform. But can you help us or can you detail a little bit more on how that GMV breaks down between Ambev's products and 3rd party products or in other words, how much your clients of those 70%, how much of their purchases they are doing effectively from the platform. And that would be nice to hear as well. And the third question, can you talk a little bit, I think, more to Jern. Can you talk a little bit more about the resilience of the beer industry?
You already discussed in a previous question about the momentum that you guys have built over the last 4 quarters, 4 or 5 quarters. But can you talk about the industry itself? Because it really looks like the industry Ambev is stronger than the industry now, but it looks like the industry is strong on itself. So can you talk about this in terms of the demand and in terms of how the occasions have built during the pandemic? And how you expect this normalization to affect your mix in particular because it also looks like Premium has gained more ground on the back of these changes provoked by the pandemic.
So if you could elaborate on that, That would be nice. Thank you so much.
Okay. Good questions, Thiago. Thank you for the questions. I will start backwards. We start with the industry, then Bs and then we go for SG and A.
Okay. So industry, first of all, Yes, we are seeing a resilient industry. We always mention that our industry is a resilient one. And the point is that it's like we really made this decision a little bit before the pandemic to as a leader company to really bet on that we studied a lot the difference of industries and performance of Brazil and Mexico to get our approach down here in Brazil. And then when the pandemic came, we really decided to really accelerate towards the future, towards what's going on in a market that's maturity 2 and goes for maturity 3 and what's Our approach for channel and innovation and occasions.
So we really went bold on that. A big part of the industry expansion. Probably all of the industry expansion is really coming from our volumes And what we are seeing, it is that I think the so is that the Beer in Brazil, it is something that is very healthy in terms of consumer approach. So it's not losing share of truth, it's very healthy, it's a category that we see as very healthy, the interest, the concept about new liquids and the meaning of the brand. So everybody is still very important in the culture in the people's lives.
So this is one thing. The second thing is that we always knew that moving forward to a more mature market, New occasions would come and then we have this view of a big part of the increase in the industry in Brazil is coming from frequency, is coming from in home, It's really coming from Mondays Tuesdays relaxation mindset. So that's what we see. And We believe this is something that we see coming in all the markets and it was just accelerated by the pandemic and we believe that the residual of that will maintain. And then with the vaccination and the restrictions Really being lifted, we will go back to the other occasions that are really our stronghold, the bars and the socializing out of home.
So in the end, I believe that the combination of like Ambev really putting industry as a priority in the learnings of Mexico and the innovation that address occasions and address new consumers too. For example, Stella Senglutane is really so it So really add consumers for the industry. I really believe that the industry will keep strong. So That's my view on that. I believe that with vaccination and with all the things that we did, I think we're going to have I'm optimistic in terms of industry about H2.
In reality, a surprise for us, it was more than the high end. What we saw, it was really innovation in core in the resilience of the core really making a big part of this growth of the industry that we navigated Very well. High end is something there is more structure, is more long term. So this is we know that's going to come in. The difference that we really saw In this last year, it was really innovation in core that drove a lot of the changes in the industry.
Okay. So this is one thing. So second thing about BIS. So first of all, the vision is to digitalize our customers and then to have beer as their backbone. So they have to download the app, the bees, They have to the usage has to be good, the NPS has to be high.
And we should be able to do it by ourselves, like beer, thinking about the new role of the sales representative, how they will be in part of that, how we're going to bring all this e commerce experience for our B2B. And this is where we are. So we are guaranteeing that this is so we are aggregating now our wholesalers. So, Biz is now a platform that we're going to be in 100% of direct distribution centers And Jose, so we will be all over Brazil. And then with that, we begin to aggregate partners, okay?
So this €9,000,000,000 is pretty much our beer GMV. When we put at Ambev Today, information that I can give you is that we are close to BRL100 million of products that didn't are part of our portfolio. This is growing very fast as we continue to expand our e commerce Portfolio, now we are with around 300 SKUs that they are not from our portfolio. They are now, but they are not produced by us, 31 partners and we are in 380 cities offering this new portfolio. In so this is the type of numbers that we have.
So BRL100 million unbear not just Beer Brazil that's with products that are not from our portfolio and growing very fast. When we go for SG and A, I think we have to break it down. It's hard for us to talk about SG and A combined because they have Very different dynamics. Sales and marketing is pretty much what we've seen this quarter. It's maybe a little bit of phasing from things that we didn't do in Q1 because of Carnaval that we invested more in the premium now.
But overall, In the long term, they should be like in line a little bit below our top line. When we go for distribution, what Above our volumes performance and normal inflation. There is a half, half performance on this innovation that we just launched and the supply capabilities they are coming. So we launched, for example, now a brand called So it is starting 3 breweries, and then we move it a lot, and then we catch up to producing more breweries. So there is a piece of it and a piece of it is really the transformation, the last mile of CECL.
When we look at these numbers in the past, What goes beyond the volume and the inflation, there is a half half. There is a lot of efficiency for us to do on these two fronts, The supply capabilities of innovation, they are accelerating and the last mile, there is a lot of opportunity for us. And bonus is really that we didn't have last year. And once we decided that the role of this year was to have a V shaped recovery on the top line. So in the end, this is something that we are delivering And we are accruing the bonus for that.
That is above last year and above a normal average that we had in the past. But I will ask Lucas to give a little bit more insights on the SG and A piece.
Okay. Thank you, Jean. Thanks for the question, Charles.
So I think on sales and marketing, right, the way to think of it, Okay. It's really around sales and marketing, which is what we saw in H1, right? We Saw net revenue growth ahead of sales and marketing, okay? So I think it's we're not targeting specifically any sort of trend going forward. But if you look at the performance over the last few quarters, that's what you've seen, Okay.
In terms of distribution, I think the way Nishan broke it down makes sense. Okay. So I would look at it on the variable side, really linked to volume growth and also mix of returnable glass bottles on the one hand, okay. And so as volumes continue to grow, it's reasonable to Back of distribution expenses to also grow and as returnable glass bottles recover, Likewise, some increase in distribution per hectoliter as a result. And then on the other side of distribution expenses.
We have the innovation and we have initiatives like DTC. Innovation, there's opportunity for improvement as we bring online more production capacity spread out around the country to really avoid the need to ship product long distance as the footprint improves for innovation. And as Jean mentioned regarding DTC, the reality is that ZAD is still not at scale. And so as it continues to scale up, We do see more opportunity for efficiencies on the distribution side of the DTC platforms, okay? And then finally on admin, the bulk of the organic variance year over year is indeed coming from variable compensation.
That explains more than half of the increase. And that's a function of the fact that recovery is better than expected, Right, as we went into the year. So if we continue to deliver better than expected results for the remainder of the year, We should continue to accrue for bonus going forward. Okay?
Great answers. Thank you so much, guys.
Our next question comes from Isabella Simonato with Bank of America. Please, Isabella, go ahead.
Good afternoon, everyone. Gian, Lucas, thank you for the call. My question is on the cost side, Right. I remember, Luca, you mentioned last quarter that Q2 was likely going to be the peak when you think about cost per hectoliter. And in reality, It was better than Q1, right?
And at the end of the day, you're keeping the guidance for the year. So I was wondering what exactly changed this quarter, right? And how you're phasing this for the second half of the year?
Okay. Hi, Isabella. Thanks for the question. You're right. We had a positive surprise in Q2 on the COGS per hectoliter, on the cash COGS per hectoliter performance.
That improvement came mainly from mix, Okay. And the reason for that improvement is really better than expected returnable glass bottle on volumes, which recovered much faster than we anticipated, okay? And so and that's good news for the remainder of the year as we continue to work behind having returnable glass bottles to continue to gain weight as part of our mix, okay? And the reason why we are Maintaining the full guidance for the year is because you may remember that in Q1, I referred to the fact that part of our Commodity costs are not hedged, right. And given the way that commodities have continued to trend since then, The commodity cost pressure, the unhedged portion, right, is actually continuing to become more of a headwind, Okay.
Net net, we think it's going to be pretty much a wash, meaning the higher leader in the low-20s for the full year, okay? But that's the dynamic, better mix, offsetting higher unhedged commodity costs.
Our next question comes from Ben Currer with Barclays. Thank you very much, Jean Lucus.
Congrats on the results. Just wanted to follow-up a little bit on the strategic initiatives around the B2C and the B2B business and how that is aligned with your more flexible pricing strategy and how you think of to the back half of the year and then into 2022 in regards to potential price initiatives and how you think you can leverage what you've established on the D2C and B2B business. Thank you.
Yes. So let me try to give you a broader answer on that. So yes, We are reviewing upgrading our strategy moving forward. We have this business vision that We are much more than a beverage company. We want to transform into a platform with inspiring brands that really connect people in the ecosystem so that we can all grow together.
And so there is a big bet on the tech piece on really upgrading the company into a platform where we have 2 communities that we really have to serve perfectly that the customers, community and the consumer communities. And then Ze is Addressing consumers and then we're going to think about how to add more technology to that, more missions, more occasions, more to ZEC should be more omni channel. And then this is really about customers and then we should like integrated more with Donus and really upgrade this to A technology that serves Ambev customers, but should move into a broader portfolio that we already talked in this But then moving then into a fintech that has this opportunity to really solve financial problems, financial services of our customers with credits and with POS machines and everything. So we are really going in these two directions and the possibilities that we have in revenue management, they are transformational. So as you think we are long term wise piloting discounts more So we are learning a lot with this granular, big assortment, lot of customers' to the information that we have that we are using artificial intelligence and the algorithms, they are upgrading and we are getting better and better on adding more portfolio to the same clients, on adding portfolio that is not from our breweries that but they are very essential to our customers.
And so there is a lot of this new muscle of revenue management that we have on the customer side and on the consumer side. And at some point in time, These things will be really fully connected. So we give the discount to a consumer that goes in a Customer that has bees and these things connect and they match each other rapidly. So it's going to be a new muscle That we are working very hard to be a competitive advantage for us. And we believe The things that we are learning this year, they will really help us in 2022 because they are really at transformation.
They are really good, not just from our perspective, but in the way we settle the things with customers, in the way we target consumers and get more discounts for consumers on occasion based on missions. So I really believe this muscle will be very important for us for 2022. It will help us on the top line. And other thing, it is that the best thing that we have, so we are leaving on an inflationary scenario here in Brazil still. And in the end, so we have to make the decision on the price increases that usually comes on September, in the middle of September.
And the good thing is that we are seeing momentum and it will be September, October, in our business, we see momentum in our business and this is very important to make these decisions because you feel comfortable to take risks. And we are seeing the vaccination numbers where Brazil can be with like 80% of The population fully vaccinated by October, November. So it looks like we're going to have That we've been leaving in the last couple of quarters.
Okay. Which in turn should also help you to That's some of the incremental raw material cost pressure you most likely have locked in for what at least the first half of twenty twenty two is, correct?
Yes. Hi, Ben. Yes. Hi, Ben. This is Lucas.
I can take this one. I think the answer is yes. It should help partially offset that. And remember that given our hedging policy, right, of course, we still have pretty much half of the year to go in terms of hedging. But what we're seeing now is that looking into 2022, the pressures that we face for 2022 are far lower Than the headwinds that we are facing in 2021, right?
Remember that given how the BRL and the Argentinian BIS would in the last 12 months, right? The bigger portion of our cost headwind this year is coming from FX, Right. And looking into 2022, that's not the case so far this year, right. There's still half of the year to go. But so far, we're at a much better place on the FX head side going into 2022 as opposed to where we are today.
And on the commodity side, yes, we do face higher commodity headwinds going into 2022. But the net net combination of FX hedges and commodity hedges are at a much lower level than the type of headwinds
Our next question comes from Jean Soares with Citibank. Please, Jean, go ahead.
Thanks. Good afternoon, everybody. Jean Lucus. I just have 2 quick ones on my side. The first one, I just wanted to understand, with the vaccination accelerating in key cities here in Brazil and beyond trade recovery, I just wanted to understand, I mean, you're of course, you're developing very well on these.
And of course, we're very close to that client throughout the to the most critical moments of the pandemic. So I wanted to understand how your share how should we imagine Ambev's overall market share in the entree once things recover fully. So that's my first question. The second question, Jean, I know the B is developing very well and thanks for sharing that information on the GMV and the color on the 3P. But I wanted to understand about competition, looking more into the long term.
Do you identify any potential Pressure coming from potentially wholesalers developing their own online businesses. Could that compete with the B2B be clients on beef. So just wanted to understand more of the
long term outlook for
beef base.
So first, let's talk about the market share reopening in the own trade. I think our so Based on our information, so our market share, it's very strong. And So we have if you think about the last quarters, so this Q2, it is something That we are with a very good market share, that something that we begin to build and we really are on as I mentioned in the beginning, looks like Brazil is in a new level of volumes and market share on this Q2. And I believe this, if you think about channel mix, if we really Can maintain the market share that we have channel by channel. And if their own trade recovers, there's occasion of Socializing out of home.
So usually this should be positive for us because it's the occasion that we really over index. So somehow I'm optimistic about the market share. And So let's see how it goes in H2. But theoretically, the trends should be in our favor. And on top of that, so there is a lot of things that is really structural.
So the Brahma brand It's much healthier than before. Brahma Duplomanchi helped the whole category, so the whole family. So all the Brahmas helped big time on there. I'm growing a lot on equity there. So this is an important Point on the consumer side.
So my RTM is really structurally better than before. I'm reaching More customers, my service level is all time high. So the digitalization is bringing so a completely new features and opportunities that we have that they are liking so much the adoption was so high. So somehow I'm very confident on that matter. When you think about when you talk about wholesalers in this.
I believe somehow We are ahead of the game. So we were really we started this in the right moment. If you are talking about my wholesalers, my wholesalers, they are really inside my ecosystem, very excited and aligned with the BIS platform. So my wholesale is that they are so my RTM is really 100% with these. When we look about other beverage companies and other FMCGs, Looks like we are pretty much ahead in the game.
I know some competitors, they are trying here and there, But I don't see that much coordination on that matter. So I think we are ahead in the game. And I think the marketplace, I think the competition is more on Atacadone on the scenes, but in the end, there's a lot of opportunity. So this market is so fragmented. So the leader in this industry has 3%, 4% of market share.
So it's really a place where Competition is very fragmented and somehow we bring a service level and a capability of delivering in reaching that's unparalleled. So somehow, I think this is the things that I could mention about your question.
Thanks, Jan. Just to be clear, I was referring to players, the cash in 3rd place, like Atacadona, say, but for that to get answers the question. Thanks.
Yes. We think the total addressable market is huge and this industry is very fragmented. So we see plenty of opportunity. That's the bottom line.
And I think
it's less about competition in because it's very fragmented. It's really about to underserved customers that they are really in need In this moment that all the small retailer need productivity to go over this pandemic and in the future, Indeed of some company or some app that really solve their problems. And I think they are really underserved today. So that's the view.
Our next question comes from Alain Alainis with Santander. To Salud. Go ahead.
Thank you so much. Hey, Luca, for joining. Congratulations on the results and then the in the rational and the strategic direction of the company, particularly the E and P. Just a couple of quick questions, one of them tactical, the other more strategic. The tactical one, could you help us understand the 4% sequential decline in pricing in beer in Brazil from the first to the second quarter, how much of that is product mix, brand mix, channel mix and so forth.
And the strategic question that we do with Chile, if you can give us an update in terms of your relationship with the Coca Cola system over there. I understand that it's working very well. What are the lessons that you have learned and what are the opportunities for those partnerships in other parts of Latin America. Thank you.
Thank you, Alain. Let me get this one. So the price reduction quarter over quarter. If you look back in the past, so it usually occurs mainly because of region mix and a little bit of General mix. So it's something that is a little bit more structural than decision.
It's Most of the years, it's there. It's around seasonality and mix in general of regions and channels, okay. So there is no big deal on that. It's not something that was a decision. It's something that is more normal.
When we go to Chile, So, yes, so the good part of that is looks like Andina, As they mentioned to us, it's very happy. We are very happy. Looks like Coke Company is happy to. So it's a deal that like it's there were a lot of value that we are properly sharing and everybody is in Bonnortu looks like is happy. It is a platform where 1 plus 1 is more than 2, isn't it?
Because so we have the leading brand In terms of equity in Chile, there is Corona. They have the leading platform of distribution and we were trying to put these things In parallel, when we decide to go together, the governance is working and It just make us confident to have more alliances in general. And SOBs all over the place is a technology where we are building a lot of alliances and partnerships. And so I think this concept of alliances, they will be on the next level. In the past, it was just alliance on exclusive distribution.
Now we are very happy with Chile and but then we have to think Alliance on a broader perspective on using the technology, on Z delivery, on piece here and there, sometimes you have distribution. Sometimes you don't have the distribution, you just get the take rate. So this concept, so we are going to be much more open to different type of alliances for us to do than we were before. Chile was is one type that made us really confident that Alliances are good and impossible.
Yes, that makes a lot of sense. And yes, they're very happy.
Our next question comes from Rob time with Evercore. Please Rob, go ahead.
Great. Thank you very much. A few questions that may be related. First, can you talk a little bit about how your high end business in Brazil Beer Is developing, obviously a tremendous portfolio, but are what percentage of your business now is at the high end? Is that part of the business gaining share?
And are you seeing any changes in the consumer base between kind of the craft beers that you have, the imports, any nuances around corona backs. So that would be the first question. And then the second question is, can you talk about innovation this year, kind of revisit what are the most important innovations in 2021 and anything that you're doing that's notable on the Beyond Beer or returnable not returnable bottle, returnable drink side ready to drink side, I'm sorry, ready to drink side in your region. So high end 2021 innovation and ready to drink beyond beer projects in 2021. Thank you.
Okay. So thank you for the question, Robert. Let me get the premium first. So this was a quarter that we grew with our portfolio something around 35%. So it was a good growth.
So what we saw during the pandemic is that so we saw in terms of Portfolio, this thing about the resilience of the core, the high end growth in the segment is something more structural that it's like a more long term. And we see it coming back again. And this is structural is something that Our priority and we put as a KPI for us brand equity. So investment in branding ahead of any type of market share gains. Okay.
So that was our decision. We put the portfolio in place. We position the brands, find the consumers, and then we are really investing marketing dollars, over indexing big time on the high end and we really want to drive brand equity ahead of any type of penetration in consumption to really have a sustainable long term business. And we are very excited about it because we are growing equity very fast in a very consistent and sustainable way with our portfolio. And then our portfolio has to grow volumes accordingly.
So it was a good quarter, But I'm more excited with even though with the brand equity and on how Corona is really performing in Brazil on how Bex, it really came with this vision of a product that Follows the period law and has the edge in flavor as IBU 2020. So I'm really excited about brand equity moving very fast, sustainable for our portfolio and then volume will follow. Okay. So this is one thing. 2nd thing, it is that when we talk about innovation and adjacencies, So in talking about beverage here, so the pipeline of innovation, the most relevant things that we have in place are so a bet on health and wellness.
Okay. So this is the avenue that we're going to populate and we're going to have more products on that. So we are in the Olympics now launching Michelob Ultra in Brazil with the Olympics in the Olympics moment. Usan Bolt is our is in our advertising. So it was a good moment for us to launch Ultra.
We just rolled it out after the pilot Stella without gluten that we are very excited about. So we're bringing out new consumers to the beer industry. So This is an avenue, Ultra and Gluten. We launched in terms of renovation of the core, a brand called Spatting. There is one brand that from our portfolio, German, first dated from 1397 that we are rolling out in Brazil that it will have Entry premium, core plus prices that it's important bets that we have.
We just started to roll it out. And in terms of adjacencies, so the Beats brand is doing very well. We are rolling out Mike's Hard Lemonade with the flavors and with the lemon, tangerine and pitaya flavors and we are pilots in hard seltzer. So that's where we are and these are the 3 most important avenues of pipeline of innovation that we have for the H2.
Great. And if I can just follow-up, I know it's very interesting your comments on growing brand equity ahead of volumes and making a KPI, brand equity. Is that approach Somewhat different than what you've had over the past history. I mean, not maybe the last couple of years, but historically the last 10 years, would that be a very different approach?
So this specifically, this KPI that we are following, Brand Power, Brand Equity and Power, going faster than the market share. It was something that for now we are 18 months consistent with this specific strategy and we begin to see it paying off.
Terrific. Thank you very much.
Ladies and gentlemen, that concludes our question and answer session for today. Now I would like to turn the conference over to Mr. Giorgio de Saatchi, CEO for Ambev for his final remarks.
So I would like to thank again my team, Ambev, for the dedication during these tough times. I also want to thank analysts and everyone who joined this call for time and attention. And to wrap up, I'm really confident about the future. I have this feeling that we our company is really structurally better in a tough cycle of commodities and currencies. But when you look the underlying trends, we are really Structurally better, commercial strategy, innovations, tech platforms and operational excellence is really delivering results.
We seize the opportunities brought by the crisis. We placed big bets of accelerating towards the future in a sustainable recovery. Transformation is here in our business. So we have this vision of platform, Customers and consumers to big digital products that we have, BIZ and ZE. And our portfolio is really stronger than before.
Brand equity, Brand Power is really showing that we have 3,000,000 consumers in Brazil that claim that mentioned to us that In the past, one of our brands were not their preferred one and now one of our brands are their preferred one. So I'm very excited about My portfolio and cash generation is strong, remains strong. So thank you very much for all your time and attention and have a great day.