Operator: Thank you. Next question comes from with Thiago Duarte with BTG Pactual. Please go ahead.
Thiago Duarte: Thank you. Hello, Jean. Hello, Lucas. Hello, everybody. I have a question and a follow up. I’ll start with a follow up on the Lucas remarks regarding working capital in the beginning of the call, Lucas, and this actually circles back to discussion, I think, we had in this call last year with regards to working capital consumption. So I appreciate the one-offs that you clarified to us. But looking – still looking – trying to think of the level of working capital of the business relative to sales or to cost, it looks like the cash conversion cycle of the business has worsened. So I understand the seasonality, understand the tax payables adjustments in Canada and so on. But just wondering if there is something else that it could be changing more – in a more structural way the working capital intensity of the business, so we can think of this – of this line going forward that would be great to hear.
And the question more on a big picture level is with regards to top line health and top line performance and the brand health. I mean, Jean, you mentioned in your remarks and you guys put in the earnings release that the brand health is improving and particularly talking about Brazil Beer. So just wondering what kind of metrics you’re looking at to think of brand health, which brands are performing better and which brands are performing not so well? And how that drives in your view going forward the capacity of the portfolio to recompose margins via pricing without jeopardizing share or jeopardizing the category, which is something that you guys have been putting a lot of effort into preserving in the last few years. So just if you could summarize a little bit how that impacts the capacity of the company to drive pricing that would be great as well.
Thank you.
Lucas Lira: Go ahead, Mr. Jean.
Jean Jereissati: I will – okay. So I’ll get the second one, Thiago, and then Lucas go back to the first one. So – yes – so when we present our strategy, the pillar, number one and number two is really about having love with brands is the pillar number one. Pillar number two is really about our ability to innovate. So these are the most important topics of our strategy. We follow a metric that we call number of lovers that I mentioned. So the number of consumers that mentioned that they love one of our brands and we’ve been growing this metric. This is more of a portfolio metric for us to understand if the overall portfolio has been more loved. So we increased this metric in 4 million consumers when we compared to pre-pandemic levels.
In the short-term, we increased 700 thousand lovers or fans of our brands that mentioned that one of our brands became one of brands that they love. Another one is really about the brand power. The brand power is a metric that we believe that brand power today is market share in the future and we are doing well in this metric. The brands that are – so there is up and down in this overall metric when you think about portfolio, but the brands that are really performing well as the Corona is doing very well. Spaten is doing very well. Stella grew power. Again, Budweiser is doing well. And Brahma is a – is – our brands that are doing very well. Original is doing very well too. The long tail will suffer a little bit more, so we are suffering a little bit more with Bohemia.
So that’s one example. But the focus brands, the brands that we are – they are performing very well. If you look at our – Duarte, our net revenue per hectoliter this quarter, it was well ahead of the consumer pricing, we’re facing a big chunk of it. It was really the high end performance, the high end in the premium performance, the brand mix. So we are seeing these brands really being able to grow and drive mix and even to sustain more price than we previously expected. For example, you know that that when we designed the innovation strategy of the company, so we brought Spaten with this view that the core plus segment, the entry premium, the core plus, plus segment would be a wide space that we should bring international brand with quality cues, heritage, and performing so well that now we are seeing Spaten like growing and it went from like 125%, 130% price index to really 140%, 145%.
So as it grows, it’s really been sustaining more prices. So this is one example. So, yes, big part of our strategy on pricing, on brands is really to get strong brands to be able to gain market share and drive mix and price. And this is working. So big part of this net revenue per hectoliter that you saw, it was this strategy.
Lucas Lira: Hi, Thiago. Lucas here. Thank you for the question. In terms of the cash conversion cycle kind of being structurally worse, I think the short answer is no. Okay. And the reason for that is I think as you know we have right, a negative, a negative working capital and given the seasonality of our business, right, Q1 is typically a quarter of less cash generation, and Q4 is actually the quarter where, right, the bulk of our cash flow generation and our performance in terms of working capital really moves the needle, okay. So I think it’s important not to necessarily draw any longer term conclusions just based on Q1 performance. It’s important to look at the full year. But speaking specifically about Q1, I ended up in my prepared remarks focusing more on payables, but I think it’s important to break down and give some – shed some light also on receivables and inventories.
Okay? So if you start looking at receivables in Q1 2022, we actually had a monetization of tax credits of about BRL600 million. And so that positively impacted our receivables performance last year, whereas this year, we didn’t have any relevant monetization of tax credits. Okay? So that’s an additional element that needs to be factored in when looking at the year-over-year performance of our working capital, and so far as receivables are concerned. And in terms of the inventories, the performance was actually positive. Because we continue to actively manage inventory planning, not only of raw materials, but also finished goods. And so I mean, we continue to focus on the levers we control and having a lot of discipline to make sure that our cash conversion cycle, which historically has been one of our strongholds obviously it’s a high threshold for us, but we’re continuing to look at ways to sustain and/or improve our cash conversion cycle.
Okay. And then just to add a little bit more on the payable side. As I mentioned in my prepared remarks, the biggest impact came from Brazil. Okay? And this was mostly non-income taxes payables, because given the way tax collection mechanics for State VAT for excise taxes work in Brazil, taxes that are owed given March volumes are actually paid in April. So the higher the volumes are in March, the higher the payables. And the opposite is also true. And this is exactly what happened this time around, March, 2022 volumes were very high, as Jean mentioned. So more payables. In March, 2023, we had a tough comp, volumes declined, so less payables, okay? But this is a temporary effect and should not be a relevant factor from a full year perspective.
Okay? So that’s now issue number one that we faced this time around. Issue number two was a really CAC volume declining leading to lower payables, right? Generally speaking, lower production volumes lead to lower payables. Our payables for the region ended up being impacted by volume decline. But as volumes continue to recover, this should translate into improvements here as well as we look ahead. And then last, but not least, we also had an issue in Canada. It was a specific impact, also non-income tax related. And here this was a H1 2022 effect because payables then were impacted positively by tax deferrals in Ontario to cope with COVID-19 recovery. And this was not the case this quarter. But again, looking at the full year pictured, these things should even themselves out.
And so again, I would invite everybody to focus more on the film, the full year picture reminding everybody that Q4 is the needle driver, the needle mover for our cash generation and our working capital performance. Clear?
Thiago Duarte: Very clear. Thank you both.
Operator: Thank you. The next question comes with Carlos Laboy with HSBC. Please go ahead.
Carlos Laboy: Yes. Hello everyone. Jean, I was hoping we could go back to a conversation a couple weeks ago – a couple years ago to drive a new culture. You modified the behavioral model and you emphasize three new core behaviors, right? Your active listening collaboration, and long-term thinking. But as you reflect on recent events, right? In the ABI systems, are these behaviors, how do you modify these behaviors to think about risk and risk vigilance? Are those behaviors maybe very geared toward revenue enhancement? And I’m asking because look reputational risk can come from so many unexpected places. Sometimes they just happen to you like, the Lojas thing, right? Americanas SA , but sometimes they come from within the organization too unexpectedly. And so how do you think about mitigating reputational risk? And how do you bring that into the culture of the organization based on the reality of what you’re looking at in your organization in Brazil?
Jean Jereissati: Thank very much for the question, Laboy. Yes. So you know that we’ve been in a journey everything evolves. Biology evolves, culture helps evolve, and we have this clear view that the growth matrix that we need for the future had to, so we had to evolve on our culture to bring to maintain, first of all this great traits that I have in the company, that people that really think as owners, that thinks as the company is, I think as owners act with integrity accountability. So this is a very important trait that we always had. So this ability to dream in our company, it has to continue, but we had to really bring more listening, more collaboration and more long-term vision. And I think I’m – we are super happy with this journey.
Of course, it takes time for you to see the whole organization performing culture is really about habits is really about example. It is really about living every day and talking about the listening and the collaboration and the ability to think horizon 2, horizon 3, while taking the decision. So we’ve been like living at this in our company. And when it comes to reputation, company’s reputation is my responsibility. And there’s the responsibility of each person that work down here. We know that we live with that this is personal to us. We take it very seriously. And one thing that we are doing, so more and more, is really to be able first of all to talk about everything that is happening inside the company, but to talk about our company to the outside world.
We are so proud about the things that we are building, the things we that we are doing down here. We are very confident about this transformation that we are living this top-line growth that we are having. We trust our management model. So somehow this is about taking responsibility, and this is about to being completely transparent inside the company and outside the company.
