Ambev S.A. (NYSE:ABEV) Q4 2022 Earnings Call Transcript

Ambev S.A. (NYSE:ABEV) Q4 2022 Earnings Call Transcript March 2, 2023

Operator: Good morning, and thank you for waiting. We would like to welcome everyone to Ambev’s Fourth Quarter and Full-Year 2022 Results Conference Call. Today, we have, with us, Mr. Jean Jereissati, CEO of 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. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1995. 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 events and therefore, depend on circumstances that may or may not occur in the future. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our filings with the Securities and Exchange Commission from time-to-time. 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 expressed in such forward-looking statements. In addition, words such as believes, expects, anticipates, intends, plans, estimates, projects, forecasts and future or conditional verbs such as will, may, could, should and would as well as any other statement that necessarily depends on future events are intended to identify 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 fourth quarter or full year 2021 results as the case may be. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as a part of Ambev’s core activities. As normalized figures are non-GAAP measures, the company discloses the consolidated profit, EPS, operating profit and EBITDA on a fully reported basis in the earnings release. These normalized figures must not be considered as an alternative to GAAP measures to evaluate our financial performance.

In addition, they may not be comparable to non-GAAP measures used by other companies in the industry. Now, I’ll turn the conference over to Mr. Jean Jereissati. Mr. Jereissati, you may begin your conference.

Jean Jereissati: Hi, everyone. Welcome to our Q4 and full year 2022 earnings call. We have a lot to cover today, how we ended 2022, which was a great year for us, how we have planned for 2023 and how the year has started. So let’s begin. We are a company that dreams big to create a future with more tiers. And 2022 was a year of many achievements in bringing this dream to life. Our team’s engagement remains at great levels. And interestingly, the question on pride to work at Ambev reached its highest score since 2018. My team came through once again. So I want to thank and tell them how proud I am to be on their side, every day, transforming this company. Our reputation and connectivity with our ecosystem also improved with NPS up 14%, which meant, more positive impact in shared value creation with clients, wholesalers, suppliers and the community we serve.

Operationally, our Brazilian business was the highlight, with our platform framework showing its potential. Thanks to the healthier brands, continued innovation, improved service level and the scale up of our technology, B2B and DTC Big BEES And financially, there were lots of reasons to celebrate. 2022 was another year of record volumes and this time with better net revenue per hectoliter performance and with double-digit normalized EBITDA growth, which was ahead of our growth in 2021. And in addition, normalized net income also grew double-digits, and ROIC expanded, thanks to better asset turnover. And all this backed by another year of consistent free cash flow generation. And Q4’s performance allowed us to deliver a stronger H2 and put us in a good position to start 2023.

Volumes grew 1.5% in the quarter, our 10th consecutive quarter of volume growth, reaching the highest volume in any given quarter in the history of this company. Net revenue per hectoliter grew nearly 20% versus Q4 ’21, with growth in all regions. And normalized EBITDA grew a little over 27% in the quarter, despite inflationary pressures impacting our costs and expenses. The commercial execution during the FIFA World Cup stood out in the quarter. In Brazil Beer, for instance, despite the poor weather and Brazil’s early elimination, we managed to activate our brand with clients and consumers throughout the tournament, led by our high-end brands, which grew volumes north of 25% in our mainstream brands, which grew mid-single-digits. We sponsored more than 40 events reaching over 20 million consumers with Brahma and Budweiser as the official sponsors of the tournament.

Also, this enabled us to serve our clients better with demand peaking at 480,000 hectoliters in a single day for the first time in our history. While the Delivery was the official delivery app of the Brazilian national team, increasing not only awareness from 50% to 62%, but also expanding to over 350 cities across Brazil. As for Brazil NAB, Guarana Antarctica, the official sponsor of the Brazilian national team was one of the most talked brands in social media during the World Cup. Meanwhile, Pepsi Black remained on fire, more than doubling volumes versus Q4 2022. And also, we were awarded the Bottler of the Year for PepsiCo in Latin America. In Argentina, we organized the biggest celebration to welcome the Champions, with Quilmes leading the national team’s parade upon their arrival in Buenos Aires and Budweiser hosting celebrations in every region to give consumers the birds we brought home.

In LAS, overall, although volumes were down 1.6% in the quarter, net revenue per hectoliter increased 56.4% and normalized EBITDA was up 93.6%. For the year, LAS delivered around BRL 5.8 billion of normalized EBITDA, out of which approximately BRL 3.6 billion came from Argentina. Now, not everything went well in the quarter. In Canada, despite market share gains in beer, we were unable to grow volumes on the back of a weak industry and normalized EBITDA declined about 4%; thanks to commodity and full inflation, more than offsetting net revenue growth. Meanwhile, despite a sequential improvement overall, CAC volumes were down more than 13% in the quarter, while normalized EBITDA declined nearly 11%. In the Dominican Republic, high inflation continued to be a reality.

And in Panama, volumes continued to be impacted by short-term competitive dynamics, challenges in traditional trade. And we have not yet recovered previous market share loss. Finally, there was a tax settlement in Dominican Republic, which led to higher other operating expenses, which is a one-off. Absent this tax settlement, normalized EBITDA would have increased about 1% in the quarter. So that’s it for 2022. And now let’s talk about 2023. I’m actually starting the year more confident than I started 2022. Even though, there are two challenges and volatility in many countries, there are plenty of opportunities ahead, particularly in Latin American markets as I believe the region is set to benefit in the current environment. Also, our business continues to have momentum.

Thanks to the execution of our commercial strategy, leading to continued top line momentum. And for the past several years, we witnessed significant inflation impacting our cost and expenses well ahead of our top line performance. Now there is no longer this disconnection between top line and cost and expenses inflation. In fact, what we are seeing is quite the opposite, continued top line momentum while costs and expenses, inflation comes down, and this is excellent news. And finally, our balance sheet and cash generation remains strong. The fact that our cash generation has been consistent even during COVID and despite all the macro challenges we faced is a clear evidence of our financial capabilities. So what do we want to accomplish in 2023?

In 2023, we want to deliver another year of continuous and consistent improvement. So let me break it down what I mean by this. In terms of growth, our ambition is to deliver two things: first, another year of consistent top line and bottom line growth with Brazil keeping its momentum, while our international operations work to bounce back with CAC and Canada recovering performance. And in last, our biggest focus will be Argentina, where we will work to keep operational momentum while preparing our business to be flexible and agile to adapt to the macro environment to the extent that volatility may require. And second, at the consolidated level, pursue another year of normalized EBITDA growth acceleration, growing above the 17.1% we delivered in 2022.

And in terms of profitability, we want to continue working towards not only improving ROIC, but also improving our margins performance. We have work to do here. But we believe we are on the right track. And it’s good to see that costs and expenses headwinds seemed to be finally easy. Having said that, it’s been a busy start to the year. There has been a lot of noise from events unrelated to us. We have already set the record straight. And we will continue to do so to protect our company and our reputation. The silver lining, however, has been to see how our ecosystem has had our back. It has been amazing to see how much my team has shown leadership to carry on, but also how much support we have been receiving from former employees, consumers, clients, wholesalers, suppliers and partners.

Lucas will go into a bit more detail. But I wanted to nonetheless, thank everyone for being there for us. And if you put the distractions aside, the truth is that the business continues to do well. We are kicking off the year with Carnival in Brazil finally coming back for Rio. Our plan for Carnival was built around bringing our platform to life at the different festivities across the country. This was definitely the carnival of the Brahma franchise, which was executed nationwide and presented as traditional media, social street vendors and point of sales. And Brahma was not alone with our BEES franchise innovating with CAC BEES, the hottest innovation of the season. While Ze Delivery showed up big time to deliver a broad assortment of mainstream, core plus and premium brands to consumers.

Brahma, CAC BEES and Ze Delivery were ranked among the 4 brands with the most earned impressions on social media during Carnival with Brahma ranked in the first place, more than doubling the number of earned impressions that Brahma and Skol together had in the carnival of 2020. To wrap up, as I have said before, 2023 will certainly bring challenges and risks, but also opportunities with a business that is over 80% located across Latin America. We know how to navigate uncertainty and volatility. We will continue to focus on the things we can control, executing our plan to deliver consistent results once again. And in fact, what gives me additional confidence is that since 2020, we have been building a better company on the back of our transformation journey.

So first, we have a solid culture that has continued to evolve as we have embraced active listening across our ecosystem, more collaboration internally and externally and more long-term thinking, embedded in our planning, decision-making and compensation model. Second, our operations are solid. In 2020, we developed a sound long-term strategy for the next 10 years. And we have been executing the plan consistently since then. We decided to recover from COVID, prioritizing top line growth, step changing our volume performance. Thanks to a more client and consumer-centered platform model. And the plan has been working. And third, we are financially solid. Our cash that there’s an implicit finance cost in the amounts charged by suppliers that needs to be segregated and allocated in financial results.

Therefore, the effective cost that’s reported in our COGS excludes this component and our accounts payable are accounted for at present value. Second, tax litigation in Brazil. Brazil has an extremely complex tax system that often gives rise to different interpretations and as a result, extensive litigation. This is a reality of several Brazilian companies, whether large, medium or small. Just to give you an idea, according to a study published by Ian Smith, in 2020, if you add up all the tax litigation in Brazil, it amounts to approximately 75% of the country’s GDP. Anyway, as we’ve abundantly disclosed in our public filings, we have a relevant amount of tax litigation that based on the advice of external counsel, there is a possible but not probable chance of loss.

About 90% of this amount relates to 15 specific tax positions, such as goodwill amortization, IOC, Manaus free trade zone, foreign profits, among others. These tax positions have been challenged by tax authorities over the years and will continue to be litigated for several years to come. We believe in the merits of our legal position in each of these cases and that we will ultimately prevail. And regarding specifically the Manaus free trade zone, in addition to what we’ve publicly stated and disclosed, it’s worth reminding everyone that these tax incentives are set forth in the Brazilian constitution, and our subsidiary, ADosuko has been producing concentrate for Guarana Antarctica and other non-alcoholic beverages in the region for over 20 years, investing in our local production capacity, sourcing Guarana seeds locally as well as generating jobs for local communities.

The disputes between tax authorities and taxpayers are known for more than 12 years. And the part of the case that reached the Supreme Court in 2019 was actually ruled in favor of taxpayers. And third, the Brazilian tax reform and IOC. It’s been widely reported that there is a tax reform under discussion that may be passed in 2023. This reform may include changes to indirect taxes but also direct taxes. We support any tax reform that reduces the complexity of the Brazilian tax system. And that does not increase the total tax burden of the industry, which is already among the highest in the world. Now, in the context of the legislative debate about the direct taxes reform, there have been discussions towards ending the tax deductibility of the IOC.

If the IOC is no longer deductible for tax purposes, we will look for alternative ways to mitigate, at least in part, the impact on the company. Since the legislative debate on the tax reform is ongoing, it’s still early to comment further. We will keep the market informed as appropriate. Okay. With that out of the way, let’s move on to our performance for 2022 and our priorities for 2023. Starting with 2022; 2022 was another year where we delivered on all our ambitions. Number one, Brazil back to bottom line growth with normalized EBITDA up 15.6%. Number two, at the consolidated level, normalized EBITDA grew 17.1% versus 10.9% growth in 2021. And number three, H2 was stronger than H1, with consolidated net revenue growing 20.3% versus 19.1% in H1 and normalized EBITDA increasing 20% in H2 versus 13.4% in H1.

What’s more? Normalized profit increased 12.6%. Thanks to normalized EBITDA growth, lower growth of net finance expenses and lower effective tax rate. ROIC ex-tax credits expanded from 20% to nearly 25% with asset turnover improving once again. Cash flow generation topped BRL 20 billion for the year despite the year-over-year shortfall in Q1 and much lower cash generation in CAC in Canada throughout the year. And all this while still investing for the future with BRL 6.5 billion of CapEx and BRL 6.5 billion in sales and marketing. And finally, for the year, our payouts totaled BRL 12 billion in the form of IOC related to our 2022 fiscal year, but also from prior years. Consequently, we start 2023 with a cash position of nearly BRL 15 billion with less than BRL 4 billion in debt, which is a great liquidity position to be in.

And in terms of sustainability, we also made meaningful progress towards our 2025 goals. For instance, we ended 2022 with 11 carbon-neutral operations, 8 plants in Brazil, 2 in Uruguay and 1 in Argentina. That combine will avoid the emission of 30,000 tons of CO2. Also, we reached 100% of renewable electric energy in our operations of Brazil, Argentina, Paraguay, Chile and Uruguay, adding to the Dominican Republic, Panama and Guatemala where we had reached such threshold in 2021. And lastly, we already managed to reduce carbon emissions from Scopes 1 and 2, by more than 40% since 2017. While for Scope 3, we reached over 200 active partners of our supply chain in Brazil in the collective effort led by us to reduce Scope 3 emissions, representing more than 70% of the total value chain emissions, keeping our commitments for 2025 on track.

Now let’s quickly talk about 2023. First, what should be similar to last year? Number one, top line growth remains a key priority with net revenue performance once again driven more by net revenue per hectoliter than volumes. Number two, we expect a tougher Q1, given higher input cost pressures, but this time more from commodities than FX. And number three, our focus on value creation drivers such as return on invested capital, economic profit and free cash flow generation, all remain. And in terms of what should be different from last year, number one, although input cost pressure remains a headwind, we expect our cash COGS per hectoliter for Brazil Beer, excluding non-Ambev marketplace products to grow between 6% and 9.9% for the year, which is significantly lower than the 16.6% growth in 2022.

This cost outlook is a result of our commodity hedges where aluminum became a tailwind as well as our FX hedges with the average BRL-USD exchange rate at 5.10% for the year, after 4 years as a significant source of pressure. Number two, SG&A growth should improve given lower inflation overall as well as internal restructurings designed to streamline and optimize our B2B, D2C and fintech technology big bets. We invested heavily from 2020 until 2022 to scale up these platforms quickly. And we now see room for a more integrated approach as far as structure is concerned. And number three, CAC in Canada back to organic growth. In CAC, we will continue to focus on reigniting demand for our portfolio by activating key selling moments via brand and trade investments as well as a disciplined commercial execution.

While in Canada, we will focus on resuming momentum by focusing our investments in above core and beyond beer brands, but also evolving in the digital transformation that is currently underway with BEES. And finally, speaking to our financial priorities for the year, no change here. We will continue to focus on four things: improving our financial discipline with a focus on liquidity as well as cost and expense management while reinvesting for growth, improving profitability through increasing our return on invested capital, but also focusing on margin expansion. Furthering our value creation agenda with a focus on growing economic profit as well as free cash flow and returning excess cash to shareholders over time. In other words, we will pursue another year of continuous and consistent improvement in our financial performance as we continue to transform this company.

That was it on my side, time for Q&A.

Q&A Session

Operator: Thank you. Our first question comes from Rodrigo Alcantara with UBS. Please go ahead.

Rodrigo Alcantara: Hi. Thanks for taking my question and congrats on the great results Lucas. My question would be regarding on Canada. Just curious if you can explain a bit better how you plan to resume growth there? It appears to be more like kind of like a structural problem and market product rather at a debt situation, right? So just curious if you can comment how you try to grow in this trend if this is the case? And also again in Canada, perhaps if you can comment on an EBITDA minus CapEx perspective and how did the quarter look like, that will be my question. Thank you.

Lucas Lira: Okay. Hi, Rodrigo. Thank you for your question. This is Lucas speaking. In terms of reasons to believe for Canada in 2023, I think there are a few points worth highlighting, okay? I think number one, we’re going to continue to work to resume momentum, right, by continuously to allocate resources right behind our brands within the core plus premium segments in the market. We’ve had, over the last few years, very good market share performance across segments, across regions within Canada, despite a decline in the industry in the same period, okay? Number two, we’re going to continue to bet behind beyond beer. Beyond Beer was an industry that suffered particularly more in 2022 than other beverage categories. And so – but we did see some sequential recovery towards the back end of the year.

So if the beyond beer industry, right, continues to regain momentum going forward. And as we continue to invest behind our portfolio there, that should also be helpful looking ahead, okay? In addition to that, I think there’s a big focus on our part to stabilize mainstream in the Canadian market. So above core, right, core plus and premium brands have momentum Michelob Ultra, Corona and Salvador. And within mainstream, we started to stabilize mainstream in 2022 and Bud Light outperformed in that case, that segment. And we need to keep it up with respect to Bud Light and improved performance for Budweiser in that segment going forward, okay? And apart from that, I think – if you think of kind of macro overall, I think Canada inflation kind of remains at a high level, but it’s expected to mitigate somewhat in 2023.

So having this kind of downward trend of inflation helps, so that’s another thing to follow, okay? And we’re also not seeing kind of any evidence of widespread trade down, okay? So if you combine these things, they’re not going to be like a one silver bullet solution, right? It’s going to be a combination of things, execution of commercial strategy, right? And I forgot to mention, BEES in Canada, right, started to be rolled out in 2022 and we have also plans for continuous expansion in 2023. So that’s also a big focus for us going forward, okay?

Rodrigo Alcantara: That’s great. And also, if you had just on the cash flow generation perspective in Canada, any figures you can comment there?

Lucas Lira: Yes. So I think with respect to Canada, there was – I mean, consistent with the tougher EBITDA performance that we faced during the year, right? Cash flow, cash flow also, right, ended up being impacted, okay? And so that’s certainly something that we need to improve going forward. But if you look at – if you break cash flow down for Canada, the bigger issues that we saw in Q4 were around payables, okay? That was the biggest issue that we faced when you think of kind of working capital. From a working capital perspective, it was mostly related to payables, just given our CapEx curve for the year, okay? And overall performance in the back end of the year, particularly December. We typically have December as, if not the most important month for cash flow generation.

It’s among the top months for cash flow generation. And so given our performance in Q4, with the volume shortfall and the like, that ended up also having a consequence on our working capital, okay? CapEx overall remains kind of consistent with the past, just the calendarization was different. And it ended up impacting our payables for last year, okay?

Rodrigo Alcantara: Got it. That’s very clear. Thank you, Lucas.

Lucas Lira: Thank you.

Operator: Our next question comes from Lucas Ferreira with JPMorgan. Please go ahead.

Lucas Ferreira: Hi. Good afternoon, everybody. So my question is about your outlook for beer sales in 2023. If you can comment about your first of all, expectations for the industry, if you think there is space for growth in consumption after a very strong 2022? In the case of Ambev, if you think you can still gain market share, which part of the market you should expect that to grow more? And also if you can comment briefly on this beginning of the year, there was also kind of rainy, especially in Sao Paulo, given the issues you guys had in the fourth quarter, if you can have sort of any early views on the first quarter of 2023? Thank you very much.

Jean Jereissati: Thank you, Lucas, Jean here. I think it’s a good question about volumes. We had a strong year in 2022. Overall, we have a plan for 2023 to continue to gain market share in our key markets, including Brazil. We have been working on the brands, on innovation. Our RTM is unparalleled now with BEES. So we are confident on market share gains. And talking about the industry, so yes, we had a Q4 and moving into Q1 a bad weather, raining, mostly in Brazil, but these things usually goes with the time. So we believe that the industries still we’re going to be positive in main of our markets with market share gains. That’s pretty much it.

Lucas Ferreira: Okay. Thank you very much, Jean.

Operator: Our next question comes from Marcella Recchia with Credit Suisse. Please go ahead.

Marcella Recchia: Hi, Jean. Hi, Lucas. Thank you for taking my questions. Let me just first do a follow-up on Lucas questions regarding Brazil. And then I will have other two questions very quickly. Can you just remind us the price increases taken throughout 2022 for Brazil Beer and what’s the expected carryover for 2023? And then I ask you the other two questions.

Jean Jereissati: So during Q4, Marcella, we – usually, we have our conduct on prices just before the summer. And mostly of the price for 2023, we already passed through in Q4. And what we are seeing is that still elasticities are resilient in most of the carryover of 2023 is already in place. It’s a good starting point where we are today.

Marcella Recchia: Okay. And the other two questions very briefly. Basically, first on Brazil Beer, we can see that volumes are up 17% versus 2019, top line up 48%, but margins down around 13 percentage points, right? So we’ve now also decided to focus on in terms of absolute growth how much of that margin do you think we can recover and if there is any time frame for that? That would be the first question. And just – to already ask the second one. Regarding the guidance of consolidated organic EBITDA growth of – ahead of 17%, which regions can we expect to outperform and unperformed this level? Thank you so much.

Jean Jereissati: Okay. So Marcella, you’ve been following us and we made a conscious decision in our 2020, 10 year strategic plan that came together with the pandemic to accelerate our performance across the board at Ambev, where we decided to do – to go out of the pandemic with top line led recovery to accelerate our plan of reconnecting with consumers and customers, innovating the white space that we have in the market. So it was pretty much our conscious decision to accelerate top line. And at that time, we had that dilemma on decide our conduct on revenue management, more based on EPC or Asia Pacific. And then we were very deep on consumer understanding. And we decided to rate the products and to follow more of the basket of our consumers more of — even though our costs, they were cyclical moving more close to the Asia Pac.

And the good part is that we have been for 10 quarters accelerating performance on the top line, 10 quarters with positive volumes growth. And we are in this brink of this point where our costs are beginning to come back to normality. And still our — we see our top line with volumes and resilience on conduct with momentum. So I think it’s in our journey, it’s time to keep this strategy. And naturally, we believe that the things you’ll get easier on the margin side if we continue like that. So we gave the guidance of cash COGS moving in between 6% and 9.9%. We have to remember that this number was 22%. In 2021, it was something around 16% last year. And now it’s moving to something more close to high single digits. I think this is — we see like things coming together where the margins should begin to expand back.

So I think it’s hard to give a time frame. But I think that’s the year where we are really fighting to have margin expansion again on top of top line growth and return on invested capital growth too, okay? So this is one thing. The second question is that, yes, so we want to accelerate EBITDA performance. So last year, we mentioned 2022 has to be better than 2021 and then we moved to H2 has to be better than H1 and now we are looking to 2023 to be better than 2022. I think this shows a lot of consistency and fundamentals and structurally, the company moving into the right direction. What we believe is that Brazil will keep its momentum. Both businesses, Beer and NABs, they will keep momentum. There will be an important unlock of value in LAS, where I think we want to see — we begin to see Chile really unlocking value.

Our supply capacity constraint is. We made the investments, our plants really increased capacity. So we’ll be able to reduce and accommodate imported beers that we had; that was very expensive with this old issue of ocean prices that we had last year. In Argentina, we were really very rigid on our hedging policy and protection that we have to — in terms of currencies in Argentina. And we feel that we are kind of overpaying for the financial protection. We worked a lot throughout last year to really work on operational hedge to evolve contracts with suppliers to have more local currencies on our contracts. And I think we’ll be — there’s unlock of value in LAS, mainly because of Chile and Argentina. And we see Canada back into normality and CAC going back to normality too, moving first to work on margins on CAC then on the volumes a little bit further on, so somehow, Brazil momentum and reversion of international operations.

Marcella Recchia: Okay, Jean. Thank you so much.

Operator: Our next question comes from Carlos Laboy with HSBC. Please go ahead.

Carlos Laboy: Yes. Hello, everyone. I have two questions. One for Lucas, how does ABI dropping its net debt to EBITDA below 3% as you look at this year, changed your flexibility on how you think about the capitalization of Ambev differently? And for J.J., can you speak to how some of your brand marketing keeps evolving to appeal more broadly to men and women more evenly? And is it working? And perhaps you can direct some of your answer to Corona specifically in the progress that’s being made there.

Lucas Lira: Let me – I’ll take the first one then and then Jean can address the second question. Hi, Carlos. Thanks for the question. When we think about capital structure, we need to keep in mind. We need to be mindful of the fact that the current state of our capital structure, right, is impacted by the deductibility of the IOC, right? And so as a result of that, whenever we think about capital structure, that’s an important consideration, okay, number one. Number two, when — I would say that when we think about kind of ABI’s net debt, I mean, for us, that’s more of an issue, right, for ABI and less of an issue for us. We tend to focus on what’s the optimal capital structure for Ambev, okay? And within that optimal capital structure, we need to always be mindful of the IOCs. That’s an important consideration, okay. Jean, over to you.

Jean Jereissati: Laboy, talking about brands. So yes, so the previous 3 years was — there was a lot of work on reworking on our brands, reprioritizing brands, really organizing a portfolio that has less overlap that really had targeting consumers in the right way. And we are very happy with overall — this overall strategy. We are seeing equity of our portfolio in general, picking up. Going back a little bit on Brahma Duplo Malte, Brahma Duplo Malte is so relevant to the Brahma franchise. It really rejuvenated our most important brand that is Brahma. So we saw now during the Carnival, Brahma really picking up as the franchise overall and really reconnect with the young people, as we’ve not seen for a while. So we are very excited about seeing Brahma rejuvenating with Brahma Duplo Malte.

We saw in this carnival too, our innovation strategy at its best. The beyond beer impact during Carnival and the new product that we launched that it was a with the beef franchise. It was amazing to see how it really goes beyond beer. It was really about young population. It was really about women. It was really about — there is a lot of incrementality on that product as we see in the market. And then going to premium, Corona is a brand that we don’t talk that much, because it’s so important jewel that we have in our portfolio that we are really working more on the brand side ahead of the volumes, really connecting the brands with the expiration of the new generation of sustainability of reconnecting with their soul. So we are very excited about Corona.

Corona is performing very well, is gaining a lot of brand equity. And we are really nurturing in a way that it can be the most important premium brand in Brazil.

Carlos Laboy: Thank you.

Operator: Next question comes from with Bank of America. Please go ahead.

Unidentified Analyst: Good afternoon, everyone. Just some clarification on the last question. Jean, you mentioned that there is a lot to do in Chile, there is capacity to unlock there. And we know that the company had to deal with another distribution deal. And I was just trying to understand how much capacity you are adding to the region? And how relevant that distribution channel became for you in the country? And the second question is related to the Tunabe If you could share a bit in terms of the potential cross-sell that you had already with the beer business using BEES and what we can expect for this cross-sell to be going into 2023? Thank you.

Jean Jereissati: Okay. Thank you for the question, Gilliam. So Chile, we ended up the year increasing 30% with our local capacity over there. It was an important expansion in our supply capacity that we had. And this will help us to really unlock value and sustain momentum over there. And for sure, the deal with Andina was we changed levels over there. It’s really, overall, our most important partner over there is our RTM. We still get, we still go direct on supermarkets. So — but they do the logistics. But overall, the traditional trade, the on-premise, so we really go through them. And it’s amazing their execution and their ability, their reach in Chile, so very happy with the deal. We’ve been nurturing the country for a while.

And then we increase the supply capacity that will help us to unlock a lot of value in the country, okay? So this is one thing. The second thing is really — it was a great year for NABs. It was really something that changes our perspective on the possibilities that we have moving forward with NAB. It’s the combination of a stronger-than-ever partnership with PepsiCo. So we really — we are really in a good moment of doing the plan together, both companies betting on Brazil as an important footprint for the growth. And right decisions on the portfolio side. So we increased capacity down here for Gatorade. We launched — we completed our SKUs for Pepsi Black that we didn’t have. Agudos H2O is really on fire flying. So good decisions on the portfolio side, a partnership with PepsiCo is stronger than ever.

And then we have BEES that really unlock it — our capacity and possibilities of reach in connection with our customers. So in the end, in the past, we had a funnel that it was the sales rep that has limited time to talk about our products. Now we have like 25 minutes, more of attention of our customers to our full portfolio. Algorithms that really suggest for customers, so what type of products they want and a lot of attention from customer sites to really solve they are in one platform with BEES. So NPS customer satisfaction going up, usage going up and a total different possibilities that we have to increase in land innovation and have a broader portfolio. So the combination of good portfolio decisions, good partnership with PepsiCo. And BEES, it is really something that made us super confident that this business can be much, much bigger than what we have — than it is today.

Unidentified Analyst: Thank you, Jean.

Operator: Our next question comes from Thiago Callegari with BTG Pactual. Please go ahead.

Thiago Callegari: Hello, Jean. Hello, Lucas. Two questions on my side. The first one on Brazil Beer. When we look at the product mix in Q4, we see premium core growing in the 20s, core plus growing roughly non-consolidated and on Beer that core plus underperformed in the quarter. So I just wanted to understand how do you see the portfolio changing among these categories throughout 2023. And during 2022, if you could also comment how much mix helped to the 12% price gain that are delivered in Brazil Beer? That’s the first one. The second one on CAC. If you could just share more details in terms of the recovery path ahead. So what was already achieved in Q4? And what is to reach the historical volumes and profitability levels that you had there? And so how should we think about the timing for that? So those are the two ones. Thank you.

Jean Jereissati: Okay. So let me get the first one. So it was a very strong year for us in volumes. So in the end, we grew 4% in 2021 in Q4, right, and 3.5% in the full year. And what we are seeing is that in last quarter, there were, an acceleration, on the premium. And our core is very resilient. So these are strong volumes in total, core resilience and then a lot of trade up. And we are seeing the premium very resilient. So when you look in the middle in the core plus. So what we are seeing more and more is that we had a big boom with Brahma Duplo Malte during the pandemic. It was designed for the in-home occasion. And it was designed to rejuvenate Brahma. And as the consumers coming back to the trade, we are seeing the combination of Brahma Duplo Malte and Brahma.

They are very positive. But Brahma Duplo Malte is more helping to rejuvenate the full franchise of Brahma. So we are seeing an interaction over there in Brahma Duplo Malte and Brahma that we are happy that has been very beneficiary for the most important brand that we have in our portfolio. And then we have Spaten that we started really with this mindset of spotting being core plus, plus. But the truth is that Spaten is really moving into the premium segment. So the prices on Spaten, has been very resilient. And as we are still supplying the full market in Brazil, demand is ahead of our supply capabilities. And we are beginning to see. We are seeing more and more during there’s an effect on Q3 and Q4 of Spaten moving ahead of the 130% price index that we have in the market.

So the Spaten is really premiumizing and really going more on the premium basket. This number that I’m giving you, the 25% does not have Spaten. We still are following Brahma Duplo Malte and its pathing together. And they are they were positive this combination during the year. But what we are seeing is that Spaten moved into premium and Brahma Duplo Malte helping to rejuvenate the full franchise of Brahma. And this combination looks as something that has been very, very good for us. We are very, very excited with this move. So somehow, I think is, I will begin to talk moving forward with Spaten more on the premium segment and Brahma Duplo Malte more inside the Brahma family.

Lucas Lira: In terms of CAC, I think two points to consider. I think number one, in Q4, we managed to continue to progress the plan, right, to recover following the stabilization of the supply chain issues, right, glass bottles, imported products that we faced earlier in the year. So we had set out an objective on our part, having stabilized the supply chain to really recover coverage. So availability of the products of the SKUs that were unavailable in the past given the supply chain disruption, right? We set specific targets to improve the level of coverage. And the good news is that in Q4, the level of coverage continued to improve sequentially, okay, from Q3 to Q4. So that’s good news. And the second KPI that we kind of decided to focus on as part of this recovery plan is to track the suggested price to consumer, right, that we work with and the adherence of that by our clients.

And there’s also encouraging news there because from Q3 to Q4, the level of price adherence to our suggested PTC also continued to progress well on a sequential basis, right? And meanwhile, kind of inventories levels have kind of normalized, so there’s less of an issue there, okay? So in the Dominican Republic, I think there’s good progress. And even when you break down volume performance by month, right. We saw already, we had November slightly better than October and December was already much better than November and October. So again, early days. We still have a lot of work to do going into 2023. But I think Q4; the recovery is going as planned. There was the tax settlement one-off that obviously impacted the overall performance, but that’s kind of behind us.

And so the focus in the Dominican Republic is really make sure that the execution in the marketplace and the availability and the health of our brands, right, is progressing, is recovery. And in terms of Panama, Panama, we also had some progress. I would say not as much as in the Dominican Republic, okay? I think Dominican Republic is one step ahead of Panama in terms of recovery. But in Panama, what I would highlight of evolution in Q4 is really the NPS, so Net Promoter Score, our service level to clients from Q3 to Q4 also kind of step change. So that’s important progress. We saw some of that in the Dominican Republic. But NPS was more pronounced the evolution in Panama, just to give you a data point. We went from the low point of NPS of 20% to 57% in Panama, right, during Q4.

So that’s a step in the right direction. We still faced issues in terms of specific channels, particularly in the traditional trade. So our market share there is still kind of below what we would like it to be. So we have to fix the execution of the brands and make the right portfolio bets in terms of resource allocation for our investments. But again, we’re confident in the plan for 2023. And in terms of the time frame for the recovery, it’s hard to give you a specific time frame. But we do see right, 2023 as a year where we can go back to organic EBITDA growth in CAC, right? That’s an important objective of ours. We weren’t happy with the overall performance of the business in 2022. So we need to do a better job in 2023. But Q4 has given us some early signs that gave us confidence for 2023.

Jean Jereissati: Hey, let me just go back. I think you had a second question that I didn’t address. It was more on the rates, on the mix and prices overall. So I would say that somehow of this total net revenue per hectoliter that we had. A big chunk of it, like 75% of it was really rate. And then the rest of it, you should break it down, half of it being mix and mainly brand mix and half of it would be overall margin pool that we have like channels and trade.

Thiago Callegari: That’s very helpful, Jean, Lucas. Thanks so much.

Operator: Our next question comes from Ricardo Alves with Morgan Stanley. Please go ahead.

Ricardo Alves: Hi, Jean, Lucas. Thanks so much for the call. A couple of questions. One for Jean, Brazil Beer. I wanted to talk a little bit more about competition. The 4% volume performance to the point that you made, the company is running at a high level. But back in October, I think that expectations were higher because of the World Cup. So just curious to see what, in your view, held back volumes from going beyond that 4% beyond the weather issue that we already discussed. But did you see any kind of consumer deceleration or perhaps furious the competition, which I wanted to pick your brain zone. And I don’t know, maybe competition directly or maybe one of your two largest competitors may be more aggressive on the own-trade channel.

So just a little bit more color on the competition front? And then the second question, Lucas, if I may, on derivatives. The line in the quarter, if I’m not mistaken, BRL 530 million or so. We thought that that line also based on our last call, thought that because of Argentina and Brazil hedges, we were expecting a higher number. So just wanted you, if you could elaborate a little bit on that, particularly considering Argentina hedging or the carry costs running above 100%. I think that maybe Jean alluded to that, maybe you’re doing less hedges. But I just wanted to have more clarity just to — for the sake of modeling, if we should assume that what we saw in the fourth quarter could be something more consistent for us to model going forward?

Or if there should be a ramp-up on the derivatives line into the first quarter and the first half overall? Thanks again, everybody.

Jean Jereissati: So let me get the first one, Lucas, get the second one. Ricardo, so thank you for the question. So yes, so 4% volumes in Q4, just to remember, so this is — this was ahead of — so Q4, we saw sequentially improvement on market share for us. And in 2022 was a year where we gained market share overall. So 4% were good volumes. I would try to give you my best guess here, okay? And so this is not the perfect numbers, but it’s our best guess. My best guess is that the World Cup drove 1.5% of the volumes in the quarter. So this was — we believe that at some point in time could be better than that. I think we could have 1% more if Brazil went to the finals, but it didn’t, so just talking about Brazil. On the other hand, it was really — we are seeing really the rainy weather in Q4 and a little bit in the beginning of this year.

That could have mitigated like one full point for us in Q4, the weather that we had back there. So this is more or less the numbers that we had for Q4. And we are excited about market share gains. We believe that we can continue to gain market share during 2023. Our plans are really on this direction of gaining market share. There is still a lot of room for Spaten to grow our high-end brands. They are very solid. It was amazing to see in this return, how we regional pick it up. How — Brahma in Brahma franchise overall is doing well and how the core is resilient. So we really believe that somehow we are — we will be continuing to gain market share. And yes, competitors are active. Brazil was always a market that where we have a very strong competitive environment.

But if you look back and you see everything that we did from 2019 to today, it was great. Our company is really on another level in terms of volumes, in terms of market share level. We are very excited about this whole critical mass that we have.

Lucas Lira: Okay. And speaking about the losses on derivative instruments, Rica. When we think of the evolution of that line in 2022, we need to look at both the carry cost for the Brazil for hedging the dollar against the Brazilian real and the carry cost for hedging the Argentinian peso against the U.S. dollar. In Q4, okay, what we saw was in terms of the Brazilian real hedges, we actually didn’t see an increment, because although the exposure was higher in Q4 of 2022 versus Q4 of 2021, the carry cost in Q4 of 2021 was already around 7%, a little over 7%, which was also the case for Q4 of 2022. So the exposure went up, but the carry costs didn’t have a material increase. So net-net, there wasn’t a big impact in the quarter from the carry cost in Brazil, okay?

And in Argentina, in the quarter, what we saw was a higher carry cost. And so if you look at the carry cost from Q4 2021, it was in the 60s, okay. Whereas the hedging — the carry cost for Q4 2022 was around 100% that you mentioned. And since Q3, when the moment we started to see the carry cost, right, go above 100%. It became really prohibitive. So even though, right, we have the policy in place with, on average, 12 months of hedging, in advance with this window, right, 2 months to go longer, 2 months to go shorter, so it’s a 10 to 14-month range. In Argentina’s case, given that the cost became kind of prohibitive in our judgment; we started in Q3 to reduce, right? We reduced the level of hedging that we do until we see the carry cost, right, move away from the prohibitive levels that we witnessed in the second half of the year, okay?

And so what that means for Q4 is that although the carry costs went up, our overall exposure was lower because we started this process of hedging less overall in Argentina according to our — the management of our hedging policy, okay? But for the year, okay, for the year, then, the picture is slightly different, because Argentina was still affected. But in — for the year, Brazil was also a relevant factor because if you take the overall view for the year, the carry cost in Brazil on average jumped from low single digits, around 4% to north of 7% for the year, okay? So that was a bigger impact. If you take the yearly view going forward, we’re still following the hedging policy, right, for currency and commodities. I would say that apart from the views that we’ve taken for the Argentinian pesos.

And Jean alluded to the fact that in addition to this decision around financial hedging, hedging less than in the past. We’re also reviewing right our local sourcing and the terms of that to try and have more of our contracts, right, denominated linked to local currency inflation and not the U.S. dollar. So there’s a work plan to get more operational hedges in place, okay? But going forward, apart from the view on Argentina, right, I think it’s still reasonable to work within our 12 months on average hedging for currencies, for aluminum, for barley and whatnot, okay?

Ricardo Alves: That’s very helpful. Thank you, Jean. Thank you, Lucas as well.

Operator: Our next question comes from Robert Ottenstein with Evercore. Please go ahead.

Robert Ottenstein: Great. Thank you very much. A couple here. You mentioned in the call, I think on the press release, positive brand health metrics in Brazil in beer. Can you — is there any way that you can give us any sort of quantification on that? How it compares to the past, just so that we kind of put more meat on the statement, maybe the particular brands, any order of magnitude, anything around that? And then in a related question, a couple of years ago, you went on a journey of really kind of changing the culture of Ambev. You changed some of the incentive programs, the targets. Perhaps if you can give us an update on those changes and how those have improved your execution, what you’ve liked so far from those changes, what still needs to be done?

Jean Jereissati: Okay. So Robert, talking about brands first, I would mentioned. So we have a metric that we follow of our full portfolio that we ask. So if one of our brands is a brand that the consumers love. So the question is, do you love one of these brands and we put our brands and other brands over there. And we had in Brazil by the end of 2019; 44 million consumers mentioning that one of our brands were a loved brand by them. And we ended up 2022 with 49 million consumers mentioning that one of our brands they is a loved brand by them. So I think this is the magnitude of impact on consumers that our portfolio had in this — before the pandemic and then right now. And this is — the growth is very concentrated in the brands that we decided, that we picked to Ignite.

And the growth is very concentrated on Brahma, with Brahma Duplo Malte, the Brahma franchise, — Corona, Stella and Budweiser, okay? So these are the four, five brands that’s really moving the needle. And now, we are seeing Spaten, really arriving with a lot of power for a first year brand. So this is the type of numbers that I can share with you and moving into culture. So yes, we’ve been working a lot on culture evolution. So like back there in 2019, we had a clear view that our growth metrics had changed for the future. So what we did in the previous 20 years was not the same thing that we should do in the next 20 to be a successful company. So our growth metrics were more on a reconnection with our community and ecosystem. It was really about understanding pain points and innovating customers and consumers and then using this window of opportunity to transform the company into technology.

And then when we look at this, what we needed to do in these 20 years, it was clear for us that our culture has to evolve. We really maintained the roots of a company that has really ambition and dream big. And we have this mindset that this company is owned by the employees. So we really sustained that. But we really brought three new behaviors, values that we are working a lot that is a collaboration that is active listening and a long-term perspective. So these three things are really embedded in the evolution of our culture. We have been measuring this. So in our climate surveys, engagement surveys and we are happy with the progress that we made. You know that culture evolution is a thing that takes time. You have to live every day. I have to really be an example of that.

So we really have to build the habits. But we are very happy with the progress that we’ve been made on that matter.

Robert Ottenstein: Okay. And just a follow-up on the brand health metrics, and that was a great number. Is there any — was that increase more pronounced than any particular part of the country? And does that open up opportunities or suggest opportunities in other regions? And was it relative to any particular demographic?

Jean Jereissati: So what we are seeing that I can’t pinpoint one region specifically. But somehow, so a lot of these efforts, they are coming in the legal drinking age population of 18 to 25. So what we are seeing is that this population, we are really picking up. And we are bringing more women to connect with our brands, too. I think these are two drivers of connection.

Robert Ottenstein: That’s fantastic. Thank you very much.

Operator: Our next question comes from Thiago Bortoluci with Goldman Sachs. Please go ahead.

Thiago Bortoluci: Yes. Hey, Jean. Hey, Lucas. Good afternoon, everyone and thanks for taking my question. I’d like to explore a little bit more the dynamics on cost inflation and pricing, right? So you have this guidance, right? And from my understanding, what I can see in implied curve, it really seems that the cost inflation for Brazil Beer is much more front loaded, right, in the first semester. If this is right, and assuming this is, would it change at all your pricing strategy and the traditional pricing calendar that you’re typically following the year in the sense of eventually you’re trying to anticipate a little bit the pricing to fully offset the inflation already in the beginning of the year. This is the first part of the question.

And the second one, you have still a range, right, of 6% to 10%. So obviously, I understand there’s a bit of volatility and we’ll only know for sure once we go for it. But from the uncovered part of your cash COGS, right, which is currently the largest component that’s yet to be covered. Those are the questions. Thank you very much.

Jean Jereissati: Okay. So thank you. The first question is, so we made the decision to disconnect the pricing actions that we have, the decision, then, disconnect with our costs, right? So I mentioned that right or wrong. So that was the decision to really look into consumer pockets, in brand power, in demand and really made the decisions on pricing more looking to consumers than looking in cyclical effects and calendar effects of costs, and we’re going to maintain that. So we are really making our decision on pricing, understanding disposable income, understanding brand equity, understand consumer demand. And so we will be very consistent on that matter of really maintaining beer included in the basket of our consumers and desired, okay?

So somehow we see the effects of costs in a different calendar, that’s true. But we will not change the way we price because of that. So we have been maintaining that for like 2 years, 2.5 years. And we’re going to continue on that direction. But the good part is that the things are coming together. So we are seeing resilient elasticities and consumer demand of our portfolio. And we are seeing now costs really coming back to some normality to some mean. And this naturally will make us to be in a better position in terms of margins.

Lucas Lira: Okay. And then just to add on the non-commodity inflation, I would highlight a few things here, Thiago. I think one; mix is a factor, right? So depending on how our returnable glass bottle volumes perform versus our can volumes right during the year; that can have an impact, okay? So that something to consider. And in addition to that, if you — there are some of our input costs — the part of the price is linked to the commodity cost, the core commodity like aluminum, right, which follows the LME. But another part of the price equation is linked to local inflation, things like labor. We have fixed industrial costs that also need to be considered. So what we’re seeing in the non-commodity side of the equation in addition to mix is just an escalation, right, overall. With the noncore that’s linked to the commodity itself, and that’s mostly labor and fixed industrial costs, okay?

Thiago Bortoluci: Great, Lucas and Jean. Thank you very much.

Operator: Our next question comes from Felipe Ucros with Scotiabank. Please go ahead.

Felipe Ucros: Thanks, operator. Good morning, Jean, Lucas. Thanks for the space. Maybe a follow-up on BEES. You mentioned that obviously there’s going to be more focus in Canada. And the market is clearly very different, right? You’ve been very focused on BEES in Dominican Republic, Brazil, Argentina. But now this is kind of a market with a very different makeup on the channels. So just wondering how you approach the market differently given that situation. And I also wanted to do another question on the efficiency of selling and marketing expenses. ABI mentioned how that number has been fixed at about BRL 7 billion per year for the last 4 or 5 years, I think they mentioned. But somehow, they’re managing to move up the ranks on all sorts of different awards. So just wondering if you can talk about how that translates and what’s happening at that? Thank you.

Jean Jereissati: Somehow – so first, talking about this. So first of all, we are very excited about BEES. And so, BEES, we talked a lot. We talk a lot about the marketplace and the partnership and the alliances that we are doing with BEES. So we are really increasing our alliances with . Mondelez is really a company that we are collaborating in these. Adonis, there is a water brand in Brazil, PepsiCo. So we talked a lot about the marketplace effect and the ability for us to bring — to really be the connection of suppliers and customers and be in the middle. But – and we are very excited because in Brazil, we are increasing sequentially value on that, revenues that what the margins are getting better, our alliances are getting deeper, customers they like.

But the truth is that so BEES is really a transformational to of our company that it’s the front line of our business. And we have to receive the go-to-market as it is needed and use BEES as the platform that will make us much more productive, more efficient in terms of sales force efficiency, in terms of changing the role of the sales rep to be more of a sales representative that work on pull and not on push. So BEES, we don’t talk that much. But it’s my front line, it’s my new sales force. So having said that, we are really supporting that it’s really participated, be our front line in every place that we are. So we started in Dominican Republic. We came to Brazil. We went to Argentina. Paraguay is really moving. We are implementing in Bolivia and naturally, Canada is coming.

And it’s really about the connection with our customers and the efficiency of our sales force and the ability that we should be more productive in our core businesses. It’s not just about the value that brings from the alliance, but be more efficient on our core. When we talk about sales rep, trucks and deliveries and it will help us across the board on that, and that’s how it’s going to help Canada. Of course, Canada had its particularities. But somehow it is — it will be our company. There will be more productive with BEES.

Lucas Lira: Yes. So just to add specifically on Canada, BEES in Canada, I think a good way to think about it is one of our priorities is to get it right in Quebec, because in Quebec, there, we have a route to market that allows us to go straight to the client. And so that’s an opportunity for us to replicate in Quebec. Many of the learnings we’ve had in terms of implementing BEES in places like Dominican Republic and in Brazil. So I think in Quebec, which is a priority, right? I think the ambition is to make Quebec kind of a benchmark, right, for more developed markets in terms of BEES execution, okay? And then you have the other regions of Canada, where of the route to market is not direct. You go through the beer store in Ontario.

You have the liquor board on the West Coast, in British Columbia. So in those regions, of course, we have to kind of adapt how BEES will be used as a solution. But irrespective of the different route to markets, in Canada, we see an opportunity for BEES to become an industry-leading B2B solution that’s going to kind of bring digital, net revenue and be adopted by the box across the country. And that — and another aspect of Canada no different from other markets is, BEES allows us to not only deliver incremental services to our clients but also bring in other companies as partners for the platform, right? We’re starting to see that happen in Brazil. And we’re starting to see that happening in the Dominican Republic as well. And that’s another opportunity for Canada during the course of 2023 and the years to come.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jean Jereissati for any closing remarks.

Jean Jereissati: So thank you very much. Thank you, everyone, who joined the call, for your time and attention. 2022 was a solid year on the strategic operational cultural and finance sites. Another year of record volumes, with better net revenue per hectoliter performance and double-digit normalized EBITDA growth ahead of what we promised ahead of 2021. Net income also grew double digits. ROIC expanded and economic profit also improved despite the higher cost of capital. And what we see for 2023, our ambitions are top line. Growth remains a key priority with revenue, net revenue performance driven more by net revenue per hectoliter than volumes. On bottom line, H 2022 was better than 2021 and H2 of 2022 was better than H1 of 2022.

We will work to continue to keep it up to 2023 to be better than 2022. Profitability, both in terms of ROIC, as well as margins and free cash flow generation. And although we are expecting a tougher Q1 in terms of mainly of cash COGS given the higher prices on commodity. So really excited, really optimistic about 2023. And thank you very much. See you in May, and have a great day.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.