Welcome to Anheuser-Busch InBev's Third Quarter 2020 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Carlos Brito, Chief Executive Officer; and Mr. Fernando Tennenbaum, Chief Financial Officer.

To access the slides accompanying today's call, please visit AB InBev's website at www.ab.inbev.com and click on the Investors tab and the Reports and Results Center page. Today's webcast will be available for on-demand playback later today. [Operator Instructions].

Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties.

It is possible that AB InBev's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements.

For a discussion of some of the risk and information factors that could affect AB InBev's future results, see risk factors in the company's latest annual report on Form 20-F filed with the Securities and Exchange Commission on the 23rd of March 2020.

AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Carlos Brito. Sir, you may begin..

Thank you, Nicole, and good morning, good afternoon, everyone. Welcome to our third quarter and 9 months 2020 earnings call. I hope you and your families are staying safe and well. First and foremost, I'd like to personally thank all of our colleagues for their ongoing efforts to ensure business continuity and a strong recovery.

The volatility and uncertainty over the past several months have pushed us all to focus on what we stand for and how we can be part of the solution.

For all of us at AB InBev, that means staying true to our purpose of bringing people together for a better world and doing everything we can to ensure the health and well-being of our people, our communities and our customers. The internal role we play in our communities has become especially relevant this year.

We're finding creative ways to leverage our strengths to make a difference. In the U.S., we work with elected officials to produce and donate 8 million ounces of hand sanitizer in 40 states and the District of Columbia in advance of November's general election to foster a safe environment for voters across the country.

Our efforts have only been successful thanks to the rapid mobilization and creativity of our teams. It has been encouraging and humbling to see that these programs are truly making a difference and strengthening our reputation across our stakeholders.

Today, I'll first take you through the results of the third quarter and how the strength of our business and the category in which we operate prepare us for a strong recovery. Next, I'll elaborate on the fundamentals of our innovation strategy and why it has been especially critical for success this year in light of rapidly evolving consumer trends.

I will then hand it over to Fernando to talk about our liability management initiatives and capital allocation priorities. We will then be happy to answer your questions. Let's start with the results and key takeaways from the third quarter.

Our results this quarter reflected both our fundamental strengths of the company and the ongoing resilience of the global beer category. We delivered balanced top line growth with total volume growth of 1.9%. Beer volumes grew by 2.6%, while non-beer volumes declined by 2.5%.

Revenue grew by 4% as volume growth was enhanced by revenue per hectoliter growth of 2.3%, driven by healthy brand mix from premiumization and successful revenue management initiatives, which more than offset changes in channel and packaging mix resulting from COVID-19 restrictions.

Top line growth was offset by higher cost of sales as we rapidly adjusted our supply chain to meet evolving demand, resulting in a slight EBITDA decline of 0.8% with margin contraction of 188 bps to 38.2%. Our normalized EPS decreased to $0.79, while underlying EPS decreased to $0.80.

Our business demonstrated incredible resilience and momentum this quarter in a fast-changing environment. And while we expect our performance in the second half of this year to be better than the first, the environment remains volatile and uncertain, especially as we are seeing renewed restrictions in some markets.

Let me now take you through the key takeaways for our main markets in the third quarter. In the U.S., we delivered strong top and bottom-line results. Our above core portfolio outperformed once again, driving overall market share gains in revenue per hectoliter growth.

This was led by the success of Bud Light Seltzer, the #1 innovation in the country so far this year; and the strength of Michelob Ultra, consistently the fastest share gainer in the beer category, excluding FMBs. Our mainstream portfolio also had an improved performance and gained market share within the mainstream segment.

The strong top line growth, coupled with operational leverage and cost efficiencies, led to EBITDA growth of 7.5% with margin expansion of more than 100 bps. Moving now to Mexico, where we also had a robust performance this quarter. We delivered balanced top line growth and EBITDA growth of high teens with margin expansion.

We outperformed the industry with broad-based gains across our portfolio. We are advancing our commercial expansion due to new channels, opening nearly 200 new Modelorama stores and completing the next phase of our rollout into the largest C-store chain in the country, OXXO.

In Colombia, our performance was adversely impacted by stay-at-home restrictions. Trends throughout the quarter improved as restrictions began to ease, leading to stable year-over-year volumes in September.

We remain focused on growing the beer category and developing the expanding premium segment, where our global brands are leading the way with double-digit growth.

In Brazil, our beer business delivered impressive volume growth of more than 25%, meaningfully outperforming the industry by leveraging the strength of our commercial strategy and our commitment to operational excellence. Our innovation portfolio contributed in a relevant way led by Brahma Duplo Malte.

We're also encouraged by the strength of our consumer demand for beer, with government subsidies helping to support consumer disposable income.

While EBITDA grew by more than 6%, we faced margin compression due to translational - transactional currency headwinds and adverse packaging mix, resulting from the continued growth of 1-way packaging this year, particularly cans.

Additionally, the growth of can volumes has exceeded our expectations, resulting in additional costs related to being under-hedged in key commodities, primarily FX and aluminum. In South Africa, consumer demand remained strong, though our results were significantly impacted by 1-month outright ban on alcohol sales from mid-July to mid-August.

Once the government lifted the ban, we observed robust consumer demand as volumes returned to growth in September. We benefited from a diverse portfolio across various price points and styles, especially as consumers shifted to more affordable brands in bulk returnable packages, benefiting our core brands.

Our bottom line was heavily impacted by operational deleverage from the month-long outright ban, though partially offset by cost-savings initiatives. In China, top and bottom-line growth was driven by continued premiumization as our premium Super Premium brands delivered strong growth.

We grew the most market share among brewers in the increasingly relevant in-home channel, and we are also leading in the growing e-commerce channel with our online beer sales growing double-digits this quarter.

In Europe, we delivered a solid performance with healthy top and bottom-line growth and margin expansion, with our premium brands leading the way. While encouraged by this momentum, we remain cautious as we are now seeing renewed on-premise restrictions across Europe.

Our global brands had a strong performance this quarter, growing ahead of the total business, demonstrating the resilience of the global premiumization trend. Total global brand revenues grew by 6.8% this quarter. Outside of their respective home markets where these brands command a premium price point, revenues grew by more than 8%.

Budweiser grew by more than 8% outside of the U.S. with top line growth contributions led by China, Brazil and the U.K. Stella Artois delivered double-digit growth, inviting consumers across the world to savor the in-home meal occasion.

Corona continued to perform well with revenue growth of 5.3% outside of Mexico, with growth across the majority of its markets. We delivered strong results in a challenging environment, demonstrating the strength of our business in the beer category. Our commercial strategy was successfully executed with a best-in-class brand portfolio.

Our relentless commitment to operational excellence, coupled with our scale and agility, enable us to stand out and strengthen our relationships with our customers. These fundamental advantages of our business led to market share gains in most of our key markets this quarter.

While our strengths give our business a solid foundation, we're not standing still as our consumers continue to evolve rapidly. We're seeing an acceleration in trends such as online B2B platforms, e-commerce and digital marketing.

We have been investing in these capabilities for several years as we advance toward being a truly customer- and consumer-centric organization.

We're digitizing our relationships with our customers through our proprietary B2B platform, BEES, which provides them with convenience, seamless communication, and most importantly, enhanced business performance. We're expanding BEES across our portfolio and seeing rapid and broad-based adoption by our customers.

We're also leveraging technology to offer convenience to our consumers through consistent investments in e-commerce. Consumer usage of our proprietary platforms and our third-party partnerships both dramatically accelerated over the past several months, establishing our e-commerce leadership in key markets.

As consumer behavior quickly evolves, we're finding new ways for our brands to connect with consumers. With our in-house agency, DraftLine, we're delivering consumer-first marketing campaigns with more speed and relevance than ever before.

To better address changing consumer behaviors, it's also critical that we have a diverse portfolio of products that target a variety of consumer needs and occasions. The impressive success of innovations like Brahma Duplo Malte and Bud Light Seltzer this year is a demonstration of our thoughtful and well-designed innovation strategy.

We have been evolving this strategy over time to deliver superior products to consumers with increased speed and agility. This capability has proven especially critical this year as consumers adapt to a rapidly changing environment. Our innovation strategy is rooted in 4 key principles. The first is superiority.

We want to provide superior products to our consumers across key attributes. To ensure superior value proposition, our process involves rigorous benchmarking and consumer testing prior to introduction into the market. The second is sustainability.

We want our portfolio to be aligned with long-term trends so that we go where our consumers are going and maximize our return on investment. Our goal is to ensure our innovations generate year-over-year consistent growth and that we are de-risking uncertainty prior to launch.

That's why seeding and learning is critical to our resource allocation decisions as we aim to prioritize the right projects. Third, scalability. Our aim is to address big consumer pain points and skilled solutions globally to take advantage of our diverse geographic footprint.

We determine minimum thresholds to ensure we're working on impactful projects and we're disciplined about stopping projects that do not meet performance metrics after their first year. And finally, we focus on incrementality. We're developing our portfolio to engage new consumers and tap into new occasions and segments.

Our innovation fundamentals have evolved over time and are categorically focused on the consumer. We continuously engage with our consumers to ensure our portfolio addresses the most structural and unstoppable trends.

In addition, we leverage our category expansion framework to broaden and differentiate our portfolio, aiming to find opportunities to fill the right white spaces. From here, we bring products to life through our dedicated seed and learn approach. This process has evolved dramatically.

It used to take up to 2 years, and now we're driving toward a 100-day concept-to-launch time line across all of our markets. We start with smaller local pilots, which allow us to gain critical learnings quickly by seeing how our product actually performs in market.

This gives us more confidence, but when we do decide to scale our winning innovations, an approach we call prove and move. Our strategy has resulted in a portfolio of differentiated innovations that address common consumer opportunities in growing mega trends like premiumization, health and wellness and purpose-driven brands.

Let me tell you more about 3 successful innovations that address these mega trends. Starting with Bud Light Seltzer. We launched this product in the U.S. in January. Its volume is more than 40% incremental to the beer category and more than 75% incremental to our portfolio.

Bud Light Seltzer is a premium product with 100 calories and less than 1 gram of sugar made with natural fruit flavors. Brahma Duplo Malte is another amazing success story. It delivers a new pure malt experience to consumers by blending Pilsen malt with the Munich malt, which results in a striking flavor profile.

It's off to a strong start and is now the leader of the core plus segment in Brazil after only 5 months. In Ecuador, our local crop innovation, Nuestra Siembra, was developed in partnership with the government. It is supporting and developing thousands of farmers in the country while delivering incremental volume to the category.

We're offering a high-quality local product at an accessible price point to broaden our addressable consumer base. Successes like these are the result of a consumer-centric strategy, which has driven an accelerated innovation performance over the last 3 years. The contribution of our innovations to total revenue is growing meaningfully.

Last year, innovations contributed approximately $5 billion to our global revenue. In addition, our share of innovation has also been gaining momentum in many of our key markets, validating our global approach. In summary, our innovation strategy, rooted in consumer-centricity and agility, positions us well to drive future growth.

It was one of the key drivers of our performance this quarter, and we'll continue to leverage this capability to successfully navigate the volatile environment as consumers adapt to the new reality.

So to wrap up, before I hand over to Fernando, our third quarter results reflect our fundamental strengths as the world's leading brewer and the resilience of the global beer category.

While we expect our performance in the second half of this year to be better than the first, the environment remains volatile and uncertain, especially as some governments are renewing restrictions.

We'll leverage the unrivaled assets of our company, our diverse geographic footprint with access to high-growth regions, our clear commercial strategy, the world's most valuable portfolio of beer brands, industry-leading profitability, and most importantly, our talented team of true owners to continue our momentum in this fast-changing environment.

Now I'd like to hand it over to Fernando.

Fernando?.

Thank you, Brito. Good morning, good afternoon, everyone. I hope you are all safe and well. Before I take you through our recent liability management initiatives and capital allocation priorities, I would like to highlight our company's partnership with the United Nations.

I am proud to represent AB InBev as a founding member of the United Nations Global Compact CFO Taskforce, whose goal is to align corporate investments and finance to the United Nations Sustainable Development Goals or SDGs. The taskforce was launched alongside the United Nations General Assembly in September.

I had the opportunity to speak about AB InBev's approach to sustainable development, highlighting the challenges that are most material to our business and delivering impact at the local level.

Our participation in the taskforce and our broader engagement during the United Nations General Assembly reflects our company's commitment to the SDGs and, more broadly, our commitment to building a better world for our consumers, our customers and our colleagues.

The pillars of our sustainability strategy are centered around water, agriculture, energy and packaging, all of which are fundamental to our day-to-day operations. And that's why we always say that sustainability is not just part of our business. It is our business.

Now let me update you on the recent liability management initiatives we have undertaken. As we disclosed at the end of the second quarter, our total liquidity position as of June 30 amounted to more than $34 billion, consisting of the $9 billion undrawn revolving credit facility or RCF and more than $25 billion of cash.

This liquidity amount was higher than we required to manage our business, even in times of elevated volatility. Therefore, since June 30, we successfully redeemed approximately $11.4 billion of near-term debt through a combination of tender and make-whole exercises in line with our deleveraging commitments.

As you see on Slide 20, our bond maturities are well distributed across the next several years, and recently undertaking redemptions considerably reduced our obligations for the next 5 years, de-risking the front end of our debt profile. As a reminder, we do not have any financial covenants on our entire debt portfolio, including our RCF.

Our bond portfolio remains largely insulated from interest rate volatility as approximately 96% holds a fixed rate. Furthermore, the portfolio is comprised of a diverse mix of currencies, with 56% denominated in U.S. dollars and 34% in euro.

With recent redemptions, we have further extended our weighted average maturity by more than 1 year to roughly 16 years. Finally, we continue to have a very manageable weighted average coupon rate of approximately 4%. I will now take you through our capital allocation priorities.

The first priority for the use of cash is to invest behind our brands and to take full advantage of the organic growth opportunities in our business. Second, deleveraging to around a 2x net debt-to-EBITDA ratio remains our commitment, and we will prioritize debt repayment in order to meet this objective.

Third, with respect to M&A, we will always be ready to look at opportunities when and if they arise, subject to our strict financial discipline and deleveraging commitments. Our fourth priority is returning excess cash to shareholders in the form of dividends and/or share buybacks.

In line with this long-standing capital allocation priorities, our Board determined that it would be prudent and in the best interest of the company to forgo the 2020 interim dividend payment. While our business is delivering improving results, we continue to face uncertainty and volatility in light of the COVID-19 pandemic.

This decision is consistent with our financial discipline and prioritizes our deleveraging commitments, which has been impacted by the COVID-19 pandemic. The Board's proposal with respect to a full year 2020 dividend will be announced before our full year 2020 results on February 25, 2021. The organic growth of our business.

Our teams have shown incredible agility this year, significantly reducing discretionary expenses during the elevated volatility of the first half of the year, but then pivoting quickly to invest as the environment began to improve.

We will continue to manage our capital with a long-term mindset, managing our resources effectively to drive future growth. And with that, I will hand back to Nicole to begin the Q&A session. Thank you..

[Operator Instructions]. Our first question will come from the line of Edward Mundy with Jefferies..

I've got one question, one follow-up. Just on innovation, Brito. I think I'm just - you haven't really talked about room for the introduction of another core plus brand.

Can you talk about the health of your innovation pipeline globally and how you balance complexity of innovation around - and also margins? And then the second question is on - you pointed to some of the new capabilities on Slide 10 and highlight - you recently revisited your 10 principles, with a new principle around serving and partnering with customers.

Can you provide a few concrete examples of what customers like about the new BEES platform and how it gives you better access to consumers? I just wanted to provide an update on the rollout so far.

And what does the pipeline look like with regards to the rollout across the wider market?.

Sure, Ed.

Just so to make sure I understand, your first question was about any specific market in terms of innovation or just in general?.

In general, innovation pipeline globally..

Okay. Well, so in terms of innovation, this quarter, we decided to make it a bit more transparent. The way we have been evolving and the way our innovation process is rooted on a couple of key principles like superiority, sustainability, scalability and incrementality.

Given our global footprint, scalability is very key because we want to focus on things and put our resources behind things that can be big and can be scalable and can travel to different markets. Of course, the number one idea on innovation will always be to be consumer-centric.

So we strive to have very good insights better than others so we can route our innovations on pain points that are out there for consumers and customers as opposed to solutions in search of a problem. So we try first to see if there's a problem. We try to see if there is something that has a good market fit, and that's why we do pilots.

And then we kill things that don't work and we invest behind those that have the potential and that are also aligned with long-term trends. We try to avoid things that are there just for one season. We're trying to invest in things that are there for the long term and that are also incremental to the category and to our business.

So those are the things. In terms of complexity, with technology, it is true that today - there are 2 things. First, consumers expect more assortment, a richer assortment from companies. And that's why the category expansion framework helps us identify occasions, needs and pair our portfolio today and future portfolio to those needs.

But also with technology, we can manage a more complex supply chain because we have more information, data points, and it's clear for us to see what's working, what's not working. And we have a discipline of also killing things that are not working to also avoid that complexity. We try to stay with good complexity, complexity that creates value.

So in terms of your second question, in terms of BEES, we've been investing now for 5 years on digitizing the relationship we have with customers and also consumers, customers being our - the first one we started.

And what's good for customers in BEES is that they're not relying on the sales rep visit because sometimes the sales rep will come and they are not present. They are in the bank or solving something or buying something for their business in the supermarket, so they miss that visit.

Also, they don't want to be dependent on the phone call from our telesales representatives. They like to be independent. And today, everybody has apps for everything they do in their lives.

So with the BEES app, they have access not only to ordering, a system that they can order products independently whenever it fits better their schedule, but they also have a single place, a one-stop shop for all our new products, promotions, availability of products, time of delivery and much more things that we continue to add to the platform.

So what used to be a pipeline where our products would go and cash would come back, now it's beginning to be more and more a platform where we can offer not only our products, other products in a marketplace format, but also a digital wallet and other services. So it's something - it's very promising.

And the adoption during COVID escalated or grew big time. So we're very happy with the B2B. And again, the number of users increased nearly by 40% just in this last quarter. Thank you..

And which market is it in so far? And how do you see that sort of progressing across the wider business?.

Yes. We expanded first throughout the Americas. That's our first, let's say, set of countries. But it's a global project, and we have dates in the next year or 2 for all markets pretty much..

The next question will come from the line of Trevor Stirling with Bernstein..

Brito and Fernando, two questions from my side, too, please. Brazil had spectacular performance in the quarter. I mean 25% volume growth in the year is remarkable.

Can you just talk us a little bit about the factors that lay behind that? And in particular then, how many of those factors do you think persist into Q4 and beyond? The second question is in the U.S. Again, I'm just trying to scratch my head to remember the last time you gained share in the U.S. And I think it was 8 years ago in 4Q '12.

So could you just, again, talk a little bit about what lies behind that slow but steady improving share trends? And is that something you're expecting to continue into the next quarters as well?.

Trevor, so in terms of Brazil, I mean, we have, as I said, an amazing volume performance ahead of 24%, 25% volume growth this quarter, so meaningfully outperforming the industry and, for sure, gaining share. What's behind that? A couple of things. First, the acceleration of our innovations.

So going back to the question right before this one about the innovation process, so in Brazil, things that used to take 2 years to go to market, now it takes 100 days. That was case with Brahma Duplo Malte and Skol Puro Malte. So those are 2 things that were really key. The other thing is the resilience of our core brands.

During COVID, as it happened all over the world, consumers went back to trusted brands, the brands they know, they like, they are used to. And our core had a very good performance in the second - towards the end of the second quarter, but also the third quarter.

Also, the premium portfolio continued to grow double-digits, and that has been also - and our global brands are leading the way. And I think, Trevor, the whole thing about our operational excellence that we always pride ourselves on was very much in vogue this quarter.

Because with all the lockdowns and everything, the way we were nimble and agile to adapt to a new way of working with our retailers and the needs of our consumers.

For example, Zé Delivery, our courier platform to deliver beer in 40 minutes cold to your doorstep, grew a lot because of the conditions in which consumers were subjected to with the stay-at-home orders. And now this service is now present in all 27 Brazilian states, and the number of orders are escalating very fast month after month after month.

So I think all this is something that played in our favor here to support this 25% volume growth that had also a share component to it. So I think our strategy is working well, operational efficiency, the scale we have in the country, the brands we have. And most of all, the people we have.

Our people in Brazil are used to the kind of tough situations that a pandemic or a situation like a pandemic could face - that we could face, and that triggers lots of changes. But again, let's be realistic here. We're not out of the woods yet regarding the pandemic.

So we'll continue to be very vigilant and alert because things, as you see in Europe now, continues to go back and forth. In terms of the U.S., I think what's more important than gaining share this quarter, Trevor, is the trend of the last few quarters.

I think we have in our strategy for 3 years that has been consistent, that's firing in all cylinders. And as we get more and more of our volume in segments that are growing, that's the reason why we see our share, that was negative, became less negative to flat last quarter and now to a positive.

So I think the trend is more reassuring than one quarter because one quarter doesn't tell the whole story, but I think this trend is rooted on a strategy that's working. You have Michelob Ultra. You have - that's the fastest share-gainer in the beer space without FMBs in the U.S.

You have Bud Light Seltzer, the number one innovation in the market, including FMBs as well, launched in January. And we also have improved trends in our mainstream brands. So I think - and we also leave growth in the category in terms of - including FMBs, AB was the one that had the highest share of innovation this quarter again.

So I think all those things are contributing. Let's remember that when we got here 10 years ago, all our brands were seeing segments that in the first few years were all declining segments like light beer and so many other segments, value brands and all that.

Now we have a lot of our actions in segments that are growing like craft specialties, like the seltzer segment, like the Michelob Ultra segment. So I think we're beginning to see that a lot of our portfolio is more pointed towards segments that are growing, and that's what you see in the overall mix..

Our next question will come from the line of Olivier Nicolai with Goldman Sachs..

Brito, Fernando, just one question and then one follow-up. Just on the first question is on hard seltzer. So you're gaining share in the U.S. It fits very well in your portfolio for products that you launched only in January. I'm referring to Bud Light Seltzer, for instance.

Now we've seen your competitors in both beer and also soft drinks launching brands outside of the U.S. What are your views on the potential for the category outside of the U.S.? I'm thinking particularly about Brazil, Mexico or even Europe. And can we talk about your strategy on this? And then just to follow up on the Slide, I think, 21.

Your weighted average maturity is now 16 years. This has increased by about 1/3 compared to the 12 years only a couple of years ago.

Going forward, will you seek to extend this maturity further? Or can we consider that the main objective could be to reduce your average coupon rate, which is 4% today?.

So Olivier, for the second one, Fernando will take this one about the maturity.

Your first question, just to make sure I got it right, is about seltzer expanding outside of the U.S., right?.

Yes, exactly. How you see it..

Yes, yes. So what we see is that trends that are set in the U.S., they tend to travel well. And that's no different with seltzer, we believe. So now, seltzer in Canada is already a reality. We have very strong brands in seltzer in Canada.

We have, for example, in Canada, 2 of the top 3 fastest-growing families or brands in seltzer in Canada are ours, Nutrl being the biggest one, most successful. We're also piloting additional hard seltzers in other markets like the U.K., where we launched Mike's Hard Seltzer.

Of course, it's still early days, but it's one of the leading brands in a nascent segment. We also went to China with Mike's Seltzer, the first hard seltzer in China, with zero sugar, low ABV, 0 fat and low calories.

So we're beginning to see that, yes, there is a nascent consumer need and occasion that seltzer is fit to, and that we're using our global footprint to expand things we learn across markets to other markets. So yes, seltzer will be no different. Thank you..

And Olivier, on your second question on our debt maturity profile, even before all the initiatives we have done this year, we have already a very healthy debt maturity profile with very long weighted average maturity. Given all the volatility and uncertainty arising from COVID, our strategy was much more of de-risking the front end.

So we had to eliminate any meaningful maturities on the next 4, 5 years. And that cut with the liquidity ensures that we have a very, very healthy risk profile. So that was the main objective rather than gaining one extra year of weighted average maturities.

And now going forward, given that we have a fixed rate in pretty much 95%, 96% of our debt, I don't feel that the average coupon is going to change in a meaningful way, but the focus, which is one of our priorities when we lay our priority number two, is to reduce leverage and go towards a 2x net debt-to-EBITDA.

So the focus going forward should continue to reduce the quantum of debt more than any liability management to extend maturities or to tackle the coupon..

Our next question will come from the line of Sanjeet Aujla with Crédit Suisse..

Brito, Fernando, a couple of questions from me, please. Firstly, you talked a lot about the resilience of the beer category.

Can you just elaborate on how you think the category is performing versus wine and spirits, particularly in your emerging markets? And then my second question is one thing we're noticing is as the on-trade reopens, the off-trade is not really slowing.

Are you noticing that? Are you noticing permanent changes in consumer behavior, people drinking on more occasions? Any thoughts around that would be insightful..

Well, I think - I'll go for the second question first. I think it's too early to talk about the on-trade, off-trade and how it's going to play back and forth because the on-trade, yes, it has reopened in many markets, but now in Europe, we see it going back.

Also when the on-trade reopened, there were still restrictions in terms of capacity and hours of operation.

So I think it's too early to say how - when the on-trade is fully back to 100% operation, what consumers will do in terms of how they split their occasion between in-home and out-of-home, which will have an impact on on-trade and off-trade volumes. What we saw is that the off-trade was able to pick up volume from the on-trade in all markets.

And what we saw is that what was really worse for our business was the stay-at-home restrictions because if it was about the on-trade being shut down or restricted, consumers could find a way. If it was about - you cannot leave your home, then that's the restriction that really affected us most.

In terms of the first one, I mean, beer has proven once again to be very resilient. It's also true that beer is moving to new occasions. For example, we see that meals at home, since people are not going to restaurants, they're having more meals with family and maybe a small group of friends at home.

Beer is beginning to penetrate in an occasion that was more a wine occasion. This also - we can see that beer is rising in terms of frequency and penetration, so people are drinking in a more moderate way but more frequently. And there's also a shift, of course, clearly, to a new home channel with the rise of e-commerce.

And we're investing behind our brands. And we tend to lead e-commerce in most countries that are relevant. In China, for example, we have more than double the share of the second brewer in the e-commerce channel. I mentioned China because it's the most developed e-commerce channel in general for beer as well.

And we're very agile to shift resources where consumers are going. The mantra here in the company for many years has been we go where consumers go because that's where growth is. And with the dislocations that took place with COVID, we had to be very agile. First, stopping some expenses and investments that were discretionary.

And as we saw consumers going here and there, we relocate those investments to support growth of channels and brands that were going - that were growing. And again, just one last point.

The fact that we're a global company and the fact that the pandemic hit China and South Korea first, for us, it was a very good learning because we saw what consumers, retailers, governments were doing, and channels, how they were shifting. And we were more prepared when it came to Europe, Americas and Africa in this order..

The next question will come from the line of Tristan Van Strien..

Fernando and Brito, I just want to follow up on Trevor's questions, both on Brazil and the U.S. Just on Brazil, we've got - normally, Carnival is a very big moment for you. It looks like it's going to be canceled this year.

So just how should we think about that in the coming months? And what are you doing to mitigate that likely event not happening? And then second, on the U.S., obviously, a very strong commercial strategy put in place a few years ago.

But I guess from the outside, it also looks like you've made quite a bit of managerial changes and the way you manage that business, much more regional empowerment, a distributor tier that is much happier than they used to be. So maybe if you can maybe talk about those changes.

And also, when you look at the success that you're having in the U.S., what can you apply more globally from what you've learned in that market?.

Well, firstly, I think both Brazil and the U.S. have very strong leaders, so that has been very important. And that's - a lot of the growth in Brazil has been that we were very agile in responding to new consumer environment, the same in the U.S. So I think those leadership decisions make a big difference.

In terms of Carnival, I think like everything during COVID, it happened that - with consumer trends, right? I mean, what's happening with COVID is that there was an increase in in-home consumption.

So that's clear, that's pretty much everywhere, right? There were more occasions like relaxing at home, smaller groups, watching TV, live streaming of music, art, sports. People couldn't go to venues, but they could be at home as sports came back.

Consumers are also buying more locally and from small off-trade and mom-and-pop stores, so that also forces us to change a little bit the way we service the market. Core and core plus brands also showing more resilience, which consumers are going back to more brands that they trust, know, are used to, and big packs.

That was very important for core brands in most markets and core plus. And everything is going digital. Everything is going digital, orders, entertainment. You look at Zé Delivery in Brazil now covering the whole country. And cans has become, at least during COVID in most markets, the convenient pack of choice.

And what we've seen on the other hand also is that consumers have adapted very quickly. So when sports were not available, consumers found ways to entertain themselves. And we'll continue to navigate this current uncertainty. And we'll see what happens in Brazil with Carnival.

Yes, it's true that Carnival is a very important moment of consumption, but let's not forget that Carnival is also part of a broader consumption moment, which is summer and holidays. Its clues are out. So I mean, Carnival adds to this whole thing, but if you start adding the layers, it's about summer. It's about vacation.

Schools are out, so families travel, take time off and you have Carnival on top. But I mean, Carnival is not the only thing that is important for that occasion. In the U.S., I agree with you. I think we have the strategy, but we also have more regional strategies, regional colors to what we do.

So sometimes, we have - in some of the dimensions, we have a general direction that's national, but then we adapt a little bit on the edges to regional particularities. And the wholesalers are very involved in the planning process. So they own the plan. They have skin in the game.

And that's why I think the system is working as one as opposed to us and done. So that's, again, merit of the leadership of both U.S. and Brazil for having such amazing performances. Thank you, Tristan..

Our next question will come from the line of Simon Hales with Citi..

A couple for me as well, please. Brito, I appreciate your consumer-centric strategy. And the category management framework strategy is really starting to deliver consistent share improvement in a market like Brazil, and we've seen that come through this quarter.

I just wonder whether you could help us maybe understand what's happening in the total beer market. You referenced the Corona voucher payments and the government support we've seen in that market. I know it's difficult to get a handle on how much of a benefit that's perhaps given or that's supported beer uptake.

But I wonder whether you could say whether you've seen a slowdown, perhaps in overall Brazilian volumes as we've come through September and those government support payments have actually halved.

Is there anything to help us with that underlying run rate, please? And secondly, I suppose since we last got to speak on one of these calls with you, it's been reported that you might be planning to step down at some point next year. I just wonder whether you could comment on that and confirm if that is the case, please..

Well, Simon, the first one in terms of consumer-centricity, you're right. That's something that - again, as I was saying, the mantra is we go where consumers go because that's where growth is. And so that has been at the core of everything we do, and that starts with having good insights and placing bets on winning horses.

I think in terms of Brazil in September, yes, the government aid was halved, but we haven't seen any decrease in our - in demand because of that.

So again, I agree that government aid is an important component on consumer purchasing power in places like Brazil and U.S., but again - but people are locked down and sometimes they cannot even go to work, and hospitality is totally affected.

So I think post-COVID, when these government aids are going to be gone but when people can go back to their works, we'll see what happens. But we'll see what the net will be, but what we can say thus far is that these aids have been, of course, part of the demand creation. But I think there's more than that.

I think innovation has also been a key driver in both Brazil and the U.S. as we were just talking to Tristan about it. So in terms of me, I mean, these rumors that have been out there. We don't comment on rumors. As you know, we've always taken these damn rumors every day.

What I can tell you, Simon, is that I'm going to be doing this kind of calls with you and our colleagues here for many quarters to come, so not to worry. Thank you for your question..

Our next question will come from the line of Pinar Ergun with Morgan Stanley..

Brito, Fernando, I have a follow-up to Simon's question, but a broader one. How much of the group Q3 performance comes from factors that are unlikely to repeat to the same extent in the coming quarters? And a quick follow-on, would you expect to be able to fully mitigate the headwinds from transactional FX and the rising U.S.

freight costs in the coming quarters?.

Okay. So the second one, Fernando will talk about it. I'll talk about the first one. I mean our Q3 was based on a couple of things. First, we had a commercial strategy that was executed, and it was nimble enough to adapt to where consumers are going, but I think some innovations are key to our performance.

If you look at, again, the couple of questions about Brazil and U.S., innovation played a key role, like Brahma Duplo Malte, Bud Light Seltzer. So both of them, the number one innovation in those respective markets.

And that came from this innovative - or this innovation process that we just displayed in more detail, depicted in more detail this quarter because it became very central to how we operate. So I think it's a big thing.

And this will continue because as consumers determine or define what the new normal will be, our process in being very fast to market once we have an insight, will continue to deliver on new things and try to resolve consumer pain points for new occasions. So I think this is something that's here to stay.

I think our commitment to operational excellence and agility that drove market share gains in many of our key markets are also part of our DNA.

So the only thing that's changed here is that we're using more technology to be more - to be closer to consumers and retailers so we spot things that are happening with them early on in the process, and we play to the big unstoppable trends of convenience, health and wellness, purpose-driven brands and premiumization.

So I think those are trends that we're very much in tune with. And local crops, for example, that are now more and more present in many markets throughout Latin America and Africa is something that talk about purpose-driven brands at an accessible price. So that's very important.

And the other one is the confidence and the resilience of our business in the global beer category. I mean if you look at the year-to-date, Pinar, we suffered as a category, as an industry. I mean we had a very tough first quarter, second quarter. So we're not winners in this pandemic.

On the other hand, what we see is that when consumers can have more of a normal life, then the category comes back. So when consumers are locked down, then we have a very tough time. So again, it's a resilient category, and we are - we have the scale. And more importantly, we have the global footprint.

So what we learned about the pandemic and what was happening in China, that was instrumental for us to be ahead of the curve in Europe, Americas and Africa. And maybe that's one of the reasons why we performed better share-wise because we knew what to expect in terms of consumers, channels and dislocations that would happen in the overall business.

On the other hand, while we expect that the second half of this year will be better than the first, the environment remains very volatile and uncertain, especially as we see now increased on-premise restrictions in several markets like Europe.

So I think those are things that are - there are some things that are here to stay, but those restrictions that were relaxed during the third quarter, they couldn't come back at any minute like we see now in Europe, right? But we continue to focus on the things we have under our control like efficiency and being very effective in resource allocation.

Thank you..

Pinar, Fernando here. On your second question, it's correct. Next year, you're going to face some pressures - FX pressure, especially Brazil and, to a lesser extent, Mexico and Colombia. But our view is that we have our hedging policies, which give us time to react and work on initiatives to mitigate or to try to offset this impact.

Of course, given the magnitude, you're not going to be able to offset all of that. So we're going to have some margin pressures next year.

But if you take a step back and take a broader look, with the sort of industry-leading margins that we have, we have enough flexibility to weather short-term volatility without having to make short-term decisions that may be negative to the business or maybe negative to, of course, our consumers and customers.

So we never lose sight of the long-term growth of the business. So as Brito mentioned, we are going to continue to focus on efficiently and effectively investing resources behind opportunities for organic growth, always subject to the financial discipline.

So - and on the other hand, you have trends like premiumization, which is growing in all of our markets. And they should continue to support margins even in this more challenging environment. So overall, margins are, for sure, is very important, but they are only one metric by which we measure performance.

At the end of the day, we'll always be aiming to bring, more than anything else, incremental dollars to the company..

The next question comes from the line of James Jones with RBC..

Brito and Fernando, I presume you were both - you both participate in the Board's discussions around passing the dividend.

Obviously, you said nothing about your thoughts for the full year, but could you give us a bit more color on the thought process the Board went through?.

James, Fernando here. I believe it's fair to say that, as Brito mentioned, that our business is delivering improving results, and we get a stronger third quarter, but the world is still uncertain and volatile given the COVID-19 pandemic.

So with that background, we thought it would be prudent and in the best interest of the company to forego the 2020 interim dividend payments. But no decision has been taken so far on the full 2020. We have dividend and we will announce what is this final 2020 dividend in February 25, 2021.

And another important thing to highlight is we finished last year at a 4x net debt-to-EBITDA. And we were - we started the year on track to finish this year with a number starting from 3. COVID put some pressure on these plans and probably we took a step back because COVID.

So in this context, we believe it's the right decision to forgo the 2020 dividend to ensure that we are still on track on our long-term objective to get towards 2x net debt-to-EBITDA..

Our last question will come from the line of Robert Ottenstein with Evercore ISI..

Two kind of follow-up questions.

First, it would appear, looking at some of the results not just this year but also last year, that you're taking a somewhat commercial - more commercially assertive strategy, not just in terms of innovation, which is very clear and has been successful, but also perhaps pivoting slightly at the margin away from driving and leading price increases to a more balanced approach, looking at maybe value share and volume share just as much.

So I'm just wondering, is that - am I reading that correctly? And do you think that, that - or do you see that continuing? And then the second question, kind of going back to the digital initiatives.

Really terrific that, in this time, the COVID period, that you're able to continue to invest in technology and the long-term kind of infrastructure for success, so to speak.

In terms of the benefits that you see from that, do you think it's going to be more in terms of the top line or in terms of operating leverage?.

through DraftLine by being more - by being closer to them in terms of the messaging and dialogue with them through DraftLine in social media, and be very quick to participate in any dialogue or events that's happening with our brands, having an opinion in not all events, but the events that have to build our brands; and also getting physically close to them in terms of delivery to the consumer to their doorsteps of cold beer in 40 minutes.

So what happened is that early investments have now proven to be the right decision and COVID accelerated trends that were already there. They now are very obvious and adoption much faster. Thank you..

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

Yes. Thank you, Nicole. I'd like to close by saying thank you. Thank you to everyone on the frontlines for their commitment to keeping us safe. And thank you to our teams around the world. You inspire me every day. And I'm so proud to be your colleague and your partner. Thank you for joining the call today, all of you. We hope all of you stay safe and well.

And we hope to celebrate the strong recovery over a beer soon. Thank you. Have a great day. Bye..

This does conclude today's earnings conference call and webcast. Please disconnect your lines, and have a wonderful day..